C I T vs. M/S SARAF CARPETS TEXTILES

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ITA/39/2007HC RajasthanRJHC02030486200718 January 20173 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal should be answered in favour of the assessee and against the Department. The reasoning was based on the Supreme Court's decision in Commissioner of Income Tax Vs. Silver & Arts Palace. The Supreme Court had noted that the Revenue had consistently followed the position of law settled by the Allahabad High Court in Ram Babu and Sons v. Union of India, which was also followed by the Rajasthan High Court in ITO v. Vaibhav Textiles. The Supreme Court further observed that the Revenue's attempts to seek references under Section 256(1) and (2) had failed, and there was no further challenge to the settled judicial view. Crucially, the Supreme Court found no dispute that the counter sales in question involved customs clearance and were in convertible foreign exchange. Therefore, respecting the consistency of judicial decisions and the established legal position, the appeal was dismissed. No issue was expressly left undecided.

What were the facts?

The Department (appellant) appealed the Income Tax Appellate Tribunal's (Tribunal) decision, which had upheld the Commissioner of Income Tax (Appeals) order. The Tribunal had dismissed the Department's appeal. The assessee, M/s Saraf Carpets Textiles, claimed deduction under Section 80HHC. The Assessing Officer disallowed this deduction, citing Explanation (aa) to sub-section (4C) of Section 80HHC, concerning counter sales. The assessee's appeal to the CIT(A) failed, but the Tribunal succeeded. The High Court framed a question of law regarding the allowance of deduction under Section 80HHC on counter sales, considering Explanation (aa) to Section 80HHC(4C). The Supreme Court's decision in CIT vs. Silver & Arts Palace was considered.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in allowing the benefits of deductions of 80HHC to the assessee-respondent, overlooking and ignoring Explanation (aa) to sub-section (4C) of Section 80HHC on counter sales? Assessee's contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, it refers to the Tribunal's decision which relied on the Supreme Court's decision in CIT vs. Silver & Arts Palace. This decision, in turn, relied on the Allahabad High Court's view in Ram Babu and Sons v. Union of India, which held that Explanation (aa) to Section 80HHC(4A) would not disallow export deduction if the transaction involved customs clearance and was in convertible foreign exchange. The assessee's previous assessment years had also seen the Tribunal take the same view. Revenue's contentions: The Department contended that the Tribunal erred in allowing the deduction by overlooking Explanation (aa) to sub-section (4C) of Section 80HHC on counter sales. The Assessing Officer had disallowed the deduction based on this explanation.

Which sections of the Income-tax Act were involved?

Section 80HHC,Section 80HHC(4A),Section 80HHC(4C),Section 256(1),Section 256(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 39 / 2007 C I T ----Appellant Versus M/S Saraf Carpets Textiles ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VINIT KUMAR MATHUR

Judgment 18/01/2017 By way of this appeal, the Department has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the Department confirming the order of the CIT (A). This Court while admitting the appeal framed the following questions for consideration: “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal erred in allowing the benefits of deductions of 80HHC to the assessee-respondent overlooking and ignoring explanation (aa) to sub- section (4C) of Section 80HHC on the counter sales?” However, in view of the decision of the Supreme Court in Commissioner of Income Tax Vs. Silver & Arts Palace, (2003) 259 ITR 684 (SC) particularly para 4, 5 and 6 which is reproduced as under:

(2 of 3) [ITA-39/2007] “4. The assessee has a business of safe of semi-precious

and precious

stones, handicrafts, jewellery, etc. In the return filed for the assessment year 1996-97, it had declared a total income of Rs. 1,51,000 and claimed

deduction

of Rs.

80,12,786 under Section 80HHC of the, Act. The Assessing Officer found that the sales effected by the assessee included counter sales of Rs. 9,76,40,672 and, therefore, the deduction

claimed

by the assessee under Section 80HHC was disallowed by the Assessing Officer placing reliance on Explanation (aa) to Section 80HHC(4A) of the Act. The assessee's appeal to the Commissioner of Income-tax (Appeals) failed, but its appeal to the Tribunal succeeded. Before the Tribunal, material was placed on record to show the nature of the transactions made. The Allahabad High Court specifically considered the effect of introduction of Explanation (aa) to Section 80HHC(4A) of the Act and had taken the view in Ram Babu and Sons v. Union of India [1996] 222 ITR 606 that this Explanation means that, for the purpose of this section, there will be no export out of India if two conditions are cumulatively fulfilled, viz., (a) it is a transaction by way of sale or otherwise in a shop, emporium or establishment situate in India, and (b) that it does not involve clearance in any customs station as defined in the Customs Act. This view of the Allahabad High Court had been consistently followed by several other High Courts, including the Rajasthan High Court itself in ITO v. Vaibhav Textiles [2002] 258 ITR

346.

Reliance was placed on a number of orders of the Income-tax Tribunal following the view taken in Ram Babu's case , consistently and the law laid down therein. In fact, even in the case of the respondent- assessee, for the previous assessment years, the Tribunal had taken the same view. Although the Revenue attempted to canvass against the view by seeking references under Sections 256(1) and (2) of the Act, the attempt failed. There was no further challenge to the settled consistent judicial view taken on the issue. It was also pointed out that the judgment of the Allahabad High Court in Ram Babu's case [1996] 222 ITR 606, had been challenged by the Revenue before this court, but the special leave petition, was summarily dismissed. In view of this position, the Tribunal felt that consistency of the judicial decision should be respected and followed.

5.

There is no dispute between the parties that the transactions of counter sales effected by the respondent involved customs clearance within the meaning of Explanation (aa) to Section 80HHC(4A) of the Act and further that the sales were in convertible foreign exchange.

(3 of 3) [ITA-39/2007]

6.

In these circumstances, we are of the view that the Revenue having accepted and consistently followed the position of law settled by Ram Babu's case , particularly in the case of the assessee itself, there is no merit in this appeal.” In view of the above, the issue is required to be answered in favour of the assessee and against the Department.

The appeal stands accordingly dismissed.

(VINIT KUMAR MATHUR)J. (K.S. JHAVERI)J. /bm gandhi 92

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