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(a) V.B.C. Exports Ltd. is a sister concern of the assessee and it is engaged in the processing as well as export of shrimps. The assessee claimed to have exported 47.1 metric tons of Shrimps worth Rs. 54.88 lakhs to several countries including Japan. The assessee entered into an agreement with V.B.C. Exports on 4-3-1989. Copy of the agreement is provided at page 1 of 2nd paper-book filed by the assessee. We shall discuss the clauses of the agreement later. For the present, it is enough to note that the claim of the assessee was that V.B.C. Exports Ltd. acted as its agent both in processing shrimps, as well as exporting shrimps on behalf of the assessee. The assessing authority held that this agreement is a sham agreement and the assessee had resorted to this device to evade tax and applying the principle in McDowell's case, the assessee is not entitled to deduction claimed under Section 80HHC. Since the transaction itself is to be disbelieved, the assessee is also not entitled to claim of Rs. 2,24,679 towards service charges said to have been paid to its sister concern, namely, VBC Exports Ltd.

39. Thus, this Tribunal has to examine in this second appeal whether the agreement between the assessee and its sister concern dated 4-3-1989 is true, whether the assessee in fact exported shrimps either 47.1 Metric Tons or any other quantity worth Rs. 54.88 lakhs or any lesser amount. In this regard the assessee had produced bulky documentary evidence to show that in fact it had secured export licence and that the agreement is true, export orders were secured by it and in execution of those export orders, exports were made to an extent of Rs. 54.88 lakhs. The assessee filed the following documents.

2. Invoice dated 10-3-1989 8480 Kgs. Rs. 6,50,085.03
3. Invoice dated 25-3-1989 6460 Kgs. Rs. 14.,90,054.97
4. Invoice dated 28-3-1989 980 Kgs. Rs. 1,43,454.69
5. Invoice dated 28-3-1989 14,900 Kgs. Rs. 12,45,270.65 Total 39,940 Kgs. Rs. 56,16,985,.82 At page 27, a copy of the certificate of registration recognising the assessee as an exporter was given and it is dated 5-7-1989. It was given in Form X under the Marine Products Export Development Authority Rules, 1972. The names of marine products allowed to be exported was stated to be 'frozen shrimps'. The number and date of certificate of registration was also mentioned. At page 29 another invoice prepared by the assessee itself on 25-3-1989 was provided while exporting shrimps. At page 31, another invoice was found as having been prepared by the assessee-company and it is dated 25-3-1989. At page 33 was provided packing list which shows the different varieties of shrimps packed, number of packages and the total quantity of those packages of each variety. This was prepared by the assessee-company itself. At page 35, copy of the draft was provided for US $ 96910 and it is dated 30-3-1989. At page 37 a letter (shipping advice) written by the assessee-company to the State Bank of India, Main Branch, Visakhapatnam is provided. It is dated 30-3-1989 and it is stated that 323 cartons of fresh frozen shrimps were shipped on 25-3-1989 in MV Indian Courier to M/s. Mitsubishi Corporation, Tokyo, Japan. They have enclosed all documents duly signed and the SBI was requested to negotiate the documents and credit the sale proceeds to VBC Industries Limited, Packing Credit Account No. CC/2/166, for and on behalf of VBC Industries Ltd. At page 39, a copy of the Bank credit advice was provided. At page 41, a certificate of Exports issued by the State Bank of India was provided. At page 43, copy of the Debit Note sent by VBC Exports Limited to the assessee-company claiming service charges and compensation calculated at 4% FOB value of exports of marine products was given. This would show that they have been claiming charges and compensation at 4% on Rs. 14,90,054.97 which comes to Rs. 59,602.20 from the assessee-company. The Debit Note is dated 30-3-1989. At page 45 is the statement of exports made by the assessee-company during the years 1988-89 and 1989-90 as also 1990-91. This would show that whichever exports were made by the assessee-company for the financial years 1988-89 and 1989-90 were made only through its sister concern, M/s. VBC Exports Ltd. However, in the financial year 1990-91 all the exports were shown to have been made through others and not through VBC Exports. The C&F Value as well as the FOB value of the exports made in the financial years of 1988-89 and 1989-90 were provided in a tabular form. For financial year 1988-89 with which we are concerned, the C&F Value of exports was stated to be Rs. 57,70,600 and the FOB value of the exports was stated to be Rs. 56,16,986. Details of exports which the sister concern (VBC Exports) made during the financial years 1988-89, 1989-90 and 1990-91 were shown at page 49. In the financial years 1988-89 and 1989-90, VBC Exports Limited was shown to have made direct exports as well as exports made on behalf of others. The exports made for others were titled as 'route through exports' in the tabular form given at page 49. Both the C&F and FOB values of such exports made for others were mentioned. They represent no other than the same figures which were shown to be the value of export made by the assessee-company in those respective years. However, apart from the exports made for others, the sister concern of the assessee, namely, M/s. VBC Exports Limited made its own direct exports, the C&F Value of such exports made directly for the financial year 1988-89 was of the value of Rs. 8,04,08,614 and for the financial year 1988-89 the C&F Value of the direct exports made by it was Rs. 2,36,19,288. At page 57, the eligibility conditions for grant of export house status and how far such conditions were fulfilled by the assessee were shown. The Assessing Officer summoned the sister concern M/s. VBC Exports limited in order to find out the cost of production of material relating to the exports made by the assessee. The sister concern M/s, VBC Exports Limited had submitted necessary details to the Assessing Officer. The cost of material exported according to the material submitted was Rs.54.88 lakhs. According to the calculation furnished by the sister concern, the cost of average yield of finished products from the raw material was about 85% during the accounting year in question. On this basis, the raw meterial used for processing was taken at 47.1 metric tons. At the same ratio, material used for processing exported quantity would be 47,988.235 Kgs. On this basis, cost of production in the hands of the sister concern was calculated at Rs. 54,76,920 as against Rs. 54.88 lakhs shown as the cost of material exported. Thus, the sister concern was found out to have earned profit of Rs. 2,93,689 (Rs, 57,70,609 - Cost of material Exported (-) Rs. 54.76,920 - Cost of production). Before the Assessing Officer, the resolution passed at the Extra Ordinary General Body Meeting of the assessee-company, on 4-3-1989 was submitted in which in the objects Under Clause III Sub-Clause 58 in the memorandum of Association of the assessee-company, export offish and prawns were added as objects of the assessee-company. The Assessing Officer stated that in the accounting year relevant to assessment year 1989-90, the sister concern of the assessee incurred huge losses amounting to Rs. 1,21,91,355 was accepted by the Revenue under Section 143(l)(a) vide his order dated 21 -3-1990. According to the Assessing Officer, since it has incurred losses during the year, there is no scope for the sister concern of the assessee to claim deduction under Section 80HHC. Therefore, a colourable device of tax avoidance was evolved by the assessee with the help of its sister concern. The reasons for coming to the said conclusion were stated to be as under:
During the period under reviewyour company has taken up the business of exports of shrimp and exported shrimps to the tune of Rs. 57.70 lakhs.
In Schedule 19 which is appended to the Profit & Loss Account, a sum of Rs. 57.70 lakhs was stated to have been incurred for purchase of finished goods (shrimps) and the quantum of shrimps purchased was stated to be 39,940 Kgs..Therefore, either the quantity of exports or the exports were really made can never be doubted in view of the bulky evidence on record which clearly proves that the assessee is a genuine exporter in that year, secured orders for export but the'exports were got made through its sister concern VBCE after paying 4% FOB value. The document filed on behalf of the assessee is replete with evidences which establishes the factum of exports by the assessee. Therefore, when the payment of consideration is correct, we fail to understand how such an agreement can be termed as sham and collusive brought out only for the purpose of avoidance of tax. In this connection, it is sought to be argued before us by the learned Counsel for the assessee that engaging a sister concern as export agent to the assessee and paying reasonable remuneration towards service charges cannot be termed as illegal, is borne out by few decided cases of the Tribunal. First in the series was the Madras Bench decision reported in S.I. Property Development (P.) Ltd. v. IAC [1992] 40 ITD 494. The facts of that case as regards deduction under Section 80HHC and the decision of the Tribunal thereon are correctly given in the head-note of the decision at pages 497 and 498: