2019 (3) TMI 1039 - HC - Income Tax

Entitlement to deduction u/s 80HHC (1A) - Non compliance with the mandatory conditions - HELD THAT - We have no iota of doubt that the conditions prescribed under Section 80HHC (1A) of the Act read with Section 80HHC (4A) of the Act are mandatory and cannot be held to be directory in nature and the Assessee cannot claim benefit under the said provisions as Supporting Manufacturer, in the absence of relevant Certificate from the Export House, and the Report of the Chartered Accountant, as stipulated therein. The definition of 'Supporting Manufacturer' in Clause (d) of Explanation to the said proviso also clearly stipulates that to the Supporting Manufacturer, who is manufacturing or processing goods or merchandise and selling such merchandise to an Export House or a Trading House, for the purpose of export, the claim of deduction is given under Sub-section (1A) of Section 80HHC to support and give incentive to such Supporting Manufacturers, as indicated above. The contention raised on behalf of the assessee that these conditions can be taken as directory is, therefore, liable to be rejected and the compliance of these conditions is, therefore, held to be mandatory. Since, admittedly, the assessee, in the present case before us, in none of the Assessment Years, has complied with these conditions, he is not entitled to deduction under Section 80HHC (1A) of the Act, at all. Reopening of assessment - Reopen on the basis of CIT(A) order in subsequent year - HELD THAT - Coming to the issue of Reassessment under Section 147/148 of the Act, we not only find that pre-amendment, the time limit for issuance of notice was up to 10 years, as pointed out by the learned Standing Counsel for the Revenue, but, we also are of the view that once we come to the conclusion that in the absence of compliance with the mandatory conditions the Assessee is not at all entitled to the said deduction under Section 80HHC (1A) of the Act, the resort to Section 147/148 of the Act by way of Reassessment for disallowing the said deduction to the assessee or in the original assessment proceedings becomes academic and on the ground of limitation alone, the law, as interpreted by us, about the mandatory compliance of the conditions cannot be allowed to be defeated for those years also, if the contention raised by the Assessee in this regard were to be accepted for Assessment Years 1992-1993 and 1993-1994. The said question also, therefore, deserves to be answered against the Assessee. No merit in these Appeals filed by the Assessee and the questions framed above deserve to be answered in favour of the Revenue and against the Assessee

Summary

Issues Involved:
1. Entitlement of Assessee to deduction under Section 80HHC (1A) of the Income Tax Act for exports made on behalf of Export Houses.
2. Mandatory nature of the condition requiring production of Certificates and Report of the Accountant under Section 80HHC (4A).
3. Entitlement to deduction for Export Premium or Commission received from Export Houses.
4. Justification of Reassessment Proceedings under Sections 147/148 beyond four years.

Detailed Analysis:

1. Entitlement of Assessee to deduction under Section 80HHC (1A):
The primary issue was whether the Assessee, acting as a Supporting Manufacturer, was entitled to deductions under Section 80HHC (1A) for exports made on behalf of Export Houses. The Tribunal disallowed the claim, observing that the Assessee did not have a direct agreement with foreign buyers but only with the Export Houses. The Tribunal emphasized that the Assessee was merely a processor and not the real exporter, as the export orders and shipping documents were in the name of the Export Houses. The Tribunal concluded that the Assessee could not claim the benefit under Section 80HHC (1A) without a disclaimer certificate from the Export Houses, which had already claimed the benefit.

2. Mandatory nature of Certificates and Report of the Accountant under Section 80HHC (4A):
The Court held that the conditions under Section 80HHC (1A) read with Section 80HHC (4A) are mandatory. The Assessee's failure to produce the required certificates from the Export Houses and the Report of the Accountant meant that the Assessee could not claim the deduction. The Court noted that these requirements are crucial to prevent double claims of deductions for the same exports by both the Export House and the Supporting Manufacturer.

3. Entitlement to deduction for Export Premium or Commission:
The Assessee argued that the Export Premium or Commission received should be eligible for deduction under Section 80HHC (1A), citing the Supreme Court's decision in Baby Marine Exports. However, the Court distinguished this case by noting that in Baby Marine Exports, the Assessee had complied with all conditions. In contrast, the Assessee in the present case failed to meet the mandatory requirements under Section 80HHC (4A). Therefore, the claim for deduction on Export Premium was also denied.

4. Justification of Reassessment Proceedings under Sections 147/148:
The Assessee contested the reopening of assessments for the years 1992-1993 and 1993-1994, arguing that it was time-barred and there was no failure to disclose material facts. The Court found that the reopening was within the permissible ten-year limit under the pre-amendment provisions of Section 149. Additionally, since the Assessee did not comply with the mandatory conditions for claiming deductions, the reassessment was justified. The Court concluded that the reassessment proceedings were valid and necessary to disallow the improper deductions initially granted.

Conclusion:
The Court dismissed the Assessee's appeals, holding that the Assessee was not entitled to deductions under Section 80HHC (1A) for any of the assessment years in question due to non-compliance with mandatory conditions. The issue of reassessment under Sections 147/148 was deemed academic and left unanswered. The appeals were dismissed with no costs.