Bookmark
PDF
Share
CaseIQ

General Exporters v. Assistant Commissioner Of Income Tax

Delhi High Court

Feb 9, 1999

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The assessee filed an appeal challenging the assessing officer's order on eight enumerated grounds. The assessee had filed its return for assessment year 1995-96 on 30-10-1995 declaring a net profit of Rs. 1,87,67,774 and claiming a deduction of the same amount under section 80HHC of the Income Tax Act, 1961, resulting in a nil taxable income. Searches under section 132 were conducted at the assessee's premises on 6-11-1996. Pursuant to an order under section 127 the assessee's case was transferred to Delhi. A writ filed by the assessee in the Madras High Court was allowed on 4-9-1997 but the Court left open the power of the respondent to pass fresh orders under section 127; accordingly fresh proceedings were conducted and assessment finalised at Delhi under Chapter XIV-B (search/block assessment) for the block period 1-4-1986 to 6-12-1996.

During the Chapter XIV-B proceedings, the assessing officer assessed income for assessment year 1995-96 at Rs. 1,87,67,774 and levied tax of Rs. 1,12,60,662, having denied the deduction earlier allowed under section 80HHC when the return had been processed under section 143(1)(a). The assessee raised, during appellate proceedings, an additional ground challenging framing of assessment under section 158BC when the return for the year had already been processed under section 143(1)(a).

Legal Issues Presented

Whether the Tribunal should admit an additional ground of appeal contending that an assessment under section 158BC (Chapter XIV-B) could not be framed when the return for the year had already been processed under section 143(1)(a).
Whether an assessment under section 158BC of the Income Tax Act can be validly framed in the absence of any undisclosed income discovered as a result of searches, in particular where the same income had already been declared in the return.
Whether the income of Rs. 1,87,67,774 (declared as export income and allowed deduction under section 80HHC while processing the return) was properly recharacterised as undisclosed income and the deduction under section 80HHC could be denied in Chapter XIV-B proceedings.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The additional ground challenging the framing of assessment under section 158BC despite processing under section 143(1)(a) raises a legal issue that can be admitted at this stage; the return had been processed under section 143(1)(a) and deduction under section 80HHC had been allowed in those proceedings.
No undisclosed income was discovered as a result of the search; therefore framing assessment under Chapter XIV-B was not justified. Chapter XIV-B applies only where undisclosed income is discovered by virtue of the search.
The material on record (questionnaire replies and documentary evidence) shows that the income in question arose from genuine exports for which invoices, bills of lading, shipping bills, bank statements showing remittances, export documentation and other papers were available; the profits were appropriated by partners and banking facilities were on the basis of the managing partner's personal property.
Reliance was placed on a number of authorities (including Tailor Instrument Co., National Thermal Power Co., Prakash Food Ltd., Sunder Agencies, Express Movers, L.R. Tata & Ors., Vijayashanthi Investments) to support admission of the additional ground and to contend that the Chapter XIV-B assessment could not be sustained in the absence of undisclosed income discovered in the search.

Respondent's (Departmental Representative's) Arguments

The Department opposed admission of the additional ground, submitting that, as held in some authorities, an additional ground should be shown to be bona fide and a party must explain why it could not have been raised earlier; reliance was placed on decisions such as Stepwell Industries and Gurjargravures.
It was submitted that proceedings under Chapter XIV (regular assessment) and Chapter XIV-B (search/block assessment) are mutually exclusive and that the assessing officer was competent to frame an assessment under section 158BC notwithstanding that a return had been processed under section 143(1)(a) (relying on N.R. Paper & Board Ltd. v. Dy. CIT — Gujarat High Court authority).
On the merits the Department contended that the assessee was not a genuine exporter: the export contract was procured by M/s A.V. Thomas & Co., allegedly without consideration being received by that party; rent was not charged for premises; the assessee had no experience and did not continue business later — thus the assessing officer was justified in holding deduction under section 80HHC was wrongly allowed.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as stated in the opinion)
Tailor Instrument Co. (India) Ltd. v. CIT (1992) 198 ITR 1 (Del)	Cited by the assessee in support of admission of an additional ground of appeal.	The decision was cited by the assessee and considered in the context of whether the additional ground should be admitted; the Tribunal admitted the additional ground.
National Thermal Power Co. Ltd. v. Commissioner Of Income Tax (1998) 229 ITR 383 (SC)	Authorities concerning admission of additional grounds and observations that where a non-taxable item is taxed or a permissible deduction is denied an assessee should not be denied opportunity to raise the question for the first time.	The parties relied on this decision in their rival submissions about admission. The Tribunal referred to the observations in National Thermal Power and, on the facts, admitted the additional ground.
Commissioner Of Income Tax, Delhi v. Stepwell Industries Ltd. (1997) 228 ITR 171 (SC)	Cited by the Department to support the proposition that additional grounds should not be admitted without sufficient reasons for not raising them earlier.	The Tribunal considered the argument and the authority but ultimately admitted the additional ground on the facts before it.
Addl. CIT v. Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC)	Cited by the Department for the principle that additional grounds require justification for late admission.	The Tribunal noted the decision but distinguished the facts and admitted the additional ground.
Prakash Food Ltd. v. CIT (1998) 64 ITD 396 (Pune-Trib)	Cited by the assessee to support the contention that, in the absence of undisclosed income discovered as a result of searches, an assessment under Chapter XIV-B cannot be sustained.	The Tribunal considered this and other similar decisions in evaluating whether the income taxed had been shown to be disclosed previously or to have been discovered as a result of the search; it concluded there was no basis to treat the income as undisclosed income discovered by the search.
Sunder Agencies v. CIT (1998) 1 DTC 166 (Mum-Trib) : (1997) 63 ITD 245 (Mum-Trib)	Same line as Prakash Food — cited for limiting scope of Chapter XIV-B where no undisclosed income is discovered.	Considered by the Tribunal as supporting the assessee's contention that Chapter XIV-B requires discovery of undisclosed income; applied in examining the materials discovered in search.
Express Movers (P) Ltd. v. Dy. CIT (1997) 61 ITD 528 (Del-Trib)	Cited by the assessee in support of the proposition that Chapter XIV-B assessment requires undisclosed income discovered by search.	The Tribunal noted the decision when analysing whether the assessed income resulted from material discovered in the search; it found no such link on the record.
L. R. Tata & Ors. v. Union of India (1992) 194 ITR 32 (Del)	Cited as part of the authorities relied upon by the assessee concerning limits on Chapter XIV-B assessments.	The Tribunal considered the line of authorities collectively in concluding that the Chapter XIV-B assessment could not be sustained on the facts before it.
Vijayashanthi Investments (P) Ltd. v. Chief Commissioner (1991) 187 ITR 405 (AP)	Cited by the assessee in the context of judicial authority limiting application of Chapter XIV-B absent undisclosed income discovered in the search.	Used by the Tribunal in assessing the legal position about Chapter XIV-B and in concluding that the AO had not shown the assessed income resulted from documents discovered in the search.
N.R. Paper & Board Ltd. & Ors. v. Dy. CIT (1998) 4 DTC 29 (Guj-HC) : (1998) 234 ITR 733 (Guj)	Holds that block assessment (Chapter XIV-B) is for undisclosed income of the block period while regular assessment addresses total income of the year; both serve different purposes and an assessing officer may proceed with both types of assessments.	The Tribunal cited this decision for the principle that block assessment and regular assessment are for different purposes; it explained that Chapter XIV-B assessments are permissible even if a regular assessment under Chapter XIV had previously been finalised, but emphasized the requirement that the income taxed under Chapter XIV-B must be undisclosed income discovered due to the search.

Court's Reasoning and Analysis

The Tribunal first considered whether to admit the additional ground. After reviewing the parties' submissions and the authorities cited, the Tribunal exercised its discretion to admit the additional ground, noting that this was the first appellate forum in a case finalised under Chapter XIV-B and that the legal issue went to the root of the matter; no further factual ascertainment was necessary.

The Tribunal then analysed the statutory scheme of Chapter XIV-B. It set out the definition of "undisclosed income" in section 158B(b) and the special features and purpose of Chapter XIV-B: the chapter applies to assessment of income discovered as a result of searches and deals with a block period (ten years) and special procedure for such assessments. The Tribunal emphasised that the prerequisite for a Chapter XIV-B assessment is that the income must be undisclosed income as defined by section 158B(b) and must have been discovered as a result of the search.

Applying these principles to the facts, the Tribunal examined the material said to have been discovered in the search (vouchers, exporters' files, delivery registers, purchase files, general ledger, P&L files, and other papers listed in the panchnama). The Tribunal observed that despite being given opportunity, the Department did not point to any specific document discovered in the search that directly showed that the income of Rs. 1,87,67,774 was not previously disclosed and had been discovered only because of the search.

The Tribunal then considered the documentary evidence on record showing exports to the Russian Federation (invoices, packing lists, export orders, bill of lading, shipping bills, insurance cover, inspection reports, certificates of origin, GR declaration forms, lab certificates, weight certificates, buyers' acknowledgements, export realisation certificates, bank statements showing proceeds credited, purchase invoices, packing material invoices, transport bills, etc.). The Tribunal noted that banking facilities were availed on the strength of the managing partner's personal property and that partners had appropriated profits by drawings. No evidence was produced by the Department to rebut these materials or to show that the assessee was a mere benamidar or that the exports were not genuinely effected by the assessee.

The Tribunal further observed that the mere facts that rent was not paid or that export orders were transferred without consideration could justify further probe but were insufficient, by themselves, to hold that the assessee was not the real exporter. The Tribunal noted that the income assessed under section 158BC was the same income declared in the return and that the only practical difference was that the deduction under section 80HHC, which had been allowed during processing under section 143(1)(a), was subsequently denied in the Chapter XIV-B proceedings. The Tribunal found no fresh material discovered during the search that would justify recharacterising that income as undisclosed income for the purposes of Chapter XIV-B.

On this basis the Tribunal concluded that the assessing officer had no justification for treating the assessed amount as undisclosed income discovered in the search and therefore deleted the addition made under section 158BC.

Holding and Implications

Holding: The Tribunal deleted the addition of Rs. 1,87,67,774 brought to tax under section 158BC of the Income Tax Act and the assessee succeeded in the appeal. The Tribunal also admitted the additional ground of appeal raised by the assessee.

Implications:

Direct effect on the parties: The tax assessment made under section 158BC for assessment year 1995-96 in respect of the sum of Rs. 1,87,67,774 was set aside (the addition was deleted), providing relief to the assessee.
The Tribunal's decision is based on the application of Chapter XIV-B's requirement that taxed income under that chapter must be income "discovered as a result of searches" (undisclosed income under section 158B(b)); the Tribunal found that requirement unmet on the facts before it.
The opinion does not purport to lay down a new broad legal principle beyond applying existing authorities; the decision turns on the facts and the absence of documentary material showing that the income was discovered only by the search.

Note: This summary is confined to information expressly contained in the provided opinion and does not add or infer facts beyond that text.

Show all summary ...

Miss Moksh Mahajan, A.M.

In an appeal filed the assessee has challenged the order of the assessing officer on as many as eight grounds of appeal as under:

"1. The learned assessing officer earned in denying the appellant the benefit of section 80HHC of Income Tax Act, 1961 on the income of Rs. 1,87,67,770 assessed in its hands even after holding that it has directly arisen from export of goods.

2. The learned assessing officer has further erred in holding that the appellant had not made any regular export and even if the goods had been genuinely exported, the exporter is M/s A.V. Thomas & Co. and not the appellant. He failed to appreciate the voluminous evidence placed before him by the appellant to show that the exports had been both in law and in fact made by the appellant.

3 Without prejudice to the above contentions and in any case, if the learned assessing officer was of the view that the exports were made by M/s A.V. Thomas & Co., he ought to have assessed the above income in the hands of that concern. The assessment of an income arising for exports as the undisclosed income of the appellant, without allowing the statutory relief under section 80HHC of the Act, is illegal and contrary to the finding of the learned assessing officer himself.

4. Without prejudice to the above, the observations of the learned assessing officer as contained in para 5(e) of the assessment order are uncalled for, illegal and irrelevant and against the facts of the case and deserve to be deleted.

5. The assessment made by the learned assessing officer on 28-11-1997 is illegal, void and even against the facts of the case in as much as the learned assessing officer has failed to serve on the appellant the mandatory notice as required under section 158BC(a)(i) of Income Tax Act, 1961, after the transfer of its case from Chennai to New Delhi vide Commissioner, Tamilnadu's order dated 14-10-1997, effective from 15-10-1997.

6. The learned assessing officer failed to appreciate that the earlier notices including that issued on 30-6-1997, had become invalid in view of the order of Madras High Court dated 11-9-1997, which had quashed the order dated 10-6-1997 passed by the learned Commissioner transferring the case of the appellant from Chennai to New Delhi. It is, therefore, prayed that the impugned assessment order may also be quashed.

7 The levy of tax of Rs- 1,12,60,664 on the appellant is thus illegal and highly unjust.

8. The appellant seeks permission to amend and/or add any ground or grounds of appeal as the circumstances of the case might require to justify. "

During the course of appellate proceedings the assessee also raised an additional ground of appeal which reads as under :

"The learned assessing officer has also erred in making the assessment under section 158BC of the Act when the appellant had already filed its return of income for the assessment year 1995-96 and which had also been processed by him under section 143(1)(a) of the Act"

2. Shri Prakash Narain and Shri K.S.V.S. Manian appeared on behalf of the assessee. In justification for additional ground of appeal it was submitted that searches under section 132 of the Act were conducted in the office premises of the assessee on 6-11-1996, at Chennai. Certain books of accounts along with documents were seized as listed in Panchnama. The documents and the books of accounts were examined and the assessee's claim of deduction under section 80HHC of the Act which already stood allowed to the assessee in the proceedings under section 143(1)(a) of the Act was held to be not allowable. This was for the reasons given in the order. Since the return for assessment year 1995-96 had been processed under section 143(1)(a) of the Act no assessment under Chapter XIV- B could have been framed. The issue being a legal one could be raised at any time and as such should be admitted. In support reliance was placed on the decision of Delhi High Court in the case of Tailor Instrument Co. (India) Ltd. v. CIT (1992) 198 ITR 1 (Del) and Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax. (1998) 229 ITR 383 (SC), The learned Departmental Representative on the other hand, vehemently opposed the admission of the additional ground of appeal and submitted that as held in the case of National Thermal Power Co. Ltd. (supra), before additional ground of appeal could be admitted, it must be shown that the ground raised is bona fide and the same could not be raised earlier for the good reasons. Any and every ground of appeal cannot be admitted without satisfying the court that there existed sufficient reasons for not raising the grounds before the lower authorities. Reliance was placed on the decision of Commissioner Of Income Tax, Delhi v. Stepwell Industries Ltd.. (1997) 228 ITR 171 (SC) and Addl. CIT v. Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC). Responding to the arguments of the learned Departmental Representative it was submitted by Shri Prakash Narain that in case the judgment of Supreme Court in the case of National Thermal Power Co. Ltd. (supra) is gone through, it would be clear that their Lordships of Supreme Court have clearly observed that in case non-taxable item is taxed or a permissible deduction is denied there is no reason that the assessee be denied an opportunity of raising question before the Tribunal for the first time. Since after allowing deduction under section 80HHC of the Act, the same was denied to the assessee, the assessee's case is covered by the observations of their Lordships of Supreme Court and as such the additional ground required to be admitted. The decisions rendered in the cases of Gurjargravures (P) Ltd. (supra) and Stepwell Industries Ltd. (supra) were on the facts as available in these cases and as such they could not be applied to the assessee's case.

3. We have carefully considered the rival submissions and have also gone through the decisions as cited. On the facts and circumstances as explained by the learned authorised representative we are of the opinion that the additional ground needs to be admitted which we do. Incidentally it may be mentioned that, this is the first forum of appeal in the cases where the assessment has been finalised under Chapter XIV-B of the Act. This further strengthen the assessee's assertion that in the interest of justice the ground needs to be admitted. The legal issue raised by the assessee goes to the root of the matter and as such needs to be admitted for examination of the issue. No further ascertainment of facts are required.

4. Before we revert to the issues it would be necessary to state facts in brief. The facts in brief are that the assessee filed its return for assessment year 1995-96 on 30-10-1995. It declared net profit at Rs. 1,87,67,774. From the aforesaid income deduction claimed under section 80HHC of the Act was Rs. 1,87,67,774. The income declared was thus at 'Nil'. Subsequently searches took place in the business premises of the assessee on 6-11-1996. In pursuance of the order passed under section 127 of the Act the assessee's case was transferred to Delhi. The assessee filed a writ before the Hon'ble High Court at Chennai and vide their order dated 4-9-1997 writ petition was allowed. It was however held that it was open to the respondent or other competent authority to pass fresh orders in terms of section 127 of the Act by complying with the requirements of the said provision. The same was done and the assessment finalised at Delhi. During the course of proceedings the assessee was issued a questionnaire which was duly replied too with necessary evidence in support. The explanation of the assessee was rejected and the assessments were framed for block period from 1-4-1986 to 6-12-1996 as appearing on p. 5 of the order. The income for assessment year 1995-96 was taken at Rs. 1,87,67,774 and tax on the same was levied at Rs. 1,12,60,662. There was no income assessed for assessment years 1987-88 to 1994-95.

5. On the facts as stated above it was submitted by Shri Prakash Narain that since the assessment for assessment year 1985-86 was framed the assessing officer could not have framed another assessment for the same assessment year under section 158BC of the Act. This was more so when there was no undisclosed income for which the proceeding's under section 158B could have been taken. Chapter XIV-B relates to special procedure for assessment of search cases. As per definition on undisclosed income given in section 158B(b) of the Act, undisclosed income includes any money, bullion, jewellery or valuable article, etc, based on any entry in the book of accounts or documents which has not been or would not have been for the purposes of this Act. As per section 158BB the income already has to be excluded. The assessee has already been assessed under section 143(1)(a) of the Act. During the course of the original proceedings the assessee had declared all the facts relevant for assessment year 1995-96. The claim of the assessee in respect of section 80HHC was accepted and deduction was allowed. There was no fresh material discovered during the course of searches which could have led to the denial of the claim in the proceedings taken under Chapter XIV-B of the Act, As would be evident from the material on record detailed questionnaire issued to the assessee was duly replied to by the assessee. It was shown that there was no undisclosed income discovered as a result of search for which the framing of assessment under section 158B could have, been justified. Reliance was placed on various decisions as under (1) Prakash Food Ltd. v. CIT (1998) 64 ITD 396 (Pune-Trib), (2) Sunder Agencies v. CIT (1998) 1 DTC 166 (Mum-Trib) : (1997) 63 ITD 245 (Mum-Trib) (3) Express Movers (P) Ltd, v. Dy. CIT (1997) 61 ITD 528 (Del-Trib) (4) L. R. Tata & Ors. v. Union of India (1992) 194 ITR 32 (Del), and (5) Vijayashanthi Investments (P) Ltd. v. Chief Commissioner (1991) 187 ITR 405 (AP).

(5) Vijayashanthi Investments (P) Ltd. v. Chief Commissioner (1991) 187 ITR 405 (AP).

'The thrust of the argument was that since there was no undisclosed income discovered as a result of searches, the assessment framed under section 158BC of the Act could not be upheld. On merit it was submitted that the material brought on record clearly showed that it was the assessee who exported goods abroad for which the receipts were earned in convertible foreign exchange. The profits were appropriated by the partners and as such it could not be said that the assessee was not a genuine exporter and as such the deduction could not be allowed in his hands. The learned Departmental Representative on the other hand, opposed the stand of the assessee. It was submitted that proceedings under Chapter XIV and XIV-B are mutually exclusive and can be exercised simultaneously. The fact that the return for assessment year 1985-86 was processed under section 143(1)(a) of the Act would not bar the assessing officer from framing assessment under section 158BC of the Act. This has been so held by their Lordships of Gujarat High Court in the case of N. R.. Paper & Board Ltd. & Ors. v. Dy. CIT (1998) 4 DTC 29 (Guj-HC) : (1998) 234 ITR 733 (Guj). Reading of the assessment order would clearly show that the assessee was not a genuine exporter and as the contract for export of tea was procured by M/s A.V. Thomas & Co. it was the aforesaid party which was the actual exporter. No party would part with the profitable venture without considerations. M/s A.V. Thomas & Co. not only gave the aforesaid contract to the assessee but it did not receive any consideration for the same. This apart, no rent was charged for the premises from which the business was carried. The assessee had no experience of the exports and this was the only contract which was executed by it. Subsequently no further business was carried on by the assessee. As per the reasons given on p. 4 of the order the assessing officer clearly held that deduction under section 80HHC of the Act was wrongly allowed to which the assessee was not entitled.

6. We have carefully considered the rival submissions. We have also gone through the specific material to which our attention was drawn. We have also gone through the relevant decisions as cited on both sides. Chapter XIV-B lays down special procedure for framing assessments in the cases of search. Amongst special features are the concept of block period consisting of 10 years and special procedure for framing assessment in relation to undisclosed income as a result of search. Income assessable under the chapter is the one which is discovered as a result of searches conducted after a specific date. The undisclosed income can be either in the form of money, bullion, jewellery or any other valuable article or thing or any income based on any entry in the books of accounts or other documents or transactions, etc. The aforesaid income is to be the one which has not been disclosed for the purpose of the Act Thus, the prerequisite condition for bringing the income to tax under the aforesaid chapter is that it has to be undisclosed income in terms of definition given in section 158B(b) of the Act. The aforesaid undisclosed income stands in direct contrast to the disclosed income. The former is the one which is not recorded in the books of accounts or other documents maintained in the normal course relating to such previous years. What flows from the aforesaid provisions is the fact that the assessment made under the aforesaid chapter is in addition to the regular assessment proceedings undertaken under Chapter XIV of the Act. Thus as held by their Lordships of Gujarat High Court in the case of N.R. Paper & Board Ltd. & Ors. v. Dy. CIT (supra) while the block assessment is for assessment of undisclosed income of block period, regular assessment is for assessment of total income of the year. Both are for different purposes and there is no double assessment. The assessing officer is competent to proceed with regular assessment as well for framing assessment under section 158BC of the Act. These are mutually exclusive.

7. Thus even if there has been a regular assessment framed for a particular assessment year or years, there is no bar in framing the assessment under section 158BC of the Act, the only condition being that for the latter there has to be undisclosed income which is again to be a result of searches conducted in the premises of the assessee after a specific date. Before any income can be covered under the aforesaid chapter it has to be shown that there is an undisclosed income resulting from the documents or material discovered during the course of searches. Applying the aforesaid principle to the case of the assessee, we find that the documents discovered as listed in Panchnama were vouchers, file of general exporters, register of delivery notes, purchase file, general ledger, file relating to P&L a/c, bunch of loose papers, etc. Despite specific opportunity given to the Departmental Representative no specific document was produced before us to show that the income assessed at Rs. 1,87,67,774 was a direct result of those documents but for discovery of which it could not have been brought to tax. In this context, we find that the aforesaid income was shown to have been earned from exports made to Russia This was as a result of orders for export of tea to Russian Federation bagged by M/S A.V. Thomas Group. As per material on record the orders were originally procured by M/s A.V.T. & Gen. Exporters for which necessary LC was opened. Subsequently the same was transferred to the assessee and for that purpose the assessee made use of the ware houses/godowns of M/s AVT Group of Companies. The initial rent agreed to be paid was not paid in the end. Rent of Rs. 45,994 represented the warehouse charges paid to various parties for temporarily using their ware houses/godowns for sorting and repacking of tea. The exports made by the assessee were supported by the documents namely evidence in the form of invoices for exports, packing list for invoices, export order copies, bill of lading, shipping bills, insurance cover, inspection report, certificate of origin, GR declaration forms, Lab test certificates, weight measurement certificate, masters receipt, confirmation of receipt of goods by the buyer, export realisation certificate, bank statements where exports proceeds credited, purchase invoices for tea, purchase invoices for packing materials & transport bills and other documents. The banking facilities were availed of on the strength of the personal property of the managing partner Shri M.A. Karim Material was also brought to show that the benefit of exports was ultimately enjoyed by the partners of the firm by way of drawings. Against this no evidence was brought on record by the learned Departmental Representative. The mere fact that the rent was not paid and that the export orders were transferred without consideration while could constitute the material for making a further probe but cannot by itself be the basis for holding that the exports were not made by the assessee and that the assessee was benamidar of somebody else who was the real exporter. As stated earlier no document found in the course of searches was produced before us to show that this was the real position despite legal formalities gone through by the assessee. Reference made to the questionnaire issued by the assessing officer reveal that certain queries were raised in respect of the seized documents which were replied to by the assessee. For example in case of Annexure S-9 reference was made to net profit shown at Rs. 1,88,41,934 as against Rs. 1,87,67,774 shown by the assessee. The difference was stated to be due to audit fees of Rs. 65,000 and other minor expenses of Rs. 9,160. Similar was the case in regard to Annexure S-7, and S-4 referred to in question No. 14, S-6 in question No. 16, S10 in question Nos. 17 and 18, S-11 in question No. 19, etc. These documents referred to the investment made, cheque books of M.A. Karim, demand drafts reflected and amounts received and given to certain parties. These have been duly explained by the assessee in its reply and the very facts that these have not been made basis for holding a conclusion shows that the income as assessed is not a result of the documents as discovered during the course of searches.

8. As referred to earlier the assessee declared income of Rs. 1,87,67,774 in the return filed for assessment year 1995-96. It is the same income which has been brought to tax under section 158BC of the Act. The only difference is that while deduction under s, 80HHC of the Act was allowed while processing the return under section 143(1)(a) of the Act, this was denied under section 158BC of the Act. This is not justified specifically when the assessee has furnished Form No. 10CCAC (p. 3 of the paper-book) relating to report under section 80HHC(4) of the Income Tax Act, 1961. Annexure 'A' contains details of total turnover of the business, total profits of the business, export turnover in respect of trading goods, direct cost of trading goods exported and adjusted profit business. P&L a/c contains the details and the schedule forming part of P&L a/c shows the expenses incurred, the balance sheet shows amongst others details in respect of security loans, instalments and Form No. 3CB gives particulars as requisitioned therein. We fail to understand as to what fresh material was discovered as a result of search which necessitated dubbing the income from exports as undisclosed income when the same duly stood disclosed in the return filed for assessment year 1995-96. This apart, there are no basis for disallowing the claim of the assessee which again stood allowed by the assessing officer in the course of processing the return. There is no material to show that the assessee did not furnish the entire facts or hide certain facts which were discovered as a result of searches.

9. On the facts as stated above we are of the considered view that this is one case where there was no justification for holding income of Rs. 1,87,67,774 as income from undisclosed sources. In the circumstances, we would delete the addition as brought to tax under section 158BC of the Act.

10. In the result, the assessee succeeds.