Asstt.CIT, Cir.1, Aurangabad, Aurangabad V. Satyam Mats Ltd., Aurangabad

ITA 1712/PUN/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7679 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 11-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT KUMAR LEUVA
• Keywords: Bogus purchase
• Section: 143(3); 133A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER SL. NO. ITA NO. BLOCK AY APPELLANT RESPONDENT 1. 1655/PN/05 2002-03 M/S SATYAM MATS LTD. OPP. TELEPHONE BHAVAN, AJABNAGAR, AURANGABAD PAN AAECS-3355-H ASSTT. COMMISSIONER OF INCOME-TAX, CIR.1, AURANGABAD 2. 763/PN/06 2003-04 M/S SATYAM MATS LTD. OPP. TELEPHONE BHAVAN, AJABNAGAR, AURANGABAD ASSTT. COMMISSIONER OF INCOME-TAX, CIR.1, AURANGABAD 3. 1712/PN/05 2002-03 ASSTT. COMMISSIONER OF INCOME-TAX, CIR.1, AURANGABAD M/S SATYAM MATS LTD. AURANGABAD ASSESSEE BY : SHRI M K KULKARNI DEPARTMENT BY : SHRI HEMANT KUMAR LEUVA ORDER PER G. S. PANNU, A.M : IN THE CAPTIONED THREE APPEALS, TWO BY THE ASSESSEE AND ONE BY THE REVENUE, CERTAIN COMMON ISSUES HAVE BEEN RAISED AND , THEREFORE, WE FIND IT EXPEDIENT TO PASS A COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. 2. ITA NO 1655/PN/2005 IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I , AURANGABAD DATED 29.8.2005 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 16.3.2005 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE I NCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2002-0 3. 3. IN THIS APPEAL, THE ASSESSEE HAS RAISED SIX GROU NDS OF APPEAL, WHICH WE SHALL DEAL IN SERIATIM. IN SO FAR AS GROUNDS NO. 1 AND 2 ARE CONCERNED, THE SAME RELATE TO ADDITIONS OF RS 32,089/- MADE UNDER SECTI ON 40A(2)(B) OF THE ACT AND INCORRECT ADOPTION OF THE FIGURE OF PURCHASES AT RS 21,01,000/- INSTEAD OF RS ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 2 2 22,00,803/- BY THE COMMISSIONER OF INCOME-TAX (AP PEALS). BOTH THE GROUNDS HAVE NOT BEEN PRESSED AT THE TIME OF HEARING AND AR E ACCORDINGLY DISMISSED. 4. GROUND NO. 3 IS WITH REGARD TO AN ADDITION OF RS 10 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES. BR IEF FACTS IN THIS REGARD ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURE OF POLYPROPYLENE MATS. THE MAIN RAW MATERIAL IS PLASTI C GRANULES, WHICH ARE PURCHASED BY THE ASSESSEE FROM ABROAD AS WELL AS DO MESTIC SUPPLIERS. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SHOWED TO HAVE EFFECTED PURCHASE OF RAW MATERIAL FR OM ONE M/S ARIHANT POLYMERS, MUMBAI. PAYMENTS WERE SHOWN TO HAVE BEEN MADE TO THE SAID CONCERN AS FOLLOWS: 13.02.02 SARASWAT CO-OP. BANK LTD. CH. NO 109100 RS 2,60,000/- 31.03.02 SATYAM TRANSFORMERS P LT D. CR. AMT TRF RS 10,00,000/- HOWEVER, IT WAS REVEALED THAT THE CHEQUES ISSUED IN THE NAME OF M/S ARIHANT POLYMERS FOR THE PURCHASE PRICE OF RAW MATERIALS WE RE DEPOSITED INTO A BANK ACCOUNT IN THE NAME OF RAJA MAHESWARI. IN THE COU RSE OF A SURVEY ACTION UNDER SECTION 133A OF THE ACT CONDUCTED ON ONE OF THE DIR ECTORS OF THE ASSESSEE COMPANY SHRI S M CHANDAK AND HIS GROUP OF COMPANIES , IT WAS REVEALED THAT THE BANK ACCOUNT IN THE NAME OF RAJA MAHESWARI WAS MA INTAINED AND OPERATED BY SHRI S M CHANDAK. THE SAID SHRI S M CHANDAK, IN A STATEMENT RECORDED IN THE COURSE OF SURVEY ACTION, STATED THAT THE SAID BANK ACCOUNT WAS AN UNDISCLOSED ACCOUNT. IT WAS FURTHER STATED THAT FOR THE SAKE OF BUSINESS CONVENIENCE AND EXIGENCY, PAYMENTS TO THE PARTIES WERE MADE BEFORE HAND FROM THE UNDISCLOSED BANK ACCOUNT IN THE NAME OF RAJA MAHESWARI IN CAS H OR IN CHEQUE AND WHEN ULTIMATELY THE ASSESSEE COMPANY HAD FUNDS, IT ISSUE D CHEQUES TO THE PARTIES, WHICH WERE ACTUALLY DEPOSITED IN RAJA MAHESWARI ACC OUNT AS THE PAYMENT TO THE PARTIES HAD BEEN MADE EARLIER FROM THIS ACCOUNT. TH E ASSESSING OFFICER NOTED ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 3 3 THAT THE PAYMENT OF RS 10 LAKHS ALSO GOT DEPOSITED IN THE ACCOUNT OF RAJA MAHESWARI INSTEAD OF THE PARTY, I.E. M/S ARIHANT P OLYMERS. THE ASSESSING OFFICER ISSUED A LETTER UNDER SECTION 133(6) OF THE ACT TO M/S ARIHANT POLYMERS TO VERIFY THE TRANSACTIONS WITH THE ASSESSEE COMPANY, WHICH W AS RETURNED BACK BY POSTAL AUTHORITIES. ON BEING ASKED TO FURNISH A CONFIRMATI ON FROM THE PARTY, THE ASSESSEE COULD NOT PRODUCE THE SAME. THE ASSESSING OFFICER ALSO DEPUTED AN INSPECTOR TO MAKE SPOT ENQUIRIES, WHICH REVEALED TH AT NO PARTY BY THE SAID NAME EXISTED AT THE ADDRESS GIVEN. THE RESULT OF THE ENQ UIRIES WAS CONFRONTED TO THE ASSESSEE, WHO SOUGHT TIME TO PRODUCE THE PARTY AND, ULTIMATELY SHRI S M CHANDAK, DIRECTOR OF THE COMPANY EXPRESSED HIS INAB ILITY TO PRODUCE THE PARTY. ON THE BASIS OF THE AFORESAID VERIFICATION EXERCISE D, ASSESSING OFFICER CONCLUDED THAT THE PURCHASES SHOWN TO HAVE BEEN MADE FROM M/S ARIHANT POLYMERS, MUMBAI, AMOUNTING TO RS 10 LAKHS IN THE YEAR UNDER CONSIDERATION ARE NOT GENUINE. ACCORDINGLY, HE TREATED THE SAID PURCHASES OF RS 10 LAKHS AS BOGUS AND ADDED THE SAME TO THE TOTAL INCOME. 5. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE CONTENDED THAT RAW MATERIAL WAS INDEED PURCHASED FR OM M/S ARIHANT POLYMERS, MUMBAI, BUT UNFORTUNATELY THE PARTY WAS NOT TRACEAB LE. HOWEVER, IT WAS EXPLAINED THAT THERE WAS NO FINDING BY THE ASSESSIN G OFFICER THAT THE MONEY PAID FOR PURCHASES HAVE COME BACK TO THE ASSESSEE COMPAN Y. IT WAS ALSO CONTENDED THAT THE RAW MATERIAL PURCHASED HAS ACTUALLY GONE I NTO PRODUCTION PROCESS AND SALES HAVE BEEN EFFECTED AND SALES-TAX DEPARTMENT H AS ALSO ACCEPTED THE POSITION. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE, BUT HAS NOT ACCEPTED T HE SAME BY MAKING FOLLOWING DISCUSSION: THE APPELLANT WAS ASKED TO GIVE EVIDENCE FOR TRANSP ORT OF GOODS. IN THIS CONNECTION, IT IS ARGUED THAT DELIVERY OF GOODS WAS TAKEN BY SISTER CONCERN NAMELY SATYAM TRANSFORMERS LTD. AND THEREAFTER THES E GOODS WERE TRANSFERRED TO THE APPELLANT, THEREFORE, IT WOULD BE ABLE TO PRODU CE DELIVERY NOTE IN THE NAME OF ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 4 4 SATYAM TRANSFORMERS AND NOT ON APPELLANTS OWN NAME . AS REGARDS PRODUCTION DETAILS THE APPELLANT HAS ARGUED THAT EVERY YEAR NE W MACHINERIES WERE ADDED THEREFORE IT WOULD NOT BE POSSIBLE TO PROVE CONSUMP TION WITH REFERENCE TO INPUT AND OUTPUT RATIO VIS--VIS PRECEDING YEARS. IN OTHE R WORDS THERE IS NO THIRD PARTY. THE APPELLANT ADMITTED THAT THERE IS NO EVIDENCE F OR PAYMENT IN CASH OR BY CHEQUE BY RAJA MAHESHWARI (I.E. SHRI S M CHANDAK ) TO ARIHANT POLYMERS, (SO THAT APPELLANT COMPANY IS REQUIRED TO GET REIMBURSE D TO THE BANK ACCOUNT OF RAJA MAHESHWARI). THE APPELLANT WAS ASKED TO JUSTIFY IF WHAT IS STATED IS CORRECT THEN WHY IT RESORTED TO ISSUE CHEQUES IN THE NAME OF ARI HANT POLYMERS AND GETTING THESE CHEQUES DEPOSITED INTO A BANK ACCOUNT MAINTAI NED BY DIRECTOR IN AN ASSUMED NAME. THE APPELLANT STATED THAT THIS WAS DO NE TO AVOID PRESCRIPTIONS OF SEC. 40A(3). THE REASON FOR PURCHASE IN CASH IS SAT ED TO BE NON AVAILABILITY OF THE RAW MATERIAL IN THE MARKET AND BENEFIT OF PRICE AT NEAR ABOUT RE. 1 PER KG. THE APPELLANT HAS NOT PROVED THE PAYMENT IN ADVANC E TO ARIHANT POLYMERS. THE APPELLANT HAS NOT ESTABLISHED DELIVER Y OF SUCH GOODS, THE APPELLANT HAS NOT ESTABLISHED USE OF SUCH RAW MATER IAL BY INPUT OUTPUT METHOD. THE APPELLANT HAS NOT GIVEN SATISFYING REASONS TO D EPOSIT CHEQUES WITH BANK ACCOUNT OF AN ASSUMED NAME WHICH WAS ESTABLISHED AS THAT OF DIRECTOR BY WAY OF SURVEY U/S 133A. THE ENTIRE GAMUT OF THE ACTIVIT IES HAVE COME TO LIGHT DUE TO SURVEY. THE APPELLANT HAS FAILED TO PROVE PAYMENTS TO ARIHANT POLYMERS IN CASH IN ADVANCE, THERE IS NO EVIDENCE FROM TRANSPORTER F OR RECEIPT OF SUCH GOODS BY APPELLANT. THERE IS NO WAY TO LINK CONSUMPTION OF T HIS PURCHASE INPUT OUTPUT RATIO. TAKING ALL THESE FACTS INTO ACCOUNT AND OVERALL PIC TURE OF THE CASE, THE APPELLANT HAS FAILED TO IDENTIFY THE SELLER ARIHANT POLYMERS, FAILED TO ESTABLISH PAYMENT IN ADVANCE IN CASH OR BY CHEQUE BY RAJA MAHESHWARI ACC OUNT (SO AS TO GET REIMBURSED), FAILED TO PRODUCE EVIDENCE FOR RECEIPT OF GOODS VIS-A-VISA TRANSPORT RECEIPT, FAILED TO PROVE USE OF GOODS WITH INPUT OU TPUT RATIO. THUS THE APPELLANT FAILED TO PROVE ITS CASE FROM ALL ANGLES. HENCE TH E ADDITION IS UPHELD. 6. IN THIS BACKGROUND, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT IN THIS CASE THE COMMISSIONER OF INCOME -TAX (APPEALS) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION ON ACCOUNT OF B OGUS PURCHASES, WHEN QUANTITY INVOLVED IN SUCH PURCHASES UNDERWENT THE PRODUCTION PROCESS AND PROPORTIONATE SALES WERE ALSO INCLUDED IN THE TOTAL TURNOVER. IT IS POINTED OUT THAT THE SALES DECLARED BY THE ASSESSEE HAVE NOT BEEN REJECTED AND , THE ACCOUNT BOOKS HAVE ALSO NOT BEEN REJECTED AND, THEREFORE, THE LOWER AU THORITIES WERE NOT JUSTIFIED IN TREATING THE PURCHASE AS BOGUS AND MAKING THE IMPUG NED ADDITION. 7. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESEN TATIVE, APPEARING FOR THE REVENUE, HAS RELIED UPON THE OBSERVATIONS OF THE LO WER AUTHORITIES, WHICH HAVE ALREADY BEEN NOTED BY US IN THE EARLIER PARAGRAPHS AND ARE NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THIS CASE, IT IS EVIDENT FROM THE ORDERS OF THE AUTHORITIES BELOW TH AT M/S ARIHANT POLYMERS, ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 5 5 MUMBAI, THE PARTY FROM WHOM THE ASSESSEE HAS CLAIME D TO HAVE EFFECTED PURCHASES OF RS 10 LAKHS, HAS NOT BEEN FOUND TO BE IN EXISTENCE. THERE IS NO MATERIAL ON RECORD TO ESTABLISH THE EXISTENCE OF TH E SAID SUPPLIER TO HAVE EFFECTED SALE OF GOODS TO THE ASSESSEE. IN FACT, THE FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS ALSO CLEAR TO THE EFFECT TH AT THERE IS NO EVIDENCE FOR TRANSPORTATION OF GOODS TO THE ASSESSEE. IT IS ALS O NOT ESTABLISHED BY THE ASSESSEE THAT THE PAYMENTS AGAINST SUCH PURCHASES H AVE REACHED M/S ARIHANT POLYMERS. ON THE CONTRARY, IT STANDS PROVED THAT TH E PAYMENTS MADE BY THE ASSESSEE GOT DEPOSITED IN THE UNDISCLOSED ACCOUNT I N THE NAME OF RAJA MAHESWARI INSTEAD OF THE PARTY, M/S ARIHANT POLYME RS. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ALSO RECORDED A FINDING TH AT THE ASSESSEE HAS FAILED TO PROVE THE PAYMENTS TO M/S ARIHANT POLYMERS. UNDER T HESE CIRCUMSTANCES, TO WHICH THERE IS NO CONTROVERSION FROM THE SIDE OF TH E ASSESSEE, WE FIND THAT THE TRANSACTION OF PURCHASE FROM M/S ARIHANT POLYMERS A MOUNTING TO RS 10 LAKHS HAS RIGHTLY BEEN HELD TO BE A BOGUS PURCHASE BY THE LOW ER AUTHORITIES. NOW, THE ONLY PLEA OF THE ASSESSEE RAISED BEFORE US IS THAT QUANT ITY OF RAW MATERIAL PURCHASED IN QUESTION HAS BEEN UTILIZED IN PRODUCTION AND SAL ES HAVE BEEN EFFECTED OF THE FINISHED GOODS AND, SUCH SALES HAVE NOT BEEN DOUBTE D BY THE ASSESSING OFFICER. ON THIS BASIS, IT WAS SOUGHT TO BE ARGUED THAT THE EXPENDITURE CORRESPONDING TO SUCH PURCHASES CANNOT BE DISALLOWED SINCE THE ASSES SEE HAS ACTUALLY CARRIED OUT PRODUCTION AND EFFECTED SALES THEREOF INCLUSIVE OF SUCH RAW MATERIAL. IN SUPPORT OF SUCH PROPOSITION, LEARNED COUNSEL HAS RELIED UPON C ERTAIN JUDICIAL PRONOUNCEMENTS WITH WHICH WE SHALL DEAL A LITTLE LA TER. HOWEVER, IN SO FAR AS THE FACTUAL CONTROVERSY OF SUCH A PROPOSITION IS CONCER NED, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS EXAMINED T HE SAME AND FOUND IT INAPPLICABLE. THE COMMISSIONER OF INCOME-TAX (APPEA LS) NOTED THE PLEA OF THE ASSESSEE THAT IT WAS NOT POSSIBLE TO PROVE THE CONS UMPTION OF RAW MATERIALS WITH ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 6 6 REFERENCE TO INPUT AND OUTPUT RATIO. ON THE BASIS O F SUBMISSIONS PUT-FORTH, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RECORDED A FINDING THAT THERE IS NO WAY TO LINK CONSUMPTION OF THE IMPUGNED PURCHASES W ITH INPUT AND OUTPUT RATIO AND, THEREFORE, THE PROPOSITION ADVANCED BY THE ASS ESSEE HAS BEEN REJECTED. FACTUALLY SPEAKING, BEFORE US THERE IS NO MATERIAL OR COGENT REASONING LED BY THE APPELLANT TO DISLODGE THE AFORESAID FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS). IN THE ABSENCE OF ANY CREDIBLE EVIDENCE TO PROVE THE USE OF THE IMPUGNED GOODS IN THE PROCESS OF PRODUCTION AND SAL ES THEREOF, WE FIND NO JUSTIFICATION FOR THE ASSESSEE TO SEEK THE COVER OF SUCH PROPOSITION IN ORDER TO DEFEAT THE ADDITION IN QUESTION. THEREFORE, ON FACT S SUCH A PROPOSITION IS INAPPLICABLE IN THE INSTANT CASE. THE FACTUM OF THE ASSESSING OFFICER NOT REJECTING THE ACCOUNT BOOKS, IN OUR VIEW, IS NOT MATERIAL TO DEFEAT THE IMPUGNED ADDITION. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE MATERI AL ON RECORD AS ALSO THE RESULT OF THE VERIFICATION EXERCISE CARRIED OUT BY THE ASS ESSING OFFICER, THE IMPUGNED PURCHASES FROM M/S ARIHANT POLYMERS, MUMBAI HAVE BE EN RIGHTLY CONSIDERED AS BOGUS AND ITS CONSEQUENT DISALLOWANCE IS FAIR AND P ROPER. WE HEREBY AFFIRM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) O N THIS ASPECT. 9. SINCE THE AFORESAID PROPOSITION HAS BEEN FOUND T O BE FACTUALLY UNTENABLE IN THE PRESENT CASE, THE AUTHORITIES CITED AT BAR A RE NOT BEING EXAMINED, SINCE THE SAME WOULD BE INAPPLICABLE. THUS, ON THIS GROUND AS SESSEE HAS TO FAIL. 10. GROUND NO 4 RAISED BY THE ASSESSEE IS WITH REGA RD TO ADDITIONS OF RS 75,000/-, RS 10,000/- AND RS 7,189/- CONFIRMED BY T HE COMMISSIONER OF INCOME- TAX (APPEALS) UNDER SECTION 41(1) OF THE ACT. IN TH IS CONNECTION, BRIEF FACTS ARE THAT THE ASSESSING OFFICER CALLED FOR THE ADDRESSES AND OTHER PARTICULARS OF THE PARTIES WHOSE AMOUNTS WERE LYING AS DEALER DEPOSIT WITH THE ASSESSEE. IN THE CASE OF 6 PARTIES AMOUNTING TO RS 1,16,507/- AS PER PARAGRAPH 6 OF THE ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 7 7 ASSESSMENT ORDER, THE ASSESSEE COULD NOT PROVIDE TH E ADDRESSES AND, THEREFORE, THE ASSESSING OFFICER TREATED THE SAME AS A LIABILI TY WHICH HAD CEASED TO EXIST. THUS, THE SAID AMOUNT WAS ADDED TO THE TOTAL INCOME , AS AMOUNTS RECEIVED IN THE NORMAL COURSE OF BUSINESS WHOSE LIABILITY TO REPAY HAD CEASED TO EXIST. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) RETAINED T HE ADDITION ONLY TO THE EXTENT OF 3 PARTIES, MALVIKA MACHINERY TOOLS RS 75, 000/-, MR SHAH RS 10,000/- AND M/S NAGNATH PLASTIC RS 7,189/- WHEREIN NO TRANS ACTIONS HAD TAKEN PLACE RIGHT FROM THE DAY OF DEPOSIT. THE BALANCE OF THE A DDITION IN RELATION TO PARTIES WITH WHOM THERE WERE TRANSACTIONS IN SUBSEQUENT YEA RS, WAS DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). NOT BEING SAT ISFIED WITH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 11. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE ADDITION HAS BEEN SUSTAINED BY THE COMMISS IONER OF INCOME-TAX (APPEALS) ON AN ERRONEOUS ASSUMPTION THAT LIABILITY HAS CEASED TO EXIST. 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES IN SUPPORT OF THE CASE OF THE REVENUE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WITH REGARD TO DEPOSIT FROM THREE CONCERNS IN QUESTION, THE FINDIN G OF THE LOWER AUTHORITIES IS TO THE EFFECT THAT THE ASSESSEE HAS NOT FURNISHED THE POSTAL ADDRESSES AND, NOR HAS THERE BEEN ANY TRANSACTION WITH THE SAID CONCERNS R IGHT FROM THE TIME OF TAKING OF DEPOSITS IN AN EARLIER YEAR. THE COMMISSIONER OF IN COME-TAX (APPEALS) ALSO NOTED THAT EVEN THE DEPOSITORS HAVE NOT CORRESPONDE D TO GET BACK THEIR MONEY AND, NOR THE ASSESSEE HAS ANY ADDRESSES SO AS TO RE MIT THE MONEY BACK TO THE PARTIES. UNDER THESE PECULIAR CIRCUMSTANCES, WE FI ND THAT THE ADDITION MADE IS QUITE JUSTIFIED. WE HEREBY AFFIRM THE SAME. THUS, O N THIS GROUND ALSO THE ASSESSEE FAILS. ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 8 8 14. GROUND NO 5 IS WITH REGARD TO AN ADDITION OF RS 4,06,510/- SUSTAINED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON ACCOUNT OF ENHANCEMENT OF INVENTORY. BEFORE THE ASSESSING OFFICER THE ASSESSE E DID NOT PRODUCE ANY STOCK RECORDS OR THE PAPERS OF PHYSICAL STOCK TAKING. ACC ORDINGLY, THE ASSESSING OFFICER OBSERVED THAT THE VALUATION OF INVENTORY DONE BY TH E MANAGEMENT AT RS 50,81,370/- (TURNOVER RS 14,25,03,721/-) AS ON 31.3 .2002 WAS ONLY AN ESTIMATED FIGURE ARRIVED AT BY THE MANAGEMENT AS COMPARED TO THE INVENTORY IN THE PREVIOUS YEAR AS ON 31.3.2001 OF RS 72,96,988/- AGA INST A TURNOVER OF RS 13,58,25,029/-. IN THESE CIRCUMSTANCES, THE ASSESSI NG OFFICER HELD THAT THERE WAS NO BASIS FOR VALUATION OF INVENTORY AND IT WAS DONE AT THE ABSOLUTE DISCRETION OF THE MANAGEMENT AS PER ITS SUITABILITY. ON THESE FAC TS, THE ASSESSING OFFICER REVALUED THE INVENTORY ADDING TEN PERCENT TO THE ST ATED VALUE, WHICH RESULTED IN AN ADDITION OF RS 5,08,137/- ON ACCOUNT OF UNDERVA LUATION OF INVENTORY. IN APPEAL, IT WAS CONTENDED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME- TAX (APPEALS) THAT THERE WAS NO CASE TO MAKE ANY AD DITION TO THE CLOSING STOCK AND EVEN OTHERWISE ALSO, IT DID NOT MAKE ANY DIFFER ENCE BECAUSE IN THE SUBSEQUENT YEAR CORRESPONDING DEDUCTION WAS TO BE G IVEN AS VALUE OF OPENING STOCK. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSE E, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT DURING THE PROCEEDIN GS BEFORE THE ASSESSING OFFICER, ASSESSEE HAS NOT FURNISHED THE DETAILS WHI CH WERE CONSIDERED BY THE MANAGEMENT TO VALUE THE STOCK AT THE FIGURES ARRIVE D AT AND, THEREFORE, THE ASSESSING OFFICER WAS NOT ABLE TO CHECK THE VERACIT Y OF VALUATION MADE BY THE MANAGEMENT. THE COMMISSIONER OF INCOME-TAX (APPEALS ) FURTHER OBSERVED THAT EVEN THOUGH IT IS TRUE THAT WHAT IS ARRIVED AS CLOS ING STOCK IN THE ASSESSMENT YEAR UNDER CONSIDERATION WOULD BECOME THE OPENING STOCK OF SUBSEQUENT YEAR, BUT IT CANNOT BE SAID THAT THERE IS NO EFFECT ON INCOME, A S THE INCOME OF THE SAID YEAR GETS ALTERED AND PERPETUAL POSTPONEMENT IS AVOIDED. FOR THE REASONS GIVEN IN ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 9 9 THE APPELLATE ORDER, THE COMMISSIONER OF INCOME-TAX (APPEALS) ESTIMATED THE ENHANCEMENT AT 8% INSTEAD OF 10% MADE BY THE ASSESS ING OFFICER THEREBY SUSTAINING AN ADDITION OF RS 4,06,510/- OUT OF THE ADDITION OF RS 5,08,137/- MADE BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOM E-TAX (APPEALS) ACCORDINGLY ALLOWED A RELIEF OF RS 1,01,627/- TO THE ASSESSEE O N THIS ACCOUNT. NOT BEING SATISFIED WITH THE ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 15. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE MORE OR LESS REITERATED THE SUBMISSIONS MADE BEFORE THE COMMISSIONER OF INC OME-TAX (APPEALS) AND PLEADED THAT THE ADDITION OF RS 4,06,510/- SUSTAINE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS) BE DELETED. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES CAREFULLY. WE FIND THAT THE AUDITORS OF THE ASSESSEE COMPANY HAD REPOR TED THAT THE MAINTENANCE AND VERIFICATION OF STOCK IS NOT REASONABLE AND IS NOT ADEQUATE IN RELATION TO THE SIZE. FURTHER, THE ASSESSEE DID NOT FURNISH THE DET AILS CONSIDERED BY THE MANAGEMENT TO PHYSICALLY VALUE THE STOCK AT THE FIG URES ARRIVED AT BY THEM. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS GRANTED A RELIEF OF RS 1,01,627/- BY ESTIMATING THE ENHANCEMENT AT 8% INSTEAD OF 10% TAK EN BY THE ASSESSING OFFICER AND, THEREFORE, WE DO NOT FIND ANY GOOD GRO UND TO INTERFERENCE WITH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) O N THIS ASPECT. FACTUALLY SPEAKING, THE UNRELIABILITY OF THE STOCK RECORDS HA S NOT BEEN ASSAILED BY THE ASSESSEE ON THE BASIS OF ANY COGENT MATERIAL OR REA SONING. HOWEVER, TO PREVENT ANY LEAKAGE OF REVENUE ON THIS SCORE, WE FIND IT AP PROPRIATE TO RESTRICT THE ENHANCEMENT IN CLOSING STOCK TO 5%, AS AGAINST 8% C ONSIDERED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THUS, ASSESS EE PARTLY SUCCEEDS ON THIS GROUND. ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 10 10 17. GROUND NO. 6 IS AGAINST THE LEVY OF INTEREST UN DER SECTION 234A/234B/234C OF THE ACT. THIS GROUND IS CONSEQUE NTIAL IN NATURE AND NEEDS NO ADJUDICATION. 18. IN THE RESULT, ITA NO 1655/PN/05 FILED BY ASSES SEE IS PARTLY ALLOWED. 19. WE NOW TAKE UP THE CROSS APPEAL FILED BY THE RE VENUE, VIDE ITA NO1712/PN/05 PERTAINING TO THE ASSESSMENT YEAR 2002 -03. 20. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN PURCHASES OF MATS OF VALUE OF RS 28,35,079/- FROM ITS FOLLOWING SISTER CONCERNS, I.E. COMPANIES UNDER THE SAME MANAGEMENT, CONTROLLED AND RUN BY SHRI S M CHANDAK AND RAJA CHANDAK: A. SATYAM TRANSFORMERS LTDZ RS 5,00,950/- B. SATYAM POLYMATS P LTD RS 22,00,803/- C. SATYAM INDUSTRIES RS 1,33,326/- ------------------- RS 28,35,079/- =========== THE ASSESSING OFFICER ON A COMPARISON OF PROFIT FOR THE CORRESPONDING PREVIOUS YEAR NOTICED THAT INSPITE OF A INCREASE IN TURNOVER BY 5% AND AN ADDED INCOME IN THE FORM OF DUTY DRAW BACK OF RS 13,47,513/- IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE PROFITABILITY HAD GONE DOWN AND THAT IF THE DUTY DRAWBACK OF RS 13,47,513/- WAS NOT CONSIDERED, THERE WOULD BE A BO OK LOSS OF RS 10,85,282/- IN THE RELEVANT ASSESSMENT YEAR. ON THE BASIS OF FINDI NG OF THE AUDITORS OF THE ASSESSEE COMPANY, THE ASSESSING OFFICER FURTHER OBS ERVED THAT THERE WAS NO PROPER RECORDS TO FIND OUT WHAT MATERIAL IS COMING IN AND WHAT IS DISPATCHED AND IN ABSENCE THEREOF, THERE IS AMPLE SCOPE FOR MANIPU LATION BY THE MANAGEMENT. ALL THE CONCERNS FROM WHICH PURCHASES WERE MADE BY ASSESSEE ARE CONTROLLED AND RUN BY THE DIRECTOR SHRI S M CHANDAK. NO EXACT CORRESPONDING SALES BILL FOR THE PURCHASES MADE FROM THE SISTER CONCERNS COULD B E PRODUCED BY ASSESSEE. FOR ALL THESE DEFECTS, THE ASSESSING OFFICER HELD T HAT NO RELIANCE CAN BE PLACED ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 11 11 ON THE VALUE OF THE SAID PURCHASES. APPLYING THE PR OVISIONS OF SECTION 40A(2)(A) & (B) OF THE ACT, THE ASSESSING OFFICER HELD THAT T HE VALUE OF THE AFORESAID PURCHASES IS EXCESSIVE AND UNREASONABLE AND, ACCORD INGLY, RESTRICTED THE VALUE OF THE PURCHASE AT 50% OF THE STATED VALUE AND DISA LLOWED BALANCE 50% I.E. RS 14,17,500/- WHICH WAS ADDED BACK TO THE TOTAL INCOM E. 21. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE A SSESSEE, THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD AS UNDER: THE SUBMISSIONS ARE CONSIDERED. ON PERUSAL OF DETAILS FURNISHED IT IS SEEN THAT ON 31.10.2001 SATYAM TRANSFORMERS LTD HAS SUPPLIED APPELLANT 4 ROLLS AT RS 9.50 PER SQ. FT. BUT SATYAM INDUSTRIES LTD HAS BEEN PAID AT RS 11.75 PER SQ. FT . FOR PURCHASES MADE NEAR OR ABOUT THE SAME PERIOD BY THE APPELLANT ON THE SAME 4 ROLL. THE PRICE DIFFERENCE IS OF RS 2.25 PER SQ. FT. WHICH WORKS OUT TO RS 25, 756. THE APPELLANT HAS WORKED PRICE DIFFERENCE OF RS 6333 IN RESPECT OF PURCHASES EFFECTED FROM SATYAM TRANSFORMERS. THE EXCESS PURCHASE PRICE PAID IS RS 32,089.TO THIS EXTENT THE ADDITION IS CONFIRMED. AS REGARDS ADOPTION OF PURCHASE FIGURE AT RS 22,00, 803/- IN PLACE OF RS 21,01,000/- IT WILL NOT MAKE ANY DIFFERENCE AS EXCE SS PRICE PAID IN RESPECT OF PURCHASES EFFECTED BY THE APPELLANT FROM SATYAM POL YMATS IS NOT ESTABLISHED BY THE AO ON SPECIFIC OPPORTUNITY PROVIDE DURING THE A PPEAL PROCEEDINGS. IN VIEW OF THIS, THE ARGUMENTS OF THE APPELLANT THAT THE PRICE PAID FOR PURCHASES IS REASONABLE STAND UNASSAILED BY THE AO. GROUND IS PA RTLY ALLOWED. 22. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. THE LEARNED DEPARTM ENTAL REPRESENTATIVE CONTENDED THAT THE COMMISSIONER OF INCOME-TAX (APPE ALS) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE TOWARDS EXCESS PURCHASE P RICE PAID TO SATYAM POLYMATS AND IN REDUCING THE PURCHASE PRICE PAID T O SATYAM INDUSTRIES LTD. AND SATYAM TRANSFORMERS. THE LEARNED COUNSEL FOR THE A SSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE COMMISSIONER OF IN COME-TAX (APPEALS) ON THIS ASPECT. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND NO INFIRMITY IN THE AFORESAID FINDINGS OF THE COMMISSIONER OF INCOM E-TAX (APPEALS). ON PERUSAL OF THE DETAILS FURNISHED BY ASSESSEE, THE COMMISSIO NER OF INCOME-TAX (APPEALS) ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 12 12 HAS TAKEN A PROPER AND REASONABLE VIEW OF THE MATTE R AND, THEREFORE, WE AFFIRM HIS ORDER ON THIS ASPECT. REVENUE FAILS ON THIS G ROUND. 24. THE NEXT GROUND OF APPEAL RELATES TO THE DELETI ON OF PART OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CURRENT LIAB ILITY OF THE ASSESSEE. 25. THIS GROUND IS CO-RELATED TO GROUND NO.4 OF ASS ESSEES APPEAL DISCUSSED BY US IN EARLIER PARAGRAPHS OF THIS ORDER. WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS DELETED PART OF ADDITION M ADE BY THE ASSESSING OFFICER AFTER TAKING INTO ACCOUNT THAT IN RESPECT OF OTHER PARTIES THERE ARE TRANSACTIONS IN SUBSEQUENT YEARS. IN VIEW OF THIS FINDING, WE DO NOT SEE ANY GROUND TO INTERFERE WITH THE ORDER OF THE IN VIEW OF THE FACT THAT ON T HIS ASPECT. WE CONFIRM HIS ORDER. REVENUE FAILS ON THIS GROUND. 26. RESULTANTLY, REVENUES APPEAL FAILS AND IS DISM ISSED. 27. WE NOW TAKE UP ASSESSEES APPEAL, VIDE ITA NO 7 63/PN/06 PERTAINING TO ASSESSMENT YEAR 2003-04. 28. GROUND NO 1 IS WITH REGARD TO AN ADDITION OF RS 4,06,510/- SUSTAINED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON ACCOUNT OF ENHANCEMENT OF INVENTORY. SIMILAR ISSUE HAS COME UP FOR OUR CONSID ERATION IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002-03, WHEREIN WE HAVE CO NFIRMED THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PRINCIPLE, BUT PARTIAL RELIEF HAS BEEN ALLOWED ON ESTIMATION ON THIS ASPECT. ON THE PARI TY OF REASONING, WE HEREBY SET ASIDE THE DECISION OF THE COMMISSIONER OF INCOME-TA X (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW PARTIAL RELIEF FOLLOWING THE PRECEDENT FOR THE ASSESSMENT YEAR 2002-03. THUS, ASSESSEE PARTLY SUCC EEDS ON THIS GROUND. 29. GROUND NO 2 IS WITH REGARD TO THE DISALLOWANCE OF INTEREST AT RS 14,083/- WORKED OUT ON INTEREST FREE ADVANCE OF RS 7,00,000/ - TO M/S MANGAL MEDI CENTRE. THE AFORESAID GROUND HAS NOT BEEN PRESSED AT THE TI ME OF HEARING AND IS ACCORDINGLY DISMISSED. ITA NO 1655, 1712/PN/05 & 763/PN/06 M/S SATYAM MATS LTD. AURANGABAD 13 13 30. GROUND NO 3 RELATING TO LEVY OF INTEREST UNDER SECTION 234A/234B/234C IS CONSEQUENTIAL IN NATURE AND NEED NO ADJUDICATION. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 18TH DAY OF JA NUARY, 2011. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANN U) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED:18TH JANUARY, 2011 COPY TO:- 1) M/S SATYAM MATS LTD, AURANGABAD. 2) THE ACIT, CIR. 1, AURANGABAD 3) THE CIT (A)-I AURANGABAD. 4) THE CIT AURANGABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T.A.T., PUNE. BY ORDER TRUE COPY ASST. REGISTRAR, I.T.A.T., PUNE B