PAL ENTERPRISES Vs. CIT

JUDGEMENT

(1.) HAVING heard counsel for the parties, we frame the following substantial question of law:

(2.) THE appellant-assessee is a partnership firm engaged in the business of manufacture and export of leather garments. During the assessment year in question i.e. 2002-03, it had earned incentive i.e. duty drawback of RS.9,77,618/- and credit under Duty Entitlement Pass Book Scheme (DEPB) of RS.5,72,00,818/- totaling RS.5,81,77,436/- on the exports made by them.

(3.) THE return filed by the assessee was not taken for scrutiny and was processed u/s 143(1) and accordingly, the claim under Section 80HHC was allowed. THEreafter, vide notice dated 25.03.2009 under Section 148 of the Act, the assessment was taken up for scrutiny and an assessment order was passed. THE Assessing Officer treated the gross amount of DEPB (i.e. premium received on transfer plus the credit to the DEPB) as profit of business under Clause (iiid) of Section 28 of the Act and excluded the same from eligible profits. He held that there was loss after deducting 100% of these receipts from the eligible profits. He further held that the assessee did not satisfy the two conditions prescribed in the Corrected vide order dated 9th May, 2012 third proviso to Section 80HHC (3) of the Act, which it was required to, because its turnover exceeded Rs.10 crore.