I.T.O.-5(1), Firozabad V. M/s Brij Fertilizers Pvt. Ltd., Firozabad

ITA 250/AGR/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9968 (ITAT-AGRA)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-08-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 08-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SAHGAL
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.250/AG/2012 ASSESSMENT YEAR:2000-01 THE ITO-5(1), VS. M/S BRIJ FERTILIZERS PVT.LTD. FIROZABAD A-6 & 7, INDUSTRIAL ESTATE, SHIKOHABAD, FIROZABAD PAN NO. AAACB6516D CROSS OBJECTION NO. 49/AG/12 (IN ITA NO. 250/AG/2012) ASSESSMENT YEAR 2000-01 M/S BRIJ FERTILIZERS PVT. LTD. VS. THE ITO-5(1), A-6 & 7, INDUSTRIAL ESTATE, FIROZABAD SHIKOHABAD,FIROZABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P.K. SAHGAL RESPONDENT BY : SH. WASEEM ARSHAD DATE OF HEARING : 28/01/2016 DATE OF PRONOUNCEMENT :09/02/2016 ORDER PER ANNAPURNA MEHROTRA A.M. PRESENT APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CI T(A)-1, AGRA DATED 19.12.2011. 2 2. GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS U NDER:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N ALLOWING RELIEF TO THE ASSESSEE ON THE BASIS OF MEERUT COURT JUDGME NT WHEREIN THE SALES WERE TREATED AS GENUINE AND IT HAS BEEN HELD THAT N O EVIDENCE HAS BEEN FOUND AGAINST THE ASSESSEE DOING ANY BOGUS PRODUCTI ON OF FERTILIZERS, WITHOUT PROPERLY APPRECIATING THE FACTS AND CIRCUMS TANCES OF THE CASE, ESPECIALLY THAT THE VEHICLE NUMBERS THROUGH WHICH T HE ASSESSEE CLAIMED TRANSPORTATION OF ROCK PHOSPHATE ETC. FAKE AND NON GENUINE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS. 35,09,310/- RECEIVABLE BY WAY OF SU BSIDY (CONCESSION) BY THE ASSESSEE, IGNORING THE FACTS OF THE CASE AND TH E OBSERVATIONS & FINDINGS OF THE AO GIVEN IN THE ASSESSMENT ORDER. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DIRECTING THE ASSESSING OFFICER TO ESTIMATE THE INCOME OF THE ASSE SSEE COMPANY BY COMPUTING ITS NET PROFIT, TAKING THE NET PROFIT RAT E OF 10% AND APPLYING IT ON ITS TOTAL TURNOVER OF RS. 1,07,66,250/- INSTEAD OF 7.2% DECLARED BY THE ASSESSEE COMPANY, WITHOUT GIVING ANY SPECIFIC JUSTI FICATION FOR ADOPTING NP RATE OF 10%, ESPECIALLY WHEN THE LD. CIT(A) HAS HELD THAT THE A.O. WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY U/S 145(3) OF I.T ACT, 1961. 4. THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HO LDING THAT NO SEPARATE ADDITION FOR SUBSIDY RECEIVED BY THE ASSES SEE COMPANY ON ACCOUNT OF WHICH ADDITION OF RS.35,19,310/- WAS MAD E BY THE A.O. IN THE ASSESSMENT ORDER, IS REQUIRED TO BE MADE BECAUSE TH IS SUBSIDY IS ALREADY INCLUDED IN TOTAL TURNOVER SHOWN BY THE ASSESSEE, I GNORING THE FACT THAT THE SAID SUBSIDY IS A CAPITAL RECEIPT FROM THE GOVE RNMENT AND CREDITED TO THE ASSESSEES PROFIT AND LOSS ACCOUNT AND IN NO WA Y IT IS PART AND PARCEL OF THE TURNOVER. 5. THAT THE ORDER OF LD. CIT(A) BEING ERRONEOUS IN LAW AND ON FACTS TO BE QUASHED AND THAT OF THE AO TO BE RESTORED. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD OR ALTER ANY OR MORE GROUND OR GROUNDS OF APPEAL AS MAY BE DEEMED FIT AT THE TIME OF HEARING OF APPEAL. 3. GROUNDS OF CROSS OBJECTION RAISED BY THE RESPOND ENT ASSESSEE ARE AS UNDER:- 1. THAT THE GENUINENESS OF THE PURCHASES OF RAW MAT ERIAL WAS BEYOND DOUBT ESTABLISHED BY THE ASSESSEE COMPANY WI TH REFERENCE TO THE RELEVANT MATERIAL / EVIDENCES, PLACED ON RECORD S AND / OR PRODUCED 3 FOR VERIFICATION, THUS THE AUTHORITIES BELOW HAVE B EEN ERRED BOTH IN LAW AND ON FACTS IN TREATING THE PURCHASES OF RAW MATER IAL AS UNVERIFIABLE. 2. THAT WHILE OBSERVING THAT FULL VERIFICATION OF P URCHASES SHOWN BY THE ASSESSEE COMPANY COULD NOT BE MADE, THE LEARNED CIT(A)-I, AGRA COULD NOT POINT OUT EVEN A SINGLE SPECIFIC INSTANCE OF ALLEGED UNVERIFIABLE PURCHASE OF RAW MATERIAL. 3. THAT THE ASSESSEE COMPANY HAS COMPLETELY DISCHAR GED ONUS LAID ON IT FOR PROVING GENUINENESS OF PURCHASES OF RAW M ATERIAL BY BRINGING ON RECORDS ALL HUMANLY POSSIBLE EVIDENCES / MATERIAL I N SUPPORT THEREOF. 4. THAT THE LEARNED CIT(A)-I, AGRA HAS ERRED BOTH I N LAW AND ON FACTS IN REJECTING THE AUDITED BOOKS OF ACCOUNTS OF THE A SSESSEE COMPANY U/S 145(3) OF I.T. ACT, 1961 AND THEREAFTER ESTIMATING THE NET PROFIT AT THE RATE OF 10% OF THE TOTAL TURNOVER, BY COMPLETELY BRUSHIN G ASIDE THE VITAL FACTS, EVIDENCES / MATERIAL AND EVEN PAST ESTABLISHED HIST ORY, SOLELY ON THE BASIS OF GUESS WORK AND WRONGLY DRAWN UNILATERAL INFERENC ES, THUS SUCH ACTION OF LEARNED CIT(A)-I, AGRA IS UNWARRANTED. 5. THAT THE BOOK RESULTS DECLARED BY THE ASSESSEE C OMPANY BEING PROPERLY EXPLAINED AND VERIFIABLE WITH REFERENCE TO THE AUDITED BOOKS OF ACCOUNTS AND OTHER RELEVANT RECORDS, THUS THESE SHO ULD HAVE BEEN ACCEPTED. 4. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN THE MANUFACTURING OF FERTILIZER. FOR THE IMPUGNED A SSESSMENT YEAR, RETURN SHOWING A LOSS OF RS.4,50,610/- WAS FILED BY THE AS SESSEE.THEREAFTER ASSESSMENT IN THIS CASE WAS MADE U/S 143(3) BY TH E A.O. MAKING ADDITION OF FERTILIZER SUBSIDY RECEIVED AMOUNTING TO RS. 35, 23,500/- ON THE GROUND THAT THE ASSESSEE WAS NOT FOUND TO HAVE BEEN ENGAGE D IN THE MANUFACTURING OF FERTILIZERS WHICH WAS BASED ON THE FINDINGS OF THE SURVEY IN THE CASE OF M/S SARRAF PHOSPHATE(P) LTD., TALBEH AT LALITPUR, M/S RAJ MINERALS AND CHEMICALS, TALBEHAT LALITPUR, & M/S HI LLTOP ROCKS(P) LTD., TIKAMGARH (M.P.). AS PER THE ASSESSMENT ORDER, THE ASSESSING OFFICER CONDUCTED ENQUIRIES AND ALSO HELD THAT BOOKS OF ACC OUNTS WERE NOT 4 PRODUCED FOR VERIFICATION AND THE PURCHASES AND SAL ES SHOWN BY THE ASSESSEE AND EXPENSES CLAIMED THERE AGAINST WERE NO T VERIFIABLE. THEREFORE THE SUBSIDY RECEIVED AS A RESULT OF PURPO RTED MANUFACTURING WAS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE. 5. AGAINST THE ASSESSMENT SO FRAMED, APPEAL WAS FIL ED BEFORE LD. CIT(A), WHO FOUND THAT THE MAIN DISPUTE INVOLVED IN THE APPEAL WAS WITH REGARD TO THE GENUINENESS OF THE PRODUCTION AND SAL E OF FERTILIZERS AND THE AMOUNT OF SUBSIDY RECEIVED FROM THE GOVT. OF UTTAR PRADESH. LD. CIT(A) GOT NECESSARY ENQUIRIES CONDUCTED FROM THE A.O., WHOSE REPORTS WERE TAKEN INTO ACCOUNT. LD.CIT(A) AFTER TAKING INTO CONSIDERA TION ALL THE EVIDENCES HELD AS UNDER:- I HAVE CONSIDERED ALL THE FACTS BROUGHT BEFORE ME B Y THE LD. AR AS WELL AS THE MANAGING DIRECTOR OF THE APPELLANT COMPANY AND THE A.O. WITH REGARD TO ALL THE ACTIVITIES OF THE APPELLANT COMPA NY RELATING TO PURCHASE OF ROCK PHOSPHATE AND PRODUCTION OF FERTILIZERS. ON MY DIRECTION, THE AO HAS TIRED TO MAKE VERIFICATION ABOUT THE PURCHASE O F RAW MATERIALS CLAIMED TO HAVE BEEN USED IN PRODUCTION OF FERTILIZ ERS BUT AS THE MATTER WAS VERY OLD AND ALL THE SUPPORTING DOCUMENTS BEING NOT AVAILABLE WITH REGARD TO PURCHASE OF MATERIAL AS WELL AS THE PARTI ES BEING MENTIONED IN THE RECORDS, THESE PARTIES COULD NOT RESPOND TO THE ENQUIRIES STARTED BY THE AO FOR VERIFICATION OF PURCHASE OF RAW MATERIAL AND THEREFORE, IT HAS BEEN REPORTED BY THE AO THAT THE GENUINENESS OF PUR CHASE OF RAW MATERIAL AND THEREFORE, IT HAS BEEN REPORTED BY THE AO THAT THE GENUINENESS OF PURCHASE OF RAW MATERIAL COULD NOT B E VERIFIED BY HIM. HOWEVER, THE FACT OF DOING PRODUCTION OF FERTILIZER AND ITS SUBSEQUENT SALES CANNOT BE DENIED IN VIEW OF THE EVIDENCES COLLECTED FROM THE TRADE TAX DEPARTMENT AS WELL AS THE CENTRAL EXCISE DEPARTMENT WHO HAVE CONFIRMED THE PRODUCTION OF FERTILIZERS AS WELL AS THEIR SALES. EVEN THE CASE FILED AGAINST THE APPELLANT COMPANY AND ITS OFFICIA LS ALLEGING FRAUD FOR SHOWING FICTITIOUS PRODUCTION OF FERTILIZERS AND CL AIMING SUBSIDY FROM THE GOVERNMENT HAS BEEN DISMISSED BY THE COURT IN ABSEN CE OF ANY CREDIBLE EVIDENCE AND SUBSEQUENTLY, THE GOVERNMENT HAS TO RE LEASE SUBSIDY WITHHELD BY IT. THEREFORE, I FIND THAT THE APPELLAN T COMPANY HAS 5 CONCLUSIVELY PROVED THE PRODUCTION FERTILIZER AND I TS SALE. HOWEVER, IN ABSENCE OF VERIFICATION OF PURCHASES, IT COULD NOT BE POSSIBLE TO VERIFY THE CORRECTNESS OF BOOKS OF ACCOUNT BEING MAINTAINED BY THE APPELLANT COMPANY. THEREFORE, I FIND THAT THE AO IS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT COMPANY AS PER THE PROVISI ON OF SECTION 145(3) BUT THE PRODUCTION AND SALE SHOW BY THE APPELLANT C OMPANY CANNOT BE REJECTED, AS THE SAME HAVE BEEN RECORDED IN THE REC ORD MAINTAINED WITH TWO GOVERNMENT AGENCIES I.E. TRADE TAX DEPARTMENT AND CENTRAL EXCISE DEPARTMENT. EVEN THE SUPPLY OF RAW MATERIAL HAS BEE N ACCEPTED BY THE MEERUT COURT. IN ABSENCE OF ANY EVIDENCE TO SHOW TH AT THE SUPPLY OF RAW MATERIAL TO THE APPELLANT COMPANY WAS FALSE, I DO N OT FIND THE REPORT OF ITO, LALITPUR JUSTIFIED, MADE JUST ON THE BASIS OF HIS FINDING ABOUT THREE VEHICLES AS DISCUSSED BY HIM IN HIS REPORT, DISBELI EVING THE RECORD OF TRADE TAX DEPARTMENT IN WHICH ALL THE FORM NO. 31 SHOWING SUPPLY OF RAW MATERIAL HAVE BEEN ENTERED. THEREFORE, I DO NOT AGR EE WITH THE REPORT OF ITO LALITPUR AND FURTHER, RELYING ON THE ORDER OF ME ERUT COURT AS WELL AS LOOKING O THE FACT THAT PRODUCTION OF FERTILIZER HA S TAKEN PLACE, THE SUPPLY OF RAW MATERIAL HAS ALSO BEEN ACCEPTED BUT AS FULL VERIFICATION OF PURCHASE SHOWN BY THE APPELLANT COMPANY COULD NOT B E MADE, THE AMOUNT OF PURCHASES OF RS. 56,01,802/- DEBITED BY T HE APPELLANT COMPANY IN ITS MANUFACTURING ACCOUNT REMAINED UNVER IFIED AND HENCE, THE NET PROFIT OF RS. 8,42,210/- DECLARED BY THE AP PELLANT COMPANY CANNOT BE ACCEPTED. THERE IS NO DOUBT THAT PRODUCTION AND SALES HAS TAKEN PLACE AND THEREFORE, FULL FIGURE OF RS. 1,07,66,250 /- INCLUDING THE SUBSIDY RECEIVED BY THE APPELLANT COMPANY, CAN BE ACCEPTED. HOWEVER, THE FULL AMOUNT OF PURCHASES DEBITED BY THE APPELLANT COMPAN Y IN THE MANUFACTURING / TRADING ACCOUNT REMAINED UNVERIFIED , ESPECIALLY IN VIEW OF THE FACT THAT ALL THE SUPPLIERS SHOWN BY THE APP ELLANT COMPANY IN ITS RECORD WERE EITHER NOT TRACEABLE OR SOME OF THESE S UPPLIERS WERE NOT FOUND TO BE GENUINE SUPPLIER WHEN A SURVEY WAS CARR IED OUT IN THEIR CASE BY THE INCOME TAX DEPARTMENT. AS THE MANUFACTURING AND SALES MADE BY THE APPELLANT ARE PROVED FROM THE RECORDS OF TRADE TAX DEPARTMENT AND EXCISE DEPARTMENT, THE ONLY POSSIBILITY DUE TO NON VERIFICATION OF PURCHASES AND CONSIDERING THE FINDINGS OF SURVEY IN THE PREMISES OF SUPPLIERS OF RAW MATERIALS CAN BE SAID TO BE THAT A PPELLANT HAS INFLATED PURCHASES BY SHOWING CERTAIN FICTITIOUS PURCHASES O F RAW MATERIAL AND THEREFORE, AFTER REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT U/S 145(3) FOR NOT GETTING ITS PURCHASES VERIFIED, I FIND THAT IN THE INTEREST OF JUSTICE, IT WOULD BE APPROPRIATE TO ESTIMATE THE NET PROFIT OF THE APPELLANT COMPANY AT 10%. IN VIEW OF ABOVE FINDINGS, I DIRECT THE AO TO ESTIMATE THE INCOME OF THE APPELLANT COMPANY BY COMPUTING IT S NET PROFIT, TAKING THE NET PROFIT RATE AT 10% AND APPLYING IT ON ITS T OTAL TURNOVER OF RS. 1,07,66,250/- INSTEAD OF 7.2% DECLARED BY THE APPEL LANT COMPANY AND ACCORDINGLY DETERMINE THE TAXABLE INCOME OF THE APP ELLANT COMPANY. BEFORE US LD. DR RELIED UPON THE FINDINGS OF THE A. O. AND CONTENTED THAT SURVEY CONDUCTED AT THE PLACES OF THE ALLEGED SUPPL IERS SHOWED THAT THEY WERE ISSUING BOGUS BILLS AND HENCE THE ASSESSEE WAS NOT DOING ANY ACTUAL 6 MANUFACTURING. HE PRAYED THAT THE FINDINGS OF THE A SSESSING OFFICER BE CONFIRMED AND ORDER OF LD. CIT(A) BE MODIFIED ACCOR DINGLY. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE FINDINGS OF LD. CIT(A) BUT FURTHER ARGUED THAT LD. CIT(A) OUGHT NOT TO HAV E REJECTED THE BOOKS OF ACCOUNT AS THERE WAS NO BASIS FOR HIM TO ESTIMATE T HE NET PROFIT AT 10%. 6. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND THAT THE LD. CIT(A) HAS PASSED A WELL REASONED ORDER BASED ON THE FINDINGS RETURNED BY THE A.O. IN HIS REMAND REPORT AND WE DO NOT FIND ANY INFIRMI TY IN THE SAME. LD. CIT(A) HAS RECORDED THE FINDINGS THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND SALE OF FERTILIZER AND SUCH FINDI NGS HAVE BEEN MADE BASED ON THE REMAND REPORTS AND THE ORDERS OF TRADE TAX AUTHORITIES AND CENTRAL EXCISE AUTHORITIES & THE DIRECTORATE OF AGR ICULTURE, U.P. GOVT. LD. CIT(A) HAS ALSO BASED HIS FINDINGS ON THE ORDER OF THE MEERUT COURT IN AN FIR FILED AGAINST THE ASSESSEE FOR SHOWING FICTITIO US PRODUCTION OF FERTILIZER WHICH WAS UPHELD BY THE HIGH COURT. WE FIND THAT IT COULD NOT BE SHOWN BY THE REVENUE TO US AS TO HOW SUCH FINDINGS ARE NO T IN CONSONANCE WITH THE MATERIAL ON RECORD. IN VIEW OF QUITE SPEAKING O RDER BASED ON EVIDENCE PASSED BY CIT(A), WE UPHOLD THE ORDER OF C IT(A). 7. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THEREFORE DISMISSED. 7 8. ADVERTING TO CO, THE COUNSEL OF THE ASSESSEE COU LD NOT SHOW US AS TO WHY THE PURCHASES SHOWN BY THE ASSESSEE BE ACCEP TED WHEN THE SUPPLIER SHOWN BY THE ASSESSEE COMPANY WERE EITHER NOT TRACEABLE OR SOME WERE FOUND TO BE NOT GENUINE WHEN SURVEY WAS C ONDUCTED AT THE PREMISES AND THE PURCHASES REMAINED UNVERIFIABLE. I N VIEW OF THE SAME WE UPHOLD THE ACTION OF THE LD. CIT(A) IN REJECTING THE BOOKS OF THE ASSESSEE U/S 145(3) OF THE INCOME TAX ACT, 1961. FURTHER LD. AR ALTERNATIVELY ARGUED THAT THERE WAS NO BASIS WITH THE LD. CIT(A) FOR ESTIMATING ITS PROFIT @10% AND PLEADED T HAT THE SAME SHOULD BE DONE ON A REASONABLE BASIS. LD. AR DREW OUR ATTENTI ON TO A CHART SHOWING ASSESSED N.P. RATE OF THE ASSESSEE FOR EARLIER YEAR S AND POINTED OUT THAT THE N.P. RATE NEVER EXCEEDING 8.42% IN EARLIER YEAR S. THE LD. AR THEREFORE PLEADED THAT ESTIMATION OF NET PROFIT @ 10% IN ANY CASE WAS EXCESSIVE. WE HAVE HEARD THE ARGUMENTS AND PERUSED THE DOCUMEN TS PRODUCED BEFORE US. WE AGREE WITH THE CONTENTION OF THE LD. AR THAT THE ESTIMATION OF NET PROFIT IN ANY CASE SHOULD BE ON A REASONABLE BASIS AND WE FIND THAT THE MAXIMUM ASSESSED PROFITS SHOWN BY THE ASSESSEE IN EARLIER YEARS IS 8.42%. FURTHER SINCE NO OTHER REASONABLE BASIS HAS BEEN GIVEN BY THE LD. DR, WE HOLD THAT THE REASONABLE NET PROFIT RATE TAK ING INTO CONSIDERATION THE PAST HISTORY OF THE ASSESSEE BE TAKEN AT 8.5% A ND THE INCOME OF THE ASSESSEE BE CALCULATED ACCORDINGLY. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE PARTLY ALLOWED. 8 9. THE CO FILED BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09/02/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR