2008 (2) TMI 446 - AT - Income Tax

Tribunal denies Section 80HHC deduction for lack of customs clearance in foreign exchange sales

The Tribunal upheld the CIT(A)'s decision to deny the deduction under Section 80HHC of the IT Act to the assessee, who claimed the deduction based on ... Export out of India - deduction under section 80HHC - clearance at customs station - Explanation (aa) to section 80HHC - retrospective amendment - burden of proof of customs clearanceExport out of India - deduction under section 80HHC - Explanation (aa) to section 80HHC - clearance at customs station - burden of proof of customs clearance - Whether counter sales to foreign tourists in convertible foreign exchange qualify as export out of India for the purpose of claiming deduction under section 80HHC of the Income-tax Act - HELD THAT: - The Explanation (aa) inserted retrospectively into the Explanation to s. 80HHC makes explicit that 'export out of India' does not include transactions by way of sale in a shop, emporium or other establishment in India which do not involve clearance at any customs station. The legislative intent, expressed in the Finance Bill memorandum and given retrospective effect from 1st April 1986, was to prevent claims of s. 80HHC where goods sold in India to foreign tourists are not actually cleared through customs and thereby may not leave the territory. Consequently, mere receipt of foreign exchange, a bill containing a customer declaration, or an encashment certificate is not a substitute for evidence that the goods were cleared at a customs station. The requirement is fact-specific and concerns whether the transaction involved customs clearance (it is immaterial who procures the clearance). In the present case the assessee furnished bills and encashment certificates but produced no evidence that the goods were cleared through any customs station. The decision in CIT v. Silver & Arts Palace was distinguishable because there the transactions were found to involve customs clearance; that factual finding was determinative in favour of the assessee. Given the absence of proof of customs clearance here, the claim under s. 80HHC must fail. [Paras 10, 11, 12, 13, 14]Counter sales to foreign tourists do not qualify as export out of India for s. 80HHC unless it is proved that the transactions involved clearance at a customs station; the assessee's claim is rejected for want of such proof.Final Conclusion: The Tribunal upheld the CIT(A)'s order and dismissed the appeal: deduction under s. 80HHC was denied because the assessee failed to prove customs clearance of counter sales to foreign tourists, and a mere declaration or encashment certificate is insufficient. Issues Involved:- Claim of the assessee under Section 80HHC of the IT Act, 1961, for counter sales made to foreign tourists in convertible foreign exchange.Detailed Analysis:1. Facts of the Case:The assessee, engaged in the business of trading in jewellery, included counter sales made to foreign tourists in convertible foreign exchange as part of its export turnover and claimed a deduction under Section 80HHC of the IT Act, 1961. The total turnover reported was Rs. 58,69,16,222, with an export turnover of Rs. 3,30,92,088. The export turnover included Rs. 8,57,196 from direct sales to foreign parties and Rs. 3,22,34,892 from counter sales to foreign tourists. The claim for deduction under Section 80HHC was Rs. 6,28,724, relying on the Supreme Court judgment in CIT vs. Silver & Arts Palace.2. Assessment Proceedings:During assessment, the AO requested documentary evidence for customs clearance of the counter sales. The assessee failed to produce such evidence, leading the AO to conclude that counter sales to foreign tourists did not qualify as exports out of India. Consequently, the deduction under Section 80HHC was reduced to Rs. 14,685.3. Appeal to CIT(A):The assessee argued before the CIT(A) that all relevant details of counter sales were provided, including customer information, item details, and encashment certificates. The assessee contended that the declaration by foreign tourists implied the transaction amounted to export out of India. However, the CIT(A) referenced the Allahabad High Court judgment in Ram Babu & Sons vs. Union of India, which emphasized the necessity of customs clearance for transactions to qualify as exports. Without evidence of customs clearance, the CIT(A) denied the deduction under Section 80HHC.4. Tribunal Proceedings:The assessee's counsel argued that providing details and declarations from foreign tourists sufficed for claiming the deduction. The counsel also presented specimen copies of bills and encashment certificates. The Departmental Representative countered that the legislative intent behind the amendment to Section 80HHC was to prevent claims without actual export, as highlighted in the Allahabad High Court judgment.5. Legislative Intent and Judicial Interpretation:The Tribunal noted that the legislative intent behind the amendment to Section 80HHC was to ensure that counter sales to foreign tourists did not qualify as exports unless customs clearance was involved. This was to prevent potential misuse where goods might not be exported despite claims for deductions. The Allahabad High Court upheld the constitutional validity of this amendment, emphasizing the necessity of customs clearance for transactions to be considered exports.6. Requirement of Customs Clearance:The Tribunal reiterated that for counter sales to foreign tourists to qualify as exports, evidence of customs clearance was essential. Mere declarations by foreign tourists were insufficient. The assessee could request tourists to provide customs clearance evidence or assist in obtaining it. Without such evidence, the claim under Section 80HHC could not be accepted.7. Specific Case Analysis:In the present case, the assessee provided details of counter sales but failed to prove customs clearance. The Tribunal reviewed the declaration on the bill and the encashment certificate, finding no undertaking by tourists to carry goods out of India or obtain customs clearance. Thus, the contention that declarations were sufficient was rejected. The Tribunal emphasized that customs clearance was a prerequisite for claiming the deduction.8. Reference to Supreme Court Judgment:The Tribunal considered the Supreme Court judgment in CIT vs. Silver & Arts Palace, noting that the case involved customs clearance, which was not disputed. Since the assessee in the present case failed to prove customs clearance, the judgment did not support the assessee's claim.Conclusion:The Tribunal upheld the CIT(A)'s order, denying the deduction under Section 80HHC due to the lack of evidence for customs clearance. The appeal filed by the assessee was dismissed.