M/s. Mundra Steel & Alloy Pvt. Ltd., Pune V. Commissioner of Income-tax-1, Pune

ITA 1710/PUN/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72146 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: K SHIVALAMSHRI AJA Y R SINGH
• Keywords: Bogus purchase; Search and seizure; Cost of acquisition
• Section: 143(3); 133A; 131; 263; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO S . 1709 & 1710 /PN/201 1 ASSESSMENT YEAR S : 2007 - 08 & 2008 - 09 M/S. MUNDRA STE EL & ALLOY PVT. LTD., E - 15, MIDC, JEJURI, TALUKA - PURANDAR, DIST. - PUNE VS. COMMISSIONER OF INCOME - TAX - I, PUNE, 3 RD FLOOR, A WING, SHANKAR SHET ROAD, SWARGATE, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABCM1587A APPELLANT BY: SHRI K. SHIVALAM/SHRI AJA Y R. SINGH RESPONDENT BY: SHRI S.K. SINGH ORDER P ER R.S. PADVEKAR , JM : - IN BOTH THESE APPEALS, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDERS OF THE LD. CIT - I, PUNE PASSED U/S. 263 OF THE INCOME - TAX ACT DATED 2 8 - 10 - 2011 FOR THE A.Y S . 2007 - 08 & 2008 - 09 . THE FACTS AND ISSUES ARE IDENTICAL IN BOTH THE ASSESSMENT YEARS HENCE, BOTH THE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE RESPECTIVE ASSESSMENT YEAR S AS UNDER : A. ASSESSMENT YEAR 2007 - 08 1) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING THE ORDER UNDER SECTION 263 OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) DT, 31/12/2009 WAS AFTER PROPER VERIFICATION AND APPLICATION OF M IND TO THE FACTS AND EVIDENCES AND HENCE THE SAID ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE AND HENCE THE ORDER PASSED U/S. 263 MAY BE QUASHED. 2) THE LEARNED COMMISSIONER OF INCOME - TAX ERRED IN PASSING OR DER U/S. 263 STATING THAT THE ASSESSING OFFICER PASSED ORDER WITHOUT EXAMINATION OF FACTS, WITHOUT APPRECIATING THAT THE ASSESSING OFFICER 2 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE VIDE ITS SHOW CAUSE NOTICE DT. 14/12/2009 HAD RAISED THE ISSUE IN REGARDS TO THE ASPECT AS TO WHETHER TOTAL PURCHASES SHOULD BE DISALLOWED OR G.P. ADDITION SHOULD BE SUSTAIN AND THE ASSESSEE HAD REPLIED TO THE SAID QUERY VIDE LETTER DT. 21/12/2009 AND HENCE, THE VIEW ADOPTED BY THE A.O. WAS AFTER PROPER VERIFICATION AND APPLICATION OF MIND SUPPORTED BY VARIOUS JUDICIAL P RONOUNCEMENT AND THUS, THE ORDER OF THE A.O. CANNOT BE HELD ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE ONLY BECAUSE THE CIT FEELS THAT TOTAL PURCHASES OUGHT TO BE ADDED, THUS ORDER PASSED U/S. 263 OF THE ACT IS LIABLE TO BE QUASHED. B. ASSESS MENT YEAR 2008 - 09 1) THE LEARNED COMMISSIONER OF INCOME TAX ERRED IN PASSING THE ORDER UNDER SECTION 263 OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3) R.W.S. 147 DT. 29/03/2010 WAS AFTER PROPER VERI FICATION AND APPLICATION OF MIND TO THE FACTS AND EVIDENCES AND HENCE THE SAID ASSESSMENT ORDER, CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE AND HENCE THE ORDER PASSED U/S. 263 MAY BE QUASHED. 2) THE LEARNED COMMISSIONER OF INCOME - TAX ERRED IN PASSING ORDER U/S. 263 STATING THAT THE ASSESSING OFFICER PASSED ORDER WITHOUT EXAMINATION OF FACTS, WITHOUT APPRECIATING THAT THE ASSESSING OFFICER VIDE ITS SHOW CAUSE NOTICE DT. 24/03/2010 HAD RAISED THE ISSUE IN REGARDS TO THE ASPECT AS TO WHETHER TOTAL PURCHASES SHOULD BE DISALLOWED OR G.P. ADDITION SHOULD BE SUSTAIN AND THE ASSESSEE HAD REPLIED TO THE SAID QUERY VIDE LETTER DT. 25/03/2010 AND HENCE, THE VIEW ADOPTED BY THE A.O. WAS AFTER PROPER VERIFICATION AND APPLICATION OF MIND S UPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENT AND THUS, THE ORDER OF THE A.O. CANNOT BE HELD ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE ONLY BECAUSE THE CIT FEELS THAT TOTAL PURCHASES OUGHT TO BE ADDED, THUS ORDER PASSED U/S. 263 OF THE ACT IS LI ABLE TO BE QUASHED. 3) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD SUBMITTED THE DETAILS OF EXCISE RECORDS, QUANTITATIVE TALLY, STOCK RECORDS, CONFIRMATIONS OF PARTY BANK STATEMENT ETC TO THE SPECIFIC QUERIES MADE BY THE A.O., HENCE, EVEN ON MERITS TOTAL PURCHASES CANNOT BE ADDED THEREFORE THE DIRECTION FOR RE VERIFICATION , IS BAD - IN - LAW AND LIABLE TO BE QUASHED. 3 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE IS A PRI VATE LIMITED COMPANY WHICH IS ENGAGED IN THE MANUFACTURING OF IRON I NGOTS. THE MANUFACTURING U NIT OF THE ASSESSEE IS LOCATED AT MIDC , JEJURI, TAL. - PURANDAR, DIST. - PUNE. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2007 - 08 DECLARING TOTAL LOSS OF RS. ( - ) 17,57,445/ - . 3. SO FAR AS A.Y. 2007 - 08 IS CONCERNED , THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT VIDE ASSESSMENT ORDER DATED 31 - 12 - 2009. THE ASSESSEE HAS DECLARED THE TOTAL TUR NOVER OF RS.15,18,17,429/ - . THERE WAS A SURVEY ACTION U/S. 133A OF THE ACT AGAINST THE ASSESSEE IN ITS BUSINESS PREMISES BY THE DY. DIRECTOR OF INCOME TAX (INV . ), UNIT - 1, PUNE (IN SHORT THE DDIT, ( INV. ) ). THE SAID SURVEY ACTION WAS CARRIED OUT ON THE BASIS OF SEARCH ACTION U/S. 132 CONDUCTED IN THE CASES OF CH A UDHARY GROUP OF CONCERNS NAMELY M/S. GOLDEN SCRAP S TRADERS AND M/S. GOLDEN STEEL CORPORATION AT PIMPRI , PUNE , IN WHICH IT WAS FOUND THAT THOSE COMPANIES WERE ISSUING BOGUS TAX INVOICES WITHOUT SU PPLYING ANY MATERIAL TO THE DIFFERENT PARTIES. AS NOTED BY THE ASSESSING OFFICER THE TRUCK S VEHICLES NOS. SHOWN IN THE INVOICES ISSUED BY THOSE COMPANIES WERE FOUND TO BE FALSE. AS NOTED BY THE ASSESSING OFFICER T HE BOGUS BILLS WERE ISSUED FOR THE PURPOS E OF AVAILING WRONG CREDIT FOR CENVAT BY THE ASSESSEE COMPANY WITHOUT BEING ACTUAL BUYING SCRAP FROM THOSE COMPANIES. THE SCRAP WAS ALLEGEDLY TRANSPORTED BY M/S. SHIVMALHAR TRANSPORT , JEJURI. 4. ONE SHRI NILESH KUDALE IS LOOKING AFTER THE BUSINESS OF SA ID TRANSPORT COMPANY WAS ISSUED SUMMONED U/S. 131 OF THE INCOME - TAX ACT AND HE WAS ASKED TO FURNISH ALL THE VEHICLES MOVEMENT REGISTERS, VEHICLE BOOKING SLIPS ETC. AS NOTED BY THE ASSESSING OFFICER AS PER THE RECORD OF THAT TRANSPORT COMPANY THE VEHICLES WHICH WERE STATED TO HAVE PLIED BETWEEN JEJURI, THE ASSESSEES UNIT AND BHOSARI ON A PARTICULAR 4 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE DATE WERE NOT PRESENT BUT HAD GONE TO SOME DISTANT LOCATIONS FAR FROM PUNE I.E. AURANGABAD, MUMBAI ETC. I N RESPECT OF TWO SPECIFIC TRUCKS BEARING REGISTRATION NOS. MH - 12 - F - 8919 AND MH - 12 - F - 8909. THE ASSESSING OFFICER HAS NOTED THAT AS PER THE LOG BOOK RECORD THOSE TWO TRUCKS WERE NOT IN THE PUNE BUT WERE SOMEWHERE IN VASHI AND BHIWANDI. THE ASSESSING OFFICER ALSO NOTED THAT IN THE TRANSPORT BILLS THE QUANTUM O F MATERIAL IS SHOWN OF 11.5 TO 12 TONS TRANSPORTED IN EACH TRUCK BUT IN FACT THE CAPACITY OF THE TRUCKS WAS TO THE EXTENT OF 10 TONS ONLY. THE ASSESSING OFFICER HAS OBSERVED THAT SHRI KUDALE VOLUNTARILY CONFIRMED THAT HE WAS PREPAR ING THE BOGUS BILLS IN T HE NAME OF THE ASSESSEE COMPANY ON THE INSTRUCTI ONS OF THE COMPANY S DIRECTORS OR THEIR EMPLOYEES WHEN IN FACT THERE WAS NO TRANSPORT OF THE MATERIAL. THE ASSESSING OFFICER ALSO REF ERRED TO THE CHECK POST OF THE O CTROI AND ACCORDING TO THE ASSESSING OFFIC ER NOT A SINGLE P ENNY HAS BEEN PAID TOWARDS THE O CTROI ON THE ALLEGED TRANSPORT OF SCRAP TO THE ASSESSEE S FACTORY FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION. SHRI SANJIV R GUPTA, DIRECTOR OF THE ASSESSEE COMPANY WAS ALSO CONFRONTED WITH THE RESULT OF THE ENQUIRIES BY THE INVESTIGATION WING AND HIS STATEMENT WAS RECORDED DURING THE COURSE OF SURVEY ACTION U/S. 133A ON 12 - 03 - 2008. 5. AS NOTED BY THE ASSESSING OFFICER HE AGREED THAT PURCHASES FROM SOME OF THE SELLERS HAVE NOT REACHED THE FACTORY PREMISES AND ONLY BILLS WERE PREPARED IN RESPECT OF THOSE PARTIES. HE ALSO CATEGORICALLY STATED THE NAMES OF M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION CONFIRMING THAT THERE WERE ONLY PAPER TRANSACTION WITH THOSE TWO COMPANIE S . AS NOTED BY THE ASSESSING OFFICER SHRI GUPTA ADMITTED THAT NEARLY 60% OF THE PURCHASES IN THE F.Y. 2006 - 07 AND NEARLY 80 % OF THE PURCHASES IN THE F.Y. 2007 - 08 WERE MADE FROM GOLDEN SCRAP TRADERS AND GOLDEN STEEL CORPORATION. A S PER THE DETAILS GIVEN BY THE ASSESSING OFFICER , THE TOTAL PURCHASES MADE FROM M/S. 5 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION , YEAR WISE ARE AS UNDER: YEAR GOLDEN SCRAP TRADERS GOLDEN STEEL CORPORATION TOTAL 2006 - 07 1,27,64,340 15,43,860 1,43,08,200 2007 - 08 70, 89,794 73,70,258 1,44,60,052 2,87,68,252 6. IN SUM AND SUBSTANCE AS PER THE INVESTIGATION WING THE AMOUNT TO THE EXTENT OF RS.2,87,68,252/ - , THE ASSESSEE COMPANY HAS INFLATED THE PURCHASE COST SHOWING THE BOGUS PURCHASES AND DURING THE COURSE OF THE SURVEY ACTION SHRI SANJIV R GUPTA , DIRECTOR , DECLARED THE ADDITIONAL UNDISCLOSED INCOME OF THE ASSESSEE COMPANY F OR THE A.YS. 2007 - 08 AND 2008 - 09 BUT SUBSEQUENTLY RETRACTED THE STATEMENT AS WELL AS DECLA RATION. THE ASSESSING OFFICER H AS ALSO CONSIDERED TH E INVENTORY OF STOCK LYING IN THE FACTORY OF THE ASSESSEE COMPANY DURING THE COURSE OF THE SURVEY ACTION. THE ASSESSING OFFICER HAS ALSO NOTED THAT SHRI SANJIV R GUPTA ADMITTED THAT THERE WAS A DIFFERENCE IN THE FIGURE AFTER CONSIDERING THE TENTATIVE TRAD ING ACCOUNT AND SHRI GUPTA ADMITTED THAT THERE WAS A DIFFERENCE IN THE STOCK TO THE EXTENT OF RS.2,87,68,252/ - . AS NOTED BY THE ASSESSING OFFICER THAT THE SAID DIFFERENCE WAS DUE TO INFLATED PURCHASES SHOWN FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN S TEEL CORPORATION . THE ASSESSEE FILED THE REPLY BEFORE THE ASSESSING OFFICER DENYING THAT THE ASSESSEE HAS INFLATED THE PURCHASES. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE BY GIVING FOLLOWING REASONS AND FINALLY HELD THAT 20% OF THE NON - GENUINE PURCHASES ARE TO BE TREATED AS AN ADDITIONAL GROSS PROFIT IN ADDITION TO THE G . P . DECLARE D BY THE ASSESSEE. 7. IN SUM AND SUBSTANCE THE ASSESSING OFFICER ACCEPTED THAT TO THE EXTENT OF 20% ONLY THE ASSESSEE HAS INFLATED THE PURCHASES. TH E REASONS GIVEN BY THE ASSESSING OFFICER FOR ARISEN THIS CONCLUSION ARE IN PARA NO. 6.5 OF THE ASSESSMENT ORDER FOR THE A.Y. 2007 - 08: THE ASSESSEE'S SUBMISSION IN PARA 6.4, I HAVE BEEN CONSIDERED AND IN VIEW OF THE FACT THAT THE STOCK TAKEN ON THE DATE OF SURVEY VALUED 6 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE AT RS. 1,1 8 ,36,500/ - WAS FOUND IN ACCORDANCE WITH THE STOCK REGISTER MAINTAINED BY THE ASSESSEE. THE BOOK STOCK WAS ARRIVED AT BY EXCLUDING THE BOGUS PURCHASES TOTALING RS. 2,87,68,252/ - AT THE G P WAS WORKED OUT AT RS 8,35,80,119/ - ON TURNOVE R OF RS. 23.01 CR. THE G . P . COMES TO AN EXORBITANT FIGURE OF 36%. THE REGULAR GP DECLARED BY THE ASSESSEE AS PER RETURNED FILED IS 0.85 % ONLY . THERE IS GROSS LOSS OF RS. 57 LACS ON TURNOVER OF RS. 15.6 CR IN PREVIOUS YEAR. AS PER THE QUANTITATIVE DETAILS FILED BY THE ASSESSEE REGARDING CONSUMPTION OF RAW MATERIAL THERE IS MANUFACTURING LOSS OF 758 M.T. WHICH IS ABOUT 10% OF THE PURCHASES. THE PERCENTAGE WASTAGE IS A LITTLE ON THE HIGHER SIDE. TAKING ALL THE FACTS INTO CONSIDERATION I AM NOT SATISFIED ABOU T THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. THE BOOK RESULTS DECLARED BY THE ASSESSEE NOT ACCEPTED AND GROSS PROFIT ESTIMATED INVOKING THE PROVISIONS OF SEC.145 (3) WHICH PROVIDES THAT THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED U/S 144. IN THE RESULT 20% OF THE NON GENUINE PURCHASES AMOUNTING TO RS. 1 ,43,08,200/ - IS ESTIMATED AS ADDITIONAL GROSS PROFIT, IN ADDITION TO THE G.P. DECLARED. THIS ADDITION WILL ALSO TAKE CARE OF ALL THE DISCREPANCIES NOTICED IN THE A CCOUNT STATEMENTS OF THE PARTIES INVOLVED. ASSESSEE IS HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME AND HENCE PENALTY PROCEEDINGS U/S 271(1) (C) ARE SEPARATELY INITIATED. 8. THE ASSESSING OFFICER ACCORDINGLY MADE THE ADDITION OF RS. 28,61,640/ - T OWARDS THE BOGUS PURCHASES IN PLACE OF RS.1,43,08,200/ - AS ESTIMATED IN CONSEQUENCE OF SURVEY ACTION BY THE DDIT (INV.). SUBSEQUENTLY THE LD. CIT INITIATED THE PROCEEDINGS U/S. 263 OF THE INCOME - TAX ACT ON THE REASON THAT THE ASSESSING OFFICER MADE THE AD DITION OF RS.28,61,640/ - BY WAY OF GP ADDITION AT THE RATE OF 20% OF NON - GENUINE PURCHASES IN THE A.Y. 2007 - 08 AMOUNTING TO RS.1,43,08,200/ - , INSTEAD OF ADDING THE SAID WHOLE AMOUNT. THE MAJOR CONCERN OF THE LD. CIT IS THAT THERE WAS SUFFICIENT EVIDENCE B Y WAY OF STATEMENT OF THE TRANSPORTER RECORDED U/S. 131 OF THE ACT THAT THE BOGUS BILLS WERE PREPARED IN THE NAME OF THE ASSESSEE COMPANY. THE LD. CIT ALSO REFERRED TO THE SURVEY REPORT OF THE DDIT (INV.), PUNE DATED 07 - 05 - 2008 IN WHICH SHRI SANJEEV R. G UPTA ADMITTED THAT THERE WAS DIFFERENCE IN THE ACTUAL PHYSICAL STOCK AND THE STOCK ARRIVED IN THE TENTATIVE TRADING 7 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE ACCOUNT AND ALSO ADMITTED TO DECLARE THE SAID INCOME DIFFERENCE AS AN ADDITION INCOME. EVEN THOUGH THE ASSESSEE RESISTED THE ACTION OF THE LD. CIT BUT FINALLY ON THE BASIS OF THE SURVEY REPORT BY THE DDIT (INV.) U/S. 133 OF THE ACT THE LD. CIT CANCELLED THE ASSESSMENT FOR THE A.Y. 2007 - 08 AND DIRECTED THE ASSESSING OFFICER TO RE - EXAMINE THE ISSUE IN THE LIGHT OF THE SURVEY REPORT OF THE DDIT (INV.), UNIT - I, PUNE. 9. SO FAR AS IN THE A.Y. 2008 - 09 IS CONCERNED, THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 38,05,422/ - . IT APPEARS THAT THE ASSESSEES CASE WAS RE - OPENED ON THE BASIS OF THE REPORT OF DDIT (INV.) IN RESPECT OF THE SURVEY ACTION U/S. 133A OF THE INCOME - TAX ACT AND THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED BY THE ASSESSING OFFICER U/S. 143(3) R.W.S. 14 7 OF THE I.T. ACT ON 29 - 03 - 2010 DETERMINING THE TOTAL INCOME OF RS.97,67,366/ - . THERE IS A CHARGE BY THE D DIT (INV.) THAT TO THE EXTENT OF RS.1,44,60,052/ - T HE ASSESSEE HAS INFLATED THE PURCHASES BY TAKING THE BOGUS PURCHASE BILLS FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION. WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER TREATED TH E 20% PURCHASES AS BOGUS PURCHASES BY ENHANCING THE GROSS PROFIT TO THAT EXTENT AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE. THE REASONS GIVEN BY THE ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS ARE THE SAME. IN THIS YEAR ALSO , ON THE BASIS OF THE SURVEY REPORT OF THE DDIT (INV.) , THE LD. CIT INVOKED ITS POWER U/S. 263 AND PASSED THE ORDER AND CANCELL ED THE ASSESSMENT ORDER MADE BY THE ASSESSING OFFICER FOR THE A.Y. 2008 - 09 AND DIRECTED THE ASSESSING OFFICER TO RE - EXAMINE THE ISSUE AFTER CONSIDE RING THE SURVEY REPORT OF THE DDIT (INV.). BEING AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSESSEE IS IN APPEAL BEFORE US IN BOTH THE ASSESSMENT YEARS. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL TOOK US TO THE COMPILATION FILE D TO DEMONSTRATE THAT THERE WAS NO REASON EVEN FOR REJECTING THE BOOKS OF 8 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE ACCOUNT S OF THE ASSESSEE. THE LEARNED COUNSEL ARGUED THAT THE LD. CIT MECHANICALLY EXERCIS ED HIS JURISDICTION WITHOUT MAKING OUT ANY SPECIFIC CASE OF BRINGING ON RECORD ANY MATERIAL HOW THE ORDER PASSED BY THE ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS IS ERRONEOUS. HE SUBMITS THAT ON PERUSAL OF THE ASSESSMENT ORDER IT IS CLEAR THAT THE ASSESSING OFFICER HAS CONSIDERED THE SURVEY REPORT OF THE DDIT (INV.) AS WELL AS THE EXPLANATION FILED BY THE ASSESSEE. THE ORDER OF THE ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS AS THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT S BUT CONSIDERING THE FACT THAT IF THE ENTIRE ALLEGED BOGUS PURCHASES ARE ADDED IN BOTH THE ASSESSMENT YEARS , T HE RESULTS OF THE GROSS PROFIT WOULD BE VERY MUCH EXORBITANT. HE ACCORDINGLY HE THOUGHT IT PROPER AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE TO SUSTAIN THE DISALLOWANCE AT 20% OF THE ALLEGED BOGUS PURCHASES W HE N IN FACT THERE WAS NO DIFFERENCE IN THE STOCK PHYSICALLY AS WELL AS AS PER THE BOOKS OF ACCOUNT S . LEARNED COUNSEL ARGUED THAT PREPARING THE TRADING ACCOUNT TENTATIVELY ON THE DATE OF SURVEY CANNOT BE SAID TO BE THE PERFECT WORKING OF THE STOCK - IN - TRADE. THE LEARNED COUNSEL PLACE D HIS HEAVY RELIA NCE ON THE FOLLOWING PRECEDENTS: (I) MALBAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83 (SC) (II) CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) (III) RANKA JEWELLERS VS. ADDL. CIT 328 ITR 148 (BOM) (IV) CIT VS. SALUJA EXIM LTD. 329 ITR 603 (P & H) (V) CIT VS. GABRIEL INDIA 203 ITR 117 (BOM) 11. HE SUBMITS THAT THERE WAS NO JUSTIFICATION FOR EXERCISING THE POWER S U/S. 263 BY THE LD. CIT AS THE ASSESSMENT ORDER IS NOT ERRONEOUS. HE ARGUED THAT LAW IS WELL SETTLED THAT BOTH THE M ANDATES OF SEC. 263 MUST BE FULFILLED T HAT ARE ( I ) ORDER MUST BE ERRONEOUS AND ( II ) IT SHOULD ALSO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. MERELY BECAUSE THERE IS A REVENUE LOSS , THAT ALONE CANNOT BE REASON FOR EXERCISING THE POWERS U/S. 263 OF THE ACT. HE PLEADED F OR QUASHING THE ORDERS PASSED 9 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE BY THE LD. CIT U/S. 263 OF THE ACT. PER CONTRA THE LD. DR SUPPORTED THE IMPUGNED ORDERS. 12. IN THE PRESENT CASE, AS PER THE FACTS ON RECORD ON THE BASIS OF THE SEARCH AND SEIZURE ACTION IN THE CASES OF M/S. GOLDEN SCRAP TRA DERS AND M/S. GOLDEN STEEL CORPORATION FROM WHOM THE ASSESSEE HAS PURCHASED ITS RAW MATERIAL IN THE FORM OF SCRAP , S UBSEQUENT SURVEY ACTION U/S. 133A WAS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE COMPANY. THE ASSESSEE IS IN MANUFACTURING OF IRO N INGOTS. IT WAS NOTICED BY THE DDIT (INV.) THAT THERE WAS A DIFFERENCE IN THE PHYSICAL STOCK AND THE STOCK WHICH WAS WORKED OUT AS PER THE TENTATIVE TRADING ACCOUNT ON THE DATE OF SURVEY. THE DDIT (INV.) ALSO RECORDED THE STATEMENT OF THE TRANSPORTER NA MELY SHIVMALHAR TRANSPORT. THE DDIT (INV.) ALSO REPORTED THE ALLEGED MODUS OPERANDI ADOPTED BY THE ASSESSEE THAT WAS TO GET THE BENEFIT OF THE CENVAT. IT WAS REPORTED BY THE DDIT (INV.) THAT THERE WAS ONLY BILLS WHICH WERE ISSUED BY THOSE TWO COMPANIES S HOWING THE SALE OF SCRAP TO THE ASSESSEE COMPANY BUT T HERE WAS NO DELIVERY OR SALE OF SCRAP TO THE ASSESSEE COMPANY. 13. WE FIND THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS NARRATED ENTIRE REPORT OF THE DDIT (INV.) . I T IS NECESSARY TO RE PRODUCE THE REPLY GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN RESPECT OF DIFFERENT QUERIES RAISED BY THE ASSESSING OFFICER ON THE BASIS OF THE SURVEY REPORT OF DDIT (INV.) WHICH IS AS UNDER: 5. THE ASSESSEE VIDE LETTER DT. 21/12/09 OF THE AR MP P ATWA AND CO. HAS REPLIED AS UNDER: WE REFER THE ASSESSMENT PROCEEDINGS IN THE CASE OF ABOVE ASSESSEE. WE REFER TO THE SHOW CAUSE NOTICE DATED 14.12.2009, THAT PROPOSES ADDITION OF RS.1,43,08,200 ON ACCOUNT OF PURCHASES MADE FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION ON THE BASIS OF FOLLOWING: A. STATEMENT OF SHRI SANJEEV GUPTA DIRECTOR OF COMPANY RECORDED DURING THE COURSE OF SURVEY TO THE EFFECT THAT THE SAID PURCHASES 10 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE ARE NOT GENUINE. B. STATEMENT GIVEN BY THE SUPPLIERS M/S. GOLDEN SCRAP M/S., GOLDEN - STEEL CORPORATION (THE COPY OF SUCH STATEMENT IS NOT MADE AVAILABLE TO US). C. STATEMENT GIVEN BY TRANSPORTER M/S. SHIV MALHAR TRANSPORT (THE COPY OF SUCH STATEMENT IS NOT MADE AVAILABLE TO US). D. IN FORMATION GATHERED FROM THE PUNE MUNICIPAL CORPORATION, OCTROI POST AND CERTIFICATE OBTAINED FROM THE OFFICER IN CHARGES TO THE EFFECT OF NO MOVEMENT OF THE ALLEGED TRUCKS AT ANY OF THE OCTROI POSTS (COPY OF SUCH CERTIFICATE IS NOT MADE AVAILABLE TO US). B EFORE WE DEAL WITH THE PROPOSED ADDITION, WE DRAW ATTENTION TO PARA 3 WHEREIN THERE IS A CONFUSION AS REGARDS THE ADMISSION BY REPRESENTATIVE OF THE ASSESSEE COMPANY WITH RESPECT TO BOGUS PURCHASE WHICH IS WRONG. WE STATE THAT THERE IS NO SUCH ADMISSION MA DE BY SHRI D B SHAH OF ANY SUCH ALLEGED BOGUS PURCHASE. IN FACT ONLY STATEMENT RECORDED DURING THE COURSE OF SURVEY REVEALS (WHICH IS RETRACTED) ANY SUCH ADMISSION AND AT NO OTHER PLACE. YOU ARE REQUESTED TO KINDLY TAKE A NOTE OF THE ABOVE FACT AND REMOVE ANY SUCH MISCONCEPTION OR CONFUSION. UNDER THE INSTRUCTION FROM OUR CLIENT, AND IN THE SUBJECT OUR SUBMISSION IS GIVEN AS UNDER: A). AS REGARDS STATEMENT GIVIEN BY THE DIRECTORS SHRI SANJEEV GUPTA 1. THE ASSESSEE IS COMPANY REGISTERED UNDER COMPANIES ACT E NGAGED IN THE BUSINESS OF MANUFACTURING OF IRON INGOTS. THE MANUFACTURING UNIT IS LOCAT ED AT E - 15, MIDC, 3EJUN, TAL. P URANDAR, DIST - PUNE. 2. THE SURVEY PROCEEDINGS WERE CARRIED OUT AT THE PREMISES OF THE ASSESSEE AND DURING THE COURSE OF SURVEY A STATEME NT 'ON OATH WAS RECORDED (COPY IS AVAILABLE WITH US) WHERE IN ASSESSEE HAD STATED THAT ' PURCHASES FROM SOME OF THE SELLER HAVE NOT REACHED OUR FACTORY PREMISES ONLY BILLS WERE PREPARED IN RESPECT OF SUCH PURCHASES'. 3. THE SURVEY PROCEEDING WAS STARTED AT 11. A.M ON 12.03.2008 AND STATEMENT WAS RECORDED AT 05.00 A.M ON 13.03.2008. THE DIRECTOR WAS UNDER MENTAL STRESS AND STATEMENT WAS GIVEN UNDER DU R ESS AND UNDER STRESSFUL CIRCUMSTANCES. SUBS EQUENTLY, THE STATEMENT WAS RET RACTED BY 11 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE MR SANJIVL .GUPTA, DIREC TOR AND 'AFFIDAVIT DATED 25.3.2008 WAS FILED (COPY ENCLOSED). 4. DURING THE COURSE OF SURVEY UP TO DATE STOCK RECORDS MAINTAINED BY THE COMPANY WERE PRODUCED WHICH FACT CAN BE VERIFIED FROM THE FACT THAT THERE WAS NO DISCREPANCY IN PHYSIC AL STOCK VIS A VIS BOOK STOCK.( REF Q NO. 6 IN THE STATEMENT OF MR. GUPTA ). THERE IS NO OTHER EVIDENCE PRODUCED SO AS TO JUSTIFY ANY ACTION RESULTING INTO INCREASED INVENTORY AS HAS BEEN DONE IN THE CASE OF ASSESSEE. (REFER Q - NO. 26 IN THE STATEMENT OF MR GUPTA ) 5. EXCIS E RECORDS WERE ALSO PRODUCED CONTAINING DETAI LS OF PURCHASE AND CONSUMPTION OF RAW MATERIALS ( B EING SCRAPE) AND PRODUCTION OF FINISHED GOODS. THESE RECORDS WERE VERIFIED BY THE SURVEY PARTY REFER Q NO. 6 OF STATEMENT 6. DURING THE COURSE OF THE ASSESSMENT BEFORE YOUR HONOUR, WE HAVE SUBMITTED MONTHLY QUANTITATIVE DATA INTERALIA RELATING TO PURCHASES AND CONSUMPTION OF SCRAPE BEING RAW MATERIAL AND ALSO DATA RELATING TO PRODUCTION AND SALE OF THE FINISHED PRODUCT. THESE DATA IS ALSO MATCHING WITH EXCISE REC ORDS. 7. THE REFERENCE IS ALSO DRAWN TO THE STATEMENT ENCLOSED HEREWITH TABULATING THE TRANSACTION WITH M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION WHERE IN THE SERVICES OF SHIV MALHAR AND THEIR TRUCKS HAVING REGISTRATION NOS . MH 12 F 8919 AND MH 12 F 8909' WERE USED DURING THE F. Y. 2006 - 2007 FOR TRANSPORTING THE SCRAP REVEALS THAT THERE ARE ONLY THREE SUCH TRANSACTI ONS OF THE VALUE TOTALING TO RS. 5,63,152. ( ANNEX - 1 ) THUS EVEN IF WE RELY ON THE STATEMENT RECORDED' DURING THE COURSE OF SU RVEY THE PROPOSED ADDITION IS NOT JUSTIFIABLE. 8. YOUR HONOUR WILL APPRECIATE THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY UNDER SECTION 133A WILL ALWAYS BE PRONE TO IMPERFECTION. THIS IS FOR THE REASON THAT IT INVOLVES ESTIMATION AND GUESS WORK AS FINAL AUDITED ACCOUNTS WERE NOT AVAILABLE DURING THE COURSE OF SURVEY. AS MENTIONED EARLIER THE DIRECTOR WAS ALL STRESSED OUT AND THUS STATEMENT IS NOT PERFECT STATEMENT. MR . SANJIV GUPTA WHILE GIVING THE STATEMEN T HAS MERELY AGREED TO THE ESTIMATION O F SURVEY PARTY TO THE EFFECT THAT PURCHASES ARE BOGUS AND THAT TOO TO THE TUNE OF 60% TO 80% OF PURCHASES FORM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION. THERE ARE NO EVIDENCES SUPPORTING SUCH 12 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE ESTIMATE. WHEREAS THE AUDITED ACCOUNTS FOR TH E YEAR 2006 - 2007, QUANTITATIVE RECORDS AND EXCISE RECORDS PRODUCED BEFORE YOUR HONOR CORRECTLY REFLECTS THE TRANSACTION OF PURCHASES AND STOCK TALLY. 9. THE ADDITION CANNOT BE MADE ON THE BASIS OF ESTIMATES AND PRESUMPTION WITHOUT ANY JUSTIFIABLE EVIDENCE AVAILABLE ON RECORD. 10. THE TENTATIVE TRADING A/C. AS ON 12.3.2008 REFERRED TO IN THE PARA 2(IV) WAS NEITHER FOUND DURING THE COURSE OF SURVEY NOR IS REFLECTED IN THE BOOKS OF ACCOUNTS THAT WAS AVAILABLE DURING THE COURSE OF SURVEY. ON THE CONTRARY THIS T RADING ACCOUNT IS PREPARED TO REFLECT THE PURCHASES AS ESTIMATED ABOVE AND TO CALCULATE THE GROSS PROFIT. 11. THE GROSS PROFIT WAS WORKED OUT AT 36.32% (ANNE - 2) WHICH IS UNREASONABLE FOR THE INDUSTRY. AGAIN, WHILE PREPARING TENTATIVE TRADING ACCOUNT VALUE OF BOGUS PURCHASES, ESTIMATED AT RS. 2,87,68,2 (RS 1,43,08,200 FOR A.Y. - 20.07 - 2008 AND RS. 1,44,60,052 FOR A.Y.20 08 - 09) WAS ADDED TO THE VALUE OF INVENTORY. WE ARE UNABLE TO UNDERSTAND WHEN VALUE OF PHYSICAL INVENTORY TAKEN DURING THE COURSE OF SURVEY VIS A VIS AND INVENTORY AS PER BOOKS OF ACCOUNTS ARE MATCHING HOW THE SAME CAN BE CHANGED TO ARTIFICIALLY TO ACCOMMODATE THE ALLEGED BOGUS PURCHASE. THIS SHOWS THAT WHOLE EXERCISE WAS CARRIED OUT DURING THE COURSE OF SURVEY WAS TO ONLY GET THE DECLARATION ADD ITIONAL INCOME FROM ASSESSEE. THIS ACTION IS NOT PERMISSIBLE BY THE LAW GOVERN ING PROCEEDINGS UNDER SECTION 1 33 A. WE DRAW YOUR KIND ATTENTION TO THE INSTRUCTION ISSUED BY THE CBDT DATED 10 TH MARCH, 2003. (COPY ENCLOSED ANNEX - 3). B) AS REGARDED RELYING UPO N THE STATEMENT GIVEN BY THE M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION 1. ASSESSEE IS PURCHASING RAW MATERIAL FROM THE ABOVE STATED PARTIES AND SAME IS USED FOR THE PRODUCTION AND FINALLY SALES OF THE FINISHED GOODS PRODUCED BY CONSUMING THE MATERIAL PURCHASED FORM ABOVE PARTIES HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS, IT WAS NOT POSSIBLE TO CARRY OUT PRODUCTION AND SUBSEQUENT SALE WITHOUT PURCHASE OF RAW MATERIAL. THE PURCHASES FROM THE PARTIES ARE SUPPORTED BY TAX INVOICE, EXCISE G A 16 PASS CO NFIRMING THE REMOVAL OF GOODS BY THE SUPPLIER AND ALSO CONFIRMED FROM THESE PA RTIES. 13 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE 2. THE PURCHAS.ES FROM ABOVE STATED PARTIES ARE ALSO REFLECTED IN COMPANY'S EXCISE RECORDS AND PERIODICAL SALES TAX RETURN FILED WITH THE SALES TAX DEPARTMENT. 3. THE PAYMENTS TO THE ABOVE STATED PARTIES ARE MADE BY CROSSED ACCOUNT, PAYEE CHEQUES. (BANK STATEMENT, COPY OF LEDGER A/C. OF PARTIES AND COPY OF PURCHASE INVOICES ALONG WITH EXCISE RECORD ARE ALREADY FILED DURING THE COURSE OF ASSESSMENT) 4. THE ACCOUN T CONFIRMATIONS FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION ALONG WITH THEIR PAN NUMBER ARE ALREADY FRIED. 5. THE ASS ESSEES DEALING WITH THE PARTIES IS IN REGULAR COURSE OF BUSINESS. THESE PARTIES ALLEGED REVELATION THAT THEY ARE ISSU ING BOGUS BILLS, WHICH IS PROPOSED TO BE USED AGAINST ASSESSEE, IS NOT MADE' AVAILABLE TO THE ASSESSEE. ASSUMING THAT SUCH REVELATION IS CORRECTLY MADE BY THE PARTIES, THE SAME IS AT THE BEST A GENERAL STATEMENT NOT RELATING TO ANY PARTICULAR PERSON. WE MA INTAIN THAT THE TRANSACTION OF PURCHASE ARE GENUINE TRANSACTIONS WITH THE PARTIES AND THESE PARTIES GENUINELY DEALS IN SCRAP WHICH IS RAW MATERIAL FOR ASSESSEE'S BUSINESS. C) STATEMENT GIVEN BY TRANSPORTER M/S. SHIVMALHAR TRANSPORT 1. THE ASSESSEE HAS ENGA GED M/S. SHIV MALHAR TRANSPORT FOR .LIFTING THE SCRAP FROM SUPPLIER AND TO BE DELIVERING' AT' THEIR FACTORY PREMISES. ASSESSEE IS CONCERNED WITH DELIVERY J OF ITS PURCHASES FROM SUPPLIER'S PLACE TO ITS 'FACTORY. THE TRANSPORTER LIFTS THE MATERIAL FROM SUPP LIER'S PLACE WHICH IS EVIDENCED BY > THE GOODS CARRIAGE NOTE CUM BILL RECEIVED FROM TRANSPORTER. THE GOODS ARE RECEIVED AND UNLOADED AT THE FACTORY PREMISES AND PAYMENT FOR THE SAME ARE MADE THROUGH A/C. PAYEE CHEQUES. 2. THIS FACT IS ALSO CONFIRMED BY THE TRANSPORTER WHO HAS CONFIRMED THE TRANSACTION WITH THE ASSESSEE. ACCOUNT CONFIRMATION AND COPY OF BILL ISSUED BY THE TRANSPORTER ARE ALREADY SUBMITTED DURING THE COURSE OF PROCEEDINGS. 14 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE 3. IT IS ALLEGED THAT M/S. SHIVE MALHAR TRANSPORT HAS NOT DELIVER MATE RIAL AT THE FACTORY AND IS SLUED THE BILLS ONLY AND THUS CASE IS MADE OUT FOR PROPOSED D ISALLOWANCE OF AN AMOUNT OF RS. 1,43,08,200 FOR A.Y.2007 - 2008. CONTRARY TO THIS GENERAL ASSUMPTION, THE VALUE OF RAW MATERIAL PURCHASE FROM M/S. GOLDEN SCRAP TRADERS AND M/S. GOLDEN STEEL CORPORATION AND TRANSPORTED THROUGH M/S. SHIV MALHAR TRANSPORT IS OF RS. 16,89,779. STATEMENT SHOWING VALUE OF GOODS LIFTED AND DELIVERED BY M/S. SHIV MALHAR TRANSPORT I S ENCLOSED (ANNEX - 4). 4. THE ASSESS TIE'S DEALING WITH THE TRANSPO RTER IS IN REGULAR COURSE OF BUSINESS. IN FACT THE SERVICES OF TRANSPORTER WERE USED FOR TRANSPORTING GOODS FROM VARIOUS PARTIES AND TOTAL VALUE OF SUCH TRANSACTION DURING THE YEAR IS RS 2,10,930 OF WHICH TRANSPORT CHARGES OF, GOODS FROM PLACE OF GOLDEN SC RAP TRADER AND GOLDEN STEEL CORPORATION IS RS 52,650. THE ALLEGED REVELATION BY THE TRANSPORTER THAT THEY ARE ISSUING BOGUS BILLS, WHICH IS PROPOSED TO BE USED AGAINST ASSESSEE, IS NOT MADE AVAILABLE 'TO THE ASSESSEE. ASSUMING THAT SUCH REVELATION IS CORRE CTLY MADE BY THE PARTIES, THE SAME IS .AT THE BEST A GENERAL STATEMENT NOT RELATING TO ANY PARTICULAR PERSON. WE MAINTAIN THAT THE SERVICES OF TRANSPORTER .WERE USED FOR ACTUAL TRANSPORT OF GOODS. D) INFORMATION RECEIVED FROM THE PMC OCTROI INCHARGE 1. 1. AS EXP LAINED EARLIER'' THE TRANSPORT O F MATERIAL IS THROUGH A TRANSPORTER AND THEY TAKES CARE OF THE PAYMENT OF OCTROI WHICH GETS INCLUDED IN THEIR SERVICES. ASSESSEE IS NOT HAVING ANY DIRECT CONTROL OVER TRANSPORTER OR WHETHER THEY HAVE PAID OCTROI OR NOT . 2 ASSESSEE ALSO SUBMIT THAT THE OCTROI DEPARTMENT IS NOT DIRECTLY DEALT WITH BY THE COMPANY AND THIS CAN NEVER BE THE CASE AS IT IS TRANSPORTER'S RESPONSIBILITY GET THE CLEARANCE AND PAY THE DUTY AND GET THE REIMBURSEMENT FROM THEIR CLIENTS. WE ON BEHAL F OF THE ASSESSEE ALSO DRAW ATTENTION TO THE JUDICIAL POSITION ON THE SUBJECT AS FOLLOW: 1. SURVEY PROCEEDINGS UNDER SECTION 133A ARE DIFFERENT AS COMPARED 15 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE TO SEARCH AND UNLIKE SEARCH PROVISION CONTAINED IN SECTION 132(5) THERE ARE NO CORRESPONDING PROVISION S AUTHORIZING THE RECORDING OF STATEMENT ON OATH IN SECTION 133A. SINCE STATEMENT RECORDED U/S. 133A (3) (III) IS NOT STATEMENT ON OATH (SECTION 132(4)), IT CAN THUS BE REBUTTED BY EVIDENCES. THE RELEVANT CASE LAWS ON THE SUBJECT ARE PAUL MATHEW & SONS 26 3 ITR 101 (KER) AND KURRUNEN VAHIL FINANCIERS P LTD. 2 SOT 402 (STATEMENT RECORDED U/S 133A HAS NO EVIDENTIARY VALUE). 2. THE ASSESSEE HAS ALREADY RETRACTED THE STATEMENTS RECORDED DURING THE COURSE OF SURVEY IMMEDIATELY AND THUS THIS STATEMENT CEASED TO BE V OLUNTARY DISCLOSURE AND CANNOT BE USED AGAINST ASSESSEE UNLESS THERE IS OTHER POSITIVE EVIDENCE IN SUPPORT OF THE DISCLOSURE MADE AT THE TIME OF SURVEY. CASE LAW ON THE SUBJECT IS HARSHAD L THAKKAR VS ACIT 3 SOT 277 (MUM). 3. THE ASSESSEE IS WITHIN ITS RIGH T TO STATE AND SUBMIT THE DETAILS IN SUPPORT OF THE RETURN OF INCOME FILED AND THIS RIGHT IS INDEPENDENT OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. THE ASSESSEE HEREIN ABOVE HAS CLARIFIED ALL THE RELEVANT FACTS ALONG WITH DETAILS AND EVIDENCES . WITHOUT PREJUDICED TO WHATEVER STATED ABOVE, WE SUBMIT AS FOLLOWS: THE PROPOSED ADDITION IS ON THE BASES OF THE STATEMENT OF THE DIRECTOR TO THE EFFECT THAT THE PURCHASES FROM THE SUPPLIERS ARE NOT GENUINE AND THUS GOES TO INCREASE THE CLOSING STOCK. HO WEVER, THE QUANTITATIVE DETAILS SUBMITTED REVEALS THAT THESE PURCHASES ARE NOT LYING IN STOCKS AND THUS GETS CONSUMED. IN SUCH CIRCUMSTANCES ONLY GROSS PROFIT CAN BE WORKED ON SUCH PURCHASES (FROM GOLDEN SCRAP TRADER AND GOLDEN STEEL CORPORATION AMOUNTING TO RS. 1,43,08,200) AND ADDED AS INCOME. THERE IS THUS NO JUSTIFICATION OF ADDITION OF ENTIRE VALUE OF PURCHASE. THIS FACTS IS ALSO INDIRECTLY ACCEPTED IN PARA (IV) OF THE SHOW CAUSE NOTICE WHICH STATES THAT BOTH SALES AND PURCHASES ARE INFLATED AND IT IS A CASE OF THE ASSESSEE COMPANY INDULGING IN THE TRANSACTIONS TO TAKE CENVAT CREDIT. THUS EVEN IT IS THE DEPARTMENT CASE THAT THE ONLY BENEFIT IS CENVAT CREDIT AND NOT THE WHOLE VALUE OF PURCHASES. YOUR HONOUR WILL APPRECIATE THAT ASSESSMENT PROCESS IN VOLVES ASSESSMENT OF REAL INCOME AND THUS IN SUCH CASE MARGIN CAN BE ADDED AND NOT THE WHOLE PURCHASES. CASE LAWS ON THE SUBJECT ARE 1. SANJEEV WOOLEN MILLS VS. CIT 279 ITR 434 (SC) 2. MORVI IND LTD VS. CIT 82 ITR 835 (SC) 3. CIT VS. SHIV PRAKASH JANAK RAJ & CO 2 22 ITR 582 (SC) 16 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE YOUR HONOUR IS REQUESTED TO CONSIDER THE ABOVE SUBMISSION IN LIGHT OF THE JUDICIAL POSITION AND DO THE NEEDFUL AND OBLIGE. 14. IT IS ALSO NECESSARY TO REPRODUCE THE APPROACH OF THE ASSESSING OFFICER ON THE ISSUE OF BOGUS PURCHASES WHICH IS IN PARA NO. 6.5 AS UNDER: 6.5. THE ASSESSEE'S SUBMISSION IN PARA 6.4, I HAVE BEEN CONSIDERED AND IN VIEW OF THE FACT THAT THE STOCK TAKEN ON THE DATE OF SURVEY VALUED AT RS. 1,1 8 ,36,500/ - WAS FOUND IN ACCORDANCE WITH THE STOCK REGISTER MAINTAINED BY THE AS SESSEE. THE BOOK STOCK WAS ARRIVED AT BY EXCLUDING THE BOGUS PURCHASES TOTALING RS. 2,87,68,252/ - AT THE G P WAS WORKED OUT AT RS. 8,35,80,119/ - ON TURNOVER OF RS 23.01 CR. THE G . P . COMES TO AN EXORBITANT FIGURE OF 36%. THE REGULAR GP DECLARED BY THE ASSESS EE AS PER RETURNED FILED IS 0.85 % ONLY . THERE IS GROSS LOSS OF RS. 57 LACS ON TURNOVER OF RS. 15.6 CR IN PREVIOUS YEAR. AS PER THE QUANTITATIVE DETAILS FILED BY THE ASSESSEE REGARDING CONSUMPTION OF RAW MATERIAL THERE IS MANUFACTURING LOSS OF 758 M.T. WHIC H IS ABOUT 10% OF THE PURCHASES. THE PERCENTAGE WASTAGE IS A LITTLE ON THE HIGHER SIDE. TAKING ALL THE FACTS INTO CONSIDERATION I AM NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. THE BOOK RESULTS DECLARED BY THE ASSES SEE NOT ACCEPTED AND GROSS PROFIT ESTIMATED INVOKING THE PROVISIONS OF SEC.145 (3) WHICH PROVIDES THAT THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED U/S 144. IN THE RESULT 20% OF THE NON GENUINE PURCHASES AMOUNTING TO RS.L.,43,08,200/ - IS ESTIMATED AS ADDITIONAL GROSS PROFIT, IN ADDITION TO THE G.P. DECLARED. THIS ADDITION WILL ALSO TAKE CARE OF ALL THE DISCREPANCIES NOTICED IN THE ACCOUNT STATEMENTS OF THE PARTIES INVOLVED. ASSESSEE IS HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME AND HENCE PENALTY PROCEEDINGS U/S 271(L)(C) ARE SEPARATELY INITIATED. 15. IN THE ORDER PASSED U/S. 263 THE LD. CIT HAS OBSERVED THAT THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE GOODS UNDER BOGUS PURCHASES WERE ACTUALLY RECE IVED AND CONSUME D EVEN WHEN IT WAS PROVED THAT THERE WAS NO RECEIPT OF GOODS . T HE SAID OBSERVATION IS NOT CORRECT. NOWHERE THE ASSESSING OFFICER HAS ACCEPTED THE DIFFERENCE IN THE STOCK EXPLAINED BY THE ASSESSEE WAS GENUINE ONE. BUT WHAT WE 17 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE FIND THAT H E ACCEPTED THE ALTERNATE PLEA THAT ONLY THE GROSS PROFIT ON THE SAID BOGUS PURCHASES SHOULD BE ADDED TO THE TOTAL INCOME AND NOT THE ENTIRE BOGUS PURCHASES. THE LD. CIT HAS GIVEN MORE EMPHASIS ON THE SURVEY REPORT OF THE DDIT (INV.) . T HE ASSESSING OFFICE R HAS CONSIDERED THE SURVEY REPORT OF THE DDIT (INV.) AND ON THE SAID BASIS AND AFTER CONSIDERING THE SAME AND ALSO CONSIDERING THE FACT THAT THE STATEMENT GIVEN DURING THE COURSE OF SURVEY BY THE DIRECTOR OF THE ASSESSEE COMPANY WAS RETRACTED , H E DECIDED TO GIVE THE PARTICULAR TREATMENT IN RESPECT OF THE BOGUS PURCHASES DETECTED DURING THE COURSE OF THE SURVEY ACTION. LAW IS ALSO WELL SETTLED THAT THERE IS NO PROVISION U/S. 133A TO RECORD THE STATEMENT ON OATH UNLIKE IN THE CASE OF THE SEARCH AND SEIZURE ACTION U/S. 132. IN PARA NO. 9.2 THE LD. CIT HAS ADMITTED THAT THE ASSESSEE FILED TWO VOLUME S OF RECORD S IN SUPPORT OF HIS CLAIM THAT THE ACT UAL STOCK FOUND AT THE TIME OF S URVEY HAD TALLIED WITH THE STOCK AS EMERGING OUT OF BOOKS OF ACCOUNT S . THE ASSESSE E ALSO EXPLAINED TO THE LD. CIT THAT THE DIRECTOR OF THE COMPANY GAVE THE STATEMENT IN RESPECT OF THE BOGUS PURCHASES IN THE MENTAL STRESS AND THERE WAS NO DISCREPANCY IN THE PHYSICAL STOCK WHICH WAS TALLIED AS PER THE BOOKS OF ACCOUNT S . THE LD. CIT HAS N OT GIVEN DETAILS IN RESPECT OF THE S URVEY REPORT OF THE DDIT (INV.) O N THE BASIS OF WHICH HE HAS FORMED THE OPINION THAT THE ORDERS ARE ERRONEOUS. IN OUR OPINION, IN THIS CASE, THE ASSESSING OFFICER CANNOT BE SAID TO BE SILENT SPECTATOR BUT HE UNDERSTOOD THE LIMITATION WITHIN WHICH HE COULD DEAL WITH THE SURVEY REPORT OF THE DDIT (INV.) WITHIN THE PERMISSIBLE LEGAL FRAME WORK AND ACCORDINGLY ACCEPTED THE ALTERNATE PLEA OF THE ASSESSEE AND COMPLETED THE ASSESSMENT. 16. THE LAW IS WELL SETTLED THAT FOR EXE RCISING POWERS U/S. 263 OF THE ACT T HE TWO CONDITIONS MUST BE SATISFIED BY THE CIT I.E. ( I ) THE ORDER SHOULD BE ERRONEOUS AND ( II ) IT SHOULD ALSO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE PRESENT CASE, THE ASSESSMENT ORDERS FOR BOTH THE YEARS CANNOT BE SAID TO BE ERRONEOUS MERELY BECAUSE THE CIT HAS NOT 18 ITA NOS. 1709 & 1710/PN/2011, M/S. MUNDRA STEEL & ALLOY, PUNE AGREED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER ON THE SURVEY REPORT OF THE DDIT (INV.) AND T HAT ITSELF WOULD NOT GIVE ANY JURISDICTION TO HIM U/S. 263 TO SET ASIDE THE ASSESSMENT ORDER S . W E, THEREFORE, HOLD THAT THE ASSESSMENT ORDERS FOR BOTH THE ASSESSMENT YEARS PASSED BY THE ASSESSING OFFICER ARE NOT ERRONEOUS AND HENCE, THE POWER EXERCISED BY THE CIT U/S. 263 OF THE INCOME - TAX ACT IS BAD IN LAW. WE, ACCORDINGLY, QUASH THE ORDER S PASSED BY THE CIT FOR THE A.Y R S. 2007 - 08 AND 2008 - 09. 17. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 20 - 09 - 2013 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 20 TH SEPTEMBER, 20 1 3 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT - I, PUNE 4 THE CIT, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX AP PELLATE TRIBUNAL PUNE