DEPB credit face value upheld for 80HHC deduction, Supreme Court ruling followed

Case Name**: TRB EXPORTS PVT. LIMITED VS CIT-II

**Key Takeaways**:

1. DEPB credits have a face value and shouldn't be fully counted as profit for 80HHC deductions.

2. The High Court emphasized following Supreme Court precedents over lower court decisions.

3. This ruling could significantly impact how export incentives are treated for tax purposes.

**Issue**: 

The main question here is: Should the entire amount received from transferring DEPB credits be considered when calculating profits for deduction under Section 80HHC (of Income Tax Act, 1961)?

**Facts**:

Alright, so here's the deal. TRB Exports Pvt. Limited (our taxpayer friend) got some DEPB credits as an export incentive. When they transferred these credits, the tax folks wanted to count all the money they got as profit. The company said, "Hold up, that's not fair!" This disagreement went through the usual tax appeal process and ended up at the High Court. 

**Arguments**:

The taxpayer's side was like, "Hey, these DEPB credits have a face value. You can't just count all the money we got from transferring them as profit!" 

The tax department, on the other hand, was probably arguing, "Nope, it's all profit, and we're gonna tax it all under Section 80HHC (of Income Tax Act, 1961)."

**Key Legal Precedents**:

Here's where it gets interesting. The High Court looked at two super important cases:

1. M/s Topman Exports v. Commissioner of Income tax, Mumbai, (2012) 3 SCC 593 - This is the big one from the Supreme Court that laid down the law on this issue.

2. M/s Turbo Impex v. Commissioner of Income Tax II, Ludhiana (ITA No.361 of 2011, decided on 20.3.2012) - This was another High Court case that followed the Supreme Court's decision.

The court was like, "We've got to follow what the Supreme Court said in the Topman Exports case." 

**Judgement**:

So, drum roll please... The High Court allowed the appeal! They said, "We're going to follow what the Supreme Court said in the Topman Exports case." They set aside the ITAT's order and told the Assessing Officer to recalculate the deduction under Section 80HHC (of Income Tax Act, 1961), keeping in mind what the Supreme Court said. 

**FAQs**:

1. Q: What's a DEPB credit anyway?

  A: It's an export incentive given to exporters based on the FOB (Free On Board) value of their exports.

2. Q: Why is this ruling important?

  A: It affects how export incentives are taxed, potentially allowing exporters to claim higher deductions.

3. Q: Does this mean the taxpayer won't pay any tax on DEPB transfers?

  A: Not exactly. They'll still pay tax, but the calculation will be more favorable to them.

4. Q: Is this the final word on the matter?

  A: For now, yes. Unless the tax department appeals to the Supreme Court and gets a different ruling.

5. Q: How does this affect other exporters?

  A: It's good news! Other exporters can now cite this case when dealing with similar tax issues.

1. This order shall dispose of ITA Nos.25 and 26 of 2012 as learned counsel for the parties are agreed that common questions of law and facts are involved in both the appeals.

2. The assessee has preferred ITA No.25 of 2012 under section 260A (of Income Tax Act, 1961) (in short, “the Act) against the order dated 30.9.2011, Annexure A.6 passed by the Income Tax Appellate Tribunal, Chandigarh Bench (for brevity, “the Tribunal”) in ITA No.813/Chd/2011 for the assessment year 2001-02, claiming following substantial questions of law:-

i) Whether ITAT was justified in dismissing the appeal of the appellant and thereby reversing its own earlier order by following the judgment of Special Bench of Mumbai ITAT in the case of M/s Topman by blindly following and confirming the judgment of Hon'ble Bombay High Court by holding that DEPB credit being an export incentive received by the assessee in proportion to the FOB value of its export has no face value and the amount received in entirety on its transfer is to be considered while computing the profits allowable for deduction under Section 80HHC (of Income Tax Act, 1961)?

ii) Whether ITAT was justified in dismissing the appeal of the appellant by following the judgment of Hon'ble Bombay High Court in CIT v. Kalpataru whereas the decision in CIT v. Kalpataru being of non jurisdictional High Court was not applicable/binding on the Chandigarh not being judgment of the jurisdictional High Court?

iii)Whether ITAT was justified in dismissing the appeal of the appellant without considering that DEPB has a cost in view of the ratio laid down by the Apex Court in Yasha Overseas v. CST & Others?

iv)Alternatively, whether the ITAT Chandigarh was justified in concurring with the findings of Hon'ble Bombay High Court that the entirety of the sale consideration of DEPB falls within the purview of section 28(iiid) (of Income Tax Act, 1961) there being no face value of DEPB to be reduced from the total sale consideration for arriving at the profits on the transfer of DEPB?

v) Whether the orders of the Tribunal are legally unsustainable and bad in law and perverse?

3. Notice of motion. Ms. Savita Saxena, Standing counsel for the revenue-respondent, who is present in the Court, accepts notice.

4. In view of consensus between the parties, the appeals are taken up for final disposal today itself.

5. Learned counsel for the parties are agreed that the present appeals are squarely covered by judgment of this court in the case of M/s Turbo Impex v. Commissioner of Income Tax II, Ludhiana (ITA No.361 of 2011, decided on 20.3.2012) wherein a bunch of appeals in the light of the principles enunciated by the Apex court in the case of M/s Topman Exports v. Commissioner of Income tax, Mumbai, (2012) 3 SCC 593 have been allowed.

6. Accordingly, the present appeals are also allowed in terms of the judgment of the Apex court in the case of M/s Topman Exports (supra).

The impugned order passed by the Tribunal dated 30.9.2011, Annexure A.6 in both the cases is set aside. The matter is remanded back to the Assessing Officer with a direction to compute the deduction under Section 80HHC (of Income Tax Act, 1961) in accordance with law and in the light of judgment of the Hon'ble Apex Court in the case of M/s Topman Exports (supra).

(Ajay Kumar Mittal)

Judge

May 01, 2012 (Gurmeet Singh Sandhawalia)

Judge