On the aspect of additions being made under Section 68 of the Act, we notice that the ITAT was intrigued with the approach of the AO, and rightly so, in our view. The Assessee had worked out the business income after considering the sales and purchases of mobile phones which included the high-sea sales. In these circumstances, the ITAT observed that the addition under Section 68 or 69C is contradictory to the stand taken while accepting the business income. No justification is offered by the Revenue for attracting section 68, on this count except for contending there is no net-effect on the “business income”, which is not the relevant yardstick. The amount in question, as noted above had already been charged to the income of the assessee. The question of allowability of the expenditure under section 69C has been restored to the file of the AO for fresh adjudication. Therefore, we find no reason to interfere with the findings of the ITAT on this aspect.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. For the reasons stated in the application, the delay of 156 days in re-filing the present appeal, is condoned.
2. The application is disposed of.
3. The present appeal under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] is directed against the order dated 12th April, 2019 passed by the Income Tax Appellate Tribunal in I.T. Appeal No. 6520/Del/2018, for the Assessment Year 2014-15, whereby the appeal of the Assessee has been allowed.
4. Briefly stated, the Assessee company is engaged in the business of importing mobile phones from China and selling them in India. It purchases mobile phones on credit basis from certain vendors/manufacturers in China, and sells most of the phones to Indian buyers/suppliers as high-seas sales. Using the proceeds of sales which are paid in cash by the Indian buyers, the Assessee satisfies the credit extended by the Chinese sellers/manufacturers. On reaching Indian shores, the phones are collected by the high-seas sale purchasers.
5. In the financial year 2013-14, the Assessee generated a total sales revenue of Rs. 62,91,41,642/- out of which sales worth Rs. 59,11,29,517/-were from high-seas sales made to four Indian entities with the proceeds thereof being received in cash, and sales worth Rs. 3,80,12,124/- were from local sales.
6. On the case being selected for scrutiny assessment, the Assessing Officer made additions/disallowances under Section 68 of the Act holding that the amount credited on account of high-seas sales was not genuine. Further, Rs. 59,11,29,517/- claimed as expenditure incurred as payments to the Chinese sellers/manufacturers was also disallowed under Section 69C of the Act, for the reason that the source of expenditure (i.e. the cash payments received from high seas sales) was found to be unverified and the explanation given in relation thereto was found to be unsatisfactory.
7. The CIT(A) vide order dated 14th August, 2018 dismissed the appeal of the Assessee and confirmed the Assessment Order. However in further appeal, the ITAT concluded that the genuineness of the high-seas sales cannot be doubted, as the customs authorities have verified the documents at the time of clearing the goods for home consumption and while approving the high-seas sales.
8. Mr. Zoheb Hossain, Senior standing Counsel for Revenue argues that the ITAT has erred in concluding that genuineness of the high-seas sales cannot be doubted merely because the customs authorities have verified the documents at the time of clearing the goods for home consumption and while approving the high seas sale. He submits that the facts and circumstances before the customs authorities were completely different from those before the Assessing Officer. The customs officer was not presented with the fact that the underlying transaction was carried out fully in cash; the identity and contact details of the purchasers are unavailable with the purchasers being currently untraceable; and that there is a vast mismatch between the dates of sale and the date of deposit of cash into the bank accounts. Mr. Hossain further points out that there is absolutely no co-operation or assistance on the part of the Assessee. He submits that it rather strange that in the relevant financial year, the Assessee company generated revenue to the extent of Rs. 59,11,29,517/- which constituted more than 90% of the Company’s revenues, from four entities it dealt with, and yet they were completely unaware of the whereabouts or contact details of any of these entities, and were unable to assist the Revenue in any manner whatsoever in tracing any of these entities for the purposes of verifying their claims. He further emphasizes that the Tribunal has failed to appreciate the combined effect of the addition under Section 68 and the disallowance under Section 69C. While the AO’s order clearly treats the receipt of Rs. 59,11,29,517/- as unexplained credit-entry under Section 68 of the Act to be added to the Assessee’s income, the AO has also disallowed expenditure to the tune of the exact same sum (i.e. Rs. 59,11,29,517/-). Thus, there is no net-effect on the “business income”, and there is only a net addition of Rs. 59,11,29,517/- to the total income of the Assessee.
9. We have considered the submissions advanced by Mr. Hossain, but in our view, no question of law, much less any substantial question of law arises for our consideration. We must note that vide the impugned order, the ITAT has, on certain aspects, set aside the orders of the lower tax authorities and restored the adjudication of such issues to the file of the Assessing Officer. In the present appeal, the challenge of the Revenue is limited to the deletion of the addition of Rs. 59,51,29,517/- made by the AO under Section 68 of the Act. In this regard, the following questions of law are urged:
“A. Whether the findings of the ITAT are vitiated in law by reason of it having ignored relevant and material facts before it and in placing reliance on paper work and documentation?
B. Whether on the facts and circumstances of the case the conclusion of the Tribunal that the Assessee had proved the genuineness of high-sea sale beyond doubt was perverse and was arrived at without due consideration of the material facts mentioned by the AO in the Order?”
10. On the aspect of additions being made under Section 68 of the Act, we notice that the ITAT was intrigued with the approach of the AO, and rightly so, in our view. The Assessee had worked out the business income after considering the sales and purchases of mobile phones which included the high-sea sales. In these circumstances, the ITAT observed that the addition under Section 68 or 69C is contradictory to the stand taken while accepting the business income. No justification is offered by the Revenue for attracting section 68, on this count except for contending there is no net-effect on the “business income”, which is not the relevant yardstick. The amount in question, as noted above had already been charged to the income of the assessee. The question of allowability of the expenditure under section 69C has been restored to the file of the AO for fresh adjudication. Therefore, we find no reason to interfere with the findings of the ITAT on this aspect.
11. Notwithstanding the afore-noted erroneous approach, the ITAT also proceeded to go into the findings of the AO on merits, in order to ascertain if the AO was justified in holding that the high seas sales were not genuine. On this aspect, the ITAT observed as under:
“11. The Assessing Officer has doubted the genuineness of sales mainly on two grounds – (i) the buyer parties were not found available at the address given by them and (ii) they made most of the payment in cash for the goods purchased by them. However, we find that in the documents of custom authorities giving approval of high sea sales agreement, the name and address of the buyer of goods is mentioned and it is the same address which is given by the Assessee to the income tax authorities. Therefore, it cannot be stated that such party was not available at the time when the Assessee made the sales.
Moreover, all the buyers of goods from high sea sales have importer exporter code. Copy of importer exporter code of all the buyers is placed in the paper book and we find that this importer exporter code also gives the name and address of the parties to whom importer exporter code is given, its phone number, e-mail address, date of establishment banker details, name of the directors etc. That the delivery of goods is taken from the custom authorities by those buyers and not the Assessee. In the document for export clearance, the name of those buyers is mentioned as importer of the goods and not the Assessee. That the return of notices issued under Section 133(6) unserved by the postal authorities is certainly a ground for raising suspicion with regard to identity of the parties. However, it is not sufficient to reach to the conclusion that sales to those parties are not genuine. In fact the documentary evidences produced by the Assessee i.e., approval of high sea sales by custom authorities and clearance of goods from customs after payment of import duty by the buyers on high sea sales basis proves the genuineness of sales beyond doubt.”
12. On the aspect of receipt being cash transactions, also highlighted before us by Mr. Hossain, the ITAT observed as under:-
“12. Coming to the cash payment of sale consideration, we are of the opinion that it certainly raises the doubt but again, when there are documentary evidences from the government agencies like custom authorities, the genuineness of sales cannot be doubted. Moreover, at the relevant time, there was no law which prohibited receipt of sale consideration in cash.”
13. The genuineness of the transactions has been accepted on the basis of documentary evidence and other material gathered, which cannot be re-appreciated under Section 260A of the Act. We also do not find any perversity in the approach of the ITAT. Besides, the proposed questions of law and the arguments advanced by Mr. Hossain touch upon findings of fact rendered by the ITAT on the basis of material placed before the Lower Tax Authorities during the course of the assessment proceedings. No question of law, arises for our consideration.