COMMISSIONER OF INCOME TAX-I V. RAJENDRA BABULAL AGRAWAL

TAX APPEAL No. 777 of 2009

AI Insights

The case revolves around the appellant, Commissioner of Income Tax-I, contesting the Tribunal's decision which favored the respondent, Rajendra Babulal Agrawal, in a tax assessment dispute for the year 2001-02. The core issue was the alleged suppression of profit by the assessee through dubious transactions with non-existent Export Oriented Units (EOUs). The Assessing Officer had estimated the net profit at 5% on gross turnover based on these allegations, which the Tribunal later overturned. The High Court's examination revealed that the evidence presented by the revenue did not conclusively prove the assessee's involvement in profit suppression for the relevant assessment year, leading to the dismissal of the appeal.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 368939 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 16-08-2010
• Appeal Filed By: Department
• Assessment Year: 2001-2002
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Export Oriented Units; Net profit estimation; Suppression of Profit; Black marketing; Diversion of imported fabrics
• Section: 260A

Judgement Text

"TAXAP/777/2009 1/7 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 777 of 2009 ========================================= COMMISSIONER OF INCOME TAX-I - Appellant(s) Versus RAJENDRA BABULAL AGRAWAL - Opponent(s) ========================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================= CORAM : HONOURABLE MS.JUSTICE H.N.DEVANI and HON'BLE SMT. JUSTICE ABHILASHA KUMARI Date : 16/08/2010 ORAL ORDER (Per : HONOURABLE MS.JUSTICE H.N.DEVANI) 1. Leave to amend Question (A). 2. In this appeal under section 260A of the Income T ax Act, 1961 (the Act), appellant-revenue has proposed the following two questions: “[A] Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.14,12,532/- made by the Assessing Officer on account of suppression of profit? Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 2/7 ORDER [B] Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (A) in not taking into consideration the investigation carried out by the DRI which unearthed black marketing by diversion of imported fabrics to the local market though on paper the same was shown as sold to EOUs that were found to be non-existent and the assessee through this tacit secret arrangement suppressed its profit and therefore, the Assessing Officer was right in estimating the N.P. @ 5% on gross turnover of Rs.3,24 crores as against 0.64% declared by the assessee?” 3. The assessment year is 2001-02 and the relevant accounting period is the financial year 2000-01. 4. The respondent-assessee, an individual, is engaged in the business of trading of imported goods and is also an exporter. The assessee mainly deals in importing polyester fabrics and polyester spin yarn. The goods so imported are sold out to Export Oriented Units which are covered under the Kandla Special Economic Zone. In the year under consideration, which was the first year of business, the assessee had shown sales of Rs.3,23,97,528/-. According to the assessee, whatever goods had been sold had been sold to Export Oriented Units, except the closing stock of five items as appearing in Annexure “Y”. On gross sale of Rs.3,23,97,528/-, the assessee had shown gross profit of Rs.9,37,107/- @ 2.88%. It appears that the Directorate of Revenue Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 3/7 ORDER Intelligence during the course of some investigation carried out by it had found that the assessee had imported goods free of duty for sale to 100% Export Oriented Units at Surat on a deemed export basis. However, by a tacit arrangement, the goods claimed to have been sold to 100% Export Oriented Units, were diverted to the local market, though on paper they were shown to have been received by the Export Oriented Units and re-warehousing certificates were sent to the supplier, that is, the assessee, in the name of M/s Add International. On paper, the Export Oriented Unit’s would show consumption of such fabrics in the manufacture of garments, which were purportedly exported in fulfillment of export obligation. On the basis of the above information, show cause notice came to be issued to the assessee. In response thereto, the case of the assessee was that he had sold the goods to Sunshine Overseas (which is a 100% Export Oriented Unit) and had not taken back any material or sold the materials so sold to M/s Sunshine Overseas to any other parties. The Assessing Officer did not accept the assessee's contention and determined net profit at 5% and made an addition of Rs.14,12,532/-. Being aggrieved, the assessee preferred an appeal before the Commissioner (Appeals), who deleted the addition. Revenue carried the matter in appeal before the Tribunal, but did not succeed. 5. Mrs. M. M. Bhatt, learned Senior Standing Counsel for the appellant-revenue has assailed the impugned order made by the Tribunal, submitting that in the light of the facts that had been brought on record by the Assessing Officer Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 4/7 ORDER as regards investigation carried out by the Directorate of Revenue Intelligence which revealed that the sales of imported goods made by the assessee to the 100% Export Oriented Units were not genuine and that the parties were not in existence and were appearing on paper only, the Assessing Officer was justified in making the addition on account of suppression of profit on the part of the assessee by entering into transactions which were over and above what was recorded by way of book entries. It was accordingly urged that the questions as proposed or as may be formulated by the Court, do arise out of the impugned order of the Tribunal. 6. As can be seen from the order made by the Commissioner (Appeals), the Commissioner (Appeals) upon perusal of the record found a copy of a letter dated 01.07.2002 written by the Commissioner of Customs, Customs House, Kandla to the Additional Commissioner of Income T ax enclosing therewith a copy of a letter dated 28.06.2002 addressed by the Commissioner of Customs, Kandla to the Joint Development Commissioner, Kandla Economic Zone. In these letters it had been stated that the assessee had imported certain consignments mis- declaring the goods as “T extile goods” instead of the correct description of various types of fabrics imported in the said consignments with intent to clear the consignments in contravention of the revised EXIM Policy relating to SEZ with effect from 01.04.2002. It has been stated that the consignments had arrived on 19th June 2002 and 26th June 2002 respectively. It has been further stated that the intelligence report received in the past Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 5/7 ORDER revealed that the unit had been supplying the consignments imported to various 100% Export Oriented Units located in Surat but bulk of these consignments were diverted to the local market in connivance with the concerned 100% Export Oriented Units. The Commissioner (Appeals), upon perusal of the reports submitted by the customs authorities, found that the same did not refer to any consignments imported in the year under consideration and that the same in fact, referred to certain advantages being taken of the SEZ policy effective from 01.04.2002 by few parties. It was also noted that the investigation had not been concluded. Upon appreciating the evidence on record, the Commissioner (Appeals) was of the opinion that the Assessing Officer had proceeded on suspicion and hearsay, and that there was no evidence on record to show that the goods sold to M/s Sunshine Overseas in the year under consideration were, as alleged, taken back or sold in the local market. It was also noted that the nine consignments referred to in the letter dated 28.06.2002 of the Commissioner of Customs, Kandla which formed the basis of suspicion in the mind of the Assessing Officer, had arrived in June 2002 which was not relevant to the year under consideration. The Commissioner (Appeals) was of the view that in absence of any evidence whatsoever, the addition was not justified and deleted the same. The Tribunal, in the impugned order has concurred with the findings recorded by Commissioner (Appeals) and has upheld the deletion. 7. In the light of the facts noted hereinabove, it is apparent Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 6/7 ORDER that the only basis on which the Assessing Officer has made the addition is the report received from the customs authorities as regards the diversion of imported goods into the local market by the assessee. As noted by both Commissioner (Appeals) as well as the Tribunal, the letter dated 28.06.2002 of the Commissioner of Customs, Kandla indicated that the goods had been imported with a view to contravene the EXIM Policy relating to SEZ with effect from 1.4.2002 and that the consignments had arrived on 19th June 2002 and 26th June 2002 respectively. The year under consideration in the present case is assessment year 2001-02 and the relevant accounting period is the financial year 2001-01. Thus, it is apparent that the consignments referred to in the report of the customs authorities which had arrived on 19th and 26th June 2002, had not been imported in the year under consideration. In the circumstances, insofar as the year under consideration is concerned, there is no evidence on record to show that the goods which were sold to M/s Sunshine Overseas had been taken back and sold in the local market. Nothing has been pointed out on behalf of the revenue to indicate anything to the contrary. In absence of any evidence being brought on record to indicate suppression of profit on the part of the assessee, the Assessing Officer was not justified in making the addition of Rs.14,12,532/-. 8. In view of the above discussion, it is not possible to state that the Tribunal has committed any legal error so as to warrant interference. No question of law, much less a substantial question of law, can be stated to arise out of Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION TAXAP/777/2009 7/7 ORDER the impugned order of the Tribunal. The appeal is, accordingly, dismissed. [HARSHA DEVANI, J.] [SMT. ABHILASHA KUMARI, J.] parmar* Downloaded on : Thu Jun 05 15:59:47 IST 2025 Uploaded by B.U. PARMAR(HC00158) on Tue Sep 07 2010 2010:GUJHC:24442-DB NEUTRAL CITATION "