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For s. 80HHC r.w.s 28(iiid), only DEPB ‘profits’ to be reduced / added & not sale value
Expl. (baa) to S. 80HHC defines the term “profits of the business” to mean the profits under the head “profits and gains” as reduced by 90% of the sum referred to in s. 28 (iiid). The 2nd & 3rd Provisos to s. 80HHC (3) provide that the profits computed there under shall be increased by the said 90% amount computed in the proportion of export turnover to total turnover. S. 28 (iiid) refers to “any profit on the transfer of the Duty Entitlement Pass Book Scheme (‘DEPB’)”. The Special Bench had to consider whether the entire amount received on sale of DEPB entitlements represents ‘profits’ chargeable u/s 28 (iiid) or the profit referred to therein requires any artificial cost to be imputed. HELD deciding in favour of the assessee:
(i) The argument of the Revenue that DEPB is a post export event and has no relation with the purchase of goods cannot be accepted. There is a direct relation between DEPB and the customs duty paid on the purchases. For practical purposes, DEPB is a reimbursement of the cost of purchase to the extent of customs duty;
(ii) The DEPB benefit (face value) accrues and becomes assessable to tax when the application for DEPB is filed with the concerned authority. Subsequent events such as sale of DEPB or making imports for self consumption etc are irrelevant for determining the accrual of the income on account of DEPB;
(iii) Though s. 28 (iiib) refers to a “cash assistance against exports”, it is wide enough to cover the face value of the DEPB benefit;
(iv) S. 28 (iiid) which refers to the “profits on transfer of the DEPB” obviously refers only to the “profit” element and not the gross sale proceeds of the DEPB. If the Revenue’s argument that the sale proceeds should be considered is accepted there would be absurdity because the face value of the DEPB will then get assessed in the year of receipt of the DEPB and also in the year of its transfer;
(v) Consequently, only the “profit” (i.e. the sale value less the face value) is required to be considered for purposes of s. 80HHC.
Related Judgements
- Glenmark Laboratory vs. DCIT (ITAT Mumbai)
For purposes of s. 80HHC, the direct cost attributable to the earning of the DEPB license (equal to the value of the license on the date of receipt) has to be reduced from the direct cost of trading goods on the basis that the license is a reimbursement of…
- ACIT vs. Prakash I. Shah (ITAT Mumbai) (Special Bench)
However, where such gain relates to exports made in an earlier year, the deuction u/s 80HHC is allowable only in the year in which the exports are made and not in the year of realisation of the gain.
- ITO vs. Daga Capital (ITAT Mumbai – Special Bench) (1.7MB)
The words “in relation to” in s. 14A encompass not only the direct expense but also the indirect expense which has any relation to the exempt income. The argument that the words contemplate a “direct and immediate connection” between the expenditure and the exempt income cannot be accepted. Accordingly,…
