2004 (6) TMI 248 - AT - Income Tax

Summary

Issues Involved:
1. Claim of deduction under section 80HHC for exports made through a third party.
2. Eligibility of the assessee for deduction under section 80HHC despite using another party's export quota.
3. Interpretation of the legal provisions and the intention behind section 80HHC.
4. Examination of whether the assessee's actions constituted an infringement of the export policy or any other law.

Issue-wise Detailed Analysis:

1. Claim of Deduction under Section 80HHC for Exports Made Through a Third Party:
The primary issue was whether the assessee was entitled to claim a deduction under section 80HHC for exports made through a third party, M/s. Bhairav Enterprises, which held the export quota. The Assessing Officer (AO) disallowed the claim, arguing that the export benefits should be granted to the actual exporter, M/s. Bhairav Enterprises, as the export bills were made in its name. The AO contended that the foreign exchange should have been received by M/s. Bhairav Enterprises and not the assessee.

2. Eligibility of the Assessee for Deduction under Section 80HHC Despite Using Another Party's Export Quota:
The assessee argued that it had fulfilled all the requirements for claiming the deduction under section 80HHC, including receiving foreign exchange, procuring raw materials, undertaking manufacturing activities, and handling all shipping formalities. The first Appellate Authority (CIT(A)) upheld the AO's decision, stating that the third party was the real exporter entitled to the benefits. However, the Tribunal noted that the assessee had utilized the quota of M/s. Bhairav Enterprises because its own quota was fully utilized, and it had procured additional orders exceeding its quota.

3. Interpretation of the Legal Provisions and the Intention Behind Section 80HHC:
The Tribunal emphasized that the object of section 80HHC is to grant an incentive to earners of foreign exchange, and this beneficial section should be interpreted liberally to encourage larger exports. The Tribunal observed that the assessee had fulfilled all the conditions prescribed under section 80HHC, including receiving convertible foreign exchange in India. The Tribunal highlighted that the assessee was the actual exporter, having carried out all export-related activities and received the sale proceeds in foreign exchange.

4. Examination of Whether the Assessee's Actions Constituted an Infringement of the Export Policy or Any Other Law:
The Tribunal examined whether the assessee's actions constituted an infringement of the export policy or any other law. The Tribunal found no evidence indicating that the assessee had infringed any law, especially in utilizing the export quota granted to M/s. Bhairav Enterprises. The Tribunal noted that the assessee had obtained export orders exceeding its quota and used the unutilized quota of the third party. The Tribunal distinguished the present case from the Sea Pearl Industries case, where both the export house and the appellant claimed the deduction under section 80HHC. The Tribunal concluded that there was no violation of any law and that the assessee was entitled to the deduction under section 80HHC.

Conclusion:
The Tribunal reversed the findings of the CIT(A) and allowed the assessee's appeals for both assessment years, concluding that the assessee was entitled to the deduction under section 80HHC for the exports made through the third party. The Tribunal emphasized the beneficial nature of section 80HHC and the need to interpret it liberally to encourage foreign exchange earnings.