The ACIT- 1(2), Bhopal V. M/s. Narmada Trading Pvt. Ltd., Bhopal

ITA 333/IND/2013

• Counselvise Citation: 33322714 RSA 2013
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHEEM KUNWAR
• Assessee Lawyers: S S DESHPANDE
• Keywords: Business income; Date of conversion; Bad and doubtful debts; Deemed dividend
• Section: 80HHC; 28

Judgement Text

PAGE 1 OF 27 IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ABVNB1312L I.T.A.NO. 333/IND/2013 A.Y. : 2001-02 ACIT, 3(1), INDORE VS. M/S.NARMADA TRADING PVT.LTD., BHOPAL AP PELLANT RESPONDENT I.T.A.NO. 262 /IND/201 3 A.Y. : 2001-02 M/S.NARMADA TRADING PVT.LTD., BHOPAL VS. ACIT, 3(1), INDORE APPELLANT RESPONDENT ASSESSEE BY : SHRI S.S.DESHPANDE, C. A. DEPARTMENT BY : SHRI BHEEMKUNWAR, SR. DR DAT E OF HEARING : 29 . 1 0 .201 3 DATE OF PRONOUNCEMENT : 30 . 01 .201 4 M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 2 PAGE 2 OF 27 O R D E R PER R. C. SHARMA, A.M. THESE ARE CROSS APPEALS BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 25.2.2012 FOR THE ASSESSMENT YEAR 2001-02. 2. THE RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF PRECIOUS STONES. DURING THE YEAR UNDER CONSIDERA TION, THE RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME O F RS. 20,36,963/-. THE ASSESSEE HAD SHOWN EXPORT INCOME F ROM TRADING IN JEMS AND JEWELLERIES AND HAS CLAIMED DED UCTION U/S 80HHC IN RESPECT OF EXPORT PROFIT. DURING THE C OURSE OF SCRUTINY ASSESSMENT, THE ASSESSEE HAS FILED FOLLOWI NG DETAILS VIDE LETTER DATED 22.12.2006, IN RESPONSE TO THE LE TTER AND NOTICE ISSUED BY THE ASSESSING OFFICER U/S 142(1). 1. COMPLETE POSTAL ADDRESSES OF SELLERS AND BUYERS OF GOODS TRADED BY-YOU DURING THE AY-2001-02. 2. COMPLETE POSTAL ADDRESS OF ALL YOUR DEBTORS INCLUDI NG 'LOANS & ADVANCES' AND 'SUNDRY DEBTORS':- NAME/ M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 3 PAGE 3 OF 27 ADDRESS/ AMOUNT! SHAREHOLDING IN YOUR CAPITAL. IN RESPONSE TO ABOVE AND REASONS OF REOPENING SUPPLIED TO ASSESSEE IT HAS FILED DETAILED SUBMISSI ON VIDE ITS LETTER DATED 22/12/2006 WITH CERTAIN DETAILS AS BELOW : 1. LIST OF PURCHASES OF JEMS DURING THE YEAR. 2. LIST OF SALES OF JEMS DURING THE YEAR. 3. THE ADDRESSES OF PARTIES FROM WHOM JEMS HAVE BEEN PURCHASED. 4. PHOTOCOPY OF BANK ACCOUNT WITH PHOTOCOPY OF ADVICES ACCORDING TO WHICH SALES AMOUNT IS RECEIVE D IN FOREIGN EXCHANGE. 5. DETAILS OF SUNDRY DEBTORS. 6. DETAILS OF LOANS & ADVANCES. 3. AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE , THE ASSESSING OFFICER OBSERVED THAT ASSESSEE DID NOT FU RNISH DETAILS OF SHAREHOLDING WITH THE DEBTORS. ON PERUSA L OF LIST OF DEBTORS AS SUPPLIED FOLLOWING NAMES EMERGES: M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 4 PAGE 4 OF 27 S.NO. PARTICULARS AMOUNT AS AMOUNT AS ON ADVANCED ON 31/03/200 AMOUNT THIS (A) (B) Y-EAR (B)-(A) 1 SMT J Y OTI A G RAWAL 21,40,34 11,69,100 9,71,241 2 VANDANA CEMENT PVT. LTD. 10,02,01 6 20,04,032 NIL 3 BHAVNA AGRAWAL 3,64,751 0 3,64,751 --- 4 DEV FISCAL SERVICES PVT LTD 7,73,863 7,73,863 NIL 5 SHRI GIRISH AGRAWAL 75,50,145 52,93,180 22,56,965 6 SHRI PAWAN AGRAWAL 1,14,545 10,000 1,04,545 7 SHRI SUDHIR A G RAWAL 5 4,12,079 0 54,12,079 -- 8 WRITERS & PUBLISHRES L TD. 2 ,61,903 0 2,61,903 TOTAL 93,71,484 4. FROM THE ABOVE LIST, ASSESSING OFFICER OBSERVED THA T PRIMA-FACIE ALL THE ABOVE PARTIES ARE RELATED PARTI ES AND IN ABSENCE OF INFORMATION ABOUT THEIR SHAREHOLDING IT IS PRESUMED THAT THESE PERSONS ARE PERSONS HOLDING SUB STANTIAL INTEREST IN THE ASSESSEE COMPANY BECAUSE THE PERSON APPEARING AT SR. NO. 5 SHRI GIRISH AGRAWAL APPEARS TO BE THE PERSON WHO HAS SIGNED THE RETURN OF THE ASSESSEE CO MPANY. 5. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSE E COMPANY HAS PAID OUT DIVIDEND TO ITS SHAREHOLDERS W ITHIN THE MEANING OF DEEMED DIVIDEND U/S 2(22)(E) OF INCOME -TAX ACT, 1961. AS THIS AMOUNT IS DIVIDEND: DISTRIBUTED BY THE M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 5 PAGE 5 OF 27 ASSESSEE COMPANY THEN COMPANY IS LIABLE TO PAY DIVI DEND DISTRIBUTION TAX U/S 115(O) OF INCOME-TAX ACT, 1961 . 6. WITH REGARD TO ASSESSEES CLAIM OF DEDUCTION U/S 80HHC, THE ASSESSING OFFICER OBSERVED AS UNDER :- ASSESSEE IS ENGAGED IN EXPORT TRADING OF JEMS DURI NG THE A.Y. 2001-02 AND HAS CLAIMED DEDUCTION @80% U/S 80HHC OF INCOME-TAX ACT, 1961. ASSESSEE WAS REQUIRE D TO PRODUCE PROOF IN SUPPORT OF CLAIM THAT WHETHER THEY HAVE RECEIVED THE AMOUNT OF EXPORT TURNOVER WITHIN THE STIPULATED PERIOD OF 6 MONTHS FROM DATE OF EXPORT. IN THIS CONNECTION ASSESSEE HAS FURNISHED COPY OF BANK STAT EMENT FROM FEDERAL BANK LIMITED FOR ACCOUNT NUMBER CA-632 FROM 23.1.2001 TO 3.5.2001 AND ENCLOSED COPY OF CRE DIT NOTES ISSUED BY BANK AS BELOW :- S.NO. DATE AMOUNT IN US$ AMOUNT IN RS. 1. 23.01.2001 61000 2824910 2. 30.01.2001 107380.50 4986650 3. 02.05.2001 40000 1870700 4. 02.05.2001 51000 2385170 5. 08.02.2001 33516 158162 6. 22.01.2001 52000 2472060 7. 02.03.2001 59961.27 2789898 8. 16.02.2001 159582.73 7438618 TOTAL 26326168 FROM THE ABOVE, ASSESSING OFFICER OBSERVED THAT ASS ESSEE M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 6 PAGE 6 OF 27 HAS NOT FURNISHED PROOF OF REMAINING AMOUNT OF RS.17,97,789/- THAT THE SAME HAS BEEN REMITTED TO I NDIA WITHIN STIPULATED TIME PERIOD. IN VIEW OF THESE CIRCUMSTANCES THIS AMOUNT OF TURNOVER IS HEREBY RED UCED FROM EXPORT TURNOVER AND DEDUCTION U/S 80HHC IS TO BE RECALCULATED. 7. THE ASSESSING OFFICER FURTHER OBSERVED THAT F ROM THE POINT 13 OF FORM 10CCAC IT IS EVIDENT THAT ASSESSEE HAS SHOWN LOSS FROM INDIGENOUS BUSINESS BY SHOWING HIGH ER PROFIT FROM EXPORTS IN COMPARISON TO TOTAL PROFITS OF THE BUSINESS. ON PERUSAL OF TRADING AND PROFIT AND LOSS ACCOUNT FOR THE AY-2001-02 IT IS EVIDENT THAT ASSESSEE HAS NOT CARRIED OUT ANY OTHER BUSINESS DURING THE YEAR OTHER THAN E XPORT OF JEMS AND JEWELRY AND WHOLE BUSINESS TURNOVER CONSTI TUTES THIS EXPORT ONLY. IN VIEW OF THIS THE EXPENSES CLAI MED FROM SECTION 28 TO SECTION 44 ARE RELATED TO THE EXPORT TURNOVER ONLY. AS PER ASSESSING OFFICER, THE ASSESSEE CAN CL AIM INDIRECT COSTS RELATED TO EXPORT BUSINESS IN INDIGENOUS BUSI NESS INCOME IN SPITE OF THE FACT THAT THERE EXISTS NO IN DIGENOUS BUSINESS. IN VIEW OF THESE CIRCUMSTANCES ASSESSEE'S CLAIM OF M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 7 PAGE 7 OF 27 ADJUSTMENT IN EXPORT PROFIT IS NOT ALLOWABLE AND FO R CALCULATING DEDUCTION U/S 80HHC ASSESSEE SHOULD FIRST REDUCE AL L EXPENSES DIRECT AS WELL AS INDIRECT RELATED TO BUSI NESS. THIS AMOUNT OF RS. 10,14,533/- IS THEREFORE, REDUCED FRO M EXPORT PROFITS FOR CALCULATION OF DEDUCTION U/S 80HHC OF I NCOME TAX ACT, 1961. IN VIEW OF ALL THE ABOVE FOR CALCULATING DEDUCTION U/S 80HHC VARIOUS FIGURES ARE REVISED AS BELOW: - 1. TOTAL TURNOVER OF THE BUSINESS : RS. 2,81,40,442/- 2. TOTAL EXPORT TURNOVER AS DISCUSSED ABOVE : RS. 2,6 3,42,653/- 3. TOTAL PROFIT OF THE BUSINESS : RS. 1,43,04,784/- 4. EXPORT TURNOVER IN RESPECT OF TRADING GOODS : RS. 2,63,42,653/- 5. DIRECT COST OF TRADING GOODS EXPORTED : RS. 1,27,45,689/- 6. INDIRECT COST OF TRADING GOODS EXPORTED AS DISCUSSE D : RS. 10,73,484/- 7. TOTAL OF (5+6) : RS. 1,38,19,173/-. 8. PROFIT FROM EXPORT OF TRADING GOODS EXPORTED (4-7) : RS. 1,25,23,480/- DEDUCTION U/S 80HHC @80% OF TOTAL EXPORT PROFIT RS.1,00,18,784/- (RUPEES ONE CRORE EIGHTEEN THOUSAN DS SEVEN HUNDRED AND EIGHTY FOUR ONLY. IN VIEW OF ALL THE ABOVE, INCOME OF THE ASSESSEE WA S CALCULATED BY ASSESSING OFFICER AS UNDER :- DIVIDEND DISTRIBUTION U/S 2(22)(E) M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 8 PAGE 8 OF 27 TAXABLE @ 10% : RS. 93,71,484/- TOTAL PROFIT OF THE BUSINESS AS PER PROFIT AND LOSS ACCOUNT :RS.1,43,04,784/- LESS: DEDUCTION U/S 80HHC AS CALCULATED ABOVE :RS.1,00,18,784/- TAXABLE INCOME AT NORMAL RATES :RS. 42,86,000/- 8. AGAINST THE ABOVE ORDER OF ASSESSING OFFICER, THE ASSESSEE APPROACHED TO THE CIT(A). 9. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S 2(22)(E) AFTER HAVING THE FOLLOWING OBSERVATIONS :- 5.1 AS PER THE FACT THE INTEREST FREE LOAN IS EXTENDED TO FOLLOWING PARTIES BY APPELLANT AS PER THE ASSESSMENT ORDER:- S PARTICULARS AMOUNT AS ON AMOUNT AS ON ADVANCED NO. 31.03.2001(A) 31.03.2000(B) AMOUNT THIS YEAR (B) - (A) 1 SMT. JYOTI AGRAWAL 21,40,341 11,69,100 9,71,241 2 VANDANA CEMENT 10,02,016 20,04,032 NIL PVT . LTD 3 BHAVNA AGRAWAL 3,64,751 0 3,64,751 4 DEV FISCAL SERVICES 7,73,863 7,73,863 NIL PVT. LTD. 5 SHRI GIRISH AGRAWAL 75,50,145 52,93,180 22,56,965 6 SHRI PAWAN AGRAWAL 1,14,545 10,000 1,04,545 7 SHRI SUDHI AGRAWAL 54,12,079 0 54,12,079 8 WRITERS & 2,61,903 0 2,61,903 PUBLISHERS LTD. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 9 PAGE 9 OF 27 TOTAL 93,71,484 .2 AS PER SUBMISSION OF APPELLANT DATED 16.02.13, THE SHARE HOLDING PATTERN OF APPELLANT IS AS FOLLOWS:- S1. SHAREHOLDERS NO. OF EQUITY AMT. PER SHARE NO SHARES 1. SHRI DEVENDRA KUMAR 10 10/- TIWARI 2. SHRI BIHARILAL GOEL 10 10/- 3. SHRI RAMESH CHANDRA 2500 10/- AGARWAL 4. SHRI D.P. AGARWAL 105000 10/ - TOTAL 107520 5.3 SINCE LOANS/ADVANCES ARE DELIBERATELY GIVEN TO SUCH RELATED PARTIES WHO ARE NOT SHARE HOLDERS OF APPELL ANT HENCE PROVISION OF SEC 2 (22)(E) OF THE LT. ACT WIL L NOT BE APPLICABLE. OTHERWISE ALSO SINCE ENTIRE PROFIT ON E XPORT BUSINESS OF RS. 1,25,23,480/- IS NOT EARNED FROM EX PORT BUSINESS BUT IS HELD TO BE INCOME FROM OTHER SOURCE S, THEREFORE SEC 2(22)(E) OF LT. ACT WILL NOT APPLY. A S A RESULT ADDITION OF RS. 93,71,484/- MADE BY AO U/S 2(22)(E) OF THE LT. ACT IS HEREBY DELETED. GROUND N O. 3 OF APPEAL IS ALLOWED. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 10 PAGE 10 OF 27 HOWEVER, THE CIT(A) ALSO ISSUED NOTICES OF ENHANCEM ENT U/S 251(1) READ WITH SECTION 251(2) REQUIRING FOLLOWING INFORMATION: (I) YOUR ENTIRE TRANSACTION IN DIAMONDS IS APPARENTLY BOGUS BECAUSE OF FOLLOWING REASONS: 4. (A) YOU ARE NOT INTO BUSINESS OF DIAMOND TRADING. ( B) SUDDENLY THIS YEAR PLEASE SUBMIT HOW 4 PARTIES BASED IN NEWYORK AND 1 PARTY FROM HONGKONG CAME TO KNOW ABOUT YOU? HOW THEY CAME TO KNOW THAT YOU ARE DEALING IN DIAMONDS . (C) HOW IT IS POSSIBLE THAT SALE TO 5 DIFFEREN T PARTIES WAS MADE IN SAME MONTH I.E. IN JANUARY, 2001, ONLY ON 8/01/01, 10/01/01,11/01/01,15/01/01 AND 22/01/01. (D) WHY SALES ARE MADE ONLY IN JAN.'OL AND NOT IN OTHER MONTHS OF THE YEAR. (E) PLEASE GIVE COPY OF ALL SALES INVOICES, M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 11 PAGE 11 OF 27 CUSTOM CLEARANCE, COPY OF INSURANCE POLICY FOR SUCH DIAMOND SALES. (F) PLEASE FURNISH FULL ADDRESS & PHONE NOS. OF YOUR BANKER 'THE FEDERAL BANK LTD.' ALONGWITH LEGIBLE CERTIFIED COPY OF BANK ACCOUNT FROM 01/04/2000 TO 30/06/2001. (G)GIVE FULL NAME, ADDRESS, NAME OF DIRECTOR AND CONTACT PERSON, PHONE NOS. OF ALL 5 PARTIES TO WHOM SALES WERE MADE NAMELY INCON GEMS INC., FAIRGROWTH INTO INC., PRECIOUS PEBBLES INC., GEMS TRADING CO. AND SHREE GEMS INC. FURNISH LEDGER ACCOUNTS OF THESE PARTIES FOR AY 01-02 & AY 02-03. (H)GIVE LEDGER ACCOUNT OF DIAMOND PURCHASES FOR AY 2001-02 AND AY 2002- 03. (I) HOW COME ALL PURCHASES WERE MADE ONLY IN M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 12 PAGE 12 OF 27 DECEMBER, 2000. (J) GIVE COPY OF ALL PURCHASE BILLS OF VINAYAK OVERSEAS AND MIN. O. GEMS. (K) ADDRESS OF MIN. O. GEMS IS D-5/1, MALVIYA NAGAR, JAIPUR WHICH IS SAME AS YOUR ADDRESS. THIS IS RESIDENTIAL AREA. WHETHER IT IS A SISTER CONCERN? PROVIDE COPY OF BANK ACCOUNT OF THIS CONCERN FROM 01/04/2000 TO 31/03/2001. ALSO PROVIDE COPY OF ACKNOWLEDGEMENT FOR FILING RETURN, PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THIS CONCERN FOR AY 2001-02. (L)THERE ARE NO DIAMOND TRADERS LOCATED IN AREA P-74, HAWA MAHAL, JAIPUR WHICH IS ADDRESS OF VINAYAK OVERSEAS. PLEASE ESTABLISH GENUINENESS OF TRANSACTION. FURNISH COPY OF BANK ACCOUNT OF THIS PARTY FROM 01/04/2000 TO 31/03/2001. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 13 PAGE 13 OF 27 (M)BY MAKING JUST FEW PURCHASES IN DECEMBER' 2000 AND 5 SALES OF DIAMONDS IN JANUARY' 2001, YOU EARNED A PHENOMENAL PROFIT OF RS.1.25 CRORES WHERE SALES ARE OF RS.2.81 CRORE AND PURCHASES ARE SHOWN AT RS.1.43 CRORE ONLY. WHOLE EXERCISE SEEMS ONLY TO CLAIM EXEMPTION U/S 80HHC AND TO ROTATE UNACCOUNTED MONEY. PLEASE COMMENT. (N) IMMEDIATELY AFTER SHOWING SUCH PROFIT, IT IS NOT USED FOR FURTHER BUSINESS BUT EXTENDED AS INTEREST FREE ADVANCES TO SEVERAL RELATED PERSONS WHICH AGAIN SHOWS BOGUS PROFIT COOKED UP FOR USE OF SUCH ENTRIES BY FAMILY MEMBERS . (II) WHAT IS YOUR BUSINESS IN EARLIER YEARS AND ON WHICH DATE SUCH BUSINESS WAS CLOSED. WHAT WAS THE NATURE OF TRANSACTION WITH VANDANA CEMENT P. LTD.? FURNISH COPY OF LEDGER ACCOUNT OF THIS PARTY FOR LA ST 4 M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 14 PAGE 14 OF 27 YEARS. WHEN THIS BUSINESS IS CLOSED, HOW SUCH BAD DEBT COULD BE ALLOWED ? (III) WHAT WAS THE SHARE HOLDING PATTERN OF THE APPELLANT CO. IN AY 2001-02 AS PER RECORD OF ROC. PLEASE FURNISH NAME AND ADDRESS OF EACH SHARE HOLDER ALONGWITH PERCENTAGE OF SHARE HELD. PLEASE A LSO FURNISH NAME AND ADDRESS OF PERSONS TO WHOM ADVANCES GIVEN WITH THEIR RELATIONSHIP WITH DIRECTO RS AND AMOUNT OF ADVANCE. (IV) PLEASE NOTE THAT THIS NOTICE FOR ENHANCEMENT I S GIVEN TO YOU U/S 251(2) OF THE LT. ACT AND RELIANCE IS PLACED ON THE DECISION IN THE CASE OF KASHI NATH CHANDIWALA [2006]280 ITR 318)AND ALSO ON NIRBHERAM DAULATRAM [1997] 224 ITR 610 (SC).' 4.1 IN RESPONSE TO NOTICE U/S 251(1) R.W.S. 251(2) OF IT ACT THE ASSESSEE FILED FOLLOWING WRITTEN SUBMISS ION DT. FEBRUARY 16, 2013, BEFORE THE CIT(A). IT WAS SUBMITTED THAT THE ENTIRE TRANSACTION IN DIAMONDS/EMERALDS/OTHER PRECIOUS STONE IS APPARENTLY BOGUS IS NOT CORRECT BECAUSE OF FOLLOWIN G: M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 15 PAGE 15 OF 27 (A) THE ASSESSEE COMPANY WAS IN THE BUSINESS AND TRADING SINCE F.Y. 1999-2000 RELEVANT TO A.Y. 2000-01 ,THEREFORE YOUR CONTENTION THAT 'YOU ARE NOT INTO BUSINESS OF DIAMOND TRADING' IS NOT CORRECT. THIS IS ALSO PROVED BY THIS FACT THAT FROM THE AUDITED FINANCIAL STATEMENT OF THE ASSESSEE COMPANY IN WHICH FIGURES FOR PREVIOUS YEAR HAS BEEN PROVIDED. COPIES OF AUDITED FINANCIAL STATEMENT FOR SUBJECTED ASSESSMENT YEAR IS ENCLOSED AS PER ANNEXURE 1. (B) SINCE THE ASSESSEE COMPANY WAS ALREADY IN DIAMOND BUSINESS FROM EARLIER ASTT. YEAR, THEREFORE , SOME PARTIES IN THIS LINE OF BUSINESS WERE IN TOUCH DURING THE YEAR UNDER APPEAL. (C) THERE ARE DISCUSSIONS/NEGOTIATIONS BETWEEN THE SELLER AND BUYERS BEFORE TRANSACTION TAKE PLACES. DURING THE COURSE OF DISCUSSION / NEGOTIATION IT IS DIFFICULT TO UNDERSTAND THAT WHEN THE ACTUAL TRANSACTION WILL TAKE PLACE. ALL THE SALES WERE MAD E M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 16 PAGE 16 OF 27 IN MONTH OF JANUARY IS NOTHING BUT ONLY A COINCIDENCE. YOU MAY ALSO APPRECIATE THIS FACT THAT THE APPELLANT HAS PURCHASED THE MATERIAL IN DECEMBER I.E. WHEN SALES ARE ABOUT TO TAKE PLACE. (D)ANSWER TO THIS QUERY COVERED BY PINT ( C) ABOVE. (E) WE ARE ENCLOSING HEREWITH PHOTOCOPY OF ALL SALE S INVOICES, DULY CLEARED BY CUSTOM DEPARTMENT ON THE INVOICES ITSELF FOR YOUR KIND CONSIDERATION AS PER ANNEXURE-2. (F) AS THE CASE IS VERY OLD AND OUR ACCOUNTS FILE F OR F.Y. 2000-01 RELEVANT TO A.Y. 2001-02 IS NOT TRACEABLE THEREFORE IT IS NOT POSSIBLE FOR US TO SUBMIT REQUI RED BANK STATEMENT AT THIS MOMENT. HOWEVER, THE SAME WAS SUBMITTED TO LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 22.12.2006 [COPY OF LETTER IS ENCLOSED FOR YOUR REA DY REFERENCE AS PER ANNEXURE-3]. FURTHER, WE ARE STILL TRYING TO SEARCH OUR ACCOUNTS FILE AND WILL SUBMIT IN TO YOUR GOODSELF IN DUE COURSE. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 17 PAGE 17 OF 27 (G) FULL NAME, ADDRESS AND PHONE NUMBERS OF ALL 5 PARTIES TO WHOM SALES WERE MADE IS AS UNDER.- PARTY NAME ADDRESS PHONE NO. SHRI GEMS 22W 48 TH STREET SUIT NO: 1203, NEW 2129448977 INC . YORK, N.Y. USA-10036 GEMS 11/F, A - I HANKOW CENTRE, 47, PEKING 85227241273 TRADING ROAD, T.S.T. KOWLOON, HONGKONG COMPANY INCON GEMS 2 WEST, 46 TH STREET, SUIT NO. 3603, 2122218560 INC NEW YORK, N.Y. - 10036 USA FAIRGROWTH SUITE 11002, 2 WEST, 46 TH STREET NY INTEMATION,I USA NC PRECIOUS 55 WEST, 47 TH STREET, SUIT NO. 920 2127044081 PEBBLES INC NEW YORK. (H)WE ARE ENCLOSING HEREWITH LEDGER COPY OF DIAMOND PURCHASED FOR THE A.Y. 2001-02 AND A.Y. 2002-03 AS PER ANNEXURE-5. (I) THE ASSESSEE MADE PURCHASES IN DECEMBER, 2000 AS WELL AS IN JANUARY, 2001 AS PER BUSINESS CIRCUMSTANCES. AS WE ALSO MENTIONED EARLIER THAT THE ASSESSEE IS NOT IN THE BUSINESS IN WHICH IT HAS TO MAINTAIN INVENTORY. FURTHER THE ITEMS ARE COSTLY AND. VERY PRICE SENSITIVE HENCE IT IS IN THE INTERE ST OF BUSINESS THAT PURCHASES SHOULD BE COMMENSURATE WITH THE SALE. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 18 PAGE 18 OF 27 (J) WE ARE ENCLOSING HEREWITH ALL PURCHASE BILLS OF VINAYAK OVERSEAS AND MINE 0 GEM AS PER ANNEXURE-6. (K) ADDRESS OF MINE 0 GEM IS 115, VARDHMAN, J OHARI BAZAR, JAIPUR-3 AND NOT D-5/1, MALVIYA NAGAR, JAIPUR AND IT IS NOT SISTER CONCERN OF ASSESSEE COMPANY. (L) THE ASSESSEE WHEN MADE PURCHASES IN F. Y. 2000- 01, THE PARTY WAS LOCATED IN AREA P-74, GANPATI CHAMBER, BHATTON KI GALI, OPP. HAWA MAHAL, JAIPUR WHICH IS ALSO MENTIONED ON BILLS ISSUED BY THE PARTY. (M)BECAUSE IT SEEM PROFITABLE BUSINESS TO THE ASSESSEE COMPANY IN EARLIER YEAR THEREFORE ASSESSEE MADE BUSINESS IN THIS YEAR ALSO AND IT IS NOT ONLY TO CLAIM EXEMPTION IS] S 80HHC AND TO ROTATE UNACCOUNTED MONEY AS YOUR GOODSELF HAS MENTIONED. EARNING PROFIT FROM ANY BUSINESS IS THE OBJECT OF ANY BUSINESS, CLAIMING DEDUCTION IS] S M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 19 PAGE 19 OF 27 80HHC IS JUST THE BENEFIT AVAILABLE AS PER THE PROVISION OF LAW IN FORCE AT THAT TIME. (N)THE ASSESSEE COMPANY HAS UTILIZED THE FUNDS AS PER REQUIREMENT AS IT WAS NOT REQUIRED FOR FURTHER BUSINESS IMMEDIATELY THEREFORE TEMPORARY ADVANCES HAVE BEEN GIVEN. (II). THE ASSESSEE COMPANY WAS IN BUSINESS OF DIAMOND TRADING IN EARLIER YEARS ALSO AND THE SAME WAS CONTINUED IN THE YEAR UNDER CONSIDERATION AND IN COMING YEAR ALSO. FURTHER, WE WOULD LIKE TO EXPLAIN YOU THAT THE ASSESSEE COMPANY HAS MADE SOME TRANSACTIONS IN F. Y. 1997-98 AND BALANCE OF RS. 20,04,032/- WAS OUTSTANDING SINCE THEN DUE TO HEAVY LOSSES THE PARTY WAS UNABLE TO PAY THE DUES THEREFORE AMOUNT WAS SETTLED FOR 500/0 AND 50% I.E. RS.10,02,016/- HAS BEEN WRITTEN OF AS BAD DEBTS. COPY OF LEDGER ACCOUNT OF VANDANA CEMENT P. LTD. IS ALSO ENCLOSED AS PER ANNEXURE-7. (III). THE SHAREHOLDINGS PATTERN OF THE ASSESSEE COMPANY AS ON 31/03/2001 ARE ENCLOSED HEREWITH M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 20 PAGE 20 OF 27 AS PER ANNEXURE-8. DETAIL OF ADVANCES AS ON 31/03/2001 IS ALSO ENCLOSED HEREWITH AS PER ANNEXURE 9 MENTIONING THE RELATIONSHIP WITH DIRECTORS. 10. BY THE IMPUGNED ORDER, THE LD. CIT(A) DECLINED THE ASSESSEES CLAIM OF DEDUCTION U/S 80HHC BY OBSERVI NG THAT IT IS IMPROBABLE TO RECEIVE THE PURCHASE ORDER OF DIAMOND/EMERALDS/OTHER PIECES STONES EXPORT FROM FI VE DIFFERENT PARTIES BASED IN NEW YORK AND HONG KONG I N ONE MONTH. THE LD. CIT(A) ALSO DOUBTED AS TO HOW ALL SU CH ORDERS WERE RECEIVED IN ONE MONTH ALONE, FROM FIVE DIFFER ENT PARTIES. THE LD. CIT(A) ALSO DOUBTED AS TO HOW SUCH PARTIES BASED IN NEW YORK AND HONG KONG CAME TO KNOW THAT THE ASSESS EE HAS BUSINESS OF DIAMONDS/EMERALDS EXPORT BUSINESS. THE CIT(A) ALSO STATED THAT THE ASSESSEE DID NOT FURNISH PROOF OF ANY INSURANCE POLICY TAKEN BEFORE EXPORT OF SUCH DIAMON DS. THE LD. CIT(A) ALSO DISBELIEVED PURCHASE OF DIAMOND FROM TW O PARTIES BASED AT JAIPUR. 11. IN VIEW OF THE ABOVE DISCUSSION, THE LD. CIT(A) DEC LINED ENTIRE CLAIM OF DEDUCTION OF RS. 1,25,23,480/- U/S 80HHC AS M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 21 PAGE 21 OF 27 AGAINST CLAIM OF DEDUCTION ALLOWED BY THE ASSESSING OFFICER AT RS. 1,00,18,784/-. 12. AGAINST THE ABOVE ORDER OF CIT(A), BOTH REVENUE AND ASSESSEE ARE IN FURTHER APPEAL BEFORE US. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. F ROM THE RECORD, WE FOUND THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF EXPORT OF GEMS AND JEWELLERY. DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION U /S 80HHC AMOUNTING TO RS. 1,25,23,480/-. DURING THE COURSE O F SCRUTINY ASSESSMENT, THE ASSESSING OFFICER CALLED FOR COMPLE TE LIST OF PURCHASE, SALE OF JEWELLERY AND GEMS, ADDRESS OF PA RTIES FROM WHOM GEMS WERE PURCHASED, COPY OF BANK ACCOUNT WITH COPY OF ADVICE ACCORDING TO WHICH FOREIGN REMITTANCE WAS RECEIVED AND CREDITED IN THE ACCOUNT, DETAILS OF SUNDRY DEBT ORS AND CREDITORS, LOANS AND ADVANCES ETC. AFTER CONSIDERIN G THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT OUT OF TOTAL EXPORT SALE OF RS. 2,81,23,957/-, THE ASSESSE E HAS NOT RECEIVED A SUM OF RS. 17,97,789/- WITHIN STIPULATED TIME PERIOD. ACCORDINGLY, EXPORT TURNOVER OF ASSESSEE WA S REDUCED M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 22 PAGE 22 OF 27 TO RS. 2,63,42,653/- ( RS. 2,81,23,957 17,97,789) . AS PER THE PRESCRIBED FORMULA, THE ASSESSING OFFICER ARRIV ED AT TOTAL TURNOVER OF BUSINESS, TOTAL EXPORTS TURNOVER, TOTAL PROFIT, EXPORT TURN OVER IN RESPECT OF TRADING GOODS, DIRECT COST OF TRADING GOODS EXPORTED, INDIRECT COST OF TRADING GOODS EXPO RTED. THE ASSESSING OFFICER COMPUTED ELIGIBLE DEDUCTION @ 80% OF THE EXPORT PROFIT AND ALLOWED THE CLAIM OF DEDUCTION AT RS. 1,00,18,784/- IN PLACE OF DEDUCTION OF RS. 1,25,23, 480/- CLAIMED BY THE ASSESSEE. [THE ASSESSING OFFICER ALS O MADE ADDITION U/S 2(22)(E) IN RESPECT OF LOANS GIVEN TO VARIOUS PARTIES BY OBSERVING THAT THE ASSESSEE COMPANY HAS PAID OUT DIVIDEND TO ITS SHAREHOLDERS WITHIN THE MEANING OF DIVIDEND INCOME U/S 2(22)(E). AGAINST THIS ORDER OF ASSESSI NG OFFICER, THE ASSESSEE APPROACHED TO THE CIT(A), WHO DELETED THE ADDITION MADE U/S 2(22)(E), THE ASSESSEE HAS NOT GI VEN ANY LOAN TO ITS SHAREHOLDERS. A CATEGORICAL FINDING HAS BEEN RECORDED BY THE LD.CIT(A) AFTER NARRATING THE NAME OF PARTIES/PERSONS TO WHOM LOANS WERE GIVEN, TO THE EF FECT THAT LOAN HAS NOT BEEN GIVEN TO ANY SHAREHOLDERS OF THE ASSESSEE COMPANY. ACCORDINGLY, PROVISIONS OF SECTION 2(22)(E ) IS NOT M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 23 PAGE 23 OF 27 APPLICABLE. WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF CIT(A), IN SO FAR AS PROVISIONS OF SECTION 2(22)(E) IS APPL ICABLE ONLY WHEN COMPANY MAKES LOANS OR ADVANCES TO ITS SHAREHO LDERS HAVING NOT LESS THAN 10 % VOTING POWERS IN THE COMP ANY OR TO CONCERN IN WHICH SAID SHAREHOLDERS HAS SUBSTANTIAL INTEREST I.E. 20% OR MORE AND THE SHAREHOLDERS DERIVE BENEFI T OUT OF THE SAID LOAN OR ADVANCE MADE TO THE CONCERN. THE PROPO SITION THAT THE PROVISIONS OF SECTION 2(22)(E) ONLY APPLIE S TO A SHAREHOLDER OF THE COMPANY IS DULY SUPPORTED BY THE DECISION OF I.T.A.T. SPECIAL BENCH IN THE CASE BHAUMIK COLOU R LAB, 313 ITR (AT)146. THIS DECISION OF THE SPECIAL BENCH HAS BEEN APPROVED BY THE BOMBAY HIGH COURT IN THE CASE OF C IT VS. UNIVERSAL MEDICARE PRIVATE LIMITED, REPORTED AT 324 ITR 263. 14. THE FACT THAT THE PARTIES TO WHOM LOANS WERE GIVEN WERE NOT SHAREHOLDERS OF THE COMPANY HAS NOT BEEN D ENIED. THEREFORE, APPLYING THE PROPOSITION OF LAW LAID DOW N BY SPECIAL BENCH AND THE HON'BLE HIGH COURT AS DISCUSSED ABOVE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR D ELETING THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(2 2)(E) OF THE ACT. M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 24 PAGE 24 OF 27 15. HOWEVER, DURING APPELLATE PROCEEDINGS, THE LD. CIT( A) HAS DOUBTED THE EXPORT BUSINESS OF THE ASSESSEE, TH EREFORE, QUERY LETTER WAS ISSUED AND THE ASSESSEE HAS FURNIS HED THE DOCUMENTS REQUIRED BY THE LD.CIT(A) TO SUBSTANTIATE ITS CLAIM OF EXPORT, AMOUNT RECEIVED IN CONVERTIBLE FOREIGN E XCHANGE AND DULY CREDITED IN THE BANK ACCOUNT AS WELL AS CLAIM OF DEDUCTION U/S 80HHC. HOWEVER, THE LD. CIT(A) HAS DO UBTED THE FACTUM OF PURCHASE, EXPORT, IDENTITY OF THE BUY ER AND SELLER. ACCORDINGLY, DEDUCTION CLAIMED U/S 80HHC WA S DECLINED AND THE ASSESSMENT WAS ENHANCED AGAINST WH ICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER HAS REQUIRED THE NECESSARY DOCUMENTS TO SUB STANTIATE ASSESSEES BUSINESS OF EXPORT AND CLAIM OF DEDUCTIO N U/S 80HHC, THE ASSESSING OFFICER ALSO FOUND THAT EXPORT REMITTANCE TO THE EXTENT OF RS. 17,97,789/- WAS NOT RECEIVED BY ASSESSEE WITHIN THE STIPULATED PERIOD, ACCORDING LY ASSESSING OFFICER REDUCED THE EXPORT TURNOVER BY TH IS AMOUNT. ACCORDINGLY, PROFIT FROM EXPORT OF TRADING GOODS WA S AGAIN M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 25 PAGE 25 OF 27 CALCULATED AFTER DEDUCTING DIRECT OR INDIRECT COST OF TRADING GOODS EXPORTED. THE ASSESSING OFFICER HAS CALCULATE D THE DEDUCTION U/S 80HHC AT RS. 1,00,18,784/- IN PLACE O F ASSESSEES CLAIM OF DEDUCTION OF RS. 1,25,23,480/-. WE FOUND THAT EVEN DURING COURSE OF APPELLATE PROCEEDINGS, T HE ASSESSEE HAS FURNISHED FULL DETAILS WITH REGARD TO NAME, ADD RESS OF EACH AND EVERY BUYER AND SELLER. THE LEDGER COPY OF DIAM OND PURCHASE FOR THE ASSESSMENT YEARS 2001-02 AND 2002- 03 WERE ALSO FURNISHED. THE DETAILS OF PURCHASES SO MADE WE RE ALSO FURNISHED ALONGWITH COPY OF PURCHASE BILLS, VINAYAK OVERSEAS AND MIN. O. GEMS, ADDRESS OF BOTH THE BUYERS. WE FOUND THAT EVEN ON THE EARLIER YEARS, TH E ASSESSEE WAS IN THE BUSINESS OF DIAMOND TRADING AND THE SAME WAS CONTINUED IN THE YEAR UNDER CONSIDERATION AND IN COMING YEAR ALSO. WE FOUND THA T THE ASSESSEE COMPANY HAS MADE SOME TRANSACTION IN FINANCIAL YEAR 1997-98 AND BALANCE OF RS. 20,04,032/- WAS OUTSTANDING SINCE THEN DUE TO HEAVY LOSSES, THE PARTY WAS UNABLE TO PAY THE DUES, THEREFORE, ACCOUNT WAS SETTLED AFTER TAKING 50% AND M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 26 PAGE 26 OF 27 BALANCE SHEET WAS WRITTEN OFF AS BAD DEBTS. COPY OF LEDGER ACCOUNT OF VANDANA CEMENT PRIVATE LIMITED WAS ALSO FURNISHED. WE FOUND THAT THE ASSESSEE HAS FILED COMPLETE DETAILS OF EXPORT SALE WITH THEIR IN VOICES AND COPIES OF ACCOUNT OF PURCHASES, DETAILS OF DATE - WISE EXPORT REMITTANCES RECEIVED AND CREDITED IN TH E BANK ACCOUNT OF ASSESSEE AFTER CONVERTING THE FOREI GN REMITTANCES INTO INDIAN CURRENCY AS PER PREVAILING RATE OF DOLLAR ON RESPECTIVE DATES. WE HAD VERIFIED THE EXPORT BILLS PLACED IN THE PAPER BOOK WHEREIN WE FOUND THAT EXPORT HAS BEEN CLEARED BY THE COMPETENT AUTHORITIES. SEAL OF CUSTOMS AUTHORITIES WERE DULY AFFIXED ON THE SALES INVOICES. THE AMOUNT OF SALE PROCEEDS WERE RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE, WHICH WAS DULY CREDITED IN THE BANK ACCOUNT AFTER CONVERTING THE SAME IN INDIAN CURRENC Y AS PER THE RATES PREVAILING ON THE PARTICULAR DATE OF CONVERSION. THUS, MERELY ON SURMISES AND CONJECTURES, THE LD. CIT(A) STATED THAT THE ASSESSE E HAS NOT DONE ANY EXPORT SALES AND DISALLOWED M/S.NARMADA TRADING PRIVATE LIMITED , BHOPAL;. I.T.A.NOS.262 & 233/IND/2013 27 PAGE 27 OF 27 ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC. THERE IS NO MERIT IN CIT(A)S ORDER. ACCORDINGLY, WE CONFIRM THE ACTION OF ASSESSING OFFICER FOR ALLOWING CLAIM OF DEDUCTION U/S 80HHC TO THE EXTENT OF RS. 1,18,00,784/- AS RECOMPUTED BY HIM AFTER ARRIVING A T CORRECT ADJUSTED EXPORT TURNOVER, ADJUSTED PROFIT O F BUSINESS AND ELIGIBLE PROFIT FOR 80HHC DEDUCTION, A S AGAINST ASSESSEES CLAIM OF DEDUCTION OF RS. 1,25,23,480/-. 17. IN THE RESULT, THE APPEALS ARE ALLOWED IN PART. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COUR T ON 30 TH JANUARY, 2014. SD/- SD/- (JOGINDER SINGH) (R. C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JANUARY, 2014. CPU* 14191128.29.1