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TMI Blog2007 (7) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... ere exported by Thai Airways International Public Co. Ltd. and payments were made to custom house agent Shri P.K. Jain. The cargo was handled through Rajasthan Small Industries Corporation Ltd. and foreign currency was received through bank. The assessee had also credited the export realization received through banking channel in its books of account. Thus, we are of the view that the balance of bona fide of purchases made from the abovenamed four parties is in favour of the assessee especially in absence of any positive evidence which the AO ought to have brought on record that goods were purchased from some other named parties if not from the abovenamed four parties and that amount paid to them through account payee cheques by the assessee was ultimately returned by them to the assessee. In absence of such positive evidence, the AO in our view was not justified in treating the purchases claimed to have been made from the abovenamed four parties as non-genuine and bogus. The learned CIT(A) has also erred in sustaining the addition made in this regard u/s 69C of the Act and again under proviso to s. 69C of the Act without appreciating the aforesaid facts and circumstances proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The learned CIT(A) has upheld the assessment sustaining addition of ₹ 15,19,724 under s. 69C and addition of the same amount under proviso to s. 69C of the Act. These additions have been questioned in the present appeal. 4. The learned CIT(A) has however, deleted addition made by the AO under s. 68 on account of non-genuineness of exports, which has been questioned by the Department in ITA No. 365/Jp/2005. 5. In support of ground No. 1, the learned Authorised Representative while reiterating contents of grounds as well as submissions made before the lower authorities, contended that assessee firm is 100 per cent export unit, exports precious and semi-precious stones, etc. Return of income was submitted along with the audited statements of accounts under s. 44AB of the Act and Form No. 10CCAC at taxable income of ₹ 3,43,774. With the return of income, the assessee had also submitted audited statements of accounts under s. 44AB of the Act and Form No. 10CCAC under r. 18BBA(3) of IT Rules for the export of goods required for claim of deduction under s. 80HHC of the Act. During the course of assessment proceedings, the AO by ignoring the actual facts of the case, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoms clearance, receipt of sale consideration in convertible foreign exchange through banking channel for which the assessee was allowed the deduction under s. 80HHC of the Act, misinterpreting the facts of the case allowed the total purchases made and profits distributed amongst the partners, submitted the learned Authorised Representative. He submitted further that it is important to note that against the exports made by the assessee firm, Government of India through the Jt. Director General of Foreign Trade had also issued RHP licence for import of raw material. The licence to import raw material against the export made is the conclusive evidence to the fact that the assessee firm had actually exported the goods and, therefore, the AO was actually incorrect in doubting the actual export made. 7. The main reasons for making additions under s. 69C of IT Act and under proviso to s. 69C for the total purchases of ₹ 15,19,726 are appearing at page No. 3 of the order under s. 143(3) of Act which are given and replied hereunder : (i) Purchases are on credit and payments made after remittance are received : This is a general practice in the market for credit purchases upto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the learned AO. The learned AO, in order to give colours of bogus purchases and export, has wrongly alleged that it was abnormal GP and NP. On the other hand, in the case of Shri Prakash Chand Vijay (ITA No. 26/Jp/2005 dt. 28th July, 2006) the GP and NP were nearing to that of the assessee. (vii) Export receipts are not genuine and assessee has manipulated books and incurred expenses out of books : The total export receipts are convertible foreign exchange through banking channel. After examining the books of account, the learned AO had allowed deduction of ₹ 13,75,098 under s. 80HHC of IT Act and did not apply the provisions of s. 145(3) which proves that the learned AO, just in order to give it colours of bogus sales, had made such false allegations. (viii) Summons under s. 131 issued to sellers'M/s Ambika Impex, M/s Adinath Trades, M/s M.D. Exports and M/s Om Shree Jewellers : The assessee firm had made total purchases during the year as under from the above parties : S. No. Sellers of goods Purchases 1. M/s Ambika Impex 5,20,880 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/Jp/2004 and 33/Jp/2004), therefore no need to discuss it further. (4) M/s Om Shree Jewellers : In response to summons under s. 131, the manager Shri Ashok Kumar Agrawal attended and admitted having sold the goods. The total purchases from M/s Om Shree Jewellers was of ₹ 6,367 which was white metal pendants (containing less than 50 per cent silver) but the learned AO doubted the purchases because from total weight of 1,571.75 grams of pendent, the total sale price was ₹ 6,367 which was half of the current rate of silver. The learned AO had not appreciated the fact that purity of white metal pendent was less than 50 per cent of silver contents. As discussed above [para 2 (c)], on accepting the sale by the sellers, there is heavy burden on Department to apply provisions of s. 69C of Act. (5) Payments for purchases made after export realization : The learned AO herself has admitted in para (ix) above that the export realization was in a short period. Since the purchases were made on credit basis (with certain amount given as advance), the payments were made immediately on receipt of export realization w.e.f. 23rd Jan., 2001. There is nothing abnormal in such payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.D. Exports and M/s Ambika Impex only. In this respect we submit as under : (i) Sellers being existing assessees and registered with Sales-tax Department : All the sellers are existing income-tax assessees and are registered with the Sales-tax Department. They are assessed to tax and confirmed having sold goods to the assessee firm. Following is the PAN of the suppliers : S. No. Name of seller of goods PAN 1. M/s M.D. Exports AAEFM9181C 2. M/s Ambika Impex* AHHPS3389N 3. M/s Adinath Traders* AFYPK7535H 4. M/s Om Shree Jewellers* ACNPA1343H (*Proprietorship business) (ii) Sellers are importers of semi-precious stones : The sellers are importers of the semi-precious stones from other countries on the strength of RPE license issued by Import and Export Department of Government of India. The payments for the import was made by them through T.T. in foreign currency, therefore it cannot be said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purchases made by the assessee firm as bogus : (i) CIT vs. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC); (ii) Dy. CIT vs. Adinath Industries (2001) 170 CTR (Guj) 262 : (2001) 252 ITR 476 (Guj); (iii) CIT vs. M.K. Brothers (1986) 52 CTR (Guj) 228 : (1987) 163 ITR 249 (Guj); (iv) Shiv Trading Co. vs. ITO (2003) 30 Tax World 117 (Jp); (v) Radha Mohan Agrawal vs. ITO (2003) 30 Tax World 190 (Jp); (vi) Asstt. CIT vs. Shri Krishan Malpani (supra); (vii) Om Metals Minerals Ltd. vs. Jt. CIT (2004) 32 Tax World 55 (Jp); (viii) Sagar Mal Daga Co. vs. ITO (2004) 32 Tax World 40 (Jp); (ix) Paras Mal Jain vs. Dy. CIT (2006) 36 Tax World 67 (Jp); (x) Prakash Chand Vijay vs. Dy. CIT (ITA No. 26/Jp/2005); (xi) Vaibhav Gems Ltd. vs. Asstt. CIT (ITA No. 654/Jp/2004). 8. The learned Authorised Representative submitted that a sum of ₹ 15,19,724 paid by the assessee firm was treated by the learned AO as unexplained and taxed as deemed income under proviso to s. 69C of Act. The learned CIT(A) also repeated the same addition without application of the mind; though nowhere even the learned AO could prove that the purchases were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed to have purchased stones/material worth ₹ 5,20,880 from M/s Ambika Impex, ₹ 6,41,326 from M/s Adinath Traders, ₹ 3,51,053 from M/s M.D. Exports and ₹ 6,367 from M/s Om Shree Jewellers. On the basis of information received and enquiry, conducted by her, the AO has tried to establish that the abovenamed four parties out of whom only M/s Adinath Traders and M/s Om Shree Jewellers appeared before the AO had only issued accommodation bills and goods were not purchased from them. Since goods were alleged to have been not purchased from the abovenamed parties, the AO has also denied the genuineness of export of the goods and has made addition under s. 68 of the Act on the amount credited in the books of account of the assessee in respect of export consignment. The AO has further made addition of ₹ 15,19,724 under the proviso to s. 69C of the Act besides addition of the same amount of ₹ 15,19,724 under s. 69C of the Act treating it as deemed income on account of alleged bogus unexplained expenditure on purchases. In our view, while rejecting books of account and making above additions on account of bogus purchases, the AO has failed to appreciate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m for utilizing their purchase bills having CST/RST numbers, PANs, address, etc. The other possibility is that those four parties to avoid payment of due tax have now denied the sale and that they had only issued bills without physical delivery of goods by charging commission only or they are not coming forward before the AO to disclose the truth. Undisputedly, it is not always within the control of a purchaser to produce the suppliers before the AO to establish the genuineness of claim of purchase. What is expected from a prudent purchaser to establish genuineness of claim of purchases is furnishing of purchase bill containing all the necessary details of the transaction, payment through banking channel, books of account, etc. In the present case before us, the assessee had furnished purchase bills issued by abovenamed four parties, their CST/RST numbers, PANs, proof regarding payment made by account payee cheques, etc. which was expected from a prudent purchaser. We are thus of the view that the assessee had discharged its primary onus. Besides two parties of the purchase i.e. M/s Adinath Traders and M/s Om Shree Jewellers had appeared before the AO and confirmed the sales made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative placed reliance on the assessment order. The learned Authorised Representative on the other hand submitted that the AO had made addition under s. 68 of IT Act apparently on account of receipt of money in convertible foreign exchange through banking channel by treating it as unexplained income. The learned AO, without application of her mind had treated the export consideration received through banking channel as bogus whereas the source of foreign exchange is the export proceeds through banking channel for which the learned AO allowed deduction under s. 80HHC of IT Act amounting to ₹ 13,75,098 [refer p. 29 of order under s. 143(3)]. Similarly, on the basis of doubts, the purchases were also disallowed and added to the income of the assessee under s. 69C of IT Act by treating them as unexplained expenditure. The assessee had fulfilled all the four conditions of s. 80HHC of IT Act for the export sales made. These conditions are : (A) Assessee is either an Indian company or a person (other than a company) who is resident in India; (B) The export out of India during the previous year relevant to an assessment year are of goods or merchandise other than (i) mineral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the deduction under s. 80HHC of the IT Act itself is sufficient proof for the export made for which the export receipt was entered in the books of accounts and therefore provisions of s. 68 of the IT Act cannot be applied by treating it as unexplained credit in the books of accounts. (iii) The learned AO had allowed the indirect cost incurred by the assessee in the export of the goods as claimed by the assessee in the P L a/c and thereafter shown in the return of income but did not allow the direct cost of goods exported without which the goods could not have been exported for which deduction of ₹ 13,75,098 was allowed under s. 80HHC of IT Act. (iv) The goods exported by the assessee were verified and certified by the Central customs authorities. The allegation of the learned AO that export was bogus is just a doubt of the learned AO and on the basis of doubt the addition cannot be sustained under the eye of law or the assessee could be penalized. 17. On the facts and considering the legal position, treating income of ₹ 34,35,390 on account of export receipts (certified by the banks also) is not only illegal and nullity but also arbitrary and whimsical actio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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