M/S A.K. EXPORTS,,LUDHIANA vs. ITO,, LUDHIANA

DEPB and duty drawback. These remittances were nothing but unaccounted money of the assessee. Therefore, the receipts were to be treated as cash credit u/s 68. 3.3 The value of FOB export was Rs.179.97 Lacs which was added u/s 68. The Ld. AO estimated expenditure of 6% against the same and made another addition u/s 69C for Rs.10.79 Lacs. The assessee received duty drawback of Rs.27.60 Lacs which was also considered as assessee’s income. Since no manufacturing activity was carried out, deduction u/s 80IB was denied to the assessee. 3.4 In AY 2005-06, similar assessment was framed u/s 143(3) on 31- 12-2007. The Ld. AO added peak credit of foreign remittances for Rs.360.39 Lacs u/s 68 along with estimated unaccounted expenditure of 6% of total foreign remittances of Rs.724.41 Lacs. The assessee reflected misc. Income of Rs.153.91 Lacs which primarily in the nature of DEPB, Duty drawback and CENVAT credit which was considered as other income. The trading results of indirect export, local sales and dyeing charges were rejected and profit of 5% was estimated on these receipts of Rs.122.73 Lacs which led to another addition of Rs.6.13 Lacs in the hands of the assessee. The total income was thus proposed at Rs.563.91 Lacs. This assessment was on the basis of show cause notices issued by DRI. The Ld. AO also proceeded to make alternative protective addition on returned income. The Ld. AO made disallowance u/s 40(a)(ia) for Rs.239.76 Lacs for non-deduction of TDS on labor job work charges. Even if TDS was not required to be deducted on these payments, the expenditure was to be disallowed since the assessee could not substantiate the same with documentary evidences. On the business receipts, business income was estimated at 5%. The misc. income of Rs.153.91 Lacs was actual receipt and was to be taxed as such. The Ld. AO proposed disallowance of Rs.0.20 Lacs u/s 36(1)(va). TDS on job work payment of Rs.2.24 Lacs was paid laid and accordingly, the amount of Rs.2.24 Lacs was also disallowed u/s 40(a)(ia). The total income was thus proposed to be computed at Rs.432.41 Lacs. Finally, the income was assessed at higher figure of Rs.563.91 Lacs which was subjected to first appeal by the assessee. 3.5 In AY 2006-07, similar assessment was framed u/s 143(3) on 30- 12-2008. The Ld. AO added peak credit of foreign remittances for Rs.32.96 Lacs u/s 68 along with estimated unaccounted expenditure of 6% of total foreign remittances of Rs.32.96 Lacs. The assessee reflected misc. Income of Rs.15.58 Lacs which primarily in the nature of DEPB, Duty drawback and CENVAT credit which was considered as other income. The trading results of indirect export, local sales and dyeing charges were rejected and profit of 5% was estimated on these receipts of Rs.184.08 Lacs which led to another addition of Rs.9.20 Lacs in the hands of the assessee. Another addition of Rs.238.24 Lacs was made for direct and indirect exports, the proceeds of which were received in unknown bank accounts. The total income was thus proposed at Rs.297.97 Lacs. This assessment was on the basis of show cause notices issued by DRI.

The Ld. AO also proceeded to make alternative protective addition on returned income. The Ld. AO estimated business income of 5% on trading receipts for Rs.244.70 Lacs. The misc. income of Rs.15.58 Lacs was actual receipt and was to be taxed as such. The Ld. AO proposed disallowance of Rs.0.17 Lacs u/s 36(1)(va). The total income was thus proposed to be computed at Rs.27.99 Lacs. Finally, the income was assessed at higher figure of Rs.297.97 Lacs which was subjected to first appeal by the assessee. 3.6 In AY 2007-08, similar assessment was framed u/s 143(3) on 29- 12-2009. The Ld. AO added foreign remittances of Rs.305.11 Lacs u/s 68 which was allegedly routed through three other group entities. The unaccounted expenditure was estimated at 6%. The misc. income of Rs.27.88 Lacs was taxed as such. The trading income was estimated at 5%. The total income was thus proposed at Rs.355.82 Lacs. This assessment was on the basis of show cause notices issued by DRI. The Ld. AO, in the alternative, on protective basis, disallowed bad debt claim for Rs.111.83 Lacs since sales were bogus. The Ld. AO proposed disallowance of Rs.0.44 Lacs u/s 36(1)(va). The assessee returned loss of Rs.70.98 Lacs. After proposed additions, the income was computed at Rs.15.28 Lacs. Finally, the income was assessed at higher figure of Rs.355.82 which was subjected to first appeal by the assessee. Appellate Proceedings 4. For AY 2002-03, the assessee assailed the validity of reassessment proceedings and quantum additions on merits. The Ld.

CIT(A), in para-8, noted that the entire assessment was based on alleged discrepancies as found by DRI as contained in the show- cause notice as issued by that authority. However, except for issuance of show-cause notice, no action was taken by that authority despite lapse of six years from the date of search. The show-cause notice was not taken to its logical end by completing the adjudicating proceedings to raise the demand against the assessee despite the directions of jurisdictional High Court to expedite the proceedings. The assessee also relied on copy of Panchnama drawn on 29-09-2004 when the customs department inspected the assessee’s factory evidencing manufacturing as done by the assessee. The independent evidence as collected by the customs department could not be brushed aside as irrelevant. The Ld. AO proceeded to complete the assessment without carryingout any independent investigation to bring on record any evidence to confirm the allegations as contained in the show-cause notice as issued by DRI. The addition was made u/s 68 without verifying the source of the remittance or without giving opportunity to the assessee to do so. The 90% of export proceeds were received through letter of credits which were opened before the goods were exported and backed by bankers of both the exporter as well as the purchaser. The allegations of DRI were yet to be established. The creditworthiness of the person making the payment, incase of L/C, was very clear from the banking transactions itself since only on the basis of parties’ credentials, the L/Cs would be opened by customer’s bankers. Except for allegation in the show-cause notice, there was no material before AO to hold that the exports were bogus and all the foreign remittances were unaccounted and towards bogus exports. The decision of Hon’ble High Court of Madras in the case of Vignesh Kumar Jewellers (180 Taxman 18) was referredto which was stated to be rendered on similar facts. Accordingly, the addition made by Ld. AO u/s 68 and consequential estimation of expenditure was deleted. The addition of Rs.27.60 Lacs was deleted since the same was duly disclosed by the assessee in the financial statements. The findings in Panchnama dated 29-09-2004 would establish that the assessee carried out manufacturing activities. The deduction u/s 80-IB was allowed in earlier years. In this year, no such deduction was claimed by the assessee. Accordingly, this addition was also deleted. Aggrieved as aforesaid, the revenue is in further appeal before us.

Our findings and Adjudication 8. It is quite clear that the whole basis of impugned assessments is the show-cause notices issued by DRI pursuant to search action on the assessee by that authority on 18-03-2005. The Ld. AO has primarily relied upon the show-cause notices issued by DRI and framed the assessments based on the allegations as contained therein. The appellate orders have decided majority of the issues in assessee’s favor primarily on the ground that no independent investigation was ever carried out by Ld. AO while framing the assessments. It is trite law that no addition could be made on the basis of presumptions, conjectures and surmises. The Hon’ble High Court of Madras in the case of Vignesh Kumar Jewellers (180 Taxman 18), observed that the additions were made only by relying on the findings of the custom authorities and the said findings, which were the basis for making additions, were set aside by the appellate authority. The Assessing Officer had not made any independent enquiry and also there was no corroborating evidence to support the case of the revenue. It was also found that even the assessee, whose statement was recorded by the Department of Central Excise, had not been examined by the Assessing Officer. Further, the assessee was not given an opportunity to cross-examine them. Therefore, both the authorities were correct in deleting the additions made by the Assessing Officer. The findings given by the authorities were based on valid materials and evidence and it was a question of facts and not perverse. Further, the revenue had not produced any material evidence to take a view contrary to that of the Tribunal. Hence, there was no error or illegality in the order of the Tribunal warranting interference. The order of the Tribunal was in accordance with law and the same was to be confirmed.