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TMI Blog2015 (8) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,62,500/-. Thus we confirm addition of ₹ 8,62,500/-. The burden lies on the assessee, which has not been discharged rightly that purchases were made are genuine and same has been exported. - Decided partly in favour of assessee. Disallowance of deduction U/s 80HHC - Held that:- AR has not been able established connection between the purchases made from both the parties and export made by it. When the items purchased and items exported could not be correlated, in absence of correlation no deduction U/s 80HHC can be allowed. Decided against assessee. - ITA No. 325/JP/2013, ITA No. 336/JP/2013 - - - Dated:- 24-7-2015 - SHRI R.P. TOLANI AND SHRI T.R. MEENA, JJ. For The Revenue : Shri Raj Mehra (JCIT) For The Assessee : Shri Rajiv Sogani and Shri Rohan Sogani (C.A.) ORDER PER: T.R. MEENA, A.M. These are cross appeals, one by the revenue and another by the assessee arise against the order dated 17/01/2013 passed by the learned C.I.T.(A)-I, Jaipur for the A.Y. 2002-03. The grounds of revenue s as well as assessee s are as under:- Ground of ITA No. 325/JP/2013 Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereby treating the export sale of ₹ 57,50,000/- being income from undisclosed sources. The assessee preferred an appeal before the ld CIT(A), who vide order in appeal No. 145/05-06 dated 25/1/2006 granted certain relief s to the assessee as under:- (1) Directed to calculated profit by applying G.P. rate of 15% on turnover of ₹ 16512669/- and to allow deduction U/s 80HHC of the I.T. Act by treating ₹ 255950/- as income from other sources on account of deflation of cost of goods purchased thereby deleting the addition to the extent of ₹ 5494050/- (5750000-255950) holding that the provisions of section 69C are not attracted. (2) Deleted the addition of ₹ 57,50,000/- made by the A.O. U/s 69C of the I.T. Act, (as income from other sources made on account of purchases of goods as being unaccounted expenditure and considering it as deemed income U/s 69C) and further deleting the addition of similar amount alternatively made U/s 68 of the I.T. Act (thereby treating the amount of export sale as income from undisclosed sources.). The department preferred appeal before the Hon ble ITAT, Jaipur Bench, Jaipur in ITA No. 306/JP/2006 dated 31/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating it as income from other sources made on account of purchases of goods as being unaccounted expenditure and considering it as deemed income of the assessee U/s 69C and further deleting the addition of similar amount alternatively made U/s 68 thereby treating the amount of export sales as income from undisclosed sources. The Hon ble ITAT had set aside second ground of appeal in ITA No. 916/JP/2009 dated 16/07/2010 and had again set aside the order to the file of Assessing Officer with an observation as under:- We feel that the issues are required to be reconsidered by the A.O. in view of the direction given by the Tribunal vide order dated 31/01/2008. In the order dated 31/01/2008 the Hon ble ITAT has held that A.O. was not justified in making addition merely on the basis of statement of the parties taken by the investigation wing. We thus in the interest of the justice remand the matter to the file of the A.O. to afford adequate opportunity of being heard to the assessee to establish that the same goods worth ₹ 57,50,000/- stated to have been purchases from M/s Anmol Ratan and M/s Shruti Gems were exported to claim the benefit thereon U/s 80HHC of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to have been traded by above concerns was not proved. G. It was in the light of the above facts the assessee was show cause as to why the purchases. Shown of ₹ 57,50,000/- from these parties may not be treated as bogus and provisions of section 69C be not attracted the entries of this expenditure on purchases of goods in its books of account remained unexplained. H. For claiming the purchases from M/s Anmol Ratan and M/s Shruti Gems as genuine, the assessee file a reply before the then Assessing Officer on 21/3/2005 wherein it was stated that:- a. Payments were made through cheques. b. On the purchases bills, quantity of goods. Value etc. were mentioned. c. Provisions of section 69C are not applicable. I. The then A.O. considered the reply filed by the assessee and observed as under:- a) That the purchases vouchers produced before him do not show the name of the broker. It is general practice in the traded of gems and jewellery that if the purchases are made through the brokers, then the name of broker is written on the voucher itself. But in the case of assessee, it was not so. No name of broker was written on voucher. Even no expenses for brokerage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the relevant purchases are not genuine. The Hon ble ITAT also held that the payment by account payee cheque is not sufficient to establish the genuineness of the purchaser. f) The onus was upon the assessee to prove the genuineness of the purchase. This view was supported by the decisions of the Hon ble Rajasthan High Court in the case of M/s Woolen Carpet Factor Vs. ITAT others (2002) 178 CTR 420 and M.P. High Court in the case of VISP (P) Ltd. Vs. CIT and Anr 186 CTR 718. g) Under Section 101, 102 and 106 of the Evidence Act, onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the Assessing Officer, which was not discharged by the assessee as if failed to produce the owners of M/s Anmol Ratna and M/s Shruti Gems. h) In the case of Chuhar Mal Vs. CIT 172 ITR 250 (SC) the Hon ble Supreme Court held that the Evidence Act did not apply to the proceedings under I.T. Act, 1961 and that the rigiours of the rules of evidence contained in the Evidence Act was not applicable but, this did not mean that when taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat purchases claimed to have been made from the above named paper concerns were bogus and the books of accounts of the assessee were in-genuine and therefore applied i. Provisions of section 69C ii. Proviso to section 69C iii. Provisions of section 68 In view of the decision of the Hon ble ITAT, Jaipur Bench, Jaipur in order No. ITA No. 916/JP/2009 dated 16/07/2010, the assessee was provided ample opportunities as discussed in the beginning of this assessment order and assessee attended the assessment proceedings once and produced same purchase bills which were produced during the original assessment proceedings and for the reasons as mentioned above, purchases claimed to have been made from M/s Anmol Ratan and M/s Shruti Gems were not considered genuine. The assessee was required to produce the partner/proprietor of both above mentioned concerns for verification of the purchases claimed to have been made from them but assessee failed to produce Shri Umesh Saboo and Shri O.P. Ghiya the partners/proprietors of above mentioned concerns hence purchases claimed to have been made from both these concerns are not found subject to verification. K. On the basis of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uine. Thus, if the export is considered as genuine by appellate authorities at any stage, alternatiely it is to be held that since assessee has not made purchases from the parties in whose name purchases have been debited, to make sales, it was necessary for it to purchases equal quantity of goods from some other persons without which it was not possible for the assessee to export. Naturally, the source of such parties from other persons remains unexplained. If it is assumed that that cost of goods was same as debited in assessee s book then to make purchase of goods, for exporting them, assessee had to incur an expenditure of ₹ 57,50,000/-. The source of such expenditure on purchases corresponding to export have not been recorded in the assessee s book. Therefore, an amount of ₹ 57,50,000/- is treated as unaccounted expenditure and deemed income of assessee U/s 69C of the I.T. Act and the same is added to the income of the assessee under the head income from other sources . The ld. Assessing Officer has reproduced Section 69C of the Income Tax Act, 1961 on page No. 10 of the assessment order. N. The assessee has disclosed its profit after debiting the purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 68 are squarely applicable on the above sum credited in the books of accounts of the assessee as sale proceeds. Accordingly, the Assessing Officer made addition under the head disallowance of bogus purchases in view of proviso to Section 69C as discussed at ₹ 57,50,000/- and income from other sources on account of addition U/s 69C being unexplained expenditure as discussed above at ₹ 57,50,000/-. 3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned CIT(A), who had allowed the appeal partly by observing as under:- The A.O. has himself mentioned in assessment order that certain export invoices were available and were submitted by the assessee. Thus, even though the parties from whom the alleged purchases were made may have been bogus the assessee acquired these precious/semi precious stones and exported them to the extent verifiable from these export invoices. On verification done by the A.O. while submission of the remand report, part of these purchases were correlated with the export invoices in the case of M/s Anmol Ratan and in the case of M/s Shruti Gems the entire purchases could be correl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Anmol Ratan) and the appellant can avail of the benefit of section 80HHC on these exports. For the balance of the alleged purchases of ₹ 23,76,774/- the appellant was not able to correlate the bogus purchases with the exports. Payments vide cheques were shown in the books of accounts for bogus purchases. Since the funds of the firm were diverted for purposes not related to the business of the appellant the entire amount of ₹ 23,76,774/- is required to be added to the income of the appellant and there is no question of availing exemption U/s 80HHC on this amount. I also do not agree with the submission of the AR that the books of accounts of the assessee should be rejected and a GP rate should be estimated as per the finding of the jurisdictional High Court in the case of Amarpali Gems and the other cases passed by the Hon ble ITAT, Jaipur Bench, because the facts of the case of the appellant are completely different from the facts of the cases relied on by the AR. In the case of the appellant in spite of repeated opportunity the appellant was not able to correlate the payments made for alleged purchases with any exports unlike the other cases. Once the unverified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her argued that the ld CIT(A) failed to appreciate the correlation for the rest of purchases of Tanzanite and Emerald in such quantities involves large amount of tiny pieces and can be sold in different quantities without necessarily being always directly correlated. Thus, the co-relationship was established with very small variation in quantity. The ld CIT(A) had not accepted this co-relationship. He has further drawn our attention on submission at page Nos. 9, 10 and 11 and tried to convince the Bench that purchases made from both the parties are verifiable from the export invoices. He further argued that purchases amounting to ₹ 6,84,291/- cannot be directly correlated on account of various reasons. In view of the above, the action of the ld CIT(A) in confirming the disallowance to the extent of ₹ 23,76,774/- is bad in law and deserves to be quashed. 6. We have heard the rival contentions of both the parties and perused the material available on record. The matter has been set aside by the ITAT twice and the assessee was not able to correlate the purchases made from M/s Anmol Ratan and M/s Shruti Gems to the tune of ₹ 57,50,000/- with export bills. The ld CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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