Deepak R. Shah, Accountant Member - Both appeals by the assessee are directed against two different orders of the Commissioner of Income- tax (Appeals)-XVII/X, New Delhi, dated October 14, 2004 for the assessment year 2001-02 and March 23, 2006 for the assessment year 2002-03 in appeals against the assessments framed under section 143(3) of the Income-tax Act, 1961 (the Act). Since common issues are involved in both appeals, they are taken together and are being disposed of by this common order for the sake of convenience.

I. T. A. No. 5685/Del/2004: (assessment year 2001-02)

2. The first issue raised in grounds Nos. 1.0 to 1.4 in appeal for the assessment year 2001-02 is against the confirmation of the action of the Assessing Officer in assessing Rs. 2,21,53,135 credited in the books of account being duty entitlement pass book (DEPB) received or receivable as income chargeable to tax under section 28(iv) without appreciating the fact that the export incentive granted by way of DEPB constituted capital receipt and it was only a notional sum/income. The learned Commissioner of Income-tax (Appeals) also erred in upholding the reduction of 90 per cent, of the receipt on account of sale of DEPB licence in terms of Explanation (baa) to section 80HHC of the Act treating the same as "other receipts" and in not adding back DEPB credit allocated in the ratio of the export turnover to the total turnover in terms of section 80HHC(3) while computing the deduction.

3. We have heard Shri Ajay Vohra, learned counsel for the assessee and Shri Kishore B., the learned Departmental representative. We find that the same issue has been considered by the Special Bench of the Tribunal in the case of Topman Exports v. ITO [2007] 318 ITR (AT) 87 (Mumbai); 33 SOT 337 wherein it has been held as under :

(i)the argument of the Revenue that DEPB is a post-export event and has no relation with the purchase of goods cannot be accepted. There is a direct relation between DEPB and the customs duty paid on the purchases. For practical purposes, DEPB is a reimbursement of the cost of purchase to the extent of customs duty ;

(ii)the DEPB benefit (face value) accrues and becomes assessable to tax when the application for DEPB is filed with the concerned authority. Subsequent events such as sale of DEPB or making imports for self-consumption, etc. are irrelevant for determining the accrual of income on account of DEPB ;

(iii)on a harmonious construction of clauses (iiia), (iiib) and (iiic) of section 28 it is evident that clauses (iiia) and (iiic) deal with specific species of incentives, clause (iiib) is a residual clause which brings within its sweep all forms of export incentives other than those specifically set out in clauses (iiia) and (iiic) ;

(iv)the face value of DEPB benefit falls within the ambit of section 28 (iiib) ;

(v)section 28(iiid) which refers to the ‘profits on transfer of the DEPB, obviously refers only to the ‘profit’ element and not the gross sale proceeds of the DEPB. If the Revenue's argument that the sale proceeds should be considered as accepted, there would be absurdity because the face value of the DEPB will then get assessed in the year of the DEPB and also in the year of its transfer ;

(vi)profit on sale of DEPB representing the excess of sale proceeds of DEPB over its face value is liable to be considered under section 28(iiid) at the time of sale ;

(vii)only the ‘profit’ (i.e., the sale value less the face value) is required to be considered for the purposes of section 80HHC ;

(viii)whatever has been said about DEPB also holds good for DFRC, on both its components, viz., the face value of DFRC and profit on its transfer, except for the fact that the profit on sale, of DFRC shall be charged, to tax under section 28(iiie) ;

(ix)duty drawback shall be chargeable to tax at the time of accrual of income under section 28(iiib) when application is filed with the competent authority after making exports.

4. Applying the same, we hold that amount