2015 (3) TMI 843 - HC - Income Tax

Deduction u/s 80HHC on counter sales - whether ITAT as well as the CIT(A) was justified in allowing the deduction u/s 80 HHC when there is no finding to the effect that the goods were cleared at any of the custom station? - Held that - Apex Court in CIT vs. Silver & Arts Palace 2002 (12) TMI 12 - SUPREME Court has held that the counter sale to the foreign tourists against convertible foreign exchange in India, is eligible for deduction under section 80HHC of the Income Tax Act. The Apex Court has also approved the decision of the Allahabad High Court in the case of Ram Babu & sons vs. Union of India 1996 (5) TMI 61 - ALLAHABAD High Court . In the present case the assessee had produced the Sale To Foreign Tourists Voucher, which not only recorded the name and address of the customer (tourist), but also his/her passport number and the declaration given by him that the goods will not be gifted or sold in India. The goods sold at counter at the shop/emporium were sold to be taken out of the country, which necessarily involved clearance of baggage, by the customs authorites. There was no further proof, nor any document in proof of clearance of the goods at the Customs Station by the assessee is required. The declaration in the form of Sale To Foreign Tourist Voucher, for sale made against the convertible foreign exchange with the undertaking that the goods will not be gifted or sold in India, was sufficient proof for export out of India. Unless anything contrary was alleged and proved by the department, it was not necessary for the assessee to have produced the documents of clearance of goods sold by him to the foreign tourists at any Customs Station. The Explanation (aa) is not a rule of evidence, nor raises any presumption. It also does not require any proof of clearance at any Customs Station. The explanation is couched in double negative. It is a rule of exclusion and excludes only those transactions, which do not involve clearance at any Customs Station. It cannot be read in a manner, as suggested by learned counsel appearing for the department that a proof of customs clearance of baggage must be provided to establish the export of goods out of India for the purpose of deduction of profits on such sales under section 80HHC of the Income Tax Act. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 80HHC of the Income Tax Act regarding deduction for counter sales to foreign tourists.
2. Requirement of proof of clearance at Customs Station for claiming exemption under Section 80HHC.
3. Application of Explanation (aa) of sub-section (4C) of Section 80HHC in determining eligibility for deduction.

Analysis:
1. The main issue in this case revolves around the interpretation of Section 80HHC of the Income Tax Act concerning the deduction for counter sales made to foreign tourists. The Commissioner of Income Tax challenged the allowance of deduction under this section by the Income Tax Appellate Tribunal. The key question was whether the deduction of a specific amount under Section 80HHC was justified despite the provisions of Explanation (aa) to Section 80HHC of the Act of 1961. The Tribunal and CIT(A) had allowed the deduction, prompting the Commissioner's appeal.

2. Another crucial issue was the requirement of proof of clearance at the Customs Station for claiming exemption under Section 80HHC. The Assessing Officer had denied the deduction to the respondent-assessee on the grounds that although goods were sold to foreign tourists at the counter, proof of clearance at the Customs Station was not provided. The dispute centered on whether the absence of such proof invalidated the eligibility for the deduction.

3. The application of Explanation (aa) of sub-section (4C) of Section 80HHC was pivotal in determining the eligibility for the deduction. The explanation excluded transactions not involving clearance at any Customs Station from the definition of "export out of India." The crux of the matter was whether the Sale To Foreign Tourists Voucher, which contained customer details and declarations regarding the goods not being gifted or sold in India, was sufficient proof of export out of India, despite the lack of specific Customs Station clearance documentation.

In the judgment, the High Court referenced previous decisions by the Apex Court and other High Courts, which supported the allowance of deductions for counter sales to foreign tourists against convertible foreign exchange. The Court emphasized that the Sale To Foreign Tourists Voucher, coupled with the nature of the transactions, constituted satisfactory evidence of export out of India. The Court clarified that the absence of Customs Station clearance documents did not automatically disqualify the assessee from claiming the deduction under Section 80HHC. Ultimately, the Court ruled in favor of the assessee, dismissing the Income Tax Appeal and upholding the allowance of the deduction.