The ITO, Ward-5(1), Ahmedabad V. Neptune Overseas Ltd., Ahmedabad

ITA 93/AHD/2005

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8990 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 07-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N S DAYAM
• Assessee Lawyers: BHARAT S SHAH
• Keywords: Bogus purchase; Unexplained investment; Business expenditure; Revenue expenditure; Set aside; Liquidation
• Section: 69B; 69; 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO. 93/AHD/2005 A. Y.: 2001-02 THE INCOME TAX OFFICER, WARD NO. 5(1), C. U. SHAH COLLEGE BUILDING, 2ND FLOOR, AHMEDABAD VS NEPTUNE OVERSEAS LTD., 4 TH FLOOR, H. K. HOUSE, ASHRAM ROAD, AHMEDABAD PA NO. AAACN 5163 C (APPELLANT) (RESPONDENT) ITA NO. 3873/AHD/2004 A. Y.: 2001-02 NEPTUNE OVERSEAS LTD., 4 TH FLOOR, H. K. HOUSE, ASHRAM ROAD, AHMEDABAD VS THE INCOME TAX OFFICER, WARD NO. 95(1), C. U. SHAH COLLEGE BUILDING, 2ND FLOOR, AHMEDABAD PA NO. AAACN 5163 C (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI N. S. DAYAM, CIT DR ASSESSEE BY SHRI BHARAT S. SHAH, AR O R D E R PER BHAVNESH SAINI, JM: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI, AHMEDAB AD DATED 15-10-2004 FOR ASSESSMENT YEAR 2001-02. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. BOTH THE APPEALS ARE DECIDED I SSUE WISE AS UNDER. ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 2 ISSUE NO.1 3. ON GROUNDS NO. 1 AND 2 OF THE DEPARTMENTAL APPEA L, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.1,69, 90,679/- IN RESPECT OF PURCHASES. THE AO DISALLOWED THE ABOVE AMOUNT ON AC COUNT OF BOGUS PURCHASES U/S 69 OF THE IT ACT. THE AO DISCUSSED TH IS ISSUE IN PARA 3 TO 21 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO, DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE PURCHASES FROM 17 PARTIES. THE AO AT PARA 3 AND 4 OF THE ASSESSMENT ORDER HAS MENTION ED THE NAMES OF THE SAID PARTIES. IT IS SEEN THAT THE AO HAS ISSUED NOT ICE U/S 133 (6) OF THE IT ACT TO ALL THE 17 PARTIES. ACCORDING TO THE AO OUT OF THE 17 PARTIES, 10 PARTIES SENT THEIR CONFIRMATION REPORT ALONG WITH C OPIES OF ACCOUNT, XEROX COPY OF RETURN OF INCOME FILED BY THEM AND PERMANEN T ACCOUNT NUMBER. HOWEVER, LETTERS ISSUED TO THE FOLLOWING 7 PARTIES WERE RECEIVED BACK AND THE SAID PARTIES WERE NOT TRACEABLE. 1. ANKU CORPORATION 2. VIJAY INDUSTRIES 3. MADHAV SALES AGENCY 4. SHREE MINAL OIL & AGRO INDUSTRIES PVT. LTD. 5. BHARAT INDUSTRIES 6. SHAH OIL INDUSTRIES 7. VIJAY SALES CORPORATION THEREFORE, DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSEE WAS ASKED TO FURNISH THE CONFIRMATION AND DETAILS. HOWE VER, THE ASSESSEE COULD FURNISH DETAILS IN RESPECT OF SOME OF THE PAR TIES AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER. IT IS SEEN THAT ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE, THE AO THROUGH THE INSPE CTOR IN THE FOLLOWING CASES CONDUCTED ENQUIRIES. THE DETAILS OF THE REPOR T OF THE INSPECTOR ARE DISCUSSED AS UNDER: ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 3 NAME REPORT OF THE INSPECTOR 1. BHARAT INDUSTRIES THEY WERE DOING BUSINESS AT G IVEN ADDRESS BUT HAD CLOSED THEIR BUSINESS. ON THE BASIS OF BANK ACCOUNT NO. COPY OF BANK ACCOUNT WAS COLLECTED AS BUSINESS WAS CLOSED SALES TAX NO. WAS CANCELLED. 2. MADHAV SALES AGENCY THEY WERE DOING BUSINESS AT GIVEN ADDRESS BUT HAD CLOSED THEIR BUSINESS. ON THE BASIS OF BANK ACCOUNT NO. COPY OF BANK ACCOUNT WAS COLLECTED AS BUSINESS WAS CLOSED SALES TAX NO. WAS CANCELLED 3. SHAH OIL INDUSTRIES INSPECTOR VISITED BUT COULD NOT GATHER ANY INFORMATION 4. VIJAY SALES CORPORATION INSPECTOR COULD NOT LOCA TE/IDENTIFY THE PARTY IT IS STATED BY THE AO IN THE ASSESSMENT ORDER THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2000-01 IT WAS NOTICED THAT FOR THE GOODS PURCHASED FROM THE FOLLOWING REMAININ G THREE PARTIES INQUIRIES WERE CONDUCTED AND IT WAS FOUND THAT THEY WERE NAME LENDERS ISSUING BOGUS BILLS AND PURCHASES FROM THEM WERE DI SALLOWED. 1. ANKU CORPORATION 2. VIJAY INDUSTRIES 3. SHREE MINAL OIL & AGRO INDUSTRIES LTD. THE AO, THEREFORE, PROPOSED TO DISALLOW PURCHASES M ADE FROM THE ABOVE PARTIES OF THE AGGREGATE AMOUNT OF RS.1,69,90,679/- . THE AO HAS FURTHER STATED THAT THE ASSESSEE HAD CLAIMED U/S 80 HHC ON THE EXPORT SALES AND ALSO FILED AUDITORS REPORT. THE DETAILS OF EXP ORTS MADE ALONG WITH COPIES OF BANK RECONCILIATION CERTIFICATE WERE FURN ISHED AND THE APPELLANT HAD ALSO FILED STATEMENT OF PURCHASES MADE FOR EXPO RTS. HE HAD, THEREFORE, MADE ENQUIRIES WITH THE CUSTOM AUTHORITI ES AT KANDLA WHO CONFIRMED THE EXPORTS MADE BY THE APPELLANT. SIMIL ARLY, THE CUSTOMS AUTHORITIES AT SABARMATI, AHMEDABAD ALSO CONFIRMED THE EXPORTS MADE BY THE ASSESSEE. HOWEVER, ACCORDING TO THE AO PURCH ASES MADE AS UNDER WERE NOT VERIFIED: ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 4 1. SHAH OIL INDUSTRIES ` 16,37,074 2. SHREE MINAL OIL & AGRO INDUSTRIES PVT. LTD. 2 8,51,633 3. VIJAY INDUSTRIES 4,57,302 4. VIJAY SALES CORPORATION 22,98,263 5. ANKU CORPORATION 21,69,274 94,13,546 LOCAL PURCHASE FOR LOCAL SALE SIMILARLY PURCHASE FROM VIJAY INDUSTRIES ARE NOT VERIFIABLE 31,90,192 PURCHASE FROM VIJAY SALES CORPORATION ARE NOT VERIFIABLE 43,86,941 1,69,90,679 IT IS SEEN THAT ON BEING ASKED BY THE AO, THE ASSES SEE HAS FILED WRITTEN SUBMISSION THAT WAS REPRODUCED BY THE AO AT PARA 16 TO 20 OF THE ASSESSMENT ORDER. THE REPLY FILED BY THE ASSESSEE W AS NOT CONSIDERED BY THE AO TO BE SATISFACTORY. THEREFORE, FOR MAKING DI SALLOWANCE, THE AO IN PARA 21 OF THE ASSESSMENT ORDER HAVE OBSERVED AS UN DER: 21. THE ASSESSEE HAS FURNISHED SALES-TAX REGISTRAT ION NUMBER OF MADHAV SALES AGENCY, BHARAT INDUSTRIES AN D SHAH OIL INDUSTRIES ONLY. ON THE BASIS OF INFORMATION PR OVIDED BY THE ASSESSEE INQUIRY HAS BEEN CARRIED OUT AND PURCH ASES HAVE BEEN CONFIRMED IN THE CASE OF BHARAT INDUSTRIE S AND MADHAV SALES AGENCY.THIS HAS BEEN INFORMED TO THE A SSESSEE AS PER ORDER SHEET ENTRY DATED 29.3.2004. PURCHASES MADE TO THE EXTENT OF RS.1,69,90,679 HAVE NOT BEEN PROVED. THE SAID PURCHASES ARE NOT EXPLAINED BY THE ASSESSEE. CONSEQ UENTLY THE INVESTMENT MADE FOR PURCHASING THE ABOVE GOODS ARE ALSO OUT OF BOOKS. AS PER PROVISION OF SECTION 69 OF THE I.T. ACT, THE INVESTMENT WHICH ARE NOT RECORDED IN THE BOOKS OF A CCOUNTS, IF ANY MAINTAINED BY HIM FOR ANY SOURCE OF INCOME AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANATION OFFERED BY HIM I S NOT IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY THE VALUE OF INVESTMENTS MAY BE DEEMED TO BE THE INCOME OF THE A SSESSEE OF SUCH FINANCIAL YEAR. UNDER CIRCUMSTANCES AN AMOU NT OF RS.1,69,90,679 IS CONSIDERED TO BE UNEXPLAINABLE IN VESTMENT IN THE BOOKS OF ACCOUNTS AND ADDED TO TOTAL INCOME. ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 5 4. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND WRITTEN SUBMISSION WAS FILED. WITH REGARD TO THE ADDITION M ADE BY THE AO IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE T HAT THE ADDITION HAS BEEN MADE HOLDING THE ABOVE PURCHASE AS UNEXPLAINED INVESTMENT U/S 69 OF THE IT ACT. THE AO HAD IN THE ORDER SHEET ENT RY PROPOSED TO DISALLOW THE PURCHASES HOLDING IT AS NOT PROVED, WH EREAS THE ADDITION HAS BEEN MADE AS UNRECORDED PURCHASES U/S 69 OF THE IT ACT. THEREFORE, IT WAS SUBMITTED AS UNDER: PROVISIONS OF SECTION 69 OF THE I. T. ACT CAN BE I NVOKED IF (I) THE ASSESSEE HAS MADE INVESTMENTS (II) SUCH INVESTMENTS ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS (III) EITHER THE ASSESSEE OFFERS NO EXPLANATION OR THE EXPLANATION OFFERED IS NOT SATISFACTORY. THESE THREE FINDINGS ARE CUMULATIVE TO BE RECORDED ON GATHERING NECESSARY FACTS, BUT THE BASIC FINDING TO BE RECORDED ON CLEAR AND COGENT MATERIAL IS IN RESPECT OF THE I NVESTMENT MADE WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT . THE ONUS TO SO ESTABLISH IS THAT ON THE ASSESSING OFFIC ER. (IN THIS REGARD RELIANCE IS PLACED ON THE DECISION IN THE CA SE OF DILSHAD TRADING CO. V. ITO (1994) 49 ITD 348 (BOM.). OF COU RSE THE DECISION IS WITH REGARD TO SECTION 69B OF THE I. T. ACT BUT WILL SQUARELY APPLY TO SECTION 69 OF THE I. T. ACT AS TH E PROVISIONS ARE SIMILAR.). IN THE PRESENT CASE IT MAY BE EMPHASIZED THAT THE P AYMENTS ARE THROUGH BANKING CHANNELS AND ARE RECORDED IN TH E BOOKS OF ACCOUNTS. THEREFORE, QUESTION OF INVOKING THE PR OVISIONS OF SECTION 69 OF THE I. T. ACT SIMPLY DOES NOT ARISE. THE ADDITION THEREFORE DESERVES TO BE DELETED ON THAT SCORE ALON E. WITHOUT PREJUDICE TO THE ABOVE IT MAY BE POINTED OU T THAT IT IS NOT THE ASSESSING OFFICERS CASE THAT THE PURCHASES RECORDED ARE AT INFLATED RATES. IN ANY CASE, NO EVIDENCE TO THAT EFFECT IS BROUGHT ON RECORD. IN FACT THE ASSESSING OFFICER HA S ADDED THE ENTIRE PURCHASE CONSIDERATION AS UNEXPLAINED INVEST MENT. THE ADDITION ON THAT SCORE ALSO DESERVES TO BE DELETED. ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 6 THE ASSESSEE REFERRED TO FOLLOWING SUBMISSIONS (WHI CH ARE REPRODUCED IN THE ASSESSMENT ORDER) MADE BEFORE THE AO VIDE LETTE R DATED 29-3-2004 TO ESTABLISH THAT THE PURCHASES AS WERE RECORDED IN TH E BOOKS WERE GENUINE: 17. IN THIS REGARD WE WOULD LIKE TO SUBMIT THAT WE HAVE SUBMITTED COPY OF ACCOUNTS, QUANTITATIVE RECONCILIA TION OF SALES AND PURCHASES DURING THE YEAR. WE HAVE ALS O SUBMITTED SALES-TAX REGISTRATION NUMBERS OF ALL THE PARTIES. 18. IN CASE OF MADHAV SALES AGENCY AND BHARAT INDUS TRIES, CLASSIS CO-OP. BANK HAS PROVIDED BANK STATEMENT IN THESE PARTIES. FROM THE STATEMENT IT IS EVIDENT THA T MADHAV SALES AGENCY AND BHARAT INDUSTRIES HAVE DONE GENUINE TRANSACTIONS WITH US. YOU HAVE CARRIED SPOR T VERIFICATION OF MADHAV SALES AGENCY, SHAH OIL INDUSTRIES AND BHARAT INDUSTRIES. AS PER OUR INFORMATION THESE PARTIES HAVE CLOSED DOWN THEIR BUSINESS FROM THEIR GIVEN ADDRESS. SHREE MINAL OIL AND AGRO INDUSTRIES PVT. LTD., HAS GONE IN LIQUIDATION, THEREFORE, A STATEMENT OF CONFIRMATION COULD NOT BE OBTAINED WHICH IS KNOWN TO YOU. IN THE ASSESSMENT PROCEEDING AND APPEAL PROCEEDINGS OF THE EARLIER YE AR WE HAVE SUBMITTED THE DETAILS OF BANK ACCOUNT OF SH REE MINAL OIL & AGRO INDUSTRIES PVT. LTD. 19. IN CASE OF VIJAY INDUSTRIES, VIJAY SALES CORPOR ATION AND ANKU CORPORATION, YOUR GOODSELF HAS CARRIED OUT SPO T VERIFICATION ALSO. AS PER OUR INFORMATION THESE PAR TIES HAVE ALSO CLOSED DOWN THEIR BUSINESS DUE TO HEAVY LOSSES IN THE BUSINESS. WE HAVE SUBMITTED THE DETAI LS OF SALES-TAX REGISTRATION NUMBERS AND DETAILS OF BANK ACCOUNTS OF THESE PARTIES TO YOUR GOODSELF FOR VERIFICATION. 20. WE WOULD LIKE TO SUBMIT THAT WE HAVE EXPORTED T HE GOODS PURCHASED FROM THE ABOVE PARTIES. WE HAVE MAD E PAYMENT FOR THE PURCHASES TO ABOVE PARTIES BY A/C. PAYEE CHEQUES AND HAVE SUBMITTED ALL THE DETAILS REGARDING SALES-TAX REGISTRATION NUMBERS, DETAILS O F BANK ACCOUNT THEREFORE YOUR GOODSELF IS KINDLY REQUESTED TO TREAT THE ABOVE PURCHASES AS GENUINE. ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 7 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AFTER CONSIDERING THE ABOVE ARGUMENTS, THE AO HAS DECIDED TO MAKE THE ADDITION U/S 69 OF THE IT ACT, WHICH ESTABLISHES THAT HE WAS SATISFIED ABOUT THE PURCHASES MADE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED AS UNDER: (I) THE AO HAS FAILED TO APPRECIATE THAT THE APPEL LANT HAS FURNISHED COPIES OF ACCOUNT OF PARTIES, COPIES OF B ILLS FOR PURCHASES. THE APPELLANT ALSO FURNISHED DETAILS OF SALES TAX REGISTRATION NO. OF ALL PARTIES AND THEIR ADDRE SSES. (II) THE APPELLANT HAD ALSO FURNISHED QUANTITATIVE RECONCILIATION OF SALES WITH PURCHASES FROM ABOVE PARTIES DURING THE YEAR. THE SAID RECONCILIATION WA S VERIFIED AND NO INFIRMITY WAS FOUND. THUS, IT IS CONCLUSIVELY ESTABLISHED THAT GOODS WERE PURCHASED FOR WITHOUT SUCH PURCHASES SALES COULD NOT HAVE BEEN EFFECTED. (III) THE AO HAS ACCEPTED THE SALES AND ALSO GP AS PER BOOKS. THUS, REMOTEST CHANCE FOR THE ALLEGATION THA T THE PURCHASES TO THE TUNE OF RS.1,69,90,679 ARE BOGUS D OES NOT SURVIVE. (IV) THE PURCHASES ARE RECORDED IN THE BOOKS AND THERE I S NO BASIS FOR HOLDING THAT INVESTMENT FOR PURCHASING A BOVE GOODS ARE ALSO OUT OF BOOKS OR HOLDING THAT IT IS NOT RECORDED IN THE BOOKS. (V) THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES AND IT IS NOT THE CASE OF THE AO THAT THE AMOUNT PAID H AS COME BACK TO THE APPELLANT. IN ANY CASE NO EVIDENCE IS BROUGHT ON RECORD TO SO ESTABLISH. (VI) IN PARA 4.3 OF THE ASSESSMENT ORDER FOR A. Y.2000-2 001 THE RESULT OF THE INQUIRY WITH THE RESPECTIVE BANKS IS REFERRED TO AND IT WAS NOTED BY THE ASSESSING OFFIC ER HIMSELF THAT COPIES OF THE BANK ACCOUNTS OF PARTIES WERE RECEIVED FROM INDIAN BANK, BANK OF BARODA AND VISNAGAR SAHAKARI BANK. COPY OF BANK ACCOUNT OF ANKU CORPORATION WHICH WAS OBTAINED BY THE ASSESSIN G OFFICER HIMSELF AS SHOWN IN THE ASSESSMENT ORDER FO R THAT YEAR. IT WAS OBSERVED BY HIM THAT THE ACCOUNT OF THE VIJAY INDUSTRIES COULD NOT BE OBTAINED FROM THE BANK ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 8 AND HE HAD ALSO GIVEN DETAILS OF DEPOSITS OF VARIOU S CHEQUES AND WITHDRAWALS OF CASH BY THE SAID PARTY. AS REGARDS THE OBSERVATION OF THE ASSESSING OFFICER IN THAT YEAR THAT IN RESPECT OF THE ACCOUNT OBTAINED F ROM THE BANK THERE ARE WITHDRAWALS ON THE SAME DATE OF DEPOSITING OF CHEQUES IT IS STATED THAT THIS LEADS NOWHERE, IN AS MUCH AS IT IS NOT ESTABLISHED BY THE SE OBSERVATIONS THAT THE CASH WITHDRAWN BY THE SUCH PARTIES HAS COME BACK TO THE APPELLANT. IN THIS CONNECTION REFERENCE MAY BE MADE TO GUJARAT HIGH COURT DECISION IN THE CASE OF M. K. BROTHERS REPORT ED AT 163 ITR 249. IN THE ABSENCE OF EVIDENCE THAT SUCH WITHDRAWALS HAVE COME BACK TO THE APPELLANT, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ANY ADDITION FOR ALLEGED BOGUS PURCHASE. IN THIS CONNEC TION THE APPELLANT MAY ALSO REFER TO GUJARAT HIGH COURT DECISION IN THE CASE OF DCIT VS. ADINATH INDUSTRIES (252 ITR 476. THE HEAD NOTE OF SAID CASE READS AS UNDER: FOR THE ASSESSMENT YEAR 1984-85, THE ASSESSEE WAS ASSESSED UNDER SECTION 143 OF THE INCOME- TAX ACT, 1961. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON THE GROUND THAT THE SELLER OF THE GOODS TO THE ASSESSEE WAS MERELY A BILLING AGENT AND NOT A GENUINE SELLER, THAT REGISTRATION OF SALE S TAX TO THE SELLER WAS CANCELLED IN 1982; AND HAT THE CHEQUES ISSUED BY THE ASSESSEE FOR THE PURCHASES WERE CREDITED TO THE PARTYS BANK ACCOUNT FIRST AND WITHDRAWN SUBSEQUENTLY BY WAY OF SELF-BEARER CHEQUES ON THE VERY DAY OF DEPOSITING. IN A REPLY TO THAT NOTICE, THE ASSESSEE EXPLAINED THE DETAILED PROCEDURE FROM THE STAGE OF RECEIPT OF GOODS TO FINAL PRODUCTION. HOWEVER, THE INCOME-TAX OFFICER CAME TO THE CONCLUSION THAT THE TRANSACTIONS WERE FAKE. THE TRIBUNAL POINTED OUT THAT AT BEST IT COULD BE INFERRED THAT THESE PARTIES WERE SET UP BY SOMEBODY ELSE AND THE REASONS COULD BE MANIFOLD FOR THAT AND DELETED THE ENTIRE DISALLOWANCE. BEFORE DOING SO, THE TRIBUNAL HAD NOTICED A SIMILAR FACT SITUATION IN TH E CASE OF A WHO HAD ALSO TRANSACTION WITH THE SAME SELLER AS IN PRESENT CASE. THE TRIBUNAL ON AN APPRECIATION OF EVIDENCE HAD DELETED THE ADDITION MADE IN THE CASE OF A. THE DECISION OF THE TRIBUNAL WAS UPHELD BY THE HIGH COURT AND THE ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 9 SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THAT DECISION WAS REJECTED. IN THAT CASE, THE TRIBUNAL HAD HELD THAT NO ADDITION COULD BE MADE MERELY ON THE BASIS OF SUSPICION AND CONJECTURE THROUGH THERE WERE SOME SUSPICIOUS FEATURES LIKE THE SELLER HAVING THE SAME BANK ACCOUNTS IN THE SAME BRANCH AS THE ASSESSEE AND FURTHER THAT THEIR SALES TAX REGISTRATION NUMBERS WERE CANCELLED. ON APPEAL: HELD, THAT THE ASSESSING OFFICER COULD HAVE UNEARTHED THE FACT THAT THE SELLER WAS A BOGUS PARTY BY RECORDING THE STATEMENT OF THE BANK MANAGER, ACCOUNTANT OR CASHIER OR THE PARTY WHO INTRODUCED THE SELLER TO THE BANK BUT WITHOUT ANY EVIDENCE AND MERELY ON THE BASIS OF WITHDRAWAL OF AMOUNTS FROM THE ACCOUNT OF THE SELLER THE ASSESSING OFFICER HAD DRAWN A PRESUMPTION THAT THE AMOUNT HAD COME BACK IN THE ASSESSEES HANDS. THE ASSESSEE HAD FURNISHED DETAILS ABOUT PURCHASE AND FOR FURTHER VERIFICATION THE ASSESSEE HAD ALSO PRODUCED THE GATE PASS, RECEIPT NOTE, WEIGHT NOTE, LABORATORY REPORT AND SAMPLE REPORT. THE ASSESSEE PRODUCED EVIDENCE OF PURCHASE OF RAW MATERIALS AND SUBMITTED THE DETAILS ABOUT THE TRANSACTION, TRUCK NUMBER, ETC. THEREFORE, THE ASSESSEE HAD PRODUCED RELEVANT MATERIALS TO SHOW PURCHASE OF MATERIALS AND THEIR USE IN PRODUCTION. THE ASSESSING OFFICER HAD ACCEPTED THE EXISTENCE OF THE SELLER IN THE CASE OF A FOR TH E ASSESSMENT YEAR 1985-86. THE TRIBUNAL APPRECIATED ALL THESE FACTS IN ARRIVING AT A CONCLUSION IN FAVOUR OF THE ASSESSEE. WHEN THE MATTER HAD BEEN DECIDED BY THE TRIBUNAL ON APPRECIATION OF EVIDENCE, NO INTERFERENCE WAS CALLED FOR IN THE MATTER. [THE SUPREME COURT DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE REVENUE AGAINST THIS JUDGMENT: SEE [2001] 247 ITR (ST.) 35.] (VII) IN SO FAR AS MINAL OIL AND AGRO INDUSTRIES LTD. IS CONCERNED IT MAY BE APPRECIATED THAT SAID CO. IS UN DER LIQUIDATION AND IS UNDER CONTROL OF OFFICIAL LIQUID ATOR. HENCE, CONFIRMATION COULD NOT BE OBTAINED. BUT, THE APPELLANT HAD IN A. Y. 2000-01 FURNISHED DETAILS OF THEIR ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 10 BANK ACCOUNT. IN ANY CASE, AO COULD HAVE VERIFIED PURCHASE FROM THE SAID COMPANY FROM OFFICIAL LIQUID ATOR. THIS WAS EITHER NOT DONE OR IF DONE IS NOT DISCUSSE D IN THE ASSESSMENT ORDER AS THE SAME DOES NOT SUPPORT T HE ACTION OF THE ASSESSING OFFICER. (VIII) FURTHER, SHAH OIL INDUSTRIES AND VIJAY SALES CORPORATION ARE FOUND BY DEPARTMENT TO HAVE CLOSED THEIR BUSINESS. AS PER APPELLANTS INFORMATION THE FACTORY OF SHAH OIL INDUSTRIES VISITED BY INSPECTOR WAS GIVEN ON LEASE TO THIRD PARTY. IN ANY CASE, THE FAC T THAT THE BUSINESS WAS CLOSED DOES NOT IN ANY WAY ESTABLI SH THAT THE PURCHASES MADE BY THE ASSESSEE WERE NOT GENUINE AS HELD. IT WAS FURTHER POINTED OUT THAT THE ADDITIONS WERE ALSO MADE IN THE EARLIER YEAR VIZ. 2000-01 IN RESPECT OF THE FOLLOWI NG PARTIES AND LEARNED CIT(A) HAS DELETED THE ADDITIONS AS DETAILED BELOW: NAME OF THE PARTY ADDITION THIS ADDITION LAST DEALT WITH YEAR RS . YEAR RS. IN APPELLATE ORDER 1. SHREE MINAL OIL & AGRO IND. 28,51,633 23,64,53,091 PARA 4.11 (III) & 4.12 2. VIJAY INDUSTRIES 36,47,494 1,65,30,483 PARA 4.11 (I) (4,57,302+31,90,192) & 4.12 3. ANKU CORPN. 21,69,274 50,10,218 PARA 4.11(I) 86,68,401 25,79,93,792 & 4.12 FOLLOWING THE EARLIER YEARS APPELLATE ORDER THE AD DITION OF RS.86,68,401/- DESERVES TO THE DELETED. AS FOR THE PURCHASES OF RS.16,37,074/- FROM SHAH OI L INDUSTRIES AND THE PURCHASES OF RS.66,85,204/- (RS.22,98,263/- + RS.43 ,86,941/-) FROM VIJAY SALES CORPORATION IT WAS POINTED OUT AS UNDER : (A) AS STATED EARLIER THE CLOSURE OF THE BUSINESS DOES NOT RENDER PURCHASES FROM THEM AS BOGUS. ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 11 (B) THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS. THIS FACT IS CONCLUSIVELY ESTABLISHED BY THE COPIES OF THEIR ACCOUNTS FURNISHED DURING THE COURS E OF ASSESSMENT PROCEEDINGS & COPIES OF LETTERS FROM BAN KS CONFIRMING THE ABOVE POSITION ARE ENCLOSED. (C ) NO EVIDENCE IS BROUGHT ON RECORD ESTABLISHING THAT THE ASSESSEE RECEIVED BACK THE PURCHASE CONSIDERATION P AID THROUGH BANKING CHANNELS FROM THESE PARTIES. IN VIEW OF THE ABOVE, THERE IS NO JUSTIFICATION FOR MAKING THE ADDITION OF RS.83,22,278 (16,37,074 + 66,85,204). I T DESERVES TO BE DELETED. IT WAS FURTHER SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE FINDINGS GIVEN BY THE AO ON SIMILAR GROUND WERE DEL ETED BY THE LEARNED CIT(A). IN ASSESSMENT YEAR 2000-01, THE AO HAD NOT MADE ANY ADDITION U/S 69 OF THE IT ACT. HE HAD TREATED THE PURCHASES AS BOGUS AND THE LEARNED CIT(A) HAD TREATED SUCH PURCHASES AS GENUIN E. DURING THE COURSE OF APPELLATE PROCEEDINGS, SHRI K. V. M. KUTTY, THE AO ALSO APPEARED AND FILED WRITTEN SUBMISSIONS VIDE HI S LETTER NO.ITO.WD.5(1)/NEPTUNE/2004-05 DATED 12-10-2004 WHE REIN HE HAS SUBMITTED AS UNDER: 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE PURCHASES MADE TO THE EXTENT OF RS.1,69,90,679/- FR OM THE FOLLOWING PARTIES WERE NOT PROVED BY THE ASSESSEE. PURCHASES FOR EXPORT SALES (1) SHAH OIL INDUSTRIES RS. 16,37,074/- (2) SHRI MINAL OIL & AGRO INDS. P. LTD. RS. 28, 51,633/- (3) VIJAY INDUSTRIES RS. 4,57,302/- (4) VIJAY SALES CORPORATION RS. 22,98,263/- (5) ANKU CORPORATION RS. 21,69,274/- RS. 94,13,546/- ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 12 PURCHASES FOR LOCAL SALES VIJAY INDUSTRIES RS. 31,90,192/- PURCHASE FROM VIJAY SALES CORPORATION RS. 43, 86,941/- RS. 1,69,90,679/- AS DISCUSSED IN THE ASSESSMENT ORDER AN ADDITION OF RS.1,69,90,679/- HAS BEEN MADE U/S 69 OF THE I. T. ACT. THE CUSTOMS AUTHORITIES KANDLA, HAVE VIDE THEIR LETTER DATED 29-03-2004 CONFIRMED THE SHIPMENTS MADE BY THE ASSE SSEE AND THE LAST SHIPMENT WAS MADE ON 18-08-2000. THERE FORE, THE DEPTT. HAS NO REASON TO DOUBT AND DENY THE FACT THAT THE GOODS, THE NATURE AND QUANTITY OF WHICH HAS BEEN ST ATED IN THE ABOVE SAID LETTER OF THE CUSTOMS DEPTT., WERE A CTUALLY EXPORTED. IN THIS CONNECTION, I MAY BE PERMITTED TO DRAW YOUR KIND ATTENTION TO THE DETAILS FURNISHED BY THE ASSE SSEE REGARDING THE PURCHASES MADE FOR THE PURPOSE OF EFF ECTING THE EXPORTS. STATEMENT OF PURCHASE MADE: 19-08-2000 RS. 3,42,735/- 19-08-2001 RS. 3,32,562/- 19-08-2002 RS. 3,47,430/- 19-08-2003 RS. 3,37,500/- 19-08-2004 RS. 3,58,906/- 19-08-2005 RS. 3,32,344/- 19-08-2006 RS. 3,60,525/- 19-08-2007 RS. 3,22,140/- 19-08-2008 RS. 3,09,192/- 21-08-2000 RS. 49,31,685/- 08-09-2000 RS. 4,73,600/- 08-09-2001 RS. 4,73,600/- 08-09-2002 RS. 4,92,800/- 14-09-2000 RS. 4,67,200/- 14-09-2001 RS. 4,67,200/- 15-09-2000 RS. 4,67,200/- 20-10-2000 RS. 11,019/- 25-03-2001 RS. 2,83,907/- 26-03-2001 RS. 2,97,403/- 27-03-2001 RS. 3,14,304/- 29-04-2001 RS. 3,04,375/- 30-03-2001 RS. 10,033/- RS.20,37,760/- ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 13 IT MAY KINDLY BE NOTED THAT THE LAST DATE OF EXPORT AS PER THE LETTER OF THE CUSTOMS DEPARTMENT (SUPRA) IS 18-08-2000, WHEREAS THE PURCHASES MADE AS PER DETAI LS ABOVE, WHICH ARE CLAIMED BY THE ASSESSEE TO HAVE BE EN MADE FOR THE SAID EXPORTS, WERE AFTER THE DATE OF EXPOR T. IT IS THEREFORE, PERTINENT TO INVESTIGATE AND DECIDE THE FOLLOWING POINTS: (A) IF THE GOODS PURCHASED FOR EXPORTS WERE ACTUALL Y PURCHASED AFTER THE DATE OF EXPORT, HOW DID THE ASSESSEE ACQUIRE THE GOODS, WHICH WERE EXPORTED BY IT. THE LOGICAL POSSIBILITY IS THAT THE ASSESSEE PURCHA SED THESE GOODS FROM PARTIES OTHER THAN THE ABOVE 5 PAR TIES MENTIONED AT PARA 2 ABOVE. IN SUCH A CASE THE INVESTMENT MADE IN THESE PURCHASES REMAINS UNEXPLAINED AND HENCE, WITHOUT PREJUDICE TO THE STA ND TAKEN IN THE ASSESSMENT ORDER, THE PAYMENTS TO THE EXTENT OF RS.20,37,760/- REMAINS UNEXPLAINED AND HA VE TO BE TREATED AS ASSESSEES INCOME U/S 69 C OF THE I. T. ACT. IT MAY BE SUBMITTED THAT THE ASSESSEES ARGUME NT THAT THE AMOUNTS IN THE CHEQUES ISSUED TO THESE PAR TIES WERE AVAILABLE WILL NOT BE TENABLE UNLESS THE ASSES SEE ESTABLISHES THAT THESE CHEQUES WERE ENCASHED PRIOR TO THE DATE OF PURCHASES SHOWN ABOVE. (B) THE ASSESSEE HAS NOT SHOWN THE ABOVE GOODS IN T HE CLOSING STOCK AND THEREFORE, LOGICALLY THESE HAD BE EN SOLD BY THE ASSESSEE. THE ASSESSEE HAS NOT DISCLOSE D THE SALE OF THESE GOODS AND THEREFORE, THERE IS SUPPRESSION OF SALES TO THAT EXTENT. YOU ARE REQUESTED TO KINDLY TAKE NOTICE OF THE ABOVE WHILE DECIDING THE APPEAL OF THE ABOVE MENTIO NED ASSESSEE FOR A. Y. 2001-02. THE ALTERNATE ARGUMENTS TAKEN BY THE AO VIDE HIS LE TTER DATED 12-10-2004 HAVE BEEN DISCUSSED DURING THE COURSE OF HEARING WITH THE AO AND THE LEARNED COUNSEL FOR THE ASSESSEE. THE LE ARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY OBJECTED TO THE ALTERNATE P LEA TAKEN BY THE AO AND GAVE HIS COUNTER COMMENTS WHICH ARE REPRODUCED BELOW: THE APPELLANT MAY SUBMIT THAT THE CORRECT FACTS OF THE CASE ARE AS UNDER: ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 14 (A) THE APPELLANT SUBMITS A COPY OF LETTER DATED 19-3-2004 SENT BY THE ASSTT. COMMISSIONER (EXPORT), CUSTOMS DEPARTMENT, KANDLA. IT MAY BE NOTICED THAT HE HAS CONFIRMED THE EXPORTS MADE BY THE APPELLANT. FROM THE FOLLOWING SHIPPING BILLS AS PER THE ENCLOS URE TO THE SAID LETTER FROM THE CUSTOMS DEPARTMENT IT W ILL BE SEEN THAT THE TOTAL MATERIAL SENT IS 525 METRIC TONES OF INDIA COMMERCIAL GRADE CASTOR OIL. S.B. NO . CONSIGNEE SHIPPING BILL DATE QUANTITY 1009277/ PUYONG, CHINA 18-8-2000 225.300 MT 18-8-2000 1009302/ PUYONG, CHINA 18-8-2000 300.000 MT 18-8-2000 (B) AS PER THE ENCLOSED DETAILS THE TOTAL SHIPMENT TO PUYONG CHINA WAS OF 525.835 MTS. OUT OF THESE DETAILS THE A. O. REFERRED TO THE LAST 10 BILLS OF PURCHASE AS PER THE FOLLOWING DETAILS TO ALLEGE THA T THE PURCHASES WERE AFTER THE DATE OF EXPORT, ON THE BASIS OF THE SHIPPING BILLS REFERRED TO EARLIER. DATE PURCHASE FROM QUANTITY (M. T.) AMOUNT (RS.) 19-8-2000 19-8-2000 H. K. IND-UNJHA H.K.IND-UNJHA 10.930 10.530 342,735.00 332,562.50 19-8-2000 19-8-2000 H. K.IND-UNJHA MAHASHAKTI OIL IND. 11.040 10.800 347,430.00 337,500.00 19-8-2000 MAHASHAKTI OIL IND 11.440 358,906.00 19-8-2000 19-8-2000 MAHASHAKTI OIL IND. B.R. INDUSTRIES 10.630 10.870 332,344.00 360,525.00 19-8-2000 PREMDEEP AGRO PR 10.270 322,140.00 19-8-2000 PREMDEEP AGRO PR 9.860 309,192.00 21-8-2000 TRISUNS CHEMICAL 149.590 4,931,685.00 ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 15 (C) THE APPELLANT SUBMITS A COPY OF THE ADVICE FROM INTERTEK TESTING SERVICES WHICH SHOWS THAT THE MATERIAL WAS SHIPPED ON BOARD ONLY ON 25 TH AUGUST 2000. (D) THE APPELLANT ALSO SUBMITS A COPY OF BILL DATED 21-8-2000 WHICH SHOWS THAT THE MATERIAL OF 525 MT A PER S. B. NB NOS. 1009277 AND 1009302 DATED 18-8-2000 WAS GIVEN FOR LOADING IN THE SHIP. IT WIL L BE SEEN FROM DETAILS THAT THE MATERIAL WAS RECEIVED AT KANDLA BY 20 TH AUGUST AND WAS LOADED FOR SHIPPING ON 21 ST AUGUST 2000 WHICH WAS ULTIMATELY SHIPPED ON BOARD. ALL THESE DETAILS CONFIRM THE FAC T THAT THE ALLEGATION MADE BY THE ASSESSING OFFICER T HAT SHIPPING WAS PRIOR TO THE PURCHASE ARE NOT CORRECT. IN VIEW OF WHAT IS STATED ABOVE THE OBSERVATION AT (A) AND (B) OF THE LETTER OF THE A. O. ARE ALSO NOT COR RECT. (E) IT MAY BE NOTED THAT THE APPELLANT HAD CLEARED THE CUSTOM BORDER FOR EXPORT FROM KANDLA AND SABARMATI. THE APPELLANT IS HAVING COPY OF CERTIFIC ATE OF CUSTOM AUTHORITY, KANDLA WHICH HAS BEEN REFERRED TO BY THE ASSESSING OFFICER AND HAS BEEN EXPLAINED HEREINABOVE. FURTHER, SO FAR AS THE DETAILS OF THE BALANCE BILLS REFERRED TO IN THE LETTER OF THE ASSESSING OFFICER ARE CONCERNED, THE FOLLOWING FACTS MAY BE NOTICED: (A) THE SAID PURCHASES REFERRED TO ARE THE EXPORTS MADE TO M/S. CHUNG OF CHINA. (B) THE APPELLANT SUBMITS A CHART OF THE DETAILS OF PURCHASE AND EXPORTS MADE TO M/S. CHUNG WHICH WILL SHOW THAT THE ALLEGATIONS OF THE ASSESSING OFFICER ARE NOT CORRECT. THE EXPORTS ARE MADE AFTER THE DATE OF PURCHASE AND NONE OF THE EXPORTS REFERRED TO THE PURCHASES MADE AFTER THE DATE OF EXPORT. THE APPELL ANT SUBMITS COPIES OF BILL OF LADING FOR THESE EXPORTS WHICH WILL ALSO SHOW THAT THE SHIPMENT/EXPORT WAS AFTER T HE DATES OF PURCHASES. IT APPEARS THAT THE ASSESSING O FFICER HAS IN HIS REPORT REFERRED TO THE DETAILS RECEIVED BY HIM FROM CUSTOM DEPARTMENT AT KANDLA, BUT HAS NOT REFERRED TO THE CUSTOM CLEARANCE THROUGH SABARMATI WHICH WAS ALREADY RECEIVED BY HIM BEFORE ASSESSMENT ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 16 WAS MADE. COPY OF SAID CERTIFICATE IS NOW AVAILABLE WITH THE APPELLANT. THE REPORT OF THE ASSESSING OFF ICER IS THEREFORE, NOT CORRECT IN RESPECT OF THE REMAINING DETAILS GIVEN BY HIM ON PAGE 2 OF THE REPORT. THE ASSESSEE FURTHER CLARIFIED THAT IF EXPORTS AS C ERTIFIED BY I.C.D., SABSARMATI ARE TAKEN INTO ACCOUNT, THEN THERE IS NO DEFICIENCY OR SURPLUS OF STOCK AT ANY POINT OF TIME. THE ASSESSEES SUBMI SSION IS REPRODUCED AS UNDER:- WE NOW REFER TO COPIES OF THE SHIPPING BILLS PROVI DED TO THE A. O. BY THE SABARMATI CUSTOMS AUTHORITIES AND GIVE PARTICULARS OF THE CORRESPONDING SALE BILL AND CORR ESPONDING BILL OF LADING IS AS UNDER: SHIPPING BILL NO AND DATE QTY. (MT) AS PER SHIPPING BILL SALE BILL NO. AND DATE QTY. (MT) BILL OF LADING DATE QTY. (MT) DATE OF SHIPPING ON BOARD 10(10 & 10B) 08-09-2000 16.000 16.000 10 18.09.2000 32.000 18.09.2000 32.000 18.09.2000 11 08.09.2000 12-A & 12B 14.09.2000 16.000 32.000 16.000 11 18.09.2000 32.000 16.000 16.000 48.000 18.09.2000 22.09.2000 16.000 48.000 18.09.2000 22.09.2000 13-A 28.03.2000 16.000 13-B 29.03.2000 16.000 13 05.04.2001 48.000 05.04.2001 48.000 05.04.2001 13-C 30.03.2000 16.000 FOR READY REFERENCE COPIES OF THE ABOVE REFERRED SH IPPING BILLS, COPIES OF THE SALE BILLS, BILLS OF LADING ARE ENCLO SED. THUS, IT WILL BE APPRECIATED THAT WHAT IS ARGUED BY THE ASSESSING OFFICER BASED ON CUSTOM AUTHORITY KANDLA S LETTER IS NOT SUPPORTED BY THE FACTS. HE HAS REFERRED TO O NLY CERTIFICATE OF KANDLA INSTEAD OF THE CERTIFICATE IS SUED TO HIM BY THE SABARMATI CUSTOM AUTHORITIES. THE BILLS REFERRE D TO BY HIM ARE SUPPORTED BY THE BILL OF LADING WHICH SHOWS THE ACTUAL ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 17 DATE OF EXPORT AND SUCH ACTUAL DATES ARE SUBSEQUENT TO THE PURCHASE DATES. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, MATERIAL ON RECORD AND EVIDENCES DELETED THE ENTIRE ADDITION. HIS FINDINGS IN PARA 4.3 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE APPELLANT S CASE AND SUBMISSIONS OF THE A. R. AND OBSERVATIONS OF TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. I HAVE A LSO CONSIDERED THE DECISIONS RELIED UPON BY THE A. R. I T IS NOTICED THAT ALL THE PURCHASES ARE RECORDED IN THE BOOKS OF ACCOUNT OF THE APPELLANT. THE PAYMENTS HAVE BEEN MADE THROUGH THE BANK ACCOUNTS. THEREFORE THERE IS NO JUSTIFICATION FOR MAKING THE ADDITION BY INVOKING THE PROVISIONS OF SECTION 69 HOLDING THE SAID PURCHASES AS UNRECORDED PURCHASES. THE FIN DINGS OF THE ASSESSING OFFICER ARE THEREFORE, UNJUSTIFIED AN D UNWARRANTED. THE ASSESSING OFFICER HAS MADE ADDITIO N IN RESPECT OF PURCHASES FROM FIVE CONCERNS. OUT OF THE SAID FIVE CONCERNS PURCHASES WERE ALSO MADE BY THE APPELLANT IN THE YEAR RELEVANT TO A. Y. 2000-01 AND THE DISALLOWANCE SO MADE WAS DELETED BY THE APPELLATE ORDER DATED 18-3-2004 IN APPEAL NO.41/2003-04. THE AGGREGATE OF PURCHASES FROM THE SAID THREE PARTIES NAMELY SHRI MINAL OIL & AGRO INDUSTRI ES, VIJAY INDUSTRIES AND ANKU CORPORATION OF THE AGGREGATE AM OUNT OF RS.86,68,401 FOR THE PRESENT YEAR, IS ACCORDINGLY D ELETED ON THE BASIS OF DISCUSSION MADE IN THE SAID APPELLATE ORDER. IN RESPECT OF PURCHASES FROM SHAH OIL INDUSTRIES OF RS .16,37,074 AND OF RS.66,85,204 FROM VIJAY SALES CORPORATIONS, IT IS NOTICED THAT THE PARTIES HAD CLOSED THEIR BUSINESS AND WERE NOT AVAILABLE. HOWEVER, IT IS ALSO A FACT THAT THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL. IN SUPPORT OF TH IS, THE APPELLANT HAS FILED COPIES OF ACCOUNT OF THE SAID P ARTIES AND COPIES OF BANK CONFIRMATION LETTERS CONFIRMING THE PAYMENTS MADE TO THE SAID PARTIES. IN THE COURSE OF HEARING ON MY INQUIRY THE APPELLANT HAS ALSO SUBMITTED RECONCILIA TION OF STOCK. THE A. O. HAS NOT DOUBTED THE SALES. IT CANN OT BE SAID THAT ASSESSEE HAS MADE SALES WITHOUT HAVING PURCHAS ES. IT HAS ALSO BEEN FOUND THAT PURCHASE RATES FROM THESE TWO PARTIES ARE ALMOST WITHIN SAME RANGE AT THE RELEVAN T TIME AS RATES OF PURCHASE FROM OTHERS. THUS PURCHASE RATES ARE COMPARABLE WITH THOSE OF OTHERS. THEREFORE, IT IS E STABLISHED THAT PURCHASE FROM THEM ARE ALSO NOT INFLATED. CONS IDERING ALL THESE FACTS THE SAID PURCHASES ALSO CANNOT BE HELD AS NON- ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 18 GENUINE AND THE ADDITION MADE FOR THE PURCHASES FRO M THE SAID PARTIES IS ALSO DELETED. SO FAR AS THE ASSESSI NG OFFICERS ALTERNATE PLEA (VIDE HIS LETTER DATED 12-10-2004) T HAT THE ADDITION BE MADE U/S. 69 C FOR UNEXPLAINED PURCHASE S AND ADDITION SHOULD BE MADE FOR SUPPRESSION OF SALES AS WELL, IS CONCERNED, IT IS TO BE STATED THAT THE ASSESSING OF FICERS CONTENTION IS BASED ON WRONG ASSUMPTIONS AND IS NOT BASED ON FACTS. DURING THE COURSE OF APPELLATE PROCEEDING S, COMPLETE DETAILS WITH REGARD TO PURCHASES AND EXPORTS WERE A SKED FOR IN WHICH COMPLETE DETAILS OF QUANTITY, TANKER NO., DISPATCHED, RECEIPT, RATE, SALES ETC. ALONG WITH THE QUANTITATI VE TALLY WERE GIVEN. COPIES OF SOME BILLS WERE ALSO PERUSED. COPY OF BILL OF LADING DATED 21-8-2000 WHICH SHOWS THAT THE MATERIA L OF 525 MT AS PER S. B. NB NOS. 1009277 AND 1009302 DATED 18-8-2000 WAS GIVEN FOR LOADING IN THE SHIP WHICH S HOWS THAT MATERIAL WAS RECEIVED AT KANDLA BY 20 TH AUGUST AND WAS LOADED FOR SHIPPING ON 21 ST AUGUST, 2000. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN HOLDING THAT THE LAST DATE OF SHIPMENT WAS 18-8-2000. I HAVE ALSO PERUSED THE COP Y OF ADVICE FROM INTERTEK TESTING SERVICES WHICH SHOWS T HAT THE MATERIAL (524.620 M.T.) WAS SHIPPED ON BOARD ONLY O N FRIDAY, 25 AUGUST, 2000. FURTHER, PERUSAL OF THE CASE RECOR DS REVEALED THAT THE ASSESSING OFFICER HAD GOT DETAILS OF EXPORT FROM INDIAN CUSTOMS, F.D.I. SYSTEMS EXPORTS, I. C. D. SABARMATI, AHMEDABAD. THESE DETAILS INCLUDE SHIPPIN G BILL ETC. OF VARIOUS DATES INCLUDING THOSE OF SEPTE MBER, 2000. IN THIS REPORT DATED 12-10-2004 THE ASSESSING OFFIC ER HAS ERRED IN REFERRING ONLY TO THE DETAILS RECEIVED FRO M CUSTOMS AUTHORITIES AT KANDLA AND HAS NOT REFERRED TO THE D ETAILS HE HAD COLLECTED FROM I. C. D., SABARMATI, AHMEDABAD. WHILE WORKING OUT THE DEFICIENT/SURPLUS SOCK, THE A. O. S HOULD HAVE TAKEN INTO ACCOUNT THE EXPORTS AS CERTIFIED BY THE CUSTOMS AUTHORITIES AT KANDLA AS WELL AS AT SABBARMATI. AS PER THE WORKING GIVEN BY THE APPELLANT THERE IS NO DEFICIEN T/SURPLUS STOCK ON ANY GIVEN DAY. AFTER PERUSAL OF THESE DETA ILS AND CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I A M OF THE VIEW THAT THE ALTERNATE/ADDITIONAL CONTENTIONS RAISED BY THE ASSESSING OFFICER IN HIS REPORT DATED 12-10-2004 AR E NOT SUPPORTED BY THE EVIDENCES. IN VIEW OF THESE FACTS, THE ADDITION MADE BY THE ASSESSING OFFICER IS UNCALLED FOR AND HE IS DIRECTED TO DELETE THE SAME. 6. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT ADDITION WAS MADE BY THE AO ON ACCOUNT OF BOGUS PUR CHASE IN RESPECT OF 5 PARTIES BECAUSE NO CONFIRMATION WAS FILED BY THE ASSESSEE. NO SALE TAX ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 19 NUMBER OR BANK DETAILS WERE GIVEN. THEREFORE, THE G ENUINENESS OF THE PURCHASE COULD NOT BE VERIFIED BY THE AO. THE LEARN ED DR SUBMITTED THAT THOUGH THE LEARNED CIT(A) DELETED SIMILAR ADDITION IN THE PRECEDING ASSESSMENT YEAR 2000-01 AND THE ORDER OF THE LEARNE D CIT(A) WAS ALSO CONFIRMED BY THE TRIBUNAL BUT THE ADDITION SHOULD N OT HAVE BEEN DELETED IN THE ASSESSMENT YEAR UNDER APPEAL MERELY ON THE B ASIS OF THE ORDERS IN THE EARLIER YEAR. THE LEARNED DR FURTHER SUBMITTED THAT FOR GENUINE EXPORTS, PURCHASES COULD NOT BE TREATED AS GENUINE BECAUSE THE CUSTOMS AUTHORITIES CAN EXAMINE ONLY EXPORTS AND NOT THE GE NUINENESS OF THE PURCHASES. THE LEARNED DR, THEREFORE, SUBMITTED THA T THE ORDER OF THE LEARNED CIT(A) MAY BE REVERSED AND THE ORDER OF THE AO MAY BE RESTORED. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND SUBMITTED THAT THE AO DID NOT APPLY PROVISIONS OF SECTION 145 OF T HE IT ACT AND THE BOOK RESULTS HAVE NOT BEEN REJECTED. 3 OF THE PARTIES OU T OF 5 PARTIES FOR WHICH PURCHASES HAVE BEEN DISALLOWED ARE SAME WHICH WERE CONSIDERED IN THE PRECEDING ASSESSMENT YEAR AND THE ORDER OF THE LEAR NED CIT(A) HAS BEEN CONFIRMED BY THE TRIBUNAL WHILE CONSIDERING APPEALS IN ITA NOS. 1971/AHD/2004 AND 2235/AHD/2006 DATED 23-04-2010. C OPY OF THE ORDER IS FILED ON RECORD. HE HAS SUBMITTED THAT FOR REST OF THE TWO PARTIES BUSINESS WERE CLOSED BY THEM AND SUFFICIENT EVIDENC ES WERE ADDUCED ON RECORD TO PROVE THAT THE ASSESSEE MADE GENUINE PURC HASES. HE HAS SUBMITTED THAT THE PURCHASES WERE MADE THROUGH BANK ING CHANNEL AND GENUINENESS HAS BEEN ACCEPTED BY THE CUSTOMS AUTHOR ITIES. SINCE THE ENTRIES ARE PROPERLY RECORDED IN THE BOOKS OF ACCOU NT, THEREFORE, NO ADDITION COULD BE MADE U/S 69 OF THE IT ACT. HE HAS FILED GROSS PROFIT CHART TO SHOW THAT IN THE ASSESSMENT YEAR UNDER APP EAL THE GROSS PROFIT RATE IS SHOWN AT 12.01% AND IN THE PRECEDING ASSESS MENT YEAR GROSS PROFIT RATE HAS BEEN SHOWN AT 12.72%. HE HAS, THERE FORE, SUBMITTED THAT THE GROSS PROFIT OF THE ASSESSEE HAS NOT DECREASED IN THE ASSESSMENT YEAR ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 20 UNDER APPEAL. HE HAS, THEREFORE, SUBMITTED THAT THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE FACTS HAS RIGHTLY DELET ED THE ADDITION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE LEARNED CIT(A) FOUND THAT ALL THE PU RCHASES ARE RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND PAYMENT S HAVE BEEN MADE THROUGH BANKING CHANNEL. THIS FACT IS NOT DISPUTED BY THE REVENUE THROUGH ANY MATERIAL ON RECORD. SECTION 69 OF THE I T ACT PROVIDES AS UNDER: 69. WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING T HE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS W HICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, M AINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE O FFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVE STMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINI ON OF THE [ASSESSING] OFFICER, SATISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF S UCH FINANCIAL YEAR. 8.1 SINCE ALL THE INVESTMENTS IN THE PURCHASES ARE RECORDED IN THE BOOKS OF ACCOUNT AND PAYMENTS ARE MADE THROUGH BANK ING CHANNEL AND SUFFICIENT EVIDENCE AND MATERIAL WAS FILED BEFORE T HE AUTHORITIES BELOW TO SHOW THAT THE ASSESSEE MADE GENUINE PURCHASES, THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 69 OF THE IT ACT IN THE MATTER. IT IS ALSO ADMITTED FACT THAT SIMILAR ADDIT ION WAS CONSIDERED IN THE PRECEDING ASSESSMENT YEAR 2000-01 IN RESPECT OF THE 3 PARTIES NAMELY M/S. ANKU CORPORATION, M/S. VIJAY INDUSTRIES AND M/S. SHRI MINAL OIL AND AGRO INDUSTRIES PVT. LTD. OUT OF THE TOTAL 5 PARTIES CONSIDERED BY THE AO. THE LEARNED CIT(A) DELETED SI MILAR ADDITION IN THE PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL CONFIRME D THE ORDER OF THE LEARNED CIT(A) BY DISMISSING THE DEPARTMENTAL APPEA L VIDE ORDER DATED 23-04-2010 (SUPRA). THE TRIBUNAL IN PARA 18 OF THE ORDER NOTED THAT EXPORTS CANNOT BE MADE WITHOUT MAKING PURCHASES AND THE PURCHASES ARE SUPPORTED BY BILLS AND PAYMENTS THROUGH BANKING CHANNEL AND HAVE ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 21 ALSO BEEN CLEARED BY THE CUSTOMS AUTHORITIES. THE T RIBUNAL ON THE BASIS OF THE EVIDENCES AVAILABLE ON RECORD CONFIRMED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. THEREFORE, IN RESP ECT OF THESE PARTIES THE AO COULD NOT HAVE TREATED THE PURCHASES MADE FROM N ON-EXISTENT AND NON-GENUINE PARTIES. FACTS ARE SAME IN THE ASSESSME NT YEAR UNDER APPEAL WHICH HAS BEEN CONSIDERED IN THE EARLIER YEA R ALSO. THEREFORE, IT WAS FAIR FOR THE LEARNED CIT(A) TO HAVE FOLLOWED TH E ORDERS OF THE PRECEDING ASSESSMENT YEAR. SINCE THE ORDER OF THE L EARNED CIT(A) IS CONFIRMED BY THE TRIBUNAL, THEREFORE, THERE IS NO R EASON TO DEVIATE FROM THE FINDING OF FACT RECORDED BY THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR. IN RESPECT OF OTHER 2 PARTIES, IT WAS ALSO FO UND THAT THE PARTIES HAVE CLOSED THEIR BUSINESS CONCERN AND PAYMENTS HAVE BEE N MADE TO THEM THROUGH BANKING CHANNEL ALSO. THE SAME WOULD BE SUP PORTED BY BANK CONFIRMATION. THE PURCHASE RATES WERE SIMILAR TO THE OTHER PURCHA SE MADE BY THE ASSESSEE AND THUS PURCHASE RATES WERE COMPAR ABLE. FURTHER DETAILS WERE ALSO FILED TO SHOW THAT SAID PURCHASES WERE EXPORTED AND COMPLETE DETAILS OF THE EXPORTS WERE FILED TO SUPPO RT THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE MADE GENUINE PURCHASES A ND ALSO MADE GENUINE EXPORTS. SINCE THE EXPORTS OF THE ASSESSEE HAVE BEEN CERTIFIED BY THE CUSTOMS AUTHORITIES, IT WAS DIFFICULT TO DISBEL IEVE THAT THE ASSESSEE HAS NOT MADE ANY PURCHASES FROM THESE PARTIES. IF T HE AO WANTED TO REJECT THE PURCHASES MADE BY THE ASSESSEE, HE SHOUL D HAVE APPLIED THE PROVISIONS OF SECTION 145 OF THE IT ACT WHICH IS AL SO NOT DONE IN THE ASSESSMENT YEAR UNDER APPEAL. FURTHER, THE GROSS PR OFIT DECLARED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL IS MOR E OR LESS SAME AS COMPARED WITH THE GROSS PROFIT RATE OF EARLIER YEAR AS ARGUED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THESE FACTS AND M ATERIALS ON RECORD SUPPORT THE FINDINGS OF THE LEARNED CIT(A) THAT THE ASSESSEE MADE GENUINE PURCHASES. THEREFORE, NO DISALLOWANCE SHOUL D HAVE BEEN MADE ON THIS ISSUE. THE LEARNED CIT(A) ON PROPER APPRECI ATION OF FACTS AND EVIDENCES ON RECORD RIGHTLY DELETED THE ADDITION. W E DO NOT FIND ANY ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 22 INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) FOR IN TERFERENCE. WE ACCORDINGLY, DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE ON THIS ISSUE. GROUND NO.1 AND 2 OF THE APPEAL OF THE REVEN UE ARE ACCORDINGLY DISMISSED. ISSUE NO.2 9. THE REVENUE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN REDUCING THE DISALLOWANCE OF BUSINESS DEVELOPMENT EXPENSES O F RS.33,63,015/- TO RS.13,15,168/- AND RAISED GROUNDS NO.3 AND 4 IN THI S REGARD. THE ASSESSEE IS IN ON THE SIMILAR ISSUE ON GROUNDS NO.1 AND 2 AND CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN CONFI RMING THE ADDITION OF RS.13,15,168/- OUT OF BUSINESS DEVELOPMENT EXPENSES ABOVE. THE AO DISALLOWED RS.33,63,015/- ON ACCOUNT OF BUSINESS DE VELOPMENT EXPENSES. THE AO NOTED THAT THE EXPLANATION OF THE ASSESSEE HAS BEEN THOROUGHLY EXAMINED AND THAT THE ASSESSEE CLAIM THA T EXPENSES WERE INCURRED FOR BUSINESS PURPOSES BUT THE ASSESSEE FAI LED TO PRODUCE ANY VOUCHERS/DOCUMENTARY EVIDENCES IN SUPPORT OF THE CL AIM OF THE ASSESSEE. THEREFORE, EXPLANATION OF THE ASSESSEE IS NOT CONVI NCING AND JUSTIFIABLE. ADDITION WAS ACCORDINGLY MADE BY DISALLOWING THE DE VELOPMENT EXPENSES. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT( A) AND IT WAS SUBMITTED THAT THE ASSESSEE IS A LIMITED COMPANY AN D BOOKS OF ACCOUNTS ARE AUDITED AND ALL ACCOUNTS ARE VERIFIED AND CERTI FIED BY THE AUDITORS, THEREFORE, THE AO SHOULD NOT HAVE DISALLOWED THE EX PENSES. IT WAS FURTHER SUBMITTED THAT IN THE STATEMENT OF FACT THE ASSESSE E EXPLAINED THAT IN ORDER TO EXPAND THE BUSINESS THE ASSESSEE DECIDED T O GO FOR COMMODITY TRADING IN SCREEN ENVIRONMENT AND HAD OBTAINED MATE RIAL ON TRADE PRACTICES, TECHNOLOGY AND RULES AND REGULATIONS OF VARIOUS EXCHANGES. THE ASSESSEE INCURRED CONSULTANCY CHARGES OF RS.6,3 2,5542/- AND RS.6,79,470/- WHICH WERE PAID THROUGH BANKING CHANN EL IN FOREIGN EXCHANGE AND EXPENSES ARE THEREFORE, REVENUE IN NAT URE. IT WAS EXPLAINED ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 23 THAT RS.20,43,847/- ARE ADMISSIBLE AS REVENUE EXPEN SES BEING BUSINESS DEVELOPMENT EXPENSES THE DETAILS OF THE SAME IS NOT ED AT PAGE 23 OF THE APPELLATE ORDER AS WELL AS AT PAGE 2 OF THE PAPER B OOK. IT WAS SUBMITTED THAT THE AO VERIFIED THESE EXPENSES. THEREFORE, ADD ITION IS CLEARLY UNJUSTIFIED. THE LEARNED CIT(A) CONSIDERING THE EXP LANATION OF THE ASSESSEE DELETED THE ADDITION OF RS.20,47,847/- AND CONFIRMED THE ADDITION OF RS.13,15,168/-. THE REVENUE AS WELL AS THE ASSESSEE IS IN APPEAL ON THE ABOVE GROUNDS. THE FINDINGS OF THE LE ARNED CIT(A) IN PARA 5.2 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE A. R. OF THE APPELLANT CAREFULLY . I HAVE ALSO GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER. IT IS SEEN THAT THE DISALLOWANCE HAS BEEN MADE ON GROUND THAT THE APPELLANT HAD FAILED TO PRO DUCE VOUCHERS IN SUPPORT OF THE SAID CLAIM OF RS.33.63 L AKH AND THAT ACCORDING TO HIM THE EXPLANATION WAS NOT CONVI NCING. ON PERUSAL OF THE DETAILS AND EXPLANATION FURNISHED IT IS SEEN THAT IT WAS THE CLAIM OF THE ASSESSEE THAT EXPENDITURE W AS INCURRED FOR EXPANSION OF ITS BUSINESS IN THE COMMO DITY TRADING. IN ORDER TO HAVE SUCH EXPANSION IN OTHER C OUNTRIES IT INCURRED ABOVE EXPENDITURE THAT INCLUDED CONSULTANC Y CHARGES AS ALSO EXPENDITURE TRANSFERRED AT VARIOUS ACCOUNT ON ESTIMATE BASIS TO THE ACCOUNT UNDER THE HEAD BUSINE SS DEVELOPMENT. HOWEVER, ON PERUSAL OF THE NATURE OF S UCH ACCOUNT IT IS FOUND THAT THE SAID ACCOUNTS ARE REPR ESENTING EXPENDITURE IN THE NORMAL COURSE OF BUSINESS. BUT T HE ASSESSEE HAD TRANSFERRED A PORTION OF SUCH EXPENDIT URE FROM RESPECTIVE HEADS TO HAVE THE COST DETAILS OF SUCH E XPANSION ACTIVITY. SUCH EXPENSES TRANSFERRED ARE NORMAL BUSI NESS EXPENSES. CONSIDERING THESE ASPECTS I AM OF THE OPI NION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF THE SAID E XPENDITURE OF THE AGGREGATE AMOUNT OF RS.20,47,847/- THE DETAILS OF WHICH ARE GIVEN ABOVE (OUT OF THE TOTAL DISALLOWANCE OF RS.33,63,015/-). THIS EXPENDITURE IS AS PER THE AUD ITED ACCOUNT. HOWEVER, IN RESPECT OF THE BALANCE EXPENDI TURE INCURRED IN FOREIGN COUNTRIES AMOUNTING TO RS.13,15 ,168/-, HE HAS NOT BEEN ABLE TO JUSTIFY AND ESTABLISH THE SAME . SUFFICIENT EVIDENCE HAS NOT BEEN PRODUCED REGARDING THIS EXPEN DITURE INCURRED IN FOREIGN CURRENCY EITHER DURING THE COUR SE OF ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROC EEDINGS ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 24 AND ACCORDINGLY IT NEEDS TO BE DISALLOWED. THE AO I S DIRECTED ACCORDINGLY. 10. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT SINCE NO DETAILS AND VOUCHERS AND DOCUMENTARY EVIDE NCES WERE PRODUCED BEFORE THE AO, THEREFORE, THE LEARNED CIT(A) SHOULD NOT HAVE DELETED THE ADDITION. THE LEARNED DR SUBMITTED THAT THE ASSESSE E IN THE STATEMENT OF FACTS AS NOTED AT PAGE 22 OF THE APPELLATE ORDER AD MITTED THAT THE AMOUNT WAS SPENT FOR EXPANSION OF BUSINESS TO GO FOR COMMO DITY TRADING/EXCHANGE WHICH IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE, THEREFORE, SUCH EXPENDITURE SHOULD NOT HAVE BEEN AL LOWED AS BUSINESS EXPENDITURE. 11. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN ORDER TO EXPAND ITS BUSINESS D ECIDED TO GO FOR COMMODITY EXCHANGE AND NATIONAL COMMODITY EXCHANGE BOARD COMPANY WAS TO BE ESTABLISHED. HE HAS FURTHER SUBMI TTED THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE NATIONAL COMMO DITY EXCHANGE BOARD COMPANY AND SPENT THE AMOUNT ON ACCOUNT OF BU SINESS DEVELOPMENT EXPENSES DETAILS OF WHICH ARE GIVEN AT PAGE 2 OF THE PAPER BOOK OUT OF WHICH THE BIFURCATION EXPENDITURE IS GI VEN. HE HAS SUBMITTED THAT THE SAME ARE REVENUE EXPENDITURE IN NATURE AND ULTIMATELY WHEN THE AMOUNTS WERE REIMBURSED BY THE NATIONAL COMMODI TY EXCHANGE BOARD COMPANY TO THE ASSESSEE IN THE ASSESSMENT YEA R 2005-06, THE ASSESSEE HAS SHOWN THE SAME AS INCOME ON ACCOUNT OF BUSINESS DEVELOPMENT EXPENSES RECOVERED IN A SUM OF RS.62,48 ,471/-. THEREFORE, THE ADDITION IS CLEARLY UNJUSTIFIED AND THE ENTIRE ADDITION SHOULD HAVE BEEN DELETED. COPY OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31-03-2005 IS FILED ON RECORD IN SUPPORT OF THE CON TENTION. HE HAS, THEREFORE, SUBMITTED THAT SINCE THE ASSESSEE HAS SH OWN REIMBURSEMENT OF THE AMOUNT ON ACCOUNT OF BUSINESS DEVELOPMENT EX PENSES IN ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 25 SUBSEQUENT YEAR, THE ENTIRE ADDITION SHOULD HAVE BE EN DELETED BY THE LEARNED CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIALS AVAILABLE ON RECORD. SECTION 37 OF THE IT ACT PROVI DES THAT ANY EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE PRE SCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXP ENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LAID DOWN OR EXPENDED WHOL LY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION SHALL BE ALLO WED IN COMPUTING THE INCOME RELATABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. THE ABOVE SECTIONS, THEREFORE, WOULD SH OW THAT THE EXPENDITURE IS ALLOWABLE DEDUCTION IF IT WAS INCURR ED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSI ON. THE ASSESSEE, THEREFORE, SHALL HAVE TO PROVE THAT EXPENSES WERE I NCURRED FOR THE PURPOSE OF THE BUSINESS. THE ASSESSEE ADMITTED TO H AVE INDULGED IN THE BUSINESS OF IMPORTER AND EXPORTER OF ALL TYPES OF C OMMODITIES. ACCORDING TO THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE A SSESSEE, THE ASSESSEE IN ORDER TO EXPAND ITS BUSINESS DECIDED TO SET UP N ATIONAL COMMODITY EXCHANGE BOARD COMPANY WHICH IS TOTALLY DIFFERENT F ROM THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE MADE INVESTMENTS OF THE ABOVE AMOUNT FOR THAT PURPOSE AND ULTIMATELY THE SAID AMOUNT WAS REI MBURSED TO THE ASSESSEE BY NATIONAL COMMODITY EXCHANGE BOARD COMPA NY AND THE SUM OF REIMBURSEMENT WAS TREATED AS INCOME ON ACCOUNT O F BUSINESS DEVELOPMENT EXPENSES RECOVERED IN THE ASSESSMENT YE AR 2005-06. IT WOULD, THEREFORE, SHOW THAT THE AFORESAID AMOUNT SP ENT ON ACCOUNT OF BUSINESS DEVELOPMENT WAS NOT CONNECTED WITH THE BUS INESS ACTIVITY OF THE ASSESSEE. THE INTENTION OF THE ASSESSEE AT THE TIME OF SPENDING THE AMOUNT WAS THAT THE AMOUNT WOULD BE INVESTED IN NAT IONAL COMMODITY EXCHANGE BOARD COMPANY AND THE SAME WOULD BE RETURN ED TO THE ASSESSEE ON REIMBURSEMENT BY THE AFORESAID COMPANY. ACCORDINGLY, THE ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 26 AMOUNT OF RS.62,48,471/- WAS TREATED AS INCOME BY T HE ASSESSEE IN ASSESSMENT YEAR 2005-06 ON ACCOUNT OF BUSINESS DEVE LOPMENT EXPENSES RECOVERED. THESE FACTORS HAVE NOT BEEN PROPERLY TAK EN INTO CONSIDERATION BY THE LEARNED CIT(A) WHILE DELETING THE ADDITION. THE ABOVE FACTS SHOW THAT THE ASSESSEE MADE INVESTMENT WHICH WERE TO BE REIMBURSED ON ACCOUNT OF DEVELOPMENT EXPENSES AND AS SUCH CANNOT BE TREATED TO HAVE SPENT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. MOREOVER, THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCES AS WELL AS FAILED TO PRODUCE ANY VOUCHERS BEFORE THE AO FOR EXAMINATION. THEREFORE, THE LEARNED CIT(A) WITHOUT EXAMINATION OF THE VOUCHERS AND DOCUMENTA RY EVIDENCES SHOULD NOT HAVE DELETED EVEN THE PART ADDITION. THE FINDING RECORDED BY THE LEARNED CIT(A) IS, THEREFORE, NOT IN ACCORDANCE WITH THE FACTS OF THE CASE. THE ABOVE BUSINESS DEVELOPMENT EXPENSES HAVE NOT BEEN SPENT IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE. WE, THEREFORE, ARE OF THE VIEW THAT THE ORDER OF THE LEARNED CIT(A) IN DELETI NG THE ADDITION CANNOT BE SUSTAINED IN LAW. WE ACCORDINGLY, SET ASIDE THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. THE ORDER OF THE A O IS ACCORDINGLY RESTORED AND ENTIRE ADDITION IS SUSTAINED. IN THE R ESULT, GROUNDS NO.3 AND 4 OF THE APPEAL OF THE REVENUE ARE ALLOWED AND GROU NDS NO.1 AND 2 OF THE APPEAL OF THE ASSESSEE ARE DISMISSED. 13. THERE IS NO OTHER ISSUE INVOLVED IN BOTH THE AP PEALS. 14. IN THE RESULT, THE DEPARTMENTAL APPEAL IS PARTL Y ALLOWED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30-12-2010. SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-12 -2010 LAKSHMIKANT/- ITA NO.93/AHD/2005 AND 3873/AHD/2004 NEPTUNE OVERSEAS LTD. 27 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD