2013 (9) TMI 881 - HC - Income Tax

High Court grants extension for export proceeds realization under Income Tax Act

The High Court allowed the writ petition, granting an extension of time until 31st March 1996 for the realization of export proceeds under Section ... Time limit for receipt of foreign convertible exchange for deduction u/s 80HHC – Time limit for filing an application for extension of time before commissioner – Held that:- As per Hon’ble Madras High Court in the case of Sarathy Palayacat Company versus Chief Commissioner of Income Tax and Others, [1998 (10) TMI 5 - MADRAS High Court], it was observed that wide discretion is vested with the Commissioner/Chief Commissioner and the time can be extended on more than one occasion - In Leather Trends Private Limited versus Commissioner of Income Tax and Another, 1995 [1995 (4) TMI 54 - ALLAHABAD High Court], Allahabad High Court has held that rejection of the application should be after giving valid reasons – Hon’ble Allahabad High Court in Azad Tobacco Factory Private Limited versus Commissioner of Income Tax and Others, 1997 [1995 (4) TMI 6 - ALLAHABAD High Court], it was viewed that no time limit has been mentioned for moving an application for extension of time under Section 80HHC(2)(a) and it is not necessary that the application should be moved within six months from the end of previous year – Decided in favor of Assessee. Issues Involved:1. Extension of time for realization of export proceeds.2. Economic crisis in USSR affecting payment realization.3. Application of Section 80HHC of the Income Tax Act, 1961.4. Judicial discretion and fairness in decision-making by tax authorities.Issue-wise Detailed Analysis:1. Extension of time for realization of export proceeds:M/s York Exports Private Limited, a company engaged in the manufacture and export of woollen and cotton hosiery goods, sought an extension of time to realize export proceeds under Section 80HHC(2)(a) of the Income Tax Act, 1961. The petitioner initially filed an application on 12th September 1996 for an extension until 31st March 1995 due to difficulties in receiving payments from buyers in the erstwhile USSR. A subsequent application was filed on 8th June 1995 for further extension until 31st March 1996. The Commissioner of Income Tax, Delhi-III, allowed the first application but rejected the second, citing the petitioner's failure to file the return for Assessment Year 1994-95 and the timing of the applications.2. Economic crisis in USSR affecting payment realization:The petitioner argued that the disintegration of the USSR led to severe economic crises, including depreciation of the Russian Rouble, making it difficult for buyers to remit payments. The Reserve Bank of India recognized these challenges and was sympathetic to requests for extensions. The Commissioner did not address these economic conditions in the decision, nor did he deny the factual correctness of the petitioner's claims regarding the impact of the economic crisis on payment realization.3. Application of Section 80HHC of the Income Tax Act, 1961:Section 80HHC(2)(a) stipulates that exporters must receive sale proceeds in convertible foreign exchange within six months from the end of the previous year, with possible extensions granted by the Chief Commissioner or Commissioner for reasons beyond the control of the assessee. The Punjab and Haryana High Court in Mayor and Company vs. Commissioner of Income Tax emphasized that the power to grant extensions is quasi-judicial and must be exercised reasonably, with reasons recorded in writing. The Delhi High Court in Kausales Exports (India) vs. Commissioner of Income Tax supported the view that delays due to external factors like financial stringency of the importer should be considered sympathetically.4. Judicial discretion and fairness in decision-making by tax authorities:The judgment highlighted that the discretion to grant extensions under Section 80HHC(2)(a) is not unbridled and must be exercised judicially. The Delhi High Court in Narinder Kumar Arora vs. Commissioner of Income Tax and Vikram Overseas Private Limited vs. Commissioner of Income Tax reinforced that applications for extensions could be filed even after the initial six-month period if justified by reasons beyond the control of the assessee. The Madras High Court in Sarathy Palayacat Company vs. Chief Commissioner of Income Tax and the Allahabad High Court in Leather Trends Private Limited vs. Commissioner of Income Tax stressed that rejection of such applications should be based on valid reasons, and the discretion must be exercised fairly.Conclusion:The High Court allowed the writ petition, quashing the orders dated 19th December 1996 and 17th August 1995, and granted an extension of time until 31st March 1996 for the realization of export proceeds. The court noted that the petitioner had received the remaining sale proceeds before the assessment order was passed. The decision underscored the importance of considering external economic factors and ensuring judicial fairness in the exercise of discretion by tax authorities. Any refund due to the petitioner was ordered to be paid within two months from the receipt of the order by the Assessing Officer. No order as to costs was made.