1992-VIL-169-ITAT-DEL

Equivalent Citation: ITD 044, 351, TTJ 046, 276.

Income Tax Appellate Tribunal DELHI

Date: 17.11.1992

MRS. SUDHA SHARMA.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : P. J. GORADIA., M. A. BAKSHI.

JUDGMENT

Per M. A. Bakhshi, JM-Appellant is an individual engaged in the manufacture and export of garments. For assessment year 1988-89 for which the previous year ended on31-3-1988, assessee filed a return on19-10-1989 disclosing income at Rs. 18,234. Deduction under section 80HHC had been claimed at Rs. 1,11,580 which was denied by the Assessing Officer only on the ground that a certificate from an Accountant as defined in Explanation to sub-section (2) of section 288 certifying that the deduction had been correctly claimed on the basis of amount of net foreign exchange realisation etc. had not been filed along with the return of income. CIT (Appeals) also confirmed the disallowance by relying upon sub-section (4) to section 80HHC by virtue of which assessee is required to furnish the certificate along with the return. Assessee's claim is that the certificate had not been filed along with the return due to an oversight but the same had been furnished during the course of assessment proceedings on8-3-1991 along with the Auditor's report. When Assessing Officer made the assessment, the required certificate was available with the Assessing Officer and as such it is urged that deduction under section 80HHC may not be denied to the assessee for a mere technical breach.

2.The learned Departmental Representative, on the other hand, contended that Assessing Officer has no discretion in the matter of allowance of deduction under section 80HHC. According to Mr. Singh, as per sub-section (4) of section 80HHC, deduction is permissible only if a certificate from an Accountant is filed along with the return of income. Assessee having failed to file the certificate along with the return of income, deduction has rightly been denied.

3. We have given our careful consideration to the rival contentions. Section 80HHC provides for a deduction in computing the total income of the assessee from the export of goods or merchandise in the case of assessee resident in India and engaged in the business of export out of India of any goods or merchandise to which the said section applies in accordance with and subject to the provisions of that section. Apart from the other conditions to be satisfied under section 80HHC, sub-section (4) of section 80HHC provides that a deduction under sub-section (1) of section 80HHC shall not be admissible unless the assessee furnishes, in the prescribed form, along with the return of income, report of an Accountant, as defined in the Explanation below sub-section (2) of section 288 certifying that the deduction has been correctly claimed in accordance with the provisions of that section.

4. We hereunder reproduce relevant portion of section 80HHC :--

" 80HHC. Deduction in respect of profits retained for export bustness.-- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the export of such goods or merchandise :

Provided--

(1A)

(4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, alongwith the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the amount of (export turnover). "

5. In this case, it is not disputed that section 80HHC is applicable to the assessee. The only ground for disallowance is that a certificate, as required under sub-section (4) of section 80HHC, had not been attached to the return of income though the certificate has been filed during the course of assessment proceedings before the completion of assessment. The issue before us is as to whether, on the facts and in the circumstances of this case, assessee can be denied deduction for her failure to attach a certificate from an Accountant to the return of income notwithstanding the fact that at the time of making assessment, the required certificate was available with the Assessing Officer for purposes of verification of the claim of the assessee. It is observed from records that assessee is an exporter of garments, handicrafts, etc. and deduction under section 80HHC has been allowed to her in the past. For the year under appeal, assessee did claim a deduction under section 80HHC in the return of income filed for the relevant assessment year. However, audited balance sheet, profit and loss account and auditor's report and a certificate required under section 80HHC(4) had also been filed during the course of assessment proceedings. The main purpose behind incorporating section 80HHC is to encourage exports outsideIndiato earn the foreign exchange for the country and for that purpose the incentive is given to the exporters from income-tax.

6. Circular No. 372 dated8-12-1983issued by the Central Board of Direct Taxes explaining the scope and effect of this provision supports this view. We extract relevant portion of the Circular hereunder :--

" 42.1 With a view to encouraging larger exports of certain goods the Finance Act, 1982, had inserted section 89A in the Income-tax Act with effect from 1-6-1982, for providing tax relief to Indian companies and non-corporate taxpayers resident in India whose export turnover for a year exceeds the export turnover for the immediately preceding year by more than 10 per cent, thereof.

42.2 The Finance Act, 1983, has omitted the aforesaid provision with effect from1-4-1983. Simultaneously, a new section 80HHC has been inserted with effect from the same date for providing a deduction with reference to the export turnover. The broad features of the new section are as follows :--

(i) The tax concession will be available to Indian companies and non-corporate taxpayers resident inIndiawho have exported out ofIndiaany qualifying goods or merchandise during the relevant accounting year. "

7. There seems to be a purpose behind requirement of a certificate from a Chartered Accountant certifying the deduction under section 80HHC as rightly claimed by the assessee. The purpose, in our view, is to facilitate assessment and to discourage inaccurate claims by the assessees. Though the requirement of law is to file the certificate along with the return of income, Assessing Officer gets an occasion to consider the certificate only at the time of making the assessment. There again seems to be a purpose behind the requirement of law that the certificate under sub-section (4) be attached to the return of income. As we know, most of the assessments are made under section 143(1) without calling the assessees. If a certificate were not attached to the return of income and assessment is made under section 143(1), such assessees would be denied the benefit of deduction. So, it is seen that filing of this certificate along with the return in such cases would be beneficial to the assessees.

8. In this case, when the assessment was made, the certificate was available with the Assessing Officer and as such it cannot be said that Assessing Officer was precluded in fairly deciding the claim of the assessee on account of deduction under section 80HHC. Though under sub-section (4) of section 80HHC, furnishing of a certificate from an Accountant along with the return of income is a condition precedent for allowance of the claim on account of exports, the stringency and mandatory nature provided under that section has to be viewed in the light of the purpose intended to be served. The mere fact that it is a statutory condition, does not matter one way or the other. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they are intended to serve. Some of the conditions may be substantive, mandatory and based on consideration of policy and some others may merely belong to the area of procedure. In this case, considering the purpose behind incorporating sub-section (4) of section 80HHC, we are of the considered view that filing of the certificate along with the return though statutory, belongs to the area of procedure. Thus this condition for grant of exemption cannot be so strictly construed so as to prevent the assessee of his legitimate claim of deduction. Since assessee has filed the certificate as required under section 80HHC(4) before the completion of the assessment, we are of the view that assessee is eligible to deduction on account of exports. We may usefully refer to the decision of the Supreme Court in the case of Mangalore Chemicals & Fertilizers Ltd. v. Dy. Commissioner [1991] 21 Tax Gazette 193, where the Hon'ble Supreme Court has held that the stringency and the mandatory nature of a provision of exemption must be justified by the purpose intended to be served. Their Lordships have further held that the conditions may be substantive, mandatory and based on considerations of policy and some others may only belong to the area of procedure. The conditions which belong to area of procedure have got to be liberally construed. Relying on the aforementioned decision of the Supreme Court, we hold that since, in this case, assessee had filed the certificate before completion of assessment proceedings, assessee was eligible to deduction under section 80HHC. For purposes of quantification under section 80HHC, however, we remit the file to the Assessing Officer.

9. Next issue involved in this appeal is relating to the addition of Rs. 14,150 sustained on account of designing charges. For the year under appeal, assessee had declared a turnover of Rs. 27,45,484 as compared to the sales of Rs. 12,52,272 in the preceding year. The G.R. rate had decreased from 29.31 per cent in the immediately preceding year to 16.2 per cent in the year under appeal. Assessing Officer noted the following defects in the books of account :

(1) The assessee had debited an amount of Rs. 45,600 under the head wages in the trading account. This head did not figure in the last year when the assessee's business was exactly the same.

(2) The appellant debited another amount of Rs. 40,150 under the head designing charges. This also did not figure in the immediately preceding year.

10. By applying C.P. rate of 30 per cent, Assessing Officer made an addition of Rs. 3,50,126. Assessee appealed to the CIT(Appeals) and explained the reasons for fall in the G.P. rate. Accepting the contentions raised on behalf of the assessee, CIT(Appeals) deleted the addition of Rs. 3,09,976 but sustained addition of Rs. 40,150 on account of designing charges claimed to have been paid to several lady designers. CIT(Appeals) observed that the payments to these ladies had been made in cash.

11. Learned counsel for the assessee contended that the details of these expenses had been filed before the Assessing Officer along with supporting vouchers. The mere fact that the payment had been made in cash, according to the learned counsel, was not a sufficient ground for making the disallowance. Shri Agarwal contended that though the authorities have not specifically referred to section 40A(3), the said section is inapplicable as most of the payments have been made in sums not exceeding Rs. 2,500 at a time. He referred to the vouchers placed at pages 7, 10, 11, 12 and 19. Reliance was placed on various decisions reference to which we consider unnecessary.

12. Learned Departmental Representative, on the other hand, contended that the vouchers produced by the assessees are not reliable as the signatures of the payees have been obtained on blank vouchers. Our attention was invited to the material portion of the vouchers where the amount received and the account of which the amount has been received, are left blank in each of the vouchers furnished by the assessee. Learned Departmental Representative stoutly contended that the genuineness of the payment has been doubted in so many words by the authorities and as such deduction is not permissible to the assessee on account of alleged designing charges.

13. We have given our careful consideration to the rival contentions. In our view, there is neither sufficient material on record for allowance of the claim nor justification for rejecting the claim outright. Assessee had made the claim on account of designing charges in support of which vouchers have been produced. The nature of these vouchers gives rise to a suspicion that these may not be genuine vouchers. Therefore, further enquiry would have been justified. However, the Assessing Officer has rejected the claim without making proper enquiries in the matter. Provisions of section 40A(3) have been impliedly invoked without confronting the assessee. Though in some cases payment does not exceed Rs. 2,500, there are instances where payment exceeds Rs. 2,500 and the applicability of provisions of section 40A(3) cannot be ruled out. In cases where provisions of section 40A(3) are applicable, assessee has right to claim and establish that his case is covered under the exceptions laid down in Income Tax Rules. Considering the facts and circumstances of this case, we are of the view that the matter requires fresh look by the Assessing Officer. We accordingly remit this matter to the file of the Assessing Officer for deciding the claim of the assessee afresh in accordance with law after giving reasonable opportunity of being heard to the assessee.

14. The next issue involved in this appeal is relating to disallowance of Rs. 82,364 on account of commission paid to M/s Kamala Overseas. Assessing Officer disallowed the commission paid to Kamala Overseas on the ground that payment of commission to such concern was not justified on the facts and in the circumstances of this case. Assessing Officer observed that an expenditure of Rs. 1,35,773 had been incurred by the assessee on foreign tour and garments fares and as such payment of further commission to Kamala Overseas was not justified. Assessing Officer further held that the payment was to a sister concern and the services rendered by the said concern not having been established, ad hoc commission at 3 per cent of sales was not justified. CIT(A) has confirmed the addition.

15. Learned counsel for the assessee contended that in the preceding two years, commission paid to M/s Kamala Overseas has been allowed as a deduction and, therefore, there was no justification for taking a different view in the year under appeal. Shri Agarwal referred to Talex Messages having been received from the buyers in which name of Kamala Overseas has been specifically mentioned. He also referred to various orders placed at pages 26 to 38 and contended that the name of Kamala Overseas had been specifically mentioned in the orders placed bySwedenparties. Shri Agarwal accordingly pleaded that the claim of the revenue that rendering of services had not been established by the assessee, was misplaced. Shri Agarwal also pointed out that permission of the Reserve Bank ofIndiafor Shri Sharma of Kamala Overseas had been obtained in connection with his going abroad for the business of assessee. The expenditure of travelling incurred on Mr. Sharma has been allowed by the Assessing Officer as a deduction and as such payment of commission at 3 per cent to the said concern could not be said to be unreasonable. Shri Agarwal stoutly contested the claim of the revenue that the payment of commission had been made to a sister concern. According to Shri Agarwal, though the partners of Kamala Overseas are related to the assessee, the concern is not a sister concern of the assessee. Shri Agarwal accordingly pleaded for deleting the addition made by the Assessing Officer.

16. Learned departmental representative, on the other hand, contended that the evidence placed by the assessee was not available with the Assessing Officer and as such the same should be ignored for deciding the claim of the assessee.

17. We have given our careful consideration to the rival contentions. As per the certificate given by the assessee in respect of the Paper Book filed before us, the documents placed at pages 22 to 49 had been filed by the assessee before the CIT(A) for the first time. These documents had not been filed before theAssessing Officer. Since theAssessing Officer had no occasion to consider the evidence placed by the assessee in support of the claim, we consider it reasonable to remit this issue to the file of the Assessing Officer for deciding the claim afresh, in accordance with law and after giving reasonable opportunity of being heard to the assessee.

18. The only other ground raised before us is relating to disallowance of car expenses and depreciation at 1/5th. The disallowance for non-business purposes being reasonable we decline to interfere.

19. In the result, appeal of the assessee is partly allowed.

As Per Accountant Member - I agree on all issues. With regard to the issue of 80HHC, however, I add as follows :--

Section 12A(b) dealing with exemption under section 11 also prescribes for report from Accountant to be furnished along with the return of income, as is stated in section 80HHC(4). The meaning of the words, which are italicised, came to be considered by their Lordships of Gujarat High Court though in different context, in case of trust which filed report in Form No. 10-B later on, that is to say, not along with the return of income. The Tribunal had decided the controversy in favour of the assessee and reference under section 256(1) was also rejected and, therefore, the Department preferred direction from the High Court under section 256(2) and the same was declined by the Gujarat High Court. Against such denial the department preferred S.L.P. before Supreme Court and this too was rejected, as reported in 179 I.T.R. 61 (Statute). Mention of this aspect has become necessary because in case the revenue prefers reference on this point, this fact can also be considered by the Bench hearing the reference application. This aspect could not be incorporated in the main order since brother Judicial Member is on long leave and the matter was heard last month.

 

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