TaxTMI 
TaxTMI 
2012 (5) TMI 816
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....not genuine and that as such, no corresponding export of these goods could exist. On this basis, by invoking the provisions of section 68 of the Act, the AO held that the sale proceeds recorded in the books of account of the assessee represented unexplained credit and accordingly, the entire export sale proceeds of Rs. 4,29,74,424 were taken as income of the assessee and the claim of deduction under section 80HHC was disallowed. In appeal, the CIT(A) confirmed the assessment order and the assessee filed a further appeal before the Tribunal. The Tribunal, by virtue of its order dated 12-9-2008, set aside the issue to the file of the AO, with the following observations (relevant portion) : "10... The pertinent sic already exist in source file and circumstances of the case, the application of section 68 is justified. There is small (sic) objection of the assessee that material used against the assessee was not put to the assessee in accordance with law. 11... It is not the case of the assessee that above provision is not applicable to alleged sale receipts. Sale receipt can be treated like any other credit; assessee called upon to explain the nature and source of such receipt. It ....
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....e amount may have to be allowed as deduction towards purchases. The present case where purchases were held to be bogus, those could have been disallowed. But that has not been done and alleged sales assessed under section 68 of the IT Act. 12. The sale receipts have been treated as bogus as purchases were bogus and assessee was dealing with people indulging in giving Hawala entries only. This was done without examining the nature of the credit entries and without providing reasonable opportunity to the assessee to explain those credit entries. The explanation of the assessee relating to the credit entries has not been examined at all. There is no doubt that burden of proof to prove that credit entries are genuine, is on the assessee. But the question of discharge of burden is required to be decided on examination and appraisal of material available on record. The present case was decided without such appraisal and without considering the question with reference to material relating to the credit entries. We have held above that reasonable opportunity was not afforded to the assessee as, in our opinion, certain statements recorded at the back of the assessee have been relied upon ....
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....e assessee and, accordingly, allowed a deduction of Rs. 47,48,494 under s. 80HHC of the Act to the assessee. While making the above calculation, however, the AO ignored the purchases declared by the assessee at Rs. 1,92,87,608. 4. The assessee filed an appeal before the CIT(A), challenging the said action of the AO, mainly on two grounds, i.e., that firstly, the AO, in the remand proceedings under section 254 of the Act, had passed the assessment order contrary to the specific directions issued by the Tribunal while remanding the matter, and that on merit, the AO was not justified in assuming that the assessee had made undisclosed purchases, even though there was no evidence at all on record to suggest any such purchase. 5. The CIT(A), vide order dated 15-11-2010, i.e., the order under appeal herein, accepted the contention of the assessee on merit regarding the addition of unaccounted purchases under section 69C of the Act being unjustified. However, on the issue that the AO had gone beyond the scope of the directions given by the Tribunal, he rejected the submission of the assessee. 6. The Revenue is in appeal against the deletion of the addition by the CIT(A), raising the fol....
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....ts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not appreciating the contention of the appellant that the scope of proceedings under section 254 is limited to the directions given by the Tribunal and failure to do so will vitiate the order and hence liable to be quashed. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the addition made by AO by invoking the provisions of section 69C of the Act is untenable as the same was neither the case of the AO in the original assessment proceeding nor the case before the Hon'ble Tribunal. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the appellant that the order passed by the AO is barred by limitation." 8. Regarding the cross-objections filed by the assessee, it was argued by the learned counsel for the assessee that the AO has set up an entirely new case in the proceedings after the order passed by the Tribunal under s. 254 of the Act, whereby he has made an addition under section 69C of the Act in respect....
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....s been set up by the AO; and that this cannot be done, as held in the following cases : (i) CIT v. Late Jawaharlal Nagpal Through LRs (1988) 171 ITR 136 (MP); (ii) Kartar Singh v. CIT (1978) 111 ITR 184 (P&H); (iii) S.P. Kochhar v. ITO (1984) 145 ITR 255 (All); (iv) Basudeo Prasad Agarwalla v. ITO & Ors. (1989) 180 ITR 388 (Cal); (v) CIT v. Mahindra & Co. (1995) 215 ITR 922 (Raj). 10. The learned counsel for the assessee further submitted that the CIT(A) was not justified in holding that there were no fetters set by the Tribunal on the AO; that the inference drawn by the CIT(A), that the Tribunal had pointed out that in cases of bogus purchases, necessary disallowance can always be made, is incorrect; that the CIT(A) has not correctly read the order of the Tribunal; that in para 11 of the Tribunal order, at p. 254 of the assessees paper book, the Tribunal has analyzed the provisions of section 68 of the Act; that on pp. 11-12 (assessees paper book 255-256), the Tribunal has observed that: "In our considered opinion, it was necessary to examine nature of the entries and thereafter explanation of the assessee, if any, furnished relating to the credit entries. It appears ....
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....export sales; that the directions are specific directions and nowhere has it been stated that the AO may pass an assessment order de novo; that on the matter of investigating the purchases beyond those recorded in the books of account, there was no other direction issued by Tribunal; that there is no discussion at all in the entire order of the Tribunal on the aspect of the assessee having made any purchases outside its books of account; that there are no directions issued by the Tribunal to make any enquiry pointing towards the aspect of any purchases having been made in the form of unexplained expenditure; that as such, the AO has clearly gone beyond the mandate of the order of the Tribunal; that the scope of the derivative jurisdiction has been illegally enlarged by the AO by entering in a totally new realm, which was not permissible in law; that hence, the addition made by the AO deserves to be deleted at the very threshold, because it was not permissible for the AO to exceed his derivative jurisdiction beyond the directions given by the Tribunal; and that it is settled law that in proceedings under section 254 of the Act, the AO cannot set up a new source and accordingly, the ....
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....seas to be bogus, the AO, though he accepted the export sales of the assessee, declared at Rs. 4,29,74,424, which had been added by the AO in the first round, rejected the GP rate of 55.12 per cent on these sales, as declared by the assessee, holding it to be too high. Instead, the AO considered a GP rate of 14 per cent to be appropriate and applied the same to the declared export sales, computing the purchases at a hypothetical Rs. 3,59,58,004. Holding that these purchases of Rs. 3,59,58,004 had not been disclosed by the assessee, the AO added this amount to the income of the assessee under the provisions of section 69C of the Act. 19. While in the first round, no deduction had been allowed by the AO to the assessee under the provisions of section 80HHC of the Act, in the second round, recomputing the profit of the assessee at Rs. 59,52,434, rather than that computed by the assessee at Rs. 2,35,22,830, the AO, ignoring the purchases declared by the assessee at Rs. 1,92,87,608, allowed a deduction of Rs. 47,48,494 to the assessee under section 80HHC of the Act. 20. The CIT(A), by virtue of the impugned order, did not accept the assessees challenge that the AO, while passing the a....
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....nion, it was necessary to examine nature of the entries and thereafter explanation of the assessee, if any, furnished relating to the credit entries. It appears to us that without examining above important aspect and without recording a proper finding thereon, provision of section 68 has not been properly applied. There is no gainsaying that credit in books can be treated as deemed income of the assessee and, therefore, it is necessary to concentrate on the credit, its nature and source. We are unable to say that inference of no sale or export cannot be drawn if the purchases are held to be bogus. But if assessee has also shown sales and sale consideration is claimed to have been received through the banking channels with names and addresses of parties who purchased goods and remitted the amount, it will be proper to hold credits as bogus without examining the credit entries and the background of the creditors. The genuineness or otherwise of the credit entries has to be examined. It is not uncommon to see that trading accounts of the assessees (sic) (are) rejected with (sic) part or whole of purchases are found as ingenuine. In those cases, disallowance is made out of the purchase....
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....in addition discussed above. Therefore, orders on those grounds are also remanded to the AO for re-examination and for fresh considerations in accordance with law. For the aforesaid reasons, impugned orders are set aside and matter restored to the file of the AO. 24. A bare perusal of the above observations of the Tribunal shows that the directions handed down by the Tribunal are clearly very specific to the effect that in the remanded assessment proceedings, the AO was to restrict the examination to be conducted, to the credit entries of the assessee. If the AO found that these credit entries were genuine, no addition was to be made and the AO was to rest at that and proceed no further. His jurisdiction in the remand proceedings, in compliance of the directions of the Tribunal, was confined to this only, and to no more. The role of the AO was circumscribed by these precise directions given by the Tribunal. 25. That in remand proceedings, the function of the AO is confined to and restricted within the Diktat of the prescription by way of the directions ordering the remand, is judicially well-settled. 26. In Kartar Singh (supra), it has been held that where an assessment is set a....
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....ry into the question of additions made by the ITO in the original assessment order. It is true that there is a difference of opinion as reflected in the decisions of the various High Courts cited before us, on the question as to whether it is open to the ITO to consider the entire matter afresh, notwithstanding the terms of the order of remand. It is, however, not necessary in the instant case to enter into that controversy, because there is another aspect of the matter which arises in this case. In CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC), the Supreme Court has held that while deciding an appeal from an order passed by the ITO, the AAC has no jurisdiction to assess a source of income which has not been assessed by the ITO and which is not disclosed either in the return filed by the assessee or in the assessment order and the AAC, therefore, cannot travel beyond the subject-matter of the assessment. From this decision, it follows that the AAC cannot, while setting aside the assessment, empower the ITO to go into points which he himself could not have investigated in exercise of his power of enhancement. Now, if the AAC could not have empowered the ITO to....
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....rms, the scope of the action to be taken by the AO, pursuant to such remand. By invoking the provisions of section 69C of the Act in the order passed after remand, and making addition under the said section, whereas in the original assessment proceedings, addition had been made under section 68 of the Act, rather than under any other section, much less under section 69C, the AO has clearly transgressed the limits set by the order of remand. This, as held in Basudeo Prasad Agarwalla (supra), is unsustainable in the eye of law. 32. As in the aforementioned cases, in Mahtndra & Co. (supra), it has been held, inter alia, that the jurisdiction of the ITO as well as the IAC in respect of a matter where the assessment order has been set aside by the appellate authority is limited to the extent of the directions given by such an authority. Therein, reference was made to CIT v. Fundilal Rikhabchand (1994) 208 ITR 348 (Raj), in which case, it was held that where the AAC has set aside the assessment, a fresh assessment has to be made in accordance with the directions given by the appellate authority and the ITO is bound by those directions. Reference was also made to Cawnpore Chemical Works ....
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....his aspect of the matter only, and to none else. It cannot be gainsaid that an order needs to be read in its entirety and bits and pieces thereof cannot be just picked up and read out of context, divorced from the other observations contained in the order. 36. On the basis of the above discussion, CO. Nos. 1 to 4 raised by the assessee are accepted. We hold that the AO has erred in passing the assessment order by going beyond the specific directions issued by the Tribunal while remanding the matter to him and the learned CIT(A) has erroneously upheld this action of the AO. 37. The last cross-objection raised by the assessee, i.e., CO. No. 5 states that the learned CIT(A) has erred in rejecting the contention of the assessee that the order passed by the AO is barred by limitation. 38. No argument regarding this cross-objection was addressed before us on behalf of the assessee. Moreover, no such challenge is seen to have been raised before the learned CIT(A) too. Therefore, CO. No. 5 is rejected. 39. Turning to the Departments appeal, ground Nos. 1 and 5 are general. 40. Apropos ground Nos. 2 and 3, the Department contends that the learned CIT(A) has erred in deleting the additi....
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....tive clarified that this was done by the AO probably for the reason that the purchases accounted for by the assessee in its books of account were not found to be genuine and the assessee would obviously have made purchases of Rs. 3,69,58,004 from other sources, which had not been accounted for by the assessee in its books of account. He further submitted that at best, credit of the expenditure of Rs. 1,92,87,608, as accounted for in the assessees books of account, could be given, but even if it were to be so done, an unaccounted expenditure of Rs. 1,76,70,396 would still remain, which would, again, be liable for addition under s. 69C of the Act. 43. As regards the evidence of such alleged unaccounted purchases, the learned Departmental Representative submitted that in such type of cases, it is difficult for the Department to collect direct evidence. Concerning the basis for applying the GP rate of 14 per cent, it was submitted that though in the assessment order, the AO has not given any comparable instance, it is just and proper to apply a reasonable rate of profit, which the AO has rightly applied at 14 per cent. 44. The learned counsel for the assessee, on the other hand, supp....
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....s Mine-O-Gems and to assessees paper book 182, which is a copy of bank statement showing payment made by cheque to M/s Mine-O-Gems. He also referred to the copy of letter dated 5-11-2009 at assessees paper book 318, submitted by Mr. Sanjay Parekh, proprietor of Mine-O-Gems on his personal appearance before the AO, along with copy of the account of the assessee, copies of the invoices and copy of the audited balance sheet. 47. The learned counsel for the assessee also invited our attention to the order passed by the Tribunal, Jaipur Bench in the case of M/s Sambhav Gems Ltd., where also, an issue had come up regarding purchases made by M/s Sambhav Gems Ltd. from M/s Mine-O-Gems. On the basis of the abovesaid order, it was argued that having produced the parties before the AO and such parties having admitted the transactions, it had to be accepted that the obligation of the assessee stood discharged, particularly in view of the facts which had come on record regarding the import and sale by these parties to other different parties. 48. On the basis of the above, it was stated by the learned counsel for the assessee that the finding given by the AO that these parties are not genuine....
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....se the AO has any doubt on the GP rate earned by the assessee, he would be well within his rights to investigate not only the rate and the quantity of the sales, but also the rate and quantity of the purchases; that he would be well within his rights to examine and compare the same with the market rate in case of any variation which may raise a doubt about the value of the purchase or the value of the sales; that in case the AO has any such doubt about the purchase value or the sales value, the onus would be on him first to establish that the purchase rate or the sale rate is different from the market rate or value, and also to further establish that the assessee has actually paid money over and above that stated in the books of account in respect of purchases, or has received any amount over and above the sale price stated in the books of account; that in the present case, pertinently, the AO has not doubted the sale value and he has accepted the same as genuine; that having done so, he has simply thereafter applied the GP rate of 14 per cent and has computed the value of the alleged unaccounted purchase, without even first ascertaining the market value of such purchases and witho....
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....as against the actual value of such purchases at Rs. 1,92,87,608; and that the directors of the company are quite experienced in this trade and they have very good connections. In this regard, the learned counsel for the assessee invited our attention to assessees paper book 40 to 44, which is a copy of the audited P&L a/c of M/s Kishan Lal & Sons, of which, Mr. Ajay Gupta was the proprietor and M/s S.R. Jewels, of which, Mr. Rajeev Gupta was the proprietor from assessment year 1998-99 to assessment year 2001-02. He submitted that both of them are directors of the assessee company and so, the allegation of the AO that the company is new and that the GP rate is too high, is not sustainable. 51. Having heard the parties on this issue and having gone through the material brought on record with regard thereto, it is seen that to enable invocation of the provisions of section 69C of the Act, the AO needs to be in possession of some material indicating that the assessee has incurred expenditure on purchases which have not been reflected in the books of account. Existence of such material with the AO, in fact, is the sine qua non for invoking section 69C of the Act. 52. In the present c....
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....profit of 50 per cent under similar circumstances. The learned CIT(A) has taken note of this fact in para 6.7 of the impugned order. 54. The GP rate is the difference between the sale value and the purchase value. In the present case, if the AO harboured any doubt concerning the GP rate earned by the assessee, it was well within his rights to investigate not only the rate and the quantity of the sales, but also the rate and quantity of the purchases, and to examine and compare the same with the market rate. In case he had any doubt about the purchase value or the sales value, it was for him to first establish that the purchase rate or the sale rate was different from the market rate or value, and further that the assessee had actually paid any amount over and above the amount stated in the books of account in respect of purchases, or that the assessee had received any amount over and above the sale price as declared in the books of account. However, the AO has not doubted the sale value declared by the assessee. Rather, he has accepted the same to be genuine. Even so, after having done so, he applied the GP rate of 14 per cent without any basis and computed the value of the allege....
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....nding that either the purchase rate, or the quantity stated was incorrect, there was nothing prompting the AO to estimate the purchases at Rs. 4,29,74,424 (sic-- Rs. 3,69,58,004) as against the value of such purchases declared by the assessee at Rs. 1,92,87,608. 58. Then, the copies of the audited P&L a/c of M/s Kishan Lal & Sons, of which Mr. Ajay Gupta was the proprietor and M/s S.R. Jewels, of which Mr. Rajeev Gupta was the proprietor from assessment year 1998-99 to assessment year 2001-02 (assessees paper book 40 to 44). Both, Ajay Gupta and Rajeev Gupta are directors of the assessee company and so, the observation of the AO that the assessee company was a new company and that the GP rate was too high, was wrong. 59. Then, it is seen that the finding recorded by the AO to the effect that the two supplier concerns of the assessee, namely, M/s Vinayak Overseas and M/s Mine-O-Gems were not genuine concerns, was erroneous. At pp. 142 and 143 of the assessees paper book is a copy of the return of income filed by Shri Gauri Shankar Pareek, proprietor of M/s Vinayak Overseas. Assessees paper book 136 to 138 are copies of the invoices issued by the concern M/s Vinayak Overseas. Asses....
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....hases made by the said M/s Sambhav Gems from M/s Mine-O-Gems was at issue. The assessee had produced the parties before the AO and they had unambiguously admitted the transaction. 63. Therefore, it can, in no manner, be disputed that the assessee had duly discharged its onus, particularly by duly bringing on record the facts regarding the import by these parties and sale to other different parties. 64. The observations of the learned CIT(A) on this issue are as under : "6.5 Now coming to the issue of addition made by the AO under s. 69C of the Act. The appellant has submitted that on merits no addition under section 69C is called for. Adverting to the provisions of section 69C, it has been contended that it applies to an expenditure incurred which means actually spent. It is also stated that section 69C is attracted only if it is shown that there was an expenditure which was incurred by the assessee but the source of which is not satisfactorily explained. The term expenditure has been explained to mean spending or paying out or by way of something which has gone irretrievably. Unless it is shown that there has been spending of any money, section 69C does not apply. Reference in....
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....de by the Investigation Wing, Jaipur in the cases of M/s Mine-O-Gems and M/s Vinayak Overseas. Therefore, an attempt was made to find out as to what compliance has been made by the appellant company in relation to the directions given by the Hon'ble Tribunal regarding making the aforesaid two parties available for examination by the AO. It has been pointed out by the learned counsel for the appellant that the proprietor of M/s Mine-O-Gems, Shri Sanjay Pareek has appeared twice before the AO and has confirmed the transactions entered into with the appellant company. It is also stated that the learned AO has recorded his statement in the course of assessment proceedings. As regards, Shri Gauri Shankar Pareek, proprietor of Vinayak Overseas, it was stated by the learned counsel that Shri Pareek has made all the requisite information available to the AO by means of registered post. Thus, the case of the learned counsel for the appellant is that all necessary evidence regarding purchases made from the aforesaid parties was made available to the AO. Further, both the persons, namely, Shri Gauri Shankar Pareek and Shri Sanjay Pareek are assessed to income-tax and sales-tax and both of....
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....lation with Shri Mohan Prakash Sharma and he had made false statement due to his business rivalry and jealousness with the assessee. It is also worth noting that statement of Shri Mohan Prakash Sharma was recorded behind the assessee and no opportunity of confrontation was afforded to the assessee which was required on the part of the AO to meet out the well established principle of natural justice. In his affidavit Shri Mohan Prakash Sharma has given the period he was working with the assessee i.e. 1-4-1997 to 30-11-1999. The search was however, conducted at the premises of Naman Gems (P) Ltd. and M/s Shruti Gems on 19-6-2003. Keeping all these facts in totality we are of the view that the statement of Shri Mohan Prakash Sharma was not worth relying especially in absence of any corroborative evidence to establish that M/s Vinayak Overseas was engaged in the issuing of bogus sale vouchers without supplying the goods. Para 14. The customs authorities had also recorded the statements of the assessee on 8-5-2004 (page Nos. 179 to 185), 13-5-2004 (page Nos. 186 to 189), 19-5-2004 (page Nos. 190 to 193) and 4-6-2004 (page Nos. 194 to 197). The statement on 19-5-2004 was recorded in th....
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....s under : "Para 15. We fully agree with the submission of the learned Departmental Representative that for deciding an issue in a case totality of facts and circumstances are required to be gone into and strict rules of evidence do not apply to income-tax proceedings but at the same time for deciding an issue weighment of evidence produced by the parties cannot be ignored. Preponderance of probabilities works where there is no direct evidence to support a claim of either party. In the present case however the assessee had admittedly exported the goods involving several channels of Customs Department and bank accounts thus admittedly goods were purchased by the assessee for the said export. The only dispute is as to whether the assessee had purchased the said goods from the aforesaid five parties, existence of which has been doubted by the Department on the basis of some observations of the AO discussed in detail above or from some unknown parties. From record it appears that the assessee while furnishing necessary informations regarding the transactions and the aforesaid five parties like purchase bills issued against goods purchased, sales-tax registration numbers of the parti....
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....d purchased the goods other than the aforesaid five parties especially when huge amount is involved in purchasing the goods. We are thus of the view that the lower authorities were not justified in making and sustaining a huge addition of Rs. 6,45,03,018 on account of bogus purchase under s. 69C of the Act on the basis of some probabilities that assessee might not have purchased goods exported from the above five parties." 6.10 Thus, it may be seen that the allegation of the Department that Shri Gauri Shankar Pareek and Shri Sanjay Pareek were running a Hawala racket and issuing bogus bills on commission without making any supply of goods has been disapproved by the Hon'ble Tribunal Jaipur which is the final fact-finding authority. It may be relevant to point out here that the order of the Hon'ble Tribunal in the case Gauri Shankar Pareek was in relation to additions made on the ground that he was issuing bogus bills against commission and no goods, namely, precious and semi-precious stones were actually supplied to the purchasers. As stated earlier, on the basis of these allegations search under s. 132 of the Act was also conducted at the premises of Shri Gauri Shankar....
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....regard to her age and the circumstances in which she was placed she could not be credited with having made any income of her own and in these circumstances the Tribunal was right in refusing to make an addition of the value of the investment to the income of the assessee. Shri Ranbir Chandra, learned counsel appearing for the Revenue, has urged that the Tribunal as well as the High Court were in error in their interpretation of s. 69 of the Act. The submission is that once the explanation offered by the assessee for the sources of the investment was found to be non-acceptable the only course open to the ITO was to treat the value of the investment to be the income of the assessee. The submission is that the word may in s. 69 should be read as shall. We are unable to agree. As pointed out by Tribunal, in the corresponding clause in the Bill which was introduced in Parliament, the word shall has been used but during the course of consideration of the Bill and on recommendation of the Select Committee, the said word was substituted by the word may. This clearly indicates that the intention of Parliament in enacting s. 69 was to confer a discretion on the ITO in the matter of treatin....
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....s very material to decide an issue arising there from and we have accordingly proceeded in the present case. The learned Departmental Representative has also placed reliance on the several decisions to support his contention that colourable devices have been adapted in the present case to avoid payment of due tax. We fully agree that the colourable devices cannot be allowed to avoid payment of due tax but the onus in that circumstance lies upon the Department to establish that the devices adopted by the assessee are colourable. As discussed above, the Department has thoroughly failed to establish the same in the present case. The learned Departmental Representative in support of his contention that strict rules of evidence do not apply to the provisions of the IT Act and real test in these matters is preponderance of probabilities and not beyond reasonable doubt has placed reliance on the decisions of Hon'ble Supreme Court in the case of Sumati Daycd v. CIT (1995) 125 CTR (SC) 124. We fully agree with this contention of the learned Departmental Representative and in such a situation, while deciding an issue on the basis of preponderance of probabilities, one has to weigh the ev....
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....o claim higher amount of deduction under section 80HHC. In this regard, the Hon'ble Tribunal has recorded the following findings : The only doubt expressed by the AO in the present case is that the transactions with the suppliers from whom the assessee claimed to have purchased the goods exported are not genuine, but the identity of the suppliers and their existence in the capacity of their being assessed to income-tax or in the other Government Department with whom they are registered for the purpose have not been denied nor the supplies of goods in export by the assessee. From the facts of the present case, it is clearly emerging that the goods were exported and foreign currency was received by the assessee against the exported goods, thus purchasing of goods by the assessee cannot be denied unless the foreign purchaser and the other related Government authorities deny that the goods were not exported. The lower authorities thus do not appear to be justified in denying the claim of the assessee unless they come with this evidence that no goods were exported or money was received against that exported goods by the assessee. The Hon'ble Guwahati High Court.... No eviden....