ACIT, CIR-45, KOLKATA, KOLKATA vs. SHRI SANJIB BOTHRA, KOLKATA

ORDER Per M.Balaganesh, AM

2 Sanjib Bothra A.Yr.2010-11 2010-11 on 30.9.2010 declaring total income of Rs 2,38,76,294/- which was processed u/s 143(1) of the Act on 26.5.2011. There was a survey conducted in the business premises of the assessee on 26.3.2010. The ld AO observed that during the survey, it wa found that in respect of purchases and job work from certain parties, as per the bills, amount was not mentioned on the bills and was self-entered / mentioned on the bills after some days. This was classified by the ld AO as blank bills. The ld AO listed out such parties from whom purchases made were recorded in the blank bills in respect of 11 parties. The assessee furnished the names and addresses of all these 11 parties before the ld AO. The ld AO directed the parties to produce these parties which was not done by the assessee. Out of these 11 parties, the ld AO sought to verify the veracity of purchase transactions had with the following three parties :-

National Enterprises Rs 76,15,142 Priyanka Enterprises Rs 43,00,960 Shivam Enterprises Rs 47,97,072 The postal authorities reported that the aforesaid addressees are not known in the given address and hence the notices could not be served. The assessee responded that the parties might have changed their addresses and submitted the complete ledger copies of those parties as appearing in the books of the assessee to prove that the entire dues were settled by account payee cheques.

3.1. With regard to the alleged discrepancy in the bills found during survey, the assessee explained as below:- “It is the usual practice of the assessee to receive the finished goods as delivered at the godown by the suppliers without examining the quality/quantity of the same. The suppliers deliver the goods with challan and bills but without mentioning the rate/amount. Such goods are subsequently been examined by the expert employees of the assessee to judge whether the same are as per specification as required for export orders. Naturally, such process is a time consuming factor. Only after such process, the supplied materials accepted at the godown, A report of all such accepted goods along with supporting bill/challan etc. of the supplier are then send to the office from godwon for necessary recording and payment. The rate of the 2

During the course of survey as conducted on 26.03.2010, you have taken out such bills from the office. The survey conductor asked the assessee to put the rate and amount in every such amount less bill to find out the exact purchase value upto the date of survey. Under the circumstances, the assessee had filled up the blank part of the bills, which were already accepted at the godown. Needless to state that in such a hurried time only one copy filled up for the purpose of the survey leaving the other copy as blank. You have raised your query regarding such blank part and the reason for the same explained as above. From the above fact, you would understand that every bill is genuine and under the compelled circumstances, only one copy of every bill was filled up.

In case of job works, the assessee maintains similar fashion of business transaction like finished goods. The orders are placed to the fabricator with rate. On completion of the fabrication job, goods are delivered at the godown for necessary checking, Goods as delivered at the godown accompanied with challan and bills. After the goods are checked at the godown, the billing amount is known as the orders are placed with contract rate. Some fabricators used to fill up the bills at the office at the time of payment. The blank bills of some fabricator as taken up at the time of survey were of such nature. Needless to state that the assessee has deducted tax at source from all such fabricator’s bill and every bill was recorded in the regular books of accounts and hence there was no undisclosed record.”

3.2. The ld AO observed that the submissions made by the assessee does not explain the genuineness, when there are no such discrepancies in respect of other purchases and job work in respect of other parties. He further observed that the gross profit rate is also lower as compared to earlier year as under:- Assessment Year Gross Turnover (Msc Income Net Turnover Gross Profit Gross profit rate Added in Turnover) (Without msc Income) 2010-11 156172778 7272782 14889996 15054194 10.11% 2009-10 342083904 7104041 334979863 48591820 14.50% The ld AO proceeded to show cause the assessee as to why the purchases made from aforesaid three parties could be treated as ingenuine purchases and as to why the same should not be disallowed. The assessee gave the reason for reduction in lower gross profit rate that the ld AO had calculated the GP rate by excluding the miscellaneous receipts as reflected under schedule 10 of the Profit and Loss Account. It was explained that the same includes sale of import licences, which is nothing but an another form of export incentives allowed to exporters and 4 Sanjib Bothra A.Yr.2010-11 hence is part of business receipts and gross profit ratio. Accordingly, it was pleaded that the same have to be considered under the head ‘ net turnover’. In effect the actual gross profit ratio for the year 2009-10 relevant to Asst Year 2010-11 would be 12.38% compared to 15.34% for Asst Year 2009-10 registering a fall of 2.96% compared to Asst Year 2009-10. The assessee further explained that the major reason for reduction in gross profit rate was due to worldwide recession and in order to combat with the turbulence world market, the assessee had to accept the orders, which was well below the rate as received during the earlier year. The assessee enclosed a comparative statement of some parties with copies of bills to whom the assessee exported the same article in the financial year 2008-09 and also during the year under consideration. It was explained that from the said statement it could be seen that identical article was exported in both the years to the same foreign buyers but with a much lower dollar / euro rate as otherwise the buyers were not interested to place any order in that recession period. It was also explained that during the last quarter of financial year 2009-10, the assessee had to face another trouble by way of huge fall in the foreign exchange rate with INR realization of lesser amount from exports. It was stated that the cost of all direct expenditure had increased during the year under consideration compared to the earlier year because of higher inflationary trend. However, the component of other receipts (export incentives) had also increased. To combat with both the fores along with lower turnover, the rate of gross profit had reduced.

3.3. It was further explained that out of the total amount of purchases from the aforesaid parties, only some of the bills for the months of January to March 2010 were found without amount. The reasons for the delayed entering of the amounts in the said bills were already explained above. The assessee also explained that purchases made during the year from different suppliers also include bills of the questioned suppliers. As stated in the submission dated 26.02.2013, the suppliers deliver the goods with challan and bills but without mentioning the amount therein as rate of goods fixed at head office which depends on the quality report. You have perhaps noticed that all such bills enclosed with the suppliers challan and have 4

5 Sanjib Bothra A.Yr.2010-11 signed by our godown personnel with the remark “quantity O.K.”. The bills for which you have raised question were complete with quantity and description as mentioned in the challan. In such cases, the suppliers at the Head Office put the agreed price in the bills after negotiation. In the instant cases, the goods were accepted at the godown and as a result rate was finalized but the suppliers not submitted filled up bills. As a result, the survey conductor asked the assessee to put the rate/amount in such bills to find out the exact purchase value up to the date of survey. In this connection, please note that all the quantity/quality verified challans of the suppliers recorded in our regular stock register. Had the same were not purchased, our quantitative closing stock summary would have differ and the valuation of closing stock would have lowered. The assessee furnished the month wise purchase account of finished goods together with details of date wise purchase register of finished goods for the year 2009-10 relevant to Asst Year 2010-11 . The assessee also furnished the details of item wise, quantity wise, value wise closing stock as on 31.3.2010 together with party wise details of freight & forwarding charges.

3.4. The ld AO however observed that the submissions of the assessee does not explain as to how the discrepancies regarding genuineness of purchases and particularly rate of purchases as per self – made bills be considered genuine. He further strengthened his observation by stating that the suppliers were also not produced by the assessee for examination.

3.5. Accordingly, the ld AO disbelieved the purchases , job charges shown in the accounts from the following parties and made an addition to that effect in the assessment :- National Enterprises Rs 76,15,142 Priyanka Enterprises Rs 43,00,960 Shivam Enterprises Rs 47,97,072 ---------------------- Rs 1,67,13,174

6 Sanjib Bothra A.Yr.2010-11 4. Before the ld CITA , the assessee reiterated the submissions and the ld CITA sought for a remand report from the ld AO. In the said remand proceedings, the ld CITA had specifically directed the ld AO to conduct enquiries from the aforesaid three suppliers viz National Enterprises , Priyanka Enterprises and Shivam Enterprises. In the remand proceedings, the ld AO examined Mr Milan Maity, Proprietor of S.K.Enterprises and National Enterprises, wherein he confirmed having business transactions with the assessee. The said party was even cross examined by the assessee in the presence of the ld AO, wherein the said party confirmed once again that he had sold goods to assessee and the payments were received for the same through account payee cheques from the assessee. These facts are reflected in the remand report submitted by the ld AO. The ld AO in the remand report submitted that when sale bills & challans are issued, quantity and rate is fixed and written on the bills by mutual understanding with the assessee and in view of the fact that bill is issued after fixing the rate as above and bill is given at assessee’s office situated at Middleton Row, Kolkata and challan is given at godown, clearly lead to conclude beyond doubt that firm M/s National Enterprises and M/s S.K.Enterprises of Shri Milan Maity are bogus and managed by the assessee and all is done as per convenience of the assessee and person is being used for such bogus entries. The ld AO also observed in the remand report that during verification at the premises on 18.3.2014 as reported by the Inspector , Mr Milan Maity had done only fabrication work and had not supplied any finished goods to the assessee for any period and all his business transactions were managed by the assessee. The assessee filed his rejoinder to the remand report submitted by the assessee before the ld CITA on each and every point of allegations leveled by the ld AO.

7 Sanjib Bothra A.Yr.2010-11 produced, AO was of the opinion that the purchases were not genuine and was of the view that purchase was being inflated to reduced profit. 7.2. As a result of enquiry in remand proceeding the following facts are noticed. The alleged sellers on whom notice could not be served during assessment proceeding were found in the address given and their statements recorded from two of them. All the payments by the sellers were received by cheque from assessee. During the course of survey proceeding no quantitative discrepancy between purchase & sale was found. AO has also specifically not found any discrepancy in assessee’s statement that the purchase price shown by the above 3 parties was same or less than shown from purchase from others. Further, during survey purchase/job work bills were found from 11 sellers where purchase amount were not entered. As the AO had accepted purchase from 8 of the parties. Thus, that was no basis for taking a differing view in the balance 3 cases where the persons were found subsequently in the given address during remand proceeding when the payment were made by cheque, the person owned up receipt of payment, nor any quantitative inflation of purchase was found during survey, nor the assessee’s assertion that the purchase price was less or same from other parties was specifically challenged. It may be added that assessee’s statement that during survey individual item wise stock taking had taken place and tallied with stock register has not been disputed. Thus, no quantitative discrepancy in purchase was found. Appellant’s submission that all the bills with item description, quantity along with receipt challan were found during survey has not been rebutted by AO. This adds credence to appellant’s submission that the rates were finalized after negotiation and thus entered later on as stated before the Survey Party and negotiated rates entered during survey to arrive at profit as on the date of survey has also not been rebutted. In view of the above the addition made on account of bogus purchase is deleted. As a result, appeal is allowed on this ground.”

2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the assessee’s claim without appreciating the fact that in the remand report the AO had vehemently supported the additions made after due enquiry.

3. The appellant craves leave to add, alter, modify or abrogate any ground of appeal at the time of hearing.

8 Sanjib Bothra A.Yr.2010-11 quantity was duly reflected and the same has been taken in the stock register and there is absolutely no dispute with regard to the quantity. The assessee had duly explained that the rates would be entered in the said bills found for the period January to March 2010 after due negotiations with the said three suppliers after satisfactory verification of the quantity delivered and after carrying out the quality check of the same. Hence this goes to prove, that at the outset, there is absolutely no case made out by the revenue to disbelieve the purchases made from National Enterprises, Priyanka Enterprises and Shivam Enterprises for purchases made upto Dec 2009. It was also explained that the survey team had taken out individual item wise stock of all godowns of the assesse which were in conformity with the stock register. The inventory as taken by the survey team showed that the same articles as supplied under the questioned bills were in the stock and the rate of individual article as mentioned in those bills were also similar with the inventory rate. These facts go to prove that the purchases were genuine although the final complete bills were not submitted by the said suppliers due to circumstances stated above. We find that the assessee had also duly explained the reasons for reduction in gross profit rate by way of reduction in export turnover by way of lesser sale prices and huge fluctuations in export proceeds realization due to foreign exchange variations with specific reference to invoices when compared to that of earlier year.

7.1. We find that the ld CITA had directed the ld AO to make verification of only three parties viz National Enterprises, Shivam Enterprises and Priyanka Enterprises. The ld AO chose to verify M/s National Enterprises and obtained statement from him and also allowed cross examination of the said party to the assessee. We find that both during examination by the ld AO and also cross examination by the assessee, Shri Milan Maity, Proprietor of National Enterprises confirmed having sold goods to the assessee and payments for the same were received by account payee cheques. It also stood established beyond doubt from the said cross examination that the said party had not done any fabrication work for the assessee as stated by the ld AO. We find that the ld AO for reasons best known to him did not chose to verify the other two parties viz Shivam Enterprises and Priyanka Enterprises in the remand proceedings. 8

9 Sanjib Bothra A.Yr.2010-11 In these circumstances, the only inference that could be drawn is there is no adverse comment on the part of the ld AO with regard to purchases done from them. Hence there is absolutely no case for making any addition towards bogus purchases made from these two parties in the sums of Rs 43,00,960 and Rs 47,97,072/- .

7.2. We find that the ld AO in the course of assessment proceedings for the Asst Year 2011-12 had made further enquiries as per the business address and also as per the addresses as per bank accounts as called by the ld AO from the respective banks of the parties. The ld AO after enquiry concluded that the parties were carrying on fabrication work as given by the assessee and not supplied any finished goods to the assessee but received payments by cheques from the assessee. In this regard, the assessee sought for cross examination of such parties and the same was granted. The following facts emanated out of such cross examination of the parties :- i) The ld AO had called the bank statement from the respective bankers of the parties and verified the same in details and found that all the account payee cheques issued by the assessee for purchase of finished gloves has been reflected in the party’s bank accounts. He has also observed that said parties has issued several cheques to their purchasing parties from the said bank accounts. Such observation, he has not stated anywhere in his findings and in his conclusion in the remand report. ii) That the ld AO disbelieved the existence and transaction ofhte parties which proved baseless. The cross examination and the physical oath of the parties proves that the parties were genuine and made indisputable transactions with the assessee during Asst Year 2010-11. iii) The assessee further explained that he cannot be held responsible if the parties have not maintained any books of accounts or not in possession of any record in support of their sale. iv) The contention of the ld AO that the copies of the bills remained with the assessee is baseless, as it was no where stated by the parties in the course of their 9

10 Sanjib Bothra A.Yr.2010-11 statement given on oath. However, there are certain bills impounded during the course of survey wherein rate / amount was not written. This has been already elaborated with proper reasons by the assessee. v) The assessee narrated that he being an exporter cannot accept anything which is not as per specification of the foreign buyer. As such, whenever the suppliers deliver the goods, the same cannot be accepted without detail checking. Only after thorough checking of quantity, goods are accepted at the godown with a remark on the challan that the ‘Quantity OK’ . In many occasion, all the goods as supplied are not accepted as some of the goods are rejected. Hence the actual quantity as accepted in the godown mentioned on the challans by the suppliers and the same are recorded in the daily stock register. Only after the challans are accepted, the supplier raised their bills. vi) It was stated that nowhere in the oath during the course of cross-examination, the statement as given in the parties was in English. It was all through given in Bengali and subsequently translated and written in English by one departmental staff under the guidance of the ld AO. The Authorised Representative in no circumstances intervened or guided the parties to state incorrect statement as alleged by the ld AO. vii) The overall finding and conclusion of the ld AO was not based on fact as there is no doubt about the existence and transaction of the parties. All payment received by the parties through account payee cheques as reflected in their bank statements. Hence the question of genuineness of parties does not arise and it is clear that the transactions with the parties are also genuine as the same is proved in the course of cross-examiantion and hence the ld AO’s finding is not based on facts as well as not in conformity of the spirit of law.

7.4. We find that the ld CITA had recorded an incorrect finding that the ld AO in the remand proceedings had examined two out of the three parties which were the subject matter of 10

11 Sanjib Bothra A.Yr.2010-11 addition. Factually the ld AO had verified / examined only one such party i.e National Enterprises (Proprietor Shri Milan Maity). In addition to this, he had examined Deep Enterprises which was not directed to be verified by the ld CITA . We also find that the ld CITA had given a categorical finding that there was no quantitative discrepancy that was found in the purchases recorded in the stock register. It is not in dispute that even on the date of survey, the alleged blank bills did contain the quantity duly received by the assessee. Only the rates were not mentioned in those bills at the time of survey , the reasons for which had already been elaborated hereinabove. The ld AR placed before us a summary sheet wherein if the alleged purchases are considered as ingenuine, the same are to be removed from purchases, then the same would result in negative stocks for the assessee, which is not the case of the revenue at all. All these purchases are duly backed by corresponding exports. On the contrary, we find that the survey team only found excess stock at the time of survey. Hence there is no question of disbelieving the purchases made from National Enterprises by the assessee.

7.5. In view of aforesaid facts and our findings , we hold that the ld CITA had rightly deleted the addition on account of ingenuine purchases in the sum of Rs 1,67,13,174/- from three parties. Accordingly we do not find any infirmity in the said order of the ld CITA. Accordingly, the grounds raised by the revenue are dismissed.

Order pronounced in the Court on 08 .12.2017