TaxTMI 
TaxTMI 
2021 (6) TMI 946
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....sioner of Income Tax (Appeals)-19, Chennai dated 20.02.2018 and pertains to assessment years 2011-12 to 2013-14. Since, facts are identical and issues are common, for the sake of convenience these appeals are heard together and are being disposed off, by this consolidated order. ITA Nos.23, 24, 25 & 116/Chny/2018 2. The assessee has raised common grounds of appeal for all assessment years. Therefore for the sake of brevity grounds of appeal filed for assessment year 2011-12 are reproduced as under:- 1. The contention of the Learned Commissioner of Income-tax (Appeals) is contrary to law and facts of the case. 2. Purchases from 5 Vendors not proved: 2.1 The Learned CIT(A) erred in not appreciating the facts of the case by upholding the addition made by the Learned Assessing Officer amounting to Rs. 71,97,83,480/- in the hands of the appellant being the alleged bogus purchases without any corroborative basis and only on the assumptions made by the Learned Assessing Officer. 2.2 The Learned CIT(A) had erred in considering only the contention of the Learned Assessing Officer which is based on sworn statements to arrive at a conclusion and had f....
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....the Hon'ble ITAT and CIT(A) for the AY 2007-08, 2008-09 & 2009-10 had disallowed the said expenditure. Whereas, the Learned CIT(A) passed a favourable order and the Hon'ble ITAT restored the matter to the file of the Learned Assessing Officer for verification. 4.3 The Learned CIT(A) has erred in upholding the addition without considering the fact that the loans given were in the nature of commercial expediency. 4.4 The Learned CIT(A) had also failed to consider that disallowance cannot be made in cases where loan was given in mutual interest and commercial expediency- S.A Builders Ltd vs. CIT(A) 288 ITR 1 (SC). 5. The appellant seeks your leave to add, alter, amend, or delete any of the grounds urged, at the time hearing. 3. The brief facts of the case extracted from ITA No.23/Chny/2018, for the assessment year 2011-12 are that the assessee M/s. BGR Energy Systems Ltd., (BGRESL) is engaged in the business of manufacture of capital goods and in construction of EPC contracts. The assessee company further executes engineering, procurement & construction contracts for power plants, oil & gas industries and process industries. filed its return of income for....
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....lly received by the receiver. 4. During post search investigation, Shri Tilok Chand Parmer, Managing Director of M/s. Sonal Steels Pvt. Ltd., was searched along with the company. M/s Sonal Steels Pvt. Ltd., was found to be engaged in purchase and sale of stainless steel Tiffin-box items. Apart from the transactions from M/s. BGRESL, there are no other huge purchases or sale. A statement was recorded from Shri Tilok Chand Parmer, where he has admitted that he had neither purchased these items nor sold these items to any person including BGRESL. He had further stated that he had supplied only bills to the company for a commission. He, further, explained the modus operandi of bogus bill trader as per which he had received RTGS payments from BGRESL and the same were further rooted through other concerns in the market including concerns belonging to Shri Dileep Kumar Jain and Shri B. Kamalesh Kumar Jain. He had also stated that one Shri Dhanaram was employed by Shri Dileep Kumar to operate several bank accounts in Purasawalkam branch of Axis Bank and further he was also withdrawing cash that was finally returned to M/s. BGRESL. 5. During the course of assessment proceedings, th....
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....e assessee and its employees and also statement recorded from Shri Tilok Chand Parmar, one of the suppliers of alleged five bogus bill suppliers. The AO has also taken support from letter of Shri Tilok Chand Parmar dated 04.02.2016, submitted before AO during the course of assessment proceedings, where he has stated that he stands by his depositions made before the DDIT(Inv) on 23.02.2014. The AO has taken support from the statement of Shri J. Ganapathy, Proprietor of M/s. Megha Enterprises recorded on oath u/s.131 of the Act, on 16.02.2016, where he had admitted that he had opened an account with Union Bank of India, Sowcarpet branch at the behest of one Shri Behru Singh in the name of M/s. Megha Enterprises. He further submitted that he had done this work to facilitate somebody else's transactions out of sheer necessity of money. The AO had also taken support from statement of Shri M. Govind, Proprietor of M/s. United Brothers, where he had deposed that he was doing business of sale of utensils and vessels till 2013. He further stated that he was not aware of the existence of M/s. BGR Energy Systems Pvt. Ltd., nor did he do any business with them. However, when he was shown....
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.... had sent letters by regd. post to the above five vendors to appear before this office. Strangely, the assessee-company had chosen to close down its transactions with the above five Vendors with whom it had done substantial transactions during the previous years relevant to the assessment years 2011-12, 2012-13 and 2013-14. Further, the assessee company has proved that it had indeed made genuine efforts to trace the five vendors apart from merely stating that it had sent letters by regd. post to those vendors. However, this office made efforts to trace the five vendors and succeeded in locating three of them namely, 1. Shri Tilok Chand Parmar, Managing Director, M/s. Sonal Steel Trading Co. Pvt. Ltd., 2. Shri Janakiraman Ganapathy, Prop: M/s. Megha Enterprises and 3. Shri Govind, Prop: M/s. United Brothers. i) Shri Tilok Chand Parmar, vide letter dated Nil filed on 04.02.2016 submitted by him during the course of sec, 153A proceedings has submitted that he stands by his depositions made before the DDIT(Inv) on23.02.2014. Vide his submissions, he has admitted that he has done only Bill Trading with M/s. BGR Energy Systems Pvt. Ltd. and ha....
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....was forwarded to M/s. BGR Energy Systems Pvt. Ltd. The statements of Shri Govind and Shri Ganapathy are made part of this order as Annexure C. 2.6 On 28/03/2016, Shri P R Easwar Kumar, president and CEO of M/s BGRESL was afforded the facility of cross-examining Shri Tilok Chand Parmar M. D of M/s Sonal Trading Co. Pvt. Ltd, and Shri, J, Ganapathy Prop: M/s Megha Enterprises. At the start of the proceedings Both Shri Tilok Chand Parmar and Shri J. Ganapathy requested that they be asked questions interacted in the Tamil language which was acceded to by Shri. P. R. Easwar kumar. The English version of the cross examination proceedings is made an Annexure to this order vide Annexure D. The following points evolve/establish themselves from the cross examination proceedings: 1) Shri. Tilok Chand Parmar stands by his sworn statement made before the DDIT(lnv) on 18.02.2014 that he had supplied bills for a commission to M/s BGRESL and that there was no physical transfer of materials/goods. 2) Further, Shri Tilok Chand Parmar had supplied Bills to the tune of Rs. 8 crores(app) between the period Jan 2012 to Dec 2012 3) There is a pending ....
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....re to be genuine. Otherwise, what was the necessity for M/s.BGR Energy Systems Pvt. Ltd to have in its custody forged purchase Invoices? Hence, it is established beyond doubt that the purchases made by M/s.BGR Energy Systems Pvt. Ltd from these live vendors based on Chennai are bogus. But, strangely, M/s.BGR Energy Systems Pvt. Ltd claims genuinity of transactions on the strength of transactions on the strength of possession of these manufactured invoices. 2.9 Conversely, this explains why M/s.BGR Energy Systems Pvt. Ltd should go for purchases from small-firm 'vendors' like these five parties based at Chennai when its regular purchases are from big players like SAIL, TATA STEEL, JSW, & NRIL. The stark intention behind the purchases from the five local vendors based at Chennai stands doubly exposed. Stocks purchased from SAIL, TATA STEEL, JSW & NRIL do have delivery challans attached to their purchase Invoices whereas the purchase invoices of these five parties are without delivery challans-simply because they are bogus, as they are merely raised without actual transfer of goods and materials mentioned therein. 3.1 Hence, vide discussions made above, and vide seri....
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....roceedings sworn statements recorded from the witnesses viz., Shri Tilok Chand Parmar, Shri Dhanaram and Shri Kamalesh Parmar seen in the light of the bank statements of various bogus bill traders clearly indicate that the persons to whom the assessee transferred money as advance payment for purchase of certain steel items did not actually sell any such items to the assessee. These persons were not in the business of trading in such material. These persons have routed the money to other accounts and obtained cash after several layers of bank transfers. The cash obtained was given to the company as admitted by the bogus till traders. 7. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld.CIT (A), the assessee has filed detailed written submission which has been reproduced at para 11 at pages 13 to 16 of ld.CIT(A) order. The sum and substance of arguments of the assessee before the ld.CIT(A) are that purchase from above parties are genuine in nature which are supported by necessary evidences including purchase bills. The assessee has made payments against said purchase through RTGS. The purchases were made at work place as....
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....was not able to produce the vendors for any verification. Assessee was also not able to produce the transport bills as well as stock registers for receipt of goods. Other than the production of bogus bills and the claim of cheque payments, the assessee has not been able to adduce any defense in support of its claim. The statements given by Shri Parmar and others remain uncontroverted. The body of evidence is overwhelmingly against the claim of the assessee. The onus to establish and prove the expenditures claimed in the profit and loss account has remained to be discharged by the assessee. In this regard, the following judicial decisions are taken on record. a. In order to claim that an expenditure falls u/s.37(1), the burden of proving the necessary facts in that connection is on the assessee. CIT Vs Calcutta Agency Ltd (Supreme Court) 19 ITR 191 Lakshimaratan Cotton Mills Co. Ltd Vs. CIT (SC) 73 ITR 634 b. Mere production of vouchers in support of the claim for deduction of the expenditure would not prove the claim made by the assessee. It is his duty to prove payment especially when the ITO doubts the genuineness thereof. CIT Vs. Chandravilas Hotel (Gu....
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....tory authorities like Commercial Taxes Department, Central Excise Department, project technical team like Engineers and Electricity Board. 10. The ld.AR further submitted that the assessee company also issues a monthly audit plan to its internal auditors, which needs to be covered by them and the audit report is not having any adverse comments on purchase from above parties. The ld.AR further submitted that although those parties insisted on pure cash payment as part of their supply, the assessee company, a public listed company is keen to deal major purchase transactions by any mode other than through banking channel. The ld.AR further submitted that although the assessee has furnished all evidences to prove purchase from above parties, the ld.AO as well as the ld.CIT(A) have ignored all evidences filed by the assessee and made additions on the basis of sworn statement recorded from those parties without appreciating the fact that confession / sworn statement is not conclusive evidences. The ld.AR further submitted that although the assessee has filed necessary supporting evidences to support purchase from five parties but to cover up certain discrepancies in purchases made fro....
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....reiterated his admission by filing a letter before the AO that he stands by his admission made before the DDIT(Inv) on 23.02.2014. Further, during course of cross examination of these parties by the assessee through its CFO, Shri P.R. Easwer Kumar, Shri Tilok Chand Parmar stands by his sworn statement made before the authorities and stated that he had supplied bills for a commission and that there was no physical transfer of material/goods. The ld.DR further submitted that even otherwise the AO has brought out various facts to believe these purchases are bogus and as per which the assessee had a strong internal control mechanism for regular purchases, as per which a systematic records is maintained in SAP software whereas, these purchases from these five parties are not having any regular internal control procedure adopted by the assessee company. Moreover, the assessee could not furnish any other evidences except purchase bills and payment through proper banking channel. It is a well settled principle of law that payment by cheque itself is not a sufficient evidence to justify purchases when other evidences goes to prove the fact that purchases are bogus and are nothing but acc....
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....ll trading with assessee and has actually returned money to Shri B.G. Raghupathy through one Shri Ravi kumar. The AO has also taken support from statement recorded from associates of Tilok Chand Parmar like Shri J. Ganapathy, Proprietor of M/s. Megha Enterprises, Shri M/ Govind, Proprietor of M/s. United Brothers, where they have admitted that they worked as conduit to Shri Tilok Chand Parmar for facilitating bill trading business and withdraw money from bank account. The AO has also taken support from inputs of cross examination of Shri Easwer Kumar with Shri J. Ganapathy and Shri Tilok Chand Parmar, where Shri Easwer Kumar was not in a position to counter the admission made by those parties. Therefore, he opined that purchases from alleged five parties are bogus in nature which are not supported by necessary evidences and hence, made additions to total income. 13. We have given our thoughtful consideration to reasons given by the AO to arrive at a conclusion that purchase from five parties are bogus in nature which are not supported with necessary evidences and we ourselves in agreement with reasons given by the AO to reach to said conclusion, because the assessee had failed t....
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....ociate Shri N. Ravi kumar after deducting their commission. They further stated that they have done this for a meager commission of 0.25% value of total purchases affected from those parties. From the above, it is crystal clear that the assessee company has indulged in bill trading transactions with the help of Shri Tilok Chand Parmar and his concerns M/s. Sonal Steel Trading Co. Pvt. Ltd., M/s. Megha Enterprises and M/s. United Brothers. Therefore, we are of the considered view that the assessee has failed to file necessary evidences in support of purchases from those five parties and hence, the AO as well as the CIT(A) were right in arriving at a conclusion that purchases from those parties are bogus in nature. 14. Having said so, let us come back to arguments of the assessee. The ld.AR for the assessee has made various arguments to counter the finding of fact recorded by the AO. We have gone through various arguments advanced by the ld.AR for the assessee and find that there is no substance in arguments of the ld.AR for the assessee because in the present case, the AO has made additions to bogus purchases not only on the basis of statements recorded from those parties but als....
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....he basis of statement recorded from those parties without further evidences. 15. The other arguments made by the AR of the assessee that the assessee has a robust internal control policy to record purchases and further its books of accounts are subject to audits by various statutory authorities and hence, question of doubting those books of accounts does not arise. We find that although the assessee was subjected to various statutory regulations including audit by SEBI and other authorities but fact remains that issue in question was whether purchases made from certain parties are genuine transactions or only an accommodation entries of bogus purchase bills to inflate expenditure. It is a well known fact in business circle that when a person obtains any accommodation entries, necessary formalities of accounting those entries in its books of accounts and reporting to statutory authorities will be done as per law. But, just because those purchases are recorded in books of accounts and finds place in statutory returns filed with Commercial Tax Department and Central Excise Department, it does not take away the right of the Department to examine those purchases with evidences, more ....
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.... assessee and further the assessee has failed to offer any convincing explanation as to why those bills and invoices are kept in the business premises of the assessee. Secondly, the assessee has failed to offer any explanation as to why standard operating procedure for recording purchases were not followed in respect of purchases from these parties. Thirdly, the assessee has failed to counter the confession statement given by alleged suppliers that they never supplied any goods to the assessee and further they issued only bills against payments and returned cash to the assessee after deducting their commission. Therefore, we are of the considered view that the facts of the case laws relied upon by the assessee cannot be equated with facts of the present case. 17. However, facts of the present case are squarely covered by the decision of Hon'ble Supreme Court in the case of N.K. Proteins Ltd., vs. DCIT (2017) 292 CTR 354, where the Hon'ble Supreme Court has categorically held that once the Tribunal having come to a categorical finding that purchases from certain parties are bogus, it was not incumbent on it to restrict the disallowances to 25% of such purchases. Further, in the c....
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....stomers in respect of various contracts and these liability towards warranty, if any, would get crystallized only after the contracts are completed and handed over to the customers. 19. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As could be seen from the facts brought out by the ld.CIT(A), we find that although the assessee has made huge provision for warranty obligation for every year, but when it comes to utilization of such provision, it had utilized a meager amount for providing after sales warranty to its customers. Further, the ld.CIT(A) has reproduced a chart explaining the amount of turnover, provision made for warranty obligation and amount utilized for providing warranty and from the chart we find that the assessee has made provision for huge amount and has reversed such provision in the subsequent years without utilization of amount for providing warranty obligation. From the above, it is very clear that provision made in the books of account for warranty obligation is not on the basis of systematic estimation of liability which was based on past experience and future obligation. Further, ....
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....de by the assessee was utilized for providing warranty to the customers. Under those facts, Hon'ble Supreme Court held that if the facts established show that defect existing in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods is entitled to deduction u/s.37(1) of the Act. In this case, the assessee has neither manufactured equipments nor made provision on the basis of past experience and hence, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to confirm additions made towards disallowance of provision made for warranty obligation and hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the assessee. 21. The next issue that came up for our consideration is addition towards disallowance of interest on advances to subsidiaries. The facts with regard to impugned dispute are that the assessee had given loans and advances to various subsidiaries without charging any interest. It was further noticed that the assessee has borrowed huge loans and advances and paid interest at the rate of 11% pa. Therefore, the AO was of the opi....
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....512/Chny/2018 and CO Nos.97 to 99/Chny/2018 24. The Revenue has raised common grounds of appeal for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed for assessment year 2011-12 are reproduced as under:- "1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The ld.CIT(A) erred in deleting the addition of Rs. 71,97,83,480/- made by the Assessing Officer (Assessing Officer) on account of bogus purchases through bill trading indulged by M/s. BGR Energy Systems Ltd., in the assessment order passed u/s.143(3) r.w.s. 147 of the IT Act for A.Y.2011-12 in the assessee's case. 2.1 The ld.CIT(A) erred in not appreciating the findings of the AO in the assessment order passed u/s.143(3) of the IT Act for A.Y. 2011-12 in the assessee's case, that M/s. BGR Energy Systems Ltd., in which the deceased assessee Late B.G. Raghupathy was the chief promoter and chairman till his death in July 2013, had indulged in the bogus purchases through Bill-trading from the five vendors at the investigation of the assessee, who by default, was the principal beneficiary of the kick backs recei....
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....ry of amount siphoned out from the company by booking bogus purchases. 27. The ld.AR for the assessee on the other hand strongly supporting order of the ld.CIT(A) submitted that once addition was made in the name of another assessee, no addition can be made in the name of the assessee for similar amount because it amounts to double addition. 28. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the AO has made additions towards alleged bogus purchases made from five parties in the hands of M/s. BGR Energy Systems Ltd. We, further, noted that the AO has once again made similar addition in the hands of the assessee without assigning any reasons. Therefore, we are of the considered view that once addition was made towards alleged bogus purchases in the hands of M/s. BGR Energy Systems Ltd., no additions can be made to similar amounts in the hands of the assessee because it amounts to double addition. The ld.CIT(A) after considering relevant facts has rightly deleted additions made by the AO and hence, we are inclined to uphold findings of the ld.CIT(A) and reject ground taken by the Revenue for al....