ACIT, New Delhi V. M/s Shakti Bhog Foods Pvt. Ltd, New Delhi

ITA 2778/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61737 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 22-05-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 04-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN KAULI; SHUMANA SEN SENIOR D
• Assessee Lawyers: R P MALL S
• Keywords: Bogus purchase; Tangible material; Difference of opinion; Accommodation entries; Notional interest; Commercial expediency; Reason to believe; Change of opinion
• Section: 133A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) SHRI U.B.S. BEDI, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NOS.2777 TO 2781/DEL./2010 (ASSESSMENT YEARS : 1999-00, 2000-01, 2001-02, 2003 -04, 2004-05) ACIT, CENTRAL CIRCLE 7, VS. M/S. SHAKTI BHOG FOODS PVT. LTD., NEW DELHI. 24, SSI INDUSTRIAL AREA, G.T. KARNAL ROAD, DELHI. (PAN : AAACS4153M) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL AGGARWAL & R.P. MALL, A DVOCATES REVENUE BY : SHRI NIRANJAN KAULI, CIT DR AND SMT. SHUMANA SEN, SENIOR DR ORDER PER BENCH : ALL THESE FIVE APPEALS FILED BY THE REVENUE EMANATE FROM THE FIVE ORDERS OF THE CIT (APPEALS)-I, NEW DELHI ALL DATED 15.03.2 010. SOME GROUNDS OF APPEAL ARE COMMON IN ALL THE APPEALS, THEREFORE, TH ESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. THE ASSESSEE COMPANY ENGAGED IN THE MANUFACTURE OF ATTA AND OTHER PRODUCTS LIKE CATTLE FEED, RICE, DALIA, BESAN, SUJI , SALT, ETC.. ASSESSEE IS PURCHASING WHEAT AS RAW MATERIAL. ITA NOS.2777 TO 2781/DEL/2010 2 3. ALTHOUGH ALL THESE APPEALS HAVE BEEN FILED BY TH E REVENUE HOWEVER THE LD. AR SUBMITTED THAT UNDER RULE 27 OF INCOME TAX ( APPELLATE TRIBUNAL) RULES, 1963, ASSESSEE WANTS TO SUPPORT ORDER ON THE GROUND OF REOPENING DECIDED AGAINST THE ASSESSEE BY THE CIT (A). THE L D. AR SUBMITTED THAT THERE WAS NO VALID ASSUMPTION OF JURISDICTION U/S 147 OF THE INCOME-TAX ACT, 1961 ON THE BASIS OF WHICH ASSESSMENT WAS REOPENED U/S 1 47 OF THE ACT. LD. AR PLEADED THAT NOTICE U/S 148 WAS WITHOUT JURISDICTIO N. THE REASONS RECORDED ARE HIGHLY ILLUSORY AND ARE IN THE NATURE OF MERE P RETENCE. THE PROCEEDINGS HAVE BEEN INITIATED TO EXAMINE CERTAIN TRANSACTIONS OF PURCHASES OF THE ASSESSEE. THUS, THE PROCEEDINGS WERE INITIATED ONL Y FOR THE PURPOSES OF INVESTIGATION. THERE IS NO MATERIAL OR EVIDENCE TO ALLEGE THAT THE INCOME OF THE ASSESSEE COMPANY HAS ESCAPED ASSESSMENT. LD. A R FURTHER PLEADED THAT THERE MUST BE EXISTENCE OF TANGIBLE MATERIAL OR FOR MATION OF BELIEF WHICH IS A PRE-REQUISITE FOR INITIATION OF ACTION U/S 147 OF T HE ACT. SECTION 147 POSTULATES THAT ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THERE SHOULD BE FACTS BEFORE ASSESSI NG OFFICER WHICH REASONABLY GIVE RISE TO THE BELIEF. LD. AR PLEADED THAT THERE WAS NO MATERIAL WHICH HAS NEXUS WITH THE FORMATION OF THE REASON TO BELIEVE BY THE ASSESSING OFFICER. LD. AR ALSO PLEADED THAT REASSESSMENT PRO CEEDINGS CANNOT BE INITIATED ONLY ON THE BASIS OF REASON TO SUSPECT. LD. AR RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF BAWA ABH AI SINGH REPORTED IN 253 ITA NOS.2777 TO 2781/DEL/2010 3 ITR 83 (DEL.). LD. AR ALSO SUBMITTED THAT THE REAS ONS TO SUSPECT ARE NOT THE SAME AS REASONS TO BELIEVE. FOR THIS, HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. INDIAN OIL COR PORATION REPORTED IN 158 ITR 956 (SC). LD. AR ALSO SUBMITTED THAT THE REASO N TO BELIEVE MUST HAVE A RATIONAL CONNECTION WITH OR RELEVANT BEARING ON THE FORMATION OF THE BELIEF. FOR THIS, HE RELIED ON THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF ITO VS. LAKHMANI MEWAL DAS REPORTED ON 103 ITR 437 (SC). FINALLY, LD. AR PLEADED TO SET ASIDE THE ORDER OF THE CIT (A) ON THIS ISSUE. 4. ON THE OTHER HAND, LD. DR RELIED ON THE DECISION OF AUTHORITIES BELOW AND ALSO SUBMITTED THAT THE ASSESSING OFFICER RECEI VED THE INFORMATION FROM THE INVESTIGATION WING THAT ASSESSEE HAS RECEIVED A CCOMMODATION ENTRY FOR THE PURCHASE BILLS. THE INVESTIGATION WING PASSED ON T HE INFORMATION THAT SHRI NARESH KUMAR, SON OF SHRI DEENDAYAL, PROPRIETOR OF N.K. TRADING CO. ENGAGE IN PROVIDING BOGUS ACCOMMODATION ENTRIES AND ASSESS EE IS ALSO BENEFICIARY OF SUCH BOGUS ENTRIES. THE ASSESSING OFFICER CONSIDE RED THIS NEW INFORMATION AND MADE A REASONABLE BELIEVE THAT DUE TO THESE BOG US ACCOMMODATION PURCHASE BILLS, THE INCOME HAS ESCAPED ASSESSMENT. NOTICE U/S 148 WAS ISSUED AFTER RECORDING THE PROPER REASONS AS PER REQUIREME NT OF LAW. THEREFORE, REOPENING WAS BASED ON A BELIEF. THERE WAS FRESH I NFORMATION IN RESPECT OF THE ASSESSEE AS A BENEFICIARY OF BOGUS ACCOMMODATIO N PURCHASE BILLS PROVIDED TO IT WHICH REPRESENTED UNDISCLOSED INCOME OF THE A SSESSEE. THE INFORMATION ITA NOS.2777 TO 2781/DEL/2010 4 WAS SPECIFIC. ANY REASONABLE PERSON SHALL MAKE A B ELIEF THAT INCOME HAS ESCAPED AS THE TRANSACTION ENTERED INTO BY THE ASSE SSEE FOR BOGUS ACCOMMODATION PURCHASE BILLS. THESE TRANSACTIONS W ERE NOT GENUINE TRANSACTIONS. THEREFORE, THERE WAS SUFFICIENT MATE RIAL WHICH IS SUFFICIENT TO MAKE REASON TO BELIEVE FOR INITIATING THE PROVISION S U/S 147. THERE WAS A RATIONAL CONNECTION BETWEEN THE INFORMATION RECEIVE D AND ESCAPEMENT OF THE INCOME. THERE IS A LIVE LINK BETWEEN THE MATERIAL CAME TO THE NOTICE OF THE ASSESSING OFFICER AND THE FORMATION OF BELIEVE THAT INCOME HAS ESCAPED FROM ASSESSMENT. LD. DR ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS P . LTD. REPORTED IN 291 ITR 500 WHERE THE HON'BLE SUPREME COURT HAS HELD WH EN THE ASSESSING OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPO SE THAT INCOME HAD ESCAPED ASSESSMENT, THE LAW DOES NOT REQUIRE THAT ASSESSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT OF LEGAL EVIDENCE OR C ONCLUSION. THE MATERIAL REQUIRED FOR CONCLUSIVELY PROVING THE ESCAPEMENT OF INCOME IS NOT CONCERNED AT THE STAGE OF REOPENING. THE INFORMATION RECEIVE D FORM THE INVESTIGATION WING WAS SPECIFIC. THE INFORMATION WAS SUFFICIENT FOR MAKING A BELIEF THAT INCOME HAS ESCAPED AND THE ASSESSING OFFICER WAS JU STIFIED IN INITIATING THE PROCEEDINGS FOR REASSESSMENT BY ISSUING NOTICE U/S 148 AFTER RECORDING THE REASONS AS REQUIRED BY LAW. LD. DR SUBMITTED TO DI SMISS THIS PLEA OF ASSESSEE. ITA NOS.2777 TO 2781/DEL/2010 5 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE AND HA VE CONSIDERED ALL THE MATERIAL AVAILABLE ON THE RECORD AND CASE LAWS RELI ED UPON BY BOTH THE SIDES. THE ASSESSING OFFICER RECEIVED INFORMATION FROM INV ESTIGATION WING THAT ASSESSMENT IS A BENEFICIARY OF THE BOGUS ACCOMMODAT ION PURCHASE BILLS. ON THIS INFORMATION, THE ASSESSING OFFICER APPLIED HIS MIND AND FORMED A BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. FOR THIS, THE ASSESSING OFFICER RECORDED THE REASONS AS REQUIRED BY LAW. THE ASSESSEES NAM E WAS FIGURING IN THE BENEFICIARIES OF THESE BOGUS ACCOMMODATION PURCHASE BILLS. THE AMOUNT OF THE ACCOMMODATION PURCHASE BILLS WAS ALSO SPECIFIED IN THE INFORMATION. IN VIEW OF THESE FACTS, WE FIND THAT ASSESSING OFFICER HAS RIGHTLY ASSUMED JURISDICTION FOR INITIATING PROCEEDINGS. THERE WAS SPECIFIC INFORMATION RECEIVED FROM THE OFFICE OF DIRECTORATE OF INVESTIG ATION AS REGARDS TO THE TRANSACTIONS ENTERED BY THE ASSESSEE WITH A CONCERN WHICH WAS INDULGING AND PROVIDING ACCOMMODATION PURCHASE BILLS. THESE TRAN SACTIONS WERE NOT GENUINE TRANSACTIONS. IN OUR CONSIDERED VIEW, IT W AS NEITHER A CHANGE OF OPINION NOR IT CONVEYED A PARTICULAR INTERPRETATION OF A SPECIFIC PROVISION WHICH WAS DONE IN A PARTICULAR MANNER IN THE ORIGIN AL ASSESSMENT. IN OUR CONSIDERED VIEW, THE REASON TO BELIEVE HAS BEEN APP ROPRIATELY UNDERSTOOD BY THE ASSESSING OFFICER. THERE WAS SUFFICIENT MATERI AL ON THE BASIS OF WHICH NOTICE WAS ISSUED. THE SUFFICIENCY OF THE REASONS FOR FORMATION OF BELIEF CANNOT BE CONSIDERED AT THIS STAGE. THEREFORE, THI S PLEA OF THE ASSESSEE MADE ITA NOS.2777 TO 2781/DEL/2010 6 THROUGH LD. AR UNDER RULE 27 OF INCOME TAX (APPELLA TE TRIBUNAL) RULES STANDS DISMISSED FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. ITA NO.2777/DEL/2010 (ASSESSMENT YEAR : 1999-00) 6. THE GROUNDS OF APPEAL IN ITA NO.2777/DEL/2010 RE AD AS UNDER :- 1. THE ORDER OF THE LD. CIT (APPEALS) IS NOT CORRE CT IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETI NG THE ADDITION OF RS.41,56,449/-MADE ON GROUND OF BOGUS PURCHASE M ADE FROM M/S N.K. TRADING CO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW AND FACTS OF THE CASE IN DELET ING THE ADDITION OF RS.55,959/- MADE ON ACCOUNT OF BELATED PAYMENT O F EMPLOYEE'S CONTRIBUTION TO EPF AND ESIC. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT (A) IS PERVERSE AS HE HAS IGNORED THE R ELEVANT FACTS ON RECORD AS WELL AS IGNORED THE RELEVANT PROVISION S OF LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. 7. GROUND NOS.1, 4 & 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 8. IN THE GROUND NO.2, THE ISSUE INVOLVED IS AGAINS T THE DELETION OF ADDITION OF RS.41,56,449/- MADE ON ACCOUNT OF BOGUS PURCHASE S MADE FROM M/S. N.K. TRADING CO.. ITA NOS.2777 TO 2781/DEL/2010 7 9. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD. DR SUBMITTED THAT THE CIT (A) IS NOT JUSTIFIED IN HOLDING THAT EVEN IF IT IS ASSUMED THAT THE PURCHASES MADE FROM THESE PARTIES ARE BOGUS OR WERE NOT MADE BUT IT CANNOT BE SAID THAT NO PURCHASES HAD BEEN MADE BECAUSE THE ASSESSING OF FICER HAS ACCEPTED THE SALES AS PER BOOKS OF ACCOUNT. LD. DR SUBMITTED TH AT THE ASSESSEE COMPANY IS DOING VOLUMINOUS WORK AND IT IS INDULGED IN THE PRO DUCTION OF ATTA AND OTHER BYE-PRODUCTS OUT OF WHEAT. HENCE, THERE CANNOT BE A DIRECT LINK BETWEEN THE PURCHASES AND THE SALES. THEREFORE, THE CIT (A) IS COMPLETELY MISUNDERSTOOD THE BUSINESS PROCESS OF THE ASSESSEE. SINCE THERE WAS NO DIRECT LINK BETWEEN THE PURCHASE AND SALES, SUCH FINDINGS OF THE CIT (A ) ARE PERVERSE. THE ASSESSEE HAS NEVER ESTABLISHED THE DIRECT LINK BETW EEN THE PURCHASE OF THE WHEAT AND CORRESPONDING SALES OF ATTA AND BYE-PRODU CTS. THEREFORE, ALL THESE FINDINGS ARE PRESUMED AND NOT BASED ON ANY EVIDENCE . THESE ARE ONLY HYPOTHETICAL PRESUMPTIONS WHICH THE CIT (A) HAS WRO NGLY ASSERTED. FURTHER, HE PLEADED THAT THESE ALLEGED PURCHASES MADE HAS NO T PRODUCED AN IOTA OF EVIDENCE WHICH CAN PROVE THAT HE HAS SUPPLIED THE G OODS AS PER BILLS TO THE ASSESSEE. NO BOOKS OF ACCOUNT EVEN KACHHA BOOKS OF ACCOUNT WERE PRODUCED. THERE IS NO SINGLE EVIDENCE OF PURCHASES MADE BY TH IS ALLEGED SUPPLIES TO THE ASSESSEE. IT IS ONLY A VERBAL ASSERTION WHICH CANN OT BE TAKEN AS EVIDENCE TO EXPLAIN THE PURCHASES. THE CIT (A) IS COMPLETELY U NJUSTIFIED IN GRANTING THE RELIEF. THE CIT (A) HAS ALSO NEGATED THE FACT THAT WHEN THE N.K. TRADING CO. ITA NOS.2777 TO 2781/DEL/2010 8 HAS SALES OF RS.41.56 LACS TO THE ASSESSEE WHICH IS MORE THAN RS.40 LACS TURNOVER FOR WHICH THE PROVISIONS OF SECTION 44AB A RE APPLICABLE. IT IS ONLY THE ASSESSEE TO WHOM THESE BOGUS ACCOMMODATION ENTR IES OF RS.41,56,449/- WERE MADE THERE WERE OTHERS ALSO. THE CIT (A)S OB SERVATION THAT THERE ARE PROVISIONS FOR PENALTY U/S 271B HAS NO RELEVANCE. SUCH FINDINGS ARE IRRELEVANT FOR CONSIDERING THE NATURE OF SUCH BOGUS TRANSACTIO NS. THE CIRCUMSTANTIAL EVIDENCES CLEARLY ESTABLISH THAT N.K. TRADING HAS P ROVIDED BOGUS ENTRIES AND WITH THE HELP OF THESE ENTRIES, THE ASSESSEE HAS SI PHONED OF THE TAXABLE INCOME. LD. DR ALSO PLEADED THAT THE STATEMENTS OF THE PROPRIETOR OF N.K. TRADING WERE RECORDED BY SHRI M.K. SRIVASTAVA, DDIT , UNIT IV (1) ON 19.10.2005 DURING 133A PROCEEDINGS AND DCIT 8(1) AS SESSING OFFICER AS ON 16.11.2006. ON 16.11.2006, ASSESSEES CA, SHRI SUN IL DHUPER WAS PRESENT AND HE DID NOT ASK ANY QUESTION EVEN HE WAS PROVIDE D OPPORTUNITY TO CROSS. THE ASSESSEE HAS NEVER MADE ANY FURTHER REQUEST FOR CROSS EXAMINATION OF SHRI NARESH KUMAR. SHRI NARESH KUMAR HAD NEVER PRO DUCED ANY BOOKS OF ACCOUNT TO EXPLAIN OR PROVE THE TRANSACTION. 10. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORD ER OF THE CIT (A) AND ALSO PLEADED THAT THE ASSESSEE WAS NOT PROVIDED OPP ORTUNITY TO CROSS EXAMINE THE PROPRIETOR OF N.K. TRADING AND RELIED ON THE DE CISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. EASTERN COMMERCIA L ENTERPRISES REPORTED IN 210 ITR 103 (CAL.) AND P.S. ABDUL MAZID VS. AG.IT. REPORTED IN 209 ITR 821 ITA NOS.2777 TO 2781/DEL/2010 9 (KERALA). HE HAS ALSO RELIED ON THE DECISION OF HO N'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MUKUND SINGH VS. PRESIDIN G OFFICER, SALES TAX TRIBUNAL REPORTED IN 110 STC 330. 11. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE STATEMENTS OF SHRI NARESH KUMAR, PROPRIETOR OF N.K. TRADING WERE RECOR DED ON 19.10.2005 BY DDIT, INVESTIGATION AND 16.11.2006 BY ASSESSING OFF ICER. THE STATEMENT OF 19.10.2005 WAS RECORDED BY DDIT (INV.). A COPY OF THE STATEMENT WAS GIVEN TO THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. ON 16.11.2006 ASSESSING OFFICER RECORDED STATEMENT AND THE STATEMENT ITSELF SHOWS THAT ASSESSING OFFICER PROVIDED OPPORTUNITY TO CROSS THE PERSON WH OSE STATEMENT WAS RECORDED. SHRI SUNIL DHUPAR, CA WAS PRESENT DURING THE RECORDING OF STATEMENT. SHRI DHUPAR WAS OFFERED AN OPPORTUNITY TO CROSS EXAMINE NARESH KUMAR WHOSE STATEMENT WAS RECORDED IN HIS PRESENCE. THUS, ASSESSING OFFICER PROVIDED AN OPPORTUNITY TO CROSS EXAMINE SH RI NARESH KUMAR, PROPRIETOR OF N.K. TRADING COMPANY. THEREFORE, IN OUR CONSIDERED VIEW, ASSESSEES PLEA FOR CROSS EXAMINATION IS BASELESS. SHRI NARESH KUMAR, PROPRIETOR OF N.K. TRADING COMPANY HAS NEVER PRODUC ED ANY DOCUMENTARY EVIDENCE FOR PURCHASE OF GOODS WHICH WERE ULTIMATEL Y CLAIMED TO HAVE BEEN SOLD TO ASSESSEE COMPANY. NARESH KUMAR HAS ALSO NO T PRODUCED EVEN THE COPY OF BANK STATEMENT WHERE THE PAYMENTS WERE CLAI MED TO HAVE BEEN RECEIVED. SUCH STATEMENTS COULD HAVE BEEN VERY WEL L OBTAINED BY SHRI NARESH ITA NOS.2777 TO 2781/DEL/2010 10 KUMAR FROM THE BANK EVEN WHEN BOOKS WERE CLAIMED TO HAVE BEEN TAKEN AWAY BY ACCOUNTANT. SIMPLY MAKING A STATEMENT THAT THE BOOKS OF ACCOUNT WERE TAKEN AWAY BY THE ACCOUNTANT AND THE ACCOUNTAN T HAD FLED AWAY, CANNOT BE AN ACCEPTABLE EXPLANATION FOR NOT PRODUCING THE EVIDENCE IN SUPPORT OF CONTENTION THAT PURCHASES WERE GENUINE. THERE IS N O EVIDENCE WHICH COULD SHOW THAT N.K. TRADING HAS ACTUALLY PURCHASED THE G OODS WHICH WERE SUPPLIED TO THE ASSESSEE. NOT GETTING THE ACCOUNTS AUDITED AS PER THE PROVISIONS OF SECTION 44AB OF THE ACT EVEN WHEN THE TURNOVER EXCEEDS THE LIMIT ALSO SOLIDIFY THE BELIEF THAT TRANSACTIONS WE RE NOT GENUINE. 11.1 THE ASSESSEE IS A MANUFACTURER OF ATTA AND OTH ER BYE PRODUCTS. WHEAT IS RAW MATERIAL USED TO PRODUCE ATTA AND OTHER PROD UCTS. THERE CANNOT BE A DIRECT TALLY OF RAW MATERIAL PURCHASED AND OUTPUT S OLD OUT. CIT (A) OBSERVATION THAT NO SALES CAN BE EXECUTED WITHOUT M AKING CORRESPONDING PURCHASES IS PERVERSE. IN THE ASSESSEES CASE, TH ERE CANNOT BE DIRECT CORRESPONDING NEXUS OF PURCHASE AND SALES. THE PUR CHASES OF WHEAT WERE OF THOUSANDS OF TONS COSTING IN MANY CRORES. TO BE S PECIFIC DURING THE FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02, P URCHASES WERE OF 98,544 METRIC TONS COSTING RS.64.45 CRORES AND FOR FINANCI AL YEAR 1999-00 RELEVANT TO ASSESSMENT YEAR 2000-01 THE QUANTITY WAS 85,267 MET RIC TONS AND THE COST WAS RS.59.30 CRORES. DETAILS OF THE BOGUS PURCHASE S ARE GIVEN BELOW :- ITA NOS.2777 TO 2781/DEL/2010 11 A.Y F.Y. BOGUS PURCHASES QUANTITY OF WHEAT DEBITED WHEAT PURCHASE IN (RS.) (MTS) 1999-00 1998-99 RS. 41,56,449/- 2000-01 1999-00 RS. 27,05,320/- 85,267 59.30 CR ORES 2001-02 2000-01 RS. 2,04,389/- 98,594 64.45 C RORES 2003-04 2002-03 RS. 15,82,335/- 2004-05 2003-04 RS.1,25,30,349/- DURING FINANCIAL YEAR 1999-00 AND 2000-01, THE INST ALLED CAPACITY FOR ATTA SHOWN IN ACCOUNTS IS 60,000 MTS WHILE PRODUCTION WA S 73,149 MTS AND 84,316 MTS RESPECTIVELY. ASSESSEE WAS ALSO GETTING GRINDING DONE ON LEASE CONTRACT ALSO. ALL THESE FACTS SHOW THAT THERE CAN NOT BE A DIRECT NEXUS BETWEEN PURCHASES AND SALES. FURTHER, THESE BOGUS PURCHASES OF WHEAT DEBITED WERE SO SMALL IN COMPARISON TO TOTAL PURCHA SES THAT IT WILL BE DIFFICULT RATHER IMPOSSIBLE TO DETECT DISCREPANCIES ON QUANTI TY BASIS. CONSIDERING THESE FACTS, WE HOLD THAT THE FINDING OF CIT (A) ON THIS ISSUE AS PERVERSE. ASSESSEE HAD MISERABLY FAILED TO ESTABLISH THE PURCHASE AS G ENUINE FROM N.K. TRADING COMPANY. WE ARE ALSO NOT PLEASED BY THE OBSERVATIO N OF CIT (A) THAT THERE IS PROVISION FOR PENALTY FOR NOT GETTING BOOKS OF ACCO UNT AUDITED. RATHER WE WOULD LIKE TO STATE THAT HAD THE GENUINE TURNOVER O F THE N.K. TRADING COMPANY BE SO, THEN ACCOUNTS MIGHT HAVE BEEN AUDITE D. THE CONDUCT OF PROPRIETOR OF N.K. TRADING COMPANY DURING THE INVES TIGATION AND FACTS STATED IN STATEMENT AND ALSO FACTS GATHERED IN SURVEY OPER ATIONS CLEARLY ESTABLISH THAT ASSESSEE HAD FAILED TO PROVE GENUINENESS OF PURCHAS ES MADE FROM N.K. TRADING COMPANY. CIT (A) HAD DELETED THE ADDITION WITHOUT ANY RELIABLE ITA NOS.2777 TO 2781/DEL/2010 12 EVIDENCE AND COGENT REASONS. IN VIEW OF THESE FACT S, WE SET ASIDE THE ORDER OF CIT (A) ON THIS ISSUE. WE ALLOW THIS GROUND OF REV ENUES APPEAL. 12. IN THE GROUND NO.3, THE ISSUE INVOLVED IS AGAIN ST THE DELETION OF ADDITION OF RS.55,959/- MADE ON ACCOUNT OF EMPLOYEES PROVIDE D FUND AND ESIC. 13. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE DETAILS OF PAYMENT OF PROVIDENT FUND ARE AS UNDER :- MONTH AMOUNT DELAYED BY APRIL, 1998 9,388/- 2 DAYS JUNE, 1998 10,392/- 4 DAYS AUGUST, 1998 9,001/- 3 DAYS OCTOBER, 1998 9,638/- 3 DAYS DECEMBER, 1998 8,784/- 4 DAYS FEBRUARY, 1999 8,756/- 1 DAY TOTAL 55,959/- THE ASSESSEE HAD MADE PAYMENT IN THE GRACE PERIOD P ERMITTED IN PROVIDENT FUND ACT AND ESI ACT. WE FIND THAT THIS ISSUE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AIMIL LTD. REPORTED IN 229 CTR 448 AND HON' BLE SUPREME COURT IN THE CASE OF CIT VS. VINAY CEMENTS LIMITED REPORTED IN 213 CTR 286 (SC). THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. AIMIL LIMITED, CITED SUPRA, HAS HELD AS UNDER :- AS SOON AS EMPLOYEES' CONTRIBUTION TOWARDS PF OR E SI IS RECEIVED BY THE ASSESSEE BY WAY OF DEDUCTION OR OTHERWISE FROM THE SALARY/WAGES OF THE EMPLOYEES, IT WILL BE TREATED AS 'INCOME' AT THE HA NDS OF THE ASSESSEE. IT CLEARLY FOLLOWS THEREFROM THAT IF THE ASSESSEE DOES NOT DEPOSIT THIS CONTRIBUTION WITH PF/ESI AUTHORITIES, IT WILL BE TA XED AS INCOME AT THE HANDS OF THE ASSESSEE. HOWEVER, ON MAKING DEPOSIT W ITH THE CONCERNED ITA NOS.2777 TO 2781/DEL/2010 13 AUTHORITIES, THE ASSESSEE BECOMES ENTITLED TO DEDUC TION UNDER THE PROVISIONS OF S. 36(1)(VA). SEC. 43B(B), HOWEVER, S TIPULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYME NT. THIS IS THE SCHEME OF THE ACT FOR MAKING AN ASSESSEE ENTITLED T O GET DEDUCTION FROM INCOME INSOFAR AS EMPLOYEES' CONTRIBUTION IS CONCER NED. DELETION OF THE SECOND PROVISO HAS BEEN TREATED AS RETROSPECTIVE IN NATURE AND WOULD NOT APPLY AT ALL. THE CASE IS TO BE GOVERNED WITH THE A PPLICATION OF THE FIRST PROVISO. IF THE EMPLOYEES' CONTRIBUTION IS NOT DEPO SITED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFORE, THE ACTS PERMIT THE EMPLOYE R TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID SEQUENCE S. INSOFAR AS THE IT ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED. CIT VS.VINAY CEME NT LTD., (2007) 213 CTR (SC) 268, CIT VS. DHARMENDRA SHARMA (2007) 213 CTR (DEL) 609 : (2008) 297 ITR 320 (DEL) AND CIT VS. P.M. ELECTRONI CS LTD. (2008) 220 CTR (DEL) 635 : (2008) 15 DTR (DEL) 258 FOLLOWED. IN VIEW OF THE DECISION, THE DEDUCTION OF PAYMENT O F EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI CANNOT BE DISALLOWED UNDER SECTION 43B, IF PAID BEFORE THE DUE DATE OF FILING THE RETURN. IN VIEW OF THIS FACT, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2778/DEL/2010 (ASSESSMENT YEAR : 2000-01) 14. GROUND NOS.1, 4 & 5 ARE GENERAL IN NATURE AND D O NOT REQUIRE ANY ADJUDICATION. 15. GROUND NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.27,05,320/- MADE ON ACCOUNT OF BOGUS PURCHASE MADE FROM M/S. N.K. TR ADING CO. THIS ISSUE IS COVERED BY OUR AFORESAID DECISION IN ITA NO.2777/DE L/2010 FOR ASSESSMENT YEAR 1999-00 VIDE PARAS 11 & 11.1 IN FAVOUR OF THE REVENUE. ACCORDINGLY, FOLLOWING THE SAME, WE ALLOW THIS GROUND OF REVENUE S APPEAL. ITA NOS.2777 TO 2781/DEL/2010 14 16. GROUND NO.3 IS AGAINST THE DELETION OF ADDITION OF RS.29,340/- MADE ON ACCOUNT OF BELATED PAYMENT OF EMPLOYEES CONTRIBUTI ON OF EPF AND ESI. THIS ISSUE IS COVERED BY OUR AFORESAID DECISION IN ITA N O.2777/DEL/2010 FOR ASSESSMENT YEAR 1999-00 VIDE PARA 13 AGAINST THE RE VENUE. ACCORDINGLY, FOLLOWING THE SAME, WE DISMISS THIS GROUND OF REVEN UES APPEAL. ITA NO.2779/DEL/2010 (ASSESSMENT YEAR : 2001-02) 17. GROUND NOS.1, 3 & 4ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 18. GROUND NO.2 IS AGAINST THE DELETION OF ADDITION OF RS.2,04,389/- MADE ON ACCOUNT OF BOGUS PURCHASE MADE FROM M/S. N.K. TR ADING CO. THIS ISSUE IS COVERED BY OUR AFORESAID DECISION IN ITA NO.2777/DE L/2010 FOR ASSESSMENT YEAR 1999-00 VIDE PARAS 11 & 11.1 IN FAVOUR OF THE REVENUE. ACCORDINGLY, FOLLOWING THE SAME, WE ALLOW THIS GROUND OF REVENUE S APPEAL. ITA NOS.2780 & 2781/DEL/2010 (ASSESSMENT YEAR : 200 3-04 & 2004-05) 19. GROUND NOS.1, 5 & 6 IN BOTH THE APPEALS ARE GEN ERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 20. GROUND NO.2 IN BOTH THE APPEALS IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF BOGUS PURCHASE MADE FROM M/S. N. K. TRADING CO. THIS ISSUE IS COVERED BY OUR AFORESAID DECISION IN ITA N O.2777/DEL/2010 FOR ASSESSMENT YEAR 1999-00 VIDE PARAS 11 & 11.1 IN FAV OUR OF THE REVENUE. ACCORDINGLY, FOLLOWING THE SAME, WE ALLOW THIS GROU ND OF REVENUES APPEAL. ITA NOS.2777 TO 2781/DEL/2010 15 21. GROUND NO.3 IN BOTH THE APPEALS IS AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF BELATED PAYMENT OF EMPLOYEES CO NTRIBUTION OF EPF AND ESI. THIS ISSUE IS COVERED BY OUR AFORESAID DECISIO N IN ITA NO.2777/DEL/2010 FOR ASSESSMENT YEAR 1999-00 VIDE PARA 13 AGAINST TH E REVENUE. ACCORDINGLY, FOLLOWING THE SAME, WE DISMISS THIS GROUND OF REVEN UES APPEAL. 22. GROUND NO.4 IN BOTH THE APPEALS IS AGAINST THE DELETION OF ADDITION OF INTEREST FREE LOAN GIVEN TO SISTER CONCERN OF ASSES SEE. 23. THE CIT (A) HAS GRANTED THE RELIEF BY HOLDING A S UNDER :- 15. I HAVE CAREFULLY CONSIDERED THE SUBMISSION AS MADE BY THE ASSESSEE AND THE OBSERVATION OF THE AO, IN THIS REGARD, THE AO HAS BEEN WELL EXPLAINED BY THE APPELLANT THAT THE ASSESSEE COMPANY HAS NET OWNED F UNDS OF AROUND RS.12.96 CRORES AS PER THEIR BALANCE SHEET A S AT 31 ST MARCH, 2003, ON WHICH NO INTEREST ARE BEING PAID BY THE ASSESSEE. IT WAS ALSO EXPLAINED THAT SINCE THE COMP ANY HAS GIVEN LOANS AND ADVANCES (RECOVERABLE IN CASH OR IN KIND OR FOR VALUE TO BE RECEIVED) OF ONLY RS.2.51 CRORES OUT OF WHICH A SUM OF RS.25 LACS HAVE BEEN GIVEN TO THE SISTER CON CERN IS NEGLIGIBLE AND EVERY YEAR IS AN INDEPENDENT ASSESSM ENT YEAR. AO HAS NOT SUBSTANTIATED THE MATTER EXCEPT THAT THE SIMILAR INTEREST HAS BEEN DISALLOWED IN THE PREVIOUS ASSESS MENT YEAR, SINCE THE LOAN HAS BEEN BROUGHT FORWARD FROM THE PR EVIOUS ASSESSMENT YEAR, HENCE, THE SAME HAD BEEN DISALLOWE D. IN THIS REGARD, I AM OF THE OPINION THAT SINCE THE NET OWNED FUNDS OF THE COMPANY HAS CONSIDERABLY INCREASED FRO M PREVIOUS BALANCE SHEET AS AT 31/3/2002 BEING RS.7.8 4 CRORES TO RS.12.96 CRORES AS AT 31/3/2003 AND THE SALES RE VENUE OF THE COMPANY HAS ALSO INCREASED BY ABOUT 50 % AS COMPARE D TO THE PREVIOUS YEAR, HENCE, NO NOTIONAL INTEREST CAN BE D ISALLOWED ON ANY SINGLE TRANSACTION ENTERED DURING THE COURSE OF THE BUSINESS OF THE COMPANY. FURTHER, WHEN COMPANY HAS THE SURPL US ITA NOS.2777 TO 2781/DEL/2010 16 AVAILABLE NET OWNED FUNDS, HENCE, ADDITIONS MADE NO TIONALLY BEING INTEREST CALCULATED HYPOTHETICALLY ON CONJECT URES AND SURMISES CANNOT BE DISALLOWED. IT MUST BE NOTED THA T THIS LOAN HAS NOT BEEN GIVEN IN THE CURRENT YEAR, HENCE, INTE REST DISALLOWANCE OUT OF CURRENT YEAR INCOME IS NOT SUBS TANTIATED. UNDER THE AVAILABLE FACTS, ADDITIONS MADE AMOUNTING TO RS.3,00,000/- BE HEREBY DELETED. 24. WE HAVE HEARD BOTH THE SIDES IN DETAIL AND WE H AVE ALSO CONSIDERED THE FACTS OF THIS ISSUE. WE FIND THAT THE ISSUE IS COV ERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. BASTI SUGAR MILLS CO. LTD. IN ITA NO.89 OF 1993 DATED 1 ST SEPTEMBER, 2010 WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER : 2. THE FACTS REGARDING QUESTION NO.1 ARE THAT THE ASSESSEE COMPANY BORROWED LARGE SUMS OF MONEY FROM BANKS AND OTHERS AND PAID A HUGE INTEREST OF ABOUT RS. 66,00,000/- O N THESE BORROWINGS. THE ASSESSEE ALSO GAVE INTEREST-FREE L OANS AND ADVANCES TO ITS SISTER-CONCERNS DETAILS OF WHICH AR E MENTIONED IN THE ORDER OF THE ASSESSING OFFICER AND OF THE COMMI SSIONER OF INCOME-TAX (APPEALS). CALCULATING THE INTEREST @ 1 6.5% ON THE AVERAGE BALANCES OF THESE 8 OR 9 PARTIES, THE ASSES SING OFFICER ADDED AN AMOUNT OF RS. 2,28,273/- TO THE INCOME OF THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THERE WAS NO CO-RELATION BETWEEN THE SUMS BORROWED AND THE AMOUNTS ADVANCED AS LOANS. SHE ALSO FOUND THAT ON IDENTICAL FACTS, THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1977-78 VIDE ORDER DATED 3.11.1983 HAD DELETED THE ADDITION AND THEREAFTER AGGRIEVED OF THAT ORDER, T HE REVENUE FILED APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL, INTER A LIA, FOUND THAT THE REVENUE WAS NOT ABLE TO ESTABLISH ANY NEXUS BE TWEEN THE AMOUNT BORROWED BY THE ASSESSEE COMPANY ON INTEREST AND THE AMOUNTS ADVANCED BY THE ASSESSEE TO ITS SISTER-CO NCERNS. IN FACT MAJOR PARTIES FROM WHOM INTEREST WAS NOT CHARGED WE RE THE SAME AS IN ASSESSMENT YEAR 1977-78 FOR WHICH THE TR IBUNAL HELD THAT THERE WAS NO WARRANT FOR ADDING ANY NOTIONAL O R DEEMED INTEREST. EVEN IN RESPECT OF OTHER PARTIES, A FIND ING OF FACT WAS ITA NOS.2777 TO 2781/DEL/2010 17 RECORDED THAT BALANCES WERE OLD AND NO NEW LOANS HA D BEEN ADVANCED IN THE YEAR UNDER CONSIDERATION. THIS IS WHEN IT IS FOUND THAT THERE WAS NO NEXUS BETWEEN THE MONEY B ORROWED BY THE ASSESSEE FROM THE BANKS AND UTILIZED FOR ITS OW N BUSINESS PURPOSE AND THE MONEY WHICH WAS GIVEN BY THE ASSESS EE TO ITS SISTER-CONCERNS AS INTEREST FREE LOANS AND ADVANCES IN THE EARLIER YEARS, QUESTION OF DISALLOWING THE INTEREST CLAIMED BY THE ASSESSEE ON THE MONEY BORROWED BY IT WOULD NOT ARIS E. THIS ISSUE IS NOW SQUARELY COVERED BY THE JUDGMENT OF S UPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. COMMIS SIONER OF INCOME TAX (APPEALS AND ANOTHER, 288 ITR 1 WHERE THE SUPREME COURT OBSERVED AS UNDER:- IN ORDER TO DECIDE WHETHER INTEREST ON FUNDS BORRO WED BY THE ASSESSEE TO GIVE AN INTEREST FREE LOAN TO A SIS TER CONCERN ( E.G., A SUBSIDIARY OF THE ASSESSEE) SHOULD BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1) (III) OF THE INCOME TAX ACT, 19 61, ONE HAS TO ENQUIRE WHETHER THE LOAN WAS GIVEN BY THE ASSESSEE AS A MEASURE OF COMMERCIAL EXPEDIENCY. THE EXPRESSION COMMERCIA L EXPEDIENCY IS ONE OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER AN Y LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXP ENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY CONSIDERING THESE FACTS, WE DISMISS THIS GROUND OF REVENUES APPEAL. 25. IN THE RESULT, ALL THE FIVE APPEALS FILED BY TH E REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF JUNE, 2012. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 28 TH DAY OF JUNE, 2012/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.