Case Law Details
Audco India Limited Vs. CIT (ITAT Mumbai)- Both the conditions as mentioned in clause (a) and (b) of the third proviso to section 80HHC(3) are required to be satisfied for allowing deduction under section 80HHC in respect of DEPB income in cases where the turnover exceeds Rs. 10 crores.
In this case the assessee could not produce any evidence before AO or CIT to show that the assessee had satisfied both the conditions nor any such evidence had been produced before us. Before the AO the assessee admitted that the conditions were not satisfied and therefore AO was not required to allow the claim because amended provisions were applicable at the time of passing the order of AO. This is not a case of taking one of the possible views and therefore the judgements relied upon by the Learned AR are not applicable. This is a case of taking incorrect view and allowing the claim incorrectly which has caused prejudice to the interest of revenue. The Learned AR fairly conceded that the assessee had no case on merit and the claim is not admissible to it in view of the judgement of Honourable High Court of Mumbai in case of Kalpataru Colours Ltd (supra). Therefore in our view the order passed by the AO was erroneous and prejudicial. We therefore see no infirmity in the order of CIT directing the AO to withdraw the claim.
M/s. Audco India Limited Vs. The Commissioner of Income Tax (2)
Income Tax Appellate Tribunal, Mumbai
ITA No. 5992/M/2006
Assessment Year 2003- 04
ORDER
PER RAJENDRA SINGH (AM)
This appeal by the assessee is directed against the order dated 18.9.2006 of CIT(A) for the assessment year 2003-04. The assessee in this appeal, in addition to challenging the jurisdiction of the CIT under section 263 of the Income-tax Act has also disputed the merit of the order holding that the assessee was not entitled for deduction under section 80HHC in respect of DEPB income.
2. Briefly stated the facts of the case are that the assessee who was engaged in the manufacture of industrial valves and oil field equipment had claimed deduction under section 80HHC to the tune of Rs.8,57,72,621/- which also included deduction in respect of DEPB income. The claim of deduction in respect of DEPB income was allowed by the AO in the assessment order dated 21.2.2006 made under section 143(3) of the Income-tax Act. Subsequently CIT on perusal of records noted that the turnover of the assessee was more than Rs.10 crores and therefore in view of the provisions of third proviso to section 80HHC(3) the assessee was entitled to deduction under section 80HHC in respect of DEPB income only if the following two conditions were satisfied:
(a) He had an option to chose either the duty drawback or the duty entitlement pass book scheme being duty remission scheme; and
(b) The rate of drawback credit attributable to the custom duty was higher than the rate of credit allowable under the duty entitlement passbook scheme, being duty remission scheme.
3. The CIT observed that it was clear from the letter dated 13.02.2006 of the assessee addressed to the AO in which it was mentioned that the assessee had no option to chose either the duty drawback or the duty entitlement passbook scheme. The last page of the letter clearly mentioned as under :
“As per Para 4.3.5 of the scheme, the exports made under the DEPB Scheme shall not be entitled for drawback.”
4. The CIT therefore issued show-cause notice to the assessee asking the assessee to explain as to why the assessment order should not be modified holding the same erroneous and prejudicial to the interest of revenue. The assessee submitted that in terms of the scheme once an exporter chose one scheme it became automatically ineligible to opt for other duty exemptions/ remission scheme. The assessee also submitted that the basic export document for claiming any post export incentive was the original “export promotion copy of shipping bills” (EPSB) based on which one could avail any of the benefits such as DEPB or DFRC or advance license or duty drawback. The assessee enclosed ARE-1 form which was meant for giving option for choosing scheme to show that the assessee had fulfilled the said conditions. It was accordingly urged that the claim should be allowed. CTI however did not accept the contention raised. It was observed by him that para 4.3.5 of DEPB scheme clearly stated that normally export made under DEPB shall not be entitled for duty drawback. The assessee produced no material to prove that he had option to choose either the duty drawback scheme or the duty entitlement passbook scheme. The copy of ARE-1 form could not be considered as evidence. He accordingly held that the assessee was not entitled to deduction under section 80HHC in respect of DEPB income amounting to Rs.1,16,88,869/-. CIT therefore directed the AO to withdraw the deduction aggrieved by which the assessee is in appeal before the tribunal.
5. Before us the Learned AR for the assessee submitted that the AO had allowed the scheme of deduction under section 80HHC in relation to DEPB income after necessary examination and application of mind. He referred to letter dated 13.2.2006 of the assessee addressed to the AO in which the assessee had explained the legal provisions relating to allow ability of deduction under section 80HHC in respect of DEPB income. The assessee had given all details and issue had been examined by the AO. The AO had taken one of the possible views after necessary examination and therefore assessment order could not be considered as erroneous and prejudicial to the interest of revenue. The Learned AR placed reliance on the judgement of Honourable High Court of Mumbai in case of CIT Vs Design & Automation Engineers (Bombay) (P.) Ltd. (177 Taxman 9) and on the judgement of Honourable Supreme Court in case of Max India (292 ITR 282). The Learned AR however admitted that, on merit, the issue was covered against the assessee in view of the judgement of Honourable High Court of Mumbai in case of Kalpataru Colours and Chemicals Ltd. (328 ITR 45). The Learned DR on the other hand argued that the assessee in the letter dated 13.2.2006 to the AO clearly admitted that one of the conditions was not satisfied and therefore decision of the AO to allow the deduction was clearly erroneous and prejudicial to the interest of revenue. The order under section 263 was therefore justified.
6. We have perused the records and considered the rival contentions carefully. The dispute is regarding the jurisdiction of CIT under section 263 of the Income-tax Act. Under the said section the CIT had power to modify an assessment passed by the AO in case he finds the same as erroneous and prejudicial to the interest of revenue. The assessee in this case had claimed deduction under section 80HHC in respect of DEPB income. There is no dispute that the turnover of the assessee exceeded Rs.10 crores and therefore in view of the provisions of the third proviso to section 80HHC(3) the assessee could be eligible for deduction under section 80HHC in respect of DEPB income only if the two conditions mentioned therein were satisfied. It appears that the AO had raised query in relation to allow ability of deduction under section 80HHC in respect of DEPB income as is clear from the letter dated 13.02.2006 addressed to the AO in which the assessee had explained the relevant provisions of section 80HHC under which deduction could be allowed. The assessee in the said letter clearly mentioned that as per paragraph 4.3.5 of the scheme the exports made under the DEPB scheme shall not be entitled for drawback. Therefore the first condition that the assessee should have an option to chose either the duty drawback or DEPB scheme was not satisfied. In fact both the conditions as mentioned in clause (a) and (b) of the third proviso to section 80HHC(3) are required to be satisfied for allowing deduction under section 80HHC in respect of DEPB income in cases where the turnover exceeds Rs.10 crores. In this case the assessee could not produce any evidence before AO or CIT to show that the assessee had satisfied both the conditions nor any such evidence had been produced before us. Before the AO the assessee admitted that the conditions were not satisfied and therefore AO was not required to allow the claim because amended provisions were applicable at the time of passing the order of AO. This is not a case of taking one of the possible views and therefore the judgements relied upon by the Learned AR are not applicable. This is a case of taking incorrect view and allowing the claim incorrectly which has caused prejudice to the interest of revenue. The Learned AR fairly conceded that the assessee had no case on merit and the claim is not admissible to it in view of the judgement of Honourable High Court of Mumbai in case of Kalpataru Colours Ltd (supra). Therefore in our view the order passed by the AO was erroneous and prejudicial. We therefore see no infirmity in the order of CIT directing the AO to withdraw the claim. The order is accordingly upheld.
7. In the result the appeal of the assessee is dismissed.
The decision was pronounced in the open court on 23.12.2010.
