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 amount realized from DEPB/DFRC transfers to be excluded from business profits. For the assessment year 2003-04, the Tribunal upheld the recomputation of the deduction under Section 80HHC, consistent with the previous year's decision. However, it set aside the levy of interest under Sections 234B and 234D, agreeing with the assessee that the interest should not apply due to the retrospective amendment and in accordance with CBDT Circular No. 2 of 2006.

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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.

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