The Commissioner of Income Tax and The Income Tax Officer vs Keshav Exports Pvt Ltd

B.V. Nagarathna, J.—The Revenue has preferred this appeal by challenging the order dated 11.04.2005 passed by the Income Tax Appellate Tribunal, Bangalore in ITA. No. 2394/Bang/2004 by raising the following substantial question of law:

i) Whether the Tribunal was correct in holding that pendency of an application by the assessee before the RBI after the expiry of six months period itself would amount to implicit approval for the purpose of condonation of delay in bringing the sale proceeds in convertible foreign exchange beyond the stipulated period as prescribed u/s 80HHC(2)(a) of the Act.

ii) Whether the Tribunal was correct in holding that the direct cost attributable to goods for which foreign exchange has not been realized and does not form part of export turnover is to be excluded from the direct cost when the assessee is maintaining accounts on mercantile basis.

iii) Whether the trading results alone, are to be considered or the 10% of other receipts are to be included to allow conversion of such losses into profit for the purpose of computation of deduction u/s 80HHC of the Act.

The facts leading to the filing of this appeal are that the respondent Assessee, which is engaged in export business, for the assessment year 1998-99 filed its return of income by declaring NIL income and claiming deduction u/s 80HHC of the Income Tax Act (for short ''the Act''). While the said return was being processed, the Assessing Officer found that the claim under the said provision was erroneous. Thereafter rectification proceedings u/s 154 of the Act were initiated and pursuant to notice u/s 148 of the Act, return of income was filed by the Assessee declaring total income of Rs. 46,890/-and claiming deduction u/s 80HHC of the Act. The Assessing Officer held that the deduction u/s 80HHC(2)(a) of the Act was not available to the Assessee, as it had not received the entire sale proceeds of export turnover in convertible foreign exchange within six months as prescribed under the said Section and accordingly completed the assessment by an order dated 27.02.2004.

Being aggrieved by the said order, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals), who upheld the findings of the Assessing Officer and thereby rejected the Assessee''s appeal. The matter was carried before the Income Tax Appellate Tribunal which held that the pendency of an application by the Assessee before the Reserve Bank of India even after the expiry of six months period as stated in the said provision would amount to implicit approval for the purpose of condonation of delay in bringing the sale proceeds in convertible foreign exchange to India and accordingly the appeal filed by the Assessee was allowed.

Being aggrieved by the said order, the Revenue has preferred this appeal.

We have heard the learned Counsel for the appellant Revenue and the learned Counsel for the respondent Assessee and perused the material on record.

In the instant case, it is seen that a sum of Rs. 16,88,897/- was claimed by way of deduction u/s 80HHC of the Act. The contention of the learned Counsel for the appellant is that the said deduction would be available only if the sale proceeds are received in India or brought into India by the Assessee within a period of six months from the end of the previous year and that in the instant case, neither the said amount was brought to India within the stipulated period nor as there been any permission obtained by the Reserve Bank of India which is the competent authority authorised under the law for regulating payments and dealings in foreign exchange and therefore the Tribunal was not right in holding that the Assessee was entitled to deduction u/s 80HHC of the Act.

Per contra, it is contended on behalf of the respondent Assessee that the period of six months stipulated u/s 80HHC(2)(a) of the Act is not the only period prescribed but that the Reserve Bank of India can give permission even beyond the said period and that in the instant case, there is a tacit permission given and the amounts which has been received have been declared to the Reserve Bank of India and therefore it is entitled to deduction u/s 80HHC of the Act.

On a perusal of the material on record it is nowhere established by the respondent Assessee as to whether there was a permission granted by the Reserve Bank of India either within the six months period stipulated u/s 80HHC(2)(a) of the Act or within the further period as prescribed under the said provision. The said provision reads as follows:

"80HHC(2)(a): This section applies 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- For the purposes of this clause, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange."

In the absence of there being any evidence with regard to the said permission, the Tribunal, in our view could not have granted the deduction u/s 80HHC of the Act. Under the circumstances, we deem it proper to remit bark the matter to the Assessing Officer to reconsider the entire issue by giving opportunity to the respondent Assessee to produce the relevant material to show that the Reserve Bank of India had granted permission to the Assessee to bring in the funds in the form of convertible foreign exchange either within the six months period as stipulated under the Section or within the further period as stated in the said provision and on the basis of the said material, the Assessing Officer to decide as to whether the Assessee is entitled the benefit u/s 80HHC of the Act.

In view of this order we think that the substantial question of law No. 1 has to be answered against the Revenue since Section 80HHC(2)(a) of the Act specifically stipulates that even beyond the period of six months, the Reserve Bank of India which is the competent authority can grant the permission to bring in the funds in the form of convertible foreign exchange. As far as the other substantial questions of Jaw are concerned, the same are left open in view of the remand made to the Assessing Officer to decide the entire issue after giving an opportunity to the respondent Assessee to produce the relevant documentary evidence.

Accordingly we dispose of the appeal by remanding the matter to the Assessing Officer.