Profits and gains derived from export of goods must be ascertainable and have a direct nexus with the export activity.

JUDGMENT :

R.C. Mankad, J.

The assessee, a public limited company, is engaged in the manufacture of cotton textiles at Ahmedabad. The assessee-company effected exports out of India of various products manufactured by it during the previous years relevant to the assessment years 1964-65 and 1965-66. It claimed the benefit of deduction admissible to assessees whose total income includes any profits or gains derived from exports under section 2(5)(a)(i) of the Finance Act, 1964, for the assessment year 1964-65 and under section 2(5)(a)(i) of the Finance Act, 1965, for the assessment year 1965-66. Both these provisions are in identical terms. The question which is raised in these references is whether the assessee-company is entitled to claim such deduction or rebate, even though the assessee-company, which has not maintained separate accounts pertaining to the export business, is unable to establish that the export business resulted in any profit whatsoever. The Income-tax Appellate Tribunal (herein-after referred to as the Tribunal ") has negatived the claim of the assessee-company on the ground that the condition precedent for the grant of deduction (earning of profit in export business) is not satisfied.

2. In the course of assessment for the assessment year 1964-65 the assessee-company contended that its total direct and indirect export sales came to Rs. 1,85,69,325. Out of these sales, sales worth Rs. 25,82,240 were direct export sales. It is not in dispute that sales other than such direct export sales do not qualify for rebate under section 2(5)(a)(i) of the Finance Act, 1964. In other words, the claim which was made by the assessee-company before the ITO was that it was entitled to such rebate in regard to direct export sales of Rs. 25,82,240. In the assessment year 1965-66, the total export sales, including the direct and indirect, came to Rs. 2,03,14,853. Out of these sales direct export sales were to the tune of Rs. 49,21,323. The assessee-company claimed rebate in regard to these direct sales of Rs. 49,21,323, under section 2(5)(a)(i) of the Finance Act, 1965. The assessee-company had not maintained separate accounts in respect of its export trade., It must be mentioned that it is not the case of the assessee-company that it was not possible to maintain separate accounts for any special reason or that such a separate account cannot be reconstructed from its books of account. It did not produce any evidence or material before the ITO to establish whether or not it had made any profit out of direct export sales and if so what was the extent of such profit. In the course of the assessment proceedings for the assessment year 1965-66, it appears that the ITO had specifically called upon the assessee-company to produce details regarding the cost of production of the cloth exported, expenses incurred in exporting the cloth, etc. The assessee-company expressed its inability to produce such date. It was stated that no separate date as requested by the ITO was available with the assessee-company. It is not in dispute that in either of the two assessment years under consideration the assessee-company did not produce any evidence or material to prove whether or not it had derived any profits and gains out of direct export sales. It appears that the assessee-company had made a similar claim for rebate in the assessment year 1963-64. In that year also, the assessee-company had not produced any material or evidence to prove that it had derived any profit from export sales which qualified for such rebate. The ITO took the view that the onus was on the assessee-company to prove that it had derived such profits and gains and since it failed to discharge the onus, its claim for rebate was disallowed for the assessment year 1963-64. The fact situation in the assessment years 1964-65 and 1965-66 was not different from the one which obtained in the assessment year 1963-64. Under the circumstances, the ITO, following his decision in the assess