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Issues Involved:
1. Disallowance of the provision made towards purchase tax of marine products. 2. Entitlement to deduction under section 80HHC for exports carried out through export houses. Issue-wise Detailed Analysis: 1. Disallowance of the Provision Made Towards Purchase Tax of Marine Products: The assessee, a registered firm engaged in the export of marine products, contested the Income-tax Officer's disallowance of a provision amounting to Rs. 18,63,564 made towards purchase tax. The assessee claimed exemption from purchase tax under sections 5(1) and 5(3) of the Central Sales Tax Act, relying on the Kerala High Court decision in Neroth Oil Mills Co. Ltd. Despite no demand being raised by the Sales Tax Department for the relevant year, the assessee anticipated a future liability due to an appeal by the department to the Supreme Court and potential statutory changes. Both the Income-tax Officer and the CIT (Appeals) held that there was no liability to pay purchase tax, relying on the Kerala High Court decision and the Supreme Court decision in Sterling Foods v. State of Karnataka [1986] 63 STC 239. The Tribunal upheld the CIT (A)'s order, stating that the assessee is not entitled to this deduction, referencing a similar decision in Geo Sea Foods [IT Appeal No. 9 (Coch.) of 1987, dated 9-9-1987]. 2. Entitlement to Deduction Under Section 80HHC for Exports Carried Out Through Export Houses: The second issue was whether the assessee was entitled to a deduction under section 80HHC for exports conducted through export houses. Section 80HHC allows deductions for Indian companies or residents exporting goods, provided the sale proceeds are received in convertible foreign exchange. The Income-tax Officer partially disallowed the claim, noting that a significant portion of the exports (Rs. 3,81,81,565 out of Rs. 4,10,84,286) was conducted through recognized export houses, leaving only Rs. 29,02,720 as direct exports by the assessee. The question was whether the assessee could claim deductions for exports made through export houses. The Tribunal examined the agreements between the assessee and export houses, such as M/s. Mathur Imports and Exports Pvt. Ltd. The agreements stipulated that the export houses would procure orders, and the assessee would export the goods in the name of the export house, with letters of credit opened in the export house's name. The export house would negotiate the documents and credit the sale proceeds to the assessee's account, paying a commission of 2.25% on the FOB value. The Tribunal analyzed various documents, including export applications, bills of lading, invoices, and bank accounts, which indicated that the assessee undertook all export formalities and received the sale proceeds in convertible foreign exchange. The department argued that the export house was the real exporter since they claimed deductions and received letters of credit. The Tribunal concluded that the assessee was the real exporter, as they purchased, processed, and shipped the goods, bore all risks and expenses, and received the sale proceeds. The export house merely facilitated the process to gain RCP entitlements. The Tribunal referenced the Delhi High Court decision in Fero Alloys Corpn. Ltd. v. R. C. Mishra, Director, Tax Credit [1978] 114 ITR 753, which held that the actual exporter should be considered the exporter for tax benefits. The Tribunal also noted that the CBDT circular referred to by the CIT(A) applied to the amended section 80HHC post-1985, which required engagement in the export business, unlike the unamended section applicable for the year in question. Conclusion: The Tribunal allowed the assessee's appeal in part, holding that the assessee is entitled to the deduction under section 80HHC for exports conducted through export houses. The appeal was partly allowed.
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