ACIT, CENTRAL CIRCLE- 19, NEW DELHI vs. SHARP CORP LTD., NEW DELHI

3.1. The assessee submitted before the ld. AO that the admission made in the statement by Shri Kamal Kishore that he has provided accommodation entries through various concerns is factually incorrect as the said statement was not provided to the assessee for its perusal and rebuttal. Accordingly, the assessee is Page | 3 completely in the dark about the contents of such statement. It was submitted that in any case, since the assessee has discharged the initial burden of placing on record all primary evidences of having made purchases from M/s Kamal Kishore Mukesh Kumar, to substantiate the said purchases of goods and it is the Revenue which is relying on the statement made by Shri Kamal Kishore, therefore the bare minimum which is required of the department is to provide the copy of his said statement and also grant an opportunity to cross-examine Shri Kamal Kishore. It was submitted that now it is neither the burden of the assessee to prove the genuineness of the transactions between the said supplier or its sub-suppliers nor is it the burden of the assessee to prove that the sub- supplier had the capabilities and the capacity to sell goods to the said supplier from whom the goods have been, eventually, received by the assessee Company.

3.2. It was submitted that the ld. AO had wrongly stated that Narayan Traders and Sharp Comtrade Limited were group companies and were involved in booking bogus purchase expenses. The income tax assessment of Sharp Comtrade Limited for the Asst Year 2012-13 was also with the ld DCIT, Central Circle 19 and it was completed accepting the returned income. The ld DCIT has not pointed out any discrepancy or made any adverse comments while completing the assessment of Sharp Comtrade Limited for the Asst Year 2012- 13.

3.3. It was submitted that the ld. AO had again wrongly stated that the company has made bogus purchases for inflating the purchases and reducing the profits. He has at one point given a finding that the company is engaged in booking bogus sales/ purchases within the group company and at the same time, the company is engaged in booking bogus purchase entries for inflating purchases and reducing the profits. It is important to note from the details that the purchases of Rs. 2,16,83,820/- from the said party was sold for an amount of Rs. 3,59,09,148/-. Thus, these disputed transactions resulted in a gross profit for Rs. 96,55,076/- to the company. The ld AO is completely wrong in concluding that the company entered into bogus purchases to reduce its profits.

3.4. The assessee furnished the Gross Profit and Net Profit of the company for the Assts Year 2012-13 with comparable data for immediately preceding two Asst Years as under:-

Asst Year Sales (Rs. in Gross Profit GP Net Profit NP Lacs) (Rs. in Ratio (Rs. in Ratio Lacs) Lacs) 2010-11 15,942.15 216.17 1.36% 65.22 0.41% 2011-12 32,613.79 771.03 2.36% 199.64 0.61% 2012-13 61,285.98 1,640.43 2.68% 502.71 0.82% From the above, it could be seen that the Gross Profit and Net Profit during the year had actually improved when compared to the earlier years.

3.5. It is also pertinent to note that the sales made by the assessee out of the disputed purchases were accepted by the ld. AO and the profit disclosed by the assessee thereon in the sum of Rs 96,55,076/- had been duly taxed by the ld. AO. Further the books of accounts produced by the assessee together with the book results were not rejected by the ld. AO in terms of section 145(3) of the Act.

3.6. It was further submitted that there is a complete trail of purchases and sals and assessee has been able to correlate each transaction of purchase with corresponding sales together with the relevant entries in the stock registers. The assessee had duly furnished the stock registers, VAT returns showing these transactions which had been accepted by the VAT authorities. The ld. AO had merely made the disallowance of purchases based on the statement of Shri Page | 5 Kamal Kishore which was not even furnished to the assessee for his rebuttal and cross examination.

3.7. It was further submitted that Shri Kamal Kishore had admitted his involvement in providing accommodation entries on behalf of Shri Devki Nandan Agarwal Prop M/s Lachhu Ram Agarwal & Co. During survey u/s 133A of the Act, it has been admitted by Shri Kamal Kishore that M/s Kamal Kishore Mukesh Kumar is on paper only and not doing any sales/purchases and signing blank cheques only. It was submitted that Shri Kamal Kishore statement should be understood to have links only with Shri Devki Nandan Agarwal and that signing of blank cheques are meant only for transactions of Shri Devki Nandan Agarwal and cannot be extended to other parties. Infact the assessee is no way connected with any such involvement. 3.8. Further it was submitted that the assessee made the corresponding sales (out of disputed purchases) to RBRL Agro Commodities Ltd and Sharp Comtrade Ltd, in whose hands, the purchases made from assessee herein were accepted by the very same Assessing Officer in the search assessments completed u/s 153A read with section 143(3) of the Act. Hence it is a fact that the goods had been indeed sold by the assessee to these two parties. Naturally the assessee without receiving the goods from Kamal Kishore could not have sold the goods to RBRL Agro Commodities Ltd and Sharp Comtrade Ltd. Hence the entire allegations of the ld. AO that Kamal Kishore had not supplied any goods to the assessee falls flat.

, the appellant has contested the finding of the AO to treat the purchase of pulses of Rs. 2,16,83,820/- made by the assessee during the impugned assessment year from M/s Kamal Kishore Mukesh Kumar as bogus on the basis of information received from the Income Tax Investigation Wing, New Delhi.

2. From the assessment order, it is seen that the AO has referred to the statement of Sh Kamal Kishore recorded on oath on 20-03-2015 to hold that the purchase of pulses from M/s Kamal Kishore Mukesh Kumar is bogus for the reason that Sh Kamal Kishore has himself admitted in his statement that no actual sale purchase took place in the said firm and he used to issue blank cheque book duly signed to one Mr. Mahesh Mittal and Mr. Devki Nandan Aggarwal and received Rs. 6,000/- per month for doing entry operation work.

3. The AO has further recorded that the assessee has sold the said material only to group concerns i.e. RBRL Agro Commodities Ltd, Narayan Traders and Sharp Comtrade Ltd. That it appears that the assessee was mainly involved in booking bogus sale purchase within the group company and this proves that not only the assessee company but also its group concerns were equally involved in booking bogus purchases expenses.

4. The AO has lastly concluded that based on the statement of Sh Kamal Kishore in respect of the bogus purchase entries, one company i.e. M/s Shakti Bhog Foods Ltd has already accepted the bogus sales made from the same entity M/s Kamal Kishore Mukesh Kumar and made substantial disclosure on the issue. Thus in view of the above and the categorical assertion made by Sh. Kamal Kishore on his statement on oath, the purchases of Rs. 216,83,820/- made by the assessee was treated as bogus purchase entries for inflating the purchases and reducing the profits.

5. The above facts and conclusion drawn by the AO were confronted by the show-cause notice dated 23-03-2016 to the assessee who vide reply dated 29- 03-2016 furnished detailed explanation to the said SCN which has been produced in para no. 3 of the assessment order. The same is not being repeated for the sake of brevity. The AO has on the perusal of this reply disbelieved the version of the assessee and added the so called bogus purchase entries.

6. I have considered the entire finding of the AO with respect to purchases made by the assessee from M/s Kamal Kishore Mukesh Kumar and the submissions made vide letter dated 21-10-2016 and 23-05-2017 along with supporting documents like detailed chart giving quantities and values of disputed purchases and the sale made thereafter of the disputed purchases, confirmation and the purchase bills of M/s Kamal Kishore Mukesh Kumar and the party accounts showing sales thereof and the comparative chart of Gross Profit & Net Profit ratios of the assessee company.

7. The assessee company is engaged in the import of items like pulses, edible oils, etc in bulk for the past many years and makes sales on wholesale basis. During the assessment year 2012-13, the assessee company has made total purchases of Rs. 678.90 Crores and sales of Rs. 612.85 Crores. It has also been noted from the comparative chart that the Gross Profit & Net Profit ratios for the assessment year 2012-13 have improved as compared to earlier years. 8. It is seen from the assessment order that the AO has returned a finding which is based on a preliminary investigation report of the Income Tax Investigation Wing and has held that the purchases made by the assessee company from M/s Kamal Kishore Mukesh Kumar Rs. 2,16,83,820/- were fictitious in nature and that these purchases were made to reduce profits during the year. 9. On a detailed examination of the submissions and documentation filed by the assessee company, it has been noted that the assessee has made purchases from M/s Kamal Kishore Mukesh Kumar and has duly recorded the same in the stock registers. The said items were also sold during the normal course of business as shown in the purchase-sales chart. Thus it cannot be said by any means that the purchase transactions were not real and are bogus. The quantitative details of purchases made from M/s Kamal Kishore Mukesh Kumar by the assessee company of such goods along with the photocopies of the purchase bills and the confirmation of accounts of the said party have been placed on record. The assessee has also made payments through account payee cheques. 10. That it has been pointed by the AR that the block assessments of M/s RBRL Agro Commodities Ltd and Sharp Comtrade limited were made by the same AO under section 153A read with 143(3) of the Income Tax Act and no such disallowance of bogus purchases were made during the block assessments. It has also been pointed out by the assessee that Sharp Comtrade Limited and M/s Narayan Traders are not related concerns of the assessee in any manner. The company had made sales to the said two parties in the normal course of its business. Necessary details of sales made to the said parties have also been placed on record. Thus this is not the case that the assessee has made bogus purchases to reduce the taxable profits because there are corresponding sales. The AO has failed to bring any material on record which proves that Shri Kamal Kishore had issued bogus purchase bills to Sharp Corp Limited.

11. The assessee has maintained stock registers in Tally.erp9 giving date- wise and party-wise quantitative details and has also obtained Tax Audit Report under section 44AB of the Income Tax Act. Thus, from the above discussion and the evidences / documents in the shape of confirmations, stock registers, quantitative details etc the purchases made from the said party could not be treated as bogus and not real in the nature of accommodation entries.

12. That no addition can be made in the hands of the assessee merely on the basis of observations made by a third party. While making the assessment, it is the satisfaction of the AO which is of prime importance. It cannot be substituted by the satisfaction someone else. The assessee company has discharged the primary onus cast on it by showing the purchases in the books of accounts, payment by way of account payee cheques and producing the vouchers of sale of goods. The AO did not make requisite investigations against the said seller by the issue of notice under section 133(6) of the Income Tax Act and has proceeded to disallow the purchases as bogus relying on the information received from the investigation wing. It has been held by the Hon'ble ITAT, Delhi in case of Unique Metal Industries (ITA no. 1372/ DEL/2015 dated 28.10.2015 as under: "in para no. 25 thereof the ITAT has given a finding that the revenue has doubted the purchases of the assessee on the basis that these persons have made statement that they have issued accommodation bills and have not made actual sales to the assessee. The ITAT has held that in the present case the assessee has made purchases and there are corresponding sales which have not being doubted. That as the sales have not been doubted then obviously purchases would be there...... In the present case there is complete trail of purchases and sales so far as the assessee is concerned who has been able to correlate each transaction of purchase with sales which is fully documented.... That in the facts and circumstances of the case not much reliance can be placed on the statement of the parties from whom purchases have been made but denied by them in their statement, which cannot be taken at face value.

the truth. Here even the AO has completely disregarded all the evidences provided by the assessee with regard to the purchases and sales. That without such opportunity of cross-examination it is legally untenable to use such statement to come to an adverse conclusion against the assessee. i) The Apex Court has held in the case of Kishinchand Chellaram v. CIT reported in (1980) 125 ITR 713 (SC) as under:- Though the proceedings under the Income-tax Act are not governed by the strict rules of evidence, the department is bound to afford an opportunity to controvert and cross examine the evidence on which the department places its reliance. Opportunity of cross examination must be given. The consequence of breach of natural justice is that either the addition is void or matter may have to be to be remanded to lower authorities. ii) The Delhi High Court has held in the case of CIT v. J. M. D. Communications P. LTD reported in (2010) 320 ITR 17 (ST) (SC) as under:- Person who has issued the bills has given the statement that he was carrying on the business of issuing bogus accommodation bills on commission basis with the assessee, and this was not put to the assessee for rebuttal or cross-examination, High Court held no substantial question of law. On SLP by revenue the Court held that if the AO wants to use some statement made before him, then on request by the assessee, is bound to put the deponent for cross examination.

Order pronounced in the open court on 21/02/2024.