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Q. What was the profit earned by you in these transactions ?

A. We would have made net profit of approximately Rs. 60,00,000 on an export of Rs. 5 crores.

Q. Kindly furnish the details of goods being exported by you against which the payments were made.

A. We were exporting tips for ball point pens.

Q. You have made the payment during April, 1994 to September, 1994, on instructions on behalf of Manu of Dubai to Gurmeet Singh and Bhagwan and other parties on India. Please mention the amount paid to these persons.

9. Relying on the above cited excerpts of the statement under Section 40 of FERA, the CIT(A) held :

In view of the abovementioned admissions in the statement of Sh. Grover, the general power of attorney (GPA) holder of the appellant show that he was carrying on the hawala transactions in the garb of export business of M/s Basera Exports. The claim of the appellant that all payments which were received from Dubai were on account of exports made by the appellant and the withdrawals were further used for the purpose of exports business of the appellant is not correct. The fact is, the payments were received from Dubai for the purpose of disbursing the hawala money to the Indian contacts of Manu of Dubai. The reply to the last question mentioned above clearly shows that Sh. Grover himself used to make export orders on the pre-signed letterheads of the buyers. Thus, the genuineness of these orders itself is in doubt. The said orders have been fabricated for the purpose of soliciting export licenses and in turn to make inflated invoices to receive the hawala money from Dubai. The purchase of ball pen tips in cash, which was the only item of export shows that ball- pen tips may be of a sub-standard quality and were purchased only for the purpose of making export invoices which too, as per Sh. Grover's admission, were over-invoiced by 100.5 per cent. Further, in view of the fact that the regular books of account were not available at the time of income-tax search, nor these were subsequently produced for the post-search enquiry before the Investigation Wing authorities, the genuineness of the books of account has been rightly doubted by the AO. Therefore, these books of account are not reliable, more so, in the background of the admission of Shri Grover before the FERA authority that he was carrying on hawala activities under the cover of export business. Since, the very question of exports made outside India is doubtful, therefore, the allowability of deduction under Section 80HHC is ruled out.

15. The learned Departmental Representative vehemently supported the orders of the authorities below. He further states that a comparison of the liquid assets in the balance sheets of the assessee as on 31st March, 1994 and 31st March, 1995 clearly shows that at best the assessee could have mobilised funds of. about Rs. 2 crores only, whereas she has shown purchases of as much as Rs. 6.5 crores worth of brass tips. He states that Shri Vinod Grover had admitted before the FERA authorities that he had made purchases in cash and, therefore, it cannot be said that adequate funds were available for making the purchases of such a magnitude. He also argues that the expenditure oh carriage inward of the goods purchased is not adequate. The learned Departmental Representative goes on to submit that the alleged exports of the consignments of ball pen brass tips is highly suspicious, considering the fact that in his view brass tips are not half as expensive as steel tips. The learned Departmental Representative also highlighted the fact as many as 20 consignments of identical value US $ 120000 were shipped to Dubai on the same day to the same importer in Dubai. This shows that the alleged exports were in fact bogus and the receipts of money through inward bank remittances were in the nature of Hawala transactions.

16. In rejoinder, it is submitted that purchases of brass tips were made from Bombay parties in packed condition, which were directly shipped from Mumbai port to Dubai in a single container. The expenditure of about Rs. 6 lakhs booked under the head freight and carriage is adequate. That all purchase vouchers and shipping bills were duly cleared by the Customs authorities and these were filed with the AO who has given no adverse finding thereon.

17. We have considered the rival submissions. We are of the view that the CIT(A) was not correct in upholding the disallowance of the assessee's claim under Section 80HHC. The entire body of evidence comprising bank statements, purchase bills, shipping bills, bills of lading, bank realization certificates and DEEC book containing Customs endorsement which was submitted by the assessee has been peremptorily ignored by the Revenue without any comment. In fact, there is no finding either by the AO or by the CIT(A) that the assessee did not export brass tips. Apparently, the inference drawn by them from Vinod Grover's statement is that the assessee has over-invoiced the export sales. But then, no enquiry at all has been made to show that the purchase bills are not what they purport to be. Vinod Grover was arrested by the FERA authorities on 14th Sept., 1994 and continued to remain under detention in Tihar Jail till August, 1995. Yet, remittances of as much as Rs. 192 lakhs were received during this period in the bank accounts of the assessee with Union Bank of India and Oriental Bank of Commerce. In absence of any objective evidence to the contrary, the view taken by the Revenue that what was received was not export sales but Hawala remittances, therefore, becomes untenable. There could be no question of his receiving Hawala monies and disbursing them according to instructions of 'Mr. Manu' during the period of his detention.