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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K.PRADHAN
आदेश / O R D E R Per Bench
All these appeals are filed by the Revenue and cross objections by the Assessee against the order of the Ld. CIT (Appeals)-14, Mumbai dated 15.03.2016 for the assessment year 2008-09, 2009-10 and 2011-12 arising out of the assessment orders passed u/s 143(3) r.w.s 147 of the Act.
Briefly stated, the facts are that the Assessee is engaged in the business of manufacture of fire fighting equipment. Assessee filed returns for assessment years 2008-09, 2009-10 & 2011-12 declaring income of Rs.98,59,083/-, Rs.98,02,471/- and 1,16,15,398/- respectively. Returns were processed u/s 143(1) and there were scrutiny assessments in any of these assessment years. Subsequently the assessments were reopened by issue of notice u/s 148 and the reason for reopening is the Assessee made purchases from certain parties and those parties during the investigations stated that they have provided accommodation bills as deposed by them before the sales tax authorities. Therefore, the Assessing Officer was of the belief that the income escaped assessment as the Assessee obtained only accommodation bills from those parties. In the course of assessment proceedings, it was submitted by the Assessee that it is engaged in the manufacturing of portable/trolley mounted fire extinguisher of different types and capacity to manufacture fire extinguisher and required raw material like C.R.C. sheet, H.R. sheet, M.S. Flat, seamless pipe, PVC pipe, brass rod, M.S. rod angle and fire fighting chemical and gas and consumable material like welding rod, paints, sticker, packing material and hardware items. It was submitted that without these raw materials fire extinguisher cannot be manufactured. It was submitted that raw materials were purchased in kgs., mtrs. and in numbers depending on the nature of the raw materials. Consumption of raw material is linked with quantitative sales of various types and capacities of fire extinguishers during the year and is not disputed. Assessee has provided itemwise consumption of raw materials and the nature of the raw materials purchased before the Assessing Officer. However, the Assessing Officer not convinced with the replies disallowed the purchases in all these three assessment years holding that the information received by the investigation wing of the sales tax department proved that the parties from whom the Assessee purchased the materials, have issued only accommodation bills and therefore the Assessee has not made any genuine purchases and merely submitting the copies of invoices do not prove the transaction to be genuine. On appeal, the Ld. CIT (Appeals) restricted the addition to 3% of the purchases, following the decision of the Coordinate Bench of this Tribunal in Assessee’s own case for the assessment year 2010-11 in and ITA No.3869/Mum/2014 dated 28.10.2015.
The Ld. DR vehemently supported the orders of the Assessing Officer. He submits that on enquiries made by the sales tax department, it was found that the parties from whom the Assessee made purchases have provided only accommodation entries and therefore the Assessee has not made any purchases from those parties who obtained only accommodation bills.
Therefore, he submits that the Assessing Officer is justified in adding the entire purchases as not proved. Therefore he pleads that the order of the Ld. CIT (Appeals) be reversed and order of the Assessing Officer restored.
The Ld Counsel for the Assessee vehemently placing reliance on the orders of the Coordinate Bench in the Assessee’s own case for the assessment year 2010-11 submits that on identical facts, the Tribunal restricted the addition to 3% of the purchases so made from the alleged suppliers so as to cover leakage of revenue. The Ld. Counsel therefore submits that the facts and circumstances being same, the same may be followed.
We have heard the rival submissions, perused the orders of the authorities below. The additions in these cases towards bogus purchases have been solely made based on the statements said to have been recorded by the sales tax authorities during investigation of the dealers who supplied the materials. There were no independent inquiries conducted by the Assessing Officer with these parties nor any information which they have gathered from those parties were provided to the Assessee. Solely based on the sales tax departments website and the information therein these additions were made. On identical circumstances, in the assessment year 2010-11, the Tribunal considered the issue and restricted the addition to 3% as the Assessee has shown its GP ranging from 18.59% to 21%. It is also the finding of the Coordinate Bench that the Assessee has prepared consumption statement and furnished before the Assessing Officer when the Assessing Officer recorded statement by issue of summons to the Assessee. The Coordinate Bench while restricting the addition to 3% held as under : “2. Rival contentions have heard and record perused. Facts of the case in brief are that the assessee is a manufacturer and trader in fire fighting equipments, components, spares as well as security system and maintenance of fire fighting equipments and security systems etc. For the relevant assessment year under consideration, the return of income was filed at a total income of Rs. 92.26 lacs. The case was selected for scrutiny under CASS. During the course of scrutiny assessment, the A.O. observed that the assessee has made purchase of Rs. 2,27,43,566/- from bogus suppliers. Accordingly, he added the entire amount of purchases in assessee's income. By the impugned order, the ld. CIT(A) reduced the addition to Rs. 43,39,406/- on the basis of statement of purchases prepared for the entire year and comparing the figure of purchases made from these suppliers with the rate of purchases prevailing on the date of purchases was made. Against the above order of ld. CIT(A), both the assessee and the Revenue are in further appeal before us.
3. We have heard rival contentions and found from the record that the assessee is in the business of manufacturer and trader in fire fighting equipments, components, spares as well as security system and maintenance of fire fighting equipments and security systems etc. having its office in Mumbai and factory at Palghar. In respect of the purchases, the assessee maintains stock record in the form of bin cards at its Palghar factory. However, no separate consumption record was maintained. A summon was issued by the A.O. and he visited the office premises of the assessee on 15- 01-2013 and recorded the statement of the assessee. The assessee was asked to prepare the consumption statement. The assessee prepared the detailed consumption statement justifying the purchases so made and consumed during the year. The detailed reply filed along with evidences which are placed at page 206 to 263 of the paper book. However, the A.O. added the purchases made from some of the parties. The assessee's contention regarding consumption of stock was declined which is supported by corresponding sales. These entire amount of purchases were added in assessee's income. At page 7, the A.O. has mentioned the reason for declining the purchases according to him information was received from DGIT (Inv.) regarding bogus purchases. The A.O. also observed that these suppliers are hawala operators and have only provided accommodation entries. The stock statement and stock register so prepared at the asking of A.O. was declined on the plea that the stock register was submitted by the assessee at a later date is only a makeover attempt. In an appeal filed before the ld. CIT(A), the ld. CIT(A) observed that the assessee is a manufacturer and therefore register called RG 1 and RG II should have been maintained, which the assessee has not maintained. The id. CIT(A) further observed that the stock register was filed belatedly and that assessee had admitted before the Sales Tax Authorities regarding purchases from these parties. However, the Ld. CIT(A) agreed that the assessee has consumed the material for the purpose of manufacturing. However, he alleged that at some instances the rates of purchases was found to be inflated in the bills given by alleged parties. Thus the additions so made were restricted by the ld. CIT(A) to Rs. 43,39,406/-.
4. After going through the documentary evidences placed on record vis- à- vis the reply filed before the lower authorities, we find that the assessee is maintaining regular books of account which have not been rejected. The rate difference has also not been rejected. Even, while preparing the rate difference statement, the ld. CIT(A) has not rejected the books of account. When the sales and consumption of material purchased have been accepted, therefore, as a natural corollary, the purchases were also required to be accepted because without purchases, there cannot be manufacturing or sale. The assessee has also produced evidence relating to transport of goods from Bombay office to Palghar office. We also found that the assessee is regularly maintaining the bin cards at Palghar factory. The stock record referred by both the A.O. and the id. CIT(A) are consumption reconciliation prepared by the assessee at the instance of Revenue. This statement was prepared subsequent to the visit on 15-01-2013 when the A.O. asked assessee to prepare such consumption statement. As per the consumption statement so prepared, the utilisation of raw material purchased are fully justified, however, nothing wrong was found by the Revenue Authorities with regard to the consumption statement so prepared. Even the rate statement prepared by the ld. CIT(A) did not take into account the lower rate prevailing in the market at which the assessee has purchased from the regular supplier. As per our considered view both higher and lower rates are required to take into consideration to find out if any amount of profit is reduced by inflating the price. The books of account so maintained by the assessee were not rejected by any of the lower authorities. From the record we also found that the GP rate shown by the assessee during the year under consideration was higher as compared to the GP rate shown in the earlier two years. We found that in assessment years 2008-09 and 2009- 10, the G.P. rate shown was 18.59% and 19.13% respectively, whereas the GP rate during the A.Y. 2010-11 under consideration was 20.99%. However, even in the A.Y. 2011-12 the GP rate was 20.27%. Thus, it is clear that the GP rate shown by the assessee in the year under consideration was better as compared to the GP rate of earlier as well as succeeding year. The fact that the books of account has also not been rejected by the lower authorities, therefore, under such circumstances one has to take into account the fact that the GP rate shown by the assessee during the year under consideration is better than the earlier years. If the GP rate during the year under consideration is found to be lower as compared to the other years, the Department is free to take the higher GP rate shown in the earlier year, whereas in the instance case assessee itself had shown higher GP rate. Taking into account the totality of the facts and circumstances of case vis-à-vis observation of the lower authorities, we direct the A.O. to restrict the addition by taking 3%(three percent) of the purchases so made from the alleged suppliers so as to cover leakage of revenue , if any. We direct accordingly.” Facts and circumstances being identical in these assessment years also, following the said decision of the Coordinate Bench, we direct the Assessing Officer to restrict the addition to 3% of the purchases so made from the alleged suppliers to cover up the leakage of revenue.
The cross objections filed by the Assessee are not pressed. Therefore, the same are dismissed as not pressed.
In the result all the appeals of the revenue as well as cross objections of the assessee are dismissed. Order pronounced in the open court on the day of April 2017.
(N.K.PRADHAN) (C.N.PRASAD) लेखा सदस्य / न्याधयक सदस्य / ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई / Mumbai; नििाुंक / Dated .04.2017 LR, SPS आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to :