Income Tax Appellate Tribunal - Ahmedabad
Madhupuri Steel Suppliers,, Ahmedabad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH - AHMEDABAD
(BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI, JM)
ITA No.823/Ahd/2008
A. Y.: 2004-05
M/s. Madhupuri Steel Vs The Income Tax Officer,
Suppliers, Ward 2(2),
C/o. Shri Sanjay Shah, 1st Floor, Aaykar Bhavan
Akaash Ganga, D/14, Baroda
Akash Complex,
Near Akashvani, Makarpura,
Baroda
PA No. AAEFM 7692 I
(Appellant) (Respondent)
ITA No.878/Ahd/2008
A.Y.: 2004-05
The Income Tax Officer, Vs M/s. Madhupuri Steel
Ward 2(2), Suppliers,
1st Floor, Aaykar Bhavan C/o. Shri Sanjay Shah,
Baroda Akaash Ganga, D/14,
Akash Complex,
Near Akashvani, Makarpura,
Baroda
PA No. AAEFM 7692 I
(Appellant) (Respondent)
C. O. 267/Ahd/2010
(In ITA No.878/Ahd/2008: A.Y.: 2004-05)
M/s. Madhupuri Steel Vs The Income Tax Officer,
Suppliers, Ward 2(2),
C/o. Shri Sanjay Shah, 1st Floor, Aaykar Bhavan
Akaash Ganga, D/14, Baroda
Akash Complex,
Near Akashvani, Makarpura,
Baroda
PA No. AAEFM 7692 I
(Appellant) (Respondent)
Department by Shri M. Mathivanan, DR
Assessee by Shri Anil R. Shah, AR
ORDER
PER BHAVNESH SAINI: The appeal of the assessee and the departmental appeal are directed against order of the learned CIT(A)-II, Baroda dated 26-12-2007 for assessment year 2004-05.
ITA No.823 and 878/Ahd/2008 2C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda
2. The Cross Objection No.267/Ahd/2010 by the assessee is filed in support of the order of the learned CIT(A) in deleting part addition. Since, the Cross Objection is filed merely in support of the order of the learned CIT(A), no grievance is shown by the assessee in the same. The Cross Objection of the assessee would not be maintainable in the present form.
3. Grounds No. 1 and 2 of the appeal of the assessee read as under:
"1 The CIT(A) has erred in estimating Excess Purchase cost at 20% our alleged Bogus Purchases of Rs.50,68,949/- added by Assessing Officer.
It is submitted that on facts of the case and as per provisions of Law the entire purchases supported by evidence, goods have come in, processed/manufactured, sold as per books of accounts and therefore CIT(A) ought to have deleted the entire addition of Rs.50,68,949/- made by Assessing Officer."
2. The CIT(A) has erred both in Law and in fact in applying Sec. 40A (3) which amounts to enhancement of Income without legal notice and therefore the estimate of disallowance of 20% u/s. 40A (3) requires to be deleted.
Without prejudice to above it is submitted that Sec. 40A (3) is not at all applicable and much less on estimate basis."
4. Ground No.1 of the appeal of the revenue reads as under:
"1. On the facts and in the circumstances of the case and in law, the learned CIT(A) ha erred in allowing relief of Rs.40,55,159/-. i.e. 80% of Rs.50,68,949/- being the addition made by the A. O. on a/c of bogus purchases."
5 The facts on the above grounds of the cross appeals are that the AO made addition of Rs.50,68,949/- treating the purchases as bogus. This issue has been discussed in detail in Para 4 to 11 of the assessment order. It was noticed by the AO that the inquiry letters issued u/s 133(6) ITA No.823 and 878/Ahd/2008 3 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda of the IT Act to the following three parties could not be served because the parties did not exit at the addresses furnished by the assessee.
1. Prakash Industrial Corporation Rs.10,46,935/-
2. Prakash Steel (India) Rs.14,69,759/-
3. M/s. Vardhman Metal (India) Rs.25,52,255/-
Subsequently, summons was issued through the Inspector who has reported that the above parties do not exist on the addresses supplied by the assessee. It was also noticed by the AO that the said parties had simply provided bills to the assessee and no goods, in fact, were supplied by them. The AO also stated that this is a case where merely bills have been obtained and when the bills are obtained, delivery challans can also be obtained. Further, during the assessment proceedings the assessee was allowed opportunity to produce the three parties with their books of account for examination. Under these facts and circumstances of the case, the credits appearing in the name of these three parties were disallowed treating the liability to have been ceased. Para 112 of the assessment order reads as under:
"None of the three parties in question existed on the given address. The assessee failed to furnish even PAN/IT details of those parties. No proof of transportation of material was produced by the assessee. Thus, it is conclusively proved that none of the alleged three parties have ever supplied any materials to the assessee. In view of the above the purchases shown by the assessee from these three parties are held to be bogus purchases shown by t4he assessee to suppress its profit"
6. The addition was challenged before the learned CIT(A) and it was contended by the learned Counsel for the assessee that the goods from the three parties were purchased before 31-03-204 who were called upon to prove the supply of goods almost three years after and it is likely that those parties might have changed their business place or might have ITA No.823 and 878/Ahd/2008 4 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda closed their business. In respect of Prakash Industrial Corporation, it was submitted that the payments have been made by account payee cheques and the party has sales tax number. This supplier was summoned u/s 131 of the IT Act during the assessment proceedings for assessment year 2003-04 which proves that the party was on the given address. In respect of Vardhman Metal (India), it was submitted that payments have been made by account payee cheques and the party has sales tax number. It was also argued by the assessee that quantitative details was properly maintained and reconciled, there was no reason to believe that there was no purchase made. In support, the assessee has also submitted annexure - E to the audit report giving quantity details of all the items purchased and sold as per which there was no closing stock. In view of that the assessee requested that the bogus purchases amounting to Rs.50,68,949/- was not directed to be added to the income instead gross profit calculated on the value of the purchases treated as bogus was to be added as the same represented real income. Since the amount of gross sale was inclusive of the same purchase amount, hence addition of gross purchase amount was not justifiable and therefore required to be deleted. It was also contended that in some cases closing credit balances also included the opening balances. It was further contended that the addition have been made by the AO u/s 68 of the IT Act in assessment year 2003-04 which is not applicable in the present case. Reliance was placed on the following case laws:
1. CIT Vs Kashiram Textile Mills Pvt. Ltd. 284 ITR 61
2. CIT Vs M. K. Brothers 163 ITR 249
3. Rajesh P. Soni Vs ACIT 100 TTJ 892
4. CIT Vs President Industries 258 ITR 654
5. ITO Vs Sunsteel 92 TTJ 1126
6. B. Bros. Engg. Work Vs DCIT 78 TTJ 876
7. Babulal C. Borana Vs ITO 282 ITR 251 ITA No.823 and 878/Ahd/2008 5 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda
8. CIT Vs Leader Values (Pvt.) Ltd. 285 ITR 435
9. Shri Ram Multi Tech (Pvt.) Ltd. Vs ACIT 92 TTJ 568
10. ITO Vs Twinkle Papers (Pvt.) 95 ITD 253
11. Vijay Proteins Ltd. Vs ACIT 58 ITD 429
12. N. K. Proteins Vs ACIT 48 TTJ 904
7. The learned CIT(A) considering the submissions of the assessee and material on record restricted the addition to 20% of bogus purchases and also made addition u/s 40A(3) of the IT Act for 20% and accordingly thee grounds were partly allowed. The findings of the learned CIT(A) in Para 2.3 and 2.4 of the appellate order are reproduced as under:
"2.3 I have considered the submissions of the ld. counsel and facts of the case. The onus was on the appellant to prove the genuineness of the transactions involving purchases from the three parties. It is quite unlikely that the appellant was not having the current addresses of the parties since large amounts were also due to them. Letters u/s. 133(6) and summons u/s. 131 were issued by the Assessing Officer at the addresses furnished by the appellant. All the facts narrated by the Assessing Officer clearly prove that the purchases claimed by the appellant from these three parties are not genuine. The only submission given was that books are audited, these parties were issued cheques and they have sales tax numbers. However, appellant has not at all proved the movement of material and the identity of these parties. Last year also, two parties out of these were found to be bogus and additions on account of credits appearing in their accounts were made u/s. 68, treating the same as bogus credits. Since the creditors were found to be non-existent, the bogus credits were added and the same was confirmed by my predecessor. This year, Assessing Officer made addition of bogus purchase since the same was much more than the credit appearing in their accounts. Hence, the issue on which addition was made is not identical. The appellant did not prove or submit any additional evidence to establish that these purchases are genuine. Therefore, I am holding the purchases made from these three parties as bogus and non-genuine.ITA No.823 and 878/Ahd/2008 6
C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda Coming to the other argument of the appellant that the entire bogus purchases cannot be added since appellant sold these good and a held by various courts including Hon. Gujarat High Court in the case of CIT Vs President Industries 258 ITR 654, profit on account of such bogus purchases can be added. The appellant submitted quantitative details as per page 28 of the paper book which is annexure E to the tax audit report. A copy of the same is enclosed to this order for ready reference. As per this annexure, entire quantity purchased by the appellant has been sold and both purchases and sale value have been taken to P & L Account. Part of the purchases was found to be bogus since the parties named by the appellant have not supplied the gods. However, the fact remained that the appellant had sold these goods and the revenue on that account had been reflected in the P & L Account. Obviously, to effect these sales, appellant might have purchased goods from unidentified parties in cash with some advantage on account of excise duty, sales tax, octroi, etc. The bogus purchases claimed by the appellant would be costlier as compared to unaccounted purchases and therefore appellant definitely had claimed excess purchase expense to that extent. Considering the various decisions of Hon. ITAT, Ahmedabad and Hon. Gujarat High Court, I estimate such excess purchase cost to the extent of 20% considering the excise duty, sales tax, etc. The disallowance out of bogus purchase is restricted to 20% of such bogus purchase. In addition to this, another addition out of such bogus purchase is confirmed in next para.
2.4 In view of the fact that the appellant had purchased in cash from unidentified parties, to effect the sales reflected in quantity tally, appellant has also violated the provisions of section 40A (3) for which 20% of the expenses has to be disallowed. Since purchases from the unidentified parties to the extent of Rs.50,68,959/- was made in violation of section 40A (3), the Assessing Officer is directed to make further addition of 20% of such purchase cost.
Considering the above, the disallowance made by the Assessing Officer out of bogus purchase is restricted to 40% of the total as discussed in earlier Paras.
8. The learned Counsel for the assessee submitted that similar issue came up for consideration before ITAT Ahmedabad Bench in the case of ITA No.823 and 878/Ahd/2008 7 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda the same assessee for preceding assessment year 2003-04 in ITA No.153/Ahd/2007 dated 27-08-2010. Copy of the order is placed on record. He has submitted that in the preceding assessment year two of the parties are same namely Prakash Industrial Corporation and Prakash Steel (India) and that in the earlier year also addition was made on account of amount paid out of undisclosed income as liability of the creditor had ceased. He has further submitted that the assessee has shown outstanding liability in respect of 5 parties from whom purchases were made in earlier year and that payments have been made through banking channel. He has further submitted that the Tribunal, therefore, considering the submission of the assessee restored the matter to the file of the AO with direction to properly verify the issue and pass the order accordingly. He has submitted that the matter in the preceding year is pending before the AO for verification. The learned Counsel for the assessee did not press the additional grounds of appeal. The same are accordingly dismissed.
9. The learned DR did not dispute the order of the Tribunal and submitted that the matter may be restored to the file of the AO for reconsideration of this issue afresh because it would have direct bearing on the matter in issue in the subsequent assessment year under appeal.
10. We have considered the rival submissions and the material on record. The assessee's Counsel filed copy of the order of the Tribunal in the case of the same assessee for preceding assessment year 2003-04 in which the issue was raised with regard to the amount payable to the same parties namely Prakash Steel (India) and Prakash Industrial Corporation. It was pleaded before the Tribunal that goods from these parties were purchased who have changed their addresses and if in fact their statements are recorded in the absence of the assessee, the opportunity could be given to the assessee to cross-examine them and ITA No.823 and 878/Ahd/2008 8 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda that payments have been made through cheque. Therefore, genuine purchases have been made. The Tribunal accordingly, restored the matter to the file of the AO for reconsideration and verification of the issue. The findings of the Tribunal in Para 11 of the order dated 27-08-2010 are reproduced as under:
"11. We find that no material was brought on record by the Revenue to show that opportunity of cross examination was allowed to the assessee by the learned Assessing Officer before relying upon the affidavits of the creditors. In our considered opinion, the above procedure followed by the Learned Assessing Officer is not tenable. Further, in respect of remaining three parties the assessee claimed that payments were made to them by account payee cheques. The Learned Assessing Officer has made no investigation from the Bank from which the cheques were cleared before drawing adverse inference against the assessee for its inability to produce the creditors. In our considered view adverse view cannot be drawn against an assessee merely because he is unable to produce his creditors as it is not possible to exercise control over the creditors specially when payments were already made to such creditors. Further an assessee cannot be expected to keep track of addresses of all its creditors specially when payments have already8 been made. It is observed that no material was brought on record to show that purchases were actually made by tendering cash by the assessee and the assessee actually received cash in lieu of cheques given to the creditors. However, it is also observed that the assessee could not produce before us the details of subsequent payments made to the said five creditors and produced no material in support of the same. Thus, it is not clear that the alleged subsequent payments were made after the commencement of assessment proceedings of the year under consideration or much before that. In the circumstances, in our considered opinion, it shall be in the interest of justice to restore the issue back to the file of the Learned Assessing Officer for proper verification in light of the discussions made hereinabove. We order accordingly. The Learned Assessing Officer shall allow proper opportunity of hearing to the assessee before adjudicating the issue afresh as per law. Thus, the ground of appeal of the assessee is allowed for statistical purposes."
ITA No.823 and 878/Ahd/2008 9C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda
11. In view of the above, it is clear that the issue is identical as was considered in the preceding assessment year. The only difference is that in the assessment year under appeal one more party namely M/s. Vardhman Metal (India) is also considered and accordingly it was submitted before the learned CIT(A) that payments have been made to this party by account payee cheque and the party has sales tax number. Since, identical matter is pending before the AO for consideration and verification of the issue in respect of the same parties, therefore, it would be proper and reasonable to restore the issue to the file of the AO for reconsideration afresh. We accordingly, set aside the orders of the authorities below and restore this issue for reconsideration afresh in the light of the order of the Tribunal dated 27-08-2010. The AO shall decide this issue after deciding the issue in assessment year 2003-04 and shall also take into consideration the entire material and evidences filed by the assessee before him in this regard. The AO shall give sufficient reasonable opportunity of being heard to the assessee. In the result, grounds No.1 and 2 of the appeal of the assessee and ground No.1 of the departmental appeal are allowed for statistical purposes.
12. On ground No.3 of the appeal, the assessee has challenged the disallowance of 10% out of telephone expenses for a sum of Rs.6,020/-. The assessee did not maintain call register for personal user of telephone. Accordingly, disallowance was made. In the absence of any material on record, we do not find it proper to interfere with the order of the learned CIT(A). We confirm the same and dismiss this ground of appeal of the assessee.
13. On ground No.4 of the appeal, the assessee challenged addition of 10% out of vehicle expenses. The AO disallowed one fifth of the vehicle expenses amounting to Rs.2,178/- because no log book was maintained ITA No.823 and 878/Ahd/2008 10 C. O. No.267/A/2010 M/s. Madhupuri Steel Suppliers, Baroda by the assessee. Personal user of he vehicle could no be ruled out. Accordingly, this ground of appeal of the assessee is dismissed.
14. On ground No.5 of the appeal, the assessee challenged levy of interest u/s 234B of the IT Act which is mandatory and consequential in nature. This ground is accordingly dismissed.
15. There is no other ground in the appeal of the assessee as well as in the departmental appeal.
16. In the result, the appeal of the assessee is partly allowed for statistical purposes. The departmental appeal is allowed for statistical purposes. The Cross Objection of the assessee is dismissed being not maintainable and infructuous.
Order pronounced in the open Court on 16-12-2010 Sd/- Sd/-
(G. D. AGARWAL) (BHAVNESH SAINI)
VICE PRESIDENT JUDICIAL MEMBER
Date : 16-12-2010
Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad