IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: C: NEW DELHI
BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER
AND SHRI J.S. REDDY, ACCOUNTANT MEMBER
ITA No. 1370/Del/2008
Assessment Year 2003-04
I.T.O. CO.WARD 4 (1) vs M/s. J.H. Business & Products (P) Ltd.
New Delhi. 13-B, 3rd Floor, Netaji Subhash Marg,
Darya Ganj, New Delhi 110 002.
(Appellant) (Respondent)
Appellant by : Shri Satpal Singh, Sr. DR
Respondent by : Shri Rajiv Sexena, Advocate
Shri Abhishek Verma, Advocate
ORDER
PER I.C. SUDHIR, JUDICIAL MEMBER
The revenue has questioned first appellate order on the following
grounds :-
1. "The order of the learned CIT(Appeals) is erroneous & contrary
to facts & law.
2. Whether on the facts and in the circumstances of the case, the
learned CIT (Appeals) has erred in deleting the disallowance of
Rs. 14000/- claimed u/s 351 on account of ROC fees ignoring
that it was held in the case of CIT V Hindustan Insecticides
Ltd. (2001) 250 ITR 338 (Del) that fees paid for increase in
share capital is not fees for registration of the company &
hence not amortizable u/s 35D (2) of the Income Tax Act.
3. On the facts and in the circumstances of the case, the learned
CIT (Appeals) has erred in deleting the addition of Rs.
26,20,800/- made on account of bogus purchases made from
the M/s. Kumar Bansal Traders (P) Ltd. ignoring that
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a) Sh. Atul Kumar Bansal, who controls M/s. Kumar Bansal
Traders (P) Ltd. admitted on oath that this concern was
used to provide accommodation entries.
b) On independent enquiries made by the A.O. M/s. Kumar
Bansal Traders (P) Ltd. was not found at the given address.
c) Even the enquiries from the Sales Tax Department about the
existence of M/s. Kumar Bansal Traders (P) Ltd. had proved
the non existence of the said concern.
d) The assessee failed to produce the principal officer of said
concern and also failed to furnish any information as to
whereabouts of said concern.
e) The case laws mentioned by AO in the assessment order are
relevant & applicable to this case.
f) The Ld. CIT(A) has himself stated in his appellate order that
it is likely that the bills in respect of these purchase have
been purchased from the grey market.
g) The Ld. CIT(A) has himself stated in his appellate order that
the existence of M/s. Kumar Bansal Traders (P) Ltd. is
doubtful & appeared to have been issued the
accommodation entries only.
4. On the facts and in the circumstances of the case, the learned
CIT (Appeals) has erred in deleting the consequential addition of
Rs.1,24,643/- made as profit earned in respect of above
transaction of Rs. 26,20,800/-."
2. Ground No.1 is general in nature hence does not need independent
adjudication.
3. Ground No. 2
At the outset of hearing Ld. AR fairly conceded that the issue raised in the
ground is fully covered by the decision of Hon'ble Delhi High Court in the case of
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CIT vs. Hindustan Insecticides Ltd. 250 ITR 338 (Delhi) against the assessee.
The issue is regarding fee paid for enhancement of share capital claimed u/s 35D
of the Act i.e. deduction on amortisation of certain preliminary expenses. The
Hon'ble Delhi High Court in the above cited case has been pleased to hold that
such expenditure is capital expenditure and deduction is not allowable u/s
35D(2)(c)(iii) of the Act. The ground is thus allowed in favour of the revenue.
4. Ground Nos. 3 & 4
The relevant facts are that the AO made addition of Rs. 26,20,800/- u/s
69(c) of the Act on account of bogus purchases made from M/s. Kumar Bansal
Trades (P) Ltd.( in short KBTPL) . He made further addition of Rs. 1,24,643/- on
account of profit earned in respect of above transaction of Rs. 26,20,800/-. On
the basis of information received from the investigation wing of the department
that in his statement one Shri Atul Kumar Bansal, Director of M/s. Vishal Iron
Works (P) Ltd. had admitted that he was engaged in the business of providing
bogus accommodation entries through many concerns controlled by him. One of
such concern was M/s. Kumar Bansal Traders (P) Ltd. from whom the assessee
had made the purchases of Rs. 26,20,800/-. Shri Atul Kumar Bansal in his
statement also admitted that he used to charge the commission @ 0.2% for
providing the accommodation entries. He admitted that the purchaser party used
to issue him cheques of the same amount as shown by him on the sale bills and
after encashing the same cheques and deducting his commission, he used to
refund the cash back to the parties who had made the bogus purchases from
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him. The assesse confronted the said information with this objection that they
had made the purchases by account payee cheque in the normal course of
business, their sales are duly assessed by Excise and Taxation Department of
Haryana, etc. The AO was not satisfied with the explanation of the assessee as
after making independent enquires the AO could not trace the existence of M/s.
Kumar Bansal Traders (P) Ltd. They were not found on the given address nor the
Sales Tax Department was able to find their existence. Even the Principal Officer
of M/s. Kumar Bansal Traders (P) Ltd. required tobe produced before the AO by
the assessee company was not produced. The AO noted further that the linkage
of the purchased item i.e Sandal Wood with the sale of the finished products
could not be ascertained because of purchased commodity and finished goods
had separate identity and was result of many processes. The AO accordingly
made addition of Rs. 26,20,800/- u/s 69C of the Act on account of bogus
purchases from M/s. Kumar Bansal Traders (P) Ltd. Being satisfied with the
submission of the assessee and the evidence produced in support, the Ld. CIT(A)
has deleted the addition of Rs. 26,20,800/- made u/s 69C of the Act. This action
of the first appellate authority has been impugned by the revenue before the
Tribunal.
5. In support of the grounds the Ld. DR has basically placed reliance on
the assessment order. He submitted that onus lies heavily on the claimant to
establish genuineness of his claim, to which assessee has thoroughly failed to.
The assessee could not produce the Principal Officer of M/s. Kumar Bansal
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Traders Pt. Ltd., the supplier nor has the assessee established the existence of
the supplier . Ld. DR also placed reliance on the decisions followed by the AO.
6. Ld. AR on the other hand tried to justify the first appellate order. He
reiterated the submissions made before the authorities below and the decisions
relied on behalf of the assessee before them. He submitted that the assessee
had followed following steps after making the purchases in question :-
a) Procurement of goods through a courier/transport agency.
b) Procuring statutory forms required for carrying the goods to the
destination during movement.
c) Payments made through banking channels.
d) Entries in day to day stock register made of purchases.
e) Tallying goods physically versus as per books.
f) Submission of the purchases made to the AO of Exise & Trade.
7. He submitted that the claimed purchases in question were supported by
the following evidences :-
i) Purchase bill
ii) Stock register
iii) Trading account with quantitative details
iv) Copy of bank statement showing payments made to KBTPL
v) ST 38 forms issued by Exise & Trade Tax Office.
vi) Assessment order of Exise & Trade Tax Office, Rohtak admitting
purchases and sales.
vii) Total quantity of purchase / sale during the year
viii) Cartage paid account showing the payment for these purchases.
8. The Ld. AR pointed out that during inspection it was noticed that the AO
had made office note that DDIT (Investigation) Unit II (1) had noticed bogus
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purchases of Rs. 33.78 crores ; purchases amounting to Rs. 2.21 crores made by
M/s. Surya Vinayak Industries (P) Ltd. and the balance purchases of Rs. 31.57
crores were made by M/s. Rim Zim Valley Products (P) Ltd. He submitted that in
the case of M/s. Surya Vinayak Industries P Ltd. the Delhi Bench of the Tribunal
in ITA No. 2780/D/2007 has deleted the addition, a copy thereof has been made
available at page Nos. 17 to 22 of the paper book (citation). He pointed out
further that the revenue had preferred appeal against the said order of the
Tribunal before the Hon'ble High Court of Delhi but could not succeed as the
Hon'ble High Court was pleased to dismiss the appeal. A copy of this decision
has been made available on record.
9. Ld. AR also refereed page Nos. 14 to 41 of the paper book submitted
on behalf of the assessee with this certificate that these documents were
produced before the authorities below. These are the copies of purchase
invoices, stock ledger and trading account, assessment order of Haryana
Taxation Department and form No. 38 etc., Audit Report Form No. 3CA, Ledger
of Cartage Inward, remand report by ITO and reply of assessee to the remand
report submitted by the AO before the Ld. CIT(A). The Ld. AR pointed out
further that under similar facts and on identical issue the Delhi Bench of the
Tribunal in the case of M/s. Global Business India (P) Ltd. , a group company has
upheld the deletion of similar addition of Rs. 5.62 crores made by the Ld.
CIT(A). A copy of this order dated 24.8.2012 of the Tribunal in the case of DCIT
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ITA No. 1370/Del/08
vs. Global Business India (P) Ltd. (supra) has been made available on the record.
He submitted that the AO did not provide the copy of statement recorded by the
investigation wing of the department used adversely against the assessee to the
assessee nor the sales tax report etc. to the assessee on which the AO placed
reliance. He submitted further that the authorities below have also failed to
appreciate that out of total purchase of sandalwood of 72,673.900 Kgs only
goods of 4000 KGs was purchased from KBTPL. In other words out of the
claimed purchases worth Rs. 4,52,82.901/- the AO has doubted the claimed
purchases worth Rs. 26,20,800/- paid to KBTPL. The Ld. AR placed reliance on
the following decisions :-
i. Rajesh Kumar, ITA No. 545/2007 (Delhi)
2. CIT vs. Pratap Sisngh Amar Singh and others 200 ITR 788 (Raj.)
3. Rajesh P Soni vs. ACIT 100 TTJ 892 (Ahmedabad)
4. CIT vs. Kashiram Textile Mills P. Ltd. 284 ITR 61 (Guj.)
5. Manoj Aggarwal vs. DCIT 113 ITD 377 (SB)
10. Considering the above submissions we find that the AO had doubted
the claimed purchases made from KBTPL mainly on the basis of statements of
Shri Atul Kumar Bansal, Director of M/s. Vishal Iron Works (P) Ltd. recorded by
the investigation wing of the department on 30.1.2004, wherein he had admitted
that KBTPL was one of such bogus concerns wherein only bills were issued and
no goods were actually transferred and for this he used to charge commission @
0.20%. The AO also doubted the claimed purchases from M/s. KBTPL as they
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were not found on the given address nor their existence could be established by
the assessee. The Ld. CIT(A) on the other hand was convinced with the
documents filed by the assessee in support of the claimed purchases and that
when sales have been accepted expenditure corresponding to it is also to be
accepted. It was also submitted by the assessee that it was not possible for
them to ensure the presence of supplier on the given address in the coming
years especially after the completion of the transaction. The Ld. CIT(A) has dealt
with the issue in detail and has come to the following conclusion at page Nos. 25
and 26 of the first appellate order :
"From the totality of all the facts and circumstances, I have
come to the conclusion that as far as the purchases of raw-material
are concerned, they are genuine but it is likely that the bills in
respect of those purchases have been purchased from the market.
My conclusion is drawn on the basis that the purchases have been
entered into stock register. Although the linkage of these purchases
with the sale is not ascertainable because the purchases of raw-
material has undergone the various processes before its sale as a
finished products. The raw-material and finished goods have
different entity and can not have direct link. But its purchase and
sales have been accepted by the Excise and Trade Tax
Department. The other evidences such as, the freight receipts for
bringing the goods inside the factory by citing the vehicle number
etc., their entry in the stock register, purchases against For No. ST-
38 issued by Excise and Trade Department of Haryanas and
subsequent assessment by Excise and Trade Department of the
purchases and sale of the assessee company are the evidences
which can not be ignored. These evidences have clearly shown the
authenticity of the purchases. It has also been noticed that on the
same facts and same circumstances, in the assessment of the main
companies of the assessee where huge purchases were made, no
adverse view has been taken by the Assessing Officer and by
Commissioner of Income-tax (Appeal). In the present case the
purchase as compared to the other group companies are negligible.
It is also a fact that the existence of the vendor party which has
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sold the goods to the assessee company is doubtful and appeared
to have been issued the accommodation entries only but this fact
stands alone can not make the purchase bogus. Furthermore, the
sales have been accepted expenditure corresponding to it have also
to be accepted. The motive to procure the purchase bill against the
purchase made by it appeared to be the purchase from the grey
market as concluded in other group companies by the Assessing
Officer itself such as Rimzim Valley Products Pvt. Ltd. and M/s.
Surya Vinayak Industries Ltd..
Considering the totality of all the facts and circumstances I
am of the view that the purchases made by the assessee company
cannot be held as bogus. Therefore, appellant's appeal on this
ground stands allowed."
11. We also find that under almost similar facts and identical issue the
Delhi Bench of the Tribunal in the case of DCIT vs. Global Business India Pvt.
Ltd. (supra) vide its order dated 24.8.2012 has given the following finding :-
7. We have heard rival contentions and perused the material
available on records. As the facts emerge the information of Investigation
Wing of the department is held to be clinching evidence by the Adl. CIT
whose directions were binding on the AO. In our considered view :
i. An information supplied by an agency of the department cannot
be held as clinching evidence without independent inquiry and
corroboration. An information may be useful for further
investigations or corroboration but on its own, it cannot be held as
clinching evidence.
ii. No light has been shed by AO as to what happened in the
assessments of Shri Atul Bansal and his accommodation entities.
Similarly statement of Director Shri Sanjay Jain stating the facts
about verification of purchases has not been controverted.
iii. Quantities of purchases and sales and value of sales has been
accepted by AO, thus to this extent nothing adverse has been
found in the books of accounts.
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iv. All the purchases are through account payee cheques,
transportation vouchers to Agartalla factory, likewise all the sales
are accepted by AO, supported by Indian Airlines transportation
vouchers. Purchases are supported by form ST-38 issued by Excise
and Trade Department. Nothing adverse has been found in this
behalf.
v. AO has relied on the ITAT judgment in the case of Vijay
Proteins case (supra) which in our view is distinguishable as in that
case there were no transport vouchers and some transporters
denied having transported such goods. These adverse facts are
conspicuously missing in this case. In our view Hon'ble Gujarat
High Court judgment in the case of Adinath Industries and P & H
High Court in the case of Leader Valves (supra) helps assesees
case.
vi. AO has only created a suspicion that purchase rates may have
been inflated as it was possible for assessee. In our considered
view it amounts to a surmise. In order to bring home his point,
some instance of such inflation should have been pointed by AO.
Suspicions however strong cannot partake the character of proof.
vii. Even if part rejection of assesses books is upheld the
consequent estimate should be just and reasonable. In the absence
of any allegation about insufficiency of trading results such addition
has been rightly deleted by CIT(A), we uphold his order on this
issue. This ground of the revenue is dismissed."
12. Respectfully following the above cited decision of the Tribunal in the
case of DCIT vs. Global Business India Pvt. Ltd. (supra) on an identical issue
under almost similar facts, we do not find infirmity in the first appellate order of
the present case in this regard and decide the issue in favour of the assessee
regarding the genuineness of the claimed transactions i.e purchases made from
KBTPL. The first appellate order in this regard is thus upheld. Grounds are
accordingly rejected.
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13. In the result appeal is partly allowed.
Order is pronounced in the open court on 6.2.2013.
sd/- sd/-
(J.S. REDDY) ( I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 6.2.2013
Veena
Copy of order forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR By Order
Deputy Registrar, ITAT
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