2004 (7) TMI 15 - HC - Income Tax

Notice under section 148 seeking to withdraw the deduction granted to the petitioners under section 80HHC - business of handicrafts items and marble goods in the city of Agra - petitioners claim benefit of special deduction under section 80HHC in respect of the turnover and profit of counter sales made against convertible foreign exchange to the foreign tourists - action under section 148 of the Act has been initiated solely on the ground that the counter sales effected against convertible foreign exchange even though it has been exported out of India and has been subjected to customs clearance, the deduction is not to be allowed. In this view of the matter, there is no necessity for relegating the petitioner to file a fresh return and submit reply before the Assessing Officer hence, writ petitions succeed and are allowed. The notices issued under section 148 and consequential proceedings are set aside

Summary

Issues:
Challenge to notices issued under section 148 of the Income-tax Act for assessment years 1996-97 and 1998-99, regarding special deduction under section 80HHC for counter sales made against foreign exchange.

Analysis:

The High Court of Allahabad heard three writ petitions together, where the petitioners, engaged in the business of handicrafts and marble goods, challenged notices issued under section 148 of the Income-tax Act for the assessment years 1996-97 and 1998-99. The petitioners claimed a special deduction under section 80HHC for counter sales made against convertible foreign exchange to foreign tourists visiting Agra. The assessing authority initially accepted the claim but later sought to withdraw the deduction. The court noted that a Division Bench decision and a subsequent Supreme Court ruling established that counter sales made against foreign exchange, subject to customs clearance, are entitled to the deduction under section 80HHC. The court held that as per these precedents, there was no reasonable belief for the Assessing Officer to issue notices under section 148 to withdraw the deduction. Therefore, the court quashed the notices. The Revenue's reliance on a different Supreme Court decision was deemed misconceived as the law established by the earlier rulings was still valid until reversed or disapproved by the Supreme Court.

In light of the above analysis, the court allowed all three writ petitions, setting aside the notices issued under section 148 and the consequential proceedings. The court ruled that there would be no costs associated with the judgment.