SOUTHERN CASHEW EXPORTERS Vs. DY. CIT

JUDGEMENT

(1.) THE assessee is in appeal before us against the orders of the Tribunal for the asst. yrs. 2002 -03 and 2003 -04. The appellant/assessee is an exporter of cashew kernels and the assessments for the respective years were completed by accepting the returns under section 143(1) of the IT Act, 1961 (hereinafter called the Act). Subsequently noticing that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Act, notice was issued under section 148. The issue that arose was regarding the deduction claimed while computing the deduction under section 80HHC more specifically the deduction claimed with respect to the profit on sale of Duty Entitlement Pass Book (hereinafter referred to as DEPB). The assessing authority found that pursuant to the amendment brought in, in the year 2005 every assessee having turnover exceeding Rs. 10 crores, for claiming entitlement of profits on sale of DEPB under section 80HHC has to satisfy two conditions regarding availability of an option to choose either duty drawback or DEPB scheme and also that the duty drawback credit was higher than that available under DEPB. Exporters of cashew having no such option and the assessee having failed to produce any evidence, the claim made by the assessee was disallowed. Before the first appellate authority the assessee raised three specific grounds with respect to the disallowance of the claim under section 80HHC. The first ground was on the reopening of the assessment under section 147 alleging there was no material to invoke the provision. The next ground was regarding the reopening of the assessment on the ground of retrospective amendment of section 80HHC, since according to the, assessee no retrospective amendment could have been made to withdraw the exemption or concessions already granted. The last ground was that the AO was wrong in excluding the entire sale value of the DEPB licence for computing the deduction under section 80HHC. The assessee relied on a decision of the Special Bench of the Tribunal, Mumbai in Topman Exports v. ITO ITA No. 5769/Mum/2006 dt. 11th Aug., 2009 to advance his contentions. The first ground was rejected by the first appellate authority holding that the reopening under section 147 was done based on the retrospective amendment and was within the prescribed time limit and hence is valid. The first appellate authority, in any event could not have considered the validity of the retrospective amendment. The ground regarding the inclusion of the entire sale value was considered on facts and it was held that the income from DEPB is accounted by the appellant only at the time of actual sale of DEPB licence.

(2.) THE assessee was then before the Tribunal and the appeal was rejected by a short order produced as Annex. C. We find from the order that the issue raised by the assessee and considered by the Tribunal was only with respect to the reopening of the assessment under section 147. Whether the AO was entitled to withdraw the deduction in respect of DEPB incentive on the basis of the subsequent amendment. The Tribunal held that since in a similar situation the jurisdictional High Curt has upheld the order of the AO under section 154, there is no infirmity in the action taken under section 147. The assessee does not challenge the said finding in the instant appeal. The present appeal has been filed raising the following question of law:

(3.) THE Supreme Court decision referred to by the assessee is reported in Topman Exports v. CIT : (2012) 342 ITR 49 SC and affirms the Special Bench decision cited supra. The issue that arose in the said case was whether on sale of DEPB the entire sale value could be treated as profit arising on transfer of DEPB for the purpose of cl. (iiid) of section 28. The argument before the Supreme Court was that in such circumstance there will be double taxation on the assessee since under cl. (iiib) of section 28 the cash assistance, equivalent to the face value of the DEPB would be taxed and the same again subjected to tax for a second time as profit on transfer of DEPB under cl. (iiid) of section 28. What is to be taken for the purpose of cl. (iiid) of section 28, according to the assessees before the Supreme Court, was the difference between the sale proceeds and the face value of DEPB. The Special Bench of the Tribunal at Mumbai held that the cost of acquiring DEPB is not nil because the person acquires, it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against export has a cost element attached to it. The Supreme Court affirmed this view. When DEPB is sold by a person, hence, his profit on transfer of DEPB would be the sale value of the DEPB, less the face value. In addition to the fact that the question of law framed by the assessee does not arise from the order of the Tribunal, we notice that the first appellate authority has clearly held in its order that the assessee has not accounted the income from the DEPB in any previous year and the same is accounted only at the time of actual sale of the DEPB licence. The issue based on the Supreme Court decision would be the bifurcation of face value of DEPB and the profits derived from sale of DEPB under sub -sections (iiib) and (iiid) of section 28 of the Act. This issue was not raised before the Tribunal or considered by the Tribunal in the order which is appealed herein.