Income Tax Appellate Tribunal - Mumbai
Balaji Textile Industries (P.) Ltd. vs Third Income-Tax Officer on 20 August, 1993
Equivalent citations: [1994]49ITD177(MUM)
ORDER
T.A. Bukte, Judicial Member
1. This is an appellant's appeal against the order of the CIT(A)-V, Bombay dated 26-9-1988 on several grounds and sub-grounds running into five pages. All the grounds and the sub-grounds of appeal relate to the only one point of claim of deduction of purchase of textile goods in the month of March 1985 alone from twelve parties residing in Bhiwandi. The Assessing Officer disallowed the said claim by giving several reasons and the CIT(A)-V, Bombay has confirmed the disallowance made by the Assessing Officer. Therefore, the appellant has preferred this appeal against that order of the CIT(A)-V, Bombay.
2. We have heard the learned counsels for the assessee S/Shri S.E. Dastur and P.J. Pardiwala and the learned Departmental Representatives, Shri Y.S. Rawat and Shri N.C. Nair. Their arguments are taken into consideration.
3. The appellant is carrying on business in textile. The appellant-company filed the return of income for the assessment year 1985-86 showing an income of Rs. 2,824. The return of income was accepted under Section 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer issued a notice under Section 143(2)(b) of the Act with the approval of the IAC and reopened the assessment. He completed the reopened assessment and determined the total income at Rs. 1,87,380 by disallowing the purchases of Rs. 1,84,695 made during the previous year by disbelieving the genuineness of the said purchases. The Assessing Officer wanted to verify the purchases of the textile goods made by the appellant from twelve parties of Bhiwandi and, therefore, he issued the summonses to them on the names and the addresses furnished by the appellant. Those summonses, however, could not be served upon those twelve parties because they were not available on the addresses furnished by the appellant The postal authorities also returned the summonses unserved.
4. The appellant explained that those twelve parties of Bhiwandi probably might have left out of Bhiwandi, Non service of the summonses on them should not be considered to draw an adverse inference against the appellant. It was also explained that there were considerable number of parties in manufacturing textiles and some of them were very small parties. Not finding them on their addresses does not. mean that, the purchases were not genuine. The Assessing Officer as well as the CIT(A] also noticed that the appellant-company occupied the office premises at 33, Old Hanuman First Lane, Kalbadevl Road, Bombay, free of rent from M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. and the entire sales of textile goods were also made to the said party at the same address. The appellant-company had also taken the loan from M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. and the sale of the textile goods was adjusted against the loan taken by the appellant-company earlier. The Assessing Officer as well as the CIT(A) considered that there was no evidence to show for transport and taking possession of textile goods from those twelve parties of Bhiwandi. There was also no proof to show that the textile goods purchased by M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd were given possession of.
5. The another fact, according to the Assessing Officer as well as the CIT(A) assumed importance, was that the crossed cheques were issued to the traders at Bhiwandi but not on "account payee" cheques. All those cheques were encashed in the Bank accounts in Bombay but not at Bhiwandi. For these reasons, the Assessing Officer held that the transactions were sham and the appellant-company acted only as a front company for M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. Thus, he determined the total income at Rs. 1,87,380 by disallowing the purchases of textile goods of Rs. 1,84,695 and by reopening the assessment under Section 143(2)(b), read with Section 143(3) of the Act.
6. The appellant submitted before the CIT(A) that the reopening of the assessment was bad in law by issuing a mere memo. However, the CIT(A) did not accept this contention because he held that a clear notice was issued for making a sample scrutiny assessment. To prove the genuineness of purchases for textile goods, the appellant filed the copies of the bills issued by all the twelve traders at Bhiwandi before the CIT(A). The copies of the cheques issued to those parties were also filed. It was submitted that the purchases were not bogus.
7. The CIT(A) took into consideration that all the purchases were made in the month of March 1985 only. No business activities were carried on by the appellant-company prior to March 1985. The payments were made by the, cheques but not a/c payee. The cheques were not encashed in the accounts of the sellers at Bhiwandi but all of them were put in bank at Bombay only. The summons were not served on those twelve parties at Bhiwandi. From these facts, the CIT(A) inferred that the traders at Bhiwandi issued printed bills for selling the goods and received amounts by cheques. Therefore, those traders might be established traders at Bhiwandi. They might not be casual traders as submitted on behalf of the appellant. He also inferred that it was not possible to believe that all the twelve traders may have left the Bhiwandi within a period of three years and might have shifted to some other places. He held that there was no evidence to show of taking possession of the textile goods by the appellant and the transportation of the same to the Bombay. Not even one trader put a cheque in his account at Bhiwandi where adequate facilities of banking are available. Therefore, he held that the Assessing Officer was justified in drawing an adverse inference and holding that the purchases of textile goods made by the appellant were bogus transactions.
8. From the above narrated facts relating to the purchase of textile goods by the appellant in the month of March 1985 alone, the only point which has arisen for our consideration is whether the assessee has proved the purchases of textile goods as claimed and entitled for the deduction of the said purchases.
9. The learned counsel for the appellant, Shri S.E. Dastur, contended that the printed bills issued by the traders at Bhiwandi is an evidence for purchasing the textile goods by the appellant. The crossed cheques were issued in the names of the parties and the same have been encashed. It is immaterial that whether the cheques issued by the appellant to the said parties were encashed. If the sellers had encashed the cheques issued to them at Bombay, the appellant is not responsible for that act of the traders from Bhiwandi. There is no allegation that the appellant received back the amounts of the said cheques. The appellant furnished the names and the addresses of all those twelve parties at Bhiwandi. The appellant cannot be held responsible for non-service of the summons upon them and return of the same. However, the appellant explained that the traders from whom the textile goods were purchased were small traders and they might have left Bhiwandi. It is a fact that none of those traders were found at Bhiwandi but they were not found at Bhiwandi within a period of three years but, according to Shri Dastur, non-finding them at Bhiwandi and their whereabout, cannot be attributed to the appellant. He submitted that the Assessing Officer should have taken further step to issue warrants against them to secure their presence and to confirm whether the purchases of textile goods were made from them by the appellant or not. As the Assessing Officer did not issue the warrants against those small traders, according to Mr. Dastur, he failed to make further investigation. For that purpose also, the appellant should not be held responsible.
10. His another argument is that the appellant had taken the loan from M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd., earlier than the purchase and sale of textile goods. The appellant paid the interest on the said loan to the said concern. The appellant claimed the allowance of interest paid on the loan as deduction and the department has allowed the deduction of interest paid by the appellant on that loan. For these reasons also, according to him, the purchases cannot be considered as not genuine. However, raising of loan and payment of interest was proved and the same was rightly allowed as deduction.
11. Mr. Dastur's third contention is that when the appellant purchased the textile goods of twelve parties from Bhiwandi and sold them to M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd., the sale price was adjusted towards payment of loan. He urged that there is a nexus in adjusting the sale price of the textile goods against the loan raised by the appellant earlier. The purchaser M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. adjusted the sale price of textile goods in its books of account and the assessee also did so. Therefore, he contended that the purchases cannot be held to be bogus not to allow the claim.
12. Mr. Dastur relied on the decision of the Allahabad High Court in the case of Nathu Ram Premchand v. CIT [ 1963] 49 ITR 561, in favour of his contention that no adverse inference can be drawn against an assessee merely because the assessee had taken a dasti summons for production of a witness and had not produced him. In the instant appeal, the appellant had not taken any summon served upon the traders at Bhiwandi. The Allahabad High Court, in that case, held that it is the duty of the Income-tax Officer to enforce the attendance of the witness if his evidence is material, in exercise of his powers under Section 37(i) of the Income-tax Act, read with Order XVI, Rule 10, of the Civil Procedure Code. Shri Dastur argued that non-service of the summons on the traders at Bhiwandi in spite of furnishing the names and addresses to the Assessing Officer cannot be attributed to the appellant to draw an adverse inference. Hence, he contended that the adverse inference drawn by the Assessing Officer and accepted by the CIT(A) against the assessee is not correct.
13. The Departmental Representatives submitted that the purchases were made in the end of the month of March 1985 and none of the sellers came before the Assessing Officer to confirm the sales. No cheques were put in banks at Bhiwandi. According to them, the transactions were sham and there is no proof of taking delivery of textile goods at Bombay. There is also no proof of transportation of goods to Bombay from Bhiwandi. They have made a new point that it was strange that all the parties at Bhiwandi sold the goods on credit to the appellant for issuing crossed cheques. For this also, they contended that the genuineness of the purchases and sale is not established. According to them, the appellant's claim is not allowable.
14. We have examined the facts as brought on record by the appellant. We have taken into consideration the arguments advanced on behalf of both the parties. In our opinion, issuing printed bills for selling the textile goods to the appellant at Bhiwandi is not a conclusive proof but it is a prtma facie proof to arrive to a correct conclusion that the appellant purchased certain goods from certain parties at Bhiwandi. The appellant sold those goods to M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. and adjusted the sale proceeds against the loan taken by it from that party. The appellants books of account and the books of account of M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. in which the entries of sale and adjustment are made cannot be discarded merely by saying that they are not genuine entries though neither the Assessing Officer nor the CIT(A) opined anything in respect of those entries. Further, in our opinion, the purchase of the goods in the month of March 1985 does not make any difference. The appellant might not have carried on any business activities prior to March 1985, but that does not mean that the appellant was not entitled to carry on the business activity in the month of March 1985. The appellant cannot be compelled to carry on the business activity throughout the year. There are no good reasons to disbelieve the sales made by the appellant to M/s. Shree Sitaram Dyeing and Printing Mills (P.) Ltd. No sales were likely to be effected if there were no purchases. A sale can be made if the goods are available with the seller. From all these facts on record, a reasonable and convincing inference which can be drawn is that the appellant purchased the textile goods, sold them and adjusted the same towards the loan taken by it. Therefore, the assessee is entitled to get the entire deduction.
15. In the result, the appellant succeeds and the appeal is allowed.