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2013 DIGILAW 241 (RAJ)

Commissioner of Income Tax-I v. Haswani

2013-01-29

V.K.MATHUR, VINEET KOTHARI

body2013
Hon'ble Dr. KOTHARI, J.—This appeal has been filed by the appellant-Revenue under Sec.260A of the Income Tax Act, 1961 (for short, hereinafter referred to as 'Act') being aggrieved by the order of learned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur dated 25.08.2006, whereby the learned ITAT deciding the appeals of the Revenue being Appeal No.618/JDPR/ 2004 for Assessment Year 2002-03 and Appeal No.Appeal No.619/JDPR/2004 for Assessment Year 2002-03 held that the Commissioner of Income Tax (Appeals) was justified in holding that the income surrendered by the assessee during the assessment year on account of increased valuation of closing stock during the course of a survey under Sec.133-A of the Act conducted at the business place of the assessee, was also eligible for deduction under Sec.80-HHC of the Act as there was no dispute that the assessee had satisfied all the relevant conditions for grant of such deduction from its gross total income during the relevant assessment year on account of export of handicraft items manufactured and sold by it during the relevant previous year. 2. While admitting the present appeal of the Revenue, a coordinate bench of this Court framed the following substantial question of law under Section 260A of the Act: - “Whether on the facts and in the circumstances of the case, the learned ITAT was justified in allowing the deductions under Sec. 80HHC on excess stock of Rs.9,39,170/- found during the course of survey and surrendered as business income without evidence that the receipt of money is in convertible foreign exchange?” 3. Learned counsel for the appellant- Revenue, Mr. K.K. Bissa, relying upon the decision of Punjab & Haryana High Court in the case of National Legguard Works vs. Commissioner of Income-Tax (Appeals) & Anr. reported in (2007) 288 ITR 18 (P&H) submitted that since the assessee has surrendered the alleged excess stock of Rs.10,49,066/- for Assessment Year 2002-03, therefore, the assessee is not entitled to said deduction to the extent prescribed under Section 80HHC (1B) of the Act. He further submitted that the since the assessee has failed to prove that it made the realization of the convertible foreign exchange for the sale of such excess stock by him during the relevant assessment year, it was not entitled to the deduction under Section 80HHC to that extent. 4. On the other hand, Mr. He further submitted that the since the assessee has failed to prove that it made the realization of the convertible foreign exchange for the sale of such excess stock by him during the relevant assessment year, it was not entitled to the deduction under Section 80HHC to that extent. 4. On the other hand, Mr. Vikas Balia, learned counsel for the respondent-assessee submitted that there is not even an allegation or whisper of doubt against the assessee that the assessee did not satisfy any of the conditions for grant of said deduction under Section 80HHC of the Act in respect of profits earned by export business. He submitted that the excess stock valuation as estimated by the authority concerned at the time of survey under Section 133A of the Act, surrendered as income by the assessee during the course of survey is bound to be included in the definition of “profits of business” as defined in Section 28 of the Act read with Section 80HHC (4) (C) Clause (baa) of the Act. He explained and submitted that the increase in the valuation of the closing stock resulted in the increase of profits but since there was no sale of such closing stocks during the year under consideration and the sales/export figures have not been disturbed or increased by the Assessing Authority and particularly, in the absence of any allegation against the assessee that he did not export the goods during the relevant assessment year and did not realize the convertible foreign exchange for such goods, the benefit of deduction under Section 80HHC of the Act cannot be denied to the assessee for the relevant assessment year to the extent of increase of such profit on account of higher valuation of closing stocks. 5. He further submitted that the said closing stock valuation raised for the relevant assessment year 2002-03 would naturally be taken as opening stock at the same increased figure of the next assessment year and, therefore, the surrender of income by the assessee for this assessment year 2002-03, the year under consideration, by the assessee is bound to be included in profits of business as defined in the provisions of the Act, but that does not render the assessee ineligible to avail the benefit for such deduction under Sec. 80HHC of the Act. He sought to distinguish the P&H judgment in the case of National Legguard Works (supra) relied upon by the learned counsel for the Revenue by submitting that there the findings of facts by the learned ITAT was against the assessee and that is why the assessee went up to Hon'ble High Court by way of appeal under Sec. 260A of the Act; and the High Court while upholding the said findings of facts by the Tribunal has held that the assessee was not entitled to the said benefit of deduction u/Sec. 80HHC of the Act. He submitted that, however, in the present case of the assessee, since the findings of facts by the CIT (A) as well as ITAT are in favour of respondent-assessee and such findings of facts are binding on this Court in appeal u/S. 260A of the Act. Therefore, in the absence of any contrary material placed on the record by the Revenue before this Court, the assessee is entitled to the benefit of deduction to the extent of 70% of profits including increased valuation of the closing stocks as defined under Section 80HHC (1B) of the Act. 6. We have heard the learned counsels at length and perused the impugned orders and given our thoughtful consideration to the rival submissions and also perused the judgment relied upon by the learned counsel for the appellant- Revenue. 7. Section 80HHC of the Act, to the material extent, which gives deduction in respect of profits retained for export business, is reproduced herein below for ready reference: - “80HHC. Deduction in respect of profits retained for export business-(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, (a deduction to the extent of profits, referred to in sub-section (1B),) derived by the assessee from the export of such goods or merchandise: (1(B) For the purposes of sub-sections (1) and (1A), the extent of deduction of the profits shall be an amount equal to - (i) eighty per cent. thereof for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent. thereof for an assessment year beginning on the 1st day of April, 2001; (ii) seventy per cent. thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent. thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2004,) and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent year.) (4C). The provisions of this section shall apply to an assessee,- (a) for an assessment year beginning after the 31st day of March, 2004, and ending before the 1st day of April, 2005; (b) who owns any undertaking which manufactures or produces goods or merchandise anywhere in India (outside any special economic zone) and sells the same to any undertaking situated in a special economic zone which is eligible for deduction under section 10A and such sale shall be defined to be export out of India for the purposes of this section. (baa) “profits of the business” means the profits of the business as computed under the head “Profits and gains of business or profession” as reduced by- (1) ninety per cent. of any sum referred to in clauses (iiia), (iiib) ((iiic), (iiid) and (iiie)) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and” 8. of any sum referred to in clauses (iiia), (iiib) ((iiic), (iiid) and (iiie)) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and” 8. In the present case, while the Assessing Authority in the impugned assessment order dated 19.8.2003 has merely disallowed the said benefit of deduction under Section 80HHC of the Act by observing that since such excess stock valuation was surrendered by the assessee as income during the course of survey, therefore, he is not entitled to the benefit u/S.80HHC of the Act without giving any detailed reasons for such denial of deduction, but the learned CIT (A) while allowing appeal of the assessee on the said ground in his order dated 13.10.2004 has held in para 4.3 of the order, that because the assessee is doing the business of handicraft items only and during the survey proceeding also, nothing contrary was found by the Department, which can show that the assessee is doing the business other than handicraft items, therefore, the Assessing Officer ought to have allowed the said deduction under Section 80HHC of the Act. The Revenue thereafter took the matter further before the ITAT also in second appeal but the learned ITAT also while dismissing the appeal of the Revenue on this ground affirmed the findings of learned CIT (A) upholding the claim of the respondent-assessee of deduction under Section 80HHC of the Act. 9. Thus, two appellate authorities below have concurrently held in the present case in favour of respondent-assessee that there was no breach of any of the conditions of Section 80HHC of the Act for grant of said benefit to the assessee. The undisputed facts remaining that the assessee has exported handicraft items manufactured by him during the relevant year and has realized the convertible foreign exchange for the same has thus satisfied the requisite condition for grant of said benefit of deduction u/s 80 HHC of the Act to the extent of excess closing stock valuation also. 10. The undisputed facts remaining that the assessee has exported handicraft items manufactured by him during the relevant year and has realized the convertible foreign exchange for the same has thus satisfied the requisite condition for grant of said benefit of deduction u/s 80 HHC of the Act to the extent of excess closing stock valuation also. 10. In the present case, in the backdrop of these findings of facts, it is clear that the income added in the hands of the assessee for the present assessment year was merely on account of surrendering the same as income by the assessee on account of excess valuation of the closing stock made by the Assessing Authority on account of survey conducted by the Income Tax Department u/s 133A of the Act. Obviously, there is no allegation of of sale or actual export of such additional closing stock during the course of relevant assessment year itself. It is undisputed before us that neither the sales declared by the assessee in the form of export have been disputed by the Revenue, nor it is the case of the Revenue that against any such export sales made by the assessee, there was no realization of the convertible foreign exchange by the assessee. Simply because the profits of the assessee during the assessment year is increased on account of such surrender of the income by the assessee, which is nothing but assumptive valuation of the closing stock by the authority concerned during the course of survey as no actual excess closing stock upon physical verification is found, it cannot be said that the respondent assessee has not fulfilled or satisfied the conditions for grant of deduction under Section 80HHC of the Act, which is intended to be provided as an incentive or benefit to the handicraft manufacturers for exporting such items out of India and bring in the valuable foreign exchange for such export of goods on merchandise. The extent of such deduction from the gross total income declared by the assessee is given in the provisions of sub-Section (1B) of Section 80HHC of the Act for the relevant assessment year 2002-03, in the present case, the amount of deduction would be 70% of the profit vide sub-Section (1B) (ii) of the said Section 80 HHC of the Act. 11. 11. With great respects, we are unable to apply the judgment cited at bar on behalf of Revenue in the present case. In the case of National Legguard Works (supra) since the findings of facts in the case before the Punjab & Haryana High Court were different and against the assessee, which were accepted by the Division Bench of the Punjab and Haryana High Court; and in that context, the Division Bench of Punjab & Haryana High Court held while summarily dismissing the appeal of the assessee at the admission stage itself that since the assessee failed to discharge the burden that the amount represented export profits was not discharged by the assessee, therefore, he was not entitled to benefit of deduction under Section 80HHC of the Act and no substantial question of law arose in the matter. The relevant portion from the decision of Hon'ble Apex Court in the case of National Legguard Works (supra) is reproduced as under for ready reference: “The Assessing Officer did not accept the stand of the assessee and held that the excess stocks available at the premises were not recorded in the books of account on which deduction under Section 80HHC of the Act was being claimed. Mere surrender by the assessee at the time of survey, on excess stock being found did not entitle the assessee to deduction under section 80 HHC of the Act, which was available only in respect of income derived from the export. This view was upheld by the Commissioner of Income-tax (Appeals) as well as the Tribunal. The Tribunal noticed that the assessee failed to offer any explanation for the difference in the stocks and in such a situation, the assessee was not eligible to claim deduction under Sec.80 HHC of the Act without showing facts necessary for claiming the said deduction. The only contention raised by learned counsel for the assessee is that once the assessee had surrendered the amount as business income, the burden of proving that income of the assessee was from local trading was on the Revenue and it should have been presumed that the income represented exports, the assessee being an export-oriented unit. Reliance has been placed on a judgment of Calcutta High Court in CIT vs. Margaret's Hope Tea Co. Reliance has been placed on a judgment of Calcutta High Court in CIT vs. Margaret's Hope Tea Co. Ltd. (1993) 201 ITR 747 , wherein cash credit appearing in the books of the assessee was ordered to be treated as income from tea business. We are unable to accept this submission. Deduction under section 80HHC of the Act is available only on showing fulfilment of the conditions specified therein and there could be no presumption that surrender made on account of unexplained stocks represented export income. The assessee was unable to give any explanation. There could be no presumption that the additional amount surrendered represented income from exports. Deduction under section 80 HHC of the Act can be claimed only on showing facts which make the assessee eligible for the deduction. The burden to prove these facts was on the assessee and not on the Revenue. The judgment relied upon is on its own facts and not in respect of claim for deduction under section 80HHC of the Act. In any case, from the facts of the present case, the assessee cannot be held to be entitled to claim income surrendered as a result of unexplained stocks as income from exports. Accordingly, we do not find that any substantial question of law arises in the appeal. The appeal is dismissed.” 12. In the present case, the findings on the contrary are in favour of respondent-assessee and not in favour of Revenue; and it has been categorically held by the two appellate authorities below that there is no case made out against the respondent assessee that there was any violation of conditions prescribed under Section 80HHC of the Act. The said findings of facts are indisputably binding on this Court under Section 260A of the Act while dealing with substantial question of law already framed as quoted above as arising out of the order of the learned Tribunal. Therefore, the findings of facts and stage of the present appeal before us are diagonally opposite the facts before the Punjab and Haryana High Court. 13. Therefore, the findings of facts and stage of the present appeal before us are diagonally opposite the facts before the Punjab and Haryana High Court. 13. Therefore, we are of the considered opinion that the learned ITAT was justified in allowing the deduction under Section 80HHC of the Act on the excess stock valuation of Rs.10,49,066/-found during the course of survey and surrendered as business income of the assessee during the assessment year; and the same being treated as “profits of business” for the relevant assessment year, were eligible for the deduction under Section 80HHC to the extent prescribed under sub-section (1B) of Section 80HHC of the said Act. The appeal of the Revenue, therefore, is liable to be dismissed and the substantial question of law, framed above, is accordingly answered in favour of respondent-assessee and against the appellant- Revenue. 14. In view of above, the present appeal of the Revenue is hereby dismissed. No costs.