SANJEEV MALHOTRA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal under Section 260(A) of the Income- tax Act, 1961 arises in the following circumstances :-

(2.) For the Assessment Year 1998-99, the appellant assessee filed a return declaring an income of Rs.11,56,780/- after claiming a deduction of Rs.31,97,357/- under Section 80HHC. The assessee had for that year shown export sales of Rs.24,822/- and profit on sale of import entitlements of Rs.35,46,150/-. The Assessing Officer examined the claim for deduction made by the assessee and came to the conclusion that no exports had been made by the assessee in the Assessment Year 1996-97 or 1997-98. It also found that the import entitlement sold by the assessee related to exports made in the Assessment Year 1995-96. As regard the export sale of Rs.24,822/-, the Assessing Officer held that the same represented the price of gift samples and not trade samples as contended by the assessee. The Assessing Officer accordingly held that the assessee was not engaged in the business of exports and that there was no export sale during the year under consideration nor any evidence to prove any custom clearance. The assessee's story regarding making of exports was held by the Assessing Officer to be fabricated and the claim for deduction under Section 80HHC disallowed by him.

(3.) Aggrieved by the order passed by the Assessing Officer, the assessee appealed to the CIT(Appeals) who affirmed the said order. The assessee then took a further appeal to the Income Tax Appellate Tribunal to challenge the findings recorded by the Assessing Officer and the CIT (Appeals). The Tribunal gave a split decision in which the Accountant Member held that the assessee was indeed engaged in the business of export and that the assessee had actually exported the goods outside India but even if no such exports had been made, the assessee was entitled to a deduction under Section 80HHC in respect of the profits earned on the sale of import entitlements. The Judicial Member of the Tribunal, however, took a contrary view and held that the assessee was not entitled to any deduction under Section 80 HHC as no such deduction could be allowed unless there was an export during the year under consideration which fact the assessee had failed to establish. The Judicial Member further held that the assessee was not engaged in the business of export which was a condition precedent for claiming the deduction under Section 80 HHC. Consequent upon the difference of opinion between the two Members, the President of the Tribunal framed and referred to a third Member the following question under Section 255(4) of the Income-tax Act, 1961. Whether, on the facts and in the circumstances of the case, the appellant during the relevant year was engaged in the business of export out of India or any goods or merchandise, so as to entitle it the deduction under Section 80 HHC of the Income-tax Act, 1961?