By TIOL News Service

MUMBAI, MAR 29, 2015: THE issue before the Bench is - Whether turnovers of Sections 80IB and non-80IB units are to be taken together while calculating profits for claiming deduction u/s 80HHC. YES is the answer.

Facts of the case

The assessee company is engaged in the business of dealership of automobile parts. It had filed its return for AY 2004-05 claiming deduction u/s 80HHC & 80IB which was allowed by AO. Later, the AO observed that while calculating deduction allowable u/s 80HHC, total adjusted turnover did not include turnover of 80IB unit resulting in underassessment. Assessee had included deduction relating to DEPB but AO held that DEPB was not a profit from industrial undertaking, thus not eligible for deduction u/s 80IB; and assessment was reopened u/s 147. Assessee objected to reopening stating that assessee was maintaining separate books of account for both units and while calculating deduction u/s 80HHC only relevant figure of non 80IB units was required to be considered and not total turnover to the entire unit. AO held assessee did not fulfill conditions for claiming deduction u/s 80HHC and passed order taking total turnover of both units. On appeal, CIT(A) upheld the findings of the AO.

Having heard the parties, the Tribunal held that,

++ as per the provisions of section 80HHC the turnover of 80IB and non 80IB units is to be taken together, hence, there was escapement of income as the AO had failed to include the total turnover of 80IB unit into total turnover of the business of the assessee. Hence, the reopening of the assessment on this ground was valid as the AO had reasons to believe that the income of the assessee had escaped assessment;

++ it is seen that the Apex Court in case of Liberty India vs. CIT , has held that DEPB receipts were not the income derived from industrial undertaking hence, not eligible for deduction u/s 80IB. Therefore, reopening done on that DEPB receipts were not included by the assessee while claiming deduction, cannot be accepted as a valid ground;

++ it is also seen that the Apex Court in case of Topman Exports v. CIT,   has held that “DEPB is 'cash assistance' receivable by a person against exports under the scheme of the Government of India and falls u/s 28(iiib). Accordingly, DEPB is chargeable to income tax under the head 'Profits and Gains of Business or Profession' even before it is transferred by the taxpayer. U/s 28(iiid) of the Act, any profit on transfer of DEPB is chargeable to income tax under the head 'Profits and Gains of Business or Profession' as an item separate from cash assistance u/s 28(iiib)”. Therefore, the AO is directed to pass fresh assessment order in the light of the said decision.

(See 2015-TIOL-327-ITAT-MUM)