TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 946
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....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 failed to consider the Purchase Order, Goods Received Note, Invoices, Projec....
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....rable 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 the assessment year 2011-12 to 2013-14 u/s.139(1) of the Income Tax Act, 1961 (hereinafter the 'Act'). A search and seizure operations u/s.132 of the Income Tax Act, 1....
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....o 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, the AO called upon the assessee to produce necessary evidences including bills and vouchers in support of purchase from five parties. The AO had also called upon the assessee to produce parties in person for examination. The as....
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....bmitted 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 the bank extract of Account No.37941 held in the name of United Brothers, he submitted that he had opened this bank account at the instance of Shri Behru Singh for a commission. Therefore, the ld.AO opined that when the assessee is making....
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....ved 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 has actually returned back the money to Shri B G Raghupathy group through an intermediary. ii) Shri J. Ganapathy, Prop. M/s Megha Enterprlsbs was examined under oath u/s 131 of the Income Tax Act 1961 on 16.02.2016. In his deposition, he has submitted that he had opened an account Union Bank of India, Sowcarpet Branch at the behest of one Mr Behru Singh in the name of M/s. Megha Enterprises. Furth....
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....ri 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 dispute between Shri. Tilok Chand Parmar and M/s BGRESL regarding this balance bills supplied by M/s Sonal Steel Trading Pvt. Ltd to M/s BGRESL which is yet to be honored by M/s BGRESL for some unknown reason. Further, it is clearly established now that M/s BGRESL had purchased only Bills from M/s Sonal Steel Trading Co. Pvt Ltd. or else, during the course of cross examination proceedings why did not the issue of transfer of materials came in? And, why Shri, ....
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....s 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 series of elinching evidences as proved and point above, it is hereby held that M/s. BGR Energy Systems Pvt has indulged in bogus purchases to the extent of Rs. 113.48 crores from the following five parties for the respective previous years relevant to the assessment years as below: Amount in Rs. Assessment year Total (Amt.) Vendor Name 2011-12 2012-13 2013-14 M/s. Meenakshi Enterprises 22,15,82,638 6,68,83,182 28,84,65,820 M/s. SonalSteel Trading Pvt. Ltd. 2....
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.... 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 per requirement of work and hence, merely for non-production of certain evidences including delivery challans, purchases cannot be treated as bogus in nature. The assessee has made attempt to negate observations of the AO in light of statement of certain parties and argued that sworn statement cannot be conclusive evidences and what is required to be seen is whether purchases are supported by evidences or not. The assessee has also made an attempt to negate observation of the AO on non-production of parties and submitted that despite our failed attempt to trace parties, Department....
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....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 (Guj) 164 ITR 102 CIT Vs. Modi Stone Ltd (Del.) 203 Taxman 123 c. The broad proposition that once there is tax audit u/s.44AB, the ITO should not insist upon production of records or vouchers or details cannot be laid down Goodyear India Ltd Vs. CIT(Del.) 246 ITR 116. d. Onus does not get discharged by mere filing of confirmation letters. United Commercial & Industrial Co. (P.) Ltd (187 ITR 596) (Cal) e.. Payments made by account payee cheques do not make the transactions sacrosanct- Onus not discharged. Precision Finance (P.) Ltd (208 ITR 465) (Cal.) f. Furnishing of IT assessment and PAN etc., is n....
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....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 from those parties has voluntarily offered an additional income of Rs. 30 crores and has also disclosed said additional income in the return of income filed u/s.153A of the Act. The AO ignoring all these evidences has made further addition towards alleged bogus purchases only on suspicious grounds. Therefore, he submitted that additions made by the AO towards alleged bogus purchases needs to be deleted. In this regard, he has relied upon certain judicial precedents including decision of Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd., v. State of Kerala, (1973) 91 ITR 18. The cases laws relied upon by the assessee are as under:- i) ITAT, Pune in the case Ani....
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....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 accommodation entries. The AO as well as the ld.CIT(A) have brought out various reasons to hold purchases are not genuine and hence there is no reason to take a different view on the issue. 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have carefully considered case laws relied upon by the assessee as well as the revenue. The AO has made additions towards purchases from certain alleged bogus suppliers on the ground that the assessee could not substantiate purchase from those parties with necessary evidences. The triggering point towards addition for bogus purchase is search conducted in the premises of the assessee. During the course of search, certain bill books/purch....
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....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 to explain why it has possessed bill book/purchase invoices belonging to those five concerns in its premises. We, further, noted that during the course of search and post-search investigation, the assessee could not file necessary supporting evidences including delivery challans, lorry receipts and goods receipt notes regarding those purchases except filing purchase bills from those parties and claiming that payment against such purchases are made through proper banking channel. It is an admitted fact that payment by cheque itself is not a sufficient evidence to prove the alleged bogus purchases when all other evidences goes to prove a fact that purchases are bogus in nature. The assessee needs to bring on record supporting evidences to dispel the doubt and suspicion on those purchases. In this case, ....
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....ee 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 also on the basis of various facts gathered during the course of search and post-search investigation which clearly shows a point that purchases from alleged five parties have never had been purchased but only an accommodation entries of bill trading was obtained. No doubt, it is a well settled principle of law that sworn statement is not conclusive evidence in order to make any additions. The AO has to bring on record corroborative evidences to support the confession statement taken during the course of search. In this case, additions made by the AO is not only on the basis of sworn statement but also on the basis other evidences collected during the course of search including discrepancies in books of accounts regarding accounting of those purchases. As per fact brought out by the AO, the assessee has follo....
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....unting 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 particularly when the evidences collected during the course of proceedings clearly proves that those purchases are bogus. Further, in this case, the so called suppliers of goods have themselves stated in their statements that they have issued only bills against payments and returned cash to the assessee after deducting their commission. They have further stated that they never supplied any goods. Moreover, the AO has called for various details and analyzed their books of accounts and find that their business activity was trading in something else and sales made to the assessee were something else. From the above, it is clear that so called alleged bogus suppliers were never dealt in those goods and hence, question of supplying those materials to the assessee does not arise. Therefore, we are of the considere....
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....y 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 case before Hon'ble Supreme Court, the assessee was indulged in obtaining accommodation entries of bogus purchases and during the course of survey bills and invoices of alleged suppliers were found in business premises of the assessee. The AO has made 100% additions towards alleged purchases on the basis of evidences gathered during the course of search and post-search investigation. The Tribunal has accepted the findings recorded by the AO to treat the purchases as bogus however, restricted additions to the extent of 25% of such bogus purchases. Under those facts, Hon'ble Supreme Court came to the conclusion that once the purchases from certain parties are treated as bogus then question of making estimation of profit on those purchases does not arise. In this case, facts borne out from record clearly indicate th....
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....vision 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, it is common in business for providing warranty after sales service, however such provision is required to be made on the basis of past experience and future obligation and further such estimation should be scientific and not adhoc. In this case, on the basis of evidences filed by the assessee, the ld.CIT(A) has recorded categorical finding that provision made for warranty obligation is neither based on past experience or scientific but adhoc, because the assessee has reversed provision made in the subsequent year without utilizing hardly any amount for the purpose of providing warranty. Further, warranty provision is normal in the cases of equipment suppliers and product manufacturers. The assessee in the present case is a contractor for power installations. Although, the assessee suppliers several power related equi....
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....ition 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 opinion that the assessee has diverted interest bearing funds to subsidiaries for non-business purposes and hence, worked out interest at the rate of 11% pa on outstanding balance of loans and advances and made addition u/s.40A(2)(a) of the Act. It was the contention of the assessee before the AO that it has given loans and advances to subsidiaries out of its own funds and no interest bearing funds has been used and hence, question of disallowance of interest does not arise. The assessee further contented that it has given loans and advances to subsidiaries out of commercial expediency and hence, no interest could be disallowed u/s.40A(2)(a) of the Act. In this regard, relied upon decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd., vs. CIT, (2007) 158 Taxman 74 (SC). 22. We have heard both the parties, ....
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....at 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 received through bogus purchases. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored." 25. The brief facts of the case are that the assessee was founder of M/s. BGR Energy Systems Ltd. He demised on July, 2013. The assessee has filed his return of income for the assessment years 2011-12, 2012-13 and 2013-14 declaring total income of Rs. 1,03,62,07,245/, Rs. 60,31,87,417/- and Rs. 35,88,29,310/-. A search was conducted u/s.132 of the Act, in the case of M/s. BGR Energy Systems Ltd on 18.02.2014. The assessee being Director of M/s. BGR Energy Systems Ltd., the residential premises of the assessee was also covered. During the course of search, it was noticed that M/s. BGR Energ....
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....ms 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 all Assessment years. 29. The next issue that came up for our consideration from assessment year 2013-14 is addition of Rs. 1,88,65,900/- towards cash found during the course of search. We find that the AO has made addition towards unaccounted cash of Rs. 1,88,65,900/- found during the course of search in the hands of Smt. Sasikala Raghupathy and at the same time, a similar addition has been made in the hands of the assessee. The ld.CIT(A) after considering relevant facts has rightly held that once addition was made in hands of Smt. Sasikala Raghupathy, no addition can be made in hands of the assessee for cash found during the course of search because it amounts to double addition. The Revenue has failed to controvert the finding of fact recorded by the ld.CIT(A) is neither erroneous nor incorrect. Therefore, we are of the considered view that there is no error in the....