1999 (2) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Denial of benefit under Section 80HHC of the IT Act, 1961.
2. Determination of the genuine exporter.
3. Assessment of income as undisclosed.
4. Legality of observations in the assessment order.
5. Validity of the assessment notice under Section 158BC(a)(i).
6. Impact of the Madras High Court's order on previous notices.
7. Legality of the tax levy.
8. Additional ground regarding assessment under Section 158BC.

Issue-wise Detailed Analysis:

1. Denial of Benefit under Section 80HHC:
The assessee challenged the denial of the benefit under Section 80HHC on the income of Rs. 1,87,67,770, which was claimed to have arisen directly from the export of goods. The Tribunal noted that the assessee had already been allowed this deduction in the proceedings under Section 143(1)(a). The Tribunal found no fresh material discovered during the search that could justify the denial of the claim under Chapter XIV-B. The Tribunal concluded that the income from exports was duly disclosed in the return filed for the assessment year 1995-96, and thus, the benefit under Section 80HHC should not have been denied.

2. Determination of the Genuine Exporter:
The AO had held that the appellant had not made any regular exports and that the genuine exporter was M/s A.V. Thomas & Co. The Tribunal examined the voluminous evidence provided by the assessee, including export invoices, packing lists, bills of lading, and other supporting documents, and found that the exports were indeed made by the assessee. The Tribunal noted that the profits from the exports were appropriated by the partners of the firm, reinforcing the assessee's claim as the genuine exporter.

3. Assessment of Income as Undisclosed:
The assessee argued that the income assessed under Section 158BC was already disclosed in the return for the assessment year 1995-96 and thus could not be treated as undisclosed income. The Tribunal agreed, noting that the income from exports was declared in the return and assessed under Section 143(1)(a). The Tribunal found no evidence from the search that could classify the income as undisclosed. The Tribunal emphasized that for income to be assessed under Chapter XIV-B, it must be undisclosed and discovered as a result of the search, which was not the case here.

4. Legality of Observations in the Assessment Order:
The assessee contended that the observations in para 5(e) of the assessment order were uncalled for, illegal, and irrelevant. The Tribunal did not find it necessary to delve deeply into this contention, as the primary issue of whether the income was undisclosed had already been resolved in favor of the assessee.

5. Validity of the Assessment Notice under Section 158BC(a)(i):
The assessee argued that the assessment made on 28th Nov. 1997 was illegal as the mandatory notice under Section 158BC(a)(i) was not served after the transfer of the case from Chennai to New Delhi. The Tribunal did not specifically address this issue in detail, focusing instead on the broader question of whether the income assessed was undisclosed.

6. Impact of the Madras High Court's Order on Previous Notices:
The assessee claimed that earlier notices became invalid following the Madras High Court's order quashing the transfer order. The Tribunal did not specifically address this issue, as the primary determination was that the income in question was not undisclosed.

7. Legality of the Tax Levy:
The assessee argued that the tax levy of Rs. 1,12,60,664 was illegal and unjust. The Tribunal's decision to delete the addition of Rs. 1,87,67,774 as undisclosed income effectively rendered the tax levy unjustified.

8. Additional Ground Regarding Assessment under Section 158BC:
The assessee raised an additional ground that the assessment under Section 158BC was not justified as the return for the assessment year 1995-96 had already been processed under Section 143(1)(a). The Tribunal admitted this additional ground, noting that the legal issue went to the root of the matter and required examination. The Tribunal ultimately found that there was no undisclosed income justifying the assessment under Section 158BC.

Conclusion:
The Tribunal concluded that the income of Rs. 1,87,67,774 was not undisclosed and deleted the addition made under Section 158BC. The assessee's appeal was allowed, and the benefit under Section 80HHC was upheld.