Z V Steel P.Ltd, Mumbai vs Assessee

The above titled appeals relevant to assessment years 2008-09 & 2009- 10 have been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] both dated 01.08.2014. Since the facts and issue involved therein are identical in nature, hence the same are taken together for disposal with this common order. For the sake of convenience the facts have been taken from ITA No.6091/M/2014 for A.Y. 2008-09.

ITA No.6091/M/2014 for A.Y. 2008-09 2. The assessee has taken the following grounds of appeal:

"1. Upholding the validity of the re-assessment order u/s 143(3)/147 2 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

despite the fact that the assessment was completed u/s 143(1), that the primary information concerning the re-assessment was already on record as mentioned by the AO himself at para 3 of the re-assessment order, and that no new information was received by the AO.

2. Upholding the addition of Rs.1,15,63,283/- as bogus purchases made from All Steels,

i. merely on the grounds that the said information about bogus purchases was given by Sales Tax authorities, without the AO making any independent enquiry.

ii. without disclosing the contents of the information passed on by the Sales Tax authorities thereby denying the assessee the right to challenge this information.

iii. merely on the alleged admission made by these 3 parties to the Sales Tax authorities that they were in the business of giving accommodation bills, without giving the assessee an opportunity to cross-examine these parties.

iv. despite the fact that the assessee had requested the AO to issue summons to these parties for verification, for which the parties' new address was also given.

v. without considering that all purchases were made by cheques, which were reflected in the bank statements.

vi. merely because All Steels, in their bills to the assessee mentioned by the Ld CIT(A) at para 4.3 of the appellate order, have left some columns blank, did not mention the name of the broker, and the bills were issued in a chronological order, and without asking Ali Steels why these columns have been left blank.

vii. Without considering that the assessee had produced all necessary details such as Ledger accounts, copies of purchase bills, copies of bank statements of Union Bank of India evidencing payments to these parties, copy of bills of the transporter Manoj Transport along with bank statement, monthly quantitative statements and inventory of closing stock.

viii. Merely because there is no mention of stock register in the Tax Audit Report ignoring that quantitative details of stocks was given in the Tax Audit Report as well as in the notes to the audited financial statements and all the basic details that go into the stock register were submitted in the to the AO, as mentioned in para 4.1 of the 3 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

appellate order.

ix. although the sales made from these purchases were accepted by the AO along with the profit declared thereon.

x. without even attempting to discuss the judgments of different Courts and Tribunals that the assessee relied upon."

3. A perusal of the above grounds of appeal reveals that the assessee has raised two issues: (i) agitating the reopening of the assessment under section 147 of the Income Tax Act, (ii) agitating the addition of Rs.1,15,63,283/- made by the Assessing Officer (hereinafter referred to as the AO) on account of bogus purchases.

4. The brief facts of the case are that the assessee is a wholesale dealer of CRCA coils. During the year under consideration, the assessee had purchased goods from various parties and also sold the goods to various parties. The aggregate value of the purchases made during the year was at Rs.37,88,51,683/- which inter-alia included purchases from a supplier named M/s. Ali Steel of an aggregate value of Rs.1,15,63,283/-. The return of income filed by the assessee for the year under consideration was processed under section 143(1) of the Act. Subsequently, information was received from the office of DGIT (investigation) that the sale tax department has informed that the assessee had made bogus purchases from M/s. Ali Steels which was a hawala dealer. Thereafter, a survey section 133 of the Act was conducted at the premises of the assessee on 13.12.2012. In the course of survey proceedings, it was found that the assessee company has entered into transactions with the parties who according to sales tax department used to issue bogus bills and did not supply the material. The alleged bogus dealers even did not pay any VAT on the sales made to the assessee. The AO therefore recorded the reasons that the income arising from the purchases 4 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

shown by the assessee in the name of three parties namely M/s. Ali Steels, M/s. Ruby Steels & M/s. Sandeep Enterprises had escaped assessment. The assessment was thus reopened by way of issuing notice under section 148 of the Act.

5. We find from the assessment order that it has been specifically mentioned in para 4.1 of the assessment order that the assessee was duly provided the copy of reasons recorded for issuance of notice under section 148 of the Act on 16.04.2013. In para 4.2 of the assessment order, it has also been mentioned that the AO had specifically asked the A.R. of the assessee whether he has any objection for issuance of notice under section 148 of the Act, and in reply to that the Ld. A.R. has stated that he was not taking any objection in relation to reopening of the assessment under section 147 of the Act. Thereafter, a notice under section 142(1) was issued to the assessee to furnish the required details. In this case, a specific information was received by the Income Tax Authorities that certain parties were engaged in issuing bogus bills for the supply of material. During the survey action, the assessee was found to have made purchases from the said parties. There were certain discrepancies noted by the AO in the bills. The AO therefore, had reasons to believe that the income of the assessee relating to the purchases made from the above three parties had escaped assessment. Moreover, as stated above, the assessee had not raised any objection relating to reopening of the assessment during the assessment proceedings. We, therefore do not find any infirmity in the order of the Ld. CIT(A) in upholding the action of the AO for reopening of the assessment under section 147 of the Act. This issue is accordingly decided against the assessee.

6. The second issue is relating to the addition made in the hands of the assessee on account of bogus purchases. During the assessment proceedings 5 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

under section 147 of the Act, the assessee provided evidences to prove the genuineness of the purchase transactions including the details of the sales made and certificate from Union Bank of India confirming payment made to M/s. Ali Steels as well as to the M/s. Manoj Transport. The AO, however, held the purchases as bogus on the following grounds:

"a) The assessee has failed and neglected to bring on record the relevant documentary evidence in the form of goods receipt note, details of payment made with supporting documentary evidence, details of transportation of and documentary evidence reflecting the relevant entries of having received such goods and having consumed.

b) That the assessee did not make any request for cross examination.

c) The assessee has also not produced its Stock Register.

d) The assessee has also failed to produce any satisfactory evidence to show actual purchase of material, its transportation and consumption details."

Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

7. The Ld. CIT(A), however, observed that there were certain discrepancies/blank columns in the invoices relating to the purchases made by the assessee from M/s. Ali Steels. He further observed that the assessee had not produced the stock register during the assessment proceedings and that the alleged suppliers of the material had admitted before the Sales Tax Authorities that they were in the business of giving accommodating bills. He therefore upheld the additions made by the AO on account of bogus purchases. Aggrieved by the order of the Ld. CIT(A) the assessee has come in appeal before us.

8. The Ld. A.R. of the assessee, before us, has submitted that the statement if any, made by the M/s. Ali Steels was made before the Sales Tax Authorities no such statement had been recorded in this respect by the Income Tax 6 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

Authorities. The assessee was not given opportunity to confront the said persons by way of cross examination. The assessee had specifically requested the AO to issue summons to the said parties for verifications. All the payments were made through cheques which were reflected in the bank statements of the respective parties. Merely because certain columns in the invoices were left blank by the M/s. Ali Steels that itself was not enough to hold the purchases as bogus. The assessee had produced all the details such as ledger accounts, copies of purchase bills, copies of bank statements, copies of bills of transporter along with bank statement, monthly quantitative statements and inventory of closing stock. The Ld. A.R. has further submitted that the quantitative details of the stocks were given in the audit report as well as in the notes to the audited financial statement and therefore all the basic details that go into the stock register were duly submitted before the AO. He has further contended that even the sales made from these purchases and the profit thereupon was accepted by the AO. He has also relied upon the decision of the Hon'ble Bombay High Court in the case of "CIT v. M/s. Nikunj Eximp Enterprises Pvt. Ltd." ITA No.5604 of 2010 decided on 17.12.2012 and further of the Hon'ble Calcutta High Court in the case of "Diagnostics v. CIT" (2012) 20 taxmann.com 692 (Cal.).

The Ld. D.R. on the other hand, has relied upon the findings of the lower authorities.

9. We have considered the rival submissions. We find that the additions in this case have been made on the ground of information received from investigation wing that certain parties had been indulging in bogus billing. However, the assessee has contended that during the survey action conducted at the premises of the assessee, no incriminating evidence was found against the assessee. The assessee had made all the purchases through banking 7 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

channel. The assessee has further contended that the copies of the invoices even the bills of the transporter and the evidences of the payment made including bank statements of the respective parties had been produced before the AO. He has further contended that the assessee had also produced the monthly quantitative statements of the stock. No discrepancy in stock was found during the survey action. The Ld. A.R. of the assessee has also produced before us the comparative statement of sales, gross profit and net profit from A.Y. 2005-06 to A.Y. 2009-10. A perusal of the said statement shows that the gross profit of the assessee for the assessment year under consideration has increased to 4.23% of sales from that of 2.54% for the immediately preceding year 2007-08. The gross profits for the subsequent year has been shown of 3.23%. The gross profit for the A.Y. 2008-09 & A.Y. 2009-10 are more than that of the earlier three assessment years. The net profit for the year under consideration has also increased to 0.447% of the sales from that of 0.385% declared for the previous assessment year. The net profit has also been declared at the same rate for the subsequent year also. So far the question of purchases is concerned, there is corresponding increase in sales also. The Ld. A.R. has, thus, contended that under the such circumstances, the assessee has successfully discharged its burden to prove the genuineness of the purchases made. He has further brought our attention to the decision of the Hon'ble Gujarat High Court in the case of "CIT vs. M.K. Brothers" (1987) 163 ITR 249 wherein it has been held that where there was nothing to indicate that the amount given by the assessee for the purchases made had come back to the assessee in any other form and where there was no evidence that the said concerns gave bogus vouchers to the assessee and even the statements made by the alleged suppliers in no way implicate the transaction with the assessee then under such circumstances it cannot be said that entries for the purchase of 8 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

goods made in the books of account of the assessee were bogus and no addition in this respect can be made.

10. We agree with the contention of the Ld. A.R. that solely on the basis of unconfronted and general statements of alleged suppliers made before sales tax authorities, purchases of the assessee can not be held to be bogus. We find that the contention of the assessee that the payments for the purchases were made by cheque which was further confirmed by bank statement of the parties, bills of the transporter supported with proof of payment by way of bank statement, quantitative details of the stock, corresponding sales made, increase in sales, gross profits and net profits and there being no incriminating material or discrepancy in stock found at the time of survey have not been examined by the AO. The matter is therefore restored to the file of the AO for the purpose of verification of the above documents and if the above contentions of the assessee are found to be correct from the evidences submitted, the additions in this case on account of bogus purchases will not be warranted. Needless to say that AO will give proper opportunity to the assessee to present its case.

ITA No.6092/M/2014 for A.Y. 2009-10 11. In the appeal, the assessee has agitated the addition of Rs.4,31,48,505/- on account of bogus purchases made from the three parties as mentioned above. Since the facts and issue under consideration are identical in nature for this year also, hence, in view of our observations made above, this issue is also restored to the file of the AO for verification of the evidence as discussed above and to decide accordingly.

9 ITA Nos.6091 & 6092/M/2014 M/s. ZV Steel Pvt. Ltd.

12. In the result, both the appeals of the assessee are hereby allowed for statistical purposes.

Order pronounced in the open court on 27.05.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 27.05.2015. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.