ITO, WARD-3(2),KOLKATA,KOLKATA vs. M/S SUPER STAHL INDIA PVT. LTD., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “A” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “A” KOLKATA Before Shri J.Sudhakar Reddy, Accountant Member and Shri S.S.Godara, Judicial Member ITA No.170-171/Kol/2017 Assessment Years: 2009-10 & 2010-11

Income Tax Officer, Ward- M/s Super Stahl India Pvt. बनाम 3(2), Aaykar Bhawan, 4th Ltd., 2, N.C. Dutta Sarani, / 7th Floor, R. No. 7A, Floor, R. No. 17, P-7, V/s. Chowringhee Square, Kolkata-700001 Kolkata-69 [PAN No.AAICS 7531 F] .. अपीलाथ� /Appellant ��यथ� /Respondent

Shri S.M. Surana, Advocate आवेदक क� ओर से/By Assessee Shri C.J.Singh, JCIT-SR-DR राज!व क� ओर से/By Revenue 24-01-2019 सुनवाई क� तार�ख/Date of Hearing 23-04-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- These two Revenue’s appeals for assessment years 2009-10 & 2010-11 arise against the Commissioner of Income Tax (Appeals)-I, Kolkata’s separate orders both dated 03.11.2016 passed in case No.1102/CIT(A)-1/Ward.3(2)/2014-15; respectively involving proceedings u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) as well as assessee’s detailed paper book comprising of its profit and loss account, balance-sheet, tax audit report, quantitative details of both the impugned assessment years, purchase bills, delivery, challans, weighment slips, transport vehicles vouchers, transportation

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 2 charges, bank statements in respect of supplier parties sec. 148 re-assessment its replies, comparative stat of net and gross profits as well as remand report; stand perused.

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 3 d Weighment certificate issued by the Weigh bridge establishment to confirm weight of the goods. e. Bank Statement showing payment to the supplier by a/c payee cheques. f. Transporter's bill for freight charges of the vehicle above referred g. Payment of freight charges to the transporter by a/c payee cheque. h TDS deduction from the freight charges, as applicable and depositing TDS amount i . Stock Register - showing incoming, outgoing and daily stock It was argued that all the above mentioned evidences established that the appellant's purchases were genuine. It was also contended that all the purchase have been recorded in the books of account and their payments made by account payee cheques. Further, that the goods were entered in the daily Stock Register, corresponding sales have been made. In addition, there cannot be sales without purchases and that the appellant's trading results have been accepted by the A.O. If the purchases are not considered, the Gross Profit will shoot up un-believably high, which is not possible in this trade. It was also averred that the Sales Tax Department at Mumbai had started a drive to collect sales tax from the defaulting parties, wherein above parties had denied the transactions altogether to avoid sales tax payment. The Sales Tax Department prepared a list of such parties along with the parties who made purchases from them to the Income tax Department, which was the sole basis for the impugned disallowance as bogus purchase amounting to Rs.73,35,068/-, as unexplained expenditure u/s 69C of the IT. Act. It was further averred that the ITAT, Mumbai on similar facts had deleted the additions made in the cases of the sellers Mumbai Bench-C. in the case of ITO vs. Paresh Arvind Gandhi ITA No.5706/Mum/2013, vide order dated 13.05.2015 has dismissed the department appeal in respect of the purchases made by the assessee from the parties, viz. Bhagwati Trading Company, one of the traders, whose names appeared in the list of alleged "suspicious dealers" prepared by the sales Tax Department, Mumbai for the A.Y 2010-11 under consideration, wherein the purchases made from said Bhagwati Trading Co, have been accepted as genuine by the Hon'ble ITAT, which held as under. " We find that the AO has not doubted the genuineness of the purchase but made me disallowance of Rs.1,37 crores by invoking the provisions of 69C of the, Act. We find that in similar circumstances the Tribunal had deleted the addition made by the AO in the cases relied upon by the AR of the assessee. In the case of Rajiv G . Kalathil (supra) to which one us was party identical issue has been decided as under: “2.4 We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT department. We agree that it was a good starting point for making further investigation and take it to logical end. But he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts off the suppliers to find out as to whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the sites one of the deciding factor to be considered before resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock.

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 4 Therefore, considering the peculiar facts and circumstances of the case under appeal. We are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order the FAA, we decide ground no. 1 against the A.O.” The A,R has also relied upon the decision of the ITAT,B-Bench, Mumbei in its order dated 28.11.2014 in ITA No. 2959/Mum/2014 in the case of Ramesh Kumar & Co. vs ACIT, wherein it was held: “In our considered opinion, the purchases are supported by proper invoices duly reflected in the books of account. The payments have been made by account payee cheques which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee had received cash back from the suppliers. The additions have been made merely on the report of the Sale Tax Department but at the same time cannot be said that purchases are bogus. We therefore set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of, 4,98,80,892/-“ In view of the above discussion and considering the ratio of the cited case laws, I find there is merit in the submissions of the A.R. that the A.O has made the impugned addition of Rs. 73,35,068/- merely on the basis of information from the DGIT(inv), without bringing on record any documentary evidence or adverse finding based on material on record to corroborate the allegation of having made 'bogus purchases' from the above-mentioned five parties, aggregating Rs. 73,35,068/-. Although the appellant had adduced sufficient documentary evidences before the A.O to discharge its initial onus in the form of Purchase Bills, Delivery Challans, Details of vehicle which carried the good, Weighment certificate issued by tile weigh bridge establishment to confirm weight of the goods, Bank Statement showing payment to the supplier by a/e payee cheques. Transporter’s bill for freight charges for vehicles, Payment of freight charges to the transporter by a/c payee cheque; TDS deduction from the freight charges as applicable, and depositing TDS amount, and Stock the onus having shifted to the AO he failed to bring any adverse evidence on record to rebut the presumption of the of the purchases being genuine unless established otherwise. Further, the AO had not find any patent defects in the books of accounts nor rejected the book results which were based on audited accounts. Therefore, the facts of the appellant’s case are found to be covered by the ratio of the ITAT, Mumbai’s decisions in the case of ITO vs. Paresh Arvind Gandhi (supra). In view thereof, I am of the view that the A.O was not justified in treating the impugned amount of Rs. 73,35,068/- as bogus purchases. The A.O is directed to delete the addition of Rs. 73,35,068/-. These grounds are allowed.” 3. We have given our thoughtful consideration to rival contentions. The Revenue vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in treating bogus purchase disallowance(s) in issue as genuine in both the impugned assessment years. It strongly emphasizes the fact that the Maharashtra State Sales Tax / VAT department had found all the parties in issue to have been engaged in giving purchase entries to their respective suppliers. We find no merit in

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 5 Revenue’s instant arguments. This tribunal’s co-ordinate bench’s decision in ITO vs. Paresh Arvind Gandhi in ITA No.5706/Mum/2013 (supra) holds purchase made from most of the parties in issue as genuine in view of the corresponding details submitted at the concerned assessee’s behest. Case file(s) suggest that the department has also not furnished the relevant materials information as well as the alleged admissions if any of the party in issue to the assessee. We further notice that this assessee is engaged in iron and steel trade business. It has filed all the relevant evidence(s) in the nature of purchase bills, delivery challen, weigh bridge certificates, transportation details, cheque payments to suppliers as well as transporters, TDS deduction certificates, stock register, steel bills and bank statement (supra) in support of the impugned purchases claims right from assessment till the instant second appeal proceedings. All the said details have nowhere been rebutted at the Assessing Officer’s end. The Revenue fails to dispute the clinching fact that the assessee’s corresponding sales have already been accepted as correct. We therefore see no reason to restore the impugned bogus purchase disallowance canvassed in Revenue’s former appeal in ITA No.170/Kol/2017 and third substantive ground in latter appeal (supra). Its former appeal ITA No.170/Kol/2017 raising the instant sole issue fails therefore. 4. We now come to Revenue’s first substantive ground in its latter appeal ITA No.171/Kol/2017 seeking to revive import direct expenses disallowance(s) of ₹13,36,322/-. The CIT(A)’s findings under challenge qua the instant issue read as follows:- “Ground No. 4: This ground relates to the disallowance by the A.O on estimate of a sum of Rs.13,36,322/-,being 10% of the expenses incurred under the head 'Import direct expenses'. He has made the disallowance with a biased approach alleging the same as 'bogus expenses. ' This issue is dealt by the A.O. in the Assessment Order as under:- "As per tax audit report the assessee company deals in iron & alloys steel. Total turnover during the year was 32,13,84,266/-, marginally increased compare to preceding year i.e. Rs.28,15,61,922/-. As per schedule 15 of the balance sheet assessee claimed import direct expenses of Rs.1,33,63,218/-, whereas in the preceding year it was only Rs.62,62040/-. The assessee was requested vide snow cause notice date 13.12.13 to substantiate the claim. It appears that the assessee claimed expenses under new heads as per schedule of Direct expenses though nature of business was remained same. The assessee claimed expenses under new heads like clearing charges 94615/-, computer repair 69431/- carriage inward 137373/-, century ply board 54358/-, container

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 6 rent 49771/-, custom Duty Rs.4022884/-, CWC charges 157188/-, DEPB premium Rs.1940228/-, Dock clearing charges 86569/-, interest paid (IMP Purchase) Rs.11 0590/-, service charges. 116750/-, Testing charges 129243/-, THC Rs.454749/-, Transportation Charges 2954418/- etc. There was no claim under these heads in earlier year. Even the assessee claimed expenses under various heads which are not consistence with preceding year. In its reply by letter dated24.02.2014 the A.R. stated that custom duty, & freight, have been increased due to increase in import & interstate purchase. It appears from the submission that assessee's import was increased by 156% whereas expenses claimed higher than preceding year by 213% onus was on the assessee to prove genuineness of the claim of such expenses with supporting evidences. Since the assessee failed to discharge its onus that the expenses were genuine and incurred for the purpose of the business, 10% of total import Direct expenses of Rs.13363218/- i.e. Rs.13,36,322/- is added back as bogus expenses.” The A.R. of the Appellant has filed written submission as under:- "The learned AO has disallowed on estimate 10% of the business expenditure incurred vide Sch. 15 of the Balance Sheet under the head "Indirect Import Expenses". He has made the disallowance on the alleged ground of 'excessive expenses' in comparison to the last year. It is submitted that the expenses have been incurred wholly and exclusively for the purpose of business. All expenses are supported by bills and vouchers and payments have been made by cheque. I am enclosing the details of all such expenses. Besides, there had been re-grouping and a different presentation of the expenses in the Balance Sheet this year in comparison to last year. A copy of the Balance Sheet showing the figure for the current year and preceding year is enclosed. If the expenses are compared in totality, after consolidation, It would be seen that the expenses incurred are not disproportionately excessive. Moreover, there was increase in the rate of Custom Duty from 5% last year to 10% this year. Rates of other government levies also increased. It will not be out place to mention that in comparison to last year the Turnover has increased (from 28.15 crores to 32.13 crores), Amount- of Net profit has increased (from 6.86 lacs to 25.54 lacs) and Rate of ·N.P. has also increased (from 0.24% to 0.79%). A comparative chart is enclosed. While making the estimated disallowance, the learned AO has failed to take these factors into consideration. The disallowance has been made arbitrarily on guess and is liable to be deleted. " I have carefully considered the material before me, the A.O. observed that the total turnover of the company had marginally increased from Rs.32.13 crores in the preceding year to Rs.28.15 crores in A. Y. 2010-11 that had claimed that higher import direct expenses of Rs.1336218/- is compared to Rs.62,62,040/- in the preceding year. On examining the appellant's reply the A.O. observed that the several heads of expenditure like clearing charges, computer repair, container rent , custom duty, ewe charge, DEPB premium, doc clearing charges, interest paid, service and testing charges and TSC, transportation charges, were claimed during the current A.Y. which were not there in the preceding year. The A.O. rejected the explanation that custom duty and freight has been increased due to increase in import and interstate purchase by holding that the appellant had failed to discharged the onus of

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 7 having Incurred the expenses for purpose of business and disallowed 10% of the expenses amounting to Rs.1336322/- as bogus expenses. The appellant's A.R. has argued to the written submission that the expenditure claimed were incurred wholly and exclusively for the purpose of business and all expenses were supported by bills and vouchers and were paid through cheques. Further, it was stated that due to regrouping and different presentation of expenses in the balance sheet as compared to preceding year let to the erroneous observation by the A.O. of disproportionate increase in the expenditure under the head of indirect expenses. After careful consideration it is observed that there is substance in the argument in the appellant's A.R. due to regrouping of various head of expenses under the head "indirect import expenses" resulted in the suspicion of the A.O. of disproportionate increase in expenditure as compared to the preceding year by 213%. It is found that the A.O. has not pointed out any specific defects in any item of expenditure debited and has made the disallowance at the rate of 10% merely on estimate basis. In view thereof, it is held that the A.O. was not justified making the disallowance of Rs.13,36,322/-, which is directed to be deleted. This ground is allowed.” 5. We have heard rival contentions in support and against the impugned import direct expenditure disallowance. There is no dispute that the Assessing Officer took recourse to the impugned 10% ad hoc estimated disallowance by comparing the corresponding figures of the impugned assessment year vis-a-vis preceding assessment year. We afforded ample opportunities to the learned departmental representative for pin-pointing any specific defect; head-wise in the impugned claims comprising of clearing charges, computer repair, container rent, custom duty, CWC charge, DEPB premium, doc clearing charges, interest paid, service and testing charges and TDSC transportation charges alongwith other heads. There is no such discussion on the assessment order pointing out any such defect in all these specific heads. The Assessing Officer had not put even a single head to factual verification from recipient side as well. We conclude in these facts that the CIT(A) has rightly concluded that the impugned disallowance merely based on comparison of relevant figures in the two assessment years is not sustainable. This first substantive ground fails in Revenue’s latter appeal fails therefore.

ITA No.170-171/Kol/2017 A.Ys 09-10 & 10-11 ITO Wd-3(2), Kol. Vs M/s Super Stahl India Pvt. Ltd. Page 8 book pages 161 to 163 contain the Assessing Officer’s remand report as well not disputing all these clinching supporting evidence. We therefore reject Revenue’s instant second substantive ground as well as the latter main appeal ITA No.171/Kol/2017. We make it clear before parting that assessee had submitted detailed evidence regarding as all three thee issues before Assessing Officer remand proceedings directed by CIT(A). This remand report dated 11.06.2015 forming part of case records before us nowhere disputed assessee’s voluminous documentary evidence regarding the three issues raised in both assessment years. We accordingly affirm the CIT(A)’s findings under challenge. 7. Both the Revenue’s appeals are dismissed. Order pronounced in open court on 23/04/2019 Sd/- Sd/- (लेखा सद!य) (�या)यक सद!य) (J.Sudhakar Reddy) (S.S.Godara) Accountant Member Judicial Member *Dkp-Sr.PS *दनांकः- 23/04/2019 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक /Assessee-M/s Super Stahl India Pvt. 2, N.C. Dutta Sarani, 7th Floor, Room No.7A, Kolkata-700001 2. राज!व /Revenue-ITO Wd-3(2), Aaykar Bhawan, 4th Floor, Room No. 17, P-7, Chowringhee Square, Kolkat-69 3. संबं-धत आयकर आयु.त / Concerned CIT 4. आयकर आयु.त- अपील / CIT (A) 5. /वभागीय �)त)न-ध, आयकर अपील�य अ-धकरण कोलकाता/DR, ITAT, Kolkata 6. गाड3 फाइल / Guard file. By order/आदेश से, /True Copy/ सहायक पंजीकार आयकर अपील�य अ-धकरण, कोलकाता ।