SUNSHINE IMPORT & EXPORTS P. LTD,MUMBAI vs. DCIT CEN CIR (42), MUMBAI

Rival contentions have been heard and record perused. Facts in brief in case of Sunshine Import & Exports Pvt. Ltd., are that during the years under consideration, the assessee company is engaged in the business of manufacture and trading in precious and semi precious stones and jewellery in the name and style of M/s Shinestar Irnpex Pvt. Ltd. The assessee company has two directors namely Mr. Paras Jain and Mr. Saurabh Garg. Assessee is mainly engaged in the import of diamonds and sales in local market to exporters who export the goods. The import of diamonds is done through custom authorities and banking channels in India. There has been a survey action u/ s 133A of the Income Tax Act, 1961 on the premises of the assessee company in the month of December, 2008 by the Investigation Wing of Mumbai. A statement of Mr. Paras Jain who was the main promoter and director of the company, was recorded wherein he has categorically stated the true business of the company. On perusal of the statement of Mr. Paras Jain, we found that he has never admitted that the company was engaged in accommodation business of purchase and sales of goods. The duties and responsibilities of both the directors are clearly demarcated and perform accordingly. Mr. Paras Jain looks after and is involved in the import, purchase and sales of diamonds from various foreign parties and local customers/suppliers for an on behalf of the company. Mr. Saurabh Garg used to look after the administration and accounting function of the company. Mr. Saurabh Garg was not aware of purchase and sales of the goods from various parties. His job was to 3 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) accomplish administrative work for the company. Mr. Saurabh Garg has neither contacted the foreign parties from whom import was made nor was he ever involved in the local purchase and sales of goods during the financial year while framing the assessment the AO assumed that the assessee is in business of providing accommodation bills. Hence, the business is not genuine and accordingly computed the adhoc commission income after rejecting books of accounts. The AO rejected the assessee’s books of account and estimated commission on purchase as well as sales. The A.O. has also treated the interest income as ‘income from other sources’. By the impugned order, the CIT(A) confirmed the action of the A.O.

At the outset the ld. AR placed on record the order of the tribunal in the case of Morewel Impex Pvt. Ltd. vs. ITO in 7799/Mum/2011 and 5640/Mum/2012, dated 14.10.2015, wherein under similar facts and circumstances the tribunal have decided the issue in favour of the assessee by holding that the A.O. was not justified in rejecting the books of account. The precise observation of the tribunal was as under: 2. In all the three years, the assessee is aggrieved by the decision of Ld CIT(A) in confirming the rejection of books of account and consequent estimation of income. 3. The facts relating to the issue cited above are stated in brief. The assessee is engaged in the business of trading in diamonds. The revenue carried out a survey operation u/s 133A of the Acton 07-07-2008 at the business premises of the assessee. The revenue also carried out survey operations in the hands of other concerns named M/s Basant Dia Jewels and M/s Mox diam. Consequent to survey operations, the ADIT (inv) recorded a statement u/s 131 of the Act from Sri Basant Jain, proprietor of M/s Basant Dia Jewels, wherein he admitted that his business concern is engaged in the business of providing accommodation entries in respect 4 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) of import/purchase and sale of diamonds. He also described the modus operandi followed in this regard. It appears that an identical statement was given by M/s Mox diam also. Certain specific replies given in the above said statements about the modus operandi followed were confronted with one of the directors of the assessee company named Shri Ramesh L Jain and he also confirmed that the statement given in the cases of M/s Basant Dia Jewels and M/s Mox diam. The said reply given by Shri Ramesh L Jain was endorsed by him in the statement recorded from him on 18.7.2008 and the same is extracted below:- "I have gone through the statement of Shri Basant D Jain recorded u/s 131 of the Income tax Act, 1961 dated 09-07-2008 duly endorsed by Shri Nitesh T Jain partner of M/s Mox Diam and I reaffirm that the modus operandi revealed and explained and discussed by Shri Basant D Jain and duly endorsed by me and Shri Nitesh T Jain, Partner of M/s Mox diam was the modus operandi adopted by us for providing accommodation bills to various interested parties in the market. I also state further that in terms of our letter dated 10/7/2008 we viz., Shri Basant D Jain and Shri Nitesh T Jain & myself individually confirmed the statement given in this regard on 09/07/2008 as being correct and true and we stand by it." Accordingly, the assessing officer entertained the view that the purchases and sales shown in the books of accounts of the assessee herein are non- existent and accordingly rejected the books of account. Accordingly the assessing officer estimated the commission income receivable on providing accommodation bills at 2% of the sales reported by the assessee for all the years under consideration. After allowing deduction of 20% towards estimated expenses, the assessing officer determined the total income of the assessee as under:- Assessment Year Returned income Assessed income 2007-08 60,858 11,00,639 2008-09 1,69,571 1,34,11,231 2009-10 (-) 10,79,210 1,33,93,130 4. In the sworn statement, Shri Basant D Jain had stated that the diamonds are imported in the name of his concern on behalf of some other dealers and sales are made on behalf of others, i.e., though the purchases and sales are carried out in the name of his concern, they are done on behalf of others. The payments made and payments received by way of cheques are compensated by way of cash. In this process, they will get commission only @ 0.2% in respect of imported diamonds and @ 0,05% in respect of locally sourced diamonds.

The assessing officer, during the course of assessment proceedings, issued commission u/s 131(d) of the Act to the Asst. Director of Income tax (Inv.), Surat in order to verify the purchases and sales recorded by the assessee. However, the Deputy Director of Income tax reported that the concerned parties are not available in the given addresses. When the report given by the Deputy Director of Investigation was confronted with the assessee, it filed the ledger account copies duly confirmed by the concerned parties, copy of acknowledgement of return of income filed by them in order to establish the genuineness of the purchase and sales transactions. However, the AO chose to reject all these documents, but placed reliance on the statement recorded from Shri Basant Jain, which was originally confirmed by Shri Ramesh L Jain. Accordingly, the assessing officer rejected the book results and estimated the income @ 2% of sales value as stated earlier, even though the commission for accommodation bills was stated as 0.20% for imported diamonds and @ 0.05% on the locally sourced diamonds.

The Ld CIT(A) held that the documents relating to concerned parties furnished by the assessee are cooked up documents, since the DDI had reported that such parties did not exist at the given addresses. Accordingly he held that the assessing officer has rightly rejected those documents. He further held that the documents furnished by the assessee are exactly as per the modus operandi admitted during the course of survey operations and statement recorded u/s 131 of the Act. Accordingly the Ld CIT(A) held that the assessing officer was justified in estimating 6 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) the commission income at 2% of the sales value. Aggrieved, the assessee has filed these appeals before us.

We have heard the parties and perused the record. A careful perusal of the record would show that the assessing officer has placed reliance on the statement given by Shri Basant Jain, proprietor of M/s Basant Dia Jewels, which was originally endorsed by the assessee. The AO has further placed reliance on the report given by the DDIT (Inv.) to the effect that the suppliers and customers of the assessee were not available in the given address. Apart from this, it is a fact that the AO has not brought on record any other material to support his conclusions.

We have earlier noticed that the director of the assessee company has retracted from the statement of confirmation given by him earlier within a period of one month by filing an affidavit. In the said affidavit, it has been clearly stated that the survey officials entered his office premises at 1.30 pm on 07-07-2008 and they left the office at 3.00 am on 09-07- 2008. Further, it was stated that he was forced to accept the nature of business carried on by the assessee as that of providing accommodation bills only. Hence, in our view, the assessing officer could not have placed reliance on the statement given by the director of the assessee for the following reasons:- (a) the survey officials are not entitled to record statement on oath during the course of survey operations u/s 133A of the Act. (see. DCIT Vs. Premsons (2009)(ITAT Mumbai) (b) the statement recorded during the course of survey operations do not have evidentiary value and hence the same cannot be used as evidence in the assessment proceedings. (see CIT Vs. Khader Khan sons (2012)(25 taxmann.com 413)(SC) (c) the assessee has retracted the statement given during the course of survey operations within one month by filing affidavit. The submissions made in the affidavit has not been found fault with. (d) The AO examined the director of the assessee u/s 131 of the Act subsequent to filing of affidavit, but the assessee has withstood by the averments made in the affidavit. The AO could not controvert submissions made in the affidavit as well as in the sworn statement. (e) During the course of survey proceedings, the officials did not find any incriminating material and the assessing officer also, during the course of assessment proceedings, did not find any defect in the books of accounts maintained by the assessee. (f) the assessing officer did not bring any material on record to substantiate the averments made during the course of survey operations.

We have considered the rival contentions and carefully gone through the order of the tribunal in the case of Morewel Impex Pvt. Ltd. (supra) wherein facts are similar to the facts of the assessee’s case. In the case of Sunshine Import & Exports Pvt. Ltd., we found that there has been a survey action u/s. 133A of the Income Tax Act, 1961 on the premises of the assessee company in the month of December, 2008 by the Investigation Wing of Mumbai. A statement of Mr. Paras Jain who was the main promoter and director of the company was recorded wherein he has categorically stated the true business of the company. On perusal of the statement of Mr. Paras Jain, you will observe that he has never admitted that the company was engaged in accommodation business of purchase and sales of goods. The company has two directors namely Mr. Paras Jain and Mr. Saurabh Garg. The duties and responsibilities of both the directors are clearly demarcated and perform accordingly. Mr. Paras Jain looks after and is involved in the import, purchase and sales of diamonds from various foreign parties and local customers/suppliers for an on behalf of the company. Mr. Saurabh Garg used to look after the administration and accounting function of the company. Mr. Saurabh Garg was not aware of purchase and sales of the goods from various parties. His job was to accomplish administrative work for the company. Mr.

It is a well settled law that statement recorded during the course of survey under section 133A has no evidentiary value unless supported by corroborative evidences. Whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law.

With regard to the nature of assessee’s business, we found that the import of diamonds undergoes appraisal process by the appraisers appointed by the custom authorities. The officers appointed by Government of India verify physically each and every parcel of diamonds in order to ascertain the quality, quantity, rate, value and place of origin visa vis declared by the importers. All the transaction of purchase, sales, import was made through cross account payee cheques and not a single payment made to any party by way of cash. All the purchase and sales transactions are carried out with reputed parties of the diamond trade and all the payment received from debtors are through cross account payee cheques and all payment made to creditors are through cross account payee cheques.

Furthermore, the AO cannot allegedly consider the imports of goods as providing accommodation bill in the market when physical delivery of goods were confirmed by the other arm of government authorities i.e. custom authorities. We found that in the regulation 16 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) of the Customs Act 1962, when the goods are imported in the country, the goods are checked and authorized by the custom officers before the goods can be taken for domestic consumption. Since, the goods have been cleared by the respective authorities and custom duty thereon has been paid, the claim of the A.O. regarding no actual import of goods is unjust.

Further, from the record we found that the assessee is mainly engaged in the imports of diamonds and sales in local markets to exporters who export the goods. The import of diamonds is done through customs authorities and banking channel in India. The import of diamonds undergoes appraisal process by the appraisers appointed by the custom authorities. The officers appointed by Government of India verify physically each and every parcel of diamonds in order to ascertain the quality, quantity, rate, value and place of origin visa vis declared by the importers. Further, all the transaction of purchase, sales, import is made through cross account payee cheques and not a single payment made to any party by way of cash. All the purchase and sales transactions are carried out with reputed parties of the diamond trade and all the payment received from debtors are through cross account payee cheques and all payment made to creditors are through cross account payee cheques. The Ld. AO cannot allegedly consider the imports of goods as providing accommodation bill in the market when physical delivery of goods were confirmed by the other arm of government authorities i.e. custom authorities. From the record we found that the sales were made to reputed exporters who are assessed to tax and their identities are known to income tax department. The customers are registered under state VAT laws. The company has received payments against sales proceeds by account payee cheques. The 17 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) company has also purchased diamonds from local parties to whom payment were made by account payee cheques. From the record we also found that to discharge the onus of proving transaction as genuine and to substantiate that all purchases and sales made are genuine the assessee have submitted following documents and submissions on time to time which was ignored by A.O. while making the reassessment: a. Copies of bank statement for the relevant years b. Ledger copies of various purchases parties for A.Y. 2008-09 and 2009-10. c. The Xerox copies of purchases invoices of parties for A.Y. 2008-09 and 2009-10. d. The relevant copies of the daily stock Register. e. Confirmation from various sale parties. f. Details of interest received from various parties. g. Details of unsecured loan along with confirmation. These documents prove that the assessee is not engaged in the issuing the accommodation bills and acting as a dummy for importing diamonds bills. Thus, the contention of the ld. AO that the bills issued by the assessee are all accommodation bill is wrong. Just on the basis of the statement recorded he cannot come to the conclusion that the assessee has issued accommodation bills and reject the books of account of the assessee.

The assessee has also filed quantitative tally of purchase of import and sales. Also maintained proper books of accounts and filed all the details before the A.O. and the CIT(A).

So far as the ground taken for reopening is concerned, we do not find any merit, as reasonable belief was framed by the A.O. on the basis of the survey. Accordingly, we uphold the reopening of the assessment.

With respect to the interest income offered by the assessee as business income, the A.O. treated the same as ‘income from other sources’. From the record we found that during the year under consideration the assessee offered interest income under business head because the assessee was getting credit period for 30 to 150 days from buyers. However, the sales proceeds are received on sale itself. Therefore the assessee has idle business funds which is used in temporary loan and balance is in bank account on the same appellant had earned income and same is offered under the business head. However, the AO assessed the same as "Income from other Source". The Ld. AO failed to consider that income arise from business fund is assessable under the business. The issue under consideration is squarely covered by the Hon’ble Bombay High Court in the case of CIT vs. Lok Holdigns [2009] 308 ITR 356 (Bom), wherein it was held that interest received on deposits made out of advance money so received by the assessee in the course of its business is liable to be taxed as ‘business income’. Furthermore, the Hon’ble Calcutta High Court in the case of Tirupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal) held that interest arising from deposits made out of business funds lying idle, is income from business and not from other sources. Consequently any expenditure relating to the business can be deducted from that.

In the case of Shine Star Impex Pvt. Ltd., wherein facts and circumstances are similar, we found that the sales were made to reputed exporters who are assessed to tax and their identities are known to income tax department. The customers are registered under state VAT laws. The company has received payments against sales proceeds by account payee cheques. The company has also purchased diamonds from local parties to whom payment were made by account payee cheques.

No doubt, the initial burden to prove that the transaction is genuine is on the assessee. However, once the assessee has discharged its duty of proving the genuineness of the transaction, the burden shifts on to the revenue to prove that the transactions are of accommodation bills. However, the Ld. AO has no material in possession to prove that the transactions of the assessee are bogus. Such has been opined by the Ld. AO on the statement recoded u/s.131 of the Act which is retracted by the assessee and a strong suspicion that the assessee is engaged in issuing of accommodation bills. The fact that suspicion however strong cannot take place of the evidence. The parties with whom assessee's trade are income tax assessee's and duly files their returns. This itself proves that the purchase as well as sale parties do exist and moreover all the transactions done with them are settled through cross account payee cheques and the same transactions are appearing in their books of accounts.

In this case also the assessee maintained books of account, quantitative details. Assessee filed all the relevant details before the Ld. AO and CIT (A): But the same is not considered. It is well settled law that when, a quantitative tally then, no addition is called for.

The reliance of law is based on the facts and evidence, rather on the assumption and presumption. Without having any fact just on the basis of statement and the presumption the Assessing Officer is not authorized to make any addition. Moreover, even the accounts of parties to whom transactions of purchase and sales are made are duly audited. Hence, by rejecting the assessee's contentions shall lead to rejecting the treatment given to the parties accounts also, an attempt to do so would be erroneous.

The action of the AO to reject the books of accounts merely on the basis of statement signed by the assessee during the survey is bad in law. There should be some valid reason to reject the books of accounts which the Income Tax Officer has not given and hence rejection of books of accounts is not justified. The assessee has got its books of accounts audited by a qualified Chartered Accountant, being one of the pre-requisites. The very purpose of getting the accounts audited by a Qualified CA is to ascertain the authenticity and reliability of the documents and in the event any discrepancy arises, the 21 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) same can be brought to the knowledge of the assessee as a consequence of which either the error apparent is rectified or the auditors vide its Audit Report makes an exclusive mention of the same to give a true and a fair picture of the business. Hence when the accounts are audited, it leads to the inference that due skill and expertise has been exercised in assessing the accounts and no material discrepancy has been noticed either on the fact of it or otherwise. By rising doubt on conduct of business and the transactions recorded therein only frustrates the very purpose of carrying/conducting Audits by qualified personnel.

So far as the disallowance of expenses are concerned, the Ld. CIT (A) confirm the rejection of books of account only on statement of another director. It is general rule that books of account cannot be rejected without finding any discrepancy in books of account. Assessee’s books of accounts are audited and no defect was founds. Hence, the books of account rejected in assessee case is unwarranted. Further, the assessee’s books are not only subject to tax audit are also audited under Maharashtra Value Added Tax, Company Act. And further the goods verified by custom authorities under Custom Law. Thus, the assessee complied with 4 laws and every department accepted the genuineness of transaction. Hence, the same cannot be set aside on mere assumption basis. After going through the various expenses so incurred by the assessee, we found the AO failed to consider that under business head expenses incurred wholly and exclusively for the purpose of business is allowable expenditure. Further, for taking excess commission rate of 2% the AO state that there is more risk involves and foreign currency is also involved. Then the AO has to allow the foreign currency loss also because it is arises due to imports and it is arises due to increase and decrease in value of currency on which assessee does 22 to 4350/Mum/2015 (A.Ys. 2008-09 & 2009-10) not have any control. Assessee has to suffer that loss. Further the expenses so incurred were in nature of business. After going through the various expenses so incurred by the assessee, we found that these are basic expenses without these businesses cannot be run. For doing business assessee need to incur bank charges, brokerages, electricity of office, office expenses salary, import expenses, foreign traveling expenses, exchange loss etc. Hence, these are required to be allowed as incurred wholly and exclusively for the purpose of business. As the facts and circumstances in case of both the assessee’s are same in both the years under consideration, following the reasoning discussed above, we set aside the orders of both the lower authorities and direct the A.O. to assess the returned income. We direct accordingly.

Respectfully following the reasoning given hereinabove in the case of Shine Star Impex Pvt. Ltd., we do not find any reason for the addition so made by the A.O. Accordingly, we set aside the orders of both the lower authorities.

In the result, the appeals of the assessee’s are allowed in part.