Case Law Details
S. 80HHC; in favor of taxpayer: Post the amendment by Taxation Law Amendment Act, 2005 (effective from 1 April 1998), controversy had arisen as to whether in case of an exporter having export turnover of more than INR100 million (where generally conditions mentioned in section 80HHC cannot be satisfied), the entire sale proceeds of DEPB need to be excluded while calculating the deduction under Section 80HHC or only profit on transfer of DEPB should be excluded.
To deal with this controversial issue, a Special Bench was constituted in Mumbai in case of M/s. Topman Exports on following question : “Whether the entire amount received on sale of DEPB entitlements represents profit chargeable under section 28 (i id) of the Income Tax Act or the profit referred to therein requires any artificial cost to be interpolated?”
The order has been pronounced by the ITAT. The following are the important conclusions of the Honorable Special Bench:
1. DEPB is after export incentive and its objective is to counterbalance the effect of custom duty included in the cost of purchases, incurred directly or indirectly by the exporter. It cannot be seen as an incentive detached from the cost of goods purchased. However, to compute deduction under Section 80HHC same should not be reduced from cost of purchases but has to be considered as separate species of”business income.”
2. The Taxpayer is entitled to DEPB at the time of filing of application for such incentive (after exports). Thus, the time of accrual of DEPB is the date when application for DEPB is filed with the concerned authority and face value of DEPB will have to be recognized as income at that point of time.
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