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M/S Mehra International v. Commissioner Of Income Tax, Kanpur & Another - WRIT TAX No. 781 of 1999  RD-AH 1308 (3 November 2004)
Civil Misc. Writ Petition No.781 of 1999.
M/s.Mehra International Vs. Commissioner of Income Tax and another.
Hon'ble R.K. Agrawal, J
Hon'ble P.Krishna, J
(Delivered by Hon. P.Krishna, J)
The petitioner, a partnership firm, has sought by means of the present petition, a writ, order or direction in the nature of Certiorari quashing the order dated 6th of August, 1999 passed by the Commissioner of Income Tax, Kanpur in so far as it relates to the non extension of time in respect of late payment received from Prime Leather Enterprizes U.S.A. for Rs.77,121/- and from M/s. Horseman U.S.A. for Rs.1,88,860/- and a writ of Mandamus commanding the Commissioner of Income Tax to pass a fresh order under section 80 HHC (2) (a) of the Income Tax Act in respect of the extension of time for payment received from aforesaid two persons.
The petitioner claims itself an exporter and is doing the export of saddlery leather and brass items to various countries outside India. It, for the assessment year 1997-98 exported the goods worth Rs.1,07,80,835/-. A sum of Rs.3,53,000/- was due as outstanding from the three foreign buyers as on 31st March, 1997. An application for extension of time as required under section 80 HHC (2) (a) of the Income Tax Act (hereinafter referred to as the Act) was filed by the petitioner before the Commissioner of Income Tax. The Commissioner of Income Tax by means of the impugned order dated 6th of August 1999 has allowed the said application in part. It has granted extension of time for not bringing the sale proceeds of the goods exported by the petitioner to M/s. Andersen, Germany but has refused to extend the time in respect of the foreign buyers namely M/s. Prime Leather Enterprises U.S.A. and M/s. Horseman, U.S.A.
Section 80 HHC of the Act provides deduction in respect of profits retained for export business. This section was inserted with a view to increase large export of certain goods. It provides certain tax relief to the exporters. One of the conditions as to claim the benefit of the special deduction under section 80 HHC (2) (a), is that the sale proceeds of the specified goods or merchandise exported out of India, are received in, or brought into India by the assessee in convertible foreign exchange within a period of 6 months from the end of previous year. For the relevant assessment year i.e. 1997-98 power has been conferred on the Chief Commissioner or the Commissioner of Income Tax if satisfied, for the reasons to be recorded in writing, that for the reasons beyond the control of assessee, he was unable to bring the convertible foreign exchange in India within six months, to extend further period as he may allow in this behalf.
The period of six months specified in section 80 HHC (2) (a) of the Act was to expire on 30th September 1997. The petitioner filed an application dated 30th September 1997 before the respondent No.1 on 31st October 1997, requesting for extension of time, for the purposes of Section 80 HHC (2) (a) of the Act, of one year for bringing into India, in convertible foreign exchange, the sale proceeds approximately of Rs.3,53,000/- relating to the goods exported by it out of India. The ground taken in the extension application, in brief was that the petitioner has received major portion of the convertible foreign exchange within time, but approximately a sum of Rs.3,53,000/- could not be recovered from the foreign buyers inspite of its best efforts. It was expected to receive the payments at the earliest. The details of the names of the buyers to whom the assessee exported the goods, invoice number, date and the amount of sale proceeds of the goods exported out of India that were outstanding on 30th September 1997 are as follows:-
S.No. Name of the buyer to whom the assessee exported the goods Invoice Number and date Amount of sale proceeds of goods exported out of India that were brought in India after the expiry of the six month period referred to in section 80 HHC (2) (a) (Rs.)
1 M/s Prime Leather Enterprises, Modestoca, USA Invoice Number 3 dated 12.4.1996 77,121 Brought in India on 4.11.1997
2 Andersen, Germany Invoice Number 36 dated 09.12.1996 80,091
3 M/s Horseman Corral, Modestoca, USA Invoice Number 52 dated 4.3.1997. 188,860 Brought in India on 13.4.98 - Rs. 78,495/-, on 16.8.98 - Rs.1,10,065/-
As mentioned above, the Commissioner of Income Tax by the impugned order has refused to extend the time in respect of the buyers at serial No.1 and 3 and has extended the time with respect to the buyer at serial No.2. It has come on record that the convertible foreign exchange in respect of buyer at serial no.3, has been brought in India, on 13th April, 1998 Rs.78,495/- and on 16th June 1998 Rs.1,10,065/-. The reason given by the Commissioner of Income Tax is that the petitioner had sufficient time for realising the sale proceeds and bringing the same into India. No sincere and genuine efforts were made to bring the sale proceeds in India within the normal time permissible under section 80 HHC (2) (a) of the Act. Also one cannot rule out the possibility to the fact that assessee expected a higher yield in terms of Indian rupee by delaying receipt of sale proceeds because of the fall in the value of Indian rupee. Challenging the aforesaid reasoning the present writ petition has been filed.
Heard the counsel for the parties and perused the record. The learned counsel for the petitioner submitted that the order of the Commissioner so far as it relates to the refusal of extension of time in respect of buyers No.1 and 3, as detailed in the above chart is arbitrary and capricious. The Commissioner of Income Tax has not appreciated the true meaning and purport of 80 HHC (2) (a) of the Act and erroneously rejected the application of the petitioner. It has been passed without appreciating the material evidence on record and based on irrelevant considerations. In contra, the learned counsel for the department submitted that the order passed by the Commissioner of Income Tax does not require any inference by this Court. The order is based on the material on record and the exercise of discretion by the Commissioner partly in favour of the petitioner and partly against it is justified on the facts and circumstances of the case.
In Mayor & Company vs. Commissioner of Income Tax (2001) 248 ITR 162 (P & H) it has been held that the power vested in the competent authority to grant extension of time, which necessarily included the power to refuse extension of time beyond the period of 6 months, is quasi judicial in nature. The requirement of recording reasons in writing is clearly indicative of the legislative intention that the power vested in the competent authority to grant or refuse extension of time must be exercised reasonably and fairly. It must not be exercised arbitrarily. The order must reflect objective application of mind by the competent authority to the factors relevant to the determination of the issue as to whether the assessee could not bring or receive the sale proceeds of the exported goods due to reasons beyond his control.
The "expression reasons beyond his control" is not defined in the Act. It should be interpreted keeping in view the context in which it appears. The intention of legislative for enacting the aforesaid provision should also be kept in mind. The purposive interpretation of a statute is also one of the recognized principles of interpretation of Statute. At this juncture it is to be noted that the Act prescribes two years period to complete an assessment. The Punjab and Haryana High Court in the case of Mayor & Co. (Supra) has held that the expression " such further period", though not defined in the Act, keeping in view the limitation prescribed under the Act for completion of assessment within two years from the date of assessment year, the extension contemplated by section 80 HHC (2) (a) can be granted for the period ending with the expiry of two years from the end of the assessment year. To put it differently, if the sale proceeds of the goods or merchandise exported out of India or received or brought into India by the assessee in convertible foreign exchange within the period of two years from the end of the assessment year and the assessee shows that the amount could not be brought or received earlier on account of reasons beyond his control, then the concerned authority is obliged to grant extension of time. The aforesaid judgment has been followed by the Calcutta High Court in Mountview Exports Pvt. Ltd. and another vs. C.I.T. (2002) 258 ITR 46.
Now we venture to examine the relevant facts of the case with respect to the invoice No.3 dated 12.2.1996 though which the goods were exported to M/s. Prime Leather Enterprises. The explanation given by the petitioner was that the aforesaid payment outstanding as on 30th September, 1997 from M/s. Prime Leather Enterprizes was received on 4.11.1997. Thus the extension of time sought for this transaction is little more than one month, to be exact 34 days. The petitioner came out with the case that it received major amount of total export value before the specified date and only a minor portion of the amount could not be recovered by them before the due date in spite of repeated letters and reminders. By a letter dated 12th May 1997 to M/s. Prime Leather Enterprises, the petitioner requested for early payment of the outstanding bill amount. The said party has earlier promised to make the payment of January 15, 1997 but failed to do so. The Commissioner of Income Tax was of the view that since the first letter was written by the assessee to make the payment only after one year from the date of invoice does not show that any serious effort was made by it to make realization in time. The conclusion of the Commissioner of Income Tax cannot be held to be justified for the reason that the petitioner has come out with the allegation that this was the very first year of business with the said party. The petitioner has discontinued its business for the succeeding year on account of conduct of the buyer for not making payment within the reasonable time. The Commissioner of Income Tax has not controverted the plea raised by the petitioner that this was the first year of business with the buyer namely M/s. Prime Leather Enterprises and no further business was done by the petitioner with this party in the subsequent years. The Commissioner of Income Tax was obsessed with the view "that it is not uncommon to find or visualize situation where there is temptation for exporters to deliberately delay the receipt of sale proceeds of goods exported by them in the expectation that fall in the value of Indian rupee would fetch them higher yield", vide para 12 of the order. It has failed to take into consideration that the petitioner assessee had exported goods of an aggregate value of Rs.1,07,80,853/-. The unrealized amount from foreign buyer namely M/s. Prime Leather Enterprises within the specified time was only a very small fraction of the total exports. The Commissioner of Income Tax has failed to consider the relevant circumstances such as the aggregate export sales and the unrealized convertible foreign exchange by the specified date in order to find out as to whether the assessee petitioner deliberately delayed the receipt of sale proceeds of the goods exported by it in expectation that fall in value of Indian rupee would fetch them higher yield. The power to extend time under section 80 HHC (2) (a) has been given to the competent authority with certain purposes. The said power should be exercised in a quasi judicial manner and with a view to achieve the purpose. The non extension of period of about 34 days for such a small amount in comparison to aggregate exports is arbitrary and the respondent no.1 committed illegality in not extending the time with respect to the goods exported to M/s. Prime Leather Enterprizes. USA.
Now we take up the petitioner's case for extension of time in respect of the goods exported by it to M/s. Horseman, U.S.A in respect of invoice No. 52 dated 4.3.1997. The Commissioner of Income Tax has not doubted that the payments have been received and brought into India in convertible foreign exchange into instalments on 13th April, 1998 and 16th June, 1998, total Rs.1,88,860/-. The petitioner sought the extension of time and came out with the case that its partner Shri Anup Mehra during his visit to U.S.A on 28th may 1997 and 17th May 1997 reminded the party to make the payment. A letter dated 13the August, 1997 asking the party to make the payment immediately upto 30th September 1997 was also written. Reply to this letter sent by one Shri Bali of Horseman was also filed before the Commissioner. The Commissioner of Income Tax proceeded on the basis that the said reply does not contain the date of letter and therefore it must have been received by the assessee petitioner soon after 13th of August 1997. In reply Shri Bali , had informed that instructions were given to his Banker for making payment but the Bank reported that it had not received the same. Therefore, he assured that he was " going to wire money today in one hour". This reply, as held by the Commissioner of Income Tax, suggests that the party had assured very prompt action on the petitioner's communication dated 13thAugust 1997 and therefore according to him it is difficult to understand as to why the money was delayed and the realisation could only be made on13.4.1998 and 16.6.1998. The moneys have been released after more than 6 months of prescribed period of 6 months i.e. from 30th September 1997. The assessee also furnished a copy of the reminder dated 17th March 1998 reminding the party to make the payment. On these facts the Commissioner of Income Tax observed that the assessee only sent the some routine reminder letters to the buyer and no sincere effort for realisation to bring convertible foreign exchange into India by 30th September 1997 was made by the assessee. Thereafter he observed that one cannot rule out the possibility that this was due to the fact that the assessee expected a higher yield in terms of Indian rupee by delaying the receipt of sale proceeds because of expectation of fall in the value of the Indian rupee. Another factor which has been taken into account is that immediately in the preceding year also the petitioner had failed to bring the sale proceeds into India from the same party within the period of 6 months referred to in Section 80 HHC (2) (a) of the Act. Therefore, he reached to the conclusion that the assessee has been delaying the process of bringing in the export sale proceeds in convertible foreign exchange into India in past also and such delay adversely affects the national economy. Under section 80 HHC (2) (a) of the Act the relevant consideration is whether the assessee is " for reasons beyond his control" unable to bring the convertible foreign exchange into India within a period of 6 months from the end of the previous year. The Commissioner of Income Tax has not disbelieved the personal visit of a partner of the petitioner firm to the buyer's place and the request for early payment. The petitioner has written letter and reminders asking the foreign buyer to make the early payment. The question which arises as to whether in such circumstances it could be said that the sale proceeds of the goods or merchandize exported out of India are not brought in India by the assessee within the period of 6 months from the end of the previous year " for reasons beyond his control". The Commissioner of Income Tax has failed to record any finding that the sale proceeds could not be brought into India within the specified period by the assessee " for reasons beyond his control". The order of the Commissioner of Income Tax is based on supposition that as the value of Indian rupee has fallen down in the mean time and correspondingly the petitioner assessee thus has yielded extra Rs.32,029/- in respect of this transaction, the possibility was that the assessee received the delayed payment in expectation of fall of value of Indian rupee in terms of foreign exchange. He has failed to consider the aggregate export to foreign country in the year in question and the proportionate unrealised convertible foreign exchange within the specified period. The non extension of time by little more than 6 months in the present case cannot be said to be justified, otherwise it would be defeating the very purpose conferring such power on the authority concerned. The petitioner has done what it could do in the matter and in absence of any other relevant material, mere fall of value of Indian rupee in terms foreign exchange would not lead to the conclusion that there was deliberate action on the part of the petitioner in not to bring the convertible foreign exchange into India within the specified time.
For the reasons given above we are of the view that the respondent No.1 has acted arbitrarily in not extending the time to bring convertible foreign exchange in India in respect of two export transactions vide invoice No.3 dated 12.4.1996 and invoice No.52 dated 4.3.1997. To that extent the order dated 6th of August 1999 passed by the respondent No.1 is quashed by issuing a writ of Certiorari. The respondent No.1 is commanded by a writ of Mandamus to grant extension of time under section 80HHC (2) (a) of the Act in so far as it relates to the sale proceeds in respect of the goods exported by the petitioner to M/s. Horseman USA under invoice No.3 dated 12.4.1996 and the goods exported by the petitioner to M/s Prime Leather Enterprizes USA under invoice No.52 dated 4.3.1997.
The writ petition is allowed. No order as to costs.
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