Marble Men and Handicrafts Inn vs Commissioner of Income Tax and Others

In Writ Petitions Nos. 875 and 961 of 2000 filed by M/s. Marble Men, notices issued u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 1996-97 and for the assessment year 1998-99, respectively, have been challenged. In Writ Petition No. 962 of 2000 filed by M/s. Handicrafts Inn, notice u/s 148 of the Act issued for the assessment year 1998-99 has been challenged.

Since in all these three petitions, a common question has been raised, they have been heard together and are being decided by a common order.

The petitioners in all these petitions are dealers engaged in the business of handicrafts items and marble goods in the city of Agra. They cater to the needs of foreign tourists who visit the city. The goods sold against foreign exchange while taking the goods out of the country require customs clearance at the airport. The petitioners claim benefit of special deduction u/s 80HHC of the Income Tax Act, 1961, in respect of the turnover and profit of counter sales made against convertible foreign exchange to the foreign tourists. The assessing authority in the original assessment accepted the claim and granted deduction. However, he issued notices u/s 148 of the Income Tax Act seeking to withdraw the deduction granted to the petitioners u/s 80HHC of the Act.

We have heard Sri Manish Goel, learned counsel for the petitioner, and Sri A. N. Mahajan, learned additional standing counsel appearing in Writ Petition No. 875 of 2000 and Sri Ashok Kumar who appears in all other writ petitions.

It is not in dispute that the notices u/s 148 have been issued only to withdraw the deduction granted to the petitioners u/s 80HHC of the Act in respect of the counter sales made against foreign exchange. A Division Bench of this court in the case of Ram Babu and Sons and Another Vs. Union of India (UOI) and Another, has held that benefit of special deduction u/s 80HHC is available in respect of the counter sales effected against the convertible foreign exchange if the goods are taken out of the country and the transaction is subjected to customs clearance. The aforesaid view has been approved by the hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. Silver and Arts Palace, . Since the view taken by this court in the case of Ram Babu and Sons and Another Vs. Union of India (UOI) and Another, has been approved by the hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. Silver and Arts Palace, , and this court has taken the view that even counter sales made against foreign exchange and which are subjected to customs clearance, are entitled for deduction u/s 80HHC of the Act, there cannot be any reasonable belief upon which the Assessing Officer can form the opinion that any income has escaped assessment to tax or any deduction has been wrongly allowed so as to fall u/s 148 of the Act and ; thus, only on this ground if the notice has been issued, it cannot be sustained and is taken to be quashed. It may be mentioned here that the view taken by this court has been approved by the hon''ble Supreme Court in Commissioner of Income Tax Vs. Silver and Arts Palace, . This is an additional reason that the notices cannot be sustained.

Sri A. N. Mahajan, learned counsel appearing for the Revenue, relied upon a decision of the hon''ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, and submitted that the petitioner ought to be relegated to file return in pursuance of the notice u/s 148 and submit its reply. It will not be proper for the Commissioner of Income Tax to drop the proceedings. The submission is misconceived inasmuch as when the notice u/s 148 of the Act was issued by the Assessing Officer, the law laid down in the case of Ram Babu and Sons and Another Vs. Union of India (UOI) and Another, was holding the field. Till such time the said decision is not reversed or disapproved by the hon''ble Supreme Court, it cannot be said that the Assessing Officer could have formed any reasonable belief. In the present case, the action u/s 148 of the Act has been initiated solely on the ground that the counter sales effected against convertible foreign exchange even though it has been exported out of India and has been subjected to customs clearance, the deduction is not to be allowed. In this view of the matter, there is no necessity for relegating the petitioner to file a fresh return and submit reply before the Assessing Officer.

In view of the foregoing discussion, all the three writ petitions succeed and are allowed. The notices issued u/s 148 of the Act and consequential proceedings are set aside. However, there shall be no orders as to costs.