2004 (5) TMI 248 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee was engaged in the business of export during the relevant assessment year.
2. Whether the amount received from the sale of import licences qualifies for deduction under section 80HHC of the Income-tax Act.
3. Whether the export sales claimed by the assessee were genuine and complied with the requirements of section 80HHC.

Issue-wise Detailed Analysis:

1. Whether the assessee was engaged in the business of export during the relevant assessment year:

The assessee claimed to be engaged in the business of exports, citing past export activities and the receipt of foreign exchange from export sales. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee was not engaged in the business of exports during the relevant year, as there were no substantial exports made in the years 1996-97 and 1997-98, except for exchange fluctuation realizations. The CIT(A) further noted that the export sales of Rs. 24,822 were gift samples and did not qualify as carrying on an export business. The Tribunal was divided on this issue, with the Judicial Member (JM) agreeing with the AO and CIT(A), while the Accountant Member (AM) believed that the assessee was engaged in the business of exports, considering the past export activities and the continuity of the business.

2. Whether the amount received from the sale of import licences qualifies for deduction under section 80HHC of the Income-tax Act:

The AO denied the benefit of section 80HHC on the premium derived from the sale of import licences, stating that the licences were related to exports made in the accounting year 1995-96 and not in the relevant assessment year. The CIT(A) supported this view, referring to a judgment that profits from the sale of licences could not be termed as profits from the export business. The AM, however, held that the assessee was entitled to the deduction under section 80HHC on the income received from the sale of import licences, as the licences were acquired due to the export activities in the previous years. The Special Bench decision in the case of International Park Research Laboratories Ltd. was cited, which held that even in the absence of fresh exports during the year, the assessee could be entitled to the deduction.

3. Whether the export sales claimed by the assessee were genuine and complied with the requirements of section 80HHC:

The AO found that the export sales of Rs. 24,822 were not genuine, as there was no evidence of customs clearance or transportation of goods. The CIT(A) also noted that the export sales did not comply with the requirements of section 80HHC, as there was no proper documentation to prove the export. The JM agreed with this view, stating that the claim of export sales was not genuine and the amount received was in a clandestine manner. The AM, however, disagreed, stating that the documentary evidence provided by the assessee, including the purchase order, invoice, and foreign inward remittance certificate, supported the genuineness of the export sales. The AM also noted that the term "Gift Samples" used in the invoice referred to the nature of the goods and did not affect their eligibility for deduction under section 80HHC.

Third Member's Decision:

The Third Member agreed with the JM, holding that no deduction under section 80HHC could be allowed unless there was actual export during the year under consideration. The Third Member noted that the assessee failed to provide evidence of customs clearance or transportation of goods, and therefore, it could not be established that there was an actual export. The Third Member also held that the computation of deduction under section 80HHC required actual export turnover, and in the absence of such export, no deduction could be allowed under the proviso to section 80HHC(3).

Conclusion:

The appeal of the assessee was dismissed, and it was held that the assessee was not entitled to the deduction under section 80HHC of the Income-tax Act for the relevant assessment year. The decision emphasized the necessity of actual export and proper documentation to claim the deduction under section 80HHC.