2015 (3) TMI 842 - HC - Income Tax

Deduction u/s 80HHC on counter sales - whether ITAT as well as the CIT(A) was justified in allowing the deduction u/s 80 HHC when there is no finding to the effect that the goods were cleared at any of the custom station? - Held that - Apex Court in CIT vs. Silver & Arts Palace 2002 (12) TMI 12 - SUPREME Court has held that the counter sale to the foreign tourists against convertible foreign exchange in India, is eligible for deduction under section 80HHC of the Income Tax Act. The Apex Court has also approved the decision of the Allahabad High Court in the case of Ram Babu & sons vs. Union of India 1996 (5) TMI 61 - ALLAHABAD High Court . In the present case the assessee had produced the Sale To Foreign Tourists Voucher, which not only recorded the name and address of the customer (tourist), but also his/her passport number and the declaration given by him that the goods will not be gifted or sold in India. The goods sold at counter at the shop/emporium were sold to be taken out of the country, which necessarily involved clearance of baggage, by the customs authorites. There was no further proof, nor any document in proof of clearance of the goods at the Customs Station by the assessee is required. The declaration in the form of Sale To Foreign Tourist Voucher, for sale made against the convertible foreign exchange with the undertaking that the goods will not be gifted or sold in India, was sufficient proof for export out of India. Unless anything contrary was alleged and proved by the department, it was not necessary for the assessee to have produced the documents of clearance of goods sold by him to the foreign tourists at any Customs Station. The Explanation (aa) is not a rule of evidence, nor raises any presumption. It also does not require any proof of clearance at any Customs Station. The explanation is couched in double negative. It is a rule of exclusion and excludes only those transactions, which do not involve clearance at any Customs Station. It cannot be read in a manner, as suggested by learned counsel appearing for the department that a proof of customs clearance of baggage must be provided to establish the export of goods out of India for the purpose of deduction of profits on such sales under section 80HHC of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
Interpretation of Section 80HHC of the Income Tax Act regarding deductions for counter sales to foreign tourists without proof of customs clearance.

Analysis:
The main issue in this judgment revolves around the interpretation of Section 80HHC of the Income Tax Act concerning deductions for counter sales to foreign tourists without providing proof of customs clearance. The respondent-assessee, a dealer of jewellery and handicrafts, sold goods to foreign tourists in Jaipur against convertible foreign exchange. The Assessing Officer denied the deduction under Section 80HHC, stating that proof of customs clearance was necessary for the exemption to be allowed.

The court referred to various precedents, including the Supreme Court's decision in CIT vs. Silver & Arts Palace, which held that counter sales to foreign tourists against convertible foreign exchange are eligible for deduction under Section 80HHC. The court also cited several Rajasthan High Court decisions and an Allahabad High Court case supporting this view.

The key argument from the Income Tax Department was that proof of clearance at a Customs Station was essential for the exemption under Section 80HHC. However, the court emphasized that the language of Explanation (aa) of sub-section (4C) of Section 80HHC does not explicitly require proof of customs clearance. The court highlighted that the declaration provided by the customer on the Sale To Foreign Tourists Voucher, along with the nature of the transaction, was sufficient proof of export out of India.

The court concluded that the Explanation (aa) is a rule of exclusion and does not necessitate proof of clearance at a Customs Station. The judgment favored the assessee based on previous rulings and the specific circumstances of the case. Consequently, the court decided in favor of the assessee and against the Income Tax Department, dismissing the Income Tax Appeals and directing the judgment to be placed in all connected files.