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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal by assessee is arising out of the order of CIT(A)-39, Mumbai, in vide his order dated 05-03-2013. The assessment was framed by the ACIT Central Circle-18 & 19 for the assessment year 2008-09 vide his order dated 30-12-2009 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The two interconnected issues in this appeal of assessee is as regards to inflation of expenditure of Rs.3.15 crores being cost of the fixed assets and bogus expenditure of purchase of steel amounting to Rs.2,66,03,042/- raised by way of following two grounds.
“1. Learned A.O. erred on facts and in treating the sum of Rs.3,15,00,000/- and the sum of Rs.2,66,03,042/- totaling to Rs.5,71,03,042/- as bogus capitalization.
AY 08-09 M/s. Nitin Cylinders Ltd. 2. Learned A.O. erred on facts and in Law in reducing the sum of Rs.5,71,03,042/- from the block of Plant and Machinery as on 31-03-2008.”
Briefly, stated facts are that the assessee is engaged in the manufacturing of high pressure seemless cylinders. A search and seizure operation under section 132 of the Act was conducted in the groups concerns of assessee including the assessee Nitin Cylinders Ltd., on 06.09.2007. The assessee was constructing a factory at Visakhapatnam SEZ for manufacture of high pressure seemless cylinders. During the course of search, the investigation wing found several incrementing material regarding discrepancies in the construction account and were seized. During the course of assessment proceedings, Assessing Officer noted that the search party obtained following details of cheques issued in the name of the parties but payment was not made to them and instead cash obtained by discounting the same, which are as under:-
S. Name of the party name of the Amount (Rs.)/ Cheque Name of the Bank No. part in whose name the No. & Date & Branch & cheques are drawn Account NO. of the NCL 1. Dhanotra Construction Co. 12,66,340 cheque No. State Bank of India, 853776 dated 13.06.07 Andheri (E) Telli Galli Branch A/c No. 30095365231 2. Escort Construction Equipment 7,40,000 cheque -do- Ltd. No.853775 dated 13.06.07 3. Taurus Pvt. Ltd. 40,00,000 Cheque No. -do- 853773 dated 13.06.07 4. Karani & Sanghvi Designers 4,71,950 cheq no. -do- 853778 dated 13.06.08 5. Toshali Cement Pvt. Ltd 6,31,176 cheque No. -do- 853783 dated 13.06.07 6. Toshali Cement Pvt. Ltd. 78,032 cheque no. -do- 853779 dated 13.06.07 7. Taurus Pvt. Ltd. 36,90,000 Cheque No. -do- 853777 dated 13.06.07 8. Electrotherm India Ltd. 60,30,000 Cheque No. -do- 853777 dated 13.06.07
AY 08-09 M/s. Nitin Cylinders Ltd. S. Name of the party name of the Amount (Rs.)/ Cheque Name of the Bank No. part in whose name the No. & Date & Branch & cheques are drawn Account NO. of the NCL 9. Dynatech Furnaces(Bombay) P. 1,44,00,000 Cheque -do- Ltd No. 853771 dated 28.05.07 Total Amount 3,13,07,498/- The assessee also filed the similar details. Assessing Officer noted that the statement of one Shri Soumil M. Parik Proprietor of M/s. C.K. Enterprises was recorded wherein he admitted on 28/11/2007 that he has collected all the 9 cheques and encashed them that for discounting purposes and an equivalent cash was returned back to the party after deducting commission. On the basis of this statement, the assessee when confronted under section 132 (4) of the Act admitted that he will not claim the depreciation of this amount of Rs.3,13,07,498/-. The relevant question No.5 & 6 and answer are being reproduced as it is:
“As directed by the Ld. CIT-39, Mumbai, the undersigned has issued summons under section. 131 to all five parties. Out of five parties, summons issued to M/s. R.J. Corporation, M/s. Pooja Enterprises and M/s. Siddhivinayak Trading Company has been returned with a remark “unserved” and in respect of two parties viz. M/s. M.R. Corporation and M/s. Sun Enterprises the summons were served but there has been no compliance. The matter has been brought to the notice of assessee’s representative who has stated that the person handling these companies has passed away.”
“Q.5. During the course of search proceedings at your office, a statement u/s 132 (4) of Mr. Rahul Shah dated 19.10.2007 was recorded. The same is shown to you. You are requested to go through the same and give your comments if any.
Ans. I have gone through the statement. I have no further comments to offer.
AY 08-09 M/s. Nitin Cylinders Ltd. Q.6. In this regard, your attention is further drawn to the answer to question no. 3 given by Mr. Rahul. He has not furnished the precise details as to how the cheques of Rs. 3,13,07,493/- were encashed. Also explain a to who had signed these cheques.
Ans. To the best of my memory, the cheques were signed by me. These cheques were issued in a routine course. To buy peace with the department and to avoid my further embarrassment and in larger interest of our group business. M/s Cylinders Ltd. will not make claim of depreciation on this amount of Rs. 3,13,07,498/-.”
The Assessing Officer taking his admission added this amount of Rs.3.15 crore to the returned income of the assessee. By observing as under:
“On a perusal of the aforesaid confirmations, it is noticed that they are all stereotyped confirmations prepared by the assessee. Even the persons who have allegedly signed these confirmations have the same handwriting. The entire exercise appears to be bogus, especially when none of the parties have been produced before me for verification. The findings of the Investigation wing that the assessee has been obtaining bogus bills to inflate the expenses have not beencontroverted by the assessee by producing the parties at the time of assessment proceedings inspite of having been given sufficient and reasonable time to prove the genuineness of the transaction. The statement of Shri Nitin M. Shah at the time of search makes it very clear that the amount of Rs.3,13,38,798/- (Rs.3,13,07,498/- + 31,300/-) from the Capital expenses incurred for the construction of the plant by the company and the Fixed assets of the plant will be reduced by a sum of Rs.3,15,00,000/- as admitted by Shri Nitin M. Shah in his sworn statement dated 19.10.2007. As this amount is encased by Shri Nitin M. Shah, who is Managing Director of the Company, this amount will be assessing his hands as unaccounted income for this assessment year (A.Y. 2008-09). Similarly the commission of Rs.100/- per 1.00 lac
AY 08-09 M/s. Nitin Cylinders Ltd. paid amounting to Rs.31,300/- is also disallowed in the hands of the Nitin M. Shah and added to his total income for A.Y. 2008-09.
As regards, to the addition of bogus expenditure capitalized for purchase of steel material, the assessee filed the details of the parties as under:
S.No Name Purchases 1 M/s M.R. Corporation Rs.30,26,219/-
2 M/s Pooja Enterprises Rs.54,21,594/- 3 M/s R.J. Corporation Rs.83,65,243/- 4 M/s Sun Enterprises Rs. 20,00,003/- 5 M/sSiddhivinayak Trading Co. Rs.77,89,983/-
Total Rs.2,66,03,042/- The AO required the assessee to produce these parties but the assessee could not produce these parties and hence, AO treated these purchase as bogus and disallowed the expenditure under section 69C of the Act.
On both the additions the Assessing Officer disallowed capitalization of these amounts of Rs.3.15 crores and another amount of Rs.2,66,03,042/-. Aggrieved assessee preferred appeal before Commissioner of Income-tax (Appeals), who also confirmed the action of the Assessing Officer is as under:-
“6.3 The finding that the appellant had been booking bogus bills, leading to inflation of expenditure, has been clinched through the enquires conducted and the material facts thereby brought on record both by the Investigation Wing and the A.O. It is held that the A.O was indeed right in rejecting the claim of Rs.3,15,000/- as addition to fixed assets and denying depreciation thereon. The appellant is in fact estopped from raising the issue in appeal having conceded the same before the Department. In addition, the A.O has held that since the bills have been encashed by Shri Nitin M Shah,
AY 08-09 M/s. Nitin Cylinders Ltd. which has not been disputed, the same is assessable in the hands of Shri Nitin M. Shah as his unaccounted income. On the facts of the case, the findings of the A.O are fully confirmed and no interference is called for.”
9. I have given thoughtful consideration to the matter. A claim had been made that purchases of steel had been made from the five impugned parties. The material purchased was steel and the said material had to be transported from Mumbai to Vishakhapatnam. It was claimed that the material was transported through Sai Krishna Corporation. However, the transporter did not respond to the summons. Further there is no evidence produced to identify the vehicles used for transport such as vehicle registration number, names of the drivers, the salary/batta paid to them. The evidence produced by the appellant are ledger extract copies, copies of invoices with the stamp of SEZ and details of payments made and realized by the parties. It can be observed that though evidence has been produced to show the delivery of steel at the SEZ premises, there is no independent evidence to show the actual and physical delivery of steel from Mumbai to Vizag through road. Further, none of the parties have either physically appeared or responded to the enquiry letter, summons issued by the Department. It follows that appellant was not able to prove the factum of purchase from the said five parties. The enquiry made by the Inspector did not yield any result for the reason that no such premises or party as mentioned by the appellant company could be found at the given address. Hence I have to hold that the appellant has not been able to establish beyond doubt the genuineness of the purchase from the said five parties. In this context it is pertinent to examine the declaration of income made by the Managing Director Shri Nitin M. Shah. It has already been mentioned in pre- paragraphs that in statement under oath Shri Nitin M. Shah has conceded the purchase of 3,15,00,000/- could not be proved and hence conceded the same as assessable in his individual capacity. I
AY 08-09 M/s. Nitin Cylinders Ltd. have in this regard taken note of the declaration made by Shri Nitin M. Shah. From a scrutiny of the return of income for A.Y 2008-09 assessed with the same A.O, it is observed that Shri Nitin M. Shah had declared a sum of Rs.5 crores as disclosure to take care of the discrepancy in the purchase of material/commodities in the appellant company. It therefore follows that the bogus purchases of Rs.2.66 crores is covered in the said declaration. In so far as the disclosure of 5 crores in individual capacity is to take care of discrepancies in the claim of purchase/addition to fixed assets in the appellant company, it has to be held that the A.O was right in treating the sum of Rs.2.66 crores as bogus expenditure capitalized. For the said reasons, I decline to interfere with the action and the findings of the A.O in this regard. The reduction from the fixed assets of a sum Rs.2,66,03,042/- and consequent disallowance of deprecation there on is confirmed.
Aggrieved against both the additions assessee is now in second appeal before Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. We find from the facts of the case that the assessee has produced ledger extracts of the parties, confirmations from these parties, bank statements and also certificate from the register valuer to prove the construction of building, which ultimately proves procurement of steel. Admittedly on both the issues payments were made by cheque and the capitalization was denied only on the basis of statement of Shri Soumil M Parik recorded under section 131 of the Act by the department on 28- 11-2007. This recording of statement has already been negated by the coordinate Bench of Tribunal in the group concerns case i.e. Shri Nitin M Shah in for the AY 2008-09, whereby Tribunal has considered this issue by observing as under:-
“11. We have considered the rival contentions of the Ld. Representatives of the parties. In our view, the Ld. CIT(A) has rightly observed that the assessee had declared a sum of Rs. 5
AY 08-09 M/s. Nitin Cylinders Ltd. crores for the year under consideration. The said disclosure was on account of various discrepancies/deficiencies that may be noted in relation to claim of additions to the fixed assets in the case of M/s. Nitin Cylinders Ltd. and also to take care of other issues. So far the contention of the department that the assessee had stated the same as unaccounted income in relation to commodity transactions in grey market is concerned, it may be observed that neither any evidence in this regard was found during the course of search action nor in the investigations during assessment proceedings. The AO had made no enquiries in this respect. He has just relied upon the statement of the assessee made during search action, that in these type of transactions, no evidence generally is available. When there was no evidence found or detected nor there is any contention of the revenue that any evidence in this respect has been concealed by the assessee, then under such circumstances, it has not been explained by the Department as to what prompted the assessee to make such a declaration in respect of income from commodity transactions. It has also not been explained as to even why the AO had not made any enquiries in this respect during the assessment proceedings. The facts on the file clearly reveal that the declaration was made by the assessee in relation to discrepancies found during the search action in the case of Nitin Cylinders Ltd. The naming the disclosure as from commodity trading in the grey market was made as was then advised to the assessee. It is evident on the file that disclosure of Rs. 5.36 crores as per the return of income was to cover Rs.3.51 crores capitalized in M/s Nitin Cylinders considered as bogus purchase and further the sum of Rs.1.82 Crores for covering various issues as explained by the assessee in his letter dated 22.12.2009. The assessee has also claimed that the disclosure be also considered for difference in purchase of steel in M/s Nitin Cylinders Ltd. The Ld. CIT(A) though has held that the sum totally accounted for was at Rs.4,97,00,000/-, however he has not allowed the claim of the remaining amount towards difference in purchase of steel. He has confirmed the addition of Rs. 2,66,03,042/- in AY 08-09 M/s. Nitin Cylinders Ltd. relation to difference in purchase of steel as unaccounted income of the assessee. The assessee has however, not preferred any appeal in this respect. We therefore do not find any infirmity in the order of the Ld. CIT(A) in deleting the further additions made by the AO on account of bogus purchases capitalized in the account of Nitin Cylinders as the same have already been covered in the income declared of Rs.5 crore by the assessee for the year under consideration. There is no merit in the appeal of the Revenue, the same is therefore, hereby dismissed.”
We further find from the above facts that the assessee has produced copies of invoice for purchases and also the details of opening stock, purchases, sales and closing stock. Even the assessee has proved the raw material used in construction of building, which is supported by valuation report. Merely on a statement, which was never confronted or no opportunity to cross examine the party was allowed, in that eventuality the capitalization cannot be denied to the assessee. We agree with the Revenue that the statement recorded by Revenue is a good starting point for making further investigation but it is not conclusive. The Revenue should have made further investigation and take it to logical conclusion but the AO left the job at the initial point itself, which is clear from the assessment order. Even the CIT(A) has not carried this matter further. We are of the view that suspicion however high, cannot take place of evidence. In such circumstances and the coordinate Bench has already considered the issue in group concerns case, we allowed to these interconnected issues in assessee’s appeal directing the AO to allowed capitalization on both the counts. Accordingly, these two interconnected issues of the assessee’s appeal are allowed.
In the result, the appeal of assessee is allowed.
In the result Order pronounced in the open court on 17-02-2017.