SANJEEV MALHOTRA,NEW DELHI V. ACIT, NEW DELHI

ITA 2851/DEL/2009

AI Insights

This case involves cross appeals by the assessee, Shri Sanjeev Malhotra, and the revenue against the order of the Learned Commissioner of Income Tax (Appeals), New Delhi. The primary issues revolved around the additions made by the Assessing Officer (AO) under various sections of the Income Tax Act, 1961, following a search by the Department of Revenue Intelligence (DRI) and subsequent findings. The AO had made substantial additions to the assessee's income, treating export sales proceeds and duty drawbacks as bogus, among other allegations. The CIT(A) provided some relief to the assessee, which led to the revenue's appeal. The tribunal's decision focused on the admissibility of additional evidences and the proper application of legal principles concerning the burden of proof and the assessment of income from illegal activities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 102479 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Other Referred Cases: CIT v Vignesh Kumar Jewellers, CIT v Ved Prakash Choudhary, Kishinchand Chellaram v CIT, State of Kerala v K. P. Shaduli Yusuff, Sri Krishna V. Krukshetra University, Kisanlal Shivhandrai v CIT, Pulankode Rubber Produced Co. Ltd. v State of Kerala, CIT v Doris S. Luiz, Roshan Beevi v Joint Secretary to Govt. of Tamilnadu, IPCA Laboratories Ltd. v CIT, CIT v Avani Exports
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: SALIL KAPOOR; TARUN CHANANA
• Keywords: Business income; Opportunity of being heard; Additional evidence; Retrospective amendment; Corroborative evidences; Unexplained cash credit; Unexplained expenditure; Sale consideration of property below Jantri Value; Deemed dividend; Document seized; Documents seized; Retraction; Principle of natural justice; Wrong claim; Assessment record; Opportunity of cross examination; Bogus
• Section: 144; 142(1); 143(2); 250; 68; 22; 69C; 13; 2(22)(e); 37(1); 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘G’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3290/Del/2009 (ASSESSMENT YEAR 2003-04) Asst./Dy. CIT, Circle-22(1), New Delhi Vs. Shri Sanjeev Malhotra K-60A, Kalkaji, New Delhi PAN-ABDPM9549C (Appellant) (Respondent) ITA No.2851/Del/2009 (ASSESSMENT YEAR 2003-04) Shri Sanjeev Malhotra K-60A, Kalkaji, New Delhi PAN-ABDPM9549C Vs. Asst./Dy. CIT, Circle-22(1), New Delhi (Appellant) (Respondent) Assessee by Shri Salil Kapoor, Adv. & Shri Tarun Chanana, Adv. Department by Ms. Jaya Chaudhary, CIT-DR Date of Hearing 06/02/2025 Date of Pronouncement 16/04/2025 ORDER PER MANISH AGARWAL, AM: These are the cross appeals filed by the assessee as well as Revenue against the order of Learned Commissioner of Income Tax (Appeals) [CIT(A) in short], 23, New Delhi dated 06.05.2009 for 2 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra Assessment Year 2003-04 in Appeal No.271/2008-09 passed u/s 250 of the Income Tax Act, 1961 [The Act, in short]. 2. Brief facts of the case are that assessee is sole proprietor of two proprietorship firms namely M/s. K.S. Traders and M/s. Alpha Exports. The return of income for the year under appeal was filed on 31.03.2004 declaring total income of Rs.4,04,116/-. The case was taken up for scrutiny by issue of notice u/s 143(2) of the Act which was served upon the assessee on 12.01.2005. During the course of assessment proceedings, the AO issued notices u/s 142(1) of the Act, however, either they were remained uncompiled with or part details such as financial statements etc. were filed. Therefore, the AO vide final show cause letter dated 27th February, 2006 has asked the assessee to furnish additional information in respect of both the proprietorship firms which is reproduced at pages 3 to 10 of the assessment order. However, this notice was also remained un- complied with. In the meantime, while making verifications of the details in the case of assessment proceedings simultaneously caried out for other assessee namely M/s Vision Inc. in his jurisdiction, it was come to the knowledge of the AO that a search was carried by the Department of Revenue Intelligence (DRI) at the premises of the assessee i.e. Sh. Sanjeev Malhotra and therefore, he communicated with the DRI and called for the details collected by them during the course of search. In response, the DRI had supplied the copy of show cause notice No. DRI. F. No.50C/11/2003 dated 31.01.2004 issued to the assessee and five other persons. Based on such information 3 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra and show cause supplied by the DRI, the AO again issued final show cause notice wherein based on the search carried out by DRI, further information was called for from the assessee. However, such notice was also remained unanswered. Thereafter, the AO passed the assessment order u/s 144 of the Act by making various additions which include addition of Rs.3,07,96,87,763/- made by holding the entire export sale proceeds as bogus, addition of Rs. 43,15,24,270/- by holding the duty draw back/export fraudulently obtained by making incorrect claim of export and no expenses were allowed u/s 37(1) of the Act against the sales so made. Besides this, addition of Rs.54,67,707/- was made u/s 68 of the Act of the advances received from customers holding the same as unexplained, addition of Rs.4.09 Cr. as unexplained expenditure u/s 69C of the Act and further addition of Rs.2,40,48,000/- was made u/s 68 on account of addition in capital has unexplained credits. Accordingly, the total income of assessee was assessed at Rs.3,58,14,85,480/-. 3. In first appeal, the Ld. CIT(A) has allowed substantial relief to the assessee vide impugned order dated 06.05.2009 wherein the assessee had filed additional evidences which were not admitted by the ld. CIT(A). During the course of appellate proceedings, ld. CIT(A) also sought remand report from the Assessing Officer after making verifications and allow the assessee an opportunity to cross examination the witnesses whose statements were relied upon by the DRI / Revenue for making additions. The Assessing Officer in its report stated that the address of the assessee has changed and 4 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra department has not the information of the new address therefore, the neither the copies of those statements and other material nor the opportunity of cross examination of the witnesses could be provided to assessee. After considering the remand reports of the AO and submissions of the assessee, the ld. CIT(A) has deleted the additions made on account of export sales and export incentives which were treated as bogus by the AO and also deleted the additions on account of advance received from the customers and confirmed the balance additions made by the AO. 4. Against such order, both the Revenue and the assessee are in appeal before the Tribunal. Grounds of appeal taken by the assessee in its appeal are as under: “1) The order of the Learned Commissioner of Income Tax (Appeals), XXIII New Delhi is arbitrary, biased to the extent of addition sustained by him. 2) That the Learned CIT (Appeals) has grossly erred in sustaining the addition of Rs. 4.09 Crores paid by the Appellant to the Customs authorities as unexplained expenditure u/s 69C of the Act. 2.1) That the Learned CIT(Appeals) has grossly erred in disregarding the confirmation of Rs. 1.83 Crores (being the amount of loan of Rs. 1,32,00,000/- received from M/s Gullu Exports (P) Ltd and Rs. 51,00,000/- from M/s Sarthak International Ltd for payment of Customs duty) filed and facts on record while sustaining the addition of Rs. 4.09 Crores made on this count. 2.2) That the Learned CIT(Appeals) has grossly erred in not passing a speaking order with regard to the amount of Rs. 2,06,00,000/-(out of total addition of Rs. 4.09 crores as referred in Ground No. 2) being the amount paid by the appellant from his bank accounts towards Customs duty ignoring the bank statements of proprietorship concerns from where the amount had been sourced/withdrawn on record of the lower authorities. 5 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra 2.3) That the Learned CIT(Appeals) has grossly erred in sustaining the addition of Rs. 4.09 Crores u/s 69C without the department discharging its onus that lay upon it to hold the payment as unexplained expenditure u/s 69C of the Act. 3) That the Learned CIT (Appeals) has grossly erred in sustaining an addition of Rs. 2,40,48,000/- on the incorrect assumption that the appellant failed to prove that the credit of said amount to his capital account was a clerical mistake. 3.1) That the Learned CIT (Appeals) has grossly erred in sustaining the addition of Rs. 2,40,48,000/- made by the Assessing Officer u/s 68 ignoring that no real income had accrued to the assessee and addition was sustained merely on the basis of an inadvertent error in making of a book entry. 4) That the Learned CIT (Appeals) has grossly erred in holding that the interest earned on fixed deposits under lien as margin money with bank and netted off against interest expenditure was assessable under the head 'Income from other sources'. 5) That the Learned CIT(Appeals) has grossly erred in purportedly applying the ratio of Delhi High Court to hold that the interest income on fixed deposits held as margin money was to be treated as Income from other sources' without realizing that the extract of judgment quoted by him clearly stated that a caveat was added by the Hon'ble Delhi High Court that interest income was to be treated as 'Income from other sources' only if the specific finding to this effect was given by the Assessing Officer, whereas in the case of the assessee the Assessing Officer has given no such finding. 5.1) That without prejudice to above, the Learned CIT(Appeals) has grossly erred in stating that the amount of Rs. 9,92,360/- & Rs. 33,23,54,185/- would be taken out from the ambit of Income from business to be assessed as Income from other sources whereas the interest income was only Rs. 1,47,841/- & Rs.1,43,462/- in M/s Alpha Exports and M/s K.S. Traders (proprietorship concerns of the assessee) respectively. 5.2) That the Learned CIT(Appeals) has grossly erred in applying the ratio of decision of Supreme Court in the case of IPCA Laboratories Ltd. 266 ITR 521 whereas a retrospective amendment was made in the Act nullifying the said judgment by inserting proviso to Section 80 HHC. 6) That the Learned CIT(Appeals) has erred in not admitting additional evidence. 6 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra 7) That the appellant craves leave to add, alter or delete the above grounds of appeal at the time of hearing.” 5. The grounds of appeal taken by the Revenue in its appeal are as under: “1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of sale proceeds Rs.3,07,96,87,763/-. 2. The Ld. CIT(A) has ignored the fact that all the sale proceeds were bogus as established by the DRI, hence proceeds deposited in the bank account of the assessee were treated as income. 3. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of duty draw back/export incentive of Rs.43,15,24,270/-. 4. Since the sales were bogus, hence amount received by the assessee on account of duty draw back was treated as his, the fact which was ignored by the Ld. CIT(A). 5. On the facts and in the circumstances of the case the Id. CIT(A) has erred in law and on facts in deleting the addition made on account of advance received from customers of Rs.54,67,707/-. 6. The Ld. CIT(A) has ignored the fact that assessee has failed to establish the identity and creditworthiness of the creditors. 7. The appellant craves leave to add, alter or amend any of the ground of appeal before or during the course of hearing of the appeal.” 6. We first take up the appeal filed by the assessee in Appeal No. 2851/Del/2009. 7. Ground No.1 is general in nature. 7 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra 8. In ground of appeal No. 6, the assessee has challenged the action of the ld. CIT(A) in not admitting the additional evidences filed by the assessee during the course of appellate proceedings. 8.1. In this regard, the ld. AR reiterated the same facts as were made before the ld. CIT(A) where it was claimed that the AO had not supplied any material nor confront the basis of addition so the necessary replied could not be filed. It is further submitted that after the search by the DRI, business the assessee was closed and assessee due to arrest by Custom authorities was under serious depression and due to this he could not be able to make compliances to the notices issued by the Assessing Officer during the course of assessment proceedings. Ld. AR further submitted that all the details filed as additional evidences before the ld. CIT(A) were goes to the root of the matter and were crucial to decide the issues involved in the appeal of the assessee and therefore, ld. CIT(A) ought to have accepted the additional evidences in the interest of justice and he, therefore, prayed for the admission of the same. 8.2. On the other hand, ld. CIT DR vehemently argued that additional evidences should not be admitted as during the course of assessment proceedings, the AO had provided ample opportunities to the assessee who failed to give sufficient cause under which he was prevented to file all these details before the AO. He further submitted that the ld. CIT(A) after considering these facts had not admitted the additional evidences filed by the assessee and therefore, 8 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra the ld. CIT DR prayed for the confirmation of the order of ld. CIT(A) not admitting the additional evidences. 8.3. After considering the arguments put forth by both the parties, we find that in the instant case assessee since inception of the proceedings had not cooperated with the Assessing Officer. Even during the course of remand proceedings carried out by the AO on the directions of the ld. CIT(A), no compliances were made by the assessee as he has not intimated the department about his present address. At the same time, the assessee pursued his appeal before the ld. CIT(A), therefore it cannot be said that he was not aware of the pending proceedings. At the same time, the AO was aware of the fact that the assessee was appearing before the ld. CIT(A) thus he could have requested CIT(A) to direct the assessee to appear before the AO. The additional evidences so filed before the ld. CIT(A) are shipping bills, bills of lading, bank certificates regarding realization of sale proceeds, confirmations of the parties, letter of credit issued by bank for foreign affairs of USSR of Moscow, copy of cross examination of Mr. P.S. Ahluwalia, Ex-Director of Conti Shipping Transport Pvt. Ltd. on 21.03.2006, Sh. Harshwardhan, chief Manager, PNB, copy of account of parties from whom advances were received along with photocopy of bank statement and details of payments of 4.09 crore to Customs Department etc. A perusal of these additional evidences, we find that all these are necessary for the determination of the issues involved in the appeal of the assessee 9 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra as well as of the revenue, therefore, looking to the nature of the documents being crucial, the additional evidences filed by the assessee deserves to be accepted. Accordingly, we direct the ld. CIT(A) to admit the additional evidences filed by the assessee. 9. Ground No.2 to 2.3 are relation to the addition of Rs.4.09 Crores made by AO u/s 69C of the Act as unexplained expenditure which was paid by the assessee to the Customs Authorities. 9.1. Brief facts leading to this issue are that assessee has voluntary tendered cheques of Rs. 4.5 Crores before the Commissioner of Customs towards duty draw back, wrongly claimed/availed. Against these cheques of Rs.4.5 Crores, the assessee subsequently deposited total sum of Rs.4.09 Crores by demand draft before the Commissioner of Customs (export promotion sales), Mumbai. The AO observed that no payment of Rs.4.09 Crore is appearing in the bank statements of the assessee and assessee had not responded to the query raised in this regard during the course of assessment proceedings, therefore, the said amount could not be allowed as expenditure and therefore he made the disallowance u/s 69C by the Act. During the course of appellant proceedings, the assessee claimed that part of the amount out of Rs. 4.09 crores was deposited directly by the friends and relatives of the assessee from their bank accounts and remaining amount was deposited by the assessee from his proprietorship firms. In support of the claim, the assessee had filed confirmations etc. as additional evidences alongwith the application 10 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra filed under Rule 46A of the Rule before the Ld. CIT(A). The ld. CIT(A) had not admitted the additional evidences filed by the assessee and confirmed the additions so made by observing in para 47 to 49 as under: “47. Turning to the facts of the case and explanation of the assessen, it is observed that the assessee had submitted confirmation from Gullu Exports Pvt. Ltd. and Sarthak International Ltd. In both these companies, the assessee was a Director (shareholding, if any, is not clear). The undated Certificates from M/s Gullu Exports (P) Ltd. and M/s. Sarthak International Ltd. are reproduced as under: GULLU EXPORTS PVT. LTD. CERTIFICATE This is to certify that we have made a payment of Rs.1,32,00,000/- (Rs. One Crore Thirty Two Lacs Only) as per details given below to custom Authorities on behalf of Shri Sanjeev Malhotra of M/s K.S. Traders:- DATE D.D.NO. NAME OF BANK AMOUNT(RS.) 15.02.2003 689305 PNB 900,000.00 15.02.2003 689306 PNB 900,000.00 15.02.2003 689307 PNB 900,000.00 15.02.2003 689308 PNB 900,000.00 15.02.2003 689309 PNB 900,000.00 15.02.2003 689310 PNB 900,000.00 15.02.2003 689311 PNB 100,000.00 20.02.2003 689324 PNB 900,000.00 20.02.2003 689325 PNB 900,000.00 20.02.2003 689326 PNB 300,000.00 22.02.2003 689333 PNB 100,000.00 22.02.2003 689332 PNB 900,000.00 24.02.2003 689336 PNB 900,000.00 24.02.2003 689337 PNB 300,000.00 25.02.2003 689343 PNB 900,000.00 25.02.2003 689344 PNB 500,000.00 27.02.2003 689362 PNB 200,000.00 27.02.2003 689361 PNB 800,000.00 07.04.2003 689344 PNB 900,000.00 07.04.2003 689345 PNB 100,000.00 Total 13,200,000.00 11 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra We further certify that we are income tax assessee and our PAN is AAACG4332J SARTHAK INTERNATIONAL LTD. CERTIFICATE DATE D.D.NO. NAME OF BANK AMOUNT(RS.) 28.02.2003 675649 PNB 600,000.00 01.03.2003 675651 PNB 500,000.00 01.03.2003 675652 PNB 500,000.00 20.03.2003 675827 PNB 500,000.00 24.03.2003 675863 PNB 700,000.00 24.03.2003 675862 PNB 900,000.00 24.03.2003 675861 PNB 900,000.00 28.03.2003 675919 PNB 500,000.00 TOTAL 51,00,000.00 We further certify that we are income tax assesse and our PAN is AAACG3231J 48. The above certificates ae available in the assessment record, which has been vetted and commented by the learned AO. The two confirmations, even assuming that they are genuine only accounts for an amount of Rs.1,83,00,000. This does not account for the amount of 4.09 crores made to the DRI/Customs. As such, they are self-serving recitals, a contention which would get fortified by subsequent paragraphs. 49. There is another angle to this addition. In the remand report, reproduced above, dt. 19.2.2009, it is a finding of fact by the Id. AO that the Balance Sheet of M/s. Gullu Exports indicates that only an amount of Rs. 23,87,020/- was advanced to the proprietorship concern of the assessee, M/s. Alpha Exports as \"Loans' and another Rs. 13,32,400/- under the head Loans and Advances'. Similarly, the Balance Sheet of M/s. Sarthak International Ltd. does not mention about any loan given to the assessee or its proprietorship concerned. In the rejoinder filed on 23.2.2009, the assessee is silent on this issue. He has not rebutted the same. They have been insisting upon the bank book of M/s. Gullu Exports (P) Ltd. and M/s. Sarthak International Ltd. In fact, the AO has specifically recorded in the remand report that even though narration was required along with bank statement in the requisition made to the assessee, this was not done. Nor was the narration submitted to me during the appellate proceedings. In other words, the assessee has failed miserably to co-relate the statements of the bank with the ostensible loan given to the assessee, on which it is heavily relying. In fact, in the P. Mohanakala case (supra), the Hon'ble Apex Court 12 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra has held that even if the money has come through the banking channels. that itself is of no consequence unless a satisfactory explanation is given by the assessee. In CIT v Anil Kumar [2007] 292 ITR 552 (Del), it was held that mere identification of donor/creditor and the movement of the money through banking channels was not sufficient to prove the genuineness of the transaction. As such, it is held that the explanation offered by the assessee under the provisions of sec. 69C is not satisfactory and therefore the addition made on this account deserves to be upheld. The assessee fails in ground of appeal No.8. 9.2. Before us, the Ld. AR of the assessee argued that assessee was taken to the custody on 28.12.2003 and earlier on 13.03.2003 where he was asked to make the payment of Rs.4.50 crores against the wrong claim of duty draw back incentives. Assessee gave cheques of this amount and later paid Rs. 4.09 Crores by way of demand draft under protest. A sum of Rs. 2.06 Crores were deposited by the assessee from his proprietary firm M/s K.S. Traders, a sum of Rs.1.32 Crores from M/s Gllu Exports Pvt. Ltd. where he was one of the Director and Rs. 51 lacs from M/s Sarthak International Ltd., a proprietorship firm of his relative and Rs. 20 lacs from M/s Mohinder Exports, proprietorship firm of his another relative. The necessary copies of the bank statement of the respective parties along with confirmations were filed in Paper Book pages 338 to 363 which were filed before ld. CIT(A) as additional evidences. Ld. AR further submit that while confirming the additions, the CIT(A) had relied upon the observations made by the AO in the remand report where the AO had accepted that the amounts were verifiable from the bank statements of the parties, however, observed that these could be treated as deemed dividend u/s 2(22)(e) of the Act. According to ld. AR, such 13 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra observation of the AO clearly shows that in principle the AO was in agreement with the claim of the assessee that these payments were made by the assessee through the firms where he is a proprietor /director or his relatives are proprietor. The Ld. AR further submitted that the Assessing Officer in remand report has failed to appreciate the fact that assessee had filed confirmations of the respective parties. Once the source is established, the same could not be doubted more particularly when they were examined by the AO during the remand proceedings. Therefore, he prayed for the deletion of the addition. 9.3. On the other hand, Ld. CIT-DR vehemently supported the orders of the lower authorities and submitted that assessee has failed to justify the sources of payments made nor any evidences were filed before the Assessing Officer and, therefore, the AO had rightly made the additions which were sustained by the Ld. CIT(A) and thus he prayed for the confirmation of the additions so made. 9.4. We have heard the rival submissions and perused the material available on record. We find that the assessee has failed to produce the necessary details alongwith copies of the bank statements from where it could be established that these payments were made out of the bank accounts of the respective parties who had further confirmed the payment of the amounts on behalf of the assessee. The ld. CIT(A) has confirmed the additions as he had not admitted the 14 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra additional evidences filed by the assessee during the course of appellate proceedings and further the AO in the remand report has also made adverse observations in this regard. Since we have allowed the ground of appeal No. 6 of the assessee with regard to the admission of additional evidences before ld. CIT(A), therefore, we remand back this issue to the file of AO to avoid the multiplicity of proceedings and direct the AO to decide this issue afresh based on the evidences and other material filed by the assessee. Needless to say assessee be provided sufficient opportunity of being heard before concluding the issue. As a result, this ground of the assessee is partly allowed for statistical purposes. 10. Ground of appeal No.3 is in relation to the addition of Rs.2,40,48,000/- made by the AO on account of addition in the capital account. 10.1 Before us, the Ld. AR of the assessee submitted that in the capital account of both the firms of the assessee there were credit entries. In the books of M/s Alpha Exports a sum of Rs.1,20,24,000/- was credited on 31st March, 2023 with the narration “OOO Fair. Similarly in the capital account of M/s K.S. Traders a credit entry of Rs.1,20,24,000/- is appearing on 21st August, 2022 with the narration “OO Fair Trade”. Both the accounts are available in the PB pages 364 and 267 respectively. The corresponding entries of the said amount were also available in the PB pages 309 and 381 which are the ledger accounts of “OO Fair Trades” in the books of M/s K.S. 15 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra Traders and “OOO Fair” in the books of M/s Alpha Exports respectively. The Ld. AR submitted that from the perusal of these entry it is clear that they are book entries made with no fresh induction of the capital in the shape of money and, therefore the provisions of section 68 could not be applied. He, thus, requested for deletion of the additions made on this account. 10.2. On the other hand, ld. CIT-DR vehemently supported the order of the lower authorities and submitted that since, the assessee has failed to submit any details during the course of assessment proceedings, the genuineness of the transactions remained unverified, therefore, he prayed for confirmation of the orders of the lower authorities upholding the additions made. 10.3. We have heard the rival submissions and perused the materials available on record. From the perusal of the ledger accounts as submitted in the paper book, it is seen that though there were credit entries in the capital accounts of the assessee in both the proprietary firms where journal entries were made debiting the accounts of the respective parties and crediting the capital accounts of the assessee. It is further seen that in the accounts of respective parties, by making debit entries, the outstanding balances against such parties stood increased by this amount which was squared off by the bank receipts or by the other mode such as exchange fluctuation etc. It is also seen that by making credit entry of the corresponding amount in the 16 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra capital accounts, the capital balance of the assessee in both the firms was increased. Though they were journal entries but the fact remained that in the respective accounts of the debtors in both the proprietary firms of the assessee, outstanding balances of the debtors which were either cleared by receipt through bank or outstanding at the end of the year stood increased. These ledger accounts were submitted before the CIT(A) as additional evidences which were not admitted by ld. CIT(A) and additions were confirmed. Since we have already directed the ld. CIT(A) to admit the additional evidences so filed by the assessee, therefore, we remand back this issue to the file of AO to avoid the multiplicity of proceedings and direct the AO to decide this issue afresh based on the evidences and other material filed by the assessee as per law. Needless to say the assessee be provided an opportunity of being heard. 11. The last ground of appeal, assessee is challenged the action of the AO and CIT(A) in holding that interest earned on books debts used in margin money should be treated as ‘Income from Other Sources’ and not as income from ‘Business or Profession’. 11.1 Before us, the Ld. AR submitted that FDRs were made with the bankers against the margin money towards the credit facilities obtained which were utilized for business purposes, therefore, there was a direct nexus between interest received on such FDRs and the business income of the assessee. He thus submitted that the interest 17 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra received on such FDRs should be treated as business income and would be eligible for deduction u/s 80HCC of the Act. He further submit that while confirming the interest income from FDRs as income from other sources, the Ld. CIT(A) has placed reliance on the judgment of Hon’ble Supreme Court in the case of IPCA Lab (supra) wherein it is held by the Hon’ble Supreme Court that since profit figure in both the proprietary firm of the assessee is negative, thus, assessee will not got the benefit u/s 80HCC of the Act. He further submitted that the Hon’ble Supreme Court vide order in the case of CIT vs. Avani Exports reported in 58 taxman.com 100(SC) held that condition stipulated in 3rd and 4th proviso of section 80HCC would not retrospective and in case having export turn over below 10 lacs and above 10 lacs or would be treated similarly during the period prior to amendment made in section 80HCC of second amendment act taxation laws (2nd amendment act, 2005 where these to proviso i.e. 3rd and 4th proviso inserted with retrospective effect from 01.04.1998. 11.2. On the other hand, the Ld. CIT-DR vehemently supported the order of the lower authorities and made request for the confirmation of the same. 11.3 After considering the facts, we find that this issue has been settled by the Hon’ble Supreme Court in the order passed in the case of Avani Export (supra), therefore, we hold that interest income 18 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra received on the FDRs given for margin money is the business income and, therefore, thus, same should be considered as income from business and professions. Accordingly, this ground of appeal of assessee is allowed. 12. As result, the appeal of the assessee is partly allowed. 13. Now we take up the revenue appeal in ITA No. 3290/Del/2009. 14. In grounds of appeal No.1 to 4, the Revenue has challenged the deletion of addition of Rs.3,07,96,87,763/- made on account of export of sale proceeds treating the same as bogus and further deletion of addition of Rs.43,15,24,270/- made on account of duty draw back/export incentives alleged as fraudulently claimed and received. Since these grounds of appeal are interconnected, therefore, they are considered together and decided in terms of the following observations. 14.1. Brief facts leading to these grounds of appeal are that during the course of search carried out by DRI and based on the show cause notice issued by the DRI, it was observed by the AO that assessee claimed that he had executed exports to the Russian Federation which were illegally diverted to Dubai and further the assessee has earned duty draw back on such diverted exports which was illegal and were inconsistent with the Custom’s Act and the RBI circulars. During the course assessment proceedings, the assessee had failed 19 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra to file any details with respect to the exports sale made and additional evidences were filed in this regard before the Ld. CIT(A) where the assessee submitted that he was prevented by sufficient cause, thus, was not able to file the evidences before the Ld. AO. These evidences includes the copies of the statement of key witnesses recorded during the course of examination before the Commissioner, Central Excise which is adjudicating authority, wherein the witnesses had confirmed the fact of exports made by the appellant. These additional evidences further include bills issued by the appellant, shipping bills, bill of lading, bank certificate regarding realization of sale proceeds, and letter of credit issued by bank for foreign affairs of USSR of Moscow. Copy of cross examination of Mr. P.S. Ahluwalia, Ex- Director of Conti Shipping Transport Pvt. Ltd. on 21.03.2006, Sh. Harshwardhan, chief Manager, PNB, copy of account of parties from whom advances were received along with photocopy of bank statement and details of payments of 4.09 crore to Customs Department etc. However, Ld. CIT(A) by observing in para 6 of the appellate order that assessee during the course of assessment proceedings had failed to disclose the fact of search carried out by DRI and also failed to state that show cause notice dated 31.01.2004 issued by DRI was already available with him and was non- cooperative during the course of assessment proceedings, had rejected the additional evidences so filed. Before the ld. CIT(A), it was the claim of the assessee that Assessing officer has solely relied upon the show cause notice issued by DRI and no independent enquiries 20 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra were made nor any opportunity was given to cross examine the third parties whose statements recorded by the DRI relied upon to make the additions. The Ld. CIT(A) sought remand report from the Assessing Officer, however, besides of repeated opportunities given u/s 250(4), the AO has failed to make any further enquiry in the matter nor furnished the copy of the evidences collected nor any opportunity of cross examination was given to the assessee. After considering the facts, the Ld. CIT(A) in para 13 to 26 has dealt with this issue in detailed and deleted the additions so made. Relevant observations of Ld. CIT(A) as contained in paras 13 to 26 of the appellate order are reproduced as under: “13. I have carefully gone through the assessment order, the show cause notice issued by the DRI, the submissions made by the Id. AR of the assessee, remand reports filed by the Id. AO and also the rejoinders filed by the assessee. The assessment records have also been perused. The perusal of the impugned assessment order, very clearly brings out at pages 10 to 28 that the Id. AO has made the addition. on sales (Rs.3,07,96,87,763/-) and duty drawback (Rs.43,15,24,270/-) solely on the show cause notice issued by the DRI. It is clarified that the DRI had only issued a show cause, on which the impugned additions have been based. Independent enquiries, if any, such as confronting the assessee with the evidences collected by the DRI, examining the witnesses of the DRI, affording an opportunity of cross examination, to the assessee etc. was not made or even attempted. In fact, perusal of the assessment record does not even have the copies (leave alone the original) evidences collected by the DRI, on which addition has been based. There is no doubt, that the DRI is another Government Organization and the evidences collected by it cannot be ignored (as submitted by the Id. AO). However, for purposes of assessing the income of the assessee, corroborative evidences needed to be brought on record. The impugned assessment order does not even mention the details of seized documents, or the statements recorded. In the remand report, the Id. AO has taken the stand that the assessee was un-available 21 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra and even the assessment order had to be served by affixation. If the same could have been served by affixation, very validly, the opportunity of cross examination could have also been afforded by the same method of affixation. Moreover, in spite of specific directions to the then AO, at the appellate stage, the initiative was lacking on an incorrect appreciation of law. 14. From the above, two conclusions can be drawn (i) The Id. AO has relied totally on the show cause notice of the DRI to make the impugned additions; and (ii) Principles of natural justice was not followed. One may take the first part, wherein the Id. AO from the perusal of the assessment order has evidently relied totally on the investigations of the DRI. No corroborative evidence has been brought on record. No independent enquiry with a view to ascertain the truth or the veracity of the contents of the show cause issued by DRI has even been made. There is not even a whisper to that end in the impugned order. Evidence as collected by the DRI has also not been examined. Recently the Madras High Court was confronted with similar facts in CIT v Vignesh Kumar Jewellers [2009] 222 CTR (Mad) 79, wherein the DRI had found and seized unaccounted stock of jewellery and gold idols of foreign origin during a search at the business premises of the assessee. The AO made additions merely by relying on the findings of the DRI and the Commissioner of Customs. The matter travelled to the CIT(A), who deleted the additions except for a small part of the same. The Tribunal upheld the order of the CIT(A). When the matter travelled to the Hon'ble High Court, it was concluded by the Hon'ble Court on the grounds that additions made by the AO merely by relying on the findings of the DRI and the Commissioner of Customs, without make any independent enquiry or bringing any corroborative evidence, were correctly deleted by the CIT (A) and the ITAT. In CIT v Ved Prakash Choudhary [2008] 305 ITR 245 (Del), the Hon'ble Jurisdictional High Court has again pressed on the issue of corroborative evidence, in spite of a MOU being found at the search premise indicating transaction of on money by the assessee. 15. Thus, it is very clear that the in backdrop of any corroborative evidence borne out of an independent enquiry by the Id. AO, merely relying on the show cause notice issued by the DRI, for making the additions, the same cannot be sustained in the eyes of law. 22 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra 16. The second issue was the issue of non-examination or the opportunity of affording an opportunity to the assessee for cross-examination, of the witnesses who appear in the show cause notice of the DRI. While it may be correct that the assessee did not present himself for hearing, one cannot agree with the Id. AO that this would result in not affording an opportunity to the assessee for cross-examination. Even if the AO has afforded this opportunity to the assessee, by affixing the communication on the last known address, it would have met the cause of natural justice. In fact, this opportunity has not been availed at the appellate stage, even while suitable directions were given u/s. 250(4), on a possible incorrect appreciation of the provisions of sec. 250(4). 17. In Kishinchand Chellaram v CIT [1980] 125 ITR 713 (SC) at page 720, the Hon'ble Supreme Court held as following: \"............... It is true that the proceedings under the IT law are not governed by the strict rules of evidence and, therefore, it must be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But, before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. (emphasis supplied) 18. In State of Kerala v K. P. Shaduli Yusuff [1977] 39 STC 478 (SC), the Apex Court has emphasised on the need of providing the assessee with evidence and giving an opportunity to cross examine witnesses. The Hon'ble Apex Court observed that cross examination was one of most efficacious methods of establishing truth. 19. In view of the aforesaid judgments of the Hon'ble Supreme Court, It is settled law that where the AO seeks to rely upon evidence obtained from other parties, the same has to be provided to the assessee and the third parties should be made available to the assessee for cross examination by summoning them. 1 am already on record that the Id. AO has not afforded any opportunity to the assessee to cross examine the witnesses, before 23 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra arriving at a conclusion. On this ground also, the assessee deserves to succeed. 20. There is another angle to the issue. The Id. AO has relied heavily on the show cause notice dt. 31.1.2004, issued by the DRI. I have closely gone through the said show cause notice. The issue involved was that the assessee was ostensibly exporting readymade garments (RMG) to Moscow under the Rupee-Rouble Trade under the repayment of States Credit Scheme. On investigations, it is mentioned in the said show cause issued by the DRI that the goods were diverted to Dubai for sale and actually not delivered in Russia. In other words, the sales had been affected in Dubai and not in Russia, from where sale proceeds had ostensibly been received by the alleged buyers. As such, the assessee had incorrectly avalled off the duty drawback. As such, the claim for duty drawback was incorrect as this was in blatant violation of the RBI circulars governing exports under the Rupee-Rouble Scheme which was available only for goods exported to the Russian Federation (and not to Dubai). It was also mentioned that there was considerable over valuation of the exported items. In the show cause notice, several enquiries conducted by the DRI has been mentioned. 21. The main focus of the show cause notice of the DRI relates to incorrect claim of duty drawback, under the Customs Act. It does not say that the goods were not exported. In fact, it states that the goods were diverted for exports and sold in Dubai and not in the Russian Federation. It further states that on the said exports, duty drawback had been claimed. In other words, the charge as made. out in the show cause notice by the DRI is to be appreciated within the ambit of the Customs Act, 1962. It does not relate to the provisions of the Income-tax Act, whereby the information can be useful for assessing the income of the assessee, but cannot be considered conclusive. 22. The show cause notice which has been relied by the AO for making the impugned additions, as the name suggest is only a show cause. The issue has not attained finality till date (6 years), as evident from the affidavit filed by the assessee during the appellate proceedings, when specifically requisitioned. In my correspondence (placed on record) with the Adjudicating Commissioner of Customs and the DRI, during the disposal of the appellate proceedings, the finality of the proceedings have not been indicated either. 24 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra Assuming for a moment that the contents of the show cause notice are correct, it would naturally mean that the assessee was carrying out an unlawful activity. However, the Income-tax Act does not a make a distinction between income or profit derived from a legal or an illegal business. In CIT v S. C. Kothari [1971] 82 ITR 794 (SC), the Apex Court observed as under: \"If the business is illegal, neither the profits earned nor the losses incurred would be enforceable in law. But, that does not take the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as 'profits' u/s. 10(1) of the Act of 19922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business.\" In CIT v Piara Singh [1980] 124 ITR 40 (SC), the assessee had been apprehended by the Indian Police while crossing the Indo-Pakistan border into Pakistan. A sum of Rs. 65,500/- in currency notes was recovered from him. On interrogation, he stated that he was taking the currency notes to Pakistan to enable him to purchase gold in that country with a view to smuggling it into India. The Collector of Central Excise and Land Customs ordered the confiscation of the currency notes. The AO added the income to the tune of Rs. 65,500/-. The assessee has claimed it as a business loss. The Hon'ble Supreme Court while taking note of the illegal business of the assessee, allowed the deduction of Rs. 65,500/- as a business loss. 23. In other words, the Income-tax Act is not concerned with the carrying on of a legal or an illegal business. The assessee would be charged to tax even on the illegal business as per the provisions of the Income-tax Act in general and sec. 4 in particular. The DRI show cause, assuming that the contents are true, points out that the export was made to Dubai. The goods were also sold in Dubai. Duty drawback had been claimed and availed. It is a different matter that whether the duty drawback was claimed correctly or not as per the Customs Act and the RBI circulars under the Rupee-Rouble Trade Agreement. As such, the Id. AO has incorrectly concluded that there has been fraudulent sale or fraudulent claim of duty drawback. A conclusion drawn in the realm of Customs Act would not affect the taxability of income 25 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra under the Income Tax Act. Even if the same were to be fraudulent, but as long as the export had been affected and duty drawback claimed, the same would be brought to tax as per the provisions of the Income-tax Act, 1961. Thus, on this ground also the assessee deserves to succeed. 24. A crucial aspect that needs to be mentioned is that on interrogation by the DRI, the assessee had conceded that he had indeed diverted the exports to Dubai and had actually not exported the same to Moscow (Russian Federation) as it appears from the report of DRI. Heavy premium has been placed on this confession in the impugned order. During the course of hearing, the assessee stated that within 24 hours of making such an incriminating confession, which was allegedly taken under duress, he had retracted the statement on 29.12.2003 itself before the ACMM/Duty Magistrate, Patiala House Court, New Delhi. A copy of the same was also placed on file, on requisition. The assessee in his written submission filed on 16.12.2008 has relied on various decisions such as Sri Krishna V. Krukshetra University, AIR 1976 SC 376 as applied in Kisanlal Shivhandrai v CIT 88 ITR 293 (P&H), Pulangode Rubber Produced Co. Ltd. v State of Kerala 91 ITR (AT) (SC), CIT v Doris S. Luiz 96 ITR 646 (Ker), Roshan Beevi v Joint Secretary to Govt. of Tamilnadu AIR 1984 NOC 103 etc. 25. There is no doubt that confession made before a Custom official meets the principles of natural justice as held in Surjit Singh Chhabra v Union of India AIR 1997 SC 2560. However, it is also settled law that while a confession is a valid piece of evidence, it has to be backed by corroborative evidence particularly when the assessee has retracted from the said statement. It is also settled law that while considering a retracted statement, it has to be seen that after how much delay the said retraction has been made. In the case in hand, no corroborative evidence has been brought on record with regard to the impugned additions. Secondly, the statement which was made on 28.12.2003, was retracted before a Civil Magistrate on 29.12.2003 i.e. within 24 hours. Thus, not much credence can be given to the alleged confession statement especially in the Income-tax Act, 1961. Even assuming for a moment that the statement recorded on 28.12.2003, represent the true state of affairs, it cannot be stated that the assessee has admitted that he has not exported the goods, nor has he admitted that he has not received the duty drawback. On similar lines, are statements of Shri Arun Kumar Gupta, Shri Ramesh Parshuram, Shri Sanjay Khar, Shri Arun 26 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra Joshi, Shri P.S. Ahluwalia, Shri Manoj Kumar Gupta and Shri Harshwardhan (re-examined subsequently by AO), which have been elaborately mentioned and discussed in the show cause issued by DRI. None of them have stated that the goods were not exported or duty drawback not received. Nor have they stated that the goods have not been sold as it appears from the show cause of DRI. Taking in totality the show cause notice and the statements recorded, all that has come forth is that certain documents such as bill of lading had been forged and the assessee has actually sold the goods in Dubai and illegally claimed the duty drawback. I have already stated, above that even if this activity was unlawful and fraudulent, the sale proceeds received and duty drawback clamed would have to be brought within the ambit of taxation as per Income- tax Act, 1961, in general and section 4 in particular. 26. Thus, the Id. AO has incorrectly made additions on the total sale proceeds and export incentives amounting to Rs.3,07,96,87,763/- and Rs. 43,15,24,270/-relying totally on the show cause notice issued by the DRI, which also does not helps the cause of the Revenue. As such, the assessee succeeds in grounds of appeal No. 2 & 5.” 14.2. During the course of hearing, the Ld. CIT DR vehemently supported the order of Assessing Officer and argued that assessee since inception of the assessment proceedings was non cooperative which is evident from the assessment order itslef. It is also a matter of concern that in the case of the assessee, a search was carried by the DRI and show cause notice dated 31.03.2004 was already issued, however, when the Assessing Officer commenced scrutiny proceedings by issue of notice u/s 143(2) and subsequent occasions issued various show cause notice, assesse has not brought the fact of search by DRI and issue of show cause notice by Ld. DRI to the notice of Assessing Officer which further established that assessee was not cooperating with the Department and hiding the very 27 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra important and crucial facts relating to the assessment. Ld. CIT DR further submitted that assessee claimed export was made to the Russian Federation, however, neither the goods were exported to the Russian Federation and nor the payments were received from the parties situated at Russian Federation and the goods were diverted to Dubai and, therefore, AO has rightly treated the entire sale turnover of Rs.3,07,96,87,763/- as unexplained receipts in the hands of the assessee. Ld. DR further submitted that assessee has also failed to produce the books of accounts to verify the expenses claimed against such exports which include the cost of goods sold and further expenses claimed in the profit and loss account, and, therefore, in absence of such verification, the AO had rightly disallowed the expenses. Ld. CIT DR further submitted that assessee had received exports incentives in violation to the Customs Act and RBI Circulars which incentives were meant for export to Russian Federation only and, therefore, AO has rightly made the addition of Rs.43,15,24,270/- on account of exports incentives as unexplained receipts. Ld. CIT DR submitted that Ld. CIT(A) had made undue pressure on the Assessing Officer for examinations of the evidences/investigations report and to carry out the cross examination of the witnesses by ignoring the fact that all such investigations were carried by the DRI during its examination and based on such verification and examination final show cause notice was issued. Ld. CIT DR further submitted that the assessee had never asked for cross examination of the witnesses nor had been able 28 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra to establish that the parties to whom goods were exported to Russian existent were physically exists in Russia and since all the evidences with regard to purchases were destroyed by the assessee, therefore, purchases also remained unverifiable. Under these circumstances, he prayed that the restoration of the addition deleted by Ld. CIT(A). 14.3. On the other hand, the Ld. AR of the assessee vehemently supported the order of the Ld. CIT(A) and argued that during the course of appellate proceedings, assessee was able to demonstrate that the goods were exported out of India and received sales realization from such exports. He further submitted that it was never doubted by the Department that goods had crossed the barrier of the country and sole issue of dispute was whether they were export to Russian Federation or Dubai, however, crucial fact which was ignored by the Assessing Officer was that goods were actually sent out of India and realization was received in convertible foreign exchange which stood deposited in the regular bank account maintained by the assessee. Thus, sale proceeds were from the goods exported out of India and under no circumstances could be treated as unexplained money. Even if the DRI was alleging that the goods were not exported to the Russian Federation, it is not under dispute that the goods crossed the India Borders. The ld. AR further submitted that the Ld. CIT(A) has provided ample opportunities to the Assessing Officer during the remand proceedings and direct the AO to make necessary enquiries and also provide the opportunities 29 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra of cross examination. The Ld. CIT(A) also asked the Assessing Officer to provide all the evidences and documents and statements which were used against the assessee, however, no such opportunities / documents were provided. From the entire sequence of facts, it appears that except show cause notice dated 31.03.2004 issued by DRI to the assessee, the Assessing Officer has no material in its possession to support the allegations made in the assessment order. He, accordingly, prayed for confirmation of the order of Ld. CIT(A). 14.4. We have heard the rival submissions and perused the material available on record. In the instant case, it is seen that the assessee since beginning had not complied with any statutory notice and part information were filed on few occasions and majority of details were never filed. It is also a matter of fact that books of accounts were not produced before the Assessing Officer. The additional evidences filed before the Ld. CIT(A) were not admitted by the Ld. CIT(A) for the reason that assessee has not able to demonstrate as to why he was prevented by sufficient cause for not producing such details before the Assessing Officer. It is contended by the assessee that such evidences should be admitted for adjudication. During the course of appellate proceedings, the assessee vehemently argued that the Assessing Officer has not provided the material relied upon nor any opportunity of cross examining the witnesses were provided to it. He further filed various details as additional evidences which were not admitted, however, Ld. 30 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra CIT(A) on three occasions asked the Assessing Officer to submit the remand report after providing the opportunities of cross examination to the assessee. The remand reports so submitted by the Assessing Officer were reproduced in the assessment order. A perusal of the said reports, we find that the AO observed that the notices issued u/s 136(6) to the persons were returned unserved with the remarks “no such person exists at the given address”. It was also observed by the Assessing Officer that the DRI is an Indian Investigation Agency and its finding cannot be ignored. The Ld. AO further observed in the remand report that assesse shifted his address and new address was never intimated to the Department, therefore, it is not possible for the Assessing Officer to provide the statements and other documents to the assessee. Even the assessment order was served through affixture. It is also surprising fact that though the Assessing Officer was not able to find the assessee at the given address, however, at the same time the assessee was appearing before Ld. CIT(A) and submitting details in his case. Merely for the reason that Assessing Officer has failed to make enquiries as directed by Ld. CIT(A) during the course of appellate proceedings, the Ld. CIT(A) was of the view that the additions should be deleted. 14.5 In the instant case, from the investigation of the DRI it appears that goods have been sold outside India though not to the country where they were claimed to have been exported, and were diverted to other country and payments were also received against 31 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra such sale through banking channel. Once the goods had been sold outside India, it is incorrect to hold that no cost was incurred. It is also relevant to state that during the course of hearing the Ld. Counsel for the assessee stated at bar that the proceedings before the DRI commenced in terms of show cause notice dated 31.03.2004 are not yet concluded thus it cannot be conclusively established that the sales made by the assessee were bogus. On the other hand, there is no quarrel that the goods were exported out of India and only dispute is with regard to the destination of the goods. Under Income tax proceedings it is to be seen that sales have been made and goods are sent out of India and the consideration is received in convertible foreign exchange. The genuineness of claim of export incentive is not the subject matter under income tax proceedings where the income from such sales is to be taxed. Therefore, under these circumstances, we are in agreement with ld. CIT(A) who had rightly deleted the additions made, which order is hereby upheld on these two issues. The grounds of appeal No.1 to 4 of the Revenue are thus dismissed. 15. Ground No.5 & 6 of the Revenue are in relation to the deletion of addition of Rs.54,67,707/- made by Assessing Officer on account of advances received from parties holding the same as unexplained. 15.1. Brief facts leading to the facts are that assessee has shown advances of Rs.54,67,707/- received from four parties of Moscow, Russia. The AO during the course of assessment proceedings vide 32 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra notice u/s 142(1) asked the assessee to file the copies of the accounts and, further asked to file the necessary details to show how these advances were dealt with in subsequent financial years. The Ld. AO further observed that as per DRI show cause notice parties at Moscow are non-existent, hence, advances claimed to have been received from the parties from Russia are doubtful. However, as the assessee had failed to submit any details in this regard, therefore, the AO had made the addition. During the course of appellate proceeding before Ld. CIT(A), assessee claimed that payments were received through banking channels and were duly credited in the bank account of M/s K.S. Traders, proprietary firm of the assessee. The Ld. CIT(A) in terms of section 250(4) asked the AO to verify said advances, however, the AO in its report dated 19.02.2009 observed that the parties were foreign parties and stayed outside India, therefore, the genuineness could not be verified. After considering the assessee’s submissions and the remand report, the Ld. CIT(A) deleted the additions by observing in para 36 as under: “36. I have carefully gone through the order of the Id. AO, the remand report as well as the submission made by the assessee. I am already on record stating that the fresh evidence as being filed during the appellate proceedings has been rejected. No credence could be given to the said documents. However, I am inclined to agree with the Id. AR of the assessee when he states that the failure to verify by the Department cannot go against the assessee. In any case, directions were given for enquiry u/s. 250(4) and could have probably been done through the diplomatic channels, even though the parties concerned were outside India. This would have sufficed the conditions (either way) as laid down for any addition u/s. 68 viz. identity of the creditor, financial capacity of the creditor and genuineness of the transaction. If the assessee could not establish the three ingredients in the proceedings u/s. 250(4), the case of the Revenue would have been strong. As such, the assessee deserves to succeed in grounds of appeal 33 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra No.7. Addition of Rs.54,67,707/- is deleted. But the lack of enquiry does not help the cause of Revenue. 15.2. Before us, the Ld. CIT-DR argued that assessee had failed to prove the genuineness of the transactions as no details whatsoever were filed as asked by the Assessing Officer from time to time and, therefore, he requested for confirmation of the addition made by the AO. 15.3. On the other hand, the Ld. AR vehemently supported the orders of the Ld. CIT(A) and submitted that in the remand report, the Assessing Officer himself has admitted that all the parties are stayed outside India and were foreign parties. He further argued that when the amounts were received through banking channel from such parties, the same cannot be doubted. He thus prayed for the confirmation of the order of Ld. CIT(A) deleting the addition. 15.4. We have heard the rival submissions and perused the materials available on record. During the course of assessment proceedings despite of the opportunity provided by the assessing officer assessee had not filed any details. In appellate proceedings certain details were filed as additional evidences. Admittedly the parties were stayed outside India. We also observed that the Revenue can verify the existence and genuineness the transaction through diplomatic channels where the parties situated outside India. When the assessee had submitted the relevant details about these parties 34 ITA No.3290 & 2851/Del/2009 ACIT vs. Sanjeev Malhotra such as such their name, addresses and the payments were received through banking channels, genuineness of the credit transactions could not be doubted. The burden lies upon the assessee was discharged by providing all the relevant details which the AO failed to rebut, merely on suspicion and based on the show cause notice of the DRI, the additions were made. Under these circumstances, in our opinion, the Ld. CIT(A) has rightly deleted the addition which is hereby upheld. 16. In view of the above, the appeal of the Revenue is partly allowed. 17. In the result, the appeal of the assessee is partly allowed and appeal of the revenue is dismissed. Order pronounced on 16/04/2025. d Sd - Sd/-/- (ANUBHAV SHARMA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:16/04/2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "