M/s. Haryana Cotton Co., Kolkata V. ITO, Ward - 34(3), Kolkata, Kolkata

ITA 2065/KOL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9229 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C NAYAK
• Keywords: Bogus purchase
• Section: 143(3)

Judgement Text

, SMC(A) , , IN THE INCOME TAX APPELLATE TRIBUNAL SMC(A) BENCH : KOLKATA () BEFORE , ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM] / I.T.A NO. 2065/KOL/2010 !' !' !' !'/ // / ASSESSMENT YEAR : 2006-07 M/S. HARYANA COTTON CO. VS INCOME-TAX OFFICER, W D-34(3), KOLKATA (PAN-AABFH 8876 N) ( $% /APPELLANT ) (&'$%/ RESPONDENT ) FOR THE APPELLANT: SHRI NIRMAL KAUSHIK FOR THE RESPONDENT: SHRI P. C. NAYAK () / ORDER THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A)-XX, KOLKATA IN APPEAL NO.206/CIT(A)-XX/WD34(3)/08-09/KOL VIDE DATE D 13.08.2010. THE ASSESSMENT WAS FRAMED BY ITO, WARD-34(3), KOLKATA U/S 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEAR 2006-07 VIDE HIS ORDER DATED 12.12.2008. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER O N ACCOUNT OF UNACCOUNTED PURCHASES/BOGUS PURCHASES. FOR THIS, THE ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1: 1.FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDIT ION MADE BY THE INCOME-TAX OFFICER OF A SUM OF RS.208500/- ON ACCOUNT OF PURC HASE. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 20.10.2006 AND THE ASSESSING OFFICER ISSU ED NOTICE U/S. 143(2) ON 13.7.2007. THE ASSESSEE FIRM IS DEALING IN COTTON, JUTE AND PU LSES. THE ASSESSEES TOTAL TURNOVER IS AT RS.80.34 LACS DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER IN ORDER TO VERIFY THE PURCHA SES, ISSUED NOTICE TO ONE MR. ABUL KASHEM OF LALGOLA, DIST. MURSHIDABAD, WHO REPLIED V IDE LETTER DATED 29.8.2008 THAT THERE IS NO TRANSACTION HE HAD ENTERED INTO WITH M/ S. HARYANA COTTON CO. DURING THE RELEVANT FY 2005-06, RELEVANT TO ASSESSMENT YEAR UN DER CONSIDERATION I.E. 2006-07. THE ITA 2065/K/2010- M/S.HARYANA COTTON CO.AY-06-07 2 PARTY ALSO FURNISHED HIS TRADING, P&L AND BALANCE S HEET ENDING AS AT 31.3.2006. THE ASSESSEE CLAIMED TO HAVE PURCHASED PULSES FROM MR. ABUL KASHEM FOR AN AMOUNT OF RS.2,08,500/- ON 27.4.2005 BUT ACCORDING TO MR. ABU L KASHEM, OUT OF TOTAL SALE OF RS.24.85 LACS, SALE OF JUTE WAS AT RS.17.50 LACS AN D BHUSIMAL FOR A SUM OF RS.7.35 LACS. HE HAS NOT DISCLOSED ANY SALE OF PULSES TO THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION OR NO SALE TO ANY OTHER PERSONS. THE ASSESSEE CLAIMED TO HAVE PURCHASED THE PULSES THROUGH BROKER AND PRODUCED COPY OF BILL OF MR. ABUL KASHEM DATED 27.4.2005. HE ALSO FILED COPY OF PAYMENT MADE BY C HEQUE NO. 490758 DATED 13.9.2005 OF RS. 2 LACS AND CASH OF RS.8,500/- ON 5.12.2005. AS THE ASSESSEE COULD NOT PRODUCE THE RELEVANT DOCUMENTS I.E. TRANSPORT BILTY ETC, THE AS SESSING OFFICER MADE ADDITION OF BOGUS PURCHASES AT RS.2,08,500/-. AGGRIEVED, ASSESSEE PR EFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING O FFICER BY GIVING FOLLOWING FINDING IN PARA 5 OF HIS ORDER: 5. I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDER ED THE SUBMISSIONS OF THE APPELLANT. IN RESPONSE TO NOTICE U/S. 133(6), SHR I ABUL KASHEM HAS DENIED HAVING MADE ANY SALES TO THE APPELLANT. WHILE THE APPELLANT HAS CLAIMED PURCHASE OF KALAIBETA PULSES FOR RS.2,08,500/-, TH E ACCOUNTS OF THE SUPPLIER CLEARLY REVEALS THAT HE HAS MADE NO SALES OF KALAI BETA PULSES DURING THE YEAR. IN THIS FACTUAL BACKGROUND, I FIND NO SUBSTANCE IN TH E ARGUMENT THAT THE PURCHASE WAS MADE THROUGH BROKER. THE CHEQUE SHOWING PAYMEN T AGAINST PURCHASE IS NOT IN FAVOUR OF THE SUPPLIER; MOREOVER, THE APPELLANT HAS ALSO FAILED TO FURNISH THE NAME AND ADDRESS OF THE BROKER. UNDER THE CIRCUMS TANCES, THE A.O. WAS JUSTIFIED IN HOLDING THAT THE PURCHASE OF RS.2,08,500/- SHOW N FROM SHRI ABUL KASHEM IS BOGUS. THE ADDITION OF RS.2,08,500/- IS CONFIRMED. GROUND NO. 1 IS DISMISSED. 4. I HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. I FIND THAT THE UNDISPUTED FACT IS THAT THE A SSESSEE HAD MADE UNACCOUNTED PURCHASES OF PULSES OF RS.2,08,500/-. THE ASSESSEE FILED COP Y OF BILL OF MR. ABUL KASHEM DATED 27.4.2005 FOR THE PURCHASES MADE THROUGH BROKER. A S THE ASSESSEE COULD NOT PRODUCE TRANSPORT BILTY AND ALSO FAILED TO FURNISH THE NAME AND ADDRESS OF THE BROKER THROUGH WHOM HE MADE PURCHASES, BUT IT IS ALSO A FACT THAT HE HAS MADE PAYMENT BY CHEQUE NO. 490758 DATED 13.9.2005 OF RS.2 LACS BUT THE ASSESSI NG OFFICER MADE ADDITION. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT QUA NTITATIVE DETAILS ARE AVAILABLE AND THE BOOKS OF ACCOUNT ARE DULY AUDITED. IT WAS ALSO STA TED THAT THE PURCHASES WERE MADE THROUGH BROKER AND THE PAYMENT WAS ALSO MADE THROUG H BROKER ONLY. HE STATED THAT THE SALES ARE EFFECTED AND RECORDED IN THE BOOKS OF ACC OUNT. HENCE, PURCHASES CANNOT BE ITA 2065/K/2010- M/S.HARYANA COTTON CO.AY-06-07 3 BOGUS. I AM OF THE VIEW THAT THE PURCHASES IN THIS CASE CANNOT BE HELD TO BE GENUINE PURCHASES AS THE SUPPLIER HAS CLEARLY REFUSED THE T RANSACTION AND HE HAS PRODUCED TRADING ACCOUNT, P&L AND BALANCE SHEET AND THOSE DO NOT REV EAL THIS TRANSACTION. BUT I AM OF THE VIEW THAT THE ENTIRE PURCHASES IF ADDED TO THE RETURNED INCOME IT WILL DISTORT THE GROSS PROFIT RATE AND ENTIRE PURCHASES CANNOT BE THE PROF IT OF THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES. HERE, I HAVE ALREADY POINTED OUT DU RING THE COURSE OF HEARING THE CASE LAW OF THE COORDINATE BENCH OF ITAT AHMEDABAD C B ENCH IN THE CASE OF VIJAY PROTEINS LTD. VS ACIT (1996) 58 ITD 428, WHEREIN TH E BENCH VIDE PARA 19 REPORTED AT PAGE 470, ON THE SIMILAR FACTS AND CIRCUMSTANCES, A S UNDER: 19. WE WILL NOW CONSIDER AS TO HOW MUCH DEDUCTION S HOULD BE ALLOWED TO THE ASSESSEE IN RESPECT OF COST OF PURCHASE OF OIL CAKE S SAID TO HAVE BEEN REALLY RECEIVED BY THEM BUT THE BILLS PRODUCED IN SUPPORT THEREOF WERE NOT GENUINE BILLS. IT IS ABSOLUTELY CLEAR FROM THE FACTS, MATER IAL AND EVIDENCE BROUGHT ON RECORD THAT THE ASSESSEE PRODUCED FICTITIOUS VOUCH ERS IN SUPPORT OF PURCHASE OF OIL CAKES SHOWN AS PURCHASED FROM THE 33 BOGUS SUPP LIERS. IT ALSO PRODUCED FICTITIOUS VOUCHERS FOR TRANSPORTATION OF THESE GOO DS. THE GOODS WERE NOT RECEIVED FROM THE PARTIES FROM WHOM IT IS SHOWN TO HAVE BEEN PURCHASED BUT SUCH MATERIAL WAS RECEIVED FROM A DIFFERENT SOURCE WHICH IS EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE ASSESSEE AND NONE ALSO. EVEN A FTER THE AO BROUGHT ADEQUATE MATERIAL ON RECORD WHICH EXPOSES THE FALSE STAND TAKEN BY THE ASSESSEE, THE ASSESSEE DID NOT COME OUT WITH THE T RUTH AS TO WHERE FROM IT HAD PURCHASED THE OIL CAKES IN MENTION WHICH ARE SHOWN TO HAVE BEEN PURCHASED FROM THE SAID 33 BOGUS PARTIES. 19.1 THERE COULD BE VARIOUS POSSIBLE ALTERNATIVE SO URCES WHEREFROM THE ASSESSEE COULD HAVE ACQUIRED OIL CAKES FOR PRODUCTION IN THE IR SEP, VIZ., (A) IT IS GENERALLY KNOWN THAT THE OIL MILLS ARE EN GAGED IN CARRYING OUT UNACCOUNTED PRODUCTION OF OIL AS WELL AS OIL CAKES. THE ASSESSEE MIGHT HAVE PURCHASED SUCH OIL CAKES OUT OF UNACCOUNTED PRODUCT ION DONE BY VARIOUS OIL MILLS. (B) THE AO IN THE WRITTEN SUBMISSIONS MADE BEFORE T HE TRIBUNAL IN PART B OF THE PAPER BOOK OF THE DEPARTMENT HAS ALSO INDICATED ABOU T ONE MORE POSSIBILITY, VIZ., THAT THE ASSESSEE IS HAVING AN OIL MILL AND I S ALSO PRODUCING THE OIL CAKES. THE BOGUS PURCHASE OF OIL CAKES SHOWN BY THE ASSESS EE ACCORDING TO THE AO MIGHT BE OUT OF THEIR OWN UNACCOUNTED PRODUCTION FO R WHICH THE BILLS HAVE BEEN PREPARED BY THE ASSESSEE THEMSELVES IN THE NAMES OF BOGUS CONCERNS. IN THIS REGARD IT WOULD BE WORTHWHILE TO MAKE A REFERENCE T O LETTER DT. 10TH DEC., 1995, SUBMITTED ON BEHALF OF THE ASSESSEE. IT HAS BEEN IN DICATED THAT THE CRUSHING CAPACITY OF ASSESSEE'S OWN OIL MILL IS APPROXIMATEL Y 50 TONS PER DAY AND THE CRUSHING CAPACITY OF THE ASSESSEE'S ASSOCIATE CONCE RN IS APPROXIMATELY 62.500 TONS PER DAY. IT HAS BEEN FURTHER STATED THAT CRUSH ING WAS CARRIED OUT ONLY FOR 110 DAYS IN THE YEAR UNDER APPEAL IN ASSESSEE'S OWN MILL. THE CHART SHOWING POWER CONSUMPTION VIS-A-VIS CRUSHING IN ASSESSEE'S OWN MILL HAS ALSO BEEN SUBMITTED ALONG WITH THE LETTER. THE FIGURES OF PRO DUCTION AND THESE DETAILS GIVEN IN THE AFORESAID LETTER SHOW THAT THE INSTALL ED CAPACITY OF THE OIL MILL BELONGING TO THE ASSESSEE HAS BEEN USED ONLY PARTLY . ITA 2065/K/2010- M/S.HARYANA COTTON CO.AY-06-07 4 THE RATIO OF CONSUMPTION PER UNIT OF POWER WITH REF ERENCE TO THE PRODUCTION CARRIED OUT IN DIFFERENT MONTHS HAS ALSO NOT BEEN T AKEN INTO CONSIDERATION FOR DETERMINING THE REASONABLENESS OF PRODUCTION SHOWN BY THE ASSESSEE IN THIS OIL MILL. THE POSSIBILITY INDICATED BY THE AO IN THE WR ITTEN SUBMISSIONS MADE IN COMPILATION MARKED AS PART B CANNOT TOTALLY BE RULE D OUT BY THE AO WHILE MAKING AN ADDITION ON ACCOUNT OF LOW YIELD IN THE O IL MILL HAS HIMSELF RESTRICTED THE ADDITION ON ACCOUNT OF INTRODUCTION OF OIL CAKE S ONLY TO THE EXTENT OF RS. 3,19,618 APART FROM THE ALLEGED LOW YIELD OF OIL OB TAINED FROM RAPESEEDS. 19.2 IN ANY CASE, THE OIL CAKES SO RECEIVED AND USE D BY THE ASSESSEE IN THE PRODUCTION ACTIVITIES HAS COME OUT OF THE UNACCOUNT ED PRODUCTION OF OIL CAKES OF OTHER MILL OWNERS OR PARTLY FROM OTHER MILL OWNERS AND PARTLY FROM OIL MILLS BELONGING TO THE ASSESSEE AND THEIR ASSOCIATE CONCE RNS. NOTHING DEFINITE CAN BE SAID BECAUSE THE TRUE SOURCE WHEREFROM THE ASSESSEE ACQUIRED SUCH OIL CAKES SHOWN AS HAVING BEEN PURCHASED FROM 33 BOGUS SUPPLI ERS IS KNOWN ONLY TO THE ASSESSEE AND NONE ELSE. BUT ONE THING IS CERTAIN TH AT THE ASSESSEE HAS DEFINITELY INFLATED THE EXPENDITURE IN QUESTION BY SHOWING HIG HER AMOUNT OF PURCHASE PRICE THROUGH THE FICTITIOUS INVOICES IN THE NAMES OF 33 BOGUS SUPPLIERS. 19.3 IT IS WELL KNOWN THAT IF PURCHASES ARE MADE FR OM OPEN MARKET WITHOUT INSISTING FROM THE GENUINE BILLS, THE SUPPLIERS MAY BE WILING TO SELL THOSE PRODUCTS AT A MUCH LOWER RATE AS COMPARED TO THE RA TE AT WHICH THEY MAY CHARGE IN CASE THE DEALER HAS TO GIVE A GENUINE SAL E INVOICE IN RESPECT OF THAT SALE AND SUPPLY THE GOODS. THERE MAY BE VARIOUS FACTORS DUE TO WHICH THERE IS BOUND TO BE A SUBSTANTIAL DIFFERENCE BETWEEN THE PARTY PU RCHASE PRICE OF UNACCOUNTED MATERIAL AND RATE OF PURCHASE OF UNACCOUNTED FOR GO ODS. THERE MAY BE A SAVING ON ACCOUNT OF SALES-TAX AND OTHER TAXES AND DUTIES WHICH MAY BE LEVIABLE IN RESPECT OF MANUFACTURE OF SALE OF GOODS IN QUESTION . THE SUPPLIERS OR THE MANUFACTURERS MAKE A SUBSTANTIAL SAVING IN THE INCO ME-TAX IN RESPECT OF INCOME FROM SALE OF UNACCOUNTED GOODS PRODUCED AND SOLD BY THEM. THIS MAY ALSO BE ONE OF THE FACTORS DUE TO WHICH THE SELLER MAY BE W ILLING TO CHARGE LOWER RATES FOR UNACCOUNTED GOODS AS COMPARED TO ACCOUNTED FOR GOODS. KEEPING ALL THESE FACTORS IN MIND AND ALSO KEEPING IN VIEW THE DECISI ON OF THE TRIBUNAL IN THE CASE OF SANJAY OIL CAKE INDUSTRIES VS. IAC ITA NO. 2653, 2654 AND 2655/AHD/1988, DT. 29TH APRIL, 1994, WE HOLD THAT 25% OF THE PURCH ASE PRICE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS THROUGH SUCH FICTITIOUS INVOICES IN THE NAME OF 33 BOGUS PARTIES SHOULD BE DISALLOWED OUT OF THE AMOUNT OF P URCHASES SHOWN TO HAVE BEEN MADE FROM THOSE 33 BOGUS SUPPLIERS. THE TOTAL PURCH ASES SHOWN AS MADE FROM THESE 33 PARTIES WHICH HAVE BEEN DISALLOWED BY THE AO ARE AS UNDER : RS. (I) BOGUS PURCHASES AS DISCUSSED IN PARA 70,03,826 38 READ WITH PARA 22 OF THE ASSESSMENT ORDER (II) BOGUS PURCHASE AS DISCUSSED 17,99,788 IN PARA 40 OF THE ASSESSMENT ORDER 17,99,788 WE DIRECT THE AO TO DISALLOW 25% OF THE AFORESAID AMOUNT ON ACCOUNT OF INFLATION OF PURCHASE PRICE. THE AMOUNT OF DISALLOW ANCE WOULD ACCORDINGLY COME TO RS. 22,00,903 WHICH MAY BE ROUN DED TO RS. 22 LAKHS. THE AMOUNT OF EXPENDITURE SHOWN BY WAY OF FR EIGHT ON THE AFORESAID PURCHASES HAS BEEN SEPARATELY DISALLOWED BY THE AO TO THE TUNE OF RS. 5,02,752. SINCE THE ASSESSEE HAS FAILED TO P ROVE THAT SUCH OIL CAKES WERE RECEIVED FROM OUTSIDE THE STATE, AS SHOWN AS P ER THE FICTITIOUS INVOICES, WE AGREE WITH THE VIEW TAKEN BY THE DEPART MENTAL AUTHORITIES ITA 2065/K/2010- M/S.HARYANA COTTON CO.AY-06-07 5 IN RESPECT OF DISALLOWANCE OF THE ENTIRE AMOUNT OF FREIGHT IN RELATION TO THE AFORESAID PURCHASES. THE DISALLOWANCE OF RS. 5, 02,752 IS ALSO, THEREFORE, CONFIRMED. THUS, THE AO IS DIRECTED TO R ESTRICT THE DISALLOWANCE TO AN AGGREGATE SUM OF RS. 27,02,752 (RS. 22 LAKHS PLUS RS. 5,02,752) AS AGAINST THE AGGREGATE DISALLOWANCE OF RS. 93,06,366 MADE BY THE AO COMPRISING OF RS. 70,03,826, RS. 17,99,788 AND RS. 5 ,02,752. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE AND THE CASE LAW OF VIJAY PROTEINS LTD. SUPRA, THE FACTS BEING EXACTLY IDENTICAL IN THE PRESENT CASE AND THAT OF VIJAY PROTEINS LTD., RESPECTFULLY FOLLOWING, I D IRECT THE ASSESSING OFFICER TO RECOMPUTE THE INCOME BY MAKING DISALLOWANCE OF THES E BOGUS PURCHASES AT 25%. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 5. ORDER PRONOUNCED IN OPEN COURT ON 15 TH DAY OF MARCH, 2011. SD/- , (MAHAVIR SINGH) JUDIC IAL MEMBER ( *+ *+ *+ *+) )) ) DATED 15 TH DAY OF MARCH, 2011 ,- ./ 0 JD.(SR.P.S.) () 1 &2 3(2!4- COPY OF THE ORDER FORWARDED TO: 1 . $% / APPELLANT M/S. HARYANA COTTON CO., C/O SRI R. P. SHARMA, ADVOCATE, 19-D, MUKTARAM BABU STREET, KOLKA TA-700 007 2 &'$% / RESPONDENT, ITO, WARD-34(3), KOLKATA. 3 . ) / THE CIT(A), KOLKATA 4. ) ( )/ CIT, KOLKATA 5 . ;< & / DR, KOLKATA BENCHES, KOLKATA '2 &/ TRUE COPY, ()=/ BY ORDER, / /ASSTT. REGISTRAR .