Divine International, Noida v. ACIT, Haridwar

ITA 1493/DEL/2011 | 2001-2002
Pronouncement Date: 30-09-2011 | Result: Allowed

Appeal Details

RSA Number 149320114 RSA 2011
Bench Delhi
Appeal Number ITA 1493/DEL/2011
Duration Of Justice 6 month(s) 5 day(s)
Appellant Divine International, Noida
Respondent ACIT, Haridwar
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-09-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year 2001-2002
Appeal Filed On 25-03-2011
Judgment Text
FIT FOR PUBLICATION SD/-AM SD/-J.M. IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 1995(DEL)2011 ASSESSMENT YEAR: 2001-02 DY.COMMISSIONER OF INCOME TAX M/S. DIVIN E INTERNATIONAL CIRCLE HARDWAR. V. CHOWK BAZAAR ROORKEE. ITA NO. 1493(DEL)2011 ASSESSMENT YEAR: 2001-02 M/S. DIVINE INTERNATIONAL D Y.COMMISSIONER OF INCOME TAX CHOWK BAZAAR ROORKEE. V. CIRCL E HARDWAR. (APPELLANT) (RESPONDEN T) DEPARTMENT BY: SHRI ROHIT GARG SR. DR ASSESSEE BY: SHR I VED JAIN MRS. RANO JAIN & SHRI V.MOHAN CA ORDER PER A.D. JAIN J.M . THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR 2001-02 . ITA NO. 1995(DEL)2011 HAS BEEN FILED BY THE DEPARTMENT. IT A NO. 1493(DEL)2011 HAS BEEN FILED BY THE ASSESSEE. THE DEPARTMENT HA S TAKEN THE FOLLOWING GROUNDS:- 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS THAT EVEN IN THE CASES OF CONTRARY AFFIDAVITS AND DENIAL OF TRAN SACTIONS PROVISIONS OF SECTION 68 OF THE I.T. ACT 1961 ARE NOT FULFILL ED. ITA 1995 & 1493(DEL)2011 2 2. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS THAT EVEN IN THE CASE OF NON-CONFIRMATION OF IDENTITY OF 10 CRE DITORS THE ONUS ON THE PART OF THE ASSESSEE OF FURNISHING THE REQUISIT E DETAILS OF THE CLAIMED CREDITORS AS PER THE OBSERVATION OF HONBL E ITAT NEW DELHI WAS INDEED FULFILLED. 2. THE GROUNDS TAKEN BY THE ASSESSEE READ AS FOLLOW S:- 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND FACTS OF THE CASE IN NOT APPRECIATING THE FACTS I.E. A. THAT THE ADDITION WAS ON ACCOUNT OF SUNDRY CREDITOR S WHO WERE ONLY SMALL TIME KARIGARS WHO DO ASSEMBLING/FINISHIN G/POLISHING FROM THEIR HOMES SPREAD IN ROORKEE AND NEARBY VILL AGES. THEY WERE NOT REGISTERED OR MAINTAINED ANY BOOKS OF ACCO UNT OR WERE MAINTAINING ANY CREDIT/CASH MEMOS. THE ONLY SOURCE OF THEIR IDENTIFICATION WAS THE REC EIPT GIVEN ON OUR VOUCHERS WHICH CONTAINED NAME COMPLETE ADDRES S AMOUNT AND DESCRIPTION OF ITEM SUPPLIED. THEY HAD NO BAN K ACCOUNT AND ALWAYS ACCEPTED THE PAYMENT IN CASH. ALL THE RECORDS WERE BURNT AND THERE WAS NO EVIDENC E OR ANY IDENTIFICATION TO IDENTIFY THEM OR TO PROVE THE CRE DIT BALANCES PARTICULARLY WHEN THERE WERE THREE OR FOUR SUPPLIER S LIKE MOHD. SALIM JAVED ANIL ETC. B. THAT IN THE SUBSEQUENT YEAR MOST OF THE CREDITORS W ERE PAID AS HUGE CASH WAS WITHDRAWN FOR THE PURPOSE. C. THAT AFTER SOMETIME WE HAD ALMOST CHANGED OUR NATUR E OF BUSINESS HAD ESTABLISHED OUR FACTORY AT NOIDA UP AND HAD NO CONTACT AS SUCH WITH THE CREDITORS. D. THAT ALMOST ENTIRE STOCK SHOWN AT THE END OF THE YE AR WERE PURCHASED IN THE LAST TWO MONTHS AND HAD SOLD THEM IN THE SUBSEQUENT YEAR. ITA 1995 & 1493(DEL)2011 3 2. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND FACTS OF T HE CASE IN NOT APPRECIATING THE FACTS I.E. THAT CREDITORS REPRESENT PURCHASES AS WAS EVIDENT F ROM THE LIST OF CREDITORS AND AS PER THE HONBLE MEMBERS OF ITAT AN D SALES TAX DEPARTMENT AND THERE IS NO REASON FOR KNOT ALLOWING OF BENEFIT U/S 80HHC. 3. AS PER THE STATEMENT OF FACTS THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02 ON 30.10.2001 DECLARING TOTAL INCOME OF ` 5 31 300/- AGAINST GROSS INCOME OF ` 25 58 625/-. THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF ` 20 27 325/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I.T. ACT AT A TOTAL INCOME OF ` 49 16 264/- AND THEREAFTER REVISED U/S 154 OF THE ACT ON 15.09.2004 AT A TOT AL INCOME OF ` 48 75 670/-. THE AO MADE CERTAIN ADDITIONS INCLUDING THAT OF ` 37 99 907/- AS UNEXPLAINED SUNDRY CREDITORS. 4. AGGRIEVED FROM THE ASSESSMENT ORDER THE ASSESSE E FILED APPEAL BEFORE THE CIT(A)I DDN WHO VIDE ORDER DATED 14.02.2005 IN APPEAL NO. 15/HRD/2004-05/253 HAS PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. AGGRIEVED THE REVENUE AS WELL AS THE ASSESSEE FILE D APPEALS BEFORE THE ITAT WHO VIDE ORDER DATED 20.3.08 IN ITA NO. 1512( DEL)05 DIRECTED THE AO TO DECIDE THE APPEAL AFRESH. THEREAFTER IN TH E LIGHT OF THE DIRECTIONS OF THE ITAT AN ASSESSMENT ORDER WAS PASSED ON 12.03.2 004. IN THIS ORDER ITA 1995 & 1493(DEL)2011 4 INTER ALIA AN ADDITION OF ` 37 99 907/- ON ACCOUNT OF UNEXPLAINED SUNDRY CREDITORS WAS AGAIN MADE TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 12.3.2004 FILED APPEAL BEFORE THE CIT(A) RESULTING IN THE ORDER OF THE CIT(A) PASSED ON 20.12.2010 VIDE APPEAL NO. 50/HRD/08-09. THIS IS THE ORDER PRESENTLY UNDER CHALLENGE BY BOTH THE PARTIES. 6. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQUIRED TO PROVE AND JUSTIFY THE SUNDRY CREDITORS OF ` 37 99 907/- AND TO FURNISH COMPLETE NAMES ADDRESSES AND PANS OF ALL THE SUNDR Y CREDITORS. THE ASSESSEE FAILED TO FURNISH THE SAME WITHIN THE STIP ULATED TIME AND COULD FURNISH THE DETAILS OF ONLY 20 CREDITORS. THE AO DISALLOWED SUNDRY CREDITORS OF ` 37 99 907/- HOLDING THAT OUT OF 75 SUNDRY CREDITOR S THE ASSESSEE COULD FURNISH DETAIL ONLY IN 20 CASES WHICH WERE NOT FOU ND GENUINE; AND THAT THE ASSESSEE GROSSLY FAILED TO PRODUCE ANY MATERIAL EVI DENCE IN SUPPORT OF GENUINENESS OF THE TRANSACTION. 7. IN THE IMPUGNED ORDER THE CIT(A) OBSERVED THAT AS PER THE ORDER OF THE ITAT THE ASSESSEE WAS DUTY BOUND TO FURNISH CO MPLETE ADDRESSES OF THE CREDITORS AND COULD HOPE TO GET RELIEF ONLY IF IT F URNISHED THE SAME TO THE AO. IT WAS FURTHER OBSERVED THAT IT WAS LOGICAL TO HOLD THAT THE AMOUNT IN RESPECT OF THE REMAINING 55 SUNDRY CREDITORS SHOULD BE TREA TED AS UNEXPLAINED AND ITA 1995 & 1493(DEL)2011 5 DEEMED TO BE THE ASSESSEES INCOME. HE THEREFORE DIRECTED TO QUANTIFY THE FIGURES OF THESE CREDITORS AND TREAT THE ADDITION TO THAT EXTENT AS CONFIRMED. 8. AS REGARDS THE 20 REMAINING CREDITORS THE LD. CIT(A) CONSIDERING THE REGULAR BUSINESS DEALINGS OF CREDITORS WITH ASSESSE E LOSS OF BOOKS IN FIRE AND CONFIRMATIONS FILED BY THE ASSESSEE HELD THAT IT W OULD NOT BE APPROPRIATE TO TREAT SUCH CREDITORS AS NON-GENUINE AND DIRECTED TH E AO TO QUANTIFY SUCH CREDITORS AND TREAT THE ADDITION TO THAT EXTENT AS DELETED. 9. AS SUCH ON REMAND FROM THE TRIBUNAL THE AO VI DE ORDER DATED 12.3.2004 INTER ALIA MADE AN ADDITION OF ` 37 99 907/- OBSERVING THAT OUT OF 75 SUNDRY CREDITORS THE ASSESSEE COULD FURNISH DET AILS ONLY IN 20 CASES WHICH ALSO WERE NOT FOUND TO BE GENUINE. THE LD. CIT(A) OBSERVED THAT THE AMOUNT REGARDING 55 SUNDRY CREDITORS SHOULD BE TREA TED AS UNEXPLAINED INCOME OF THE ASSESSEE. REGARDING THE REMAINING 2 0 CREDITORS THE LD. CIT(A) HELD THAT CONSIDERING THE REGULAR BUSINESS D EALING OF THE CREDITORS WITH THE ASSESSEE THE LOSS OF BOOKS IN FIRE AND TH E CONFIRMATION FILED BY THE ASSESSEE SUCH CREDITORS COULD NOT BE TREATED AS NO N-GENUINE. 10. THE LD. DR HAS CONTENDED THAT THE DIRECTIONS OF THE TRIBUNAL WERE CLEAR-CUT; THAT THE ASSESSEE HAD TO ESTABLISH THE G ENUINENESS OF THE TRANSACTIONS BY GIVING THE ADDRESSES OF THE CREDITO RS; THAT ALSO THE CREDITORS WERE TO BE SHOWN OUTSTANDING AT THE END OF THE YEAR ; THAT THE CREDITORS WHICH ITA 1995 & 1493(DEL)2011 6 HAD NOT BEEN PROVED TO BE GENUINE THE TRANSACTIONS QUA THEM NEEDED TO BE TAXED AS INCOME FROM OTHER SOURCES; AND THAT THE LD . CIT(A) HAS NOT CONSIDERED THESE FACTS. 11. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE O THER HAND HAS SUBMITTED THAT AS PER THE DIRECTIONS OF THE TRIBUNAL (APB 71) AFTER HAVING ESTABLISHED THE GENUINENESS OF THE 7 CREDITORS IT WOULD NOT HA VE BEEN NECESSARY FOR THE ASSESSEE TO ESTABLISH THE CREDIT-WORTHINESS OF SUCH CREDITORS; THAT BEFORE THE AO IT WAS SUBMITTED VIDE REPLY DATED 9.9.08 THAT A FIRE BROKE OUT IN THE FACTORY PREMISES OF THE ASSESSEE ON 14.2.05; THAT T HE ENTIRE RECORD WAS DESTROYED IN THAT FIRE; THAT IN THE TAX AUDIT REPOR T IT HAD BEEN CERTIFIED BY THE CHARTERED ACCOUNTANT THAT THEY HAD EXAMINED ALL THE ORIGINAL BOOKS OF ACCOUNT PURCHASE VOUCHERS AND SALES TAX FORMS OF T HE ASSESSEE; THAT THE SALES TAX OFFICER HAD ALSO EXAMINED THE DOCUMENTS A ND HAD GIVEN THE FINDINGS THAT ALL THE PURCHASE VOUCHERS WERE ENTERE D IN THE ASSESSEES BOOKS OF ACCOUNT AND THAT ALL THE PURCHASES WERE EXAMINED ON THE BASIS OF THE SALES TAX FORMS ISSUED AND WERE FOUND TO BE IN ORDER; THA T THE CREDITORS WERE MOSTLY SMALL PART TIME KARIGARS WHO CARRIED ON THE IR BUSINESS FROM THEIR HOMES AND WERE NOT REGISTERED DEALERS WITH THE SALE S TAX DEPARTMENT; THAT THEIR INCOME BEING BELOW THE TAXABLE LIMIT THEY WE RE NOT FILING ANY INCOME TAX RETURN AND WERE NOT MAINTAINING ANY BOOKS OF AC COUNT; THAT THEREFORE IT ITA 1995 & 1493(DEL)2011 7 WAS NOT POSSIBLE TO FILE THE REQUISITE DETAILS WITH REGARD TO THESE CREDITORS; THAT CONFIRMATIONS ALONG WITH SPECIMEN COPY OF BILL S AND IDENTITY PROOF WERE BEING FILED; THAT AS PER APB PAGE 98 AS ON 31.3.20 01 AND 31.3.2002 THE MAJOR CREDITORS STOOD PAID OFF. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURTHE R SUBMITTED THAT SINCE THE TRADING RESULTS HAVE BEEN ACCEPTED THE PURCHAS ES MADE OBVIOUSLY STAND ACCEPTED TOO; AND THAT THEREFORE NO ADDITION COULD HAVE BEEN MADE. 13. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO C ONTENDED THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THAT THE CREDITORS RE PRESENTED PURCHASES AND THERE WAS NO REASON NOT TO ALLOW THE BENEFIT U/S 80 HHC OF THE ACT TO THE ASSESSEE. 14. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. UNDENIABLY THE ADDITION OF ` 37 99 907/- WAS ON ACCOUNT OF SUNDRY CREDITORS. THESE AS PER THE STAND OF THE ASSESSE E WERE ONLY SMALL TIME KARIGARS DOING JOB WORKS OF FINISHING AND POLISHI NG FROM THEIR HOMES LOCATED IN ROORKEE AND NEARBY VILLAGES. ADMITTED LY THEY WERE NOT REGISTERED NOR WERE MAINTAINING ANY BOOKS OF ACCOU NT. THEIR INCOME BEING BELOW THE PRESCRIBED LIMIT NO INCOME TAX RETURNS W ERE BEING FILED. SO TO SAY THEY DID NOT HAVE ANY RECORD FROM WHICH TO CON FIRM THE TRANSACTIONS. THE RECORDS OF THE ASSESSEE WERE BURNT IN THE FIRE WHICH BROKE OUT IN THE ITA 1995 & 1493(DEL)2011 8 ASSESSEES FACTORY PREMISES. THIS ALSO REMAINS UNRE BUTTED. HOWEVER THE TRADING ACCOUNT OF THE ASSESSEE HAS BEEN ACCEPTED MEANING THEREBY THAT THE PURCHASES MADE HAVE ALSO BEEN ACCEPTED. NOW THE APPLICABILITY OF SECTION 68 OF THE ACT IS NOT MANDATORY AND AUTOMATIC. TRU E THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE TRANSACTIONS. HOWEVER THE ELEMENT OF PROBABILITY IN THE GIVEN SET OF CIRCUMSTANCES HAS TO BE DULY TAKEN INTO CONSIDERATION. THE AO WAS SUPPOSED AND REQUIRED TO APPLY HIS MIND TO T HE ISSUE AND THEREBY CONSIDERING THE APPLICABILITY OF THE PROVISIONS OF SECTION 68 OF THE ACT. IN THE PECULIAR FACTS AND CIRCUMSTANCES WHEN THE TRAD ING RESULTS HAVE BEEN ACCEPTED THEREBY ALSO ACCEPTING THE PURCHASES MADE IN OUR OPINION THE APPLICABILITY OF THE PROVISIONS OF SECTION 68 IS EN TIRELY SUSPECT. THE SAME OUGHT NOT TO HAVE BEEN APPLIED IN A MECHANICAL MANN ER. 15. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXP ORTS AND DURING THE YEAR IT HAS MADE A SALE OF R.2 51 55 930/- AND PURC HASES OF RS.1 79 49 253/-. THE TOTAL CREDITORS OUTSTANDING AS ON THE LAST DAT E OF THE BALANCE SHEET ARE RS.37 99 907/-. THESE ARE ALL TRADE CREDITORS AND THERE IS NO DISPUTE ON THIS ASPECT. IT IS AN ADMITTED POSITION THAT THE ASSESS EE COULD NOT SUBMIT THE ADDRESSES OF THESE CREDITORS EXCEPT THE SEVEN WHICH HAVE BEEN DISCUSSED IN THE ASSESSMENT ORDER AND FOR WHICH THE CIT(A) HAS GIVEN BENEFIT. ITA 1995 & 1493(DEL)2011 9 16. IN THESE CIRCUMSTANCES WHETHER THE CREDITORS OF WHOM THE ASSESSEE HAS FAILED TO GIVE THE ADDRESS SHOULD BE A DDED BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT? 17. IT REMAINS AN ADMITTED POSITION THAT THE TRADI NG RESULTS HAVE BEEN ACCEPTED AND THERE IS NO DISPUTE ON THE TRADIN G RESULTS AS ON DATE. ALSO NEITHER THE SALES NOR THE PURCHASES MADE BY THE AS SESSEE ARE NOT IN DISPUTE. THE DISPUTE IS LIMITED TO THE VERIFICATION OF THE C REDITORS OUTSTANDING AS ON 31 ST MARCH 2001. THE EXPLANATION OF THE ASSESSEE IS T HAT IN VIEW OF THE RECORD HAVING BEEN DESTROYED IN THE FIRE IT IS NOT IN A POSITION TO GET THESE OUTSTANDING CREDITORS VERIFIED AND THAT THESE WERE OF PETTY KARIGARS ENGAGED IN DOING WORK FOR THE ASSESSEE PERTAINING TO A VERY OLD PERIOD. 18. IT IS ALSO IMPORTANT TO NOTE THAT AS PER THE B ALANCE SHEET AS ON 31 ST MARCH 2001 THE ASSESSEE HAS AN OUTSTANDING LIABIL ITY OF SUNDRY CREDITORS OF RS.37 99 907/- AND AT THE SAME TIME IT HAS ADVA NCES TO THE SUPPLIERS OF RS.24 45 951/- SUNDRY DEBTORS OF RS.19 37 520/- AN D CLOSING STOCK OF RS.39 25 000/-. THIS CLEARLY DEMONSTRATES THAT ON THE ONE HAND THE ASSESSEE HAS LIABILITY TOWARDS THESE CREDITORS AND ON THE OT HER HAND IT HAS ASSETS IN THE FORM OF ADVANCES TO SUPPLIERS DEBTORS STOCK ETC. HAD THESE CREDITORS BEING NOT GENUINE THE ASSESSEE COULD HAVE SQUARED UP OR NOT SHOWN THESE ITA 1995 & 1493(DEL)2011 10 ADVANCES TO SUPPLIERS ETC. ACCORDINGLY THE OVERA LL CIRCUMSTANCES ALSO DO NOT SUGGEST THAT ANY ADVERSE INFERENCE SHOULD BE DR AWN AGAINST THE ASSESSEE. FURTHER AS PER THE PROVISIONS OF SECTION 68 OF THE ACT IT IS NOT MANDATORY THAT IN CASE THE ASSESSEE FAILS TO SATISFY THE ASSE SSING OFFICER ABOUT THE OUTSTANDING CREDITS THE SAME ARE MANDATORILY REQUI RED TO BE ADDED AS INCOME OF THE ASSESSEE. SECTION 68 GIVES A DISCRE TION TO THE ASSESSING OFFICER AS CAN BE SEEN FROM ITS PROVISIONS WHICH READ AS UNDER:- 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR AN D THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT I N THE OPINION OF THE ASSESSING OFFICER SATISFACTORY THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSES SEE OF THAT PREVIOUS YEAR. 19. THIS VIEW HAS ALSO BEEN UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SMT. P.K. NOORJAHAN (1999) 237 ITR 570 (SC ). THE ASSESSING OFFICER HAS TO TAKE INTO ACCOUNT THE OVE RALL FACTS. ACCORDINGLY IN THE CASE OF THE ASSESSEE THE OVERALL FACTS NEED TO BE CONSIDERED. THE AMOUNT OUTSTANDING BEING CREDIT ON ACCOUNT OF PURCHASES WH ICH HAVE BEEN EXPORTED BY THE ASSESSEE IT IS NOT MANDATORY THAT IN THE AB SENCE OF VERIFICATION OF THE CREDITORS THE SAME NEED TO BE ADDED STATUTORILY. ITA 1995 & 1493(DEL)2011 11 20. IN THE CASE OF THE ASSESSEE THESE CREDITORS RE PRESENT THE OUTSTANDING AMOUNT ON ACCOUNT OF THE PURCHASES. TH ERE CAN BE THREE ALTERNATIVE ALLEGATIONS AGAINST THE ASSESSEE. ONE CAN BE THAT THESE CREDITS REPRESENT THE CREDIT FOR EARLIER YEARS. IF THAT BE THE CASE NO ADDITION CAN BE MADE IN THIS YEAR UNDER SECTION 68 OF THE ACT. THE SECOND ALLEGATION CAN BE THAT THESE CREDITS REPRESENT THE PURCHASES FOR WHIC H PAYMENTS HAVE BEEN MADE BY THE ASSESSEE DURING THE YEAR ITSELF. IF TH IS IS SO THE ONUS WILL BE ON THE DEPARTMENT TO ESTABLISH THAT ASSESSEE HAS MADE PAYMENT TO THESE CREDITORS. THIS IS NOT EVEN THE ALLEGATION OF THE ASSESSING OFFICER MUCH LESS HIS CASE AGAINST THE ASSESSEE. THE THIRD ALLEGAT ION CAN BE THAT THESE CREDITS DO NOT REPRESENT THE PURCHASES WHICH HAVE BEEN MADE BY THE ASSESSEE. THE IMPLICATION OF THIS WILL BE THAT THE PURCHASES DEBI TED IN THE TRADING ACCOUNT ARE NOT GENUINE TO THAT EXTENT AND ACCORDINGLY THA T THE TRADING ACCOUNT IS NOT CORRECT. HOWEVER ON GOING THROUGH THE ASSESSMENT ORDER THE CIT(A)S ORDER AND THE ORDER PASSED BY THE ITAT IN THE EARLI ER ROUND IT IS EVIDENT THAT THE TRADING RESULTS HAVE BEEN ACCEPTED. DESPITE TH IS FOR THE SAKE OF ANALYSIS IF IT IS CONSIDERED THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE CREDITORS AND CONSEQUENTLY THE PURCHASES TO THAT EXTENT ARE NOT GENUINE THEN THE DECLARED GROSS PROFIT OF RS.32 16 564/- WI LL GET FURTHER ENHANCED BY ITA 1995 & 1493(DEL)2011 12 RS.37 99 907/- I.E. A GP OF RS.70 16 471/- ON A T OTAL TURNOVER OF RS.2 51 55 930/- GIVING AN EXORBITANT GROSS PROFIT RATE OF 27.89% WHICH IS NOT THE CASE. IT IS ALSO IMPORTANT TO NOTE THAT TH E ASSESSEE IS IN THE BUSINESS OF EXPORTS AND ITS ENTIRE INCOME IS EXEMPT. THERE IS AS SUCH NO REASON FOR THE ASSESSEE TO SUPPRESS THE PROFIT AS ITS INCOME. 21. TAKING INTO CONSIDERATION THE ABOVE FACTS OF THE ASSESSEE IT IS A FIT CASE NOT TO MAKE ANY ADDITION BY INVOKING THE D EEMING FICTION OF SECTION 68 IN RESPECT OF THE SUNDRY CREDITORS DESPITE THE FACT THAT THE ASSESSEE COULD NOT SUPPLY THE ADDRESSES OF THESE CREDITORS. ALL T HE FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING THAT OF DESTRUCTION OF BOOKS OF ACCOUNTS OLD PERIOD PETTY KARIGARS ADVANCES TO THE SUPPLIERS DEBTORS AND THE CLOSING STOCK AND PARTICULARLY THE FACT THAT ALL THESE CREDITORS HAVE BEEN PAID OFF IN THE SUBSEQUENT YEAR AND THE RETURN FOR THAT YEAR HAS BE EN ACCEPTED BY THE DEPARTMENT CLEARLY SHOW THAT IN THE CASE OF THE ASS ESSEE IT IS NOT NECESSARY TO ADD THESE CREDITORS. 22. GROUND NO. 2 OF THE ASSESSEES APPEAL IS REGARDING THE DENIAL OF DEDUCTION UNDER SECTION 80 HHC IN RESPECT OF THE AD DITION MADE ON ACCOUNT OF THE CREDITORS. THE CIT(A) HAS DENIED THE DEDUCT ION IN RESPECT OF THE ADDITION ON ACCOUNT OF THE SO CALLED SUNDRY CREDITO RS ON THE GROUND THAT AS PER THE PROVISIONS OF SECTION 80 HHC IT IS ONLY TH E INCOME DERIVED BY THE ITA 1995 & 1493(DEL)2011 13 ASSESSEE FROM THE EXPORT OF SUCH MERCHANDISE WHICH IS ELIGIBLE AND THE ADDITION ON ACCOUNT OF CREDITORS CANNOT BE CONSIDER ED AS INCOME DERIVED FROM THE EXPORTS. THE CONTENTION OF THE CIT(A) H OWEVER IS WRONG. SECTION 80 HHC PROVIDES THE COMPLETE SCHEME FOR COM PUTING THE DEDUCTION. AS PER THE PROVISIONS OF SECTION 80 HHC (1) WHERE AN ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MERCHANDISE TO WHICH THIS SECTION APPLIES THERE SHALL IN ACCORDANCE WI TH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED DEDUCTION I N COMPUTING THE TOTAL INCOME OF THE ASSESSEE. FURTHER AS PER SUB-SECTIO N (3) OF SECTION 80 HHC OF THE ACT WHERE THE EXPORT OUT OF INDIA IS OF GOO DS MANUFACTURED BY THE ASSESSEE THE PROFITS DERIVED FROM SUCH EXPORT SHAL L BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROP ORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. FURTHER-MORE THE PROFITS OF THE BUSINESS HAVE BEEN DEFINED IN EXPLANATION (BAA) BELOW SUB-SECTIO N 80 HHC (4C) TO MEAN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. 23. THUS FOR THE PURPOSE OF COMPUTING DEDUCTION U NDER SECTION 80 HHC FIRST THE PROFITS OF THE BUSINESS HAVE TO BE C OMPUTED AS A WHOLE AS PER THE PROVISIONS OF THE ACT AND THE EXPORT PROFIT HAS TO BE THEN WORKED OUT ITA 1995 & 1493(DEL)2011 14 PROPORTIONATELY ON THE BASIS OF THE RATIO OF THE E XPORT TURNOVER TO THE TOTAL TURNOVER. THEREFORE AS PER THE PROVISIONS OF SECT ION 80 HHC PROFIT SO COMPUTED IS CONSIDERED TO BE THE PROFIT DERIVED FRO M EXPORTS. THE WHOLE COMPUTATION IS BASED ON THE PROFITS AND GAINS OF BU SINESS. IN THE CASE OF THE ASSESSEE THE ADDITION MADE ON ACCOUNT OF TRADE CRE DITORS WILL GO TO INCREASE THE PROFIT OF THE BUSINESS. THE ADDITION UNDER SEC TION 68 PER SE DOES NOT GIVE THE NATURE OF THE INCOME. IT IS ONLY A DEEMING FIC TION WHEREBY CREDIT IS DEEMED TO BE INCOME OF THE ASSESSEE AND AS DEEMED I NCOME TAKES THE CHARACTER AND NATURE OF THE INCOME OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE WHICH IS A FIRM THERE IS NO INCOME OTHE R THAN THE BUSINESS INCOME. ADDITION ON ACCOUNT OF UNEXPLAINED TRADE CREDITORS WILL ACCORDINGLY ENHANCE THE BUSINESS INCOME. ACCORDINGLY THE CIT(A) WAS NO T JUSTIFIED IN DENYING THE DEDUCTION UNDER SECTION 80 HHC DESPITE CONFIRMI NG THE ADDITION ON ACCOUNT OF THE TRADE CREDITORS. 24. THIS ISSUE IS SQUARELY COVERED BY THE JUDGM ENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MARGA RETS HOPE TEA CO. LTD. (1993) 201 ITR 747 (CAL) WHEREIN ON SIMILAR FACTS IT HAS BEEN HELD THAT ADDITION ON ACCOUNT OF CASH CREDIT UNDER SECTION 68 WILL GO TO ADD TO THE BU SINESS INCOME. THERE ITA 1995 & 1493(DEL)2011 15 THE TRIBUNAL HAD FOUND THAT THE ASSESSEES MAIN AC TIVITY WAS OF CULTIVATION MANUFACTURE AND SALE OF TEA. THE CASH CREDIT ACCO UNT APPEARED IN THE ASSESSEES BUSINESS BOOKS OF ACCOUNT. THE CASH CR EDIT CONTINUED THROUGHOUT THE ACCOUNTING PERIOD. THE ASSESSEE ITSELF WANTED TO INCLUDE SUCH UNEXPLAINED CASH CREDITS AS ITS INCOME FROM BUSINES S. THE HONBLE HIGH COURT HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDI NG THAT THE CASH CREDITS APPEARING IN THE BOOKS OF THE ASSESSEE SHOULD BE TR EATED AS THE INCOME OF THE ASSESSEE COMPANY FROM ITS TEA BUSINESS AND NOT AS I NCOME FROM UNDISCLOSED SOURCES. 25. THE CREDITORS IN THE ASSESSEES CASE REPRESENTE D PURCHASES. THIS WAS EVIDENT FROM THE LIST OF CREDITORS AS ALSO THE OBS ERVATIONS OF THE TRIBUNAL AND THE FINDINGS OF THE SALES TAX DEPARTMENT. THAT BE ING SO THERE WAS NO REASON FOR THE BENEFIT OF SECTION 80HHC OF THE ACT BEING NOT ALLOWED TO THE ASSESSEE. 26. IN VIEW OF THE ABOVE THE GRIEVANCE OF THE DEPA RTMENT BY WAY OF ITS APPEAL IS FOUND TO BE SHORN OF MERIT AND IS REJECT ED WHEREAS THAT OF THE ASSESSEE IS FOUND JUSTIFIED AND IS ACCEPTED AS SUCH . ITA 1995 & 1493(DEL)2011 16 27. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED WHEREAS THAT FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.09.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30.09.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR