Corroborative evidence, continuing liability and DEPB-linked deduction under section 80HHC defeated the revenue's challenges.

Additions for alleged inflated or bogus purchases cannot survive where the record shows purchase bills, banking payments, import documents and supporting evidence of actual movement of goods, and no independent corroboration exists. An addition for cessation of liability is also unsustainable when the liability continues in the books and there is no material showing write-off, waiver or abandonment. Freight and related expenses were partly allowed on the basis of available supporting materials, and that relief was upheld. Deduction under section 80HHC on DEPB sale proceeds was allowable because the statutory conditions under the third proviso were established on the facts. The revenue's appeal failed on all contested issues.

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Issues: (i) whether the additions made on account of alleged inflated or bogus purchases from different suppliers were sustainable; (ii) whether the addition on account of alleged cessation of liability was justified; (iii) whether the disallowance of freight and related expenses was sustainable; (iv) whether the assessee was entitled to deduction under section 80HHC on the sale proceeds of DEPB licence.

Issue (i): whether the additions made on account of alleged inflated or bogus purchases from different suppliers were sustainable.

Analysis: The additions were based on the Assessing Officer's assumption of overvaluation or non-genuineness without adequate market enquiry or independent corroboration. The assessee furnished purchase bills, payment details through banking channels, import documents where relevant, and supporting material showing actual movement of goods and corresponding export activity. The appellate authority relied on connected customs findings and the absence of tangible material to prove inflated pricing. The Tribunal found no reason to disturb those findings.

Conclusion: The additions on account of alleged inflated or bogus purchases were not sustainable and relief was upheld in favour of the assessee.

Issue (ii): whether the addition on account of alleged cessation of liability was justified.

Analysis: The liability continued to appear in the books, and the assessee furnished the current address and other particulars of the creditor. Mere non-service of notice and lapse of time were held insufficient to establish remission or cessation in the absence of material showing write-off, waiver, or abandonment of liability. No contrary evidence was brought by the revenue authorities.

Conclusion: The addition for cessation of liability was not justified and was deleted in favour of the assessee.

Issue (iii): whether the disallowance of freight and related expenses was sustainable.

Analysis: The expenditure was disallowed by the Assessing Officer for want of supporting evidence, but the assessee produced part of the bills and other details at the appellate stage. The appellate authority granted partial relief based on the materials available and the scale of the business. The Tribunal found no basis to interfere with that conclusion.

Conclusion: The relief granted on freight and related expenses was upheld in favour of the assessee.

Issue (iv): whether the assessee was entitled to deduction under section 80HHC on the sale proceeds of DEPB licence.

Analysis: The Tribunal examined the statutory conditions governing the third proviso to section 80HHC(3), namely the availability of an option between duty drawback and DEPB and the higher rate of drawback credit attributable to customs duty. On the facts, the assessee established compliance with those conditions, and the revenue did not rebut the factual findings of the appellate authority.

Conclusion: The deduction on DEPB sale proceeds under section 80HHC was allowable and the revenue's objection failed.

Final Conclusion: The revenue's appeal failed on all contested issues, and the appellate relief granted to the assessee was sustained in full.

Ratio Decidendi: Additions for alleged inflated purchases or cessation of liability cannot survive without cogent corroborative evidence, and deduction under the DEPB-related proviso to section 80HHC is allowable when the statutory twin conditions are established.

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