TaxTMI 
TaxTMI 
2016 (1) TMI 242
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....The Assessing Officer made the following observations with regard to the appellant's business transactions and books of account: "a. The gross profit ratio of the appellant was as follows: AY Ratio 2004-05 7.26% 2005-06 3.49% 2006-07 Loss b. The purchases included a sum of Rs. 24,32,22,003 for 17,278.57 metric tonnes as a bulk purchase from Rastriya Ispat Nigam Ltd (RINL). This purchase was transferred to 12 parties at the purchase value on which no profit was derived. The appellant explained that it had entered into a cartel purchase from RINL which enabled the appellant to purchase goods at a rate lower than market rate. The Assessing Officer observed that these goods had been physically delivered directly to the other parties, that the payment for these goods had also been made by the other parties directly to RINL, that in the process the appellant's administrative expenses had been increased, that it was not known why the appellant became the leader of cartel and went out of its way to accommodate the other parties to enable them to earn profit while itself making a loss. The Assessing Officer also observed that in receip....
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.... j. The appellant had credited a sum of Rs. 2,30,00,000 in its cash book on 20.04.2005 as credit balances written off. A sum of Rs. 2,25,00,000 was transferred to the Tijori account on the same day. The credit entry of Rs. 2,30,00,000 had been made at the end of the year in a different handwritinq. As and when there was a cash shortfall, the amount was transferred from the Tijori account which was squared up at the end of the year. Though the sum of Rs. 2,30,00,000 had been voluntarily offered by the appellant as credit balances written off, this accommodative entry was made at the end of the year as the opening and closing cash balances were not worked out on a daily basis and the appellant realised at the end of the financial year that it had negative cash balance on that day. k. The appellant had not maintained any separate trading account and manufacturing account. The appellant had booked huge losses in its manufacturing activity for which it had submitted general explanations like increase in purchase cost of raw materials, increase in power consumption etc. The sale price per unit of quantity sold was Rs. 12,959.60 whereas the cost of production was Rs. 14,179.66. ....
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....books. e. The appellant had entered into a cartel purchase along with 12 other parties for purchase of raw material from RINL. While the sale invoice was raised in the name of the appellant, the consignees were directly mentioned in the invoice itself. The cartel purchase enabled the appellant to avail benefit of lower price on account of lifting of big quantity of stocks. The payment for the purchase was made directly by the 12 consignees. Delivery was also made directly to them. The observation of the Assessing Officer that the appellant had recorded the entire purchase in its stock register was factually incorrect. f. No profit was made on cartel sales since sale invoices were raised merely as a balancing accounting entry to offset the purchases as per the invoices. g. The observations of the Assessing Officer that in the process of making the cartel purchase, the appellant had boosted its administrative expenses, was factually incorrect since no additional administrative expenses were incurred for it. Even otherwise the additional expenses would have been compensated by the lower purchase price. h. The Assessing Officer had observed that the ....
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....ecured loans to the following parties: Inderkaran Agarwal (Patner) Rs.18,76,406 Banks Rs.16,35,151 Total: Rs.35,11,557 No interest was paid on the loan received from S.B. Steel Industries. n. The mere fact that the books of account had been written in two different handwritings on the same day could not lead to any adverse inferences. The difference in handwriting in the ledger account of Lakhani Steel Corporation came about due to the fact that while preparing the trial balance, it was found that the entry made on 28.09.1995 had not been posted in the ledger and therefore the entry was made at the end of the year. The payment had been made for purchases and no cash outflow or inflow resulted due to this entry. o. The appellant had credited a sum of Rs. 2,30,00,000 to its cash book on 20.04.2005 and transferred a sum of Rs. 2,25,OO,000 to the Tijory account on the same day. The Tijory account was nothing but cash kept at residence of the partners since it was not safe to keep the entire cash at the business premises. As and when required, the requisite amount were credited to Tijory account and used for the business. This did n....
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....ficer. There is also no evidence of any major additional administrative expenses for this purchase. Similarly, the appellant cannot be faulted for entering into trading transactions with narrow margins. 5.10 The appellant also cannot be held responsible for the manner in which its suppliers carried out their business. The Assessing Officer has pointed out three such categories of suppliers. The first relates to purchase bills which do not contained printed serial numbers. As pointed out by the AR, there is no mandatory requirement for the bill numbers to be printed on the bills. There is no provision to state that handwritten bill numbers are not acceptable. What is relevant is that the purchases were duly entered in the stock and excise registers of the appellant. 5.11 The second such set of transactions relates to Koganti Steels Pvt. Ltd while the third relates to purchases where the suppliers booked a very high margin of profit. Neither of these parties were related to the appellant and therefore these are not cases of collusive transactions with sister concerns. In the absence of any evidence that the appellant had entered into fraudulent or manipulative trans....