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2016 (4) TMI 124 - ITAT MUMBAI

2016 (4) TMI 124 - ITAT MUMBAI - TMI - Deduction u/s.80HHC on the undisclosed income - Held that:- There was no dispute about the fact that the assessee is entitled to deduction u/s.80HHC on the undisclosed income and the only question was as to whether the requirements of section 80HHC are fulfilled. From the detailed discussion given above, it is clear that in the present case all the conditions and requirements of section 80HHC are fully satisfied. We therefore, direct the AO to allow claim o .....

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SHRI RAM LAL NEGI, JM For The Revenue : Shri N.P.Singh For The Assessee : Shri Reepal Tralshawala ORDER PER 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&# .....

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ing 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 discussed in the assessment order and the decision of Hon'ble High Court of Punjab & Haryana, in the cases of National Legguard Works vs. CIT(A) & Another (288 ITR 18) and Sarla Handicrafts .....

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, had specifically stated in para 36 page no. 23 that, the A.O. is directed to compute & allow deduction admissible u/s 80 HHC to the assessee & hence, the Hon'ble C.IT. 2) In law & as per the facts & circumstances in the appellant's case, the subsequent order of the Hon'ble Mumbai ITA T dated is" may 2007, had once again clarified the said position for allowance of deduction u/s 80HHC to the appellant & hence, any further inference on this observation is cle .....

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u/s 80HHC to the appellant & hence, the order passed by the Hon'ble C.IT.(A) should not be tempered with. 3. Rival contentions have been heard and record perused. Facts in brief are that search and seizure operations were conducted on the appellant in Sept., 1997. The assessee filed the return of income for the Block Period by declaring Undisclosed Income of ₹ 95 lacs u/s 158BC and the assessment was completed vide order u/s 158BC(c) dated 11-11-1999 determining the undisclosed in .....

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ditional 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 headno .....

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n language of sec.158BB(1) the other provisions of this Act shall not apply for the purpose of computation of undisclosed income. From the above, it is clear that the ITAT, Calcutta decided this issue on the basis of preamended section 158BB. After the amendment w.e.f.1.7.1995, the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling which the block period computed in accordance with the provisions of the IT Act. Thus, the undisclosed in .....

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e A.O. determined the undisclosed income at ₹ 95 lacs i.e. same as returned income and as held by the ITAT in the last para of its order. The assessee moved a Miscellaneous Application (No.285/Mum/07) before the ITAT for seeking clarification, wherein the Tribunal, vide its order dated 15th May, 2007, held that the Undisclosed income was entitled to deduction under Chapter VI-A as per the amended provisions of section 158BB and accordingly directed the AO to consider the assssee s claim as .....

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ult that the Assessing Officer has refused to consider the assessee s claim. Therefore, for the sake of clarity and completeness para 47 of our order referred to supra is amended inasmuch as, at the end of the para, the following lines are added :- This is subject to the observations made by us 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 .....

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al 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 that not following .....

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was further clarified by the Hon'ble tribunal III response to a miscellaneous application moved by the appellant in MA No.285/Mum/07 vide orders dated 15.05.2007. The Honble Tribunal in paragraph 2 on page 3 of the order has observed that" the assessing officer, shall therefore, consider the assessee's claim for deduction u /s 80 HHC vis-a-vis a undisclosed income determined, as per the relevant provisions of law after allowing opportunity to the assessee." 8.2 It is clear fro .....

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the specific directions of the highest fact finding authority while giving effect to its order. This was also essential for the A.O to maintain judicial unity and discipline. Thus without going into the merits of the case laws etc quoted by either of the two sides it is held that the A.O had failed to follow the specific directions of the Hon'ble Tribunal. The A.O could validly have made use of the case laws etc., in arriving at a decision for further contesting the order of the Hon'bIe .....

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he 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 m .....

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nding recorded by the assessing officer has not been considered either by CIT(A) or by the ITAT. Counsel for the assessee stated that the assessee is a 100% exporter, that the undisclosed income was referable to the export activities and, therefore, the assessing officer was not justified in refusing to grant deduction under section 80HHC. As noted above, the fact that the undisclosed income can be considered for deduction under section 80HHC, it does not mean that the undisclosed income fulfill .....

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isclosed income fulfills the criteria laid down u/s.80HHC. The Hon ble High Court observed that this aspect of the matter has not been considered by the Tribunal on merits, the matter was restored back to the file of Tribunal for deciding the same. Now, we have to examine afresh as to whether the income surrendered fulfills the condition of Section 80HHC. An analysis of the provisions of section 80HHC shows that for the purpose of allowing deduction u/s.80HHC, the following conditions should be .....

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ection (2) of section 80HHe. (v) The claim under this section should be accompanied by a certificate from the Chartered Accountants in the prescribed Form. 7. Now, we will examine as per materials on record as to whether the assessee had satisfied above conditions with respect to the income so surrendered. From the record we found that the assessee-firm is resident in India and is engaged in the business of export out of India of cut and polished diamonds. The assessee is a 100% exporter. Deduct .....

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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 undisc .....

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accrual of profits only from exports. All the sale proceeds have been received in convertible foreign exchange within the prescribed period as per section 80HHC(2) and the claim for deduction is supported by the certificate of the Chartered Accountants in the prescribed Form. Deduction has also been calculated as per the formula prescribed u/s.80HHC. The Assessing Officer has accepted the total turnover and the export turnover as also the export profits. All these facts clearly establish that th .....

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e of Anbu Textiles vs. ACIT, 262 ITR 684. It was held by the Hon'ble Court that section 158BB was amended by the Finance Act, 2002 with retrospective effect from 1 st July, 1995 and under the amended provision, the undisclosed income of the block period has to be computed in accordance with the provisions of the IT.Act and, therefore, the provisions contained in ChapterVIA should be taken into consideration in determining the undisclosed income of the block period. Relevant observations of t .....

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ken into consideration in determining the undisclosed income of the 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 que .....

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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 provisions, which have been made retrospectively applicable, no fault can be found with the impugned order of the Tribunal holding that the assessee is entitled to claim deduction under section 80-1 or 80- lA of the Act. The question ref .....

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elied on by ld. DR in the case of National Legguard Works vs. CIT, 288 ITR 18 (P&H) and Sarla Handicrafts P. Ltd. vs. Addl. CIT, 296 ITR 94 (P&H). 13. We had carefully gone through the above orders and found that the facts and circumstances in the above cases were entirely different from the facts of the assessee's case. In the case of National Legguard Works (supra), the assessee was manufacturer and exporter of sports goods. During the course of survey excess stock of sports goods .....

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goods and there could be no presumption that the amounts surrendered represented income from export. In the case of Sarla Handicraft P. Ltd.(supra), it was held by the Hon'ble Punjab and Haryana High Court that deduction u/s.80HHC is available on fulfillment of certain conditions specified in that section. In that case, during the course of survey stock valued at ₹ 12,77,906 was found short and having regard to this discrepancy the assessee disclosed additional income of ₹ 13 la .....

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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 polis .....

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3 of the Tribunal's order which is as under: When the return of income was filed only excess cash of ₹ 75,000 was disclosed and remaining additional income of ₹ 24,25,000 was wiped out by deduction claimed u/s.80HHC. Following note was given in the return of income which has been reproduced at para-3 of the ITAT's order: "Profit of Rs.l,34,71,086/- shown in item No.5 is inclusive of Stock-in-trade ₹ 24,25,000/- in form of Cut and Polished and .Rough Diamonds earned .....

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e facts the Tribunal held that the additional income of ₹ 24.25 lacs was eligible for deduction u/s.80HHC. The Tribunal carefully considered the facts and recorded a finding based thereon. Precise observation of the Tribunal's order from pages 7 and 8 reads as under :- "8. . The only source of income of the assessee is the business carried on in the export of diamonds. There is no other source of income. The statements made by the partners of the assessee firm at the time of searc .....

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inancial statements. The tentative reconciliation has not been challenged by the departmental 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 amoun .....

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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 possible to raise an inference, which appears to us, to be reasonable, applying the principles laid down in the judgements cited above and hold that the disclosed income has to be assessed under the head 'busine .....

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