TMI Blog2004 (5) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... against which net profit of Rs. 35,51,972 was declared. On this profit of sale of licence, the assessee has claimed deduction under section 80HHC at Rs. 31,97,357. 4. During the course of investigation before finalising the assessment the Assessing Officer found that the sum of Rs. 24,822 shown by the assessee in the profit and loss account pertain to the sale of gift samples sold to M/s. S.D. Handa Co., UK on 10-1-1998. The said samples as per the record are stated to have been purchased on a price of Rs. 15,465 on12-12-1997. Apart from this transaction which pertain to the receipts from the sale of gift samples, there was no other export sales in the profit and loss account during the year. The sale of the licence on which section 80HHC benefit was claimed is stated to be related to the export sales made in the accounting year 1995-96. The Assessing Officer as per the record which has also not been disputed before us has observed that there are no export sales in the years 1996-97 and 1997-98 except exchange fluctuation realisation of Rs. 1,63,225 for the period relevant to accounting year 1996-97. The Assessing Officer found that as the assessee has not made any export sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be said to be profit accrued from the export business which would be eligible for deduction under section 80HHC. With these reasons the CIT(A) was pleased to dismiss the appeal filed by the assessee. 7. Having lost at two places the assessee has filed the present appeal before us on the ground that the authorities below have erred in denying the benefit of section 80HHC of the IT Act on the amounts realised by him as a result of the sale of the licence. 8. At the time of hearing of the appeal, the ld. counsel for the assessee submitted at the outset that the assessee is engaged in the business of exports within the meaning of section 80HHC(1). To establish that the assessee is engaged in the business of exports out of India as contemplated within the meaning of section 80HHC(1), the assessee brought to our notice that in 1990-91, 1991-92, 1992-93, the assessee had exported goods worth Rs. 8,08,750, Rs. 1,30,925 and Rs. 11,070. While making the submissions on this account it was further submitted that though there was no export sale in 1993-94, the assessee had made export sale to the tune of Rs. 1,19,03,184 in the year 1994-95. The assessee as per record available had su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disputed in the year 1996-97 also there was no sale. TheLd. DRwhile coming to the issue of dispute submitted that the export sales as claimed by the assessee in the assessment year 1997-98 are not export sales. Even the provisions of explanation (aa) added to sub-section 4B of section 80HHC have not been complied with. The ld. DR submitted that in fact there is no transaction of export undertaken by the assessee and the documents placed on the record on which the reliance was placed by the ld. counsel for the assessee during the course of hearing were fabricated documents. It was in this background the Ld. DR submitted that the sales of exports claimed by the assessee are not sales within the meaning of section 80HHC(1) of the IT Act as well as explanation (ad) added to sub-section 4B of section 80HHC of the IT Act, and, therefore, in these circumstances, the authorities below have rightly refused the benefit to the assessee. 11. Another argument that was raised by the ld. DR during the course of hearing was that the benefit which the Government advances by way of duty drawback or export subsidy cannot be termed as profit derived from the export benefit and therefore, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he month of December this year or of beginning of January in the forthcoming year. You could then show and discuss with him the samples as referred to above, so that he is in a position to select proper items." 14. A perusal of the aforesaid letter indicates that S.P. Handa Co. have informed the assessee through this letter of their intention to start some business in the items indicated in this letter and informing the assessee that their representative may meet him in this regard in December or January. 15. This letter without any reservation we may say, indicates nothing more than this. 16. The record further transpires that after this letter the assessee on its own is stated to have purchased some samples from one concern called Woven Classics on12th December, 1997. The address of the Woven Classics is A-224, Okhla Industrial Area, Phase I,New Delhi, which is also the premises of the assessee. The idea with which these garments have been purchased is not understandable for the reason that the letter of the client of the assessee, based inUKto whom the assessee is stated to have ultimately sold its material does not indicate the kind and nature of samples, the number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to how the goods have gone is missing. The name of the person/individual who carried the goods when carried goods is also missing. We, therefore, safely can say that the goods have not been taken by any individual personally. If the goods are not taken by any individual personally, it brings us to the issue as to how the goods have reachedEnglandif at all it reached. The only way was through parcel. No material worth the name has been placed on the record which would indicate the airway bill, the parcel No., the mode of transport, the date on which it was despatched and how goods reachedEngland. If the goods have reachedEnglandby transport, then in that case requirement of explanation AA added to sub-section 4B of section 80HHC would not be satisfied because the custom clearance has not been placed on the record. We, therefore, say that the test as contemplated by explanation (ad) added to sub-section 4B of section 80HHC of IT Act stands not satisfied. In view of the discussion above, we are of the view that the claim of the assessee with regard to the goods that have not been exported is not a genuine claim and the amount received has been received in a clandestine manner. If it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 1995-96 1,19,03,984 1996-97 1,63,225 (exchange fluctuation on sales made in assessment year 1995-96) 1997-98 Nil 5. The appellant had been claiming a deduction under section 80HHC of the Act in respect of the export sales for the relevant assessment years, including for the assessment year 1996-97 which deductions had been allowed as such, however for the instant year the deduction claimed under section 80HHC of the Act, has not been allowed as no exports have been made during the period relevant to the assessment year, which is however disputed by the appellant. During the year the assessee had made export sales of ladies suits and dress of Rs. 24,822 to one of its customers namely M/s. Handa Co. in U.K. the assessee had further received foreign exchange against the sale of above goods within six months from the end of the previous year, the following documentary evidences had been filed by the assessee to support the export sales made: (a) Copy of purchase order and invoice of export sale; (b) Copy of Certificate of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is in appeal before the Tribunal. Both the learned counsel for the assessee Shri Salil Aggarwal Advocate and the learned D.R. argued at length at the Bar and drew attention of the Bench to the various material facts which have been noted by my learned brother. However, few arguments of the counsel for the assessee which have escaped the attention of my learned brother are that the department cannot be allowed to take a duel stand i.e. on one hand assess the income from sale of advance licences in the impugned assessment year and at the same time deny the claim of deduction under section 80-HHC of the Act. On basis of this logic, it was submitted that the revenue could assess the income from sale of licenses in assessment year 1996-97 and allow deduction correspondingly. Further, it was contended that section 80-HHC of the Act is an incentive granting provision and it should be interpreted in a manner so as to advance the objective of boosting exports and not frustrate it. Reliance was placed on Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC). 10. On the basis of the aforesaid facts, I find no justification in the contention of the revenue that the assessee is not engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how or justify the conclusion of cessation of the activities of exports made by the assessee. The facts have to be analysed in a more pragmatic manner, the assessee's intention to remain in business is more than evident from its various correspondences placed before us as well as both the lower authorities. It has not been brought out either in the order of assessment or the order of CIT(A) that the conduct of business activities of exports had come to a halt or complete stoppage. Had that been a situation, the action of the Assessing Officer in assessing income from the firm as business income would altogether be contradictory. In fact, there is no clear finding of the Assessing Officer that assessee had stopped its business of exports, the nexus between the licences and exports made in assessment year 1995-96 is undisputed. Section 80-HHC of the Act does not enjoin an assessee to be engaged in the business of export of goods fromIndiaduring the year nor there is any condition that assessee should be continuously in business. The mandate is that the assessee should be engaged in the business of export. The word engaged implies continuity of action which is implied and can only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll subsequent developments to arrive at a correct conclusion. Reliance is placed on decisions in the case of CIT v. Dunlop India Ltd. [1992] 197 ITR 34 (Cal.), Pasupuleti Venkateswarlu v. Motor General Traders AIR 1975 SC 1409, Hasmat Rai v. Raghunath Prasad AIR 1981 SC 1711. The perusal of the aforesaid documents thus further establishes that the assessee had never halted its business activities and is in the business of exports. Besides, it may also be mentioned that section 80HHC when it was first introduced by the Finance Act w.e.f. 1983 required the assessee to make export out of India during the previous year relevant to the assessment year but vide subsequent amendment in Finance Act, 1985 w.e.f. 1986-87 this requirement was done away with and provided that assessee should be engaged in business of exports. The assessee is, therefore, held to be in the business of export and the receipt on account of sale of import entitlement which the assessee acquired solely on account of its exports in the previous year is a business receipt and eligible for deduction under section 80HHC of the Act. The requirements of law as prescribed under section 80HHC of the Act is that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the part of the assessee to engage in the business of exports. Therefore in view of the aforesaid facts and ample material on record, the assessee is held to be in business of exports and the fact that there are export sales or not during the year cannot be a conclusive criterion to determine, the activity of conduct of business. 15. The assessee is further entitled for deduction under section 80-HHC of the act on the sale of import entitlement even if during the year he has not executed any export order, once he is found to be in business of exports as has been held by the Special Bench decision in the case of International Park Research Laboratories Ltd. v. Asstt. CIT [1994] 50 ITD 37 (Delhi). The assessee in the instant case is engaged in the business of export and the receipt on account of sale of import entitlements which the assessee acquired solely on account of its exports in the financial year 1994-95 is entitled for section 80-HHC relief, the receipt on account of import entitlement is nothing for exporters but to compensate them for quoting a lower price and be competitive in the international export market, the import entitlements have been issued to them have aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned brother, in my opinion, is based completed on presumptions and assumptions. In fact, this is not even what has been contended by the Assessing Officer or CIT(A). Firstly, the finding that amount of Rs. 24,822 was brought in a clandestine manner is not borne out from record. It seems the documentary evidence placed by the assessee in the shape of Foreign Inward Remittance Certificate issued by SBI, Nehru Place Branch,New Delhi, at page 10 of the paper book has been completely overlooked. The perusal of the document would clearly establish that amount of 350 pound sterlings had been received by the assessee from M/s. Handa Co.,U.K.as a result of export of Gift Samples. Moreover, Assessing Officer had accepted the same as sale proceeds of the goods exported and not assessed the same as unexplained cash credit under section 68 of the Act, thus, the observations are based on mere surmise and conjectures. This is not even the case of the Assessing Officer. It is really not understood that on what basis it can be imagined that the assessee had received the sum of Rs. 24,822 in a clandestine manner. A fact, which remains totally unsubstantiated from record. The word clandestine me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the appellate order appealed against are according to law and properly framed on facts and whether there is sufficient material to support it. When there is no material to support it and when, as observed by the Accountant Member, the addition made by the Assessing Officer could not be sustained it is not for the Tribunal to start investigation suo motu and supply the evidence for the department. If the additions are not supported by evidence, the only course open to the Tribunal is to delete the additions. It is for the department to gather the material and make proper assessment and the Tribunal is not in that fashion an Income-tax Authority. It is purely an appellate authority. Therefore, the object of the appeal before the Tribunal is whether the addition or disallowance sustained is in accordance with law and supported by material. If there is no sufficient material the addition must be deleted. The Tribunal cannot order further enquiry with a view to sustaining the addition. This would amount to taking sides with the parties which is not the function of a judicial authority like the Tribunal." (b) Hindustan Ferodo Ltd. v. CCE 1997 (89) ELT 16 (SC): "It is not the funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] sitting at Agra after considering various decisions on this subject. It has been held therein that- "At the outset that the issue is covered by the decision of the jurisdictional High Court in the case of Ram Babu Sons v. UOI reported in 222 ITR 606. Their Lordships have held as under: 'What Explanation (aa) means is that it will not be an export out ofIndiaif two conditions are satisfied: (i) it should be a transaction by way of sale otherwise in a shop, emporium or an establishment situated inIndia; (ii) it should not involve clearance in the custom as defined in the Customs Act. Both these conditions must be satisfied if the transaction is to be held to be not an export out ofIndia. If either of these conditions is not satisfied it is an export out ofIndia. Hence, it will be a transaction involves clearance at customs it will be an export out ofIndiawithin the meaning of Explanation (aa). Explanation (aa) has nothing to do with the seller or purchaser. It is the transaction which should involve clearance at customs if it is to be an export out ofIndiawithin the meaning of Explanation (aa).' After the aforesaid decision of the Allahabad High Court, special leave petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st "exporters ref.", whereas word "Trade Sample" is used against "Terms of delivery and payment" and "No. Kind of packages" by mentioning the words "Gift Samples". It meant that these were the items which could be utilised for giving gifts. It is further evident from the "terms of delivery and payment" where the words "Trade Samples" have been mentioned. In view thereof I fully find myself in agreement with the contention of the assessee. It is further held that the fact that whether they are gift samples or trade samples does not effect the nature of goods and would thus remain to be goods or merchandise for purposes of section 80HHC of the Act. 24. In view of the aforesaid, it is held that the assessee is engaged in the business of export during the year in question and export sale is eligible for deduction under section 80HHC of the Act. Accordingly, the appellant is entitled for the benefit provided in the section. 25. In view of above discussion, the assessee's appeal is allowed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Since there was difference of opinion between the Members on the conclusion reached, in the above captioned appeal, the following que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med: "Whether on the facts and circumstances of the case and in law, the assessee is entitled to deduction under section 80HHC?" 3. At this stage, it would be appropriate to state the facts briefly, even at the cost of repetition. The assessee filed his return declaring income of Rs. 11,56,780 after claiming deduction under section 80HHC at Rs. 31,97,357. In the year under consideration, he had shown export sales of Rs. 24,822 and profit on sale of import entitlements of Rs. 35,46,150. It was found by the Assessing Officer that the last export was made in assessment year 1995-96 and no export was made in assessment year 1996-97 and assessment year 1997-98. It was also found that in assessment year 1996-97, the assessee merely received Rs. 1,63,225 on account of exchange fluctuation. Further, it was found that import entitlements sold by the assessee related to exports made in assessment year 1995-96. Regarding the sale of Rs. 24,822, it was held by the Assessing Officer that it represented the gift samples and not trade samples as contended by the assessee. Considering these facts, the Assessing Officer was of the view that assessee could not be said to be engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the details/materials available on the record at length, held that there was no evidence of actual export. Further, considering the fact that there was no export sale after assessment year 1995-96, it was held by him that assessee could not be said to be engaged in the business of export and consequently, assessee was not entitled to deduction under section 80HHC. 7. On the other hand, the learned Accountant Member held that there was enough material to show that there was export of Rs. 24,822 in the year under consideration. Further, the assessee had been exporting goods in the past upto assessment year 1995-96 except assessment year 1994-95. Further, the assessee had received Rs. 1,63,225 as foreign exchange on account of exchange fluctuation on which deduction under section 80HHC was allowed. According to him, merely because there was lull in the business, it could not be said that assessee was not engaged in the business of export. He was also of the view that even in the absence of actual export in the year under consideration, the assessee was not entitled to deduction under section 80HHC once it is found that assessee was engaged in the business of export. 8. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicate whether there was actual export of goods by the assessee in the year under consideration. The materials/evidence produced by the assessee are (i) copy of purchase bills; (ii) invoice of export sale; and (iii) copy of the certificate of foreign inward remittance. Admittedly, there is neither any evidence for transportation of goods fromIndiato foreign country nor any evidence in the form of custom clearance. The only submission of assessee's counsel is that goods were sent through some passenger going abroad. However, this plea is not supported or substantiated by any material or evidence. There is no airway bill or shipping document. In my considered view, no goods can be said to be actually exported unless there is custom clearance by the concerned authorities. No goods can either leave/enter the country without custom clearance as per the custom law in force inIndia. Therefore, in the absence of such evidence, it has to be held that there was no export of goods by the assessee as claimed by him. Mere purchase/sale invoice coupled with foreign remittance is not enough to prove the actual export. It is not necessary for me to adjudicate whether such evidences as furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) Where the export out of India is of goods or merchandise manufactured or processed by the assessee and of trading goods, the profits derived from such export shall,- (i) in respect of the goods or merchandise manufactured or processed by the assessee, be the amount which bears to the adjusted profits of the business, the same proportion as the adjusted export turnover in respect of such goods bears to the adjusted total turnover of the business carried on by the assessee; and (ii) in respect of such trading goods as reduced by the direct and indirect costs attributable to export of such trading goods: Provided that the profits computed under clause (a) or clause (b) or clause (c) of this sub-section shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiia) (not being profits on sale of a licence acquired from any other person), and clauses (iiib) and (iiic) of section 28, the same proportion as the export turnover bears to the to ..... 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