Indian Kanoon - Search engine for Indian Law

10. M/s. RAGHUNATH COTTON & OIL PRODUCTS LTD.:

The assessee claimed to have purchased Waste Heat Recovery Equipment and Pollution Control Equipment in Oil Extraction Systems and some other equipments from one M/s. Agri Commercial Products, 1/1 Ashok Nagar, Guntur - 7 vide invoice No. 250 dated 4.9.94 for a sum of Rs. 1,55,34,000/- and leased them to M/s. Raghunath Cotton Mills & Oil Products Ltd., herein after called RCOP as per lease agreement dated 23.9.94. In support of this claim the assessee relied upon various documents. The learned Assessing Officer found that after the search in the case of the assessee company the department conducted further enquiries and the statement of Shi G. Venkateswaralu, Managing Director of RCOP was recorded on 16.9.96. In this statement, RCOP denied having purchased or sold any machinery to M/s. Agri Commercial Products Ltd., Guntur and instead stated that RCOP was buying only cotton seeds and other oil seeds from this party. Shri Venkateswaralu also denied having taken any machinery on lease from the assessee company. He further stated that RCOP did not have any Waste Heat Recovery System separately and it was part of the regular solvent Extraction Plant of RCOP which had been purchased about 5 years ago on IDBI Financing. Shri Venkateswaralu, however, stated that RCOP had paid some rentals to Haritha Finance, Madras and Anamalai Finance, Coimbatore and to no other company. The learned Assessing Officer confronted the assessee with the statement of Shri Venkateswaralu. The assessee relied upon the documents of lease and also pointed out that as per Clause 9(b) of the lease agreement the lessee had directly obtained the leased assets from the supplier. According to the learned Assessing Officer even during the course of search proceedings in the case of the assessee company, the contents of the statement of Shri G. Venkateswaralu had been brought to the notice of the Chairman of the assessee company as well as Shri Mahesh Gupta, Chief Finance Officer of the company. The assessee was, therefore, required to ascertain from the lessee company the reasons for denial but no such steps were taken for obvious reasons. Further, the learned Assessing Officer found that even the documents being relied upon by the assessee company were by and large fabricated ones. The assessee relied on the minutes of the Board meeting of RCOP held on 30.6.94. The enquiry made by the DDI Guntur revealed that there was no such Board meeting held on 30.6.94. As to the payments made by Account Payee cheque, enquiries were conducted to locate the supplier but the supplier was not found at the given address. It was found that one Shri G. Sai Bhaskar was a tenant at the given address who was an ex small time employee of RCOP. Shri G. Bhaskar had signed as proprietor of M/s. Agri Commercial Products Ltd. It was highly inconceivable that a small time employee like him could raise a bill to the extent of Rs. 1.5 crores in a single instance. It was also found that M/s. Agri Commercial Products was not registered with sales-tax Department and the sales-tax registration No. given on the invoice was not genuine. Thus, the sale invoice was also fabricated one. The payment by Account Payee cheque made by the assessee company on 28.9.94 was drawn on assessee's account with Allahabad Bank, Parel, Mumbai. The accounts were opened in the name of the supplier and RCOP in the same branch on 28.9.94 and this account was introduced by Shri Mahesh Gupta and Shri Sunil Adukiya, an employee of Piramal Group. The payment made by the assessee company to the supplier was transferred to the account of RCOP on the same date and RCOP, in turn transferred on the same date a sum of Rs. 1,32,03,900/- to M/s. Piramal Texturising Pvt. Ltd., a finance company belonging to the same group, under the guise of security deposit. Thus, 84% of the payment made by the assessee company came back to a company belonging to the same group on the same date. There were no other transactions in the bank account of the supplier and RCOP. It was also significant to note that these transactions were not reflected in the books of accounts of RCOP. Moreover, there was no valid commercial ground to justify the transfer of funds from the supplier's account to RCOP since there was no transaction between the supplier and the RCOP carried out except the lease under reference. In any case there was no transaction pertaining to sale or purchase of machinery between these parties.

10.1 According to the learned Assessing Officer the statement of Shri G. Venkateswaralu was recorded once again on 11.7.97. In this statement it was stated that RCOP did not own any equipment of the nomenclature Waste Heat Recovery Equipment and Pollution Control & Oil Extraction System. RCOP never sold any machinery to M/s Agri Commercial Products, Guntur. Board resolution dated 30.6.94 was fabricated. Even on lease agreement the signature of the Director, Mrs. G. Jayalakshmi who was the wife of Shri G. Venkateswaralu was forged. The bank account in Allahabad Bank, Parel, Mumbai had been opened by Shri N.V.S.S.S Rao without any authority and the Board resolution authorizing him to open and operate that bank account was also a fabricated document.

10.2 The learned Assessing Officer noted that the assessee's claim under Clause 9(b) of the lease agreement was not justified. It was the statutory obligation of the assessee company to establish the genuineness of purchase and existence of the asset. The assessee could not shift such obligation to the lessee. The assessee was asked to produce the supplier to prove the genuineness of purchase for establishing the ownership of leased assets on or before 4.7.97 but the assessee failed to do so. Instead on 22.7.97 the assessee company wrote that M/s. Agri Commercial Productions was a party in existence who had been dealing with the assessee company as per the statement of Shri G. Venkateswaralu recorded by A.D.I.T. on 16.9.96. The assessee also claimed that in substance, it was the transaction in the nature of sale and lease back on the part of RCOP. The learned Assessing Officer held that as far as the assessee was concerned the purchase was said to be from M/s Agri Commercial Products and merely because an asset of similar description was with RCOP which formed a part of Block of assets, did not establish the assessee company's claim of ownership of such an asset. The documents on which the assessee placed reliance were found to be bogus. The payment made by the assessee had come back to the extent of 85%. The asset in question was not found to be in existence. There was nothing to suggest that any asset had been sold by RCOP to M/s. Agri Commercial Products. The assets purchased by RCOP had been hypothecated in favour of financial institutions like IDBI and ICICI and, therefore, could not be sold without obtaining specific permission from these financial institutions. Furthermore, the assessee was requested to conduct a joint inspection of assets stated to have been purchased from M/s. Agri Commercial Products. The assessee was requested to intimate a suitable date. However, the assessee failed to intimate a suitable date for joint inspection. Even the assessee's request for cross examination was acceded to and the cross examination took place in the office of ADI, Guntur on 22.7.97. In this cross examination RCOP reiterated its stand consistently. Finally on 29.7.97 the learned Assessing Officer received once again a letter from RCOP in which it was clarified that no material was purchased by them from M/s Agri Commercial Products and there were no separate equipments other than the Solvent Extraction Plant which had been installed much earlier than 1987.

50. M/s. RAGHUNATH COTTON & OIL PRODUCTS LTD. (RCOP):

According to the learned Assessing Officer, the supplier, M/s. Agri Commercial Products could not be located at the given address. In this connection the learned Counsel for the assessee argued that this fact in itself could not lead to the conclusion that the supplier did not exist or that he did not sell the machinery to the assessee company. It was the case of the Department that this supplier had made similar sales to other parties as well. RCOP had also accepted that they had been dealing with the supplier even earlier and that they had purchased raw materials from the supplier. This supplier had, in fact, been located by the lessee himself. The address of the supplier was the same as that of the RCOP's office at Guntur and the person who had signed the document on behalf of the supplier was an ex-employee of RCOP itself. As to the statement of the MD of RCOP denying that they had purchased or sold any machinery to the supplier, the learned Counsel argued that the assessee had neither been given the copy of local enquiries and investigation report by Investigation Wing at Hyderabad nor the statement of RCOP recorded on 16.9.96 and 11.7.97. At any rate, the denial of RCOP was contrary to records. It was self serving as RCOP did not want to accept the sale of equipment. Money had actually passed from the assessee to the supplier. RCOP had signed the lease agreement. Although RCOP had stated in their statement dated 11.7.97 that the signature on the lease agreement had been forged, the same was not true. The learned Counsel for the assessee argued that the statement of RCOP could not be relied upon as they were inconsistent and suffered from contradictions. As to the report of ADIT at Guntur that no Board meeting of RCOP was held on the specified date, it was stated that such report by ADIT, Guntur had not been furnished to the assessee company for rebuttal. At any rate, this Board resolution had been signed by a Director of RCOP and the person signing the other documents was the Company Secretary of RCOP. RCOP had stated that the Board resolution was genuine and, therefore, the assessee company was entitled to rely on the Doctrine of Indoor Management. As to the statement of Sales Tax authorities at Guntur that M/s. Agri Commercial Products was not registered with them and the registration number did not belong to the State of Andhra Pradesh, it was argued that the report of enquiry made with sales tax authorities was not furnished to the assessee company for rebuttal. As to the substantial part of purchase consideration being returned on the same date, it was argued that it was a commercial transaction agreed amongst the parties concerned. As to the transaction appearing in the bank accounts of RCOP at Mumbai, not appearing in the books of accounts of RCOP, the learned Counsel argued that it was a failure or lapse on the part of RCOP and it could not be held out against the assessee. As to the contention that the assessee company had not accepted the offer for joint inspection, it was argued that the assessee company had not refused joint inspection. During the course of hearing before us, the learned Counsel for the assessee also placed reliance on the letters of the assessee company addressed to the A.O. on 26.6.97, 22.7.97, 23.7.97 and 24.7.97.