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TMI Blog2004 (9) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the addition of Rs. 51,13,835 as unexplained expenditure under s. 69C on account of payments of customs duty and clearing charges by the buyers of goods on high seas from the appellant. 2. Before we go to the facts and merits of the issues raised in this appeal, it may be mentioned that with regard to all the three issues reflected in the grounds of appeal, there has been a chequered history. The original assessment for the asst. yr. 1988-89 was made by the AO under s. 143(3) of the IT Act on 25th March, 1991. In this assessment, additions/disallowances agitated in the grounds of appeal were made by the AO. The assessee went in appeal and the CIT(A)-VII, Mumbai, vide his order dt. 26th Dec., 1991, set aside all the three issues and restored the same back to the AO for fresh consideration in the light of the directions given in the appellate order. Pursuant to the setting aside of the assessment order, fresh assessment order was passed by the AO on 30th March, 1994. In this assessment, the additions/disallowances were again repeated without any variation. Aggrieved, the assessee again filed an appeal and once again vide order dt. 20th Nov., 1997, the CIT(A)-XVI Mumbai, set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de order dt. 26th Dec., 1991. This issue was restored back to the AO for fresh consideration on the ground that for the asst. yr. 1987-88 also, there was a cash credit of Rs. 7 lakhs in the name of the same party and for that year as well, the issue was restored back to the AO by the CIT(A) vide order dt. 15th March, 1991. Fresh assessment was made by the AO on 26th Dec., 1991. In this assessment, at p. 2, the AO has made general observation that the assessee filed letters dt. 7th Oct., 1993, and 10th March, 1994, and no new evidence was submitted to substantiate the claims. The AO, therefore, proceeded to complete the assessment on the basis of material already available on record. With regard to the impugned addition of Rs. 12.50 lakhs, the AO has mentioned that the assessee was not able to substantiate the creditworthiness of the lender and, therefore, he repeated the addition. The learned CIT(A), vide his order dt. 20th Nov., 1997 has considered together the total addition of Rs. 20.50 lakhs made under s. 68 in respect of the following creditors: (i) M/s FEL Rs. 12.50 lakhs (ii) M/s Polyweave Rs. 7.50 lakhs (iii) Shri Navratanmal Goliya Rs. 0. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also by providing income-tax GIR number and by filing confirmation from the cash creditor. The learned counsel invited our attention to pp. 22 to 24 of paper book-I, which contain the confirmation from the cash creditor, letter dt. 17th Sept., 1991, addressed by the assessee-company to the Branch Manager, Central Bank of India, requesting him to obtain a certificate from the Punjab National Bank confirming clearance of cheques issued by the cash creditor to the assessee and letter dt. 10th Sept., 1991, addressed by the Central Bank of India to the Manager, Punjab National Bank, Fort, Mumbai, requesting him to certify the transactions. However, no reply from the Punjab National Bank is available on record. In any case, the learned counsel argued that the assessee completely discharged its onus and the addition is not justified. It is also submitted that in the subsequent asst. yr. 1989-90, the assessee had transactions of 'high seas' sales with M/s FEL amounting to Rs. 37.60 lakhs and these transactions were held to be genuine. It is further submitted that the position of the debits and credits in the account of M/s FEL in the books of the assessee during the previous year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moneys advanced by the assessee in the month of April, 1987, as mentioned above and, therefore, if at all any addition is required to be made, it would be only a sum of Rs. 2.50 lakhs. This is without prejudice to the submission that no addition is required to be made. The learned counsel submitted that in the asst. yr. 1987-88, the Tribunal has confirmed the addition on account of cash credit of Rs. 7 lakhs in the account of the same party. It is, however, submitted that the doctrine of res judicata is not applicable to income-tax proceedings and in view of the entire facts and circumstances, there is no justification for the addition made for the asst. yr. 1988-89. The learned Departmental Representative forcefully supported the orders of the Revenue authorities. He contended that the issue has been clinched by the Tribunal in the asst. yr. 1987-88 where in the same facts and circumstances, the cash credit of Rs. 7 lakhs in the name of the above cash creditor has been held by the Tribunal to be not proved and, therefore, addition under s. 68 has been sustained. 5. We have given a careful consideration to the rival submissions and have gone through the relevant facts, which hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cash creditor has been established and the income-tax GIR number has been made available. There is no other material or evidence to establish the creditworthiness of the cash creditor. The income-tax records did not throw any light on these transactions. The books of account and the bank statements were not produced. In these circumstances and consistent with the view adopted by the Tribunal for the asst. yr. 1987-88, we hold that with regard to this cash creditor, the provisions of s. 68 are applicable. The argument of the learned counsel for the assessee that in the subsequent assessment year, certain sales transactions have been considered as genuine by the AO has no relevance for deciding this issue for the asst. yr. 1988-89. In subsequent year, the cash creditor may be having financial capacity. However, we find considerable merit in the alternative submission of the learned counsel for the assessee that the addition must be restricted to Rs. 2.5 lakhs. To the extent of Rs. 10 lakhs, the assessee's own advances have been returned by the cash creditor and, therefore, the credit amounted to Rs. 2.5 lakhs only. Therefore, the addition is reduced to Rs. 2.5 lakhs. 6. The se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ran Mohanty (v) ITO vs. Bhatia Enterprises (2003) 81 TTJ (Chd) 503 (vi) Seth Textiles vs. ITO (2003) 126 Taxman 34 (Mumbai)(Mag) (vii) ITO vs. Paraminder Kaur Sandhu (2003) SOT 422 (Ctk). The learned Departmental Representative supported the orders of the Revenue authorities and contended that it is the onus of the assessee to establish the identity of the cash creditor, financial capacity of the cash creditor and the genuineness of the transactions. For this proposition, he relied on the following cases: (i) Pushp Trading Co. vs. CIT (1991) 92 CTR (Del) 258 : (1991) 190 ITR 618 (Del) (ii) Shankar Industries vs. CIT (1978) 114 ITR 689 (Cal) (iii) CIT vs. Precision Finance (P) Ltd. (1994) 121 CTR (Ca1) 20 : (1994) 208 ITR 465 (Ca1). 8. We have considered the rival submissions carefully and have gone through the facts. In our view, this cash credit has to be treated on a different footing from the cash credit in the name of M/s FEL. The assessee has furnished confirmation letter along with GIR number from the creditor, copy of which is placed at p. 49 of paper book-I. Further confirmation letters dt. 22nd March, 1991 and 27th March, 2000, were filed, which are at pp. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further." The ratio of Guwahati High Court decision in the case of Nemichand Kothari may also be reproduced below from the headnote: "In order to establish the receipt of a cash credit, as required under s. 68 of the IT Act, the assessee must satisfy three conditions, viz., (i) identity of the creditor, (ii) genuineness of the transaction and (iii) creditworthiness of the creditor. A person may have funds from any source and an assessee, on such information received, may take a loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarding payment of customs duty was also not adduced by the assessee. All these transporters bills and clearing agents bill are marked as on account M/s Varsha Plastics (P) Ltd.' The assessee could not produce any evidence to show who has paid the transporter's charge as well as the clearing agent's bill. As already mentioned above, some parties are found to be not traceable and the parties to whom letters were served did not confirm that they have purchased goods from the assessee. Moreover, from the copies of the so called documents filed by the assessee, it appears that most of the letters of the alleged customers addressed to Asstt. Commr. of Customs, have been typed on the same typewriter. Therefore, from the facts as narrated above, the only conclusion that can be drawn is that the alleged sales made to the abovementioned parties are not genuine and it is the assessee who has actually imported and cleared the goods and sold the same thereafter. The assessee has taken shelter behind the plea of high seas sales only to avoid disclosing its unaccounted expenses towards customs duty and transportation charges. Therefore, I treat that the assessee has paid customs duty as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should verify the confirmation from clearing agents, copies of which were filed before me and after conducting necessary inquiries and verifications, the AO is directed to re-decide the issue on merit and before drawing any adverse inference, reasonable opportunity of being heard should be given to the appellant." With a short discussion in the reassessment order, the addition was repeated by the AO, which is the subject-matter of the present appeal. 10. The learned counsel appearing for the assessee contended that there is no basis whatsoever for the addition made by the AO. It is submitted that the 'high seas' sales made by the assessee are supported by following documents: (a) High seas sale invoice. (b) Contract with the high seas buyer confirming the sale. (c) Undertaking by the high seas buyer on stamp paper for confirming the sale. (d) Undertaking by the high seas buyer for delivery of the consignment, giving details of sales-tax and central sales-tax registration numbers as well as IT GIR number. (e) Letter to Asstt. Commr. of Customs by high seas buyer for high seas sale in terms of the provisions of sub-cl. III of para 5 of Import Control Order, 1955, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof, or the explanation, if any, offered by him is not, in the opinion of the AO, 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: Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income." Since the learned Departmental Representative has made a reference to s. 69 of the IT Act, it would be appropriate to reproduce below this section as well: "Where in the financial year immediately preceding the assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." Sec. 69C comes into operation where in any financial year the assessee has incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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