PR COMMISSIONER OF INCOME TAX ALWAR vs. MS SUPREME CYLINDERS PVT LTD

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 Jain For Respondent(s) : HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 25/04/2018 By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of department as well as cross objection filed by the assessee. Counsel for the appellant framed the following substantial questions of law:- “i) Whether the findings of the Tribunal are perverse in upholding the findings of the CIT(A) of deleting the addition of Rs. 60,70,056/- on account of suppressed scrap sales which was made on the basis of material found during the course of survey u/s 133A and no evidence was given by the assessee to prove the market rate of that period? ii) Whether the findings of the Tribunal are perverse in upholding the findings of the CIT(A) of deleting the addition of Rs. 79,82,382/- made on account inflated purchases specifically when such purchases were not entered in the material inward register and goods receipt register?

(2 of 7) [ITA-76/2018] iii) Whether the findings of the Tribunal are perverse in upholding the findings of the CIT(A) of deleting the addition of Rs. 1,23,879/- on account of 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 the material available on record and gone through the orders of the lower authorities. We find that the ld. CIT (A) while deleting the addition, has discussed the matter in detail and in para 6.5 to 6.13 has observed as under :- “ 6.5. I have perused the assessment order as well as remand report of the AO, submissions made including judicial citations given therein and cross reply of the appellant and find that an addition of Rs. 79,82,382/- has been made by the AO on account of unexplained/inflated purchases. AO has stated in the order that purchase bills for purchases of HR sheet and LPG sheets from following parties were found to be not containing any stamp of sales tax check post, weighment slips, entries in the material inward register at factory gate 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 three parties during the period under consideration total upto Rs. 79,82,382. During the course of survey operation u/s 133A of the IT Act at the business premises on 22.11.2004, these discrepancies were noted and a statement of the director of the company was also recorded in which he could not satisfactorily explain the reasons for the same. AO has accordingly held that all the purchases made from these three parties during the year under consideration are bogus and inflated. 6.7. The appellant has stated that issue of inflation of purchases from these parties alongwith certain other parties has already been considered in case of the appellant by the CIT (A) & Hon’ble ITAT for various years between 1999- 2000 to 2005-06. It is submitted that Hon’ble ITAT has already accepted the purchases made from two parties as genuine purchases, while passing the order in the case of the appellant for AY 1999-2000 & 2001-02. A copy of the orders has been filed on record. It is submitted that in the case of M/s. Saurabh Steel Syndicate, purchases have been made in FY 1997-98 only and all the payments have been made through account payee cheques. 6.8. It is submitted that the employees of the assessee have categorically stated that they do not remember exactly and can confirm only after seeing the records whether purchases have been made from these parties or not. Further copy of ledger accounts of these parties will clearly reveal that

(3 of 7) [ITA-76/2018] payments have been made to these parties against purchases. In this respect, it is further submitted that during the course of proceedings for AY 2001-02 to 2004-05 representatives of these parties appeared before the AO and have confirmed the transactions. As regards the documentary lapses noted by AO that certain weighment slips, builties etc are missing these are matters of internal control and do not prove that the purchases made are bad. The documents do not form part of the books of accounts and thus non availability of the same, that too in few cases/few instances cannot conclude the purchases to be bogus. 6.9. the appellant has submitted the details of Banks through which the payments have been made/encashed to/by these parties. The appellant has further requested the AO to issue the summons to these parties, if any further investigation from these parties is required. It is submitted that it did not have dealings with these parties since last 4-5 years and without purchases & consumption of material, it was not feasible for the company to produce the desired quantity of cylinders. It is submitted that copies of bills of Agarwal Bros. impounded with AO may kindly be seen and it would be found that each bill is supported with stores receipt cum Inspection report. Each bill has the stamp of gate entry with proper gate entry number and stamp of stores department with proper serial number of entry in GRR. Each voucher has been supported with the signature of person who verified the inspection report, storing in- charge, signature of person who has prepared Stores Receipt Cum Inspection Report. Each bill contains sales tax number and truck number, by which the goods were dispatched. There is no infirmity of any kind in these bills. 6.10. It is submitted that copies of purchase bills along with relevant details were filed before the AO. The payments for all the purchases made from these parties were made through account payee cheques. These facts have been confirmed by the AO in the order but addition has been made by following the orders passed in the later years. The purchases from the said party has been doubted by stating that though purchases have been recorded in books of accounts but the same are not found to be entered in material inward register and goods receipt register and the weighment slip is not attached. It is submitted that a similar issue arose in other assessment years :- Agarwal Brothers – Purchases accepted by ITAT in order for A.Y. 1999-00 M/s. R.K. Steel Trading Corp. Purchases accepted by ITAT in order for A.Y. 2001-02. 6.11. The appellant has stated that since purchases from all these parties have been considered as genuine by Hon’ble ITAT it is requested that addition made by the AO may be deleted. It is further stated that appellant is manufacturing a highly regulated product which is monitored by various government entities. The yield of production in the year under consideration is similar to

(4 of 7) [ITA-76/2018] that in earlier and later years, and thus by no means it can be concluded that the assessee has inflated purchases. 6.12. Having considered the detailed submissions made in this regard, I find that AO has in the remand report reiterated the reasons given in the assessment order and has not been able to bring on record any evidence to hold that purchases made from these parties are inflated & bogus. The fact that all the payments for the material purchased have been made through the banking channel against the receipt of bills, the yield in the production process, no. of cylinders manufactured, etc. have not been disputed by the AO. Further, I find that purchases made by the appellant from two parties namely – M/s. Agarwal Brothers and M/s. R.K. Steel Trading Corp. in the preceding year and succeeding year from these parties have been held to be genuine by the Hon’ble ITAT for AY 2001-02 vide order dated 09.09.2011 in ITA No. 9/JP/2011 & for AY 1999-2000 vide order dated 26.10.2007 in ITA No. 560/JP/2007 & ITA No. 513/JP/2007. However, as regards the purchases made from M/s. Saurabh Steel Syndicate are concerned, the same facts are prevailing in this case also as the payments were duly made through the bank account after receipt of bills and a copy of the ledger account showing all these details has been filed on record. Therefore, the contention of the appellant with regard to purchases of Rs. 30,85,511/- made from this party during the period under consideration, is found to be in order, in the absence of any material to the contrary available on record. 6.13. Thus, in view of the above discussion and in the absence of any material/evidence to the contrary available on record, I hold that there is no justification on the part of the AO to treat the purchases from these parties as inflated/not genuine. Accordingly, I delete the addition of Rs. 79,82,382/- made by the AO under this head.” After going through the above observations of the ld. CIT (A), we find no infirmity in the order of ld. CIT (A), who following the decisions of the Tribunal, had deleted the addition. The order of ld. CIT (A) is upheld. The ground of the revenue is rejected. The question no. 1 which has been raised by the department is regarding Section 133A, the Tribunal while considering the same has relied upon earlier decision and reproduced the finding of CIT(A) which reads as under:-

(5 of 7) [ITA-76/2018] 5.2. We have heard rival contentions, perused the material on record and gone through the orders of the authorities below. We find that the ld. CIT (A) had deleted the additions by observing in para 7.5 to 7.12 of his order as under:- 7.5. I have perused the assessment order as well as remand report of the AO, submissions made including judicial citations given therein and cross reply of the appellant and find that an addition of Rs.60,70,056/- has been made by the AO on account of suppression of sale of scrap. During the course of survey conducted on 22.11.2004 at the premises of the appellant, loose papers were found which revealed that scrap was being sold by the appellant @ Rs.5800 per MT as per the bills raised as against the market rate of Rs.10,700 per MT and excess cash was received out of the books. Following the same logic, AO has worked out 45% of concealment over the billed amount declared by the Appellant. AO has accordingly worked out the gross amount of scrap sales generated out of the books by extrapolating the figure shown in the books of accounts on account of scrap sale. AO has on the same basis worked out the excess cash received out of the books would be Rs.60,70,056 on account of scrap sales of 1238.787 MT during the year under consideration. 7.6. AO has also made an addition of Rs.123879 on account of commission payments on sale of scrap debited to the P&L A/c. This payment of commission was claimed by the appellant as having paid @ Rs.100 per MT to the broker. AO has held that all the scrap sale was made directly to the buyers and therefore disallowance of Rs.123879 on account of commission on scrap sale has been made. 7.7. The appellant has stated that certain papers pertaining to AY 2004-05 & 2005-06 on account of sale of scrap were found and the income stated therein was surrendered and offered for taxation. However, no such papers or other evidence pertaining to receipt of scrap value outside the books of accounts were found and also no evidence has been placed on record by the AO before making the addition. The addition made on this account is not justified as complete production records relating to receipt of raw material, number of cylinders manufactured, generation of scrap, etc. Are under the supervision of Excise authorities. 7.8. It is further stated that AO was not justified in making an addition on this account after extrapolating the figures of scrap generation and AO has adopted the same rate of sale of scrap which has been used in AY 2004-05. Therefore, the addition made on this account may by deleted in the absence of any evidence. The appellant has placed reliance on a number of decisions of various courts to substantiate its arguments.

(6 of 7) [ITA-76/2018] 7.9. I have gone through the material available on record and find that addition has been made by the AO on the basis of extrapolation of the figures quantified on account of papers found pertaining to some other period during the course of survey operation at the premises of the appellant. The additions made by the AO on account of scrap sale were based on the papers found which pertain to AY 2004-05 & 2005- 06. AO has not brought on record any other material or conducted any enquiry to establish the receipt of money out of the books on account of sale of scrap in this year. 7.10. Therefore, considering all these facts and in the absence of any evidence of scrap generation having been sold out of the books at higher rates, I hold that there is no justification on the part of the AO in making an addition on imaginative basis. Accordingly, I delete the addition of Rs.60,70,056 made by the AO under this head. 7.11. However, as regards the claim of commission paid on scrap sales @Rs.100 PMT is concerned, the appellant has in the course of appellate proceedings stated that allegation of bogus payment is based on presumptions. The complete details of payment made by cheques were filed before the AO. It is further stated that similar addition has been deleted by the Hon’ble ITAT in the other years. 7.12. Having considered the submissions made on this issue, I find that this issue has been considered by the Hon’ble ITAT in the case of the appellant for AY 1999- 2000, wherein the disallowance made by the AO on this account was deleted by order dated 26.10.2007 in ITA No.560/JP/2007. Respectfully following the same, as there is no change in the facts in this year and AO has not brought on record any other adverse material on this issue, I delete the addition of Rs.1,23,879/- made by the AO on this account.” We find that the ld. CIT (A) after taking into consideration various aspects of the matter and also following the decision of the Tribunal in the assessee’s own case for the assessment year 1999-2000, deleted the addition. We find no reason to interfere into the order of ld. CIT (A), the same is hereby affirmed. The grounds of the revenue are rejected.” While considering the issue no. 3 regarding bogus payment of commission, the Tribunal has relied on earlier decision and held as under:- “6. Now, take up the appeal of the revenue in ITA No. 717/JP/2016 pertaining to assessment year 2000-01. The revenue has raised the following grounds : 1. That the ld. CIT (A) has erred on the facts & circumstances of the case in deleting the addition made by the AO on account

(7 of 7) [ITA-76/2018] of inflation of purchases for Rs. 1,67,07,740/-. 2. That the ld. CIT (A) has erred on the facts & circumstances of the case in deleting the disallowance made by the AO on account 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 the orders of the authorities below. Both the parties have advanced the similar arguments as made for the assessment year 1998-99. We have adjudicated the identical grounds in the appeal of the revenue in ITA No. 716/JP/2016 herein above. Since there is no change in the facts and circumstances for the assessment year under consideration, we affirm the order of ld. CIT (Appeals) who had rightly deleted the additions by following the decisions of the Tribunal in the assessee’s own case for the A.Y. 1999-2000. The grounds of the revenue are rejected.” We are in complete agreement with the view taken by the Tribunal, no substantial question of law arises. Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/85