ASST CIT 25(2), MUMBAI V. METCRAFT ENGINEERING CORPORATION, MUMBAI

ITA 5293/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8174 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 30-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2013
• Court: TRIBUNAL
• Department Lawyers: S R KIRTANE
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Bogus purchase; Unexplained expenditure; Principle of natural justice; Earning of tax free income; Deemed to accrue or arise in india; Question of law
• Section: 69C; 14A; 260A; 133(6); 131; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 5293 / MUM/20 1 3 ( ASSESSMENT YEAR : 2010 - 11 ) ACIT 25(2), MUMBAI VS. M/S. METCRAFT ENGINEERING CORPORATION, 601 - 602, SIDDARTH ARCADE, 3 LT ROAD, BORIVALI (W), MUMBAI 400 092 PAN/GIR NO. AAAFM1677M APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI S.R.KIRTANE ASSESSEE BY DR. K. SHIVARAM DATE OF HEARING 08 / 12 /201 6 DATE OF PRONOUNCEME NT 15 / 02 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN ITS APPEA L. 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT (A) ERRED IN DELETING THE ADDITION OF RS.40 ,19,776/ - WHICH WAS MADE BY INVOKING THE PROVISIONS OF SECTION 69C OF THE LT. ACT BY TREATING THE PURCHASE ARE GENUINE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT (A) ERRED IN DELETING THE ADDITION OF RS.90,38,769/ - WHICH WAS MADE BY TREATING THE SALE OF SCRAP AS UNACCOUNTED SALES.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, T HE ID.CIT (A) ERRED IN DELETING THE ADDITION OF RS. ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 2 3,49,424/ - WHICH WAS MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(A) ERRED I N RELYING UPON JUDGMENTS OF THE CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD. WITHOUT APPRECIATING THAT THE FACTS INVOLVED IN THE OF THE APPELLANT'S CASE ARE DIFFERENT FROM THE FACTS OF THE ABOVE CASE LAWS.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD CIT (A) HAS GROSSLY ERRED IN NOT APPRECIATING THE' FACT THAT NOTICE U/,~ 133(6) ISSUED TO THE PARTIES FROM WHOM ALLEGED BILLS WERE RECEIVED WERE RETURNED UNDELIVERED BY THE POSTAL AUTHORITIES AND INSPECTOR OF THIS CIRCLE.' 6. 'ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE PARTIES, FROM WHOM ALLEGED BILLS WERE RECEIVED DESPITE MANY OPPORTUNITIES WERE ACCORDED TO HIM.' 7. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT ASSESSEE FAILED TO REBUT FINDINGS OF SALES TAX DEPARTMENT VIS - A - VIS BOGUS PURCHASES DESPITE REASONABLE OPPORTUNITY WAS AC CORDED TO HIM.' 8. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS GROSSLY ERRED IN ACCEPTING THE MISLEADING SUBMISSIONS MADE BY THE ASSESSEE THAT THE DEPARTMENT DIDN'T MAKE AVAILABLE THE INFORMATION, PROVIDED BY SALES TA X DEPARTMENT.' 9. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS FURTHER ERRED IN NOT APPRECIATING THE FINDINGS OF THE ASSESSING OFFICER REGARDING THE NON GENUINE PURCHASE TRANSACTIONS MADE BY THE ASSESSEE.' 10. 'THE AP PELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O BE RESTORED.' 11. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN MANUFACTURING OF M.S. GALVANISED STRUCTURAL SECTIONS. DURING THE COURSE OF SCRUTINY ASSESSMENT AO MADE ADDITION ON ACCOUNT OF PURCHASES OF MACHINERY AMOUNTING TO ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 3 RS.40,19,776/ - ALLEGED TO BE NOT GENUINE BY INV OKING PROVISIONS OF SECTION 69 C. 5. BY THE IMPUGNED ORDER CIT(A) DELETED THE SAME AFTER OBSERVING AS UNDER: - 6. 3. 2. I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN MAKIN G ADDITIONS OF RS . 40, 19,776/ - AND THE REPLY OF THE APPELLANT IN THIS R EGARD. D URI NG THE COURSE OF HEAR I N G THE AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ROLLING MILL 'WAS PURCHASED, IT WAS INSTALLE D ON 24TH JANUARY 2011 AND PRODUCTION WAS STAR TED IN JANUARY, 2011 AND 1,038 M ETRIC TONS OF C.R. COILS WE RE PRODUCED IN FINANCI AL YEAR 2 010 - 2011. THE SAID PRODUCTION WAS RE C ORDED IN THE EXCISE REGISTER R. G 23, CONSUMPTION OF ELECTRICITY ALSO INCREASED AND PA YM ENTS WERE MADE FROM CASH CREDIT A /C MAINTAINED WITH TH E KARNATAKA BANK. THEREFORE , THERE IS NO REASON TO DISBELIEVE THE PU RCHASES OF ROLLING MILL FROM M/S. SIDDHIVINAYAK STEELS. ON THE OTHER HAND' THE ASSESSING OFFICER HIS DISALLOWED THE SAID PAYMENTS ON THE BASIS OF STATEMENT OF THE PROPRIETOR OF SIDDHIVINAYAK STEELS WHICH WAS MADE BEFORE THE SALES TAX DEPARTMENT STATING TH AT HE HAS ISS UED HAWALA BILLS TO VARIOUS PARTIES. IN THE R ESPECT THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT HAS STRONGLY ARGUED THAT A G ENERAL STATEMENT WITHOUT SPECIFYING THE NAME OF THE APPELLANT S H OULD NOT COME IN THE WAY OF PUR CHASES MADE BY THE AP PELLANT; I HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND FOUND THAT NO WH ERE THE ASSESSING', OFFICER HAS, STATED THE LIST OF HAWALA GIVERS BY M /S. S I DDHIVINAYAK STEELS AND,' NO WHERE THE, NAME OF THE APPELLANT WAS SPECIFICALLY APPEARING IN THE HA WALA LIST GIVEN '. IN THIS RESPECT THE APPELLAN TS AUTHORISED REPRESEN TATIVE' HAVE RELIED ON THE DECISIO N, OF THE GUJARAT HI GH CURT IN THE CASE CIT VS. M.K: BROTHERS 163ITR PAGE 249 WHERE THE GUJARAT HIGH COURT HELD AS UNDER.: - 'DURING THE ACCOU NTING YEAR RELATING TO ASSESSMENT YEAR 1971 - 72, THE ASSESSEE HAD' MADE, PUR CHASES OF THE TOTAL VALUE OF RS. 52,254/ - FROM CERTAIN PARTIES . THE INCOME TAX OFFICER REQUIRED, THE ASSESSEE TO PRODUCE EVIDENCE REGARDING THE PURCHASES. IN T H E MEAN TIME, THE SAID P A RT IES HAD ADMITTED TO THE SALES TA X AUTHORITIES THAT THEY HAD ISSUED BOGUS VOUCHERS. THE INCOME TAX OFFICER HELD, THAT THE PURCHASES WERE NOT GENUINE AND ASSESSED .THE AMOUNT OF RS. 52,254/ - AS INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCES. THE TRIBUN AL FOUND THAT THERE WAS NO EVIDENCE TO SHOW THAT THE BOGU S VOUCHERS ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 4 HAD BEEN ISSUED TO TH E ASSESSEE' THAT NOTHING HAD BEEN SHOWN TO INDICATE THAT ANY PART OF THE FUNDS GIVEN BY THE ASSESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM, AND THAT T HE ASSESSEE HAD MADE IT S PAYMENT BY CHEQUE. THE TRIB UNAL DELETED THE ADDITION. ON A REFERENCE: HELD, THAT THE CONCLUSION A RRIVED AT BY THE TRIBUNAL WAS , SU PPOR TED BY THE' EVIDENCE ON' RECORD. THE AMOUNT OF R S. 52,254/ - WAS NOT ASSESSABLE AS INCOME FROM U NDIS CLOSED SOURCES AND THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION.' 6.3.3. THE APPELLANT HAS ALSO RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF THE B ABULAL C BORANA V. THIRD INCOME TAX OFFICER AND O THERS AND THE DELHI HIGH COURT I N THE CASE OF THE COMMISSIONER OF INCOME T AX H. M/S. RADHIKA CREATION. 6. 3.4. I HAVE FURTHER CONSIDERED THE FOLLOWING DECISIONS: (1) BABULAL C BORANA V ITO (282 ITR 251) (2) VIJAY PROTEINS VS ACIT (1996) 55 DJ 76 (AHM) (3) NIKUNJ EXIMP E NTERPRISES PVT LTD VS CIT - 1 MUMBAI (BOMBAY HIGH COURT) INCOME TAX SECTION 260A - WHETHER DISALLOWANCE REGARDING PURCHASES MADE, CAN BE MADE MERELY ON THE BASIS THAT THE SUPPLIERS AND OTHER RELATING EVIDENCES ARE NOT PRODUCED BEFORE THE ASSESSING AUTHORITY OR BEFORE T HE FIRST APPELLATE AUTHORITY. REVENUES APPEAL DISMISSED. BOMBAY HIGH COURT. (4) THE HON'BLE GUJARAT HIGH 'COURT IN T HE CASE OF CIT V M.K.BROTHERS REPORTED AT 163 ITR 249 (5) DELHI HIGH COURT IN THE CASE OF CIT VS RADHIKA CREATIONS (ITA NO.692/2009) THE HON'BLE ITAT, JODHPUR BENCH IN THE CASE OF ITO V PERMANAND ' REPORTED AT 107 TTJ 3 95 THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF DIAGNOSTICS V CIT REPORTED; AT 334 ITR 111 THE HON'BLE ITAT, DELHI BENCH IN THE CASE OF YFC PROJECT PVT LTD VS DEPUT Y COMMISSIONER OF INCOME TAX REPORTED IN 46 DTR 496 / 134 TTJ 167 (DELHI) ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 5 THE HON'BLE ITAT, MUMBAI BENCH IN THE CASE OF FREE INDIA ASSURANCE SERVICES LTD V DCIT REPORTED AT 62 DTR 349/(2011) 12 TAXMAN.COM 42 4 (MUM) ; THE HON'BLE ITAT, PUNEBENCH IN THE CAS E OF RAJMAL LAKHICHAND V ACIT REPORTED AT 79,ITD 84 ' : THE HON'BLE ITAT, JAIPU R BENCH IN CASE OF ITO V. KANCHANWALA GEMS REPORTED IN 122 TTJ 854 IN THE CASE OF ITO VS. PERMANAND, T HE HON'BLE ITAT, JODHPUR BENCH REPORTED IN 107 TTJ 395 ' , IN THE CASE OF R.K.SYNTHETICS VS. ITO REPORTED AT 81 TT J 909; THE HON'BLE ITAT, JCDHPUR BENCH H ON'BLE CHANDIGARH IT,AT IN THE CASE OF ITO V. ARORA ALLOYS LTD. (2012) [12 ITR (TRIB) 26.3], RAJMAL LAKHICHAND V. ASSTT. CIT [2001] 79 ITD 84 (PUNE) . WE STERN INDIA BAKERS (P,.) LTD. V. DY. CIT [2003] 87'ITD 607 (MUM.) SHARMA ASSOCIATES V. ASSTT. CI T [1996] 217 ITR (AT) 1/[1995] 55 IT D ~ 171 (PUNE) (TM) , : GLORIOUS HOSPITLAITY PVT. LTD. VS DEPARTMENT OF INCOME TAX ITAT DELHI BEN CH 'C' ITA NO.2124/DEL./ 2012 6.3.5. THE ADDITION BY THE A.O. CANNOT BE ACCEPTED IN VIEW OF JUDICIAL PRONOUNCEMENTS. 'IN THIS REGARD, I WOULD LIKE TO REFER AND RELY ON THE JUDGME N TS BELO W SINCE THE FACTS AND CIRCUMSTANCES OF THESE JUDGEMENTS ARE SIMILAR TO THE PRESENT CASE AND T HE RATIO OF JUDGMENTS OF THESE CASES ARE APPLICABLE TO THE PRESENT CASE OF THE APPELLANT. THESE ARE AS UNDER: - (I)THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V M . K.BROTHERS RE P ORTED AT 163 HR 249 HAS HELD THAT' IT WAS CLEAR FROM THE TRIBUNALS ORDER THAT W HETHER THE SAID TRANSACTIONS WERE BOGUS OR NOT WAS A QUESTION OF FACT. THE AS S ESSEE WAS GIVEN CR EDIT, FACILITIES FOR, A SHORT DURATION AND THE PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT WAS SO, IT COULD NOT BE SAID THAT THE ENTRIES FOR THE PURCHASES OF THE GOODS MADE IN THE BOOKS OF THE ACCOUNT WERE BOGUS ENTRIES. THUS, THE CONCLUSION ARRIVED, AT B Y THE TRIBUNAL WAS NOT AGAI NST THE WEIGHT OF EVIDENCE. THE, ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 6 TRIBUNAL WAS, THEREFORE, JUSTIFIED IN DELET ING THE ADDITION TO THE INCOME OF THE ASSESSEE.' IN THIS CASE, 'DURING TH E ASSESSMENT PROCEEDINGS IT CAME TO THE' NOTICE OF TH E ITO THAT IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD MADE CERTAIN PURCHASES FROM SOME PAR TIES, WHO WERE NOT AVAILABLE TO CROSS - EXAMINE FOR THE GENUINENESS OF THE ABOVE PURC HASES. IT WAS F OUN D B Y THE ITO THAT THOUGH THE PURCHAS ES WERE CLAIMED TO HAVE BEEN MAD E ON CREDIT BASIS,' THE PAYMENTS WERE SHOWN TO HAVE BEEN MADE AF TE R SUBSTANTIAL LAPSE, OF TIME AFTER THE DATE OF PURCHASE. THE IT O HELD TH A T THE TRANSACTIONS RELATING TO THOSE PURCHASES WERE BOGUS AND, THEREFORE, TREATED THE' AMOUNT AL LE GEDLY 'PAID FOR T HOSE PURCHASES AS INCOME OF THE ASSESSEE.' ON ,SECOND, 'APPEAL;' THE TRIBUNAL,' FOUND THAT THERE WAS NO EVIDENCE ANYWHERE THAT THOSE CONCERNS GAVE BOGUS VOUCHERS TO THE AS SESSEE AND FURTHER THERE WAS NOTHING TO INDICATE THAT ANY PART OF THE FUND GIVEN BY THE ASSE SSEE, TO THOSE PAR TIES CAME BACK TO THE ASSESSEE IN ANY FORM. HE, THUS, HEL D THAT THE EVIDENCE WAS NOT ADEQUATE TO CONCLU DE THAT THE PURCHASES MADE WERE BOGUS, AND, THEREFORE, 'DELETED , T HE AFORESAID 'ADDITION TO THE INCOME OF THE ASSESSEE.' (II) THE HON'BLE IT AT, JODHPUR BENCH IN THE CASE OF IT O V PERRNANAND REPORTED AT 107 TTJ 395 HAS HELD THAT 'IN THE INSTANT CASE; THE ADDITI O N RESTED MAINLY ONLY ON THE OBSERVAT ION OF THE SALES - TAX DEPARTMENT. THE ASSESSEE WAS NEVER ASSOCIATED WITH THE ENQUIRIES MADE BY THE SALES - TA X DEPARTMENT TO THAT 'EXTENT. THE SATISFACTION OF THE ASSESSING OFFICER H IMSELF IS OF PRIME IMPORTANCE WHILE MAKING ASSESSMENT OF AN INCOME AND THESE DUTIES CANNOT BE PERFORMED BY SUBSTITUTING SATISFACTION OR SOMEONE ELSE,. THE ASSESSEE DID PAY FOR THE PURCHASES HE' MADE FROM THE ABOVE TWO PARTIES THROUGH CHEQUE AS WAS EVIDENT FROM THE RECORD. THE STATEMENTS, OR, EVEN 'THE AFFIDAVITS OF THE SELLERS COUL D 'NOT BE' UTILIZED AGAI N ST THE ASSESSEE, 'UNLESS AN OPPORTUNITY WAS GIVEN TO HIM TO CONFRON T THE SAI D STATE M ENT BY WAY OF CROSS - EXAMI NATION, ETC. ADMITTEDLY, NO SUCH OPPORTUNITY WAS GIVEN' TO THE ASSESSEE TO CONFRONT THE ABOVE SELLERS I N THE INSTA NT CASE. 'F URTH ER, THE ASSESSEE HAD ALSO DISCHARGED THE PRIMARY ONUS CAST ON HIM BY SECTION 69 BY SHOWING THE PURCHASES, THEIR ENTRIES IN THE BOOKS OF ACCOUNT, PAYMENTS BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUCING THE VOUCHERS OF SALES OF THE GOODS. THE ASSESSIN G OFFICER HAD MISERABLY FAILED TO BRING ON RECORD ANY CLINCHING EVIDENCE TO PROVE THAT THESE ALLEG ED PURCHASES WERE BOGUS AND NOT GENUINE. FURTHER, THE ASSESSING ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 7 OFFICER DID NOT MAKE REQUISITE INVESTI G ATION AGAINST THE TWO SELLERS. THEREF O RE, THE COMMISSIONE R (APPEALS) HAD RIGHTLY HELD THAT THE A DDITION MAD E BY THE ASSESSING OFFI CER MERELY ON THE BASIS OF OBSERVATIONS OF SALES - TAX DEPARTMENT, WITHOUT CONDUCTING INDEPENDENT ENQUIRIES WAS NOT JUSTIFIED. SINCE THE PURCHASE IN QUESTION HAD BEEN H E LD AS GENUINE PU RCHASE, ADD I TION OF RS. 55,632 COULD NOT BE MADE TO THE INCOME OF THE ASSESSEE. HENCE, THE REVENUE'S APPEAL WAS LIABLE TO BE DISMISSED' IN THIS CASE, 'THE ASSESSEE WAS TRADING I N NARMA, KAPAS, FOODGRAINS AND ALSO DERIVED INC OME FROM COMMISSION. THE ASSES SI N G OFFICER ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES - TAX D EPARTMENT HELD THAT THE ASSESSEE HAD MADE BOGUS PURCHASES FROM T W O PARTIES AND, THEREFORE, HE MADE CERTAIN ADDITION TO THE INCOME OF T H E ASSESSEE UNDER SECTION 69. HE ALSO MADE AN ADDITI ON OF RS. 55,632 TO TH E INCOME OF TH E ASSESSEE HOLDING THAT THE ASSESSEE DID NOT PAY ANY SALES - TAX OR MANDI TAX ON THE PURCHASES MADE FROM THE ABOVE TWO PARTIES AND, THUS, MADE EXTRA PROFIT. ON APPEAL, THE COMMISSIONER (APPEALS), HELD THAT THE ASSESSIN G OF FICER HAD MADE ADDITION MERELY ON THE BASIS OF OBS ERVATION MADE. BV SALES - TAX DEPARTMENT, WITHOUT CONDUCTING INDEPENDENT ENQUIRIES. HE, THEREFORE, DELETED THE ADDITION.' (III) THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF DIAGNOSTICS V CIT REPORTED AT 3 34 ITR 111 HAS HELD T HAT - ' HOWEVER, AS REGARDS THE PAYMENTS MADE TO M/S. SELVAS PHOTOGRAPHIC ARE CONCERNED AMOU NTING TO RS. 3,12,302, WE FIND THAT THOSE HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THOSE HA VE BEEN ENCAS HED THROUGH THE BANKERS OF M/S. SELVA S PHOTOGRAPHIC. IT APPEARS THAT ACCORDING TO THE APPELLANT, AT THE TIME OF ASSESSMENT, THE APPELLANT HAD NO BUSINESS TRANSACTION WITH M/S. SELVAS PHOTOGRAPHIC AND CONSEQUENTLY, THE SAID PARTY DID NOT CO - OPERATE W ITH THE ASSESSIN G OFFICER. HOWEVER, THE TRAN SACTION HAVING TAKEN PLACE THROUGH ACCOUNT PAYEE. CHEQUES, WE ARE UNABLE TO ACCEPT THE CONTENTIO N OF MR. A GARWAL, THE LEAR NED ADVOCATE APPEARING FOR THE REVENUE THAT THE TRANSACTION WA S A NON - EXISTENT ONE. IF AN ASSESSEE TOOK CARE TO PURCHASE MATERIALS FOR HIS BUSINESS BY WAY OF ACCOU NT PAYEE CHEQUES FRO M A THIRD PARTY AND SUBSEQUENTLY, THREE YEARS AFTER THE PURCHASE, THE SAID THIRD PARTY DOES NOT APPEAR BEFORE THE ASSESSING OFFICER PURSUANT TO THE NOTICE OR EVEN HAS STOPPED THE BUSINESS, THE CLAIM OF THE A SSESSEE ON THAT ACCOUNT CANNOT BE DISCARDED AS NON - EXISTENT. IN THE CASE BEFORE US, THE REVENUE HAS NOT PUT FORWARD ANY OTHER GROUND, SUCH AS, IT WAS NOT, A GENUINE TRANSACTION FOR OTHER REASONS BUT ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 8 HAS SIMPLY REJECTED THE CLAIM ON THE GROUND AS IF THERE W AS NO SUCH TRANSACTION. 10. THE TRANSACTION HAVING TAKEN PLACE THROUGH PAYMENT BY ACCOUNT PAYEE CHEQUES, SUCH PLEA IS NOT TENABLE AND IN SUCH CIRCUMSTANCES, THE TRIBUNAL BELOW ERRED IN LAW IN REVERING THE FINDING ARRIVED AT BY THE COMMISSIONER OF INCOME - TA X (APPEALS) ACCEPTING THE SAID TRANSACTION AS A GENUINE TRANSACTION. 6.3.6. ON GOING THROUGH THE ASSESSMENT ORDER, NOWHERE IT WAS STATED THAT THE REPORTS AND PAPERS RECEIVED FR OM THE SALES - TAX DEPARTMENT WAS PUT TO 'THE 'APP ELLANT FOR HIS REBUTTAL ARID C ROSS EXAMINATION EXCEPT ON E COPY OF AFF IDAVIT AND STATEMEN T OF THE SELLER FILED BEFORE SA LES TAX OFFIC E R WHICH IS IN GENERAL NATURE.. ' IN THIS REGARD I WOULD LIKE, TO REFER AND RELY ON THE DECISION OF SUPREME COURT IN T HE CASE KISHIN CHAND CHELLARAM VS C IT REPORTED IN 125ITR 713 WHERE IT WAS HELD , '1. T HE LETT ERS DATE D 14 - 2 - 1 9 55 AND 9 - 3 - 1959 , DID NOT CONS TITUTE ANY MATERIAL EVIDENCE WHICH THE TRIBUNAL COULD LEGITIMATELY TAKE INTO A CCOUNT FOR THE PURPOSE OF ARRIVING AT THE FINDING THAT THE AMOUNT OF RS. 1,07,350 WAS REMITTED BY THE ASSESSEE FROM ITS MADRAS OFFICE, AND IF THESE T W O LETTERS WERE, ELIMINATED FROM CONSIDERA T ION, THERE WAS NO MATERIAL EVIDENCE AT ALL BEFORE THE TRIBUNAL WHICH COULD SUPPORT ITS FINDING. WH AT THE MANAGER OF THE, BANK WROTE IN H IS LETTERS COULD NOT POSSIBLY BE BASED ON, HIS PERSONAL KNOWLED G E BUT WA S BASED ON HERE SAY. 'THE REVENUE AUTHORITIES OUGHT TO, HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMENTS A N D PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENT AN D CONFRONTED' THE 'ASSESSEE WITH THOSE DOCUMENTS AND PAPERS. NO EXPLANATION' HAS, BEEN FURNISHED BY THE REVENUE AS TO WHAT HAPPEN E D WHEN THE MANAGER APPEARED IN OBEDIENCE TO THE SUMMONS AND WH AT STATEMENT HE MADE. 2. IT WAS NOT POSSIBLE TO HOLD, IN THE FACE OF THE .APPLI CATION FOR REMITTANCE SIGNED IN THE NAME OF T, THAT AMOUNT WAS REMITTED BY THE ASSESSEE AND THE FINDING TO, THAT EFFECT REACHED BY THE T RI BUNAL MUST BE HELD TO BE UNREASONABLE AND PERVERSE. EVEN ASSUMING THAT THESE LETTERS WERE TO BE TAKEN' INTO ACCOU NT, T HOSE LETTERS WOULD AT T HE HIGHEST ESTABLISH THAT T, AN EMPLOYEE RE MI TTED THE 'AMOUNT FROM MADR AS AND N, ANOTHER EMPLOYEE, RECEIVED IT AT BOMBAY. FROM THIS I T DID NOT FOLLOW THAT THE REMITTANCE WAS MADE AT MADRAS AND RECEIVED AT BOMBA Y ON BEHALF OF THE ASSE SSEE. THE BURDEN WAS ON THE DEPARTMENT TO SHOW THAT THE MONEY BELONGED TO THE ASSESSEE BY BRINGING PROPER EVIDENCE ON RECORD AND THE ASSESSEE COULD NOT BE EXPECTED TO CALL T ,AND N, WHO LEFT THE SERVICE AT THE TIME WHEN ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 9 THE ASSESSMENT WAS REOPENED, IN EV ID ENCE TO HELP THE DEPARTMENT TO DISCHARGE THE BURDEN THAT LAY UPON IT. , 3. THEREFORE, THERE WAS NO EVIDENCE ON THE BASIS OF WHICH THE TRIBU N AL COULD COME TO THE FINDING THAT THE IMP UGNED AMOUNT AS REMITTED BY THE ASSESSEE AND THAT IT REPRESENTED ITS UNDI SCLOSED INCOME. FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KISHANCHAND CHELLARAM VS. CIT (125 ITR 713), THE APPELLANT SHOULD HAVE BEEN NATURALLY CONFRONTED WITH THE EVIDENCES ON WHICH THE DEPARTMENT PLACES ITS RELIANCE . THIS IS A QUESTION OF AFFORDING NATURAL JUSTICE TO TH E ASSESSEE. SINCE NO SUCH OPPORTUNITY HAS BEEN GRANTED TO TH E AP PELLANT, THE ADDITION ON ACCOUNT OF PURCHASES CANNOT BE JUSTIFIED AT ALL. SINCE THE APPELLANT HAS BEEN DENIED NATURAL JUSTICE IN THE MAN NER AS STATED ABOVE, THE ADDITION MADE ON ACCOUNT OF THE ABOVE STATED PURCHASES WILL NOT STAND THE TEST OF LAW. 6.3.7. THE 'INFORMATI ON AT WWW.MAHAVAT.GOV.IN DOES NOT PROVE THAT AFTER RECEIVING THE MONEY BY CHEQUE, THE SAID PARTY RETURNED BACK T H E M ONEY IN CASH TO THE APPELLANT AND THE APPELLANT MADE ANY NET PROFIT O U T OF THE SAME. 'IN THIS REGARD, REFERENCE IS MADE AND RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS: I) THE HON'BLE ITAT, JAIPUR BENCH IN CASE OF ITO V. KANCHANWELA GEMS REPORTE D IN 122, TT J 854 HAS HELD UNDER: 'THE ASSESSEE HAD 'FURNISHED ALL NECESSARY INFORMATION INCLUDING NAME, ADDRESS, PAN, ,RST/ CST NUMBERS AND TELEPHONE NUMBERS OF THE SUPPLIERS, SUPPORTED WITH DOCUMENTS WHICH WAS EXPECTED FROM A PRUDENT ' PURCHASER TO ESTABLISH THE GENUINENESS OF CLAIMED TRANSACTION; BESIDES THE PAYMENTS HAD BEE N MADE THROUGH ACCOUNT - PAYEE CHEQUES AND GOODS PURCHASED FROM THE FOUR PARTIES HAD BEEN EXPORTED BY THE ASSESSEE I N THE SAME SHAPE,' SIZE AND WEIGHT, DULY VERIFIED BY THE CUSTOMS AUTHORITIES , THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DOUBTING THE GENUINENESS OF THE CLAIMED PURCHASES MADE BY THE ASSESSEE FROM THE FOUR SUPPLIERS AND MAKING ADDITION MERELY ON BASIS THAT ON SUBSEQUENT OCCASION THE PARTIES WE RE NOT FOUND ON THE GIVEN ADDRESSES OR IN SOME OTHER CASES SOME CONNECTED PERSON TO THE SUPPLIER HAD STATED THAT TH EY WERE O N LY ISSUING BILLS WITHOUT SUPPLYIN G GOODS OR THAT THE MONEY PAID B Y THE 'ASSESSEE AGAINST THE PURCHASES WAS WITHDRAWN, BY THOSE PARTIES . UNDISPUTEDLY , AFTER COMPLETION O F TRANSACTION A PURCHASER CANNOT HAVE A NY CONTROL OVER THE SUPPLIERS AND SUPPLIERS ARE ALWAYS AT LIBERTY TO USE THE MONEY PAID TO TH EM ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 10 AGAINST THE GOODS SOL D 'BY THEM. THUS, IN THE ABSENCE OF ANY POSITIVE EVIDENCE THAT THE GOODS WERE NOT PURCHASED FROM THE ABOVE PARTIES BUT FROM SOME NAMED PERSON OR THAT THE MONEY PAID B Y THE ASSESSEE AG AINST THE GOODS W AS ULTIMATELY' RETURNED TO THE ASSESSEE BY THE' SUPPLIERS, THERE WAS NO OCCASION BEFORE THE ASSESSING OFFICER TO DENY THE CLAIMED PURCHASES, ESPECIALLY WHEN THE GENUINENESS OF THE EXPORT OF THOSE GOODS BY THE ASSESSEE HAD BEEN ACCEPTED BY THE ASSESSING OFFICER. THE COMMISSIONER (APPE ALS) HAD, THUS, RIGHTLY DELETED THE ADDITION' II) IN THE CASE OF ITO VS. PERMANAND, THE HONBLE ITAT, JODHPUR BENCH REPORTED IN 107 TTJ 395 HAS HELD: IN THE INSTANT CASE, THE ADDITION RESTED MAINLY ONLY ON THE OBSERVATION OF THE SALES - TAX DEPARTMENT. THE ASSESSEE WAS NEVER ASSOCIATED WITH THE ENQUIRI ES MADE BY THE SALES - TAX DEPARTMENT TO THAT EXTENT. THE SATISFACTION OF THE ASSES SING OFFICER HIMSELF IS OF PRIME IMPORTANCE WHILE MAKING ASSESSMENT OF AN INCOME AND THESE' DUTIES CANNOT BE PER FORM ED BY SUBST ITUTING SATISFACTION OF SOMEONE ELSE. THE ASSESSEE DID PAY FOR THE PURCHASE SHE MADE FROM THE ABOVE TWO PARTIES THROUGH CHEQUE AS WA S EVIDENT FROM THE RECORD, THE' STATEMENTS OR EVEN THE AFFIDAVITS OF TH E SELLERS, COULD' NOT BE UTILLZED AGAINST THE A SSESSEE, UNLESS AN OPPORTUNITY WAS GIVEN TO HIM TO CONFRO N T' THE SAID' STATEMENT BY WAY OF CRO SS EXAMINATION, ETC; AD MITT EDLY , NO SUCH OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO CONFRONT THE A BOVE SELLERS IN THE INSTANT CASE. FURTHER TH E ASSES SEE HAD ALSO DISCHARGED THE PRIMARY ONUS CAST ON HIM BY SECTION 69 BY SHOWING THE PU RCHASES, THEIR ENTRIES IN THE BOOKS OF ACCOUN T, PAYMENTS BY WAY OF ACCOUNT PAYEE CHEQUE AND' PRODUCING THE VOUCHERS OF SALES OF THE GOODS; THE ASSESSIN G OFFIC ER HAD MISERABLY FAILED TO BRI N G ON RECORD ANY CLINCHING EVIDENCE TO PROVE THAT THESE ALLEGED PURCHASES WERE BOGUS AND NOT GENUINE. FURTHER, THE ASSESSING OFFICER D ID NOT MAKE REQUISITE INVESTIGATION AGAINST THE TWO SELLERS. THEREFORE, THE COMMISSIONER (APP EALS ) HAD RIGHTLY HELD THAT THE ADDITION MADE BY T H E ASSESSING OFFICER MERELY ON THE BA SIS OF OBSERVATIONS OF SALES - TAX DEPARTMENT, WITHOUT CONDUCTING INDEPENDEN T E NQUIRIES WAS NOT JUSTIFIED . SINCE THE PURCHAS E IN QUESTION HAD BEEN HELD AS G ENU I NE PURCHASE, ADDITION OF RS. 55,632 COULD NOT BE MADE TO THE INCOME OF THE ASSESSEE. HENCE, THE REVENUE'S APPEAL W AS LIABLE TO BE DISMISSED . III)' . IN THE CASE OF R. K.SYNT H ETICS VS. ITO REPORTED AT 81 TTJ 909, T HE HON'BLE I TAT, JODHPUR BENCH HAS HELD . 'IT' WAS AN UNDENIABLE FACT THAT THE ADDITION IN QUESTION UNDER SECTION 69 HAD BEEN MADE ON THE SOLE BASIS OF THE STATEMENT OF ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 11 THE PARTNER OF THE ASSESSEE - FIRM RECORDED BY TH E CENTRAL EXCISE AUTHORITIES. THAT WAS AL SO AN UNDENIABLE FACT THAT THE ASSESSING OFFICER NEVER RECORDED ANY FURTH ER STATEME NT OF THE SAID 'PARTNER OR ANYBODY ELS E. A COPY OF THE STATEMENT RECORDED BY' THE CENTRAL EXCISE AUTHORITIES WAS NEVER PROVIDED' TO TH E ASSESSEE. N O INDEPEN DENT INVESTIGATION WAS CARRIED OUT BY THE ASSESSING OFFICER EVEN THOUGH HE PROPOSED TO MAKE AN ADDITION UNDER SECTION 69 IN THE HANDS OF THE ASSESSEE. THERE WAS NO EVIDENCE OF SUPPRESS ED SALES, AS THE SALES DECLARED BY THE ASSESSEE HAD BEEN ACCEPTED FULLY BY THE ASSESSING OFFICER AND NO ACTION HAD BEEN TAKEN' BY THE SALES TAX DEPARTMENT DESPITE THERE BEING INFORMATIO N R EGARDING THE FACT THA T THE STATEMENT MADE BY THE SAID PARTNER HAD BEEN RETRACTED IN THE VERY NEXT OPPORTUNITY IMMED IATELY AFTER MAKING OF THE STATEMENT. THE ASSESSEE HAD BEEN MAINTAINING COMPLETE FINANCIAL AND QUANTITATIVE RECORDS AT ALL STAGES OF PRODUCTION AND NO SPECIFIC DEFECTS HAD BEEN POINTED OUT BY THE AUTHORITIES BELOW. THE COMMISSIONER (APPEALS HAD CATEGORICAL LY MENTIONED THAT THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT: NOR BROUGHT ANY ON RECORD AND THAT THE ASSESS IN G OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AGAINST WHICH THE DEPARTMENT HAD' NOT COME IN SECO ND. APPEAL. IN THE CIRCUMSTANC ES THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES DID NOT J USTIFY ADDITIONS UNDER SECTION 69 M ERE L Y ON THE BASIS OF THE STATEMENT OF THE SAID PARTNER W I THOUT AN Y FURTHER SUPPORTING EVI DENCE BEING ON RECORD. [PARA 10] IN THE RESU LT, THE APPEAL WA S ALLOWED. [PARA 12]' 6.3.8. FURTHER, THE AO CANNOT MAKE ANY ADDITIONS JUST ON THE BASIS OF PRESUMPTION. SUSPICION, HOWEVER STRON G CANNOT TAKE PLACE OF PROOF. THIS PRINCIPLE IS REFLECTED I N THE FOLLOW ING JUDICIAL PRINCIPLES: URNACHAR AN SHAW& BROS V. GIT (37 ITR 271)(SC) DHAKESHWARI COTTON MILLS V CIT (26 ITR 775)(SC) SHEONARALNDULI CHAND V CIT (72 ITR 766)(AII.) THE, WHOLE CASE OF THE A.O. IS BUILT U P , ON APPEARANCE OF CERTAIN PURCHASE PARTIES ON THE WEBSITE OF MAHARASHTRA S ALES TAX DEPARTME N T AND THE APPELLANT'S FAILURE TO PRO DUCE THESE PARTIES BEFORE THE AO. DEPARTMENT'S EFFORT TO VERIFY THE G ENUINENESS OF PURCHASES IN RESPECT OF SELLER PARTY DID NOT MAKE ANY PROGRESS AS THE NOTICES ISSUED COULD BE SERVED. IN MY OPINION THE MERE APPEA RANCE OF A PURCHASE PARTY ON TH E WEBSITE OR STATE GO V ERN M ENT DOES N OT TURN A GENUINE PURCHASE ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 12 INTO A NON GENUINE PURCHA SE. THIS FACT ONLY RAISES' A' QUESTION MARK AND ALLOWANCE OF PURC HASE' EXPENSES OF APPELLANT HAS TO BE NECESSARI L Y DECIDED TA KING INTO VIEW THE TOTALITY OF THE CIRCUM ST A NCES OF THE CLAIM . IT IS ALSO TO B E KEPT IN VIEW THAT ONCE A N AME OF THE PARTY APPEARS ON THE WEBSITE OF THE STATE GOVERNMENT EVEN IF THE PARTY HAS MADE GENUINE SALES TO THE APPELLANT 'HE WOULD MAKE HIMSELF UNAVA ILABLE AND WOULD BE MOST RELUCTANT TO CO - OPERATE WITH THE DEPARTMENT FOR THE VERIFICATION OF PURCHASES. THE APPELLANT HAS ALREA DY FILED A NUMBER OF COURT/ ITA T DECISIONS W HICH ARE ON THE POINT. IN THE CASE OF M.K. BROTHERS SUPRA TH E HON'BLE GUJARAT HIGH CO URT HELD THAT IN THAT CASE THE TRIBUNAL HAD FOUND THAT THERE WAS NO EV I DENCE TO SHOW THAT BOGUS' VOUCHERS' HAD BEEN ISSUED TO THE APPELLANT AND THAT NOTHING HA D BEEN SHOWN TO INDICATE THAT ANY PART OF FUNDS GIVEN BY THE APPELLAN T TO THESE PARTIES CAME BACK TO THE APPELLANT ,IN. ANY FORM AND THE APPELLANT HAD ,MADE PAYMENTS BY CHEQUES. THE HON'BLE COURT THEREFORE, HELD THAT' THE TRIBUNAL WA S JUSTIFIED I N DELETING TH E ADDITION. I N TH E CASE OF THE APPELLA NT AS WELL AS THE DEPARTMENT DOES NOT ASSERT THAT THE SU SPICIOUS DEALERS HAVE SPECIFICALLY CLAIMED THAT THE SUPPLIES TO THE APPELLANT ARE BOGUS. THE PURCHASE PAYMENTS HAVE BEEN MADE BY THE APPELLANT BY CHEQUE AND THERE IS NO EVIDENCE NOT EVEN A SUGGESTION THAT THE FUNDS GIVEN BY THE APPELLANT AS PU RCHASE PRICE W ERE RECEIVED BACK BY THE APPELLANT. THIS JUDGME NT OF THE HON'BLE GUJARAT HIGH COURT WOULD THEREFORE BE SQUARELY APPLICABLE TO THE APPELLANT'S' CASE.' SIMILARLY HON'BLE CALCUTTA HIGH COURT IN CASE OF DIAGNOSTICS SUPRA HAS HELD THAT WHERE PAYMENTS HAVE BEE N MADE' BY ACCOUNT PAYEE CHEQUES ADVERSE VIEW CANNOT BE TAKEN IF SUBSEQUENTLY THE DEALERS DO. NOT' .CO - OPERATE WITH THE A.O. FOR VERIFICATION OF THE PURCHASES: IN THIS REGARD, I HAVE ALREAD Y' REFERRED TO VARIOUS DECISION OF THE HON'BLE COURTS AND PLACED RE LIANCE ON THE SAME. 6.3.9. HOWEVER, IN THE CASE OF THE APPELLANT, THE AO HAS NEITHER ESTABLISHED THAT THE' SELLERS ARE INCAPABLE OF MAKING THE SALES NOR THAT ANY OF THE SELLERS WERE EMPLOYEES OF T HE APPELLANT. THE LEDGER ACCOUNT S OF THE AFORESAID PARTIE S WERE PRODUCE D AND EXPLAINED THE SAME WITH R EFERENCE TO DATE OF PAYMENT, CHEQUE NO. ETC .. IN THIS REGARD, I WOULD LIKE TO REFER TO THE UNDER MENTIONED JUDICIAL PRONOUNCEMENTS AND' PLACE RELIANCE ON THE SAME. (I) RELIANCE IS PLACED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF BABULAL C. BORANA V. ITO [282 ITR 251], WHEREIN IT HAS BEEN HE LD THAT WHER E IDENTITY OF PERSON FROM WHOM GOODS HA D BEEN PURCHASED AND SOURCE OF INVESTMENT IN SUCH GOODS ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 13 HAD BEEN EXPLAINED BY ASSESSEE, A ND IT WAS ESTABLI SHED THAT AMOUNTS PAID BY ASSESS EE BY CHEQUE' FOR THOSE GOODS HAD B EEN RECEI V ED, AND FURTHER, BOOKS MAINTAINED BY ASSESSEE HA D NOT BEEN R EJECTED BY ASSESSING OFFICER AND IN FACT ADDITION WAS BASED ENTRIES MADE IN THOSE BOOKS IT C OULD BE SAID THAT TRANSAC TION WA S GENUINE. (II) IN THE CASE OF THE APPELLANT TOO, IT CAN BE SEEN THAT THE IDENTITY H A S B EEN ESTABLISHED, SOURCE OF INVES TMENT AND BANK PAYMENTS HAVE BEE N P ROVED AND 'THE BOOKS ,OF ACCOUNTS HAVE NOT BEEN REJECTED BY THE A O. ASSESSEE HAS PRODUCED COP Y OF BANK STATEME NTS FOR VERIFICATION AND EVEN BOOKS OF ACCOU N TS ARE AUDITED UJS,44AB. ON THE BASIS OF THE AFORESAID' THE APPELLANT PRAYS THAT THE ADDITION OUGHT TO BE DELETED. (III) FURTHER , RELIANCE IS 'PLACED, ON THE DECI SION OF THE HON'BLE CHANDIGARH ITAT IN THE CASE OF ITO V. ARORA ALLOYS LTD. [2012][12 ITR (TRIB) 263] WHEREIN ADDIT ION MADE OF UNEXPLAINED EXPENSES ON SOLE BASIS OF INFORMATION RECEIVED FROM CENTRAL EX CISE' DEPARTMENT WAS HELD NOT B E JUSTIFIED. 6.3.10. I N MAKING THE DISALLOWANCE THE AO OVER LOOKED THE FACT THAT T HE GENUINENESS' OF THE PURCHASES CAN NOT BE HELD AGAINST THE ASSESSEE MERELY ON THE GROUND THAT THE APPELLANT FAILED TO PRODUCE THE PURCHASE PARTY (THE NAME OF THE SUPPLIER WAS INCLUDED IN THE LIST OF SUSPICIOUS DEALERS IN THE LIST OF STATE GOVERNMENT). IT HAS BEEN RECENTLY HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT OF BOMBAY - ' IN THE CASE OF T HE COMMISSIONER OF INCOME TAX - I VS. M/S. NIKUNJ EXIMP ENTERPRISES PVT LTD AS RE PORTED 2013 - TIOL( TAX INDIA ONLINE.COM) - 04 - HC - MUM - IT I N THE JUDGEMENT DATED DECEMBER 17, 2012 - 'WHETHER D ISALL OWANCE REGARDING PURCHASES MADE, CAN BE MADE MERELY ON THE BASIS THAT' THE SUPPLIERS AND OTHER RELATING EVIDENCES ARE NOT PROD UCED BEFORE THE ASSESSING AUTHORITY OR BEFORE' THE FIRST APPELLATE AUTHOR ITY. IN THIS CASE THE ASSESSEE COMPANY HAD FILED ITS ROI FOR THE AY 2001 - 0 2 DECLARING A TOTAL INCOME OF RS .42.08 LACS. DURING ASSESSMENT, THE AO DISALLOWED AN EXPENDITURE ON ACCOUNT OF NON - GENUINE PURCHASES ALONGWITH OTHER DISALLOWANCES. ON APPEAL, CIT(A ) UPHELD THE ORDER OF T H E A O . ON FURTHER APPEAL, TRIBUNAL OBSERVED THAT THE RESPONDENT - ASSESS EE HAD FILED LETTERS OF CONFIRMATION OF SU PPLIERS, COPIES OF BANK STATEMENT SHOWING ENTRIES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES TO T H E SUPPLIERS, COPIES OF IN VOICES FOR PURCHASES AND STOCK ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 14 STATEMENT. TH I S RECONCILIATION STATEMENT GAVE' COMPLETE DETAILS WITH REGARD TO OPENI NG STOCK, PURCHASES, SALES AND CLOSING STOCK AND NO FAULT WITH REGARD TO LT WAS FOUND. BESIDES, SUBSTANTIAL AMOUNT OF SALES MADE BY THE ASSES SEE WAS TO GOVERNMENT DEPARTMENT AND SU CH SALES COULD NOT BE BOGUS. ALS O, THE BOOKS OF ACCOUNT OF THE ASSESSEE HAD NOT BEEN REJECTED. THUS, TRIBUNAL DELETED THE. DISALLOWANCE OF R S.1.33 CRORES BY HOLDING THAT TH E PURCHASES WERE NOT BOGUS. IN THIS CASE T HE' FOLLOWING QU ESTION OF LAW HAS BEEN FORMULATED FOR C ONSIDERATION OF THE HON'BLE BOMBAY HIGH COURT . 'WHETHER ON THE FACTS IN THE CIRCU MSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN DE LETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS .1,33,41,917/ - TOWARDS BOGUS PURCHASES EVEN THOUGH THE SUPPLIERS WERE NONEXISTENT END ONE OF THE PARTIES HAD CATEGORICA LLY DENIED HAVING ANY BUSINESS DEALINGS WITH THE ASSESSEE COMPANY?' IN THIS CASE; THE HON'BLE BOMBAY HIGH COURT HELD AS UNDER: : '++ F ROM THE ORDER OF THE TRIBUNAL, WE FIND THAT THE TRIBUNAL HAS DELETED THE A DDITIO NS ON ACCOUNT OF BOGUS PURC HASES NOT ONLY ON THE BASIS OF STOCK STATEMENT I.E. RECONCILIATION STA TEMENT, BUT ALSO IN VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDS THAT THE BOO KS OF ACCOUNTS OF TH E ASSESSEE HAVE NOT BEEN REJECTED. SIMI LARLY, THE SALES HAVE NOT BEEN DOUBTED AND IT IS AN ADMITTED POSITION THAT SUBSTANTIAL AMOUNT OF SALE HAVE BEEN MADE TO THE GOVERNMEN T DEPARTMENT. FURTHER, THERE WERE C ONFIRMATION LETTERS FILED BY' THE SUPPLIERS, COPIES OF INVOICES FOR P URCHASES AS WELL AS COPIES OF BANK STATEMENT ALL OF WHICH WOULD INDICATE' THAT THE PURCHASES WER E INFACT MADE . IN OUR VIEW, MERELY BECAUSE THE S UPPLIERS HAVE NOT APPEARED BEFORE THE AO OR THE CIT(A),ONE CANNOT C ONCLU DE THAT THE PURCHASES WERE NOT MADE BY THE ASSESSEE. THE AO AS WELL AS CIT(A) HAVE DISALLOWED THE DEDUCTION ON ACCOUNT OF PURCHASE MERELY ON THE BASIS OF SUSPICION BECAU SE THE SELLERS AND THE CANVASSING A GENTS HAVE NOT BEEN PRODUCED BEFORE THEM. WE FIND TH AT THE ORDER OF THE TRIBUNAL IS WELL A' 'REASONED ORDER T AKING INTO ACCOUNT ALL THE FACTS BEFORE CONCLUDING THAT THE PURCHASE WAS NOT BOGUS. NO FAULT CAN BE FOUND WITH THE ORDER OF THE TRIBUNAL. IN VIEW OF THE ABOVE, WE FIND THAT Q UESTION AS FORMULATED IS NOT A SUBSTANTIAL QUESTION OF LAW'. '2. THE F OLLOWIN G QUESTION OF LAW HAS BEEN' FORMULATED FOR CONSIDERATION OF THIS COURT. ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 15 'WHETHER ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN DEL E T ING THE ADDITION MADE BY TH E ASSESSING OFFICER OF RS.1 ,33,41,917/ - TOWARDS BOGUS PURCHASES EVEN THOUGH THE SUPPLIERS WERE NONEXISTENT AND ONE OF THE PARTIES HAD CATEGORICALLY DENIED HAVING ANY BUSINESS DEALINGS WITH THE ASSESSEE COMPANY?' 3. THE RESPONDENT - ASSESSEE HAD FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR.200 1 - 02 DECLARING A TOTAL INCOME OF RS.42.08 LACS. THE ASSESSING OFFICER INT ERALIA DISALLOWED AN EXPENDITURE OF RS.1.33.CRORES ON ACCOUNT OF NONGENUINE PURCHASES FROM 7 PARTIES. ALONQWITH OTH ER DISALLOWANCES. THE ASS ESSING OFFICER BY ORDER DATED 25 .03.2004 ASSESSED THE RESPONDENT ASSESSEE TO AN INCOME OF RS.1.87 CRORES. 4. BEING AGGRIEVED AN APPEAL WAS FILED BY THE RESPONDENT - ASSESSEE WITH THE COM M I SSIONER OF INCOME FAX (APPEALS) ('C IT(A)'). BY AN ORDER DATED 19.08. 2004, THE C I T(A) UPHELD THE ORDER OF THE ASSESSING OFFICER INTERA L I A TO THE EXTENT RS.1.33 CRORES DI SALLOWED AS BOGUS PURCHASES. 5. BEING AGGRIEVED BY THE ORDER DATED 19.08.2004 OF THE CIT(A), TH E R ESPONDENT - ASSESSEE PREFERRED AN APPEAL T O THE TRIBUNAL. THE TRIBUNAL IN THE IMPUGNED ORDER DATED 30.04.2010 WHILE ALLOWING THE AP P EAL R ECORD S THAT THE RESPONDENT - ASSESSEE HAD FILED LETTERS OF CONFIRMATION OF SUPPLIERS, COPIES OF BANK STATEMENT SHOW ING ENTRIES' OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES TO THE SU PPLIERS, C OPIES OF INVOICES FOR PURCHASES AND STOCK STATEMENT I.E. STO CK RECONCILIATION STATEMENT. TH IS RECONCILIATION STATEMENT GAVE, C OMPLETE DETAILS WITH REGA RD TO OPEN ING STOCK,' PURCHASES, SALES AND CLOS I N G STOCK AND NO FAULT WITH REGARD TO IT WAS FOU ND. BESIDES, SUBSTANTIAL AMOUNT OF - SALES MADE BY THE RESPONDENT ASSESSEE WAS TO GOVERNMENT DEPA RTMENT I.E. DEFENCE RESEARCH AND DEVELOPMENT LABORATORY, HYDERABAD AND SUCH SALES COULD NOT BE BOGUS . BESIDES THE BOOKS OF ACCOUNT OF THE RESPONDENT - ASSE SSEE HAV E NOT BEE N REJECTED. IN VIEW OF THE ABOVE, 'BY ORDER DATED 30.04.2010 THE TRIBUNAL' DELETED THE DISALLOWANCE OF RS.1.33 CRORES BY HOLDING THAT THE PURCHASES WERE NOT BOGUS. 6. MR. VIMAL GUPTA,. SENIOR COUNSEL APPEARING IN SUPPORT OF THE APPEAL SUBMITS TH AT THE TRIBUNAL COULD NOT HAVE RELIED ONLY UPON THE STOCK STATEMENT I.E.' THE RECONCILIATIO N STATEMENT TO CONCLUDE THAT TH E PURCHASES WERE GENUINE. THEREFORE, HE SUBMITS THAT THE Q UESTI ON FORMULATED IS A SUBSTANTIAL QUESTION OF LAW AND NEEDS TO BE DECIDED B Y THIS COURT. ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 16 7. WE HAVE CONSIDERED THE SU BMISSION ON BEHALF OF THE REVENUE. HOWEVER, FROM THE ORDER OF THE TRIBUNAL DATED 30.04.2010, WE FIND TH A T THE TRIBUNAL HAS DELETED THE ADDITIONS ON ACC OUNT OF BOGUS PURCHASES NOT ONLY ON THE BASIS OF S TOCK STATE MENT I.E. RECONCILIATION STATEMENT, BUT ALSO IN VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDS THAT THE BOOKS OF ACCOUNTS OF THE RESPONDENT - ASSESSEE HAVE NOT BEEN REJECTED. SIMILARL Y , THE SALES HAVE NOT BEEN DOUBTED AND IT IS AN ADMITTED POSITION THAT SUBST ANTIAL AMOUNT OF SALES HAVE BEEN MADE TO THE GOVERNMENT DEPARTMENT I.E.. DEFENCE RESEARCH AND DEVELOPMENT' LABORATOR Y, HYDERABAD. FURTHER,' THERE' WERE CONFIRMATION LETTERS FILED BY THE S UPPLIERS, COPIES OF INVOICES FOR' PURCHAS ES AS WELL AS COPIES OF BANK STATEMENT ALL OF WHICH WOULD INDICATE THAT THE PURCHASES WERE INFACT MADE. IN OUR VIEW, MERELY BECAUSE TH E SUPPLIERS HAVE NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE C I T(A ), ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE RE SPONDENT - ASSES SEE. THE ASSESSING O FFICER AS WELL AS CIT(A) HAVE DISALLOWED TH E DEDUCTION OF RS.1.33 CRORES O N ACCOUNT OF PURCHASES MERELY ON THE BASIS OF SUSPICION BECAUSE THE S ELLERS AND THE CANVASSING AGENTS HAV E NOT BEEN PRODUCED BEFORE THEM. W E FIND THAT THE ORDER O F THE TRIBUNAL IS WELL A REASONED ORDER TAKING INTO AC CCOUNT ALL THE FACTS BEFORE CONCLUDING THAT THE PURCHASES OF RS.1.33 CRORES AS NOT BOGUS. NO FAUL T CAN BE FOUND WITH TH E ORDE R DATED 30.04.2010 OF THE TRIBUNAL. 8. IN VIEW OF THE ABOVE, WE FIND THAT QUE STION AS FORMULATED IS NOT A SUBSTANTIAL QUESTION OF LAW. THEREFORE, THE APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 6.3 .11. I HAVE ALSO G ONE THROUGH THE ABO VE CITED CASES, MORE PARTICULARLY THE CASE OF THE JURISDICTIONAL HIGH COUR T WHERE THE BOMBAY H IGH COURT MORE CLEARLY HELD THAT SECTION 69C, CAN BE APPL IED IF THERE IS, AN . UNEXPLAINE D EXPEN DITURE; AND THE SOURCE OF PAYMENT IS NOT PROVED. IN THIS RESPECT T H E APP ELLANT'S AUTHORISED REPRESENTATIVE IN THE ABOVE REPLY HAS STATED THAT T H E PURCHASE R THE ROLLING MILL WAS NOT CLAIMED AS' EXPE NDITURE AND THE SOURCE OF PA Y MENT WAS FULLY EXPLAINED FOR WHICH THERE WAS NO DISPUTE. HE HAS FURTHER NA RRA TED THAT THE FACTS OF THE CASE WHICH WE RE PRODUCED AT PARA 2 OF THE REP LY SUBMITTED BY THE AUTHORISED REPRESENTA TIVE. I HA VE CAREFULLY CONSIDERED TH E OBS E RVATIONS OF THE ASSESSING OFFICER IN MAKING THE ADDITIONS AND THE REP LY OF TH E AUTHORISED REPRESENTATIVE' AND FOUND THAT THE PROVISION OF THE SECTION 69C CANN OT BE APPLIED IN THE ABOVE CASE BECAUSE 'THE ASSESSEE HA S NOT CLAIME D ANY EXPENDITURE IN RESPECT OF THE INVESTMENTS MADE IN THE ROLLING MILL AND FURT H ER HE HAS FULLY EXPLAINED THE SOURCE OF THE PAYMENT WHICH WAS MADE FRO M THE CASH CREDIT LIMIT OF THE KARNATAKA BANK. ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 17 THEREFORE THERE IS NOTHI NG TO DISALLOW AND NO THING TO MAKE ADDITION AS DEEMED INCOME. THE OTHER ASPECT O F TH E ASSESSING OFFICER WHERE THE ASSESSING OFFICER HAS RELIED THE STATEMENT OF S H RI PRAM OD KUMAR SINGH, PROPRIETOR OF M/ S SI DDHIVINAYAK STEEL WHICH WAS GIVEN BEFORE THE, SALES TAX DEPARTMENT. IT W AS THE DUTY OF THE ASSESSIN G OFFIC ER THAT IF HE WANTS TO RELY ON THE STATEMENT GIVEN TO SOME OTHER AUTHO RITIES THEN HE WAS DUTY BOUND TO SUM MON THE PARTY TAKE THIS STATEMENT NOR SECTION 131 OF THE INCOME TAX ACT,1961 AND TO ALLOW THE CROSS EXAMI NATION TO T HE APPELLANT; THIS PROCED URE HAS NOT BEEN FOLLOWED BY THE AS S E SSING OFFICER AND THE AUTHORISED REPRES ENTATIVE HAS STRONGLY ARGUED THAT THE STATEMENT OF SHRI PRARNOD KUMAR SINGH I S NOT RELIABLE, AS THE APPELLANT PROVED FROM VARIOUS DOCUMENTS THAT RO LLING MI LL WAS PURCHASED AND THA T T HE P AYMENT WAS MADE BY THE ACCOUNT PAYEE CHEQUE, THE PRODUCTION WAS STARTED BY THE SAID ROLLING M ILL IN THE SUBSEQUENT YEAR, ON WHICH THE EXCISE D UTY WERE PAID AND SALES WERE ACCOUNTED. ALSO, THE ENTRIES WERE DULY RE CORDED IN T HE BOOKS OF ACCOUNTS AND THE SAID. BOOKS OF ACCOUNTS WERE NOT REJEC TED BY THE ASSESS ING OFFICER . ALL THESE EVIDENCES PROVED BEYOND ANY DOUBT THAT ROLLING MILL WAS PURCHASED F R OM M/S.SIDDHIVINAYAK STEEL. I HA V E GONE THROUGH THE REPLY OF THE AUTHORISED REP RESENTATIVE AND FOUND THAT THE A UTHORISED REPRESENTATIVE HAS EXPLAINED THE SOURCE OF PAYMENT OF TH E ROLLING MILL AND THE AID ROLLING MILL WAS SET UP SUBSEQUENTLY AND WA FULI Y O PE RA TIONAL, ON WHICH THE EXCISE DUTY WERE ALSO PAID ON PRODUCTION. THEREFORE THE PURCHASE OF THE ROLLING MILL CANNOT BE DOUBTED AND THE ADDITIONS CANNOT BE MADE MERELY ON THE BASIS OF THE STATEMENT OF SHRI. PRAMOD KUMAR SINGH, THE PROPRIETOR OF M/S. SIDDHIVINAYAK STEEL WHICH TOO WAS MADE BEFORE THE SALES TAX DEPARTMENT. I THEREFORE DI RECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 40,19,776/ - IN RESPECT OF UNEXPLAINED EXPENDITURE UNDER SECTION 69C. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE ASSESSING OFFICER HA S DISCUSSED THE ISSUE IN PARA 7.1 TO PARA 7.8 OF HIS ORDER AND DISALLOWED RS.40,19,776/ - AS UNEXPLAINED EXPENDITURE U/S.69C ON ACCOUNT OF PURCHASES OF ROLLING MILL FROM M/S. SIDDHIVINYAK STEEL (PROPRIETOR SHRI PRAMOD KUMAR SINGH). WE FOUND THAT THESE PURCH ASES WERE NOT REFLECTED AS EXPENDITURE IN THE PURCHASE ACCOUNT SO MAINTAINED ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 18 BY THE ASSESSEE. ACTUALLY THE ASSESSEE FIRM HAD PURCHASED CAPITAL GOODS FROM M/S.SIDDHIVINAYAK STEEL . FURTHER, IT IS NOTICED FROM THE DETAILS THAT THE ASSESSEE HAD SHOWN TO HAVE M ADE PURCHASES OF CAPITAL GOODS OF RS.40,19,776/ - FROM THE PARTY. THE TIN NUMBER AND AMOUNT OF TRANSACTION OF THE SAID PARTY IS AS UNDER: - SL.NO. NAME OF THE PURCHASE PARTIES TIN AMOUNT DATE (1) M/S.SIDDHIVINAYAK STEELS 27050389521V 40,19,776 7. THE RO LLING MILL SO PURCHASED FROM M/S. SIDDHIVINAYAK STEEL WAS INSTALLED ON 24/01/2011 WAS STARTED IN JANUARY 2011 AND 1038 M/TS. CR POLLS WERE ALSO PRODUCED DURING THE YEAR UNDER CONSIDERAT ION. WE FOUND THAT SAID PROVDUCTIO N WAS ALSO FOUND TO BE RECORDED IN EX CISE REGISTER RG - 23, CONSUMPTION OF ELECTRICITY ALSO INCREASED AND PAYMENTS WERE MADE FROM BANK ACCOUNT MAINTAINED WITH KARNATAKA BANK. HOWEVER, THE AO HAS DISALLOWED THE PURCHASE OF MACHINERY ONLY ON THE BASIS OF STATEMENT OF PROPRIETOR OF SIDDHIVINAYAK S TEEL WHICH WAS MADE BEFORE THE SALES TAX DEPARTMENT. HOWEVER, IT WAS GENERAL STATEMENT WITHOUT SPECIFYING THE NAME OF THE ASSESSEE. AFTER RELYING ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP PVT LTD., 2013 - TIOL(TAX INDIA ONLINE. COM) - 04 - HC - MUM - IT IN THE JUDGEMENT DATED DECEMBER 17,2012 WHEREIN HONBLE HIGH COURT HELD THAT SECTION 69C CAN BE APPLIED IF THERE IS AN UNEXPLAINED EXPENDITURE AND THE SOURCE OF ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 19 PAYMENT IS NOT PROVED. WE FOUND THAT PURCHASE OF ROLLING MILL WAS NOT CLAIMED AS EXPENDITURE AND THE SOURCE OF PAYMENT WAS FULLY EXPLAINED FOR WHICH THERE WAS NO DISPUTE. THE CIT(A) HAS RECORDED A CATEGORIC FINDING TO THE EFFECT THAT SINCE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN RESPECT OF INVESTMENTS MADE IN ROLLING MILL AND H E HAS FULLY EXPLAINED THE SOURCE OF PAYMENT WHICH WAS MADE FROM THE CASH CREDIT ACCOUNT OF KARNATAKA BANK, THERE IS NO REASON TO DISALLOW THE SAME. THE CIT(A) ALSO OBSERVED THAT NEITHER AO HAS RECORDED THE STATEMENT OF SIDDHI VINAYAK STEEL U/S.131 NOR HAS ALLOWED THE CROSS EXAMINATION TO THE ASSESSEE. WITH REGARD TO GENUINENESS OF ROLLING MILL SO PURCHASED, THE CIT(A) HAS ALSO RECORDED A FINDING TO THE EFFECT THAT SAID ROLLING MILL WAS SET UP AND FULLY OPERATIONAL ON WHICH EXCISE DUTY WERE ALSO PAID ON PROD UCTION. THEREFORE THE PURCHASE OF THE ROLLING MILL CANNOT BE DOUBTED AND THE ADDITIONS CANNOT BE MADE MERELY ON THE BASIS OF THE STATEMENT OF SHRI. PRAMOD KUMAR SINGH, THE PROPRIETOR OF M/S. SIDDHIVINAYAK STEEL WHICH TOO WAS MADE BEFORE THE SALES TAX DEPAR TMENT. AFTER GIV ING DETAILED FINDING FROM PARA 6.3.2 TO 5.3.11, THE CIT(A) HAS DELETED THE ADDITION. THE FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD. LEARNED DR HAS NOT CONTROVERTED THE FINDING SO RECORDED BY CIT(A). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE / ADDITION MADE U/S.69C OF THE IT ACT. 8 . AO HAS ALSO MADE ADDITION OF RS.90,38,769/ - BY TREATING THE SALE OF SCRAP AS UNACCOUNTED SALES. BY THE IMPUGNED ORDER CIT(A) DELETED THE SAME AFTER OBSERVING AS UNDER: - ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 20 5' 3.1 HAVE CONSIDERED THE STAND .OF THE ASSESS ING OFFICER AND REPLY FILED BY THE REPRESENTATIVE OF THE APPELLANT. I T IS ALSO' NOTED THAT THERE IS N O DISPUTE OVER THE G E NERATION OF SCRAP AT THE RATE OF 4.88 % EQUIVALENT TO 234.84 M ET RIC TONS. AS PER THE APPELLANT REPRESENTATIVE, THE SAID QUANTITY WAS GENERATED AS SCRAP & SOLD AT RS. 3 3,93,426/ - WHICH WAS REFLECTED I N T H E S ALES . THEREFORE THE QUESTION OF' AN Y ADDI TION 'DID NOT ARISE. WHILE THE , A SSESSING OFFICER HAS ASSUME D THAT THE SALE OF SCRAP SHOWN BY THE ASSESSE E WA S IN FACT SALE' OF FINISHED GOODS, HE ADOPTED THE VALUE OF SCRAP SALE OF 23 4 . 84 METRIC TONS, BY THE ASSESSEE, AT .THE PRICE OF FINISHED GOODS @R S.52,939/ - PER METR I C TON, TOTAL AMOUNTING TO RS. 1,24,32,195/ - OUT OF WHICH THE SALE OF SCRAP SHOWN BY THE ASSE SSEE AMOUNTING TO RS.33,93,426/ - W AS REDUCED & THEREAFTER MADE THE ADDITION OF RS. 90,38,769/ - ON ACCOUNT OF THE DIFFERENCE IN THE V ALUE OF SALE OF SCRAP. ON GOING THROUGH THE SUBMISSION AND RECORD, IT IS FO UND THAT SIMILAR TYPE OF SCRAP WERE GENERATED IN EARLIER YEARS AND THE SALE VALUE HAVE BEEN ACCEPTED BY THE DEPARTMENT. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON FOR TAKING THE VALUE OF THE SCRAP SALE AT THE PRICE ON WHICH FINISHED GOODS WERE SOLD, SI NCE THE APPELLANT AGREED THAT THERE IS NO DISPUTE OVER QUANTITY OF SCRAP SOLD WHICH IS ALREADY APPEARING IN THE SALES. THEREFORE, IT WAS ARGUED THAT THERE IS NO REASON TO MAKE ANY ADDITION IN RESPECT OF SALE OF SCRAP WHICH IS ALREADY ACCOUNTED. THE APPELLA NT HAS ALSO SUBMITTED THAT THE SCRAP GENERATED IS USUAL S PER NORMS PRESCRIBED BY THE DIRECTOR GENERAL OF FOREIGN TRADE, STANDARD INPUT / OUTPUT NORMS AS PER SL.NO.C692 AS NOTIFIED BY DGFT IN THE HANDBOOK (VOL.2) 2002 - 07. THE RELEVANT PORTION OF ITEM NO.C6 92 OF DGFT HANDBOOK IS REPRODUCED HEREUNDER: - SL.NO . EXPORT ITEM QUANTITY IMPORT ITEM QTY. ALLOWED C692 ITEMS MANUFACTURED OUT OF GP SHEETS 1 KG GP SHEETS / COILS / SECONDARY 1.050 KG. ON THE BASIS OF ABOVE, IT WAS SUBMITTED THAT, THE NORMAL SCRAP ALLOW ED IS 5% WHILE THE SCRAP OF THE APPELLANT WAS 4.88%, WHICH IS WITHIN THE LIMIT AS MENTIONED HERE. IT WAS FURTHER SUBMITTED THA T IN RESPECT OF SALE OF SCRAP THE APPELLANT IS REQUIRED TO MAINTAIN PROPER RECORDS IN RG 1 W HICH IS VERIFIED BY THE EXCISE DEPART MENT. CONSIDERING ALL THE ABOVE FACTS, MORE PARTICULARLY THE FACT THAT THE SALES OF SCRAP HAVE ALREADY BEEN ACCOUNTED BY THE ASSESSEE, THE ADDITION MADE IS NOT JUSTIFIED. SI MILAR ISSUE AROSE BEFORE ME IN THE ASSESSMENT YEAR 2009 - 2010 WHERE AFTER CAREFUL CO NSIDERATION OF THE FACTS, IT WAS FOUND THAT THERE WAS NO JUSTIFICATION FOR THE ADDITIONS MADE. FOLLOWING T H E REASONS AS STATED IN THE APPEAL ORDER OF ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 21 ASSESSMENT YEAR 2009 - 2010, I, T HEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.90,38,76 9/ - ON ACCOUN T OF UNACCOUNTED SALES. IN THE RESULT THIS GROU N D OF APPEAL IS ALLOWED. 9. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE ASSESSING OFFICER HAS MADE ADDITIONS IN RESPECT OF SALE OF SCRAP CONSIDERING THE SALE OF 234.84 METRIC TONS OF SCRAP AS PER THE VALUE OF FINISHED GOODS AT THE RATE OF 52,939/ - PER METRIC TON WHICH WORKS OUT TO RS.1,24,32,195/ - . SINCE THE ASSESSEE HAS ALREADY SHOWN SALES (SCRAP) OF RS.33,93,426/ - , THEREFORE, THE DIFFERENCE OF RS.90,38,769/ - WAS ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE . FROM THE RECORD, WE ALSO FOUND THAT DURING THE YEAR UNDER REFERENCE, THERE WERE SCRAP GENERATION OF 4.88% WHICH IS 234.84 METRIC TONS. THE SAID SCRAP WAS SOLD AT RS.33,93,426/ - FOR WHICH THE COMPLETE DETAILS WERE GIVEN TO ASSESSI NG OFFICER ALONG WITH DETAILS OF SALE OF FINISHED GOODS. THE FACTS OF SCRAP SALE HAVE ALSO BEEN STATED IN THE TAX AUDIT REPORT. EVEN THERE IS NO DISPUTE WITH THE DEPARTMENT OVER THE GENERATION OF SCRAP AT 4.88%. 10. THE CIT(A) ALSO RECORDED THE CATEGORICAL FINDING TO THE EFFECT THAT GENERATION OF SCRAP WAS @4.88% EQUIVALENT TO 234.84 M/TS. THE SAID QUANTITY WAS DEVELOPED AS SCRAP AND SOLD AT RS.33,93,42/ - WHICH WAS REFLECTED IN SALES. THEREFORE, THE QUESTION OF ANY ADDITION DID NOT ARISE. HOWEVER, THE AO HA S WRONGLY TAKEN THE SALE PRICE OF SCRAP AT THE RATE OF FINISHED GOODS WHICH WAS RS.52,939/ - M/T. THE CIT(A) HAD ALSO RECORDED A FINDING TO THE EFFECT THAT SIMILAR TYPE OF SCRAP WAS DEVELOPED IN EARLIER YEARS AND THE SALE VALUE HAVE BEEN ACCEPTED BY THE DEP ARTMENT. HOWEVER, AO ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 22 HAS NOT GIVEN ANY REASON FOR TAKING THE VALUE OF SCRAP AND SALE AT THE RATE ON WHICH FINISHED GOODS WERE SOLD. WE ALSO FOUND THAT DURING THE YEAR SCRAP GENERATED WAS AS PER NORMS PRESCRIBED BY DIRECTOR GENERAL OF FOREIGN TRADE, STANDAR D INPUT / OUTPUT NORMS AS PER SURVEY NO.C - 692 HAS NOTIFIED BY DGFT IN THE HANDBOOK (VOLUME - 2) 2002 - 07. ACCORDING TO THIS NOTIFICATION SCRAP SALE IS ALLOWED AT 5%, HOWEVER, SCRAP OF THE ASSESSEE WAS 4.88% WHICH IS WITHIN THE LIMIT AS MENTIONED IN THE ABOVE NOTIFICATION. THE CIT(A) HAS ALSO RECORDED A FINDING TO THE EFFECT THAT SALE OF SCRAP HAS BEEN RECORDED IN RG - 1 WHICH HAS ALSO BEEN VERIFIED BY THE EXCISE DEPARTMENT. DETAILED FINDING SO RECORDED BY CIT(A) AT PARA 5.3 HAVE NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING SO RECORDED BY CIT(A) WHICH IS AS PER MATERIAL ON RECORD. ACCORDINGLY GROUND TAKEN BY REVENUE IS DISMISSED. 1 1 . THE AO HAS ALSO DISALLOWED E XPENDITURE U/S.14A AMOUNTING RS.3,49,424/ - WHICH WAS DELETED BY CIT(A) AFTER OBSERVING AS UNDER: - I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE APPELLANT, PERUSED THE ORDER OF THE ASSESSING OFFICER. IT IS NOTICED THAT THE ASSESSING OFFICER HA S DISALL OWED RS.3,49,424/ - U / S 14A AS PER RUL E 8D IN THE SAID WORKING AT PARA 8.3. THE ASSESSING OFFICER HAS CONSIDERED THE INTEREST PAYMENT O F R S.1 ,30,10,812/ - IN THE CALCULATION OF DISALLOWANCES AS PER THE SAID CAL C ULATION THE DISALLOWANCES OF INTEREST WORKED O UT TO RS. 3,25,224/ - AND I N THE SAID WORKING ON THE BASIS OF 0.5% OF TH E AVERAGE INVESTMENT IT COMES TO RS .24,200/ - . THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT HAS ARGUED THAT THE INTEREST CAN BE CONSIDERED IF IT IS ESTABLISHED THAT ANY PART OF BORROWE D FUN D WERE UTILISED IN INV E STMENT OF SHARES. HE ARGUED THAT THE TOTAL INVESTMENT IN SHARES WERE RS. 48,40 ,000/ - WHICH WERE MADE OUT OF OW N CAPITAL AND ACCUMULATED PROFITS AND THEREFORE NO INTEREST SHOULD BE CONSIDERED FOR DISALLOWANCES PURPOSES. FURTHER IN RESPECT OF ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 23 DISALLOWANCES OF RS.24,200/ - . IT WAS ARGUED THAT NO EXPENSES WERE INCURRED FOR EARNING ANY EXEMPT INCOME THEREFORE NO DISALLOWANCE IS CALLED FOR. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND FOUND THAT THE ASSESSMENT OFFICER HAS MADE DISALLOWA NCES AS PER RULE 8D BUT NO WHERE HE HAS STATED THAT THE BORROWED F U NDS WERE UTILIZED FOR INVESTMENT IN SHARES. I AM THEREFORE OF THE OPINION' THAT THE PAYMENT' OF INTEREST' SHOULD NOT BE CONSIDERED 'IN WORKING OF THE DIS ALLOWANCES U/S '14A. ACCORD ING LY, I DIRECT THE ASSESSING OFFICER TO DELETE TH E ADDITIONS OF RS. 3,25,224/.,' OUT O F THE ADDITION OF RS. 3,49,424/ - THE B ALANCE ADDITION MADE OF RS. 24,200/ - IS HEREBY CONFIRMED WHICH IS TAKEN AS 0 5% OF THE AVERAGE INVESTMENT . IN THE RESULT THIS GROUND OF APP EAL IS ALLOWED. 12 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT DISALLOWANCE U/S.14A HAS BEEN DEALT BY THE AO AT PARA 8.1 TO 8.4. DISALLOWANCE OF INTEREST WAS DELETED BY CIT(A) AFTER OBSERVING THAT ASSESSEE HA S ITS OWN CAPITAL AND ACC UMULATED PROFITS OF RS.2,49,43, 402.10 AS ON 31.03.2009 AND THE' TOTAL INVESTMENT IN SHARES OF THE TWO PRIVATE LIMITED COMPANIES WERE RS. 48,40 ,000/ - . THE SAID INVESTMENTS WER E NOT MADE FROM ANY BOR ROWED FUNDS. WHATEVER FUNDS BORROWED WER E UTILISE D FOR BUSINESS PURPOSE. DURING T HE YEAR UNDER REFERENCE THE TOTA I INTEREST PAID ON BORROWED FUNDS OF RS. 1,30,10,812/ - WHILE DISALLOW ING THE EXPENSES U/S 14A THE ASSESSING OFFICER UNDER RULE 8D(2) HAS CONSIDERED DISALLOWANCES OF RS.3,25,224/ - UNDER S UB RUL E (II) AND RS. 24,200/ - UNDER SUB RULE (III) . WE FOUND THAT NO EXPENSES WERE INCURRED ON THE INVESTMENTS MADE IN SHARES. THERE FORE NO EXPENSES I S DISALLOWABLE PARTICULARLY THE INTEREST PAYMENT ON BORROWED FUND HAVE NO LINK WITH INVESTMENTS MAD E. AT PARA 7.3 CIT(A) HAS GIVEN DETAILED FINDING AND RESTRICTED THE DISALLOWANCE OF OTHER EXPENDITURE TO ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 24 THE EXTENT OF RS.24,200/ - . THE DETAILED FINDING SO GIVEN AT PARA 7.3 BY THE CIT(A) HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECOR D, ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR RESTRICTING THE DISALLOWANCE U/S.14A TO THE EXTENT OF RS.24,200/ - . WE HOLD ACCORDINGLY. 1 3 . WE ALSO FOUND THAT SIMILAR ADDITION WAS MADE BY THE AO WITH REGARD TO SALE OF SCRA P AND DISALLOWANCE U/S.14A IN THE ASSESSMENT YEAR 2009 - 10 WHICH WAS DELETED BY THE CIT(A). THE REVENUE HAD FILED AN APPEAL BEFORE THE HONBLE ITAT BEING APPEAL NO.6232/MUM/2012 FOR THE ASSESSMENT YEAR 2009 - 10, WHICH THE HONBLE ITAT B BENCH, HAS DECIDED IN FAVOUR OF THE ASSESSEE AND THE REVENUE S APPEAL WAS DISMISSED BY HONBLE ITAT B BENCH, MUMBAI VIDE ITS ORDER DATED 29/12/2016. 1 4 . RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE ON ACCOUNT OF SALE OF SCRAP AND DISALLOWANCE MADE U/S.14A OF THE IT ACT. 15 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OP EN COURT ON THIS 15 / 02 /2017 SD/ - ( RAM LAL NEGI ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 15 / 02 /201 7 KARUNA SR. PS ITA NO.5293/MUM/2013 M/S. METCRAFT ENGINEERING CORPORATION 25 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//