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TMI Blog2005 (11) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... e Express had hired the services of M/s. Sam Aviation Pvt. Ltd. for carrying the cargo to Russia. A search under section 132 of the Income-tax Act, 1961 was carried out at the business premise of M/s. Sam Aviation Pvt. Ltd. and its Directors on 20th and 21st of August, 1998. As per the seized documents found at the premises of M/s. Sam Aviation Pvt. Ltd., it was observed that apart from payment of freight by cheque, some payment was received by the concern in cash from various exporters on account of freight. In the case of the assessee also, some cash payment was found recorded in the statement of accounts of M/s. Sam Aviation Pvt. Ltd. The entire information regarding the bill numbers, weight, description of goods and other details tallied with the record of the assessee. So, however, cash payments were not found reflected in the books of account of the assessee. The assessee was confronted with the information. In fact, a search was also conducted at the business premises of the assessee and at the residential premises of the Directors. Assessment order was passed in the case of the assessee for the block period and the total undisclosed income was assessed at Rs. 9,85,000, yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Sam Aviation Pvt. Ltd. were not sufficient to hold that such cash payments were made by the assessee. It has been pointed out by the CIT(A) that the cash payments could have been received from the consignees. According to the CIT(A), there may be suspicion on the basis of the entries in the books of account of M/s. Sam Aviation Pvt. Ltd. that the assessee had made the payment but suspicion howsoever strong it may be cannot be the basis for the addition. It has further been held by the CIT(A) that addition on the basis of the entries in the books of account of a third party can be made only if there is corroborative evidence to support such entries. It has been further pointed out by the CIT(A) that the allegation of freight paid by the assessee at higher rates to M/s. Sam Aviation Pvt. Ltd. could have been corroborated either by bringing on record that the exporters to Russia were required to pay more freight than what has been recorded in the books of account of the assessee or the money had in fact been paid by the assessee-company. The CIT(A) has pointed out in the appellate order for assessment year 1996-97 that the Assessing Officer was asked as to whether any exporter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) may be set aside for all the assessment years and the additions restored. 7. In reply, the ld. Counsel for the assessee sought to support the order of the CIT(A) for all the assessment years. It was pointed out by the ld. Counsel that the assessee had nothing to do with M/s. Sam Aviation Pvt. Ltd. insofar as it had appointed M/s. Leimure Express as cargo agent for export of goods. It was further contended that no addition is permissible on the basis of entries in the books of account of the third party unless such entries found are corroborated by any other evidence. The ld. Counsel further contended that there are about 30 exporters from Ludhiana exporting their goods to Russia. Though inquiries were made by the Income-tax Department, no evidence was found that assessee had booked freight charges at less rate than freight paid by the other exporters. Our attention was invited to the findings of the CIT(A) at para 10 of his order, wherein the admission of this fact by the Assessing Officer has been recorded. It was further contended that the assessee has not been allowed cross examination of M/s. Sam Aviation Pvt. Ltd. when cash payments made to M/s. Sam Aviation Pvt. Ltd. we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumed to have paid to M/s. Sam Aviation Pvt. Ltd. on the basis of some cash payments. Since the additions made by the Assessing Officer in this case for the respective assessment years are not solely based on the basis of entries found in the books of account of M/s. Sam Aviation Pvt. Ltd., the same can be placed in two categories - one category is the addition on the basis of entries found recorded in the books of account of M/s. Sam Aviation Pvt. Ltd. and the second category is purely on the basis of presumption that assessee might have paid freight at higher rates on the basis of cash entries in respect of some of the consignments. The additions have been made by invoking the provisions of section 69C. Section 69C may be reproduced hereunder :-- "69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year." A plain reading of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account and also indicated that such payments might have been from the consignees for customs services etc. In the light of vague statement by M/s. Sam Aviation Pvt. Ltd., it was necessary, in our view, for the Assessing Officer to probe further and find out the stand of M/s. Sam Aviation Pvt. Ltd. in regard to the cash receipts found recorded in the statements pertaining to them. This was not done. The assessee having denied to have received the payment, it was necessary for the Assessing Officer to put across to the assessee the evidence which, according to the Assessing Officer, was reliable, to hold that expenditure was incurred by the assessee. This was not done by the Assessing Officer. In our view, when two different parties make conflicting statements before the income-tax authorities, it is not open to the authority to chose any of the statements that suits the revenue. The Assessing Officer will be duty bound to consider the evidence from both sides and then record a finding on the basis of the evidence. The entries in the regular books of account of the third party may constitute evidence but the said evidence alone cannot be relied upon for making additions if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of Rs. 1,30,85,068, Rs. 3,79,91,102, Rs. 2,37,16,938 and Rs. 1,12,16,660 for assessment years 1995-96, 1996-97, 1997-98 and 1998-99 respectively. It may be pertinent to mention that in the assessment order for assessment year 1996-97, the Assessing Officer has referred to several other cash payments but we have not found any mention of these payments in the order of assessment in the case of M/s. Sam Aviation Pvt. Ltd. Therefore, going by the findings recorded in the case of M/s. Sam Aviation Pvt. Ltd., the total cash payments attributed to the assessee are of Rs. 1,80,010 for assessment year 1997-98 and Rs. 6,84,990 for assessment year 1998-99. Assuming for arguments sake that the evidence from the premises of M/s. Sam Aviation Pvt. Ltd. was authentic and sufficient to fasten liability of tax upon the assessee, then at best the addition of Rs. 1,80,010 and Rs. 6,84,990 for assessment years 1997-98 and 1998-99 respectively could be made in the case of the assessee. Whereas it is permissible for the Assessing Officer to resort to estimation when the material available suggests the pattern of payments, in this case the foundation for assessment is the entries recorded in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, namely, M/s. Leimure Express. The income-tax authorities have not considered it proper to make inquiry from M/s. Leimure Express or it is possible that the results of the inquiry do not help the department. It may also be pertinent to mention that there is a note appended to the order of the CIT(A) which was not given to the assessee but we find it relevant for appreciating the view expressed by the CIT(A). The office note is reproduced hereunder :-- "Office Note (Not on the copy for the assessee) In this case, the Assessing Officer has made an addition on the basis of the information collected from the premises of M/s. Sam Aviation Pvt. Ltd. The information is available in the form of details containing name of the assessee, flight number, weight, weight of the goods dispatched, date, freight charges (inclusive of payments in cash) etc. The details are not in dispute except for the cash payments. The Assessing Officer is of the view that the assessee had made cash payments with the intention of suppressing the freight payments and also to meet the expenditure relating to custom duty, transportation and distribution charges in Moscow. The Authorised Representative of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sam Aviation Pvt. Ltd. and after giving reasonable opportunity of being heard to the assessee. The order of the CIT(A) in deleting rest of the additions for all the four years is, however, upheld. The grounds of appeal raised by the revenue in this regard for assessment years 1997-98 and 1998-99 are partly allowed and those for assessment years 1995-96 and 1996-97 are dismissed. We would like to clarify that the course of setting aside the issue has been adopted to avoid inconsistency in the case of the assessee and in the case of M/s. Sam Aviation Pvt. Ltd. 11. We now take up the other grounds of appeal. In assessment year 1995-96, there is no other ground of appeal. The appeal of the revenue for assessment year 1995-96 is accordingly dismissed. 12. In assessment years 1996-97 and 1997-98, another common ground is relating to the levy of interest under section 234B. The only contention advanced before us on behalf of the assessee is that section 234-O is not retrospective in its operation. The dispute in this case is about the manner in which the Assessing Officer has calculated interest under section 234B. The CIT(A) has held that assessee is liable to pay interest if he does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that the CIT(A) has followed the decision of ITAT, Chandigarh Bench in the case of Freeman Measures Ltd. (supra). This view is further supported by the decision of the Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769 , and the decision of Calcutta High Court in the case of CIT v. Chloride India Ltd. [2002] 256 ITR 625 . It is also pertinent to mention here that similar issue was decided by the Tribunal in the case of Nahar Spinning Mills Ltd. [IT Appeal No. 1130 of 1995] for assessment year 1992-93 (in assessee's group) vide paras 2 to 5 of the order in favour of the assessee. The mere fact that the department has filed an appeal under section 260A against the decision of the Tribunal does not warrant a different view as the CIT(A) is bound to follow the decision of the jurisdictional Tribunal. We therefore, do not find any infirmity in the order of the CIT(A) in this regard. Grounds of appeal raised for assessment years 1997-98 and 1998-99 in this regard are accordingly, dismissed. 14. We now take up the other grounds of appeal for assessment year 1998-99. Ground No. 1 is as under : "(i )The ld. CIT(A) has erred both in law and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "(iii)The ld. CIT(A) has further erred both in law and on fact of the case in holding that interest income of Rs. 63,31,849 is business income as against income from other sources taken by the Assessing Officer for the purposes of computing deduction under section 80HHC." This issue had also come up for consideration before the Tribunal in the case of Nahar Spinning Mills Ltd. [IT Appeal No. 1130 (Chd.) of 1995]. In this case, the Tribunal vide para 7 of the order held that on the basis of the decision of the jurisdictional High Court in the case of Rani Paliwal v. CIT [2004] 268 ITR 220 (Punj. & Har.), the gross interest has got to be treated as income from other sources for the purposes of computation of deduction under section 80HHC. It has further been held that 90 per cent of the gross interest is to be reduced from the profits and gains of business. In other words, 10 per cent of the interest is to be considered as expenses. We direct the Assessing Officer to follow the directions contained in para 7 of the order of the Tribunal in the case of Nahar Spinning Mills Ltd. [IT Appeal No. 1130 (Chd.) of 1995] for assessment year 1992-93 reproduced hereunder : "7. The reque ..... X X X X Extracts X X X X X X X X Extracts X X X X
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