1. The Revenue has filed all the appeals against the consolidated order of the CIT(A), Trivandrum, dt. 12th April, 1991, separately in the cases of the above-mentioned assessees for the asst. yrs. 1987-88 and 1988-89 on as much as nine grounds. According to the Revenue the CIT(A) is not justified in holding that the reopening of the assessments for the asst. yrs. 1987-88 and 1988-89 in the cases of these assessees is invalid, as his decision is against the law applicable as on the relevant dates. The amendment to s. 147 w.e.f. 1st April, 1989, deleting cls. (a) and (b) is procedural and hence the reopening of an assessment after 1st April, 1989, should be in accordance with the amended provision. The further contention in the grounds of appeal of the Revenue is that there is no cl. (a) or (b) to s. 147 after 1st April, 1989, and the only requirement for reopening the assessment is the AO's "reason to believe that income chargeable to tax has escaped assessment". It is the case of the Revenue that the CIT(A) has failed to appreciate that the present cases are covered by cl. (c) of Expln. 2 to s. 147 and he has failed to appreciate that the conditions still remaining in the proviso to s. 147, i.e., "by reason of the failure on the part of the assessee to make a return under s. 139 or to disclose fully and truly all material facts necessary" are to be satisfied only in a case where an assessment under s. 143(3) is reopened after 4 years from the end of the relevant assessment year. According to the Revenue no deduction under s. 80HHC of the IT Act, 1961 was originally envisaged for exports made through export houses and for that reason, the Board had issued Circular No. 466, dt. 14th August, 1986, at the request of such exporters. The further grievance in the grounds of appeal is that the CIT(A) failed to appreciate that new sub-s. (1A) to s. 80HHC granting benefits for exports through export houses was introduced with effect from the asst. yr. 1989-90 and onwards and while introducing the Finance Bill, 1988, it was proposed to extend the benefit to supporting manufacturers, exporting through trading or export houses. According to the Revenue in terms of the agreements executed by the assessees with the export houses, the assessees are only shippers/manufacturers and the real exporters are the export houses and as such they are only entitled to the benefits under the Import Trading Control Policy. In short, the case of the Revenue is that the deduction under s. 80HHC in the facts of these cases should not have been allowed to the assessee.
2. The assessees have filed cross-objections on common grounds. The assessees in their grounds of cross-objections supported the orders of the learned CIT(A), however, stating that the CIT(A) ought to have held that the reopening of the assessments having been made on the basis of a position of law as explained by the internal audit party, which had no authority to announce on such a position in law, was invalid.
Further in the event of the assessees being supporting manufacturers, they could have received the sale proceeds in foreign exchange and, therefore, the assessees were entitled to the relief provided under s.
80HHC in respect of the entire exports. Accordingly, it is submitted in the grounds of the cross-objections that the orders of the CIT(A) be affirmed.
3. As both sets of appeals by the Revenue and cross-objections by the assessees were heard together, they are disposed of by this consolidated order for the sake of convenience.
4. We have heard the learned Departmental Representative, K.R.Sudhakaran Pillai, and the learned counsel for the assessee, K.R.Prasad, at great length. We have also perused the paper-books filed on behalf of the Revenue as also the argument note filed by the learned Departmental Representative. We have also gone through the contents of the letter dated 'nil' of the State Bank of Travancore, Quilon Main Branch, letter, dt. 16th January, 1986, issued by the State Bank of India, Quilon, letter, dt. 16th July, 1986 of the Toyo Menka Kaisha Ltd., Tokyo-Japan, the export opinion given by the 'Ask, the Expert Committee' of the Expert Advisory Committee of the Institute of Chartered Accountants of India in response to queries, sent by its members and also the letter, dt. 21st July, 1986, of Toyoda, Tsusho Kaisha Ltd., Tokyo-Japan, confirming the purchases of sea produces from the assessee, Baby Marine Exports, Calicut.
5. The facts relating to the appeals filed by the Revenue against the orders of the CIT(A) on the question of validity of the reopening of the assessments for the years 1987-88 and 1988-89 under s. 147 and entitlement of the assessees for full deduction under s. 80HHC even on exports made through export houses are similar. Therefore, we first take up the appeals preferred by the Revenue in the case of Baby Marine Exports, Quilon, in respect of the asst. yr. 1987-88. The assessment in the above case was originally completed on 2nd March, 1990, on a total income of Rs. 4,73,780, in which deduction under s. 80HHC of the IT Act was granted in a sum of Rs. 26,05,475 for exports made by it through export houses as well. The AO was of the view that the CBDT Circular No. 46, dt. 14th August, 1986, was in operation during the asst. yrs.
1986-87 to 1988-89 and as per para 5 of the above circular payments received by any manufacturer whose goods or merchandise were exported through export house/trading house would not be included in the total income of the manufacturer if the claim for such non-inclusion was supported by a certificate issued by the export house/trading house.
Since the assessee in this case did not furnish any such certificate, the AO held that the assessee was not entitled to the deduction under s. 80HHC in respect of the exports made by it through export house.
Moreover, he found that if the deduction under s. 80HHC had been worked out correctly without reckoning the exports made through export house, it would result in an excess deduction being allowed to the assessee.
Therefore, he had reason to believe that income chargeable to assessment had escaped and quantified the excess deduction allowed by him at Rs. 10,45,044 for the asst. yr. 1987-88 within the meaning of s.
147 of the IT Act. He, therefore, issued a notice to the assessee under s. 148 for reopening the assessment.
6. The AO worked out the quantum of income that escaped assessment for the asst. yr. 1987-88 in the case of Baby Marine Exports, Quilon, by adopting the total turnover at Rs. 15,89,82,405, business income at Rs. 30,58,023 and export turnover at Rs. 8,11,24,669. Thereafter the proportionate export profit was determined by him as under :--------------------------------- = Rs. 15,60,431 Total turnover From the f.o.b. Value of Rs. 8,11,24, 669, the AO deducted Rs. 2,73,01,500 being the value of import licence and arrived at the net foreign exchange of Rs. 5,38,23,169. He took 4 per cent of the above to arrive at the deduction under s. 80HHC in a sum of Rs. 21,52,927 and restricted the deduction to the limit of export profit of Rs. 15,60,431. This figure of Rs. 15,60,431 was deducted from the figure of Rs. 26,05,475, being the deduction claimed and allowed. Thus, the alleged excess deduction allowed by the AO for the asst. yr. 1987-88 came to Rs. 10,45,044. This according to the AO was the income chargeable to tax which had escaped assessment for the asst. yr.
1987-88.
7. The assessee went in appeal before the learned CIT(A). The CIT(A) dealt with the issue of deduction under s. 80HHC even on exports made by the assessee through export houses and the validity of the reopening of the assessment under s. 147 at great length and came to the conclusion that the assessments for the asst. yrs. 1987-88 and 1988-89 were invalidly reopened under s. 147(b) and that the assessee was entitled to full deduction under s. 80HHC even on exports made through export houses. Hence, the Revenue is aggrieved.
8. Before us, the learned Departmental Representative, K. R. Sudhakaran Pillai, tried to justify reopening of the assessments for the assessment years under consideration under s. 147 of the IT Act, 1961.
He pointed out that the assessments were reopened on two grounds, viz.: (1) The effect of CBDT Circular No. 466, dt. 14th August, 1986, was not considered properly while making the original assessments and consequently there was mistake in the computation of the deduction under s. 80HHC; and (2) That excess relief under s. 80HHC was granted in that as against the aggregate correct deduction under s. 80HHC of Rs. 15,60,431, deduction was granted at Rs. 16,05,475 in the original assessment.
The above is in regard to the asst. yr. 1987-88, and with same change in the figures for the asst. yr. 1988-89.
9. According to the learned Departmental Representative, the excess relief in the original assessment for the asst. yr. 1987-88 was due to incorrect computation of the total income of the assessee from export business taken at Rs. 30,61,303. This computation is given at p. 3 of the paper-book filed by the Revenue. However, it is made clear at this stage only that this computation included the exports made by the assessee through export house. According to the learned Departmental Representative, the proportionate export profit on the export turnover of Rs. 8,11,24,669 is only Rs. 15,60,431 and this computation of the deduction under s. 80HHC is reflected at p. 5 of the paper-book. This working of the deduction is without including the exports made through export houses.
10. Thus, according to the learned Departmental Representative, the excess relief allowed in the original assessment for these years was due to incorrect computation of profits from export business at Rs. 30,61,303 as claimed by the assessee and accepted by the AO in the original assessment for the asst. yr. 1987-88. The learned Departmental Representative submitted that the assessee did not allocate the profit on the total turnover of export turnover. According to him the excess relief allowed in the original assessment was within the meaning of s.
147, Expln. 2(c)(iii). So according to the learned Departmental Representative there was escapement of income by way of excess relief granted to the assessee under the Act and hence the reopening of the assessments was valid in law. He also submitted that the excess relief was granted to the assessee, as aforesaid, in the original assessment at Rs. 10,45,044 as worked out by the AO which is at p. 4 of the paper-book filed on behalf of the Department. The learned Departmental Representative also pointed out that the deduction originally allowed was more, if the profit from the eligible business was worked out by applying the ratio of the decision of the Kerala High Court in the case of A. M. Moosa vs. CIT (1997) 224 ITR 735 (Ker). He further submitted that the gross total income of Rs. 30,61,303 as worked out by the assessee and accepted by the AO in the original assessment will result in a loss of Rs. 14,10,895 if the export house premium of Rs. 30,07,077 and profit on sale of import entitlement amounting to Rs. 14,65,121 totalling Rs. 44,72,198 is excluded from the profit as they are not derived from the business of industrial undertaking as has been held by the Kerala High Court in the above cited case.
11. The learned Departmental Representative submitted that the deduction under s. 80HHC will be 'nil' as against Rs. 15,60,431 computed in the reopened assessment. According to him this would show that the assessee had been granted excess deduction on all counts in the original assessment and that for those reasons the reopening of the assessment has to be held valid within the meaning of Expln. 2(c)(ii) of the s. 147. In the alternative, he submitted that assuming but not admitting, assumption of jurisdiction to reopen the assessment on the basis of the Circular No. 466, dt. 14th August, 1986, even then jurisdiction to reopen the assessment has to be upheld on the latter count. In support of this contention, he relied on the judgment of the Calcutta High Court in the case of CIT vs. Assam Oil Co. Ltd. (1982) 133 ITR 204 (Cal).
12. In order to throw more light on the dispute it would be necessary to state some more facts. The CIT(A) set aside the original assessment with a direction to consider the applicability of the CBDT Circular No.466, dt. 14th August, 1986. The AO rejected the assessee's claim for deduction under s. 80HHC on the ground that the above circular is not applicable to the assessment year in question and that the deduction under s. 80HHC is available to manufacturers only if the benefits of exports are passed on to the manufacturers by the export house. The assessee filed a certificate before the AO from the United Commercial Bank and claimed that the entire proceedings of the export bills were encashed by the assessee during the financial year and credited to its packing credit account in convertible foreign exchange. According to the AO credit must have been in Indian currency only since the assessee-firm is a resident in India. However, the AO did not look into the facts thoroughly in this aspect of the matter. He merely presumed that the original recipient was the export house only and the export house can only claim the deduction under the Circular No. 466. The assessee in support of its case relied on the decision of the Cochin Bench of the Tribunal in the case of Sea Pearl Industries, Chandiroor vs. ITO in ITA No. 1220(Coch)/1986 by its order dt. 3rd November, 1987, [reported at (1988) 30 TTJ (Coch) 456] relating to the asst. yrs.
1987-88 and 1988-89 [sic-asst. yr. 1983-84], where the Tribunal allowed the claim of that assessee under s. 80HHC. The assessee also submitted that the Circular No. 466, dt. 14th August, 1986, applied only to the assessment years after the amendment to s. 80HHC by the Finance Act, 1985, w.e.f. 1st April, 1986. The AO considered the non-applicability of the said circular, but rejected the claim of the assessee on the basis of the circular. The above circular of the Board was cancelled by another Circular No. 528, dt. 15th December, 1988. The CIT(A) for the asst. yr. 1985-86 in the case of the assessee considered the several documents filed before him by the assessee in support of its claim under s. 80HHC as the real exporter. The CIT(A) made available copies of the above documents to the AO. The learned counsel for the assessees argued at length the different aspects of the disputed claim from different angles. According to him, in spite of not issuing a disclaimer certificates by the export house, the assessee would still be entitled to the deduction under s. 80HHC as the assessee is not only a manufacturer but also an exporter of marine foods. He pointed out that the present provision of s. 80HHC(1A) has come into force w.e.f.
1st April, 1989, by the Finance Act, 1988, and that is applicable from the asst. yr. 1989-90 onwards only. The asst. yr. 1989-90 is not the subject-matter for our consideration. Therefore, the learned counsel submitted that filing of disclaimer certificate from the export house is not relevant for the asst. yrs. 1987-88 and 1988-89, under consideration. According to him, for these reasons also, the reassessments cannot stand.
13. The learned counsel for the assessee took us through the CBDT Circular No. 466, dt. 14th August, 1986, regarding the provisions of s.
80HHC of the IT Act, 1961, and share of tax between export house/trading house and manufacturers. By this circular, the Board made it clear that the payment received by any manufacturer whose goods or merchandise are exported through export house/trading house will not be included in the total income of the manufacturer if such claim or non-inclusion is not supported by a certificate by the export house/trading house. The Board has cancelled this circular by the issue of another Circular No. 528, dt. 15th December, 1988. The learned counsel argued that the AO has lost sight of the circular to find out whether any income has escaped assessment. According to him the AO had no jurisdiction to issue a notice under s. 148 relying on the Circular No. 466 which was not in effect for the asst. yrs. 1986-87 to 1988-89.
In support of this contention, he has relied on the decision of the Allahabad High Court in the case of Jamna Lal Kabra vs. CIT (1968) 69 ITR 461 (All) and contended as per the ratio of the above decision the recording of reasons before issuing a notice under s. 148 is mandatory and pre-requisite to the assumption of jurisdiction by the AO for initiating proceedings for assessing or reassessing income which has escaped assessment. In the above decision, the Allahabad High Court had held that in order to justify action under s. 147(a) it is not open to the officer to refer to reasons other than those recorded by him pursuant to s. 148(2). Therefore, the learned counsel for the assessee submitted that there was no jurisdiction to reopen the assessments for the two years under consideration. The learned counsel for the assessee also cited the decision of the Gujarat High Court in the case of Kaira District Co-operative Milk Products Union Ltd. vs. Asstt. CIT (1995) 216 ITR 371 (Guj) and the Bombay High Court decision in the case of N.D. Bhatt, IAC & Anr. vs. IBM World Trade Corporation (1995) 216 ITR 811 (Bom), where in the former case it has been held by the Gujarat High Court that under s. 147 a notice for reopening of a completed assessment after the expiry of four years from the end of the relevant assessment year can be issued only in a case where the assessing authority had reason to believe that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or in response to a notice issued under s. 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year.
A similar view has been held by the Bombay High Court in the latter mentioned case. In this view of the matter, the learned counsel for the assessee contended that the law enjoins a duty on the AO to record his reasons for holding such a belief before issuing a notice under s. 148 of the IT Act. According to the learned counsel as the assessee did not fail to disclose all the necessary facts necessary for the completion of the assessments for these years in order to claim the deduction provided under s. 80HHC of the Act, even in respect of the exports effected through the export houses the assessee would be entitled to the above deduction and hence the AO cannot be held to be in possession of any material fact of issuing a notice under s. 148 to reopen the assessments in which deduction under s. 80HHC had been claimed in respect of exports made through export houses also. The learned counsel further submitted that even if any deduction is allowed for the exports made through export houses, it cannot be considered a good ground to deny the deduction under s. 80HHC to the supporting manufacturer.
According to him, the CBDT considered its earlier Circular No. 466, dt.
14th August, 1986, as invalid and withdrew the same by another Circular No. 528, dt. 15th December, 1988. He further urged that the Circular No. 466, dt. 14th August, 1986, was not applicable to a period before 1st April, 1989, and since there was no failure or omission on the part of the assessee to disclose any material facts necessary for the completion of the assessments, the reopening was bad in law. He submitted that the notice issued under s. 148 of the Act goes to the very root of the jurisdiction wrongly assumed by the AO. It is not procedural to issue such a notice and in support of the above contention he relied on the decision of the Supreme Court in the case of Ellerman Lines Ltd. vs. CIT (1971) 82 ITR 913 (SC). He cited for example that after the coming into force of the IT Act, 1961, the law applicable from 1st April, 1962, only will be followed. That means the provisions of the IT Act, 1922, will apply for reopening the assessments made prior to 1st April, 1962, and not the new provisions under the 1961, Act will apply. He has cited the decision of the Supreme Court in the case of CIT vs. Kurban Hussain Ibrahim; Mithaborwala (1971) 82 ITR 821 (SC), wherein it has been held by the apex Court that the notice in question was invalid and as such the ITO had no jurisdiction to revise the assessment for 1949-50. The Supreme Court further went on holding that it is well-settled that the ITO's jurisdiction to reopen an assessment under s. 34 of the IT Act, 1922, depends upon the issuance of a valid notice and if the notice issued by him is invalid for any reason, the entire proceedings taken by him would become void for want of jurisdiction. This argument was advanced with reference to s. 297(2)(b). Sec. 297(2)(b) reads as follows : "Where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under s. 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act." "Any proceeding pending on the commencement of this Act before any IT authority, the Tribunal or any Court, by way of appeal, reference, or revision, shall be continued and disposed of as if this Act had not been passed." According to the learned counsel for the assessee, in the light of the provisions of s. 297(2)(b) and (c) read with the ratio laid down by the Supreme Court in the case of CIT vs. Kurban Hussain Ibrahimji Mithaborwala (supra), the law as on 1st April, 1989, was not applicable to the assessment years in question and, therefore, the AO did not have jurisdiction to issue notice under s. 148.
14. The learned counsel for the assessee mainly challenges the validity of the reopening of the assessments by pointing out that internal audit cannot become any information for reopening the assessments, though the appellate order amounts to such information. He submitted that internal audit can only be deemed to be administrative direction, and the audit report cannot constitute information. The learned counsel pointed out that the words used in s. 147 earlier were 'if the AO is of the opinion' but now these words were substituted by the words 'if the AO has reason to believe' and pointed out that in order to form a belief, application of mind is required. He pointed out that the formation of belief should be rational and there should be nexus between the material on record and the formation of such belief. In support of this contention, he has relied on the decision of the Supreme Court in the case of CIT vs. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC), wherein their Lordships of the apex Court have held that the stand taken by the ITO in his affidavit, dt. 5th December, 1968, was obviously untenable because the existence of reason to believe on the part of the ITO was a justiciable issue and it was for the Court to be satisfied whether in fact the ITO had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure. In the above case the respondent had produced in the original assessment proceedings all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not.
The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. The Supreme Court further held that merely stating a belief is not sufficient, but it should be set out on the basis of material on record. The belief should be arrived at from the material on record.
Therefore, the learned counsel for the assessee submitted that the assessee was entitled to the claim of deduction provided under s. 80HHC on its export effected through the export house and there was no failure attributable to the assessee to disclose fully and truly all material facts for assessing its income.
15. While arguing on the point of review, the learned counsel for the assessee submitted that a mere review is not permissible. He tried to elaborate that the reopening of the assessment amounts to a review, firstly for the reason that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the making of an assessment and secondly, the deduction as claimed by the assessee was within the meaning of s. 80HHC. In support of this contention, he relied on the decision of the Gujarat High Court in the case of VXL India Ltd. vs. Asstt. CIT (1995) 215 ITR 295 (Guj). The Gujarat High Court in this case observed that the essential requirement for initiating proceedings under s. 148 of the Act is that the AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Explanation 2 to s. 147 as appended to newly substituted s. 147 of the Act makes certain provisions where, in certain circumstances, the income is deemed to have escaped assessment giving jurisdiction to the AO to act under the said provision. Another requirement which is necessary for assuming jurisdiction is that the AO shall record his reasons for issuing notice. This requirement necessarily postulates that before the AO is satisfied to act under the aforesaid provision, he must put in writing as to why in his opinion or why he holds the belief that income has escaped assessment. "Why" for holding such belief must be reflected from the record of reasons made by the AO. In a case where the AO holds the opinion that because of excessive loss or depreciation allowance the income has escaped assessment, the reasons recorded by the AO must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, according to the Supreme Court, does not confer jurisdiction on the AO to take action under s. 147 and s. 148 of the IT Act.
16. For similar proposition, the learned counsel for the assessee relied on the decision of the Gujarat High Court in the case of Kaira District Co-operative Milk Producers Union vs. Asstt. CIT, wherein the reassessment and validity of assessment has been considered for the asst. yrs. 1986-87 to 1990-91. The Gujarat High Court held in the above came that the reopening without application of mind or change of opinion cannot be held to be valid.
17. Thus arguing at length on the legal aspect of the reopening of the assessments and contending that the reopening has been made without proper application of mind and by issuing a notice without jurisdiction, the learned counsel for the assessee submitted that such reassessment is invalid in the eye of law. Thereafter, the learned counsel proceeded on the merits of the claim in dispute and took us through the relevant portions in the paper-book filed on record. On the above basis, we are required to examine the factual aspect of the claim on merits. A statement recording the factual position relating to the activities of exports made by the assessee and the names of the parties through whom the export sales were made are also given in the statement. The orders were in the assessee's name. Bill of lading and letter of credit are in the name of the assessee. Receipts of foreign exchange are shown to have been made in the name of the assessee and expenses/risks of ship are also borne by it. Fluctuation in the foreign exchange is borne by the assessee and all the other liabilities in respect of deals are to be accounted by the assessee. Therefore, the learned counsel for the assessee vehemently contended that the assessee received the foreign exchange and every item in respect of the exports in its name only. Therefore, he submitted that it would be incorrect to draw the inference that the export house exported the goods manufactured by the assessee. According to him the export house is not the purchaser of goods in reality.
18. The learned counsel submitted that the agreements between the export house and the assessee should not be read as agreements to sell the goods by the assessee to the export house. The receipt of the foreign exchange by the assessee shows that as to who brought into India the foreign exchange and who is entitled to claim the export benefits. In support of the contention that the assessee alone exported the goods or merchandise, the learned counsel relied on the decision of the Supreme Court in the case of C.T. Ltd. & Anr. vs. CTO & Ors. 104 STC 94 (SC). In that case the State Trading Corporation (STC) entered into a contract with the Government Trading Co. of Iran (Iranian buyer) for supply of Assam tea. In turn the STC entered into a contract with the assessee, to which a copy of the STC's contract with the Iranian buyer was annexed. In the said contract between STC and the assessee, the assessee was referred to as the 'shipper' and the Iranian buyer as the 'buyer'. The Supreme Court reversed the order of the Tribunal and held on the facts that no term in the contract between the assessee and STC clearly contemplated a sale, viz., a transfer of property in the tea from the assessee to STC. In short, the learned counsel for the assessee cited this decision of the Supreme Court only to show that in spite of having entered into a contract between the assessee and the STC, the assessee was held to be the real exporter and entitled to the benefits of exports made by it.
19. The learned counsel further submitted that the export house does not pay anything at all to the assessee by way of sale proceeds of the goods in foreign exchange. He has pointed out the relevant facts from p. 34 of the paper-book to contend that the agreement between the assessee and the export house does not dissentitle the assessee from claiming the export benefits. He submitted either the export house has wrongly claimed the benefit of exports or it had availed a wrongful benefit. The assessee for that matter did not sell any goods to the export house.
20. If any sale is presumed to have been made by the assessee to the export house, the sale must be out of India. In that event, the export houses becomes the owner of the goods. If there is a sale at all, it does not result in export out of India. He has pointed out the facts relating to this position as appearing on pp. 34 to 39 of the paper-book. He has also relied on the decision of the Cochin Bench of the Tribunal in the case of Sea Pearl Industries 56 ITD 825 wherein s.
80HHC deduction was allowed to the assessee even though the sales were effected through the export house.
21. In his reply, K. R. Sudhakaran Pillai, the learned Departmental Representative, contended that STC referred to in the Supreme Court case viz., 104 STC 94 (SC) (supra) cannot be equated with export house.
According to him, the very concept of export house was introduced only after 1st April, 1989, in the statute. In this case, excess relief was granted to the assessee by the AO as per the computation of profits.
According to Sudhakaran Pillai, the reopening of the assessment should be held to be valid for the reason that the total profit computed at Rs. 30 lakhs and odd is not correct. He has also cited the decision of the Calcutta High Court in the case of CIT vs. Assam Oil Co. Ltd. (supra) in support of the validity of the reopening of the assessment.
He also supported the reassessments made by the AO relying on the decision of the Kerala High Court in the case of A. M. Moosa (supra).
He contended that the assessee is not an exporter of marine products and not entitled to the deduction under s. 80HHC of the IT Act, 1961.
22. We have carefully examined the facts pertaining to the dispute of allowing the deduction under s. 80HHC on the goods manufactured by the assessee and exported by it through export house. The statement of factual position regarding the activities relating to export filed by the assessee before us shows that every thing indicated therein was done by the assessee in his name. The assessee received foreign exchange for goods exported by it. The export house appears to have acted merely as an agent for earning premium. The export house did not pay anything to the assessee by way of foreign exchange. The assessee is entitled to claim the deduction under s. 80HHC of the IT Act, 1961, even on the goods exported by it through export house. If any benefit has been granted to the export house on such goods exported through it by the assessee, it is a mistake on the part of the AO. For such a mistake the assessee cannot be punished by denying its rightful claim.
The case law as cited and relied on by the learned counsel for the assessee fully supports the assessee's claim.
23. So far as the reopening of the assessments is concerned, it is a fact that the reopening was not as a result of the assessee's failure to disclose fully and truly all material facts necessary for making the assessments. The assessee's computation of profits and the claim for deduction under s. 80HHC was based on the exports effected by it on its own exports and on the exports made through export house. Therefore, there was no failure on the part of the assessee to disclose the material facts necessary for assessment. Hence, escapement of income for assessment cannot be attributed to the assessee for any failure to disclose the income. We do not find escapement of income for not allowing the rightful claim made by the assessee. Therefore, the reopening made by the AO was bad in the eye of law and cannot be upheld. Therefore, the Revenue has to fail on both grounds, i.e., on the legal aspect of the reopening of the assessments and on the issue relating to the claim for the assessee under s. 80HHC even on the exports effected by it through export house.
24. Coming to the cross-objections filed by the assessees they are only in support of the orders of the CIT(A). Since the appeals filed by the Revenue against the orders of the CIT(A) stand dismissed, the cross-objections filed by the assessees also require to be dismissed.
25. In the result, the appeals filed by the Revenue, i.e., ITA Nos. 648 and 649 (Coch/1991 in the case of Baby Marine Exports and ITA Nos. 650 and 657 (Coch/1991 in the case of Baby Marine (Eastern) Exports, are dismissed, while the cross-objections filed by the respective assessee, i.e., C.O. Nos. 38 and 39 Coch/1991 and C.O. Nos. 40 and 41 Coch/1991 are also dismissed.