TMI Blog2016 (4) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... R.C.SHARMA (A.M): This is an appeal filed by the revenue against the order of CIT(A), Mumbai, dated 23-5-2008, for the block assessment period 01-04-1996 to 24-09-1997. The assessee has also filed cross objection. 2. The revenue in its appeal has raised the following grounds :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that Hon'ble ITAT had given a categorical direction to allow deduction u/s. 80HHC and nothing was left to the interpretation by the lower authorities. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the Hon'ble ITAT directed the Assessing Officer only to consider the assessee's claim as per relevant provisions of law after allowing an opportunity to the assessee which clearly indicates that the issue was remitted back to the Assessing Officer to be decided afresh based on facts of the case after giving an opportunity to the assessee. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the merits of the case in the light of the factual and judicial position as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s approx., however it was concluded that since the assessee had filed the return of income declaring ₹ 95 lacs as undisclosed income, the same must be the assessed as income. The ITAT has also directed the A.O. to allow the deduction u/s.80HHC with respect to additional income so offered. Precise observation of the Tribunal in IT(SS)A No.110/Mum/2000, dated 21-1-2006, are as under :- 36. We have considered the rival submissions and have gone through the relevant provisions of law in this regard. It may be mentioned that the ld. CIT(A) has rejected the claim of the assessee in view of the ITAT, Calcutta Bench decision in the case of Bhagchand Jain Vs. ACIT-65 ITD 11. The relevant part of the ratio of this decision may be reproduced below from the headnote : When the assessee has neither recorded in the books of account nor disclosed to the Department by filing the return or otherwise, the Legislature seems to be not indulgent to allow deduction under Chapter VI-A or rebate under section 88 against the undisclosed income of the block period. In view of the specific exclusion of the other Chapters for the purpose of computing the undisclosed income, deductions contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at the end of para 36 of the order that the assessee is entitled to deduction under section 80HHC as per the relevant provisions. The Assessing Officer shall, therefore, consider the assessee s claim for deduction under section 80HHC, vis- -vis the undisclosed income determined, as per the relevant provisions of law after allowing opportunity to the assessee 3. In the result the M.A. stands allowed. However, while giving effect to the order of ITAT, the AO did not allow deduction u/s.80HHC with respect to this income. 5. Against the aforesaid order of AO, the assessee approached to CIT(A) and the CIT(A) directed the AO to allow deduction u/s.80HHC relying the direction given by the Tribunal in IT(SS)A No.110/Mum/2000, dated 21.1.2006 and M.A.No.285/Mum/2007, dated 15-5-2007 after having following observations :- 8.I have considered the facts of the issue, the observations of the AO as well as the submissions and other documents filed by the AR in support of his contentions. I find merit in the submissions made by the AR that the decision of the jurisdictional fact finding authority/court is binding on all lower authorities. I also find merit in the submissions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Aggrieved by this order the Department filed appeal to the ITAT which has been decided vide the impugned order dated 24th July, 2009 in IT(SS)A No.84/Mum/2008. At para-6 of this order the Tribunal held that having regard to the specific directions of the ITAT A Bench Mumbai, the order passed by the CIT(A) does not suffer from any infirmity and accordingly the said order confirms and appeal filed by the revenue dismissed. Against the above order of Tribunal dated 24-7-2009, the revenue moved to the High Court and the Hon ble Bombay High Court vide its order dated 11-8-2011 restored the matter back to the file of Tribunal with the following directions :- In the present case, the question that the assessee is entitled to the deduction under section 80HHC on the undisclosed income is not in dispute. But the question is whether the undisclosed income fulfills the criteria laid down under section 80HHC is the question. According to the assessing officer, undisclosed income offered by the assessee does not fulfill the criteria laid down under section 80HHC. Validity of this finding recorded by the assessing officer has not been considered either by CIT(A) or by the ITAT. Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a 100% exporter. Deduction has been claimed u/s.80HHC to the extent of profits derived from the export of cut and polished diamonds, as per the audited Trading and Profit and Loss Account. The assessee-firm commenced its business with effect from 1st April, 1996. It is matter of record that the assessee is not engaged in any business activity whatsoever, other than export of cut and polished diamonds. Even during the course of intensive search, no other source of income was found or detected by the search party and no unaccounted purchases or sales were found. Further, no material or evidence was found to show that the assessee-firm was also engaged in any local sales. The additional income declared during the course of search and also reflected in the return of income was entirely on account of excess stock found during the course of search which was calculated by adopting average percentage of yield of cut and polished diamonds from out of rough diamonds. These facts entirely establish that whatever undisclosed income was declared, the same generated only from the existing business of manufacturing of cut and polished diamonds to be exported. From the record we also foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e block period. It is true that the Appellate Tribunal decided the matter on the basis of law then existing. The amendment came into force only by the Finance Act, 2002, with retrospective effect from July 1, 1995. Since the amendment has been given retrospective effect, we are of the view, the provision, as amended, would be the proper provision for determining the undisclosed income of the block period .... 9. Similar question arose before the Hon'ble Gujarat High Court in the case of CIT vs. R. Paper and Board Ltd., 313 ITR 359. In this case, the following question was referred to the Hon'ble High Court for adjudication: Whether, on the facts and in the circumstances of the case and proper interpretation of the provisions of section 158BB and Part Il, Part III of the Form o. 28 for the block assessment, the Income-tax Appellate Tribunal was justified in law in holding that the assessee is eligible to deduction under section 80- I or 80- lA with reference to 'total undisclosed income' of the block period ? 10. The Hon'ble High Court recorded the following finding in the last para of the judgement: Hence, in the light of the amended provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e presumption would be that such goods were sold in the domestic market. However, the facts in the case of the assessee firm are totally different and considering the totality of the facts and circumstances of the case, the assessee has been able to bring sufficient material on record, as discussed above, to show that there is no other sources of income and the excess stock was on account of percentage of yield applied and thus this additional income has direct nexus with the business of manufacturing of cut and polished diamonds which are 100% exported. 14. Furthermore, the case of the assessee-firm is squarely covered by the order of the Mumbai ITA T dated 23rd October, 2003 in the case of M/s. Mine Stones vs. ACIT in ITA 0.150/Murnl1999 for the A.Y. 1995-96. In that case also the firm was engaged in export of cut and polished diamonds. Search and seizure was carried out at Surat accompanied by survey at Bombay. During the course of the aforesaid operations excess cash and excess stock of diamonds were found and the partner disclosed additional income of ₹ 20 lacs which was comprised of the following: Unexplained cash 75,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental authorities. Nor have they pointed out to any purchases being made outside the books of accounts. There was no evidence collected in the course of the search to this effect. The assessee has also not claimed any credit for such purchases by debiting the same in the financial statements and by claiming a set off against the closing stock value. The resultant, position is that the value of the stock amounting to ₹ 24.25 lakhs has been included in the value of the closing stock in the trading and profit and loss account of the assessee. The assessee has stated before the CITCAppeals) that it was able to get more yield from the rough diamonds and such extra yield was kept outside the books of account as diamond stock and the same was disclosed during the search. But this explanation could not be supported by concrete evidence. Be that as it may, when the assessee is a partnership firm whose only source of income is the diamond business and whose partners have at the earliest point of time stated that the income represented the undisclosed stock of rough and polished diamonds and the same have been disclosed as part of the closing stock in the financial statements, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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