TaxTMI 
TaxTMI 
2006 (5) TMI 114
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was carried out with reference to the genuineness of the loans as well as the transactions falling under section 40A(2)(b) of the Act. Accordingly, the Learned CIT issued notice under section 263 on the following grounds: "1. In the order under section 143(3), deduction under section 80HHC of Income-tax Act of Rs. 70,46,582 was allowed. It is seen that the eligible business profits include duty drawback of Rs. 20,64,833. As per the Supreme Court decision in the case of Sterling Foods, 237 ITR 579, the said amount was not derived from export activity and hence does not qualify for deduction under section 80HHC of Income-tax Act. Further the deduction under section 80HHC allowed on the duty drawback received as per proviso to section 80HHC(3) was erroneously allowed. 2. Purchases of Rs. 49,05,984 from M/s. Mineral India International were not verified in terms of section 40A(2)(b) of the Income-tax Act. 3. Loans appearing in the Balance Sheet and loans squared off during the year were not verified in terms of section 68 of the Income-tax Act." After considering the reply of the assessee, the Learned CIT held that excessive deduction was allowed under section SOHHC for three ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s were supplied to the Assessing Officer. He drew our attention to the audit report to point out that all necessary details falling under section 40A(2)(b) were supplied as per Annexure-J to the audit report appearing at Page 26 of the Paper Book. Then he referred to the letter of assessee dated 26-12-2002 addressed to the Assessing Officer to point out that date-wise details were furnished in respect of bills issued by the sister concern M/s. Mineral India International. This letter appears at Page 42 of the Paper Book. In view of the same, it was submitted that proper enquiry was made by the Assessing Officer and, therefore, the assessment order could not be said to be erroneous. 5. Proceeding further, it was submitted that necessary details in respect of each loan falling under section 269SS of the Act were furnished in Annexure-O to the audit report. Then he referred to Page-39 of the Paper Book to point out that Assessing Officer had made enquiries vide letter dated 9-11-2001 by asking the assessee to furnish the details regarding unsecured loans along with the confirmation letters and Permanent Account Numbers of the creditors. According to him, such information was supplied....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th reference to the reasonableness of the price paid by the assessee against the purchases made from the sister concerns, there was failure on the part of the Assessing Officer to make proper enquiries. Similarly, it was further submitted that mere confirmations and payment by cheque is not sufficient to prove the creditworthiness of the creditors and the genuineness of the loan transactions. According to him, it is the settled legal position that assessee is required to prove identity and capacity of the cash creditors as well as the genuineness of the transactions. It was pointed out by him that there was no evidence on record to prove the genuineness of the transactions as well as the creditworthiness of the cash creditors. Thus, there was lack of proper enquiry on the part of Assessing Officer. In view of the above arguments, it was submitted by him that order of the Learned CIT be upheld. 8. Rival submissions of the parties have been considered carefully in the light of the material placed before us and the case law referred to. The first question for our consideration is whether the order of the Learned CIT under section 263 can be upheld where reasons given in the order for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the show-cause notice, obviously the assessee had no opportunity to meet that point. Moreover, a reading of the show-cause notice cannot give the assessee or even us, for that matter, any indication with reference to the hire charges which are sought to be assessed by the revision." Similar view has been taken by the Tribunal, Madras Bench in the case of Sanco Trans Ltd. The relevant portion of the same is reproduced as under: "The Hon'ble Calcutta High Court in the case of CIT v. General Trade Agencies [1973] Tax LR 1383 held that where the show-cause notice did not fairly indicate the grounds used by the Commissioner in his order under section 263, the assessee was deprived of fair opportunity to show cause against proposed action and in such a case, the revisional order of the Commissioner cannot be sustained. The same Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506, affirmed in Bagsu Devi Bafna v. CIT [1967] 63 ITR 333, held that the Commissioner must disclose in his notice to the assessee, the grounds on which he proposes to revise, to enable the assessee to show cause and to give him an opportunity of being heard. The Hon'ble Orissa Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lause (baa) of Explanation to section 80HHC, and (iii) Central Excise refund and Sales Tax set-off should have been included in the total turnover. However, there is no mention of the basis mentioned in the show-cause notice. This clearly shows that there was no nexus between the reasons given in the show cause and the reasons given in the impugned order for holding the order of Assessing Officer as erroneous qua deduction under section 80HHC. Therefore, following the reasons given by us in the preceding Paras, we quash the order of the Learned CIT (A) to the extent mentioned above. 10. The next question for our consideration is whether there was lack of enquiry and non-application of mind on the part of Assessing Officer vis-a-vis the issue relating to unsecured loans and excessive allowance of expenditure vis-a-vis section 40A(2). There is no dispute that lack of enquiry would render the order of assessment as erroneous and prejudicial to the interest of Revenue as held by the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi [1968] 67 ITR 84 and in the case of Smt. Tara Devi Aggarwal. The lack of enquiry would include not only the situation where no enquiry is made....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it prescribed in section 269SS of the Act. It also appears that the Assessing Officer asked the assessee to furnish the details of unsecured loans along with confirmation letters and the Permanent Account Numbers of the cash creditors. In response to the same, the assessee had furnished the copies of the accounts of these cash creditors in the books of assessee on which such cash creditors had confirmed such accounts. Their addresses and Permanent Account Numbers are given on such certificates. It also appears that the transactions were by cheques. So, the question is whether there was any lack of enquiry on the part of the Assessing Officer. It is the settled legal position that in the case of cash credits appearing in the books of assessee, the onus is on the assessee to prove the identity and creditworthiness of the cash creditors as well as the genuineness of the transactions. The evidence produced before the Assessing Officer nowhere provides the creditworthiness of the cash creditors. No doubt, the payments were by cheques but that by itself does not prove the creditworthiness of the assessee. Neither the Bank statement of cash creditors nor their Balance Sheet were examined.....