Aamir Khatri Vs DCIT (ITAT Mumbai)
The appeal concerned the tax treatment of DEPB licence income while estimating gross profit for Assessment Year 2012–13 and the validity of revisionary action under section 263 of the Income-tax Act, 1961. The assessee’s original assessment under section 143(3) involved estimation of gross profit at 1% of turnover after excluding DEPB sales, resulting in an addition of ₹18.87 lakh. Subsequently, the Principal Commissioner invoked section 263, holding that DEPB income was not part of turnover and that the Assessing Officer had incorrectly granted credit of gross profit by including DEPB sales. This led to a revised assessment under section 143(3) read with section 263 and a substantial addition of ₹2.55 crore, which was upheld by the first appellate authority with partial relief.
Before the Tribunal, the assessee contended that DEPB income was an operating income intrinsically linked to export activity and that section 263 was wrongly invoked to substitute the Assessing Officer’s view. Reliance was placed on judicial precedents, including Supreme Court rulings and co-ordinate bench decisions, recognizing DEPB as business income arising from export operations. The Revenue argued that DEPB was a separate incentive income and not part of operating turnover.
The Tribunal found that the original assessment was completed after due consideration and that the revisionary action was based merely on a different opinion regarding DEPB treatment. It held that DEPB income is directly connected with export business and forms part of operating income. Accordingly, exclusion of DEPB from turnover and separate taxation while estimating gross profit was held to be unjustified. The Tribunal deleted the addition of ₹2.55 crore and allowed the assessee’s appeal.
