Asst. CIT, Circle-1(2), Hyderabad V. M/s Divyashakti Granites Ltd., Hyderabad

ITA 367/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69981 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 07-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Bogus purchase; Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Unexplained expenditure; Business income; Business expenditure; Rule of consistency; Source of fund; Deemed to accrue or arise in india
• Section: 143(3); 80IB; 10B; 68; 69; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN , JUDICIAL MEMBER ITA NO. 367/HYD/2012 ASSESSMENT YEAR 2008-09 THE ASST. CIT CIRCLE-1(2) HYDERABAD VS. M/S. DIVYASHAKTI GRANITES LTD., AMEERPET, HYDERABAD PAN: AABCD0680K APPELLANT RESPONDENT APPELLANT BY: SRI P. SOMA SEKHAR REDDY RESPONDENT BY: SRI V. RAGHAVENDRA RAO DATE OF HEARING: 11.12.2013 DATE OF PRONOUNCEMENT: 13 .12.2013 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 16.12.2011 FOR A. Y. 2008-09. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED IN GRANTING RELIEF U/S. 10B TO THE ASSESSEE. 2. THE CIT(A) OUGHT NOT TO HAVE GRANTED RELIEF U/S. 10B ON THE ADDITION MADE U/S. 68 WHICH WAS ALSO CONFIRMED BY THE CIT. 3. THE CIT(A) OUGHT TO HAVE FOLLOWED THE JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHD. HAJI HASAN VS. CIT (GUJARAT) 247 ITR 290 AND TO THAT EXTENT ON THE DEEMED INCOME WHICH IS SUBJECTED TO TAX, NO RELIEF OUGHT TO HAVE BEEN ALLOWED U/S. 10B. 4. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS TO THE EXTENT THERE ARE BOGUS PURCHASES DEBITED AS THE ACCOUNTS ARE UNRELIABLE, AND ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 2 ACCORDINGLY APPLIED SECTION 80IA 10) R.W.S. 10B(7) AND ALLOWED RELIEF ON THE REASONABLE PROFITS U/S. 10B AND SUBJECTED THE REST OF THE CASH INTRODUCED OR UNEXPLAINED EXPENDITURE AS INCOME SUBJECT TO TAXATION UNDER THE HEAD OTHER SOURCES. 5. THE CIT(A) OUGHT NOT TO HAVE IGNORED THE PROVISIONS OF 10B(7) AND 80IA(10), GIVEN THE FACT THAT THE AO ESTABLISHED THE BOGUS PURCHASES IN THE IMPUGNED CASE AND THE SALES DISCLOSED CANNOT BE PRESUMED TO BE TRUE AND CORRECT WHEN PURCHASES ARE BOGUS. 6. THE CIT(A) OUGHT TO HAVE NOTICED THAT WHEN THE PURCHASES ARE BOGUS, THE SALES DISCLOSED TO THAT EXTENT ARE ALSO TO BE DISBELIEVED AND ACCORDINGLY THE EXCESS CONSIDERATION DISCLOSED CANNOT BE ON ACCOUNT OF EXPORT OF GOODS ETC., AND ACCORDINGLY ON SUCH INCOME NO DEDUCTION U/S. 10B IS ADMISSIBLE. 7. THE CIT(A) OUGHT TO HAVE CARRIED OUT INVESTIGATION OR GOT IT DONE THROUGH THE AO AS TO HOW AND WHY SALES FIGURES CAN BE ACCEPTED AS GENUINE AND ARE ELIGIBLE FOR RELIEF U/S. 10B WHEN THE PURCHASES ARE PROVED TO BE BOGUS. 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT MAY BE CONSIDERED TO REMAND THE MATTER BACK TO THE CIT(A) OR TO THE AO SO AS TO EXAMINE THE GENUINENESS OF THE SALES WHICH CANNOT BE ACCEPTED GIVEN THE FACT THAT THE PURCHASES ARE NOT GENUINE. 3. THE CRUX OF THE ABOVE GROUNDS IS ALLOWING DEDUCTION U/S. 10B OF INCOME-TAX ACT, 1961 ON THE INCOME WHICH IS RESULTED ON ACCOUNT OF ADDITION MADE BY THE AO U/S. 68 OF THE A CT BY TREATING THE CREDITS AS UNEXPLAINED. 4. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE-COMP ANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF GRANITE S LABS FILED ITS RETURN OF INCOME FOR THE A.Y. 2008-09 ON 29.9.2008 ADMITTING A TOTAL INCOME OF RS. 2,73,67,340. THE RETURN WAS PR OCESSED ACCORDINGLY. ASSESSMENT WAS COMPLETED BY THE AO U/ S. 144 ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 3 R.W.S. 143(3) OF THE ACT DETERMINING THE TOTAL INCO ME AT RS. 13,15,52,335. DURING THE SCRUTINY ASSESSMENT PROCE EDINGS, THE AO MADE ENQUIRIES IN RESPECT OF SUNDRY CREDITORS AP PEARING IN THE BALANCE SHEET AND FOUND THAT SOME OF THE SUNDRY CREDITORS OF WHOM ENQUIRIES HAVE BEEN CONDUCTED HAVE ADMITTED AS NOT HAVING ANY TRANSACTIONS WITH THE ASSESSEE-COMPANY A ND ACCORDINGLY, DISALLOWED THE SUNDRY CREDITORS TO THE EXTENT OF RS. 9,68,53,945 ON THE GROUND THAT THEY ARE NOT PAYABLE . HE ALSO DISALLOWED RS. 67,35,850 ON THE GROUND THAT PAYMENT S WERE MADE TO THE NON-RESIDENTS WITHOUT DEDUCTING TAX AT SOURCE U/S. 40(A)(IA) OF THE ACT AND HE HAS ALSO NOT GRANTED DE DUCTION U/S. 10B OF THE ACT ON THE INCOME SO ENHANCED. 5. ON APPEAL, THE CIT(A) OBSERVED REGARDING THE CONTEN TION OF THE ASSESSEE THAT AMOUNTS PAYABLE TO 15 SUNDRY C REDITORS WERE DISALLOWED WHEN ONLY SIX SUNDRY CREDITORS WERE VERIFIED, IT COULD BE NOTED THAT THE ASSESSING OFFICER HAS DISCU SSED IN DETAIL IN THE ASSESSMENT ON THE BASIS OF THE TRENDS AND UN USUAL FEATURES WHICH WERE VERY SIMILAR TO THE SIX OF SUND RY CREDITORS WHERE THE CREDITS WERE PROVED TO BE BOGUS. THE ASSE SSEE NEVER PRODUCED THESE SUNDRY CREDITORS NOR DID IT PRODUCE ORIGINAL INVOICES OR LORRY RECEIPTS FOR TRANSPORTATION OF TH E MATERIAL AND PROOF OF PAYMENT OF ROYALTY BY THE SAID VENDOR/LEND ER CREDITORS ON EXTRACTION OF GRANITE BLOCKS WAS ALSO NOT PRODUC ED DESPITE BEING GIVEN SO MANY OPPORTUNITIES. 6. THE CIT(A) OBSERVED THAT THE ASSESSEE'S CONTENTION THAT SINCE THE ASSESSMENT WAS MADE U/S 144, THE ASSESSIN G OFFICER SHOULD HAVE ADOPTED GP RATE AND COMPLETED THE ASSES SMENT ORDER, IS STRAIGHTAWAY REJECTED BECAUSE THE ASSESSI NG OFFICER HAS NOT ESTIMATED INCOME BUT HE HAS TAKEN THE PAINS OF INVESTIGATING INTO SPECIFIC INSTANCES OF CREDITS AP PEARING IN THE BOOKS OF ACCOUNTS AND APPLIED THE RESULTS OF INVEST IGATIONS ON THE OTHER SIMILAR SUNDRY CREDITORS THEREBY DISPROVE D THE CLAIM OF ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 4 THE ASSESSEE THAT THE PURCHASES WERE PROPERLY RECOR DED AND THE SUNDRY CREDITORS WERE REAL CREDITORS. THEREFORE, T HE CIT(A) REJECTED THIS CONTENTION OF THE ASSESSEE. 7. THE CIT(A) OBSERVED THAT, IN VIEW OF THE ABOVE, THE ASSESSING OFFICER WAS JUSTIFIED IN CONCLUDING THAT EITHER THE PURCHASES WERE MADE FROM SOME UNKNOWN PARTIES BY MA KING PAYMENT IN CASH OR THE SAID CREDITORS WERE ONLY BRO UGHT IN AS ACCOMMODATING PARTIES. THE ASSESSING OFFICER HAS MA DE DETAILED INVESTIGATION INTO THE SUNDRY CREDITORS AN D MADE A COGENT ANALYSIS OF THE INVESTIGATIONS INTO THE SUND RY CREDITORS AND PURCHASES. HE WAS OF THE OPINION THAT THE ASSE SSING OFFICER HAS REALLY GONE TO THE ROOT OF THE CREDITS APPEARIN G IN THE BOOKS AND HE BROUGHT OUT THE TRENDS ADOPTED BY THE ASSESS EE IN INTRODUCING THE CREDITS AND DRAWN TO A LOGICAL CONC LUSION. THE PERSEVERANCE OF THE ASSESSING OFFICER IN BRINGING T HE BOGUS CREDITORS TO TAX DESERVES APPRECIATION AND HE WAS N OT INCLINED TO INTERFERE WITH THE ASSESSMENT ORDER AND THEREFORE, THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER WAS CONFI RMED BY THE CIT(A). 8. THE CIT(A) OBSERVED THAT THE ASSESSEE'S CLAIM THAT THE AMOUNT IN QUESTION ON ACCOUNT OF SUNDRY CREDITORS, ADDITION SHOULD HAVE BEEN RS. 8,52,47,504 AND NOT RS. 9,74,4 9,000 WHICH WAS ADDED IN THE ASSESSMENT ORDER, NEEDS VER IFICATION. THEREFORE, THE CIT(A) DIRECTED THE ASSESSING OFFICE R TO VERIFY THE CLAIM AND RECONCILE THE FIGURES WITH BOOKS OF ACCOU NTS AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE. 9. THE CIT(A) OBSERVED REGARDING THE ASSESSEE'S CONTEN TION THAT SPECIFIC ADDITION SHOULD HAVE BEEN MADE U/S 69 AND NOT U/S 68, THAT THE ADDITIONS WERE MADE ON ACCOUNT OF SUNDRY CREDITORS AND THE REASON FOR MAKING THE ADDITION WA S THAT THE ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 5 ASSESSEE FAILED TO COMPLY WITH THE CONDITIONS/ PRE- REQUISITES TO PROVE A CREDIT TRANSACTION TO BE GENUINE, VIZ., THE IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTION. IN THE PRESENT CASE, EVEN THOUGH T HE ASSESSEE COULD FURNISH THE NAMES OF THE PERSONS. THE OTHER C ONDITIONS REMAINED TO BE ESTABLISHED AND MOREOVER, THE ADDITI ON WAS NOT MADE ON ACCOUNT OF UNEXPLAINED INVESTMENT, BUT ON A CCOUNT OF THE CREDIT ENTRIES APPEARING IN THE ACCOUNTS OF THE ASSESSEE. THE ASSESSEE'S CONTENTION THAT THE AMOUNTS INVOLVED ARE TRADE CREDITS AND SECTION 68 DOES NOT APPLY TO TRADE CRED IT HAS NO BASIS IN VIEW OF THE ASSESSING OFFICER'S CATEGORICA L FINDING THAT THE ASSESSEE DID NOT PURCHASE FROM THOSE 15 CREDITO RS AND, THEREFORE, THE INFERENCE IS ONLY THAT THE CREDIT EN TRIES WERE INTRODUCED INTO THE BOOKS OF ACCOUNTS AS ACCOMMODAT ING ENTRIES AND, THEREFORE, THE CREDITS FOUND IN THE BO OKS OF ACCOUNTS REMAIN UNEXPLAINED. 10. THE CIT(A) OBSERVED THAT RELIANCE IS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DIVINE LEASING AND FINANCE LTD. (299 ITR 268) WHEREIN IT HAS BEEN CLEARLY LAID DOWN THAT THE ASSESSEE HAS TO PROVE THE IDENTITY OF THE CREDITORS, GENUINENESS OF THE TRANSACTION AND CREDIT WORTHINES S OF THE CREDITORS WHICH IS SUPPORTED BY THE SUPREME COURT D ECISION IN THE CASE OF CIT VS. P. MOHANAKALA (2007) 291 ITR 27 8 (SC). ONLY WHEN SUCH PRIMARY ONUS IS DISCHARGED, THE ASSESSEE CAN CLAIM THAT HE HAS NOTHING MORE TO PROVE AND IN THE PRESEN T CASE, THE ASSESSEE HAS NOT DISCHARGED THE PRIMARY ONUS AND NO T EVEN CHOSEN TO SUBMIT EXPLANATIONS TO THE ENQUIRIES MADE BY THE AO NEITHER AT THE ASSESSMENT STAGE NOR AT THE REMAND P ROCEEDINGS AND THEREFORE, THE TREATMENT OF THE CREDITS U/S 68 IS JUSTIFIED. 11. THE CIT(A) OBSERVED THAT THE ASSESSEE'S CONTENTION THAT THE OPENING BALANCE OF SUNDRY CREDITORS HAVE BEEN T AKEN INTO ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 6 ACCOUNT BY THE ASSESSING OFFICER FOR MAKING THE ADD ITION HAS BEEN CAREFULLY CONSIDERED AND THAT THE AO, IN THE R EMAND REPORT, HAS ALSO SUBMITTED THAT THE AMOUNT IN QUEST ION NEED TO BE TAXED IN THE RESPECTIVE YEARS AND, THEREFORE, IN THE ASSESSMENT ORDER, THE AO AT PAGE 29 HAS STATED THAT 'THE ASSESSEE, HOWEVER, MAY TAKE A PLEA THAT THE RESPECT IVE PURCHASES HAVE TO BE ADDED BACK IN THE RELEVANT YEA RS. HENCE, THE ASSESSMENTS FOR THE PREVIOUS YEARS ARE BEING RE OPENED TO TAX THE RESPECTIVE PURCHASES ON A PROTECTIVE BASIS. ' IN VIEW OF THE ABOVE, THE CIT(A) DIRECTED THE AO TO ALLOCATE T HE DISALLOWANCE OF RS. 9,74,49,000 AMONG THE YEARS DUR ING WHICH TIME THE CREDITS WERE INTRODUCED AND TAX ACCORDINGL Y. 12. THE CIT(A) OBSERVED THAT THE ASSESSEE HAS ALSO CLAI MED DEDUCTION U/S 10B. HE OBSERVED THAT IN THE ASSESSM ENT ORDER AT PAGE 31, THE ASSESSING OFFICER STATED THAT 'ADDI TION IS MADE TOWARDS THE CREDITORS NO LONGER PAYABLE/UNACCOUNTED EXPENDITURE FOR ACQUIRING RAW GRANITE BLOCKS ON WHI CH EXEMPTION U/S 10B IS NOT ALLOWABLE. EVEN IF THE EX EMPTION IS TO BE GIVEN AT A LATER DATE DUE TO THE ORDER OF THE AP PELLATE AUTHORITY, THE SAME HAS TO BE RESTRICTED TO THE CRE DITORS OF UNIT- II ONLY AS ASSESSEE IS MAINTAINING THE CREDITORS LI ST SEPARATELY FOR BOTH THE UNITS.' IN VIEW OF THIS TRIBUNAL'S DEC ISION IN THE CASE OF PLANET ONLINE VS DCIT IN ITA. NO. 1016/HYD/ 2007, WHERE IT HAS BEEN HELD THAT ADDITIONS MADE WILL HAV E TO BE TAKEN INTO ACCOUNT WHILE CALCULATING DEDUCTION U/S. 10B A ND ACCORDINGLY, THE CIT(A) DIRECTED THE AO TO CALCULAT E DEDUCTION U/S. 10B AFTER TAKING INTO ACCOUNT THE ADDITIONS MA DE IN THE ASSESSMENT ORDER IN RESPECT OF UNIT NO. II AND ALLO W DEDUCTION U/S. 10B OF THE ACT. AGAINST THESE FINDINGS OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 7 13. THE LEARNED DR SUBMITTED THAT THE ADDITION WAS MADE U/S. 68/69 OF THE ACT FOR NON-EXPLAINING THE PURCHA SE/ PAYMENTS AND THAT ADDITION RESULTED IN INCOME AND T HAT INCOME SHOULD BE TREATED AS 'INCOME FROM OTHER SOURCES' AN D NOT AS INCOME FROM BUSINESS AND IT IS NOT ENTITLED FOR DED UCTION U/S. 10B OF THE ACT AS IT IS NOT DERIVED FROM EXPORT FOR WHICH ONLY SECTION 10B IS APPLICABLE. 14. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT TH E AO HAS CLEARLY ADMITTED THAT THE ASSESSEE HAD PURCHASE D THE RAW GRANITE QUANTITIES AS CLAIMED BECAUSE THE EXPORT SA LES WERE CERTIFIED BY THE CUSTOMS AUTHORITIES AND THE ASSESS EE HAD NO LOCAL SALES. THEREFORE, THE AMOUNTS ADDED WERE SPE NT FOR PURCHASING THE RAW GRANITE THOUGH THE CREDITORS ARE NOT THOSE NAMED IN THE ACCOUNT. THE AO HAS OBSERVED THAT THE PURCHASES WERE NO DOUBT TRUE, BUT NOT THE NAMES OF SUPPLIERS. THE NAMES, QUANTITIES, INVOICES, TRANSPORT EXPENDITURE, LEASE OF GRANITE MINES BY SUPPLIERS WERE NOT FURNISHED. THE ADDITIO N MADE U/S. 68 ON ACCOUNT OF UNPROVED SUPPLIERS OF GRANITE GO T O INFLATE THE PROFIT CORRESPONDINGLY. THE ADDL. COMMISSIONER CONC EDED IN HIS REMAND REPORT AS FOLLOWS : '21. REGARDING CONTENTIONS AT PARA 11 I.E., ON ADMISSIBILITY OF DEDUCTION U/S 10B, NO SUBMISSIONS ARE OFFERED AND THE CIT(A) MAY KINDLY TAKE DECISION AS PER LAW'. 15. THE AR SUBMITTED THAT ON ONE HAND, THE AO HELD THE CREDITS IN THE NAMES OF THE 15 PERSONS AS SPURIOUS. AT THE SAME TIME ON THE OTHER HAND, HE HELD THAT THE CREDI TS WHICH ARE ADMITTEDLY TRADE CREDITS VIDE THE COMPUTATION IN TH E ASSESSMENT ORDER ARE, IN EFFECT, OUTSTANDING AND DUE TO THE UN IDENTIFIED AND UNNAMED SUPPLIERS. THE AO HAS ALSO ACCEPTED THAT T HE PAYMENTS FOR RAW GRANITE WERE INDEED MADE TO BE REA L AND ACTUAL, BUT UNNAMED SUPPLIERS. THUS THE ADDITION IS LINKED TO ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 8 PURCHASES FOR WHICH EXPENDITURE WAS ADMITTEDLY INCU RRED. AS THE ASSESSEE IS A 100% EOU, 90% OF THE PROFIT DERI VED FROM THE EXPORT IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE IT ACT. THE CONTENTION IN THE ABOVE GROUNDS OF APPEAL IS, THERE FORE, NOT TENABLE. 16. THE AR SUBMITTED THAT EVEN ON THE ALTERNATIVE INFER ENCE OF THE LEARNED AO THAT THE PURCHASES WERE MADE AT LOWE R RATES BUT THE EXPENDITURE ON PURCHASES WAS INFLATED BY RESORT ING TO SPURIOUS CREDITS, THE RESULT WOULD BE THAT THERE WA S AN INFLATION OF EXPENDITURE. THIS OBSERVATION OF THE AO HAS NOT BEEN ACCEPTED BY THE ASSESSEE. BEFORE THE LEARNED CIT(A ), THE ASSESSEE SUBMITTED THAT 'IN FACT THE ASSESSEE UTILI ZED HIGHLY QUALITATIVE BLOCKS, WHICH ARE KNOWN AS BLACK GALAXY , BLACK PEARL, MADURAI GOLD, CLASSIC PARADISE, KASHMIR WHIT E, KASHMIR GOLD, SPICY BLACK, BLACK PARADISO, VYARA, T. BROWN, ETC. THE COST OF WHICH WOULD BE WITHIN THE RANGE OF RS. 75,0 00/- CBM TO RS. 35,000/- CBM AND THE AGGREGATE COST OF THESE IT EMS AMOUNTED TO RS. 400.42 LAKHS. THIS APART, THE ASSES SEE IMPORTED RAW GRANITES FROM VARIOUS COUNTRIES TO THE TUNE OF RS. 488.57 LAKHS THUS OUT OF THE TOTAL PURCHASES OF RS. 1239.72 LAKHS THE COST OF THE ABOVE PURCHASES INCLUDING THE IMPORTS AMOUNTED TO RS. 888.99 LAKHS. THE AR SUBMITTED THA T THE AVERAGE COST OF THE DOMESTIC PURCHASES AMOUNTED TO RS. 31,960 CBM. GOING BY THIS UN-REBUTTABLE FACTUAL POSITION, IT CANNOT BE CONCLUDED THAT THE ASSESSEE MIGHT HAVE USED INFERIO R QUALITY WHICH CARRIES A LOW PRICE AT THE POINT OF PURCHASE AND INDULGED IN INFLATION OF THE PURCHASE PRICE AS OPINED BY THE AO. HENCE, ANOTHER POSSIBLE INFERENCE DRAWN UP BY THE AO AT PA RA 5 OF THE IMPUGNED ASSESSMENT ORDER DOES NOT REFLECT THE TRUE AND REAL FACTUAL POSITION AND SUCH A VIEW COULD ONLY BE CONS TRUED TO BE A GUESS WORK WITHOUT ANY DOCUMENTARY EVIDENCE GATHERE D OR IDENTIFIED BY THE LEARNED AO'. IN THE REMAND REPOR T OF THE ADDL. ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 9 CIT AT PARA 10, IT WAS ADMITTED BY THE ADDL. CIT TH AT THE OBSERVATIONS AT PARA 5 OF THE ASSESSMENT ORDER ARE ONLY POSSIBLE INFERENCES, WHICH, HOWEVER, HE SAID CANNOT BE HARPE D ON BY THE ASSESSEE TO SUIT HIS CONVENIENCE NOW. THE STATEMENT ON THE PRICES OR THE QUALITY OF THE GRANITE USED AND THE F INISHED GRANITE SUPPLIED BY THE ASSESSEE HAS NOT BEEN CONTROVERTED BY THE LEARNED ADDL. CIT. AT ANY RATE, THE FACT REMAINS T HAT THE ADDITION GOES TO INCREASE THE PROFIT WHICH WOULD CO RRESPONDINGLY BE HIGHER FROM THE BUSINESS. THE DEDUCTION U/S 10B WILL HAVE TO BE ALLOWED WITH REFERENCE TO THE HIGHER PROFITS. EITHER WAY IT IS NOT CORRECT TO CLAIM THAT THE DEDUCTION U/S 10B CANNOT BE GRANTED. IN THIS REGARD APART FROM THE CASE LAW RE LIED ON BY THE LEARNED CIT(A) AS ABOVE THERE IS A DECISION OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN ITTA NO. 119 OF 2013 DT. 27-06- 2013 IN THE CASE OF CIT VS. M/S SEVEN HILLS BUSINES S SOLUTIONS LIMITED. THE RATIO OF THIS DECISION IS APPLICABLE T O THE CASE OF THE ASSESSEE. 17. THE LEARNED AR SUBMITTED THAT IN THE CASE OF SWASTI K TEXTILES VS INCOME TAX OFFICER (1 SOT 327) (JODH), IT WAS HELD THAT THE CASH CREDIT ADDITION HAD TO BE TREATED AS PROFITS OF UNDERTAKING ENTITLED FOR DEDUCTION. THE CASH CREDIT WAS NOTHING BUT INCOME FROM INDUSTRIAL UNDERTAKING AS THE ASSES SEE HAD NO OTHER SOURCE OF INCOME. THE HON'BLE JODHPUR BENCH A LLOWED THE DEDUCTIONS U/S 80HH AND 80I BY TAKING INTO ACCOUNT THE ADDITIONS ON ACCOUNT OF CASH CREDITS FOR THE PURPOS E OF CALCULATION OF THE RELIEF UNDER THOSE SECTIONS. 18. THE AR SUBMITTED THAT AT THIS JUNCTURE IT IS PERTIN ENT TO POINT OUT THAT THE PRESENT APPEAL WAS FILED ON 07-0 3-2012. BUT FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007- 08 THE ASSESSMENTS WERE REOPENED AND REASSESSMENTS COMPLET ED ON 31-07-2012 IN THE CASE OF THE ASSESSEE BY BRINGING TO TAX THE ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 10 SPURIOUS CASH CREDITS OF EACH OF THE YEARS. IN THE ORDERS FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, DEDUCTION U/S 10B WITH REFERENCE TO THE ADDITIONS WITH UNIT 2 (WHICH IS A NEW UNIT) WAS ALLOWED. FOR 2005-06, UNIT I WAS NOT ELIGIBLE FOR DEDUCTION U/S 10B, AS THE ELIGIBILITY PERIOD HAD EXPIRED. IN THIS REGARD, THE PRINCIPLE OF CONSISTENCY IS VERY MUCH APPLICABL E. IN THE CASE OF RADHA SOAMI SATSANG VS CIT (193 ITR 321), THE HO N'BLE SUPREME COURT HELD THAT 'WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HA VE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITI ON TO BE CHANGED IN A SUBSEQUENT YEAR (HEAD NOTE)'. THEREFO RE IN THIS VIEW ALSO THE GROUNDS 1 & 2 OF APPEAL ARE NOT TENAB LE. 19. THE AR SUBMITTED THAT THERE ARE ALSO THE FOLLOWING JUDGEMENTS HAVING A BEARING ON THE ISSUE OF THE PRO FITS FROM EXPENDITURE ACTUALLY INCURRED IN THE NAMES OF BOGUS PERSONS. ACCORDING TO THOSE JUDGEMENTS THE ESTIMATED PROFITS ON SUCH PURCHASES SHOULD BE ADDED TO THE BUSINESS PROFITS. ON DOING SO, IN THE CASE OF THE ASSESSEE THE BUSINESS PROFIT S WOULD INCREASE WHICH WOULD BE ELIGIBLE FOR DEDUCTION U/S. 10B OF THE IT ACT. FURTHER IT WAS HELD IN THE CASE OF CIT VS SIMIT P SHETH THAT 'THAT BEING THE POSITION, NOT THE ENTIRE PURCH ASE PRICE BUT ONLY THE PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES COULD BE ADDED TO THE INCOME OF THE ASSESSEE'. CIT VS SIMIT P SHETH (356 ITR 451) (GUJ) CIT VS VIJAY M MISTRY CONSTRUCTION LTD (355 ITR 498 ) (GUJ) CIT VS BHOLANATH POLY FAB PVT. LTD (355 ITR 290) (G UJ) 20. THE AR SUBMITTED THAT THE LEARNED AO HAS RELIED ON A JUDGEMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASAN VS CIT (247 ITR 290). HE SUBMIT TED THAT ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 11 THIS JUDGEMENT IS NOT AT ALL APPLICABLE TO THE FACT S OF THE CASE. THE ADDITION THERE WAS MADE U/S. 69 WHEREAS THE ADD ITION HERE IS MADE U/S 68 OF THE ACT AS NOTICED IN THE PRECEDI NG GROUND OF APPEAL. THAT WAS A CASE OF INVESTMENT IN GOLD SEIZE D BUT NOT RECORDED IN THE BOOKS OF ACCOUNT WHEREAS THIS IS A CASE OF EXPENDITURE ON RAW GRANITE ADMITTEDLY RECORDED IN T HE BOOKS OF ACCOUNTS. IN THE CASE OF CIT VS M/S. SHETH DEVELOP ERS (P) LIMITED IN ASN1/9ITXA-3724.SXW, DATED 27-07-2012, I T WAS HELD THAT THE ABOVE DECISION OF THE GUJARAT HIGH CO URT IS NOT APPLICABLE WHERE THE UNDISCLOSED INCOME HAS BEEN AS SESSED BY THE AO ACCEPTING THE EXPLANATION THAT THE CASH FOUN D DURING SEARCH WAS ACQUIRED WHILE CARRYING ON BUSINESS AS T HE BUILDER. THIS RATIO IS APPLICABLE TO THE FACTS OF THE INSTAN T CASE. 21. THE AR SUBMITTED THAT THIS GROUND REQUIRED THAT THE CIT(A) SHOULD HAVE SPLIT THE UNPROVED EXPENDITURE I NTO TWO COMPONENTS. PROFIT SHOULD HAVE BEEN ESTIMATED ON TH E SALES RELATABLE TO UNPROVED EXPENDITURE AND GRANTED EXEMP TION U/S. 10B. THE BALANCE SHOULD HAVE BEEN ASSESSED AS UNEX PLAINED INVESTMENT. THE AO DID NOT ADOPT THIS APPROACH ORI GINALLY NOR DID HE MAKE SUCH REPRESENTATION BEFORE CIT(A) IN PE RSON OR IN HIS REMAND REPORT. ON THE OTHER HAND WHEN THE ASSE SSEE PROPOSED ESTIMATION OF GROSS PROFIT ON THE ENTIRE T O HE REJECTED IT IN HIS REMAND REPORT. IN THE ORDER OF THE CIT(A ) AT PARA 16, EXTRACT FROM THE REMAND REPORT IS AS FOLLOWS: 'IN PARAGRAPH 9.10, THE ASSESSEE IS BRINGING OUT A NEW ARGUMENT ON REJECTION OF BOOKS AND ESTIMATION OF GROSS PROFIT. IT IS SUBMITTED THAT THE ASSESSEE CANNOT DEMAND ESTIMATION OF GROSS PROFIT TO SUIT HI S CONVENIENCE WHEN SPECIFIC ADDITIONS ARE MADE IN THE AO'. 22. THE AR SUBMITTED THAT THE AO IS NOW TOTALLY CHANGIN G THE STAND WHICH WAS DIFFERENT FROM THAT WAS MADE IN THE REMAND ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 12 REPORT. FURTHER THE AO IS TRYING TO MAKE OUT A NEW GROUND WITHOUT IT IS BEING DEALT WITH BY HIM IN THE ASSESS MENT ORDER AND WITHOUT MAKING ANY REPRESENTATION TO THAT EFFEC T IN THE HEARING BEFORE CIT(A) WHERE THE ADDL. CIT PERSONALL Y APPEARED. AS SUBMITTED ABOVE, IT WAS HELD BY THE GUJARAT HIGH COURT IN THE CASE OF SIMIT P SHETH (SUPRA) THAT ONLY PROFITS FROM BOGUS PURCHASES CAN BE ADDED TO THE BUSINESS PROFITS AND NOT THE ENTIRE BOGUS EXPENDITURE. IN ANY CASE, THE AO, HAVI NG REJECTED THE PLEA OF THE ASSESSEE FOR ESTIMATING THE PROFITS , THE AO CANNOT NOW CHANGE HIS STAND BEFORE THE TRIBUNAL. 23. THE AR SUBMITTED THAT ALL THE ABOVE GROUNDS ARE ABO UT APPLICATION OF PROVISIONS OF SEC 10B(7) R.W.S. 80IB (10). SEC 8018(10) PROVIDES FOR ADJUSTMENT OF THE DEDUCTION C LAIMED WHERE THE ASSESSEE ARRANGES THE TRANSACTIONS OF THE ELIGIBLE INDUSTRIAL UNDERTAKING WITH ANOTHER PERSON IN SUCH A MANNER THAT IT GETS A HIGHER DEDUCTION. HERE, IN THIS CASE , THERE IS NO OTHER PERSON INVOLVED. FURTHER, THERE WAS NO SUCH O BSERVATION IN THE ASSESSMENT ORDER AND THERE WAS NO SUCH ALLEG ATION IN THE PERSONAL REPRESENTATION OF THE ADDL. CIT WHO APPEAR ED BEFORE THE CIT(A). IT IS THE ADDITIONAL CIT WHO MADE THE A SSESSMENT IN THIS CASE. THESE GROUNDS DO NOT ARISE EITHER FROM THE ASSESSMENT ORDER OR FROM CIT(A)'S ORDER. 24. THE AR SUBMITTED THAT BY THIS GROUND THE AO REQUEST S FOR AN OPPORTUNITY TO MAKE THE ASSESSMENT ON DIFFERENT LINES INDICATED IN ALL THE PRECEDING GROUNDS. ACTUALLY, A FTER THE PRESENT APPEAL WAS FILED ON 07.03.2012, ASSESSMENTS FOR 2005- 06, 2006-07 & 2007-08 HAVE BEEN COMPLETED ON 31.07. 2012 ON THE BASIS OF THE FINDINGS OF THE CIT(A) FOR THE CUR RENT YEAR THAT IS 2008-09 (COPIES OF ORDERS ENCLOSED). THEREFORE THE GROUND OF APPEAL FOR SETTING ASIDE THE ORDER OF CIT(A) FOR RE DOING IN A FRESH MANNER IS TOTALLY UNTENABLE AS IT CONTRADICTS THE A O'S OWN STAND ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 13 IN THE THREE PRECEDING ASSESSMENT YEARS 2005-06 TO 2007-08. IN THIS CONNECTION, THE RATIO OF THE DECISION OF THE S UPREME COURT IS ONCE AGAIN SQUARELY APPLICABLE. THE HON'BLE SUPR EME COURT HELD IN THE CASE RADHA SOAMY SATSANG(SUPRA) THAT A STAND TAKEN IN REGARD TO PARTICULAR TRANSACTION AND WAS N OT DISPUTED SHOULD NOT BE ALTERED IN A LATER YEAR. NEEDLESS TO ADD, THIS DECISION OF THE SUPREME COURT ON THE PRINCIPLE OF C ONSISTENCY HAS BEEN FOLLOWED BY SEVERAL HIGH COURTS IN MANY CA SES. 25. HE RELIED ON THE FOLLOWING JUDGEMENTS/ORDERS: CIT VS SIMIT P SHETH (356 ITR 451) (GUJ) CIT VS VIJAY M MISTRY CONSTRUCTION LTD (355 ITR 498 ) (GUJ) CIT VS BHOLANATH POLY FAB PVT. LTD (355 ITR 290) (G UJ) SWASTIK TEXTILES VS. ITO (1 SOT 327) (JODH) KULDEEP BISHNOI VS. ACIT (154 TAXMANN 202) (DEL) (M AG) BRIGADE GLOBAL SERVICES P. LTD. VS. ACIT (143 ITD 5 9) (HYD) 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD AND ALSO CAREFULLY GONE THROUGH EACH CASE -LAW QUOTED BY THE PARTIES. THE CONTENTION OF THE LEARNED AR I S MISPLACED. ACCORDING TO THE AR, THE ADDITIONS MADE U/S. 68/69 OF THE ACT ARE TO BE CONSIDERED AS INCOME FROM BUSINESS SO AS TO GRANT DEDUCTION U/S. 10B OF THE ACT. THE ASSESSEE HAS NO T CHALLENGED SUSTAINING THE ADDITIONS ON THIS COUNT. THE ONLY D ISPUTE BEFORE US IS WITH REGARD TO GRANTING OF DEDUCTION U/S. 10B OF THE ACT FOR THE RESULTANT INCOME ON ACCOUNT OF ADDITIONS U/ S. 68/69 OF THE ACT. THE PROVISIONS OF SECTION 10B ARE WITH RE GARD TO GRANTING OF DEDUCTION TO 100% EXPORTED ORIENTED UND ERTAKING ON ACCOUNT OF EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THE INCOME RESULTING ON ACCOUNT OF ADDITIONS U/S. 6 8/69 OF THE ACT CANNOT BE CONSIDERED AS INCOME DERIVED FROM EXP ORT ACTIVITIES THOUGH IT IS INCOME OF EXPORT ORIENTED U NIT. THE RELIANCE PLACED BY THE LEARNED AR ON VARIOUS CASE-L AW IS TOTALLY MISPLACED. IN THOSE CASES, ADDITION IS NOT ON ACCO UNT OF SECTION 68, EVEN IF IT IS U/S. 68, IT DOES NOT NECESSARILY FOLLOW THAT SUCH ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 14 CREDIT REPRESENTS BUSINESS INCOME OF THE ASSESSEE A S A GENERAL PRACTICE UNLESS THERE IS CLEAR EVIDENCE THAT IT REP RESENTS BUSINESS RECEIPTS. IN THE PRESENT CASE, IT RELATES TO GRANTING OF DEDUCTION WITH REGARD TO PROFIT/GRAIN DERIVED FROM EXPORT ORIENTED UNIT AND UNLESS IT IS PROVED THAT IT IS FR OM EXPORT DEDUCTION U/S. 10B CANNOT BE GRANTED. THE CONTENTI ON OF THE ASSESSEE IS NOT ACCEPTABLE IN VIEW OF THE CLEAR PRO VISIONS OF SECTION 10B OF THE ACT AND THE IMPUGNED ADDITIONS C ANNOT BE SAID TO BE BUSINESS RECEIPTS. 27. THIS IS BECAUSE THE SOURCE OF INCOME IS INCOME FROM OTHER SOURCES AND THE DEPARTMENT DOES NOT HAVE TO LOCATE ANY PARTICULAR SOURCE OF INCOME. IT IS PERTINENT TO PL ACE RELIANCE ON THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE C ASE OF G.M. CHENNA BASAPPA VS. CIT (34 ITR 576) (AP) WHEREIN IT WAS HELD THAT ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT S WHICH IS ALTOGETHER IS FROM AN UNKNOWN SOURCE AND THEY ARE L EGALLY SUSTAINABLE ADDITIONS. 28. THE HONBLE SUPREME COURT ALSO HELD IN THE CASE OF CIT VS. ORISSA CORPORATION PVT. LTD. (159 ITR 78) HELD THAT ALTHOUGH SECTION 68 PROVIDES THAT THE PREVIOUS YEAR FOR WHIC H THE BOOKS OF ACCOUNT ARE MAINTAINED MAY BE TAKEN AS THE PREVI OUS YEAR FOR ASSESSING THE CASH CREDIT, IT DOES NOT FURTHER PROV IDE THAT CASH CREDIT SHOULD NECESSARILY BE DEEMED TO BE THE PROFI T OF THE BUSINESS FOR WHICH THE BOOKS ARE MAINTAINED. THE CA SH CREDIT MAY BE ASSESSED AS BUSINESS PROFIT OR AS INCOME FRO M OTHER SOURCES AS THE CASE MAY BE. THERE IS NO RULE THAT THE AMOUNT IS CREDITED IN THE BUSINESS ACCOUNT, WHICH MUST BE TAK EN AS RECEIPT FROM BUSINESS. WHETHER THE AMOUNT OF CREDI T U/S. 68 IS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES D EPENDS ON THE EVIDENCE AND EXPLANATION FURNISHED BY THE ASSES SEE. ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 15 29. IT WAS HELD IN THE CASE OF LAXMICHAND BAIJNATH VS. CIT (35 ITR 416) (SC) THAT IF CREDITS ARE FOUND IN BUSINESS ACCOUNT OF THE ASSESSEE AND THE EXPLANATION AS TO THE NATURE AND S OURCE OF ACCOUNT IS REJECTED BY THE INCOME-TAX AUTHORITIES, SUCH AUTHORITIES ARE ENTITLED TO TREAT THE CREDIT AS INC OME FROM BUSINESS. THE SAID DECISION CANNOT BE INTERPRETED TO MEAN THAT IN ALL CASES SUCH CREDITS MUST BE TREATED AS INCOME FROM BUSINESS. MERELY BECAUSE THE ASSESSEE IS RUNNING A BUSINESS IN WHICH ARE FOUND CERTAIN UNEXPLAINED CASH CREDITS, I T DOES NOT NECESSARILY FOLLOW THAT SUCH CREDITS REPRESENT SUPP RESSED BUSINESS RECEIPTS AND THERE WOULD BE NO ERROR OF LA W IN REGARDING THE UNEXPLAINED CASH CREDITS AS INCOME OF THE ASSESSEE FROM SOME INDEPENDENT AND UNKNOWN SOURCES UNLESS THERE ARE STRONG REASONS FOR CONNECTING THE UNEXPLA INED CASH CREDITS WITH KNOWN SOURCES OF INCOME OF THE ASSESSE E, THERE WOULD BE NO ALTERNATIVE TO TREATING THEM AS INCOME FROM OTHER SOURCES. 30. WE ALSO PLACE RELIANCE ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. DEVIPRASAD VISWANATH P RASAD (72 ITR 194) WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE PLEADS THAT THE IMPUGNED CASH CREDITS CAME OUT OF SUPPRESSED PR OFIT, IT IS FOR HIM TO PROVE THAT IT IS SO. 31. IF THESE RECEIPTS ARE ALLOWED BY TREATING AS BUSINE SS RECEIPTS, THEN THE ASSESSEE WILL BE ENTITLED TO SET OFF OF BUSINESS EXPENDITURE AGAINST THESE RECEIPTS WHICH IS NOT PER MISSIBLE. THE ASSESSEE'S BUSINESS IS CARRYING ON OF EXPORT AC TIVITIES IN GRANITE SLABS AND NOT DEALING IN UNEXPLAINED CREDIT S. BEING SO, WE ARE INCLINED TO HOLD THAT THE ASSESSEE IS NOT EN TITLED FOR DEDUCTION U/S. 10B OF THE ACT ON ACCOUNT OF ADDITIO NS MADE U/S. 68/69 OF THE ACT. THE GROUNDS TAKEN BY THE R EVENUE ARE ALLOWED. ITA NO. 367/HYD/2012 M/S. DIVYASHAKTI GRANITES LTD. ======================= 16 32. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2013 SD/ - / - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - / - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 13 TH DECEMBER, 2013 TPRAO COPY FORWARDED TO: 1. THE ASST. CIT, CIRCLE - 1(2), 4 TH FLOOR, AAYAKAR BHAVAN, HYDERABAD. 2. M/S. DIVYASHAKTI GRANITES LTD., D. NO. 7 - 1 - 58, DIVYASHAKTI COMPLEX, AMEERPET, HYDERABAD. 3. THE CIT(A) - II, HYDERABAD. 4. THE CIT - I, HYDERABAD. 5. THE DR 'A' BENCH, ITAT, HYDERABAD