Income Tax Appellate Tribunal - Delhi
Joneja Bright Steel Pvt. Ltd., ... vs Assessee on 24 April, 2012
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D': NEW DELHI
BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
AND
SHRI B. C. MEENA, ACCOUNTANT MEMBER
ITA No. 3761/Del/2012
Assessment Year: 2008-09
Joneja Bright Steel Pvt. Ltd, Addl. CIT,
Plot No. 244, Range-II
Sector-24 Vs. Faridabad
Faridabad
PAN AABCJ0369B
(Appellant) (Respondent)
ITA No. 3884/Del/2012
Assessment Year: 2008-09
Addl. CIT, Joneja Bright Steel Pvt. Ltd,
Range-II Plot No. 244,
Faridabad Vs. Sector-24
Faridabad
PAN AABCJ0369B
(Appellant) (Respondent)
Appellant by : Shri Ramesh Chand, CA
Respondent by: Vivek Kumar, DR
ORDER
PER B. C. MEENA, AM
ITA No. 3761/Del/2012 was filed by the assessee and ITA No.3884/Del/2012
was filed by the revenue emanates from the order of Ld. CIT(A), Faridabad dated 24.04.2012.
2. The return of income was filed on 29.09.2008 declaring income of Rs. 1,71,65,900/-. The assessee company is engaged in the business of manufacturing of cold drawn bright bars, ground bards, pealed bars etc. The assessee had purchased iron and steel rounds for the purpose of manufacturing of various items.
Page No. 2 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012
3. The grounds taken by the assessee reads as under:-
"1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (appeals) erred in confirming the rejection of the Books of Accounts of the assessee u/s. 145(3) of the Income Tax Act, 1961 and thereby confirming the disallowance of Rs. 10,00,000/- and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made there under.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 10,00,000/-, which is calculated on adhoc basis and are done on account of mere rejection of books of account and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.
3. The appellant craves leave to add, alter, amend and/or modify all or any of the above grounds of appeal on or before the date of hearing."
4. The grounds taken by the revenue reads as under:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.l,14,82,688/- made by the Assessing Officer on account of bogus purchases as the assessee has failed to discharge the onus to prove the genuineness of these purchases by not producing the suppliers for examination before the AO. The transactions were not found genuine in the independent inquiries made by the AO.
2 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.1,14,82,688/- by contradicting his own observations as Par una parte, in para 6, Ld. CIT(A) has upheld the action of the AO of invoking the provisions of section 145(3) mainly on the ground of bogus purchases made from the three parties. Par parte, Ld. CIT(A) has deleted the addition made by AO on account of bogus purchases from these parties.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs.l,14,82,688/- made by the Assessing Officer on account of unexplained sundry creditors appearing in the books of account of the assessee in the names of M/s Rama Enterprises, M/s AGS Enterprises and M/s Royal Industrial Corporation which remained unexplained in terms of section 68 of the Act. The explanation offered by the assessee regarding the nature and source of the sum found credited in the books of account of the assessee on these accounts have not been found satisfactory.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs.10,OO,OOO/- only whereas the books of account of the assessee Page No. 3 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 have been found not to be correct to the extent of bogus purchase of Rs.1,14,82,688 made from the three parties.
5. On the facts and in the circumstances of the case, the Ld. C!T(A) has erred on facts and in law in deleting the disallowance of Rs,1,31,050/- made by the Assessing Office on account of premium paid on Keyman insurance policy of more than one director.
6. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal."
5. In the ground Nos. 1and 2 of the assessee's appeal the issued raised is related to rejection of Books of Accounts and sustaining disallowance of Rs.10,00,000/- while in the ground Nos. 1,2, 3 and 4 of revenue's appeal the issue is against the deletion of addition made of Rs. 1,14,82,688/-. Ld. CIT(A) sustained the rejection of books of accounts by holding as under:
"6. I have considered the submissions of learned counsel for the appellant and gone through the documents and material placed .on record as well as the judicial rulings relied upon by the learned counsel and the AO. The 'ground No. 1 of appeal is general in nature. The ground No.2 of appeal is not pressed. Hence, the same is dismissed In ground No.3 of appeal, the appellant has challenged the action of the AO in rejecting the books of accounts by invoking the provisions of section 145(3) of the Act. On the basis of address given in the purchase bills and confirmation filed by the appellant, the AO carried out inquiry by issuing summons u/s 131(1) to M/s. Rama Enterprises to find out its existence and to cross verify the genuineness of purchases made from the said concern. The summons was duly served but no compliance was made by M/s. Rama Enterprises. The AO also carried out enquiry from the Excise and Taxation Officer-cum-Assessing Authority, Faridabad on the basis of TIN 06391219361 shown in the purchase invoices. The information so received revealed that M/s. Rama Enterprises had made total purchases of Rs.2,59,46,572/- in first quarter of F.Y. 2007-08, out of which sales were made to the appellant to the extent of Rs.90,43,204/-. The AO has further examined the destination of cheques and found that the amounts were credited in the bank account of M/s. Rama Enterprises with Kotak Mahindra Bank, Sector-16, Faridabad duly confirmed by the bank manager. The amounts credited in the said bank account were transferred to the bank account of M/s. Maa Durga Trading Co. (Account No.0286201000088 with Kotak Mahindra Bank), and withdrawn in cash on subsequent dates from the said bank account. The inquiries on similar lines were carried out in the case of M/s. AGS Enterprises by issuing summon u/s 131(1) on 15.12.2010 which could not be served as the Inspector reported that a concern in the name of M/s. AGS Enterprises existed at the given address but had left the premises. The Excise and Taxation Officer-cum-Assessing Authority, Faridabad on the basis of TIN 06841318693 shown in the purchase invoices provided the information that M/ s. AGS Enterprises had made total purchases of Rs.1,10,46,066/- in first quarter of F.Y. 2007-08 out of which sales were made to the appellant to the tune of Rs.6,90,253/-. The payments made Page No. 4 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 by the appellant to M/ s. AGS Enterprises through cheques were withdrawn in cash from its bank account with State Bank of Patiala. Similarly, summon u/s 131(1) issued in the case of M/s. Royal Industrial Corporation could not be served as the Inspector reported that a concern in the name of M/ s. Royal Industrial Corporation existed at the given address but had left the place. The Excise and Taxation Officer- cum-Assessing Authority, Faridabad on the basis of TIN 06531323180 shown in the purchase invoices provided the information that M/ s. Royal Industrial Corporation had made total purchases of Rs.25,80,697/ - in first quarter of F.Y. 2007-08, out of which sales were made to the appellant to the extent of Rs.17,49,231/ -. The payments made by the appellant through cheques against said purchases were found credited in the bank account of M/ s. Royal Industrial Corporation with Federal Bank, Faridabad. The amounts credited in the said bank accounts were transferred to the bank account of M/ s. Maa Durga Trading Co. with Kotak Mahindra Bank, which were withdrawn in cash on subsequent dates from the said bank account. The Excise and Taxation Authority, Faridabad further, intimated that all the purchases by the above three concerns were made from Mj s. Maa Durga Trading Co. (also from M/ s. Shri Balaji Trading Co. in case of M/s. Royal Industrial Corporation). The inquiries carried out in case of M/ s. Maa Durga Trading Co. at various addresses traced by the Assessing Officer revealed that this concern did not exist at any of the given addresses. The Excise and Taxation Authority also reported that the purchases of M/ s. Maa Durga Trading co. were not found genuine on the basis of sales tax returns furnished by M/s. Maa Durga Trading Co. in which it showed purchases from various concerns not having TIN arid also did not claim any input credit in respect of purchases made by it. The proprietor of M/s. Maa Durga Trading Co. having TIN 06601219206 was one Shri Imran whereas its bank account was opened in the name of one Shri Vinod Kumar Goyal, who denied his association with the said bank account operated in Axis Bank in the statement recorded u/s131(1) of the Act on 29.12.2009 by Income Tax Officer, Ward-II(1), Faridabad. Considering these facts coupled with the fact that the amounts deposited in the bank account of M/s. Maa Durga Trading Co. were withdrawn in cash, the AO has held that the purchases made by the appellant from the above three concerns were not genuine since M/ s. Maa Durga Trading Co. could not have made genuine sales to these concerns on account of its purchases being in genuine. Confronting the results of inquiries and the facts and material gathered, the AO allowed opportunity to the appellant and after considering the submissions on this issue, the AO has invoked provisions of section 145(3) of the Act mainly on the ground that the books of accounts to the extent of bogus purchases made from the three parties were not correct. Keeping in view the above factual position, the AOhas made out a case of atleast irregular purchases and irrespective of nature and extent of additions, the books of accounts can be rejected on this ground. Hence, I uphold the action of the Assessing Officer in invoking the provisions of section 145(3) of the Act. Ground No.3 of appeal is dismissed."
Page No. 5 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012
6. While pleading on behalf of the assessee ld. AR contended that the assessee is a manufacturing company engaged in the manufacturing of cold drawn bright bars, ground bars, pealed bars etc. Appellant purchases iron, steel rounds and wires for the purpose of manufacturing as the necessary input which is converted into various finished products. The raw material used by the appellant and the finished products produced by the appellant both are excisable products and are subject to sales tax/VAT. Modvat is availed on the purchases, which is used and set off against the excise duty liability. The appeal of the assessee is that various department like Excise and or VAT officers verified each and every credit allowed as input. The invoices weigtment slips subject to excise and Vat entered in the stock registers as legal requirement and the payment is also made by account payee cheques. Assessing Officer has not found any defect in the stock registers as per Excise law and the books of accounts and quantitative reconciliation of the appellant. The books of accounts were also audited by the CA and the report of the Auditors was duly submitted to the Assessing Officer. The gross profit ratio for the year also in the range of normal declare GP ratio. The summons issued by the Assessing Officer was served on M/s. Rama Enterprises shows inexistence. Further, submitted that if the Assessing Officer has found purchases made by M/s. Maa Durga Trading Company which was supplied materials to M/s. Rama Enterprises for whom the assessee been purchased how assessee can be held responsible to explain that the source of purchase of its supplier.
7. On the other hand, Ld. DR relied on the order of the ld CIT(A) and submitted that the Assessing Officer made detailed investigation and after the investigation he has reached at a conclusion that books of accounts maintained by the assessee are not reflecting the true and correct affairs of the business carried out by the assessee. CIT(A) rightly upheld the rejection of the books of account
8. We have heard both parties on the issue of rejection of books of accounts. The Assessing Officer made an investigation with regard to the purchase from the various concerns. The Assessing Officer asked the assessee to produce evidences in support of purchases made from of M/s. Rama Enterprises, M/s. AGS Enterprises and M/s. Royal Industrial Corporation. The assessee had shown purchases from these parties. The assessee submitted the confirmation/the copy of accounts, information of the partners/proprietor purchases before the Assessing Officer. The Page No. 6 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 Assessing Officer further gathered the information regarding genuineness of transaction of purchase from these concerns. In the investigation Assessing Officer noticed that purchase made from M/s. Rama Enterprises, M/s. AGS Enterprises and M/s. Royal Industrial Corporation were not genuine. The assessee simply relied on the fact that books of accounts were audited and it is sufficient to justify to genuiness of the purchases as the auditor requires corresponding bills. In our considered view the veracity of the bills is not subject matter with the auditor while auditing the books of accounts. Audit simply states that there is bill in support of purchase whether it is genuine or not is not verified by Auditor. Further, with regard to the purchases recorded in the books of accounts and correspondences sales shown we would like to note that the assessee is not doing the business of trading where item to item can be tallied. Here the raw material is used for manufacturing and converted into finished goods. The recovery of the finished goods itself shows that the Input/Output Ratio are not same. Therefore this argument of assessee had no force. The assessee's claim that the results were in comparison to the assessee's own result in the past years is also cannot be taken base for accepting the result of the books of accounts. Further, the PAN produced at the time of purchase of goods cannot establish that the assessee purchases were genuine. The detail enquiry made by the Assessing Officer by issuing summons under section 131 to purchase and also the enquiry made from the bank authorities establishes that purchases of Rs. 90,43,204/- were not genuine. For these non genuine purchases payments were shown as outstanding in the books of account of the assessee as on 31.03.2008. The payment has been shown as made only from January 2009 to March 2009 which also establishes that these purchases were not genuine as no one will give goods on credit for such as long period that is more than a year. The amount received through cheques was further immediately transferred to the account of M/s. Maa Durga Trading Co. and subsequently it has been withdrawn in cash. From these chains of events and circumstances it becomes obvious that purchases were not genuine. In our considered view there were sufficient evidences with Assessing Officer to hold that the purchases were not genuine. The basis of rejection of books of accounts of the assessee was obvious and clear. Similar enquiries were also made in respect of the M/s. AGS Enterprises and M/s. Royal Industrial Corporation. It is also noticed that the confirmation of copy of Page No. 7 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 account of these supplies were signed by a different person while the bank accounts are operated by other person. The confirmation in respect of the M/s. Royal Industrial Corporation was signed by Mr. Sanjay Kalra while the bank account is opened by Mr. Ramchand. All these facts clearly established that the so called purchases made by assessee were not genuine and rejection of books of account was justified.
9. Further on the issue of sustaining the addition of Rs. 10,00,000/- out of disallowance amount of Rs. 1,14,82,688/- . The CIT(A) had decided the issue as under. The relevant para of order of ld CIT(A) is read as under:
"6.1 In ground No.4 of appeal, the appellant has challenged the addition of Rs.1, 14,82,688/ - made on account of disallowance of purchases made from three parties, namely, M/ s. Rama enterprises, M/s. AGS Enterprises and M/ s. Royal Industrial Corporation. It remains an admitted fact that the appellant filed copies of accounts, confirmations and copies of purchase bills along with weighment slips in respect of purchases made from above three parties, which are also filed in the paper book. Vide reply dated 14.12.2010 filed before the AO, the appellant submitted that these parties were registered with the sales tax department & having TIN; charged sales tax in their bills and claimed credit for VAT. The mode of transportation, truck numbers, gate entry number and material receipt numbers were mentioned in the bills which established receipt of material duly supported by weighment slips. The existence of these parties and the sales made by them to the appellant stood confirmed by the Excise and Taxation Officer, Faridabad on the basis of their sales tax assessments. Before the AO, the appellant produced excise records showing raw material purchased, material consumed and finished goods produced and no defect has been pointed out by the AO. A copy of sales tax assessment order was filed in which the purchases and sales made by the appellant were duly accepted by the sales tax department. The appellant filed copies of weighment slips alongwith the purchase bills (pages 938 to 996 of the paper book) which reflect the quantities as per bills and mode of transport giving truck numbers and also transportation of some tractors. Vide letter dated 15.10.2010, the appellant submitted the position of consumption of raw material and production of finished goods as under.
Calculation of Input Output Ratio:-
Particulars F.Y. F.Y. F. Y.
2005-06 2006-07 2007-08
MT MT MT
Net Raw Materials used during the year 13506 15636 12633
production during the Year
Finished Goods produced during the year 12259 14351 11551
Page No. 8 ITA No. 3761/Del/2012
ITA No. 3884/Del/2012
Scrap Generated during the year 977 945 818
Unseen Losses 270 340 264
Input/Output Ration 90.77% 91.78% 91.44%
Input Scrap Ratio 7.23% 6.04% 6.47%
G. P. Ratio 5.86% 13.38% 9.00%
N.P. Ratio 4.51% 5.70% 3.83%
Input/Output Ratio 90.77% 91.78% 91.44%
The fall in GP ratio from 13.38% in the preceding year to 9.00% during the year was explained on account of the fact that in A.Y.2007-08, there was a survey u/s 133A in which stock of Rs.3.10 crores was surrendered. The AO has accepted the manufacturing result as no adverse inference has been drawn on this issue. A quantitative analysis of consumption and production as per the audit report reveals that the appellant has shown total production of 12369 MT of finished goods and scrap (11551 + 818) and invisible loss of 264 MT. After excluding the raw material of 352 MT (purchased from three concerns as per their bills), from the total consumption of 12633 MT shown in the audit report, the quantity of material consumed works out to 12281 MT. As such, the total production of 12369 MT during the year exceeds the consumption of 12281 MT, leave aside the invisible loss of 264 MT. By excluding 352 MT from the total consumption, the input output ratio abruptly jumps to 94.06% as compared to 91.78% and 90.77% in earlier two years. The appellant has maintained complete quantitative records of purchases, manufacturing, sales; and opening and closing stock, which were filed alongwith Tax Audit Report. The quantitative details of consumption and production as per excise records were also filed before the AO. No defect, whatsoever, has been pointed out by the AO either in such details or the books of accounts produced during the assessment proceedings. The quantitative analysis discussed above clearly leads to inference that the appellant has received the material corresponding to the purchases made from three parties. It is clearly established that the goods purchased/from three parties were duly recorded quantity and value wise in the books of account, corresponding sales are verifiable from the books and the payments to these parties, though at a later date, have been made through cheques which are clearly established from their bank accounts. Without pointing out any defect either in the manufacturing results or in the stock records or rejecting the sales, the purchases cannot be denied because every purchase carried a quantity which has been shown either in consumption and recorded as sales or if not consumed, has been shown as closing stock. All the three parties existed as per the report of inspector and existence of their bank account and sales tax returns filed by them clearly establish their existence and identity. The receipt of material and payments through cheques establish the genuineness of the transactions of purchases. The AO was, therefore, not justified in ignoring these overwhelming evidences while holding if the purchases from three parties as ingenuine by merely placing reliance on the doubtful credentials of M/s. Maa Durga Trading Co.
Page No. 9 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 The appellant has not been able to produce Mj s. Rama Enterprises, M/s. AGS Enterprises and M/s. Royal Industrial Corporation for examination despite specifically required by the AO vide order sheet entries dated 24.11.2010, 14.12.2010 and 16.12.2010. However, despite the service of summons, Mj s. Rama Enterprises has not made any compliance. Therefore, the blame cannot be fastened at the door of the assessee as held by Hon'ble Allahabad High Court in the case of CIT VS. NATHU RAM PREM CHAND (49 ITR 561) relied upon by the appellant. While holding the purchases as bogus, the AO has relied upon certain decisions. In the case of Law Medica (supra), the facts were that neither the seller could be produced nor the personal efforts of ITO could locate the supplier or its premises and it was established that supplies were not made by said supplier to whom payments were alleged to have been made. In the case of VISP Ltd. vs. CIT (supra), the bogus transaction of purchase was established when the ITO recorded the statement of one of the directors, who was also proprietor of supplier concern. The books of accounts of supplier, who was not assessed to tax, were claimed to be lost and its credentials were held to be doubtful in these facts. In the case of Indian Woollen Carpet Factory (260 ITR 658), the purchases were made from the nomadic who were not at all traceable and in these facts, the Hon'ble Court held the onus upon the assessee to establish the purchases. However, the facts of these cases relied upon by the AO are clearly distinguishable from the facts of the appellant's case in as much as all the three parties existed, were assessed to sales tax wherein their purchases and sales were accepted and the receipt' of material by the appellant has been established through the manufacturing result and weighment slips. By solely relying upon the information received from the bankers of the suppliers that the amount paid by the assessee company had been transferred to the bank account of M/s. Maa Durga Trading Co. and withdrawn in cash there from, as also the doubtful credentials of Mis. Maa Durga Trading Co., the AO has questioned the genuineness of the purchases without appreciating that the suppliers were assessed to sales tax, payments by the appellant were made through account payee cheques and a quantitative analysis of consumption and production, as discussed above, leads to impossible manufacturing result if the quantities represented by the purchases made from these parties are excluded from consumption. In the situation, where the appellant has discharged the primary onus of establishing purchases as genuine by leading necessary evidences and the AO still holds the purchases to be ingenuine on the ground of cash withdrawals from the bank account of M/s. Maa Durga Trading Co., the onus shifts on the AO to establish that the said money withdrawn in cash was returned to the assessee company in cash. Sans the discharging that burdon, the purchases cannot be held to be ingenuine on this ground alone. The Hon'ble Gujarat High Court in CIT vs. M. K. Brothers (30 Taxman 547) has held that when there was no evidence to show that vouchers given by the suppliers to assessee were bogus or that any part of those payments came back to assessee, disallowance of purchases was not justified. So long it is not brought on record that the appellant was beneficiary of payments so made, the purchases cannot be disallowed only for want Page No. 10 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 of production of supplier. Therefore, this reason alone advanced by the AO for making disallowance would not be sufficient to uphold the additions because the AO has nowhere established by any cogent evidence that the purchase price paid has come back to the assessee. There may be a possibility, which appears to be established from quantitative analysis, that some unknown suppliers have supplied the goods through the above parties and suppliers may not be cooperating with the AO to safeguard their own interest. The appellant is under no legal obligation to establish the genuineness of purchases of its suppliers as .to how they have managed their business affairs. I agree with the learned counsel that in view of the decision of Hon'ble Allahabad High Court in the case of CIT vs. Nathu Ram Prem Chand (supra), the appellant cannot be blamed if MI s. Rama Enterprises had not responded despite having received summons and the AO has not proceeded in the matter further to enforce its compliance. I have gone through the judicial decisions relied upon by learned counsel on this issue, which support the case of appellant particularly the decision in the case of YFC Projects (P) Ltd. vs. Dy. CIT 134 TTJ 167 (Del. 'I') and Hi Lux Automotive (P) Ltd V. ITO 163 Taxman 90 (Delhi - Trib.). The addition on account of bogus purchases cannot be made when primary onus of establishing the purchases, receipt of material, consumption in manufacturing and payments through cheques has been established but the suppliers could not be produced for examination before the AO. Besides, the addition can also not be made without confronting the material gathered in the case of M/s. Maa Durga Trading Co. and without allowing opportunity of cross examination to the appellant as held by the Hon'ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (supra), relied upon by the appellant. In view of the above discussion and in the entirety of facts and circumstances of the instant case, the action of the AO in disallowing the purchases of Rs.l,14,82,688/- as ingenuine is not at all sustainable from any legally cogent or rational perspective. Therefore, such addition stands deleted and ground NO.4 of appeal is allowed.
6.2. The addition of Rs.l,14,82,688j- made alternatively ujs 68 is also challenged in ground No. 5 of appeal. The amounts payable to Mj s. Rama Enterprises, Mj s. AGS Enterprises and Mj s. Royal Industrial Corporation were outstanding as on 31.03.2008 which were on account of liability of purchases claimed as expenditure during the year. The AO has made additions by wrongly invoking the provisions of section 68 of the Act. This section is applicable only in respect of any sum found credited during the year' wherein the word "sum" refers to only money and not to other entries. The Hon'ble Delhi High Court in CIT vs. Shri Vardhman Overseas (204 Taxman 524) has held that section 68 cannot be applied for taxing unconfirmed sundry creditors. The provisions of section 68 are not attracted to amounts representing purchases made on credit as held by Hon'ble Allahabad High Court in case of CIT v. Pancham Dass Jain [2006] [156 Taxman 507]. Thus, the issue relating to outstanding sundry creditors could be dealt with only u/s 41(1) of the Act. The addition u/s 41(1) can be made only when the liability to pay outstanding creditor has seized to exist or the assessee has received Page No. 11 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 some other benefit against the outstanding liability. In the undisputed fact that they had not ceased to exist, as supported from the payments made subsequently and admitted by the AO, section 41(1) cannot to be applied to treat the outstanding amounts as deemed income as held in CIT vs. Tamil Nadu Warehousing Corporation (2007) (292 ITR 310) (Mad). Further, section 41(1) of the Act provides for a deeming fiction, as per which, an amount not having the nature of income is treated as income. If that being so, the burden of proving the fiction is on the AO. Therefore, addition made by the AO cannot be sustained even u/s 41(1) in view of the decision of the Hon'ble Punjab and Haryana High Court in the case of CIT vs. Sita Devi Juneja (187 Taxman 96). This ground of appeal is allowed.
6.3. In ground No.6, the appellant has contended that the AO ought to have applied the profit rate of earlier years or comparable cases instead of making specific disallowance of purchases when the books of accounts were rejected. During the year under appeal, the appellant has declared value of sales at Rs.45,77,82,492/- in respect of sale of 12349 MT of finished goods and the average sale price works out to Rs.37,070j- per MT. The input output ratio has been shown at 91.44% as against 91.78% shown in the immediate previous year, which is less by 0.34%. If the ratio of 91.78% is applied to the consumption of 12633 MT during the year, the production of finished goods falls short 43 MT which corresponds to Rs.15,94,010/- in terms of value. Since J have upheld the rejection of books of accounts and invoking of provisions of section 145(3) of the Act as per the decision in para 6 of this order and there could be some scope to explain the variation in input output ratio, I deem it fair and reasonable to sustain the addition of Rs. 10,00,000/- on account of rejection of book result. The Assessing Officer is directed to tax the amount accordingly and ground No. 6 of appeal is treated as disposed of in these terms."
10. After hearing both sides on the issue of deletion of addition we hold that once we have held in earlier para while deciding the issue of rejection of books of account that certain purchases were not genuine, then it is difficult to agree with the logic of CIT(A) that books results were comparable to earlier years and the variations explained. Once we have held purchases non genuine than the purchases debited in Profit and Loss Account needs to be reduced from the purchase debited its Profit and Loss Account for the year and the profit shall be enhanced to that extend. Further we have also held that being a manufacturing unit input/ output ration cannot be specifically established. Once there cannot be direct identification of output with input than better gross profit rate or similar gross profit rate shall not be a criterion to accept the book results. Assessing Officer has asked the assessee to produce all these bogus three suppliers before him, Page No. 12 ITA No. 3761/Del/2012 ITA No. 3884/Del/2012 however, the assessee has failed to do so. Ld. CIT(A) failed to appreciate the correct facts in respect of the genuiness of these transactions. In view of these facts the relief allowed on the basis of the books results and on account's input/output ratio cannot be sustained. We set aside the order of CIT(A) and restore the order of A.O. on this issue. Ground Nos.1 to 4 of revenue's appeal are allowed. Ground No. 1 &2 of assessee's appeal dismissed.
11. In the Ground No. 5 of the Revenue's appeal the issue relates to premium paid on Keyman insurance policy. Assessee had taken keyman insurance policy in the name of two Directors, A.O. allowed premium of one director and disallowed for other. CIT(A) granted relief by holding as under:-
"With regard to the treatment of premium paid on Keyman Insurance Policy whether it should be allowed as a capital expenditure or revenue expenditure, the Board had clarified that the premium paid on the Keyman Insurance Policy be allowed as business expenditure. The Hon‟ble ITAT, Delhi Bench, „B‟ in the case of Escorts Heart Institute & Research Center Ltd. vs. ACIT (128 ITD
108) has held that premium paid on Keyman Insurance Policies taken in the names of Dr. Naresh Trehan, Chief Cardiac Surgeon, Shri Rajan Nanda, Chairman and Smt. Ritu Nanda, Managing Director of the assessee-company was allowable as expenditure. In the case of Sunita Finlease Ltd. vs. DCIT, the Hon‟ble ITAT, Bilaspur Bench (118 TTJ 263) has held directors was allowable as business expenditure. Similarly, ITAT Mumbai Bench „B‟ in the case of ITO vs. Modi Motors has held that partners was allowable. Thus, the understanding of the A.O. that „the assessee can purchase only one Keyman Insurance Policy in respect of an employee and not more than one‟ is not in conformity with the provisions of law and the judicial rulings cited above. Hence, the disallowance of Rs.
1,31,250/- made by the A.O. is deleted and ground No. 7 of appeal is allowed."
12. After hearing both sides we find no fault in the findings of CIT(A). We upheld the same on this issue. This ground is allowed.
13. In the result the appeal of the assessee is dismissed and appeal of the revenue is partly allowed.
Order pronounced in the open court on 06.12.2013.
-Sd/- -Sd/-
(DIVA SINGH) (B. C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 06/12/2013
A K Keot
Page No. 13 ITA No. 3761/Del/2012
ITA No. 3884/Del/2012
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi