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August, 09th 2013
+                   INCOME TAX APPEAL NO. 1545/2010
                                          Date of decision: 6th August, 2013
                                                               ..... Appellant
                              Through Mr. Abhishek Maratha, Sr. Standing


                                                             ..... Respondent
                              Through Nemo.


        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

ITA No. 1545/2010                                                    Page 1 of 6
                    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

ITA No. 1545/2010                                                 Page 2 of 6
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

ITA No. 1545/2010                                              Page 3 of 6
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


               "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.

ITA No. 1545/2010                                                   Page 4 of 6
                       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

ITA No. 1545/2010                                                   Page 5 of 6
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

electricity bills of the said sister concern justify the stand of the

respondent-assessee.      Similar disallowance was made in the

Assessment Year 1993-94 by the Assessing Officer but was deleted by

the tribunal. Revenue had preferred an appeal before the High Court

being ITA No. 575/2007. The said appeal was admitted to hearing on

3rd October, 2008, but no specific question of law for the similar

addition made and deleted under Section 69C was framed.               The

question of law as framed related to deduction under Section 80HHC

in respect of alleged export of goods worth Rs.4,36,38,057/-.

10.     We do not think that the decision of the tribunal on the second

question can be categorised and treated as perverse. Accordingly, we

answer the second question in favour of the respondent-assessee and

against the appellant-Revenue.

        The appeal is disposed of. No costs.

                                       SANJIV KHANNA, J.

                                       SANJEEV SACHDEVA, J.
AUGUST 06, 2013
ITA No. 1545/2010                                               Page 6 of 6
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