DCIT, Central Circle-6, Hyderabad V. M/s.Kanyaka Parameswari Engg. Ltd, Hyderabad

ITSSA 27/HYD/2011

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8863 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 13-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARI LAL NAIK
• Assessee Lawyers: DR C P RAMASWAMI
• Keywords: Bogus purchase; Rectification of order; Opportunity of being heard; Block assessment; Retraction; Revised return; Reassessment proceedings
• Section: 40A(3); 143(3); 131; 132; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER IT(SS)A NO. 23/HYD/2007 BLOCK PERIOD 1.4.1996 TO 31.3.2002 & UP TO 1.4.2002 M/S. KANYAKA PARAMESWARI ENGG. LTD. HYDERABAD PAN: AAACK8360N VS. THE DEPUTY CIT CENTRAL CIRCLE-6 HYDERABAD APPELLANT RESPONDENT IT(SS)A NO. 27/HYD/2011 BLOCK PERIOD 1.4.1996 TO 31.3.2002 & UP TO 1.4.2002 THE DEPUTY CIT CENTRAL CIRCLE-6 HYDERABAD VS. M/S. KANYAKA PARAMESWARI ENGG. LTD. HYDERABAD PAN: AAACK8360N APPELLANT RESPONDENT ASSESSEE BY: DR. C.P. RAMASWAMI REVENUE BY: SRI HARILAL NAIK DATE OF HEARING: 08.01.2013 DATE OF PRONOUNCEMENT: 05.03.2013 O R D E R PER CHANDRA POOJARI, AM: THE APPEAL IN IT(SS)A NO. 23/HYD/2007 BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A )-I, HYDERABAD DATED 8 TH DECEMBER, 2006 FOR THE BLOCK PERIOD 1.4.1996 TO 31.3.2002 AND UP TO 1.4.2002 AND THE APPEAL IN IT(SS)A NO. 27/HYD/2011 BY THE REVENU E IS DIRECTED AGAINST THE ORDER OF THE CIT(A), GUNTUR DATED 13.6.2011 PASSED U/S. 154 OF THE INCOME-TAX ACT, 19 61 IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 2 READ WITH SECTION 158BC OF THE ACT FOR THE SAME BLO CK PERIOD. SINCE THE ASSESSEE INVOLVED IN THESE APPEAL S IS BEING ONE AND SAME, BOTH THESE APPEALS WERE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. FIRSTLY, WE TAKE UP THE APPEAL IN IT(SS)A NO. 23/HYD/2007 FOR ADJUDICATION. IT(SS)A NO. 23/HYD/2007 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS AGAINST LAW, WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE. 2. (A) THE LEARNED CIT(A) ERRED IN DISMISSING THE ADDITIONAL GROUND FILED BEFORE HIM IN RESPECT OF THE SUM OF RS. 1,67,48,192/- ADDED ON ACCOUNT OF DOUBLE ENTRY OF PURCHASES FROM M/S. ESSAR STEELS INSTEAD OF GIVING A DIRECTION TO REOPEN THE ASSESSMENT FOR THE ASST. YEAR 2000-01. (B) THE LEARNED CIT(A) FAILED TO RECOGNISE AND FOLLOW THE PLETHORA OF JUDICIAL DECISIONS THAT WHAT IS ASSESSABLE IN A REGULAR ASSESSMENT CANNOT BE ASSESSED IN A BLOCK ASSESSMENT AS STATUTORILY RECOGNISED IN EXPLANATION BELOW SUB-SECTION (2) OF SECTION 158BA. (C) THE LEARNED CIT(A) FAILED TO APPLY THE PRINCIPLE THAT THE LAW OF ESTOPPEL DOES NOT OPERATE AGAINST A LEGAL PROVISION AND CONSEQUENTLY FAILED TO UPHOLD THE CONTENTION THAT THOUGH THE APPELLANT OFFERED TO TAX THE INCOME ON ACCOUNT OF A DOUBLE ENTRY, THE SAME WAS NOT ASSESSABLE AS UNDISCLOSED INCOME IN A BLOCK ASSESSMENT. 3. (A) THE LEARNED CIT(A) FAILED TO TAKE INTO CONSIDERATION THAT THE SO CALLED CONFESSIONS MADE BY SRI GAMPA RAJESWARA RAO AND SRI GAMPA BHARAT KUMAR WERE RETRACTED WITHIN A SHORT PERIOD AND THAT THE CONFESSIONS REGARDING IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 3 BOGUS PURCHASES WERE FOUND TO BE UNTRUE IN THE LIGHT OF OVERWHELMING DOCUMENTARY EVIDENCES PROVING THE PURCHASES OF RAW MATERIAL AND MANUFACTURE OF LPG CYLINDERS. (B)THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 2,74,82,738/- IN RESPECT OF PURCHASES FROM EIGHT SUPPLIERS OVERLOOKING AND IGNORING THE EVIDENCE AVAILABLE FROM THE SEIZED MATERIAL PROVING THE PURCHASES AND RECEIPT OF RAW MATERIAL INTO THE STOCK AND CONSUMPTION OF THE SAME IN THE MANUFACTURE OF LPG CYLINDERS. (C) WITHOUT PREJUDICE, THE LEARNED CIT(A) FAILED TO CONSIDER AS GENUINE EVEN CASES OF PURCHASES CONFIRMED BY THE SUPPLIERS AND PAYMENTS MADE MOSTLY BY ACCOUNT PAYEE CHEQUES, LIKE M/S. RAGHAVENDRA TRADERS, M/S. GANGA IRON & STEEL CO., NAGPUR AND M/S. VENKATESWARA FILLING STATION. 4. (A) THE LEARNED CIT(A) ERRED IN CONFIRMING AN AGGREGATE SUM OF RS. 81,60,915/- AS PURCHASES MADE AND GOODS SOLD OUTSIDE THE BOOKS WITHOUT ANY SHRED OF EVIDENCE SEIZED OR FOUND IN THE SEARCH LEADING TO THE ASSUMPTION THAT GOODS PURCHASED WERE SOLD IN THE OPEN MARKET WITHOUT USING THE SAME IN THE MANUFACTURING PROCESS. (B) THE LEARNED CIT(A) FAILED TO TAKE INTO ACCOUNT THAT PROPER OPPORTUNITY TO CROSS EXAMINE THE PARTIES MAKING ADVERSE STATEMENTS WAS NOT GIVEN AND CONSEQUENTLY, ERRED IN BELIEVING THE STATEMENTS RECORDED BEHIND THE BACK OF THE APPELLANT TO CONFIRM THE ADDITIONS. 5. (A) THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT NEVER WENT TO THE SUPPLIERS' PREMISES FOR EFFECTING PURCHASES AND THE SUPPLIERS CAME ON THEIR OWN TO THE APPELLANT'S PREMISES, SUPPLIED RAW MATERIALS AND RECEIVED PAYMENTS MOSTLY IN CHEQUE AND PARTLY IN CASH. CONSEQUENTLY, THE CIT(APPEALS) FAILED TO CORRELATE THE TOTAL RAW MATERIALS PURCHASED WITH THE TOTAL QUANTITY OF LPG IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 4 CYLINDERS MANUFACTURED AND THEREBY ERRED IN CONFIRMING THE PURCHASES AS BOGUS. (B) THE LEARNED CIT(A) FAILED TO NOTICE THE RECEIPT OF RAW MATERIALS RECORDED EITHER ON THE FACE OF THE PURCHASE INVOICES OR ON THE REVERSE SIDE OF THE PURCHASE INVOICES AS CONFIRMED EVEN BY THE INFORMANT THAT ALL GENUINE PURCHASES WERE NOTED ON THE PURCHASE INVOICES EVIDENCING RECEIPT OF RAW MATERIAL. CONSE- QUENTLY, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF PURCHASES FOR AN AGGREGATE SUM OF RS 3,56,43,653/ -. (C) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT PAYMENTS WERE MADE FOR PURCHASES ONLY AFTER THE RECEIPT OF THE RAW MATERIALS AND CONSEQUENTLY, ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF PURCHASES FOR AN AGGREGATE SUM OF RS. 3,56,43,653/-. 6. (A) THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 47,67,352/- ON ACCOUNT OF EX- GRATIA PAYMENT TREATING THE SAME AS BOGUS DESPITE THE FACT THAT ALL THE RECIPIENTS HAVE ACCOUNTED FOR THE PAYMENTS RECEIVED AND ONLY SOME OF THE CHEQUES WERE ENCASHED BY THE ACCOUNTANT OF THE APPELLANT AND NOT ALL THE CHEQUES. (B) WITHOUT PREJUDICE, THE LEARNED CIT (A) FAILED TO APPRECIATE THAT ONLY IN TEN CASES OF LABOUR CONTRACTORS, AN AGGREGATE SUM OF ABOUT RS. 13 LAKHS WAS ENCASHED BY SRI GAMPA BHARAT KUMAR AND NOT THE ENTIRE AMOUNT OF RS. 47,67,352/-. CONSEQUENTLY, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ENTIRE ADDITION OF RS. 47,67,352/-. (C) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO DOCUMENTARY EVIDENCE TO CORROBORATE THE BALD STATEMENTS OF RECIPIENTS OF EX-GRATIA BONUS, WHO HAVE DECLARED THESE RECEIPTS IN THEIR INCOME TAX RETURNS ALSO, THEREBY PROVING THE CASE OF THE APPELLANT THAT THE PAYMENTS WERE GENUINE. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 5 7. THE LEARNED CIT(A) ERRED IN CONFIRMING A SUM OF RS. 40,33,796/- AS AMOUNT DISALLOWABLE IN TERMS OF SECTION 40A(3) AND ALLOWING IT TO BE TELESCOPED AGAINST ADDITIONS CONFIRMED AS BOGUS PURCHASES. HE OUGHT TO HAVE DIRECTED THE A.O. TO CONSIDER THE SAME, IN THE EVENT OF DELETING THE ADDITION ON ACCOUNT OF PURCHASES, IN A REGULAR ASSESSMENT. 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE ESTIMATED AS BOGUS WITHOUT ANY SHRED OF EVIDENCE AND PURELY ON GUESS WORK FOR A SUM OF RS. 31,85,203/-. HE OUGHT TO HAVE DELETED THE ENTIRE AMOUNT OF INTEREST TREATED AS BOGUS WHEN THERE WAS NO EVIDENCE TO TREAT ANY OF THE BORROWINGS AS BOGUS. 9. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL BE ALLOWED. 3. GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ADJUDICATION . NOW, WE WILL TAKE UP GROUND NOS. 3, 4 AND 5 IN ASSESSEE'S APPEAL IN IT(SS)A NO. 23/HYD/2007. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND SALE O F EMPTY DOMESTIC CYLINDERS WEIGHING FROM 14.2 KG TO 19 KG A ND SUPPLYING THE SAME TO VARIOUS GOVERNMENT AND NON- GOVERNMENTAL ORGANISATIONS. THERE WAS A SEARCH ACT ION U/S. 132 OF INCOME-TAX ACT, 1961 ON 9.10.2002 ON RESIDEN TIAL PREMISES AS WELL AS BUSINESS PREMISES OF THE DIRECT OR OF THE COMPANY AND HIS BUSINESS ASSOCIATES RELATING TO THI S GROUP. DURING THE SEARCH ACTION, THE MANAGING DIRECTOR OF THE COMPANY SRI GAMPA RAJESHWARA RAO GAVE A DECLARATION OF RS. 6 CRORES AS UNDISCLOSED INCOME. LATER, NOTICE U/S. 158BC WAS ISSUED TO THE ASSESSEE ON 20.1.2003 SEEKING FILING OF RETURN OF INCOME FOR THE BLOCK PERIOD COVERING 1.4.1996 TO 31 .3.2002 IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 6 AND PART PERIOD 1.4.2002 TO 9.10.2002 (COVERING A.Y S. 1997- 98 TO 2002-03 AND PART OF A.Y. 2003-04). SUBSEQUEN TLY, THE ASSESSEE FILED RETURN OF INCOME FOR THE BLOCK PERIO D DECLARING UNDISCLOSED INCOME AT RS. 2,41,151. IN THE MEANTIM E, ON 16.4.2003 THE ASSESSEE FILED APPLICATION BEFORE THE SETTLEMENT COMMISSION, CHENNAI WITH AN ADMITTED INC OME OF RS. 2,15,60,100. THE ASSESSEE'S APPLICATION WAS RE JECTED BY THE SETTLEMENT COMMISSION VIDE ITS ORDER DATED 30.1 2.2004 AND THE SAME WAS RECEIVED BY THE DEPARTMENT ON 17.5 .2005. 4. THE ASSESSEE'S MAIN CUSTOMERS WERE IOCL, BPCL, HPCL , RELIANCE, ETC. IT CAME TO THE KNOWLEDGE OF THE DEP ARTMENT DURING THE COURSE OF SEARCH THAT THE ASSESSEE IS EN GAGED IN CONCEALING ITS INCOME BY VARIOUS UNHEALTHY PRACTICE S, ONE OF THE METHODS FOLLOWED BY THE ASSESSEE IS TO INFLATE PURCHASES BY RESORTING TO BOGUS BILLING IN THE PURCHASE OF MA TERIALS LIKE, STEEL SHEET, COILS, ZINC, PAINT, ETC. FOR THAT PUR POSE, THE ASSESSEE USED THE SERVICES OF ONE MR. GAMPA BHARAT KUMAR WHO IS ACCOUNTANT OF THE ASSESSEE AND CLOSE RELATIV E OF THE MANAGING DIRECTOR SRI GAMPA RAJESWARA RAO. THE ASS ESSEE- COMPANY USED TO GET BOGUS PURCHASE BILLS PRINTED IN THE NAMES OF SEVERAL CONCERNS TO BOOK THE PURCHASES OF DIESEL, ZINC WIRE, WELDING RODS, ETC. THE ASSESSEE USED TO SHOW PAYMENT OF THESE BILLS BY WAY OF ACCOUNT PAYEE CHEQ UES IN THE NAME OF SRI GAMPA BHARAT KUMAR AND WRITE THE NA ME OF SUPPLIER IN THE COUNTERFOIL OF THE CHEQUE BOOK IN O RDER TO EXHIBIT THE SAME TO THE DEPARTMENT THAT THE ASSESSE E IS MAKING PAYMENT PROPERLY TO THE SUPPLIER AND ALSO TO GIVE COLOUR TO THE BOGUS PURCHASES AS GENUINE PURCHASES. SRI GAMPA BHARAT KUMAR USED TO CREDIT SUCH CHEQUES IN H IS SAVINGS BANK ACCOUNT NO. 7441 MAINTAINED IN VASAVI BANK, SIDDIAMBER BAZAAR WHICH IS OPENED AND OPERATED BY H IM IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 7 SOLELY FOR THE PURPOSE OF CREDITING SUCH CHEQUES IS SUED BY THE ASSESSEE-COMPANY FOR BOGUS PURCHASES AND WITHDREW C ASH FROM THAT BANK ACCOUNT AND HANDED OVER THE SAME TO THE MANAGING DIRECTOR OF THE ASSESSEE. 5. IT IS ALSO RECORDED BY THE ASSESSING OFFICER THAT I N THESE TRANSACTIONS NEITHER THE PARTY EXISTS NOR THE INVOI CE IS GENUINE NOR THE MATERIAL WAS SUPPLIED TO THE ASSESSEE-COMPA NY. THIS IS REGULARLY CARRIED ON BY THE ASSESSEE SYSTEMATICA LLY TO REDUCE PROFIT OF THE ASSESSEE-COMPANY AND THAT MONE Y RELATING TO THE BOGUS PURCHASES WAS TAKEN OUT FROM THE ASSESSEE-COMPANY. THE BOGUS PURCHASES BOOKED BY TH E ASSESSEE-COMPANY ARE GROUPED AS TWO TYPES BY THE AS SESSING OFFICER AS FOLLOWS: SL. NO. NAME AMOUNT (RS.) 1. MUTHA METAL PRODUCTS 99,44,608 2. GANESH SERVICE STATION 34,43,640 3. BHARGAVA ENGINEERING WORKS 36,24,000 4. DELUXE MACHINE TOOLS 9,62,000 5. RAGHAVENDRA TRADERS 48,91,800 6. GANGA IRON & STEEL CO. 4,20,349 7. RK ENTERPRISES 12,97,621 8. VENKATESWARA FILLING STATION 28,98,720 TOTAL 2,74,82,738 6. THE OTHER STRATEGY ADOPTED BY THE ASSESSEE IS TO BO OK PURCHASES FROM SUPPLIERS THROUGH COMMISSION AGENTS AND THE SUPPLIER WILL GIVE GENUINE INVOICES AND MATERIAL WI LL ALSO BE DELIVERED BY THE SUPPLIER. THE ASSESSEE COMPANY MAK ES PAYMENT BY WAY OF ACCOUNT PAYEE CHEQUE. HOWEVER, TH AT MATERIAL WILL NOT COME TO THE ASSESSEE'S PREMISES A ND THE COMMISSION AGENT SELLS THE MATERIAL IN GREY MARKET AND THE ASSESSEE WILL BE PAID THE SALE PROCEEDS OF RAW MATE RIAL AFTER IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 8 DEDUCTING SOME COMMISSION FROM THOSE SALE PROCEEDS. THE ASSESSEE COMPANY MAKES THE PAYMENT BY WAY OF ACCOUN T PAYEE CHEQUES TO THE SUPPLIER. LIST OF SUCH TRANSA CTIONS ARE AS FOLLOWS: SL. NO. NAME OF THE PARTY PURCHASES DEBITED DURING THE BLOCK PERIOD (AMOUNT IN RS.) 1. NARSAI FI LLING STATION 8,67,480 2. FAMOUS ENTERPRISES 5,07,325 3. WONDERWELD ELECTRODES PVT. LTD. 11,70,621 4. CAUVERY IRON & STEEL PVT. LTD. 14,72,025 5. KAVITHA ENTERPRISES 6,55,439 6. HINDUSTHAN TRADERS 7,89,215 7. VAISHALI ENTERPRISES 35,91,337 8. YOGESH ENTERPRISES 5,76,116 9. VIVEK STEELS 8,99,284 10. VEDVYAS STEELS PVT. LTD. 33,62,514 11. MANJIT TRADERS 18,81,312 12. RELIABLE INDUSTRIES 8,68,720 13. SREE RAM STEELS PVT. LTD. 25,60,995 14. K.K. BANSAL & CO. 1,73,540 15. CHANAKYA IRONS (P) LTD. 7,34,585 16. SWASTHIK SALES CORPORATION 1,16,250 TOTAL 2,02,26,757 7. REGARDING THE FIRST GROUP OF TRANSACTIONS, THE ASSESSING OFFICER RELIED UPON THE STATEMENT FROM SR I GAMPA BHARAT KUMAR WHICH WAS RECORDED DURING THE COURSE OF SEARCH ACTION. SRI GAMPA BHARAT KUMAR ST ATED IN HIS STATEMENT THAT PAYMENT HAS BEEN MADE BY WAY OF ACCOUNT PAYEE CHEQUES IN HIS NAME AND AT THE SAME TIME THE NAME OF THE SUPPLIER IS WRITTEN IN THE COUNTERFOIL OF THE CHEQUE BOOK IN ORDER TO SHOW THA T THE ASSESSEE IS GENUINELY PAYING TO THE SUPPLIER. IN T HESE CASES IT WAS FOUND OUT BY THE ASSESSING OFFICER THA T NEITHER THE SUPPLIERS EXIST NOR THE INVOICES WERE G ENUINE NOR THE MATERIAL REACHED THE ASSESSEE. THE ASSESSI NG OFFICER GONE BY EACH PARTY'S CASE. IN RESPECT OF M UTHA IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 9 METAL PRODUCTS PVT. LTD., WHERE PURCHASES RELATING TO ZINC WERE MADE. THE SWORN STATEMENT FROM VIJAY MUTHA, DIRECTOR OF THAT COMPANY WAS RECORDED U/S. 1 31 OF THE ACT ON 15.10.2002 BEFORE THE DDIT (INV.). H E HAS STATED THAT THE COMPANY WAS IN OPERATION FROM 1 994 TO 1997. THEREAFTER, BUSINESS WAS DISCONTINUED. H E DENIED HAVING ANY BUSINESS DEALINGS WITH THE ASSESS EE- COMPANY DURING THE RELEVANT PERIOD. IT WAS ALSO BRO UGHT ON RECORD BY THE DEPARTMENT THAT THIS COMPANY IS MANUFACTURING COPPER WIRE ONLY IN THE RELEVANT PERI OD AND DOES NOT HAVE FACILITY FOR MANUFACTURING ZINC. 8. THE ASSESSING OFFICER ALSO RECORDED STATEMENT FROM SRI VAIBHAV MUTHA, THE AUTHORISED SIGNATORY OF THAT COMPANY U/S. 131 OF THE ACT ON 18.10.2005 WHICH WAS AGAIN CONFIRMED THAT NO PRODUCT HAS BEEN SOLD TO TH E ASSESSEE-COMPANY OR ANY JOB WORK WAS DONE FOR THE ASSESSEE-COMPANY. THIS WAS DULY COMMUNICATED TO TH E ASSESSEE-COMPANY BY THE ASSESSING OFFICER. THE ASSESSEE DID NOT CHOOSE TO CROSS EXAMINE SRI VAIBHA V MUTHA EVEN AFTER OPPORTUNITY WAS GIVEN. 9. WITH REGARD TO GANESH SERVICE STATION FROM WHOM THE ASSESSEE SAID TO HAVE PURCHASED DIESEL, THE DDI T (INV.) CARRIED INVESTIGATION AND RECORDED A STATEME NT FROM SRI C.S. RAVI KUMAR WHO HAS DENIED SUPPLY OF DIESEL TO THE ASSESSEE. THE ASSESSING OFFICER ALSO ASKED THE ASSESSEE WHETHER IT IS INTENDED TO CROSS EXAMIN E SRI C.S. RAVI KUMAR. THE ASSESSEE HEREIN ALSO NOT OPTE D TO CROSS EXAMINE MR. RAVI KUMAR. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 10 10. IN THE CASE OF BHARGAVA ENGINEERING WORKS WHO IS SAID TO HAVE SUPPLIED TOOLS AND DYES, THE ASSESSING OFFICER RELIED ON THE STATEMENT OF KVJ GUPTA, FORME R PURCHASE OFFICER WHO TOLD THAT M/S. BHARGAVA ENGINE RING WORKS IS A BOGUS FIRM. DETAILED DISCUSSION ON THIS ISSUE WAS MADE BY THE ASSESSING OFFICER AT PARAS 4.3 TO 4 .3.2 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER AL SO CARRIED OUT THE DETAILED INVESTIGATION AS NARRATED IN THE ASSESSMENT ORDER AND IT WAS FOUND THAT THE ADDRESS GIVEN FOR THE CONCERN IS BOGUS AND NON-EXISTING. 11. WITH REGARD TO PURCHASE OF TOOLS AND DYES FROM M/S. DELUXE MACHINE TOOLS, THE PAYMENT IN RESPECT OF SUPPLIES FROM THIS FIRM WAS MADE INTO ACCOUNT NO. 7 441, VASAVI BANK IN THE NAME OF SRI G. BHARAT KUMAR. IT IS ALSO BROUGHT ON RECORD BY THE ASSESSING OFFICER THA T NO ACTIVITY OF MANUFACTURING OF MOULDS AND DYES WAS EXISTING AT THE GIVEN ADDRESS OF M/S. DELUXE MACHIN E TOOLS EVER SINCE 1985 AS COLLECTED EVIDENCE FROM SR I SYED BIN MUQTOF AND THE ASSESSEE WAS NOT ABLE TO PL ACE ANY COUNTER EVIDENCE AGAINST THE FINDING OF THE ASSESSING OFFICER. 12. IN RESPECT OF PURCHASES OF FURNACE OIL FROM RAGHAVE NDRA TRADERS, THE ASSESSING OFFICER HAS MADE A DETAILED DISCUSSION IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS FOUND OUT THAT THE ADDRESS GIVEN IN RESPECT OF RAGHAVENDRA TR ADERS IS A RESIDENTIAL HOUSE AND THE INSPECTOR'S REPORT SHOWS THAT THE FIRM NEVER EXISTED THERE. AS STATED BY SRI GAMPA BH ARAT KUMAR THIS CONCERN USED TO GIVE BOGUS BILLS AND A/C PAYEE CHEQUES ISSUED IN THE NAME OF SRI GAMPA BHARAT KUMA R. THE ASSESSING OFFICER ALSO FOUND OUT THAT PART OF THE P AYMENTS IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 11 MADE TO THE ACCOUNT OF THIS CONCERN WAS IMMEDIATELY WITHDRAWN AFTER RETAINING 4% BEING COMMISSION AND A LSO RELIED UPON THE STATEMENTS OF SRI GAMPA BHARAT KUMA R AND SRI K.V.J. GUPTA BEFORE CONCLUDING THE PURCHASES FR OM THIS CONCERN ARE BOGUS. THE FACT THAT PAYMENTS FOR ALLEG ED PURCHASES WERE RECEIVED BACK IN CASH HAS NOT BEEN C OUNTERED BY THE ASSESSEE. 13. IN RESPECT OF PURCHASES OF B.P. SHEETS FROM GANGA I RON & STEEL CO., THE ASSESSING OFFICER RELIED UPON THE STATEMENT OF SRI GAMPA BHARAT KUMAR WHO STATED THAT THE AMOUN T OF RS. 4,20,349/- FOR PURCHASES PAID THROUGH CHEQUE WAS DEPOSITED IN HIS ACCOUNT NO. 7441 AND THE AMOUNT WA S WITHDRAWN AND CASH HANDED OVER TO THE MANAGING DIRE CTOR SRI G. RAJESWARA RAO. FURTHER ENQUIRY RESULTS OBTAINED FOR THE PURPOSES OF PREPARING REMAND REPORT HAS NOT ALTERED THE FACT THAT CHEQUE WAS DEPOSITED IN THE ACCOUNT OF SRI GAM PA BHARAT KUMAR. 14. IN RESPECT OF PURCHASES OF TOOLS FROM R.K. ENTERPRI SE, THE ASSESSING OFFICER HAS ALSO RELIED UPON THE STAT EMENT OF SRI K.V.J. GUPTA AND HAS MADE A DETAILED DISCUSSION IN PARA-4.7 TO 4.7.4 OF THE ASSESSMENT ORDER. THE PROPRIETOR OF R.K. ENTERPRISE, SRI RAJESH KUMAR, WAS SUMMONED BY DDIT (INV.) AND STATEMENT WAS RECORDED FROM HIM ON 30.10.2002. FROM THE SAME, THE ASSESSING OFFICER HAS OBSERVED THAT S RI RAJESH KUMAR HAS SUPPLIED BOGUS BILLS TO THE ASSESSEE COMP ANY AND NO SUPPLIES HAVE BEEN MADE. FOR SUBMITTING REMAND R EPORT, FURTHER ENQUIRIES WERE CONDUCTED BY THE ASSESSING O FFICER WHO FOUND THAT THE GIVEN ADDRESS IS OCCUP IED BY ONE M/S SILPA STRUCTURALS, PROP. D. VASANTH KUMAR, WHO STATED THA T THE IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 12 SAME PREMISES IS IN HIS OCCUPATION FOR PAST 25 YEAR S EVER SINCE THE BUILDING CAME INTO EXISTENCE. 15. IN RESPECT OF PURCHASES OF HSD OIL FROM VENKATESWAR A FILLING STATION, THE ASSESSING OFFICER HAS OBSERVED THAT SUFFICIENT PROOF WAS NOT PRODUCED FOR SUPPLY OF MAT ERIAL LIKE CONFIRMATORY LETTER OR DELIVERY CHALLAN, AND AS PER THE STATEMENT OF SRI GAMPA BHARAT KUMAR AN AMOUNT OF RS . 2,77,440/- PAID BY CHEQUE TO THIS CONCERN WAS, IN FACT, DEPOSITED IN THE ACCOUNT OF SRI GAMPA BHARAT KUMAR. DURING THE ENQUIRIES FOR SUBMITTING REMAND REPORT, THE BOO KS OF ACCOUNTS WERE NOT PRODUCED ON THE PLEA THAT IT WAS DESTROYED. 16. THE ASSESSING OFFICER HAS ALSO ADDED AN AMOUNT OF RS. 2,02,26,757 ON ACCOUNT OF BOGUS PURCHASES IN RESPECT OF 16 SUPPLIERS. DETAILS GIVEN IN PAGE - 3 OF THE ASSESSM ENT ORDER ARE AS UNDER: SL. NO. NAME OF THE PARTY AMOUNT OF PURCHASES DEBITED IN BLOCK PERIOD (RS.) RAW MATERIALS 1. NARSAI FILLING STATION 8,67,480 HSD OIL 2. FAMOUS ENTERPRISES 5,07,325 WELDING CONSUMABLES 3. WONDERWELD ELECTRODES PVT. LTD. 11,70,621 -DO- 4. CAUVERY IRON & STEEL PVT. LTD. 14,72,025 STEEL A ND HR SHEETS 5. KAVITHA ENTERPRISES 6,55,439 HR SHEETS 6. HINDUSTHAN TRADERS 7,89,215 HR COILS 7. VAISHALI ENTERPRISES 35,91,337 HR SHEETS 8. YOGESH ENTERPRISES 5,76,116 -DO- 9. VIVEK STEELS 8,99,284 -DO- 10. VEDVYAS STEELS PVT. LTD. 33,62,514 STEEL 11. MANJIT TRADERS 18,81,312 CR COILS & CR SHEETS 12. RELIABLE INDUSTRIES 8,68,720 SHEETS 13. SREE RAM STEELS PVT. LTD. 25,60,995 SHEETS 14. K.K. BANSAL & CO. 1,73,540 - 15. CHANAKYA IRONS (P) LTD. 7,34,585 - 16. SWASTHIK SALES CORPORATION 1,16,250 - TOTAL 2,02,26,757 17. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE USED TO BOOK PURCHASES FROM SUPPLIERS THROUGH SOME COMMISSI ON IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 13 AGENTS AND THE SUPPLIER WOULD GIVE GENUINE INVOICES WHEREAS THE MATERIAL DELIVERED BY THE SUPPLIER WILL NOT REA CH ASSESSEE'S PREMISES BUT SOLD IN THE GREY MARKET AND PROCEEDS AFTER DEDUCTION OF COMMISSION WILL REACH THE APPELL ANT. 18. THE ASSESSING OFFICER'S OBSERVATIONS RELEVANT IN RE SPECT OF ABOVE SUPPLIERS, IN A NUTSHELL, ARE AS UNDER - (I) IN THE CASE OF NARSAI FILLING STATION, CHEQUES PAID BY THE ASSESSEE WERE PRESENTED BY THE SUPPLIER AFTER A LONG TIME IN SPITE OF THE FACT THAT HUGE AMOUNTS WE RE INVOLVED. CONFIRMATORY LETTER FROM THE SUPPLIER WAS NOT PRODUCED BY THE ASSESSEE AND PURCHASE ORDERS WERE ONLY PLACED TELEPHONICALLY AND NO HARD EVIDENCES EXIST. THE INCOME TAX INSPECTOR REPORTED THAT THIS FIRM IS CLOSED SINCE NOVEMBER, 2001 AND NAME HAS BEEN CHANGED TO SRI NARSAI HIGHWAY FILLING STATION WITH COMPLETELY NEW SET OF PARTNERS. SUPPOR T IS ALSO TAKEN FROM THE STATEMENT OF SRI GAMPA BHARA T KUMAR. (II) IN THE CASE OF M/S. FAMOUS ENTERPRISES, SUPPORT IS ALSO TAKEN FROM THE STATEMENT OF SRI GAMPA BHARAT KUMAR. THE ASSESSEE DID NOT PRODUCE DELIVERY CHALLANS AND PURCHASE ORDERS WERE ONLY PLACED TELEPHONICALLY AND NO DOCUMENTARY EVIDENCE EXISTS. INSPECTOR'S REPORT SUGGESTS THAT THIS CONCERN DID N OT SUPPLY ANY MATERIAL TO THE ASSESSEE. (III) IN THE CASE OF WONDERWELD ELECTRODES PVT. LTD., THE DDS WERE TAKEN IN THIS NAME WHEREAS BILLS WERE ISSUED BY M/S ORION STEEL CORPORATION. FURTHER CHEQUE WAS ISSUED IN FAVOUR OF LAKSHMI ENTERPRISES IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 14 THOUGH SUPPLY WAS STATED TO BE FROM WONDERWELD ELECTRODES PVT. LTD. (IV) IN THE CASE OF CAUVERY IRON & STEEL PVT. LTD., PURCHASE ORDERS WERE ONLY PLACED TELEPHONICALLY AND NO DOCUMENTARY EVIDENCE EXISTS. BILLS/VOUCHERS AND OTHER BOOKS OF ACCOUNTS COULD NOT BE VERIFIED SINCE IT WAS CLAIMED THAT THEY WERE DESTROYED IN FIRE ACCIDENT. SUPPORT IS ALSO TAKEN IN THE STATEMENT, DT.L1.1 0.2002 OF SRI K.V.J. GUPTA, EX-EMPLOYEE OF THE ASSESSEE COMPANY IN ANSWER TO Q. NO. 7. (V) IN THE CASE OF KAVITA ENTERPRISES, INVOICE COPY WAS NOT PRODUCED AND NO CONFIRMATORY LETTER FOR HAVING SUPPLIED THE MATERIAL WAS GIVEN. SUPPORT IS ALSO TAKEN IN THE STATEMENT, DT. 09.10.2002 OF SRI GAMPA BHARAT KUMAR IN ANSWER TO Q. NO. 19. A LETTER ADDRESSED TO THE ABOVE CONCERN BY THE DDIT (INV.) ALSO RETURNED UNSERVED. (VI) IN RESPECT OF OTHER SUPPLIERS OUT OF THE LIST OF 16 AS ABOVE SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE ASSESSING OFFICER I.E., CONFIRMATORY LETTERS NOT RECEIVED FROM THE SUPPLIERS, LETTERS WRITTEN TO THE SUPPLIERS HAVE BEEN RETURNED UNSERVED, ORDERS PLACED TELEPHONICALLY AND NO DOCUMENTARY EVIDENCES EXISTED TO PROVE THAT ORDERS ARE PLACED, ASSESSEE FAILED TO PRODUCE DELIVERY CHALLANS & LRS IN SUPPOR T OF PURCHASES MADE BY IT, ETC. SUPPORT IS ALSO TAKEN FROM THE STATEMENT RECORDED FROM SRI GAMPA BHARAT KUMAR, ACCOUNTANT AND SRI K.V,J. GUPTA, FORMER EMPLOYEE OF THE ASSESSEE COMPANY. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 15 19. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION ON THE FIRST ISSUE TO THE TUNE OF RS. 2,74,82,738 AS T HE AMOUNT WAS PAID TO THE ACCOUNT OF SRI G. BHARAT KUM AR AND THE FINDINGS OF THE ASSESSING OFFICER HAVE NOT BEEN CONTROVERTED BY THE ASSESSEE. 20. WITH REGARD TO THE SECOND ADDITION OF RS. 2,02,26,757, THE CIT(A) SUSTAINED THE ADDITION OF R S. 81,16,915 AND DELETED RS. 1,20,65,842. FOR THE DELETION OF RS. 1,20,65,842 THE CIT(A) OBSERVED THA T AS PER THE REMAND REPORT, THE TRANSACTION IN RESPECT O F THESE PARTIES RELATING TO THE AMOUNT OF RS. 1,20,65 ,842, THE AMOUNTS WERE REFLECTED IN THE LEDGER ACCOUNT OF THESE 8 PARTIES AND THESE SUPPLIERS ACTUALLY EXISTE D AND HAVE CONFIRMED THE TRANSACTIONS. THE ASSESSING OFFI CER MERELY ADDED THE AMOUNTS IN RESPECT OF THE 8 PARTIE S ON SUSPICION AND DUE TO MINOR VARIATIONS. HE ACCORDIN GLY DELETED THE ADDITION IN RESPECT OF THE 8 PARTIES OU T OF 16 PARTIES. AGAINST THESE TWO ISSUES, THE ASSESSEE IS IN APPEAL BEFORE US IN GROUND NOS. 3, 4 AND 5. 21. THE LEARNED AR SUBMITTED THAT THE STATEMENT WAS RECORDED DURING THE COURSE OF SEARCH ON 9.10.2002 F ROM SRI RAJESHWAR RAO, MANAGING DIRECTOR OF THE ASSESSE E COMPANY AND ALSO FROM SRI G. BHARAT KUMAR. HE SUBMITTED THAT FURTHER THE STATEMENT WAS RECORDED I N THE WEE HOURS ON 10 TH OCTOBER, 2002 WHEN THESE PERSONS WERE TIRED AND COMPLETELY EXHAUSTED BOTH MENTALLY AND PHYSICALLY DUE TO THE PROCEEDINGS IN T HE COURSE OF SEARCH ACTION. HE SUBMITTED THAT THE STATEMENT EXERTED FROM THESE PARTIES WAS ACTUALLY IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 16 REFLECTED VIDE SWORN-IN AFFIDAVIT ON 5 TH DECEMBER, 2002 WHICH WAS DULY FILED BEFORE THE ASSESSING OFFICER A S WELL AS THE CIT(A). HE DREW OUR ATTENTION TO THE COPIES OF THESE AFFIDAVITS PLACED AT PAGE NOS. 26 TO 30 OF PA PER BOOK-I. ACCORDING TO THE AR THE CIT(A) OUGHT TO HA VE DELETED THE ENTIRE ADDITION INSTEAD OF DELETING ONL Y RS. 1,20,65,842. HE RELIED ON THE FOLLOWING JUDGEMENTS : (A) CIT VS. ASHOK KUMAR SONI, 291 ITR 172 (RAJ.) (B) PULLANGODE RUBBER PRODUCE VS. CIT OF KERALA (91 ITR 18) (SC) (C) CIT VS. B.P. KARAI (266 ITR 113) (GUJ) 22. HE ALSO RELIED ON CHELLAIAH COMMITTEE REPORT REPORTED IN 197 ITR (ST.) 134, CBDT CIRCULAR F. NO. 286/2/2003/IT-(INV.) DATED 11 TH MARCH, 2003 AND O.K. PRADEEP & CO. V. ACIT (296 ITR (AT) 1) (COCHIN). 23. THE AR SUBMITTED THAT NO ADDITION COULD BE MADE AS THERE IS NO CORROBORATIVE MATERIAL TO HOLD THAT THE PURCHASES RECORDED BY THE ASSESSEE WERE BOGUS. AS THE TRANSACTION IS DULY SUPPORTED BY CORROBORATIVE MATE RIALS, THERE IS NO CHANCE TO SUSTAIN THE ADDITION. HE SUB MITTED THAT THE VARIOUS STATEMENTS BROUGHT ON RECORD BY TH E DEPARTMENT AND RELIED ON BY THE DEPARTMENT TO SUSTA IN ADDITION ARE SELF SERVING DOCUMENTS. ON THE CONTRA RY, THE SEIZED RECORDS ARE FULL OF CORROBORATIVE MATERI AL TO SUPPORT THE RETRACTION STATEMENT OF THE ASSESSEE. 24. ACCORDING TO THE AR, THE PURCHASES ARE GENUINE AND DULY RECEIVED BY THE ASSESSEE AND ENTERED IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE. HE SUBMITTED THA T THE ASSESSEE VIDE LETTER DATED 10.10.2006 ASKED FOR CRO SS- EXAMINATION OF VARIOUS PARTIES WHICH WAS NOT PROVID ED IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 17 BY THE DEPARTMENT. HE SUBMITTED THAT ALL THE PAYMEN TS ARE BY CHEQUES REFLECTED IN THE BANK STATEMENT WHI CH ARE FILED BEFORE THE ASSESSING OFFICER. THE AR SUB MITTED THAT THE PAYMENT TO VARIOUS PURCHASERS WAS MADE THROUGH SRI G. BHARAT KUMAR ACCOUNT. ACCORDING TO THE AR ORIGINALLY PAYMENT WAS MADE TO SRI G. BHARAT KUM AR BY WAY OF CHEQUES, LATER THE PAYMENT HAS BEEN MADE TO THOSE PURCHASERS BY WAY OF CASH AS THEY ARE NOT REA DY TO TAKE THE PAYMENT BY CHEQUE. ACCORDING TO THE AR , TO FACILITATE THE TRANSACTIONS, THE ACCOUNT WAS OPENED IN THE NAME OF SRI G. BHARAT KUMAR. HE SUBMITTED THAT WHEN THE PAYMENT WAS NOT MADE TO THE PARTIES AFTER TRANSFERRING THE FUND TO SRI G. BHARAT KUMAR DURING THE INTERIM PERIOD, SRI G. BHARAT KUMAR MADE SHORT TERM DEPOSIT IN THE BANK AND THAT INTEREST EARNED FROM S HORT TERM BANK DEPOSIT BY SRI G. BHARAT KUMAR AT RS. 2,41,151 WAS DULY OFFERED TO INCOME-TAX. HE SUBMI TTED THAT THE TOTAL PURCHASES WAS RS. 2,00,68,998 AND TO TAL WITHDRAWALS FROM SRI G. BHARAT KUMAR ACCOUNT WAS RS . 2,02,23,000. THE DIFFERENCE WAS RS. 1,54,002 WHICH IS NOTHING BUT INTEREST ON SHORT TERM DEPOSIT. ACCORD ING TO THE AR THE CORRECT AMOUNT OF PURCHASES FROM THE 8 PARTIES ONLY WORKED OUT AT RS. 2,00,68,998 AND IT I S NOT RS. 2,74,82,738. AN AMOUNT OF RS. 68,28,958 WAS PA ID BY ACCOUNT PAYEE CHEQUES BY THE ASSESSEE AND YET IT WAS DISALLOWED. 25. THE LEARNED AR SUBMITTED THAT M/S. RAGHAVENDRA TRADERS WHO HAS CONFIRMED THE SUPPLY OF MATERIALS T O THE ASSESSEE RECEIVED PAYMENT BY ACCOUNT PAYEE CHEQUES AS WELL AS BY CASH. HE SUBMITTED THAT THE DEPARTMENT HAS MADE ADDITION ON THIS COUNT ALSO ON THE IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 18 BASIS OF STATEMENT OF SRI KVJ GUPTA FOR WHICH THERE IS NO EVIDENCE. SIMILARLY, HE SUBMITTED THAT IN THE CASE OF VENKATESWARA FILLING STATION, THE PROPRIETOR MR. SIVAKUMAR GOUD CONFIRMED SELLING OF GOODS TO THE ASSESSEE, STILL THE ADDITION WAS MADE WITHOUT ANY CORROBORATIVE EVIDENCE AGAINST THE ASSESSEE. ACCOR DING TO THE AR THE ASSESSEE IS SUBJECTED TO STRICT QUALI TY CONTROL AND SUDDEN INSPECTION BY THE PSUS OF OIL AN D GAS AND BUREAU OF INDIAN STANDARDS. BEING SO, THE ASSE SSEE CANNOT INDULGE IN ANY MALPRACTICE. HE SUBMITTED TH AT WHEN SALES OF MANUFACTURING GOODS ARE PROVED THE PURCHASES CANNOT BE DOUBTED. HE RELIED ON THE JUDGEMENT OF GUJARAT HIGH COURT IN THE CASE OF CIT V. GURUBACHAN SINGH (302 ITR 63) (GUJ). HE SUBMITTED THAT THE CENTRAL EXCISE AND APGST RECORDS ALSO CONFIRMED THE FACT OF MANUFACTURING AND SALE OF GAS CYLINDERS TO PSUS OF OIL COMPANIES. THUS, THE PURC HASES OF RAW MATERIALS CAN PROVE TO THE HILT FROM DIFFERE NT DIMENSIONS ON UNIMPEACHABLE FACTS. ACCORDING TO TH E AR THERE IS NO EVIDENCE TO SHOW THAT WHATEVER THE PAYMENTS MADE TO THE VARIOUS PURCHASERS WERE RETURN ED BACK TO THE ASSESSEE AS THERE IS NO UNACCOUNTED ASS ETS OR INVESTMENT OF FUND IN THE NAME OF THE ASSESSEE DURING THE COURSE OF SEARCH. ACCORDING TO THE AR T HERE IS NO UNACCOUNTED OR BOGUS PURCHASES. 26. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFFICER/CIT(A) MENTIONED IN THEIR RESPECTIVE ORDERS THAT IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 19 SUMMONS ARE ISSUED AGAINST THOSE PARTIES AND CERTAI N PARTIES APPEARED AND THEIR STATEMENTS WERE RECORDED U/S. 131 OF THE ACT AND THEY HAVE CONFIRMED THAT TH EY HAVE NOT SUPPLIED MATERIALS TO THE ASSESSEE. IN CE RTAIN CASES THE PURCHASER IS NOT IN EXISTENCE IN THE GIVE N ADDRESS ON THE BILL. DURING THE COURSE OF ENQUIRY, THE ASSESSING OFFICER ASKED THE ASSESSEE WHETHER THE ASSESSEE IS WILLING TO CROSS-EXAMINE THE PARTIES. IT IS ON RECORD THAT THE ASSESSEE NOT OPTED TO CROSS EXAMINE THE PARTIES. HOWEVER, BEFORE US THE AR MADE A PLEA THA T CROSS-EXAMINATION OPPORTUNITY WAS NOT GIVEN TO THE ASSESSEE. THIS IS CONTRARY TO THE FACTS ON RECORD BROUGHT BY THE LOWER AUTHORITIES. THE ASSESSEE COU LD NOT BRING ANY DETAILS REGARDING GENUINENESS OF SUPP LY OF THE MATERIALS BY THOSE PARTIES. THE DEFECTS NOTED BY THE LOWER AUTHORITIES AS RECORDED IN THE FACTS OF THE C ASE, AS ENUMERATED IN EARLIER PARAS OF THIS ORDER, ARE NOT CONTROVERTED BY THE ASSESSEE AND THEY ARE STILL PERSISTENT. IN SPITE OF THIS, THE AR MADE A PLEA T HAT PAYMENTS WERE MADE TO SRI G. BHARAT KUMAR TO FACILI TATE THE TRANSACTIONS. THEREAFTER PAYMENTS HAVE BEEN MA DE TO THE RESPECTIVE PURCHASERS BY CASH. HOWEVER, IT WAS ALREADY ON RECORD THAT THE MATERIALS NOT REACHED TH E ASSESSEE AND MERE ENTRY OF PURCHASES IN THE BOOKS O F ACCOUNT OF THE ASSESSEE OR THERE IS NO CHANGE IN TH E GP RATE ARE NOT SUFFICIENT TO HOLD THAT THE PURCHASES ARE GENUINE. IT IS CLEAR FROM THE STATEMENT OF SRI G. BHARAT KUMAR THAT HE WAS INVOLVED IN THE TRANSACTIONS AND HE HAS ADMITTED THAT OPENING OF BANK ACCOUNT IN HIS NA ME WAS TO DEPOSIT THE CHEQUES IN HIS ACCOUNT AND HE WITHDREW THE AMOUNT AND GIVEN BACK TO THE ASSESSEE. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 20 HE STATED THAT HE DEPOSITED/WITHDREW THE CASH OF TH E ASSESSEE FROM BANK ACCOUNT NO. 7441, VASAVI BANK, SIDDIAMBAR BAZAAR BRANCH. HE HAS ADMITTED THAT HE ACTED AT THE INSTRUCTIONS OF THE ASSESSEE/MANAGING DIRECTOR OF THE ASSESSEE COMPANY. IN ADDITION TO T HE STATEMENT OF SRI G. BHARAT KUMAR VARIOUS PARTIES WE RE INTERROGATED BY THE DEPARTMENT STATED THAT THEY HAV E NOT SUPPLIED MATERIAL TO THE ASSESSEE AND THE STATE MENT RECORDED FROM VARIOUS PARTIES FOR THE PURPORTED PURCHASE JUSTIFIED THE CLAIM OF THE REVENUE AUTHORI TIES TO HOLD THAT THE TRANSACTIONS ARE BOGUS AND ITS SOL E INTENTION IS TO INFLATE THE EXPENDITURE AND THE ASS ESSEE IS INDULGED IN SUCH KIND OF TRANSACTIONS. FURTHER, KEEPING IN VIEW THE LEGAL PRECEDENTS AND THE FACT T HAT THE ASSESSEE HAS REFUSED TO CROSS-EXAMINE THE PARTI ES, WE ARE OF THE OPINION THAT THE ASSESSEE HAS ADMITTE D THE STATEMENT OF THESE PURCHASERS TO BE CORRECT AND, THEREFORE, CHOSEN NOT TO CROSS EXAMINE THEM. ONCE THE PARTY GIVEN THE STATEMENT AND THE STATEMENT WAS CONFRONTED TO THE ASSESSEE, IT IS LEFT TO THE ASSES SEE TO CROSS EXAMINE THEM AND THE OPPORTUNITY FOR CROSS EXAMINING NOT AVAILED OF, THEN THE STATEMENT HAS TO BE READ WHOLE AND THERE IS NO MATERIAL TO CONTROVERT T HE STATEMENT OF THOSE PARTIES AND IT HAS TO BE ACTED U PON AND THE ENTIRE STATEMENT HAS TO BE ACTED UPON AS ST ATED BY THE PARTIES AND IN THE PRESENT CASE IT SHALL BE READ AGAINST THE ASSESSEE. 28. FURTHER, AS NOTICED FROM THE STATEMENT RECORDED FROM SRI GAMPA BHARAT KUMAR WHO WAS FOUND WITH BLAN K INVOICE BOOK AND BLANK DELIVERY CHALLAN BOOK IN THE NAME OF M/S. B.R. ELECTRO CONTROL PVT. LTD., HE HAS IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 21 CONFIRMED THAT ORIGINALLY BOGUS BILLS ARE RAISED FO R SUPPLY OF ZINC WIRE IN THE NAME OF M/S. MUTHA METAL PRODUCTS PVT. LTD. AND M/S. BHARGAVA ENGINEERING WO RKS WHICH ARE NON EXISTENT AND FICTITIOUS COMPANIES, AS THERE WAS THREAT OF SOMEBODY INFORMING TO THE INCOME-TAX DEPARTMENT, THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY SRI G. RAJESWARA RAO INSTRUCTED SRI GAMPA BHARAT KUMAR TO REWRITE THE BOOKS OF ACCOUNT BY PUT TING THE BOGUS PURCHASES IN THE NAME OF M/S. B.R. ELECTR O CONTROL PVT. LTD.. AS SUCH IN ORDER TO REWRITE THE BILLS AND DELIVERY CHALLANS IN THE NAME OF M/S. B.R. ELEC TRO CONTROL PVT. LTD. THEY WERE KEPT AT THE RESIDENCE O F SRI GAMPA BHARAT KUMAR. REGARDING THE FINDING OF LOOSE SHEETS BUNDLE WHICH CONTAINS LEDGER EXTRACTS AND CA SH BILLS IN THE NAME OF M/S. BHARGAVA ENGINEERING WORK S FOR THE FINANCIAL YEARS 1997-98, 1998-99 AND 1999-2 000 AND ALSO M/S. MUTHA METAL PRODUCTS PVT. LTD. MARKED AS SEIZED MATERIAL A/GBK/1 IT WAS CONFIRMED THAT AS THERE WAS A THREAT FROM ONE OF THE EMPLOYEES OF THE ASSES SEE COMPANY TO INFORM TO THE DEPARTMENT AND IT WAS FELT THAT IT IS UNSAFE TO KEEP THE SAME AT THE OFFICE PR EMISES OF THE ASSESSEE, THE SAME WAS KEPT AT SRI GAMPA BHA RAT KUMAR RESIDENCE AS DIRECTED BY SRI G. RAJESWARA RAO . IT IS NEEDLESS TO SAY THAT SRI GAMPA BHARAT KUMAR I N HIS STATEMENT CLEARLY DEMONSTRATED THE MODUS OPERANDI FOLLOWED BY THE ASSESSEE TO BOOK THE BOGUS PURCHASE S. FURTHER, MR. VIJAY MUTHA, MANAGING DIRECTOR OF M/S. MUTHA METAL PRODUCTS PVT. LTD. WHOSE STATEMENT WAS RECORDED U/S. 131 OF THE ACT ON 16.10.2002 HAS CONFIRMED THE FACT THAT THE TRANSACTIONS RECORDED I N THE PURPORTED BILLS IN THE NAME OF M/S. MUTHA METAL PRO DUCTS IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 22 PVT. LTD., NO TRANSACTION HAS TAKEN PLACE FOR SALE OF ZINC WIRE AND AFTER FINANCIAL YEAR 1986-87 PRODUCTION OF ZINC WIRE HAS NOT TAKEN PLACE AND HE HAS NOT RECEIV ED ANY PAYMENT IN RESPECT OF THE BILLS MARKED AS SEIZE D MATERIAL A/GBK/1. IT IS ALSO BROUGHT ON RECORD B Y THE ASSESSING OFFICER THROUGH THE ENQUIRY THAT M/S. MUT HA METAL PRODUCTS PVT. LTD. HAVING NO MACHINERY FOR PRODUCTION OF ZINC WIRE. FURTHER IN THE STATEMENT RECORDED FROM MR. C.S. RAVI KUMAR OF GANESH SERVICE STATION HE HAS CONFESSED THAT THEY HAVE RAISED BOGU S BILLS THROUGH SRI GAMPA BHARAT KUMAR. 29. FURTHER, IT IS SWORN STATEMENT RECORDED FROM SRI KVJ GUPTA U/S. 131 OF THE ACT WHO HAS STATED THAT H E HAS NOT ARRANGED ANY TRANSACTION WITH M/S. MUTHA ME TAL PRODUCTS PVT. LTD. AND HE DOES NOT KNOW WHETHER M/S . MUTHA METAL PRODUCTS PVT. LTD. IS MANUFACTURING ZIN C WIRE OR NOT AND HE HAS NOT ARRANGED ANY PAYMENT TO ANYBODY REPRESENTING M/S. MUTHA METAL PRODUCTS PVT. LTD. THE STATEMENT RECORDED FROM SRI KVJ GUPTA WAS SUPPLIED TO THE ASSESSEE ON 14.3.2005 ASKING THE ASSESSEE WHETHER HE WANTS TO CROSS EXAMINE SRI KVJ GUPTA WITH REGARD TO STATEMENT RECORDED ON 10.3.200 5. THE ASSESSEE EXAMINED SRI KVJ GUPTA. HOWEVER, THE ASSESSEE CHOSEN NOT TO CROSS EXAMINE SRI KVJ GUPTA ON THE ISSUE OF BOGUS PURCHASES IN THE NAME OF M/S. MU THA METAL PRODUCTS PVT. LTD. WHICH IS STATED BY SRI KVJ GUPTA IN HIS STATEMENT. THIS SHOWS THAT THE ASSESSEE HAS NOTHING TO STATE EITHER ON THE STATEMENT GIVEN BY S RI VIJAY MUTHA OR SRI KVJ GUPTA. SAME IS THE POSITION IN CASE OF BOGUS PURCHASES FROM VARIOUS PARTIES ENUMERATED IN THE FACTS OF THE CASE. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 23 30. CONSIDERING THE FACTS OF THE PRESENT CASE, THE ARGUMENT OF THE ASSESSEES COUNSEL HOLDS NO MERIT T HAT THE AUTHORITIES BELOW HAVE NOT GIVEN PROPER OPPORTU NITY TO THE ASSESSEE TO PROVE ITS CASE. IN OUR OPINION, THE PROBLEMS LIES AT THE HANDS OF THE ASSESSEE WHO HAS NOT AVAILED OF THE OPPORTUNITIES GIVEN TO HIM AND HAVIN G NOT AVAILED OF THE OPPORTUNITIES, HE IS UNNECESSARILY T RYING TO BLAME THE REVENUE AUTHORITIES. EVEN OTHERWISE, EXAMINING THE MATTER FROM ANY ANGLE, WE ARE OF THE OPINION THAT THE ONUS OF PROVING THAT THE PURCHASES ARE GENUINE IS ON THE SHOULDER OF THE ASSESSEE. THE QUESTION THAT ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE ASSESSEE HAS DISCHARGED THE ONUS AND, I F YES, THEN HOW. 31. ACCORDING TO THE ASSESSEES COUNSEL, THE ASSESSEE HAS DISCHARGED THE ONUS BY PROVING THAT THE PAYMENT HAS BEEN MADE BY WITHDRAWING THE MONEY FROM THE ACCOUNT OF SRI GAMPA BHARAT KUMAR WITH VASAVI BANK AND THE ACCOUNT WAS OPENED IN THE NAME OF SRI GAMPA BHARAT KUMAR TO FACILITATE THE BUSINESS TRANSACTION S AND THE INTEREST DERIVED FROM THE SHORT TERM DEPOSIT MA DE BY SRI GAMPA BHARAT KUMAR WAS ALSO OFFERED TO TAX A ND THE ASSESSEE HAS NO INTENTION TO BOOK THE BOGUS PURCHASES. THEREFORE, THE PURCHASES ARE GENUINE. THIS ARGUMENT OF THE ASSESSEE COUNSEL SOUNDED WELL AT TH E THRESHOLD, BUT WHEN WE EXAMINED THE FACTS, WE FIND THAT IT CANNOT HOLD WATER. MERELY BECAUSE THE AMOUNT PA ID BY CHEQUE TO SRI GAMPA BHARAT KUMAR AND WITHDRAWN FROM HIS BANK ACCOUNT CANNOT BE HELD AS GENUINE AS IT IS UNLESS THE ASSESSEE ACTUALLY RECEIVED MATERIAL FROM THE IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 24 PARTIES AND ENTERED THE PREMISES OF THE ASSESSEE AN D THE STOCK IS DULY ACCOUNTED IN ASSESSEES BOOKS OF ACCOUNT. BUT IN THE PRESENT CASE, THE SITUATION IS TOTALLY REVERSED AS THE PERSONS/PARTIES TO WHOM PAYMENT WAS STATED TO HAVE BEEN MADE HAS CATEGORICALLY STATED T HAT THEY HAVE NOT RECEIVED PAYMENT NOR SUPPLIED THE MATERIAL. THE ASSESSEE HAS BUILT ITS OWN STORY WHI CH STORY CANNOT BE BELIEVED BY US. THERE IS A COMPLET E BLACK OUT ON THE MATERIAL SUPPLIED BY VARIOUS PARTI ES. THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFF ICER CLEARLY DEMONSTRATED THAT THERE IS NO GENUINE PURCH ASE EFFECTED BY THE ASSESSEE FROM THE IMPUGNED PARTIES WHICH WAS DISPUTED BEFORE US. KEEPING IN MIND THES E FACTS, WE FEEL THAT THE ASSESSEE HAS MISERABLY FAIL ED TO DEMONSTRATE THE SUPPLY OF MATERIALS/GOODS TO THE ASSESSEE AND THUS IT HAS FAILED TO DISCHARGE THE ON US CAST ON IT. BEING SO, WE ARE NOT INCLINED TO DISTU RB THE FINDINGS RECORDED BY THE CIT(A) WHICH IS CONFIRMED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS. 3, 4 AN D 5 IS DISMISSED. 32. THE NEXT GROUND I.E., GROUND NO. 6 IN ASSESSEE'S APPEAL IS WITH REGARD TO DISALLOWANCE OF EX-GRATIA PAYMENT OF RS. 47,57,352. THE ASSESSING OFFICER MA DE DETAILED DISCUSSION OF THIS ISSUE IN PARAS 8 TO 8.4 IN PAGE NOS. 47 TO 51 OF THE ASSESSMENT ORDER. ACCORDING T O THE ASSESSEE USUALLY 40% OF CONTRACT RECEIPTS IS PAID A S EX- GRATIA. ALL THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES AND SUBJECT TO TDS. ALL THE LABOUR CONTRAC TORS ACKNOWLEDGED RECEIPT OF MONEY AND THE SAME WAS DULY ACCOUNTED FOR IN THE RETURN OF INCOME. HOWEVER, THE ASSESSING OFFICER ENQUIRED WITH ONE LABOUR CONTRACT OR SRI IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 25 C. RAJENDER WHO HAS CONFESSED THAT EX-GRATIA AMOUNT S ARE CREDITED TO THE ACCOUNTS OF THE LABOUR CONTRACT ORS AND BLANK SIGNED CHEQUES WERE TAKEN FROM THEM AND A S SOON AS THE EX-GRATIA CHEQUE IS CREDITED TO THE BA NK ACCOUNT, THE ASSESSEE WITH DREW THE MONEY AND THE MONEY GOES BACK TO THE ASSESSEE-COMPANY. SIMILAR I S THE POSITION IN THE CASE OF LABOUR CONTRACTORS M.D. UTTAM, K.V. RAMESH, N. JAYAPUREDDY, K. AMBADAS AND B.S. RAMESH. THIS FACT WAS ALSO CONFIRMED BY SRI K .V.J. GUPTA, EX-EMPLOYEE OF THE ASSESSEE-COMPANY. IT IS ALSO BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT SUC H BLANK CHEQUES WERE ENCASHED BY ASSESSEE'S ACCOUNTAN T SRI G. BHARAT KUMAR. THE ASSESSING OFFICER AFTER DETAILED ENQUIRY CAME TO THE CONCLUSION THAT THESE ARE BOGUS PAYMENTS AND DISALLOWED THE SAME. THE CIT(A) CONFIRMED ACTION OF THE ASSESSING OFFICER. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 33. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE ASSESSEE 'S COUNSEL BEFORE US IS THAT THERE IS NO EVIDENCE ON R ECORD TO SHOW THAT THE MONEY GONE BACK TO THE ASSESSEE- COMPANY. BUT THE FACTS BROUGHT ON RECORD SHOW THAT THE CHEQUES WERE ENCASHED THROUGH SBI, GOUWLIGUDA BRANCH. OUT OF 10 CHEQUES, 9 ARE SELF-CHEQUES SIGN ED ACROSS THE CASH COUNTER OF THE BANK AND CASH WAS WITHDRAWN BY SRI G. BHARAT KUMAR. SIMILARLY ONE CHEQUE IS SELF-WITHDRAWAL CHEQUE ENCASHED BY SRI G. BHARAT KUMAR. IT IS ALSO BROUGHT ON RECORD THAT TH E CONTRACTORS CONFIRMED THAT THEY HAVE GIVEN BACK PAYMENT TO THE ASSESSEE-COMPANY THROUGH SRI G. BHAR AT KUMAR. BEING SO, THE MODUS OPERANDI FOLLOWED BY TH E IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 26 ASSESSEE IS NOTHING BUT THE SAME AS IN THE CASE OF BOGUS PURCHASES. ACCORDINGLY, ON THE SAME REASON, WE ARE INCLINED TO CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THIS GROUND IS REJECTED. 34. THE NEXT GROUND I.E., GROUND NO. 7, IS WITH REGARD TO DISALLOWANCE U/S. 40A(3) OF THE ACT. THE ASSESS ING OFFICER INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND DISALLOWED A SUM OF RS. 40,33,796. THE ASSESSING OFFICER DISALLOWED 20% OF RS. 2,01,68,978 ON ACCOUNT OF CASH PAYMENT WITH REFERENCE TO BOGUS PURCHASES. IN OUR OPINION, AS WE HAVE SUSTAINED TH E ADDITION ON ACCOUNT OF BOGUS PURCHASES, ONCE AGAIN DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(3) IS NOT JUSTIFIED. ACCORDINGLY, WE DELETE TH IS ADDITION BY PLACING RELIANCE ON THE ORDER OF THE TR IBUNAL IN THE CASE OF WESTERN INDIA BAKERS PVT. LTD. VS. D CIT (87 ITD 607) (MUM) WHEREIN HELD THAT DISALLOWANCE U /S. 40A(3) IS NOT POSSIBLE WITH REGARD TO FRAMING ASSESSMENT IN BLOCK ASSESSMENT ON THE BASIS OF UNDISCLOSED INVESTMENT. MORE SO, WHEN THERE IS NO FINDING THAT THE ASSESSEE MADE PAYMENT IN VIOLATION OF PROVISIONS OF 40A(3) AND HOW THE ASSESSEE VIOLATED THE PROVISIONS. THIS GROUND OF THE ASSESSEE IS ALLOWED . 35. THE NEXT GROUND I.E., GROUND NO. 8, IS WITH REGARD TO ESTIMATED DISALLOWANCE OF RS. 31,85,203 WHILE FRAMING THE BLOCK ASSESSMENT U/S. 158BC OF THE ACT. THE ASSESSING OFFICER DISALLOWED RS. 31,85,203 AS INTEREST EXPENDITURE. THE ASSESSING OFFICER DISALL OWED THE SAID INTEREST PORTION AS A PROPORTION OF BOGUS EXPENDITURE ON ACCOUNT OF PURCHASES TO THE TOTAL IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 27 EXPENDITURE MADE IN THE BOOKS OF ACCOUNT. SINCE A PART OF THE PURCHASES CLAIMED BY THE ASSESSEE HAS BEEN TREATED AS BOGUS, A PORTION OF INTEREST RELATABLE T O BORROWINGS FOR FINANCING BOGUS PURCHASES HAS BEEN DISALLOWED. THE DISCUSSION BY THE ASSESSING OFFICE R ON THIS IS AT PARA 12 OF HIS ASSESSMENT ORDER. ON APP EAL, THE CIT(A) GIVEN A DIRECTION TO THE ASSESSING OFFIC ER TO RECOMPUTE THIS INTEREST DISALLOWANCE ON PROPORTIONA TE BASIS AFTER CONSIDERING THE RELIEF GIVEN BY HIM. AG AINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 36. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD. THE ASSESSMENT, IN THIS CASE, IS BLOCK ASSESSMENT CONSEQUENT TO THE SEARCH ACTION AN D THE ASSESSMENT SHALL BE BASED ON THE SEIZED MATERIA L BROUGHT ON RECORD. IF THERE IS NO SEIZED MATERIAL THERE CANNOT BE ANY ADDITION. MORE SO, THERE CAN BE NO A D- HOC DISALLOWANCE OR ESTIMATED DISALLOWANCE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) NOT MADE TH IS ADDITION ON THE BASIS OF ANY SEIZED MATERIAL. IN O UR OPINION, THERE IS NO INCRIMINATING MATERIAL OR EVID ENCE FOUND DURING THE COURSE OF SEARCH ACTION TO INDICAT E THAT THE ASSESSEE INCURRED ANY SUCH EXPENDITURE. THE ADDITION IS NOT POSSIBLE UNDER THE PROVISIONS OF SE CTION 158BC OF THE ACT. BEING SO, PLACING RELIANCE ON TH E ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF KRISHNA TERINE PVT. LTD. V. ACIT (11 ITR(TR IB) 405) (AHD), WE DELETE THE ADDITION. 37. NOW COMING TO THE SECOND GROUND OF ASSESSEE'S APPEAL WITH REGARD TO ADDITION OF RS. 1,67,48,192 O N ACCOUNT OF DOUBLE ENTRY OF PURCHASES FROM M/S. ESSA R IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 28 STEEL LTD. THOUGH THE AR NOT PRESSED THIS GROUND BEFORE US AT THE TIME OF HEARING BEFORE US, HOWEVER , PUT A CONDITION IN HIS WRITTEN SUBMISSION THAT THIS GRO UND IS NOT PRESSED SUBJECT TO THE BENCH ISSUED A DIRECTION THAT THE PROTECTIVE ASSESSMENT MADE U/S. 143(3) R.W.S. 1 47 FOR A.Y. 2000-01 INCLUDING IDENTICAL SUM AS BOGUS PURCHASES SHALL BE DELETED. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IN THIS CASE, THE ASSESSEE VIDE LETTER DATED 5.12.2002 STATED THAT INADVERTENTLY TH ERE WAS A DOUBLE ENTRY IN RECORDING THE PURCHASES AGGREGATING TO RS. 1,67,48,192 FROM ESSAR STEEL AND IT IS TO BE CONSIDERED IN REGULAR ASSESSMENT PROCEEDIN GS AND DOES NOT GIVE RISE TO ANY UNDISCLOSED INCOME. FURTHER, IT IS ALSO ON RECORD AT PAGE NOS. 101 TO 1 06 OF ASSESSEE'S PAPER BOOK-I, THE ASSESSEE WRITTEN A LET TER DATED 18.2.2005 TO THE ASSESSING OFFICER DISCLOSING UNDISCLOSED AS FOLLOWS: 'KPEL/IT-CC-6/2004-05 DT: 18.02.2005 TO THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIR. 6, SHAKKAR BHAVAN, HYDERABAD. DEAR SIR. SUB: DISCLOSURE OF INCOME-UDI BEFORE SETTLEMENT COMMISSION -REJECTED- NOW BEFORE AO - REG. 1. THIS IS A PETITION SUBMITTED BEFORE YOUR HONOUR FOR VOLUNTARILY MAKING A FULL AND TRUE DISCLOSURE OF UNDISCLOSED INCOME BEFORE YOUR HONOUR, THOUGH IT WAS NOT MADE EARLIER IN THE BLOCK RETURN. AS YOUR ASSESSEE FILED A PETITION BEFORE THE SETTLEMENT COMMISSION WITHIN A WEEK OF FILING THE BLOCK RETURN TO YOU, THIS AMOUNT IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 29 INCOME WAS EARLIER OFFERED BEFORE THE SETTLEMENT COMMISSION. 2. UNFORTUNATELY, THE HONOURABLE SETTLEMENT COMMISSION REJECTED THE PETITION ON ADMISSION STAGE ITSELF. CONSEQUENTLY. THIS PETITION IS BEING FILED IN A BONA-FIDE MANNER WITH A VIEW TO BUYING PEACE WITH THE DEPARTMENT AND WITH A VIEW TO CUTTING SHORT PROTRACTED LITIGATION. 3. THE AMOUNT OF UNDISCLOSED INCOME BEING OFFERED NOW IS RS. 2.15,60.100/- (RUPEES TWO CRORES FIFTEEN LACS SIXTY THOUSAND AND ONE HUNDRED ONLY). THIS IS IN ADDITION TO THE INCOME ALREADY OFFERED TO TAX IN THE BLOCK RETURN FOR A SUM OF RS. 2,41,551 FILED ON 9 TH APRIL, 2003. AS IT WAS CONTEMPLATED ON PROFESSIONAL ADVICE EVEN AT THAT TIME. FULL AND TRUE DISCLOSURE WAS MADE IN THE SETTLEMENT APPLICATION FILED ON 16 TH APRIL. 2003, I.E., EXACTLY ONE WEEK AFTER THE FILING OF THE BLOCK RETURN. SINCE THE COMMISSION REJECTED THE APPLICATION. THE SAME AMOUNT OF INCOME IS BEING OFFERED NOW BEFORE YOUR HONOUR. A COPY OF SCHEDULE II FILED BEFORE THE HONOURABLE SETTLEMENT COMMISSION IS APPENDED TO THE PETITION. FURTHER. TO PROVE THE BONA-FIDE DISCLOSURE AND TO DEMONSTRATE CO- OPERATION TO THE DEPARTMENT, WE ARE PAYING THE DUE TAXES OF RS. 1,35.82,863 IN THE COURSE OF NEXT TWO MONTHS. 4. IT IS FURTHER CLARIFIED THAT THIS ADDITIONAL DISCLOSURE FOR AN AGGREGATE SUM OF RS. 2,15,60,100 COMPRISES OF THE FOLLOWING ITEMS:- RS. A) DUE TO DOUBLE ENTRIES (39 ENTRIES) OF PURCHASES FROM ESSAR STEEL 1,67,48,192 B) U/S. 40A(3), 20% OF CASH PURCHASES (20% OF 2,01,68,978) 40,33,796 C) CREDIT BALANCE WRITTEN BACK OF RAGHAVENDRA TRADERS 4,84,800 D) SALE OF EMPTY PAINT CANS AND CARDBOARD PACKING MATERIAL 2,00,000 E) INTEREST ON FD 3,34,828 TOTAL UNDISCLOSED INCOME 2,18,01,616 LESS UDI DECLARED IN THE BLOCK RETURN (2,41,551) UDI DECLARED IN SETTLEMENT COMMISSION 2,15,60,065 ROUNDED 2,15,60,100 IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 30 5. REGARDING (A) ABOVE, DETAILED CLARIFICATION IS BROUGHT ON RECORD AS TO HOW THE ARITHMETICAL ERROR OCCURRED: THE ERROR DID NOT COME OUT OF A SINGLE ENTRY OF PURCHASE OF STEEL. IT COMPRISES OF 39 ENTRIES. USUALLY, THE COMMERCIAL INVOICE IS RECEIVED BY COURIER SOON AFTER THE PURCHASE BILL IS MADE BY OUR VENDOR. THIS COMMERCIAL INVOICE IS RECEIVED AT THE ADMINISTRATIVE OFFICE AND IMMEDIATELY ENTERED AS PURCHASES. HOWEVER, THE EXCISE INVOICE IS RECEIVED ALONG WITH THE GOODS THROUGH THE TRANSPORTER AT THE FACTORY PREMISES. THERE IS A TIME LAG OF SIX TO SEVEN DAYS BETWEEN THESE TWO EVENTS. THIS TIME LAG HAD BEEN THE MAIN REASON FOR THE DOUBLE ENTRIES OF PURCHASES. IT IS SIGNIFICANT TO NOTE THAT THE AGGREGATE FIGURE OF RS. 1,67,48,192/- FOR PURCHASE OF 872.932 MT OF STEEL WAS INVOLVING 39 VOUCHERS DURING THE PERIOD 25 TH MARCH 2000 TO 31 ST MARCH 2000. THE ENTIRE LIST IS AS UNDER: BILL DATE QTY. I N MT AMOUNT (RS.) 27034 25.03.2000 33.045 784356.12 27039 25.03.2000 17.830 423212.88 27040 25.03.2000 18.890 448491.72 27103 26.03.2000 36.038 855397.97 27123 26.03.2000 38.838 921858.77 27138 27.03.2000 36.734 871918.22 27149 27.03.2000 19.065 452526.84 27155 27.03.2000 37.040 879181.44 27156 27.03.2000 19.390 460241.04 27162 27.03.2000 19.290 457867.44 27163 27.03.2000 18.935 449441.16 27230 28.03.2000 22.615 536789.64 27274 28.03.2000 34.485 818535.96 27275 28.03.2000 38.563 915331.37 27276 28.03.2000 38.373 910821.53 27294 28.03.2000 16.890 400901.04 27324 28.03.2000 18.250 433182.00 27318 28.03.2000 18.940 449559.84 27444 29.03.2000 19.140 454307.04 27357 29.03.2000 18.400 436742.40 27368 29.03.2000 18.855 447542.28 27367 29.03.2000 17.370 412294.32 27366 29.03.2000 18.365 435911.64 IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 31 27365 29.03.2000 18.925 449203.80 27364 29.03.2000 18.202 432042.67 27363 29.03.2000 18.866 447803.38 27362 29.03.2000 16.568 393258.05 27361 29.03.2000 17.620 418228.32 27360 29.03.2000 18.890 448373.04 27307 29.03.2000 19.230 456443.28 27358 29.03.2000 17.550 416566.80 27369 29.03.2000 19.270 457392.72 27370 29.03.2000 18.975 450390.60 27371 29.03.2000 18.500 439116.00 27745 30.03.2000 18.775 445643.40 27849 31.03.2000 18.987 450675.43 27850 31.03.2000 18.580 441014.88 27848 31.03.2000 19.655 466531.08 27847 31.03.2000 18.998 450936.53 TOTAL 872.932 20720032.60 LESS: MODVAT 3971840.60 NET AMOUNT 16748192.00 6. FURTHER, IT HAS TO BE NOTED THAT THE ABOVE PURCHASE OF 872.932 MT OF STEEL WAS PART OF THE PURCHASES MADE IN MARCH 2000 ALONE OUT OF A TOTAL OF 2033.5 MT. WHEN THE MATERIAL OF 872.932 MT WAS RECEIVED ONLY IN APRIL 2000, BY OVERSIGHT THE SAME WAS ENTERED IN PURCHASES. THAT IS HOW THE DOUBLE ENTRIES HAD OCCURRED. UNFORTUNATELY, THIS WAS NOT POINTED OUT EVEN BY OUR AUDITORS. THIS ERROR, AS DETAILED ABOVE, COULD NOT BE LOCATED EASILY. HAD IT BEEN A SINGLE ENTRY, PERHAPS IT WOULD HAVE BEEN DETECTED EASILY. THERE WERE AS MANY AS 39 ENTRIES, WHICH LED TO THIS ERROR, AGGREGATE OF WHICH (39 ENTRIES) AMOUNTED TO RS. 1,67,48,192/-. THE SAME IS OFFERED NOW FOR TAX WITH PAYMENT OF TAX AT AN ENHANCED RATE OF 60% + SURCHARGE. 7. IT IS SUBMITTED WITH UTMOST SINCERITY THAT THERE IS NO OTHER ITEM OF INCOME WHICH CAN BE TREATED AS UNDISCLOSED INCOME. THIS DISCLOSURE IS FULL AND TRUE AND, AS STATED EARLIER, THIS IS MADE TO BUY PEACE WITH THE DEPARTMENT. 8. TO PROVE THE BONA-FIDE THE ADDITIONAL TAX LIABILITY OF RS. 1,35,82,863/- IS BEING PAID DURING THE COURSE OF THE BLOCK ASSESSMENT IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 32 PROCEEDINGS ITSELF IN INSTALMENTS. THE FIRST INSTALMENT OF RS. 20,00.000 (RUPEES TWENTY LAKH ONLY) IS PAID TODAY ON 18.2.2005 ICICI BANK, HYDERABAD. A COPY OF CHALLAN IS ENCLOSED. 9. IT IS PRAYED THAT THIS FULL AND TRUE DISCLOSURE BE ACCEPTED BY YOUR HONOUR FOR BUYING PEACE WITH THE DEPARTMENT THE ASSESSEE COMPANY SHOULD NOT BE VISITED WITH ANY PENALTY AS THE DISCLOSURE IS MADE FULLY AND TRULY AND TO BUY PEACE WITH THE DEPARTMENT. THANKING YOU. YOURS TRULY, FOR KANYAKA PARAMESHWARI ENGG. LTD. SD/- (G. RAJESHWAR RAO) MANAGING DIRECTOR ENCL: AS ABOVE' 38. WITH REGARD TO THE PLEA OF THE COUNSEL FOR THE ASSE SSEE THAT THE SAID PURCHASES ARE DULY RECORDED IN THE RE GULAR BOOKS OF ACCOUNTS OF THE ASSESSEE, THEREFORE, IT CANNOT B E CONSIDERED IN THE BLOCK ASSESSMENT AND THE SAME HAV E ALSO BEEN ASSESSED IN THE REGULAR ASSESSMENT OF THE ASSE SSEE, WE DO NOT FIND ANY MERIT IN THE SAID PLEA OF THE AR. IN CHAPTER XIV B OF THE IT ACT, SPECIAL PROVISIONS FOR ASSESSM ENT IN SEARCH CASES HAVE BEEN GIVEN AND IF ANY AMOUNT OF I NCOME HAS NOT BEEN TAXED IN THE REGULAR ASSESSMENT AND DU RING THE COURSE OF SEARCH, IF SOME 'UNDISCLOSED' INCOME IS F OUND ON THE BASIS OF THE MATERIAL SEIZED, THAT CAN BE TREATED A S UNDISCLOSED INCOME AND CAN BE TAXED AFTER SEARCH IN THE BLOCK PERIOD. 39. FURTHER IT WAS NOT ADDED IN THE REGULAR ASSESSMENT OF THE ASSESSEE- COMPANY WHICH WAS COMPLETED AFTER THE SEARCH IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 33 ON 27-3-2003. MERELY BECAUSE IT WAS ADDED IN THE REASSESSMENT PROCEEDING INITIATED MUCH AFTER THE SE ARCH ON 28-3-2007 TO PROTECT THE INTEREST OF THE REVENUE AN D IN RESPONSE THE ASSESSEE DISCLOSED THE SAME TO BE ASSE SSED IN THE SAID REASSESSMENT PROCEEDINGS BY FILING REVISED RETURN AND AS A RESULT THEREOF THE ASSESSING OFFICER ALSO ASSESSED THE SAME ON 'PROTECTIVE BASIS' VIDE ASSESSMENT ORDER DA TED 20- 12-2007 PASSED U/S 143(3) READ WITH SECTION 147 OF THE ACT, DOES NOT MEAN THAT THE ADDITION OF SAID PURCHASES U NDER BLOCK ASSESSMENT CANNOT BE SUSTAINED. HENCE THE CONTENTI ON OF THE AR IS REJECTED. 40. WHEREAS IN THE CASE BEFORE US THE FACTS ARE ENTIREL Y DIFFERENT INASMUCH AS THE ASSESSEE HAS ADMITTED DUR ING THE COURSE OF SEARCH AND ALSO AFTER THE SEARCH VIDE HIS LETTER DATED 18-2-2005 (SUPRA) THAT THE IMPUGNED AMOUNT OF PURCH ASES IS ITS UNDISCLOSED INCOME AND MAY BE TAKEN UNDER BLOCK ASSESSMENT. BESIDES THIS EVEN AT THE TIME OF REGUL AR ASSESSMENT FOR A.Y. 2000-01 WHICH WAS MADE ON 27-3 -2003 AFTER THE SEARCH THE SAID AMOUNT OF PURCHASES WAS N OT SHOWN AND ADDED TO THE INCOME OF THE ASSESSEE. 41. IN THIS VIEW OF THE MATTER AND KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW T HAT THE SAID PURCHASES OF RS. 16748192 DEBITED TWICE SHOULD BE TREATED AS UNDISCLOSED INCOME AS PER SCHEME OF CHAP TER XIV 13 OF THE ACT AND ACCORDINGLY THE ORDER PASSED BY T HE C!T(A) UPHOLDING THE IMPUGNED ADDITION MADE BY THE ASSESSI NG OFFICER IS UPHELD. THE GROUNDS NOS. 2(A). (B) & (C ) TAKEN BY THE ASSESSEE ARE, THEREFORE. REJECTED. IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 34 42. COMING TO THE DEPARTMENTAL APPEAL IN IT(SS)A NO. 27/HYD/2011, THE ONLY DISPUTE IS WITH REGARD TO CHANGING THE RESULT BY CIT(A) ON ACCOUNT OF PETITI ON U/S. 154 FILED BY THE ASSESSEE ON 8.6.2011 VIDE CIT (A) ORDER DATED 13.6.2011 WHEREBY HE MADE MODIFICATION IN THE CONCLUDING PARA OF HIS ORDER DATED 18.11.2010 A S FOLLOWS: '6. IN THE RESULT, THE APPEAL IS TREATED AS DISMISSED FOR STATISTICAL PURPOSES' MAY BE READ AS '6. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES.' 43. BRIEF FACTS OF THE CASE ARE THAT ORIGINALLY THE ASSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A)-I, HYDERABAD DATED 8 TH DECEMBER, 2006. THE TRIBUNAL VIDE ORDER DATED 9.1.2009 IN IT(SS)A NO. 23/HYD/2007 COVERING THE BLOCK PERIOD 1.4.1996 TO 31.3.2002 AND UP TO 1.4.2002 DISPOSED T HE APPEAL AS FOLLOWS: (I) GROUND NOS. 2(A), (B) AND (C) TAKEN BY THE ASSESSEE ARE REJECTED. (II) GROUND NOS. 3(A), (B) AND (C), 4(A) AND (B), 5(A), (B) AND (C), 6(A), (B) AND (C), 7 AND 8 ARE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION TO BE DISPOSED OF THE SAME AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THIS APPEAL WAS ALLOWED FOR STATISTICAL PURPOSES. 44. AGAINST THIS ORDER OF THE TRIBUNAL, THE ASSESSEE FILED MISCELLANEOUS APPLICATION NO. 59/HYD/2010 BEF ORE IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 35 THE TRIBUNAL ON 1.4.2010. THE TRIBUNAL DISPOSED TH E MA OF THE ASSESSEE VIDE ORDER DATED 30.4.2010 AND RECA LLED THE ORDER OF THE TRIBUNAL IN IT(SS)A NO. 23/HYD/200 7 BY OBSERVING THAT THE TRIBUNAL WHILE HEARING THE APPEA L OBSERVED THAT ENTIRE MATTER WILL BE RESTORED TO THE FILE OF THE ASSESSING OFFICER. HOWEVER, INADVERTENTLY, THE TRIBUNAL ADJUDICATED ONE GROUND I.E., 2(A), (B) AND (C) AND DECIDED AGAINST THE ASSESSEE AND THE OTHER GROU NDS I.E., 3 TO 8 ARE REMITTED BACK TO THE ASSESSING OFF ICER FOR FRESH CONSIDERATION. IN THE MEANTIME, CONSEQUENT T O TRIBUNAL ORDER IN IT(SS)A NO. 23/HYD/2007 DATED 9.1.2009, THE ASSESSING OFFICER PASSED THE GIVING E FFECT ORDER ON 31.12.2009. AGAINST THIS ORDER, THE ASSES SEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A), GUNT UR PASSED THE ORDER ON 18.11.2010. HOWEVER, THERE WAS A MISTAKE IN THAT ORDER IN CONCLUSION IN PARA 6 AND T HE CIT(A) WRONGLY MENTIONED THE RESULT AS APPEAL IS TR EATED AS DISMISSED FOR STATISTICAL PURPOSES. AGAINST THIS MISTAKE THE ASSESSEE FILED A PETITION U/S. 154 ON 8.6.2011. THE CIT(A) CORRECTED THE ERROR VIDE ORDE R DATED 13.6.2011 OBSERVING THAT PARA 6 OF EARLIER OR DER DATED 18.11.2010 TO BE READ AS - IN THE RESULT THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOS ES. AGAINST THIS RECTIFICATION, THE REVENUE IS IN APPEA L BEFORE US. 45. THE ORDER OF THE CIT(A) DATED 13.6.2011 WHICH IS RECTIFICATION ORDER U/S. 154 OF THE ACT, HAS NO LEG S TO STAND. ORIGINAL ORDER OF THE CIT(A) DATED 18.11.20 10 COVERING THE BLOCK PERIOD IS NO MORE EXISTING AS TH IS IS A CONSEQUENTIAL ORDER TO THE TRIBUNAL ORDER DATED 9.1 .2009 IN IT(SS)A NO. 23/HYD/2007. AS THIS ORDER OF THE IT(SS) A NO. 23/HYD/2007 & IT(SS)A NO. 27/HYD/2011 M/S. KANYAKA PARAMESWARI ENGG. LTD. =========================== 36 TRIBUNAL WAS RECALLED BY THE TRIBUNAL VIDE ORDER DA TED 30.4.2010 IN MA NO. 59/HYD/2010. ACCORDINGLY, APPE AL OF THE REVENUE IS DISMISSED AS INFRUCTUOUS. 46. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 5 TH MARCH, 2013. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 5 TH MARCH, 2013 TPRAO COPY FORWARDED TO: 1. M/S. KANYAKA PARAMESWARI ENGG. LTD., C/O. DR. C.P. RAMASWAMI, ADVOCATE, FLAT NO. 303, GITANJALI APTS., PLOT NO. 108, SRINAGAR COLONY, HYDERABAD-500 072. 2. THE DEPUTY CIT, CENTRAL CIRCLE-6, HYDERABAD. 3. THE CIT(A)-I, HYDERABAD. 4. THE CIT(A), GUNTUR. 5. THE CIT (CENTRAL), HYDERABAD. 6. THE DR B BENCH, ITAT, HYDERABAD.