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TMI Blog2014 (1) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned cash credits came out of suppressed profit, it is for him to prove that it is so. The income resulting on account of additions u/s. 68/69 of the Act cannot be considered as income derived from export activities though it is income of export oriented unit unless there is clear evidence that it represents business receipts - The assessee's business is carrying on of export activities in granite slabs and not dealing in unexplained credits - The assessee is not entitled for deduction u/s. 10B of the Act on account of additions made u/s. 68/69 of the Act - Decided in favour of Revenue. - ITA No. 367/Hyd/2012 - - - Dated:- 13-12-2013 - Shri Chandra Poojari And Smt. Asha Vijayaraghavan,JJ. For the Appellant : Sri P. Soma Sekhar Reddy For the Respondent : Sri V. Raghavendra Rao ORDER Per Chandra Poojari, AM: This appeal by the Revenue is directed against the order of the CIT(A)-II, Hyderabad dated 16.12.2011 for A.Y. 2008-09. 2. The Revenue raised the following grounds of appeal: 1. The CIT(A) erred in granting relief u/s. 10B to the assessee. 2. The CIT(A) ought not to have granted relief u/s. 10B on the addition made u/s. 68 which was also confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors appearing in the Balance Sheet and found that some of the sundry creditors of whom enquiries have been conducted have admitted as not having any transactions with the assessee-company and accordingly, disallowed the sundry creditors to the extent of Rs. 9,68,53,945 on the ground that they are not payable. He also disallowed Rs. 67,35,850 on the ground that payments were made to the non-residents without deducting tax at source u/s. 40(a)(ia) of the Act and he has also not granted deduction u/s. 10B of the Act on the income so enhanced. 5. On appeal, the CIT(A) observed regarding the contention of the assessee that amounts payable to 15 sundry creditors were disallowed when only six sundry creditors were verified, it could be noted that the Assessing Officer has discussed in detail in the assessment on the basis of the trends and unusual features which were very similar to the six of sundry creditors where the credits were proved to be bogus. The assessee never produced these sundry creditors nor did it produce original invoices or lorry receipts for transportation of the material and proof of payment of royalty by the said vendor/lender creditors on extraction of granite bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the identity of the creditor, creditworthiness of the creditor and the genuineness of the transaction. In the present case, even though the assessee could furnish the names of the persons. The other conditions remained to be established and moreover, the addition was not made on account of unexplained investment, but on account of the credit entries appearing in the accounts of the assessee. The assessee's contention that the amounts involved are trade credits and section 68 does not apply to trade credit has no basis in view of the Assessing Officer's categorical finding that the assessee did not purchase from those 15 creditors and, therefore, the inference is only that the credit entries were introduced into the books of accounts as accommodating entries and, therefore, the credits found in the books of accounts remain unexplained. 10. The CIT(A) observed that reliance is placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd. (299 ITR 268) wherein it has been clearly laid down that the assessee has to prove the identity of the creditors, genuineness of the transaction and credit worthiness of the creditors which is supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition was made u/s. 68/69 of the Act for non-explaining the purchase/ payments and that addition resulted in income and that income should be treated as "income from other sources" and not as income from business and it is not entitled for deduction u/s. 10B of the Act as it is not derived from export for which only section 10B is applicable. 14. On the other hand, the learned AR submitted that the AO has clearly admitted that the assessee had purchased the raw granite quantities as claimed because the export sales were certified by the customs authorities and the assessee had no local sales. Therefore, the amounts added were spent for purchasing the raw granite though the creditors are not those named in the account. The AO has observed that the purchases were no doubt true, but not the names of suppliers. The names, quantities, invoices, transport expenditure, lease of granite mines by suppliers were not furnished. The addition made u/s. 68 on account of unproved suppliers of granite go to inflate the profit correspondingly. The Addl. Commissioner conceded in his Remand Report as follows : "21. Regarding contentions at Para 11 i.e., on admissibility of deduction u/s 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entified by the learned AO'. In the Remand Report of the Addl. CIT at Para 10, it was admitted by the Addl. CIT that the observations at para 5 of the assessment order are only possible inferences, which, however, he said cannot be harped on by the assessee to suit his convenience now. The statement on the prices or the quality of the granite used and the finished granite supplied by the assessee has not been controverted by the learned Addl. CIT. At any rate, the fact remains that the addition goes to increase the profit which would correspondingly be higher from the business. The deduction u/s 10B will have to be allowed with reference to the higher profits. Either way it is not correct to claim that the deduction u/s 10B cannot be granted. In this regard apart from the case law relied on by the learned CIT(A) as above there is a decision of the Hon'ble High Court of Andhra Pradesh in ITTA No. 119 of 2013 dt. 27-06- 2013 in the case of CIT Vs. M/s Seven Hills Business Solutions Limited. The ratio of this decision is applicable to the case of the assessee. 17. The learned AR submitted that in the case of Swastik Textiles vs Income Tax Officer (1 SOT 327) (Jodh), it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO has relied on a judgement of the Gujarat High Court in the case of Fakir Mohammed Haji Hasan Vs CIT (247 ITR 290). He submitted that this judgement is not at all applicable to the facts of the case. The addition there was made u/s. 69 whereas the addition here is made u/s 68 of the Act as noticed in the preceding ground of appeal. That was a case of investment in gold seized but not recorded in the books of account whereas this is a case of expenditure on raw granite admittedly recorded in the books of accounts. In the case of CIT vs M/s. Sheth Developers (P) Limited in ASN1/9ITXA-3724.sxw, dated 27-07-2012, it was held that the above decision of the Gujarat High Court is not applicable where the undisclosed income has been assessed by the AO accepting the explanation that the cash found during search was acquired while carrying on business as the builder. This ratio is applicable to the facts of the instant case. 21. The AR submitted that this ground required that the CIT(A) should have split the unproved expenditure into two components. Profit should have been estimated on the sales relatable to unproved expenditure and granted exemption u/s. 10B. The balance should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e findings of the CIT(A) for the current year that is 2008-09 (copies of orders enclosed). Therefore the ground of appeal for setting aside the order of CIT(A) for redoing in a fresh manner is totally untenable as it contradicts the AO's own stand in the three preceding assessment years 2005-06 to 2007-08. In this connection, the ratio of the decision of the Supreme Court is once again squarely applicable. The Hon'ble Supreme Court held in the case Radha Soamy Satsang(Supra) that a stand taken in regard to particular transaction and was not disputed should not be altered in a later year. Needless to add, this decision of the Supreme Court on the principle of consistency has been followed by several High Courts in many cases. 25. He relied on the following judgements/orders: CIT vs Simit P Sheth (356 ITR 451) (Guj) CIT vs Vijay M Mistry Construction Ltd (355 ITR 498) (Guj) CIT vs Bholanath Poly Fab Pvt. Ltd (355 ITR 290) (Guj) Swastik Textiles vs. ITO (1 SOT 327) (Jodh) Kuldeep Bishnoi vs. ACIT (154 Taxmann 202) (Del) (Mag) Brigade Global Services P. Ltd. vs. ACIT (143 ITD 59) (Hyd) 26. We have heard both the parties and perused the material on record and also carefu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the books are maintained. The cash credit may be assessed as business profit or as income from other sources as the case may be. There is no rule that the amount is credited in the business account, which must be taken as receipt from business. Whether the amount of credit u/s. 68 is income from business or income from other sources depends on the evidence and explanation furnished by the assessee. 29. It was held in the case of Laxmichand Baijnath vs. CIT (35 ITR 416) (SC) that if credits are found in business account of the assessee and the explanation as to the nature and source of account is rejected by the Income-tax authorities, such authorities are entitled to treat the credit as income from business. The said decision cannot be interpreted to mean that in all cases such credits must be treated as income from business. Merely because the assessee is running a business in which are found certain unexplained cash credits, it does not necessarily follow that such credits represent suppressed business receipts and there would be no error of law in regarding the unexplained cash credits as income of the assessee from some independent and unknown sources unless there are stro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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