Pr. Commissioner Of Income Tax, Alwar v. M/S. Supreme Cylinders Pvt. Ltd., A-146, Industrial Area,Bhiwadi, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 76/2018 Pr. Commissioner Of Income Tax, Alwar. ----Appellant Versus M/s. Supreme Cylinders Pvt. Ltd., A-146, Industrial Area,Bhiwadi, Alwar. ----Respondent For Appellant(s) : Ms. Parinitoo JainFor Respondent(s): HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 25/04/2018 Judgment By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of department as well as cross objection filedby the assessee. Counsel for the appellant framed the following substantialquestions of law:- “i) Whether the findings of the Tribunal areperverse in upholding the findings of the CIT(A) ofdeleting the addition of Rs. 60,70,056/- on accountof suppressed scrap sales which was made on thebasis of material found during the course of surveyu/s 133A and no evidence was given by theassessee to prove the market rate of that period? ii) Whether the findings of the Tribunal areperverse in upholding the findings of the CIT(A) ofdeleting the addition of Rs. 79,82,382/- made onaccount inflated purchases specifically when suchpurchases were not entered in the material inwardregister and goods receipt register? iii) Whether the findings of the Tribunal areperverse in upholding the findings of the CIT(A) ofdeleting the addition of Rs. 1,23,879/- on accountof bogus payment of commission?” While deciding the issue groundwise, the Tribunal has in ground no. 1 covered issue no. 2 by observing as under:- “3.3. We have heard rival contentions, perused thematerial available on record and gone through the ordersof the lower authorities. We find that the ld. CIT (A)while deleting the addition, has discussed the matter indetail and in para 6.5 to 6.13 has observed as under :- “ 6.5. I have perused the assessment order as well asremand report of the AO, submissions made includingjudicial citations given therein and cross reply of theappellant and find that an addition of Rs. 79,82,382/-has been made by the AO on account ofunexplained/inflated purchases. AO has stated in theorder that purchase bills for purchases of HR sheet andLPG sheets from following parties were found to be notcontaining any stamp of sales tax check post, weighmentslips, entries in the material inward register at factorygate and goods receipts register :- M/s. Aggarwal Brothers; M/s. R.K. Steel Trading Corp; M/s. Saurabh Steel Syndicate. 6.5. I have perused the assessment order as well asremand report of the AO, submissions made includingjudicial citations given therein and cross reply of theappellant and find that an addition of Rs. 79,82,382/-has been made by the AO on account ofunexplained/inflated purchases. AO has stated in theorder that purchase bills for purchases of HR sheet andLPG sheets from following parties were found to be notcontaining any stamp of sales tax check post, weighmentslips, entries in the material inward register at factorygate and goods receipts register :- M/s. Aggarwal Brothers; M/s. R.K. Steel Trading Corp; M/s. Saurabh Steel Syndicate. 6.6. The quantum of purchases made from these threeparties during the period under consideration total uptoRs. 79,82,382. During the course of survey operation u/s133A of the IT Act at the business premises on22.11.2004, these discrepancies were noted and astatement of the director of the company was alsorecorded in which he could not satisfactorily explain thereasons for the same. AO has accordingly held that allthe purchases made from these three parties during theyear under consideration are bogus and inflated. 6.7. Theappellant has stated that issue of inflation of purchasesfrom these parties alongwith certain other parties hasalready been considered in case of the appellant by theCIT (A) & Hon’ble ITAT for various years between 1999-2000 to 2005-06. It is submitted that Hon’ble ITAT hasalready accepted the purchases made from two partiesas genuine purchases, while passing the order in thecase of the appellant for AY 1999-2000 & 2001-02. Acopy of the orders has been filed on record. It issubmitted that in the case of M/s. Saurabh SteelSyndicate, purchases have been made in FY 1997-98only and all the payments have been made throughaccount payee cheques. 6.8. It is submitted that theemployees of the assessee have categorically stated thatthey do not remember exactly and can confirm only afterseeing the records whether purchases have been madefrom these parties or not. Further copy of ledgeraccounts of these parties will clearly reveal that payments have been made to these parties againstpurchases. In this respect, it is further submitted thatduring the course of proceedings for AY 2001-02 to2004-05 representatives of these parties appearedbefore the AO and have confirmed the transactions. Asregards the documentary lapses noted by AO that certainweighment slips, builties etc are missing these arematters of internal control and do not prove that thepurchases made are bad. The documents do not formpart of the books of accounts and thus non availability ofthe same, that too in few cases/few instances cannotconclude the purchases to be bogus. payments have been made to these parties againstpurchases. In this respect, it is further submitted thatduring the course of proceedings for AY 2001-02 to2004-05 representatives of these parties appearedbefore the AO and have confirmed the transactions. Asregards the documentary lapses noted by AO that certainweighment slips, builties etc are missing these arematters of internal control and do not prove that thepurchases made are bad. The documents do not formpart of the books of accounts and thus non availability ofthe same, that too in few cases/few instances cannotconclude the purchases to be bogus. 6.9. the appellant has submitted the details of Banksthrough which the payments have been made/encashedto/by these parties. The appellant has further requestedthe AO to issue the summons to these parties, if anyfurther investigation from these parties is required. It issubmitted that it did not have dealings with these partiessince last 4-5 years and without purchases &consumption of material, it was not feasible for thecompany to produce the desired quantity of cylinders. Itis submitted that copies of bills of Agarwal Bros.impounded with AO may kindly be seen and it would befound that each bill is supported with stores receipt cumInspection report. Each bill has the stamp of gate entrywith proper gate entry number and stamp of storesdepartment with proper serial number of entry in GRR.Each voucher has been supported with the signature ofperson who verified the inspection report, storing in-charge, signature of person who has prepared StoresReceipt Cum Inspection Report. Each bill contains salestax number and truck number, by which the goods weredispatched. There is no infirmity of any kind in thesebills. 6.10. It is submitted that copies of purchase billsalong with relevant details were filed before the AO. Thepayments for all the purchases made from these partieswere made through account payee cheques. These factshave been confirmed by the AO in the order but additionhas been made by following the orders passed in thelater years. The purchases from the said party has beendoubted by stating that though purchases have beenrecorded in books of accounts but the same are notfound to be entered in material inward register andgoods receipt register and the weighment slip is notattached. It is submitted that a similar issue arose inother assessment years :- Agarwal Brothers – Purchases accepted by ITAT in orderfor A.Y. 1999-00 M/s. R.K. Steel Trading Corp. Purchases accepted by ITATin order for A.Y. 2001-02. 6.11. The appellant has stated that since purchases fromall these parties have been considered as genuine byHon’ble ITAT it is requested that addition made by the AOmay be deleted. It is further stated that appellant ismanufacturing a highly regulated product which ismonitored by various government entities. The yield ofproduction in the year under consideration is similar to that in earlier and later years, and thus by no means itcan be concluded that the assessee has inflatedpurchases. Agarwal Brothers – Purchases accepted by ITAT in orderfor A.Y. 1999-00 M/s. R.K. Steel Trading Corp. Purchases accepted by ITATin order for A.Y. 2001-02. 6.11. The appellant has stated that since purchases fromall these parties have been considered as genuine byHon’ble ITAT it is requested that addition made by the AOmay be deleted. It is further stated that appellant ismanufacturing a highly regulated product which ismonitored by various government entities. The yield ofproduction in the year under consideration is similar to that in earlier and later years, and thus by no means itcan be concluded that the assessee has inflatedpurchases. 6.12. Having considered the detailed submissions madein this regard, I find that AO has in the remand reportreiterated the reasons given in the assessment order andhas not been able to bring on record any evidence tohold that purchases made from these parties are inflated& bogus. The fact that all the payments for the materialpurchased have been made through the banking channelagainst the receipt of bills, the yield in the productionprocess, no. of cylinders manufactured, etc. have notbeen disputed by the AO. Further, I find that purchasesmade by the appellant from two parties namely – M/s.Agarwal Brothers and M/s. R.K. Steel Trading Corp. in thepreceding year and succeeding year from these partieshave been held to be genuine by the Hon’ble ITAT for AY2001-02 vide order dated 09.09.2011 in ITA No.9/JP/2011 & for AY 1999-2000 vide order dated26.10.2007 in ITA No. 560/JP/2007 & ITA No.513/JP/2007. However, as regards the purchases madefrom M/s. Saurabh Steel Syndicate are concerned, thesame facts are prevailing in this case also as thepayments were duly made through the bank accountafter receipt of bills and a copy of the ledger accountshowing all these details has been filed on record.Therefore, the contention of the appellant with regard topurchases of Rs. 30,85,511/- made from this partyduring the period under consideration, is found to be inorder, in the absence of any material to the contraryavailable on record. 6.13. Thus, in view of the above discussion and in theabsence of any material/evidence to the contraryavailable on record, I hold that there is no justification onthe part of the AO to treat the purchases from theseparties as inflated/not genuine. Accordingly, I delete theaddition of Rs. 79,82,382/- made by the AO under thishead.” After going through the above observations of the ld. CIT(A), we find no infirmity in the order of ld. CIT (A), whofollowing the decisions of the Tribunal, had deleted theaddition. The order of ld. CIT (A) is upheld. The groundof the revenue is rejected. The question no. 1 which has been raised by the departmentis regarding Section 133A, the Tribunal while considering the samehas relied upon earlier decision and reproduced the finding ofCIT(A) which reads as under:- 5.2. We have heard rival contentions, perused thematerial on record and gone through the orders of theauthorities below. We find that the ld. CIT (A) haddeleted the additions by observing in para 7.5 to 7.12 ofhis order as under:- After going through the above observations of the ld. CIT(A), we find no infirmity in the order of ld. CIT (A), whofollowing the decisions of the Tribunal, had deleted theaddition. The order of ld. CIT (A) is upheld. The groundof the revenue is rejected. The question no. 1 which has been raised by the departmentis regarding Section 133A, the Tribunal while considering the samehas relied upon earlier decision and reproduced the finding ofCIT(A) which reads as under:- 5.2. We have heard rival contentions, perused thematerial on record and gone through the orders of theauthorities below. We find that the ld. CIT (A) haddeleted the additions by observing in para 7.5 to 7.12 ofhis order as under:- 7.5. I have perused the assessment order as well asremand report of the AO, submissions made includingjudicial citations given therein and cross reply of theappellant and find that an addition of Rs.60,70,056/- hasbeen made by the AO on account of suppression of saleof scrap. During the course of survey conducted on22.11.2004 at the premises of the appellant, loosepapers were found which revealed that scrap was beingsold by the appellant @ Rs.5800 per MT as per the billsraised as against the market rate of Rs.10,700 per MTand excess cash was received out of the books. Followingthe same logic, AO has worked out 45% of concealmentover the billed amount declared by the Appellant. AO hasaccordingly worked out the gross amount of scrap salesgenerated out of the books by extrapolating the figureshown in the books of accounts on account of scrap sale.AO has on the same basis worked out the excess cashreceived out of the books would be Rs.60,70,056 onaccount of scrap sales of 1238.787 MT during the yearunder consideration. 7.6. AO has also made an addition of Rs.123879 onaccount of commission payments on sale of scrap debitedto the P&L A/c. This payment of commission was claimedby the appellant as having paid @ Rs.100 per MT to thebroker. AO has held that all the scrap sale was madedirectly to the buyers and therefore disallowance ofRs.123879 on account of commission on scrap sale hasbeen made. 7.7. The appellant has stated that certain paperspertaining to AY 2004-05 & 2005-06 on account of saleof scrap were found and the income stated therein wassurrendered and offered for taxation. However, no suchpapers or other evidence pertaining to receipt of scrapvalue outside the books of accounts were found and alsono evidence has been placed on record by the AO beforemaking the addition. The addition made on this accountis not justified as complete production records relating toreceipt of raw material, number of cylindersmanufactured, generation of scrap, etc. Are under thesupervision of Excise authorities. 7.8. It is further stated that AO was not justified inmaking an addition on this account after extrapolatingthe figures of scrap generation and AO has adopted thesame rate of sale of scrap which has been used in AY2004-05. Therefore, the addition made on this accountmay by deleted in the absence of any evidence. Theappellant has placed reliance on a number of decisions ofvarious courts to substantiate its arguments. 7.9. I have gone through the material available on recordand find that addition has been made by the AO on thebasis of extrapolation of the figures quantified on accountof papers found pertaining to some other period duringthe course of survey operation at the premises of theappellant. The additions made by the AO on account ofscrap sale were based on the papers found which pertainto AY 2004-05 & 2005- 06. AO has not brought on recordany other material or conducted any enquiry to establishthe receipt of money out of the books on account of saleof scrap in this year. 7.9. I have gone through the material available on recordand find that addition has been made by the AO on thebasis of extrapolation of the figures quantified on accountof papers found pertaining to some other period duringthe course of survey operation at the premises of theappellant. The additions made by the AO on account ofscrap sale were based on the papers found which pertainto AY 2004-05 & 2005- 06. AO has not brought on recordany other material or conducted any enquiry to establishthe receipt of money out of the books on account of saleof scrap in this year. 7.10. Therefore, considering all these facts and in theabsence of any evidence of scrap generation having beensold out of the books at higher rates, I hold that there isno justification on the part of the AO in making anaddition on imaginative basis. Accordingly, I delete theaddition of Rs.60,70,056 made by the AO under thishead. 7.11. However, as regards the claim of commission paidon scrap sales @Rs.100 PMT is concerned, the appellanthas in the course of appellate proceedings stated thatallegation of bogus payment is based on presumptions.The complete details of payment made by cheques werefiled before the AO. It is further stated that similaraddition has been deleted by the Hon’ble ITAT in theother years. 7.12. Having considered the submissions made on thisissue, I find that this issue has been considered by theHon’ble ITAT in the case of the appellant for AY 1999-2000, wherein the disallowance made by the AO on thisaccount was deleted by order dated 26.10.2007 in ITANo.560/JP/2007. Respectfully following the same, asthere is no change in the facts in this year and AO hasnot brought on record any other adverse material on thisissue, I delete the addition of Rs.1,23,879/- made by theAO on this account.” We find that the ld. CIT (A) after taking intoconsideration various aspects of the matter and alsofollowing the decision of the Tribunal in the assessee’sown case for the assessment year 1999-2000, deletedthe addition. We find no reason to interfere into the orderof ld. CIT (A), the same is hereby affirmed. The groundsof the revenue are rejected.” While considering the issue no. 3 regarding bogus payment of commission, the Tribunal has relied on earlier decision and heldas under:- “6. Now, take up the appeal of the revenue in ITA No.717/JP/2016 pertaining to assessment year 2000-01. Therevenue has raised the following grounds : 1. That the ld.CIT (A) has erred on the facts & circumstances of thecase in deleting the addition made by the AO on account of inflation of purchases for Rs. 1,67,07,740/-. 2. That theld. CIT (A) has erred on the facts & circumstances of thecase in deleting the disallowance made by the AO onaccount of suppression of scrap sales for Rs.1,12,58,527/-. 7. We have heard rival contentions,perused the material on record and gone through theorders of the authorities below. Both the parties haveadvanced the similar arguments as made for theassessment year 1998-99. We have adjudicated theidentical grounds in the appeal of the revenue in ITA No.716/JP/2016 herein above. Since there is no change inthe facts and circumstances for the assessment yearunder consideration, we affirm the order of ld. CIT(Appeals) who had rightly deleted the additions byfollowing the decisions of the Tribunal in the assessee’sown case for the A.Y. 1999-2000. The grounds of therevenue are rejected.” We are in complete agreement with the view taken by theTribunal, no substantial question of law arises. Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/85