Income Tax Appellate Tribunal - Mumbai
Tomas Cook (India) Limited vs The Dy./Jt. Commissioner Of Income Tax, ... on 30 January, 2006
Equivalent citations: [2006]103ITD119(MUM), [2007]293ITR283(MUM), (2006)105TTJ(MUM)317
ORDER
K.C. Singhal, Judicial Member
1. The cross appeals by the assessee as well as Revenue and the cross objections filed by the assessee pertaining to various issues have been heard together and are being disposed off by the common order for the sake of convenience.
Assessee's Appeals
2. The main issue arising in these appeals is whether assessee is eligible to claim deduction Under Section 80HHC of the Income Tax Act, 1961 (Act). Briefly stated the facts are these: The assessee was engaged in the business of tour operator as well as dealing in foreign currency. It buys/sells foreign currency from and to foreign tourists as well as in the market on retail as well as wholesale basis. Such dealing is authorized by the Reserve Bank of India. Whenever excess foreign currency was accumulated, it dispatched the same physically to credit Swiss (Bank) Switzerland through Airlines. The said Bank, after physical checking of such currency, was required to pay the assessee into their NOSTRO account with some other Bank in USA or UK as the case may be. Such transfer was in the currency of that country. Assessee could use such money for meeting its requirement in these countries. Whenever, it had needed the fund, it had remitted the same to India from such NOSTRO account. On these facts, assessee claimed deduction Under Section 80HHC qua the convertible foreign exchange brought to India out of NOSTRO account. It may be mentioned that such claim was not made in the return of Assessment Year 1989-90 but was claimed in assessment proceedings. In all other years, the claim was made in the return of income. The Assessing Officer rejected the claim of assessee on the following ground:
(a) The transfer of funds to the foreign accounts is only one of the method for obtaining credit. Therefore, it is merely a procedure adopted by the assessee and does not amount to export.
(b) What the assessee transfers is foreign exchange and what is credited to its accounts abroad is also foreign exchange. Therefore, the nature of the receipt does not change.
(c) The provisions of Section 80HHC(4) had not been complied with by the assessee. The assessee had asked for time to furnish report Section 80HCC, but could not file the same till the date of completion of assessment.
The Learned CIT (A) has also upheld the order of the Assessing Officer. In Assessment Year 1993-94, the Learned CIT (A) also observed that there was no evidence to show that any export was made of foreign currency. Further, there was no material to hold that foreign exchange was brought in India. It was also observed that basic enactment of Section 80HHC is deleted as remittance from India of foreign exchange leads to depletion of foreign reserves. Aggrieved by the orders of the Learned CIT (A), the assessee has preferred these appeals before the Tribunal.
3. The Learned Counsel for the Assessee, Mr. Sonde, has vehemently assailed the order of the Learned CIT (A) by raising various contentions/submissions. The first contention raised by him is that foreign exchange falls within the ambit of the word "goods". It was submitted by him that such word has not been defined in the Act and, therefore, reference can be made to the definition given under the Customs Act, 1962, which is reproduced below:
"goods" include:
a. vessels AIr-craft and vehicles;
b. stores;
c. baggage d. currency and encashable instruments; and e. any other kind of movable property.
(emphasis supplied).
In view of the above definition, it was submitted by him that foreign exchange is covered within the definition of the terms "goods'". Reliance was also placed on various decisions. The relevant portions of these decisions on which reliance was placed are stated below;
(a) The case of Shri P.F. Mehta v. ACITITA No. 1460/Bom/1985 was referred for the following proposition:
3. There is reference to the case of Kirloskar Asea Ltd. 117 ITR 820 in the earlier order of the Tribunal. In that case, the Hon'ble High Court of Karnataka made reference to an English decision in which it has been held that the US dollars held by a British company constituted commodity. The assessee was exchanging foreign currency in India for the Indian currency and was sending foreign currency abroad. This amounted to sale of goods, that is to say, foreign currency outside India and therefore the assessee is entitled to weighted deduction Section 35B. The assessee has filed details of his foreign travel which go show that his travel was in connection with the said export business. The assessee therefore directed to be allowed weighted deduction on foreign tour expenses of Rs. 33,231.
(b) The case of Imperial Tobacco Co. v. IRC 25 TC 292 (CA) was referred for the following proposition:
We must decide this case having regard to the fact as found. In the light of those facts, the acquisition of these dollars cannot be regarded as colorless. They were an essential part of a completed commercial operation.
That being so, what is the true analysis of the position? A manufacture has provided himself with a commodity namely, dollars. I call dollars a "commodity" not for the reason that they are not currency in this country, but they have a characteristic which is common to other commodities, and is not shared by sterling, namely, that their value from day to day varies in terms of sterling just in the same way as coal or bricks or anything else may do.
(c) The case of R.R. Sen & Brothers v. JCIT 95 TTJ 398 (Cal.) it was referred for the following proposition:
11. We have considered the rival submissions. We find that it is necessary arrive at a finding as to whether foreign currency could be considered to be either goods or merchandise. Since the foreign currency has not been defined in the IT Act, we have to be to the general dictionary meaning and other considerations to find out its real meaning with reference to eligibility of deduction under Section 80HHC. According to Chamber Dictionary "merchandise" means" commodities or goods that are bought and sold in business" and the "goods bought and sold for gain. According to Webster Dictionary, 'commodities' means "something useful and valuable" and an "economic good and article of commerce". According to English Readers' Dictionary by Homby Parnwell (Oxford) "commodity means "trade goods". Having understood the meaning of the word "commodity", if we apply the decision quoted by learned Counsel in the case of Imperial Tobacco Co., we find that the Hon'ble Judges there were seized with the question whether dollar would be a commodity. We find the reply to be positive. For the purpose of clarity, we quote the relevant paragraph from the order in the case of Imperial Tobacco Co., which reads as under:
That being so, what is the true analysis of the position? A manufacture has provided himself with a commodity, namely, dollars. I call dollars a "commodity" not for the reason that they are not currency in this country but because they have a characteristic which is common to other commodities and is not shared by sterling, namely that their value from day-to-day varies in terms of sterling, just in the same way as coal, or bricks, or anything else may do.
12. From the above analysis, it seems that foreign currency has been legally accepted, as trade goods' or 'merchandise'. We got support of this view both from the order of the Court of Appeal as well as from the decision in the case of Kirloskar Asea Ltd. decided by the Hon'ble Karnataka High Court as well as the case of Hon'ble Calcutta High Court in the case of Oil India Ltd. We have also considered the decision of the Tribunal, Bangalore Bench, in the case of Confound Financial Services (I) Ltd., in which also 'dollar' has been considered as commodity. The finding of the AO that foreign currency was not a manufactured or processed item and, therefore, does not qualify for deduction under Section 80HHC does not appear to hold good in view of the provision of Section 80HHC(3)(b). Whereas, Section 80HHC(3)(a) considers availability of deduction under this section of goods or merchandise manufactured (or processed) by the assessee, Sub-clause (b) of Section 80HHC(3) provides conditions in respect of export out of India of trading goods for the purpose of deduction under Section 80HHC. It is now clear that foreign currency is to be considered as "goods" and these are "traded goods".... Therefore, the AO was wrong in not allowing deduction under Section 80HHC in the instant case and the CIT(A) was also in error in confirming such order when trading in foreign currency assumes the meaning of trading in goods and merchandise and is eligible for deduction under Section 80HHC(3) of the Act. In reversing the orders of the authorities below, we allow this ground taken by the assessee.
(d) The case of CIT v. Soorajmull Nagarmull129 ITR 169 (Cal) was referred for the folio wing proposition:
It was held that the bonds were "goods" or "commodities" within the meaning of those words in the Order. Our attention was also drawn to the observations in the case of Imperial Tobacco Co. v. IRC [1943] 25 TC 292 (ca) at p. 3000 in aid of the proposition that dollars in certain circumstances can be treated as commodities. This position as such cannot be disputed. Undoubtedly the contract for foreign exchange as such can be treated as contract for commodity.
(e) The case of Thomas Cook (India) Ltd. v. Collector of Customs (CEGAT Mumbai) was referred for the following proposition:
Section 18(1) of the Custom Act prohibits export of goods unless a declaration has been furnished in respect thereof and "goods" includes "currency" in terms of Section 2(22) of the Customs Act and though the expression "goods" has not been defined in the FERA, definition of "currency" in Section 2(f) of the FERA which is an inclusive definition does not exclude goods as such. Therefore, the contention that the "currency" is not "goods" within the meaning of Section 18(1) cannot be accepted. Both currency and goods are dealt with under separate sections but this will not lead to the conclusion that "currency" is not "goods".
(f) The case of Kirloskar Asea Limited v. CIT 117 ITR 80 (Kar.) was referred for the following proposition:
For ail intents and purposes, foreign currency is in the nature of a commodity which can be converted into local currency by selling it. Our view receives support from the language adopted by Lord Greene M.R. in Imperial Tobacco Co. (of Great Britain and Ireland) Ltd. v. Kelly (H.M. Inspector of Taxes) [1943] 25 TC 292 (CA). In that case, the learned Lord held that, the U.S. Dollars held by a British company constituted commodity. The relevant part of that decision at page 300 reads as follows:
We have here a finding of fact as to the purpose for which the dollars were brought. The purchase of the dollars was the first step in carrying out an intended commercial transaction, namely, the purchase of tobacco leaf. The dollars were bought in contemplation of that and nothing else. The purchase on the facts found was, as I say, a first step in the carrying out of a commercial transaction, which would be completed by the purchase and delivery of the leaf and payment of the dollar purchase price for it.
We must decide this case having regard to the fact as found. In the light of those facts, the acquisition of these dollars cannot be regarded as colourless. They were an essential part of a contemplated commercial operation.
That being so, what is the true analysis of the position? A manufacturer has provided himself with a commodity, namely, dollars. I call dollars a "commodity" not for the reason that they are not currency in this country, but because they have a characteristic which is common to other commodities, and is no shared by sterling, namely, that their value from day to day varies in terms of sterling, just in the same way as coal, or bricks, or anything else may do.
In view of the above decisions, it was submitted that foreign exchange be considered as "goods" for claiming deduction Section 80HHC. It was also submitted that this issue is concluded by the decision of Coordinate Bench in the case of R.R. Sen (supra) which is binding on this Bench. If for any reason, different view is possible, then the matter be referred to Special Bench.
At this stage, a query was raised as to what is the scope of the word "goods" under Sale of Goods Act, 1930. In response to the same, it was submitted by him that definition of goods in the said enactment excludes "money" but money, according to him, would include only Indian currency and not foreign currency. He also referred to the following comments from the commentary of Pollock & Mulla (6th Edition) on "Sale of Goods Act.
Money is necessarily excluded from the definition, not only because it constitutes the price in exchange for which the goods are sold, but because it is governed by wholly different principles of law, owing to its being currency. It is not, therefore, regarded as a chatte, but as something 'sui generis'.
Proceeding further, he referred to the judgment of the Apex Court in the case of Mir Mohammad Ali, 53 ITR 165, for the proposition that general meaning should prevail in the absence of statutory definition. He again reiterated that foreign exchange is goods as it is not legal tender or measure of price in any country other than the country of its origin.
The next contention is that, there was actual export of such goods out of India. According to him, the foreign exchange was physically dispatched through custom clearance. He drew our attention to necessary evidence in this regard. Thus, according to him, it could not be said there was mere transfer of funds from one bank account to another bank account.
The next contention of assessee's Counsel is that convertible foreign exchange is brought to India. In support of such submission, he drew our attention to necessary evidence appearing at Page 168 to 175 of Paper Book. It was clarified by him that assessee is not seeking deduction with reference to entire export but to the extent foreign exchange was brought to India in convertible foreign exchange.
4. On the other hand, the Learned CIT-DR, Mr. Aggarwal, has strongly opposed the contention of the Learned Counsel for the Assessee by contending that in the absence of any definition of "goods" in the Act, its meaning should be understood in the legal sense i.e., in the sense in which it is understood in the Sale of Goods Act, 1930. Strong reliance has been placed on the judgment of Hon'ble Supreme Court in the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. . Accordingly, general meaning of the word cannot be applied while defining the scope of the word "goods" under Section 80HHC of the Act. It was further submitted that definition of "goods" in the Customs Act, 1962, in an enlarged definition and, therefore, has to be restricted to that Act only. According to him, a word may be defined differently in different statutes depending upon the object/purpose of the Act. Consequently, such meaning should be restricted to these enactments only. Various decisions have been referred to in support of such submission. It was further submitted that sale implies two different things i.e., goods on one hand and the consideration in the form of price on the other hand. If foreign exchange is to be understood as "goods", then it would be case of "Barter" not amounting to sale. According to him, "sale proceeds" in Section 80HHC refers to consideration in the form of money while export of goods refers to other things. Hence, it cannot be said that foreign exchange is "goods". Lastly, it was submitted that Section 80HHC was enacted with the object of augment the foreign exchange reserve. Therefore, if the contention of the assessee's Counsel is accepted, then it would defeat the purpose of the enactment since it would deplete the foreign exchange reserve when the same is exported out of India. According to him, the construction of statute should be that which serves the purpose of the Act rather than which defeats the same.
5. Rival submissions of the parties have been considered carefully. The question for our consideration is whether assessee is eligible for deduction Under Section 80HHC of the Act. There is no dispute that in order to avail such deduction, the assessee is required to prove two conditions namely (i) that assessee has exported goods or merchandise to a country outside India and (ii) the sale proceeds have been bought into India in convertible foreign exchange. The stand of the assessee is that the word "goods" should be understood in the widest possible sense and, therefore, the foreign currency exported by him through the custom clearance should be considered as "goods" within the scope of Under Section 80HHC, while the stand of the Department is that foreign exchange is a mode of payment and cannot be considered as goods for claiming deduction Section 80HHC. The word "goods" has not been defined in the Act but it has been legally defined in the Sale of Goods Act, 1930. The question, therefore, is whether the meaning of the word "goods" should be understood in the widest possible sense or in the sense it is understood in the legal sense. Therefore, the question for our consideration relates to the scope of the word "goods" for the purpose of Section 80HHC.
6. It is the settled legal position that the law uses familiar legal expression in their familiar legal sense. Thus, where the legislature uses a legal term which has a known significance, it must be assumed that the term has been used in that sense and in no other sense, unless contrary intention appears. The logic behind this principle is that the legislature is presumed to know the meaning of the word or an expression which is already defined in the existing enactment or by the Courts. This principle has been approved by the Courts in India including the Apex Court. In the case of M/s. Gannon Dunkerley & Co. (Madras) Ltd. (supra) the Constituted Bench of the Hon'ble Supreme Court had to consider this scope of the expression "sale of goods" in the Entry 48, List-II, Schedule-VII to Government of India Act, 1935. The contention of the appellant was that the provisions of a constitution which confer legislative powers should receive a liberal construction, and that, accordingly, the expression "sale of goods" in Entry 48 should be interpreted not in the narrow and technical sense in which it is used in the Indian Sale of Goods Act, 1930, but in a broad sense. However, their Lordships did not accept this contention and rather endorsed the view of the earlier decision of the Constitution Bench of the Apex Court in the case of Sales Tax Officer v. Budh Prakash Jai Prakash and then held at Page-566. "we must accordingly hold that the expression "sale of goods" in Entry 48 cannot be construed in its popular sense, and it must be interpreted in its legal sense. What its connotation in that sense is, must now be ascertained". Further, at Page-569, their Lordships observed "We think that true legislative intent is that the expression "sale of goods" in Entry 48 should bear the precise and definite meaning it has in law, and that, that meaning should be left to fluctuate with the definition of "sale" in laws relating to sale of goods which might be in force for the time being". Proceeding further, at Page-570, they observed "We are of the opinion that the provisions in the Government of India Act, 1935, relied on for the appellant are too inconclusive to support the inference that "sale" in Entry 48 was intended to be used in a sense different from that in the Sale of Goods Act". Finally, their Lordships observed at Page-573 as under:
We are unable to agree with this contention. If the words "sale of goods" have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense, and that, accordingly, the Legislature must be taken to have intended that they should be understood in that sense.
(emphasis supplied by us).
As already mentioned, the constitution Bench of the Apex Court in the case of Sales Tax Officer v. Budh Prakash Jai Prakash (supra) took the same view as it is apparent from the following observations:
Thus, there having existed at the time of the enactment of the Government of India Act, 1935, a well-defined and well-established distinction between a sale and an expression, "sale of goods" in Entry 48 in the sense in which it was used in legislation both in England and India and to hold that it authorises the imposition of a tax only when there is a completed sale involving transfer of title.
In the case of CIT v. Indumathi R. Kirloskar 176 ITR 422, the Hon'ble Karnataka High Court had to consider the meaning of the expression "transfer" with reference to the provisions of Indian Trust Act, 1882. Their Lordships took the similar view by observing as under:
The expression "transfer" is not defined in the Trusts Act. It is a well established principle of interpretation that if the expressions used in an enactment have acquired a legal meaning, the Legislature is presumed to be aware of the same and it must be deemed that the expression used in the prior enactments or the allied enactment or law thereof as declared by courts was borne in mind by the Legislature in using the expression in the later enactments.
In the case of Ahmad G.H. Ariff and Ors v. CWT 76 ITR 471, the Hon'ble Supreme Court had to consider the meaning of the word "annuity"with reference to the provisions of Wealth Tax Act. In that connection, it was observed by their Lordships at Page-478 "it is well settled that where the legislature uses a legal term which has received judicial interpretation, the courts must assume that the term has been used in the sense in which it has been judicially interpreted.
Similar view in the case of Keshavji Ravji & Co. v. CIT 183 ITR 1, the Hon'ble Supreme Court observed at Page-11 "when words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context.
7. In view of the above authoritative judgments, it is clear that where a word or an expression has been defined in a particular enactment, then it is presumed that legislature was aware of such legal meaning of that word or expression while enacting a subsequent legislation and, therefore, if such word or an expression is not defined in the subsequent legislation, then the meaning of such word or expression has to be understood in that legal sense in which it was used in the earlier enactment.
8. In the present case, we are required to ascertain the meaning of the words "goods" as appearing in Section 80HHC of the Act. The word "goods" is not defined in the Income Tax Act but the meaning of such word has already been defined in the sale of Goods Act, 1930. We have already noticed that the Hon'ble Supreme Court applied the meaning of the expression "sale of goods" as provided in the Sale of Goods Act, 1930, while interpreting Entry 48, List-II, Schedule-VII of the Government of India Act, 1935. For the similar reasons, we are of the view that the meaning of the word "goods" as given in the Sale of Goods Act, 1930, would be applicable for the purpose of Section 80HHC.
9. The word "goods" has been defined in Clause (7) of Section 2 of the Sale of Goods Act, 1930 as under:
Goods means every kind of movable property other than actionable claims but not money; and includes stocks and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before or under the contract of sale.
A perusal of the above definition clearly shows that money has been excluded from the meaning of the word "goods".
10. The word "money" has not been defined either in the Sale of Goods Act, 1930 or in the Income Tax Act, 1961. No other enactment has been brought to our notice defining the word "money". Therefore, general meaning of such word has to be taken into consideration. As per various dictionaries, the word "money" has been defined as medium of exchange for making payment.
(1) Concise Oxford English Dictionary Money- a medium of exchange in the form of coins and banknotes, (money or monies) formal sums of money, wealth, payment or financial gain, (2) Words And Phrases Legally Defined Second Edition Money - General meaning The primary function of money is to serve as a medium of exchange, and as such it is accepted without question in final discharge of debts or payment for goods or services. Money also serves as a common standard of value by reference to which the comparative values of different commodities are ascertained, as a unit of account in which debts and liabilities are expressed, and as a store of value or purchasing power.
In a concrete sense the term money generally includes bank-notes as well as coins, though it may be limited to such of each as are legal tender at the time and place in question. The term is sometimes used to include not only actual cash but also a right to receive cash, as, for example, sums standing to the credit of a bank account or invested in securities; and the term may in some cases be used in a popular sense to include all personal, or even, exceptionally, all real and personal property. The precise meaning of the term depends upon the context in which it is used so that, for example, it is usually given a wide meaning when used in a will and when that meaning gives effect to the intention of the testator, an intermediate meaning in connection with actions for money paid or for money had and received, and a narrow meaning in the criminal law and in relation to execution (27 Halsbury's Laws (3rd Edn.).
"Money" includes a cheque, banknote, postal order or money order (Betting, Gaming and Lotteries Act, 1963, Section 55).
(3) Black's Law Dictionary Special Deluxe Fifth Edition Money - In usual and ordinary acceptation it means coins and paper currency used as circulating medium of exchange, and does not embrace notes, bonds, evidences of debt, or other personal or real estate. Lane v. Railey 280 Ky. 319, 133 S.W. 2d 74, 79, 81.
(4) Webster's Encyclopedic Unabridged Dictionary Money-1. Gold Silver or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value;
2. Any circulating medium of exchange including coins, paper money and demand deposit;
3. Any article or substance used as medium of exchange, measure of wealth or means of payment;
4. An amount or sum of money, etc. A perusal of the above definitions clearly reveals that money is considered mainly as medium of exchange for making the payment. It may also be noted that the above definitions, currency has always been considered as "money". Therefore, the currency whether local or foreign exchange would always amounts to money. Similarly, the word "currency" has always been considered as money in the commercial world as well as in the popular sense. Therefore, we are of the view that foreign currency does amount to money and, therefore, cannot be considered as "goods" in the legal sense as defined in the Sale of Goods Act, 1930. Consequently, applying principles laid down by the Constitution Bench of the Hon'ble Supreme Court in the case of M/s. Gannon Dunkerley & Co. (Madras) Ltd. (supra) it is held that the word "goods" in Section 80HHC would not include foreign currency.
11. The definition of "goods" in the Customs Act, 1962, cannot be applied to interpret Section 80HHC of the Act. When Customs Act, 1962, was enacted the legislature was aware of the definition of the word "goods" under the Sale of Goods Act, 1930. Since legislature intended to the effect that foreign currency should not be physically remitted to other countries without custom clearance, it enlarged the meaning of the word "goods" by including the foreign exchange within its ambit. Had the legislature not expanded its scope, foreign exchange could be taken away from or brought into India without the knowledge of the Govt. Therefore, the legislature, with a view to have full control over its movement and to avoid Hawala Transactions, enlarged the meaning of the word "goods" under the Customs Act, 1962. Hence, the definition under Customs Act, 1962, has to be understood for the purpose of that Act only and cannot be extended to Section 80HHC of the Act.
12. It is also well settled rule of interpretation that in case of ambiguity if two interpretations are possible, then the Court should accept the one which serves the purpose of object of the Act then the construction which defeats or frustrates such purpose or object. Section 80HHC is a code by itself and was enacted with the sole purpose to promote the export of goods produced in India and to augment the foreign exchange reserve in order to improve the Indian economy. The ultimate purpose was to increase the foreign exchange reserves so that the Govt. may discharge its foreign debts in foreign currency. If the contention of assessee that foreign exchange amounts to goods is accepted, then, in our opinion, it would frustrate and defeat the purpose or object of Section 80HHC in as much as it would deplete the foreign exchange reserve by sending the same to out side countries. The object of Section 80HHC would be achieved only when the word "goods" is held to exclude money including foreign exchange. Thus, we would prefer the interpretation, which serve the purpose and object of the enactment. Even on this ground, we hold that "foreign exchange" cannot be considered as "goods" for the purpose of Section 80HHC.
13. The judgments of the High Courts relied upon by the Learned Counsel for the Assessee are not on the point before us and, therefore, do not help the case of the assessee. The decision of the Hon'ble Karnataka High Court in the case of Kirloskar Asea Ltd. 117 ITR 82, related to the issue of capital gain Under Section 45 of the Act and the question was whether foreign currency could be considered as capital asset. The definition of the capital asset in Section 2(14) of the Act is quite different from the definition of goods in the Sale of Goods Act, 1930. The expression "capital asset" has been widely defined Under Section 2(14) of the Act and does not exclude the foreign currency unless it forms part of stock in trade. There is no specific exclusion of money in such definition. Therefore, the judgment relating to the definition of "capital asset" cannot be applied where the scope of the word "goods" is to be ascertained. In the case of Soorajmuil Nagarmull 129 ITR 169 (Cal), the Hon'ble High Court was concerned with the issue whether loss was in the nature of revenue expenditure or was on account of speculative loss. The Court had to consider the provisions of Explanation-2 in Section 24 of the Indian Income Tax Act, 1922 and the said explanation referred to a transaction for purchase and sale of any commodity. It is in this context that the Court observed that foreign exchange could be considered as commodity. However, the Court had no occasion to consider the meaning of the word "goods"for the purpose of Section 80HHC or in the context of Sale of Goods Act, 1930. Accordingly, that judgment also cannot be applied to the present case.
The English case in the case of Imperial Tobacco Co. v. IRC 25 TC 292 (CA), heavily relied upon by the Learned Counsel for the Assessee also cannot be applied to the present case in view of our finding that word "goods" is to be understood in the legal sense. Even otherwise, in that case, the foreign exchange has been held to be a commodity but it no where defines the word goods. Even assuming that foreign exchange is a commodity, it does not cease to be "money" and, therefore, the same has to be excluded from the definition of "goods" in view of the provisions of Sale of Goods Act, 1930.
Coming to the decision of the Tribunal, the assessee had relied on the decision of Central Excise and Gold Appellate Tribunal, Mumbai, in its own case where the Tribunal held that the currency was within the scope of the word "goods" in terms of Section 2(22) of the Customs Act, 1962. This decision does not help the case of the assessee since the legislature has provided enlarged definition of the word "goods" under the Customs Act, 1962. Such definition has specifically included the currency and encashable instrument. In view of such enlarged meaning of the word "goods", the Tribunal held that currency was "goods". Since it has been held by us that currency forms part of money it has to be excluded from the definition of goods. Accordingly, the aforesaid decision of the Tribunal is quite distinguishable and cannot be applied in the present case.
The only decision which favours the case of assessee is the decision of the Tribunal, Calcutta Bench, in the case of R.R. Sen & Brothers v. JCIT 95 TTJ 398. In this case, it has been held that the foreign exchange falls within the scope of goods. The perusal of the said order shows that such finding is based on the dictionary meaning as well as the decision of Imperial Tobacco Co. (supra), the decision of the Hon'ble Karnataka High Court in the case of Kirloskar Asea Ltd. (supra) and the Hon'ble Calcutta High Court in the case of Oil India Ltd. 143 ITR 848. The Learned Counsel for the Assessee has contended that this decision being a decision of Coordinate Bench is binding on us and, therefore, different view cannot be taken. We are unable to accept such contention for the reasons given hereafter.
No doubt the decision of the Coordinate Bench should be followed by another Coordinate Bench but the Tribunal can deviate from the earlier decision if it is in ignorance of relevant provisions or binding judgment of higher forums. Reference can be made to the judgment of the Hon'ble Supreme Court in the case of Union of India v. Raghuvir Singh 178 ITR 548. The Calcutta Bench of the Tribunal has decided the issue on the basis that where a word is not defined in the Act, its meaning should be understood in the popular sense i.e., as defined in various dictionaries. Such approach can be adopted only where the words have not been defined in the earlier enactment relating to the subject matter. We have already referred to the judgment of the Constitution Bench of the Hon'ble Supreme Court in the case of M/s. Gannon Dunkerley & Co. (Madras) Ltd. (supra), wherein the Court held that in the absence of statutory definition in the Act, it should be understood in the legal sense where such word has been defined in the existing enactment on that subject matter. In view of that judgment, the popular meaning of the word "goods" could not have been applied by Calcutta Bench of the Tribunal. As per judgment of the Constitution Bench of the Apex Court, the meaning of the word "goods" was required to be understood in legal sense as defined in the Sale of Goods Act, 1930. Thus, the decision of Calcutta Bench in the case of R.R. Sen (supra) is in conflict with the ratio laid down by the Hon'ble Supreme Court in the aforesaid case. It is for this reason we are deviating from the decision of the Tribunal. It may also be mentioned that the Tribunal had relied on certain High Court judgments which we have already distinguished since those High Courts were not concerned with the issue which is before us. We have also distinguished the English case in the case of Imperial Tobacco Co. v. IRC (supra), which has also been taken into consideration by the Tribunal. In view of the above discussion, we are of the view that the decision of the Calcutta Bench can not be considered as precedent so as to bind the other Coordinate Bench.
In view of the above discussion, it is held that foreign exchange can not be considered as "goods" for the purpose of Under Section 80HHC of the Act. Since, this condition is not satisfied, the assessee is not entitled to deduction Section 80HHC. The order of the Learned CIT (A) for all the years are, therefore, upheld on this issue.
14. The next issue which is common to all the appeals relates to computation of deduction Under Section 80HHD of the Income Tax Act, 1961 (Act).
15. Briefly stated the facts are these: The facts relating to this issue are almost similar in all the appeals except the figures on various counts. Therefore, for the sake of convenience, we are narrating the facts relating to Assessment Year 1989-90. Accordingly, the facts as narrated in the orders of the lower authorities and also taken from the Paper Book are stated herein after.
16. The assessee is a well known company engaged in the business of conducting tours and consequently providing services to both foreign tourists as well as domestic tourists. In addition, the assessee derives income by way of booking of cargo and dealing in foreign exchange. Thus, the assessee was entitled to deduction Under Under Section 80HHD of the Act. It claimed deduction amounting to Rs. 84,44,292/- by applying the formula prescribed in Sub-section 3(b) of Section 80 HHD. The computation of deduction has been enclosed along with the Audit Report as Statement-A, which is reproduced as under:
Statement A Item 1 of Annexure to report in Form No. 10CCAD under Section 80HHD of the Income Tax Act, 1961 for 23 months period ended 31st March, 1989.
Computation of Profits derived from provisions of service to Foreign Tourists computed as per Sub-section 3(b) of Section 80HHD of the Income Tax Act, 1961.
Amount (Rs.)
I. Income from Services rendered per
Profit and Loss Accounts viz. Foreign 110601928
Exchange, Commission & Agency-per
Schedule H of the Accounts
Less: Exclusion of Profit on Tours 10125830
Inbound (included above) as Tours
Inbound taken on gross receipt
basis as required Under Section 80HHD.
Add: Gross receipts/receivables for 73516262
Tours Inbound for which profits
as above have been excluded.
Gross Total purposes of 80HHD(3)(b) 17,39,92,360 (a)
II. Amount included in Gross Total (a) in respect of services to Foreign Tourists resulting in receipt receivables in convertible foreign exchange.
i) In respect of Tours Inbound 6,45,26,582
ii) 9% commission on International 17,06,943
Air Tickets
iii) Exchange profits at the average
rate of 1.2% of encashments
arrived at based on Market rates
as applicable to various currencies
from time to time duly
certified by the Company. This
has been relied upon by the
examining Chartered Accountants,
as the same is not verifyable. 40,24,342
Total: 7,02,57,867(b)
III. Profits derived from provisions of service to foreign tourists is
(b) Profits computed under the head "Profits and gains -
x of business or Profession - as per Income Tax Return
(a) prepared by the company.
i.e., 70257867
_________X 20912138 = 84,44,292
173992360
17. It was noticed by the Assessing Officer that the assessee had shown net receipts in respect of its income from the aforesaid activities. The Assessing Officer accepted the net receipt in respect of commission on international air tickets and in respect of tour inbounds. However, in respect of dealing in foreign exchange, the Assessing Officer was of the view that entire sale proceeds of foreign exchange constitute the business receipts for the purpose of applying the formula in Sub-section 3(b) of the said Section. Accordingly, he adopted the total turnover of the foreign exchange amounting to Rs. 650,12,99,100/- as per the figures given by the assessee and the same appears at Page-38 of the Paper Book. To these figures, he added the commission receipts in respect of other two items and thus the total business receipts were taken at Rs. 667,12,67,118/-. In the similar manner, he computed total sale to foreign tourist at Rs. 33,53,61,833/- on the basis of average rate of profit of 1.2% shown by the assessee while computing exchange profit at Rs. 40,24,342/-. Thus, the receipts in convertible foreign exchange was computed at Rs. 40,15,95,358/- as against Rs. 7,02,57,867/- declared by the assessee. Thus, the deduction Under Section 80HHD was computed at Rs. 12,58,863/- as under:
Rs.40,15,95,358/- (x) Rs. 2,09,12,138/-
________________________________________ = Rs. 12,58,863/-
Rs. 667,12,67,118/-
18. The matter was carried in appeal before the Learned CIT (A) for all the issues, before whom two contentions were raised. The first contention was that in the total business receipts of Rs. 667,12,67,118/- certain figures were taken twice. According to the assessee, the total receipts amounted to Rs. 462,22,20,820/-. The second contention was that Assessing Officer should not have taken the gross figures of foreign exchange received by the assessee in consideration of sale of currency since the assessee had received only the difference between purchase and sale of foreign currency and the same should have been taken as the total receipt. The Learned CIT (A) found merit in the first contention of the assessee and accordingly directed the Assessing Officer to verify the same. However, the second contention was rejected by him. Aggrieved by the same, the assessee is in further appeal before the Tribunal for all the years.
19. The Learned Counsel for the Assessee Mr. Sonde, has submitted before us that depending upon the exchange position, the purchase or sale of foreign currencies from the inter bank market are undertaken to cover the foreign exchange exposure. Therefore, the profit and loss which the company makes in such transaction is the difference between the sale and purchase price and the net figure is reflected in the Profit & Loss account. This contention was raised with reference to dealing in foreign exchange in retail as well as wholesale. It is also submitted that the receipts takes place at both the time i.e., encashment at the time of purchase of currency as well as at the time of sale abroad. Thus, the total receipts were on both the counts. On the other hand, the Learned Departmental Representative has supported the orders of the Learned CIT (A). In the course of hearing, the Learned Counsel for the Assessee has clarified that the Assessing Officer while giving effect to the order of the Learned CIT (A), has accepted the discrepancy in the total receipts and accordingly has revised the deduction Under Section 80HHD by taking the total business receipts at Rs. 462,22,20,820/-. Thus, the only issue to be considered before us is whether the sale proceeds in respect of foreign exchange should be taken into consideration as taken by the Assessing Officer or only the net profit on purchase and sale of currency as taken by the assessee.
20. After giving our due consideration, we are unable to accept the contention of the Learned Counsel for the Assessee. If we have a bare look at the provisions of Section 80 HHD(3)(b), we find that the Legislature has used the words" receipts of the business unlike the turnover of business in Section 80HHC(3)". There is no dispute that assessee is dealing in the foreign currency and in the course of such business there may be profit or loss as the case may be. Such activity is akin to a trader and, therefore, the sale proceeds of currency amounts to business receipts. In this connection, reference may be made to the judgment of the Hon'ble Supreme Court in the case of Chauranghee Sales Bureau, wherein, the sale proceeds of goods sold on auction were considered to be trading receipts even though assessee was acting as an auctioneer and was entitled to commission only. If the sale proceeds in the case of an auctioneer can be considered as a business receipt, we failed to understand as to how in the present case, the assessee can contend that sale proceeds of a currency would not amount to business receipts. In view of the same, we uphold the orders of the Learned CIT (A) on this issue.
21. The next issue relates to disallowance of depreciation in respect of office premises as well as residential premises purchased by the assessee. This issue pertains to Assessment Year 1989-90 to 1992-93. In some years, the disallowance is only in respect of one property while in some other years, the disallowance is in respect of both the properties. The main ground on which the disallowance was made was that. the conveyance deed has not been executed in respect of the properties purchased by the assessee. However, in respect of Assessment Year 1989-90, the disallowance was made in respect of office premises on the factual ground that it was not used in the business of assessee in as much as it was found by the Assessing Officer that the assessee was engaged in getting the premises fir for action.
22. After hearing both the parties, we find that the issue is covered by the judgment of the Hon'ble Supreme Court in the case of Mysore Minerals 239 ITR 775, wherein, it has been held that assessee is deemed to be the owner of the property if possession has been taken and the payment has been made by way of part performance. In the present case, there is no dispute that the possession was taken by the assessee and except in Assessment Year 1989-90, the premises were also used by the assessee. Therefore, the assessee was entitled to depreciation in respect of Assessment Year 1990-91 to 1992-93. As far as Assessment Year 1989-90 is concerned, the disallowance was made in respect of office premises at New Delhi, which was being made fit for occupation as admitted by the assessee before the Assessing Officer. This fact itself shows that the property was not used by the assessee. Even it cannot be said that the premises was used in a passive manner in as much as it was not ready for use. Accordingly, in our opinion, the disallowance was correctly made in respect of Assessment Year 1989-90. Consequently, the order of the Learned CIT (A) is upheld for the Assessment Year 1989-90 while the orders of the Learned CIT (A) for Assessment Year 1990-91 to 1992-93 are set aside and the disallowance sustained by him are hereby deleted.
23. The next common issue relates to disallowance in respect of encashment of leave salary. The assessee had been making provisions in respect of leave salary and claiming deduction. The lower authorities had rejected such claim of the assessee on the ground that the claim was contingent and, therefore, not allowable in view of the Hon'ble Bombay High Court judgment in the case of Rajkumar Mills Ltd., 80 ITR 244. After hearing both the parties, we find that the issue is now covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in the case of Bharat Earth Movers 245 ITR 428, wherein, it has been held that if the liability is certain, then deduction must be allowed even though such liability is to be discharged at a future date. On the basis of this principle, the claim of the assessee was held to be allowable. Respectfully following the said judgment, the order of the Learned CIT (A) is set aside and the Assessing Officer is directed to consider the claim of the assessee in accordance with the Supreme Court judgment.
24. The next issue arising in this appeal for the Assessment Year 1989-90, relates to disallowance of Rs. 4,?0,000/- being incentive payable TO Taj Group of Hotels. This issue has not been pressed before us. Accordingly, the ground raised in this behalf is dismissed.
25. The next issue arising in appeal for the Assessment Year 1992-93, relates to disallowance of entertainment expenses to the extent of Rs. 12,88,230/- and club subscription amounting to Rs. 52,706/-. From the Audit Report Under Section 44-AB of the Act, it was seen that entertainment expenditure was worked out at Rs. 4,00,484/-. Apart from this, there were certain expenses by-way of lunch, refreshment at annual general meeting, staff get together, etc., which were not considered as entertainment expenses. These expenses amounted to Rs. 2,57,646/-. Considering the past history, the Assessing Officer disallowed 50% of the same. This disallowance was challenged before the Learned CIT (A) but no finding has been given by him. Hence, this issue has been raised before the Tribunal. Apart from this, club subscription amounting to Rs. 52,706/- was also disallowed by the Assessing Officer which also remained to be adjudicated by the Learned CIT (A).
26. After hearing both the parties, we find that club subscription is allowable as deduction in view of the Hon'ble Bombay High Court judgment in the case of OTIS Elevators Co. Ltd. 195 ITR 682. As far as entertainment expenses are concerned, we would have restored the matter to the Learned CIT (A) but no purpose would be served, as in our opinion, 50% of the expenditure incurred was reasonably aITRibutable to employee's participation. Therefore, we do not find merit in the ground raised by the assessee in this behalf. Accordingly, the order of the Learned CIT (A) stands modified. The disallowance of Rs. 52,706/- on account of club subscription is hereby deleted while the disallowance on account of entertainment expenses stands confirmed.
27. The next issue arising in this appeal for the Assessment Year 1993-94, relates to disallowance of Rs. 3,787/- on account of certain expenses like diwali bakshish, new year gifts, etc. After hearing both the parties, we are of the view that such expenses are incurred for the purpose of business and, therefore, disallowance was not justified. The order of the Learned CIT (A) is, therefore, set aside on this issue and disallowance sustained by him is hereby deleted.
28. The next issue arising in the appeal for the Assessment Year 1993-94, relates to disallowance of Rs. 1,45,195/- being 50% of the expenses in the nature of business lunches, tea, coffee, snacks, etc. We have already dealt this issue in earlier part of the order. Following the same, the order of the Learned CIT (A) is upheld.
29. The next issue relates to addition of accounts of unclaimed balances account and cheques suspense account. These amounts are Rs. 7,21,473/-, Rs. 15,06,010/- and Rs. 28,35,017/- in respect of Assessment Years 1993-94, 1995-96 and 1997-98 respectively. The Assessing Officer disallowed the same treating as trading receipts. The explanation of the assessee before the Assessing Officer was that no addition could be made in this regard in view of the order of the Learned CIT (A) for Assessment Year 1998-93. However, the Assessing Officer did not accept the submission of assessee on the ground that appeal is pending before the Tribunal. Accordingly, the additions were made by the Assessing Officer for the above years. On appeal, the same has been confirmed by the Learned CIT (A) for the reasons given in his order. According fo him, the case was covered by the decision of the Hon'ble Supreme Court in the case of TV Sundaram lyengar & Sons Ltd. 222 ITR 344. Aggrieved by the same, the assessee is in appeal before the Tribunal for all the three years.
30. After hearing both the parties, we find merit in the appeal of the assessee in view of the latest judgment of the Hon'ble Supreme Court in the case of Kesaria Tea Co. Ltd. 254 ITR 434, wherein it has been held that unilateral act on the part of the assessee by way of writing off the liability in its accounts did not necessarily mean that the liability had ceased in the eye of law. It is the stand of the assessee before the Learned CIT (A) as well as before us that none of the amounts relate to receipts by the assessee and, therefore, the judgment of the Hon'ble Supreme Court relied upon by the Learned CIT (A) has no application. According to assessee's Counsel, the unclaimed balances and cheques suspense account pertained to trading liabilities which has been written off because of time barring period but that does not mean that the liability had ceased. This factual pleading has not been disputed before us. Accordingly, we are of the view that the case is covered by the judgment of the Hon'ble Supreme Court in the case of Kesaria Tea Co. Ltd. (supra) as well as in the case of Sugauli Sugar Works Pvt. Ltd. 236 ITR 518. Respectfully following the same, the orders of the Learned CIT (A) are, therefore, set aside on this issue and additions are hereby deleted.
31. The next issue arising in the appeal for the Assessment Year 1995-96, relates to ad-hoc disallowance of Rs. 2.00 lacs on account of entertainment expenses. The assessee had worked out the entertainment expenses at Rs. 7,78,696/- as per audit report Section 44AB of the Act. Despite the same, the Assessing Officer had made an addition of Rs. 2.00 lacs on estimated basis in respect of entertainment expenses, which has been confirmed by the Learned CIT (A). After hearing both the parties, we are unable to sustain such addition, as such addition has been made on mere surmises and without any basis. Accordingly, the order of the Learned CIT (A) is set aside on this issue and the addition sustained by him is hereby deleted. Similar addition has been made to the extent of Rs. 3.00 lacs in Assessment Year 1997-98. For the reasons given above, this addition is also hereby deleted.
32. The next issue relates to disallowance of bad debt of Rs. 1,10,042/-in Assessment Year 1991-92. The assessee had claimed bad debt of Rs. 1,71,317/- in Profit & Loss Account. The same were disallowed by the Assessing Officer as these were not proved to be irrecoverable. According to the Assessing Officer, even no provision was made. On appeal, the Learned CIT (A) deleted part of the amount being small in nature and retained the addition of Rs. 1,10,042/-. In the absence of any material on record, we sustain the order of the Learned CIT (A) on this issue.
DEPARTMENTS APPEALSs
33. The first issue, common to all the appeals relates to the addition in respect of unclaimed balances and cheques suspense account. This issue has already been adjudicated by us while disposing assessee's appeals. For the reasons given by us in those appeals, we decide this issue in favour of assessee. Accordingly, the orders of the Learned CIT (A) are upheld on this issue.
34. The next issue, common to appeals for Assessment Years 1990-91 to 1992-93, relates to disallowance under Rule-6B, which has been deleted by the Learned CIT (A). Disallowances had been made by Assessing Officer in respect of expenditure incurred on gift articles costing more that Rs. 50/- each. The Learned CIT (A) has deleted the disallowance following Delhi High Court decision reported as 188 ITR 125. Aggrieved b the same, the Revenue is in appeal. After hearing both the parties, we find that the issue is covered by the decision of the Hon'ble Bombay High Court in the case of Allana Sons 216 ITR 690, wherein it has been held that no disallowance can be made where there is no logo on the gift articles. There is no finding that gift articles carried the logo of assessee company. Therefore, following the same, the issue is decided in favour of assessee. The orders of the Learned CIT (A) are, therefore, upheld on this issue.
35. The next issue arising from appeal for the Assessment Year 1989-90, relates to disallowance of Rs. 1,18,314/- made by the Assessing Officer on account of interior maintenance expenses which has been deleted by the Learned CIT (A). The Assessing Officer noticed that certain repair works was carried out by assessee in respect of flat at Colaba. The Assessing Officer considered the same as capital expenditure and, therefore, disallowed. The Learned CIT (A) deleted the same being repair work. After hearing both the parties, we do not find merit in the appeal of the Revenue. The expenditure is admittedly on repair of flat as mentioned in the assessment order. Therefore, in our opinion, the Learned CIT (A) was justified in deleting the same, as such expenditure is on revenue account. The order of the Learned CIT (A) is, therefore, upheld on this issue.
36. The next issue relates to disallowance of foreign travel expenses of Rs. 71,145/- incurred in Assessment Year 1989-90. The said expenditure was incurred on the travel of spouses of two executives. The explanation of the assessee was that, conferences are normally attended with spouses. This explanation was rejected and accordingly disallowance was made. On appeal, the Learned CIT (A) deleted the same following Special Bench decision of ITAT in the case of Glaxo Laboratories. Aggrieved by the same, the Revenue is in appeal before the Tribunal.
37. After hearing both the parties, we are unable to uphold the order of the Learned CIT (A). An expenditure can be allowed Section 37 of the Act only where the expenditure is increased wholly and exclusively for the purpose of business. There is no material on record to prove that any business purpose was served by the visit of wives of the executives. The decision of ITAT does not hold water in view of the High Court judgments. The Hon'ble Gujarat High Court in the case of Bombay Mineral Supply Co. 153 ITR 437, has disallowed such expenses. See also Jaji Moosa & Co. 153 ITR 422 (Mad.). In view of these judgments, the order of the Learned CIT (A) is set aside on this issue and consequently disallowance made by the Assessing Officer is restored.
38. The next issue relates to expenses incurred on software up-gradation in Assessment Year 1990-91. The Assessing Officer has disallowed the same being capital in nature. The Learned CIT (A) has allowed the same being revenue in nature. After hearing both the parties, we are of the view that expenses on up-gradation of software do not result into acquisition of any asset nor acquisition of enduring benefit as such software become obsolete very quickly. Accordingly, we hold the same as revenue expenditure. The order of the Learned CIT (A) is, therefore, upheld on this issue.
39. The next issue in appeal for Assessment Year 1990-91 relates to disallowance of penalty and find of Rs. 6.00 lacs. The Learned Counsel for the Assessee has not objected to the ground raised by the Revenue. The fines and penalties are not allowable as expenditure.... Accordingly, the order of the Learned CIT (A) is set aside and the disallowance made by Assessing Officer is restored.
40. The next issue relates to disallowance of Rs. 39,199/- being payments made by way of club subscription. This issue is covered by the Hon'ble Bombay High Court in the case of OTIS Elevators Co. Ltd. 195 ITR 682. Following the same, we do not find merit in the appeal of the Revenue.
CROSS OBJECTION OF ASSESSEE
41. The first objection in Assessment Year 1989-90 relates to the disallowance of interior decoration expenses. The Learned CIT (A) has directed the Assessing Officer to allow the expenditure. Accordingly the assessee cannot be said to be aggrieved for such direction. Hence, this objection of assessee is rejected.
42. The next objection in Assessment Year 1989-90 relates to disallowance on fines and penalties. The assessee's Counsel has not pressed this objection. According, the same is also rejected.
43. The Cross Objection in Assessment Year 1990-91 is similar. Therefore, the same is also dismissed following our order in Assessment Year 1989-90 in the preceding paragraph.
APPEAL IN I.T.A. No. 5946/BOM/1995
44. The only issue arising in this appeal relates to levy of penalty Section 271(1)(c) of the Act for the Assessment Year 1991-92. The penalty of Rs. 2,53,75,898/- was imposed in respect of disallowance made by Assessing Officer under Sections 80HHD and 80HHC of the Act. According to Assessing Officer, the assessee had filed incorrect particulars in respect of its claim under Sections 80HHD and 80HHC. The Learned CIT (A) deleted the same by observing as under:
I have carefully considered the submissions of the appellant, details available on record and various Judicial decisions referred by the appellant's Counsel. The appellant had made claim for deductions under Section 80HHC and 80HHD which was rejected/partly rejected by the Assessing Officer. The main reason for rejecting the appellant's claim for deduction under Section 80HHC. It was on the ground that the foreign currency exported by the appellant does not amount to export of goods. The main reason for partly disallowing the claim for deduction under Section 80HHD was due to the reason that the appellant had taken gross receipts of foreign exchange by way of gross profits from the activities of commission on air-tickets and selling and buying of Indian currency as against the gross amount of foreign exchange receipts taken by the A.O. in recomputating the claim. The disallowance of the claims by the A.O. was upheld while deciding the appeal against the assessment order. However, the Assessing Officer on the basis of the disallowance of the claims has levied the penalty under Section 271(1)(c) on the ground that the appellant has concealed the particulars of income or furnished inaccurate particulars of income. The issue for consideration therefore is not the merits of the claim but whether the A.O. is justified in leving penalty under Section 271(1)(c) of the Act. It is seen from the penalty order itself that there is no dispute that detailed working of the claim along with Form No. 10CCAD in case of 80HHD of otherwise in the form of Note etc. has been given with the return of income. The claims were duly certified by the Auditors and the working of the claims and the basis on which the claims were made were also provided. The fact that the claim had been made in earlier years also is not disputed as the A.O. has mentioned the same in the order itself. Therefore, the contention of the appellant, that only on account of legal differences on interpretation of the claims leading to rejection of the claims, it cannot be said that the same has concealed the particulars of income, has substantial force. The Assessing Officer also mentions that submissions have been made during the assessment proceedings only when asked for. However, looking at the details which were part of the return of income and the assessment records, it is not correct to say that the basis of the claims and the relevant facts and figures wee not furnished along with the return of income. Even if some further material is sought by way of elaboration or clarification of certain issues, it cannot be surmised that the particulars to that extent were concealed by the assessee. Concealment in my view has to be of substantial and relevant facts and it has to be such that it can keep the Assessing Officer in dark about the real issues. This is not the case here as the nature and basis of claim is made very apparent. The Assessing Officer also mentions that the disallowances have been sustained by the C.I.T. (A) in this year as well as in the earlier years which proves that the claim of the assessee is false. This is also not a correct proposition since a claim which has not been accepted need not necessarily be a false claim. What is important is to see whether the material particulars were furnished at the time of making the claims or whether there was a deliberate attempt or intention to conceal the facts in such a way that the income gets concealed. Looking at the certificates of Auditors for 80HHC and 80HHD and the detailed working of the claims and notes etc., it cannot be said that there was an attempt to conceal the facts. The claims have been made in earlier years also and that also shows that there was no secrecy or surprise involved in raising the claims nor was there any attempt to put the claims in such a manner that the contentious issues are not noticed. In the covering letter of the return of Income also it is clearly indicated that the claims for deduction under Section 80HHC and 80HHD have been made in respect of which certain aspects are to be decided in appeal. This was a clear pointer that the claims are disputed claims. As seen from the various Judicial decisions which have been referred above, the penalty levied under Section 271(1)(c) cannot be justified only because a claim has been rejected by revenue authorities. The penalty is also not justified merely because certain details had been procured during the proceedings. To constitute concealment, the act of the assessee should be calculated and designed to prevent discovery of the Act which is not the case here as the claim is very much apparent and the issues and disputes are also clearly indicated. Thus, considering the judicial opinion in the mater of levy of penalty under Section 271(1)(c), I am of the view that on the basis of the facts in this case, there is no justification for levy of penalty under Section 271(1)(c) of the Act. The penalty order is therefore cancelled.
Aggrieved by the same, the Revenue is in appeal before the Tribunal.
45. After hearing both the parties, we do not find any infirmity in the order of the Learned CIT (A). The Learned CIT (A) has given detailed reasons for holding that there was no case of furnishing inaccurate particulars of income. Further, there was no concealment of any facts. Merely because claim was disallowed, penalty cannot be levied. Accordingly, we uphold the order of the Learned CIT (A). This appeal of the Revenue is dismissed.
46. In the result, appeals of assessee are partly allowed. Departmental appeals for Assessment Years 1989-90 and 1990-91 are partly allowed for statistical purpose while other appeals are dismissed. The Cross Objections of assessee are dismissed as infructuous.
Pronounced in the open Court on this 30th day of January 2006.