Claim of export turnover if foreign exchange not realised in specified period u/s 80HHC tantamount to deemed concealment of income

Citation of the Case: Emblem Fashion Wear Exports Pvt. Ltd. vs. ITO (ITAT Mumbai), Income Tax (Appeal) No. 2101 of 2012, AY 2003-04, Date of Judgment: 08/09/2015
Brief of the Case
ITAT Mumbai held In the case of Emblem Fashion Wear Exports Pvt. Ltd. vs. ITO that the assessee did not obtain approval, either pre or post facto, from the competent authority, as required by law. Also the assessee did not apply for any extension of time. The payment in each case stands received much after the lapse of the six month period i.e., from as low as two years from the date of raising the bills, to a maximum of six years. No explanation for the inordinate delay has been furnished by the assessee. Further, the payments have not been received by the date of the filing the return, and which does not state the fact that no approval stands received or is even awaited. Hence, the assessee, in clear contravention of law, claims deduction u/s.80-HHC by considering it as a part of the export turnover. Accordingly, to the extent the assessee has claimed the impugned turnover as export turnover, there is furnishing of inaccurate particulars of income, and to the extent the assessee has no explanation for the said turnover as qualifying as export turnover and, therefore, there is deemed concealment of particulars of income in terms of Explanation 1 to section 271(1)(c).
Facts of the Case
The assessee filed its return of income for the year on 01.12.2013 at nil income, claiming deduction u/s. 80-HHC at Rs.13,78,338/-, restricting it, though, to the amount of income available prior to such deduction, i.e., Rs.6,00,162/-. Examining the same in the verification proceedings under the Act, the assessee’s claim was considered as deficient by the Assessing Officer (A.O.) on two scores: the assessee could not support its claim of export in relation to two invoices issued to M/s. Andrews Sports Club Inc. USA. for an aggregate of Rs.24,21,160/- and non receipt of export proceeds (i.e., in convertible foreign exchange) within six months from the end of the relevant previous year. No instruction from Reserve Bank of India (RBI) had in fact been applied for. The assessee having found favour with the Tribunal, i.e., in the quantum proceedings, on the first issue, the only thing that survives for the purpose of levy of penalty u/s. 271(1) (c) is the penalty qua the disallowance on the second issue.
Contention of the Assessee
The ld counsel of the assessee submitted that on firstly, approval of RBI has been obtained dated 20-06-2008, so that it could not be said that no approval has been obtained. Secondly the matter is under appeal before the hon’ble jurisdictional high court, having been since admitted by it. Accordingly, following the decision in the case of CIT vs. Nayan Builders & Developers (in ITA No. 415 of 2012 dated 08.07.2014/PB pgs. 3 & 4), no penalty u/s. 271(1) (c) could be levied.
Held by ITAT
ITAT held that regarding the first issue i.e. approval of RBI, clearly, if approval has been sought and obtained, even if subsequently, it may not be a case of levy of penalty in-as-much as receipt of export proceeds, which is to be from a party located outside India, is not always within the assessee’s control. As such, where approval stands sought, all that the assessee could do under the circumstances, explaining it’s case to the competent authority (per the applicable forms), following the procedure prescribed in its respect, the matter should be viewed liberally in-asmuch as that it needs to be borne in mind that these are penalty proceedings, so that a bona fide conduct coupled with a proper disclosure of all material facts, i.e., relevant to its claim, would save penalty. What would in fact be more relevant in these proceedings, as distinct from the quantum proceedings, which clearly subject the deduction to grant of the requisite approval, is the basis for making the claim, so that a reasonable basis and a bona fide conduct should suffice. However facts in the present case are contrary.
There is, firstly, nothing on record to show, or even a contention to that effect, that an application for extension of time for receipt of sale proceeds of export was sought from RBI, i.e., the competent authority. Where, then, is the question of it being granted, either within time or even belatedly? What the assessee describes as a ‘post facto approval’ is in fact and, in effect, a communication from the RBI that the fact of receipt of export proceeds of five shipping bills, as intimated by the assessee thereto vide its letter dated 18.06.2008, has been noted in its records, i.e., it had noted this fact. Nothing more, and, nothing less. This fact stands noted by the tribunal, reproducing the contents of the RBI’s letter to the assessee. In fact, the tribunal having found thus, i.e., that no ‘post facto approval’ had been allowed to the assessee, which gets established as fact by the tribunal, the final fact finding authority, we are unable to see as to how any such contention could at all be raised in penalty proceedings.
Also, this is as the said finding, which is one of fact, and even otherwise not challenged before the hon’ble high court, has attained finality. Repeating the same argument in the penalty proceedings, without brining any further material or fact/s or circumstances on record would therefore be to no effect or purpose. Why, no approval, as afore-noted, stands sought, so that there is no basis or scope for the assessee to even consider itself as being entitled for approval. The assessee, by making a claim of having been allowed extended time, or an approval up to the time the export proceeds have been received, from the competent authority, thus, makes a false claim, i.e., misleads. The assessee’s argument, consequently, fails.
Also on merits, find no merit in the assessee’s case, given the fact that the assessee did not obtain approval, either pre or post facto, from the competent authority, as required by law. As afore-stated, the assessee did not apply for any extension of time. The payment in each case stands received much after the lapse of the six month period (30.09.2003), i.e., from as low as two years from the date of raising the bills, to a maximum of six years, the latest being received only on 13.06.2008 in respect of one of the bills (dated 21.06.2002). No explanation for the inordinate delay has been furnished by the assessee. Further, the payments have not been received by the date of the filing the return, and which does not state the fact that no approval stands received or is even awaited. On the contrary, the assessee, in clear contravention of law, claims deduction u/s.80-HHC by considering it as a part of the export turnover.
Accordingly, to the extent the assessee has claimed the impugned turnover as export turnover, there is furnishing of inaccurate particulars of income, and to the extent the assessee has not explained the same – the law in the matter being clear; no extension having been applied for, much less allowed, even subsequent to assessment or till the time of levy of penalty, the assessee has no explanation for the said turnover as qualifying as export turnover and, therefore, there is deemed concealment of particulars of income in terms of Explanation 1 to section 271(1)(c).
Regarding the second issue i.e. appeal pending with high court, ITAT held that as a matter of fact that the assessee had, much less received a post facto approval, not even applied for extension of time, so that there was no question of it having been allowed the same, and that a claim in its respect is, therefore, false. An allowance of extension of time would clearly specify the time period allowed, besides referring to the Application, while the reference in the instant case is only to the assessee’s letter intimating the receipt of the foreign exchange to the RBI. This in fact impels us to state that apart from the general question referred to and admitted, and which would perforce draw the attention to the factual matrix of the case as well as the assessee’s conduct, perhaps a more pointed question ought to have also been referred to the Hon’ble Court, bringing out the fact of the absence of any material on record to show that any such Application had been made by the assessee.
The assessee’s reliance on Schrader Duncan v. Addl CIT (in ITA No. 8223/Mum/2010 dated 01/1/2015 / copy on record). The tribunal in that case gives no reason, apart from relying on other decisions by the tribunal, noted above, for holding that mere admission of an assessment appeal by the Hon’ble High Court would be a sufficient ground for cancelling penalty, a question, clearly held by the hon’ble jurisdictional high court as not raising any substantial question of law (also refer para 4.3 for the purport of the said decision). The said decision by the tribunal is in contradiction to the decisions in Dharmshi B. Shah [2014] 366 ITR 140 (Guj) and Splender Construction [2013] 352 ITR 588 (Del), which shall have precedence. We are accordingly unable to follow the said decision by the tribunal. In fact, the issue arising raises a very fundamental issue, indirectly addressed in these decisions, clearly on the issue under reference and, in our view answered in P. Jayappan [1984] 149 ITR 696 (SC), as to whether decisions in collateral proceedings would operate to render dysfunctional separate and independent provisions of the Act, i.e., would the latter be thereby rendered inoperable or only consequential?
Hence, we are in full agreement with the findings of the authorities below that the assessee’s explanation is both false and not bona fide and is guilty of a dishonest conduct, as noted by both the authorities below The penalty, levied at Rs.2,50,000/-, i.e., at 120% of tax sought to be evaded, as against a minimum of 100% and a maximum of 300% thereof, is accordingly upheld.
Accordingly appeal of the assessee dismissed.
-
CA Deepak Aggarwal