ITO, JODHPUR V. M/s. Lariya Art Palace Pvt. Ltd., JODHPUR

ITA 217/JODH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70373 (ITAT-JODHPUR)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 09-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Bogus purchase; Rejection of books of accounts; Business income; Opportunity of being heard
• Section: 260A; 115JB; 28

Judgement Text

[1] IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO. 217/JODH/2013 ASSESSMENT YEAR:2009-10 THE I.T.O. VS. M/S LARIYA ART PALACE P.LTD. WARD- 3(4), PAL CHOPASANI RING ROAD JODHPUR . CHOPASANI, JODHPUR. PAN: AABCL0499C (APPELLANT) (RESPONDENT) C.O. NO.22/JODH/2013 (IN I.T.A. NO. 217/JODH/2013) ASSESSMENT YEAR:2009-10 M/S LARIYA ART PALACE P.LTD. VS. THE I.T.O. PAL CHOPASANI RING ROAD WARD-3(4), CHOPASANI, JODHPUR. JODHPUR. PAN: AABCL0499C (OBJECTOR) (RESPONDENT) REVENUE BY : SHRI N.A. JOSHI, D.R. ASSESSEE BY : SHRI RAJENDRA JAIN. DATE OF HEARING : 04/12/2013 DATE OF PRONOUNCEMENT : 12 /12/2013 O R D E R PER N.K.SAINI, A.M THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTI ON FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 11.02 .2013 OF LEARNED CIT(A)- JODHPUR. IN THE APPEAL OF THE DEPARTMENT, FOLLOWING GROUNDS HAVE BEEN RAISED. [2] IN THE FACTS AND CIRCUMSTANCES IN THE CASE, THE L D. CIT(A) HAS ERRED IN:- (1) CONSIDERING THAT THE ASSESSEE IS ELIGIBLE FOR T HE DEDUCTION U/S 10BA IGNORING THE FACT THAT THE BUSINESS OF THE ASS ESSEE WAS RECONSTRUCTED BY REUSE OF OLD PLANT AND MACHINERY O F THE PROPRIETORY CONCERN OF SHRI RAJENDRA MEHTA. (2) TREATING THE DDB AND DEPB AS PART OF EXPORT BUSINESS INCOME WHICH ARE INCENTIVE AND DO NOT FALL IN THE EXPRESSI ON OF PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. (3) REDUCING THE GP RATE FROM 12% TO 11% IGNORING THE FACT THAT THE REJECTION OF BOOKS OF ACCOUNTS HAS BEEN UPHELD BY L D. CIT(A) HIMSELF AND THE GP RATE WAS APPLIED BY ASSESSING OF FICER ON THE BASIS OF PAST HISTORY. THAT THE APPELLANT RESERVED ITS RIGHT TO ADD, AMEND OR ALTER THE GROUNDS OR APPEAL ON OR BEFORE THE DATE THE APPEAL IS FINALLY HEARD. 2. GROUNDS RAISED IN THE CROSS OBJECTION FILED BY T HE ASSESSEE, READ AS UNDER:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) HAS ERRED IN SUSTAINING TRADING ADDITION BY APPLYING GP RATE OF 11% ON DECLARED SALES. 1. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING INTE REST RECEIPTS AS INCOME FROM OTHER SOURCES. 2. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING ADD ITION IN RESPECT OF BOGUS PURCHASES. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND MODIFY/DELETE ANY OF THE GROUNDS OF APPEAL ON OR BE FORE IT IS FINALLY HEARD. 3. FIRST ISSUE IN THE DEPARTMENTAL APPEAL VIDE GROUND NO. 1 RELATES TO THE DEDUCTION U/S 10BA OF THE I.T. ACT, 1961 (HEREINAFT ER TO BE REFERRED AS THE ACT). 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME ON 26/9/2009 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION U/S 10BA OF THE ACT FOR RS. 29,13,843/- AND TAX HAS BEEN PAID UNDER MAT U/S [3] 115JB OF THE ACT. LATER ON THE CASE WAS SELECTED FO R SCRUTINY. THE ASSESSING OFFICER MENTIONED THAT THE ASSESSEE COMPANY WAS INC ORPORATED ON 14/12/2004 FOR MANUFACTURING AND EXPORT OF HANDICRA FTS ITEMS OF WOODS. ONE OF THE PROMOTER DIRECTORS OF THE ASSESSEE COMPANY S HRI RAJENDRA MEHTA WAS RUNNING A PROPRIETORSHIP CONCERN UNDER THE NAME AND STYLE OF M/S LARIYA ART PALACE AND ON 01/5/2005, THE RUNNING BUSINESS OF TH E PROPRIETORSHIP CONCERN WAS TAKEN OVER BY THE ASSESSEE COMPANY ALONGWITH AL L ASSETS AND LIABILITIES W.E.F. 01/5/2005. THUS, IN THIS CASE, THE BUSINESS SHOWN BY THE ASSESSEE WAS ALREADY IN EXISTENCE IN THE NAME OF PROPRIETORSHIP CONCERN OF SHRI RAJENDRA MEHTA, PRIOR TO SUCCESSION BY THE ASSESSEE COMPANY ON 30/04/2005 AND PLANTS & MACHINERY PREVIOUSLY USED BY SHRI RAJENDRA MEHTA HAVE ALSO BEEN TRANSFERRED TO THE ASSESSEE COMPANY. SINCE ONE OF T HE PRELIMINARY CONDITION FOR CLAIMING THE DEDUCTION U/S 10BA OF THE ACT IS T HAT THE UNDERTAKING IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSIN ESS ALREADY IN EXISTENCE. THE ASSESSING OFFICER OBSERVED THAT IN THIS CASE, T HE BUSINESS WAS ALREADY RUNNING UNDER NAME OF PROPRIETORSHIP CONCERN M/S LA RIYA ART PALACE AND PLANTS & MACHINERY OF THE ERSTWHILE PROPRIETORSHIP CONCERN OF SHRI RAJENDRA MEHTA HAD BEEN TRANSFERRED TO THE ASSESSEE COMPANY. THEREFORE, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY, THE DEDUCTION U/S 10BA MAY NOT BE DISALLOWED. IN RESPON SE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED AS UNDER:- THE COMPANY IS NOT FORMED BY SPLITTING OR RECONSTR UCTION OF AN EXISTING BUSINESS. THE CASE OF COMPANY IS ONE THAT OF SUCCES SION AS HAS BEEN RIGHTLY HELD BY THE HON'BLE I.T.A.T. JODHPUR BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 [4] THE COMPANY HAS NOT USED ANY PLANT AND MACHINERY P REVIOUSLY USED BY ANY OTHER CONCERN. THE CASE OF COMPANY IS ONE TH AT OF SUCCESSION AS HAS BEEN RIGHTLY HELD BY THE HON'BLE I.T.A.T., J ODHPUR BENCH IN ASSESSEES OWN CASE FROM THE A.Y. 2006-07. 5. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISS ION OF THE ASSESSEE BY OBSERVING THAT SECTION 10BA OF THE ACT IS INSERT ED IN THE STATUTE BOOK BY TAXATION LAW (AMENDMENT) ACT, 2003 W.E.F. 1/4/2004 AS A SPECIAL PROVISION FOR THE NEW UNDERTAKINGS, WHICH ARE NOT FORMED BY S PLITTING OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE, EXCEPT THOSE UN DERTAKINGS, WHERE THE BUSINESS WAS RE-ESTABLISHED, RECONSTRUCTED OR REVIV ED BY THE SAME, ASSESSEE ACCORDING TO THE PROVISIONS OF SECTION 33B OF THE A CT. THE ASSESSING OFFICER FURTHER STATED THAT THE ASSESSEE WAS NOT COVERED WI THIN THE CONDITION LAID DOWN IN SECTION 33B OF THE ACT TO RE-ESTABLISH, REC ONSTRUCT OR REVIVE THE BUSINESS AND, THEREFORE, IT IS AN UNDERTAKING FORME D BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE A ND CONDITIONS LAID DOWN IN SECTION 10BA(2)(B) OF THE ACT HAS NOT BEEN FULFILLE D. AS REGARDS TO THE PLEA OF THE ASSESSEE THAT THE I.T.A.T. HAS UPHELD THE ASSES SEES CLAIM ON THIS ISSUE FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSING OFFI CER STATED THAT THE SAID ORDER HAD BEEN CHALLENGED IN THE HON'BLE HIGH COURT BY WAY OF FILING APPEAL U/S 260A OF THE ACT. ACCORDINGLY, THE ASSESSING OFF ICER HELD THAT THE ASSESSEE COMPANY WAS NOT ELIGIBLE FOR DEDUCTION U/S 10BA OF THE ACT. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF MANUFACTURING AND PRODUCTION OF HANDMADE ARTICLES USING WOOD AS M AIN RAW MATERIAL AND EXPORTED THE ITEMS SO MANUFACTURED/PRODUCED. IT WAS FURTHER STATED THAT [5] I.T.A.T. JODHPUR BENCH IN I.T.A. NO. 544/JU/2009 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 HAD CONSIDERED THIS ISS UE THAT WHETHER THE ASSESSEE COMPANY WAS FORMED BY SPLITTING UP OR RECO NSTRUCTION OF AN EXISTING BUSINESS OR NOT. IT WAS ALSO STATED THAT A FTER DETAILED DISCUSSION, THE I.T.A.T. JODHPUR BENCH WAS PLEASED TO DECIDE THE IS SUE IN FAVOUR OF THE ASSESSEE. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR D EDUCTION U/S 10BA OF THE ACT. 7. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THE CLAIM BY OBSERVING THAT THIS ISSUE HAD ALREADY BEEN DECIDED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07. NOW THE D EPARTMENT IS IN APPEAL. 8. DURING THE COURSE OF HEARING, THE LEARNED D.R. S UPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIO NS MADE IN THE ASSESSMENT ORDER DATED 26/12/2011. 9. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 31/3/2010 IN I.T.A. NO. 544/JU/2009 FOR THE ASSESSM ENT YEAR 2006-07 IN ASSESSEES OWN CASE. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BE EN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE A FORESAID REFERRED TO ORDER DATED 31/3/2010 WHEREIN RELEVANT FINDINGS HAS BEEN GIVEN AT PARA 13, WHICH READ AS UNDER:- [6] THE EXPRESSION SPLITTING UP OR RECONSTRUCTION AS USED IN CLAUSE (B) OF SUB-SECTION (2) OF SECTION 10BA, ARE WITH RESPEC T TO AN UNDERTAKING WHICH IS FORMED BY THE SPLITTING UP OR THE RECONSTR UCTION OF A BUSINESS ALREADY IN EXISTENCE. IT, HOWEVER, DOES NOT INVOLVE A CASE LIKE THIS WHERE ALL THE ASSETS HAVE PASSED TO THE NEW OWNER, I.E. THE COMPANY, WITHOUT BREAKING THE EXISTENCE OF UNDERTAKING INTO DIFFERENT SECTIONS OF THE ACTIVITIES PREVIOUSLY CONDUCTED AND CARRIED IND EPENDENTLY BY DIFFERENT OWNER AS SOLE PROPRIETOR THEREOF NOR THER E IS TRANSFER OF ASSETS OF THE UNDERTAKING TO ANOTHER UNDERTAKING. THE CENT RAL BOARD OF DIRECT TAXES IN ITS CIRCULAR F. NO. 15/5/63-IT(AI) DATED 1 3/12/1963 IN THE CONTEXT OF SECTION 84 WHERE FOR GRANT OF DEDUCTION WHERE A SIMILAR CONDITION THAT THE INDUSTRIAL UNDERTAKING IS NOT F ORMED BY SPLITTING UP, OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTEN CE WAS UNDER CONSIDERATION, AGREED THAT THE BENEFIT OF SECTION 8 4 OF THE I.T. ACT, 1961, ATTACHES TO THE UNDERTAKING AND NOT TO THE OW NER THEREOF. THE SUCCESSOR WILL BE ENTITLED TO THE BENEFIT FOR THE U NEXPIRED PERIOD OF FIVE YEARS PROVIDED THE UNDERTAKING IS TAKEN OVER AS A G OING CONCERN. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, TH E MERE CHANGE OF OWNERSHIP DOES NOT AMOUNT TO SPLITTING UP OR RECONS TRUCTION. THE AUTHORITIES BELOW, THEREFORE, WERE NOT JUSTIFIED IN DENYING THE EXEMPTION U/S 10BA OF THE ACT. WE, THEREFORE, SET ASIDE THE O RDER OF LD. CIT(A) AND ALLOW THE GROUND RAISED IN APPEAL BY THE ASSESS EE. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED T O ORDER OF THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2006-07 WE DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. 11. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO TRE ATING DDB AND DEPB AS PART OF EXPORT BUSINESS. 12. AS REGARDS TO THIS ISSUE, THE LEARNED COUNSEL F OR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 20/6/2013 IN I.T.A. NO. 3 7/JU/2013 IN THE CASE OF M/S SURAJ EXPORTS INDIA, CHURU VS. THE INCOME TAX O FFICER, WARD-2, CHURU. COPY OF WHICH IS PLACED AT PAGE NO. 64 TO 67 OF THE ASSESSEES PAPER BOOK. [7] 13. IN HIS RIVAL SUBMISSIONS, THE LEARNED D.R. ALTH OUGH SUPPORTED THE ORDER OF THE ASSESSING OFFICER BUT COULD NOT CONTROVERT T HE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 14. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIAL AVAILABLE ON RECORD, IT IS NOTICED THAT THE ISSUE U NDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE VIDE AFORESAID REFERRED TO ORDER DATED 20/6/2013 IN I.T.A. NO. 37/ JU/2013 FOR THE ASSESSMENT YEAR 2007-08 IN THE CASE M/S SURAJ EXPORTS INDIA, C HURU VS. INCOME TAX OFFICER, WARD-2, CHURU WHEREIN RELEVANT FINDING HA S BEEN GIVEN IN PARA 3.3, WHICH READ AS UNDER:- 3.3 AFTER CONSIDERING THE SUBMISSIONS OF BOTH TH E PARTIES AND THE MATERIALS AVAILABLE ON RECORD, IT IS NOTICED THAT I DENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ALONGWITH OTHER ASSESSE E IN ITA NO.336/JODH/2011 AND OTHERS VIDE ORDER DATED 31-01- 2013 WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 11 TO 13 WHICH ARE REPRODUCED AS UNDER:- 11. WE HAVE NOTICED THAT SECTION 10BA(4) TAKES ITS SHAPE AND FORM FROM ERSTWHILE SECTION 10B(4) WH ICH WAS AMENDED VIDE THE FINANCE ACT, 2001 W.E.F. 01.04.2001. PRIOR TO 01.04.2001, THIS SECTION 10B(4 ) READ AS UNDER :- 10B(4) FOR THE PURPOSE OF S.S. (1), PROFITS D ERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVE R OF THE BUSINESS CARRIED ON BY THE ASSESSEE. CLARIFICA TIONS ON NOTES OF CLAUSES OF THE FINANCE ACT, 2001 CLARIF IES THE PURPOSE OF THIS AMENDMENT THAT UNDER THE EXISTING PROVISION CONTAINED IN S.S. (4), THE PROFITS DERIVE D FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFIT OF THE BUSINES S, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F SUCH [8] ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO TH E TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE . SUB CLAUSE (B) SEEKS TO CLARIFY THAT SUCH PROPORTIONS S HALL BE CALCULATED WITH REFERENCE TO THE PROFITS AND GAINS OF THE BUSINESS OF THE UNDERTAKING AND NOT FROM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. THUS PRIOR TO AMENDMENT THE PROFITS DERIVED FROM EXPORT OF ARTICL ES WAS MEANT THE AMOUNT WHICH BORE TO THE PROFITS OF THE BUSINESS, THE SAME PROPORTION AS EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES BEAR TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, WHEREAS, AFTER THE AMENDMENT, THE PROFITS DERIVED FROM EXPORT OF ARTIC LES OR THING MEANS THE AMOUNT WHICH BEARS TO THE PROFITS A ND GAINS OF THE BUSINESS OF THE UNDERTAKING AND NOT FR OM ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE. SO, BY T HIS AMENDMENT ONLY THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ONLY IS TO BE CONSIDERED FOR WORKING OU T THE PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM EXPORT OUT OF INDIA OF ELIGIBLE ARTICLES OR THINGS. THE PROFITS AND THE GAINS OF THE BUSINESS OF THE UNDERT AKING IS TO BE WORKED OUT AS PER THE PROVISIONS OF SECTION 2 8(I). THIS DOES NOT INCLUDE THE PROFITS OF ITEMS DOES NOT INCLUDE THE PROFITS OF ITEMS UNDER S.S. (IIIA), (IIIB), (II IC), (IIID) AND (IIIE) ETC. DUTY DRAW BACK AND ANY PROFIT ON TRANSF ER OF DEPB. SECTION 28 ITSELF MAKES IT ABUNDANTLY CLEAR T HAT THE PROFIT ON ACCOUNT OF DUTY DRAW BACK OR ON TRANS FER OF DEPB WILL NOT FORM PART OF PROFIT AND GAINS OF THE BUSINESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AS DISCUSSED ABOVE. THE PLAIN READING OF SECTION 10BA WHICH DEALS WITH EXPORT OF CERTAIN ART ICLES OR THINGS WILL MAKE IT CLEAR THAT SUCH PROFITS AS ARE DERIVED FROM THE EXPORT OUT OF INDIA SHALL BE ALLOW ED FROM THE TOTAL INCOME OF THE ASSESSEE. SUB SECTION (1) O F SECTION 10BA IS SUBJECT TO THE PROVISIONS OF S.SS. 2, 3, 5, 6 AND 7 BUT S.S. 4 LAYS DOWN A METHOD OF COMPUTATIO N FOR THE PURPOSE OF SUB SECTION (1). LIKEWISE, THE SALE PROCEEDS OF DEPB CANNOT BE CONSIDERED AS PART OF TURNOVER AS IT IS NOT THE SALE PROCEEDS OF THE ARTI CLES OR THINGS MANUFACTURED AND SOLD BY THE ASSESSEE, THEN THE PROFITS FROM SALE OF DEPB CANNOT APPORTIONED ON TRE ATED ON PROFIT DERIVED BY THE UNDERTAKING FROM EXPORT OU T OF [9] INDIA. THE EXEMPTION PROVISIONS IN 10BA HAVE TO BE LIBERALLY INTERPRETED UNLESS THE CREDIT OF DEPB AND DDB IS EXPRESSLY TAKEN AWAY. 12. ACCORDINGLY, WE ARE LEFT WITH NO OPTION BUT TO DECIDE THE IMPUGNED COMMON ISSUE, IN FAVOUR OF THE APPELLANT/ASSESSEE. AS A RESULT, WE HOLD THAT THE MANUFACTURING ACTIVITIES OF THE ASSESSEE ARE ELIGIBLE FOR DEDUCTI ON PROVIDED U/S 10BA OF THE ACT. THE FACTS AND ISSUE INVOLVED IN OT HER APPEALS ARE EXACTLY SIMILAR TO THE MAIN APPEAL, EXCEPT FOR THE QUANTUM OF CLAIM MADE U/S 10BA OF THE ACT. THEREFORE, WITH SIMILAR R EASONING, WE ALLOW THESE APPEALS BY HOLDING THAT ALL THE ASSESSE ES BEFORE US ARE ELIGIBLE FOR DEDUCTION U/S 10BA OF THE ACT. NO OT HER GROUND(S), IF RAISED, WERE PRESSED BY THEIR RESPECTIVE ID. A.RS. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSE E ARE ALLOWED ON THE COMMON ISSUE OF ALLOWABILITY OF DEDU CTION U/S 10BA OF THE ACT WHEREAS THE APPEALS OF THE REVENUE ARE DISMISSED . SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF M/S SURAJ EXPORTS INDIA, CHURU VS. INCOME TAX OFFICER, WARD-2, CHURU. SO RESPECTFULLY FOLLOWI NG THE AFORESAID REFERRED TO ORDER, WE DO NO SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 15. GROUND NO. 3 OF THE DEPARTMENTAL APPEAL AND GRO UND NO. 1 OF THE ASSESSEES CROSS OBJECTION RELATES TO THE DELETION/ SUSTENANCE OF TRADING ADDITION BY APPLYING G.P. RATE. 16. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY POINTING OUT THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER AND THE PURCHA SES FROM UNIVERSAL INDIA REMAINED UNVERIFIABLE. HE ALSO MENTIONED CERTAIN OT HER DEFECTS. THE ASSESSING OFFICER POINTED OUT THAT THE G.P. RATE HA D DECLINED TO 8.73% AS COMPARED TO 13.80% IN THE IMMEDIATELY PRECEDING YEA R AND 15.91% IN THE [10] ASSESSMENT YEAR 2007-08. THE EXPLANATION OF THE ASS ESSEE WAS THAT THERE WAS WORLD WIDE ECONOMY RECESSION AND THE BUSINESS O F THE ASSESSEE DEPENDED ON THE EXPORT TO WESTERN COUNTRIES WHERE T HE RECESSION DEVELOPED AND FOR THAT REASON, THE TURNOVER IN SUBSEQUENT YEA R DECLINED SHARPLY BY 31.85%. IT WAS FURTHER STATED THAT THE FOREIGN CURR ENCY WAS FLUCTUATING THROUGHOUT. IT WAS ALSO STATED THAT THE RAW MATERIA L AND LABOUR COST HAD ARISEN BEYOND THE REACH AND THAT THE MINIMUM LABOUR COST H AD ARISEN FROM RS. 100/- TO RS. 150/- PER DAY AND THE COST OF RAW MATERIAL W OOD HAD ARISEN FROM AVERAGE OF RS. 350/- TO RS. 450/- PER CFT.. THE ASS ESSING OFFICER HOWEVER, WAS NOT CONVENIENCED WITH THE REASONING GIVEN BY TH E ASSESSEE AND POINTED OUT THAT IN THE CASE OF M/S SRI BHIKSHU ARTS CASE, THE G.P. RATE DECLARED, WAS 27.06%. THE ASSESSING OFFICER ESTIMATED THE G.P. RA TE @ 12% AND MADE THE ADDITION. 17. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND FURTHER SUBMITTED THAT THE CASE REFERRED BY THE ASSESSING O FFICER WAS NOT ACTUALLY COMPARABLE WITH THE ASSESSEES CASE. 18. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, OBSERVED THAT THE TURNOVER OF THE ASSESSEE WAS ADVE RSELY AFFECTED DUE TO RECESSION AND THE ASSESSING OFFICER ALSO ADMITTED THIS FACT THAT THE ASSESSEE TURNOVER HAD GONE DOWN IN COMPARISON TO THE LAST YE AR. HE FURTHER OBSERVED THAT THE REASONS GIVEN BY THE ASSESSEE FOR INCREASI NG IN COST OF LABOUR AND RAW MATERIAL WAS CONVENIENCING AND THE ASSESSING OF FICER HAD NOT GIVEN ANY COMMENTS ON THESE POINTS. THE LD. CIT(A) ALSO POINT ED OUT THAT THE TURNOVER [11] OF THE ASSESSEE WAS NOT COMPARABLE WITH THE CASE OF M/S BHIKSHU ART. THE LD. CIT(A) WAS OF THE VIEW THAT IT WOULD BE JUSTIFI ABLE AND REASONABLE TO APPLY G.P. RATE OF 11%. NOW THE DEPARTMENT IS IN APPEAL A GAINST THE RELIEF ALLOWED TO THE ASSESSEE WHILE THE ASSESSEE FILED THE CROSS OBJECTION FOR SUSTENANCE OF THE ADDITION IN PART. 19. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW WHILE THE LEARNED D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT IN THE COMPARABLE CASE QUOTED BY THE ASSESSING OFFICER WHE REIN G.P. RATE DECLARED WAS 27.06% IS DISTINGUISHABLE ON FACTS AS POINTED O UT BY THE LD. CIT(A). IT IS ALSO NOTICED THAT THE ASSESSEE EXPLAINED THE REASON S FOR DECLINING IN THE G.P. RATE, WHICH WAS MAINLY DUE TO RECESSION AND THIS EX PLANATION OF THE ASSESSEE APPEARS TO BE TRUE BECAUSE THE TURNOVER DECLINED TO RS. 6.88 CRORES IN SUBSEQUENT YEAR IN COMPARISON TO RS. 10.09 CRORES I N THE YEAR UNDER CONSIDERATION. THE OTHER REASONS GIVEN BY THE ASSES SEE WAS THE INCREASE IN LABOUR AND RAW MATERIAL COST, THE ASSESSING OFFICER HAD NOT COMMENTED ON THE EXPLANATION OF THE ASSESSEE. AT THE SAME TIME, CERTAIN DEFECTS WERE POINTED OUT BY THE ASSESSING OFFICER AND BOOKS WERE REJECTED U/S 145(3) OF THE ACT, THE SAID ACTION OF THE ASSESSING OFFICER H AS NOT BEEN CHALLENGED BY THE ASSESSEE. CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE G.P. RATE ESTIMATED BY THE LD. CIT(A) IS ON HIGHER SIDE, THEREFORE, TO MEET THE ENDS OF JUSTICE, IT WOULD BE FAIR AN REASONABLE TO APPLY [12] G.P. RATE OF 10% INSTEAD OF 11% DIRECTED TO BE APPL IED BY THE LD. CIT(A). ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL AND THE GROUND RAISED BY THE ASSESSEE IS PAR TLY ALLOWED. 21. THE NEXT ISSUE AGITATED BY THE ASSESSEE IN THE CROSS OBJECTION, RELATES TO THE INTEREST RECEIPT, WHICH IS CONSIDERED AS IN COME FROM OTHER SOURCES. 22. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS. 4,88,432/-. THE ASSESSING OF FICER TREATED THE SAID INCOME AS INCOME FROM OTHER SOURCES. THE EXPLANAT ION OF THE ASSESSEE WAS THAT IT HAD UTILISED ITS INTEREST BEARING FUNDS FOR GIVING THE LOANS & ADVANCE ON WHICH INTEREST IS RECEIVED. IT WAS ALSO STATED THAT IF THE INTEREST RECEIVED WAS TO BE CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES THEN APPROPRIATE INTEREST PAID TO VARIOUS PERSONS, WAS A LSO BE ALLOWED TO BE SET OFF AGAINST SUCH INCOME. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVENIENCED AND CONSIDERED THE INTEREST RECEIVED BY THE ASSESSE E AMOUNTING TO RS. 4,88,432/- AS INCOME FROM OTHER SOURCES. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE MADRASS HIGH COURT IN THE C ASE PANDIAN CHEMICALS LTD. REPORTED IN 254 ITR 562. 23. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE FUNDS HAD BEEN ADVANCED FROM THE VARIOUS LOANS AND CREDIT FACILITIES HAVING INTEREST BURDEN AND THAT T HERE WAS ONE TO ONE NEXUS AND THE FUNDS HAD BEEN ADVANCED DURING THE BUSINESS CYCLE. THE LD. CIT(A), HOWEVER, DID NOT FIND MERIT IN THE ABOVE SUBMISSION S OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE HAD FILED THE CROSS OBJECTION. [13] 24. LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT IF THE INTEREST RECEIPTS ARE TREATED AS AN INCOME FROM OTHER SOURCES, SIMI LAR CORRESPONDING EXPENSES SHALL ALSO BE ALLOWED, TO BE SET OFF AGAIN ST THE SAID RECEIPTS. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF I .T.A.T. JODHPUR BENCHES: I. SHRI LAL CHAND CHOUDHARY VS. ACIT, CIRCLE-1, BA RMER IN I.T.A. NO. 191/JU/2012 ORDER DATED 07/03/2013. II. SHRI DEVENDRA VISHNOI VS. ACIT JODHPUR IN I. T.A. NO. 98/JU/2013 ORDER DATED 26/07/2013. 25. IN HIS RIVAL SUBMISSIONS, THE LD. D.R. SUPPORTE D THE ORDERS OF THE AUTHORITIES BELOW. 26. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE MAIN CONTENTION OF THE ASSESSEE FROM THE VERY BEGINNING IS THAT IF THE INTEREST RECEIPTS ARE TREATED AS INCOME FROM OTHER SOURCES , THEN THE CORRESPONDING EXPENSES SHALL ALSO BE ALLOWED U/S 57 OF THE ACT. W E FIND FORCE IN THE AFORESAID SUBMISSIONS, THEREFORE, THIS LIMITED ISSU E IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFTER C ONSIDERING THIS EXPLANATION OF THE ASSESSEE THAT THERE WAS A NEXUS IN THE INTEREST BEARING FUNDS AND THE ADVANCES FROM WHICH INTEREST IS RECEIVED, THEREFORE , IF THE RECEIPT OF INCOME IS TO BE TREATED AS INCOME FROM OTHER SOURCES, THE C ORRESPONDING SET OFF OF THE INTEREST EXPENSES IS ALSO TO BE GIVEN. ACCORDINGLY, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DEC IDED AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. [14] 27. THE LAST ISSUE AGITATED BY THE ASSESSEE IN HIS C.O. RELATES TO SUSTENANCE OF ADDITION OF RS. 7,42,900/- BY TREATIN G THE PURCHASES AS NON- GENUINE. 28. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAD SHOWN PURCHASES OF WOOD FROM ONE SHRI SHARAFAT AHMA D WORTH RS. 3,68,900/- AND RS. 3,74,000/- ON 16/12/2008 AND 31/ 12/2008 RESPECTIVELY. HE FURTHER OBSERVED THAT THE ASSESSEE COULD NOT PRODUC E THE SAID PERSON TO PROVE THE GENUINENESS OF THE PURCHASES AND THE EFFO RTS MADE BY THE ASSESSING OFFICER TO ENQUIRE FROM SHRI SHARAFAT AHM ED ALSO REMAINED IN VAIN, ACCORDINGLY THE ASSESSING OFFICER TREATED THOSE PUR CHASES AS NON-GENUINE AND MADE THE ADDITION OF RS. 7,42,900/-. 29. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED THAT THE PAYMENTS WERE MADE BY CHEQUE AND THE NAME ALONGWITH ADDRESS OF THE SELLER WAS PROVIDED TO THE ASSESSING OFFICER. THEREFORE, THE ADDITION MADE WAS NOT JUSTIFIED. 30. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, OBSERVED THAT THOUGH THE NAME AND ADDRESSES WITH CO NTACT NUMBERS WERE PROVIDED TO THE ASSESSING OFFICER BUT ON THE GIVEN ADDRESS, SUCH PERSON WAS NOT TRACEABLE AND EVEN MANY CALLS MADE, REMAINED UN RESPONDED. HE, THEREFORE, SUSTAINED THE ADDITION MADE BY THE ASSES SING OFFICER. NOW THE ASSESSEE HAS FILED THE CROSS OBJECTION. 31. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. IT WAS FURTHER STATED THAT THE BOOKS OF ACCOUNTS [15] WERE REJECTED IN THIS CASE AND G.P. RATE WAS APPLIE D, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) BY CONSIDERING THE PURCHASES AS NON-GENUINE WAS NOT JU STIFIED. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. SHRI SINDHUJHA FOODS (P) LTD. REPORTED IN 1 6 DTR 278 (RAJ.) 32. IN HIS RIVAL SUBMISSIONS, THE LEARNED D.R. SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 33. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT A SIMILAR ISSUE HAS B EEN DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S HRI SINDHUJHA FOODS (P) LTD.,(SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER:- FOR THE PURPOSE OF SATISFYING THE QUESTION AS FORM ULATED THE COUNSEL FOR THE REVENUE COULD NOT SHOW AS TO WHAT M ATERIAL HAS NOT BEEN CONSIDERED BY THE TRIBUNAL, AND WHAT IRRELEVAN T MATERIAL HAS BEEN CONSIDERED IN REDUCING THE ADDITIONS MADE. RATHER A N OVERALL CONSIDERATION OF THE ORDERS OF THE A.O., THE CIT(A) AND THE TRIBUNAL DOES SHOW, THAT ON ACCOUNT OF THE ASSESSEE HAVING S HOWN BOGUS PURCHASES, THE BOOKS OF ACCOUNTS HAD BEEN REJECTED, AND THE MATTER WAS PROCEEDED UNDER S. 145. THEN, THE QUESTION REMA INED OF DETERMINING THE INCOME ON THE BASIS OF BEST JUDGMEN T ASSESSMENT. AT THIS POINT, IT IS SIGNIFICANT TO NOTE, THAT THE GRO SS SALES FIGURE FOR THE RELEVANT YEAR IS NOT IN CONTROVERSY IN THE SENSE, T HAT WHATEVER BOGUS SALES HAVE BEEN FOUND BY THE A.O., IF THEY WERE TO BE CONSIDERED LITERALLY, THEY WOULD HAVE REDUCED THE FIGURE OF SA LE, AND THERE IS NO MATERIAL OR FINDING, OR ANY INDICATION, TO SHOW THA T THE GROSS SALE WAS SHOWN BY THE ASSESSEE AT ANY DEFLATED FIGURE. IN TH AT VIEW OF THE MATTER FOR MAKING BEST JUDGMENT ASSESSMENT THE ONLY RELEVA NT THING, REQUIRED TO BE CONSIDERED WAS, APPLICATION OF PARTICULAR GP RATE, WHICH HAS BEEN APPLIED BY THE TRIBUNAL AND THE CIT(A), ON RELEVAN T CONSIDERATION, BEING THE GP RATE APPLIED IN THE LAST YEAR. THUS, I T CANNOT BE SAID THAT ANY MATERIAL EVIDENCE HAS NOT BEEN CONSIDERED, OR A NY IRRELEVANT CONSIDERATION HAS BEEN TAKEN INTO ACCOUNT BY THE TR IBUNAL. [16] IN THE PRESENT CASE ALSO THE BOOKS OF ACCOUNT HAS BEEN REJECTED AND THE FIGURES OF THE SALES WERE NOT IN DOUBT, THEREFO RE, BY KEEPING IN VIEW THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE OF CIT VS M/S SRI SINDHUJHA FOODS (P) LTD., NO OTHER ADDITION ON ACCOUNT OF PURCHASES CAN BE MADE. IN THAT VIEW O F THE MATTER, THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT(A) IS DELETED. 34. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED A ND PARTLY FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 12/12/2013) . SD/- SD/- (HARI OM MARATHA) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED: 12/12/2013 *RANJAN COPY FORWARDED TO: 1. APPELLANT. 2. RESPONDENT 3. CIT(A) 4. CIT 5. D.R. ASSISTANT REGISTRAR JODHPUR