The ITO, Anand V. M/s Amin Panels, Anand

ITA 1009/AHD/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80227 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: S N DIVETIA
• Keywords: Bogus purchase; Principle of natural justice; Retrospective amendment; Accommodation entries
• Section: 143(3); 133A; 194C; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 95 1 & 958 /AHD/2009 (ASSESSMEN T YEAR: 2005-06) THE D.C.I.T, ANAND, CIRCLE, ANAND. V/S M/S. AMIN MACHINERY PVT. LTD. PLOT NO. C-1/12. GIDC ESTATE, V.U. NAGAR, TAL. ANAND PAN NO. AACCA0719K (APPELLANT) (RESPONDENT) M/S. AMIN MACHINERY PVT. LTD. PLOT NO. C-1/12. GIDC ESTATE, V.U. NAGAR, TAL. ANAND V/S THE D.C.I.T, ANAND, CIRCLE, ANAND. (APPELLANT) (RESPONDENT) ITA NOS. 957 & 1009/AHD/2009 (ASSESSMENT YEAR: 2005-06) M/S. AMIN PANELS PLOT NO. C- 1/12, GIDC VITHAL UDYOGNAGAR DT. ANAND PAN NO. AADFA1350Q V/S THE I,T.O, WARD-2, ANAND. (APPELLANT) (RESPONDENT) THE I,T.O, WARD-2, ANAND. V/S M/S. AMIN PANELS PLO T NO. C- 1/12, GIDC VITHAL UDYOGNAGAR DT. ANAND (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.L. YADAV, SR. D.R. RESPONDENT BY : SHRI S.N. DIVETIA, A.R. ( )/ ORDER DATE OF HEARING : 18-06-2014 DATE OF PRONOUNCEMENT : 05-08-2014 ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 2 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE APPEALS BY THE REVENUE AS WELL AS ASSESSEE AR E AGAINST THE ORDER OF CIT(A)-IV, BARODA DATED 23.01.2009 & 29.01.2009 FOR A.Y. 2005-06 IN THE CASE OF AMIN MACHINERY PVT. LTD. AND AMIN PA NELS RESPECTIVELY. 2. BEFORE US, AT THE OUTSET, BOTH THE PARTIES SUBMITT ED THAT THOUGH THE ASSESSEE ARE DIFFERENT BUT BELONG TO THE SAME GROUP THE ISSUE INVOLVED ARE SIMILAR AND THEREFORE ALL THE APPEALS CAN BE DI SPOSED OFF TOGETHER. WE THEREFORE PROCEED TO DISPOSE OF ALL THE APPEALS BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. WE THUS PROCEED WITH THE F ACTS IN THE CASE OF AMIN MACHINERY PVT. LTD. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 4. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF MACHINERY. ASSESSEE FILED ITS RETU RN OF INCOME FOR A.Y. 05-06 ON 31.10.2005 DECLARING TOTAL INCOME OF RS. 3 3,08,210/-. THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 28.12.2007 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,08,65,424/-. A GGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 23.01.2009 GRANTED PARTIAL RELIEF TO ASSESSEE . AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AND REVENUE ARE NOW IN AP PEAL BEFORE US. WE NOW FIRST TAKE UP REVENUES APPEAL IN ITA NO. 95 1/AHD/2009 5. THE EFFECTIVE GROUND RAISED BY REVENUE READS AS U NDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN SCALING DOWN THE ADDITION FROM RS. 33,11,173/- TO RS. 10,00,423/- ON ACCOUNT OF BOGUS PURCHASES, OVERLOOKING THE ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 3 FACT THAT, BILLS AND DELIVERY CHALLANS DID NOT CON CLUSIVELY PROVE THAT TRANSACTIONS MADE BY THE SUPPLIERS, M/S. PARESH STEEL AND M/S. SHREE BHAGYAL AXMI STEELS WERE GENUINE, AS THE ASSESSEE HAD PROCURED BILLS ON PAYMENTE OF COMMISSION. 6. IN THIS CASE THE SURVEY ACTION WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 24.11.2004 AND PHYSICAL STOCK WAS T AKEN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE WAS MANUFACTURING MACHINERY ON THE BASIS OF ORDER RECEI VED FROM THE PARTIES. ON VERIFICATION OF PURCHASE BILLS OF M.S. MATERIAL WHICH IS THE MAIN INGREDIENT OF ALL THE TAILORMADE MACHINERY. A.O NOT ICED THAT MAJORITY OF M.S. MATERIAL WAS SHOWN TO BE CREDITED IN THE NAMES OF MINAXI ENTERPRISES, PARESH STEEL, SHRI BHAGYALAXMI STEEL A ND THE TOTAL WEIGHT OF MS MATERIAL ON 26.11.2007 I.E. AFTER THE DATE OF SU RVEY WEIGHED 93,485 KG. AT THE VALUE OF RS. 33,11,173/-. A.O WAS OF THE VIEW THAT THE REQUIREMENT OF M S MATERIAL WAS DEPENDENT ON THE OR DERS IN HAND. THE PURCHASES OF 93,485 KG. OF M.S. MATERIAL IMPLIED TH AT THERE MUST BE BULK ORDER RECEIVED BY THE ASSESSEE AT THAT TIME BUT ON PERUSAL OF THE SALES RECORD, HE NOTICED THAT NO SUCH SALES HAD TAKEN PL ACE IN SUBSEQUENT MONTHS. FROM THE WORKING OF THE G.P PROVIDED BY THE ASSESSEE AND ON COMPARISON OF G.P. FOR THE PERIOD BEFORE THE SURVEY AND AFTER THE SURVEY HE NOTICED THAT IN THE POST SURVEY PERIOD IN WHICH THE BILLS OF THE THREE PARTIES WERE CREDITED, THERE WAS SHARP FALL IN G.P. A.O ALSO NOTICED THAT AT THE TIME OF SURVEY, THE STATEMENT OF SHRI P.A. JARI WALA, SENIOR ENGINEER MARKETING, WHO WAS LOOKING AFTER THE TECHNICAL AS W ELL AS COMMERCIAL ACTIVITIES OF THE COMPANY WAS RECORDED U/S. 133 AND IN RESPONSE TO THE QUESTION POSED TO SHRI JARIWALA, HE DID NOT MENTION THE NAMES OF PARTIES NAMELY MINAXI ENTERPRISES PARESH STEEL AND SHRI BHA GYALAXMI STEEL FROM WHOM THE PURCHASES WERE MADE. AS PER HIS STATE MENT THE PURCHASE ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 4 OF M.S MATERIAL WERE MADE FROM SHRI PRAMUKHSWAMI ST EEL, STEEL INDIA, SAIL. A.O WAS THEREFORE OF THE VIEW THAT IF THE ASS ESSEE HAD REALLY MADE THE PURCHASES FROM THE 3 PARTIES, ( MINAXI ENTERPRI SE, PARESH STEEL AND SHRI BHAGYALAXMI STEEL) THE NAMES AND ADDRESSES OF THOSE PARTIES WOULD HAVE BEEN KNOWN TO SHRI JARIWALA MORE SO WHEN IT WA S FOR THE FIRST TIME WHEN THE ASSESSEE HAD BOUGHT SUCH A HUGE QUANTITY O F M.S. MATERIAL APART FROM THE REGULAR PURCHASE. A.O WAS THEREFORE OF THE VIEW THAT ASSESSEE HAD MADE DOUBTFUL TRANSACTION WITH THE ABO VE 3 PARTIES. THEREAFTER TO ASCERTAIN THE GENUINENESS OF THE PURC HASES, SUMMONS WERE ISSUED UNDER SECTION 131(1) TO THE 3 PARTIES WHO HA D CLAIMED TO HAVE SOLD MS MATERIAL TO ASSESSEE. A.O NOTED THAT PARESH STEE L AND BHAGAYALAXMI STEEL ONLY PRODUCED THE COPIES OF BILLS AND DELIVER Y CHALLANS BUT DID NOT PRODUCE THE BOOKS OF ACCOUNT AND THE STOCK REGISTER FOR VERIFICATION. IN RESPECT OF MINAXI STEEL, A.O NOTED THAT IT DID NOT COMPLY WITH THE SUMMONS. FROM THE COPY OF THE SUMMARY OF PURCHASES VIS--VIS CONSUMPTION RATIO OF M.S MATERIAL FURNISHED BY THE ASSESSEE, A.O NOTICED THAT ASSESSEE HIMSELF HAD ARRIVED AT SHORTA GE OF 24927 KG. OF MATERIAL WHICH ACCORDING TO THE A.O PROVED THAT THE PURCHASES MADE FROM THE 3 PARTIES WERE NOT GENUINE. ON VERIFICATIO N OF THE ORDER-WISE CONSUMPTION OF M.S MATERIAL, A.O NOTICED THAT ASSES SEE HAD SHOWN MUCH HIGHER CONSUMPTION OF M.S. MATERIAL IN COMPARI SON TO THE DETAILS FOUND IN THE IMPOUNDED MATERIAL AND THE CONSUMPTION WAS NOT SUPPORTED BY DRAWINGS, PURCHASE ORDER OR OTHER DOCUMENTARY EV IDENCE AND THEREFORE THE A.O WAS OF THE VIEW THAT THE PURCHASES COULD NO T BE CONSIDERED AS RELIABLE. A.O THEREAFTER, IN THE ABSENCE OF RELIABL E TECHNICAL DETAILS OF CONSUMPTION OF MS MATERIAL, WORKED OUT THE CONSUMPT ION ON THE BASIS OF IMPOUNDED MATERIAL AND ACCORDINGLY WORKED OUT THE D IFFERENCE OF ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 5 1,15,196 KG. OF M.S MATERIAL WHICH WAS NOT FOUND DU RING THE COURSE OF SURVEY. HE THUS CONCLUDED THAT THE PURCHASES SHOWN BY ASSESSEE WERE MERELY PAPER TRANSACTIONS TO INFLATE THE PURCHASE. A.O ALSO NOTED THAT EVEN AS PER THE WORKING GIVEN BY THE ASSESSEE REGAR DING CONSUMPTION OF RAW MATERIAL THE DIFFERENCE OF STOCK EXISTED OF 249 27 KG WHICH PROVED THAT THE PURCHASE OF 93485 KG HAVING VALUE OF RS. 3 3,11,173 WAS BOGUS PURCHASES AND ACCORDINGLY MADE THE ADDITION OF THE ENTIRE AMOUNT OF RS. 33,11,173/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSE E CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, REMAND REPORT AND THE REPLY OF ASSESSEE T O REMAND REPORT, UPHELD THE ADDITION TO THE EXTENT OF RS. 1,00,423 A ND DELETED THE BALANCE ADDITION OF RS. 23,10,750/-BY HOLDING AS UNDER:- 3.2 I HAVE CAREFULLY CONSIDERED THE MATTER. ASSESSI NG OFFICER HAS DISALLOWED PURCHASES FROM THREE PARTIES, NAMELY M/S. MINAXI ENTERPRISES, M/S. PARES H STEEL AND M/S. SHREE BHAGYALAXMI STEEL AMOUNTING TO RS. 33,11,173/- BY HOLDING THEM TO BE BOGUS. VARIOUS REASONS FOR SUCH CONCLUSION BY ASSESSING OFFICER INCLUDE PURCHASES BEING MADE I N THE MONTHS OF AUGUST, SEPTEMBER AND OCTOBER FOR MANUFACTURING TAILOR MADE ITEMS THOUG H THERE WERE NO ORDERS ON HAND; FAILURE TO EXPLAIN THE DIFFERENCE/SHORTAGE OF 1,15,196 KGS. OF MS MATE RIAL WORKED OUT BY THE AO, SHORTAGE OF 24,927 KGS. IN THE MS MATERIAL AS PER APPELLANT'S OWN WORKING, NON PRODUCTION OF BOOKS OF ACCOUNTS AND STOCK REGISTER IN RESPONSE TO SUMMONS U/S.131 AND NON ATT ENDANCE BY M/S. MINAXI ENTERPRISES BEFORE THE ASSESSING OFFICER IN RESPONSE TO SUMMONS U/ S.131. AS EXPLAINED BY THE APPELLANT, BILLS OF THES E THREE PARTIES WERE IN THE CUSTODY OF SHRI VIPINBHAI PATEL, CEO OF THE COMPANY, LOOKING AFTER SALES AND PURCHASES, WHO WAS CRITICALLY ILL AND WAS AT BANGAL ORE ON THE DATE OF SURVEY. THE PURCHASE BILLS FROM THESE THREE PARTIES WERE NOT POSTED IN THE BOOKS OF ACCOUNT ON 24.11.2004 AND WERE SUBSEQUENTLY POSTED INTO THE BOOKS OF ACCOUNTS ON 26.11.2004, AF TER CONTACTING SMT. VARSHABEN, DIRECTOR OF THE COMPANY, WHO WAS ALSO AT BANGALORE AT THAT TIME. AS SESSING OFFICER HAS RELIED UPON SHRI P. A, JARIWALA'S STATEMENT TO HOLD THAT PURCHASES FROM TH ESE THREE PARTIES WERE BOGUS BECAUSE HE DID NOT MENTION NAMES OF THESE THREE PARTIES DURING STATE MENT U/S.133A. SINCE SHRI JARIWALA WAS NOT LOOKING AFTER SALES AND PURCHASES, WHICH WERE LOOKED AFTE R BY SHRI VIPINBHAI, CEO, IT WAS POSSIBLE FOR HI M NOT TO MENTION NAMES OF ALL PURCHASE PARTIES. SH RI JARIWALA HAD ALSO MENTIONED THAT POSSIBILITY OF SOME BILLS BEING NOT ENTERED INTO THE BOOKS OF ACCO UNT, BEING IN KNOWLEDGE OF VIPINBHAI, COULD NOT BE RULED OUT. THE CIRCUMSTANCES UNDER WHICH PURCHASES FROM THESE PARTIES WERE BOOKED ON 26.11.2004 ARE THEREFORE, EXPLAINED. APPELLANT HAS SUBMITTED B IFURCATION OF SALES FIGURES FOR THE POST SURVEY AND PRE-SURVEY PERIOD TO SHOW THAT MAJORITY OF SALES TO OK PLACE IN THE POST SURVEY PERIOD. THUS, IT CANNOT BE SAID THAT PURCHASE OF MS MATERIAL IN LARGE QUANTITY TO MANUFACTURE TAILOR MADE MACHINERY ITEMS WAS WITHOUT ORDERS. WHILE ASSESSING OFFICER'S CON CLUSION IS THAT BOGUS PURCHASES WERE BOOKED , APPELLANT WORKED OUT BOOK STOCK OF RS.28,29,723/- A S AGAINST THE STOCK FOUND PHYSICALLY OF RS, 47,73,274/-. THROUGH LETTER FILED IN THE OFFICE OF ADDL. CIT, ANAND ON 16.12.2004, APPELLANT HAD WORKED OUT THE DIFFERENCE IN STOCK FOUND PHYSICALL Y TO BE RS. 19,43,551/- MORE THAN THE BOOK STOCK AND AGREED TO OFFER THE SAME AS ADDITIONAL INCOME. IN T HE RETURN OF INCOME FOR A.Y.2005-06 FILED SUBSEQUENTLY, ADDITIONAL INCOME OF RS.15,00,000/- O N THIS ACCOUNT WAS OFFERED. THE ASSESSING OFFICER MADE FURTHER ADDITION OF RS.4,43,551/-, I.E. THE BA LANCE OUT OF AMOUNT OF RS. 19,43,551/- OFFERED AS EXCESS UNACCOUNTED STOCK FOUND PHYSICALLY ON THE DA TE OF SURVEY. THE EXCESS STOCK OF RS.19,43,551/- ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 6 WAS WORKED OUT BY INCLUDING PURCHASES OF RS. 33,11, 273/- OF MS MATERIAL FROM THE AFORESAID PARTIES. ON ONE HAND, ASSESSING OFFICER HAS TAXED ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK AS PER APPELLANT'S WORKING AND ON THE OTHER HAND, HE HAS H ELD THAT THE STOCK FOUND PHYSICALLY ON THE DATE OF SURVEY WAS SHORT OF THE STOCK AS PER BOOKS ON THE DATE OF SURVEY. THESE TWO SCENARIOS ARE CONTRADICTORY TO EACH OTHER AND ONLY ONE CAN BE COR RECT. THE WORKINGS DONE BY THE A.O. TO SHOW SHORTAGE OF MS MATERIAL STOCK FOUND PHYSICALLY ON T HE DATE OF SURVEY VIS-A-VIS THE BOOK STOCK FIRSTLY SHOWING SHORTAGE OF 24,927 KGS. AND SECONDLY SHOWIN G SHORTAGE OF 1,15,196 KGS. HAVE BEEN CHALLENGED BY THE APPELLANT AS MENTIONED IN THE PREVIOUS PARA. THERE ARE SEVERAL ASSUMPTIONS IN THESE WORKINGS. THE TWO WORKINGS RESULTED IN VASTLY DIFFERENT FIGUR ES FOR SHORTAGE, VIZ. 1,15,196 KGS. ON ONE OCCASION AND 24,196 KGS. ON ANOTHER OCCASION. APPELLANT HAS ALSO ARGUED THAT SHORTAGE OF STOCK FOUND VIS-A-VIS THE BOOK STOCK SHOULD BE TREATED AS SALES OUTSIDE T HE BOOKS OF ACCOUNTS AND G.P. ON SUCH SUPPRESSED SALES SHOULD HAVE BEEN TAXED. IN ANY CASE, THE AO H AS USED THESE TWO WORKINGS ONLY AS A SUPPORTIVE ARGUMENT FOR HIS MAIN CONCLUSION THAT PURCHASES FRO M AFORESAID THREE PARTIES OF 93,485 KGS. OF MS MATERIAL WERE BOGUS. AS SUCH, THE WORKINGS DONE TO ARRIVE AT SHORTAGE OF MS STOCK, THEMSELVES WERE NOT MADE THE BASIS OF DISALLOWANCE/ADDITION TO APPE LLANT'S INCOME. SO FAR AS ACTUAL VERIFICATION OF PURCHASES ALLEGED TO BE BOGUS IS CONCERNED, CONFIRM ATION FROM THESE THREE PARTIES HAD BEEN FILED BEFORE THE DEPARTMENT ON 16.12.2004. VERIFICATION WAS CARRIED OUT BY THE DEPARTMENT IMME DIATELY AFTER SURVEY. BESIDES, THE ASSESSING OFFICER HIMSEL F SUMMONED THESE THREE PARTIES U/S. 131 AND REGARDING TWO PARTIES, VIZ. M/S. PARESH STEEL AND M /S.SHREE BHAGYALAXMI STEEL, HIS CONCLUSION RECORDED IN PARA 5(A) OF THE ASSESSMENT O RDER, IS THAT 'THE SUBMISSIONS RECEIVED FROM THE AB OVE TWO PARTIES CONFIRMS THAT ALL THE GOODS WERE DISPAT CHED AS PER THE BILLING DATE AND TRANSPORT WERE ARRANGED BY THE ASSESSEE HIMSELF'. THE PARTIES PROD UCED BILLS AND DELIVERY CHALLANS BEFORE THE AO AND CONFIRMED THAT THEY HAD MADE SALES OF MS MATERIAL T O THE APPELLANT. THE FACT THAT THEY DID NOT PRODUCE BOOKS OF ACCOUNT OR STOCK REGISTER OR DID NOT MAINT AIN THEM CAN NOT IMPLY BOGUS PURCHASES. AS FAR AS M/S. MINAKSHI ENTERPRISES IS CONCERNED, SINCE THE P ARTY HAD NOT ATTENDED BEFORE THE AO, THOUGH CONFIRMATION HAD BEEN FILED DURING APPELLATE PROCEE DINGS, THE AO WAS DIRECTED TO CARRY OUT ENQUIRY FROM THIS PARTY AGAIN. AS A RESULT OF THIS ENQUIRY, IT HAS BEEN FOUND THAT THIS PARTY WAS GJVING ACCOMMODATION ENTRIES ONLY. APPELLANT'S COMMENTS TO AO'S ENQUIRY REPORT ARE THAT DURING THE SURVEY, THIS PARTY HAD CONFIRMED THE TRANSACTIONS AND ALL T HE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES MUCH LATER AND HENCE THE ADMITTED MODUS OPE RANDI OF PAYING BACK THE CASH SIMULTANEOUSLY WITH RECEIPT OF BOGUS SALE BILLS IS NOT SUBSTANTIAT ED DUE TO APPELLANT MAKING THE PAYMENTS MUCH LATER. FURTHER, AS PER APPELLANT, SHRI KANTIBHAI SHARMA MA DE THE ADMISSION TO SAVE HIS OWN SKIN ETC. THE FACT THAT THE PARTY HAD CONFIRMED THE TRANSACTION E ARLIER IS OF NO CONSEQUENCE, WHEN IT HAS SUBSEQUENTLY ADMITTED THE TRANSACTIONS TO BE BOGUS AND HAS EXPLAINED ITS MODUS OPERANDI. APPELLANT HAS EMPHASIZED THE FACT THAT PAYMENTS WERE MADE BY IT MUCH LATER THAN THE RAISING OF BILLS, WHICH IS CONTRADICTORY TO THE MODUS OPERANDI OF SHRI SHARMA. HOWEVER, THIS ARGUMENT IS NOT VALID SINCE APPELLANT COULD HAVE PAID THE DALALI TO MR. SHARMA AT THE TIME OF BILL ALSO OR THE SAME COULD HAVE BEE N ADJUSTED LATER AT THE TIME OF PAYMENT. MINOR VARIAT IONS IN THE STATED MODUS OPERANDI CANNOT NEGATE THE CATEGORICAL ADMISSION BY SHRI SHARMA REGARDING NOT SUPPLYING THE GOOD JUDICIAL DECISION RELIED UPON BY THE APPELLANT ARE ON DIFFERENT FACTS AND ARE NOT APPLICABLE HERE. THE PURCHASES O F RS.10,00,423/- FROM M/S. MINAKSHI ENTERPRISES ARE H ELD TO BE BOGUS. THUS, OUT OF THE ADDITION OF RS.33,11,173/- ON ACCOUNT OF BOGUS PURCHASES, ADDIT ION TO THE EXTENT OF RS.10,00,423/: IS CONFIRMED AND BALANCE I.E. RS. 23,10,750/- PERTAINING TO PURC HASES FROM OTHER TWO PARTIES, IS DELETED. 7. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US . BEFORE US, LD. D.R. TOOK US THROUGH THE FINDIN GS AND OBSERVATIONS OF A.O AND STRONGLY SUPPORTED THE ORDER OF A.O. THE LD . A.R. REITERATED SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND SUPPORTE D THE ORDER OF LD. CIT(A). ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 7 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) HAS GIVEN A FINDING THAT TH E SHORTAGE HAS BEEN WORKED OUT BY THE A.O ON THE BASIS OF VARIOUS ASSUM PTIONS. HE HAS ALSO HELD THAT ON ONE HAND. A.O HAS TAXED ADDITIONAL INC OME ON ACCOUNT OF EXCESS STOCK AS PER ASSESSEES WORKING AND ON THE O THER HAND HELD THE STOCK FOUND PHYSICALLY ON THE DATE OF SURVEY TO BE SHORT IN COMPARISON TO STOCK AS PER BOOKS WHICH ACCORDING TO HIM ARE CONTR ADICTORY TO EACH OTHER. WE FURTHER FIND THAT CIT(A) BY A WELL REASON ED AND DETAILED ORDER HAS CONFIRMED THE PURCHASES OF RS. 10,00,423/- FROM MINAKSHI ENTERPRISES TO BE BOGUS BUT THE OTHER ADDITION MADE FROM TWO OTHER PARTIES WERE DELETED FOR THE REASON THAT THE 2 PART IES IN THEIR STATEMENT RECORDED U/S. 131 HAD CONFIRMED THE DISPATCH OF GOO DS AS PER THE BILLING DATES. BEFORE US REVENUE HAS BEEN BROUGHT ANY MATE RIAL TO CONTROVERT THE FINDINGS OF CIT(A). IN VIEW OF THE AFORESAID FA CTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. WE NOW TAKE UP ASSESSEES APPEAL (ITA NO. 958/A/200 9). 10. THE GROUNDS RAISED THE ASSESSEE READS AS UNDER:- 1.1. THE ORDER PASSED U/S. 250 OF THE ACT ON 23.01.2009 FOR A.Y. 2005-06 BY CIT(A)-IV, BARODA BY UPHOLDING THE ADDITIONS MADE BY A.O IS WHOLLY ILLEG AL UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDING TH E ADDITIONS WITHOUT CONSIDERING FULLY AND PROPERLY THE EXPLANATION OFFERED AND EVIDENCE PRODU CED BY THE APPELLANT. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND/OR O N FACTS IN UPHOLDING THE FOLLOWING REASONS. (A) BOGUS PURCHASES : RS. 33,11,173 ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 8 (B) UNEXPLAINED ENTRY : RS. 11,65,951/- (C) DISALLOWANCE U/S. 40(A)(IA) : RS. 1,52,226 GROUND NO. 1.1 AND 1.2 ARE GENERAL AND REQUIRES NO ADJUDICATION AND THEREFORE DISMISSED. GROUND NO. 2.1(A) IS WITH RESPECT TO THE ADDITIONS OF RS. 10,00,423/- ON ACCOUNT OF BOGUS PURCHASES:-. 11. BEFORE US BOTH THE PARTIES SUBMITTED THAT THIS GROU ND OF ASSESSEES APPEAL IS CONNECTED WITH GROUND NO. 1 OF REVENUES APPEAL IN ITA NO. 951/AHD/2010. WHILE DECIDING THE ISSUE HEREINABOVE IN REVENUES APPEAL, THE REASONING GIVEN BY LD. CIT(A) HAS BEEN CONFIRMED BY US, WE THEREFORE FOR SIMILAR REASONS, DISMISS THIS GROUND OF ASSESSEE. THUS THIS GROUND OF ASSESSEE IS DISMISSED. . GROUND NO. 2.1(B) IS ON ACCOUNT OF UPHOLDING THE AD DITION MADE ON ACCOUNT OF UNEXPLAINED ENTRY OF RS. 11,65,951/-. 12. A.O NOTICED THAT IN SCHEDULE 17 OF THE AUDIT REPORT FILED ALONG WITH THE RETURN OF INCOME, ASSESSEE HAD SHOWN RS. 11,65,591/ - AS DISCREPANCY VALUATION OF STOCK DURING THE COURSE OF PROCEEDING S, A.O ADMITTED IT TO BE A MISTAKE AND THEREFORE THE ENTRY MADE IN PURCHA SES OF RS. 11,65,591/- WAS ADDED AS INCOME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) CONFIRMED THE ACTI ON OF A.O BY HOLDING AS UNDER:- ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 9 4.2. I HAVE CONSIDERED THE SUBMISSIONS. THE ASSESS ING OFFICER HAS MADE THE ADDITION ON THE BASIS OF LETTER DATED 24,12.2007 FIIED ON THE LETTERHEAD OF M/S,P, D. PARIKH & CO., C.A, ACCEPTING ENTRY OF RS.11,,65,591/- TO BE A MISTAKE. IN THIS LETTER, TH E SAID AMOUNT WAS REQUESTED TO BE TREATED AS INCOME OF THE APPELLANT, THE APPELLANT HAS NOW CLAIMED THAT A NOTHER LETTER DATED 27.12.2007 WAS ALSO FILED UNDER THE SIGNATURES OF SHRI P. D. PARIKH HIMSELF CLARIFY ING THE MATTER AND THE SAME WAS NOT TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER. THE SUM AND SUBST ANCE OF APPELLANT'S CONTENTION IN LETTER DATED 27.12,2007 AND DURING APPELLATE PROCEEDINGS IS THAT THE DEBIT ENTRY OF RS.11,65,591/- TERMED AS 'DISCREPANCY IN STOCK' AND ADDED TO THE PURCHASES/C ONSUMPTION WAS BALANCED BY EITHER SALES OR THE CLOSING STOCK. IN ADDITION, INCOME OF RS.15,00,000/ - ATTRIBUTABLE TO EXCESS STOCK FOUND DURING SURVEY WAS ADDED DIRECTLY IN THE COMPUTATION OF INCOME. AP PELLANT'S CLAIM REGARDING INCLUSION OF RS.11,65,591/- IN SALES OR CLOSING STOCK IS NOT BAC KED BY ANY EVIDENCE. IN OTHER WORDS, APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM THAT RAW MA TERIAL WORTH RS.11,65,591/-, WHICH REPRESENTS VALUE OF INVESTMENT IN UNACCOUNTED RAW MATERIAL FOUND AT THE TIME OF SURVEY WAS, N QUANTITY TERMS INCLUDED IN THE SALES OR CLOSING STOCK. DURING APPELLATE PRO CEEDINGS QUANTITATIVE TALLY OF THE STOCK WAS NOT FI LED TO DEMONSTRATE THAT THE ENTRY IN QUANTITATIVE TERMS IN RESPECT OF RS.11,65,591/- WAS INCORPORATED IN T HE SALES OR IN CLOSING STOCK. THE ONUS OF ESTABLISHING THAT SALES OR CLOSING STOCK DID INCREASE IN QUANTI TY TERMS BY RS.11,65,591/-WAS SQUARELY ON THE APPELLAN T, WHICH HAS NOT BEEN SATISFACTORILY DISCHARGED. WITHOUT SATISFACTORILY DEMONSTRATING THIS, THE DEBI T ENTRY OF RS.11,65,591/- AMOUNTS TO NULLIFICATION OF INCOME DISCLOSED ON ACCOUNT OF EXCESS STOCK FOUND D URING THE SURVEY. IN VIEW OF THIS, ADDITION OF RS.11,65,591/- IS CONFIRMED. 13. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 14. BEFORE US LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE ADDITION WAS MADE ON THE BASIS OF LETTER OF THE CHARTERED ACCOUNTANT WHEREIN THE ENTRY OF RS. 11,65 ,591/- WAS ACCEPTED TO BE A MISTAKE. HE FURTHER SUBMITTED THAT IN THE S UBSEQUENT LETTER THE CHARTERED ACCOUNTANT, SHRI P.D. PARIKH HAD CLARIFIE D THE MATTER BUT THE SAME WAS NOT CONSIDERED BY THE A.O HE THEREFORE IN FAIRNESS SUBMITTED THAT THE MATTER MAY BE REMITTED TO THE FILE OF A.O SO THAT THE CONTENTS OF THE LETTER CAN BE EXAMINED BY HIM. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS NOTED THAT ASSESSEES CLAIM OF CALCULATION OF RS. 11,65,591/- IN SALES OR CLOSING STOCK WAS NOT BACKE D BY ANY EVIDENCE AND THE CLAIM THAT THE RAW MATERIAL WORTH RS. 11,65,591 /- WHICH REPRESENTS ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 10 VALUE OF INVESTMENT IN UNACCOUNTED RAW MATERIAL FOU ND AT THE TIME OF SURVEY WAS IN QUANTITY TERMS INCLUDED IN THE SALE O R CLOSING STOCK WAS ALSO NOT SUBSTANTIATED BY ASSESSEE . BEFORE US THE LD. A.R. HAS SUBMITTED THAT THE LETTER FILED BY THE CHARTERED ACCOUNTANT O N 27.12.2003 CLARIFYING THE ISSUE HAS NOT BEEN CONSIDERED BY THE A.O. WE TH EREFORE FEEL THAT THE MATTER NEEDS TO BE RE-EXAMINED AT THE END OF A.O. W E THEREFORE REMIT THE ISSUE TO THE FILE OF A.O SO THAT HE CAN DECIDE THE MATTER AFRESH AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE AFORESAID LETTER OF THE CHARTERED ACCOUNTANT. NEEDLESS TO STATE THAT A.O SH ALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2.1(C) IS WITH RESPECT TO DISALLOWANCE U NDER SECTION 40(A)(IA) 16. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT THOUGH THE ASSESSEE HAD DEDUCTED TDS U/S. 194 A AND 194C O N THE PAYMENTS MADE OF INTEREST AND PAYMENT TO CONTRACTORS RESPECT IVELY, BUT THE TDS WAS DEPOSITED AFTER THE DUE DATE PRESCRIBED UNDER T HE ACT. HE ACCORDINGLY DISALLOWED THE PAYMENT OF RS. 26,36,539/- U/S. 40(A )(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY HOLDI NG AS UNDER:- 5.1. BEFORE ME, APPELLANT SUBMITTED THAT THE PAYMEN TS OF RS.26,36,539/- COMPRISE OF INTEREST TO THE DEPOSITORS OF RS.10,20,918/-AND PAYMENT TO CONTRACT ORS OF RS.16,15,621/-. AS PER DETAILS IN PARA.7 OF THE ASSESSMENT ORDER, INTEREST WAS CREDITED ON 31.3 .2005, TDS IN RESPECT OF WHICH WAS DEPOSITED TO THE CREDIT OF GOVERNMENT BEFORE THE DUE DATE OF FILING OF RETURN. REGARDING PAYMENT TO CONTRACTORS, EXCEPT FOR TWO ITEMS OF RS.44,434/- (GUJARAT PERFECT ENGINEERING LTD), AND RS.1,05,792/- ( VARIA ENGG. WORKS) TOTALING TO RS.1,50,226/-, ALL THE EXP ENSES WERE CREDITED IN THE MONTH OF MARCH, 2008 AND CORRESPONDING TAX DEDUCTED AT SOURCE WAS DEPOSI TED TO THE CREDIT OF GOVERNMENT BEFORE THE DUE DATE OF FILING OF RETURN IN APPELLANT'S CASE. THUS, IN VIEW OF AMENDMENT CARRIED OUT IN SECTION 40(A)( IA) BY FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 1,04,2005, DISALLOWANCE OF RS.26,36,539/-NEEDS TO BE RESTRICTED TO RS.1,50,226/-. ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 11 5.2. I HAVE CONSIDERED THE SUBMISSIONS. IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) AS AMENDED BY FINANCE ACT, 2008, OUT OF ADDITION OF RS.26,36,539/ -, ADDITION OF RS.1,50,226/- IS CONFIRMED AND THE BALANCE, .E. RS.24,86,313/- IS DELETED. 17. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NO W IN APPEAL BEFORE US. BEFORE US, AT THE OUTSET LD. A.R. POINTED TO TH E TABLE OF PAYMENTS REPRODUCED AT PAGE 11 OF THE ORDER OF A.O AND POINT ED OUT THAT THE ASSESSEE HAS DEPOSITED THE TDS BELATEDLY BUT BEFORE FILING THE RETURN OF INCOME. HE FURTHER SUBMITTED THAT THE HONBLE GUJAR AT HIGH COURT IN THE CASE OF CIT VS. PRAFUL KANTILAL SHAH (TAX APPEAL NO . 973/AHD/2013 ORDER DATED 25.11.2013) HAS HELD THAT AMENDMENT TO SECTION 40(A)(IA) WITH EFFECT FROM 1.04.2010 WAS HAVING RETROSPECTIVE EFFECT. HE THEREFORE SUBMITTED THAT SINCE THE ASSESSEE HAS DEPOSITED THE TDS AMOUNT BEFORE THE DUE DATE OF FILING OF RETURN, NO DISALLOWANCE U /S. 40(A)(IA) WAS CALLED FOR. THE LD. D.R. ON THE OTHER HAND RELIED ON THE O RDER OF A.O AND CIT(A). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE TABLE OF PAYMENTS REPRODUCED BY A.O AT PAG E 11 OF THE ORDER, WE FIND THAT ASSESSEE HAD DEDUCTED TAX U/S. 194C FR OM THE PAYMENT MADE TO GUJARAT PERFECT ENGINEERS LTD. AND VARIA ENGINEE RING WORKS AND THE TDS WAS DEPOSITED ON 07.06.2005 AND THE RETURN OF I NCOME WAS FILED BY ASSESSEE ON 3.10.2005 AND THUS TDS WAS DEPOSITED BE FORE THE FILING OF RETURN. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRAFUL KANTILAL SHAH (SUPRA) HAS HELD THAT THE AMENDMENT TO SECTION 40(A)(IA) OF THE INCOME TAX ACT BROUGHT OUT BY FINA NCE ACT, 2010 WITH EFFECT FROM 01.04.2010 WAS HAVING RETROSPECTIVE EFF ECT. IN VIEW OF THE AFORESAID DECISION OF HONBLE GUJARAT HIGH COURT, W E ARE OF THE VIEW THAT ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 12 NO DISALLOWANCE U/S. 40(A)(IA) IS CALLED FOR IN THE PRESENT CASE WHEN THE ASSESSEE HAD DEPOSITED TDS BEFORE FILING OF RETURN OF INCOME. WE THUS DIRECT THE DELETION OF DISALLOWANCE TO THE EXTENT C ONFIRMED BY CIT(A). IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED. 19. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED. WE NOW TAKE UP THE APPEAL IN CASE OF AMIN PANELS 20. ASSESSEE IS A FIRM STATED TO BE ENGAGED IN THE BUSI NESS OF MANUFACTURING OF DISTRIBUTION BOARD AND L.T PANELS FOR HIGH VOLTA GE TRANSMISSION. ASSESSEE FILED RETURN OF INCOME FOR A.Y. 05-06 ON 3 1.10.2005 DECLARING TOTAL INCOME OF RS. 61,784/-. ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 28.12.2003 AND THE TOTAL INCOME WAS DET ERMINED AT RS. 51,73,431/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSE E CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 29.01.2009, GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY ORDER OF CIT(A), ASSE SSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. WE FIRST TAKE UP REVEN UES APPEAL IN ITA NO.1009/AHD/2009 THE GROUNDS RAISED BY REVENUE READ S AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN SCALING DOWN THE ADDITION FROM RS. 21,84,167/- TO RS. 5,00,100/- ON ACCOUNT TO BOGUS PURCHASES, OVERLOOKING THE FACT THAT, BILLS AND DELIVERY CHALLANS DID NOT CONC LUSIVELY PROVE THAT TRANSACTIONS MADE BY THE SUPPLIERS. M/S. PARESH STEEL AND M/S. SHREE BHAGYAL AXMI STEELS WERE GENUINE, AS THE ASSESSEE HAD PROCURED BILLS ON PAYMENT OF COMMISSION. 2. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR ALTE R THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 21. A SURVEY U/S. 133A WAS CARRIED OUT AT THE BUSIN ESS PREMISES OF THE ASSESSEE ON 24.11.2004 WHEREIN THE INVENTORY OF STOCK WAS TA KEN. DURING THE COURSE ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 13 OF PHYSICAL VERIFICATION, THERE WAS A DIFFERENCE OF RS. 5,69,856/- IN THE VALUATION OF STOCK WHICH WAS ADMITTED BY THE ASSESS EE. DURING THE COURSE OF POST SURVEY PROCEEDINGS, STATEMENT OF SMT. VARSHBEN AMIN, A PARTNER OF THE FIRM WAS RECORDED U/S. 131(1) OF THE ACT ON 10.12.2 004 AND IN HER STATEMENT IT WAS CLAIMED THAT ASSESSEE HAD PURCHASED CR SHEET S AND COPPER FLAT OF RS. 20,69,102/- FROM MINAKSHI STEEL, SHRI BHAGYALAX MI TRADERS AND PARESH STEEL AND THE ENTRY OF THE BILLS WERE NOT MADE IN T HE BOOKS OF ACCOUNTS PREPARED ON THE DATE OF SURVEY AS THE BILLS WERE LY ING WITH SHRI VIPIN PATEL. A.O NOTED THAT NO DOCUMENTARY EVIDENCE EVIDENCING T HAT THE GOODS HAD ARRIVED AT THE BUSINESS PREMISES BEFORE THE DATE OF SURVEY WAS PRODUCED. FURTHER ON ANALYZING THE PURCHASES VIS--VIS SALES A.O CONCLUDED THAT THE CONSUMPTION OF C.R SHEETS AND COPPER FLAT WITH THE PRODUCTION OF DISTRIBUTION/PANEL BOARD WAS EXCESSIVELY HIGH IN TH E PERIOD IN WHICH THE ALLEGED BILLS WERE CREDITED AND THE CONSUMPTION WAS VERY LESS IN THE PERIOD BEFORE THE DATE OF SURVEY THOUGH SAME TYPE OF FINIS HED GOODS WERE MANUFACTURED IN BOTH THE PERIODS. THEREAFTER TO ASC ERTAIN THE GENUINENESS OF THE PURCHASES, SUMMONS U/S. 131(1) WERE ISSUED TO A LL THE THREE PARTIES NAMELY MINAXI STEEL, SHRI BHAGYALAXMI TRADERS AND P ARESH STEEL. A.O NOTED THAT PARESH STEEL AND BHAGAYALAXMI STEEL DID NOT PR ODUCE THE BOOKS OF ACCOUNTS OR THE STOCK REGISTER BUT ONLY PRODUCED TH E COPIES OF THE BILLS AND DELIVERY CHALLANS BUT HOWEVER CONFIRMED THAT ALL TH E GOODS WERE DISPATCHED ON THE DATE OF BILL AND TRANSPORT WAS ARRANGED BY A SSESSEE. A.O ALSO NOTED THAT IN CASE OF MINAXI STEEL, SUMMONS U/S. 131 WERE NOT RESPONDED. ON VERIFICATION OF THE LEDGER ACCOUNT OF SALE AND PURC HASE, A.O NOTICED THAT THE G.P FOR THE POST SURVEY PERIOD FALL SHARPLY WHEN AL L THE ALLEGED BILLS WERE CREDITED IN THE POST SURVEY PERIOD. IN THE ABSENCE OF SATISFACTORY EXPLANATION. A.O WAS OF THE VIEW THAT THE GENUINENESS OF THE PUR CHASES WAS NOT ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 14 SATISFACTORILY EXPLAINED. A.O THEREAFTER ON THE BAS IS OF THE CONSUMPTION OF RAW MATERIAL VIS--VIS PRODUCTION OF PANEL BOARD, W ORKED OUT THE CONSUMPTION WHICH IS STATED AT PAGE 5 OF THE ORDER. ACCORDING TO THE WORKING, THE DIFFERENCE OF EXCESS STOCK AS PER THE BOOKS WAS FOUND TO BE 32316 KG AMOUNTING TO RS. 13,73,430/- IN CASE OF CR C SHEETS AND 630.82 KG. AMOUNTING TO RS. 1,67,167/- IN CASE OF COPPER F LATS. THIS DIFFERENCE ACCORDING TO THE A.O REPRESENTED BOGUS PURCHASE CLA IMED TO HAVE BEEN PURCHASED FROM THE AFORESAID 3 PARTIES. A.O WAS OF THE VIEW THAT IF AT ALL THE ALLEGED RAW MATERIAL WAS ACTUALLY PURCHASED THEN TH E SAME WOULD HAVE BEEN FOUND AT THE TIME OF SURVEY. HE ALSO NOTED THAT ASS ESSEE WAS ENGAGED IN THE MANUFACTURING OF TAILORMADE ITEMS AND THE PURCHASES WERE MADE ON THE BASIS OF ORDER IN HAND. ALL THE MAJOR SALES WERE AFFECTE D IN THE MONTH OF APRIL AND MAY THAT IS EARLIER TO THE ARRIVAL OF ALLEGED PURCH ASES AND THERE WERE NO MAJOR SALES AFTER THAT DATE. A.O. THUS CONCLUDED TH AT ASSESSEE HAS FAILED TO CORROBORATE THE CONSUMPTION OF CRC SHEETS AND COPPE R FLAT WITH THE MANUFACTURING OF DISTRIBUTION BOARD AND L.T. PANELS . HE THEREFORE CONCLUDED THAT THE PURCHASES FROM 3 PARTIES WERE MERELY PAPER TRANSACTIONS. HE ACCORDINGLY MADE ADDITION OF RS. 15,40,597/- ON ACC OUNT OF BOGUS PURCHASES AND ADDED TO THE TOTAL INCOME. AGGRIEVED BY THE ORD ER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE AND THE REMAND REPORT, GRANTED PART IAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 2,2. I HAVE CAREFULLY CONSIDERED THE MATTER. ASSESS ING OFFICER HAS DISALLOWED PURCHASES OF RS.15,40,497/- OUT OF TOTAL PURCHASES FROM THREE PA RTIES NAMELY M/S.MINAKSHI ENTERPRISES, M/S. PARESH STEEL AND M/S.SHREE BHAGYALAXMI STEEL AMOUNTING TO RS.20,69,102/- MAINLY DUE TO THE PURCHASES BEING MADE IN THE MONTHS OF AUGUST, SEPTEMBER AND OCTOBER FOR MANUFACTURING TAILOR MADE ITEMS THOUGH THERE WERE NO ORDERS ON HAND, FAILURE TO EXPLAIN TH E DIFFERENCE OF 32,316 KGS. IN CRC SHEET AND 630.82 KGS. IN COPPER FLATS AS PER WORKING ON PAGE 5 OF TH E ASSESSMENT ORDER, FAILURE OF M/S. PARESH STEEL & M/S. SHREE BHAGYALAXMI STEEL TO PRODUCE BOOKS OF AC COUNTS AND STOCK REGISTER IN RESPONSE TO SUMMONS U/S.131 ISSUED BY THE ASSESSING OFFICER AND NON ATT ENDANCE BY M/S. MINAKSHI ENTERPRISES BEFORE THE ASSESSING OFFICER IN RESPONSE TO SUMMONS U/S.131. A SSESSING OFFICER'S FINAL FINDING WAS THAT BOGUS PURCHASES OF RS.15,40,497, I.E. THE VALUE OF 32,316 KGS. OF CRC SHEET AND 630.82 KGS. OF COPPER FLATS ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 15 WERE DEBITED BY THE APPELLANT. THE DISALLOWANCE IS WITH REFERENCE TO AND OUT OF PURCHASES CLAIMED TO BE MADE FROM M/S.MINAKSHI ENTERPRISES, M/S. PARESH STEEL AND M/S. SHREE BHAGYAAXMI STEEL. AS EXPLAINED BY THE APPELLANT, ON THE DAY OF SURVEY, B ILLS OF THESE THREE PARTIES WERE IN THE CUSTODY OF SHRI VIPINBHAI PATEL, CEO OF THE COMPANY, LOOKING AFTER SALES AND PURCHASES, WHO WAS CRITICALLY ILL AND WAS AT BANGALORE ON THE DATE OF SURVEY. THE PURCHAS E BILLS FROM THESE THREE PARTIES WERE NOT POSTED IN THE BOOKS OF ACCOUNT ON 24.11.2004 AND WERE SUBSEQU ENTLY POSTED INTO THE BOOKS OF ACCOUNTS ON 26.11.2004 AFTER CONTACTING SMT. VARSHABEN, DIRECTO R OF THE COMPANY, WHO WAS ALSO AT BANGALORE AT THAT TIME. SINCE SHRI JARIWALA, WHOSE STATEMENT WAS RECORDED AT THE TIME OF SURVEY, WAS NOT LOOKING AFTER SALES AND PURCHASES, WHICH WERE LOOKED AFTER BY SHRI VIPINBHAI, CEO, HE DID NOT MENTION NAMES OF ALL PURCHASE PARTIES. SHRI JARIWALA HAD ALSO MEN TIONED THAT POSSIBILITY OF SOME BILLS BEING NOT ENTERED INTO THE BOOKS OF ACCOUNT, BEING IN KNOWLED GE OF VIPINBHAI, COULD NOT BE RULED OUT. AS A RESUL T OF SURVEY U/S.133A CARRIED OUT AT APPELLANT'S PREMI SES ON 24.11.2004, APPELLANT WORKED OUT THE STOCK AS PER PHYSICAL INVENTORY TO BE RS.22,59,480/- AS A GAINST BOOK STOCK OF RS. 16,89,634/-. THROUGH LETTE R FILED IN THE OFFICE OF I.T.O. WARD.2, ANAND ON 15.1 2.2004, APPELLANT ADMITTED THE STOCK FOUND PHYSICAL LY TO BE MORE THAN THE BOOK STOCK BY RS.5,69,856/- WHI CH WAS AGREED TO BE OFFERED AS ADDITIONAL INCOME. IN THE RETURN OF INCOME FILED SUBSEQUENTLY, ADDITIO NAL INCOME OF RS.5,69,856/- ON THIS ACCOUNT WAS OFFERED, WHICH WAS ASSESSED BY THE ASSESSING OFFICE R AS IT IS. THIS DIFFERENCE IN STOCK WAS WORKED OUT BY INCLUDING PURCHASES FROM THREE AFORESAID PARTIES . ON ONE HAND, THE ASSESSING OFFICER HAS TAXED ADDITIONAL INCOME ON ACCOUNT OF STOCK FOUND PHYSICA LLY ON DAY OF SURVEY EXCEEDING THE BOOK STOCK AND ON THE OTHER HAND, ON THE BASIS OF WORKING ON PAGE 5 OF ASSESSMENT ORDER, ASSESSING OFFICER HAS- HELD THAT THE STOCK OF CRC SHEETS/COPPER FLATS STOCK FOU ND PHYSICALLY ON THE DATE OF SURVEY WAS SHORT OF TH E BOOK STOCK. THESE TWO SCENARIOS ARE CONTRADICTORY T O EACH OTHER AND ONLY ONE CAN BE CORRECT. THE WORKING DONE BY THE A.O. TO ARRIVE AT SHORTAGE OF 3 2,316 KGS. OF CRC SHEETS AND 630.82 KGS. OF COPPER FLATS HAS BEEN CHALLENGED BY THE APPELLANT AS MENTI ONED IN THE PREVIOUS PARA. APPELLANT HAS POINTED OUT THAT THE WEIGHT OF 24 SEMI FINISHED PANELS REMA INED TO BE INCLUDED IN THE RAW MATERIAL CONSUMPTION OF 2,211 KGS. TAKEN BY THE A.O. FOR WORKING OUT THE SHORTAGE. THUS, THE SHORTAGE WORKED OUT BY THE ASSESSING OFFICER IN TERMS OF WEIGHT DOES HAVE SHOR TCOMINGS AND CANNOT BE THE GOVERNING FACTOR FOR COMING TO A CONCLUSION REGARDING BOGUS PURCHASES. A LSO, SHORTAGE OF STOCK COULD IMPLY SALES OUTSIDE BOOKS, MEANING THEREBY SUPPRESSION OF GROSS PROFIT ON SUCH SALES. THE AO HAS USED THE WORKING ON PAGE 5 OF ASSESSMENT ORDER TO COME TO A CONCLUSION THAT PURCHASES FROM AFORESAID THREE PARTIES WERE PARTLY BOGUS. IT IS NOTED THAT A.O. HAS NOT DISALLO WED ENTIRE PURCHASES FROM THESE THREE PARTIES BUT H AS DISALLOWED PURCHASES ONLY TO THE EXTENT OF SHORTAGE WORKED OUT BY HIM. THUS, THE ASSESSING OFFICER HELD PART OF THE PURCHASES FROM THE PARTIES TO BE G ENUINE AND HELD PART OF PURCHASES FROM SAME PARTIES TO BE BOGUS. THIS IS QUITE UNUSUALCONFIRMATION FROM THESE THREE PARTIES HAD BEEN FILED BEFORE THE DEPARTMENT DURING POST SURVEY INVESTIGATION PROCEED INGS AND VERIFICATION WAS CARRIED OUT AT THAT TIME. BESIDES, THE ASSESSING OFFICER DURING THE ASSESSMEN T PROCEEDINGS SUMMONED THESE THREE PARTIES U/S.131 AND REGARDING TWO PARTIES VIZ. M/S. PARESH STEEL AND M/S. SHREE BHAGYALAXMI STEEL, IN THE ASSESSMENT ORDER, PARA 5(A) OBSERVED THAT 'THE SUBM ISSIONS RECEIVED FROM THE ABOVE TWO PARTIES CONFIRMS THAT ALL THE GOODS WERE DISPATCHED AS PER THE BILLING DATE AND TRANSPORT WERE ARRANGED BY THE ASSESSEE HIMSELF'. THE PARTIES PRODUCED BILLS AND D ELIVERY CHALLANS BEFORE THE AO AND CONFIRMED THAT THEY HAD MADE SALES TO THE APPELLANT AS CLAIMED BY THE APPELLANT. THE FACT THAT THEY DID NOT PRODUCE BOOKS OF ACCOUNT OR STOCK REGISTER OR DID NOT MAINT AIN THE SAME, CAN NOT IMPLY BOGUS PURCHASES. AS SUCH, THERE IS NO EVIDENCE TO HOLD PURCHASES FROM M /S. PARESH STEELS OR M/S.SHREE BHAGYALAXMI STEELS TO BE BOGUS. AS FAR AS M/S. MINAKSHI ENTERPRSIES IS CONCERNED, SINCE THE PARTY HAD NOT ATTENDED BEFORE THE AO, THOUGH CONFIRMATION HAD BEEN FILED; DURING APPELLATE PROCEEDINGS, THE AO WAS DIRECTED TO CARRY OUT ENQUIRY FROM THIS PARTY AGAIN. AS MENTION ED ABOVE, AS A RESULT OF THIS ENQUIRY, IT HAS BEEN FOUND THAT THIS PARTY WAS GIVING ACCOMMODATION ENTR IES ONLY. APPELLANT'S COMMENTS TO AO'S ENQUIRY REPORT ARE THAT DURING THE SURVEY, THIS PARTY HAD C ONFIRMED THE TRANSACTIONS AND ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES MUCH LATER AND H ENCE THE MODUS OPERANDI OF PAYING BACK THE CASH IS NOT SUBSTANTIATED DUE TO APPELLANT MAKING T HE PAYMENTS MUCH LATER. FURTHER, AS PER APPELLANT, SHRI KANTIBHAI SHARMA MADE THE ADMISSION TO SAVE HI S OWN SKIN. THE FACT THAT THE PARTY HAD CONFIRMED THE TRANSACTION EARLIER IS OF NO CONSEQUENCE, WHEN IT HAS SUBSEQUENTLY ADMITTED THE TRANSACTIONS TO BE BOGUS AND HAS EXPLAINED ITS MODUS OPERANDI.. APPELL ANT HAS OVEREMPHASIZED THE FACT THAT PAYMENTS WERE MADE BY IT MUCH LATER THAN THE RAISING OF BILL S, WHICH, AS PER APPELLANT, IS CONTRADICTORY TO THE MODUS OPERAND! OF SHRI SHARMA. IN THIS CONTEXT, IT IS NOTED THAT THE APPELLANT COULD HAVE PAID THE DALALI TO SHRI SHARMA AT THE TIME OF BILL ALSO OR T HE SAME COULD HAVE BEEN ADJUSTED LATER AT THE TIME OF ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 16 PAYMENT. MINOR VARIATIONS IN THE STATED MODUS OPERA NDI CANNOT NEGATE THE CLEAR CUT ADMISSION BY SHRI SHARMA REGARDING ACCOMMODATION BILLS. JUDICIAL DECI SIONS RELIED UPON BY THE APPELLANT ARE ON DIFFERENT FACTS AND ARE NOT APPLICABLE HERE. THE PU RCHASES OF RS.5,00,100/- FROM M/S. MINAKSHI ENTERPRISES ARE HELD TO BE BOGUS. THUS, OUT OF THE ADDITION OF RS.15,40,597/- ON ACCOUNT OF BOGUS PURCHASES, ADDITION TO THE EXTENT OF RS.5,00,100/- IS CONFIRMED AND BALANCE, I.E. RS.10,40,497/- IS DELETED. 22. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. TOOK US THROUGH THE FINDINGS OF OBSERVATIONS OF A.O AND STRONGLY SUPPORTED THE ORDER OF A.O. THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND SUPPORTED THE ORDER OF CIT(A). 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS NOTED THAT IN RESPONSE TO SUMM ONS, M/S. PARESH STEEL AND SHREE BHAGYALAXMI STEEL HAD CONFIRMED THE DISPA TCH OF GOODS AS PER THE BILLING DATES. WE ALSO FIND THAT CIT(A) HAS NOTED T HAT A.O HAS HELD PART OF THE PURCHASES TO BE GENUINE AND PART OF THE PURCHAS ES TO BE BOGUS WHICH ACCORDING TO HIM IS QUITE UNUSUAL. WE ALSO FIND THA T CIT(A) BY WELL REASONED AND DETAILED ORDER HELD THE PURCHASES OF R S. 10,00,423/- FROM MINAXI ENTERPRISES TO BE BOGUS BUT THE ADDITION ON ACCOUNT OF PURCHASES MADE FROM TWO OTHER PARTIES AND FOR THE REASONS STA TED IN HIS ORDER, WERE DELETED. BEFORE US, THE REVENUE HAS NOT BROUGHT ANY MATERIAL TO CONTROVERT THE FINDINGS OF CIT(A). IN VIEW OF THE AFORESAID FA CTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GR OUND OF REVENUE IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ITA NO. 957/AHD/2010 (ASSESSEES APPEAL). ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 17 THE EFFECTIVE GROUNDS RAISED BY ASSESSEE ARE AS UND ER:- 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND/ OR ON FACTS IN UPHOLDING THE FOLLOWING ADDITIONS:- (A) BOGUS PURCHASES :RS. 5,00,100 (B) UNEXPLAINED ENTRY :RS. 5,69,856 (C) DISALLOWANCE OF PURCHASES : RS. 27,73,962 GROUND NO. 2.1(A) IS WITH RESPECT TO THE ADDITIONS OF RS. 5,00,100 ON ACCOUNT OF BOGUS PURCHASES. 25. BEFORE US BOTH THE PARTIES SUBMITTED THAT THIS GROU ND OF ASSESSEES APPEAL IS CONNECTED WITH GROUND NO. 1 OF REVENUES APPEAL IN ITA NO. 1009/AHD/2010. WHILE DECIDING THE ISSUE HEREINABOVE IN REVENUES APPEAL, THE REASONING GIVEN BY LD. CIT(A) HAS BEEN CONFIRME D BY US. WE THEREFORE FOR SIMILAR REASONS DISMISS THIS GROUND OF ASSESSEE . THUS THIS GROUND OF ASSESSEE IS DISMISSED. GROUND NO. 2.1(B) IS ON ACCOUNT OF UPHOLDING THE AD DITION MADE ON ACCOUNT OF UNEXPLAINED ENTRY OF RS. 5,69,856/- 26. A.O NOTICED THAT IN SCHEDULE 17 OF THE AUDIT RE PORT FILED ALONG WITH THE RETURN OF INCOME, ASSESSEE HAD SHOWN RS. 5,69,856/- AS DISCREPANCY VALUATION OF STOCK DURING THE COURSE OF PROCEEDING S, A.O ADMITTED IT TO BE A MISTAKE AND THEREFORE THE ENTRY MADE IN PURCHA SES OF RS. 5,69,856/- WAS ADDED AS INCOME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) CONFIRMED THE ACTI ON OF A.O BY HOLDING AS UNDER:- ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 18 3.2 I HAVE CONSIDERED THE SUBMISSIONS. THE ASSESSI NG OFFICER HAS MADE THE ADDITION ON THE BASIS OF LETTER DATED 24,12.2007 FIIED ON THE LETTERHEAD OF M/S,P, D. PARIKH & CO., C.A, ACCEPTING ENTRY OF RS RS5,69,856/- TO BE A MISTAKE. IN THIS LETTER, THE S AID AMOUNT WAS REQUESTED TO BE TREATED AS INCOME OF THE APPELLANT, THE APPELLANT HAS NOW CLAIMED THAT A NOTHER LETTER DATED 27.12.2007 WAS ALSO FILED UNDER THE SIGNATURES OF SHRI P. D. PARIKH HIMSELF CLARIFY ING THE MATTER AND THE SAME WAS NOT TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER. THE SUM AND SUBST ANCE OF APPELLANT'S CONTENTION IN LETTER DATED 27.12,2007 AND DURING APPELLATE PROCEEDINGS IS THAT THE DEBIT ENTRY OF RS.5,69,856/- TERMED AS 'DISCREPANCY IN STOCK' AND ADDED TO THE PURCHASES/C ONSUMPTION WAS BALANCED BY EITHER SALES OR THE CLOSING STOCK. IN ADDITION, INCOME OF RS.5,69,856/- ATTRIBUTABLE TO EXCESS STOCK FOUND DURING SURVEY W AS ADDED DIRECTLY IN THE COMPUTATION OF INCOME. APPELL ANT'S CLAIM REGARDING INCLUSION OF RS.5,69,856/- IN SALES OR CLOSING STOCK IS NOT BACKED BY ANY EVIDENC E. IN OTHER WORDS, APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE ITS CLAIM THAT RAW MATERIAL WORTH RS.5 ,69,856/-, WHICH REPRESENTS VALUE OF INVESTMENT IN UNACCOUNTED RAW MATERIAL FOUND AT THE TIME OF SURVE Y WAS, N QUANTITY TERMS INCLUDED IN THE SALES OR CLOSING STOCK. DURING APPELLATE PROCEEDINGS QUANTIT ATIVE TALLY OF THE STOCK WAS NOT FILED TO DEMONSTRA TE THAT THE ENTRY IN QUANTITATIVE TERMS IN RESPECT OF RS.5,69,856/- WAS INCORPORATED IN THE SALES OR IN CLOSING STOCK. THE ONUS OF ESTABLISHING THAT SALES OR CLOSING STOCK DID INCREASE IN QUANTITY TERMS BY RS.5,69,856/-WAS SQUARELY ON THE APPELLANT, WHICH H AS NOT BEEN SATISFACTORILY DISCHARGED. WITHOUT SATISFACTORILY DEMONSTRATING THIS, THE DEBIT ENTRY OF RS.5,69,856/- AMOUNTS TO NULLIFICATION OF INCOME DISCLOSED ON ACCOUNT OF EXCESS STOCK FOUND DURING T HE SURVEY. IN VIEW OF THIS, ADDITION OF RS.5,69,856 /- IS CONFIRMED. 26. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 27. BEFORE US LD. A.R. REITERATED THE SUBMISSIONS MAD E BEFORE CIT(A). HE FURTHER SUBMITTED THAT THE ADDITION WAS MADE ON THE BASIS OF LETTER OF THE CHARTERED ACCOUNTANT WHEREIN THE ENTRY OF RS. 5,69, 856/- WAS ACCEPTED TO BE A MISTAKE. HE FURTHER SUBMITTED THAT IN THE SUBSEQU ENT LETTER THE CHARTERED ACCOUNTANT, SHRI P.D. PARIKH HAD CLARIFIED THE MATT ER BUT THE SAME WAS NOT CONSIDERED BY THE A.O HE THEREFORE IN FAIRNESS, SUB MITTED THAT THE MATTER BE REMITTED TO THE FILE OF A.O SO THAT THE CONTENTS OF THE LETTER IS EXAMINED BY HIM. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE O RDER OF A.O AND CIT(A). 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS NOTED THAT ASSESSEES CLAIM OF CALCULATION OF RS. 5,69,856/- IN SALES OR CLOSING STOCK WAS NOT BACKED BY ANY EVIDENCE AND THE CLAIM THAT THE RAW MATERIAL WORTH RS. 5,69,856/- WH ICH REPRESENTS VALUE OF INVESTMENT IN UNACCOUNTED RAW MATERIAL FOUND AT THE TIME OF SURVEY WAS IN ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 19 QUANTITY TERMS INCLUDED IN THE SALE OR CLOSING STOC K WAS ALSO NOT SUBSTANTIATED BY ASSESSEE . BEFORE US THE LD. A.R. HAS SUBMITTED THAT THE LETTER FILED BY THE CHARTERED ACCOUNTANT ON 27.12.2 003 CLARIFYING THE ISSUE HAS NOT BEEN CONSIDERED BY THE A.O. WE THEREFORE FE EL THAT THE MATTER NEEDS TO BE RE-EXAMINED AT THE END OF A.O. WE THEREFORE R EMIT THE MATTER TO THE FILE OF A.O SO THAT HE CAN DECIDE THE MATTER AFRESH AFTE R CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE AFORESAID LETTER OF THE CHARTERED ACCOUNTANT. NEEDLESS TO STATE THAT A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HEARTING TO THE ASSESSEE. IN THE RESULT, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND 2.1(C) IS WITH RESPECT TO DISALLOWANCE OF RS . 27,73,962/-, 29. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT DURING THE COURSE OF SURVEY 24 LT PANELS FOUND AND SUBSEQUENTL Y ASSESSEE HAD PURCHASED 12 LT PANELS AND SOLD 24 LT PANELS, THE D ETAILS OF WHICH ARE LISTED BY A.O ON PAGE 6 OF THE ORDER. THUS ACCORDIN G TO A.O THERE SHOULD HAVE BEEN 12 LT PANELS IN CLOSING STOCK BUT IN THE DETAILS OF CLOSING STOCK NO PANELS WERE FOUND. ASSESSING OFFICER ASKED THE ASSE SSEE TO EXPLAIN THE DISCREPANCY TO WHICH ASSESSEE INTERALIA SUBMITTED T HAT 12 LT PANELS WERE NOT AS PER SPECIFICATION OF THE BUYER AND THEREFORE IT HAD NO VALUE AND THEREFORE NOT CONSIDERED IN CLOSING STOCK. THE SUBM ISSION OF ASSESSEE WAS NOT FOUND ACCEPTABLE TO A.O FOR THE REASON THAT AT THE TIME OF SURVEY NEITHER THE PARTNER NOR THE KEY PERSON IN THEIR STATEMENT H AD MENTIONED ABOUT THE PANEL BEING NOT AS PER SPECIFICATION. HE ALSO NOTED THAT NO STOCK OF SCRAP OF SUCH ITEM WAS FOUND AT THE TIME OF SURVEY. HE THERE FORE CONCLUDED THAT THE SUBMISSION OF THE ASSESSEE WAS NOT SUPPORTED BY EVI DENCE/CONFIRMATION. HE ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 20 ACCORDINGLY CONSIDERED THE VALUE OF 12 LT PANELS AM OUNTING TO RS. 27,73,962/- AS UNACCOUNTED SALE AND ADDED TO THE IN COME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) CONFIRMED THE ADDITION BY HOLDING AS UNDER:- 4.2. I HAVE CAREFULLY CONSIDERED THE MATTER. ON 24. 11.2004, WHEN SURVEY U/S.133A WAS CARRIED OUT AT APPELLANT'S PREMISES AS WELL AS THE PREMISES OF BHA RAT MACHINERY & PROFIT CO., ITS SISTER CONCERN, APPELLANT WAS FOUND IN POSSESSION OF 24 LT PANELS/D ISTRIBUTION BOARD IN SEMI FINISHED STAGE, WHICH WERE VALUED AND DULY INCLUDED IN APPELLANT'S STOCK AS PER ANNEXURE. S-I. AT THE TIME OF ASSESSMENT, FROM THE QUANTITATIVE TALLY OF DISTRIBUTION BOARDS/ LT PANELS, ASSESSING OFFICER FOUND THAT 12 PANELS WERE NOT ACCOUNTED FOR EITHER IN SALES OR IN CLOSIN G STOCK. THE STOCK AS ON DATE OF SURVEY WAS 24 PANELS, PURCHASES AFTER SURVEY WERE OF 12 PANELS FR OM BHARAT MACHINERY & PROFILE CO. AND TOTAL 24 PANELS WERE SOLD TO GOVERNMENT OF SIKKIM. THUS, THE RE SHOULD HAVE BEEN 12 PANELS IN THE CLOSING STOCK, WHICH WERE NOT SHOWN. APPELLANT'S EXPLANATION WAS T HAT SINCE 12 PANELS WERE DEFECTIVE AND NOT AS PER SPECIFICATION BY THE CUSTOMER, THESE HAD TO BE SCR APPED AND IN ORDER TO MEET THE COMMITMENT TO THE CUSTOMER, I.E. GOVERNMENT OF SIKKIM, 12 PANELS WERE PURCHASED FROM M/S, BHARAT MACHINERY & PROFILE CO. FOR RS.26,10,00/-ON 29.12.2004. DURING APPELLAT E PROCEEDINGS, COPY OF PURCHASE ORDER DATED 19.10.2004 NO. AP/PUR/096/04-05 PLACED BY APPELLANT ON M/S. BHARAT MACHINERY & PROFILE CO. HAS BEEN FILED, ORDERING 6 LT PANELS OF 800 AMP AND 6 L T PANELS OF 630 AMP. IF THE PURCHASE ORDER HAD ALREADY BEEN PLACED BY THE APPELLANT WITH BHARAT MA CHINERY & PROFILE CO. ON 19.10.2004, I.E. MORE THAN ONE MONTH PRIOR TO SURVEY, 12 LT PANELS FOUND WITH THE APPELLANT AND INCLUDED IN ITS SEMI FINISHED STOCK AS PER ANNEXURE S-I WERE ALREADY DEF ECTIVE. SHRI JARIWALA, THE MAIN PERSON OF APPELLANT GROUP WHOSE STATEMENT U/S.133A WAS RECORDED, MADE N O MENTION REGARDING ANY PANELS BEING DEFECTIVE NOR DID HE OBJECT TO TAKING THE VALUE OF 12 SEMI FINISHED PANELS IN THE STOCK INVENTORY. SHR I JARIWALA WAS QUESTIONED AT LENGTH ABOUT DEALINGS WI TH GOVERNMENT OF SIKKIM, I.E. THE CUSTOMER FOR WHOM THESE PANELS WERE BEING MANUFACTURED; HOWEVER, HE DID NOT MAKE ANY MENTION REGARDING ANY PANELS BEING DEFECTIVE WHICH WERE FOUND IN THE POSS ESSION OF M/S. AMIN PANELS, OR REGARDING PLACING ORDER WITH M/S. BHARAT MACHINERY & PROFILE CO. APPE LLANT DID NOT MAKE DISCLOSURE OF FACTS REGARDING SEMI FINISHED PANELS BEING FOUND AT THE TIME OF SUR VEY TO BE COMPRISING SOME DEFECTIVE PANELS AND SUBSEQUENT PURCHASE FROM M/S. BHARAT MACHINERY & PR OFILE CO., IN THE NOTES TO THE ACCOUNTS FILED WITH THE RETURN OF INCOME. THE SAME WAS DETECTED BY THE ASSESSING OFFICER. EVEN THOUGH THE PANELS WERE CLAIMED TO BE SCRAPPED, THEIR VALUE WAS NOT IN CLUDED, WHATEVER IT MIGHT HAVE BEEN, IN THE CLOSING STOCK AS ON 31.3.2005. IN THE WRITTEN SUBMISSIONS F ILED DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN CLAIMED THAT DURING POST SURVEY PERIOD, ALTERNATIVE S WERE BEING SUGGESTED TO SIKKIM POWER DEPARTMENT FOR REPAIRING OR RECTIFYING THE 12 PANEL S DECLARED DEFECTIVE BY THE GOVERNMENT OF SIKKIM. WHEN PURCHASE ORDER WAS ALREADY PLACED WITH M/S.BHA RAT MACHINERY & PROFILE CO, ON 19.10.2004, THERE WAS NO QUESTION OF FURTHER EFFORTS BY THE APP ELLANT WITH GOVERNMENT OF SIKKIM TO RECTIFY THE DEFECTS IN THE POST SURVEY PERIOD. THUS, THERE ARE SEVERAL INCONSISTENCIES IN APPELLANT'S EXPLANATION REGARDING THE TRANSACTION OF PURCHASE OF RS.26,10,0 00/- OF 12 LT PANELS FROM M/S. BHARAT MACHINERY AND PROFILE CO. THE A.R. WAS ASKED TO PRODUCE COPY OF CORRESPONDENCE WITH THE CUSTOMER REGARDING THE DEFECTIVE PANELS AND INFORM WHETHER THE PANELS HAD BEEN DECLARED TO BE DEFECTIVE AFTER INSPECTION BY REPRESENTATIVE OF THE CUSTOMER. THE A.R. EXPRESS ED HIS INABILITY TO PRODUCE ANY SUCH DOCUMENTARY EVIDENCE AND DENIED THAT ANY INSPECTION WAS CARRIED OUT. IN A MAJOR ORDER LIKE THIS, THAT TOO WITH A GOVERNMENT DEPARTMENT, WHERE WRITTEN CORRESPONDENCE IS THE USUAL MODE OF COMMUNICATION, ABSENCE OF SUCH CORRESPONDENCE CASTS SERIOUS DOUBTS ABOUT G ENUINENESS OF THE CLAIM REGARDING 12 PANELS BEING DECLARED DEFECTIVE. IT IS ALSO RELEVANT THAT THE BU SINESS OF M/S. BHARAT MACHINERY & PROFILE CO., AS P ER SHRI JARIWALA'S STATEMENT U/S. 133A, IS OF MANUFACT URING SPARES AND COMPONENTS (MECHANICAL PARTS) AS PER CUSTOMER'S DESIGN AND SPECIFICATION. M/S. BHARA T MACHINERY &. PROFILE CO. IS NOT IN THE BUSINESS O F MANUFACTURING LT PANELS AND DID NOT HAVE THE REQUIR ED EXPERTISE OR EXPERIENCE TO MANUFACTURE SUCH PANELS WITHIN A SHORT PERIOD OF ONE MONTH. THOUGH T HE PURCHASE ORDER IS CLAIMED TO HAVE BEEN PLACED ON 19.10.2004 AND SUPPLY IS CLAIMED TO HAVE BEEN MA DE ON 29.12.2004; ON THE DAY OF SURVEY, I.E. 24.11.2004, NO SEMI FINISHED PANELS WERE FOUND IN T HE POSSESSION OF M/S. BHARAT MACHINERY &. PROFILE ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 21 CO., WHERE ALSO SURVEY TOOK PLACE. THE SALE OF SCRA P IN SUBSEQUENT YEARS IS NOT AT ALL A CONCLUSIVE PROOF REGARDING 12 PANELS BEING SCRAPPED, WHEN THER E ARE SEVERAL OTHER INCONSISTENCIES AS DISCUSSED ABOVE. AT THE SAME TIME, IT IS ACCEPTED THAT CONSID ERING THE NATURE OF GOODS, I.E. LT PANELS, WHICH AR E TO BE SUPPLIED AS PER CUSTOMER'S SPECIFICATION AND IN THE ABSENCE OF ANY EVIDENCE REGARDING SALE OUTSIDE THE BOOKS OF ACCOUNTS, SALE OUTSIDE THE BOO KS OF ACCOUNTS OF 12 LT PANELS IS NOT ESTABLISHED. INSTEAD OF THE SALES BEING OUT THE BOOKS OF ACCOUNT S, THE PURCHASES OF RS.26,10,000/- FROM M/S. BHARAT MACHINERY & PROFILE CO. ARE HELD TO BE NOT GENUINE, DUE TO REASONS DISCUSSED ABOVE. IT IS HELD THAT TH E 12 PANELS FOUND IN SEMI FINISHED STAGE ON THE DAY O F SURVEY WERE NOT DEFECTIVE AND THESE ONLY WERE SUBSEQUENTLY SUPPLIED TO GOVT. OF SIKKIM. INSTEAD O F ADDITION OF RS.27,73,962/- MADE BY THE AO IN RESPECT OF UNACCOUNTED SALES OF 12 LT PANELS, ADDIT ION OF RS.26,10,000/- BY DISALLOWING CLAIM OF PURCHASES OF 12 LT PANELS FROM M/S. BHARAT MACHINER Y & PROFILE CO. IS DIRECTED TO BE MADE. 30. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS N OW IN APPEAL BEFORE US. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE LD. CIT(A). LD. D.R ON THE OTHER HAND POINTED OUT THE FINDINGS OF L D CIT(A) AND SUPPORTED HIS ORDER. 31. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE VALUE OF 12 LT PANELS WHICH HAS BEEN CONSIDERED BY A.O TO BE UNACCOUNTED SALE. IT IS ASSESSEES SUBMISSION THAT THE LT PANELS WERE MANUFACTURED FOR SIKKIM GOVERNMENT AND SINCE THEY WERE DEFECTIVE IT WAS CONSIDERED AS SCRAP AND NOT INCLUDED IN STOCK. BEFORE US, LD. A.R. COULD NOT PRODUCE ANY CO RRESPONDENCE ENTERED BY IT WITH SIKKIM GOVERNMENT TO DEMONSTRATE THAT THE L T PANELS WERE SCRAPPED ON THE BASIS OF THE LETTER FROM SIKKIM GOVERNMENT. LD. CIT(A) HAS ALSO, WHILE UPHOLDING THE ADDITION HAS NOTED THAT THERE W ERE SEVERAL INCONSISTENCIES IN THE ASSESSEES EXPLANATION AND F URTHER ASSESSEE HAD NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SUPPORT ITS CO NTENTION. WE FURTHER FIND THAT LD. CIT(A) BY A WELL REASONED ORDER UPHEL D THE ADDITION. BEFORE US, LD. A.R. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD CIT(A). WE THEREFORE FIND NO REASONS TO INTERFER E WITH HIS ORDER. THUS GROUND OF ASSESSEE IS DISMISSED. ITA NOS. 951, 957, 958 & 1009/AHD/09 . A.Y. 2005- 06 22 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 33. IN THE RESULT, THE APPEALS OF REVENUES ARE DISMISSE D AND THE APPEALS OF ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05 - 08 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD