RAJ INTERNATIONAL LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(3)(1), MUMBAI

The brief facts of the case are that the assessee, M/s. Raj International Ltd., is a company engaged in the business of trading in yarn as a commission agent as well as on its own account and is also engaged in the business of procurement and sale of diamonds in the domestic market. For the Assessment Year 2011-12, the assessee filed its return of income on 30.09.2011 declaring a total income of ₹2,32,40,360/-.

During the course of assessment proceedings, the Assessing Officer identified four major issues viz. (i) disallowance under section 14A read with Rule 8D, (ii) computation of book profit under section 115JB of the Act in relation to deduction claimed under section 10AA, (iii) omission to offer prior period income to tax, and (iv) eligibility of deduction under section 10AA on profits arising from trading activities carried on by the SEZ unit.

The first issue examined by the Assessing Officer related to the applicability of section 14A read with Rule 8D. The Assessing Officer noticed that the assessee had earned exempt dividend income of ₹4,50,000/- during the relevant previous year. However, while computing the taxable income, the assessee had not disallowed any expenditure attributable to earning such exempt income. The Assessing Officer, therefore, asked the assessee to explain why disallowance under section 14A of the Act should not be computed in accordance with Rule 8D. According to the Assessing Officer, the assessee failed to furnish any explanation or material to show that no expenditure had been incurred in relation to the exempt income. The Assessing Officer observed that investment management necessarily requires administrative, managerial and financial efforts, irrespective of the quantum of exempt income actually earned. The Assessing Officer relied upon several judicial precedents and held that expenditure having nexus with exempt income, whether direct or indirect, must be disallowed. The Assessing Officer computed proportionate interest expenditure at ₹9,99,143/- and administrative expenditure under Rule 8D(2)(iii) at ₹4,58,122/-, amounting to a total disallowance of ₹14,57,265/-, which was added back to the total income.

The second issue pertained to computation of Minimum Alternate Tax under section 115JB of the Act. On verification of Form No. 29B, the Assessing Officer noticed that the assessee had computed book profit at ₹5,88,72,852/- after reducing ₹15,25,18,191/- being profits claimed as exempt under section 10AA of the Act, from the net profit disclosed in the profit and loss account. The Assessing Officer examined the provisions of Explanation 1 to section 115JB and the amendments introduced by the Finance Act, 2007 with effect from Assessment Year 2008-09. According to him, after omission of the earlier provisions relating to sections 10A and 10B, the profits eligible under section 10AA of the Act could no longer be reduced while computing book profit under section 115JB of the Act. The assessee relied upon section 115JB(6) of the Act and submitted that income of the SEZ unit was outside the purview of MAT. However, the Assessing Officer rejected the explanation on the ground that the same issue had already been decided against the assessee in Assessment Year 2010-11 and there was no change in the statutory provisions or factual position.

The Assessing Officer further analyzed the deduction claimed under section 10AA in respect of the assessee's SEZ unit. On analysis of the profit and loss account of the jewellery division operating in the Special Economic Zone, the Assessing Officer observed that the total profit eligible for deduction comprised of manufacturing profit of ₹14,97,45,000/- and trading profit of ₹4,05,000/-. The Assessing Officer held that under section 10AA, to mean the deduction was allowable only on profits derived from manufacture or production of articles or things or from eligible services undertaken by the SEZ unit. According to the Assessing Officer, profits arising only from trading activity did not satisfy the Statutory conditions prescribed under section 10AA. The Assessing Officer, therefore, restricted the deduction under section 10AA to ₹14,97,45,000/- being profits from manufacturing activity and disallowed the balance claim of ₹4,05,000/- attributable to pure trading activity. The Assessing Officer also disallowed the claim of brought forward unabsorbed depreciation of ₹23,68,431/- on the ground that the same had already been allowed in the immediately preceding assessment year. After incorporating all the above adjustments, the Assessing Officer assessed the income under the normal provisions at ₹2,77,40,714/-. Since the tax payable under section 115JB of the Act was higher than the tax computed under the normal provisions, the assessee was assessed on the book profit computed under section 115JB of the Act.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) noted that primarily the disputes raised before him related to (i) disallowance under section 14A, (ii) computation of book profit under section 115JB by denying exclusion of profits eligible under section 10AA, and (iii) denial of deduction under section 10AA on profits arising from trading activities.

While adjudicating the disallowance under section 14A of the Act, the Commissioner (Appeals) observed that the assessee contended that no expenditure was directly attributable to earning exempt dividend income and, accordingly, no disallowance was warranted. The Commissioner (Appeals), however, rejected this contention. He placed reliance on CBDT Circular No. 5 of 2014 dated 11.02.2014 and observed that the legislative intent behind section 14A was to disallow all expenditure attributable / relatable to exempt income irrespective of whether such exempt income had actually been earned during the relevant financial year. The CIT(Appeals) held that the Assessing Officer had correctly invoked Rule 8D and he upheld the disallowance of ₹14,57,265/- and dismissed the ground of appeal.

The Commissioner (Appeals) then examined the controversy relating to computation of book profit under section 115JB of the Act. The assessee argued that, by virtue of section 115JB(6), profits of its SEZ undertaking eligible under section 10AA could not be included in the computation of MAT. On this issue, the Commissioner (Appeals) found merit in the assessee's submissions. He relied upon the jurisdictional decision of the Mumbai Bench of the Tribunal in Genesys International Corporation Ltd. v. ACIT (151 TTJ 588), wherein it was held that during the relevant assessment years the profits of eligible SEZ units continued to enjoy exclusion from the computation of book profit under section 115JB by virtue of sub-section (6), notwithstanding the amendments made to Explanation 1. Following the binding precedent, the Commissioner (Appeals) held that the Assessing Officer was not justified in denying the benefit of section 115JB(6) of the Act. However, CIT(Appeals) clarified that such exclusion could be allowed only to the extent of profits eligible under section 10AA of the Act viz. profits derived from manufacturing activity of the SEZ unit. Accordingly, the Assessing Officer was directed to recompute the book profit after allowing exclusion of manufacturing profits eligible under section 10AA of the Act. Thus, this ground of appeal was partly allowed by CIT(Appeals).

On the final issue concerning deduction under section 10AA of the Act on trading profits, the Commissioner (Appeals) agreed with the findings of the Assessing Officer. The CIT(Appeals) observed that despite adequate opportunities during assessment as well as appellate proceedings, the assessee failed to produce evidence to demonstrate that the trading activity undertaken by the SEZ unit was an eligible service. The Commissioner (Appeals) further noticed that even the tax audit report in Form 3CD did not disclose re-export or trading of imported goods as the nature of business carried on by the assessee. In the absence of any material showing that such trading activity was within the ambit of eligible services under the Special Economic Zones framework, the CIT(Appeals) held that the trading profit of ₹4,05,000/- not quality as profit derived from eligible operations of the SEZ undertaking. The CIT(Appeals) confirmed the disallowance made by the Assessing Officer under section 10AA of the Act.

There is, in substance, only one effective ground raised by the Revenue. Although the Department has framed four separate grounds, they all revolve around the same controversy, namely, whether the learned CIT(A) was justified in directing the Assessing Officer to exclude the profits of the assessee's SEZ manufacturing unit, eligible for deduction under section 10AA, while computing book profit under section 115JB of the Income-tax Act. The Revenue's grievance is that, in view of the amendments made by the Finance Act, 2007 and the subsequent withdrawal of the exemption under section 115JB(6) by the Finance Act, 2011, profits eligible for deduction under section 10AA cannot be excluded from book profit for the purposes of Minimum Alternate Tax.

The Ld. Departmental Representative has contended that after the amendments brought about by the Finance Act, 2007 in Explanation 1 to section 115JB, profits eligible for deduction under section 10AA of the Act were liable to be included while computing book profit and the learned CIT(A) erred in granting relief by relying upon the decision of the Mumbai Bench of the Tribunal in Genesys International Corporation Ltd. v. ACIT (2013) 151 TTJ 588 (Mum.). The Ld. Departmental Representative further contended that the Finance Act, 2011 withdrew the benefit available under section 115JB(6) of the Act and, therefore, the assessee was not entitled to exclusion of SEZ profits from MAT computation.

We are unable to accept the aforesaid contention advanced by the Revenue. The assessment year before us is Assessment Year 2011-12. For the year under consideration, section 115JB(6)of the Act, as it then stood, specifically provided that the provisions of section 115JB of the Act would not apply to the income accrued or arising to an entrepreneur or developer from any business carried on in a Special Economic Zone. The Statutory exemption contained in sub-section (6) was operational during Assessment Year 2011-12.

The Finance Act, 2011 withdrew this exemption with effect from 01.04.2012, i.e., from Assessment Year 2012-13 onwards. Thus, the Legislature itself consciously made the withdrawal prospective. Had Parliament intended to deny the benefit even for Assessment Year 2011-12, there would have been no necessity to specifically amend section 115JB(6) of the Act prospectively. It is a settled principle that where an exemption is withdrawn prospectively, the benefit continues to remain available till the date from which the amendment becomes effective.

The precise controversy stands decided by the decision of the jurisdictional Mumbai Bench of the Tribunal in Genesys International Corporation Ltd. v. ACIT (2013) 151 TTJ 588 (Mum.), wherein, after considering both the amendments made to Explanation 1 to section 115JB as well as the provisions of section 115JB(6) of the Act, Mumbai ITAT categorically held that profits of SEZ were outside the ambit of Minimum Alternate Tax during the period for which section 115JB(6) of the Act remained on the Statute book. The Tribunal further held that the withdrawal of the exemption by the Finance Act, 2011 operated only prospectively and, therefore, the profits of eligible SEZ units could not be brought to tax under section 115JB of the Act for the earlier assessment years. The facts before us are identical and the assessment year involved is also prior to the effective date of withdrawal of the exemption.

The view taken in Genesys International Corporation Ltd. (supra) has consistently been followed by the Mumbai Benches of the Tribunal while dealing with Assessment Years preceding A.Y 2012-13, and have held that the benefit under section 115JB(6) could not be denied till its statutory withdrawal by the Finance Act, 2011. In G. Jewelcraft Ltd. vs. Income-tax Officer [2015] 56 taxmann.com 192 (Mumbai), the Mumbai ITAT held that for assessment year 2009-10, income of units located in Special Economic Zone will not be included while computing book profit as per section 115JB(6) of the Act.

We are of the considered view that the Revenue's reliance upon the amendment brought by the Finance Act, 2011 is incorrect since the amendment itself has been made effective only from 01.04.2012.

Accordingly, we are of the considered view that the learned CIT(A) has correctly appreciated the Statutory scheme prevailing during Assessment Year 2011-12 and has rightly followed the binding decision of the jurisdictional Tribunal in Genesys International Corporation Ltd. (supra). We do not find any legal or factual infirmity in the conclusion arrived at by the learned CIT(A).

In the result, the appeal filed by the Department is dismissed.

The assessee has raised the following Grounds of Appeal

On the issue of disallowance of Rs.14,57,265 made under section 14A read with Rule 8D of the Income-tax Rules, the undisputed factual position emerging from the record is that during the year under consideration the assessee has earned exempt dividend income of only Rs.4,50,000, whereas the Assessing Officer has computed the disallowance under section 14A at Rs.14,57,265 by applying Rule 8D, which has been sustained by the learned CIT(A).

It is now a well-settled proposition of law that the disallowance under section 14A cannot exceed the amount of exempt income earned during the relevant previous year. The Hon'ble Delhi High Court in PCIT v. Caraf Builders & Constructions (P.) Ltd.[(2019) 414 ITR 122 (Delhi)] held that where the exempt income earned by the assessee is lower than the disallowance computed under Rule 8D, the disallowance has to be restricted to the amount of exempt income. Notably, Hon'ble Supreme Court dismissed the SLP filed by the Department against High Court reported inPrincipal Commissioner of Income-tax-2 vs. Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC)/[2020] 268 Taxman 317 (SC)[30-08-2019]. In Assistant Commissioner of Income-tax vs. NDL Ventures Ltd. [2026] 185 taxmann.com 49 (Mumbai - Trib.)[27-03-2026], the Mumbai ITAT held that where assessee earned exempt income and made suo motu disallowance under section 14A, and Assessing Officer computed higher disallowance under Rule 8D, disallowance could not exceed exempt income and restriction by Commissioner (Appeals) was justified. The Hon'ble Madras High Court in CIT v. Chettinad Logistics (P.) Ltd.[(2017) 80 taxmann.com 221 (Mad.)], affirmed by the Hon'ble Supreme Court by dismissal of the Special Leave Petition reported in [(2018) 95 taxmann.com 250 (SC)], has also recognized that the disallowance under section 14A cannot be made beyond the exempt income earned by the assessee.

Respectfully following the above judicial precedents, which lay down the settled legal position on the issue, we hold that the disallowance under section 14A read with Rule 8D cannot exceed the exempt dividend income earned by the assessee during the relevant assessment year. Since the assessee has admittedly earned exempt income of only Rs.4,50,000 during the year, the disallowance sustained at Rs.14,57,265 is not sustainable in law.

Accordingly, we direct the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D to the amount of exempt income of Rs.4,50,000.

Accordingly, this Ground of Appeal raised by the assessee is allowed.

Ground Nos. 3 to 3.3 : Disallowance of deduction under section 10AA in respect of trading activity amounting to Rs.4,05,000/-

We have heard the learned Departmental Representative and perused the material available on record. It is noticed that despite grant of repeated opportunities, none appeared on behalf of the assessee. No adjournment application has been filed. We are, therefore, constrained to dispose of this ground on the basis of the material available on record.

The brief facts relating to this ground are that during the course of assessment proceedings, the Assessing Officer examined the assessee's claim of deduction under section 10AA of the Act in respect of trading activities undertaken through its SEZ unit amounting to Rs.4,05,000/-. The assessee contended that apart from manufacturing activities, it was also engaged in trading activities involving import and subsequent re-export of goods from the SEZ unit and such trading activity was also eligible for deduction under section 10AA of the Act. The Assessing Officer, however, was not satisfied with the same. He observed that although the assessee relied upon approvals granted by the SEZ authorities and certain documentary evidence, the assessee failed to establish by cogent material that any genuine trading activity had actually been carried out during the relevant previous year. The Assessing Officer found that the documentary evidence furnished was not sufficient to demonstrate actual trading operations and, accordingly, disallowed the deduction claimed in respect of trading activities.

Aggrieved, the assessee carried the matter in appeal before the learned CIT(Appeals). The learned CIT(Appeals), after considering the submissions of the assessee observed that although trading activity may, in law, qualify for deduction under section 10AA of the Act subject to fulfillment of the prescribed conditions, the primary requirement is that the assessee must establish by credible evidence that such eligible trading activity was in fact carried out during the relevant previous year. On appreciation of the material on record, the learned CIT(Appeals) concurred with the findings of the Assessing Officer that the assessee had failed to produce satisfactory evidence demonstrating actual trading operations undertaken from the SEZ unit and, therefore, the assessee had failed to establish its entitlement to deduction under section 10AA. The disallowance of Rs.4,05,000/- was accordingly confirmed.

We have considered the findings recorded by the authorities below. Despite repeated opportunities granted by this Tribunal, the assessee has chosen not to appear and no material has been placed before us to controvert the concurrent factual findings recorded by the Assessing Officer and affirmed by the learned CIT(Appeals). It is well settled that the burden to establish fulfilment of the statutory conditions for claiming a deduction or exemption under the Act rests upon the assessee. The Hon'ble Supreme Court in Commissioner of Customs v. Dilip Kumar & Co. [(2018) 95 taxmann.com 327 (SC); (2018) 9 SCC 1] has held that the burden to establish entitlement to an exemption lies upon the claimant and the conditions prescribed by the statute must be strictly complied with. Merely because trading is recognized as a permissible activity under the Special Economic Zones Act or the relevant instructions issued thereunder does not automatically entitle an assessee to deduction under section 10AA unless the assessee satisfactorily establishes that such eligible activity was actually carried on during the relevant previous year and the statutory requirements are fulfilled.

In the present case, the concurrent finding of fact recorded by both the Assessing Officer and CIT(Appeals) is that the assessee failed to substantiate the actual conduct of eligible trading activities supported by documentary evidence. In the absence of any rebuttal before us and no material having been brought on record to demonstrate that the findings recorded by the learned CIT(Appeals)

Accordingly, we uphold the order of the learned CIT(Appeals) confirming the disallowance of deduction under section 10AA amounting to Rs.4,05,000/- in respect of the alleged trading activities.

The ground raised by the assessee is, therefore, dismissed.

In the result, appeal of the assessee is partly allowed for assessment year 2011-12.

Pursuant to the directions of the Tribunal, the Assessing Officer initiated the set-aside proceedings and asked the assessee to substantiate that it had actually carried out eligible manufacturing or trading activities in the SEZ unit during the relevant previous year. The assessee furnished copies of approvals granted by the SEZ authorities, electricity and water bills, import and export invoices, purchase and sales registers, Form No. 56F and other documents. However, the Assessing Officer observed that the material produced did not establish that any genuine manufacturing or eligible trading activity had been carried out by the assessee during the year under consideration. According to the Assessing Officer, the electricity and water consumption was insignificant and inadequate for a genuinely operational manufacturing unit, the assessee failed to produce evidence regarding deployment of employees or labour, statutory operational records and other documents ordinarily expected from a functioning SEZ unit, and the sample import and export invoices were also insufficient to prove that any actual business operations had been carried out. The Assessing Officer, therefore, held that the assessee had failed to establish that it had carried on any eligible activity in the SEZ unit during the relevant previous year and accordingly disallowed the deduction claimed under section 10AA of the Act. Further, the Assessing Officer observed that the assessee had shown long outstanding trade payables aggregating to Rs. 6,39,80,954/- pertaining to 12 creditors. Pursuant to the directions of the Tribunal in the earlier round, the AO asked the assessee to furnish age-wise details of the creditors, confirmations from the creditors, bank statements evidencing payments, details regarding continuation of business with such creditors and other supporting documents. According to the AO, despite repeated opportunities and issuance of ………………… notices under sections 142(1) and 133(6) of the Act, the assessee failed to produce satisfactory evidence. The AO further noted that notices issued under section 133(6) of the Act showed that certain parties did not reflect corresponding outstanding balances in their books and many liabilities had remained unpaid for a prolonged period without any part payment or communication from the creditors demanding payment. The AO was of the view that the liabilities had become fictitious or had ceased to exist and that the assessee had already obtained deduction of the corresponding purchases in earlier years. Relying upon section 41(1) of the Act and in light of judicial precedents on the subject, the AO held that the outstanding liabilities had ceased and accordingly treated Rs. 6,39,80,954/- as income under section 41(1) of the Act on account of cessation of trading liability.

Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), however, was not convinced by the submissions canvassed by the assessee. The CIT(A) observed that despite adequate opportunity granted by the Assessing Officer in compliance with the directions of the Tribunal, the assessee had merely produced approvals and paper documentation without anything to show that that any actual manufacturing or trading activity eligible for exemption had been carried out in the SEZ unit during the relevant previous year. The CIT(Appeals) concurred with the findings of the Assessing Officer that the documentary evidence relied upon by the assessee was not sufficient to prove any genuine business operations and the assessee had failed to discharge the burden cast upon it to prove its eligibility for deduction under section 10AA. The CIT(Appeals) held that the Assessing Officer had passed a reasoned order after proper enquiry and appreciation of the material available on record, and accordingly he confirmed the disallowance of deduction under section 10AA and dismissed the grounds raised by the assessee. On the issue of cessation of liability u/s 41(1) of the Act, the CIT(Appeals) observed that despite adequate opportunities granted both by the Assessing Officer and during appellate proceedings, in accordance with the Tribunal's earlier directions, the assessee failed to furnish the essential evidences requisitioned for viz. confirmations from the creditors, bank statements evidencing payment to the creditors, or material demonstrating that the creditors continued to exist and were carrying on business. The CIT(A) held that the assessee's submissions were merely academic and general in nature, such as stating that the assessee intended to honour its liabilities, but these were not supported by documentary evidence proving the genuineness and continued existence of the liabilities. It was further observed that the assessee could not satisfactorily explain the existence of the twelve old creditors amounting to Rs. 6,39,80,954/-. The CIT(Appeals) held that the assessee had failed to discharge the burden cast upon it even after ample opportunity, the CIT(A) found no infirmity in the Assessing Officer's action and held that the addition under section 41(1) invoking the deeming provisions relating to cessation of trading liability was justified. Consequently, the addition of Rs. 6,39,80,954/- was confirmed and the ground of appeal was dismissed.

The assessee is in appeal before us against the order passed by the learned CIT(A).

We have heard the learned Departmental Representative and carefully perused the material available on record. It is noticed that despite issuance of notices and grant of repeated opportunities of hearing, none appeared on behalf of the assessee. No request for adjournment has also been received. We are, therefore, constrained to proceed and dispose of the appeal on the basis of the material available on record and after considering the orders of the authorities below.

We have carefully examined the assessment order, the impugned order of the learned CIT(Appeals) and the material placed on record. We find that this issue had earlier been restored by the Coordinate Bench of Tribunal to the file of the Assessing Officer with a specific direction to conduct proper enquiry regarding the actual carrying on of eligible manufacturing or trading activities in the SEZ unit. Pursuant to such directions, the Assessing Officer afforded adequate opportunities to the assessee and specifically required it to establish that the SEZ unit was carrying on eligible activities during the relevant previous year. The Assessing Officer has recorded detailed findings that except for production of statutory approvals, Form No.56F, certain electricity and water bills and sample import and export invoices, the assessee failed to establish that any actual manufacturing or eligible trading activity was carried out in the SEZ unit. The Assessing Officer has further observed that the electricity and water consumption was negligible, there was no evidence regarding deployment of employees or labour, no statutory operational records of a functioning manufacturing unit were produced and no evidence was furnished to demonstrate actual manufacturing or trading operations. These findings have been independently examined by the learned CIT(Appeals), who has concurred with the Assessing Officer after recording that the assessee had merely produced paper documentation without establishing any real business activity in the SEZ unit.

Before us also, despite repeated opportunities, the assessee has chosen not to appear and no material has been placed on record to controvert the concurrent findings recorded by the authorities below. It is a settled proposition that the burden of proving fulfilment of the statutory conditions for claiming deduction or exemption under the Act rests squarely upon the assessee. The Hon'ble Supreme Court in Commissioner of Customs v. Dilip Kumar & Co. [(2018) 95 taxmann.com 327 (SC); (2018) 9 SCC 1] has authoritatively held that exemption provisions are required to be construed strictly and the burden to establish eligibility lies upon the person claiming the benefit. Similar principles have been reiterated in Novopan India Ltd. v. CCE [(1994) 73 ELT 769 (SC)] and State of Jharkhand v. Ambay Cements [(2005) 1 SCC 368], wherein it has been held that unless the assessee strictly satisfies all statutory conditions, the benefit of exemption cannot be granted.

In the present case, the assessee has failed to produce any cogent material demonstrating that the SEZ unit was actually engaged in eligible manufacturing or trading activities during the relevant previous year. The concurrent findings recorded by the Assessing Officer and affirmed by the learned CIT(Appeals) are findings of fact based upon appreciation of evidence. No material has been brought before us to demonstrate that such findings are perverse or contrary to the record. In the absence of any rebuttal by the assessee, we find no infirmity in the order passed by the learned CIT(Appeals). Accordingly, we uphold the order of the learned CIT(Appeals) confirming the disallowance of deduction claimed under section 10AA of the Act.

We have also carefully considered the addition made under section 41(1) of the Act. We find that this issue was also restored by the Tribunal to the file of the Assessing Officer with specific directions to verify the age-wise details of creditors, confirmations from the creditors, movement in the accounts, evidence of payments, continuity of business and other relevant material. Pursuant to the directions of the Tribunal, the Assessing Officer issued notices under sections 142(1) and 133(6) of the Act and granted sufficient opportunity to the assessee to establish the continued existence of the liabilities. The Assessing Officer has recorded that despite repeated opportunities, the assessee failed to furnish confirmations from the creditors, bank statements evidencing subsequent payments or any other satisfactory material to establish that the liabilities were genuine and subsisting. The enquiries conducted under section 133(6) of the Act further revealed that corresponding balances were not reflected in the books of certain creditors and many liabilities had remained outstanding for years without any movement. On these facts, the Assessing Officer treated the outstanding amount of Rs.6,39,80,954/- as cessation of liability under section 41(1) of the Act.

The learned CIT(Appeals), after independently examining the record, has observed that even during appellate proceedings the assessee failed to produce confirmations from the creditors, bank statements or any evidence to establish the existence of the liabilities. The learned CIT(Appeals) has further recorded that the assessee merely made general submissions that the liabilities continued to exist but failed to substantiate the same by any documentary evidence. Accordingly, the learned CIT(Appeals) confirmed the addition.

Before us also, no one has appeared on behalf of the assessee and no material has been placed on record to disturb the factual findings recorded by the authorities below.

The Assessing Officer, in compliance with the directions of the Tribunal, conducted detailed enquiries and afforded adequate opportunities to the assessee to establish the genuineness and continued existence of the liabilities. Despite such opportunities, the assessee failed to produce even the basic documentary evidence such as confirmations from the creditors, evidence of subsequent payments or any material establishing that the liabilities were enforceable and subsisting. The enquiries conducted under section 133(6) of the Act also did not support the assessee's claim. Thus, the addition has not been made merely because the liabilities were old but because, after detailed verification, the assessee failed to establish their continued existence despite the specific directions issued by the Tribunal.

The burden to establish that a liability continues to subsist after such enquiries squarely rested upon the assessee. Having failed to discharge that burden either before the Assessing Officer, before the learned CIT(Appeals) or even before us, the assessee cannot seek interference with the concurrent findings of fact recorded by the Tax authorities. In these facts, we find no infirmity in the conclusion arrived at by the learned CIT(Appeals) confirming the addition under section 41(1) of the Act.

On the issue of addition under section 68 of the Act amounting to ₹157,22,21,088/-, the Assessing Officer observed that during the original assessment proceedings notices under section 133(6) of the Act, were issued to 32 sundry creditors appearing under the Fabric Division. Based on the replies received, the Assessing Officer found that in the books of several of those creditors, certain concerns shown as creditors were, in fact, debtors of the assessee. According to the Assessing Officer, this showed a circular pattern of transactions demonstrating that the liabilities shown as sundry creditors were mere accommodation entries and not genuine trade liabilities. In the first round of litigation, the Hon'ble Tribunal restored the issue to the file of the Assessing Officer with a direction to conduct a de novo enquiry in accordance with law. Pursuant thereto, fresh notices under section 133(6) of the Act were again issued to certain creditors asking for details regarding their own creditors and other supporting information. The Assessing Officer observed that neither the creditors furnished the requisite details nor did the assessee produce any fresh documentary evidence to rebut the findings recorded in the original assessment proceedings. The Assessing Officer further observed that the assessee failed to establish the identity of the creditors, their creditworthiness and the genuineness of the transactions. Relying upon the material gathered during the original as well as the set-aside proceedings and holding that the assessee had failed to discharge the burden cast upon it under section 68 of the Act, the Assessing Officer treated twenty-one creditors aggregating to ₹157,22,21,088/- as non- genuine and added the said amount to the income of the assessee under section 68 of the Act.

In appeal, the CIT(A) upheld the addition. The CIT(A) observed that despite adequate opportunities granted during the set-aside proceedings, the assessee failed to produce any satisfactory evidence to establish the genuineness of the impugned creditors or to controvert the findings recorded by the Assessing Officer. The CIT(A) noted that even after the matter had been restored by the Tribunal specifically for conducting a proper enquiry, the assessee could not furnish material establishing the identity and creditworthiness of the creditors or the genuineness of the transactions. The CIT(A), therefore, held that the Assessing Officer was justified in invoking section 68 of the Act and confirmed the addition of ₹157,22,21,088/-.

We find that the issue had already been restored by the Coordinate Bench of Tribunal to the file of the Assessing Officer with specific directions to carry out a proper enquiry. Pursuant thereto, the Assessing Officer afforded adequate opportunity to the assessee and also made independent enquiries by issuing notices under section 133(6) of the Act. Despite such opportunity, the assessee failed to place any cogent evidence to establish the genuineness of the impugned creditors or to rebut the findings recorded by the Assessing Officer. Even before us, no fresh documentary evidence has been brought on record to demonstrate that the findings recorded by the Assessing Officer and affirmed by the CIT(A) are factually incorrect or legally unsustainable. The burden to establish the identity of the creditors, their creditworthiness and the genuineness of the transactions squarely rests upon the assessee under section 68 of the Act, and in the present case the assessee has failed to discharge the said burden. We further find that the CIT(A) has examined the issue in detail and has confirmed the addition after considering the material brought on record during the assessment proceedings. We do not find any infirmity in the well-reasoned findings recorded by the CIT(A), nor has any material been placed before us warranting interference with the same. Accordingly, we uphold the order of the CIT(A) confirming the addition of ₹157,22,21,088/- made under section 68 of the Act. The ground raised by the assessee on this issue is therefore dismissed.

Accordingly, we uphold the order of the learned CIT(Appeals) confirming (i) the disallowance of deduction under section 10AA of the Act amounting to Rs.14,84,78,993/-; (ii) the addition of Rs.6,39,80,954/- made under section 41(1) of the Act; & (iii) Addition of Rs. 157,22,21,088/- u/s 68 of the Act.

All the grounds raised by the assessee are, therefore, dismissed.

In the combined result, the appeal of the Department is dismissed and the appeals of the assessee are partly allowed.