Commissioner of Income Tax vs F.C. Sondhi and Co. P. Ltd.

Adarsh Kumar Goel J.—The Revenue has preferred this appeal u/s 260A of the income tax Act, 1961 (in short ""the Act"") against the order

dated September 23, 2009 of the income tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as ""the ITAT"") passed in I.T.A. No.

124(ASR)/2009 for the assessment year 2003-04, proposing to raise the following substantial questions of law:

I. Whether on the facts and circumstances of the case the income tax Appellate Tribunal was right in law in not holding that the total sale

consideration inclusive of the face value of DEPB and premium amount received thereof represents profit chargeable under sections 28(iiid) and

28(iiie) of the income tax Act, 1961?

II. Whether on the facts and circumstances of the case the income tax Appellate Tribunal was right in law in not holding that the profit on transfer

of DEPB entitlement represents the entire amount inclusive of premium of sale of such DEPB?

III. Whether on the facts and circumstances of the case the income tax Appellate Tribunal was right in law in holding that the word ''profit'' referred

to in Section 28(iiid) and 28(iiie) of the income tax Act, 1961 means the difference between the sale price of DEPB and the face value of DEPB

ignoring the fact that the entire amount represents the profit in the hands of the Assessee?

IV. Whether on the facts and circumstances of the case the income tax Appellate Tribunal was right in law in deducting the face value of DEPB

from sale price of DEPB for calculating profit u/s 28(iiid) and 28(iiie) of the income tax Act, 1961 as if the face value is the cost incurred by the

Assessee to acquire the DEPB?

V. Whether on the facts and circumstances of the case the income tax Appellate Tribunal was right in law in holding that the word ''profit'' referred

to in sections 28(iiid) and 28(iiie) of the income tax Act, 1961 requires any artificial cost to be interpolated to the extent that the face value of

DEPB/DFRC should be deducted from the sale proceeds for the purpose of determination of deduction u/s 80HHC of the income tax Act, 1961?

The Assessee is an exporter and while claiming deduction u/s 80HHC of the Act, the Assessee did not include the entire income from Duty

Drawback (DBK), Duty Entitlement Pass Book (DEPB) and Duty Free Remission Scheme (DFRC) which was business income under Sections

28(iiid) and 28(iiie). The Assessing Officer made calculation after treating the said amount as business income. On appeal, the said view was

upheld but on further appeal to the income tax Appellate Tribunal, following the judgment of the Special Bench (2010) 124 ITD 1 , income tax

Appellate Tribunal, Mumbai, the view of the Assessee was upheld.

We have heard learned Counsel for the parties.

Learned Counsel for the Appellant states that the view taken by the income tax Appellate Tribunal, Mumbai was reversed by the Bombay High

Court in Commissioner of Income Tax Vs. Kalpataru Colours and Chemicals, .

Learned Counsel for the Assessee does not dispute the fact that the view taken by the income tax Appellate Tribunal, Mumbai which has been

followed by the income tax Appellate Tribunal in the present case has since been reversed by the Bombay High Court.

After hearing learned Counsel for the parties, we are in agreement with the view taken by the Bombay High Court and are of the view that the

income from DBK, DEPB and DFRC has to be treated as business income and has to be taken into account for deduction u/s 80HHC. The

questions proposed are answered accordingly and the matter is remanded to the income tax Appellate Tribunal for fresh decision in accordance

with law.

Parties may appear before the Tribunal for further proceedings on December 20, 2010.