Zeo Chem Pvt. Ltd., Bhavnagar V. The Income tax Officer, Cent.Ward-2(1), Bhavnagar

ITA 160/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0314 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 18-01-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained investment; Business income; Non compliance; Set aside
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.160 & 1089/AHD/2006 ASSESSMENT YEAR: 2001-02 DATE OF HEARING:1.9.09 DRAFTED:7.9.09 ZEO CHEM PVT. LTD., SURVEY NO.3 VILLAGE RAJPARA, KHODIYAR, BHAVNAGAR, PAN NO. AAACZ0714F ZEO CHEM PVT. LTD., PLOT NO. 2145/A, PRITHVI HOUSE WAGHAWADI ROAD, BHAVNAGAR V/S . V/S . THE INCOME TAX OFFICER, CENTRAL WARD-2(1), BHAVNAGAR THE ASST. COMM. OF INCOME-TAX, CIRCLE-1, BHAVNAGAR (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI SANJAY R SHAH, AR REVENUE BY:- SHRI S.S. PANWAR, CIT DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT O F DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-III, AHMEDABAD VIDE SEPARATE ORDERS IN APPEALS NO. CIT(A)-III/CC.WD.2(1)/46/04-05 DATED 30 -09-2005, AND CIT AHMEDABAD-IV, U/S. 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 23-02-2006 VIDE NO.CIT-VI/AH D/13-1/263/2005-2006. THE ASSESSMENT WAS FRAMED BY THE ITO, CENTRAL WARD-2(1) , AHMEDABAD U/S. 143(3) OF THE ACT VIDE HIS ORDER DATED 30-03-2004. ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 2 FIRST WE WILL TAKE UP ITA NO.160/AHD/2006 BY THE AS SESSEE. 2. THE FIRST ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF ALLEGED UNACCOUNTED CASH SALES AMOUNTING TO RS.40,200/-. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). T HE BRIEF FACTS ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS NOTICED THAT THE ASSESSEE HAS EFFECTED CASH SALES TO M/S. TECHNO RUB INDUSTRIES ON 05-03-2001, 07- 03-2001 AND ON 10-03-2001 AMOUNTING TO RS.18,500/-, 13,500/- AND RS.8,100/- RESPECTIVELY FOR WHICH THE DIRECTOR OF THE COMPANY HAS ISSUED STAMPED RECEIPT TO THE ABOVE MENTIONED PARTY I.E. M/S. TECHNO RUBB INDUSTR IES AND COPIES OF THESE STAMPED RECEIPTS ISSUED TO THE ABOVE MENTIONED PART Y HAD BEEN OBTAINED AND KEPT ON RECORD. ON VERIFICATION OF THE CASH BOOK, THE A SSESSING OFFICER NOTICED THAT NO ENTRY HAS BEEN MADE IN CASH BOOK IN RESPECTIVE DATE S, A SPECIFIC NOTICE ON THIS POINT WAS ISSUED TO THE ASSESSEE ASKING TO SHOW CAUSE AS TO WHY THE CASH SALES AS MENTIONED ABOVE SHOULD NOT BE ADDED TO INCOME OF AS SESSEE. THE ASSESSEE REPLIED IN GENERAL THAT A CLERICAL ERROR WAS MADE BY THE AC COUNTANT WHILE WRITING BOOKS OF ACCOUNT. THE AO FOUND THAT THE ASSESSEE HAS DEBITED THE PARTY ACCOUNT AS STATED ABOVE AND HAS SHOWN CASH RECEIPTS OF RS.10,000/- ON 25-11-2000, RS.10,000/- ON 27-11-2000 AND RS.13,400/- 29-11-2000 RESPECTIVELY TOTALING TO RS.33,400/- FROM THE ABOVE PARTY AND THESE AMOUNTS HAVE BEEN DULY ENTERE D IN THE CASH BOOK OF THE ASSESSEE IN THE RESPECTIVE DATES. THEN IT CANNOT BE SAID THAT THE STAMPED RECEIPTS ISSUED IN THE MONTH OF MARCH, 2001 PERTAIN TO THE C ASH SALE EFFECTED IN THE MONTH OF NOVEMBER, 2000 AND EVEN THE AMOUNTS OF CASH SALES A RE NOT SIMILAR. HENCE, IT CANNOT BE SAID THAT THE STAMPED RECEIPTS ARE ISSUED THROUGH A CLERICAL ERROR. THE ASSESSEE HAD ISSUED STAMPED RECEIPTS FOR CASH SALES IN THE MONTH OF MARCH, 2001 TOTALING TO RS.40,200/- AS UNDER:- 5-3-2001 18,500 7-3-2001 13,600 10-3-2001 8,000 ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 3 WHEREAS THE ASSESSEE HAS SHOWN CASH SALES IN THE MO NTH OF NOVEMBER, 2000 AS BELOW WHICH IS DULY ENTERED IN THE CASH BOOK:- 25-11-2000 10,000 27-11-2000 10,000 29-11-2000 13,400 THE ASSESSEE HAS EFFECTED CASH SALES IN THE MONTH O F MARCH, 2001 TO M/S. TECHNO RUBB INDUSTRIES OVER AND ABOVE THE SALES MADE IN TH E MONTH NOVEMBER, 2000 WHICH HAS NOT ENTERED IN THE CASH BOOK AND EVEN THE STAMP ED RECEIPTS HAVE BEEN SIGNED BY ONE OF THE DIRECTOR OF THE COMPANY. HENCE, IT I S BEYOND DOUBT THAT THE ASSESSEE HAS NOT ACCOUNTED THE CASH SALES EFFECTED TO M/S. T ECHNO RUBB INDUSTRIES IN THE MONTH OF MARCH, 2001. AGGRIEVED, THE ASSESSEE PREF ERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSI NG OFFICER EXACTLY ON THE SAME REASONS. AGGRIEVED, NOW ASSESSEE CAME IN SECOND AP PEAL BEFORE US. WE FIND THAT THE SALES OF NOVEMBER BEING REFERRED TO BY THE ASSE SSEE WERE TOTALLY DIFFERENT SALES WHICH FOUND DUE PLACE IN THE BOOKS OF ACCOUNT WHERE AS THE AO WAS QUESTIONING THE SALES MADE IN MARCH, 2001 FOR WHICH THERE WAS NO EN TRY IN THE CASH BOOK. THE TOTAL SALES OF NOVEMBER BEING REFERRED TO BY THE ASSESSEE WERE OF RS.33,400/- AS DETAILED ABOVE, WHEREAS THE AO WAS QUESTIONING ABOUT THE SAL ES TOTALING TO RS.40,200/- MADE IN THE MONTH OF MARCH, 2001 AND CIT(A) THEREFO RE FIND THAT THE AO WAS JUSTIFIED IN REJECTING HE VAGUE EXPLANATION FURNISH ED BY THE ASSESSEE IN THE MATTER. IT IS QUITE CLEAR THAT THE DOCUMENTS ON WHICH THE AO L AY HANDS CLEARLY INDICATE CASH SALES TOTALING TO RS.40,200/- IN THE MONTH OF MARCH , 2001 TO M/S. TECHNO RUBB INDS. WHICH WERE NOT REFLECTED IN THE BOOKS OF ACCOUNT AN D AS A CONSEQUENCE, THE AO WAS FULLY JUSTIFIED IN BRINGING TO TAX SUCH UNACCOUNTED SALES AS INCOME OF THE ASSESSEE. THE CONSEQUENTIAL ADDITION OF RS.40,200/- MADE BY T HE AO IS ACCORDINGLY, CONFIRMED AND THIS GROUND OF ASSESSEES APPEAL IS THEREFORE R EJECTED. IN VIEW OF THE ABOVE, WE DISMISS THIS ISSUE OF THE ASSESSEES APPEAL. 4. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOU NT OF RATE AND CONFIRMED THE EXPENSES OF RS.82,881/-. ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 4 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE MADE A CLAIM OF DEDUCTION OF RS.82,881/- UNDER THE HEAD RATE AND WEIGHT DIFFERE NCE BY PASSING JOURNAL ENTRIES IN THE ACCOUNTS OF VARIOUS PARTIES AS UNDER:- 1. ARORA ENTERPRISE 16,306/- 2. V.K. ENGINEERING CO. 24,000/- 3. R.N. SAHNI & SONS 24,000/- 4. SUPREME CHEMICALS 9,310/- 5. SUPREME VET CHEM PRODUCTS P LTD. 3,180/- 6. BYREMEE PRAMJEE & CO. 6,085/- 82,881/- WHEN QUESTIONED ABOUT THE SAME, THE ASSESSEE FAILED TO FURNISH ANY CLARIFICATION AND, THEREFORE, THE AO DISALLOWED THE CLAIM. AGGRI EVED, THE ASSESSEE PREFERRED BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GIVING FOLLOWING FINDING IN PARA-4.4 OF HIS APPELLATE ORDER:- 4.4 I HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND FIND THAT WHEN QUESTIONED ABOUT THE SAME DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE APPELLANT DID NOT RESPOND. THE APPELLANT HAS ALSO N OT BROUGHT ON RECORD ANY MATERIAL TO JUSTIFY NON COMPLIANCE BEFORE THE AO. T HEREFORE, THE EVIDENCES FURNISHED BY THE APPELLANT DURING THE COURSE OF APP ELLATE PROCEEDINGS ARE NOT ADMISSIBLE U/R. 46A OF THE I.T. RULES. FURTHER TO A BOVE, IT IS SEEN THAT THOUGH THE APPELLANT MADE A CLAIM OF DEDUCTION UNDER THE H EAD RATE AND WEIGHT DIFFERENCE, AN AMOUNT OF RS.24,000/- PERTAINING TO V.K. ENGG. COMPANY, WAS ADMITTEDLY WRITTEN OFF AS IRRECOVERABLE ADVANCE GIV EN FOR THE JOB WORK. THERE WAS, THUS A CLEAR HIDING OF PROPER FACTS BY HE APPE LLANT. THE ADVANCE GIVEN BY THE APPELLANT TO M/S. V.K. ENGG. CO. HAS NOTHING TO DO WITH THE BUSINESS OF THE APPELLANT AND WAS OBVIOUSLY NOT DEDUCTIBLE AS THE A PPELLANT WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING. IF SUCH ADVANCE B ECAME IRRECOVERABLE IT WAS TO BE WRITTEN OFF AS CAPITAL LOSS AND AS PER LA W, NO DEDUCTION WAS ALLOWABLE TO THE APPELLANT. WITH REGARD TO BALANCE, I FIND THAT THE CLAIM IS BASED ON THE SUO MOTO ENTRIES PASSED BY THE APPELLA NT IN ITS BOOK FOR WHICH NO CONFIRMATION OF RESPECTIVE PARTY IS AVAILABLE. T HE CLAIM OF THE APPELLANT THAT SUCH AMOUNTS WERE DEDUCTED BY CUSTOMER FOR RATE DIF FERENCE REQUIRES TO BE AUTHENTICATED AND CONFIRMED BY RESPECTIVE PARTY SO AS TO ASCERTAIN THAT THE ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 5 CORRESPONDING ENTRIES HAVE BEEN PASSED BY THE RESPE CTIVE PART IN THEIR ACCOUNTS. AS THE APPELLANT FAILED TO FURNISH ANY CO NFIRMATION OF THE AMOUNTS CREDITED TO THE ACCOUNT OF VARIOUS PARTIES AND THAT TOO THROUGH JOURNAL ENTRIES ON THE LAST DAY OF THE FINANCIAL YEAR, THE CLAIM OF THE APPELLANT WAS RIGHTLY REJECTED. IT IS SO, BECAUSE IN THE NORMAL COURSE, T HE ENTRIES FOR RATE DIFFERENCE WOULD BE PASSED ON VARIOUS DATES AND WHEN THE ACCOU NTS OF VARIOUS CUSTOMERS ARE FINALIZED AND NOT THROUGH JOURNAL ENT RIES AT THE YEAR END JUST TO REDUCE THE TAXABLE PROFITS. FOR THE REASONS ABOVE, I HOLD THAT THE CONSEQUENTIAL ADDITION OF RS.82,881/- MADE BY THE A O DID NOT CALL FOR ANY INTERFERENCE. THE SAME IS, ACCORDINGLY CONFIRMED. T HIS GROUND OF APPEAL IS, THEREFORE, REJECTED. AGGRIEVED, NOW ASSESSEE CAME IN APPEAL BEFORE US. WE FIND THAT EVEN NOW BEFORE US THE ASSESSEE COULD NOT ADDUCE ANYTHING IN SUPPOR T OF THE CLAIM OF THE ASSESSEE AND EVEN NO CONFIRMATION OF THE RESPECTIVE PARTIES WERE FILED BEFORE EITHER OF THE LOWER AUTHORITIES IN REGARD TO THE CLAIM OF DEDUCTI ON OF TANVAR VATA AS CLAIMED BY THE ASSESSEE. AS THE ASSESSEE COULD NOT FURNISH ANY CO NFIRMATION OF THE AMOUNTS CLAIMED ON ACCOUNT OF VARIOUS PARTIES, THE LOWER AU THORITIES RIGHTLY DISALLOWED THESE EXPENSES AND WE CONFIRM THE SAME. 6. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO DISALLOWANCE SALE OF COMMISSION EXPENSES CONFIRMING THE DISALLOW ANCE TO THE EXTENT OF RS.16,596/- OUT OF THE TOTAL DISALLOWANCE MADE BY T HE ASSESSING OFFICER AT RS.49,596/-. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS ISSUE AND ACCORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. 8. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF SALES COMMISS ION EXPENSES OF RS.91,000/- PAID TO M/S. R.N. SAHNI & SONS MADE BY THE ASSESSIN G OFFICER. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE HAS MADE PAYMENT OF ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 6 RS.91,000/- AS COMMISSION TO M/S.R.N. SAHNI & SONS DELHI, THE ASSESSEE WAS REQUIRED TO PROVE THE CLAIM OF THE ASSESSEE AND FIL ED THE DETAILS AS REGARDS THE SERVICE RENDERED BY THAT PARTY BUT THE AO OBSERVED THAT THIS PAYMENT OF RS.91,000/- WAS CLAIMED BY THE ASSESSEE AS BROKERAGE COMMISSION PAYMENT TO M/S. R.N. SAHNI & SONS DELHI. WHEN GIVEN SPECIFIC OPPORTUNITY IN TH IS REGARD, THE ASSESSEE DID NOT RESPOND AND THERE WAS ALSO NO RESPONSE BY M/S. R.N. SAHNI & SONS TO WHOM A COMMUNICATION WAS SENT BY THE AO INDEPENDENTLY WITH REFERENCE TO THE TRANSACTION AND AO ALSO FOUND THAT THE ENTRY WITH REGARD TO THI S CLAIM WAS PASSED IN THE BOOKS OF ACCOUNT AT THE YEAR END, I.E. ON 31-03-2001. THE AO ACCORDINGLY, DISALLOWED THE CLAIM. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BE FORE CIT(A) AND THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GI VING FOLLOWING FINDING IN PARA-6.4 OF HIS APPELLATE ORDER:- 6.4 AFTER CAREFUL CONSIDERATION OF THE RELEVANT FA CTS, I FIND THAT THE APPELLANT FAILED TO BRING ON RECORD CONFIRMATION OF THE RESPE CTIVE PARTY IN SUPPORT OF THE TRANSACTIONS. NO DOCUMENT OR EVIDENCE WAS BROUGHT O N RECORD BY THE APPELLANT TO SUGGEST THAT ANY COMMISSION WAS PAYABL E TO THE RESPECTIVE PARTY AND AS TO WHAT SPECIFIC SERVICES WERE RENDERED BY T HE PARTY AND IN WHAT MANNER SUCH COMMISSION WAS TO BE COMPUTED. MERE PAS SING OF SUO-MOTO ENTRIES BY THE APPELLANT IN ITS BOOKS OF ACCOUNT A T THE YEAR END WILL NOT OBVIOUSLY ENTITLE THE APPELLANT TO CLAIM THE DEDUCT ION, UNLESS AND UNTIL SUCH TRANSACTION IS CONFIRMED BY THE RESPECTIVE PARTY AN D SUCH COMMISSION RECEIPT IS SHOWN AS INCOME BY THE RESPECTIVE PARTY AND SUCH COMMISSION RECEIPT IS SHOWN AS INCOME BY THE RESPECTIVE PARTY. I, THEREF ORE, HOLD THAT WITH THE GIVEN FACTS, THE AO WAS JUSTIFIED IN DISALLOWING THE CLAI M. CONSEQUENTLY, THE ADDITION OF RS.91,000/- MADE BY THE AO ON THIS GROUND IS, TH EREFORE, CONFIRMED. THIS GROUND OF APPEAL IS, THEREFORE, REJECTED. WE FIND THAT EVEN NOW BEFORE US LD. COUNSEL FOR THE ASSESSEE HAS NOT FILED ANY EVIDENCE WHICH SUGGEST THAT THE ASSESSEE HAS PAID C OMMISSION ON ACCOUNT OF ANY SPECIFIC SERVICES RENDERED BY THAT PARTY I.E M/S. R .N. SAHNI & SONS DELHI. IN THE ABSENCE OF ANY CONFIRMATION OR DETAILS OF SERVICE R ENDERED, WE ARE UNABLE TO ALLOW THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE ARE OF T HE VIEW THAT THE LOWER AUTHORITIES HAVE RIGHTLY DISALLOWED THE CLAIM AND WE CONFIRM TH E SAME. THIS ISSUE OF THE ASSESSEES APPEAL IS DISMISSED. 10. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN T REATING THE PURCHASES AS BOGUS AMOUNTING TO RS.13,80,636/- AFTER REJECTING THE BOO KS OF ACCOUNT U/S.145 OF THE ACT. ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 7 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A). W E FIND THAT THE AO MADE THE ADDITION IN ACCORDANCE WITH THE OBSERVATIONS IN PARA-7 OF THE ASSESSMENT ORDER AFTER INVESTIGATED THE MANUFACTURING PROCESS OF THE ASSES SEE FOR THE REASON THAT VERY LOW YIELD WAS SHOWN BY THE ASSESSEE. THE AO TABULATED T HE PRODUCTION LOSS SHOWN BY THE ASSESSEE IN VARIOUS MONTHS OF THE FINANCIAL YEA R AND FOUND THAT THE SAME FLUCTUATES BETWEEN 4.16% IN THE MONTH OF MAY TO 86. 97% IN THE MONTH OF MARCH. THE ABNORMAL FLUCTUATION IN PRODUCTION LOSS CLAIMED BY THE ASSESSEE WAS TO TREATED BY THE AO AS ILLOGICAL AND THEREFORE THE AO TREATED ONLY 10% PRODUCTION LOSS AS REASONABLE. THE AO ALSO INVESTIGATED THE PURCHASES AND FOUND THAT PURCHASES TOTALING TO RS.13,80,636/- MADE BY THE ASSESSEE FRO M M/S. P.M. MINERALS, PORBANDAR M/S. CHANMUNDA SALT SUPPLIERS, MORBID M/S. RAM ACIS CHEM AGENCY, MEHSANAA AND M/S. ANAND TIMBER MART, NADIAD WERE BOGUS. THIS SUPPORTED THE THEORY OF THE AO THAT THE ASSESSEE WAS CLAIMING EXCESS LOSSES IN AN ERRATIC MANNER JUST TO DIGEST THESE BOGUS PURCHASES. THE AO ACCORDINGLY, DISALLOW ED THE BOGUS PURCHASES FROM THE ABOVE PARTIES AND MADE A CONSEQUENTIAL ADDITION OF RS.13,80,146/-. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFOR E THE CIT(A), THE ASSESSEE SUBMITTED AS UNDER IN THE MATTER:- (I) THE PURCHASES FROM THE PARTIES REFERRED TO BY THE AO ARE SUPPORTED BY THE BILLS. (II) THE SUPPLIERS WERE NOT PAID, AS THE MATERIALS WERE DEFECTIVE. (III) THE ALLOWANCE OF PRODUCTION LOSS AT 10% IS VE RY LESS. (IV) THE AO HAS NOT CITED ANY COMPARABLE CASES WHER E THE PRODUCTION LOSS WAS AS LOW AS 10% WHICH IS WHAT THE AO HAS ALLOWED TO THE APPELLANT. (V) THE AO HAS COMPUTED THE PRODUCTION LOSS BY COMP ARING CONSUMPTION OF RAW MATERIALS WITHOUT CONSIDERING THE OPENING STOCK OF SEMI-FINISHED MATERIALS AVAILABLE IN STOCK. THAT IS WHY IN THE BEGINNING OF THE YEAR, THE PRODUCTION LOSS CALCULATED BY THE AO IS LOW. THIS IS BECAUSE HE HAS NOT CONSIDERED THAT IN THE OPENING STOCK, SEMI-FINISHED MATERIALS WERE AVAILAB LE WHICH WERE CONVERTED INTO FINISHED GOODS. RELEVANT EXTRACTS FROM THE ACC OUNTS OF THE PRECEDING YEAR ARE ENCLOSED, WHICH SHOW THAT THERE WAS 18,660 MTS OF MATERIALS IN THE FORM ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 8 OF SEMI-FINISHED GOODS. THUS, THE PRODUCTION IN THE EARLIER YEARS WAS PARTLY OUT OF THE OPENING STOCK OF SEMI-FINISHED GOODS. THE CIT(A) REFERRED THE OBJECTIONS OF THE ASSESSEE TO THE ASSESSING OFFICER AND THE AO SUBMITTED HIS REMAND REPORT AS UNDER:- 7.3 THE AO VIDE REMAND REPORT DATED 14.9.2005 SUBMI TTED AS UNDER IN THE MATTER. THE ASSESSING OFFICER HAS VERIFIED THE LOW YIELD Z EOLITE POWDER AS AGAINST HIGHER CONSUMPTION OF RAW MATERIAL, IN LAST QUARTER OF THIS YEAR. THE PURCHASES ARE VERIFIED AND A FINDING IS RECORDE D THAT THERE IS NO DELIVERY CHALLAN. MATERIAL DEFECTS IN THE BILLS AND ALSO OTHER REASONS FOR HOLDING THE PURCHASES AS BOGUS. THIS IS ELABORATED IN PARA 7 OF THE ASSESSMENT ORDER. CONSIDERING THE OVERALL FACTS, TH E ASSESSING OFFICER HAS RIGHTLY CONSIDERED PRODUCTION LOSS AT 10% AND T HE ASSESSEE COULD NOT CONTROVERT THE OBSERVATIONS COMMUNICATED BEFORE FINAL ASSESSMENT. IN THE LIGHT OF FINDINGS THERE MAY BE T WO COURSE FIRST TO DISALLOW THE PURCHASES NOT PROVED AND RECAST THE TR ADING ACCOUNT AFTER DUE ADJUSTMENT FOR 10% LOSS. IN THAT POSITION, THE ADDITION WILL BE MUCH HIGHER THAN R.13,80,000/-. THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO BY G IVING FOLLOWING FINDING IN PARA- 7.4 IN HIS APPELLATE ORDER AS UNDER:- 7.4. AFTER CAREFUL CONSIDERATION OF THE RELEVANT F ACTS, I FIND THAT THE APPELLANT FAILED TO PLACE ON RECORD ANY VALID EXPLA NATION FOR ABNORMAL VARIATION IN PRODUCTION LOSS CLAIMED BY THE APPELLANT IN DIF FERENT MONTHS. THOUGH THE EXTENT OF VARIATION MAY DILUTE O N ACCOUNT OF DEFECT IN AO'S CALCULATION BUT EVEN THEN THE ABNORMAL VARI ATION DO REMAIN LARGELY UNEXPLAINED. THE AO HAS ALSO NOT MADE ANY A DDITION SOLELY ON THE BASIS OF THESE CALCULATIONS BUT TAKING LEAD FRO M SUCH ABNORMALITY, AO DISCOVERED BOGUS PURCHASES AND MADE THE ADDITION . FURTHER TO ABOVE, I FIND THAT THE ASSESSING OFFICER HAS MADE P ROPER AND INTELLIGENT INVESTIGATION TO PROVE THAT THERE WERE SUBSTANTIAL FICTITIOUS PURCHASES INTRODUCED BY THE APPELLANT IN THE NAME OF VARIOUS PARTIES IDENTIFIED ABOVE TO REDUCE THE TAXABLE PROFIT. THE INVESTIGATI ONS MADE BY THE AO CLEARLY INDICATED THAT NONE OF THE PURCHASES FROM T HE ABOVE IDENTIFIED PARTIES WERE SUPPORTED BY DELIVERY CHALLAN OR LORRY RECEIPTS. THE AO, THEREFORE, BROUGHT ON RECORD THE FOLLOWING CLINCHIN G EVIDENCES TO ESTABLISH THAT THE PURCHASES FROM THESE PARTIES WER E BOGUS:- (I) ON FIELD INQUIRY BY THE INSPECTOR, THE CONCERN, M/S. RAM ACIS CHEM AGENCY, MEHSANA WAS FOUND TO BE NON EXISTENT AT THE ADDRESS GIVEN BY THE APPELLANT IN M EHSANA AND THAT SALES TAX NUMBER PROVIDED ON PURCHASE BILL S FROM THIS PARTY, ON INQUIRY WITH THE SALES TAX DEPT T., WAS ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 9 FOUND TO BE ALLOTTED TO M/S. TITON ELECTRICAL AGENC Y. THE CST NO. QUOTED ON THE PURCHASE BILLS FROM THIS PART Y WERE ALSO FOUND TO BE ALLOTTED TO ONE M/S. MARUTI PORTARIES PVT. LTD. (II) ON INQUIRY WITH THE SALES TAX DEPTT. IT WAS DI SCOVERED THAT THE GST NUMBER QUOTED BY P.M> MINERALS, PORBANDAR ON THE PURCHASES BILLS WERE BELONGING TO ANOTHER CONCERN, M/S. JAY CHAMUNDA INDS. (III) SIMILARLY, ON INQUIRY WITH THE SALS TAX DEPTT . IOT WAS DISCOVERED THAT THE GST NUMBER QUOTED BY M/S. ANAND TIMBER MART ON THE PURCHASE BILLS WERE BELONGING TO ANOTHER CONCERN, MUKHI AGENCY. DURING THE COURSE O F APPELLATE PROCEEDINGS, THERE IS AN ADMITTED POSITIO N BY THE APPELLANT THAT NO PAYMENT WAS MADE TO ANY OF TH ESE PARTIES AND THAT ALL PAYMENTS WERE STILL OUTSTANDIN G. THE EVIDENCES CLEARLY INDICATE THAT THESE PARTIES WERE NON- EXISTENCE AND THEREFORE, THERE WAS A CLEAR ATTEMPT ON THE PART OF THE APPELLANT TO INTRODUCE FICTITIOUS PURCH ASES IN THE NAME OF SUCH NON-EXISTENT PARTIES TO ARTIFICIAL LY REDUCE TAXABLE PROFIT AND DEFRAUD THE REVENUE. WITH EVIDEN CES ON RECORD, THEREFORE, I FIND THAT THE AO WAS FULLY JUSTIFIED IN TREATING THE PURCHASES FROM THESE PARTIES AS BOG US AND IN MAKING THE CONSEQUENTIAL DISALLOWANCE OF RS.13,80,636/-. THE DISALLOWANCE MADE BY THE AO IS ACCORDINGLY CONFIRMED. THIS GROUND OF APPEAL IS, THEREFORE, REJECTED. WE FIND THAT THE CIT(A) HAS RIGHTLY HELD ON THE BAS IS OF EVIDENCES THAT NO PAYMENT WAS MADE TO THESE PARTIES AND ALL PAYMENTS WERE OUT STANDING AND EVEN NOW BEFORE US THE ASSESSEE COULD NOT ADDUCE ANYTHING WHICH SHO WS THAT THE PAYMENTS ARE MADE. IT MEANS THAT TILL DATE THESE PAYMENTS ARE OU TSTANDING. ACCORDINGLY, THIS IS NOT A FIT CASE TO BE INTERFERED IN THE ORDERS OF THE LO WER AUTHORITIES. THIS ISSUE OF THE ASSESSEES APPEAL IS DISMISSED. NOW WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.10 89/AHD/2006. 12. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THIS IS A REVISION PROCEEDINGS INITIATED BY THE CIT(A)-VI, AHMEDABAD U /S.263 OF THE ACT IS ON ACCOUNT OF THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER V IDE ORDER DATED 30-03-2004 FOR THE ASSESSMENT YEAR 2001-02, WHICH IS A SUBJECT-MAT TER OF APPEAL BEFORE THE TRIBUNAL IN ITA NO.160/AHD/2006 AS DECIDED ABOVE. THE LD. COUNSEL FOR THE ASSESSEE TAKEN US TO THE SHOW-CAUSE NOTICE ISSUED U /S.263 OF THE ACT VIDE NO.CIT- ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 10 VI/JUD./263-ZCPL/2005-06 DATED 13-09-2005 THE LD. C OUNSEL FOR THE ASSESSEE, FIRST OF ALL, TAKEN US TO THE SHOW CAUSE NOTICE, AND THE RELEVANT PART READS AS UNDER:- 1. SINCE THE A.O. HAS REJECTED THE BOOK RESULT AND THE A.O. WORKED OUT THE POSSIBLE PRODUCTION OF ZEOLITE POWDER ALLOWING 10% MANUFACTURING LOSS, THE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN TH E CLOSING STOCK OF FINISHED PRODUCT REMAIN TO BE MADE. II. SINCE THE A.O HAS GIVEN FINDING AFTER VERIFICAT ION OF PURCHASES THAT THE PURCHASES ARE INFLATED BY BOOKING PURCHASES FROM NO N EXISTING PARTIES, NON EXISTENT PARTIES ARE KEPT AS OUTSTANDING CREDITORS IN THE FINAL ACCOUNTS AND NOT ADDED BACK PROPERTY TO THE INCOME. THE NON GENUINE PARTIES ARE AS UNDER:- 1. M/S. ANAND TIMBER MART, NADIAD RS. 2,73,750/- 2. M/S. P.M. MINEALS, PORBANDER RS. 2,13,553/- 3. M/S. CHAMUNDA SALT SUPPLIERS, MORBI RS. 1,95,77 5/- 4. M/S. SHRIRAM ACID CHEM AGFENCY, MEHSANA RS.14,84 ,558/- 13. WE FIND THAT THE CIT(A) IN THE OPENING WORDS HA S STATED THAT THE ASSESSING OFFICER HAS COMMITTED THE FOLLOWING MISTAKE WHILE P ASSING THE ASSESSMENT ORDER AND ACCORDINGLY CIT(A) HAS STATED THAT THE ASSESSMENT O RDER PASSED BY THE ASSESSING OFFICER IS CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND ACCORDINGLY A PROPOSAL TO SET ASIDE THE IMPUGNED OR DER OF THE ASSESSING OFFICER U/S.263 OF THE ACT FOR FRAMING AFRESH ASSESSMENT, I SSUING SHOW CAUSE NOTICE WAS MADE. THE LD. COUNSEL STATED THAT THIS MATTER, I.E . THE POSSIBLE PRODUCTION OF ZEOLITE POWDER PRODUCTION ALLOWING 351 OF MANUFACTURING LOS S AND THE CONSEQUENT ADDITION ON ACCOUNT OF UNEXPECTED INVESTMENT IN THE CLOSING STOCK OF FINISHED PRODUCT HAS ALREADY BEEN CONSIDERED BY THE ASSESSING OFFICER. S UBSEQUENTLY, THE LD. COUNSEL FOR THE ASSESSEE TAKEN US TO THE RELEVANT FINDING O F THE AO AT PAGE-8 OF ASSESSMENT ORDER LAST PARA HAS ALREADY BEEN CONSIDERED. THE LD . COUNSEL FOR THE ASSESSEE AS REGARDS TO SECOND ISSUE IN THE SHOW CAUSE ABOUT THE NON-GENUINE PARTIES AS MENTIONED ABOVE HAS ALREADY BEEN CONSIDERED AT PAGE -7 PARA 7.3 OF THE ASSESSMENT ORDER AS UNDER:- 7.3 AS STATED BY THE ASSESSEE ITSELF, THE ASSESSEE COMPANY HAS SHOWN HUGE PURCHASES OF RAW-MATERIALS IN THE LAST QUARTER OF T HE YEAR. ON SCRUTINY OF THE PURCHASE OF RAW-MATERIALS MADE DURING THE YEAR, IT IS NOTICED THAT NOT A SINGLE PURCHASE IS SUPPORTED BY THE DELIVERY CHALLAN OR L. R. FOR EXAMPLE, THE ASSESSEE HAS SHOWN PURCHASE OF S.S. LIQUID OF 43400 KGS. AS PER BILL NO.185 DT. 31.1.2001 ISSUED BY M/S. RAM ACIS CHEM AGENC, M EHSANA. IN THIS BILL THE PARTY HAS SHOWN SUPPLY OF S.S/ LIQUID ON VARIOUS DA TES SUCH AS ON 8.1.01 ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 11 14500 KGS. 16.1.01 14600 KGS., AND ON 22.1.01 1 4300 KGS. THE ASSESSEE WAS ASKED TO PRODUCE THE DELIVERY CHALLANS ISSUED BY THE ABOVE PARTY FOR THE SUPPLY OF S.S. LIQUID ON DIFFERENT DA TES AS MENTIONED IN THE ABOVE BILL. HOWEVER, THE ASSESSEE SHOWN ITS INABILI TY TO PRODUCE THE DELIVERY CHALLANS IN RESPECT OF THE PURCHASE OF RAW-MATERIAL S. SIMILARLY, THE ASSESSEE HAS SHOWN PURCHASE OF FIRE-WOOD OF 36.450 MT VIDE B ILL NO.175 DTD. 31.1.2001 ISSUED BY ANAND TIMBER MART, NADIAD. IN T HIS BILL THE PARTY HAS MENTIONED SUPPLY OF FIRE WOOD ON DIFFERENT DATES SU CH AS ON 12.1.01 7,525 MT ON 18.1.01 7.625 MT ON 20.1.01 7.850 MT ON 2 4.1.01 6.750 MT AND ON 28.1.01 6.700 MT. HERE ALSO, THE ASSESSEE IS N OT IN A POSITION TO PRODUCE THE DELIVERY CHALLANS IN RESPECT OF THE PUR CHASE OF RAW-MATERIALS. THE ASSESSEE IS PURCHASING BOXITE POWDER FROM M/S. P.M. MINARALS, PORBANDAR & CHAMNUDA SALT SUPPLIERRS, MORBI, S.S. LIQUID FROM M /S. RAM ACIS CHEM. AGENCY, MEHSANA AND FIRE WOOD FROM M/S. ANAND TIMBE R MART, NADIAD. ON PERUSAL OF THE BILLS ISSUED BY M/S. RAM ACIS CHEM A GENCY. MEHSANAA IT IS SEEN THAT THE ORDER HAS BEEN PLACED TELEPHONICALLY. HOWEVER, NO TELEPHONE NUMBER IS PRINTED ON THE BILL. THE ASSESSEE WAS ASK ED TO FURNISH THE TELEPHONE NUMBER OF THE ABOVE MENTIONED PARTY FROM WHOM S.S. LIQUID WAS ALLEGED TO HAVE BEEN PURCHASED. HERE ALSO THE ASSES SEE STATED ITS INABILITY TO FURNISH THE TELEPHONE NUMBER. SIMILARLY, NO TELEPHO NE NUMBER IS PRINTED IN THE BILLS OF ANAND TIMBER MAT. NADIAD, M/S. P.M. MINERA LS, PORBANDAR & M/S. CHAMUNDA SALT SUPPLIERS, MORBI, THE OTHER RAW-MATER IAL CAUSTIC SODA IS BEING PURCHASED FROM GUJARAT HEAVY CHEMICALS LTD., OR M/S . TATA CHEMICALS AND THE PURCHASES MADE FROM THESE TWO COMPANIES ARE SUP PORTED BY DELIVERY CHALLANS AND L.R. IN NUT SHELL THE HEAVY PURCHASES OF RAW-MATERIALS SHOWN DURING THE YEAR FROM M/S. P.M. MINERALS, PORBANDAR, M/S. CJHAMUNDRA SALT SUPPLIES, MORBI, M/S. RAM ACIS CHEM AGENCY, MEHSANA AND M/S. ANAND TIMBER MART ARE NOT SUPPORTED BY THE DELIVERY CHALL ANS AND LORRY RECEIPTS. THE BILLS PRODUCED BY THE ASSESSEE ALLEGED TO HAVE BEEN ISSUED BY THE ABOVE MENTIONED PARTIES APPEARS FICTITIOUS. 14. AND FINALLY ON REJECTION OF THE BOOKS OF ACCOU NT AND ESTIMATED DISALLOWANCE OF PURCHASES AS DISCUSSED IN PARA- 7 TO 7.7 AMOUNTING TO RS.13,80,686/-. IN VIEW OF THESE, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSMENT ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE RE VENUE. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE REVISION ORDER PASSED BY THE CIT(A) U/S.263 OF THE ACT. WE FIND FROM THE ABOVE FACTS AN D CIRCUMSTANCES THAT THE ASSESSING OFFICER HAS ALREADY DISCUSSED BOTH THE IS SUES RAISED BY THE CIT(A) IN ITS REVISION ORDER AND THE SHOW CAUSE NOTICED ISSUED AT THE PRELIMINARY STAGE, THE VERY REASON LISTED IN THE SHOW-CAUSE NOTICE HAS ALREADY BEEN CONSIDERED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND REA CH TO A FAIR CONCLUSION. WE FIND THAT THE AO HAS CONSIDERED THE PHYSICAL PRODUC TION OF ZEOLITE POWDER ALLOWING 10% MANUFACTURING LOSSES AND MAKE ADDITION OF UNEXP LAINED PURCHASES AND A SEPARATE ADDITION FOR UNACCOUNTED INVESTMENT CAN NO T BE MADE IN ANY CASE, HENCE, ITA NO.160 & 1089/AHD/2006 A.Y. 2001-02 ZEO CHEM PVT. LTD. V. ITO CENTRAL WARD-2(1) & ACIT CIR -1, BNG. PAGE 12 THE ENTIRE PURCHASE ARE ADDED BY THE ASSESSING OFFI CER, WE ARE FAILED TO UNDERSTAND HOW THE CIT HAS ISSUED THE SHOW CAUSE NOTICE WITHOU T CONSIDERING THE ASSESSMENT ORDER. AS REGARDS TO ANOTHER ISSUE, I.E. VERIFICAT ION OF PURCHASES AS INFLATED BY BOOKING PURCHASES FOR NON-EXISTENCE PARTIES AND THE REBY RESOLVED INTO OUTSIDER CREDITS IN THE FINAL ACCOUNTS, THE AO HAS ALREADY C ONSIDERED THIS ASPECT AND MADE ADDITION OF UNACCOUNTED PURCHASES, IF THIS ADDITION IS MADE, THAT WILL TANTAMOUNT TO DOUBLE ADDITION, WHICH THE AO HAS NO POWER. ACCORDI NGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER. EVEN OTHERWISE THE FACT RELATING TO THESE TWO CONNECTED ISSUE AS RAISED BY THE CIT IN HIS REVISIO N ORDER U/S.263 OF THE ACT HAS ALREADY BEEN DEALT BY US IN ITA NO.160/AHD/2006 AS ABOVE. ACCORDINGLY, WE QUASH THE REVISION ORDER PASSED BY THE CIT U/S.263 OF THE ACT AND ALLOW THIS APPEAL OF THE ASSESSEE. 15. IN THE RESULT, ASSESSEES APPEAL ITA NO.160/AHD/2006 IS DISMISSED AND THAT OF ASSESSEES APPEAL ITA NO.1089/AHD/2006 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16/10/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAVI R SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 16/10/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- III, VI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD