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Asstt. Commissioner of Income tax Versus M/s M.M. Exports

2016 (5) TMI 19 - ITAT KOLKATA

Addition on on account of inflated purchased - Held that:- AO in the instant case has disallowed the substantive purchase without making the substantive enquiry about the prevailing market price of the product in question. The AO also not considered the payment to the party which was made through the banking channel. The goods were exported after the custom clearance and the payment was realized in terms of convertible of foreign exchange. We also find from the report of the custom department th .....

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he ld. CIT(A) and dismissed this ground of the Revenue.

Deduction claimed by the assessee under section 80HHC - CIT(A) allowed the same on the ground that all the aforesaid conditions have been fulfilled by the assessee - Held that:- Now to avail the benefit under section 80HHC for the profit arising from the sale of the DEBT license the above said twin conditions needs to be satisfied. We accordingly find from the submission of the assessee that both the conditions have been fulfille .....

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Revenue. - ITA No. 959/Kol/2009 - Dated:- 20-1-2016 - N. V. Vasudevan, JM And Waseem Ahmed, AM For the Petitioner : Shri Uday Kumar Sarkar, JCIT SR.DR For the Respondent : Shri S M Surana, Adv ORDER Per Waseem Ahmed, Accountant Member This appeal by assessee is against the order of Commissioner of Income Tax (Appeals)-XII, Kolkata in appeal No.323/XII/Cir-42/07-08 dated 26.03.2009. Assessment was framed by ACIT, Circle-42, Kolkata u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter r .....

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eads and chatons. 2. Under the facts and circumstances, the Ld. CIT(A) has erred in deletion of the addition of ₹ 20,000/- on account of bogus purchase of M/s Monoharlal Mahabir Prasad on the ground that the AO has not conducted any enquiries either during the assessment proceedings or at the remand report stage. 3. Under the facts and circumstances, Ld. CIT(A) was not correct in deleting the addition of ₹ 3,51,117/- on account of inflated purchase from M/s Atul Enterprises on the gr .....

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goods reported if comparative market rate was not available. 5. Under the facts and circumstances, the Ld. CIT(A) has erred in allowing the assessee's appeal regarding the addition on account of Cessation of liability of ₹ 1,21,553/- w.r.t. M/s A.B.N. Laminators merely relying on assessee's arguments whereas the assessee could neither prove it during the assessment stage, nor during the remand report stage and nor during the appellate stage. 6. under the facts and circumstances, th .....

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C were not fulfilled for the claim. " 2. First ground raised by Revenue is that Ld. CIT(A) erred in deleting the addition of ₹ 12,84,94,000/- made by Assessing Officer on account of inflated purchased. 3. The facts of the case are that assessee is a partnership firm engaged in manufacturing and exports business. During the year, assessee purchased goods from M/s Madho Prasad Mahabir Prasad glass beads and glass chatons. The necessary details of purchases are given as under : S.No. Goo .....

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urchase of the above goods from the party. On the request of the AO the assessee produced the owner of M/s Madho Prasad Mahabir Prasad for the verification of the transactions. However the party expressed his inability to get the transactions verified in the absence of the books of accounts. Accordingly he requested the AO for 10 days time but thereafter he never appeared. The notice sent to the party was returned unserved. Besides the above the AO also found there was also some report from the .....

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tion of goods Quantity Rate Amount (Rs.) 1 Glass beads 9266 Kgs. 1000/- ₹ 19,26,600/- Glass Chatons 25000 dozens 3/- ₹ 75,000/- Total 'B' ₹ 20,01,600/- Difference (A-B) Rs.12,87,93,900/- Say ₹ 12,87,94,000/- The AO has disallowed the above purchase by treating it bogus purchase and added to the total income of the assessee. 3.2 Aggrieved, assessee preferred appeal before Ld. CIT(A) who deleted the addition made by the AO by observing as under:- "iv. I have pe .....

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f Calcutta including the appellant and M/s Ramapati Exports and others on the basis of information about over valuation of exported goods of various exporters. Accordingly action was initiated both by the Customs Department and also the Special Investigation Branch (SIB) of the Customs Department during the relevant period of time. Show cause notices were issued to some exporters including the appellant alleging over valuation of the exported goods. In the case of M/s. Ramapati Exports who also .....

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eads proposed in show cause notice not acceptable in absence of any co-relation made by Revenue. In that ordered the Hon'ble Tribunal also mentioned that Mr. Nirmal Kr. Sarswat filed before the Commissioner certified copies of sale/purchase agreement, challans, invoices, payment instructions and money receipts issued to the respondent (M/s M.M. Exports is also one such party). The Hon'ble Tribunal also quoted that the Commissioner of Customs, Kolkata on appraisal of the evidence on the s .....

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ued by the Ld. AER the matter of over valuation in the case of M/s Ramapati Exports reached a finality. The facts of this case and subsequent dismissal of appeal of 'over valuation' assumes significance as during the relevant point of time i.e. F.Y 99-00 relevant to the AY 2000-01, M/s Madho Prasad Mahabir Prasad supplied glass beads both to the appellant and also to M/s Ramapati Exports. I agree with the views expressed by the Ld. AR that the case of M/s. Ramapati Exports is identical a .....

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In the case cited ii 8 above Export Price of US $162 i.e. the same price at which we had made exports was approved & no over-invoicing could be proved by the department. The basis of downward revision of purchase price by the Assessing Officer was the report of customs which itself stands rejected after the order of the CESTAT & value taken for exports i.e. US 162 or ₹ 7000/- per KG was found to be genuine. As the case of action of the Assessing Officer for treating Reducing the Pu .....

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taking the purchase price to be ₹ 100/- per KG needs to be set aside.' The above argument of the appellant is also supported by another evidence by way of letter dt. 21.09.99 of Commissioner of Customs (Port), Kolkata addressed to Member (Customs) wherein it was commented that there was no over invoicing in the case of decorative finished glass beads. It was further mentioned in that letter that the decorative glass beads price ranged from ₹ 6,000/- to ₹ 6,500/- per kg. dur .....

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omparative price of glass beads and chatons existing at that relevant point of time as the Customs Authorities pointed out there was a huge variance in quality and price of the glass beads. As such without verifying the quality and price from the market sources and without bringing in any corroborative material evidence on record to indicate the over invoicing of purchases, the Assessing Officer's action of adopting the value of ₹ 100/- per kg. for glass beads and ₹ 3/- per dozen .....

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of the above said affidavit is also been furnished. The relevant portion appearing at point 5 of page 2 of the affidavit is reproduced as under:- 'I say that the said glass beads were received by me in small lots on diverse dates and I sold delivered the same to the said M/s M.M. exports, Calcutta and M/s. Ramapati Exports at their respective offices at Calcutta through my said peon.' The said Mr. Sarswat has also furnished a reply dt 26.02.03 to the Commissioner of Customs (Port), Kolk .....

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9 and May 1999, I sold and delivered 19260 Kg and 25000 Dozen of hand cut Glass Beads and decorated and Glass Chatons. Time to time I raised Bills upon M/s M.M. Export which were paid by M/s M.M. Export to me or my nominees. On few occasion I caused to deliver the goods through M/s Arawali Gems when the goods were required on urgent basis. The only deficiency pointed out by the AO is that Mr. Nirmal Kr. Sarswat did not appear on a subsequent day and that no transport evidence was produced corres .....

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he purchases in question. v. Decision: In view of the foregone discussion and circumstances and facts of the case especially in the light of the findings noticed from the Customs recourses, I am of the view that the AO failed to bring on record any corroborative material evidence on record to indicate the over invoicing of purchase prices of the glass beads and chatons. Accordingly, I held that the addition made on account of alleged over invoicing of purchases is without any basis. Accordingly .....

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er whereas Ld. AR supported the order of Ld. CIT(A). Ld. AR submitted the paper book which is running pages 1 to 178. Before us the ld. AR submitted that the AO has taken the purchase price at just ₹ 100/- per kg. without investigating the market price. The AO has acted on the information gathered from the custom department. The assessee during the year has exported the goods and received the sales consideration in foreign exchange after purchasing the goods from M/s Madho Prasad Mahavir P .....

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drawn on page 30 to 33 of the custom report to demonstrate that no over valuation of the exports was made to earn extra DEPB and the name of the assessee was not there in the list those who claimed the extra DEPB. . Finally the AR prayed for allowance of the purchase expenses. 4.1 From the aforesaid discussion we find that the assessee has made total purchase of the goods for an amount of ₹ 13,07,95,500.00 from M/s Madho Prasad Mahavir Prasad. Out of the total purchase the AO has disallowe .....

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ty which was made through the banking channel. The goods were exported after the custom clearance and the payment was realized in terms of convertible of foreign exchange. We also find from the report of the custom department that no over invoicing for the export of the goods was made. The ld. AR also drew our attention on pages 85 to 90 of the paper where the affidavit given by Mr. Nirmal Kumar Sarswata partner of M/s Madho Prasad Mahavir Prasad before the Ld. CHIEF METROPOLITAN MAGISTRATE rega .....

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from M/s Monoharlal Mahabir Prasad. The AO found that the party operates from the same address as that of assessee. On enquiry from the party for the sale of goods, it was found that no sale was made to the assessee. Therefore, the same was disallowed and added to the total income of assessee. 7. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who has deleted the addition made by AO by observing as under:- "i. The AO made the addition as the appellant failed to produce purchase bi .....

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is submitted that the appellant produced all necessary evidences in respect of the purchase made including ledger extract of the party appearing in the app's books of account. iii) I have perused the documents which were produced before the AO including Form No. 42A given by the Sales Tax Authorities. I find there is a force in the argument of the Ld. AR that the appellant filed all the relevant details including the address of M/s Manohar Lal Mahabir Prasad. The AO as not conducted any enq .....

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n record. Before us the ld. AR submitted that the goods were purchased from the said party vide invoice no. MMP/NT/176 dated 25.6.1999 for ₹ 20,000/-. This transaction of purchase was interstate purchase so the form 42A was duly submitted to the Sales Tax Department. 9. We find from the aforesaid discussion that the AO has disallowed the purchase expenses due to non availability of the purchase bills. However the same has been allowed by the ld. CIT(A) after due verification of the necessa .....

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3,51,117/- from M/s Atul Enterprise. But the assessee failed to produce the purchase bills from the party. The AO made enquiry from the party concern u/s. 133(6) of the Act, but the notice was returned by the Postal Department as 'unserved'. The assessee also failed to provide the present address of the party. Therefore, AO could not make necessary enquiry for the purpose of verification of purchase bill. Hence, the purchase amount of ₹ 3,51,117/- was disallowed and added it to th .....

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AO has not caused any enquiries except acknowledging the fact that some copies of invoices were submitted. My earlier predecessor called for a remand report from the AO way back on 25.6.07 enclosing copy of the submissions made before the CIT(A). Again a reminder was sent on 20.8.07 for early report on the points raised by the appellant. Finally the AO has sent the report without causing any enquiries. When a direction given by the CIT(A) to sent a report on certain points/submissions made by th .....

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thus discharging its onus of responsibility. It is for the department to prove the genuineness or otherwise of the transactions when once the basic facts are available. However the AO failed to get enquiries done and bring on record any material evidence contrary to the claim of the appellant. In these circumstances, the addition made on account of unproven genuineness of transactions is not reasonable and deserves to be deleted. Accordingly, I direct the AO to delete the addition of ₹ 3, .....

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emand report. 14. We find from the aforesaid discussion that the AO disallowed the purchase due to non-production of the bill from the party, notice sent was unserved and non-availability of the present address of the party. But we find from the order of the ld. CIT(A), all the necessary details were furnished at the time of the remand report to the AO. The ld. DR. has also not brought anything on record to controvert the finding of the ld. CIT(A). In view of above we find no reason to interfere .....

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assessee to produce necessary evidence in respect of the above stated purchases. But the assessee failed to provide the documentary evidence. Therefore, AO held that such purchase cannot be treated as genuine, therefore disallowed and added to the income of assessee. 17. Aggrieved, assessee preferred second appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- "i. As seen from the assessment order the AO made the addition as the appellant failed to produce an .....

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nt order. However according to AO the appellant failed to produce any evidence justifying the cost of silk. The appellant submitted that the item being unique, the price comparability is not available. May be the appellant is right. Firstly as the same kind of quality silk would not be available in India. Hence the appellant might have imported the goods. Secondly the cost of that particular kind of silk might be comparatively less which made the appellant to import the goods. On the other hand .....

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that the appellant resorted to over invoicing imported purchases. In view of the matter I am of the opinion that the addition made on account of cost deserved to be deleted. Therefore, I direct the AO to delete this addition of ₹ 37,27,578/- made towards purchase of silk." 18. Before us the ld. AR submitted that this is an import transaction and all the relevant documents such as all the 4 invoices of the party, Bill of entry of each import (4 Nos.), Bank certificate for the remittan .....

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AO at the time of remand report. The ld. DR has not brought anything on record to controvert the findings of the ld. CIT(A). In view of above we find no reason to interfere in the order of the ld. CIT(A). Hence this ground of Revenue appeal is dismissed. 19. Ground No.5 raised by Revenue in this appeal is that Ld. CIT(A) erred in treating the addition for an amount of ₹ 1,21,553/- on account of cessation of liability with respect to w.r.t. M/s A.B.N. Lamenators. 20. During the course of a .....

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assessee preferred appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- "i. The A.O made additions in the case of ABN Laminators P. Ltd., Kolkata and RGs Apparels, Tripur, Tamil Nadu with respect to sundry creditors' on the ground that the liability was ceased. Moreover the notices sent u/s 133(6) returned unreserved. In the remand report the AO observed that the appellant furnished only the residential address of one of the directors of ABN Laminators P. .....

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a gap of more than seven years as such there would have been a change in the address. In respect of M/s RGS Apparels it has been submitted that since the notice was given after a gap of seven years there would have been a change in the address and that the amount in question was subsequently paid by way of account payee cheque during the F.Y 2003-04. To this extent the copies of the ledger accounts were furnished. iii. In the case of M/s. ABN Laminators P. Ltd., the appellant furnished the curr .....

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the confirmation given by the sundry creditors the cessation of the liability comes into picture. In this case there is neither remission nor cessation of liability. In the absence of any material evidence brought on record by the AO even at the remand report stage I decline to agree with the addition made on account of cessation of liability in the case of M/s ABN Laminators P. Ltd." Being aggrieved by this order of Ld. CIT(A) Revenue came in appeal before us. 22. Before us the ld. AR sub .....

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reated as income of the assessee. The ld. DR has not brought anything on record to controvert the findings of the ld. CIT(A). In view of above we find no reason to interfere in the order of the ld. CIT(A). Hence this ground of Revenue appeal is dismissed. 23. Ground No.6 raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by AO on account of freight expenses of ₹ 23,250/- to Natwar Parikh Industries and other freight expenses of ₹ 38,235/- on accou .....

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23,250/- but no supporting document was submitted for other freight expenses. Accordingly the ld. CIT(A) deleted the addition of ₹ 23,250.00 only by observing as under:- "i. The AO added ₹ 52,046/- in the case of M/s Natwar Parikh Industries and ₹ 38,235/- towards miscellaneous expenses in the absence of bills and supporting evidences. Even in the remand report the AO observed that no supporting evidences were furnished. ii. The appellant contended that M/s Natwar Parikh I .....

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e necessary evidences. It only produced evidence to the extent of ₹ 23,500/- by way of producing 1 copies of invoices. As such for the remaining amount of ₹ 28,796/- no documentary evidence whatsoever produced by the appellant. Accordingly I direct the AO to restrict the addition to ₹ 28,796/- out of total disallowance of ₹ 52,046/-. As regards miscellaneous freight bills the appellant failed to produce any supporting evidence to justify the expenditure of ₹ 38,235/ .....

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d that the copies of the bills for an amount of ₹ 23,250.00 of M/s Natwar Parikh Industries towards freight charges were submitted before the AO at the time of remand report. The AO could have made enquiry under section 133(6) of the Act for establishing the genuineness of the expenses. Regarding the other freight expenses, the ld. AR submitted that the necessary details in support of the expenses were furnished before the AO at the time of remand report. From the aforesaid discussion we f .....

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d by the AO in connection with the assessment proceedings. We also find that the assessee could not produce the necessary supporting evidence before the lower authorities in connection with other freight charges. Considering the facts in totality and turnover of the assessee, we do not want to interfere in the order of the ld. CIT(A). Hence this ground of Revenue appeal is dismissed. 27. Ground No.7 raised by Revenue in this appeal is that Ld. CIT(A) erred in allowing 90% of the sale proceeds of .....

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DEPB license u/s 80HHC of the Act. Therefore, the claim of assessee u/s 80HHC was disallowed and added to the total income of assessee. 29. Aggrieved, assessee preferred appeal before ld. CIT(A) where the assessee submitted that the conditions mentioned in the 3rd proviso to section 80HHC are very much fulfilled. Accordingly the ld.CIT(A) after considering the assessee submission and remand report of the AO concluded that the deduction is available to the assessee by observing as under :- " .....

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assessee should have necessary and sufficient evidence to prove that: (a) He had an option to choose either the duty draw back or DEPB scheme ; and (b) The rate of draw back credit attributable to the Customs duty was higher than the rate of credit allowable under DEPB scheme. "As contended by the appellant the two main conditions prescribed u/s. 80HHC(3) have been fulfilled by the appellant and accordingly the appellant is eligible to claim the deduction of 90% of the sale proceeds of the .....

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granted DEPPB License at all. In view of the matter I am to hold that the appellant has correctly claimed the deduction u/s. 80HHC(3) on account of sale of DEPB License. Accordingly, I direct the AO to allow the benefit of 90% sale proceeds of DEPB license while computing the benefits u/s. 80HHC." Being aggrieved by this order of Ld. CIT(A) Revenue came in appeal before us. 30. Before us the ld. DR vehemently supported the view of the AO. On the other hand the ld. AR while strongly relying .....

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so to section 80 HHC (3) have been fulfilled, so the deduction under section 80HHC for the profit on sale of DEPB license. 31. We have heard rival parties and perused the materials available on record. From the facts of the case we find that the AO has disallowed the deduction claimed by the assessee under section 80HHC of the Act on the ground that the assessee has not fulfilled the condition specified under clause (a) & (b) to the proviso of section 80HHC(3) of the Act. However the ld. CIT .....

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first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) He had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) The rate of d .....

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