1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (L) NO.3223 OF 2008 The Commissioner of Income Tax – 7, Mumbai ..Appellant. Versus M/s.Rhoda Textiles Private Limited ..Respondent. Mr.Suresh Kumar for the appellant. Mr.F.B. Andhyarujina, Senior Advocate with Ms.Pallavi Divekar for the respondent. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 11th March, 2010. P.C. : 1. Admit. 2. The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 has raised the following questions of law. i) Whether, on the facts and in the circumstances of the case and in law, the ITAT was correct in holding that in respect of the claim of deduction u/s. 80HHC on sale of DEPB license, the assessee had satisfied the conditions under the third proviso to sub-section (3) of section 80HHC of the Act by producing necessary and sufficient evidence to the effect that the rate of duty drawback credit attributable to customs duty was higher tha the rate of credit allowable under the DEPB scheme and that the assessee was entitled to the deduction u/s.80HHC in respect of the said amount as claimed ? 2 ii) Whether, on the facts and in the circumstances of the case and in law, the conclusion of the ITAT is based on adequate and relevant material while allowing the assessee’s claim of deduction u/s. 80HHC in respect of amount of Rs.2,33,08,981 on account of sale of DEPB license or the conclusion drawn was perverse ? iii) Whether, on the facts and in the circumstances of the case and in law, the ITAT was correct in holding that interest of Rs. 71,721/- derived from the fixed deposit should be treated as business income for the purpose of computation of “Profit of the buisniess” u/s. 80HHC of the Act as against “income from other sources” assessed by the Assessing Officer ? 3. The appeal pertains to the assessment year 2004-2005 and arises out of an order of the Income Tax Appellate Tribunal dated 24th April 2008. Both the learned Counsel agreed that the first and second questions basically relate to the same issue. Under the third proviso to sub-section (3) of Section 80HHC, certain requirements have been spelt out in the case of an assessee with an export turnover in excess of rupees ten crores during the previous year. In so far as the appeal is concerned, the question is as to whether, within the meaning of the proviso the assessee had necessary and sufficient evidence to prove that : (a) He had an option to choose either the duty drawback or Duty Entitlement Pass Book scheme; and (b) The rate of drawback credit attributable to customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme. (a) and (b) as stated above corresponding to the two conditions of the third proviso. 4. In the present case, it has not been disputed that the export 3 turnover of the assessee for the previous year was in excess of rupees ten crores. The fact that the assessee had an option of choosing either duty drawback or credit under DEPB scheme was established from a certificate of the Cotton Textiles Promotion Council dated 22nd February 2006. This condition was, therefore, met. The only remaining condition which had to be fulfilled was that the rate of drawback credit attributable to customs duty should have been higher than the rate of credit allowable under the DEPB Scheme. The Tribunal noted that the assessee had furnished a working sheet under which the drawback credit attributable to customs duty for various items exported by the assessee was between 22 to 63 percent as against which the rate of credit under the DEPB Scheme was 11 percent. The Tribunal noted that the Assessing Officer has not doubted the veracity of the working furnished by the assessee. We may also note that it is not the contention of the Revenue before this Court that the rate of drawback credit as represented by the assessee is incorrect or that the assessee was entitled to a lower rate than stated. In the circumstances, the Tribunal has in our view correctly come to the conclusion that the assessee fulfilled the requirements of the third proviso to sub-section (3) of Section 80HHC. 5. In so far as the third question of law formulated above is concerned, during the course of the hearing, the learned Counsel appearing on behalf of the assessee has stated that having regard to the insignificant amount of tax involved and without conceding the question of law, the 4 assessee does not press the correctness of the decision of the Tribunal on this point. The Revenue, it may be noted, had in its appeal contested the correctness of the view of the Tribunal and submitted that the interest on Fixed Deposits was liable to be treated as income from other sources. The Tribunal has held that the moneys which were placed in Fixed Deposits constitute margin money for opening letters of credit. In view of the statement, which has been made on behalf of the assessee during the course of the proceedings, it is not necessary for the Court to render any finding on the third question which has been raised by the Revenue. However, in view of the statement as noted earlier, the finding of the Tribunal in Para 13 of its judgment, directing that the interest of Rs.71,721 should be treated as business income of the assessee is set aside. 6. For the reasons already stated, we do not find any fault with the order of the Tribunal on questions (i) and (ii) and hence it does not raise any substantial question of law for the decision of this Court. In so far as the third question is concerned, for the reasons noted earlier, the direction of the Tribunal for treating the amount of Rs.71,721/- as income from business shall be set aside. 7. The appeal is allowed to the aforesaid extent. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)