TaxTMI 
TaxTMI 
2004 (5) TMI 248
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..... 24,822 and a profit on the sale of licence at Rs.35,46,150 against which net profit of Rs. 35,51,972 was declared. On this profit of sale of licence, the assessee has claimed deduction under section 80HHC at Rs. 31,97,357. 4. During the course of investigation before finalising the assessment the Assessing Officer found that the sum of Rs. 24,822 shown by the assessee in the profit and loss account pertain to the sale of gift samples sold to M/s. S.D. Handa & Co., UK on 10-1-1998. The said samples as per the record are stated to have been purchased on a price of Rs. 15,465 on12-12-1997. Apart from this transaction which pertain to the receipts from the sale of gift samples, there was no other export sales in the profit and loss account during the year. The sale of the licence on which section 80HHC benefit was claimed is stated to be related to the export sales made in the accounting year 1995-96. The Assessing Officer as per the record which has also not been disputed before us has observed that there are no export sales in the years 1996-97 and 1997-98 except exchange fluctuation realisation of Rs. 1,63,225 for the period relevant to accounting year 1996-97. The Assessing Of....
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....ness, but are on account of the claim of the Government and could not be said to be profit accrued from the export business which would be eligible for deduction under section 80HHC. With these reasons the CIT(A) was pleased to dismiss the appeal filed by the assessee. 7. Having lost at two places the assessee has filed the present appeal before us on the ground that the authorities below have erred in denying the benefit of section 80HHC of the IT Act on the amounts realised by him as a result of the sale of the licence. 8. At the time of hearing of the appeal, the ld. counsel for the assessee submitted at the outset that the assessee is engaged in the business of exports within the meaning of section 80HHC(1). To establish that the assessee is engaged in the business of exports out of India as contemplated within the meaning of section 80HHC(1), the assessee brought to our notice that in 1990-91, 1991-92, 1992-93, the assessee had exported goods worth Rs. 8,08,750, Rs. 1,30,925 and Rs. 11,070. While making the submissions on this account it was further submitted that though there was no export sale in 1993-94, the assessee had made export sale to the tune of Rs. 1,19,03,184....
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....rate fluctuations. According to theLd. DRand which fact has not been disputed in the year 1996-97 also there was no sale. TheLd. DRwhile coming to the issue of dispute submitted that the export sales as claimed by the assessee in the assessment year 1997-98 are not export sales. Even the provisions of explanation (aa) added to sub-section 4B of section 80HHC have not been complied with. The ld. DR submitted that in fact there is no transaction of export undertaken by the assessee and the documents placed on the record on which the reliance was placed by the ld. counsel for the assessee during the course of hearing were fabricated documents. It was in this background the Ld. DR submitted that the sales of exports claimed by the assessee are not sales within the meaning of section 80HHC(1) of the IT Act as well as explanation (ad) added to sub-section 4B of section 80HHC of the IT Act, and, therefore, in these circumstances, the authorities below have rightly refused the benefit to the assessee. 11. Another argument that was raised by the ld. DR during the course of hearing was that the benefit which the Government advances by way of duty drawback or export subsidy cannot be terme....
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.... convenient to meet our representative who is likely to visitIndiafrom the month of December this year or of beginning of January in the forthcoming year. You could then show and discuss with him the samples as referred to above, so that he is in a position to select proper items." 14. A perusal of the aforesaid letter indicates that S.P. Handa & Co. have informed the assessee through this letter of their intention to start some business in the items indicated in this letter and informing the assessee that their representative may meet him in this regard in December or January. 15. This letter without any reservation we may say, indicates nothing more than this. 16. The record further transpires that after this letter the assessee on its own is stated to have purchased some samples from one concern called Woven Classics on12th December, 1997. The address of the Woven Classics is A-224, Okhla Industrial Area, Phase I,New Delhi, which is also the premises of the assessee. The idea with which these garments have been purchased is not understandable for the reason that the letter of the client of the assessee, based inUKto whom the assessee is stated to have ultimately sold it....
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.... missing in this case, according to us. 18. As observed above, the evidence as to how the goods have gone is missing. The name of the person/individual who carried the goods when carried goods is also missing. We, therefore, safely can say that the goods have not been taken by any individual personally. If the goods are not taken by any individual personally, it brings us to the issue as to how the goods have reachedEnglandif at all it reached. The only way was through parcel. No material worth the name has been placed on the record which would indicate the airway bill, the parcel No., the mode of transport, the date on which it was despatched and how goods reachedEngland. If the goods have reachedEnglandby transport, then in that case requirement of explanation AA added to sub-section 4B of section 80HHC would not be satisfied because the custom clearance has not been placed on the record. We, therefore, say that the test as contemplated by explanation (ad) added to sub-section 4B of section 80HHC of IT Act stands not satisfied. In view of the discussion above, we are of the view that the claim of the assessee with regard to the goods that have not been exported is not a genuin....
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.... Amount (Rs.) 1991-92 8,08,750 1992-93 1,30,925 1993-94 11,070 1994-95 Nil 1995-96 1,19,03,984 1996-97 1,63,225 (exchange fluctuation &....
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....of Rs. 31,97,357. In addition, in the return of income the assessee had also declared income from property and income from other sources. 7. The Assessing Officer denied the claim of deduction under section 80-HHC of the Act, on the basis that the assessee is not engaged in the business of export out ofIndiafor the following reasons: (a) No export sales in assessment year 1997-98 except realisation of foreign exchange fluctuations; (b) Exports made during the year are gift samples and not goods or merchandise; (c) Export sales have been made to a related concern, with which no business was conducted in earlier years; and (d) Goods have not been exported out ofIndiaas per explanation (aa) to section 80HHC of the Act. 8. However, he has assessed the entire income declared of Rs. 35,51,972 from the business of M/s. S.S. Exports (International) as income under the head business. There is thus no dispute that there is business carried on by the assessee in the name of M/s. S.S. Exports (International) and that there is export of goods. But dispute in short is that whether the assessee is in the business of exports or not for the purpose of deduction under section 80-HH....
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....f assessment is that the genuineness of claim of export in the instant year is disputed, but there is no material or evidence to cast any doubt or suspicion that the assessee is not in the business of export, particularly when the learned Assessing Officer himself admits that there is business in the name of M/s. S.S. International and assess the income from sale of goods as business income. There is also no receipt in the year in question except of export sales. On the contrary, expenditure in the form of purchases and bank charges has been allowed and found to be genuine. It is not a case where the books of account have been rejected and the sale proceeds from outsideIndiahave been assessed as unexplained cash credit under section 68 of the Act. 11. The conclusion of the learned JM that assessee is not engaged in the business of export on the basis that there were no exports during the years 1995-96 to 1999-2000 except for sales made in the year 1997-98 is not based on proper appreciation of the facts of the instant case. Perhaps, this approach, in my opinion to arrive at the conclusion that assessee is not in business of exports has an inherent fallacy. It overlooks the main ....
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.... 597 has held that: "It is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the relevant facts, it appears, have been considered by the Tribunal from the correct standpoint, i.e. an ordinary prudent businessman or as inEngland, it used to be "man on the top of the platform omnibus" or "director's arm chair". If, on that test, a plausible conclusion has been drawn, no objection can be taken. On that basis, applying the correct principle, the Tribunal found that the intention was not to part with the machinery but to leave it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and there income derived from the machine letting was only a rental income, there was a temporary suspension of business for a temporary period with the object of tiding over the crisis condition, there was never any act indicating that the assessee never intended to carry on the business." 12. Further, the assessee has also placed on record a copy of the invoice dated 22-1-2002 and copy of the foreign inward remittance certificate dated 15-4-2002 to contend that the assessee ....
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....nt year 1996-97 on account of profits on foreign exchange fluctuation also even when there was no actual export of goods in that year. It was therefore argued that it is now not open for the department to take another view. Reliance was placed on the various judgments of theApex Courton the rule of consistency in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 and also relying on CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 (Delhi) and Government of Andhra Pradesh v. A.P. Jaiswal [200l] 1 SCC 748. I find myself in agreement with the contention of the appellant that the department has to be consistent on the issue and therefore merely because there are no exports made in immediately preceding assessment year, the assessee cannot justifiably be said to be not engaged in the business of exports. 14. Further, the conclusion of the learned JM in para 13 that whether the assessee is not engaged in the business of exports is to be decided on the basis that whether the claim of the assessee for the year under consideration with regard to export and export sales is genuine or not? I am unable to find myself in agreement with the said conclusion. As stated above, such a basi....
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....ction 80-HHC of the Act on the proceeds received on sale of export incentives. Therefore, on consideration of the facts and circumstances of the case, it is held that assessee is engaged in the business of exports even if the claim of the export sales for the instant year is not accepted which has been discussed separately in late paras of the order and the appellant is entitled to deduction under section 80HHC of the Act on the income received on sale of advance licences received in lieu of exports made in assessment year 1995-96. 16. Further, after carefully going through the orders of impugned assessment and the order of the first appellate authority, I am unable to persuade myself to come to the conclusions arrived at by my learned brother that export sales made during the year of Rs. 24,822 is not a genuine export sale of the assessee and that the amount has been received in a clandestine manner. I may state at the beginning itself though the factum of export sales in the instant year is not germane to the issue of claim of deduction under section 80-HHC of the Act, as I have already concluded in my preceding paragraphs that the assessee is engaged in the business of export....
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....er doubted the claim of exports of goods but had denied the claim of deduction under section 80-HHC on the ground that the same did not fall within the meaning of export out of India as defined in Explanation (aa) of section 80HHC of the Act and also that the items exported were not goods or merchandise but gift samples. This would further be well appreciated from the order of CIT(A) who has completely remained away to cast any doubt or suspicion on the claim of the assessee that assessee had exported samples but sustained the disallowance purely on merits. Thus, now for the Tribunal to come to a different conclusion would be building altogether a new case which is not with in its powers. It is settled law that the powers of the Income-tax Appellate Tribunal as an Appellate Court are not those of an investigating agency but to adjudicate on matters on the basis of evidence furnished by both the parties. The Tribunal is not supposed to enter into an arena which has not been traversed by the lower authorities particularly when this is not even the case of the Assessing Officer and CIT(A). It has been held in the following cases that: (a) Raj Kumar Jain v. Asstt. CIT [1994] 50 ITD ....
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....aving accepted the genuineness of the claim of the export of goods, I proceed to examine the allowability of claim of deduction under section 80-HHC of the Act on the exports made during the year on the basis of objections of the lower authorities. 20. The appellant had exported goods out ofIndia, within the meaning of Explanation (aa) to section 80HHC of the Act. According to Explanation (aa) to section 80HHC of the Act, as inserted by the Finance (No. 2) Act, 1991, with' effect from 1-4-1986, the term "export out of India" shall not include any transaction by way of sale or otherwise in a shop, emporium or any other establishment in India, not involving clearance at any customs station. Thus the Explanation provides that an export will not be considered as an export out ofIndiafor purposes of section 80HHC of the Act, if the following two conditions are satisfied: (a) It should be a transaction by way of sale or otherwise in a shop, emporium or establishment situated inIndia; and (b) It does not involve clearance of the customs as defined in the Customs Act. 21. Both the aforesaid conditions have to be mutually satisfied to come to a conclusion that exports made by th....
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....3. Further in respect of the Assessing Officer's observation that the items exported are gift samples and not trade samples, it has been vehemently contended by the learned counsel for the appellant during the course of hearing that the appellant had exported trade samples to its client not the gift samples as alleged by the learned Assessing Officer and the word "Gift Samples" is used by the appellant in the invoice for the reference of exporters and the word "Trade Samples" are used in the invoice as description for goods, the learned counsel had drawn attention to the letter from M/s. S.D. Handa & Co. dated 20-11-1997 showing their interest in starting trading in articles such as women's ware, leather goods -garments and other articles, perhaps also gift items. It is submitted by the learned counsel that since in the aforesaid letter word "gift items" was used the same was also used by the appellant as reference in the invoice. It was also submitted that the observations of the Assessing Officer that since there is no export of goods or merchandise during the year, the assessee cannot be said to be entitled for deduction under section 80HHC is not correct. After having perused t....
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....cial Member has expressed his opinion that assessee is not entitled to deduction under section 80HHC for two reasons - firstly, no deduction can be allowed unless there is export during the year under consideration which assessee has failed to establish. Secondly, it cannot be said that assessee was engaged in the business of export, which is a condition precedent for claiming such deduction. On the other hand, the learned Accountant Member has expressed his opinion (i) that on the facts of the case assessee could be said to be engaged in the business of export; (ii) that there was enough material to hold that assessee had actually exported the goods outside India; and (iii) even assuming that there was no export, assessee was still entitled to deduction under section 80HHC in respect of profits earned on the sale of import entitlements. Thus, it is seen that the area of difference of opinion is too wide to be covered by the proposed question. Hence, at the outset, it was put to both the parties that no purpose would be served by answering the proposed question. It was, therefore, proposed that the question may be re-framed so as to cover the entire controversy and avoid future lit....
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....xports of Rs. 1.19 crore in assessment year 1995-96. Further, there were receipts of Rs. 1,63,225 on account of exchange fluctuation in assessment year 1996-97. (b) Merely because there was lull in the business in some years and small exports of Rs. 24,822 as samples was effected in the year under consideration, it cannot be said that assessee was not engaged in the business of export. (c) Since the import entitlement related to exports, though related to earlier years, profits on sale thereof amounted to profits arising out of export business. Thus, assessee was entitled to deduction under section 80HHC. 5. On the other hand, the contention on behalf of the revenue was as under: (a) To constitute business, there must be continuity of the action which was missing in the present case. (b) After assessment year 1995-96, there is no evidence of any export of goods by the assessee and, therefore, he ceases to carry on the business of export. (c) The assessee has not been able to prove the actual transportation of goods outsideIndia. Hence, there was no export in the year under consideration. In view of such submissions, it was pleaded on behalf of the revenue that ....
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....omputation under section 80HHC works out in negative profits. It was pleaded by him that such negative profits cannot be adjusted against the export incentive mentioned in the proviso. On the basis of such ruling by the Special Bench, it was pleaded that assessee was entitled to such deduction. It was also pointed out by him that even in the subsequent years the assessee had exported the goods in respect of which deduction under section 80HHC was allowable. This fact supports the case of the assessee that he was in the business of exports. It may also be mentioned that in the course of hearing, the counsel for the assessee was specifically asked whether there is any evidence of custom clearance or the mode of transport for export of goods. However, the answer was in negative. According to him, the goods were sent through some person going abroad but he could not substantiate the same by any evidence. On the other hand, the learned DR has strongly relied on the reasonings given by the Judicial Member and contended that in the absence of any evidence, it cannot be said that goods were actually exported and consequently, no deduction was allowable under section 80HHC. 10. Rival sub....
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....ot, it would be appropriate to refer to the relevant provisions of section 80HHC as under: "80HHC: (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise: (2)(a) This section applied to all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee other than the supporting manufacturer in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. (3) For the purposes of sub-section (1),- (a) Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the a....