VIJAY PROTEINS LTD. V. COMMISSIONER OF INCOME TAX

ITR/139/1996

AI Insights

The case revolves around Vijay Proteins Ltd., which was involved in transactions with 33 bogus suppliers, leading to additions to its taxable income and subsequent penalties. The Income Tax Appellate Tribunal initially confirmed these additions and penalties, which were challenged in the High Court of Gujarat. The court examined the legality of the Tribunal's decisions, focusing on the nature of the transactions and the basis for the penalties imposed. The court's judgment addressed the issues of whether the Tribunal was justified in its additions to the income and whether the penalties were rightly imposed.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 760935 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 09-12-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax II v. Gujarat Ambuja Export Ltd., Sanjay Oilcake Industries v. CIT, Hynoup Food and Oil Ind. P. Ltd. v. CIT, Asst. Commissioner of Income-tax v. Gebilal Kanhaialal, HUF
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: PRANAV DESAI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Appeal; Assessment; Bogus purchases; Disallowance; Income Tax; Penalty
• Section: 143(3); 271(1)(c); 40A(3); 145(2); 256(1); 6DD(j)

Judgement Text

"O/ITR/139/1996 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE NO. 139 of 1996 With TAX APPEAL NO. 243 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ VIJAY PROTEINS LTD.....Applicant(s) Versus COMMISSIONER OF INCOME TAX....Respondent(s) ================================================================ Appearance: MR SN SOPARKAR, ADVOCATE for the Applicant(s) No. 1 MR PRANAV G DESAI, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI Page 1 of 14 O/ITR/139/1996 JUDGMENT and HONOURABLE MR.JUSTICE K.J.THAKER Date : 09/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. In the Reference Application filed before the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ u/s.256(1) of the Income Tax Act, 1961, both the Revenue as well as the Assessee had proposed several questions of law but, after appreciating the facts of the case, the Tribunal referred the following three questions of law to us for our opinion; “(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in confirming the addition of Rs.40,54,707/- made by the A.O in respect of oil recovered in relation to crushing of rapeseeds purchased from within the State of Gujarat? (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in sustaining the disallowance to the tune of Rs.27,02,752/- being 25% of the purchase price shown as per invoices in the name of 33 bogus parties amounting to Rs.88,03,614/- plus freight Page 2 of 14 O/ITR/139/1996 JUDGMENT expenditure of Rs.5,02,752/-, ie. out of aggregate disallowance of Rs.93,06,366/- made by the Assessing Officer and confirmed by the CIT(A) which is inclusive of the sum of Rs.17,99,788.75 being the peak credit as well as the closing balance shown as outstanding in the names of such bogus suppliers? (3) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the assessee’s alternative claim (in spite of assessee’s purchases) to the extent of 7Rs.88,03,614/- having been made outstide assessee’s books of account constituted exceptions for purposes of Rule 6 DD(j) and were not hit by Sec.40A(3)?” 2. Whereas, Tax Appeal No.243/2002 was admitted on 13.08.2002 the following substantial question of law; “Whether in the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961 amounting to Rs.29,51,174/-?” Page 3 of 14 O/ITR/139/1996 JUDGMENT 3. While passing the order dated 13.08.2002, Income-tax Reference No.139/1996 was ordered to be heard along with Tax Appeal No.243/2002. Hence, both these matters are heard together and decided by this common judgment. 4. Brief facts of the case are that the assessee herein is a public limited company incorporated under the Companies Act, 1956. The assessee- company took over the entire business of the erstwhile dissolved firm of M/s. Vijay Oil Mills with effect from 01.04.1990 along with its assets and liabilities. The company is engaged in the business of producing edible oils. 5. The assessee-company filed its return of income declaring total income of Rs.2,99,270/-. The Assessing Officer passed the order of assessment u/s.143(3) on 18.03.1994 computing the income at Rs.1,28,22,500/-. Being aggrieved by the order of Assessing Officer, appeal was preferred before the CIT(A). The CIT(A) deleted / confirmed various additions as per the details mentioned below; (a) Deleted the addition of RS.1,89,982/-. (b) Reduced the addition of Rs.37,35,089/- and Rs.3,19,618/- to Rs.30,00,000/-. (c) Upheld the additions of Rs.70,03,826/-, Page 4 of 14 O/ITR/139/1996 JUDGMENT Rs.17,99,788/- and Rs.5,02,752/- towards payment on account of bogus purchases, credit balances in respect of bogus purchases and kharajat expenses in respect of bogus purchases respectively. 6. Against the order of CIT(A), the assessee filed appeal being ITA No.5898/AHD/1994 before the Tribunal. The Tribunal heard the parties and concluded that the transactions in respect of oil cakes shown as purchases by the assessee from the 33 parties were not genuine transactions and that the sale invoices claimed to have been issued by them were fictitious ones, by judgment and order dated 18.01.1996. 7. Pursuant to the judgment and order dated 18.01.1996 passed by the Tribunal, the assessee as well as Revenue filed Reference Applications u/s.256(1) of the Act, which, ultimately, led to the formulation of the aforesaid three questions of law for our opinion. 8. Insofar as Tax Appeal No.243/2002 is concerned, the penalty proceedings u/s.271(1)(c) of the Act were initiated against the assessee since the addition made was found to be in the nature of concealed income and vide order dated 26.08.1996, the A.O imposed the minimum penalty Page 5 of 14 O/ITR/139/1996 JUDGMENT of Rs.29,51,174/-. Against the order dated 26.08.1996, appeal was preferred before the CIT(A). The CIT(A) dismissed the appeal vide order dated 08.03.1999. Being aggrieved by the order of both the authorities, the assessee filed appeal bearing ITA No.207/RJT/1999 before the Tribunal. However, the Tribunal dismissed the appeal filed by the assessee, vide judgment and order dated 27.02.2002. Hence, the Tax Appeal. 9. Mr. SN Soparkar learned Senior Counsel appearing for the assessee submitted that the Tribunal has seriously erred in passing the impugned judgment. He submitted that in a similar case in Commissioner of Income-tax II v. Gujarat Ambuja Export Ltd., [2014] 43 taxmann.com 244 (Gujarat), this Court reduced the addition to 5% of the amount in question. In that case, the purchases were found to be genuine, however, the CIT(A) taxed 25% of the amount relying on another decision of this Court in the case of Sanjay Oilcake Industries v. CIT, [2009] 316 ITR 274 (Guj), which was reduced by the Tribunal to 5% of the amount. He, therefore, submitted that the Tribunal has committed serious error in confirming the addition at 25% of the amount. 9.1 Mr. Soparkar has placed reliance upon a decision of this Court passed in Tax Appeal Page 6 of 14 O/ITR/139/1996 JUDGMENT No.616/2005 & allied matter disposed of on 05.11.2014. Paras – 4 & 5 of the said decision read as under; “4. Heard the learned advocates appearing for the respective parties and considered the submissions. Mr. Patel learned advocate appearing for appellant-Revenue in Tax Appeal No. 627/2005 has tried to distinguish the judgment on facts and argued for enhancement of disallowance on account of bogus purchase. In our view, in fact, the Tribunal has rightly assessed the disallowance at the rate of 15%. The Tribunal has observed as under in paragraph-5: The ld. AR submitted that 25% disallowance taken in the said decision of the Tribunal is excessive looking to the nature and business activities of the assessee. The assessee is dealing in iron and steel wherein sales tax rate if 4 paise in one rupee. He further submitted that the other taxes including excise duty etc. are also less than the commodities of the said decision. After considering the totality of the case, we find that it is an admitted fact that the purchase were bogus and for this purpose, we confirm the order of AO but for the purpose of calculating amount of disallowance, we follow the decision of the Tribunal in the case of Vijay Proteins (supra) and after considering the submissions of the ld. AR and after considering the submission of the ld. AR and after considering the nature of business of the assessee and other circumstances, we find it reasonable and fair to both the parties if 15% disallowance of bogus purchases of Rs. Page 7 of 14 O/ITR/139/1996 JUDGMENT 16,04,032/- is made. Accordingly, an addition of Rs. 2,40,605/- is confirmed out of the addition of Rs. 13,63,427/- is deleted. In the light of above discussion, we modify the orders of authorities below accordingly. The first common ground of both the appeals is disposed of accordingly. 5. The decision of this Court in the case of Sanjay Oil Cake Industries vs. Commissioner of Income Tax, reported in (2009) 316 ITR 274 will govern the issue involved in the present appeals.” 9.2 Learned Senior Counsel Mr. Soparkar pointed out that the expenditure disallowance is shown at Rs.93,54,751/- whereas, the payment made by way of cheques is Rs.93,06,366/-. However, the Tribunal lost sight of the aforesaid fact and proceeded to dismiss the appeal of the assessee, which is erroneous in law and also on facts. He, therefore, submitted that the impugned judgment of the Tribunal deserves to be quashed and set aside. 10. In respect of T.A. No.243/2002, learned Senior Counsel Mr. Soparkar submitted that the Tribunal has erred in upholding the penalty levied u/s.271(1)(c) of the Act inasmuch as the additions were made on mere presumption and not on the basis of any material fact not disclosed by the assessee. It was, therefore, submitted Page 8 of 14 O/ITR/139/1996 JUDGMENT that the penalty imposed u/s.271(1)(c) of the Act deserves to be quashed and set aside. He has placed reliance upon a decision of this Court passed in Tax Appeals No.461/2000 & allied matters decided on 05.11.2014. 11. Mr. Pranav Desai learned Standing Counsel appearing for the Revenue supported the impugned judgment of the Tribunal and submitted that the Tribunal has passed the judgment by relying upon its own judgment rendered in the case of Hynoup Food and Oil Ind. P. Ltd. v. CIT. However, the said judgment of the Tribunal was challenged in appeal before this Court and vide judgment reported in [2007] 290 ITR 702 (Guj), it was held that once the business was not reflected in the regular books, payment by crossed cheque or draft would not have been practicable considering the nature of that transaction to be fallacious, when one considered the object with which the provision had been brought on the statute book. He has taken us through the reasonings of all the authorities and submitted that the Tribunal has not committed any error while passing the impugned judgment. 12. We have heard learned counsel for both the sides. Having appreciated the material on record, the Tribunal recorded a finding that the Page 9 of 14 O/ITR/139/1996 JUDGMENT transactions in respect of oil cakes shown as purchases by the assessee from 33 parties were not genuine transactions and that all those 33 parties were bogus parties. The Sale Invoices claimed to have been issued by them were also found to be fictitious and the bank account in the name of M/s. Pooja Traders was found to have been opened and operated mainly with a view to accommodate these fictitious transactions carried out by the assessee in respect of oil cakes shown as purchases from such bogus suppliers. The above findings were recorded on the basis of the material on record of the Tribunal. 13. The question which then arises for consideration is as to whether the entire amount of the said bogus purchases and freight payments made in relation thereto should have been disallowed or the assessee should have been held to be eligible for grant of deduction of a reasonable amount of purchase price of the oil cakes in question in view of the fact that receipts of the materials in question by the assessee were supported by various registers and books of accounts maintained by the assessee, which the Revenue has not disputed. The Revenue has also not disputed the genuiness of said documents. Page 10 of 14 O/ITR/139/1996 JUDGMENT 14. On the basis of the entries recorded in the books of accounts of the assessee, the provisions of Section 40A(3) of the Act would not be applicable as such payments were shown to have been made by “crossed cheques”. If these entries are ignored, the books of accounts stand rejected u/s.145(2) and then the income will have to be estimated on the basis of best judgment. 15. It is by now well settled that in order to decide as to whether a particular payment for expenditure would be covered under the exceptions provided in Rule 6DD(j) or not will depend on the peculiar facts and circumstances of each case. In the present case, for reasons recorded herein above, the provisions of Section 40A(3) would not be applicable and even if they are held to be applicable, the expenditure would be covered by the exceptions provided in Rule 6DD(j) of the Rules. 16. It is a matter of fact that the goods were not received from the parties from whom it is shown to have been purchased but, such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Therefore, it is evident that the assessee had inflated the expenditure in question by showing higher amount of purchase price Page 11 of 14 O/ITR/139/1996 JUDGMENT through the fictitious invoices in the names of 33 bogus suppliers. Considering the overall factual scenario, the Tribunal was justified in disallowing 25% of the purchase price. 17. All the three questions referred to us are based on facts and accordingly, they are answered in favour of the Revenue and against the assessee in view of the discussion made herein above. 18. Insofar as T.A. No.243/2002 is concerned, the question of law raised therein is already concluded by a decision of this Court rendered in T.A. No.461/2000 & allied matters, as stated herein above. Paras – 6 & 6.1 of the said decision are relevant for our purpose, which read thus; “6. Heard both the parties and gone through the material available on record. In the instant case, we are of the opinion that assessment made is just and proper. The statements made in the affidavits are not based on any record or corroborated with cogent evidence. The presumption raised by the papers which were seized from the custody of the appellant had not been rebutted. Therefore, the issues raised in appeals no. 461 to 464 of 2000 are required to be answered in the affirmative and against the assessee. 6.1 So far as the issue involved in appeals no. 833 to 836 of 2005 is concerned, in view of the decisions cited hereinabove by learned Page 12 of 14 O/ITR/139/1996 JUDGMENT advocate for the appellant we are of the opinion that the penalty has been wrongly imposed under Section 271(1)(c) of the Act. In the case of Krishi Tyre Retreading and Rubber Industries (supra), it has been held that as the addition had been sustained purely on estimate basis and no positive fact or finding had been had been found so as to even make the addition which was a pure guess work, no penalty under section 271(1)(c) of the Act could be said to be leviable on such guess work or estimation. We therefore answer the issue involved in appeals no. 833 to 836 of 2005 in the negative and in favour of the assessee.” 18.1 At this juncture, it would be relevant to refer to a decision of the Apex Court in the case of Asst. Commissioner of Income-tax v. Gebilal Kanhaialal, HUF, [2012] 348 ITR 561 (SC) wherein, it has been held that the only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income up to the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement u/s.132(4) and thus, the assessee was entitled to immunity under clause (2) of Explanation 5 to section 271(1)(c). 19. In view of the above, the question raised in T.A. No.243/2002 is answered in favour of the Page 13 of 14 O/ITR/139/1996 JUDGMENT assessee and against the Revenue. Since we are following the view taken by the jurisdictional Court and the Hon’ble Apex Court in the above- referred Tax Appeal, no further elaborate reasons are assigned by us in this case. 20. Consequently, the Reference is answered in the affirmative in favour of the Revenue and against the assessee. The judgment and order dated 18.01.1996 rendered by the Tribunal in ITA No.5898/AHD/1994 is confirmed. 21. T.A. No.243/2002 is allowed. 22. The matters stand disposed of accordingly. The question of law is answered in favour of the assessee and against the Revenue and consequently, the penalty imposed is quashed and set aside. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 14 of 14 "