2007 (7) TMI 338 - AT - Income Tax

Tribunal Upholds Deduction Recalculation u/s 80HHC; Sets Aside Interest Levies Due to Retrospective Amendment.

The Tribunal dismissed the appeal for the assessment year 2001-02, upholding the recomputation of the deduction under Section 80HHC, requiring the entire ... Computation of deduction u/s 80HHC - Excluded the entire amount realised on transfer of DEPB/DFRC while computing the 'profits of business' for the deduction u/s 80HHC - expenditure incurred for the purpose of its export business - HELD THAT:- As rightly contended by the learned CIT-DR, the import duty paid on inputs by the assessee company was an expenditure incurred for the purpose of its export business and the same cannot be said to be incurred for earning the benefit of DEPB. The benefit available to the assessee under DEPB scheme was incidental to its export business inasmuch as the same was given to encourage the exports and the assessee was entitled to avail the same only as a result of export. The said benefit thus was not made available to the assessee as a result of payment of import duty on inputs, but the same was available as a result of export subject to certain conditions. No doubt, the quantification of such benefit was linked to or based on the payment of duty on corresponding inputs inasmuch as an attempt was made to neutralize the incidence of the said duty so that the exporter can export the goods at prices which are competitive in the international market. However, such quantification will not make the import duty paid by the assessee on inputs to be an expenditure incurred by the assessee for earning the benefit under DEPB. As observed, the said duty represents expenditure incurred by the assessee company wholly and exclusively for the purpose of its export business and the same cannot be deducted from the sale proceeds of DEPB to arrive at the profit as contemplated u/s 28(iiid). We, therefore, find no merits in the contention raised by the learned counsel for the assessee in this regard and rejecting the same, we uphold the impugned order of the learned CIT(A) confirming the order of the AO recomputing/restricting the claim of the assessee for deduction u/s 80HHC. Now, we shall take up the assessee's appeal for AY 2003-04. Interest levied u/s 234B and 234D - HELD THAT:- In our opinion, the said expression any fresh demand used in the Board's circular does not necessarily mean a revised demand raised against the assessee as a result of reassessment or revision of income already assessed as sought to be contended by the learned CIT-DR. Moreover, the intention of the CBDT behind issuing the said circular apparently was to mitigate the rigours of the application of the relevant amendments made by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1st April, 1998 in certain cases like the one in hand and such beneficial circular providing remedy for the genuine hardship being caused to the assessees as a result of the said retrospective amendments made in the statute, in our opinion, has to be construed in a reasonable and purposive manner so as to advance the objective of the remedy provided therein. We are, therefore, of the view that the case of the assessee was squarely covered by the aforesaid circular issued by the CBDT and the AO was not justified in charging interest under ss. 234B and 234D ignoring the benefits given to the assessee by the said circular which was binding on him. In that view of the matter, we set aside the impugned order of the learned CIT(A) on this issue and direct the AO to cancel the interest charged under ss. 234B and 234D. In the result, the appeal of the assessee for AY 2001-02 is dismissed whereas the appeal of the assessee for AY 2003-04 is partly allowed. Issues Involved:1. Computation of deduction under Section 80HHC for the assessment year 2001-02.2. Computation of deduction under Section 80HHC for the assessment year 2003-04.3. Levy of interest under Sections 234B and 234D for the assessment year 2003-04.Detailed Analysis:1. Computation of Deduction under Section 80HHC for the Assessment Year 2001-02:- The core issue revolves around whether the entire amount realized on the transfer of DEPB/DFRC should be excluded while computing the 'profits of business' as per Explanation (baa) to Section 80HHC read with Sections 28(iiid) and 28(iiie) of the Income Tax Act, or only the profit on such transfer.- The assessee, engaged in the export business, claimed a deduction under Section 80HHC, which was initially accepted. However, during reassessment, the AO recomputed the deduction by excluding 90% of the amount realized from the sale of DEPB, citing the second proviso to Section 80HHC(3) as amended by the 2005 Act with retrospective effect.- The assessee argued that only the profit on the transfer of DEPB should be excluded, not the entire amount realized. The CIT(A) upheld the AO's recomputation.- The Tribunal analyzed the contention that only the profit on transfer should be excluded and found it untenable. It noted that the assessee followed the mercantile system of accounting and had shown the entire amount as income in its P&L account. Therefore, the entire amount realized and receivable had to be considered for exclusion.- The Tribunal also rejected the argument that the import duty paid should be deducted from the sale proceeds of DEPB to compute the profit, stating that the duty was an expenditure for the export business, not for earning the DEPB benefit.2. Computation of Deduction under Section 80HHC for the Assessment Year 2003-04:- The issue was similar to the one for the assessment year 2001-02. The Tribunal followed its decision for the earlier year and upheld the CIT(A)'s order, dismissing the assessee's appeal.3. Levy of Interest under Sections 234B and 234D for the Assessment Year 2003-04:- The assessee challenged the levy of interest under Sections 234B and 234D, citing CBDT Circular No. 2 of 2006, which provided that no interest should be charged on fresh demands raised due to retrospective amendments by the Taxation Laws (Amendment) Act, 2005.- The Tribunal agreed with the assessee, stating that the demand raised was consequent to the retrospective amendment and thus covered by the CBDT circular. It directed the AO to cancel the interest charged under Sections 234B and 234D.Conclusion:- The appeal for the assessment year 2001-02 was dismissed, upholding the recomputation of deduction under Section 80HHC.- The appeal for the assessment year 2003-04 was partly allowed, with the computation of deduction under Section 80HHC upheld but the levy of interest under Sections 234B and 234D set aside.