KABRA BROTHERS,KOLKATA vs. ACIT, CIRCLE - 35, KOLKATA, KOLKATA

1. This is an appeal filed by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 10-03-2017 for the assessment year 2012-13.

Assessee’s appeal is time barred by 80 days and condonation petition has been filed. After hearing both the sides we are of the opinion that the assessee has been prevented by sufficient cause in filing the appeal in time. Hence, we condone the delay and admit the appeal for hearing. 3. Though the assessee has preferred five grounds of appeal

M/s. Apex Energy Resources Private Ltd. Om 1,57,20,020/- Tower, R No. 302, 32, Jawahar Lal Nehru Road, Kolkata-700 071.

Topaz Impex Inc. 19C, Harish Mukherjee 7,56,00,000/- Road, Kolkata-700 025.

S. K. Trading Corporation, 180, G. T. Road 97,300/- (South), Shibpur, Howrah-711 102 5. M/s. K. G. Hard Coke Manufacture, Mahuda, 1,75,035/- P.O. Rukni, dist. Purulia-723145. Total: 19,40,92,355

Thereafter, the AO reproduced assessee’s reply at para 8 and thereafter he discussed about the sales tax order passed by the West Bengal Govt. and thereafter he states about the notices he tried to serve upon the five parties from which the West Bengal Govt. has alleged that the assessee had indulged in fake purchase. Thereafter, the AO discussed about the queries he raised and the answers given by the assessee and being not satisfied with the assessee’s reply was pleased to reject the books of the assessee u/s. 145(3) of the Act. Thereafter, the AO concludes as under: “18. It is quite pertinent to mention here that for financial year 2010-11 relevant to A.Y. 2011-12, the Assessee has also not gone into appeal against the order of Sales Tax authorities, accepted its mistake (in front of Sales Tax authority, they admitted the said inadmissibility of Input Tax Credit in writing through a letter vide Sales Tax office docket No. 1514 dated 29.11.2012) and paid the tax due voluntarily. 19. The assessee was required to submit evidence in support of genuineness of these transactions; he was also requested to produce suppliers of the goods in question. In reply to the show-cause notice, the assessee mainly relied on the documents in the form of purchase bill payment claimed to have been made by cheque to those parties. The assessee did not produce the suppliers in spite of specific opportunities granted by this office. 19.1. During the Course of Scrutiny proceedings, it just tried to shift the burden on the Revenue by saying that its responsibility came to an end after receiving the goods and after handing over the cheque to the suppliers. Such submissions have been made in complete disregard of the fact that the burden clearly lies on the assessee to prove the genuineness of the transaction. And we know that Again it is also settled fact that - Burden is on Assessee to prove the genuineness of Purchases. Assessee has not discharged his onus. Indian Woolen Carpet Factory v. ITAT (2003) 260 ITR 658 (Raj.) (HC) 20. A show cause notice was given as early as on 26.11.14 and again on 17.03.2015 If the transactions were genuine and if the parties had migrated somewhere else, then burden was on the assessee to prove the genuineness of the transactions, when the assessee claimed that the purchases were genuine. And as discussed earlier, A.R of the assessee clearly stated in a denial mode dated 23.02.2015 that- "In this respect we have to state that presently we have no contact and or transactions with the aforesaid parties and therefore, we could not enforce their appearance before you." 21. Therefore, with regard to genuineness of the transaction regarding purchase of Hard Coke from the parties, the assessee had failed to discharge the onus to prove the genuineness of the transactions, hence it exists; mere denial or helplessness does not prove that transactions were not bogus. 22. It is a well established principle that "Whether where purchases were made from a non-existing seller, same would be held to be bogus even if complete quantitative details of purchase was available in assessee's books of account."

To neutralize the effect of bogus purchases, we find it justified to add back that amount (Bogus Purchase along with proportionate freight Charges incurred) to the income. Hon’ble Allahabad High Court has given similar verdict in the case of "Sri Ganesh Rice Mills v. CIT (2007) 294 ITR 316(All) (HC).

Regarding Bogus Purchase, as per the discussion made above the following addition related to relevant parties ,as mentioned below, to the tune of Rs. 19,40,92,355/- is hereby added to the income of the assessee. Sl. No. Name of the parties Fake Purchase (Rs.) 1 M/s. Apex Energy Resources Private Ltd. Om 1,57,20,020/- Tower, R No. 302, 32, Jawahar Lal Nehru Road, Kolkata-700 071. 2 M/s. Butterfly Sales Pvt. Ltd. 63, Radha 10,25,00,000/- Bazar Street, 3rd floor, R. No. 45, Kolkata-700 001. 3 Topaz Impex Inc. 19C, Harish Mukherjee 7,56,00,000/- Road, Kolkata-700 025. 4 S. K. Trading Corporation, 180, G. T. Road 97,300/- (South), Shibpur, Howrah-711 102 5 M/s. K. G. Hard Coke Manufacture, Mahuda, 1,75,035/- P.O. Rukni, dist. Purulia-723145. Total: 19,40,92,355 Thereafter, the AO has disallowed the consequent claim of expenses incurred towards freight charges on these purchases by holding as under:

Assailing the decision of the Ld. CIT(A) the Ld. AR of the assessee submitted that the assessee is a wholesale dealer in different qualities of coal and coke. According to Ld. AR, the AO took upon the investigation on a wrong footing wherein he alleged that assessee has declared bogus sales and asked the assessee to explain the bogus sale. However, according to the Ld. AR, the information received from the West Bengal Govt. was that the assessee had made some bogus purchases and not sales. According to the Ld. AR, the five parties referred to by the AO and Sales Tax Department are old creditors/suppliers of the assessee and that he has been purchasing goods from them in earlier years also. According to the Ld. AR, the assessee conducts two types of business in respect of coal and coke business. One business is that, it imports coal and thereafter it is sold to the customers and the second business is that assessee takes order from the ultimate purchasers and in turn places order to the coal suppliers who will directly supply the goods to the ultimate purchaser the coal. The coal supplies after delivery of the coal raises the bill on the assessee and the assessee in turn made payments. Thereafter the assessee also raises corresponding bills on the ultimate purchasers and received payments. That item to item reconciliation of goods delivered can be seen from pages 84 and 108 of the paper book. He drew our attention to the bills of Butterfly Sales Pvt. Ltd. on the assessee (available at pages 84 to 95 of PB) and the assessee’s bill on the ultimate purchaser M/s. Wellman Coke India Ltd. which is placed at pages 96 to 108 of PB wherein the quantity, challan no., weight and the truck no. tallies item-wise. It was argued by the ld. AR that the assessee was only an intermediary in the sale of coal, by placing order with the suppliers, for supply to the ultimate purchaser. According to the Ld. AR, the stock register for each quality of coal and coke is maintained and that each purchase is correlated with each sale and shows that the goods were directly delivered by the seller to the ultimate purchaser of Kabra Brothers, AY- 2012-13 coal. Stock details are available at pages 140-167 of PB. The AO had alleged that in the freight bills of M/s. K. G. Hardcoke Manufactures the name of the driver was generally mentioned as Sharma which according to AO, is impossible, considering the huge quantity of coal and coke and distance of work. The ld. AR clarified that ‘Sharma’ was actually the sardar of the drivers who collected the payments on behalf of the drivers and has disbursed their payments. In order to show the veracity of this submission the Ld. AR drew our attention to the details of registration of each truck recorded in the very same list, which has been downloaded from the RTO and it reveals that the truck owners are different, which is revealed from paper book pages 275 to 290. The AO alleged that notices u/s. 133(6) of the Act were issued to four parties (except M/s. K.G. Hardcoke Manufacturers) but the notice server could not serve it and thereafter Inspector was deputed to serve the notice on four parties and that he reported that the parties were not available at the given addresses. According to AO, the bill appears to be fake since there was suffixation of AB etc. which is not a general practice and that the invoices were computer generated and not original and the challan numbers were not mentioned and order no. also not mentioned. Rebutting the allegation of the AO, the Ld. AR submitted that the AO did not issue any notice by Post and that when the notice was sent by the Speed Post which is seen from page 291 of paper book, the party appeared and it revealed that the truck was in the name of M/s. K G. Hardcoke Manufacturers. Therefore, according to AO, no reliance can be placed on the report of the Inspector. He submits that notices should have been first sent by Post. The Ld. AR submitted that the Sales Tax Department has made adverse view against the assessee only in respect of the claim of ITC for Rs.60,53,434/- since the dealer has failed to reconcile the mismatch of ITC, mainly on the ground of quoting the wrong vehicle no. in some cases. He drew our attention the order of the West Bengal Commercial Tax Appellate & Revisional Board (No. 1610 of 2016-17) dated 28.02.2017 wherein assessee got partial redressal in its appeal. According to Ld. AR, when the assessee was doing the second type of business which was that of an intermediary, it should be noted that the goods were dispatched by the sellers to the ultimate buyers and if they

We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 8. The basic premise on which the addition is made i.e., that the assessee has accepted the findings of the Sales Tax Authorities, is wrong. The ld. Counsel for the Kabra Brothers, AY- 2012-13 assessee filed before us an order of the West Bengal Commercial Taxes Appellate & Revisional Board, in the case of M/s. Kabra Brothers vs. Sr. Joint Commissioner, Sales Tax, Burrabazar Circle in Revision (VAT) Case No. 1610 of 2016-17, order dt. February 28th, 2017, where part relief was given to the assessee. A perusal of this order takes us to a conclusion that the allegation was of quoting of wrong vehicle nos. in some cases and not that the purchases were bogus etc. At para 4 of this order the mis-match on account of reconciliation was only Rs.16,69,151/-. The allegation of the sales tax department in this case was that on the basis of test checking. They had found that the numbers of vehicles used by the party are non-transport vehicles. It is not a case of the sales tax department finding tht the purchases and consequent sales were bogus in nature. 8.1. Under these circumstances, we examine the contention of the rival parties. 8.2. In the case on hand, the additions/disallowances made, relate to the business of the assessee, wherein, the assessee takes order from the ultimate purchaser of coal and in turn places orders from the suppliers. The suppliers directly supply to the ultimate purchasers and after such supply they raise bills on the assessee. hence the assessee acts as an intermediary in these purchases and sales. The assessee in turn raises bills on the ultimate purchasers. This fact is clear on examination of pages 96 to 108 of the paper book. Similarly, details in the case of other suppliers are also filed. Date-wise, truck-wise, challan-wise details of the supply has been given by way of annexures to the bills. Full details of the purchases and sales and ledger copies of the parties have been filed. It is also a fact that these five (5) parties have supplied goods to the assessee in the earlier years also. The assessee has outstanding balances payable to some of them. Stock registers are maintained and the purchases are co-related with the sales. In this type of business, if the purchase is held to be bogus then as a logical consequence, the sale also has to be held as bogus. When the Assessing Officer believes all the sales and hold the same as genuine sales, we see no reason to come to a conclusion that the purchases are fake or bogus.

Under these circumstances, we see no reason to come to a conclusion that the purchases in this case of an intermediary are fake or bogus. We find that all the parties in question are registered with the VAT Authorities and that payments have been made through cheques. Except for the fact that the assessee could not be found by the Inspector of the Income Tax Department for service of notice and the mention by the Sales tax Authorities that there is mis-match in the numbers of trucks and that some are non-transport trucks, the revenue has no evidence whatsoever to support this disallowance. When one to one reconciliation of purchase and sales is made by the Kabra Brothers, AY- 2012-13 assessee, no disallowance can be made. Quantitative reconciliation of stock is not challenged by the Revenue. Hence, in view of the above discussion, we delete the addition made on account of bogus purchases. Consequently, the disallowance made on account of transport payments are also deleted.

Ground No. 4 is against the rejection of the books of the accounts by the Assessing Officer. We find that the Assessing Officer at para 23 of his order rejected the books of accounts for the sole reason that he came to the conclusion that the purchases were bogus. As we have held otherwise, the rejection of books of accounts by the Assessing Officer is bad in law. Even otherwise, we find that though the Assessing Officer rejected the books of accounts, the entire assessment has been based on these very books of accounts only. Thus we allow Ground No. 4 of the assessee.

Accordingly, Ground Nos. 2, 3 & 4 are allowed. Ground Nos. 1 & 5 are general in nature.

Before parting, it is noted that the order is being pronounced after ninety (90) days of hearing. However, taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, I rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited in & 6103/Mum/2018, Assessment Year 2013-14, order dt. 14th May, 2020.

In the result, appeal of the assessee is allowed.