National Consumer Disputes Redressal
M/S. Shree Gulab Trading Co. vs Oriental Insurance Co. Ltd. & Anr. on 26 March, 2018
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 254 OF 2011 1. M/S. SHREE GULAB TRADING CO. A Partnership firm, Rep by its partners,
Having Its Office At:
23, Ganesh Krupa Industrial Estate, Bhestan, Surat-305 023 2. . . . . ...........Complainant(s) Versus 1. ORIENTAL INSURANCE CO. LTD. & ANR. Through Its Branch Manager, Branch Office- Dhulia, K.N. Bhavsar Complex, Galli No.5,
Opp. School No. 9, Dhule - 424 001 (Maharashtra) 2. IDBI Bank CSC Surat, 801-8th Floor,21st Century Business Center,Ring Road, Surat - 395 002 (Gujarat) ...........Opp.Party(s)
BEFORE: HON'BLE MR. JUSTICE V.K. JAIN,PRESIDING MEMBER
For the Complainant : Mr. Manoj Kumar, Advocate with
complainant For the Opp.Party : Appearance not marked
Dated : 26 Mar 2018 ORDER
The complainant which is a partnership firm engaged in trading, manufacturing etc. of synthetics/cotton yarn, obtained a Standard Fire & Special Perils Policy to the extent of Rs.3.5 crores in respect of stock of Grey Cloth, Yarn, Spare Parts etc. and to the extent of Rs.75.00 lacs in respect of finished goods stored in its godown at 164-165, Guru Krupa Industrial Industrial, Surat. Yet another policy for the same purpose was obtained to the extent of the sum insured of Rs.2.55 crores. It is alleged that a fire broke out in the godown of the complainant in the night intervening 8/9.07.2010 and the entire stock stored in the godown got burnt, and consequently damaged. This is also the case of the complainant, that at the time of fire, poly and poly yarn worth Rs.1,68,77,311/-, grey man made fabric worth Rs.23,695,721/-, finished cloth and cloth-cut worth Rs.25,037,902/- and embroidery machine parts worth Rs.18,58,745/- had been stored in the said godown. This is also the case of the complainant that a site visit was held by the Branch Manager of the insurer on 13.7.2010, wherein he confirmed the earlier visit of the Development Manager on 30.6.2010, when the entire stock and documents were verified. According to the complainant, its Chartered Accountant had also certified the closing stock of the godown at Rs.6,74,69,679/-. The claim lodged by the complainant however, was repudiated by the insurer vide letter dated 23.5.2011. Being aggrieved, the complainant is before this Commission, seeking payment of Rs.8,57,50,357/- with interest. The bank from which credit facility had been taken by the complainant, namely IDBI bank, is impleaded as opposite party No.2 in the complaint.
2. The complaint has been resisted by opposite party No.1 which has taken a preliminary objection that the complainant has relied upon a forged and fraudulent document, which has been annexed to the complaint. It is further alleged that the majority of the transactions could not be verified as the same were stated to be cash transactions. It is also alleged that despite repeated follow up, no supplier or third party verified or confirmed the transaction claimed by the complainant. It is also alleged that the quantity of the damaged goods did not match with the claim of the complainant.
3. The letter of repudiation dated 23.5.2011 to the extent it is relevant reads as under:
"We regret to inform you that your fire claims under above two policies are hereby repudiated for the following reasons:
That your transactions in cash of huge amounts are suspicious and not proved.
The huge increase in purchase and decrease in sales are unbelievable.
The suppliers and you are unable to provide details of supply i.e. L.R. Copies, Driver details, freight paid details, bank accounts and TDS details.
The building, cement sheets of roof, windows and gates are not affected by fire.
The policies are obtained with ulterior motive to claim huge amount. So, we are unable to entertain the claims and repudiated the claims and closed as "rejected".
It would thus be seen that huge payments alleged to have been made by the complainant to its supplier have not been believed by the insurer and the same are claimed to be suspicious.
4. Annexure C-13 to the complaint is a visit report dated 13.7.2010 purporting to be written by hand, by the then Branch Manager of the opposite party No.1. Vide this letter, he purported to certify his personal visit to the godown on 13.7.2010 and having checking the godown and all the papers comprising purchase bills, photos. He also purported to certify that all the goods of Gulab Trading Company were totally lost in fire and its amount was Rs.6.8 crores. The aforesaid letter bears the seal of Dhule Branch of the Oriental Insurance Company Ltd., meaning thereby that according to the complainant the said visit was undertaken and the letter was issued by the then Branch Manager of the Dhule Branch of the insurance company.
The insurer has filed the affidavit of Mr. Rasiquddin, who was posted as Branch Manager in Dhule Branch Office for the period October, 2009 to October, 2015. After reading the complaint and Annexure C-13, he stated on oath that he had not issued Annexure C-13, which is forged and fraudulent and is not in his hand writing. He further stated on oath that Annexure C-13 to the complaint does not bear his signature and that the hand writing as well as the signature is clearly forged and fraudulent. He further stated that he did not visit Surat in July, 2010 nor he issued any such letter to Gulab Trading Company.
5. No request was made by the complainant to this Commission for cross-examination of Mr. Rasiquiddin. Therefore, I see no reason to disbelieve his affidavit. Moreover, no attempt was made by the complainant to obtain the expert opinion of a hand writing expert to prove that in fact, the letter dated 13.7.2010 was written and signed by Mr. Rasiquiddin, Branch Manager, Dhule Branch of Oriental Insurance Co. Ltd. I therefore hold that a forged and fabricated document has been filed and relied upon by the complainant in order to support its case. Relying upon and filing a forged and fabricated document before a Court / Forum is by itself sufficient to altogether reject the petition even if the claim is otherwise well-founded. It is settled legal proposition that a person seeking the intervention of a Court / Forum must come with clean hands and must not deploy unfair means such as filing forged and fabricated documents in support of its case. A litigant engaged in deployment of such unfair means is not entitled to be heard on merits and reliance on and fling a forged and fabricated document by itself is sufficient to non-suit a person.
6. Coming to the merits, the survey report, to the extent it appears to be relevant reads as under:
" 04. EXTENT OF DAMAGE
Building :
Building was found completely saved, Cement sheets of roof were found intact and even fire and black sign was not visible in roof. Windows and gages were also found completely saved. Very small black sign of smoke was noticed on wall up to 1 to 2 ft. height. Walls and Floors were found completely saved and no cracks were noticed.
Stock of Grey Fabrics, Yarns, Embroidery spares etc.
Grey Clothes, yard, embroidery spares parts etc. were found half burnt and some cases fully burnt but in very small quantity. Some parts of stock of Yarn and Cotton were found completely saved. We have also noticed completely saved empty corrugated boxes and cartons. Large quantity of packing materials found scattered in godown.
Balance Sheet Income Tax
Insured has submitted Audited Balance Sheet, Profit & Loss Account, Income tax Returns of the firm. We have minutely examined these documents and found position as under:
Particulars
2008-09
2009-10
01.4.10 to 08.7.2010
Opening Stock
8,696,230.00
33,233,439.00
Purchases
40,919,441.00
200,799,976.00
67,707,315.00
Add: Direct Expenses
1,606,194.00
28,419,187.00
1,850,233.00
42,525,635.00
237,915,393.00
102,790,987.00
Less: Closing Stock
8,696,230.00
33,233,439.00
92,314,908.00
Cost of Sales
33,829,405.00
204,681,954.00
10,476,079.00
Sales
35,519,960.00
221,134,479.00
11,321,302.00
Gross profit
1,690,555.00
16,452,525.00
845,233.00
Stock Turnover Ratio
4.08
6.65
0.49
Gross Profit Ratio
0.05
0.07
0.07
Increase in Purchase in %
390.72
34.88
Increase in Sales in %
522.56
(79.52)
From above analysis, we observe that
Sales and Purchases have increased by 522.56% and 390.72% in 2009-10 when compared with the figures of 2008-09.
Purchases have increased by 34.88% but Sales have decreased by 79.52% in 2010-11 (3 months) when compared with the figures of 2009-10.Decrease in sales and increase in purchases will increase stock level.
Though G.P. Ratio remained almost same in all the period but stock turnover ratio decreased drastically in 2010-11 by 92.63% which means increase stock level.
No explanation has been given for drastic increase in purchase and decrease in sales in current year which is increasing stock level.
Purchase through cash payments
We have examined purchases ledger and corresponding creditors ledger and have noticed that Insured has made following cash payments against purchases:
Amount in Rs.
1.
Kiran Enterprises 6,049,000.00
2. Prem Trading Co.
1,896,107.00
3. Rani Sales Corporation 5.355,000.00
4. Sai Prasad Sales Corporation 6,018,998.00
5. Sakshi Traders 5,597,500.00
6. Shah Enterprises 9,097,750.00
7. Sobha Embroidery Spares 375,000.00 34,389,355.00 We have examined Cash Book and noticed that cash payment exceeding Rs.20,000.00 has been shown as made in cash book despite the fact the payment exceeding Rs.20,000.00 has not been allowed as expenditure in Income Tax Law under Rule 6DD and Section 40A(3). Details of such receipts has been given in Annexure A attached herewith.
We have examined Form No.3CD forming part of Tax Audit Report of Assessment Year 2009-10 and 2010-11 and noticed that the word "Not Applicable" has been written against cash payment column of Report. It means that Insured has not made any payment exceeding Rs.20,000.00 in previous two years.
If these payments are genuine payments and reported in Tax Audit Report, Income Tax will not be allowing these payments as expenditure and Tax burden will be huge in this case.
Confirmation from Suppliers We have written letters to above suppliers for confirmation of purchases by Insured form them. We have asked these suppliers with respect to Bills and confirmation that:
These confirmation and bills are issued by you?
At which location these goods were delivered?
In what mode payments were made to you?
Cash Payment has been shown by M/s. Shree Gulab Trading Co.Have you received cash payment?
No payment has been shown by M/s. Shree Gulab Trading Co.Have you sold these goods without receiving payment and on credit?
Has M/s. Shree Gulab Trading Company has also purchase from you in earlier years?
None of the suppliers replied our queries point-wise and avoided reply. Insured has also shown his inability to get reply from suppliers. Therefore, it was not proved that goods were actually purchased by Insured from these suppliers.
LR Copies We have asked Insured to submit LR copies of the consignment shown as received at affected location with detail date-wise Lorry No., Driver Name, Full Address and Contact No. of Driver, Date and Time of Receipt, Freight Paid, Cheque No. by which freight was paid, Dae of Clearing in your Bank Account, TDS deducted and its deposit date and concerned TDS challan. Insured has not submitted above details and failed to prove that purchases shown at affected location were actually brought there and stored.
Keeping Main Plant Un-insured We have noticed that Insured is also manufacturing and trading at Plot No. 12 to 15, Ganesh Krupa Industrial, Bhestan, Surat - 395 023. We have noticed following assets at this location.
Sl. No. Plant & Machineries Building Building Stock
1. 168 Operational Power loom 12 sheds spread in 03 Building housing manufacturing plants Gray stock, yarn and stock in process in huge quantity.
2. 14 New Power loom
-do-
-do-
3. 27 TFO
-do-
-do-
This location was insured under Standard Fire and Special Perils Policy No. 182401/11/2011/13. This location was changed ot affected location leaving this location un-insured. Insured failed to explain the change of location and keeping main plant un-insured which has asset value of more than Rs.20.00 crores."
7. The complainant has claimed the cash payments of Rs.3,43,89,355/- to seven suppliers. All these cash payments are alleged to have been made within a short span of about 13 weeks, between 1.4.2010 to 8.7.2010. The cash payments to M/s. Shah Enterprises is stated to be more than Rs.90.00 lacs, the cash payments to M/s. Kiran Enterprises and M/s. Sai Prasad Sales Corporation are stated to be more than Rs.60.00 lacs each whereas, the cash payments to M/s. Sakshi Traders and Rani Sales Corporation are stated to be more than Rs.50.00 lacs each. The cash payment to Prem Trading Company is stated to be more than Rs.18.00 lacs.
Section 40A(3) of Income Tax Act, 1961 provides that where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day otherwise than by an account payee cheque drawn on a bank or account payee bank draft exceeds Rs.20,000/-, no deduction shall be allowed in respect of such expenditure. Rule 6DD of Income Tax Rules however, saves certain payments form such disallowance in the cases and circumstances specified therein. However, the payment for the goods purchased by the complainant does not fall within the purview of such cases and circumstances and therefore, these payments are not saved under Rule 6DD of Income Tax Rules.
8. In Attar Singh Gurmukh Singh & Ors. Vs. Income Tax Officer, Ludhiana & Ors. (1991) 4 SCC 385, the word "expenditure" used in Section 40A(3) of the Income Tax Act came up for interpretation by the Hon'ble Supreme Court. The following was the view taken by the Hon'ble Supreme Court in this regard:
"8. As to the second question it may be stated that the word 'expenditure' has not been defined in the Act. It is a word of wide import. Section 40-A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means all outgoings are brought under the word 'expenditure' for the purpose of the section. The expenditure for purchasing the stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits under Section 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word 'expenditure' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under Section 40-A(3). We have earlier observed that Rule 6-DD has to be read along with Section 40-A(3) . The rule also contemplates payments made for stock-in-trade and raw material. This rule is in accordance with the terms of Section 40-A(3). The rule provides that an assessee can be exempted from the requirements of payment by crossed cheque or a crossed bank draft where the purchases are made of certain agricultural or horticultural commodities or from a village where there is no banking facility. Section 40-A(3) is, therefore, attracted to payments made for acquiring stock-in-trade and other materials."
In view of the authoritative pronouncement of the Hon'ble Supreme Court, it cannot be disputed that a cash payment made for purchasing the stock in trade is expenditure within the meaning of Section 40-A(3) of the Income Tax Act and consequently if cash payments of more than Rs.20,000/- are made, in a day to purchase the stock in trade, the same is liable to be disallowed. The consequence of such disallowance would be that such cash payments would be added to the income of the assessee and appropriate income tax would be payable on them.
9. In order to identify such prohibited cash payments, Section 44-AB of the Income Tax Act, requires certain particulars to be furnished in Form No.3CD. On the directions of this Commission, the complainant has filed a copy of From No. 3CB submitted by it and its Chartered Accountant for the financial year 2010-11, which includes the period during which these cash payments were made. Clause 17-h of Form 3CD for the financial year 2010-11 reads as under:
17-h Whether a certificate has been obtained from the assessee regarding payments relating to any expenditure covered under Section 40-A(3) that the payments were made by account payee cheques drawn on the bank or account payee bank draft, as the case may be, (yes/No) It is not possible for us to verify whether the payments in excess of Rs.20,000/- have been made otherwise than by crossed cheque of bank draft, as the necessary evidence is not in the possession of the assessee. Although, I have obtained certificate in this regard.
Amount inadmissible under Section 40A(3), read with Rule 6DD (with break-up of inadmissible amount) Not applicable
10. It would thus be seen that no evidence of cash payments in excess of Rs.20,000/- was made available by the complainant to its Chartered Accountant. It also shows that in fact, the complainant / assessee had submitted a certificate to the effect that no cash payment in excess of Rs.20,000/- was made and that is why the Chartered Accountant as well as the complainant had written "not applicable" against the requirement of disclosing the amount inadmissible under Section 40-A(3) read with Rule 6DD (with break-up of inadmissible amounts). Thus, a specific stand was taken by the complainant before the Income Tax Department that no cash payment in excess of Rs.20,000/- was made by it on a single day, in the financial year 2010-11.
Since the amount of each cash payment made during the aforesaid period was not disclosed in the complaint, I asked the partner of the complainant firm, during the course of hearing, as to how much was the cash payment made by him in a day to the seven suppliers named hereinabove. He verbally stated that about Rs.8,75,000/- were paid in cash in one day to M/s. Kiran Enterprises, Rs.6.00 lacs in cash on one day were paid to M/s. Prem Trading Company, Rs.6.5 lacs in cash on a day were paid to M/s. Rani Sales Corporation, Rs. 6-6.5 to 7.00 lacs each in cash in a day were paid to M/s. Sai Prasad Sales Corporation and M/s. Sakshi Traders, Rs. 6.7 lacs in cash on a single day were paid to Shah Enterprises and Rs.3.75 lacs in cash on a single day were paid to Sobha Embroidery Spares. Had these cash payments actually been made, the same in my opinion would have been disclosed by the complainant in Form 3CD for the financial year 2010-11. The stand taken in the aforesaid Form being that no cash payment exceeding Rs.20,000/- was made on a single day, the plea of cash payment taken before the surveyor and then before this Commission does not inspire confidence and cannot be believed.
11. The learned counsel for the complainant has relied upon a decision of the Hon'ble High Court of Delhi in Mukesh Gupta Vs. P.K. Bajaj & Anr. CS(OS) No. 1615 of 2003 decided on 20.11.2006, where a loan transaction was claimed to be void on the ground that the same had not been recorded in the Income Tax Return or a loan transaction which is in violation of Section 69A, 69B or 269SS of the Income Tax Act. The contention was rejected, observing that no statutory provision stipulating such a loan of transaction to be void had been shown. However, the question before this Commission is not as to whether the transaction between the complainant and the alleged suppliers is void or not. Here the question is whether in fact, there was such a transaction in cash between the complainant and the aforesaid suppliers. In the facts and circumstances of the case, I have no hesitation in holding that no such cash transaction had actually happened and that is why the same were not disclosed in Form 3CD, for the financial year 2010-11.
12. The view taken by me finds corroboration from the fact that admittedly no such cash purchases were made by the complainant in the financial years 2008-09 and 2009-10. Had it been the practice of the complainant to make such huge transactions in cash, similar transactions would have been made in the year 2008-09 and 2009-10 as well.
13. During the course of hearing, I specifically asked the partner of the complainant firm as to whether the cash for making payment to the above referred suppliers was withdrawn from a bank. He replied that the cash payments were made out of the cash sales made by the complainant. I asked him as to why the complainant was not depositing the entire cash sale proceeds in in its bank and then withdrawing the cash required for making payment to the suppliers from the bank. The partner of the complainant firm did not have a satisfactory answer to the question and he merely stated that their practice was to make cash payment out of the cash sale proceeds.
14. The cash balance with the complainant as on 31.3.2010 was only Rs.5.00 lacs. The sales made by the complainant during the period from 1.4.2010 to 8.7.2010 were only Rs.1,13,21,302/-. Though, this is not the case of the complainant that entire sale during the period from 1.4.2010 to 8.7.2010 was in cash, even if I presume the entire sale of Rs.1,13,21,302/- to be cash sale and add the cash balance of about Rs.5.00 lacs available in the beginning of the financial year 2010-11 to the said amount, the resultant figure would come to about Rs.1,18,00,000/-. The complainant claims to have paid more than Rs.3,43,00,000/- only to the seven suppliers mentioned hereinabove. Therefore, the cash sales made by the complainant for the period from 1.4.2010 to 8.7.2010 do not explain the source for making cash payment of more than Rs.3,43,00,000/- to seven builders, during the aforesaid period, and therefore, cannot be believed.
15. The learned counsel for the opposite party has also pointed out that several other suspicious circumstances surrounding the alleged transactions between the complainant and the above referred seven suppliers. It is pointed out that even the mistakes found in the letters purporting to be written by different suppliers to the surveyor have identical mistake. For instance, the spelling of 'letter' is typed as 'latter', in the letters sent by Vaishnavi Textiles, Kiran Enterprises, Prem Trading Company, Rani Sales Corporation, Renuka Fashion, Sai Prasad Sales Corporation, Shah Enterprises and Sakshi Traders.
The letter sent by Vaishnavi Tex to the surveyor used the otherwise grammatically wrong words "we are given ledger account of our book'. The same words appear in the letters purporting to be written by Kiran Enterprises, Prem Trading Company, Rani Sales Corporation, Renuka Fashion, Sai Prasad Sales Corporation, Shah Enterprises and Sakshi Traders. The letter sent by Vashnavi Tex uses the otherwise grammatically wrong words "but we have starting our new business with the Gulab Trading Company". The same words appear in the letter written by Kiran Enterprises, Prem Trading Company, Sai Prasad Sales Corporation, Shah Enterprises and Sakshi Traders. Similar expressions have been used in the letters written by Rani Sales Corporation and Renuka Fashion. Such a similarity in the mistakes found in the letters written by different suppliers to the same person cannot be merely coincidental and gives an impression that all the letters were written by or on the instructions of one and the same person. It would also be pertinent to note here that though the words "I am given ledger account of my / our book of account" were used in all the letters purporting to be written by the suppliers to the surveyor, no ledger accounts were actually sent by them to the surveyor. The documents which they sent along with letters were not ledger accounts. In a ledger account, each and every debit and credit entry is required to be entered, date-wise. The ledger account has to show the brought forward balance, if any, as well as the balance, if any which is carried forward.
16. As noted by the surveyor, no lorry receipts were produced by the complainant to prove the alleged transportation of the goods from the place of purchase to the place of the complainant. The case of the complainant in this regard is that it had arranged its own tempo/truck for bringing the goods to its place and had made cash payments towards the freight. The complainant has placed on record several cash payment vouchers in respect of the payments alleged to be made to the drivers of the different vehicles. The aforesaid payments were not believed by the surveyor. Therefore, in my opinion, it was necessary for the complainant to prove that the goods purchased by it were actually carried in the vehicles, numbers of which appear on the cash vouchers. No affidavit of the owner or driver of any such vehicle has been filed by the complainant. In fact, no evidence has been led by the complainant even to prove the existence of the vehicles, numbers of which appear on the cash vouchers. This is yet another circumstance which creates serious doubt on the genuineness of the huge cash purchases alleged to have been made by the complainant from different suppliers.
17. This is also pointed out by the learned counsel for the opposite party that several invoices/cash memos alleged to have been issued by different suppliers are in identical format. It is pointed out that the invoices on pages 179, 180, 183, 184, 185, 186, 187, 188, 189, 190, 191 & 192 have a similar format where bill number is the same as is the challan number given on the invoices/cash memos. For instance, bill number as well as challan number is 16 in the cash memo on page 179 issued by Sai Prasad Sale Corporation, 21 in the invoice issued by Shah Enterprises, 20 in the invoice on page 182 issued by Shah Enterprises, 19 in the invoice issued by Prem Trading Company, available on page 183 of the paper-book, 16 in the invoice issued by Kiran Enterprises available on page 184 of the paper-book, 15 in the invoice issued by Rani Sales Corporation available on page 185 of the paper-book, 16 in the invoice issued by Sakshi Traders available on page 186 of the paper-book, 15 in invoice of Sakshi Traders available on page 187 of the paper-book, 13 on the invoice available on page 188 of the paper-book, and issued by Shah Enterprises, 11 in the invoice issued by Sai Prasad Sales Corporation available on page 189, 12 in the invoice issued by Shah Enterprises available on page 190 of the paper-book, 11 in the invoice issued by Prem Trading Company available on page 191 of the paper-book, 11 in the invoice available on page 192 of the paper-book.
It is also submitted by the learned counsel for the opposite party that even the envelopes wherein the letters were allegedly sent by different suppliers to the surveyor, are written by one and the same person, thereby indicating that all the letters in those envelopes were sent by or on the instruction of one and the same person. However, even if I ignore the similarity in the format of the invoices/cash memos pointed out by the learned counsel for the opposite party and the alleged similarity in the handwriting in which the envelopes sent to the surveyor have been written, I have no hesitation in holding that the cash payments alleged to have been made by the complainant to seven suppliers named hereinabove were not actually made since neither the same have been disclosed in Form 3CD nor the complainant had sufficient cash available to it to make the said cash payments. As a necessary corollary to this finding, I hold that the claim submitted by the complainant to the insurer was substantially false. If the cash payments alleged to have been made by the complainant to the above referred seven suppliers are excluded, this would mean that the alleged purchases between 01.4.2010 to 8/9.07.2010 would be much less than what the complainant has claimed. As a consequence, the balance stock as on 08/09.7.2010 would also be much less and therefore, the loss to the complainant would be much much less than what it has claimed. Even if part of the claim submitted by the complainant to the insurer was false, the insurer was justified in repudiating the entire claim. The complainant therefore, is not entitled to recover any amount from the opposite party.
18. For the reasons stated hereinabove, the complaint is hereby dismissed, with no order as to costs.
......................J V.K. JAIN PRESIDING MEMBER