D.b. Income Tax Appeal v. M/S Haswani Artsjudgment Dated 29/01/2013

D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 1 / 12 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPURORDER D.B. Income Tax Appeal No.101/2007 Commissioner of Income Tax-I Vs. M/s Haswani Arts Date of Order th:::: 29 January, 2013 PRESENT HON'BLE DR. JUSTICE VINEET KOTHARIHON'BLE MR. JUSTICE V.K. MATHUR REPORTABLE Mr. K.K. Bissa, for the appellant- Revenue.Mr. Vikas Balia, for the respondent-Assesseee. BY THE COURT 1.This appeal has been filed by the appellant-Revenueunder Section 260A of the Income Tax Act, 1961 (for short,hereinafter referred to as 'Act') being aggrieved by the order oflearned Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpurdated 25.08.2006, whereby the learned ITAT deciding the appeals ofthe Revenue being Appeal No.618/JDPR/2004 for Assessment Year2002-03 and Appeal No.Appeal No.619/JDPR/2004 for AssessmentYear 2002-03 held that the Commissioner of Income Tax (Appeals)was justified in holding that the income surrendered by the assesseeduring the assessment year on account of increased valuation ofclosing stock during the course of a survey under Section 133-A of D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 2 / 12 the Act conducted at the business place of the assessee, was alsoeligible for deduction under Section 80-HHC of the Act as there wasno dispute that the assessee had satisfied all the relevant conditionsfor grant of such deduction from its gross total income during therelevant assessment year on account of export of handicraft itemsmanufactured and sold by it during the relevant previous year. 2.While admitting the present appeal of the Revenue, acoordinate bench of this Court framed the following substantialquestion of law under Section 260A of the Act: - “Whether on the facts and in the circumstances ofthe case, the learned ITAT was justified in allowing thedeductions under Sec. 80HHC on excess stock ofRs.9,39,170/- found during the course of survey andsurrendered as business income without evidence thatthe receipt of money is in convertible foreign exchange?” 3.Learned counsel for the appellant- Revenue, Mr. K.K.Bissa, relying upon the decision of Punjab & Haryana High Court inthe case of National Legguard Works Vs. Commissioner ofIncome-Tax (Appeals) & Anr. reported in (2007) 288 ITR 18 (P&H)submitted that since the assessee has surrendered the allegedexcess stock of Rs.10,49,066/- for Assessment Year 2002-03,therefore, the assessee is not entitled to said deduction to the extentprescribed under Section 80HHC (1B) of the Act. He furthersubmitted that the since the assessee has failed to prove that itmade the realization of the convertible foreign exchange for the sale D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20133 / 12 of such excess stock by him during the relevant assessment year, itwas not entitled to the deduction under Section 80HHC to thatextent. D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20133 / 12 of such excess stock by him during the relevant assessment year, itwas not entitled to the deduction under Section 80HHC to thatextent. 4.On the other hand, Mr. Vikas Balia, learned counsel forthe respondent-assessee submitted that there is not even anallegation or whisper of doubt against the assessee that theassessee did not satisfy any of the conditions for grant of saiddeduction under Section 80HHC of the Act in respect of profitsearned by export business. He submitted that the excess stockvaluation as estimated by the authority concerned at the time ofsurvey under Section 133A of the Act, surrendered as income by theassessee during the course of survey is bound to be included in thedefinition of “profits of business” as defined in Section 28 of the Actread with Section 80HHC (4) (C) Clause (baa) of the Act. Heexplained and submitted that the increase in the valuation of theclosing stock resulted in the increase of profits but since there wasno sale of such closing stocks during the year under considerationand the sales/export figures have not been disturbed or increased bythe Assessing Authority and particularly, in the absence of anyallegation against the assessee that he did not export the goodsduring the relevant assessment year and did not realize theconvertible foreign exchange for such goods, the benefit of deductionunder Section 80HHC of the Act cannot be denied to the assesseefor the relevant assessment year to the extent of increase of such D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 4 / 12 profit on account of higher valuation of closing stocks. 5.He further submitted that the said closing stock valuationraised for the relevant assessment year 2002-03 would naturally betaken as opening stock at the same increased figure of the nextassessment year and, therefore, the surrender of income by theassessee for this assessment year 2002-03, the year underconsideration, by the assessee is bound to be included in profits ofbusiness as defined in the provisions of the Act, but that does notrender the assessee ineligible to avail the benefit for such deductionunder Section 80HHC of the Act. He sought to distinguish the P&Hjudgment in the case of National Legguard Works (supra) reliedupon by the learned counsel for the Revenue by submitting thatthere the findings of facts by the learned ITAT was against theassessee and that is why the assessee went up to Hon'ble HighCourt by way of appeal under Section 260A of the Act; and the HighCourt while upholding the said findings of facts by the Tribunal hasheld that the assessee was not entitled to the said benefit ofdeduction under Section 80HHC of the Act. He submitted that,however, in the present case of the assessee, since the findings offacts by the CIT (A) as well as ITAT are in favour of respondent-assessee and such findings of facts are binding on this Court inappeal u/s 260A of the Act. Therefore, in the absence of any contrarymaterial placed on the record by the Revenue before this Court, theassessee is entitled to the benefit of deduction to the extent of 70% D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20135 / 12 of profits including increased valuation of the closing stocks asdefined under Section 80HHC (1B) of the Act. 6.We have heard the learned counsels at length andperused the impugned orders and given our thoughtful considerationto the rival submissions and also perused the judgment relied uponby the learned counsel for the appellant- Revenue. 7.Section 80HHC of the Act, to the material extent, whichgives deduction in respect of profits retained for export business, isreproduced herein below for ready reference: - D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20135 / 12 of profits including increased valuation of the closing stocks asdefined under Section 80HHC (1B) of the Act. 6.We have heard the learned counsels at length andperused the impugned orders and given our thoughtful considerationto the rival submissions and also perused the judgment relied uponby the learned counsel for the appellant- Revenue. 7.Section 80HHC of the Act, to the material extent, whichgives deduction in respect of profits retained for export business, isreproduced herein below for ready reference: - “80HHC. Deduction in respect of profitsretained for export business-(1) Where an assessee,being an Indian company or a person (other than acompany) resident in India, is engaged in the businessof export out of India of any goods or merchandise towhich this section applies, there shall, in accordancewith and subject to the provisions of this section, beallowed, in computing the total income of the assessee,[a deduction to the extent of profits, referred to insub-section (1B),] derived by the assessee from theexport of such goods or merchandise: [1(B) For the purposes of sub-sections (1) and(1A), the extent of deduction of the profits shall be anamount equal to - (i) eighty per cent. thereof for an assessment yearbeginning on the 1[st] day of April, 2001;beginning on the 1[st] day of April, 2001; (ii)seventy per cent. thereof for an assessment year beginning on the 1[st] day of April, 2002; (iii)fifty per cent. thereof for an assessment year beginning on the 1[st] day of April, 2003; 6 / 12 (iv)thirty per cent. thereof for an assessment yearbeginning on the 1[st] day of April, 2004,] and no deduction shall be allowed in respect of theassessment year beginning on the 1[st] day of April, 2005and any subsequent year.] (4C). The provisions of this section shall apply toan assessee,- (a) for an assessment year beginning after the31[st] day of March, 2004, and ending before the 1[st] dayof April, 2005; (b) who owns any undertaking whichmanufactures or produces goods or merchandiseanywhere in India (outside any special economic zone)and sells the same to any undertaking situated in aspecial economic zone which is eligible for deductionunder section 10A and such sale shall be defined to beexport out of India for the purposes of this section. (baa) “profits of the business” means theprofits of the business as computed under the head“Profits and gains of business or profession” asreduced by- (1) ninety per cent. of any sum referred to inclauses (iiia), (iiib) [(iiic), (iiid) and (iiie)] of section 28 orof any receipts by way of brokerage, commission,interest, rent, charges or any other receipt of a similarnature included in such profits; and” 8.In the present case, while the Assessing Authority in theimpugned assessment order dated 19.08.2003 has merelydisallowed the said benefit of deduction under Section 80HHC of theAct by observing that since such excess stock valuation wassurrendered by the assessee as income during the course of survey, D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20137 / 12 (1) ninety per cent. of any sum referred to inclauses (iiia), (iiib) [(iiic), (iiid) and (iiie)] of section 28 orof any receipts by way of brokerage, commission,interest, rent, charges or any other receipt of a similarnature included in such profits; and” 8.In the present case, while the Assessing Authority in theimpugned assessment order dated 19.08.2003 has merelydisallowed the said benefit of deduction under Section 80HHC of theAct by observing that since such excess stock valuation wassurrendered by the assessee as income during the course of survey, D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20137 / 12 therefore, he is not entitled to the benefit u/s 80HHC of the Actwithout giving any detailed reasons for such denial of deduction, butthe learned CIT (A) while allowing appeal of the assessee on thesaid ground in his order dated 13.10.2004 has held in para 4.3 of theorder, that because the assessee is doing the business of handicraftitems only and during the survey proceeding also, nothing contrarywas found by the Department, which can show that the assessee isdoing the business other than handicraft items, therefore, theAssessing Officer ought to have allowed the said deduction underSection 80HHC of the Act. The Revenue thereafter took the matterfurther before the ITAT also in second appeal but the learned ITATalso while dismissing the appeal of the Revenue on this groundaffirmed the findings of learned CIT (A) upholding the claim of therespondent-assessee of deduction under Section 80HHC of the Act. 9.Thus, two appellate authorities below have concurrentlyheld in the present case in favour of respondent-assessee that therewas no breach of any of the conditions of Section 80HHC of the Actfor grant of said benefit to the assessee. The undisputed factsremaining that the assessee has exported handicraft itemsmanufactured by him during the relevant year and has realized theconvertible foreign exchange for the same has thus satisfied therequisite condition for grant of said benefit of deduction u/s 80 HHCof the Act to the extent of excess closing stock valuation also. 10.In the present case, in the backdrop of these findings of D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 8 / 12 facts, it is clear that the income added in the hands of the assesseefor the present assessment year was merely on account ofsurrendering the same as income by the assessee on account ofexcess valuation of the closing stock made by the AssessingAuthority on account of survey conducted by the Income TaxDepartment u/s 133A of the Act. Obviously, there is no allegation ofof sale or actual export of such additional closing stock during thecourse of relevant assessment year itself. It is undisputed before usthat neither the sales declared by the assessee in the form of exporthave been disputed by the Revenue, nor it is the case of theRevenue that against any such export sales made by the assessee,there was no realization of the convertible foreign exchange by theassessee. Simply because the profits of the assessee during theassessment year is increased on account of such surrender of theincome by the assessee, which is nothing but assumptive valuationof the closing stock by the authority concerned during the course ofsurvey as no actual excess closing stock upon physical verification isfound, it cannot be said that the respondent assessee has notfulfilled or satisfied the conditions for grant of deduction underSection 80HHC of the Act, which is intended to be provided as anincentive or benefit to the handicraft manufacturers for exportingsuch items out of India and bring in the valuable foreign exchange forsuch export of goods on merchandise. The extent of such deductionfrom the gross total income declared by the assessee is given in the D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/20139 / 12 provisions of sub-Section (1B) of Section 80HHC of the Act for therelevant assessment year 2002-03, in the present case, the amountof deduction would be 70% of the profit vide sub-Section (1B) (ii) ofthe said Section 80 HHC of the Act. 11.With great respects, we are unable to apply thejudgment cited at bar on behalf of Revenue in the present case. Inthe case of National Legguard Works (supra) since the findings offacts in the case before the Punjab & Haryana High Court weredifferent and against the assessee, which were accepted by theDivision Bench of the Punjab and Haryana High Court; and in thatcontext, the Division Bench of Punjab & Haryana High Court heldwhile summarily dismissing the appeal of the assessee at theadmission stage itself that since the assessee failed to discharge theburden that the amount represented export profits was notdischarged by the assessee, therefore, he was not entitled to benefitof deduction under Section 80HHC of the Act and no substantialquestion of law arose in the matter. The relevant portion from thedecision of Hon'ble Apex Court in the case of National LegguardWorks (supra) is reproduced as under for ready reference: “The Assessing Officer did not accept the stand ofthe assessee and held that the excess stocks availableat the premises were not recorded in the books ofaccount on which deduction under Section 80HHC ofthe Act was being claimed. Mere surrender by theassessee at the time of survey, on excess stock beingfound did not entitle the assessee to deduction under D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 10 / 12 section 80 HHC of the Act, which was available only inrespect of income derived from the export. This viewwas upheld by the Commissioner of Income-tax(Appeals) as well as the Tribunal. The Tribunal noticedthat the assessee failed to offer any explanation for thedifference in the stocks and in such a situation, theassessee was not eligible to claim deduction undersection 80 HHC of the Act without showing factsnecessary for claiming the said deduction. The only contention raised by learned counsel forthe assessee is that once the assessee hadsurrendered the amount as business income, theburden of proving that income of the assessee was fromlocal trading was on the Revenue and it should havebeen presumed that the income represented exports,the assessee being an export-oriented unit. Reliance has been placed on a judgment ofCalcutta High Court in CIT v. Margaret's Hope Tea Co.Ltd. [1993] 201 ITR 747, wherein cash credit appearingin the books of the assessee was ordered to be treatedas income from tea business. We are unable to accept this submission.Deduction under section 80HHC of the Act is availableonly on showing fulfilment of the conditions specifiedtherein and there could be no presumption thatsurrender made on account of unexplained stocksrepresented export income. The assessee was unableto give any explanation. There could be no presumptionthat the additional amount surrendered representedincome from exports. Deduction under section 80 HHCof the Act can be claimed only on showing facts whichmake the assessee eligible for the deduction. The D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani Arts Judgment dated 29/01/2013 11 / 12 burden to prove these facts was on the assessee andnot on the Revenue. The judgment relied upon is on its own facts andnot in respect of claim for deduction under section80HHC of the Act. In any case, from the facts of thepresent case, the assessee cannot be held to be entitledto claim income surrendered as a result of unexplainedstocks as income from exports. Accordingly, we do not find that any substantialquestion of law arises in the appeal. The appeal is dismissed.” D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani Arts Judgment dated 29/01/2013 11 / 12 burden to prove these facts was on the assessee andnot on the Revenue. The judgment relied upon is on its own facts andnot in respect of claim for deduction under section80HHC of the Act. In any case, from the facts of thepresent case, the assessee cannot be held to be entitledto claim income surrendered as a result of unexplainedstocks as income from exports. Accordingly, we do not find that any substantialquestion of law arises in the appeal. The appeal is dismissed.” 12.In the present case, the findings on the contrary are infavour of respondent-assessee and not in favour of Revenue; and ithas been categorically held by the two appellate authorities belowthat there is no case made out against the respondent assessee thatthere was any violation of conditions prescribed under Section80HHC of the Act. The said findings of facts are indisputably bindingon this Court under Section 260A of the Act while dealing withsubstantial question of law already framed as quoted above asarising out of the order of the learned Tribunal. Therefore, thefindings of facts and stage of the present appeal before us arediagonally opposite the facts before the Punjab and Haryana HighCourt. 13.Therefore, we are of the considered opinion that thelearned ITAT was justified in allowing the deduction under Section80HHC of the Act on the excess stock valuation of Rs.10,49,066/-found during the course of survey and surrendered as business DJ/- S-1 D.B. Income Tax Appeal No.101/2007Commissioner of Income Tax-I Vs. M/s Haswani ArtsJudgment dated 29/01/2013 12 / 12 income of the assessee during the assessment year; and the same being treated as “profits of business” for the relevant assessmentyear, were eligible for the deduction under Section 80HHC to theextent prescribed under sub-section (1B) of Section 80HHC of thesaid Act. The appeal of the Revenue, therefore, is liable to bedismissed and the substantial question of law, framed above, isaccordingly answered in favour of respondent-assessee and againstthe appellant- Revenue. 14.In view of above, the present appeal of the Revenue ishereby dismissed. No costs. (V.K. MATHUR), J. (DR. VINEET KOTHARI), J.