2007 (4) TMI 304 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement of deduction u/s 80HHC for goods purchased from EOUs.
2. Entitlement of deduction u/s 80HHC for goods purchased overseas and transshipped directly to a third country.

Summary:

Issue 1: Entitlement of deduction u/s 80HHC for goods purchased from EOUs

The Revenue questioned whether the CIT(A) was justified in directing the AO to allow deduction u/s 80HHC of the IT Act, 1961 to the assessee. The assessee, trading in chemicals and exporting granite blocks, claimed deduction u/s 80HHC, which the AO denied, arguing that both the manufacturer and the assessee could not claim deduction for the same goods. The assessee, a registered merchant exporter, procured orders from foreign buyers and purchased goods from various manufacturers, including EOUs. The EOUs claimed deduction u/s 10B and other export benefits. The assessee provided a disclaimer certificate, surrendering export benefits to the EOUs. The CIT(A) concluded that the assessee was entitled to deduction u/s 80HHC even for goods purchased from EOUs. The Tribunal upheld the CIT(A)'s order, stating that the assessee was entitled to claim deduction u/s 80HHC on the income earned from the export, as the orders were procured by the assessee and the proceeds were realized in convertible foreign exchange in the assessee's account. The Tribunal clarified that the income earned by the assessee and the manufacturers on the same goods were different, and thus, the assessee was entitled to the deduction u/s 80HHC.

Issue 2: Entitlement of deduction u/s 80HHC for goods purchased overseas and transshipped directly to a third country

The assessee questioned the CIT(A)'s order confirming the disallowance of deduction u/s 80HHC for export turnover of goods purchased from overseas and transshipped directly to a third country. The AO denied the claim, stating that the goods were not exported out of India. The CIT(A) upheld the AO's decision, referring to the Customs Act's definition of export. The Tribunal, however, agreed with the assessee, citing a decision of the Mumbai Bench of the Tribunal in the case of S.M. Energy Teknik & Electronics Ltd. vs. Dy. CIT. The Tribunal concluded that the term "export" means sending goods to another country, and it did not matter if the goods were not physically brought to India. The Tribunal emphasized that the aim of s. 80HHC is to encourage export and earn foreign currency, which the assessee fulfilled. The Tribunal set aside the lower authorities' orders and directed the AO to allow the claimed deduction u/s 80HHC.

Conclusion:

Both the Departmental appeals were dismissed, and the assessee's appeal was allowed.