Appeal partly allowed: disallowance under sec 37(3A)-(3D) deleted, sec 80HHC upheld.

The appeal was partly allowed. The disallowance under sections 37(3A) to (3D) was deleted based on the precedent set by the ITAT, Rajkot Bench. However, the disallowance under section 80HHC was upheld as the assessee did not fulfill the necessary conditions for claiming the deduction, and the deduction had already been claimed by Batliboi Ltd.

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Issues Involved:
1. Disallowance under the provisions of section 37(3A) to (3D)
2. Disallowance under the provisions of section 80HHC

Detailed Analysis:

1. Disallowance under the provisions of section 37(3A) to (3D):

The assessee, a Public Ltd. Company engaged in the manufacture of drilling machines and other machineries, challenged the disallowance under section 37(3A) to (3D) confirmed by the CIT(A). The Assessing Officer (AO) had determined that 30% of the commission payments were in the nature of sales promotion expenditure, leading to a disallowance of Rs. 3,68,983. During the hearing, the assessee's counsel contended that this issue was already covered by the ITAT, Rajkot Bench in their order in ITA No. 830/Ahd./93 dated 22-11-1999. Based on this precedent, the Tribunal deleted the disallowance made under sections 37(3A) to (3D).

2. Disallowance under the provisions of section 80HHC:

The main contention was whether the assessee was entitled to a deduction under section 80HHC for exports made through their agents, M/s. Batliboi & Company Ltd. The AO had disallowed the claim, arguing that the export was not eligible for deduction under section 80HHC as the assessee was unaware of the foreign buyer and the destination of the exported goods. The CIT(A) upheld this decision.

During the hearing, the assessee's counsel argued that the export of goods was made through their agents, M/s. Batliboi & Company Ltd., and thus the assessee was entitled to the deduction. The counsel cited various court cases to support the contention that the beneficial provisions of section 80HHC should be interpreted liberally. However, the Departmental Representative (DR) countered that the deduction under section 80HHC had already been claimed by Batliboi Ltd., and allowing it to the assessee would result in a double deduction. The DR also pointed out that there was no written agreement between the assessee and Batliboi Ltd. for exporting the goods.

The Tribunal examined whether the assessee or Batliboi Ltd. was the real exporter. According to section 80HHC, to qualify for the deduction, the sale proceeds of the goods must be received by the assessee in convertible foreign exchange. In this case, the goods were exported by Batliboi Ltd., and they received the sale proceeds in foreign exchange. Thus, the Tribunal concluded that Batliboi Ltd. fulfilled the necessary conditions for claiming the deduction under section 80HHC, not the assessee.

The Tribunal also noted that the various court cases cited by the assessee's counsel were not relevant to the facts of the present case. The Tribunal emphasized that the assessee had neither exported the goods nor received the proceeds in convertible foreign exchange, and thus the two main conditions for allowing the concession under section 80HHC were not met by the assessee.

Additionally, a letter dated November 22, 1999, from Batliboi Ltd. confirmed that they had already claimed the rebate under section 80HHC for the goods exported. This further supported the Tribunal's decision that the assessee was not entitled to the deduction under section 80HHC.

Conclusion:

The appeal was partly allowed. The disallowance under sections 37(3A) to (3D) was deleted based on the precedent set by the ITAT, Rajkot Bench. However, the disallowance under section 80HHC was upheld, as the assessee did not fulfill the necessary conditions for claiming the deduction, and the deduction had already been claimed by Batliboi Ltd.

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