Income Tax Appellate Tribunal - Kolkata
M/S. Modern Malleables Ltd., Kolkata vs Acit, Central Circle - Xxvii, Kolkata, ... on 30 August, 2017
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1
Assessment year: 1996-1997 &
I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6
A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7
Page 1 of 35
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member and
Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 908/KOL/ 2011
Assessment Year: 1996-1997
M/s. Mo dern Malleables Limi ted,............. ...............................Appellant
53, Mirza Ghalib Street,
Kolkata-700 016
[PAN:AABCM 5669 D ]
-Vs.-
Deputy Commissioner of Income Tax,........ .............................Respondent
Circle-8, Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
&
I .T.A. No. 1888/KOL/ 2016
Assessment Year: 1996-1997
Deputy Commissioner of Income Tax,........ .............................Appellant
Circle-15(2 ), Ko lkata,
Aayakar Bhawan Po orva,
110, Shanti Pally,
Kolkata-700 107
-Vs.-
M/s. Mo dern Malleables Limi ted,............. ...............................Respondent
53, Mirza Ghalib Street,
Kolkata-700 016
[PAN:AABCM 5669 D ]
Appearances by:
Shri J.P. Khaitan, A.R. & Shri A.K. Gupta, A.R. , for the assessee
Md. Usman, CIT , D.R., for the Depart ment
Date of concluding th e hearing : Ju ly 26, 2017
Date of pronouncing the order : Au gust 30, 2017
O R D E R
Per Shri P.M. Jagtap, A.M..:
Out of these two appeals, one appeal being ITA No. 1888/KOL/2016 is the appeal of the Revenue, which is directed against the order of the ld.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 2 of 35 Commissioner of Income Tax (Appeals)-12, Kolkata dated 24.06.2016 passed in the quantum proceedings, while the other appeal being ITA No. 908/KOL/2011 is the appeal of the assessee, which is directed against the order of ld. Commissioner of Income Tax (Appeals), Central-II, Kolkata dated 31.03.2011 passed in the penalty proceedings. Since the issues involved in both these appeals are inter-linked, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience.
2. First we take up the appeal of the Revenue for A.Y. 1996-97 being ITA No. 1888/KOL/2016. The issue involved in Ground No. 1 of this appeal relates to the deletion by the ld. CIT(Appeals) of the disallowance of Rs.8,22,42,335/- made by the Assessing Officer on account of assessee's claim for the purchases of imported raw materials from Gerald Metal, Switzerland and Euromin S.A. Geneva.
3. The assessee in the present case is a Company, which is engaged in the business of manufacturing of transmission line hardware and accessories. The return of income for the year under consideration was originally filed by it on 29.11.1996 declaring a total income of Rs.56,35,160/-. A search and seizure action under section 132 was conducted in the case of the assessee on 03.09.1997 as well as on subsequent dates. Thereafter a revised return was filed by the assessee on 06.11.1997 declaring a loss of Rs.5,83,30,250/- after claiming, inter alia, a deduction on account of purchases amounting to Rs.8,22,42,335/-. The stand of the assessee was that there was a mistake in not debiting the purchase of imported raw materials amounting to Rs.8,22,42,335/- although sale of said materials was booked in the sales account and this mistake was rectified in the revised return filed on 06.11.1997. In the assessment originally completed under section 143(3) vide an order dated 31.03.1999, this stand of the assessee was not accepted by the Assessing Officer and the total income of the assessee was determined by I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 3 of 35 him at Rs.5,54,31,939/-. The said assessment was the subject matter of appeals and when the matter travelled to the Hon'ble Calcutta High Court, it was sent back by Their Lordships of the Hon'ble Calcutta High Court to the Assessing Officer to arrive at a definite finding as regards the claim of the assessee for purchase of imported raw materials of Rs.8,22,42,335/-. The Assessing Officer was also directed by the Hon'ble Calcutta High Court to find out the real nature of the transactions after affording sufficient and proper opportunity to the assessee of being heard. During the course of the set aside proceedings before the Assessing Officer, the assessee submitted the relevant details in support of its claim of purchase of raw materials in question along with the documentary evidence in the form of bill of lading, invoice, debit note, etc. It was also submitted by the assessee before the Assessing Officer that the said purchases of imported raw materials have been wrongly debited to the account of M/s. JJH Industries Limited, one of its sister concern to whom the said imported material was ultimately sold instead of purchase account. It was contended that the said purchases of imported raw materials thus were not debited to the purchase account, although the corresponding sales thereof was duly credited to sales account. The relevant details of the purchases of imported materials from two parties were also furnished by the assessee, which as given by the Assessing Officer in tabular form in the assessment order were as under:-
"From Euromin:
Sl. No. Particulars Date Amount
1. Bill of lading(MV Ramdas, 25.08.1994 $15,76,688
(Vessel)
2. Invoice(985 MT) 25.08.1994 $15,76,688
3. Payment 06.04.1995 Rs.4,70,07,261/-
05.07.1995 Rs.52,28,082/-
4. Debit Note advice 05.07.1995 Rs.5,22,35,343/-
(Rs.4,96,94,684/-
material value
rest interest)
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1
Assessment year: 1996-1997 &
I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6
A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7
Page 4 of 35
From Gerald Metals:-
Sl. No. Particulars Date Amount
1. Bill of lading 19.07.1995 $8,98,858.08
2. Invoice(P-50440W) 19.07.1995 $15,76,688
3. High sea sale to JJH 30.09.1995
4. Payment 29.01.1996 Rs.3,15,88,829/-
22.03.1996 Rs.25,00,000/-
Debit Note advice 03.04.1996 Rs.3,40,44,753/-
(Allahabad Bank)
In order to verify the claim of the assessee for the aforesaid purchases from the relevant documentary evidence, an Inspector was deputed by the Assessing Officer. From the relevant details furnished by the assessee, it was noticed by the Assessing Officer that the bill of lading as well as invoices in respect of purchases from Euromin S.A. Geneva were dated 25.08.1994 showing that the relevant materials were loaded on ship on 25.08.1995 itself. As further noticed by the Assessing Officer, payments against the said purchases, however, were made only on 06.04.1995 and 05.07.1995, i.e. after the gap of approximately eight months. In this regard, it was explained by the assessee that the payments were made only after receipt of materials. According to the Assessing Officer, the materials thus were shifted to India after eight month from its loading which was very unusual. As the assessee could not offer any satisfactory explanation in respect of this inordinate delay, the Assessing Officer held that the claim of the assessee of having purchased the materials from Euromin S.A. Geneva was not proved.
4. As regards the purchases claimed to be made by the assessee from Gerald Metal, Switzerland, the Assessing Officer noticed that the bill of lading as well as invoice were of the same date, i.e. 19.07.1995. In this regard, the claim of the assessee was that the said material was sold to M/s. JJH Limited, one of its sister concerns in transit as high-sea-sale on I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 5 of 35 30.09.1995. The Assessing Officer found that the payments against the purchases made from Gerald Metal, Switzerland, however, were made by the assessee only on 19.01.1996 and 22.03.1996, i.e. after a gap of more than six months. This delay was again explained by the assessee b y stating that the payments were made to Gerald Metal, Switzerland only upon receipt of material. According to the Assessing Officer, the assessee, however, could not produce any evidence to prove that the material was actually received in India by the assessee or by M/s. JJH Limited. He, therefore, held that there was a failure of the assessee to prove that actual purchase had taken place from Gerald Metal, Switzerland during the year under consideration. He also noted that the assessee could not produce any reconciliation of material flow, i.e. opening stock, purchase, consumption/sale and closing stock to support and substantiate its claim for purchase of imported materials in question. Accordingly, the deduction claimed by the assessee on account of purchase of imported materials was disallowed by the Assessing Officer in the fresh assessment completed vide an order dated 30.03.2013 as per the direction of the Hon'ble Calcutta High Court.
5. Against the order of the Assessing Officer dated 30.03.2013, the assessee again went in appeal before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), the submissions made before the Assessing Officer in support of its claim of purchase of imported materials in question were reiterated by the assessee. It was also submitted by the assessee that the Assessing Officer had not appreciated the relevant details and documents furnished by the assessee in support of its claim of purchase of raw materials in question and the said purchases were held to be not genuine by him merely on the basis that there was a delayed payment. The list of documents submitted before the Assessing Officer in support of its claim for the said purchases was also filed by the assessee before the ld. CIT(Appeals), which as I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 6 of 35 extracted by the ld. CIT(Appeals) on page 5 & 6 of his impugned order, is given hereunder:-
For materials received from Euromin SA Sl. No. Particulars Pg. No. in PB
1. Copy of bill of lading in relation 1-2 2. Copy of invoice from Euromin SA 3
3. Copy of the bills of the Warehousing Agent 4-50 4. Copy of the Ledger of Euromin SA 51
5. Copy the Bank voucher in relation to payment 52 to Euromin SA 6. Copy of the payment advice from Allahabad 53 Bank
7. Copy of the journal voucher passed in relation 54 to Euromin SA
8. Copy of the Bank statement showing payment 55-56 9. Copy of the debit note raised by Modern 57 Malleables on JJH Industries Ltd. for Rs.1,49,12,200 10. Copy of the debit note raised by Modern 58 Malleables on JJH Industries Ltd. for Rs.1,32,10,000 11. Copy of the debit note raised by Modern 59 Malleables on JJH Industries Ltd. for Rs.1,21,43,100
12. Copy of credit note received from JJH Industries 60 Limited for Rs.89,31,552/-13. Copy of the debit note raised by Modern 61
Malleables on JJH Industries Ltd. for
Rs.40,77,100
14. Copy of ledger of JJH Industries Ltd. 62-63
15. Copy of the annual report for the financial year 64-83 1996-97 For materials received from Gerald Metals SA Sl. No. Particulars Pg. No. in PB 1. Copy of the Invoice 84 2. Copy of the Bill of Lading 85
3. Copy of the High Sea Sale Agreement with JJH 86-87 Industries Ltd.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 7 of 35
4. Copy of the Invoice raised on JJH Industries Ltd. 88 5. Copy the Ledger of Gerald Metals SA 89
6. Copy of the journal voucher passed in relation 90-91 to Gerald Metals.
7. Copy of Bank voucher 928. Copy of the payment advice from Allahabad 93 Bank
9. Copy of the invoice of the Warehousing Agent 94-96 It was brought to the notice of the ld. CIT(Appeals) by the assessee that the Assessing Officer had deputed an Inspector to verify the above documents but the copy of the Inspector's report on such verification was never provided to the assessee. It was also brought to the notice of the ld. CIT(Appeals) by the assessee that there was a mistake in not debiting the purchase of imported material in question to the Profit & Loss Account and instead the same were debited to the account of M/s. JJH Industries Limited resulting in inflation of sundry debtors account while the cost of materials remained deflated. It was submitted by the assessee that this mistake was specifically pointed out to the Assessing Officer, but he failed to appreciate the same. It was submitted by the assessee that the imported materials in question purchased by it was sold to M/s. JJH Industries Limited and even though there was a search conducted in the case of the said concern on 03.09.1997, no addition or disallowance was made in the case of M/s. JJH Industries Limited either in the original assessment or even in the block assessment on account of the purchase of the said material made from the assessee. It was contended that the genuineness of the said purchases thus was accepted by the Department in the case of M/s. JJH Industries Limited. It was contended that the genuineness of the purchases in question was doubted by the Assessing Officer merely on the basis of delayed payments ignoring that the delayed payments could be for various reasons. It was submitted that the imported material was received by the assessee on the basis of Letter of Credit issued by the Allahabad Bank and even the payments advice I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 8 of 35 received from Allahabad Bank clearly mentioned the corresponding bill of lading numbers. It was also pointed out from the bill of Forwarding Agent that the Forwarding Agent himself had received the goods only after three month. The attention of the ld. CIT(Appeals) was also drawn by the assessee to the details provided to the Assessing Officer to show the transfer of material to warehousing agent as the goods were pledged to Allahabad Bank. It was contended by the assessee before the ld. CIT(Appeals) that the documentary evidence filed by it before the Assessing Officer was sufficient to support and substantiate its claim of having made the purchases of raw material from the concerned two parties and the disallowance made by the Assessing Officer on account of the said purchases was based only on surmises and conjectures.
6. The submissions made by the assessee found merit with the ld. CIT(Appeals) and he proceeded to delete the disallowance made by the Assessing Officer on account of assessee's claim for purchase of raw materials for the following reasons given in his impugned order:-
"The submissions of the appellant have been carefully considered and I have also perused the assessment order. In light of the above paragraphs, it can be seen that the A.O has disallowed the purchases holding them to be not an actual only on the fact that the payments made was delayed. The Assessing Officer has not controverted the fact that the actual payment was made and delivery of the goods were taken and the AO also accepted that the material were shipped to India.
The Assessing Officer has also not controverted the fact that the subsequent sale made to group-company which was also assessed under the search and seizure provisions of the Income Tax Act, 1961. The appellant had provided all the documents in relation to payment made to the Foreign Vendors and also provided copies of the clearing agents and warehousing agent. Thus by merely stating that the payment was delayed and suspecting such purchase is without any basis and is liable to be set aside. As per the assessment order, the Inspector was deputed to verify these documents from respective issuing authorities and his report was placed on record. As there is no further mention of the I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 9 of 35 Inspector's report in the assessment order, it can be safely inferred that the report did not find any discrepan cy in the documents relied upon by the assessee. The Appellant's case is further strengthened on the fact that the Appellant had immediately revised the return, and the said revised return was not at all considered by the Assessing Officer".
7. The ld. D.R. submitted that the claim in respect of purchase of imported materials in question was made by the assessee in the revised return filed for the year under consideration and the same was rejected by the Assessing Officer in the assessment originally completed. He submitted that the said assessment was the subject matter of appeal and when the matter reached to the Hon'ble Calcutta High Court, it was remanded by the Hon'ble Calcutta High Court to the Assessing Officer for deciding the real nature of transactions after giving an opportunity to the assessee to prove their case. The Assessing Officer was also directed by the Hon'ble Calcutta High Court to arrive at a definite finding as to the outcome of the transactions on the basis of the material on record. He submitted that the issue accordingly was re-examined by the Assessing Officer and the claim of the assessee for the purchase of imported materials was again rejected by him for the reasons given in paragraph no. 2.3 to 2.6 of the assessment order. He invited our attention to the relevant portion of the assessment order to point out that there was an inordinate delay on the part of the assessee to make payments against the purchase of raw materials in question and the said delay could not be satisfactorily explained by the assessee. He also pointed out that the assessee even could not produce any evidence to prove that the relevant imported raw material was actually received by them. He submitted that the assessee even failed to establish the flow of imported raw material claimed to be purchased by them. He contended that the ld. CIT(Appeals), however, failed to appreciate these adverse findings recorded by the Assessing Officer while allowing the claim of the assessee for the purchase of imported materials in question. He contended that the further movement or utilization of the imported material in question I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 10 of 35 claimed to be purchased by the assessee was also not verified or examined by the ld. CIT(Appeals). According to him, the ld. CIT(Appeals) was also not justified in taking without any basis the report of the Inspector to be in favour of the assessee.
8. The ld. D.R. invited our attention to the modified/rectified balance- sheet of the assessee-company as on 31.03.1996 placed at page no. 128 of the paper book to point out that there was a change in the figure of sundry debtors to the extent of the amount of purchase of imported material in question. In this regard, his contention was that it is not clear how the unaccounted purchase as claimed by the assessee will have effect on sundry debtors. He contended that even the changes made by the assessee in the quantitative details of raw materials as given on page no. 137 were not supported by any documentary evidence. He contended that the claim of the assessee of having purchased the imported material in question thus was not conclusively proved on evidence and the Assessing Officer was fully justified in disallowing the same.
9. The ld. counsel for the assessee, on the other hand, took us through the relevant portion of the judgment of the Hon'ble Calcutta High Court remanding the matter to the Assessing Officer to point out that the specific findings recorded by Their Lordships on the claim of the assessee for the purchase of imported materials in question were in favour of the assessee. He contended that the matter was sent back on remand to the Assessing Officer by the Hon'ble High Court for the specific purpose of deciding the real nature of transactions and arrive at a definite finding as to the outcome of the transactions on the basis of material on record. He submitted that when the list of documentary evidence was furnished by the assessee before the Assessing Officer, an Inspector was deputed by the Assessing Officer to verify the same. He invited our attention to the copy of the Inspector's report placed on record and submitted that all the I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 11 of 35 findings recorded by the Inspector after verification were in support of the assessee's claim for the purchase of imported materials in question.
10. The ld. counsel for the assessee then took us through the copies of the relevant documents filed by the assessee before the Assessing Officer in support of its claim for the purchase of imported material in question as placed in paper book. He invited our attention to the copy of bill of lading dated 25.08.1994 placed at page no. 1 of the paper book to show that 702 pieces of Primary Aluminium Wire Rods were despatched by Euromin S.A. Geneva to the assessee through Shipping Corporation of India. He also invited our attention to the copy of invoice dated 25.08.1994 raised by Euromin S.A. Geneva on the assessee for the supply of the said material weighing 985.08 Metric Ton for a total consideration of US Dollar 15,76,608. He also pointed out from the said invoice that the said purchase was made against irrecoverable Letter of Credit issued by Allahabad Bank. He then drew our attention to the copy of bill of Clearing Agent M/s. S.B. International dated 21.04.1995 to show that the material despatched by Euromin S.A. Geneva was received in India only in April, 1995. He then invited our attention to the debit note advice issued by Allahabad Bank in July, 1995 to show that the payment of Rs.4,96,09,468/- was made on behalf of the assessee by Allahabad Bank to Euromin S.A. Geneva. He also pointed out from the said advice that interest of Rs.20,92,925/- was charged by the Allahabad Bank to the assessee calculated @ 18.5% for the delay in payment made to Euromin S.A. Geneva. He then referred to the copy of ledger account of Euromin S.A. Geneva in the books of the assessee placed at page no. 51 of the paper book to show that the amount paid by Allahabad Bank to the said party was duly debited in their ledger account on 01.08.1995 but instead of adjusting the same against the purchase account, the entry was squared off by debiting M/s. JJH Industries Limited A/c. instead of purchase account. He also invited our attention to the copies of various delivery challans issued by S.B. International placed at page no. 5 to 15 of I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 12 of 35 the paper book to show that the entire material received from Euromin S.A. Geneva was transferred to the godown of James Alexander & Co. Limited for storing in their godown and also invited our attention to a letter dated 23.04.1995 issued by M/s. James Alexander & Co. Limited acknowledging the receipt of the said material in their warehouses which was pledged to Allahabad Bank. He also invited our attention to a copy of letter dated 25.04.1995 issued by Allahabad Bank to James Alexander & Co. Limited advising them not to release the said material without the consent of the Bank. He submitted that the consent was finally given by Allahabad Bank on 18.07.1995 (copy of letter at page no. 181 of the paper book) to release the goods to M/s. James Alexander & Co. Limited and accordingly the material was transferred/sold to M/s. JJH Industries Limited for which debit notes amounting to Rs.4,02,65,300/- (copies at page no. 57-59 of the paper book) were raised on 30.03.1996. He contended that there was sufficient documentary evidence thus furnished by the assessee to support and substantiate not only its claim of purchase of imported material in question but the sale thereof to M/s. JJH Industries Limited. He also took us through the similar documentary evidence placed in his paper book at pages 84 to 96 in order to support and substantiate the claim of the assessee for purchase of imported material from M/s. Gerald Metal, Switzerland and the sale of the said material to M/s. JJH Industries Limited in transit on high-sea. He contended that the amounts of both these purchases as paid through Ban k were duly debited by the assessee in the ledger account of the concerned parties but while crediting their accounts, the corresponding amounts were debited wrongly to the account of M/s. JJH Industries Limited instead of purchase account. He contended that is how the sundry debtors figure in the balance-sheet was inflated by the amount of purchase of imported material in question and after rectification, the said figure was reduced to that extent. He also took us though the ledger account of M/s. JJH Industries Limited as per the books of the assessee to support and substantiate this contention. He submitted that these wrong entries, I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 13 of 35 however, were duly rectified by the assessee-company in its books of account for the immediately succeeding year and pointed out such rectification entries made from the copies of the relevant ledger account placed on record. He also pointed out from the copy of assessment order made in the case of M/s. JJH Industries Limited under section 158BC of the Act that the corresponding sale made by the assessee of the imported raw material in question was accepted by the Department in the case of the said party and there was no disallowance made on account of any bogus or unproved purchases. He contended that the claim of the assessee for purchase of imported raw material in question thus was duly supported and substantiated by the relevant documentary evidence placed on record by the assessee and the ld. CIT(Appeals) was fully justified in accepting the said claim on appreciation of the said evidence.
11. In the rejoinder, the ld. D.R. submitted that the Inspector's report does not contain any specific finding and it shows that the enquiry made by him after a long gap did not yield any specific results. He also submitted that M/s. JJH Industries Limited is a sister concern of the assessee and the documentary evidence of the said party, therefore, cannot be relied upon being self-serving evidence. He contended that there is no conclusive evidence to show the actual movement of goods and in the absence of the same, claim of the assessee for purchase of imported material in question remains unproved.
12. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the claim for deduction on account of purchase of imported material in question was made by the assessee in the revised return filed for the year under consideration on 06.11.1997. In the assessment originally completed under section 143(3) vide an order dated 30.03.1999, the said claim was disallowed by the Assessing Officer. The said assessment was the subject matter of appeal and when the matter travelled to the Hon'ble Calcutta I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 14 of 35 High Court, the following observations were recorded by the Hon'ble Calcutta High Court after hearing the arguments of both the sides before sending the matter back to the Assessing Officer on remand:-
"After hearing the learned counsel for the .parties and after going through the materials on records, we find that there is no dispute that the assessee imported from two Swiss companies aluminium ingots worth Rs.8,22,42,335/ - and those were sold to an Indian company, viz. JJH Industries Ltd. Those facts are proved by the documentary evidence and the Assessing Officer has also not disputed the fact. It appears that upon payments to the Swiss suppliers, their respective accounts were debited and after sale to JJH, the account of JJH was debited with corresponding credit to the revenue account. We find, substance in the contention of Mr. Khaitan, the learned counsel for the assessee, that the accounts of the Swiss suppliers to which debits had been made upon payment for the imported goods should have been closed by transferring the purchase account but instead of that, the accounts of the Swiss suppliers were closed by transfer to the account of J. J. H. under head "Advance" and consequently, for the sale of the imported materials to J. J. H., the income stood accounted for but there was no debit to the purchase account by way of expenditure and instead of that, the account of J. J. H. stood debited twice, once at the time of sale and again upon the closer of Swiss suppliers' accounts. Thus, no expenditure for the purchase of the imported materials was charged in the accounts although the income upon the sale thereof was reflected in the accounts. It appears that on discovery of such mistake, the assessee passed a rectification entry in its accounts for the subsequent previous year ended September 30, 1997 and in the subsequent year, the assessee did not claim any deduction in respect of the said sum of Rs. 8,22,42,335/-.
All the authorities; below refused to go into the question of rectification of the said mistake on the sole ground that It was not a bonafide mistake but a deliberate and fictitious entry and thus, should not be rectified. In our opinion, even if we assume for the sake of argument that it was a case of deliberate' and fictitious entry, it is the duty of the Income tax authority to find out the teal nature of the transaction behind the said entry and to pass appropriate order of assessment in accordance with law. Merely because an assessee has made a wrong or even fictitious entry in the accounts, such fact cannot be a ground for accepting such wrong or fictitious entry. In the ca se before us, the assessee itself has come up with revised return and thus, it is the duty of the Assessing authority to pass necessary order on I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 15 of 35 the basis of the materials on record. It is well-known that the doctrine of estoppel is not applicable against the statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either liable to tax under the taxing statute or it is not. If it is not, the Income Tax Officer has no power to impose tax on the said income (Commissioner of Income Tax, Madras Vs. V. MR. P. Firm Muar '" AIR 1965 SC 1216".
13. As rightly submitted by the ld. counsel for the assessee, the aforesaid observations recorded by Their Lordships of Hon'ble Calcutta High Court were substantially in favour of the assessee, inasmuch as, a finding was given after hearing the parties and after going through the materials on record that there was no dispute that the assessee had imported from two Swiss Companies Aluminium ingots worth Rs.8,22,42,335/- and those there sold to an Indian Company namely M/s. JJH Industries Limited. It was also specifically mentioned by the Hon'ble Calcutta High Court that these facts were proved by the documentary evidence. It was also clearly mentioned that due to the wrong accounting entries made by the assessee-company in its books of account, the sale of imported materials to M/s. JJH Industries Limited stood accounted for as income but there was no debit to the purchase account by way of expenditure. As noted by the Hon'ble Calcutta High Court, no expenditure for the purchase of imported materials thus was charged in the accounts of the assessee-company, although the income upon the sale thereof was reflected in the accounts. Hon'ble Calcutta High Court also took note of the fact that on discovery of the said mistake, rectification entry was passed by the assessee-company in its books of account for the immediately succeeding year but the deduction on account of purchase of raw material in question was claimed by the assessee-company in the year under consideration and not in the subsequent year. After recording these findings/observations categorically in favour of the assessee, Hon'ble Calcutta High Court considered the case of the Revenue of I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 16 of 35 questioning the rectification entry passed by the Assessing Officer on the sole ground that it was not a bonafide mistake but a deliberate and fictitious entry. In this regard, it was held by the Hon'ble Calcutta High Court that even if it was to be assumed for the sake of arguments that it was a case of deliberate and fictitious entry, it was the duty of the Income-Tax Authority to find out the real nature of transaction behind the said entry and for this purpose, the matter was sent back on remand to the Assessing Officer for deciding the real nature of transaction after arriving at a definite finding as to the outcome of the transaction on the basis of the materials on record. When this matter was taken up by the Assessing Officer for examination as per the direction of the Hon'ble Calcutta High Court, the documentary evidence in support of its claim for purchase of imported raw material in question was filed by the assessee, the list of which, as given by the Assessing Officer on pages no. 5 & 6 of the assessment order, is already reproduced by us in the foregoing portion of this order. In order to verify the said documentary evidence, an Inspector was deputed by the Assessing Officer and it is worthwhile to refer to the Inspector's report submitted to the Assessing Officer on 28.03.2013 on verification of the documentary evidence filed by the assessee, which is extracted below:-
"lNSPECTION REPORT As directed, by D.C.I.T. Circle-8, Kolkata I personally visited the following address in connection with scrutiny proceeding of M/s. Modern Malleables Ltd [PAN: AABCM5669D] for the AY 1996-97.
I met with Mr. Suresh Manual Raphael, Sr. Manager (Forex) [Xerox copy of visiting card enclosed] Allahabad Bank, International Branch, 119 Park Street, Kolkata-16, who is the overall in charge of Import-Export transaction of International Branch of Allahabad Bank, Kolkata and asked about the two purchases from Gerald Metals, Switzerland & Euromin SA Geneva. In reply, Mr. Suresh Manual Raphael said that since the matter is very old being more than fifteen years the documents are not readily available with them. However, he went through the documents of bank produced by the assessee &-"'verbally confirmed that these transaction have been routed through this branch of the bank.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 17 of 35 For verification of documents he suggested to come later. I visite d the bank again on 26.03.2013. The Sr. Manager (Forex) of Allahabad Bank, International Branch, Park Street, Kolkata has verified the following documents (certified true copy of the following documents is enclosed herewith)
a) Euromin S.A, Geneva :- AlIahabad Bank advice dated 05.07.1995 debiting Rs.4,70,07,261/- on 06.04.1995 and Rs.52,28,082/- on 05.07.1995, Bank Statement for debiting Rs.4,70,07,261/- on 06.04.1995 and Rs.52,28,0821- on 05.07.1995 invoice dated 25.08.1994 along with Bill of Lading, Packing List & Certificate of Analysis.
b) Gerald Metals Switzerland:- Allahabad Bank debit advice dated 03,04.1996 debiting Rs.3,15,88,8291- on 29.0l.1996 and Rs.25,00,000/- on 22.03.1996, Bank Statement, Invoice, Bill of Lading & Packing List.
I inspected the office of J.C.Banerjee & Sons, Clearing Agent, 15/1 Strand Road, Customs House, Kolkata-1 where Mr. Susanta Chakraborty, the partner of the firm was available and confirmed that the bill No.-911 & 912 dated 02.11.1995 (annexure 6 & 6A of assessee's submission was prepared and signed by him only at the time of Imports. (Certified true copy of the said bills enclosed.) I also inspected the clearing agent M/s. S.B. International whose office has shifted from New Customs House, 15/1 Strand Road, Kolkata - 700001 to 3A, Garstin Place, 6th floor, Kolkata-1 where I met Mr. Biswas who was aware of the transaction. He said since the matter was more than fifteen years old no document were readily available with them but he verbally verified the documents produced by the company.
I visited the warehouse named M/s. James Alexander & Co where the imported materials were kept. The said warehouse has been closed and the land has been sold to Merlin Group and a new multi-storied apartment named Merlin Riverside Apartment 15, Kabitirtha Sarani, Kidherpore, Kolkata - 23 has been built up there. I met Mr. Lakhan Ghosh, Club Manager the said apartment & Mr. M.A. Karim residing at 3F, Wave, Merlin Riverside Apts. and came to know that the warehouse has been closed in 2004. It was found from there Head Office at Mc Leod House, 3A N.S.Road, Kolkata where I met Mr. Khemka (Accountant) and who verbally confirmed that material as per signature on challan of S. B. International were receipted by Mr. Dubey who was working in their warehouse during that time.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 18 of 35 I visited the office of the assessee at 53B, Mirza Galib Street, Kolkata -16 and went through the ledgers of the parties, I found from the ledger as provided by the assessee that in 1995-96 the entries were passed without debiting the purchase a/c. Subsequently, rectification entries were passed in subsequent accounting year. (Certified copy of ledger of Gerald Metals for the period 1995-96, Voucher nos.J03884, BP1300, BP1301, J0385 ledger of Euromin for the period 1995-96, Voucher nos.-BP0330, J03659, ledger of JJH Inds. Ltd. for the period 1995-96 & 1996-97 Allahabad bank advice note and statement are enclosed herewith):-
I also visited the office of JJH Industries Ltd. (Now M/s. Eri- Tech Ltd.) 9, Transport Depot Road, Kolkata - 88 to verify the books of account. I met Mr. M. Dasgupta (Mgr.) who explained that the said Books of Accounts has been seized by the Income Tax Department during the course of search and seizure held on 03.09.1997 and are not available with them. Certified true copy of Retention of seized books of accounts and documents issued by the office of AC.I.T., Central Circle-XXVII, 18 Rabindra Sarani, Kolkata dated 08.03.2007 is enclosed herewith.
Submitted on 28.03.2013.
Sd/-
( Chiradip Sarkar.) (Inspector)".
14. A perusal of the report submitted by the Inspector to the Assessing Officer clearly shows that the documentary evidence filed by the assessee in support of its claim for purchase of imported material in question was cross verified by the Inspector with the concerned parties, such as Allahabad Bank, Clearing Agent J.C. Banerjee & Sons and S.B. International, M/s. James Alexander & Co. Limited, whose warehouse was used by the assessee to keep the imported materials. As reported by the Inspector, all these parties had confirmed the relevant transactions and there was nothing adverse reported by the Inspector on such verification disputing or even doubting the genuineness of the transactions of the assessee-company involving the purchase of imported materials in question. As reported by the Inspector, he also visited the office of the assessee and verified the relevant entries including the rectification I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 19 of 35 entries passed by the Assessing Officer in the subsequent accounting year. He also visited the Office of M/s. JJH Industries Limited to verify the claim of the assessee of having sold the imported material in question purchased by it from the books of account of the said party. But the same could not be done as the books of account of the said party were in the custody of the Income Tax Department at the relevant time. Although in the assessment order passed by him, the Assessing Officer has made a passing reference to the report submitted by the Inspector, but he has not discussed the same. He appears to have completely overlooked the positive findings given by the Inspector on verification of the documentary evidence furnished by the assessee to support and substantiate its claim for purchase of imported materials in question.
15. At the time of hearing before us, the ld. counsel for the assessee has taken us through the copies of the relevant documentary evidence furnished by the assessee before the Assessing Officer as placed in the paper book to show that the claim of the assessee for purchase of imported materials in question is duly supported and substantiated by the relevant documentary evidence. As pointed out by him from the copy of bill of lading placed at page no. 1, 702 pieces of primary aluminium wire rods were despatched by the Euromin S.A. Geneva to the assessee on 25.08.1994 through the Shipping Corporation of India and an invoice (copy placed at page no. 3 of the paper book) was also raised by the said party on the assessee for supply of the said material on the said date for US Dollars 15,76,608. As specifically mentioned in the said invoice, the material was supplied to the assessee against the irrecoverable letter of credit issued by Allahabad Bank. As per the bill of Clearing Agent M/s. S.B. International (copy placed at page no. 4 of the paper book), the said material was landed in India on 21.04.1995 and on clearing the same after completing customs formalities, the same was delivered by S.B. International to the warehouse of James Alexander & Co. in the month of April, 1995 itself as per the various delivery challans, the copies of which I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 20 of 35 are placed at pages no. 5 to 50 of the paper book. Vide letter dated 23.04.1995 (copy at page no. 175 of the paper book), James Alexander & Co. Limited had acknowledged the receipt of the said material informing it to Allahabad Bank that the same belonging to the assessee-compan y and pledged with the Allahabad Bank was lying in their warehouses. Vide a letter dated 18.07.1995, Allahabad Bank finally gave it consent to M/s. James Alexander & Co. to release the materials stored in their godown in favour of the assessee and the same thereafter was supplied by the assessee to M/s. JJH Industries Limited for which debit notes were raised belatedly in the month of March, 1996 (copies at page no. 57-59 of the paper book). Meanwhile as per the advice issued by Allahabad Bank on 05.07.1995 (copy at page no. 53 of the paper book), a payment of Rs.4,96,94,684/- was released in favour of the Euromin S.A. Geneva on behalf of the assessee and the entry for the same was made by the assessee in its books of account by debiting the account of Euromin S.A. Geneva on 01.08.1995 ( copy of ledger account at page no.51 of the paper book). A perusal of the ledger account of Euromin S.A. Geneva shows that the said account was squared off by the assessee on 30.03.1996 by making a corresponding entry whereby the account of M/s. JJH Industries Limited was debited instead of purchase account. The purchase account thus remained to be debited on account of purchase of imported materials by the assessee from Euromin S.A. Geneva and the amount to that extent was debited to the account of M/s. JJH Industries Limited thereby inflating the figure of sundry debtors. An identical mistake happened even in case of purchase of imported material by the assessee from M/s. Gerald Metal, Switzerland as is demonstrated by the ld. counsel for the assessee from the similar documentary evidence placed at pages no. 84 to 96 of the paper book.
16. It is thus clear that sufficient documentary evidence was produced by the assessee before the Assessing Officer to support and substantiate its claim for purchase of imported materials in question, which was made I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 21 of 35 in the revised return of income. It appears that the Assessing Officer, however, brushed aside the said evidence while disallowing the claim of the assessee for the said purchases by treating the same as unproved/unexplained. He also appears to have overlooked the specific observations recorded by the Hon'ble Calcutta High Court in the judgment dated 29.04.2011 while sending the matter back to him on remand. As already noted by us, a specific finding was recorded by Their Lordships of Hon'ble Calcutta High Court after hearing both the parties and after going through the materials on record that there was no dispute that the assessee had imported from two Swiss Companies Aluminium Ingots worth Rs.8,22,42,335/- and those were sold to an Indian Company namely M/s. JJH Industries Limited. The fact that there was a mistake committed by the assessee in recording the said transactions was also taken note of by the Hon'ble Calcutta High Court and it was observed in this regard that as a result of the said mistake, no expenditure for the purchase of imported material was charged in the accounts of the assessee-company, although the income upon the sale thereof was reflected in the accounts. The entry passed by the assessee-company in its books of accounts for the subsequent years to rectify the said mistake was also considered by the Hon'ble Calcutta High Court but keeping in view that the said entry was treated by the authorities below as fictitious entry, the matter was finally sent back by the Hon'ble Calcutta High Court on remand to the Assessing Officer to find out the real nature of transaction behind the said entry. The Assessing Officer was directed in this regard by the Hon'ble Calcutta High Court to come to a definite conclusion and arrive at a definite finding as to the outcome of the transactions on the basis of the materials placed on record. As per the direction of the Hon'ble Calcutta High Court, an Inspector was deputed by the Assessing Officer to verify the relevant documentary evidence filed by the assessee in support of its case on the issue under consideration. The Inspector accordingly not only verified the relevant entries passed in the books of account of the assessee-company but also made enquiries directly with the concerned I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 22 of 35 Bank as well as Clearing Agents. As already noted by us from the report submitted by the Inspector to the Assessing Officer, all these parties with whom enquiry was made by the Assessing Officer confirmed the relevant transactions. But this report submitted by the Inspector, which was completely in favour of the assessee, again was not taken into consideration by the Assessing Officer while deciding the issue, although a passing mention was made by him to the said report in the assessment order.
17. The position that emerges from the perusal of the relevant record available before us is that the Assessing Officer while disallowing the claim of the assessee for purchase of the imported materials in question not only ignored/overlooked the overwhelming evidence produced by the assessee in support of its claim but also the specific observations/findings recorded by the Hon'ble Calcutta High Court in its judgment as well as that of the Inspector as recorded in the report submitted to him.
18. A perusal of the assessment order shows that the Assessing Officer disallowed the claim of the assessee for the purchase of imported materials in question for two reasons. Firstly, there was an inordinate delay of about 7-8 months in the payments made by the assessee against the corresponding purchases, which according to the Assessing Officer, could not be satisfactorily explained by the assessee. As pointed out by the ld. counsel for the assessee in this regard, there was a delay in the arrival of the imported material in India and the same was clearly evident from the copies of the relevant bills of lading as well as bills of Clearing Agents. Moreover, the imported material was supplied against irrecoverable Letter of Credit and the concerned Bank, i.e. Allahaba d Bank took some further time to clear the payments which again caused the delay resulting into payment of interest by the assessee-company as recovered by the said Bank. The relevant documentary evidence produced I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 23 of 35 by the assessee thus was self-explanatory as regards the delay in payment, which the Assessing Officer, in our opinion, failed to appreciate.
19. The second reason given by the Assessing Officer to dispute the claim of the assessee for the purchase of imported materials in question was that the assessee could not establish the material flow. As we have already seen from the relevant documentary evidence placed by the assessee on record that the imported material on its arrival was cleared and collected by the concerned Clearing Agents on behalf of the assessee and the same was forwarded to the warehouses under their delivery charges for storage purpose. The said material pledged with the Bank was subsequently released from the warehouses on the advice of the Bank and the same was delivered directly to M/s. JJH Industries Limited to whom the same was sold by the assessee as is evident from the corresponding Debit and Credit Notes issued by the concerned parties. Sufficient documentary evidence thus was placed on record by the assessee to establish the complete trail of the material imported by it and sale thereof after getting it cleared through the Clearing Agent and storing it for some time in the warehouses belonging to third party.
20. Keeping in view the above discussion, we find that the reasons given by the Assessing Officer for disallowing the claim of the assessee for purchase of imported material in question were not tenable and his action in doubting or disputing the said claim of the assessee overlooking the cogent documentary evidence placed by the assessee on record as well as the observations/findings recorded by the Hon'ble Calcutta High Court in its order as well as by the Inspector in his report was totally arbitrary and unsustainable. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on this issue and upholding the same, we dismiss Ground No. 1 of the Revenue's appeal.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 24 of 35
21. In Ground No. 2, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the disallowance of Rs.1,00,38,000/- made by the Assessing Officer on account of unexplained expenditure.
22. During the course of assessment proceedings, the consumption and sale of Aluminium Ingots was examined by the Assessing Officer from the books of account and other record of the assessee-company. On such examination, he found that the Aluminium Ingots only to the extent of 178.989 Metric Ton was available with the assessee-company going by the quantity of opening stock, purchases and closing stock while the total sale/consumption of Aluminium Ingots was 301.446 Metric Ton. Since the assessee could not explain this difference satisfactorily, the Assessing Officer treated the excess consumption of 122.457 Metric Ton as unexplained purchases of the assessee and the value thereof amounting to Rs.1,00,38,000/- was added by him to the total income of the assessee under section 69C.
23. On appeal, the ld. CIT(Appeals) deleted the said addition by relying on the decision of ITAT in the case of Nishant Housing Development (P) Ltd. -vs.- ACIT [52 ITD 103], wherein it was held that if any addition is made on the ground of unexplained expenditure incurred, then similar amount will have to be simultaneously allowed as deduction on account of such expenditure neutralising the addition.
24. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that this issue is squarely covered in favour of the assessee, inter alia, by the decision of the Hon'ble Gujarat High Court in the case of Krishna Textiles -vs.- CIT [310 ITR 227], wherein it was held that even if any addition is required to be made on account of unexplained purchases under section 69C, the entire expenditure towards such purchase has to be allowed as a deduction under section 37(1) of the Act, which would neutralise the I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 25 of 35 addition. Hon'ble Gujarat High Court also took note of the Amendment made in section 69C by adding the proviso providing that if an addition on account of unexplained expenditure is made under section 69C, then the deduction under section 37(1) cannot be allowed for such expenditure. It was held by the Hon'ble Gujarat High Court in this context that the said amendment coming into force w.e.f. 1 s t April, 1999 was relevant to the assessment year 1999-2000 onwards having not been made retrospective in operation and the fact that such amendment was specifically made in section 69 was sufficient to show that such deduction was allowable under section 37(1) in respect of any expenditure treated as unexplained under section 69C upto assessment year 1998-99. The ld. D.R. has not brought to our notice any other decision of the Hon'ble High Court taking a different view which is in favour of the assessee. We, therefore, respectfully follow the decision of the Hon'ble Gujarat High Court in the case of Krishna Textiles (supra) and uphold the impugned order of the ld. CIT(Appeals) deleting the addition made by the Assessing Officer on account of unexplained purchases of Aluminium Ingots. Ground No. 2 of the Revenue's appeal is accordingly dismissed.
25. Now we shall take up the appeal of the assessee being ITA No. 908/KOL/2011, which is directed against the order of the ld. CIT(Appeals), Central-II, Kolkata dated 31.03.2011, whereby he confirmed the penalty of Rs.4,31,93,780/- imposed by the Assessing Officer under section 271(1)(c).
26. As a result of confirmation by the Tribunal of the two additions of Rs.8,22,42,335/- and Rs.2,57,42,014/- made in the quantum proceedings on account of disallowance of purchase of imported material and disallowance of assessee's claim for short-term capital gain respectively, penalty proceedings under section 271(1)(c) were initiated by the Assessing Officer and since the explanation offered by the assessee in response to the show-cause notice issued by him during the course of the I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 26 of 35 said proceedings was not found acceptable by him, the Assessing Officer proceeded to impose penalty of Rs.4,31,93,780/- under section 271(1)(c) being 100% of the tax in respect of the said two additions vide an order dated 07.05.2004.
27. The penalty imposed by the Assessing Officer under section 271(1)(c) was challenged by the assessee in an appeal filed before the ld. CIT(Appeals) and vide his appellate order dated 19.10.2006 passed originally, the ld. CIT(Appeals) dismissed the said appeal and confirmed the penalty imposed by the Assessing Officer under section 271(1)(c). Against the said order of the ld. CIT(Appeals) dated 19.10.2006, a further appeal was filed by the assessee before the Tribunal and the Tribunal vide its order dated 09.03.2007 passed in ITA No. 35/KOL/2007 remitted the matter back to the ld. CIT(Appeals) for deciding the same afresh after recording its observations in paragraph no. 6 as under:-
"Since the assessee has challenged the validity of the order on the ground of issuance of show cause notice, opportunity, limitation and service of order and such important issues were decided by the ld. CIT(A) against the assessee without providing relevant material or opportunity in this regard to the assessee and even at this stage no such material was placed on record, therefore, we are of the view that there was a violation of rule of natural justice at the end of the ld. CIT(A) and therefore, in the interest of justice we consider it fair and reasonable to send back the matter to the file of the ld. CIT(A) and accordingly we set aside the order passed by the ld. CIT(A) and restore back the matter to the file of the ld. CIT(A) who shall decide the same afresh in the light of observation hereinabove and according to law after providing a reasonable opportunity of being heard to the assessee and accordingly, all the grounds taken by the assessee are allowed for statistical purposes".
28. As per the direction of the Tribunal, the matter relating to the imposition of penalty under section 271(1)(c) was again considered by the ld. CIT(Appeals) afresh after giving an opportunity of being heard to the assessee and since he did not find merit in that elaborate submission I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 27 of 35 made by the assessee on various issues challenging the penalty imposed by the Assessing Officer under section 271(1)(c), he confirmed the said penalty and dismissed the appeal of the assessee. Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
29. We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. counsel for the assessee has raised various contentions in support of the assessee's case for deletion of the penalty imposed under section 271(1)(c). The first contention raised by the ld. counsel for the assessee is that the matter relating to both the additions in respect of which the impugned penalty is imposed under section 271(1)(c) was the subject matter of an appeal before the Hon'ble Calcutta High Court and the same having been admitted by the Hon'ble Calcutta High Court involving the substantial questions of law, both these issues were arguable or debatable in respect of which bonafide claim was made by the assessee and it was thus not a fit case to impose penalty under section 271(1)(c). In support of this contention, he has relied on the two decisions of the Hon'ble Calcutta High Court in the case of CIT-vs.- Off Shore India Limited [209 ITR 473] and CIT -vs.- Vimal Kr. Damani [261 ITR 87]. In the case of CIT -vs- Off Shore India Limited, the matter relating to the assessee's claim for set off of loss under the head "share dealing" against other income was the subject matter of reference to the Hon'ble Calcutta High Court under section 256(2) of the Act and the same was admitted by the Hon'ble Calcutta High Court as involving a question of law. Keeping in view this position, the Hon'ble Calcutta High Court upheld the decision of the Tribunal cancelling the penalty imposed under section 271(1)(c) on the ground that the bonafide of the assessee could not be doubted. In the case of CIT -vs.- Vimal Kr. Damani (supra), Hon'ble Calcutta High Court had an occasion to consider a similar issue and after taking note of its earlier decision rendered in the case of CIT - vs.- Off Shore India Limited (supra), it was held by the Hon'ble Calcutta I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 28 of 35 High Court that once it is found in the quantum proceedings that there was an arguable claim for deduction, which was not free from doubt, then the bonafide of the assessee cannot be ruled out.
30. In the present case, the matters relating to both the additions in respect of which the impugned penalty is imposed under section 271(1)(c) were admitted by the Hon'ble Calcutta High Court as involving the substantial question of law in the quantum proceedings showing that the same involved arguable issues on which bonafide claim was made by the assessee. This being so, we hold by relying on the decision of the Hon'ble Calcutta High Court in the case of Off Shore India Limited (supra) and Vimal Kr. Damani (supra) that the penal provisions of section 271(1)(c) cannot be applied in respect of the additions made to the total income of the assessee which involved arguable issues, on which bonafide claim was made by the assessee.
31. The second contention raised by the ld. counsel for the assessee is that the penalty under section 271(1)(c) was initiated and imposed by the Assessing Officer in respect of the relevant two additions made in the assessment originally completed under section 143(3) vide an order dated 31.03.1999. As regards the addition of Rs.8.22 crores made on account of disallowance of assessee's claim for purchase of imported materials, he has submitted that the Hon'ble Calcutta High Court set aside the order of the Assessing Officer vide its judgment dated 29.04.2011 and sent the matter back to the Assessing Officer on remand for deciding the same afresh as per the specific direction given by Their Lordships. As rightly contended by him, the very basis or foundation of the penalty imposed under section 271(1)(c) in respect of the said addition thus no more survives and the penalty to that extent is liable to be cancelled having no legs to stand. In any case, the said addition made by the Assessing Officer while giving effect to the order of the Hon'ble Calcutta High Court was subsequently deleted by the ld. CIT(Appeals) and while I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 29 of 35 disposing of the appeal of the Revenue on this issue, we have upheld the order of the ld. CIT(Appeals) giving relief to the assessee on the said issue. Consequently the penalty imposed under section 271(1)(c) in respect of the said addition even otherwise is liable to be cancelled.
32. As regards the other addition of Rs.2.57 crores made on account of short-term capital gain, the ld. counsel for the assessee has invited our attention to page no. 5 of the assessment order dated 31.03.1999 to point out that the building purchased by the assessee on 19.09.1994 was sold in March, 1996 after making further construction, which was completed on 08.12.1995. He has submitted that the said building on completion of further construction was entered by the assessee in the block of assets and since the said block was reduced by the sale consideration of the building, there was no question of offering any capital gain on sale of the said building. He has contended that the Assessing Officer, however, treated the profit arising from the sale of the said building a short-term capital gain on the ground that the building was not put to use and although the Hon'ble Calcutta High Court has upheld the decision of the Assessing Officer on this issue, the claim made by the assessee is duly supported, inter alia, by the decision of the Hon'ble Delhi High Court in the case of CIT -vs.- Oswal Agro Mills Limited [341 ITR 467], wherein it is held that once any individual asset enters the block of assets, it looses its identity and the user condition is required to be satisfied qua the entire block of assets and not qua the individual assets. Keeping in view the decision of the Hon'ble Delhi High Court in the case of Oswal Agro Mills Limited (supra), we find merit in the contention of the ld. counsel for the assessee that the claim made by the assessee on this issue by reducing the block of assets by the sale consideration of building instead of offering the profit on such sale as capital gain was a bonafide claim based on a possible view and although the said claim is not found to be acceptable in the quantum proceedings, the assessee cannot be said to have concealed the particulars of his income or furnished inaccurate I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 30 of 35 particulars of such income so as to attract the penal provisions of section 271(1)(c).
33. The ld. counsel for the assessee has also raised one more preliminary issue to challenge the imposition of impugned penalty under section 271(1)(c) on the ground that in the absence of any specific mention in the show-cause notice issued under section 274 of the Act for the year under consideration by the Assessing Officer as to whether the asseessee is guilty of having "furnished inaccurate particulars of income"
or of having "concealed particulars of such income", the initiation of penalty proceedings itself was bad in law and the penalty order passed in pursuance thereof is liable to be quashed being invalid. He has invited our attention to the show-cause notice issued by the Assessing Officer for the year under consideration under section 274 in the printed form to point out that the irrelevant portion, viz. "furnished inaccurate particulars of income" or "concealed particulars of such income" was not struck off by the Assessing Officer. It is observed that the Coordinate Bench of this Tribunal in the case of Suvaprasanna Bhattacharya -vs.- ACIT (in ITA No. 1303/KOL/2010) cited by the ld. Counsel for the assessee had an occasion to consider a similar issue in the identical fact situation and the order passed by the Assessing Officer imposing penalt y under section 271(1)(c) was held to be invalid by the Tribunal relying on the decision of the Hon'ble Karnataka High Court in the case of CIT & Another -vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 after discussing the proposition laid down therein in great detail in paragraph no. 8 to 8.2 of its order dated 06.11.2015, which read as under:-
"8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for "furnishing inaccurate particulars of income" or "concealing particulars of such income".
On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for "furnishing inaccurate particulars of income" or "concealing particulars of such income".
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 31 of 35 8.1 The Hon'ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon'ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.
8.2 The Hon'ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.
"NOTICE UNDER SECTION 274
59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 32 of 35 the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind."
The final conclusion of the Hon'ble Court was as follows:-
"63. In the light of what is stated above, what emerges is as under:
a) Penalty under Section 271(1)(c) is a civil liability.
b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.
c) Willful concealment is not an essential ingredient for attracting civil liability.
d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271.
e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.
f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 33 of 35 Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).
h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.
i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and
interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order.
l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed.
m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.
o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.
p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income
q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
r) The assessee should know the grounds which he has to meet specifically.
Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings.
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1 Assessment year: 1996-1997 & I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6 A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7 Page 34 of 35 The assessment or reassessment cannot be declared as invalid in the penalty proceedings."
(emphasis supplied) It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon'ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.
For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee".
34. In our opinion, the decision of the Coordinate Bench of this Tribunal rendered in the case of Suvaprasanna Bhattacharya -vs.- ACIT rendered vide its order dated 06.11.2015 in ITA No. 1303/KOL/2010 by relying on the decision of the Hon'ble Karnataka High Court in the case of CIT & Another -vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 is squarely applicable in the present case and respectfully following the same, we hold that the show-cause notice issued by the Assessing Officer under section 274 for the year under consideration not being in accordance with law, the penalty order passed by the Assessing Officer in pursuance thereof is liable to be cancelled being invalid.
35. For the various reasons given above, we hold that the penalty imposed by the Assessing Officer u/s 271(1)(c) and confirmed by the ld. CIT(Appeals) is not sustainable and cancelling the same, we allow this appeal of the assessee.
36. In the result, the appeal of the Revenue is dismissed, while the appeal of the assessee is allowed.
Order pronounced in the open Court on August 30, 2017.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 30 t h day of August, 2017
I . T. A . N o. 9 0 8 / KO L . / 2 0 1 1
Assessment year: 1996-1997 &
I . T. A . N o. 1 8 8 8 / KO L / 2 0 1 6
A s s e s s m e n t Ye a r : 1 9 9 6 - 1 9 9 7
Page 35 of 35
Copies to : (1) M/s. Mo dern Malleables Limi ted,
53, Mirza Ghalib Street,
Kolkata-700 016
(2) Deputy Commissioner of Income Tax,
Circle-8, Ko lkata,
Aayakar Bhawan,
P-7, Chowringhee Square,
Kolkata-700 069
(3) Deputy Commissioner of Income Tax,
Circle-15(2 ), Ko lkata,
Aayakar Bhawan Po orva,
110, Shanti Pally,
Kolkata-700 107
(4) Commissioner of Income Tax (Appeals), Central-II, Kolkata;
(5) CIT(Appeals)-12, Kolkata,
(6) Commissioner of Income Tax ,Kolkata
(7) The Depart ment al Represent ative
(8) Guard File
By order
Senior Private Secretary,
Head of Office/DDO
Income Tax Appellate Tribunal,
Kolkata Benches, Kolkata
Laha/Sr. P.S.