TMI Blog2011 (9) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, the same need to be added statutorily. - it is a fit case not to make any addition by invoking the deeming fiction of Section 68 in respect of the sundry creditors, despite the fact that the assessee could not supply the addresses of these creditors. Denial of deduction under Section 80 HHC in respect of the addition made on account of the creditors. - Held that:- This issue is squarely covered by the judgment of the Hon’ble Calcutta High Court in the case of ‘CIT vs. Margaret’s Hope Tea Co. Ltd.’ (1990 -TMI - 21166 - CALCUTTA High Court), wherein, on similar facts it has been held that addition on account of cash credit under Section 68 will go to add to the business income. - The creditors in the assessee’s case represented purchases. This was evident from the list of creditors, as also the observations of the Tribunal and the findings of the Sales Tax Department. That being so, there was no reason for the benefit of section 80HHC of the Act being not allowed to the assessee. - Decided in favor of assessee. - ITA NO. 1995(Del)2011 ITA NO. 1493(Del)2011 - - - Dated:- 30-9-2011 - SHRI A.D. JAIN AND SHRI SHAMIM YAHYA, JJ. Department by: Shri Rohit Garg, Sr. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or knot allowing of benefit u/s 80HHC. 3. As per the statement of facts the assessee filed return of income for the assessment year 2001-02 on 30.10.2001 declaring total income of Rs. 5,31,300/- against gross income of Rs. 25,58,625/-. The assessee claimed deduction u/s 80HHC of Rs. 20,27,325/-. The assessment was completed u/s 143(3) of the I.T. Act at a total income of Rs. 49,16,264/- and thereafter revised u/s 154 of the Act, on 15.09.2004, at a total income of Rs. 48,75,670/-. The AO made certain additions including that of Rs. 37,99,907/- as unexplained sundry creditors. 4. Aggrieved from the assessment order, the assessee filed appeal before the CIT(A)I, DDN, who vide order dated 14.02.2005, in appeal No. 15/HRD/2004-05/253, has partly allowed the appeal of the assessee. Aggrieved, the Revenue as well as the assessee filed appeals before the ITAT who, vide order dated 20.3.08 in ITA No. 1512(Del)05, directed the AO to decide the appeal afresh. Thereafter, in the light of the directions of the ITAT, an assessment order was passed on 12.03.2004. In this order, inter alia, an addition of Rs. 37,99,907/- on account of unexplained sundry creditors was again made to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, such creditors could not be treated as non-genuine. 10. The ld. DR has contended that the directions of the Tribunal were clear-cut; that the assessee had to establish the genuineness of the transactions by giving the addresses of the creditors; that also, the creditors were to be shown outstanding at the end of the year; that the creditors which had not been proved to be genuine, the transactions qua them needed to be taxed as income from other sources; and that the ld. CIT(A) has not considered these facts. 11. The learned counsel for the assessee, on the other hand, has submitted that as per the directions of the Tribunal (APB 71), after having established the genuineness of the 7 creditors it would not have been necessary for the assessee to establish the credit-worthiness of such creditors; that before the AO, it was submitted vide reply dated 9.9.08, that a fire broke out in the factory premises of the assessee on 14.2.05; that the entire record was destroyed in that fire; that in the tax audit report, it had been certified by the Chartered Accountant that they had examined all the original books of account, purchase vouchers and sales tax forms of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration. The AO was supposed and required to apply his mind to the issue and thereby considering the applicability of the provisions of section 68 of the Act. In the peculiar facts and circumstances, when the trading results have been accepted, thereby also accepting the purchases made, in our opinion, the applicability of the provisions of section 68 is entirely suspect. The same ought not to have been applied in a mechanical manner. 15. The assessee is engaged in the business of exports and during the year it has made a sale of Rs.2,51,55,930/- and purchases of Rs.1,79,49,253/-. The total creditors outstanding as on the last date of the Balance Sheet are Rs.37,99,907/-. These are all trade creditors and there is no dispute on this aspect. It is an admitted position that the assessee could not submit the addresses of these creditors except the seven which have been discussed in the assessment order, and for which the CIT(A) has given benefit. 16. In these circumstances, whether the creditors of whom the assessee has failed to give the address should be added by invoking the provisions of Section 68 of the Act? 17. It remains an admitted position that the tradin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee, it is not mandatory that in the absence of verification of the creditors, the same need to be added statutorily. 20. In the case of the assessee these creditors represent the outstanding amount on account of the purchases. There can be three alternative allegations against the assessee. One can be that these credits represent the credit for earlier years. If that be the case, no addition can be made in this year under Section 68 of the Act. The second allegation can be that these credits represent the purchases for which payments have been made by the assessee during the year itself. If this is so, the onus will be on the department to establish that assessee has made payment to these creditors. This is not even the allegation of the assessing officer, much less his case against the assessee. The third allegation can be that these credits do not represent the purchases which have been made by the assessee. The implication of this will be that the purchases debited in the trading account are not genuine to that extent and accordingly, that the trading account is not correct. However, on going through the assessment order, the CIT(A) s order and the order pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Further, as per sub-section (3) of Section 80 HHC of the Act, where the export out of India is of goods manufactured by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. Further-more, the profits of the business have been defined in Explanation (baa) below sub-section 80 HHC (4C), to mean the profits of the business as computed under the head profit and gains of business or profession . 23. Thus, for the purpose of computing deduction under Section 80 HHC, first the profits of the business have to be computed as a whole, as per the provisions of the Act and the export profit has to be then worked out proportionately, on the basis of the ratio of the export turnover to the total turnover. Therefore, as per the provisions of Section 80 HHC, profit so computed is considered to be the profit derived from exports. The whole computation is based on the profits and gains of business. In the case of the assessee, the addition made on account of trade creditors will go to increase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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