Income Tax Appellate Tribunal - Delhi
Modern Steel Industries vs Assistant Commissioner Of Income Tax on 30 November, 1999
ORDER
Sikander Khan, A.M.
1. This appeal by the assessee, which is a firm, deriving income from steel rolling mill, is against the order of the CIT(A), II, Meerut dt. 23rd September, 1998 pertaining to asst. yr. 1993-94. As many as 17 grounds have been taken in the appeal. However, all along the assessee's objections in the grounds of appeal have been against additions of Rs. 3,43,177 and Rs. 51,995 made by the AO on account of alleged excessive purchase prices, addition of Rs. 57,98,103 made by the learned CIT(A) by way of enhancement on account of alleged non-genuine and bogus purchases addition of Rs. 45,964 under s. 43B in respect of provident fund contributions made by the assessee and Rs. 21,658 on account of disallowance out of telephone expenses.
2. We would first take up the dispute relating to the additions of Rs. 3,43,177 and Rs. 57,98,103 as well as enhancement of Rs. 57,98,103 by learned CIT(A) which are inter-connected on account of alleged excessive purchase prices and bogus purchases. The assessee declared gross profit of Rs. 76,47,926 on turnover of Rs. 25.48 crores, which resulted G.P. rate of 3.007 per cent. In the preceding year the G.P. shown was 3.000 per cent for turnover of Rs. 22.06 crores. The AO had doubts about the correctness of the accounts on the ground that the G.P. percentage for the year under consideration was almost the same as that of last year. He also examined the burning loss as well as melting scrap and observed that they were consistently the same as in the past, which also raised doubts in his mind about the correctness of the assessee's accounts.
3. The AO examined purchases from M/s. Jay Shree Industries India, Jay Shree Steel and M/s. Shree Ram Steel Centre and also referred to the investigations conducted by Central Excise Department in the cases of the first two parties, where they had held that the said two parties were doing only paper transactions in sale and purchases and they were not engaged in actual manufacturing activities. Scrutiny of bank accounts of the said two parties indicated that whatever payments for the transactions had been received by cheques had been withdrawn on the same day, in cash from which the AO presumed that whatever amount was received by cheque for sales made by these two parties to the present assessee was returned in cash by the said two parties to the present assessee on the same date.
4. The AO then referred to the enquiries conducted wherein it was found that the goods transported from the said two parties to the factory premises of the present assessee were through non-existent trucks or through cars, scooters, tanker, motor-cycles and even buses. He observed that it was not possible to transport all such heavy materials like scrap/forgings by such vehicles from the factory premises of the said two parties to the factory premises of the present assessee. The enquiries from the TRO Delhi revealed that there were no trucks by registration No. DLI 1375, DLI 6370 and DLI 6364 because the registration No. DLI was for passenger cars and not for trucks. Similarly enquiries revealed that truck No. UTG 3492 shown on the bills was in fact a motor-cycle. He further observed that the owner of vehicle No. DEG 2000 stated that this truck was never operated in Ghaziabad and there was no question of using the truck for transportation of goods of the said two parties. The assessee had shown payments of carriage and cartage through the so-called trucks amounting to Rs. 17,868.
5. The AO thus came to the conclusion that the said two parties, namely, M/s. Jay Shree Steel Centre and M/s. Jay Shree Steel Industries India were merely paper entities involved in just issuing bills and gate passes mentioning the imaginary vehicle numbers and thus the purchases shown from these two parties by the assessee were bogus and shown to inflate the purchases. The total purchases from M/s. Jai Shree Steels was 324.41 tons amounting to Rs. 36,29,926 while from M/s. Jain Shree Industries India it was 122.29 M.T. amounting to Rs. 14,45,591.
6. After coming to the aforesaid conclusions about the purchases from the said two parties, the AO observed that since the assessee-firm was manufacturing the goods, it must have purchased steel from open markets at lower cost obtaining the bills at higher cost from the said two parties. He added whatever excess price had been claimed in the books of accounts that was done to inflate the purchases. On the basis of the average purchase price from other parties the AO held that there was inflation of purchase price by Rs. 3,43,177 in respect of the purchases from the said two parties.
7. The AO also examined the purchases shown from the aforesaid third party, namely, M/s. Shree Ram Steel Centre amounting to Rs. 10,99,890 showing 99.99 M.T. of raw materials. He referred to the findings given by the ITO, Ward-I in respect of the said concern, wherein the AO had held that the said concern was only issuing bills and no activities were actually carried out by it. He also referred survey conducted in the premises of M/s. Siya Ram Pipes (P) Ltd. a company in which the proprietor of M/s. Shree Ram Steel Centre was a Director. From the company's premises blank cheques and bills of M/s. Shree Ram Steel Centre and similar other papers concerned were found, which substantiated the fact that M/s. Shree Ram Steel Centre was a bogus firm. A copy of the bank account of the said concern showed that the cash was withdrawn on the same date of depositing the cheques of the buyers meaning thereby that the amount was being returned to the buyers on the same day. The AO here also instead of adding the entire amount of bogus purchases added only Rs. 51,995 for estimated inflation of the purchase price as in respect of the aforesaid first two parties, referred to above.
8. Aggrieved the assessee preferred first appeal before the learned CIT(A) against the additions of Rs. 3,43,177 and Rs. 51,995. It was submitted before him on behalf of the assessee that the impugned additions were unjustified and wrong because the trading results shown were supported by regular books of accounts which had been audited by the Chartered Accountants. It was contended that the observations of the AO with regard to the G.P. rate, burning loss and melting scrap being consistently almost the same as in the past were unfounded, and based merely on suspicion and surmises. The stock was physically verified and reconciled from time to time and the production was shown at the actual quantity. No discrepancy had been found in the books of accounts. The purchases were supported by the bills and the purchase prices were duly paid by cheques. It was further submitted that the observations made in respect of the aforesaid three parties doing only paper transactions were not supported by concrete materials and were of no relevance to the case of the present assessee. It was further submitted that the truck numbers, etc. mentioned by the aforesaid three parties were of no concern to the present assessee, which was only interested in the receipt of the goods purchased. As regards the purchase rate it was submitted that the same depended upon the quality of the raw materials and the purchase rates varied for different quality of raw materials and hence, it was wrong to say that the purchase rates must remain the same. It was contended that the AO's findings with regard to the purchase price were based on conjectures and surmises and were in complete disregard of the facts of the case, and prevailing market condition. As regards investigations by the Central Excise Department in the cases of the aforesaid three parties, it was submitted before the learned CIT(A) the adjudication order of the Collector of Central Excise had been remanded back to him by the Appellate Tribunal (hereinafter referred to as "the CEGAT" for brevity).
9. After considering the facts of the case and the submissions of the authorised representative of the assessee before him, the learned CIT(A) came to the conclusion that since the purchases from the aforesaid three parties were found by the AO to be bogus, the addition ought to have been made for the total amount of purchases from these three parties and not merely for inflation of purchase prices being the difference between the average purchase price from other parties and the purchase price from the said three parties. He, therefore, issued enhancement notice to the assessee.
10. In response to the show-cause notice issued by the learned CIT(A) for enhancement of the income, the assessee asked for copies of relevant documents, informations, etc. from the Central Excise authorities so as to prepare the reply. Later on written submissions were filed by the assessee. The assessee contended that the learned CIT(A) could not exercise the power of enhancement in the case because it would amount to change of opinion upon the matter which had already been considered by the AO and the view had been taken by him. He submitted that the copies of documents, informations, etc. on the basis of which the learned CIT(A) had issued the enhancement notice had also not been furnished to the assessee as asked for because the learned CIT(A) did not have such documents, informations, etc. against the assessee and as such it was only the matter of difference of opinion between the AO and the learned CIT(A). It was contended that in view of the Supreme Court's decision CIT vs. Shapoor Ji Pallonji Mistry (1962) 44 ITR 891 (SC) and CIT vs. Rai Bahadur Hardutroy Moti Lal Chamaria (1967) 66 ITR 443 (SC) and Bombay High Court's decision Narron Das Manor Das vs. CIT (1957) 31 ITR 909 (Bom), the learned CIT(A) was not competent to exercise the power of enhancement in the present case. It was submitted that the IT Department had done nothing on its own and it could not fall back on the erroneous and illegal action of the Central Excise authorities for the purpose of making addition in the income-tax assessment. Reference was also made to r. 57F of the Central Excise Rules and it was submitted that the Central Excise authorities and deliberately ignored the said rule. It was further submitted that various returns under the Central Excise Act were submitted to the Collector of Central Excise, Ghaziabad and he should be summoned to call for the records for verification. It was added that the sales-tax authority had made cross-verification but no discrepancies were noted by them. It was further submitted that since records concerning Jai Shree Steels Centre, M/s. Jai Shree Industries India were not available with the learned CIT(A) it would be proper to summon these records from the Central Excise authorities, to arrive at fair and just decision. The records should also be made available to the assessee for making proper reply and submissions in the matter.
11. The learned CIT(A) was not satisfied and convinced with the aforesaid submissions and contentions. He observed that income had escaped assessment in the case inasmuch as instead of making addition for the bogus purchases from the aforesaid three parties, the AO had made addition only for the difference of the purchase price, which was not proper and justified. He added that if the purchases were treated as bogus and not genuine, the total purchases had to be reduced from the purchases claimed by the assessee. He further observed that the assessee had claimed total shortage on account of burning loss and melting scrap at 2,149 M.T. out of which even if the assessee's submission was accepted, only saleable scrap of 623 M.T. was recovered, the balance shortage came to 1,526 M.T. while the total purchase quantity-wise from the aforesaid three parties were only 5,446.9 M.T. He had separately discussed that the shortage shown in the stock register and in the books of accounts was shown on predetermined level month to month and there was no change except slight variation at the third decimal point which only went to show that the assessee had manipulated the shortages to cover up the bogus purchases to the extent of 547 M.T. of raw materials. He, therefore, held that there was no basis for the AO to make presumption that the assessee had purchased some rawmaterials without bills at a lower rate especially when such a proposition could not be supported by accounting point of view or any material on record.
12. The learned CIT(A) observed that it had already been proved from the facts gathered by the AO that the aforesaid three firms from whom the alleged purchases had been shown were bogus concerns and were only issuing paper bills. These three firms had admitted their modus operandi in their respective assessments before the IT Department. It was further proved that the goods were not transported from their factory premises to the premises of the assessee-firm, because the trucks on which the goods were transported were non-existent and were cars, scooters, etc. and on which such heavy materials could not be transported. He, therefore, held that the purchases from the aforesaid three parties were bogus and not genuine and addition was liable to be made for the purchase price of Rs. 61,93,275 in respect of the purchases from the said three firms. He further held that the AO was wrong in making additions of Rs. 3,43,177 plus Rs. 51,995 = Rs. 3,95,172 only on account of estimated difference in the purchase rates as discussed above. Accordingly, after deducting the addition of Rs. 3,95,172 already made by the AO from the required addition of Rs. 61,93,275, he enhanced total income by Rs. 57,98,103. The learned CIT(A) observed that the assessee had failed to discharge its onus to prove the genuineness of the said purchases and that the fact that the adjudication order of Collector, Central Excise had been remanded by the CEGAT could not affect the position in the income-tax assessment because the income-tax assessment was based on detailed consideration of relevant facts and circumstances of the case relating to the said purchases which were found to be bogus and not genuine. Thus, the learned CIT(A) enhanced the total income by Rs. 57,98,103.
13. Aggrieved, the assessee has come up in second appeal before this Tribunal contending that the learned CIT(A) ought to have deleted the additions of Rs. 3,43,177 plus Rs. 51,995 as above and further contending that the enhancement of the total income by Rs. 57,98,103 was unwarranted and uncalled for.
14. The learned counsel submitted that the additions of Rs. 3,43,177 + Rs. 51,995 made by the AO were unjustified and wrong because there was no basis for the same. He added that the observations and findings of the AO in this regard were based on conjectures and surmises and not on any concrete materials or even comparable cases. The AO had considered the burning loss and melting scrap as excessive merely on suspicion without pointing out any discrepancies or comparable cases. He added that the AO was not justified to make the observations in regard to the burning loss and melting scrap without any technical expert's report. He further added that the AO had no authority to record finding over technical matter. He relied on the decision in Saraswati Industrial Syndicates Ltd. vs. CIT (1999) 237 ITR 1 (SC). He further submitted that there was no concrete basis before the AO to hold that the purchase price from the aforesaid three parties was higher than the average purchase price from the other parties and hence addition was liable to be made for the difference. It was further contended that such addition was arbitrary and liable to be deleted.
15. As regards the enhancement made by the learned CIT(A), the learned counsel submitted that the same was unjustified and wrong because the power of enhancement was confined to that which was the subject-matter of assessment and specifically limited to the same sources and basis. The power of enhancement could not be exercised to bring in any new sources of income and in regard to matters which were altogether neither considered nor dealt with by the AO. He, therefore, contended that the enhancement made by the learned CIT(A) being beyond the subject-matter of assessment, was liable to be reversed. He relied on the decisions in (1962) 44 ITR 891 (SC) (supra) and (1967) 66 ITR 44 (SC) (supra).
16. The learned counsel further submitted that the learned CIT(A) had wrongly conferred jurisdiction upon himself to consider the new sources of income and new subject-matter which had not been part of the assessment contended that the learned CIT(A) had no jurisdiction over the said matter. He relied on decisions Raja Textiles Ltd. vs. ITO (1973) 87 ITR 539 (SC) and AIR 1979 SC 45, 51-52.
17. The learned counsel further submitted that the learned CIT(A) had held that the purchases from the aforesaid three parties were bogus and not genuine, merely on the basis of the findings of the Collector of Central Excise. He had not examined the records, reports, details and evidences himself. He contended that it was not proper and justified for him to hold the purchases as bogus merely on the basis of the findings of the Collector of Central Excise. He further contended that after the setting aside of the order of the Collector, Central Excise by the CEGAT, even that basis had become non-existent. He contended that in view of the setting aside of the order of the Collector, Central Excise also, it was incumbent on the learned CIT(A) to go through the entire records, evidences, etc. in respect of the purchases from the aforesaid three parties and then only he should have formed his own view regarding the said purchases. He added that the AO had already recorded his finding that the assessee had made purchases but in order to inflate the rates, he had taken the bills from the said three parties. The learned AO had admitted that the assessee had made purchases from other parties for the manufacturing operations. He argued that the finding of the learned CIT(A) that no purchases at all had been made from the aforesaid three parties and that the undisclosed raw materials kept apart by way of excess consumption shown had been utilised for the manufacturing process, was totally unfounded, presumptuous and wrong. It was contended that no enhancement could be made on such imaginary grounds without bringing any concrete materials on record.
18. The learned counsel submitted that no addition could be made merely on the basis of finding of the Collector of Central Excise without any independent enquiry or investigation by the AO/CIT(A) to prove the allegations of bogus purchases and non-disclosure of income. He relied on the decision (1998) 231 ITR 200 (SC).
19. He further submitted that the learned CIT(A) had not discharged his onus to prove that the purchases were bogus. He added that the purchases were duly supported by bills, books of accounts, registers, payments made by account-payee cheques, etc. None of these evidences has been proved to be false. He argued that it was for the learned CIT(A) to prove the allegations of bogus purchases and the assessee could not be called upon to rebut to unfounded allegations. He contended that the reliance placed by the learned CIT(A) on the decision reported in 24 ITR 610 (sic) was unjustified and wrong and he should have taken into account the other judgments on the issue reported in (1962) 44 ITR 891 (SC) (supra) and (1967) 66 ITR 44 (SC) (supra). In this connection, he relied on the decisions in 178 ITR 40 (sic). Regarding the onus to prove the allegation of bogus purchases being on the learned CIT(A), the learned counsel referred to the decisions Udaipur Distillery Co. vs. CIT (1973) 87 ITR 516 (Raj) and Kishan Chand Chella Ram vs. CIT (1980) 125 ITR 713 (SC). As regards the contention that after the setting aside of the order of the Collector of Central Excise by the CEGAT, the basis of the enhancement by the learned CIT(A) did not survive and hence the enhancement was liable to be reversed, the learned counsel sought support from the decision in Arbian Express Line Ltd. of U.K. & Ors. vs. Union of India (1995) 212 ITR 31 (Guj).
20. The learned counsel further submitted that the Expln. to s. 251 of the IT Act also could not be interpreted so as to confer on the learned CIT(A) power of enhancement of income relating to new sources of income and that too contrary to law and facts of the case. He added that the decisions CIT vs. Indian Express (Madurai) (P) Ltd. (1983) 140 ITR 705 (Mad), Ahmedabad Electricity Co. Ltd. vs. CIT (1993) 199 ITR 351 (Bom), General Sales (P) Ltd. & Ors. vs. Gopal Mukherji ITO & Ors. (1987) 166 ITR 77 (Del), CIT vs. National Co. Ltd. (1993) 199 ITR 445 (Cal), Shri. Ram Washer Rahat Industries vs. CIT (1991) 187 ITR 85 (Kar), CIT vs. Krishna Veni Ammal (1986) 158 ITR 826 (Mad) relied upon by the AO were not relevant to the present case because the onus of the Revenue had not been discharged and no evidence whatsoever had been brought on record to prove that the purchases were bogus.
21. The learned counsel finally submitted that the additions of Rs. 3,43,177 plus Rs. 51,995 made by the AO as well as the enhancement of Rs. 57,98,103 made by the learned CIT(A) were liable to be deleted.
22. The learned senior Departmental Representative on the other hand, supported the impugned orders of the AO as well as the learned CIT(A). He, submitted that the additions made by the AO were proper and justified because the burning loss as well as the melting scrap percentages shown by the assessee were excessive. Further, the purchase rates of raw materials from the aforesaid three parties were excessive. He contended that the additions made by the AO were supported by detailed reasons given in the assessment order.
23. As regards the enhancement by the learned CIT(A), the learned senior Departmental Representative submitted that for the detailed reasons given in the assessment order as well as the order of the learned CIT(A) read with the report and order of the Central Excise authorities, the purchases from the said three parties had been proved to be bogus and non-genuine and, therefore, the purchase price of raw materials shown to have been purchased from these three parties, was rightly added to the total income. He added that the enhancement by the learned CIT(A) was not on account of a new source of income or on account of new subject-matter. He contended that the subject-matter of purchases from the aforesaid three parties had been duly considered by the AO in the assessment but despite his finding to the effect that the purchases from the said three parties were bogus and non-genuine, the AO had made addition only on account of difference in the purchase rates instead of making addition for the purchase price of the bogus purchases. Since this finding of the AO was wrong, the learned CIT(A) was justified in considering the matter on his own and after giving show-cause notice and considerable opportunity to the assessee, and after considering all the relevant materials on record, and after discussing those in the appellate order, he was justified in holding that the addition was liable to be made for the purchase price of the purchases of raw materials from the said three parties. Thus, the subject-matter of enhancement was not outside the assessment under consideration but the same was based on materials on record before the AO. He argued that the decisions relied upon by the learned counsel for the assessee were not applicable in the present case because the facts were distinguishable.
24. The learned senior Departmental Representative also referred to Expln. to s. 251 of the Act and the decisions in (1983) 140 ITR 705 (Mad) (supra), (1993) 199 ITR 351 (Bom) (supra), (1987) 166 ITR 77 (Del) at 82, (1993) 199 ITR 445 (Cal), (1991) 187 ITR 887 (Ker) (supra), (1986) 158 ITR 826 (supra).
25. We have given careful consideration to the aforesaid facts and circumstances of the case, the materials on record and the submissions and contentions of the rival parties before us. We are of the view that the additions of Rs. 3,43,177 and Rs. 51,995 made by the AO for the alleged difference in the purchase prices were not proper and justified. The AO had not brought any concrete materials on record to prove that the burning loss and the melting scrap percentages shown by the assessee were false or wrong. All the observations made by the AO in this regard only smack of suspicion, conjectures and surmises. In his order he had only expressed his doubts about the correctness of the trading results shown but had not brought any concrete materials to disprove the same by pointing out any discrepancies in the books of accounts, registers, etc. maintained. He had also not given any comparable cases to support his view. He was not justified to reject the trading results, burning loss, melting scrap percentages shown on the ground that the results shown were consistent with the past records. It was a different thing that the AO would have made addition for bogus purchases, if he had proved that the purchases from the aforesaid three parties were bogus and not genuine. But instead of taking this course of action, the AO adopted wrong approach of making addition for the difference in the purchase prices from the aforesaid three parties and the average purchase prices shown from other parties. This approach of the AO was highly conjectural, imaginary and wrong. It was not correct on the part of the AO to assume that the assessee had taken bills from the three parties for the purchases at higher prices whereas the actual purchases were from some other parties at lower prices. There was no basis for this kind of assumption and, therefore, the basis of the impugned additions of Rs. 3,43,177 and Rs. 51,995 was misconceived and wrong. We, therefore, hold that the additions of Rs. 3,43,177 and Rs. 51,995 were unwarranted and uncalled for.
26. As regards the enhancement of total income by Rs. 57,98,103 made by the learned CIT(A) we find that the CIT(A) had held that the addition of Rs. 61,93,275 was liable to be made in the case on account of bogus and non-genuine purchases of the aforesaid three parties. However, since the AO had already made additions of Rs. 3,43,177 plus Rs. 51,995, he made only the balance addition of Rs. 57,98,103 by way of enhancement of the total income in exercise of powers conferred upon him under s. 251 of the IT Act. Sec. 251 of IT Act provides as under :
"251(1) In disposing of an appeal, the Dy. CIT(A) or, as the case may be, the CIT(A) shall have the following powers :
(a) in an appeal against an order of assessment, he may, confirm, reduce, enhance or annul the assessment; or he may set aside the assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by the Dy. CIT(A) or, as the case may be, the CIT(A) and after making such further inquiry as may be necessary, and the AO shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment;
(b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty;
(c) in any other case, he may pass such orders in the appeal as he thinks fit.
(2) The Dy. CIT(A) or, as the case may be, the CIT(A) shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction.
Explanation : In disposing of an appeal, the Dy. CIT(A) or, as the case may be, the CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the Dy. CIT(A) or, as the case may be, the CIT(A) by the appellant."
27. From the perusal of the aforesaid provisions of s. 251 it is clear that the CIT(A) in disposing of an appeal may enhance the total income but Expln. to s. 251(2) also clearly provides that in disposing of an appeal the CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the CIT(A) by the appellant. Thus, the CIT(A) was competent to consider the issue relating to the bogus purchases from the aforesaid three parties, though, in the appeal before him, the additions in dispute were Rs. 3,43,177 plus Rs. 51,995 and not the impugned addition of Rs. 57,98,103, we find that the impugned addition of Rs. 57,98,103 had arisen out of the materials on record before the AO and that the addition was not relating to a new subject-matter or to a new source of income. It is an admitted fact that the AO had examined the genuineness of the purchases from the aforesaid three parties and had also given findings that these purchases were bogus and non-genuine. In fact the additions of Rs. 3,43,177 plus Rs. 51,995 made by the AO also were based on his findings of non-genuine of the said purchases. He had clearly observed that the purchases from the aforesaid three parties were bogus and non-genuine and the purchase bills were taken from the said three parties only with a view to inflate the purchase prices. Thus, it cannot be said that the enhancement made by the learned CIT(A) relating to the subject-matter or a source of income which had not been considered by the AO. What the learned CIT(A) had done by way of enhancement is that he had held that the approach of the AO in making the aforesaid additions instead of addition for the price of the bogus purchases was wrong when he had himself held that the said purchases were bogus and non-genuine. The view of the learned CIT(A) that if the purchases from the aforesaid three parties were bogus and non-genuine, the addition had to be made for the entire purchase price from the said three parties and not for difference between the purchase prices and the average purchase prices from other parties was found on appreciation of the fact, and material on AO's records.
28. In the above view of the matter, we hold that the contention of the learned counsel for the assessee that the learned CIT(A) was not competent to exercise the power of enhancement in the case, was not tenable and acceptable. The various decisions cited by the learned counsel were not applicable to the facts of the present case because the facts in those cases were distinguishable.
29. We also find that the learned CIT(A) had made the enhancement after giving the show-cause notice and opportunity of hearing to the assessee. He had duly considered the reply to the show-cause notice submitted by the assessee. We, therefore, find no flaw in the order of the learned CIT(A) in this regard.
30. However, there is one important aspect of the cash which requires serious consideration. We find that the learned CIT(A) had based his case for enhancement on the findings of the AO in the impugned assessment order that the purchases from the aforesaid three parties were bogus and non-genuine. Further he had relied on the findings of the Collector of Central Excise in the cases of the aforesaid three parties, wherein it had been held that the aforesaid three parties had falsely claimed MODVAT credit, and that they had not done any work of forging. The AO had extensively referred to and heavily relied on the discussions and findings in the order of the Collector of Central Excise in this regard and then held that since the said three parties had not done any work of forging, they could not have made supplies to the present assessee and as such the purchases shown by the present assessee from the aforesaid three parties were bogus and non-genuine. We, further find that the learned CIT(A) in the course of enhancement proceedings had not made his own independent evaluation and assessment of the materials on record, evidences, etc. in respect of the purchases from the aforesaid three parties. The fact that the relevant materials and records were not before the learned CIT(A) makes it evident that he had not examined the same. The learned CIT(A) had not confronted the assessee with the materials and evidences against it. The assessee had requested the learned CIT(A) to furnish to it the materials and evidences in his possession for necessary reply and rebuttal. The aforesaid three parties had also not been examined by the learned CIT(A) in this regard. The purchase bills, the documents relating to the payments of the purchase prices by the account payee cheques, the documents relating to transport of goods from the factories of the aforesaid three parties to the factory of the present assessee, the owners of vehicles, etc. had not been examined by the learned CIT(A) or if these materials had already been gathered by the Central Excise Authorities, and mentioned by them in their reports, the same had not been properly and fully examined by the learned CIT(A) in the present case. While it may be correct to take into account the materials and evidences gathered by the Central Excise Department against the aforesaid three parties, it will not be legally proper and valid to impliedly adopt the findings of the Central Excise Department in this regard. In the present case we find that the learned CIT(A) in the course of the enhancement proceedings had by and large adopted the findings of the AO and the Central Excise authorities, without making his own independent examination and evaluation of the materials. Since enhancement proceedings were a serious and independent proceedings before the learned CIT(A), he ought to have followed the due process of law before coming to his own conclusion regarding the purchases from the aforesaid three parties. In the present case we find that this is wanting.
31. Moreover, since the AO and the learned CIT(A) had based their findings regarding the non-genuineness of the purchases from the aforesaid three parties, on the order of the Collector Central Excise, the basis of their orders did not survive after CEGAT had set aside the order of Collector of Central Excise. If the learned CIT(A) had made the impugned enhancement on his independent evaluation of the materials and evidences and his own inquiries, then the setting aside of the order of the Collector of Central Excise by CEGAT might not upset the order. But since in the present case he had not done so and he had based his orders on the findings of the Collector, Central Excise which had been set aside by the CEGAT, the impugned enhancement order of the learned CIT(A) also has to be set aside and the case has to be restored back to the learned CIT(A). We direct him to pass fresh order after examining all the relevant materials, evidences and after getting the necessary enquiries made about the purchase bills, payments made through banks, documents of transport of goods, the books of accounts, registers of all the aforesaid three parties, statements of the concerned persons, detailed report of the Central Excise authorities and other relevant materials in the case. He should give opportunity to the assessee to rebut the material against it and pass fresh order after due consideration of assessee's reply and evidences furnished in support of purchases shown.
32. Accordingly, on the issue of enhancement on account of bogus purchases from the aforesaid three parties, the order of the learned CIT(A) is set aside and restored to him.
33. The next grievance of the assessee in the appeal is against the disallowance of Rs. 45,964 in respect of provident fund contributions for the month of April, 1992 and January, 1993 deposited on 18th May, 1992 and 18th February, 1993, though these payments were to be deposited by 15th of next month, in accordance with the provisions of s. 36(1)(va) and 2(24)(x) of the Act. The amount so deposited was Rs. 45,964. The assessee submitted that the payment had been made within the grace period of 5 days after the due date of 15th and therefore, it cannot be disallowed. The AO observed that this grace period did not extend the due date and, therefore, the payment had to be disallowed under s. 36(1)(va). In the first appeal it was submitted before the CIT(A) on behalf of the assessee that the PF contributions were deposited on 18th May, 1992, and 18th February, 1993, within the grace period allowed by the PF Department and, therefore, the disallowance was unjustified and wrong.
34. The learned CIT(A) was not satisfied and convinced with the aforesaid contentions. He observed that the due date of 15th of the next month could not be extended and the grace period of 5 days had been allowed to deposit the same without charging any damages thereon.
35. This did not extend the date in anyway. He, therefore, held that since the payment of Rs. 45,964 had been made delayed after 15th, deduction for the same was not allowable under s. 43B r/w s. 36(1)(va) and 2(24)(x) of the Act. He, therefore, confirmed the disallowance.
36. Aggrieved further the assessee has come up in second appeal before this Tribunal.
37. The learned counsel submitted that the deposit of the PF contributions on the aforesaid dates were within the grace period of 5 days allowed by the P.F. department and as such the same should be treated as deposits made within the due date and deductions should be allowed under s. 43B of the Act. He relied on the decisions Allied Motors (P) Ltd. vs. CIT (1997) 224 ITR 677 (SC), Fluid Air (India) Ltd. vs. Dy. CIT (1997) 63 ITD 182 (Mumbai) and ITO vs. Sea Pearl Industries (1996) 56 ITD 505 (Coch).
38. The learned Departmental Representative, on the other hand, supported the orders of the authorities below.
39. After considering the aforesaid rival submissions, we are of the view that deduction of Rs. 45,964 claimed by the assessee on account of the payment of PF contributions deserves to be allowed under s. 43B of the IT Act. The payments in question having been made within the grace period of 5 days allowed by the PF department deserve to be treated as payments made within the due date. We, therefore, delete the addition of Rs. 45,964.
40. The last grievance of the assessee in this appeal is against the disallowance of Rs. 21,658 out of the telephone expenses. The AO disallowed Rs. 21,658 out of the telephone expenses claimed at Rs. 86,632 in respect of telephones installed at the residence of the partners. In the first appeal, the learned CIT(A) confirmed this disallowance for personal use as proper and reasonable. He observed that the AO had not made the disallowance out of the expenses relating to the telephones installed in the business premises. He added that the telephone installed at the residences of the partners must have been partly used for personal purposes and hence the disallowance of 1/4th was fair and reasonable.
41. Aggrieved, the assessee has come up in second appeal before the Tribunal. The learned counsel submitted that the ad hoc disallowance was unwarranted and uncalled for. He added that no such disallowance could be made in the cases of companies where there could be no personal use of the telephone.
42. The learned Departmental Representative, on the other hand supported the orders of the authorities below.
43. We have considered the materials on the file and submissions of the rival parties. We are of the view that the disallowance of 1/4th of the expenses relating to the telephone installed at the residences of the partners for their personal use was proper and justified. No interference is called for in the order of the learned CIT(A) in this regard.
44. In the result, the appeal is partly allowed.