TaxTMI 
TaxTMI 
2010 (1) TMI 937
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....law and on facts in passing an order without considering the material on record and in either ignoring or completely brushing aside the detailed written submissions filed by the appellant before him. 4. That the learned CIT(A) has grossly erred in sustaining the rejection of the books of accounts and in estimating the net profit @ 10% of the total turnover, without/prejudice to which the estimate of income made by the ld. AO and sustained Any the CIT(Appeals) is highly unreasonable and excessive having regard to the appellant's own trading results for the preceding years and the trading restarts declared by other assessees in similar-line of trade/industry. 5. That the ld. CIT(Appeals) has grossly erred in law and on facts in sustaining the addition of Rs.16,40,94,100/- estimated as net profit being the 10% of total sales/turnover made by the appellant. 6. That the learned CIT (A) has erred in sustaining the addition of Rs.1,85,10,000/- made by the Assessing Officer as other income on estimated basis on conjectures and surmises. 7. That the learned CIT(A) has further erred in sustaining the addition made by the Assessing. Officer: a) On ac....
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....goods; (iii) there was no entry made in the gate register, described as material receipt note register; (iv) the enquiries conducted, at the address of the vendors -showed, that either they were not in existence or they did not have the facility for production of goods mentioned in the bogus invoices; (v) in a number of cases, the employees of the assessee company were controlling the affairs of the non-existent parties and the show cause notice issued by excise authorities suggested that various defaults were admitted by the assessee company; (vi) the purchases were bogus as in some cases either the vehicle numbers did not exist or thai they were allotted to mopeds, scooters, cars, motor cycles etc. which were not capable of transporting the goods; and (vii) the money paid to non-existing vendors was received back by the persons related to or associated with the assessee company. 2.2 In the post search enquiry, the Excise Department found that invoices were received from 19 vendors but goods were not received. In some cases, the proprietors etc. of such vendors admitted to have issued bogus bills for receiving nominal com....
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.... 69, Girdharpur Road, Chhapraula, Ghaziabad. Sh. Sudhir Jamneja ---- 37,83,705 18. Ashish Alloy Casting Pvt. Ltd. D-1, B.S. Road Indl. Area, Ghaziabad. Sh. Sudhir Jamneja 7,06,212 25,96,527 19. HSN Engineering Ram Nagar Near Suman Cinema, Sikri Kalan, Modinagar, Ghaziabad. Naveen Agarwal ---- 30,60,996 2.3 The AO also made independent enquiries in 16 cases of the vendors by issuing notices u/s 133(6) to them. None of the vendors, who received the notice, respondent to it. At the same time, notices could not be served on 8 vendors as such notices were returned unserved by the postal authorities. The details of these vendors are mentioned on pages 10 and 11 of the order, which are reproduced below:- 1. Hindustan Electronics, G-45, Udyog Indl. Area, Dasna, NH-24, Ghaziabad. Unserved 2. Shri Krishna Machine and Tools, Gali No. 2, Krishna Nagar, Meerut Road, Ghaziabad. Unserved 3. Ajanta Enterprises, Netaji Nagar, Delhi Road, Modi Nagar, Uttar Pradesh. No Reply 4. Ratan Jyoti Mercantile, Netaji Subhash Nagar, II Lane, Near Dharam Kanta, Modinagar, Uttar Pradesh. No Reply 5. SS Enterprises, ....
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....ted that the assessee had approached the- Settlement Commission u/s 32F of the Central Excise Act, and its application in this behalf had been admitted on 26.4.2007 for the settlement of the case. It was also submitted that the assessee admitted excise duty liability of about Rs.367.72 lakh out of the total amount of Rs.773.62 lakh determined by the Excise Authorities. The liability was admitted on account of the fact that some of the vendors had not paid the duty. The difference in the two amounts Rs.405.90 lakh (Rs.773.62 = Rs.367.72) was on account of the fact that 10 vendors had paid the duty. It was also submitted that the assessee had actually purchased the goods for which invoices were issued by the vendors. The goods were received in the vehicles mentioned in the invoices. However, the assessee did not confirm the registration number of vehicles mentioned in the invoices. It was also submitted that the book results of this year were comparable with the book results of earlier years for which the analysis of various financial ratios for three years was submitted in a tabular form, which is reproduced as under:- F.Y. 04-05 03-04 02-03 Sales 164....
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....h, Kolkata. In connection with M/s Maha Laxmi Vinimay Pvt. Ltd. it was submitted that the supplier was a company registered under the Companies Act, 1956. It was also registered with the Sales-tax Department and its registration number was communicated to the AO. The address of the company, is shown in these documents as B-48, A.S.Ganesh Nagar, Patpat Ganj Road, New Delhi. The company had stopped business due to sealing drive undertaken by the Municipal Corporation of Delhi. However, this company had furnished the ledger account of the assessee, acknowledgement of its income-tax return and the bank statement in response to notice u/s.133(6). In regard to M/s Jai Bharat Commercial Corporation, it was informed that it was a proprietary concern of Shri B.L. Dengla and it was registered with Sales-tax Department since January, 2005. The sales-tax registration number was also furnished. Various documents show that its address was D-88, S. Ganesh Nagar, New Delhi. The concern was not operating due to sealing drive by the MCD and it was functioning from the residential address, which was communicated in response to notice u/s 133(6). This vendor had also filed the copy of its income-tax r....
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....bogus purchases from these vendors were also debited in the accounts of earlier years. They were -either non-existent or persons of no means. They supplied goods on credits to the assessee. Looking to their limited financial resources, they were not in a position to extend credits for any length of time. The aggregate of purchases from 19 vendors amounted to Rs.9,93,40,483/-. This amount was held to be bogus purchases entered in the books. However, this amount was not separately added to the total income. It was held that there were other bogus purchases as the total number of parties enquired into was 30. Therefore, the profit was estimated @ 10% of the total sales after giving reference to various financial ratios of this and earlier two years, which are in the nature of re-working of the financial results submitted By the assessee. Some other additions in regard to delayed payment towards provident fund and ESI and non deduction of tax etc. were also made. Finally, the income of the assessee was computed as under:- " Net income @ 10% of turnover as discussed. 16,40,91,000/- Add: i) other income as discussed 1,85,10,000/- ii) Disallowance on acc....
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....o the revenue's submission that the assessee has nut produced documents evidencing receipt of goods, it was observed that as a matter of fact the assessee manufactured and cleared goods on payment of appropriate duty. Such fact had not been denied by the revenue. It was further observed that verification of stock was made by the authorities on 14.1.2006 in which inputs and finished goods were found to be tallying with the stock available in the factory of the assessee. All statutory records were found to be in order. It was also observed that such a tallying would not have been possible if the assessee had been receiving only documents from the suppliers and not the corresponding goods. It was also observed that there was no evidence on record to show that there was any excess receipt of inputs in the factory, which was used for manufacturing finished goods, the reason being that all the manufactured goods had been cleared on payment of appropriate duty. The case of the ld. counsel, on the basis of these findings of the Settlement Commission, was that in so far as 19 vendors investigated by the Central Excise Department are concerned, no conclusion could be drawn that goods were no....
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....in respect of 9 suppliers of inputs as no evidence of payment was available. (Para 13.3 of Settlement Commission's order). 3. The assessee relied upon the affidavits only and not on record. 4. The assessee shouldered the liabilities of various parties. Had all the transactions and parties existed why would the assessee pay for others sins (evasion of Excise) as far as non-payment of duty is concerned. It also shows that parties were non-existent or if existed they were merely on papers (Para 13.8 of Settlement Commission's order). 5. No system of gate inward register was maintained (para 13.9 of Settlement Commission's order). 6. The Commission took note of the fact of flow back of money to the assessee in para 13.11 of Settlement Commission's order." 3.7 The finding of the ld. CIT(A) in regard to rejection of books of account was that the actual investigation, statement of employees and investigation into transport of goods lead to the conclusion that the vendors were either non existent or they existed only on paper. The Settlement Commission's mention that the money flowed back to the assessee company was also relevant. The appel....
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....ded in the books of account. In this connection, our attention was drawn towards paragraph numbers 6.1 and 6.13 to 6.15 of the assessment order. In paragraph 6.1, it is mentioned that a number of opportunities were furnished to the assesses by way of statutory notices and order sheet entries. The assessee informed for the first time on 27.12.2007 that the books of account were in the possession of the Excise Department and that only print-outs of ledger were available with it. It was held that no meaningful enquiry was possible with the help of available records. There were other facts mentioned in the order on the basis of which it was held that the books of account could not be relied upon. Therefore, the books were rejected u/s 145(3) of the Act. In paragraphs 6.13, 614 and 6.15, it was mentioned that the accounts of the vendors were examined and it was found that huge purchases were shown from apparently persons of small means. The enquiries conducted by the Excise Department also showed that purchases debited in the books in respect of 19 parties were bogus. It was further mentioned that the purchases were made on credit basis while the capacity of the aforesaid 19 vendors to ....
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....ncing the receipt of the goods. As against the aforesaid, it has been found as a matter of fact that the assessee- manufactured and cleared the goods on payment of appropriate duty. This fact had not been -denied by the revenue. It was also found on physical verification on 14.1.2006 that input and finished goods tallied with the stock found in the factory of the assessee. Thus, all the statutory records were found to be in order, such a tallying would not have been possible if the assessee had been receiving only documents without receiving corresponding goods. The revenue has also not brought any evidence on record to the effect that the excess inputs received in the factory were used in the process of manufacture of goods which were cleared without payment of duty. Thus, the finding of the Settlement Commission was that the statutory records were maintained properly by the assessee in regard to input and output. In paragraph 13.9, it is mentioned that the assessee had not maintained any system of maintaining the gate register till early 2004. Such a register was maintained only after 2004. The investigation conducted by the Commissionerate covered the period from February, 2001 ....
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....ed to claim credit of Cenvat. However, the order shows that the goods were actually received except probably from Ashish Alloys and Castings (P) Ltd. Such was also the position in regard to the enquiries conducted in respect of 16 vendors by the AO. These parties had either directly responded to the AO or sufficient material in terms of purchase bills ledger account and bank account of the assessee were furnished to establish that purchases have been made and the goods have been purchased for the purpose of utilization in the manufacturing process of the assessee. The stock tally undertaken by the Excise authorities leads to a conclusion that purchases had been made from these parties also. Therefore, it was agitated that no addition could have been made to the book results declared by the assessee. The ld. CIT(A) also did not take into account the findings of the Settlement Commission and confirmed the order of the AO. 4.3 Corning to the legal arguments, it was submitted that the books of account were in possession of the Excise authorities and obviously in such a situation, those could not have been produced before the AO. The return of income had been filed before the ....
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....ome other person as it did go into the process of manufacturing the oil. It was also held that the cost of such purchases may be worked out on the basis of average purchase price for the entire year and substituting the same in place of purchase price shown by the assessee in respect of the aforesaid firm. 4.5 The case of the ld. counsel was that when in-puts have been used for manufacture of final products, which have been exported, the conclusion that purchases were not made at all cannot be drawn. Reliance was also placed an the decision of CIT vs. Ved Prakash Choudhary (2008) 305 ITR 245 (Del). In that case, the assessee had stated that there was no transfer of money between him and Ravi Talwar and Madhu Talwar. Ravi-Talwar and Madhu Talwar had also denied the receipt of any money from the assessed. In the face of this denial, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. The CIT(Appeals) and the Tribunal came to the conclusion that there was no such material on record. The AO had relied on some other transactions for deriving a presumption in respect of transfer of money, but the Tribunal rightly held that th....
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....y the AO. It was found that the purchase consideration got deposited in a bank account of an employee in Calcutta, which was opened with the introduction of the assessee. No such enquiry was made in this case. In the case of La Medica, it was also not the case that sales were effected from the purchases made and, thus the purchases could not be out-rightly termed as bogus. Therefore, we are of the view that the facts of the two cases are distinguishable. In absence of displacing the finding of the ld. CIT(Appeals) and the fact that the assessee showed profit from these transactions, it is held that there is no such error in the order of the ld. CIT(Appeals) which requires correction from us. Thus, this ground is dismissed." 4.6 He also relied on the order of 'A' Bench of Jaipur Tribunal in the case of Shubh Laxmi Exports vs. ITO (2008) 10 DTR 281. In that case, the assessee had exported jewellery and such exports were supported by furnishing export invoices, export airways bill, bill of custom house agent, proof of charges by the Rajasthan Small Industries Corporation Ltd., proof of export realization in the bank, shipment airways bill, copy of application and annexures o....
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....een described in the assessment order. The points, highlighted by the AO in the assessment order in paragraph 6, were reiterated, namely, that (i) a number of opportunities were given to the assessee to produce the books of account; (ii) the assessee submitted at a very late stage that the books of account were seized by the Excise Department and only ledger accounts were furnished; (iii) bogus purchases were debited to the account and (iv) the details in respect of 19 parties mentioned in the show cause notice of the Excise authorities were mentioned. 5.1 It was submitted that filing an application before the Settlements Commission under the Excise Act or admission of the application does not ipso-facto leads to stay of the I.T. proceedings. The assessee admitted huge liability of about Rs.3.68 crore under the Excise Act, which speaks itself about the genuineness of the purchases. Since such purchases were debited in the books of earlier years also, the profit could not be estimated by resorting to the past results. The enquiries conducted through Ward Inspector also showed that some other parties, from whom goods were stated to have been purchased, were bogus. Thereafte....
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....y the AO u/s 133(6) of the Act. 5.2 In a nutshell, the rejection of books of account was sought to be justified on the following grounds:- (i) Only ledger accounts were produced and no other book of accounts was produced before the AO; (ii) The assessee submitted very few details in the regular assessment and the ledger accounts were furnished on 27.12.2007 when it was also informed that the books were seized by the Excise authorities; (iii) The input-output details were not furnished to the AO; (iv) Stock register was neither maintained nor produced as mentioned in audit report u/s 44AB; and (v) The money paid to the vendors was withdrawn in cash and these accounts were mainly controlled by the employees, their relatives or the relatives of the directors. 5.3 The ld. DR also submitted book results in respect of 15 companies sourced from data base "prowess" for the year ending 2005. In these cases, the ratio of profit before tax to the sales varied between 3.55% to 34.15%, with the average of 16.02%. It was argued that the AO has taken the net profit at 10% of the sales, which was reasonable looking to the afores....
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....se of Marolia and Sons vs. CIT (1984) 129 ITR 475, in which it was held that the question of disallowance of interest in respect of borrowings diverted to the partner was inter-linked with the interest chargeable from the partner on his debit balance and, therefore, it could not be said that the point regarding disallowance of interest on borrowings did not fall within the jurisdiction or power of the Tribunal. The case of the ld. DR on the basis of this decision was that the addition may be sustained either on account of debiting bogus purchases in the books of account or on account of estimation of profit and none of these matters fell outside the jurisdiction of the Tribunal. Reliance was also placed on the decision of Hon'ble Calcutta High Court in the case of Steel Containers Ltd. vs. CIT (1978) 112 ITR 995 where the Tribunal had granted relief to the assessee on a different ground and, thus, the case of the ld. DR was similar to the case as made out on the basis of the decision in the ease of Marolia and Sons (supra). Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. Systems and Components (P) Ltd. 2004 (165) E....
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.... case of CIT vs. La Medica, 250 ITR 575. In that case, the AO had added the amount of purchase price as income from undisclosed sources on the finding that the seller was non-existent. The Tribunal held that the purchase could not be doubted and the disallowance could not be made merely because of involvement of some person who gave fictitious address. The Hon'ble Court held that once it was accepted that supplies were not made by the person mentioned in the bills to whom payments were made, the question whether the purchases were made from some other source could not have weighed with the Tribunal as a factor in favour of the assessee. It may be mentioned that the assessee had shown purchases from M/s Kalpana Enterprises of Calcutta, who was not found to be existing on the given address. Therefore, summons were issued to its banker and if was informed that the account was opened with four pay orders and the address was 479, Bartan Market, Sadar Bazar, Delhi. The name of the person who was operating the account was Chhedi Lal. One of the partners of the assessee firm had introduced this account. It was held that on the facts, the whole of the amount involved in the purchases was to....
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....ment Commission. 7. In the course of discussion, the assessee was required to submit the details of the vendors who had not complied at all with the notices issued by the AO or the Excise authorities. Such information was furnished and it was submitted that 9 vendors did not respond to the notices issued by the statutory authorities, with the following details:- S. No. Name of the party Sales-tax Registration no. PAN No. Remarks 1. GS Machine and Engineers Works GB-0470226 AZBFS54189 L/C issued by bank in favour of party. 2. Harry Machine and Engineering Works N.A. ADFPC9347N L/C issued by bank in favour of party. 3. Shiva Udyog GB-5354425 AAJFS5803J L/C issued by bank in favour of party. 4. Hindustan Electronics GB-0436017 ADIPK0140N L/C issued by bank in favour of party. 5. Shri Krishna Machine and Tools N.A. N.A. L/C issued by bank in favour of party. 6. S.M. Enterprises GD-0286532 ACQPD7442M L/C issued by bank in favour of party. 7. M.K. Tools UPGD-0052671 AQJPS3292F L/C issued by bank in favour of party. 8. Global Enterprises UPTTN G....
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.... transported the goods; (iv) statement of employees etc. recorded showed that they were not aware of such purchases; and (v) examination into the bank account of the vendor showed that the monies were withdrawn in cash or were routed through certain accounts, and finally the monies were withdrawn in cash. In particular, it was found that the money was withdrawn in cash by one Mr. Ravinder Kumar Sharma and the monies were also routed through the accounts of the concerns ran by relatives of the employees and directors. The allegation in the show cause notice was that the bogus purchases were introduced for obtaining cenvat credit. These facts were brought to the notice of the assessee in the course of assessment proceedings. 8.1 Apart from the above, the AO also made enquiries in respect of purchases from 16 parties, out of which 5 parties were common with the parties mentioned by the Excise authorities in the show cause notice. The ward inspector was also directed to trace the aforesaid parties. He made enquiries in respect of six parties and reported that they were non-existent. 8.2 The assessee was not in a position to produce any evidence except purchase bills....
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.... close of the arguments on behalf of the revenue. The assessee has objected to admission of this evidence. It may be mentioned that the stand of the assessee before us is that it was not-even aware of business of many of the parties. Detailed accounts of these parties were not filed even at this late stage and, thus, it was almost impossible for him to offer any meaningful arguments in this matter. We agree with him in this respect. In order to constitute a valid comparative case, what has to be shown is that the business of the assessee was more or less the same as business of those parties. It has to be further shown that they were situated in similar circumstances and, thus, their operations led to more or less same kind of results. This has not been established by the revenue. Moreover, no specific application has been filed for admission of the evidence so that objections of the assessee could be obtained at the admission of the evidence. In view of these factors, the evidence in respect of comparable cases is not taken on record. 8.6 It was also one of the grounds of the revenue that books of account were not produced in the course of assessment proceedings or appel....
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....f Hon'ble Madras High Court in the case of CIT vs. Vignesh Kumar Jewellers (2009) 222 CTR Mad 79. The question before the court was whether on the facts and in the circumstances of the case, the Tribunal was right in allowing the appeal by deleting the additions made by the AO relying on the decision of Customs, Excise, Service-tax Appellate Tribunal is valid? The Hon'ble Court mentioned that the additions were made only by relying on the findings of customs authorities and the said findings were set aside by the appellate authority. The AO did not make any independent enquiry and there was no corroborative evidence to support the case of the revenue. The assessee was not given an Opportunity to cross-examine them. On these and other facts, it was held that the lower authorities were right in deleting the additions. The facts of this case are distinguishable from the facts of that case. In this case, the AO has made independent enquiries apart from relying on the allegations made in the show cause notice of the excise authorities. The matter went up to the Settlement Commission and it was inter-alia found that the assessee claimed cenvat credit in respect of purchases and it could ....
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....s also leads to a clear conclusion that the goods were not purchase from this vendor. 8.8 In the light of the aforesaid discussion, we are of the view that the facts established before the Settlement Commission, which were considered by the ld. CIT(Appeals) and in regard to which the AO had also made enquiries from the assessee, will have to be taken into account for the purpose of computation of the income of the assessee. However, all allegations made in the show cause notice cannot be taken to be consideration as in the first place these were only allegations, and in the second place many of them were proved to he wrong or not established before the Settlement Commission. In other words, the order of the Settlement Commission can be said to be the right basis for settling facts as no evidence was brought on record by either party to displace such findings. 9. After taking into account the discussion in various sub-paragraphs of paragraph 7, what remains to be considered by us is stated hereinbelow. The facts of the case are that,- (i) The enquiries showed that the assessee was not able to prove purchases from 10 vendors by bringing on reco....
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....er of pure guess work without any reference to the evidence or material on record. Such was also the decision in the case of Umacharan Shaw and Brothers (supra), in which it was held that the. ITO could not come to the conclusion about the genuineness of the firm without any adverse material on record. In the case of S.N. Namasivayam Chettiar (supra), the decision was that it was for the income-tax authorities to consider the material placed before them and if after taking into account material including absence of stock register, they are of the opinion that correct profits cannot be deducted, then, they will be justified in rejecting the books of account. As mentioned in paragraph 5.4 (supra), a number of adverse factors were found in that case and one of them was that stock register was not maintained. Therefore, the action of rejection of books of account was upheld. In this case the only objective factor is that bills from 10 vendors are not amenable for cross verification although corresponding goods have been used in the process of manufacturing the final-products. Therefore, the facts are distinguishable. In the case of Jagjit Singh and Sons (supra), the assessee was not ab....
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....Having considered the cases - relied in this regard by the rival parties, we find that the decision of the jurisdictional High Court in the case of La Medica (supra) is most adverse to the assessee, if applicable. In that case, the alleged seller, was found to be person of no means. It did not exist at Calcutta or Delhi address. Its account was opened with the introduction of S.P. Jain and the amounts were withdrawn by some other person. At the same time, some other person, Inder Sen Jain (HUF) accepted that materials were supplied by it. The court pointed out that the question before the Tribunal was not whether the purchases were made from another concern, but the question was whether the purchases were made from Kalpana Enterprises? The evidence on record suggested that purchases were not made from Kalpana Enterprises. The facts on record established that the assessee knew that the whole thing was a fictitious arrangement Therefore, it was held that the question whether purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favour of the assessee. The argument of the ld. counsel was that this case had been considered in the case of ....
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....o support the bills from 4 or 5 parties, made in this year. There are attendant circumstances such as withdrawals by the vendors in cash non-payment of excise duty by them and absence of day-to-day stock registers. These facts do lead to a reasonable inference that the arrangement was to inflate purchase price. Looking to the fact that no direct evidence could be produced by the assessee to support the bills, it will be fair to restrict the disallowance to 10% of the purchase price, mentioned in the bills. 9.5 It was also the case of the ld. counsel that all the purchases were not made on revenue account and some of the expenditure was capitalized. In respect of the four vendors, from whom purchases were made amounting to Rs.303.68 crore, the purchases on capital account, capitalized as fixed assets in the block of plant and machinery, was stated to be Rs.1,44,42,100/-. The balance purchases were in respect of raw-material. The position in the cass of Ashish Alloys and Castings (P) Ltd. is not known to us. In view thereof, the AO is directed to segregate the purchases from the aforesaid five parties made in this year in terms of capital expenditure and revenue expenditure....
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....s of business or profession, any interest, commission, brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being a resident, for carrying out any work including supply of labour for carrying out any work, on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid, shall not be allowed. The payment in respect of rent and royalty were also so added by Taxation Laws (Amendment Act), 2006, retrospectively with effect from 4.4.2006. It was also provided that where the tax has been deducted in any subsequent year, such sum shall be allowed as deduction in computing the income of the previous year in which tax has been paid. From the aforesaid table, it is clear that the tax from payments on contract, interest, professional fees and commission are covered by the aforesaid provision for this year, on which tax was required to be deduction and paid before the due date for claiming deduction in this year. However, all the payments were made after the due date and in the financial year 2005-06. Therefore, we are of the view that the order of the l....