Bombay High Court
Steel Industries Of India vs Asstt. Cit on 11 May, 2003
Equivalent citations: (2004)87TTJ(MUMBAI)281
ORDER
R.P. Tolani, J.M.:
These are two cross appeals, one each by revenue and assessee. Grounds raised are as under:
Assessee's appeal "(1) The learned Commissioner (Appeals) erred in confirming the addition of Rs. 7,22,238 being undisclosed premium.
(2) The appellant craves leave to add, to alter or to amend the above mentioned grounds of appeal which are without prejudice to one another."
Revenue's appeal "On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in deleting the addition of Rs. 98,13,018 holding that the addition is made purely on surmises, conjectures and suspicions, without appreciating the evidences on record.
Without prejudice to the above, the learned Commissioner (Appeals) has failed to appreciate that the additions were made after considering the various statements and affidavits of the persons who claim themselves to be the hawala givers and this fact was put to the assessee and an opportunity to cross-examine was also given to the assessee after which it was concluded that the above addition was valid."
2. Brief facts are, the assessee is a registered firm deriving income from trading in stainless steel and service charges for import of goods for others. Original assessment was framed on 29-1-1986. The assessee had shown that it had earned service charges of Rs. 10,68,925 at 3 per cent from following parties against the goods imported by it and supplied to them:
(i) M/s Formeta Industrial Corporation
(ii) M/s Arihant Metal Industries
(iii) M/s Parshurarn Metal Industries The assessing officer issued summons under section 131 to these parties, who denied these transactions. The assessing officer held that these transactions of sale to these parties remained unverified and are not genuine. The assessee itself imported these goods and sold these goods not to these parties but in the open market. In view whereof, the assessing officer estimated that the assessee earned additional profit of 5 per cent on these transactions (over and above 3 per cent already declared by the assessee) and made an addition of Rs. 7,22,238. Aggrieved, the assessee preferred first appeal where the additions were deleted. Revenue preferred second appeal and in ITA No. 7509/Bom/1988, the matter was set aside and restored back to the file of assessing officer with following directions:
"So, under these circumstances, therefore, restore this issue back to the assessing officer with a direction to examine the assessee's transactions after giving the assessee a reasonable opportunity of being heard. The assessee shall be confronted with the denials made by the three parties and the assessee shall be at liberty to produce any material in respect of the transactions entered in its books of account. Before parting with this, we may observe that in the case of Colonisers the facts of the case are entirely different, from the facts, of the present case. The Commissioner (Appeals), while disposing of the matter, also states that there is no mention in the body of the assessment order as to what is the normal gross profit rate applied in the cases where the goods were imported into the country and not sold on High Sea Basis.
(7) In this result, appeal of the department is to be treated as allowed for statistics. "
3. The assessment was reframed. The assessing officer called these three parties and allowed the assessee to cross-examine them; the exercise included affidavits and various other observations. The assessing officer held that these parties had not conducted any genuine business with the assessee and the money deposited in the Bank accounts alleged to be the sale proceeds from these concerns belonged to the assessee. The assessing officer however in reassessment proceedings added a new dimension to assessment. He held that the following amounts being the proceeds received from these firms amounting to Rs. 98,13,018 was investment of money by the assessee :
Rs.
(i) Formeta Industrial Corporation 38,55,570
(ii) Anhant Metal Industries 27,75,718
(iii) Parashuram Metal Industries 38,51,730 This addition was made. Besides, the assessing officer held that the assessee could not establish that it received service charges at 3 per cent only from these three concerns. Therefore the assessee must have sold these goods in open market at high premium. There was shortage of imported steel and these goods generally fetched 10 per cent to 12 per cent premium in the open market. Therefore, the assessee must have received extra premium of 7 per cent, which is not disclosed and an addition of Rs. 10,11,132 was made. In fine, in original assessment the assessing officer had made addition only on account of service charges, whereas in reframed assessment consequent to Tribunal direction not only addition on account of extra profits was made but also the sale proceeds received by the assessee were held as assessee's undisclosed money and the addition was made. Aggrieved, the assessee preferred first appeal and contended that the addition made on account of sale proceeds was highly unjustified. The department had accepted that the goods were imported by the assessee by investing its own money and there was no doubt about the same. The dispute was that the assessee had sold goods not to these three parties but in open market and these three parties were only hawala. givers. Having accepted the source of purchase, the goods were at the disposal of the assessee and there may be doubt about the person to whom the goods are sold but as far as the sale proceeds were concerned, they cannot be held as undisclosed income of the assessee as the purchases were duly effected and were accepted by department.
4. Regarding GP addition on account of extra income, the assessee contended that similar goods were sold by it to five other parties from whom service charges at 3 per cent were received and the same has been accepted by the department. In respect of trading in stainless steel, the assessee had declared GP as under :
Asst. yr. 1983-84 3.58 per cent Asst. yr. 1982-83 2.96 per cent Asst. yr. 1981-82 2.35 per cent These GP results have been accepted by the department in past years. It was contended that the GP in this trade was around 3 per cent only. The names of the purchasers may have been treated as not correct, the same cannot lead to an inference that the assessee received extraordinary high profits in respect of these sales. The same, in any case, will be sold in open market, which has to be on competitive rates prevalent in the trade. The rate of 3 per cent was comparable with other five parties to whom similar goods were sold besides the steel trading of the assessee. The assessing officer has not given any comparable case to suggest that such high GP, i.e., 3 per cent + 7 per cent = 10 per cent was earned. The assessing officer merely referred to a general remark that such goods are sold on premium. The Commissioner (Appeals) held that it was an admitted fact that goods were imported by the assessee, for which the payments have been made by it through its books of account. It was also admitted that the goods were sold. The only dispute was whether the goods were sold through three parties or to somebody else. The assessee received sale proceeds through cheques or demand drafts, which are reflected in its books of account. The purchases are accounted by the assessee in books of account. It was not known as to how the assessing officer is treating the sales of the goods whose purchases are accepted as undisclosed income. The addition of Rs. 98,13,018 being sale proceeds was made on surmises, conjectures and suspicions. The same was deleted.
5. On additional GP addition, the Commissioner (Appeals) held that even though comparable case was cited by assessing officer, at the same time assessee could not establish that he had received service charges at 3 per cent only as the parties from whom the samewas contended to be earned, had denied the fact. The Commissioner (Appeals) held that ends of justice will meet if addition is restricted to 5 per cent in place of 7 per cent as made by assessing officer. In effect, the Commissioner (Appeals) retained the addition to the extent it was made by the assessing officer in original assessment. Aggrieved against the order of Commissioner (Appeals), the department is before us against deletion of addition on account of sale proceeds, whereas the assessee is before us against retention of 5 per cent as additional GP.
6. The learned counsel for the assessee reiterated the facts and contended that against original assessment order the issue before Tribunal was only estimation of GP, the assessment was set aside and restored back to assessing officer only in this context and not in the context of making addition on account of sale proceeds. It is further clear from the Tribunal order in para 6 that there was no mention about the normal gross profit rate applied in the cases where the goods were imported into the country and not sold on high sea basis. This concluding remark in setting aside order by Tribunal clearly shows that what was set aside to assessing officer was only the question of estimation of GP and not the addition on account of sale proceeds. Regarding GP, the learned counsel contended that the assessee sold imported goods to eight parties out of which five were accepted by the department and three parties denied to have purchased the goods and the assessing officer has treated them as hawala parties. In any case, the facts remain undisputed that the goods were sold by the assessee. The department has accepted similar transactions in the case of five parties where the GP rate is similar, i.e., 3 per cent. As far as assessee is concerned, he has given comparable cases. Besides, the average rate of GP in assessee's steel trading business hovers around 3.6 per cent. The assessing officer has made, only a general assumption that imported steel goods generally fetch 10 per cent to 12 per cent premium in the open market and therefore the assessee must have received extra premium of 7 per cent. This is purely a surmise and conjecture, No instance has been given. Therefore the estimation of assessing officer is without any basis as against the comparable cases given by assessee from its own account. The Commissioner (Appeals) has given a Jinding that no comparable case has been brought by the assessing officer. Even then the assessee could not establish that it has received service charges at 3 per cent. The finding is not borne out from the record as the assessee, in the case of other five parties, has shown that the GP, on similar transactions, is 3 per cent, which is not denied by the department. Therefore the basis adopted by Commissioner (Appeals) for part retention at 5 per cent is not proper. It was contended that 3 per cent GP declared by the assessee should be accepted in respect of these transactions. In alternate, it was contended that a lenient view may be taken.
7. Apropos GP, the learned departmental Representative relied on the order of Commissioner (Appeals). Regarding revenue appeal, learned departmental Representative contended that the setting aside by the Tribunal was not limited to estimation of GP. The same was with a direction to examine the assessee's transactions after giving the assessee a reasonable opportunity of being heard. Therefore the issue was set aside to the assessing officer for verification of transactions, which was done by assessing officer and on this verification it was found that the transactions entered by the assessee with these three parties were dubious transactions. The monies contended by the assessee to have been received by the assessee from these parties were not found to be monies given by them. In these circumstances, the only conclusion which can be drawn is that the money deposited in the Bank was the assessee's money. Since the transactions were dubious, the consideration received also cannot be termed as genuine and the same being assessee's money credited in the books, the assessee did not furnish any satisfactory explanation in this behalf. Therefore the amount was rightly added by the assessing officer. The Commissioner (Appeals) has held that the addition was on the basis of surmises and conjectures and had no legs to stand, is not borne out from the record as it is amply clear that the transactions were dubious in nature. The order of assessing officer was relied on.
8. The learned counsel for the assessee, in reply to GP addition, contended that the Tribunal set aside the matter on limited issue to examine the market GP rate; whole order of assessment was not set aside. The assessing officer had no jurisdiction to go into other aspects. Reliance was placed on CIT v. Mahindra & Co. (1995) 215 ITR 922 (Raj). Regarding theother issue, the learned counsel took us through the Commissioner (Appeals)'s order and contended that the department has itself accepted that the purchases of these imported items were genuinely made by the assessee and entered in the account books. Therefore, the source of sale of these goods was with the assessee. Even the facturn of sale is not doubted by the department. The doubt cast is only regarding the fact whether the sales were effected to those three persons or other persons. Three persons having denied about the purchase; the logical conclusion is that the assessee sold it to some other persons. Once the purchases are admitted, the sales are admitted. Merely the change in names of purchasers will not make the proceeds unaccounted income. At the most, question can be raised about the amount of profit. The sale proceeds have been deposited through cheque and demand drafts. Sale figures or book results are not rejected by assessing officer. Therefore, the Commissioner (Appeals) was perfectly justified in holding that the assessing officer made these additions only on surmises, conjectures and suspicion. Having accepted purchases and facturn of sale, it does not he with the department to treat it as assessee's income merely because the sales are found to have been made to some othef persons. Order of Commissioner (Appeals) was relied on.
9. We have heard the rival submissions and perused the record. We will take up the revenue's ground first. As the facts emerge, it is evident that the assessee's purchases of imported goods were made through account books and have been accepted by the department. Therefore these goods were available with the assessee for sale. Similarly the quantity of sale and the amount of sale proceeds have not been doubted by the. department. The assessing officer, in para 10 of his order, has himself given a finding "Since the alleged sales were not made to above three concerns, the assessee must have sold these goods in the open market at a high premium". It is evident that the assessing officer has accepted that the goods purchased by the assessee have been sold in the open market. Having accepted the purchases, the sale proceeds will be the consequence of such purchases and cannot be held as income of the assessee. Therefore we hold that the Commissioner (Appeals) deleted this addition on right considerations. His order on this issue is upheld. Since we are deleting the addition on merits, we are not going into the controversy about the direction of the Tribunal. In view of the foregoing, revenue's appeal is dismissed.
10. Coming to assessee's appeal, the facts have been narrated above. The limited issue for consideration is that assessee has shown 3 per cent as profit on sales to three parties who have denied such purchases but the facturn of sale is accepted. The buyers are not known. The assessee has sold similar goods to other three parties at 3 per cent, which are accepted by the department. The assessee is dealing in steel, where also the average profit is around 3.6 per cent. The Commissioner (Appeals) has held that even though no comparable case has been brought in by assessing officer, at the same time assessee could not establish that it has received service charges at 3 per cent only in view of the confessional statement of three parties. Apropos that, the assessee's contention is in the comparable cases of other five parties, which have been accepted by the department, the service charges are at 3 per cent. We are of the view that the assessee discharged its initial onus of giving comparable cases. The assessing officer should have made market enquiries and given some comparable cases. To this extent the issue before us suffers from infinnity. Be that as it may, it is obvious that the transactions were not made to these three parties. Therefore estimation in this behalf cannot be ruled out but the same has to be reasonable. Looking at the entirety of facts, we cannot accept the plea of assessee that the rate of 3 per cent as shown by it should be accepted but at the same time we find substance in the alternate plea that addition of 5 per cent over and above the GP declared by the assessee is on higher side and a reasonable view should be taken. In the given circumstances, we hold that the ends of justice will be met if the additional GP (over and above declared by the assessee) to be added is restricted to 2.5 per cent instead of 5 per cent retained by the Commissioner (Appeals). The assessing officer is directed to work out the addition in this behalf accordingly.
11. The appeal of the assessee is partly allowed.