2021 (2) TMI 1061 - HC - Income Tax

Addition u/s 68 - allowability of the expenditure under section 69C - ITAT concluding that genuineness of the high-seas sales cannot be doubted merely because the customs authorities have verified the documents at the time of clearing the goods for home consumption and while approving the high seas sale. - HELD THAT - On the aspect of additions being made under Section 68 of the Act, we notice that the ITAT was intrigued with the approach of the AO, and rightly so, in our view. The Assessee had worked out the business income after considering the sales and purchases of mobile phones which included the high-sea sales. In these circumstances, the ITAT observed that the addition under Section 68 or 69C is contradictory to the stand taken while accepting the business income. No justification is offered by the Revenue for attracting section 68, on this count except for contending there is no net-effect on the business income , which is not the relevant yardstick. The amount in question, as noted above had already been charged to the income of the assessee. The question of allowability of the expenditure under section 69C has been restored to the file of the AO for fresh adjudication. Therefore, we find no reason to interfere with the findings of the ITAT on this aspect. The genuineness of the transactions has been accepted on the basis of documentary evidence and other material gathered, which cannot be re-appreciated under Section 260A of the Act. We also do not find any perversity in the approach of the ITAT. Besides, the proposed questions of law and the arguments advanced by Mr. Hossain touch upon findings of fact rendered by the ITAT on the basis of material placed before the Lower Tax Authorities during the course of the assessment proceedings. No question of law, arises for our consideration.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Appeal under Section 260A of the Income Tax Act, 1961 against ITAT order for Assessment Year 2014-15.
3. Disallowances under Section 68 and Section 69C of the Act.
4. Challenge to the deletion of addition made by AO under Section 68.
5. Genuineness of high-seas sales and cash transactions.
6. Findings of the ITAT and the approach of the AO.

The judgment addressed the issue of condonation of a 156-day delay in re-filing an appeal, which was allowed for reasons stated in the application. The appeal under Section 260A of the Income Tax Act, 1961, challenged an ITAT order for the Assessment Year 2014-15. The appellant, engaged in importing mobile phones and selling them in India, faced disallowances under Sections 68 and 69C of the Act. The AO disallowed amounts related to high-seas sales, questioning their genuineness and the source of expenditure. The CIT(A) upheld the Assessment Order, but the ITAT found the high-seas sales genuine based on customs verification.

The Senior Standing Counsel for Revenue argued against the ITAT's conclusion, highlighting discrepancies in the transactions, lack of cooperation from the Assessee, and the net effect of the additions under Sections 68 and 69C. The High Court considered the arguments but found no substantial question of law, noting the ITAT's decision to send certain issues back to the AO. The Revenue challenged the deletion of the addition made by the AO under Section 68, questioning the ITAT's reliance on documentation over material facts.

Regarding the additions under Section 68, the High Court agreed with the ITAT's observation that the AO's approach was contradictory, as the income had already been charged. The Court found no justification for invoking Section 68. The ITAT's decision to delve into the merits of the high-seas sales' genuineness was supported by documentary evidence, including customs approvals and importer exporter codes. The Court dismissed the Revenue's contentions, emphasizing the documentary proof and lack of perversity in the ITAT's approach.

In conclusion, the High Court dismissed the appeal, upholding the ITAT's findings on the genuineness of high-seas sales and cash transactions. The Court found no grounds to interfere with the ITAT's decision, as the documentary evidence and material facts supported the Assessee's case. The judgment highlighted the importance of documentary evidence and governmental approvals in establishing the genuineness of transactions, ultimately leading to the dismissal of the appeal.