MR. ABHIJIT SEN,KOLKATA vs. ACIT, CIRCLE - 11, KOLKATA, KOLKATA

Ground no.1 is general in nature and does not require any adjudication.

The first issue to be decided in this appeal of assessee is as to whether addition in the sum of Rs.2,10,400/- could be made towards introduction of capital in the proprietary concern of the assessee in the facts and circumstances of the case.

The brief facts of this issue are that the assessee is the proprietor of M/s. Sen Exports. During the year under appeal, the assessee introduced a sum of Rs.2,90,400/- towards capital in his proprietary concern which was duly reflected in the Balance Sheet of the proprietary concern. The Ld. AO observed that the assessee from his personal account could not explain the sources for introduction of this capital and accordingly, added the sum as unexplained cash credit u/s. 68 of the Act. During the first appellate proceedings, the Ld. CIT(A) found that the assessee has got cash balance of Rs.80,000/- which would explain the source for capital introduction in part and accordingly, confirmed the addition for the Abhijit Sen, AY 1997-98 balance sum of Rs.2,10,400/-. Aggrieved, the assessee is in appeal before us on the following ground no.2:

The ld AR argued that the assessee during the year paid a sum of Rs. 2 lac by cheque to his proprietary concern vide cheque No. 25782 dated 26.02.1997. The assessee had drawn a sum of Rs. 1 lac from his proprietary concern on 17.03.1997 vide cheque no. 72164 dated 17.03.1997. The balance sum of Rs. 1 lac remaining in the advance account in the books of proprietary concern was transferred to capital account of the assessee on 31.03.1997 by passing a journal entry. He relied on the ledger account styled as “advance account” as appearing in the books of M/s. Sen Exports for the period 01.04.1996 to 31.03.1997 in support of his argument. Accordingly, he stated that the source of Rs. 1 lac for introduction of capital in the proprietary concern stands explained. With regard to the remaining sum of Rs.1,10,400/-, the Ld. AR argued that the assessee paid salary to Mr. Suresh Menon (Rs.55,200/-) and Mr. Debasish Roy (Rs.55,200/-) who are employees of M/s. Sen Exports, on behalf of the proprietary concern which was credited to the assessee’s capital account in the books of M/s. Sen Exports by passing the following journal entry:-

He argued that the assessee being an individual/proprietor had paid salaries to two employees on behalf of his proprietary concern and the said proprietary concern had duly recognized the said payment by passing the aforesaid journal entry by due credit to capital account of the assessee. Hence, the source of Rs.1,10,400/- also stands explained. Accordingly, he argued that there is no scope for making any addition towards capital introduction in the sum of Rs.2,10,400/-. In response to this, the Ld. DR vehemently relied on the orders of the authorities below.

We have heard rival submissions and gone through facts and circumstances of the case including the material available in paper book submitted by the assessee comprising of audited financial statement of M/s. Sen Exports for the period ended 31.03.1997 including

The next ground to be decided in this appeal is as to whether the Ld. CIT(A) is justified in disallowing the payment of letter of credit purchase in the sum of Rs.4,86,741/- towards purchase of soya in the facts and circumstances of the case.

The Ld. AO observed that during the year under appeal no soya was purchased by the assessee but payment of Rs.4,86,741/- was made to M/s. Ruchi Soya Industries, Indore on account of differential price of purchase made in earlier years by the assessee. The assessee could not produce any documentary evidence in this regard but had claimed deduction u/s. 80HHC of the Act for the entire profit derived from this business in M/s. Sen Exports. The Ld. AO for want of evidence disallowed a sum of Rs.4,86,741/- in the Abhijit Sen, AY 1997-98 assessment which was also upheld by the Ld. CIT(A). Aggrieved, assessee is in appeal before us on the following ground: “3. For that a legitimate payment of Rs.4,86,741/- paid to the Bank on a/c of L/C Charges were denied as allowable expenditure which is unjust & unfair particularly as no time was intimated/provided to the Assessee/Appellant to produce such evidence before Ld. CIT(A).”

The Ld. AR argued that the nature of business of the assessee is not disputed and the profits derived from the export activity of the assessee and corresponding claim of deduction u/s. 80HHC of the Act is not disputed by the revenue. Admittedly, this payment of differential price in the case of purchase of soya made to M/s. Ruchi Industries was only in connection with its business and any disallowance made thereon would only be business income of the assessee which would automatically entitle the assessee to claim deduction u/s. 80HHC of the Act and hence, there is no question of making any addition separately on that account. In any case, no disallowance need to be made in respect of this payment as the said payment was made only towards difference in cost of purchase of soya made in earlier years which got crystallized during the year under appeal. In response to this, the Ld. DR vehemently supported the orders of the lower authorities.

We have heard rival submissions and gone through facts and circumstances of the case including the material available in paper book submitted by the assessee comprising of ledger account of Ruchi Soya Industries for the period 01.04.1996 to 31.03.1997 as appearing in the books of M/s. Sen Exports which is enclosed at page 36 of the paper book. It is not in dispute that the profits derived from M/s. Sen Exports would be eligible for deduction u/s. 80HHC of the Act. It is not in dispute that the payment of Rs.4,86,741/- made by the assessee to M/s. Ruchi Soya Industries towards additional cost of purchase of soya. This payment admittedly falls only in the nature of regular business carried on by the assessee which is eligible for deduction u/s. 80HHC of the Act. We find no documentary evidence were produced by the assessee in respect of his claim that the differential cost of purchase got crystallized only during the year under appeal. However, we find lot of force in the alternative argument of the Ld. AR that even the disallowance of Rs.4,86,741/- towards purchase of soya is to be sustained, then it would only add to the regular business income of the assessee which would in turn increase the claim of deduction u/s. 80HHC of the Act. Under these circumstances, we hold that Rs.4,86,741/- being the disallowance under the head “Income from Business” and again increase the claim of deduction u/s. Abhijit Sen, AY 1997-98 80HHC of the Act and hence, there is no scope for making separate disallowance on that account. Accordingly, we allow ground no. 3 of assessee’s appeal.

Ground no. 4 raised by the assessee is general in nature and does not require any adjudication.

In the result, the appeal of the assessee is allowed.