Delhi High Court

Cit vs Pearl Intercontinental on 6 August, 2013

Author: Sanjiv Khanna

$~28.
*       IN THE HIGH COURT OF DELHI AT NEW DELHI
+                   INCOME TAX APPEAL NO. 1545/2010
                                          Date of decision: 6th August, 2013
        CIT
                                                               ..... Appellant
                              Through Mr. Abhishek Maratha, Sr. Standing
                              Counsel.

                              versus

        PEARL INTERCONTINENTAL
                                                             ..... Respondent

Through Nemo.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL):

This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961 (Act, for short) emanates from order dated 13 th August,

2009 passed by the Income Tax Appellate Tribunal (tribunal, for short)

in the case of Pearl Intercontinental Limited and relates to Assessment

Year 1994-95.

2. By order dated 16th August, 2011, the following two questions of

law were framed:-

"1. Whether the Tribunal was justified in law deleting the addition of Rs.82,73,328/- made by the Assessing Officer by treating the exports to M/s. Taj

AL Khaleej General Trading Company, Dubai as bogus and consequentially treating the income to the assessable as "income from other sources"?

2. Whether on the facts and in the circumstances of the present case, Tribunal was correct in law in deleting the addition of Rs.59.87 lacs made by the Assessing Officer u/s. 69C of the Act on account of unexplained expenditure, incurred by assessee in respect of manufacturing activity carried out by M/s. MS Shoes East Ltd. for and on behalf of the assessee."

3. The first question is factual and relates to whether or not the

assessee had made exports to Taj AL Khaleej General Trading

Company, Dubai and whether the sale proceeds amounting to

Rs.82,73,328/- were genuine or bogus.

4. The Assessing Officer in the assessment order dated 31 st March,

2000 has stated that the Sheikh to whom alleged supplies were made

was not produced by the respondent-assessee for cross-examination to

check authenticity and veracity of the Sheikh's affidavit dated 13 th

January, 1997 and contents of letter dated 31st March, 1999 received

from the office of Director General of Foreign Trade. He held that the

sales made to Taj AL Khaleej General Trading Company were not

genuine. We note that similar additions on sales to Taj AL Khaleej

General Trading Company, Dubai were made for the earlier

Assessment Years 1993-94, but were deleted by the tribunal in the case

of the assessee and in the case of sister concerns of the assessee.

Revenue had preferred appeals in the said cases before the High Court.

The High Court dismissed these appeals by a detailed order dated 28th

September, 2012 holding that the factual findings recorded by the

tribunal were not perverse. The decision of the High Court dated 28th

September, 2012 is in ITA No. 999/2006 in the case of M/s M.S.

International Limited, ITA No. 210/2007 in the case of M/s M.S. Shoes

East Limited and ITA No. 575/2007 in the case of M/s Pearl

Intercontinental Limited.

5. This decision is applicable to the present year also. The High

Court while disposing of the appeal has referred to various

documentary evidence, which were filed before the Assessing Officer,

which prove that in fact transaction had taken place and was genuine.

These included original bank certificate from UAE showing bills

received by the said bank drawn on the importer and the fact that the

respondent-assessee was paid, export orders were confirmed by the

importer and the original statement showing credit limit of the importer

issued by Export Credit Guarantee Corporation of India etc. The

Sheikh had also explained the reason why he had earlier made a

different statement. In view of the aforesaid position, we answer the

first question in favour of the respondent-assessee and against the

appellant-Revenue holding that the findings recorded by the tribunal do

not require any interference on the ground that they are perverse.

6. On the second question, we find that the assessment order is

cryptic. The findings recorded therein read as under:-

"In the original assessment the assessee claimed to have manufactured soles for its sister concern. In the year under consideration also, the assessee has claimed to have manufactured 29,93,999 pairs of PVC soles. In the assessment order for assessment year 1993-94, the manufacturing cost of PVC soles have been worked out at Rs.2/- per pair. Taking this into consideration manufacturing cost for this year is Rs.59,87,998/-. Since the assessee has failed to furnish any evidence in support of its contention that it has utilised the machinery of its sister concern i.e. MS Shoes East Ltd also as it is not supported by evidence its contention is not acceptable. But it is also a fact that the company have incurred manufacturing expenses which was not accounted in its books. Therefore, an addition of Rs.59,87,998/- is being made to the income of the assessee."

7. Commissioner of Income Tax (Appeals) did not agree with the

findings recorded by the Assessing Officer and deleted the addition

observing that similar addition had been made in the earlier year, i.e.,

Assessment Year 1993-94 but was deleted by the tribunal recording as

under:-

"The next common issue for consideration is with regard to the addition on account of unexplained expenditure in the hand of PIL and a corresponding addition of unaccounted receipts in the hands of MSSE.

On this issue we find that there is no dispute with regard to the use of manufacturing facilities by M/s. PIL. The MD of MSSE has filed an affidavit in the proceedings whereby he has affirmed that they 1-Java allowed M/s. PIL to use the manufacturing facilities and that they did not charge any fee from them as both of them were companies belonging to the same group. This affidavit has not been adverted to by the revenue authorities. The Assessing Officer has however made a passing reference to the affidavit without making any efforts to disprove the contents of this affidavit. In the light of this affidavit, we are of the view that the first requirement of the provisions of S.69 C viz., that the assessee should have incurred an expenditure is not prima facie satisfied. In the case of MSSE, there is no evidence to show that they received Rs.34 lacs from PIL. On the other hand we have on affidavit of the MD affirming that MSSE did not receive any money from PIL for allowing it to use its manufacturing facilities. The addition in the hands of MSSE is therefore not called for. Accordingly ground no. 2 in the case of MSSE and ground no. 7 in the case of PIL are allowed."

8. By the impugned order the tribunal had affirmed the findings

recorded by the CIT(Appeals).

9. The findings recorded by the tribunal relating to the addition

made by the Assessing Officer under Section 69C of the Act are

factual. We notice that the Assessing Officer did not elaborate and

give detailed reasons or grounds making the said addition. Order of

the Assessing Officer is brief, devoid of details and indicates the half-

hearted attempt to make the addition. The case and the stand of the

respondent-assessee was that they had used machinery of their sister

concern and had not paid any money for the same. No further attempt

was made by the Assessing Officer to verify the facts whether the

sister concern had the requisite machinery or not and whether the