Income Tax Appellate Tribunal - Delhi
Shri Sanjeev Malhotra vs Deputy Commissioner Of Income-Tax on 18 May, 2004
Equivalent citations: [2004]91ITD76(DELHI), [2004]270ITR148(DELHI), (2005)93TTJ(DELHI)394
ORDER
K.C. Singhal, Judicial Member
1. The following question has been referred to me by the Hon'ble President Under Section 255(4) of the Income-tax Act, 1961:
"Whether, on the facts and in the circumstances of the case, the appellant during the relevant year was engaged in the business of export out of India of any goods or merchandise, so as to entitle it the deduction under Section 80HHC of the Income-tax Act, 1961?"
2. After going through both the orders of my learned brothers, it is seen that the above question does not cover the real point of difference arising from such orders. The learned Judicial member has expressed his opinion that assessee is not entitled to deduction Under Section 80HHC for two reasons - firstly, no deduction can be allowed unless there is export during the year under consideration which assessee has failed to establish. Secondly, it cannot be said that assessee was engaged in the business of export, which is a condition precedent for claiming such deduction. On the other hand, the learned Accountant Member has expressed his opinion (i) that on the facts of the case assessee could be said to be engaged in the business of export; (ii) that there was enough material to hold that assessee had actually exported the goods outside India; and (iii) even assuming that there was no export, assessee was still entitled to deduction Under Section 80HHC in respect of profits earned on the sale of imports entitlements. Thus, it is seen that the area of difference of opinion is too wide to be covered by the proposed question. Hence, at the outset, it was put to both the parties that no purpose would be served by answering the proposed question. It was, therefore, proposed that the question may be re-framed so as to cover the entire controversy and avoid future litigation. In response to the same, both the parties fairly agreed to the proposal and after the consent of both the parties, the following question was re-framed."
"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. 24822/- and profit on sale of import entitlements of Rs. 35,46,150/-. It was found by the AO that the last export was made in asstt. Year 1995-96 and no export was made in asstt. year 1996-97 and asstt. year 1997-98. It was also found that in asstt. 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 asstt. year 1995-96. Regarding the sale of Rs. 24,822/-, it was held by the AO that it represented the gift samples and not trade samples as contended by the assessee. Considering these facts, the AO was of the view that assessee could not be said to be engaged in the business of export. Further, considering the provisions of Section 80HHC, it was held by him that there was no export sale as there was no evidence to prove custom clearance. The assessee also failed to prove the transportation of such alleged export as there was no airway bill, packing list or any other supporting document to prove the actual export. Hence, he was of the view that assessee had fabricated a story to claim deduction Under Section 80HHC. Accordingly, he disallowed the claim of the assessee Under Section 80HHC. The CIT(A) confirmed the disallowance made by AO. Hence, the present appeal was preferred by the assessee.
4. The contentions on behalf of the assessee before the Tribunal were as under:
(a) That considering the past history, it cannot be said that assessee was not engaged in the business of export. He invited the attention of the Bench to the relevant materials to point out that there was sufficient exports made by assessee in asstt. years 1991-92 to 1993-94. Further, there was huge exports of Rs. 1.19 crore in asstt. year 1995-96. Further, there were receipts of Rs. 1,63,225/- on account of exchange fluctuation in asstt. year 1996-97.
(b) Merely because there was lull in the business in some years and small exports of Rs. 24,822/- as samples was effected in the year under consideration, it cannot be said that assessee was not engaged in the business of export.
(c) Since the import entitlement related to exports, though related to earlier years, profits on sale thereof amounted to profits arising out of export business. Thus, assessee was entitled to deduction Under Section 80HHC.
5. On the other hand, the contention on behalf of the revenue was as under:
(a) To constitute business, there must be continuity of the action which was missing in the present case.
(b) After asstt. year 1995-96, there is no evidence of any export of goods by the assessee and, therefore, he ceases to carry on the business of export.
(c) The assessee has not been able to prove the actual transportation of goods outside India. Hence, there was no export in the year under consideration.
In view of such submissions, it was pleaded on behalf of the revenue that assessee could not be said to be engaged in the business of export and consequently, no deduction Under Section 80HHC was available.
6. The learned JM, after examining 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 asstt. 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 asstt. year 1995-96 except asstt. 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 of the above difference of opinion, the proposed question was referred to the Third Member for his opinion. It has already been stated by me that the proposed question did not cover the entire controversy between the Members and, therefore, with the mutual consent of the parties, the question has been re-framed.
9. The learned counsel for the assessee has reiterated his arguments made before the lower authorities as well as before the Tribunal and, therefore, need not be repeated as already stated by me. In addition, it was contended that even assuming that there was no export in the year under consideration, the assessee was entitled to deduction equal to 90% of the profits on import entitlements in view of the proviso to Section 80HHC(3). He, referred to the recent judgment of Special bench of the Tribunal in the case of Lalsons Enterprises, 89 ITD 25 wherein it has been held that such proviso has to be considered independently and assessee is entitled to such deduction even though the computation Under Section 80HHC works out in negative profits. It was pleaded by him that such negative profits cannot be adjusted against the export incentive mentioned in the proviso. On the basis of such ruling by the Special bench, it was pleaded that assessee was entitled to such deduction. It was also pointed out by him that even in the subsequent years, the assessee had exported the goods in respect of which deduction Under Section 80HHC was allowable. This fact supports the case of the assessee that he was in the business of exports. It may also be mentioned that in the course of hearing, the counsel for the assessee was specifically asked whether there is any evidence of custom clearance or the mode of transport for export of goods. However, the answer was in negative. According to him, the goods were sent through some persons going abroad but he could not substantiate the same by any evidence. On the other hand, the learned DR has strongly relied on the reasoning given by the Judicial Member and contended that in the absence of any evidence, it cannot be said that goods were actually exported and consequently, no deduction was allowable Under Section 80HHC.
10. Rival submissions of the parties have been considered carefully in the light of materials placed before me. Before adverting to the legal position, it would be appropriate first to adjudicate 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 from India to 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 in India. 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 evidence as furnished by assessee were fabricated or not. Be that as it may, the assessee has failed to discharge his onus of proving the factum of actual export. hence, I am inclined to agree with the view of learned JM on this aspect of the issue.
11. The next question for my consideration is whether the assessee is entitled to deduction Under Section 80HHC in respect of profit of Rs. 31,97,357/- on sale of import entitlements. The leaned JM has expressed his view that assessee cannot be said to be engaged in the business of export while the learned AM has held that assessee was engaged in the business of export. This difference of opinion, in my opinion, is not at all relevant. According to the scheme of the Act, to which reference may be made hereafter, actual export is a condition precedent for claiming deduction Under Section 80HHC. I would, therefore, proceed on the assumption that assessee was engaged in the business of exports.
12. In order to decide whether the assessee is entitled to deduction Under Section 80HHC or not, it would be appropriate to refer to the relevant provisions of Section 80HHC as under:
"80HHC: (1) When 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 of the profits derived by the assessee from the export of such goods or merchandise:
Provided.....
(1A) .....
(2)(a) This section applied to all goods or merchandise, other than those specified in Clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee other than the supporting manufacturer in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
Explanation.....
Explanation 1.....
Explanation 2.....
(3) For the purposes of Sub-section (1),-
(a) Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover of the business carried on by the assessee;
(b) Where the export out of India is of trading 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 total turnover of the business carried on by the assessee."
Sub-section (1) of Section 80HHC allows deduction of profit derived from export of such goods as was specified in Sub-section (2). The profits derived from exports for the purpose of Sub-section (1) are to be computed in accordance with Sub-section (3). Sub-section 3(a), 3(b) and 3(c) starts with the words "Whether the export out of India is of.....". The computation under Sub-section 3(a) depends upon the ratio of export turnover to the total turnover. Sub-section 3(b) provides that in case of trading, the export turnover shall be reduced by the direct and indirect cost. Sub-section 3(c) also refers to these aspects. The perusal of the above clearly shows that no computation of deduction is possible unless there is actual export. Even the proviso to Sub-section (3), on which heavy reliance has been placed by the learned counsel for the assessee, allows deduction in respect of export incentives specified in Clauses (iiia), (iiib) and (iiic) of Section 28 in the ratio of export turnover to the total turnover. So the entire scheme of Section 80HHC reveals that no deduction can be allowed unless there is actual export. In view of the above discussion, the decision of the Special bench in the case of Lalson Enterprises (supra) would not help the assessee as there is no export made by the assessee in the year under consideration and the computation provision even in the proviso would also fail. Therefore, I am inclined to agree with the view expressed by the learned JM that no deduction can be allowed Under Section 80HHC unless there is actual export in the year under consideration. Consequently, the learned AM was, in my opinion, not justified in holding in Para 15 of his order that assessee was entitled to such deduction even in the absence of actual exports once it is found that assessee was engaged in the business of exports.
14. In the present case, it has been found that there was no actual export of goods by the assessee in the year under consideration. No doubt the special bench in the case of Lalsons Enterprises has held that proviso to Section 80HHC has to be read independently and 90% of export incentives are to be allowed as per the provisions of the proviso. Heavy reliance has been placed by the learned counsel for the assessee on this aspect of the issue but such contention of learned counsel fore the assessee is without force in view of the specific language of the proviso to the effect that 90% of export incentives are to be allowed in the ratio of export turnover to the total turnover. In the absence of any export, no computation can be made under the proviso according to the formula laid down therein.
15. In view of the above discussion, I agree with the conclusion arrived by the JM to the effect that assessee is not entitled to deduction Under Section 80HHC. The matter would now go to the regular Bench for necessary orders.
Keshaw Prasad Accountant Member
1. I having gone through the proposed order prepared by my learned brother and had also discussion with him inspite thereof, I have not been able to persuade myself to agree with the conclusions arrived at by him in paras 13 to 19 for the reasons stated hereinafter hence this order of dissent.
2. The controversy before us is whether on the facts and circumstances of the instant case the assessee was eligible for deduction Under Section 80-HHC of the Income-tax Act, 1961, claimed at Rs. 31,97,354/-?
3. Though some of the facts of the case have been set out by my learned brother in his proposed order, in my opinion some more facts as are on record, need to be noted for proper consideration of the issue involved in the instant appeal. In my opinion, in order to examine the claim made Under Section 80-HHC of the Act it has to be firstly examined and considered, whether, during the relevant assessment year the assessee can be said to be engaged in the business of export or not? If the answer is in the affirmative, then in my opinion the appellant is entitled to the claim of deduction Under Section 80-HHC of the Act and if it is found not so, then the claim made cannot be allowed and the appeal would fail.
4. In the instant case, I find from the material on record that the appellant had been engaged in the business of export out of India since 1990 through its proprietary concern in the name of M/s S.S. Export (International). This concern has an independent bank account with the State Bank of India. The declared turnover of exports made by the proprietary concern since its commencement are as under:
Asstt. Year Amount (Rs.)
---------- ------------
---------- ------------
1991-92 8,08,750/-
1992-93 1,30,925/-
1993-94 11,070/-
1994-95 NIL
1995-96 1,19,03,984/-
1996-97 1,63,225/- (exchange
fluctuation on sales made
in A.Y. 1995-96)
1997-98 NIL
5. The appellant had been claiming a deduction Under Section 80-HHC of the Act in respect of the export sales for the relevant assessment years, including for the A.Y. 1996-97 which deductions had been allowed as such, however for the instant year the deduction claimed Under Section 80-HHC 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 Hands & 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 evidence 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 foreign inward remittance; and
c) Copy of purchase invoice.
6. All the aforesaid documents have been filed by the assessee before the lower authorities and also form part of the paper book. It may be mentioned here that the original documents were also shown to the Assessing Officer during the course of assessment proceedings as would be evident from page 22 of the paper book. Further, in respect of export sales made in A.Y. 1995-96, the assessee has also received certain advance import licences against the exports made, which were also sold in the instant year for Rs. 35,46,150/-. Both the aforementioned receipts formed part of the profit & loss account of the assessee for the financial year 1997-98, which has been placed at page 1 of the paper book. Against the total receipts of Rs. 35,70,972/- the assessee claimed expenditure of purchase made of garments exported of Rs. 15,465/- and other expenses, resulting into net profits of Rs. 35,51,972/-. It is this profit in respect whereof the assessee had claimed a deduction Under Section 80-HHC of the Act of Rs. 31,97,357/-. In addition, in the return of income the assessee had also declared income from property and income from other sources.
7. The Assessing Officer denied the claim of deduction Under Section 80-HHC of the Act, on the basis that the assessee is not engaged in this business of export out of India for the following reasons:
a) No export sales in A.Y. 1997-98 except realisation of foreign exchange fluctuations;
b) Exports made during the year are gift samples and not goods or merchandise;
c) Export sales have been made to a related concern, with which no business was conducted in earlier years; and
d) Goods have not been exported out of India as per explanation (aa) to Section 80HHC of the Act.
8. However, he has assessed the entire income declared of Rs. 35,51,972/- from the business of M/s S.S. Exports (International) as income under the head business. There is thus no dispute that there is business carried on by the assessee in the name of M/s S.S. Exports (International) and that there is export of goods. But dispute in short is that whether the assessee is in the business of exports or not for the purpose of deduction Under Section 80-HHC of the Act?
9. Even the learned CIT(A) had sustained the disallowance of the claim of the assessee. The assessee being aggrieved 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. 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 licences in A.Y. 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 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 business of exports. In fact, by no stretch of imagination, such a contention could be sustained. It is admitted position that the proprietary concern of the assessee M/s S.S. Exports (International) had continuously been engaged in the business of exports since 1990, though there are no exports made during A.Y. 1997-98, but undoubtedly, the assessee had made exports during the financial years relevant to assessment years 1991-92 to 1993-94 and 1995-96. In the financial year 1995-96 also which is relevant to the assessment year 1996-97, the assessee booked export profit of Rs. 1,63,275/- on account of foreign exchange fluctuation on the exports made during the financial year 1994-95, the firm had been exclusively engaged in the business of exports and is maintaining an independent bank account even during the year, there is nothing either in the assessment order or the order of the CIT(A) to show that any event had taken place during the instant assessment year to show the cessation of business of exports. All that I can find in the order of assessment is that the genuineness of claim of export in the instant year is disputed, but there is no material or evidence to cast any doubt or suspicion that the assessee is not in the business of export, particularly when the learned Assessing Officer himself admits that there is business in the name of M/s S.S. International and assessee the income from sale of goods as business income. There is also no receipt in the year in question except of export sales. On the contrary, expenditure in the form of purchases and bank charges has been allowed and found to be genuine. It is not a case where the boos of accounts have been rejected and the sale proceeds from outside India have been assessed as unexplained cash credit Under Section 68 of the Act.
11. The conclusion of the learned JM that assessee is not engaged in the business of export on the basis that there were no exports during the years 1995-96 to 1999-2000 except for sales made in the year 1997-98 is not based on proper appreciation of the facts of the instant case. Perhaps, this approach in my opinion to arrive at the conclusion that assessee is not in business of exports has an intention of the assessee to be in the business of exports. What is to be seen whether there is any evidence to show 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 A.Y. 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 from India during 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 best deciphered from the intention of the assessee. It is well settled in law that if there is a temporary lull in the business activity, it cannot be said that there has been closure or suspension of business. Thus, in a given case if there has been only a temporary stoppage or lack of export orders during the year, it cannot be said that such an assessee is not engaged in the business of export. Hence, the conclusion that the assessee was not in business of export only on the fact that in above financial years there was no export sales, although the assessee has received foreign exchange receipts, recorded profit thereon, received import license benefits, incurred expenses relating to export like the bank charges, printing & stationery etc. In fact deduction Under Section 80-HHC of the Act has also been allowed till A.Y. 1996-97. A temporarily in the business cannot be said to be enough to hold that the assessee is not engaged in the business of export. The Hon'ble Apex Court in the case of Vikram Cotton Mills 169 ITR 597 (SC) has held that:
"It is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. All the relevant facts, it appears, have been considered by the Tribunal from the correct standpoint, i.e. an ordinary prudent businessman or as in England, it used to be "man on the top of the platform omnibus" or "director's arm chair". If, on that test, a plausible conclusion has been drawn, no objection can be taken. On that basis, applying the correct principle, the Tribunal found that the intention was not to part with the machinery but to leave it out for a temporary period as a part of exploitation. In such a circumstance, it cannot be said that no business was carried on and there income derived from the machine letting was only a rental income. There was a temporary suspension of business for a temporary period with the object of tiding over the crisis condition. There was never any act indicating that the assessee never intended to carry on the business."
12. Further, the assessee has also placed on record a copy of the invoice dated 22-01-2002 and copy of the foreign inward remittance certificate dated 15-04-02 to contend that the assessee had exported goods worth 960 Pd Stg. during the year 2001-02. The Tribunal as a final fact finding authority is bound to consider even all subsequent developments to arrive at a correct conclusion. Reliance is placed on decisions in the case of CIT v. Dunlop India Limited 197 ITR 34, Pasupleti Venkateswarlu v. Motors and 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 ever 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 assessment 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 80-HHC of the Act. The requirements of law as prescribed Under Section 80-HHC of the Act is that the assessee should be engaged in the business of export out of India in respect of goods and merchandise to which the section applies is fully satisfied in this case.
13. It had been argued by the learned counsel during the course of hearing that the revenue had taken two different stands on the single issue of continuity of exercise to form a business. It is submitted that eh appellant was allowed benefits Under Section 80-HHC of the Act for the assessment year 1995-96, though there was no export sales in the financial year 1993-94 relevant to the assessment year 1994-95. As per detailed filed by the appellant in the paper book there are only 5 invoices raised during the financial year 1994-95 on three different dates aggregating to Rs. 1,20,67,208/-. It was argued by the learned counsel that going by the stand of the department, no benefit should have been allowed to the appellant for the assessment year 1995-96, which had not been done. Further, it was submitted that the assessee was allowed deduction Under Section 80-HHC of the Act even for the assessment year 1996-97 on account of profits on foreign exchange fluctuation also even when there was no actual export of goods in that year. It was therefore argued that it is now not open for the department to take another view. Reliance was placed on the various judgments of the Apex Court on the rule of consistency in the case of Radha Soami Satsang v. CIT 193 ITR 321; and also relying on CIT v. Neo Poly Pack 245 ITR 492 (Del); and State of Andhra Pradesh v. Jaiswal (2001) 1 SCC 748. I find myself in agreement with the contention of the appellant that the department has to be consistent on the issue and therefore, merely because there are no exports made in immediately preceding assessment year, the assessment cannot justifiably be said to be not engaged in the business assessment year, the assessee cannot justifiably be said to be not engaged in the business of exports.
14. Further, the conclusion of the learned JM in para 13 that whether the assessee is not engaged in the business of exports is to be decided on the basis that whether the claim of the assessee for the year under consideration with regard to exports and exports sales is genuine or not? I am unable to find myself in agreement with the said conclusion. As stated above, such a basis to adjudicate upon the continuity of activity of business is not correct. The only relevant factor is whether there is sustained effort 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 v. DCIT 50 ITD 37 (SB). The assessee in the instant case is engaged 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 financial year 1994-95 is entitled for 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 arisen to them on account of their export activity and is directly linked with the basic activity of export. Even if there were no fresh exports by the appellant during the year it cannot be said that the assessee does not satisfy the condition laid down in Section 80HHC (2) of the act. Section 80HHC (2A) of the Act provides that sale proceeds of such goods or merchandise exported out of India should be received in or brought into India by the assessee in convertible foreign exchange. There is no doubt that the sale proceeds of the goods, which are the cause of the issuance of advance licences to the assessee, have already been brought into India by the assessee in convertible foreign exchange. In this connection, reference is also drawn to the decision of ITAT Delhi Bench in the case of Indian Sugar & General Industry Export Import Corporation Ltd. in ITA No.5936/Del/95 wherein after considering decisions of various benches of Tribunal it was held that even in a case of loss from exports, the assessee would be entitled to deduction Under Section 80-HHC of the Act on the proceeds received on sale of export incentives. Therefore, on consideration of the facts and circumstances of the case, it is held that assessee is engaged int eh business of exports even if the claim of the export sales for the instant year is not accepted which has been discussed separately in late paras of the order and the appellant is entitled to deduction Under Section 80HHC of the Act on the income received on sale of advance licences received in lieu of exports made in A.Y. 1995-96.
16. Further, after carefully going through the orders of impugned assessment and the order of the first appellate authority, I am unable to persuade myself to come to the conclusions arrived at by my learned brother that export sales made during the year of Rs. 24,822/- is not a genuine export sale of the assessee and that the amount has been received in a clandestine manner. I may state at the beginning itself though the factum of export sales in the instant year is not germane to the issue of claim of deduction Under Section 80-HHC of the Act, as I have already concluded in my preceding paragraphs that the assessee is engaged in the business of export out of India. Yet, since my learned brother has commented upon the same, I propose to deal with the issue. The conclusion arrived at by my learned 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 process 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 means secretly and it cannot be said that a sum which has been disclosed in the profit & loss account can be said to have been brought in a clandestine or secretive manner. If this was the case of Revenue that the amount received was not on account of export sales, the Revenue was free to assess it Under Section 68. But this is not the case of Revenue.
17. Secondly, the genuineness of the claim of the exports of goods during the year has not been accepted on basis of the invoice and letter dated 20-11-1997. I find that even the assessing Officer had concluded that the assessee had fabricated a story of export of goods just to claim deduction Under Section 80-HHC of the Act. I further find that the Assessing Officer had not given any basis or brought any material to arrive at a conclusion that the claim of export sales is a fabricated story. In fact, it seems to be more of a passing reference and as such, in his computation had accepted both the purchase and sales, as the income from sale of goods as exports income. The Assessing Officer had never doubted the claim of exports of goods but had denied the claim of deduction Under Section 80-HHC on the ground that the same did not fall within the meaning of export out of India as defined in Explanation (aa) of Section 88HHC of the Act and also that the items exported were not goods or merchandise but gift samples. This would further be well appreciated from the order of CIT(A) who has completely remained away to cast any doubt or suspicion on the claim of the assessee that assessee had exported samples but sustained the disallowance purely on merits. Thus, now for the Tribunal to come to a different conclusion would be building altogether a new case which is not with in its powers. It is settled law that the powers of the Income Tax Appellate Tribunal as an Appellate Court are not those of an investigating agency but to adjudicate on matters on the basis of evidence furnished by both the parties. The Tribunal is not supposed to enter into an arena which has not been traversed by the lower authorities particularly when this is not even the case of the AO and CIT(A). It has been held in the following cases that:
a) Vipin Kumar Jain v. ACIT 50 ITD 1 (TM):
"The Tribunal acting as an appellate authority, has to see whether the assessment framed by the AO and whether 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 AO 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 Ferrodo Ltd. v. CCE 89 ELT 16 (SC):
It is not the function of the Tribunal to enter into the arena and make suppositions that are tantamount to the evidence that a party before it has failed to lead.
18. The appellant had exported goods to a UK concern M/s Handa & Company for a sum of 350 pounds sterlings. The goods exported had been purchased from M/s Woven Classics by virtue of a purchase invoice dated 12.12.97. A fact, which has not been disputed by any of the authorities. In fact, the factum of purchases had gone unrebutted till the appeal before the Tribunal. So far as sales is concerned, it is also not the case of the Assessing Office that there were no export sales and hence, to dispute the genuineness the claim of export sales during the year is not possible. Hence, in absence of any contrary finding from the lower authorities, the genuineness of the claim of the export sales cannot be doubted, which otherwise too is supported by material placed on record. The conclusions drawn by my learned brother thus, in my opinion, are not supported by any material placed on record.
19. Once having accepted the genuineness of the claim of the export of goods, I proceed to examine the allowability of claim of deduction Under Section 80-HH of the Act on the exports made during the year on the basis of objections of the lower authorities.
20. The appellant had exported goods out of India, within the meaning of Explanation (aa) to Section 80HHC of the Act. According to Explanation (aa) to Section 80HHC of the Act, as inserted by the Finance (No. 2) Act, 1991, with effect from 01-04-1986, the term "export out of India" shall not include any transaction by way of sale or otherwise in a shop, emporium or any other establishment in India, not involving clearance at any customs station. Thus the Explanation provides that an export will not be considered as an export out of India for purposes of Section 80HHC of the Act, if the following two conditions are satisfied:
a) It should be a transaction by way of sale or otherwise in a shop, emporium or establishment situated in India; and
b) It does not involve clearance of the customs as defined in the Customs Act.
21. Both the aforesaid conditions have to be mutually satisfied to come to a conclusion that exports made by the assessee are not exports made out of India. This is the view which I have held in the case of M/s Subhash Emporium in ITA Nos. 5102/93 and 5103/93 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 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 of India if two conditions are satisfied: (i) it should be a transaction by way of sale otherwise in a shop, emporium or an establishment situated in India; (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 of India. If either of these conditions is not satisfied, it is an export out of India. Hence, it will be an transaction involves clearance at customs, it will be an export out of India within 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 been export out of India within the meaning of Explanation (aa)"
After the aforesaid decision of the Allahabad High Court, special leave petition was also preferred before the Hon'ble Supreme Court but the same was rejected vide order dated 17.10.97 Similar view has been taken by the Hon'ble Rajasthan High Court in the case of CIT v. Silver and Arts Palace reported in 115 Taxman 403 (Raj.)"
22. The export in question made by the assessee to a buyer in the UK does not satisfy the first condition. It is undisputed that the same is not a transaction by way of sale or otherwise in a shop emporium or any establishment, situated in India. If the principle of ejusdem generis is applied, the sale in question cannot be equated with the sale in a shop, emporium, which is meant to deny the claim Under Section 80HHC to the counter sales in India,. The export sales made by the assessee to a buyer in the UK, which was not a counter sale in India, required necessarily customs clearance. Therefore, on the facts of the instant case it is held that Explanation (aa) to Section 80HHC of the Act does not take away the character of export sale of export transaction effected by the appellant.
23. Further, in respect of the Assessing Officer's observation that the items exported are gift samples and not trade samples, it has been vehemently contended by the learned counsel for the appellant during the course of hearing that the appellant had exported trade samples to its client, not the gift samples as alleged by the learned Assessing Officer and the word "GIFT SAMPLES" is used by the appellant in the invoice for the reference of exporters and the word "TRADE SAMPLES" are used in the invoice as description for goods. The learned counsel had drawn attention to the letter from M/s S.D. Handa & Co. dated 20-11-1997 showing their interest in starting trading in articles such as women's ware, leather goods - garments and other articles, perhaps also gift items. It is submitted by the learned counsel that since in the aforesaid letter word "gift items" was used, the same was also used by the appellant as reference in the invoice. It was also submitted that the observations of the Assessing Officer that since there is no export of goods or merchandise during the year, the assessee cannot be said to be entitled for deduction Under Section 80HHC is not correct. After having perused the copy of the invoice filed wherein the two terms namely "GIFT SAMPLES" & "TRADE SAMPLES" are mentioned, I find that the term "GIFT SAMPLE" is used against "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 80-HHC 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.