1997 (6) TMI 45 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments under Section 147 of the IT Act.
2. Entitlement of assessees to full deduction under Section 80HHC for exports made through export houses.
3. Application and relevance of CBDT Circular No. 466 and its subsequent cancellation by Circular No. 528.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147 of the IT Act:

The Revenue contended that the reopening of assessments for AYs 1987-88 and 1988-89 was justified as per the amended provisions of Section 147 effective from April 1, 1989. The Assessing Officer (AO) believed that income chargeable to tax had escaped assessment due to excess relief granted under Section 80HHC. The AO issued notices under Section 148 to reopen the assessments, citing incorrect computation of export profits and non-consideration of CBDT Circular No. 466. The CIT(A) invalidated the reopening, stating it was based on internal audit party opinions, which lacked authority to determine legal positions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the reopening was not due to the assessee's failure to disclose material facts and thus was invalid.

2. Entitlement of Assessees to Full Deduction under Section 80HHC for Exports Made through Export Houses:

The Revenue argued that deductions under Section 80HHC should not be allowed for exports made through export houses, as the benefits were intended for supporting manufacturers from AY 1989-90 onwards. The AO denied deductions for lack of disclaimer certificates from export houses, which was a requirement under CBDT Circular No. 466. The CIT(A) ruled in favor of the assessees, allowing full deductions under Section 80HHC, even for exports made through export houses. The Tribunal agreed, noting that the assessees received foreign exchange directly and bore all associated risks and expenses, making them the real exporters entitled to the deduction.

3. Application and Relevance of CBDT Circular No. 466 and Its Subsequent Cancellation by Circular No. 528:

The Revenue based its reopening of assessments on CBDT Circular No. 466, which required a disclaimer certificate from export houses for manufacturers to claim deductions under Section 80HHC. This circular was later canceled by Circular No. 528. The Tribunal noted that Circular No. 466 was not applicable for the assessment years in question and that the cancellation by Circular No. 528 further invalidated its relevance. The Tribunal concluded that the AO's reliance on the outdated circular for reopening assessments was misplaced and unjustified.

Conclusion:

The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s orders that the reopening of assessments was invalid and that the assessees were entitled to full deductions under Section 80HHC for exports made through export houses. The cross-objections filed by the assessees, which supported the CIT(A)'s orders, were also dismissed. The Tribunal emphasized that the reopening was not due to any failure on the part of the assessees to disclose material facts and that the assessees were the real exporters entitled to the deductions claimed.