Income Tax Appellate Tribunal - Kolkata
D.C.I.T Cir - 3,Asansol, Asansol vs M/S Janardan Cement Co Pvt Ltd, Kolkata on 23 August, 2017
ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'A' KOLKATA
[Before Hon'ble Shri N.V.Vasudevan, JM & Shri J.Sudhakar Reddy, AM ]
ITA No.1052/Kol/2013
Assessment Year : 2008-09
D.C.I.T., Circle-3, -versus- M/s. Janardan Cement Co.Pvt.Ltd.
Asansol Kolkata
(PAN: AAACJ 9668 A)
(Appellant) (Respondent)
For the Appellant: Shri Sallong Yaden, Addl. CIT
For the Respondent: Shri K.M.Roy, FCA & Shri D.B.Thakur, Advocate
Date of Hearing : 14.08.2017.
Date of Pronouncement : 23.08.2017.
ORDER
PER N.V.VASUDEVAN, JM:
This is an appeal by the Revenue against the order dated 20.03.2013 of CIT(A)-Asansol relating to AY 2008-09.
2. Ground No.1 raised by the revenue reads as follows :-
"1. That, the Ld. CIT(A), Asansol has erred in law and on facts by restricting the disallowance equal to gross profit @ 15% of gross turnover, where disallowance of Rs.73,85,885/- made by the AO on account of bogus purchase in absence of identity & genuineness of S/Creditors".
3. The Assessee is a company. It is engaged in the business of manufacturing as well as trading in cement. The assessee filed return of income for A.Y.2007-08 declaring total income of Rs.1,39,670/-.In the course of assessment proceedings the AO noticed that the assessee had shown purchase of finished goods worth Rs.2 cores in the trading segment. The AO issued a letter u/s 133(6) of Income Tax Act, 1961 (Act) to various persons from whom purchase in the business of trading in cement was made by the assessee. The notice so sent by the AO was returned with the following postal remarks :-
ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 2Name Nature of transactions
Postal Remarks
remarks
M/s. Maa Tara Traders & Purchase of cement for Illegible Suppliers Rs.21,35,000/-
Ma Vindyavasini Trading -do- -do-
Co. Rs.20,15,000/-
Ma Supply Agency -do- Not known
Rs.25,44,000/-
Dholi Sati Trading Co. -do- NK
Rs.21,65,000/-
U.K.Singh Purchase of slag Incomplete
Rs.5,84,885/- Address
Balaji Traders Purchase of cement Not known
Rs.18,35,000/-
Sri Durga Trading Co. Purchase of cement Not known
Rs.24,30,000/-
Ma Tara Suppliers & Purchase of cements Not known
Distribution Rs.18,27,000/-
Rani Sati Enterprises Purchase of cement Not known
Rs.18,50,000/-
4. The AO was of the view that the purchase from the aforesaid parties has to be treated as bogus and the value of the purchase should be added to the total income of the assessee. The profit from trading business of the assessee was declared as follows :-
"Sale of Trading Goods Rs.2,31,23,460.00 Less : Purchases of Trading Goods Rs.2,00,00,000.00 Profit from Trading Activity Rs. 31,23,460.00 (Subject to O/H Exp) "
5. The assessee contended that without effecting purchases there cannot have sale of cement and therefore purchases are considered not genuine. The corresponding sales should also be ignored. This was rejected by the AO and the addition of Rs.1,73,85,885/- which is the value of purchases for which the respective parties did not respond to the notice of AO u/s 133(6) of the Act as bogus with the following observations :-
"In the aforesaid reply the assessee has advanced argument that if there. is no purchase there cannot be the sale. It is true in the case of an assessee where it is engaged in the business of trading only. In this case the assessee itself is the manufacturer of .cement and it is also trading in cement. There is every reason to ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 3 consider that an assessee can not promote the same article or goods of the other manufacturers which it is producing itself. It is against the business ethics. More over in this case the party from whom purchase of cement has been shown are proved to be bogus as postal remarks as mentioned in show-cause letter dtd. 10/12/2010. the assessee has been informed vide order sheet dtd. 14/12/2010 by commenting "He contended' non-service of letter does not prove that purchases are bogus. He is informed the parties from which purchases are 1 ;aid to be made are proved to be non- existent as the letter issued to them came back unserved".
It is established fact that no transaction can be made with a non-existent person. The case was adjourned to 20/1212010 but on this date no compliance was made. Non- compliance by the assessee on the adjourned date lead to strengthen the belief that transaction with the aforesaid parties mentioned in the show-cause for RS.1 ,73,85,8851- is bogus leading to addition' for similar amount. Penalty proceeding u/s 271 (1)( c ) for this fault of the assessee is initiated.
Addition Rs.1,73,85,885/-"
6. Before CIT(A) the assessee reiterated that the contentions as put forth before the AO and further brought to the notice of AO that the gross profit declared by the assessed during the previous year was much higher than what was declared in A.Y.2006-07 and 2007-08. The assessee also brought to the notice of CIT(A) that if the addition made by the assessee is sustained the gross profit of the Assessee would be highly unrealistic. The assessee also contended that the fact that the purchasers did not respond to the notice u/s 133(6) of the Act can at best by a circumstance which can lead to rejection of books of account of an assessee and profit of the assessee can be estimated u/s 145(3) of the Act and that in any event treating the entire bogus purchases as income of the assessee would lead to absurd results. In this regard the assessee relied on the decision of ITAT Ahmedabad in the case of VR Textiles vs JCIT 11 ITR (Trib.) 478 (Ahm) and Jharkhand High Court in the case of Amitabh Construction P. Ltd. Vs Addl. CIT [2011] 335 ITR 523 (Jhar).
7. The CIT(A) on consideration of the above submissions was of the view that the action of AO in making the impugned addition cannot be sustained and that rejection of books of account of the assessee would have been the proper course. The CIT(A) thus rejected the book results and estimated the profit of the assessee at 15% of the turn over. The following were the relevant observations of CIT(A):-
ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 4"8. This is a case where accounts are not correct and complete. When that is the case the only option available is to estimate the income. Income when estimated must factor special circumstances of the assessee and also the market reality. This is a case where manufacturing unit sells much more trading goods than manufactured goods. Majority of revenue expenses goes for manufacturing but turnover out of manufacturing is inversely proportional. Out of the total sale of Rs 2.87 crores, Rs 2.31 was sale of trading goods. Such a comparable case is not identified.
9. As sated in paragraph 8 a comparable case of peculiar features figuring in accounts of appellant is not identified. The Gross Profit disclosed is 7.11 %. This is a case where accounts is suspect being inability to prove whether majority of expense is correct or not. It is a well settled judicial proposition that the onus on proving that the expense is correct is on the assessee. I am not listing the long list of case decisions on the matter. A suspicious account during scrutiny assessment attracts large disallowances. This is due the fact that the real state of affairs is still privy to the appellant and not divulged to the Assessing Officer. Therefore the 7.11 % Gross Profit despite being marginally more than the figure for the AY 2007-08 cannot be adopted. Considering the extent of incorrectness, I am of the opinion that a Gross Profit rate of 15% is appropriate in the case. The figure is pitched at 15% to absorb the all inaccuracies in the improper, incomplete, unravelled and doubtful accounts. Accordingly the Assessing Officer is directed to estimate income on the basis of determining the Gross Profit at the above rate of 15%. The ground is partly allowed."
8. Aggrieved by the order of CIT(A) the assessee has raised ground No.1 before the Tribunal.
9. We have heard the submissions of the ld. DR who relied on the order of AO and further placed reliance on the decision of Hon'ble Allahabad High Court in the case of Ganesh Rice Mills vs CIT in ITR 84 of 1990 judgment dated 01.03.2005.
10. We have perused the decision of the Hon'ble Allahabad High Court and we find that the substantial question of law considered by the Hon'ble Allahabad High Court was as to whether the tribunal was right in coming to the conclusion that the purchases claimed by the assessee were not genuine ignoring the quantitative account available before the Tribunal. The Hon'ble Allahabad High Court confirmed the findings of the Tribunal that the purchases in question were bogus. There was no occasion for Allahabad High Court to consider whether the entire purchase should be added or ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 5 income on sales estimated in the given circumstances. We are therefore of the view that the decision relied upon by the ld. DR will not support the plea of the ld. DR before the Tribunal. On the other hand, we find that the decision of Hon'ble Jharkhand High Court in the case of Amitabh Construction P.Ltd. (supra) clearly supports the conclusion arrived at by CIT(A). We, therefore, find no grounds to interfere with the order of CIT(A). Consequently ground no.1 raised by the revenue is dismissed.
11. Ground No.2 raised by the revenue reads as follows :-
"2. That, the Ld. CIT(A), Asansol has erred in law and on facts by allowing the relief of Rs.28,463/-, disallowed by the AO on account of interest payment as penal in nature. "
12. As far as ground no.2 raised by the revenue is concerned it relates to addition of Rs.28,463/- made by the AO on the ground that the interest was paid by the assessee for delayed payment of excise, income tax and sales tax was liable to be disallowed. According to the AO the aforesaid payment was in the nature of penal for infraction of law. Therefore it cannot be allowed as deduction in view of the Explanation 1 to section 37(1) of the Income Tax Act, 1961 (Act) which provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and no deduction on such expenses shall be allowed. The CIT(A) deleted the addition on the ground that the payment in question was not penal in nature but only compensatory for delayed payment and therefore cannot fall within the ambit of Explanation 1 to section 37. We are of the view that the conclusion of CIT(A) on this issue are correct and calls for no interference. Ground no.2 raised by the revenue is accordingly dismissed.
13. Ground No.3 raised by the revenue reads as follows :-
"3. That, the Ld. CIT(A), Asansol has erred in law and on facts by allowing the relief of Rs.1,68,489/-, disallowed by the AO on account of ROC expenses on increased authorized capital."ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 6
14. As far as ground no.3 raised by the revenue is concerned, the AO made addition of Rs.1,68,489/- which was a fee paid to the registrar of companies for increase in share capital of the assessee on the ground that the same was capital in nature and cannot be allowed as deduction in computing the income from business. The CIT(A) however found that the same was never claimed as deduction in the profit and loss account and therefore the basis on which the AO disallowed the payment was incorrect. Before us it is not disputed that the said sum was not claimed in the profit and loss account as deduction while computing income from business. In such circumstances we are of the view that the CIT(A) was right in deleting the addition made by the AO and his action is just and proper and calls for no interference. Accordingly ground no.3 raised by the revenue is dismissed.
15. In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 23.08.2017.
Sd/- Sd/-
[J.Sudhakar Reddy] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 23.08.2017.
[RG PS]
Copy of the order forwarded to:
1.M/s. Janardan Cement Co. Pvt. Ltd., 41, Chowringhee Road, Kanak Building (Annexe), Kolkata-700071.
2.D.C.I.T., Circle-3, Asansol.
3. C.I.T.(A)- Asansol 4. C.I.T-Asansol.
5. CIT(DR), Kolkata Benches, Kolkata.
True Copy By order, Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches ITA No.1052/Kol/2013- M/s. Janardan Cement Co.Pvt. Ltd. A.Y.2008-09 7