DCIT CC-13, V. Global Business India (P) Ltd,

ITA 1622/DEL/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65302 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 21-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 30-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIS GILL
• Keywords: Bogus purchase; Question of law; Accommodation entries
• Section: 80IB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 1622/DEL/08 A.YR. 2004-05 DCIT, CEN. CIR. 13, VS. GLOBAL BUSINES INDIA PV T. LTD., NEW DELHI. ZONE H 4/5, 53 & 54 SUVIDHA KUNJ, PITAM PURA, DELHI. PAN: AABCG 4576F ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI R.I.S. GILL CIT (DR) RESPONDENT BY : SHRI RAJEEV SAXENA ADV. O R D E R PER R.P. TOLANI, J.M: : THIS IS REVENUES APPEAL CHALLENGING DELETION OF F OLLOWING ADDITIONS BY CIT (A):- 1. RS. 5,62,17,980/- ON ACCOUNT OF BOGUS PURCHASE 2. RS. 4,50,405/- ON ACCOUNT OF PAYMENT OF INTEREST FOR SALES TAX DEPOSIT. 3. CONSIDERATION OF INTEREST OF FDR OF RS. 6,38,558 FOR CALCULATING DEDUCTION U/S. 80IB. 2. BRIEF FACTS ARE THE ASSESSEE IS ENGAGED IN BUSIN ESS OF MANUFACTURING AND TRADING OF PERFUMERY COMPOUNDS, AROMATIC CHEMIC ALS & OTHER OILS. SURVEY OPERATIONS WERE CARRIED OUT IN THE CASE OF M /S. SURYA VINAYAK INDUSTRIES LTD. (SVIL) AND ASSOCIATED CONCERNS INCL UDING ASSESSES (GBIL). THE SURVEY OPERATIONS WERE CARRIED OUT IN THE WAKE OF INFORMATION RECEIVED FROM INVESTIGATION WING OF THE DEPARTMENT THAT ONE SH. ATUL KUMAR BANSAL 2 AND HIS ASSOCIATED CONCERNS WERE ENGAGED IN BUSINES S OF PROVIDING ACCOMMODATION ENTRIES BY ISSUING PURCHASE BILLS WHI CH INCLUDED M/S. KUMAR BANSAL TRADERS PVT. LTD. AND M/S. VARUN TRADI NG COMPANY. ACCORDING TO AO THE RAW MATERIALS USED IN ASSESSEE S BUSINESS WERE AVAILABLE IN CASH MARKET AND IT WAS DIFFICULT TO PU RCHASE THEM IN REGULAR MARKET. TO OVERCOME THIS DIFFICULTY, ASSESSEE EMPL OYED A MODUS OPERANDI OF PURCHASING RAW MATERIALS IN CASH AND OBTAINING A CCOMMODATION BILLS SUPPORTED WITH PAYMENTS BY CHEQUES. ASSESSEE WAS F OUND TO HAVE PURCHASED GOODS AGGREGATING TO RS. 22,48,71,920/- B Y THE BILLS ISSUED BY M/S. KUMAR BANSAL TRADERS PVT. LTD. AND M/S. VARUN TRADING COMPANY FROM THESE ENTITIES OPERATED BY MR. ATUL BANSAL. BE SIDES MANY OTHER ISSUES ALSO CROPPED UP DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. THE CASE WAS SENT TO ADDL. COMMISSIONER OF INCOME TAX, RANGE 1 2, NEW DELHI FOR DIRECTIONS UNDER SECTION 144A OF IT ACT. 2.1. THE ADDL. CIT, AFTER HEARING THE ASSESSEE, ISS UED FOLLOWING DIRECTIONS TO AO IN THIS BEHALF: - (I) THE ASSESSEE HAS SHOWN PURCHASES FROM M/S. KUMA R BANSAL TRADER PVT. LTD. AND M/S. VARUN TRADING COMPANY AMOUNTING TO RS. 22,48,71,920/- WHICH WERE FOUND TO BE BOGUS IN THE FORM OF ACCOMMODATION ENTRIES. THEREFORE, 25% OF THE PURCH ASE PRICE ACCOUNTED FOR IN BOOKS OF ACCOUNT THROUGH INVOICES IN THE NAME OF THESE TWO SUPPLIERS WILL NOT BE ALLOWED AS EXPENDIT URE, WICH WILL COME TO RS. 5,62,17,980/- AND WILL BE CONSIDERED PA RT OF TOTAL INCOME WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE COMPANY. 3 (II) THE ABOVE DISALLOWANCE IS NOT IN THE NATURE OF PROFIT DERIVED, WHICH IS ELIGIBLE OR 80IB DEDUCTION AND, HENCE WHILE COMPUTI NG 80IB DEDUCTION, THE ABOVE DISALLOWANCE OF RS. 5,62,17,98 0/- IS NOT TO BE CONSIDERED AS FORMING PART OF THE BUSINESS PROFITS ELIGIBLE FOR 80IB DEDUCTION. (III) WHILE WORKING OUT 80IB DEDUCTION, THE TRADING PROFITS OF RS. 14,17,500/- ARE TO BE EXCLUDED FROM DEDUCTION UNDE R SECTION 80IB. (IV) THE INTEREST INCOME AMOUNTING TO RS. 6,38,558/ - IS NOT TO BE CONSIDERED FOR ALLOWING 80IB DEDUCTION. 2.2 ACCORDINGLY, AO FRAMED THE ASSESSMENT UNDER THE SE DIRECTIONS AND AS THE ABOVE CONCERNS WERE HELD TO BE ACCOMMODATION EN TITIES, AO DISALLOWED 25% OF THE PURCHASES AMOUNTING TO RS. 5,62,17,980/- FOLLOWING ITAT JUDGMENT IN THE CASE OF M/S. VIJAY PROTEINS LTD. VS . ACIT, REPORTED IN 58 ITD 428. 2.3 AN AMOUNT OF RS. 4,05,405/- PAID BY THE ASSESSE E AS INTEREST ON LATE DEPOSIT OF SALES TAX WAS HELD BY THE AO TO BE IN TH E NATURE OF PENALTY AND WAS DISALLOWED U/S 37 OF THE I T ACT. 2.4 THE ASSESSEE HAD EARNED INTEREST OF RS. 6,38,55 8/- WHICH ACCORDING TO AO WAS NOT ATTRIBUTABLE TO ASSESSEES BUSINESS OF M ANUFACTURING, THEREFORE, THE SAME WAS EXCLUDED IN THE COMPUTATION OF DEDUCT ION UNDER SECTION 80IB. 2.5 SOME OTHER ADDITION WERE ALSO MADE WHICH ARE NO T BEFORE US. 4 2.6 AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL BEFOR E CIT (A) AGITATING ALL THESE GROUNDS. 3.1 ON THE FIRST ISSUE CIT (A) DELETED THE ADDITION BY FOLLOWING OBSERVATIONS:- 4.2. FROM THE TOTALITY OF ALL THE FACTS AND CIRCUM STANCES, I HAVE COME TO THE CONCLUSION THAT AS FAR AS THE PU RCHASE OF RAW MATERIAL ARE CONCERNED, THEY ARE GENUINE BUT I T IS LIKELY THAT THE BILLS IN RESPECT OF THOSE PURCHASE HAVE BE EN PURCHASED FROM THE MARKET. MY CONCLUSION IS DRAWN ON THE BAS IS THAT THE PURCHASES HAVE BEEN ENTERED INTO STOCK REGISTER. A LTHOUGH THE LINKAGE OF THESE PURCHASES WITH THE SALE IS NOT ASC ERTAINABLE BECAUSE THE PURCHASES OF RAW MATERIAL HAS UNDERGONE THE VARIOUS PROCESSES BEFORE ITS SALE AS A FINISHED PRO DUCT. THE RAW MATERIAL AND FINISHED GOODS HAVE DIFFERENT ENTI TY AND CANNOT HAVE DIRECT LINK. BUT ITS PURCHASES AND SALE S HAVE BEEN ACCEPTED BY THE EXCISE AND TRADE DEPARTMENT. THE OT HER EVIDENCE SUCH AS, THE FREIGHT RECEIPTS FOR BRINGING THE GOODS INSIDE THE FACTORY BY CITING THE VEHICLE NO. ETC THEIR ENTRY IN STOCK REGISTER, PURCHASES AGAINST FORM NO. ST-38 I SSUED BY THE EXCISE AND TRADE DEPARTMENT OF THE PURCHASES AND SALES OF THE ASSESSEE COMPANY ARE THE EVIDENCES WHI CH CANNOT BE IGNORED. THESE EVIDENCES HAD CLEARLY SHOWN THE AUTHENTICITY OF THE PURCHASES. FURTHERMORE, THE SA LE HAVE BEEN ACCEPTED EXPENDITURE CORRESPONDING TO IT HAVE ALSO TO BE ACCEPTED IN VIEW OF THE SIMPLE REASON AND ANALOGY T HAT THE INCOME FIGURE AS A RESULT OF SALES HAS NOT BEEN QUE STIONED AND ACCEPTED, THE OUTGO FIGURE IN THE FORM OF PURCHASES HAS TO BE ACCEPTED AS SUCH UNLESS THERE IS DEFINITE MATERIAL FINDING ON RECORD TO ESTABLISH OTHERWISE. 4.3. IN THE PRESENT CASE, THE AO HAS NOT DISPUTED/D OUBTED THE GENUINENESS OF PURCHASES MADE BY THE APPELLANT TO T HE TUNE O RS. 22,48,71,920/- OF MATERIALS FOR SALE. ADMITTED LY THE RATE 5 OF PURCHASES OF GOODS HAD ALSO BEEN ACCEPTED BY THE AO AS THAT OF THE PREVAILING MARKET RATE OF THOSE DAYS IN THE CASE OF SIMILAR ITEMS OR MATERIALS. THE G.P. RATE, THE NET PROFIT AS WORKED OUT BY THE APPELLANT IN THE COMPUTATION OF I NCOME AS PER AUDITED STATEMENT AND AS PER ITS BOOKS OF ACCOU NTS HAS NOT IN DISPUTE HERE. SIMILARLY, THE SALE FIGURES AND T HE EXPENDITURE INCURRED BY THE APPELLANT FOR EARNING SUCH INCOME H AS NOT BEEN DOUBTED BY THE AO. ONCE THE SALE/INCOME OR PR OFIT HAS BEEN ACCEPTED, THE CORRESPONDING EXPENDITURE HAS AL SO TO BE ACCEPTED. THE ONLY AREA DOUBTFUL, ACCORDING TO THE AO IS IN THE CASE OF THE TWO PARTIES FROM WHOM THE APPELLANT HAS MADE THE SAID PURCHASES. THIS CANNOT BE A SUFFICIENT AN D JUSTIFIABLE GROUND FOR MAKING THE SAID ADDITION FOR THE SIMPLE REASON THAT THERE CAN BE NO SALES WITHOUT CORRESPONDING PURCHAS ES. IN THE CASE OF NISHANT HOUSING DEVELOPMENT VS. ACIT 52/ITD /103 (PATNA BRANCH) IT WAS SPECIFICALLY HELD THAT IF ANY ADDITION IS MADE ON THE GROUND OF EXPENDITURE INCURRED THE SOUR CE OF WHICH IS TO BE TREATED AS UNEXPLAINED, THEN SIMILAR AMOUNT WILL HAVE TO BE SIMULTANEOUSLY ALLOWED AS EXPENDITU RE TO EARN THAT INCOME. SIMILARLY, IN THE CASE OF KAMAL KUMAR SARARIA VS. CIT REPORTED IN 73 TAXMAN 299 (GAU) IT WAS HELD THAT REJECTION OF PART TO BE ALSO ACCEPTED. IN VIEW OF THE AFORESAID DECISIONS AND CONSIDERING THE FACTS INVOLVED, I AM OF THE CONSIDERED OPINION THAT THE ADDITION OF RS. 5,62,17 ,980/- IS NOT JUSTIFIED AS PER LAW AND FACTS OF THE CASE AND ACCORDINGLY, THE SAME STANDS DELETED. 3.2 THE INTEREST ON DELAYED PAYMENT OF SALES TAX WA S ALLOWED BY CIT (A) BY FOLLOWING OBSERVATIONS:- 13. I HAVE DULY CONSIDERED THE SUBMISSION OF THE A /R INCLUDING THE RATIO OF DECISIONS CITED BY HIM TO SU PPORT THE INSTANT GROUND. IT IS APPARENT THAT THE AO HAS ADDE D THE AMOUNT OF RS. 405405/- BEING INTEREST FOR LATE DEPO SIT OF SALES TAX, AS BEING PENAL IN NATURE. HOWEVER ON CAREFUL CONSIDERATION I FIND THE SAME WOULD NOT AMOUNT TO I NFRACTION OF LAW AND NOT BEING PENALTY IN NATURE. THE ASSESS EE HAD PAID 6 INTEREST TO HARYANA TRADE TAX & EXCISE DEPT. DUE TO LATE DEPOSIT OF SALES TAX DURING THE YEAR UNDER CONSIDER ATION AND I AM OF THE CONSIDERED VIEW THAT THE SAME PAYMENT WOU LD NOT BE PENALTY IN NATURE. IN OTHER WORDS, NON-PAYMENT OF STATUTORY DUES LIKE SALES TAX, INCOME-TAX ETC MAY ENTAIL PENALTY BUT LATE PAYMENT OF THE SAME MAY NOT NECESS ARILY ATTRACT PENALTY BUT INTEREST FOR SUCH DELAYED PAYME NT/DEPOSIT. THIS VIEW HAS BEEN REINFORCED BY THE DECISIONS WHER EIN IT WAS HELD THAT INTEREST PAID BY THE ASSESSEE TO THE SALE S TAX DEPARTMENT ON ARREARS OF SALES TAX/PURCHASE TAX IS AN ADMISSIBLE DEDUCTION (WESTERN INDIA STATE MOTORS 16 7 ITR 395 (RAJ)/CIT VS. WESTERN INDIAN STATE MOTORS 174 I TR 116/(RAJ)/CIT VS. LACHHMAN DAS MATHURA 124 ITR 411(ALL)/CIT VS. CHODAVARAM CO-OP SUGARS LTD. 163 I TR 420 (AP)/CIT VS. SHRI SARVARAYA SUGARS LTD 163 ITR 429 (AP)/MAHALAXMI SUGAR MILLS CO. LTD. VS. CIT 157 ITR 683 (DEL). MOREOVER, THE STATED DECISIONS HAVE REINFORC ED THE ABOVE VIEW IN FAVOUR OF THE APPELLANT COMPANY. ACC ORDINGLY THE ADDITION OF RS. 405405/- IS DIRECTED TO BE DELE TED. 3.3 AGGRIEVED REVENUE IS BEFORE US. 4. GROUND NO. 3 RAISES ISSUE ABOUT INTEREST ON FDR TO BE EXCLUDED FROM COMPUTATION OF DEDUCTION U/S 80IB IS CONCEDED BY AS SESSEE TO BE COVERED AGAINST IT BY SUPREME COURT JUDGMENT IN THE CASE OF LIBERTY INDIA 317 ITR 218, THEREFORE, THIS GROUND OF THE REVENUE IS ALLOW ED AND NOT DEALT ANY FURTHER. 5. LD. DR RELIED ON THE ORDER OF AO AND CONTENTS TH AT THE AO HAS RIGHTLY RELIED ON ITAT JUDGMENT IN THE CASE OF VIJAY PROTEI NS (SUPRA) AND DISALLOWED OF 25% OF THE PURCHASE AMOUNT FROM ACCOM MODATION ENTITIES. CONSEQUENT TO SURVEY THE FACTS EMERGED THAT SAID TW O CONCERNS I.E. M/S. KUMAR BANSAL TRADERS PVT. LTD. AND M/S. VARUN TRADI NG COMPANY WERE 7 HELD TO BE NON EXISTING COMPANIES. THE RAW MATERIA L THOUGH IS ACCEPTED TO BE PURCHASED BY THE ASSESSEE IN CASH FROM MARKET HO WEVER SUPPORTING BILLS WERE OBTAINED BY WAY OF ACCOMMODATION BILLS FROM TH ESE TWO ENTITIES OPERATED BY SHRI ATUL BANSAL. THUS IT WAS IN THE HA NDS OF THE ASSESSEE TO INFLATE THE PURCHASES PRICES IN THE ACCOMMODATION B ILLS. AO IN THESE CIRCUMSTANCES WAS CORRECT IN DRAWING AN ANALOGY FRO M THE CASE OF VIJAY PROTIENS (SUPRA) CONFORMING TO THE DIRECTIONS OF AD L. CIT. AO, THEREFORE, FOLLOWING THIS CASE DISALLOWED A PART OF PURCHASE P RICE I.E. 25% OF SUCH RAW MATERIAL PURCHASED. CIT (A) WITHOUT APPRECIATING TH ESE FACTS DELETED THE ADDITION HOLDING THAT THE COST OF PURCHASES DEBITED BY THE ASSESSEE WAS COMPARABLE TO MARKET RATES. 5.1. APROPOS THE SECOND ISSUE ABOUT DISALLOWANCE OF INTEREST ON DELAYED PAYMENT OF THE SALE TAX, LD. DR CONTENDS THAT IN TH E RELEVANT SALES TAX LAW THE LATE PAYMENT OF SALES TAX DUES IS TERMED AS PEN ALTY, THEREFORE, THE AMOUNT WAS RIGHTLY DISALLOWED BEING INFRACTION OF LAW. ORD ER OF AO IS RELIED ON. 6. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT: 6.1. THE ASSEESSEE FULLY COOPERATED IN THE ASSESSME NT PROCEEDINGS. PROPER EXPLANATIONS WERE FILED FROM TIME TO TIME AND ITS G ROUP DIRECTOR SHRI SANJAY JAIN MADE A STATEMENT BEFORE DDI(INV) UNIT-III NEW DELHI AS UNDER: ACCORDING TO ME ANY TRANSACTION RUNNING IN MY BANK ACCOUNT IN ANY OF MY CONCERNS IS GENUINE TRADE TRANSACTION DONE FOR THE PAYMENT OF DUES CREATED DUE TO PURCHASE OF RAW MATE RIAL FROM THE FOUR ENTITIES MENTION IN Q. NO. 20. AFTER ALL T HE PAYMENTS TO THE ABOVE FOUR ENTITIES HAVE BEEN MADE EITHER THROU GH A/C PAYEE CHEQUE/ DEMAND DRAFT/ PAY ORDER NO. CASH PAYM ENT WHAT SO EVER HAS BEEN MADE TO THE ABOVE MENTION FOUR ENT ITIES. IT IS 8 NOT MY DUTY TO LOOK INTO BANK ACCOUNTS/ FINANCIAL R ECORD OF MY SUPPLIER THAT AFTER GETTING THE PAYMENT FROM ME THR OUGH THE OFFICIAL CHANNEL WHAT THEY ARE DOING IN THEIR BANK ACCOUNTS. NEITHER I CAN CHECK OR ASK THEM THAT WHAT YOU HAVE DONE WITH THE CHEQUE/DEMAND DRAFT WHICH I HAVE GIVEN TO YOU. AS FAR AS THE PURCHASE OF RAW MATERIAL IS CONCERNED FROM THEM ALL THE MATERIAL PURCHASED IS BEING SENT TO AGARTAL A FACTORY FROM DELHI FOR WHICH I HAVE FULLY SUPPORTING DOCUMENTS S UCH AS SALES TAX PERMIT, FOREST TRANSIT PERMIT WHICH ARE ENOUGH AND SELF EXPLANATORY THAT THE MATERIAL HAS REALLY GONE FROM DELHI TO MY AGARTALA FACTORY WHICH IS AROUND 3,500 K.M. FROM DE LHI. ONE MORE THING I WANT TO SAY IS THAT AFTER AUGUST 2003 ALL THE MATERIAL IS BEING SENT FROM DELHI TO GUWATI BY INDI AN RAILWAY AND FROM GUWATI TO AGARTALA WITH THE HELP OF REPUTE D LOCAL TRANSPORTERS WHICH ARE REGISTERED WITH THE GOVT. OF ASSAM IS FEARFUL THAT MATERIAL CAN BE UNLOADED IN GUWATI CIT Y ALSO. TO AVOID THIS THEY HAVE TAKE BANK GUARANTEE EQUIPMENT TO THE AMOUNT TO SALES TAX FOR THE MATERIAL IN TRANSIT FRO M GUWATI TO AGARTALA. REGARDING THE ALE OF FINISHED GOODS FROM AGARTALA I WANT TO EXPLAIN THAT FOR ANY SALE TRANSACTION, THE MODE OF TRANSPORT USED IS INDIAN AIR LINES WHICH IS GOVT. CARRIER ALSO ALL THE ALES FROM ANY OF MY CONCERNS IS MADE TO GENUINE AND ESTABLISH ED PARTIES WHICH ARE IN THIS TRADE FOR ANY DECADES, AS FAR AS MODE OF TRANSPORT USED FOR SENDING RAW MATERIAL TO AGARTALA AND BRINGING FINISHED GOODS FROM AGARTALA IN M/S GLOBAL BUSINESS INDIA (P) LTD. IT IS AIR TRANSPORT ONLY FOR WHICH G ENUINE AND OFFICIALLY RECOGNIZE PROOFS ARE AVAILABLE. THIS I H AVE EXPLAINED IN DETAILED JUST TO SHOW THAT BOTH MY SALES AND PUR CHASE ARE GENUINE AND UNCHALLENGEABLE SINCE THEY CARRY LOT OF DOCUMENTS EVIDENCE WITH THEM. IN VIEW OF THE FOREGOINGS YOUR HONOUR IT IS AN ESTA BLISHED FACT THAT THE PURCHASES MADE BY THE ASSESSEE ARE GENUIN E. 6.2. THUS IT IS NOT THE CASE OF THE REVENUE THAT GO ODS WERE USED AT DELHI ONLY, IT IS IMPORTANT TO NOTE THEY WERE TRANSPORTED TO AGARTALLA FACTORY. RELEVANT DOCUMENTS ABOUT TRANSPORTATION WERE PRODUC ED. LIKEWISE 9 MANUFACTURED GOODS ALSO SOLD BY TRANSPORTING THEM B Y INDIAN AIRLINES. THE QUANTITIES OF PURCHASES AND SALES HAVE BEEN OTHERWI SE ACCEPTED. (I) THE ASSESSMENT HAS BEEN FRAMED ONLY ON THE DIR ECTIONS ISSUED BY ADL, CIT WHICH IN TURN ONLY RELIED ON THE BASIS OF INFORMATION OF THE INVESTIGATION WING, THERE IS NEITHER INDEPENDEN T INVESTIGATION NOR APPRECIATION OF FACTS. (II) ASSESSEE HAS DEMONSTRATED BETTER TRADING RESUL TS, SALES AND OTHER RECORD HAS BEEN ACCEPTED BY AO, NO OTHER MIST AKE HAVE BEEN FOUND IN THE BOOKS OF ACCOUNTS. (III) NO ENQUIRY OR INVESTIGATION HAS BEEN CARRIED OUT BY AO TO CONTROVERT THE STATEMENT OF DIRECTOR. SIMILLARLY NO THING HAS BEEN BROUGHT ON RECORD AS TO WHAT HAPPENED TO THE SURVEY AND SUBSEQUENT ASSESSMENTS IN THE CASES OF SHRI ATUL BANSAL OR ALL EGED ACCOMMODATION ENTITIES. THUS THE ENTIRE BASIS OF AD DITIONS IS ONLY THE SUSPICION RAISED BY INFORMATION OF INVESTIGATION WI NG, WHICH IS APPARENT FROM AOS FOLLOWING OBSERVATIONS: THE ASSESSEES MAIN ARGUMENT IS THAT THE FACT OF R ECEIPT OF RAW MATERIAL, IS TRANSPORTATION AND CONSUMPTION OF RAW MATERIAL HAS BEEN PROVED BY THE ASSESSEE AND EVN IF SUPPLIER OF RAW MATERIAL IS Y PARTY INSTEAD OF X PARTY, IT WILL NOT HAVE ANY EFFECT ON PROFITS DECLARED BY THE ASSESSEE COMPANY.LOOKING TO PECULIAR AND UNIQUE CIRCUMSTNAECS OF ASSESSEES CASE AND LOO KING TO THE MANNER IN WHICH ACCOMMODATION ENTRIES HAVE BEEN TAK EN FROM TWO CONCERNS CONTROLLED BY ATUL KUMAR BANSAL, IT RE MAINS TO BE DECIDED WHETHER THE EVIDENCES (ON THE BASIS OF WHIC H ASSESSEE HAS CLAIMED DEDUCTION I RESPECT OF PURCHASES MADE, FROM TWO SUPPLIERS) WHICH HAVE BEEN FOUND TO BE FABRICATED A S THE TWO CONCERNS AE FOUND TO BE ISSUING ONLY PURCHASE BILLS WITHOUT SUPPLY OF ANY GOODS TO THE ASSESSEE COMPANY, CAN BE RELIED 10 UPON? AT THE ADDRESSES GIVEN, THE TWO SUPPLIER CONC ERNS HAVE NOT BEEN FOUND THAT THE CLINCHING EVIDENCE WITH THE DEPARTMENT IS THE INVESTIGATION WING REPORT, WHICH SAYS THAT T HE TWO SUPPLIER CONCERNS FROM WHOM THE ASSESSEE COMPANY IS SHOWING PURCHASES OF RAW MATERIAL, ARE IN FACT ACCOMMODATIO N ENTRY PROVIDERS, WHO HAVE PROVIDED ACCOMMODATION ENTRY IN THE FORM OF PURCHASE BILLS OF RAW MATERIAL TO THE ASSESSEE C OMPANY. ONCE IT HAS BEEN HELD BY INVESTIGATION REPORT THAT THE T WO SUPPLIERS ARE ONLY ACCOMMODATION ENTRY PROVIDERS, THEN THE PU RCHASES SHOWN FROM THESE TO SUPPLIERS CANNOT BE HELD TO BE GENUINE PURCHASES. EVEN IF RAW MATERIAL, REPRESENTED BY PUR CHASE BILLS ISSUED BY TWO ACCOMMODATION ENTRY PROVIDERS, HAVE B EEN ACTUALLY RECEIVED BY SOME OTHER SUPPLIER AND USED I N PRODUCTION, THE ASSESSEE WILL NOT GET FULL DEDUCTIO N IN RESPECT OF SAID PURCHASE AMOUNT, AS THE PURCHASE BILLS PRODUCE D BY THE ASSESSEE FROM SAID TWO ACCOMMODATION ENTRY PROVIDER S, HAVE BEEN FOUND TO BE FABRICATED AND FICTITIOUS AND, THE REFORE, TO THIS EXTENT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSES SEE COMPANY TO WORK OUT TRUE AND FAIR TAXABLE PROFITS O F THE ASSESSEE COMPANY. THUS ONLY THE INVESTIGATION WING REPORT HAS BEEN HE LD TO BE A CLINCHING EVIDENCE TO SUSTAIN THE ADDITIONS. SIMILA RLY IT HAS BEEN ALLEGED THAT TWO SUPPLIERS WERE NOT FOUND AT THE GI VEN ADDRESS. WITHOUT BRINGING ON RECORD TYPE OF EFFORTS UNDERTAK EN TO FIND THEM, WHO INQUIRED AND WHAT REPORT IN THIS BEHALF WAS AVA ILABLE ON RECORD, NOTHING HAS BEEN REFERRED BY AO. IV. LD DR HAS NEITHER FILED ANY PAPER BOOK, EVIDEN CE NOR MADE ANY ARGUMENTS ON THESE INFIRMITIES IN THE ASSESSMENT PR OCEEDINGS AND CROSS CONFIRMATION OF ADDITIONS IN THE CASE OF SAID ATUL BANSAL. V. THUS THE ENTIRE BASIS OF ADDITIONS IS ON ASSUMP TIONS, SOME UNVERIFIED INFORMATION ACCEPTED ON FACE VALUE AND B Y APPLYING AN 11 ITAT JUDGMENT IN THE CASE OF VIJAY PROTEINS, WHICH IS CLEARLY DISTINGUISHABLE. VI. PURCHASES ARE DULY ACCOUNTED FOR, ENTERED IN R EGULAR STOCK REGISTERS MAINTAINED ON QUANTITATIVE BASIS, NO OBJE CTION HAS BEEN RAISED ON SUCH QUANTITIES. PURCHASES ARE THROUGH AC COUNT PAYEE CHEQUES, CORROBORATED BY TRANSPORT RECEIPTS AND OTH ER SUPPORTING DOCUMENTS. VII. THE RELIANCE ON VIJAY PROTEINS CASE IS MISPLA CED AS IN THAT CASE THE PURCHASES WERE NOT SUPPORTED BY TRANSPORT RECEI PT AND IN SOME CASES SERVICES WERE DENIED BY THE TRANSPORTERS. IN ASSESSEES CASE THESE ADVERSE FACTS ARE CONSPICUOUSLY ABSENT. VIII. THUS THE IMPUGNED ADDITIONS ARE SUMMARILY MA DE, DISALLOWING 25% OF PURCHASES ONLY ON AN ASSUMPTION THAT PURCHAS E MAY BE INFLATED BY THE ASSESSEE. THIS IS BELIED BY CIT (A) S OBSERVATIONS THAT AO HAS ACCEPTED PURCHASES TO BE AT MARKET RATES. BE SIDES GOODS WERE PURCHASED AGAINST STATUTORY FORM ST-38 ISSUED BY EX CISE & TRADE DEPARTMENT. IF THE PURCHASES WERE BOGUS, THERE WAS NO NECESSITY TO ISSUE SUCH FORMS. THE EXCISE AND TRADE DEPARTMENT C ROSS VERIFIES PROPER UTILIZATION OF SUCH FORMS, NOTHING ADVERSE H AS BEEN REPORTED IN THIS BEHALF FROM SUCH ASSESSMENTS. IX. CIT(A) HELD THAT AO DID NOT DISPUTE THE FACT T HAT THE RAW MATERIAL WERE PURCHASED BY THE ASSESSEE ON PREVAILI NG MARKET RATES. IN THESE CIRCUMSTANCES EVEN IF A PART OF BOOKS IS IN R ESPECT OF SUCH PURCHASES IS REJECTED; THE FACT REMAINS ON RECORD T HAT RAW MATERIALS WERE PURCHASED AT MARKET RATES AND CONSUMED IN THE PRODUCTION OF 12 FINISHED PRODUCTS WHOSE SALES ARE CLEARLY ACCEPTED. THE QUANTITY AND VALUE OF SALES OF FINISHED GOODS HAS BEEN FULLY ACC EPTED BY AO WHICH IS EVIDENT FROM HIS ORDER. X. EVEN IF ASSESSES BOOKS ARE REJECTED THE ASSESSM ENT HAS TO BE BASED ON REASONABLE CONSIDERATIONS CONFORMING TO A BEST JUDGMENT ASSESSMENT. IT HAS TO BE BASED ON A FAIR ESTIMATE A ND NOT ARBITRARY ONE. XI. RELIANCE IS PLACED ON - HONBLE P & HARYANA HIG H COURT JUDGMENT IN THE CASE OF CIT V. LEADER VALVES PVT. LTD. 285 I TR 435 RENDERED ON THE FACTS SIMILAR TO ASSESSEE I.E ADDITION ON AC COUNT OF ALLEGED BOGUS PURCHASES. IT IS HELD THAT SUCH UNVERIFIABLE ADJUSTMENTS TO GROSS PROFIT WERE RIGHTLY DELETED BY ITAT. XII. AO RELIED ON ITAT JUDGMENT IN THE CASE OF AHM EDABAD BENCH DECISION IN THE CASE OF VIJAY PROTEINS HOWEVER HON BLE GUJRAT HIGH COURT ON SIMILAR TYPE OF ISSUE HAS TAKEN A DIFFEREN T VIEW IN THE CASE OF DY CIT V. ADINATH INDUSTRIES 252 ITR 476 HOLDING AS UNDER: IT APPEARED THAT GI WAS SUPPLYING MATERIALS NOT ONLY TO THE ASSESSEE BUT TO OTHERS. IN CASE OF AI, THE AMOU NT PAID TO GI WAS DISALLOWED. HOWEVER, THE TRIBUNAL ON APPRECIATION OF EVIDENCE DELETED THE ENTIRE DISALLO WANCE WHICH HAD BEEN UPHELD BY THE HIGH COURT AND BY THE APEX COURT. IN AI, AGAINST THE DECISION OF THE HIGH COURT, SPECIAL LEAVE PETITION WAS PREFERRED BY THE REVENUE AND THE SAME HAD BEEN REJECTED. THE TRIBUNAL HAD CONSIDERED THAT ASPECT ALSO. IN THE INSTANT CASE, DETAILS ABOUT PURCHASE WERE FU RNISHED. TRANSACTIONS WERE THROUGH A BROKER WHOSE BILL WAS PRODUCED. ALL DETAILS FROM THE STAGE OF RECEIPT TO PRODUCTION WERE PRODUCED. FOR FURTHER VERIFICATION THE 13 ASSESSEE PRODUCED GATE PASS, AVAK CHITHI (RECEIPT N OTE) AND WEIGHT NOTE. THE ASSESSEE PRODUCED LABORATORY R EPORT AND SAMPLE REPORT. IT POINTED OUT THE DIFFERENCE PA ID OR RECOVERED IN VIEW OF REPORTS. THE ASSESSEE PRODUCED R.G. 4 FORM TO SHOW THE DETAILS ENTERED AS PER EXCISE RU LES. THE ASSESSEE POINTED OUT THE PRODUCTION AND PURCHAS E OF RAW MATERIALS. THE ASSESSEE SUBMITTED THE DETAILS A BOUT THE TRANSACTION, TRUCK NUMBER, ETC. THUS, THE ASSES SEE PRODUCED RELEVANT MATERIALS TO SHOW PURCHASE OF MATERIALS AND THEIR USE IN PRODUCTION. THE ASSESSIN G OFFICER HAD ACCEPTED THE EXISTENCE OF GI IN CASE OF AI FOR THE ASSESSMENT YEAR 1985-86. THE TRIBUNAL APPRECIATED ALL THESE FACTS IN ARRIVING AT A CONCLU SION. IT CLEARLY APPEARED THAT MATTER HAD BEEN DISPOSED O F ON APPRECIATION OF EVIDENCE AND WHEN A MATTER HAS BEEN DECIDED BY THE TRIBUNAL ON APPRECIATION OF EVIDENCE , IT CANNOT BE SAID THAT THAT RAISES A QUESTION OF LAW. THE TRIBUNAL POINTED OUT THAT AT BEST IT COULD BE INFER RED THAT THESE PARTIES WERE SET UP BY SOMEBODY ELSE AND THE REASONS COULD BE MANIFOLD FOR THAT. IT WAS VERY MUC H SURPRISING THAT IN THE INSTANT CASE THE ASSESSING O FFICER HAD DRAWN A PRESUMPTION THAT THE AMOUNT HAD COME BA CK IN THE ASSESSEES HANDS, WITHOUT ANY EVIDENCE WHATS OEVER MERELY ON THE BASIS OF WITH-DRAWAL OF AMOUNTS FROM THE ACCOUNT OF GI. IT WAS REQUIRED TO BE NOTED THAT THE AMOUNT HAD BEE N PAID BY CHEQUES AND THE PARTY HAD WITHDRAWN THE AMOUNT B Y BEARER CHEQUES. THE REVENUE SUBMITTED THAT FROM THE SAME BANK THE AMOUNT HAD BEEN WITHDRAWN. IT WENT WITHOUT SAYING THAT IT WAS WITHIN THE KNOWLEDGE OF THE BANKER AS TO WHO WAS THE ACCOUNT HOLDER AND WHO WITHDREW THE AMOUNT FROM THE SAME BANK. THE ASSESSI NG OFFICER BY DUE DILIGENCE COULD HAVE UNEARTHED THE F ACT THAT GI WAS A BOGUS PARTY BY RECORDING STATEMENT OF THE BANK MANAGER, ACCOUNTANT OR CASHIER OR THE PARTY WH O INTRODUCED GI TO THE BANK. THE MATTER WAS IN THE REALM 14 OF APPRECIATION OF EVIDENCE AND NO INTERFERENCE WAS CALLED FOR IN THE MATTER. IN THE CIRCUMSTANCES, THE APPEALS WERE TO BE DISMIS SED. IT IS PLEADED THAT SLP IN THIS CASE ALSO HAS BEEN D ISMISSED BY HONBLE SUPREME COURT. XIII. IT IS VEHEMENTLY ARGUED THAT THE SOLE BASIS O F ADDITION BEING A REPORT FROM INVESTIGATION WING HAS BEEN ARBITRARILY HELD TO BE A CLINCHING EVIDENCE. ON THE OTHER HAND ASSESSES PURC HASES ARE DULY SUPPORTED BY OTHER RECORDS AND REGISTERS INCLUDING EXCISE & TRADE DEPARTMENTS RECORD AND FORMS, QUANTITY OF PURCHASES AND SALES HAVE BEEN ACCEPTED BY AO. EVEN IF BOOKS OF ACCOUNTS ARE PARTLY REJECTED THE BOOK RESULTS AND GP BEING SATISFACTORY ADDITION S CANNOT BE MADE ON THESE SHAKY ASSUMPTIONS. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS THE FACTS EMERGE THE INFORMATION OF INVE STIGATION WING OF THE DEPARTMENT IS HELD TO BE CLINCHING EVIDENCE BY THE ADL. CIT WHOSE DIRECTIONS WERE BINDING ON THE AO. IN OUR CONSIDERE D VIEW: I. AN INFORMATION SUPPLIED BY AN AGENCY OF THE DE PARTMENT CANNOT BE HELD AS CLINCHING EVIDENCE WITHOUT INDEPE NDENT INQUIRY AND CORROBORATION. AN INFORMATION MAY BE USEFUL FOR FUR THER INVESTIGATIONS OR CORROBORATION BUT ON ITS OWN, IT CANNOT BE HELD AS CLINCHING EVIDENCE. II. NO LIGHT HAS BEEN SHED BY AO AS TO WHAT HAPPEN ED IN THE ASSESSMENTS OF SHRI ATUL BANSAL AND HIS ACCOMMODATI ON ENTITIES. SIMILARLY STATEMENT OF DIRECTOR SHRI SANJAY JAIN ST ATING THE FACTS ABOUT VERIFICATION OF PURCHASES HAS NOT BEEN CONTROVERTED . 15 III. QUANTITIES OF PURCHASES AND SALES AND VALUE O F SALES HAS BEEN ACCEPTED BY AO, THUS TO THIS EXTENT NOTHING ADVERSE HAS BEEN FOUND IN THE BOOKS OF ACCOUNTS. IV. ALL THE PURCHASES ARE THROUGH ACCOUNT PAYEES CH EQUES, TRANSPORTATION VOUCHERS TO AGARTALLA FACTORY, LIKEW ISE ALL THE SALES ARE ACCEPTED BY AO, SUPPORTED BY INDIAN AIRLINES TRANSP ORTATION VOUCHERS. PURCHASES ARE SUPPORTED BY FORM ST-38 ISS UED BY EXCISE AND TRADE DEPARTMENT. NOTHING ADVERSE HAS BEEN FOUN D IN THIS BEHALF. V. AO HAS RELIED ON THE ITAT JUDGMENT IN THE CASE OF VIJAY PROTEINS CASE (SUPRA) WHICH IN OUR VIEW IS DISTINGU ISHABLE AS IN THAT CASE THERE WERE NO TRANSPORT VOUCHERS AND SOME TRAN SPORTERS DENIED HAVING TRANSPORTED SUCH GOODS. THESE ADVERSE FACTS ARE CONSPICUOUSLY MISSING IN THIS CASE. IN OUR VIEW HONBLE GUJRAT HI GH COURT JUDGMENT IN THE CASE OF ADINATH INDUSTIRES AND P & H HIGH CO URT IN THE CASE OF LEADER VALVES(SUPRA) HELPS ASSESSES CASE. VI. AO HAS ONLY CREATED A SUSPICION THAT PURCHASE RATES MAY HAVE BEEN INFLATED AS IT WAS POSSIBLE FOR ASSESSEE. IN O UR CONSIDERED VIEW IT AMOUNTS TO A SURMISE. IN ORDER TO BRING HOME HIS PO INT, SOME INSTANCE OF SUCH INFLATION SHOULD HAVE BEEN POINTED BY AO. S USPICIONS HOWSOEVER STRONG CANNOT PARTAKE THE CHARACTER OF PR OOF. VII. EVEN IF PART REJECTION OF ASSESSES BOOKS IS U PHELD THE CONSEQUENT ESTIMATE SHOULD BE JUST AND REASONABLE. IN THE ABSENCE OF ANY ALLEGATION ABOUT INSUFFICIENCY OF TRADING RESUL TS SUCH ADDITION HAS BEEN RIGHTLY DELETED BY CIT(A), WE UPHOLD HIS ORDER ON THIS ISSUE. THIS GROUND OF THE REVENUE IS DISMISSED. 16 8. APROPOS REVENUES GROUND NO. 2 WE SEE NO INFIRMI TY IN THE ORDER OF CIT(A) AS IT HAS NOT BEEN DISPUTED THAT THAT IMPOST IS COMPENSATORY IN NATURE FOR LATE PAYMENTS OF SALES TAX DUES. MERELY BECAUSE TERM PENALTY IS USED IN THE STATUTE WILL NOT DETRACT FROM THE ACTUAL NATURE OF PAYMENT BEING COMPENSATORY IN NATURE. IT IS TRITE LAW THAT IMPOST OCCASIONED BY LATE PAYMENT OF TAXES IS COMPENSATORY IN NATURE AND CANN OT BE DISALLOWED U/S 37 OF THE IT ACT. 9. THIRD GROUND OF THE REVENUE HAS BEEN ALREADY AL LOWED. 10. IN THE RESULT REVENUE APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 24-08-2012. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 17