The Hindu Business Line : Exporters upset over I-T Dept's move to tax sops

EXPORTERS across industries are up in arms over the Income-Tax (I-T) Department's interpretation of various incentive schemes and related tax exemptions enjoyed by them.

At the heart of the issue is whether the profits on transfer of the duty entitlement pass book (DEPB) facility to other exporters is covered under Sections 28 (iiia) and whether this is eligible for deduction under Section 80 HHC.

The Government provides exporters DEPB and drawback schemes and cash assistance under Section 28 (iiia), (iiib) and (iiic). These incentives were considered as part of profits and were eligible for deduction under 80HHC.

According to exporters, till 2002, export incentives were considered eligible for deduction under 80HHC. However, after that, some assessing officers took a view that such an amount is not eligible for tax exemption, as the 1947 Act under which these exemptions were given was repealed.

Exporters said that the I-T Department had been reopening seven-year-old cases (DEPB was introduced in 1997) and ordering exporters to pay up huge penalties within 2-3 days. Normally, assessees are given 30 days to comply, but sources said that I-T officers had been demanding that exporters pay up immediately or have their bank accounts frozen. The I-T Department has also been relying on the Supreme Court's February 4, 2004 judgment in the IPCA Laboratories vs DCIT Mumbai case for direction. The Court ruled that if the exporter made a loss on exports, he would not be eligible to claim tax exemption under 80HHC, said an exporter. Several associations such as Federation of Indian Export Organisations, Chemexcil, Dyestuffs Manufacturers' Association of India, Apparel Export Promotion Council and Synthetic and Rayon Textiles Export Promotion Council are coming together under the All India Exporters Grievances Forum (AIEGF) to protest against the I-T Department's action.

According to Mr Rajendra J. Thacker, Co-convenor, AIEGF, export income is generally exempt from income tax under 80HHC and is intended to make Indian exports more competitive vis-à-vis their global counterparts. The duty relief offered is a reimbursement of cost already incurred for purchasing raw materials. He added that the I-T Department's action could bankrupt a number of exporters. Exporters are also upset that the I-T sleuths are reopening cases only in Mumbai and Ahmedabad.

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