D.C.I.T Cir - 3,Asansol, Asansol V. M/s Janardan Cement Co Pvt Ltd, Kolkata

ITA 1052/KOL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1607 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K M ROY; D B TH AKUR
• Keywords: Bogus purchase; Question of law
• Section: 133(6); 37(1)

Judgement Text

ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI J.S UDHAKAR REDDY, AM ] ITA NO.1052/KOL/2013 ASSESSMENT YEAR : 2008-09 D.C.I.T., CIRCLE-3, -VERSUS- M/S. JANARDAN C EMENT CO.PVT.LTD. ASANSOL KOLKATA (PAN: AAACJ 9668 A) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SALLONG YADEN, ADDL. CI T FOR THE RESPONDENT: SHRI K.M.ROY, FCA & SHRI D.B.TH AKUR, ADVOCATE DATE OF HEARING : 14.08.2017. DATE OF PRONOUNCEMENT : 23.08.2017. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 20.03.2013 OF CIT(A)-ASANSOL RELATING TO AY 2008-09. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS F OLLOWS :- 1. THAT, THE LD. CIT(A), ASANSOL HAS ERRED IN LAW AND ON FACTS BY RESTRICTING THE DISALLOWANCE EQUAL TO GROSS PROFIT @ 15% OF GROSS T URNOVER, WHERE DISALLOWANCE OF RS.73,85,885/- MADE BY THE AO ON ACCOUNT OF BOGU S PURCHASE IN ABSENCE OF IDENTITY & GENUINENESS OF S/CREDITORS. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN T HE BUSINESS OF MANUFACTURING AS WELL AS TRADING IN CEMENT. THE ASSESSEE FILED RETURN OF INCOME FOR A.Y.2007-08 DECLARING TOTAL INCOME OF RS.1,39,670/-.IN THE COURSE OF ASSE SSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASE OF FINISHED GO ODS WORTH RS.2 CORES IN THE TRADING SEGMENT. THE AO ISSUED A LETTER U/S 133(6) OF INCO ME TAX ACT, 1961 (ACT) TO VARIOUS PERSONS FROM WHOM PURCHASE IN THE BUSINESS OF TRADI NG IN CEMENT WAS MADE BY THE ASSESSEE. THE NOTICE SO SENT BY THE AO WAS RETURNED WITH THE FOLLOWING POSTAL REMARKS :- ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 2 NAME NATURE OF TRANSACTIONS POSTAL REMARKS REMARKS M/S. MAA TARA TRADERS & SUPPLIERS PURCHASE OF CEMENT FOR RS.21,35,000/- ILLEGIBLE MA VINDYAVASINI TRADING CO. -DO- RS.20,15,000/- -DO- MA SUPPLY AGENCY -DO- RS.25,44,000/- NOT KNOWN DHOLI SATI TRADING CO. -DO- RS.21,65,000/- NK U.K.SINGH PURCHASE OF SLAG RS.5,84,885/- INCOMPLETE ADDRESS BALAJI TRADERS PURCHASE OF CEMENT RS.18,35,000/- NOT KNOWN SRI DURGA TRADING CO. PURCHASE OF CEMENT RS.24,30,000/- NOT KNOWN MA TARA SUPPLIERS & DISTRIBUTION PURCHASE OF CEMENTS RS.18,27,000/- NOT KNOWN RANI SATI ENTERPRISES PURCHASE OF CEMENT RS.18,50,000/- NOT KNOWN 4. THE AO WAS OF THE VIEW THAT THE PURCHASE FRO M THE AFORESAID PARTIES HAS TO BE TREATED AS BOGUS AND THE VALUE OF THE PURCHASE SHOU LD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE PROFIT FROM TRADING BUSINESS OF T HE ASSESSEE WAS DECLARED AS FOLLOWS :- SALE OF TRADING GOODS RS.2,31,23,460.00 LESS : PURCHASES OF TRADING GOODS RS.2,00,00,00 0.00 PROFIT FROM TRADING ACTIVITY RS. 31,23,460.00 (S UBJECT TO O/H EXP) 5. THE ASSESSEE CONTENDED THAT WITHOUT EFFECTIN G PURCHASES THERE CANNOT HAVE SALE OF CEMENT AND THEREFORE PURCHASES ARE CONSIDERED NO T GENUINE. THE CORRESPONDING SALES SHOULD ALSO BE IGNORED. THIS WAS REJECTED BY THE AO AND THE ADDITION OF RS.1,73,85,885/- WHICH IS THE VALUE OF PURCHASES FOR WHICH THE RESPECTIVE PARTIES DID NOT RESPOND TO THE NOTICE OF AO U/S 133(6) OF THE ACT AS BOGUS WITH THE FOLLOWING OBSERVATIONS :- IN THE AFORESAID REPLY THE ASSESSEE HAS ADVANCED A RGUMENT THAT IF THERE. IS NO PURCHASE THERE CANNOT BE THE SALE. IT IS TRUE IN TH E CASE OF AN ASSESSEE WHERE IT IS ENGAGED IN THE BUSINESS OF TRADING ONLY. IN THIS CA SE THE ASSESSEE ITSELF IS THE MANUFACTURER OF .CEMENT AND IT IS ALSO TRADING IN C EMENT. THERE IS EVERY REASON TO ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 3 CONSIDER THAT AN ASSESSEE CAN NOT PROMOTE THE SAME ARTICLE OR GOODS OF THE OTHER MANUFACTURERS WHICH IT IS PRODUCING ITSELF. IT IS A GAINST THE BUSINESS ETHICS. MORE OVER IN THIS CASE THE PARTY FROM WHOM PURCHASE OF C EMENT HAS BEEN SHOWN ARE PROVED TO BE BOGUS AS POSTAL REMARKS AS MENTIONED I N SHOW-CAUSE LETTER DTD. 10/12/2010. THE ASSESSEE HAS BEEN INFORMED VIDE ORD ER SHEET DTD. 14/12/2010 BY COMMENTING 'HE CONTENDED' NON-SERVICE OF LETTER DOE S NOT PROVE THAT PURCHASES ARE BOGUS. HE IS INFORMED THE PARTIES FROM WHICH PU RCHASES ARE 1 ;AID TO BE MADE ARE PROVED TO BE NON- EXISTENT AS THE LETTER ISSUED TO THEM CAME BACK UNSERVED'. IT IS ESTABLISHED FACT THAT NO TRANSACTION CAN BE M ADE WITH A NON-EXISTENT PERSON. THE CASE WAS ADJOURNED TO 20/1212010 BUT ON THIS DA TE NO COMPLIANCE WAS MADE. NON- COMPLIANCE BY THE ASSESSEE ON THE ADJOURNED DA TE LEAD TO STRENGTHEN THE BELIEF THAT TRANSACTION WITH THE AFORESAID PARTIES MENTIONED IN THE SHOW-CAUSE FOR RS.1 ,73,85,8851- IS BOGUS LEADING TO ADDITION' FOR SIMILAR AMOUNT. PENALTY PROCEEDING U/S 271 (1)( C ) FOR THIS FAULT OF THE ASSESSEE IS INITIATED. ADDITION RS.1,73,85,885/- 6. BEFORE CIT(A) THE ASSESSEE REITERATED THAT TH E CONTENTIONS AS PUT FORTH BEFORE THE AO AND FURTHER BROUGHT TO THE NOTICE OF AO THAT THE GROSS PROFIT DECLARED BY THE ASSESSED DURING THE PREVIOUS YEAR WAS MUCH HIGHER THAN WHAT WAS DECLARED IN A.Y.2006-07 AND 2007-08. THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF CIT(A) THAT IF THE ADDITION MADE BY THE ASSESSEE IS SUSTAINED THE GROSS PROFIT OF THE ASSESSEE WOULD BE HIGHLY UNREALISTIC. THE ASSESSEE ALSO CONTENDED THAT THE FACT THAT THE PURCHASERS DID NOT RESPOND TO THE NOTICE U/S 133(6) OF THE ACT CAN AT BEST BY A CIRCUMSTANCE WHICH CAN LEAD TO REJECTION OF BOOKS OF ACCOUNT OF AN ASS ESSEE AND PROFIT OF THE ASSESSEE CAN BE ESTIMATED U/S 145(3) OF THE ACT AND THAT IN ANY EVENT TREATING THE ENTIRE BOGUS PURCHASES AS INCOME OF THE ASSESSEE WOULD LEAD TO A BSURD RESULTS. IN THIS REGARD THE ASSESSEE RELIED ON THE DECISION OF ITAT AHMEDABAD I N THE CASE OF VR TEXTILES VS JCIT 11 ITR (TRIB.) 478 (AHM) AND JHARKHAND HIGH CO URT IN THE CASE OF AMITABH CONSTRUCTION P. LTD. VS ADDL. CIT [2011] 335 ITR 5 23 (JHAR). 7. THE CIT(A) ON CONSIDERATION OF THE ABOVE SUBMIS SIONS WAS OF THE VIEW THAT THE ACTION OF AO IN MAKING THE IMPUGNED ADDITION CANNOT BE SUSTAINED AND THAT REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE WOULD HAVE BEEN THE PROPER COURSE. THE CIT(A) THUS REJECTED THE BOOK RESULTS AND ESTIMATED THE PR OFIT OF THE ASSESSEE AT 15% OF THE TURN OVER. THE FOLLOWING WERE THE RELEVANT OBSERVAT IONS OF CIT(A):- ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 4 8. THIS IS A CASE WHERE ACCOUNTS ARE NOT CORRECT A ND COMPLETE. WHEN THAT IS THE CASE THE ONLY OPTION AVAILABLE IS TO ESTIMATE THE I NCOME. INCOME WHEN ESTIMATED MUST FACTOR SPECIAL CIRCUMSTANCES OF THE ASSESSEE A ND ALSO THE MARKET REALITY. THIS IS A CASE WHERE MANUFACTURING UNIT SELLS MUCH MORE TRADING GOODS THAN MANUFACTURED GOODS. MAJORITY OF REVENUE EXPENSES GO ES FOR MANUFACTURING BUT TURNOVER OUT OF MANUFACTURING IS INVERSELY PROPORTI ONAL. OUT OF THE TOTAL SALE OF RS 2.87 CRORES, RS 2.31 WAS SALE OF TRADING GOODS. SUCH A COMPARABLE CASE IS NOT IDENTIFIED. 9. AS SATED IN PARAGRAPH 8 A COMPARABLE CASE OF PEC ULIAR FEATURES FIGURING IN ACCOUNTS OF APPELLANT IS NOT IDENTIFIED. THE GROSS PROFIT DISCLOSED IS 7.11 %. THIS IS A CASE WHERE ACCOUNTS IS SUSPECT BEING INABILITY TO PROVE WHETHER MAJORITY OF EXPENSE IS CORRECT OR NOT. IT IS A WELL SETTLED JUD ICIAL PROPOSITION THAT THE ONUS ON PROVING THAT THE EXPENSE IS CORRECT IS ON THE ASSES SEE. I AM NOT LISTING THE LONG LIST OF CASE DECISIONS ON THE MATTER. A SUSPICIOUS ACCOU NT DURING SCRUTINY ASSESSMENT ATTRACTS LARGE DISALLOWANCES. THIS IS DUE THE FACT THAT THE REAL STATE OF AFFAIRS IS STILL PRIVY TO THE APPELLANT AND NOT DIVULGED TO THE ASSE SSING OFFICER. THEREFORE THE 7.11 % GROSS PROFIT DESPITE BEING MARGINALLY MORE T HAN THE FIGURE FOR THE AY 2007-08 CANNOT BE ADOPTED. CONSIDERING THE EXTENT O F INCORRECTNESS, I AM OF THE OPINION THAT A GROSS PROFIT RATE OF 15% IS APPROPRI ATE IN THE CASE. THE FIGURE IS PITCHED AT 15% TO ABSORB THE ALL INACCURACIES IN TH E IMPROPER, INCOMPLETE, UNRAVELLED AND DOUBTFUL ACCOUNTS. ACCORDINGLY THE A SSESSING OFFICER IS DIRECTED TO ESTIMATE INCOME ON THE BASIS OF DETERMINING THE GROSS PROFIT AT THE ABOVE RATE OF 15%. THE GROUND IS PARTLY ALLOWED. 8. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR W HO RELIED ON THE ORDER OF AO AND FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF GANESH RICE MILLS VS CIT IN ITR 84 OF 1990 JUDGMENT DATED 01.03.2005. 10. WE HAVE PERUSED THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT AND WE FIND THAT THE SUBSTANTIAL QUESTION OF LAW CONSIDERED BY THE HONBLE ALLAHABAD HIGH COURT WAS AS TO WHETHER THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE PURCHASES CLAIMED BY THE ASSESSEE WERE NOT GENUINE IGNORING T HE QUANTITATIVE ACCOUNT AVAILABLE BEFORE THE TRIBUNAL. THE HONBLE ALLAHABAD HIGH COU RT CONFIRMED THE FINDINGS OF THE TRIBUNAL THAT THE PURCHASES IN QUESTION WERE BOGUS. THERE WAS NO OCCASION FOR ALLAHABAD HIGH COURT TO CONSIDER WHETHER THE ENTIRE PURCHASE SHOULD BE ADDED OR ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 5 INCOME ON SALES ESTIMATED IN THE GIVEN CIRCUMSTANCE S. WE ARE THEREFORE OF THE VIEW THAT THE DECISION RELIED UPON BY THE LD. DR WILL NO T SUPPORT THE PLEA OF THE LD. DR BEFORE THE TRIBUNAL. ON THE OTHER HAND, WE FIND THA T THE DECISION OF HONBLE JHARKHAND HIGH COURT IN THE CASE OF AMITABH CONSTRUCTION P.LT D. (SUPRA) CLEARLY SUPPORTS THE CONCLUSION ARRIVED AT BY CIT(A). WE, THEREFORE, FIN D NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(A). CONSEQUENTLY GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 11. GROUND NO.2 RAISED BY THE REVENUE READS AS F OLLOWS :- 2. THAT, THE LD. CIT(A), ASANSOL HAS ERRED IN LAW AND ON FACTS BY ALLOWING THE RELIEF OF RS.28,463/-, DISALLOWED BY THE AO ON ACCO UNT OF INTEREST PAYMENT AS PENAL IN NATURE. 12. AS FAR AS GROUND NO.2 RAISED BY THE REVENUE IS CONCERNED IT RELATES TO ADDITION OF RS.28,463/- MADE BY THE AO ON THE GROUND THAT THE I NTEREST WAS PAID BY THE ASSESSEE FOR DELAYED PAYMENT OF EXCISE, INCOME TAX AND SALES TAX WAS LIABLE TO BE DISALLOWED. ACCORDING TO THE AO THE AFORESAID PAYMENT WAS IN TH E NATURE OF PENAL FOR INFRACTION OF LAW. THEREFORE IT CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF THE EXPLANATION 1 TO SECTION 37(1) OF THE INCOME TAX ACT, 1961 (ACT) WHI CH PROVIDES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR T HE PURPOSE OF BUSINESS AND NO DEDUCTION ON SUCH EXPENSES SHALL BE ALLOWED. THE CI T(A) DELETED THE ADDITION ON THE GROUND THAT THE PAYMENT IN QUESTION WAS NOT PENAL I N NATURE BUT ONLY COMPENSATORY FOR DELAYED PAYMENT AND THEREFORE CANNOT FALL WITHI N THE AMBIT OF EXPLANATION 1 TO SECTION 37. WE ARE OF THE VIEW THAT THE CONCLUSION OF CIT(A) ON THIS ISSUE ARE CORRECT AND CALLS FOR NO INTERFERENCE. GROUND NO.2 RAISED B Y THE REVENUE IS ACCORDINGLY DISMISSED. 13. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLLOWS :- 3. THAT, THE LD. CIT(A), ASANSOL HAS ERRED IN LAW AND ON FACTS BY ALLOWING THE RELIEF OF RS.1,68,489/-, DISALLOWED BY THE AO ON AC COUNT OF ROC EXPENSES ON INCREASED AUTHORIZED CAPITAL. ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 6 14. AS FAR AS GROUND NO.3 RAISED BY THE REVENUE IS CONCERNED, THE AO MADE ADDITION OF RS.1,68,489/- WHICH WAS A FEE PAID TO THE REGIST RAR OF COMPANIES FOR INCREASE IN SHARE CAPITAL OF THE ASSESSEE ON THE GROUND THAT TH E SAME WAS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION IN COMPUTING THE INC OME FROM BUSINESS. THE CIT(A) HOWEVER FOUND THAT THE SAME WAS NEVER CLAIMED AS DE DUCTION IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE THE BASIS ON WHICH THE AO DIS ALLOWED THE PAYMENT WAS INCORRECT. BEFORE US IT IS NOT DISPUTED THAT THE SA ID SUM WAS NOT CLAIMED IN THE PROFIT AND LOSS ACCOUNT AS DEDUCTION WHILE COMPUTING INCOM E FROM BUSINESS. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CIT(A) WA S RIGHT IN DELETING THE ADDITION MADE BY THE AO AND HIS ACTION IS JUST AND PROPER AN D CALLS FOR NO INTERFERENCE. ACCORDINGLY GROUND NO.3 RAISED BY THE REVENUE IS DI SMISSED. 15. IN THE RESULT THE APPEAL BY THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE COURT ON 23.08.2017. SD/- SD/- [J.SUDHAKAR REDDY] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23.08.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. JANARDAN CEMENT CO. PVT. LTD., 41, CHOWRINGH EE ROAD, KANAK BUILDING (ANNEXE), KOLKATA-700071. 2.D.C.I.T., CIRCLE-3, ASANSOL. 3. C.I.T.(A)- ASANSOL 4. C.I.T-ASANSOL. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, ITAT KOLKATA BENCHES ITA NO.1052/KOL/2013- M/S. JANARDAN CEMENT CO.PVT. LTD. A.Y.2008-09 7