2010 (12) TMI 1108 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of non-genuine purchases.
2. Reduction of indirect cost while computing deduction u/s. 80HHC.
3. Allowability of deduction u/s. 80HHC in respect of DEPB income.
4. Rectification of the assessment order u/s. 154.

Detailed Analysis:

1. Addition on Account of Non-Genuine Purchases:
The first issue concerns an addition of Rs. 2,09,05,947/- made by the AO on account of non-genuine purchases. The AO noted discrepancies in the purchases from 10 parties, where notices issued were returned unserved, and the assessee failed to produce the parties or provide their current addresses. The AO treated purchases from seven parties as non-genuine. The assessee provided reconciliations and supporting evidence for some discrepancies, but the AO was not satisfied. The CIT(A) deleted the addition, noting that the assessee had provided complete quantitative details and that all purchases were reflected in the sales. The Tribunal upheld the CIT(A)'s order, stating that there could not be any sales without purchases and that the purchases could not be considered bogus. The Tribunal cited the decision in Balaji Textile Industries Pvt. Ltd. vs. CIT and M.K. Bros. vs. CIT, supporting the view that purchases were genuine.

2. Reduction of Indirect Cost While Computing Deduction u/s. 80HHC:
The second issue pertains to the reduction of indirect cost by 10% of export incentives while computing the profit derived from exports. The AO disallowed this reduction, but the CIT(A) allowed it based on the decision of the Special Bench of the Tribunal in Surendra Engg. Corporation vs. ACIT. The Tribunal confirmed the CIT(A)'s order, referencing the Supreme Court judgment in Hiro Exports, which upheld the attribution of 10% of export incentives towards indirect cost.

3. Allowability of Deduction u/s. 80HHC in Respect of DEPB Income:
The third issue involves the allowability of deduction u/s. 80HHC in respect of DEPB income. The AO denied the deduction, stating that the assessee did not fulfill the conditions mentioned in the third proviso to sec. 80HHC(3). The CIT(A) upheld the AO's decision. The Tribunal noted that the issue was covered by the judgment in CIT vs. Kalpataru Colours & Chemicals, which held that the entire DEPB income, including the face value, must be treated as income u/s. 28(iiid). The Tribunal remanded the matter back to the CIT(A) for further examination in light of this judgment.

4. Rectification of the Assessment Order u/s. 154:
The fourth issue concerns the rectification of the assessment order u/s. 154. The AO made an addition for purchases from M/s. Dimple Metal Corporation, which was omitted in the original assessment. The CIT(A) deleted this addition, stating that the entire addition on account of purchases had already been deleted in the quantum appeal. The Tribunal upheld the CIT(A)'s order, confirming that no addition was required on account of bogus purchases.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues except the allowability of deduction u/s. 80HHC in respect of DEPB income, which was remanded back to the CIT(A) for further examination.