2015 (4) TMI 337 - HC - Income Tax

Deduction u/s 80HHC on counter sales to foreign tourists in the showroom against the convertible foreign exchange in India - 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:
1. Interpretation of section 80HHC of the Income Tax Act regarding deduction for counter sales made to foreign tourists.
2. Requirement of proof of customs clearance for allowing the deduction under section 80HHC.
3. Application of precedents set by the Apex Court and various High Courts in similar cases.

Analysis:
1. The main issue in this case revolves around the interpretation of section 80HHC of the Income Tax Act concerning the deduction for counter sales made to foreign tourists. The Commissioner of Income Tax appealed against the order of the Income Tax Appellate Tribunal, questioning the justification of allowing the deduction under section 80HHC to the assessee without proof of customs clearance of the goods sold to foreign tourists.

2. The facts of the case highlight that the respondent-assessee, a dealer of jewellery and handicrafts, made sales to foreign tourists in Jaipur against convertible foreign exchange. The Assessing Officer denied the deduction under section 80HHC, insisting on proof of customs clearance at the Customs Station for the goods sold. However, the Tribunal's decision was in favor of the assessee, citing relevant legal provisions and precedents.

3. The judgment extensively references the decision of the Apex Court in CIT vs. Silver & Arts Palace, which established that counter sales to foreign tourists against convertible foreign exchange are eligible for deduction under section 80HHC. Additionally, the Rajasthan High Court and Allahabad High Court have consistently upheld similar views in various cases, emphasizing that the requirement of proof of customs clearance for such transactions is not a prerequisite for claiming the deduction.

4. The court analyzed the language of Explanation (aa) of sub-section (4C) of section 80HHC, emphasizing that the exclusion of transactions not involving clearance at any Customs Station does not necessitate proof of customs clearance for each sale to foreign tourists. The court held that the Sale To Foreign Tourists Voucher, recording customer details and declarations, along with the nature of the transactions, provided sufficient evidence of export out of India, meeting the criteria for the deduction under section 80HHC.

5. Ultimately, the court dismissed the Income Tax Appeal, ruling in favor of the assessee based on the established legal precedents and the interpretation of relevant provisions. The judgment reaffirmed the consistent stance taken by the Apex Court and various High Courts, concluding that the burden of proof of customs clearance for such transactions does not invalidate the eligibility for deduction under section 80HHC.