Arvind Mills Ltd.,, Ahmedabad vs Department Of Income Tax

ी जी.डी.अ वाल,उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य के सम । BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And SHRI KUL BHARAT, JUDICIAL MEMBER

1. आयकर अपील सं./I.T.A.No.673/Ahd/2011 - A.Y. 2004-05 2. आयकर अपील सं./I.T.A. No.269/Ahd/2011 - A.Y. 2004-05 1. Arvind Mills Ltd. 1. ACIT Naroda Road Circle-1 Ahmedabad Ahmedabad बनाम/ Vs. 2. ACIT 2. Arvind Mills Ltd. Circle-1,Ahmedabad Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. AABCA 2398 D (अपीलाथ( /Appellants) .. ()*यथ( / Respondents)

Assessee by : Shri S.N. Soparkar with Shri P.M. Mehta, ARs Revenue by : Shri Rahul Kumar, Sr.DR

ु वाई क- तार.ख / सन Date of Hearing 01/07/2015 घोषणा क- तार.ख /Date of Pronounce ment 23/07/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These cross-appeals by the Assessee and the Revenue are directed against the common order of the Ld.Commissioner of Income Tax(Appeals)-VI, Ahmedabad ('CIT(A)' in short) dated 14/12/2010 pertaining to Assessment Year (AY) 2004-05. These cross-appeals were ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -2-

heard together and are being disposed of by way of this consolidated order for the sake of convenience.

2. First, we take up the Assessee's appeal in ITA No.673/Ahd/2011 for AY 2004-05. The assessee has raised the following grounds of appeal:-

1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in rejecting the claim of the assessee that the reassessment proceedings carried out in accordance with section 147 of the Income Tax Act.

2. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in restricting the relief u/s.80HHC, while computing book profit, merely for the reason that the assessment reopened u/s.147 cannot result into excess relief, when he himself has accepted that the assessee is entitled to get higher relief, on the basis of the decision of Supreme Court in case of CIT v. Ajanta Pharma Ltd. dated 9th September, 2010.

3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.

3. Briefly stated facts are that the case of the assessee was reopened and the reassessment u/s.143(3) r.w.s.147 of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 30/12/2008, thereby the Assessing Officer (AO in short) held that since the amount deductible u/s.80HHC of the Act is NIL, no deduction u/s.80HHC is admissible to the assessee for the year under consideration. Against the said assessment order, the assessee filed an appeal before the ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -3-

ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. Against the order of the ld.CIT(A), now both the Assessee and the Revenue are in cross-appeals before us.

4. At the outset, ld.counsel for the assessee submitted that before the ld.CIT(A) a specific ground was raised with regard to validity of reopening of the assessment by way of ground No.1. The ld.counsel for the assessee submitted that the ground No.1 is dismissed by the ld.CIT(A) treating the same as general in nature. He submitted that the issue of jurisdiction goes to very root of the matter, same cannot be left unadjudicated terming the same as general in nature. He submitted that the ld.CIT(A) ought to have adjudicated the issue. He submitted that reopening is based solely on the change of opinion and placed reliance on the judgement of Hon'ble Jurisdictional High Court rendered in the case of P.V. Doshi vs. CIT reported at (1978)113 ITR 22 (Guj.). He submitted that the reasons for reopening the assessment are on the basis that the book profit u/s.115JB, net profit reduced by Rs.783.75 lacs for, deduction u/s.80HHC was incorrect as (i) deduction u/s.80HHC was calculated on the basis of book profit instead of on profit (ii) deduction u/s.80HHC was not allowable as under normal provision after setting off lease unabsorbed depreciation and brought forward loss income reduced to nil. While calculating the book profit, the deduction u/s.80HHC was made first instead of setting off least unabsorbed depreciation and ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -4-

brought forward loss (as per books of accounts). The assessee had reduced the aggregate unabsorbed depreciation and business loss of Rs.29611.36 lacs instead of year-wise of Rs.25502.72 lacs. Rs.9066.49 lacs already set off in AY 2003-04 was not taken into account. This resulted in excess carried forward loss of Rs.4892.35 lacs. The ld.counsel for the assessee submitted that the reopening of the assessment is made purely on the basis of change of opinion which is not permissible under law. He drew out attention towards original assessment order dated 29/12/2006. He submitted that the AO has devoted substantial pages on the issue of deduction u/s.80HHC and book-profit. He submitted that the AO also made adjustment. Therefore, he submitted that it cannot be said that the details were not before the AO and the AO has not applied his mind. Under these facts, he submitted that the reopening of the assessment is contrary to the law as laid down by the Hon'ble Jurisdictional High Court rendered in the case of P.V.Doshi vs. CIT report at (1978) 113 ITR 22 (Guj.). He also placed reliance on the judgement of Hon'ble Gujarat High Court in the case of Vishwanath Engineer vs. ACIT reported at (2012) 21 txmann.com 5 (Guj.).

4.1. On the contrary, ld.Sr.DR supported the order of the AO and submitted that there is no illegality in rejecting the ground No.1 of the appeal.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -5-

5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. As per Form No.35, ground No.1 raised in the assessee's appeal reads as under:-

1. In law and in the facts and circumstances of the appellant's case, the impugned reassessment order is void and deserves to be cancelled. Inter alia, for the reason that it has been passed without jurisdiction.

5.1. However, the ld.CIT(A) has dismissed the ground by observing as under:-

"2. The ground No.1 is general in nature and therefore not required to be adjudicated."

5.2. It is a settled position of law that whenever a question of jurisdiction is raised, the same is required to be adjudicated and cannot be termed as general in nature. From the records, ex-facie it is transpired that the ld.CIT(A) has failed to adjudicate the ground raised by the assessee. It is admitted fact that the assessee had raised a ground against validity of reassessment. The ground so raised was not decided by the ld.CIT(A). The assessee has placed material before this Tribunal which was available before the ld.CIT(A). It is settled position of law that if the material that was available with the AO and the ld.CIT(A), is also before the Tribunal, in that event, it is the duty of the Tribunal to decide the issue raised in appeal without restoring to lower authorities for adjudication.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -6-

5.3. Therefore, respectfully following the ratio laid down in the judgement(s) of the Hon'ble High Court of Gujarat in the case of Rajesh Babubhai Damania vs. ITO reported at (2012)122 Taxman 614 (Guj.) and of the Hon'ble High Court of Madras in the case of Ramgosri Constructions (P.)Ltd. vs. ITO, we proceed to decide this issue. We find that in the original assessment order placed at page Nos.90 to 108 of the paper-book, the AO in para-5 of its order decided this issue of deduction u/s.80HHC of the Act. For the sake of clarity, the finding of the AO is reproduced hereinbelow:-

"5. Deduction u/s.80HHC of the Act.

It is noticed that the assessee company had computed deduction under section 80HHC by taking book profit as profit of the business instead of considering business income for the same relying on the decision of the Hyderabad ITAT in case of Starchik Specialties Ltd. V DCIT 90 ITD 34 and the Kerala High court Decision in the case of CIT V GTN Textiles Limited 248 ITR 372.

5.1 On this issue, the assessee company during the course of discussion explained that for MAT computation under section 115JB, section 80HHC relief quantum should be based on "Book profit" of the company and. clause (iv) of the Explanation to section 115JB by applying methodology contained in section 80HHC(3) to such book profit figure. It also submitted that though the judgment of Kerala High Court was rendered in the context of interpretation of section 115J should apply as equally to section 115JB also as there are no essential distinction between the phrase "computed in the manner specified in section 80HHC(3)" which appeared in section 115JA as compared to the phrase "computed under section 80HHC(3) as appearing in section 115JB. The decision of GTN Textiles Limited also cannot be distinguished on the ground of change in language. The assessee company also relied on CBDT Circular no. 55.9 and 680.

The claim of deduction under section 80HHC was examined in detail from all above angels. The similar claim was also made in the immediately preceding assessment year which was found in order after detail examination. Therefore following the ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -7- assessment order for immediately preceding assessment year, for MAT computation under section 115JB, contention of the assessee company are accepted and for section 80HHC relief quantum is allowed based on book profit of the assessee company.

5.2 The assessee company in its letter dated 23.5.2005 stated that while passing the assessment order, the whole of the export profit shall be reduced from the book profit and not to restrict amount of deduction to the extent of 30% profit as provided in subsection (1B) of section 80HHC of the I.T. Act. The contention of the assessee company are examined in detail herein below:

On the point whether the assess.ee company should compute the relief under section 80HHC without giving effect to section 80HHC.(1B) of the I.T. Act. The assessee company in this connection during the course of discussion, submitted that section 80HHC (1B) is the condition controlling quantum of deduction. Since computation under section 115JB is on a different basis of book profit, the aspect of quantification of deduction should have no impact on reduction contemplated by section 115JB. The assessee company further relied on the CBDTs view in circular no.680 dated 21.2.1994 that only-the manner of computation as given in section 80HHC is to be imported in section 115JB. and therefore the restriction as prescribed in section 80HHC does not apply while deducting the export profit under section 115 JB of the Act, It also argued that the circumstances that section 80HHC continues on the statutes book and the circumstances that clause (iv) of Explanation to section 115JB does still continue to bear reference to section 80HHC can be definitely a favourable factor for an assessee. The assess.ee company in this regard also heavily relied on the Finance Minister's speech introducing the finance bill wherein the Finance Minister had stated that exporters would continue to enjoy exemption from MAT till the full phase out. During the course of the assessment proceedings, the authorized representative of the assessee produced for my perusal following extracts from the memorandum explaining finance bill 2000:

"The new provisions provide that all companies- having book profits under the Companies Act, prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5% , as against the existing effective rate of, 10.5% of the book profits. These provisions will be applicable to all corporate entities without any. exception. However, export profits under section. 80HHC, 80HHE, and 80HHF are kept out of the purview of this provision during the period of phasing out of deductions available under those provisions.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -8- Further, my attention was invited to the circular no.794, dated 9/8/2000 which gives explanatory notes on provisions relating to Finance Act, 2000, which state as under:

43.5 The export profit under section 10A, 10B ,80HHC, 80HHE and 80HHF are kept out of the purview of this provision as these are being phased out............... .

There are merits in the argument of the assessee company that it should compute the- relief under section 115JB without giving effect to section 80HHC(1B). This issue was also examined during the course of assessment proceeding for immediately preceding assessment year and after detailed examination the claim was accepted. Following the same, the claim arid contention of the assessee company are also acceptable for present assessment, year, however, it is rejected on the ground that the same is not made through filing a revise return of income but it is claimed by way of letter. The Supreme Court of India in the case of Goetze (India) Ltd. v CIT (284 ITR

323) has uphold the contention of the Assessing Officer there are no provision under the Income-tax Act to make amendment in the Return of Income by modifying an application at the assessment stage without revising the return. Thus though the claim of the assessee company is genuine it is not entertained in view of above clear cut finding of the apex court.

5.3 The assessing company, in its letter dated 23.5.2005 also stated that DEPB should be considered as business income if the same is not held to be export incentive and hence no justification is required.

During the course of the assessment proceedings, the assessee company was also asked clarify whether they are satisfying two conditions prescribed by the Taxation Laws (Second Amendment) Act 2005 being an exporter having turnover in excess of Rs.10 crores. And if answer to the same is in negative then why the benefit of deduction under section 80HHC shall not be denied on the amount of profit on transfer DEPB.

The assessee company in response argued on line similar to argument put forth during the assessment year 2003-04 and showed copy of detailed reply filed therein with respect to the above query. The detailed submission made by the assessee company in this regard during assessment year 2003-04 is reproduced herein below:

Before making our detail submission both on fact as well as law, we would like to narrate summary of the amendments brought in Section 80HHC of the Act by ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 -9- Taxation Laws (Second Amendment) Act 2005 and the history of section The said amendments can be summarised as under:

(i) Profit on transfer of Duty Entitlement Pass Book (DEPB) licence and Duty Free Replenishment Certificate (DFRC)]is treated as business profit by inserting Sections 28(iiid) and 28(iiie) and correspondingly said income is made eligible for deduction u/s 80 HHC.

(ii) Assessees having export turnover of less than Rs.10 crores are eligible for deduction u/s 80HHC on the aforesaid profit on transfer of DEPB/DFRC without any further condition to be complied with.

(iii) Assesse'es having export turnover of more than Rs.10 crores have to comply with following two conditions so as to be eligible for deduction u/s 80HHC on the aforesaid profit. The conditions are - if the assessee has necessary and sufficient evidence to prove that -

(a) he had an option to choose either the duty drawback or the DEPB/DFRC Scheme, being the Duty Remission Scheme; and

(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under. the DEPB Scheme, being Duty Remission Scheme.

Now we would like to bring to your honour's kind notice the history of section 80HHC, history of introduction of various export incentive and a/so facts in brief giving rise to the present amendment as under:

i)Section 80HHC grants deduction from total income of the assessee in respect of profits derived from expo/if business as contemplated under Section 23 of the Act.

The said provision was originally inserted by Finance Act, 1982 by insertion of Section 89A and with a view to encouraging larger exports of goods.

ii) By Finance Act, 1983, the aforesaid provision was renumbered as 80-HHC.

Subsequently, there have been various amendments in the provisions of section 80HHC including the amendment brought about in the year 1991 to cover all the cases of export incentives, available at that point of time. As a result, various export incentive including profit and gain as well as premium on sale of licence, cash assistance and duty draw back were covered under the scheme of Section 80HHC.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 10 -

This was further clarified through CBDT circular, bearing Ref. F. 133/131/97-TPL dated 23.02.1998, by treating premium on sale of quota as other export Incentives as envisaged under clauses (iiia), (iiib) and (iiic) of Section 28. Thus, the history of Section 80HHC clearly points towards the assurance of the Government to the taxpayer that the larger the export greater would be the benefit under Section 80HHC. It is well known fact that in the pre-liberalised Indian Economy, the Indian products were not internationally cost competitive but at the same time, India was in dire need of foreign exchange. With a view to encourage earning of more foreign exchange for the country, the exporters were lured with tax incentive under direct and indirect tax.

While the aforesaid provision under the Act, viz., Section 80HHC was one such- incentive under the direct tax scheme, insofar as the indirect tax scheme was concerned, the exporters were granted various export incentive schemes which included duty drawback scheme [being license granted under the Imports (Control) Order 1955 made under the Imports, and Exports (Control) Act, 1947] and benefits under-DEPB Scheme/DFRC/Sale of licence, cash assistance and sale of quota, etc. Benefit of duty drawback at the rate that was specified in the schedule was directly paid to the exporters against export, DFRC was introduced in 2001 under the DEPB Scheme, which was introduced for the first time in the Exim Policy (declared under Foreign Trade and Development Regulation Act) 1997-2002, with effect from 1.04.1997, with the objective being to neutralise the incidence of basic custom duty, special customs duty and surcharge on the import content of the export product through reimbursement of duties and taxes paid directly or indirectly on export product. The said neutralisation was effected by way of grant of duty credit against the export performance. The credit admissible for an export product is calculated by taking Into account the deemed import contents of the export product, the value addition to be achieved by the export of the product as prescribed in iris Standard Input-Output Norms (SION) and the basic customs duty, special customs duty, surcharge leviable on the input contents. These DEPB entitlements can be used by the assessee while making payment of import duty on their own imports. The said DEPB is also transferable and can be used by the transferee against their, import duty liability. The effect and object of both the policies was same to compensate for taxes and duties levied on export material, it is pertinent to note from the above that an exporter is reimbursed custom duty as drawback in cash and the position under DEPB is exactly the same but in form of a certificate.

Since the Foreign Trade and Development Regulation Act, 1992 has repealed the Imports and Exports (Control) Act 1947, as per the provisions of Section 8(1) of ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 11 -

General Clauses Act any reference to the Imports and Exports (Control) Act, 1947 shall be deemed to be a reference to the Foreign Trade and Development Regulation Act, 1992. Accordingly though amendment are not made in 1. T. Act, in Section 28(iiia), reference to the Imports and Exports (Control) Act, 1947 has to be read as reference to the Foreign Trade and Development Control Regulation Act, 1992 as per the provisions of Section 8(1) of General Clause Act. In. view of provisions of Section 8(1) of General Clauses Act, premium on sale of DEPB licence, granted to the exporter under new Foreign Trade and Development Regulation Act, would stand at par with Duty Drawback.

Now, we give herein below our detail submission as to how the new provisions are unconstitutional and illegal and how it do not apply to the fact of our case.

At the outset, we submit that the above amendment is ex facie discriminatory vis-a-vis the exporters like the assesses, company having turnover, of over Rs.10 crores and exporters with turnover of less than Rs.10 crores. It is submitted that the classification sought to be introduced through the impugned amendment is not only without any reasonable basis and it tries to create new burden on the various exporters having annual turn of over Rs. 10 crores and having availed of DEPB Scheme, by denying the deduction under Section 80 HHC otherwise available to them. The aforesaid amendment are unconstitutional and illegal as it ex facie making discrimination between the exporters with turnover of Rs.10 crore and exporters with turn over of less than Rs.10 crores and also between exporters who have chosen to avail duty drawback instead of DEPB Scheme and that too without any reasonable or any valid basis and with a long and unreasonable retrospectively of seven years. The amendment not only affects the vested rights of exporters with annual turn of over Rs. 10 crores and who have availed of DEPB Scheme by in effect imposes a levy for the past period of seven years when in fact there was no such levy during the said- past period including the year under consideration.

Without prejudice to what is stated above, we now state that Section 80-HHC read with section 28 of the Income-tax Act, 1961 has been amended by the Taxation Laws (Amendment) Act, 2005 which inter-alia, provides that Profits on sale of Duty Entitlement Pass-Book Scheme (DEPB).credits will be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clause (a) or clause (b) or clause (c) of sub-section (3) of section 80- HHC in the case of an exporter having export turnover exceeding Rs. 10 crores if

(a) he had an option to choose either duty drawback or duty entitlement pass book scheme and ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 12 -

(b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under duty entitlement pass book scheme.

Now we respectfully submit that out of above two conditions prescribed, so far as the first condition is concern, like all other exporters, it is satisfied in our case also. Before furnishing details in respect of second condition, we request your honour to take a close look at the language used in clause (b) above. On perusing the said clause, your honour will appreciate that it requires an exporter to compare the component of duty drawback attributable in respect of custom duty payable by it on import permitted to an exporter with the rate of credit allowable under DEPB. We examined the fact of our case in above respect and our examination reveals that the rules pertaining to duty drawback applicable for the year under consideration did not prescribe any allocation towards custom duty in case of manufacturer of cotton fabrics. The applicable rules of drawback credit attributes entire rate to the central excise for the year under consideration. Thus in our case so far as second condition is concern, the computation provision fails and therefore as per the settled provisions of the law, the above referred amendment do not apply to the fact of our case.

WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, Your honour will please note that above provisions are inserted in the statute book to neutralize effect of the judgement of ITAT as well as due to the contention of the revenue that the premium on the sale of DEPB licence is not an export incentive. This interpretation is based on the wording-of Section 28(iiia) of the Act which reads asunder:

"Profit on sale of licence granted under the Imports (Control) Order 1955 made under the .Imports and Exports (Control) Act, 1947".

According to the revenue, in the. proviso to Section 80HHC(3) the reference is to above section 28(iiia), As such, anything falling outside the scope of Section 28(iiia) will not be eligible while computing deduction under Section 80HHC. Probably the revenue has got carried away by the fact that the Imports and Exports (Control) Act, 1947 has been repealed and as such premium on the sale of DEPB licence which is granted under, the Foreign Trade, and Development Regulation Act, 1992 is something different, and the same is not covered by Section 28(iiia). However, this is not a correct view.

1. General Clauses Act As per provisions of Section. 8(V) of General Clause Act, whenever an set is repealed and any new act is enacted in place thereof, the name of the old act would be ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 13 -

presumed to be replaced by the new act. Since the Foreign Trade and Development Regulation Ant, 1992 has repealed the Imports and Exports (Control) Act 1947, as per the provisions of Section 8(1) of General Clauses Act any reference to the Imports and Exports (Control) Act, 1947 shall be deemed to be a reference to the Foreign Trade and Development Regulation Act, 1992.

Accordingly in Section 28(iiia), reference to the Imports and Exports (Control) Act, 1947 has to be read as reference to the Foreign Trade and Development Control Regulation Act, 1992. Since DEPB licence is granted to the exporter under this new Foreign Trade and Development Regulation Act, premium on sale of such licence shall be squarely covered by the provisions of Section 28(iiia).

2. DEPB refund of duty paid on purchases like Duty drawback Further, DEPB is a substitute of duty drawback. An exporter is entitled to get refund of the duty paid in respect of the purchases made by him. Under the scheme there is an option either to claim duty drawback or duty exemption passbook. The only difference in these two schemes is that in duty drawback, the refund is made by issuing a cheque in the name of the claimant whereas in the case of DEPB it is by way of credit in the passbook, not by way of cheque. This credit can be utilized against payment of Customs duty, if any, in respect of import of any material. Accordingly whereas duty drawback is a cash-payment, DEPB is a payment which can be adjusted against liability to pay Customs duty. This credit is primarily, to be used by the claimant only. It was because of the practical difficulties being faced by exporters of not getting immediate credit, the government had introduced (he scheme later on, to transfer this credit to any other person who can claim this credit against the liability of the customs duty. DEPB is not like a licence which is ordinarily saleable in the market. The nature and character of the credit of the amount in the passbook, nowhere entitles any particular item or goods at any concessional rate or at a specific rate. In this case whenever credit has to be availed, import duty on the imported goods is computed In an ordinary manner and thereafter instead of making payment of that liability, the credit in the passbook can be used. It is just like money in the bank account with the government to be used as and. when required to. The basic objective of coming out with the scheme by the government was to help its own fund flow because the government was not required to pay the money in cheque.

As regards the transfer of DEPB, there is a Restriction on the transfer. An exporter can avail of the DEPB in his own name even when the export proceeds have not been realized. The transfer of the DEPB credit can be made by the exporter only when the payment of export has been realized. This is a very vital difference which endorses ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 14 -

the above argument that it is a credit to the exporter and the facility of transfer is only an additional advantage given to the exporter to allow the credit to be used by other person. Accordingly the amount of the credit in DEPB is the refund of the duty which has gone into the purchase cost of the goods which have been exported by the exporter.

In view of the above legal position and the facts, the DEPB credit shall squarely fall under clause 28(iii)(c) because both Duty Drawback and DEPB are refund of the taxes paid on the purchase of goods.

This view also gets supported by clause 7.17 of the Export and Import Policy wherein it has been specifically provided that the export made under the DEPB Scheme shall not be entitled for drawback which other confirms that DEPB and drawback are substitutes of each others. Accordingly no distinction is required to be made in DEPB and duty drawback while computing deduction under Section 80HHC.

3. All export incentives are eligible for 80 HHC deduction - Board clarification no.FNo.133/137/97-TPL dated 23rd February, 1998

Without prejudice to the above and in the alternative, the third contention is that all export incentives are eligible for deduction while computing deduction under Section. 80HHC. The three clauses mentioned in Section 28(iii) cover all incentives relating to exports. In support of this contention attention may be invited to the clarification issued by the CBDT vide Instruction no, F No.133/137/97-TPL dated 23rd February, 1998, (given in the annexure) wherein an issue has arisen on the premium received for the transfer of the garment export quota. It has been clarified in this instruction by the CBDT that the premium on the sale of export quote statutory receive the same treatment as profit on sale of import-licences, cash assistance and duty drawback. The garment export quota is issued by the Apparel Export Promotion Council. On the basis of this quota the exporter can make an export on his- own or can transfer the quota to some other exporter. The premium received for transfer of this garment quota from other exporters has been clarified to constitute export incentive and eligible for deduction under Section 80HHC. The case of the DEPB falls in a much better category in that this DEPB is being received against actual export as refund of the duty paid on purchases of goods and that too from the Government of India directly as against premium on sate of garment quota received from the other exporters.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 15 -

4. Further, it is settled law that the provision for exemption or relief need to be construed liberally in favour of the assessed Any other interpretation would mean depriving the assesses of the benefit, which the legislature desired to give to the assesses.

In view of above, your honour will please appreciate that the premium on sale of DEPB licence is squarely covered under the provisions of section 28(iiia) and there was no need to insert new provisions viz 28(iiid) & 28(iiie) which are not only unconstitutional but also create unnecessary burden and hardship on exporters having turnover of Rs.10 crore or more.

PRESUMING BUT NOT ACCEPTING AND WITHOUT PREJUDICE TO WHAT IS STATED ABOVE,

We also respectfully state that the DEPB licence is granted to the exporter under Trade and Development Regulation Act. Under the scheme an exporter is entitled to get refund of the duty paid in respect of the purchases made by him by way of license/credit in the passbook. This license/credit can be utilized by the exporter against payment of custom/import duty, if any, in respect of import of any material or he is not in position to utilise the said license/credit, he can transfer this license/credit at a premium or discount to any other person who can claim this credit against the liability of the customs duty.

Your honour will please appreciate that the language of the amendments clearly suggests that the legislature wants to make discrimination between small and big exporters. It seeks, to grant concession to the small exporter by entitling them to get deduction on the amount of profit received on transfer of DEPB credit However, it wanted to deny the benefit/deduction to the big exporters on the amount premium i.e. profit received by them on transfer/sale of such DEPB licenses.

The perusal of above amendment dearly reveals that what is sought to be covered is only the "profit" arising from the transfer of DEPB and it should not apply in respect of the reimbursement of duty component in the DEPB scheme. Your good selves will please appreciate that the assesses company had realised net profit of Rs.72,86,165/- on transfer of DEPB. So, as per the amended provisions, we have revised our computation of deduction under section 80HHC by taking it as export incentive, under section 28(iiid) of the Act. Please also note that while revising the computation of deduction under section 80HHC of the I. T. Act, the value of DEPB allowable has been considered as business profit. The revised computation taking into account ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 16 -

above adjustments, work out the deduction under section 80HHC of the I. T. Act Rs.55,54,78,522/-.

Now, in respect of above revised computation, if your honour is of the view that the amount of DEPB is not our business income then we request you to kindly consider the1 value of DEPB as capital receipt as per the view taken by the judiciary on the issue.

In view of above factual position, according to us no adjustment that revises the amount of deduction is required to be made to the computation furnished by the assesses company by adopting book profit as business income vide its letter dated 30.3.2005 furnished alongwith Revise Return of Income. However, if our above submission is not acceptable to your honour than kindly consider our revise claims and either increase the deduction under section 80HHC or calculate deduction by treating value of DEPB as capital receipt and the net profit on transfer of DEPB as export incentive under section 28(iiid) of the I. T. Act.

The claim of deduction under section 80HHC was examined in the context of amendments made by Taxation Laws second Amendment Act, 2005 and with respect to various arguments similar to arguments put forwarded by the assessee company in assessment year 2003-04. As far as the argument of the assessee company concerning that the provisions are unconstitutional and illegal, non application of amendment to section 80HHC in view of failure of machinery provisions to the fact of assessee's case, DEPB credit fall under clause 28(iii)(a) and receipt are in the nature of capital receipt are not at all acceptable and hence rejected. Similarly, the argument of the assessee company that the legislature through above amendment want to tax the profit on transfer of DEPB and not the value of DEPB and while computing deduction, the value of DEPB is to be considered as business profit also do not find merit and accordingly rejected.

Thus for MAT computation under section 115JB, section 80HHC relief quantum is allowed based on book profit of the assessee company but it is re-worked in view of non-acceptance the claim of the assessee company referred in para 5.2 and rejection of claim referred in para 5.3. It is also noticed that while computing the book profit, the assessee company considered the profit of Rs.101,28,42,940/- being profit before tax as shown in the profit and loss account (i.e. net profit after tax plus deferred tax expenditure), however, while working out deduction under section 80HHC, the assesses company adopted figure of book profit after tax i.e. Rs.96,73,42,940/- (profit before tax of Rs.101,28,42,940 minus deferred tax provision of Rs.4,55,00,000/-.

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 17 -

Hence the mistake committed by the assessee company in adopting figure of Rs.96,73,42,-940/- is corrected and the deduction is worked out by taking correct profit of Rs.101,28,42,940/-."

6. During the course of original assessment proceedings, the assessee vide letter dated 23/05/2005 revised the statement of computation of deduction u/s.80HHC of the Act is enclosed at page No.49 of the paper- book. Therefore, all the details were before the AO. The AO has applied his mind on the material available before him. It is now settled position of law that the assessment cannot be reopened merely on the basis of change of opinion. We find force in the contention of the ld.counsel for the assessee that the AO had allowed the claim of deduction u/s.80HHC of the Act on the book profit and also considered the claim of deduction u/s.80HHC of the Act before setting off of lower of unabsorbed loss or depreciation for the purpose of determining the book profit. The reliance is placed on the judgement of the Hon'ble Apex Court rendered in the case of CIT vs. Bhanji Lavaji reported at (1971)79 ITR 582(SC) in support of the contention that the initiation of re-assessment proceedings was not valid since the reopening of assessment was based merely on a change of opinion about admissibility of claim of allowance. Reliance is also placed on the judgement of Hon'ble Gujarat High Court rendered in the case of Hynoup Food & Oil Industries Ltd. vs. Asstt.CIT reported at (2008) 219 CTR 124(Guj.). Further relied on the judgement of Hon'ble Apex Court rendered in the ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 18 -

case of CIT vs. Kelvinator reported at 187 Taxman 312 (SC). The Hon'ble Gujarat High Court in the case of Vishwanath Engineers vs. ACIT reported at (2012) 21 taxmann.com 5 (Guj.) has held as under:-

"17. Therefore, if from the selfsame materials, the Assessing Officer forms a second opinion and reopens-the assessment merely on the ground that on-second thought, a different view is possible, such fact does not authorize him to reopen the assessment within the purview of Section 147/148 of the Act. In this connection, we may profitably refer to the following observations made by the Supreme Court in the case of CIT v. Kelvirator of India Lid. [2010] 320 1TR 561 :: 187 Taxman 312. where the Court made the following observation on the scope of Section 147 of the Act:

"5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post--1- 4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen.

6. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place.

7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is "tangible material" to ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 19 -

come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion"

on the ground that it would vest arbitrary powers in the assessing officer.

8. We quote hereinbelow the relevant portion of Circular No. 549 dated 31- 10-1989, which reads as follows:

"7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in Section 147.--A number of representations were received against the omission of the words 'reason to believe' from Section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression 'has reason to believe' in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same."

(emphasis supplied)

9. For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." (Emphasis supplied).

18. After applying the aforesaid principle to the facts of the present case, we are convinced that this is a case where the Assessing Officer has reopened the proceeding merely on the ground that from the material available, the view earlier adopted by him was erroneous one. Thus, such fact cannot be a ground for reassessment."

ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 20 -

6.1. In view of the binding precedent, we are of the considered view that it is not the case where the material was not available with the AO and AO has not applied his mind in the case under appeal. Therefore, we hold that the reopening of the assessment is made on the basis of change of opinion only as the ld.counsel for the assessee has demonstrated from the records that all information/details were available with the AO and the AO has applied his mind on the allowability of deduction u/s.80HHC and computation of book profit. Therefore, order under appeal is set aside and assessment framed u/s.143(3) read with section 147 is quashed being invalid.

7. Since we have decided the reopening of the assessment as invalid and quashed the assessment, therefore the other grounds are not adjudicated. As a result, the appeal of the assessee is allowed.

8. Now, we take up the Revenue's appeal in ITA No.269/Ahd/2011 for AY 2004-05. The Revenue has raised the following grounds of appeal:-

1. The Ld.CIT(A) erred in law and on facts in directing the A.O. to consider unabsorbed depreciation and business losses together for all the years for the purpose of calculation of book profit U/s.115JB instead of year wise unabsorbed depreciation or business loss, whichever is less.

On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05

- 21 -

mentioned above, since the assessee has failed to disclose his true income.

The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

8.1. The respective representative of the parties are heard at length. Since we have annulled the assessment order in assessee's appeal, the Revenue's appeal is dismissed. Therefore, the grounds raised in the Revenue's appeal are dismissed and the appeal of the Revenue is dismissed.

9. In the result, Assessee's appeal is allowed, whereas Revenue's appeal is dismissed.

Order pronounced in the Court on Thursday, the 23rd day of July, 2015 at Ahmedabad.

Sd/- Sd/- (जी.डी.अ वाल) (कुल भारत) उपा य (अहम. े ) या यक सद य ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER Ahmedabad; Dated 23/ 07 /2015 ट..सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA No.673/Ahd/2011(By Assessee) and ITA No.269/Ahd/2011 (By Revenue) Arvind Mills Ltd. vs. DCIT Asst.Year - 2004-05 - 22 -

आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to : 1. अपीलाथ( / The Appellant 2. )*यथ( / The Respondent. 3. संबं7धत आयकर आयु9त / Concerned CIT 4. आयकर आयु9त(अपील) / The CIT(A)-6, Ahmedabad

5. :वभागीय ) त न7ध, आयकर अपील.य अ7धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड< फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स*या:पत ) त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 7/16.7.15 (dictation-pad 6+12pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..7.7.15/17.7.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......23.7.15

7. Date on which the file goes to the Bench Clerk.....................23.7.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................