ALLOY STEEL EMPORIUM PVT. LTD.,KOLKATA vs. ITO, WARD-4(3), KOL., KOLKATA

order : June 20, 2018 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 17, Kolkata dated 10.06.2016 and grounds raised

2. That without prejudice to ground no 1 stated above, the recorded reasons are invalid and improper and as such, the assessment framed vide order dated 04.03.2014 is bad in law in the eye of law.

3. That the facts and circumstances of the case the Ld. CIT(A) was not justified in confirming the addition of Rs. 30,66,273/- made by the A.O. on account of bogus purchase.”

Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

CIT(A) on account of bogus purchases, the relevant facts are as follows: The assessee in the present case is a company which is engaged in the business of trading of steel materials. The return of income for the year under consideration was filed by it on 21.11.2006 declaring a total income of Rs. 4,64,283/-. The said return was initially processed by the AO under section 143(1) of the Act. The survey under section 133A was carried out on 26.02.2008 in the business premises of M/s. Vikas Iron & Steel Pvt. Ltd. As found during the course survey, the said company was indulging in providing fake bills. In his statement recorded, Shri Vikash Agarwal, Director of M/s. Vikash Iron & Steel Pvt. Ltd. admitted that the bills raised by his company were fake and the same were provided to different parties as accommodation entries for inflating their purchases. Since the assessee company was one of the parties who had purchased goods from M/s. Vikas Iron & Steel Pvt. Ltd. during the year under consideration, the assessment was reopened by the AO and a notice under section 148 was issued by him on 15.03.2013 to the assessee after recording the reasons. During the course of reassessment proceedings, it was submitted on behalf of the assessee company that the statement made by Shri Vikash Agarwal, Director of M/s. Vikash Iron & Steels Pvt. Ltd. was very general in nature and the same was not sufficient to treat all the transactions made by the said company to be bogus. It was also contended that apart from the said statement, there was no other evidence to conclude that the sales made by M/s. Vikash Iron & Steels Pvt. Ltd. to the assessee company were bogus. It was submitted that the purchases made from M/s. Vikash Iron & Steels Pvt. Ltd. were Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd. duly recorded by the assessee company in its purchase register and even the material purchased from M/s. Vikash Iron & Steels Pvt. Ltd. was sold to other parties and the said sale was duly reflected in the sales declared by the assessee company. It was contended that the purchases made by the assessee company from M/s. Vikash Iron & Steels Pvt. Ltd. were duly supported by the required documentary evidence and when the corresponding sales were accepted by the department, there was no justification in rejecting the purchases as bogus. This submissions made by the assessee were not found acceptable by the AO and relying on the reassessment made by him in assessee’s own case for AY 2007-08 wherein similar bogus purchases of Rs. 1,52,40,253/- were disallowed by him by treating the same as bogus, he disallowed the purchases of Rs. 30,66,273/- claimed to be made by the assessee from M/s. Vikash Iron & Steels Pvt. Ltd. by treating the same as bogus in the assessment completed under section 143(3)/147 vide an order dated 04.03.2014.

Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

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

Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

On the other hand, ld. Counsel for the assessee submitted that on perusal of the extract of the statement of the director of M/s. Vikash Iron & Steel Co. Ltd.(as reproduced at page no. 2 of the reassessment order), it is evident that the statement given by him is very general in nature. Shri Vikash Agarwal stated that "transactions in the accounts were mostly in the nature of paper transactions". So, according to ld. AR, it is clear that all the transactions are not bogus and nowhere the director of M/s. Vikash Iron & Steel Co. Ltd. had stated that the assessee company indulged in bogus purchases. The ld. AR brought to our knowledge that the Ld. AO did not provide any opportunity to cross examine the said director of M/s. Vikash Iron & Steel Co. Ltd. According to ld. AR, it is a well-settled principle of law that unless an opportunity to cross-examine is given to assessee, no credence can be given to the statement/report of any third party, which has been admittedly taken behind the back of the assessee. The ld. Counsel also pointed out before us that AO has not doubted the sales of the assessee and, in fact, has accepted it as correct. Therefore, according to ld. Counsel, in the case of a trading concern, when sales are not doubted, then purchases cannot be held as bogus. According to him, it is common knowledge that in case of a trading business, the assessee cannot make sales without purchases, therefore, when sales are not doubted rather accepted as in this case by AO, then purchases ought not to have been held as bogus. The ld. AR drew our attention to the fact that before the AO, the assessee had submitted purchase bills, Challans, weight receipts, bank statement. The assessee also submitted before the AO, the tax audit report. The Tax audit report contains the quantitative details of closing stock as at 31.03.2007. The purchase bills, so submitted by the assessee contains CST number and VAT number and most of the purchases were at the rate of 4% VAT. According to the ld. AR all these documents goes on to prove that the purchases made by the assessee from M/s Vikash Iron & Steels Pvt. Ltd. are genuine and since the sale of the very same goods have been accepted by the AO, then the question of disallowing the purchases of the goods cannot stand the scrutiny of law.

7. Based on the factual position as pointed out by the ld. AR and evident from the Paper Book filed by the assessee, we note that the entire disallowance of the purchases of goods from M/s Vikash Iron & Steels Pvt. Ltd. is based on the statement of its director, Shri Vikash Agarwal recorded during survey at its premises. When admittedly the adverse inference was drawn against the assessee was on the strength of the statement recorded during survey of Shri Vikash Agarwal which was Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

recorded behind the back of assessee, the AO ought to have given an opportunity to call Shri Vikash Agarwal for cross-examination by the assessee. We note that the Assessing Officer did not provide any opportunity to cross-examine the said director and even though, the assessee denied the allegations of Shri Vikash Agarwal that it provides accommodation entries to it and produced challans, weight receipts, bank statement, purchase bills etc to prove the genuineness of the purchase made by the assessee from M/s Vikash Iron & Steels Pvt. Ltd., however, we note that the AO brushed aside the entire evidence furnished by the assessee without making any enquiry to the credibility of the evidence furnished before him and the AO have simply believed the statement of Shri Vikash Agarwal to make the entire disallowance, cannot be countenanced. When the assessee was confronted by the AO with the statement given by Shri Vikash Agarwal during the survey conducted at the premises of M/s. Vikash Iron & Steel Co. Ltd., the assessee denied the allegations that the assessee had got fake bills in lieu of commission to M/s. Vikash Iron & Steel Co. Ltd. and that the entire purchases made therefore bogus. In order to prove that the purchases were genuine, the assessee had produced challans, weight receipts, bank statements, purchase bills etc. and the entire transactions that had shown to the Assessing Officer that the transactions with M/s. Vikash Iron & Steel Co. Ltd. were through banking channels; and, we note that the Assessing Officer has not found any fault with the books of accounts maintained by the assessee and we note that the assessee’s books of accounts were duly audited.

Therefore, we note that the assessee-company has discharged its onus by providing all the relevant evidences in supporting of the said purchases. Further, we note that the books of accounts of the assessee was duly audited and the assessee also maintained Stock Register which is evident from the Tax Audit Report (at page no.28 of the PB). We note that the quantitative details of the closing stock were also given in the Tax Audit Report (at page no.34 of the PB). We note that each and every transaction in respect of the abovementioned purchases along with corresponding sales are reflected in the stock register. In the light of the above said fact once the Assessing Officer has accepted the sales as genuine, he ought to have accepted the purchases without any cogent evidences to hold otherwise. In the light of the aforesaid evidences furnished by the assessee to prove the genuineness of the transactions with M/s. Vikash Iron & Steel Co. Ltd., in case AO still disbelieved the assessee’s contention then the Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

Assessing Officer ought to have summoned Mr. Vikash Agarwal and should have elicited from him as to whether the assessee company was involved in the practice of taking fake bills in lieu of commission which we note that the Assessing Officer failed to do in the first place. Even if, he had taken the statement then also the Assessing Officer could not have used such adverse statement against the assessee, without giving an opportunity to the assessee to cross-examine Shri Vikash Agarwal. In this case in the first place, the Assessing Officer failed to directly examine Shri Vikash Agarwal, however, the AO used the general statement of Shri Vikash Agarwal which was recorded during survey conducted on 26.02.2008 in the premises of M/s. Vikash Iron & Steel Co. Ltd. wherein also assessee’s name has not been adversely commented upon by Shri Vikash Agarwal and the AO simply have disbelieved the evidences furnished by the assessee to prove the genuineness of the transactions. The Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE 281 CTR 214 (SC) has reiterated that without cross-examining a third party, the statement given by such third party cannot be used adversely against the assessee. Moreover, we note that in this case, the sales shown by the assessee of the very same goods that has been found to be bogus and disallowed by the Assessing Officer, has been accepted by him as correct when sales of the same goods have been shown by the assessee. When the sales figures shown by the assessee has been accepted in totality, the entire purchases made by the assessee cannot be held it to be bogus since it is common knowledge that sales of goods cannot taken place without purchase of goods in the first place. So, therefore, in the light of the evidences adduced to prove the genuineness of the transactions and when the fact remains that the sales has been accepted by the Assessing Officer in totality, the action of the Assessing Officer to disallow the entire purchases and goods made from M/s. Vikash Iron & Steel Co. Ltd. on the basis of a general statement (without naming the assessee) on the ground it indulged in giving fake bills for commission and that too without the adverse statement being tested on the touch stone of cross-examination cannot stand the scrutiny of law and has to fall and therefore, in the light of the aforesaid discussion, we are inclined to delete the disallowance made by the Assessing Officer which was confirmed erroneously by the CIT(A). Thus, we allow the appeal of the assessee.”

Assessment Year: 2006-07 M/s. Alloy Steel Emporium Pvt. Ltd.

08, I respectfully follow the order of the Division of this Tribunal for A.Y. 2007-08 and delete the disallowance made by the AO and confirmed by the Ld. CIT(A) on account of purchases made by the assessee from M/s. Vikash Iron & Steels Pvt. Ltd.