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Income Tax Appellate Tribunal, ‘A’ BENCH
Before: Shri P.M Jagtap & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is against the order dt. 08-11-2013 passed by the CIT-A, XII, Kolkata for the A.Y 2010-11.
The revenue has raised the following effective grounds of appeal:-
1. That on the facts and in the circumstances of the case as well as in law ld. CIT(A) erred and is not justified in deleting the addition made by the assessing officer on account of bogus purchase of Rs.49,01,811/-.
2. That on the facts and in the circumstances of the case ld. CIT(A) erred and is not justified in deleting the addition made by the assessing officer on account of difference in stock of Rs.30,22,659/-.
The brief facts of the case are that the assessee is an individual and is a manufacturer and 100% exporter of leather goods. A survey was conducted u/s. 133A of the Act on 29-01-2010. The assessee filed his return of income declaring total income of Rs.48,08,090/- on 13-1-2011.
Thereafter, notices u/s. 143(2) and 142(1) of the Act were issued. The AO determined the income of the assessee at Rs.1,27,32,560/- vide his order dt. 12-03-2013 making the additions of Rs.48,01, 811/- and Rs.30,22,659/- towards bogus purchase and difference in stock respectively.
Ground no. 1 relates to deletion of addition of Rs.49,01,811/- made on account of bogus purchase.
During the course of scrutiny the AO called for copy of stock register and copy of production register. The assessee produced the copy of stock register on 26-11-2012 and filed written submissions. According to AO, the assessee produced only the stock register, but, he did not file the same for examination of the AO. On verification of the stock register, the AO found that stock of finished items (exportable goods) were shown on monthly basis and other items were shown on daily basis and stock of raw material items were not at all produced for verification. On examination of material available on record, the AO found the difference of net profit shown by the assessee as on the date of survey at Rs.1,02,27,452/- and in the return at Rs.54,21,113/-, for which the assessee submitted that the purchases were not recorded as on the date of survey. The AO also found that the goods worth of Rs.5,19,302/- in respect of M/s. Zeeshan Enterprises were supported by documents, but no documents were produced in respect of M/s. Pradhan Tanners, Star Hide Company & M/s. Lodwing Import. In explanation, the assessee submitted as under:-
" This is to inform you that Goods worth Rs 54, 21,113 have been received on challah basis and assessee had purchased finished leather from its regular dealers & it is a regular trade practice that goods are received on the basis of challan & after 2-3 days the seller issues commercial invoices once the gods are approved on the basis of assessee inspection report. If for some reason assessee rejects the goods, then party issues commercial invoices for the goods which are finally approved by the assessee. Hence few material although have been included in stock on challan basis but final entries have been done on the basis of invoices received on later date. (copies of bills received form Pardhan Tanners are enclosed)
Survey team has physically inspected and verified the goods which have been received by us by way of challan and for which the commercial invoices have been received from parties afterwards And goods were used for making exports and recorded as sales and offered for taxation. If purchases are considered as Ingenuuine one is bound to reduce the amount of sales by adding a Gross profit on the so called Ingenuuine purchases. The Paper relating to Transportation are not available as most of the papers were destroyed I the devastating fire on 12-6-2011. “
The AO not being satisfied with the above submissions of assessee treated the purchases as ingenuine by observing, firstly, bills were not produced, secondly, the transport bill and details were not produced in respect of goods actually being received and thirdly, for not furnishing the bank statement showing the sale and respective debtors/creditors from the parties. Accordingly, the AO held that an amount involved with M/s. Zesshan Enterprise is genuine and the amounts involved with M/s. Pradhan Tanners, M/s. Star Hide Company and M/s.Lodwing Import of Rs.49,01,811/- (Rs.54,21,113- Rs.5,19,302) are not genuine and added to total income of the assessee.
Before the CIT-A, the assessee contended that the goods found physically on the date of survey and were recorded in the stock register and thereafter exported the same. The assessee submitted as under:-
Particulars Amount Pradhan Tanners 19,56,925 Star Hide Company 23,82,090 Lodwing Import 5,26,384 Other Charges 36,412 Total 49,01,811
Details of individual purchases from these parties are as under:- a) Pradhan Tanners Date Purchase VAT Bill Amount Name of Quantity Amount The item Purchase 11/01/2010 12,09,675 48,187 12,58,062 Finished 48375 sq.ft Leather 28/01/2010 7,47,250 29,890 7,77,140 Finished 29890 sq.ft Leather b) Star Hide Company Date Purchase VAT Bill Amount Name of Quantity Amount The item Purchase 29/01/2010 12,01,500 48,060 12,49,560 Wet Blue 4002 pcs Leather 29/01/2010 11,80,590 47,224 12,27,814 Wet Blue 4005 pcs Leather c) Lodwing Import (actual name is Ludwig Voigtlander GMBH, Germany)
Date Purchase Name of the item Quantity Amount Purchase 11/01/2010 12,09,675 Interlock lining 668.50 meters
These purchases cannot be ingenuine for the following reasons already explained during assessment proceedings:- A. Pradhan Tanners a) Goods were found physically in the stock on the date of survey. b) Purchases made from Pradhan Tanner’s were duly recorded in the Stock Register under the white leather (B). (Stock Register of white leather (B) is enclosed. [ Annexure-A(i)]. c) Pradhan Tanners is registered in VAT and input VAT credit have been claimed as refund from VAT authorities. (VAT Return annexure sheet is enclosed. [ Annexure- A(ii)]. d) The assessee had made payment to the Pradhan Tanner’s in respect of the purchases by account payee cheques. Details of payment are as under:-
Name of the Party Date Amount Cheque No. Pradhan Tanners 21/01/2010 2,50,000 Chq Trs 25/01/2010 4,50,000 “ 27/01/2010 2,00,000 “ 28/01/2010 3,00,000 “ 02/02/2010 58,062 685334 01/02/2010 3,00,000 Chq Trs 16/02/2010 4,77,140 “
Copy of Party ledger is enclosed along with cpy of Bank statement showing the said payment. [ Annexure- A(iii)]. e) Pradhan Tanners have also confirmed regarding the purchase transaction in his submission u/s. 133(6). [ Annexure-A(iv)].
B. Star Hide Company a) Goods were found physically in the stock on the date of survey. b) Purchase made from Star hide were duly recorded in the Stock Register under the item Wet blue leather. [ Stock Register of Wet blue is enclosed. [ Annexure-B(i)] c) Star Hide Company is VAT registered and inpute VAT credit have been claimed as refund from VAT authorities. (VAT Return annexure sheet is enclosed. [ Annexure –B (ii)]. d) The assessee had made payment to the Star Hide Company in respect of the purchases by account payee cheques. Details of payment are as under:-
Name of the Party Date Amount Cheque No. Star Hide Company 15.02.2010 6,00,000 685359 17.02.2010 6,00,000 685367 23.02.2010 7,00,000 685384 01.03.2010 5,77,374 535385
Copy of Party ledger & Bank statement is enclosed. [ Annexure-B(iii)]
C. Ludwig Voigtlander GMBH, Germany a) Purchase made from Ludwig Voigtlander GmbH Hof are imported goods as can be seen in the Custom bill of entry dated 28/01/2010 & duly recorded in the Stock Register under Kevlar Lining. [ Copy of custom bill and Stock Register of Kevlar Lining is enclosed. [Annexure-C(i)] c) The assessee had made payment to the Ludwing Voigtlander GmbH Hof in respect of these purchases by way of remittance in foreign currency. Details of payment are as under:-
Name of the Party Date Amount Cheque No. Ludwig Voigtlander 11/01/2010 5,11,817 FTT0046 GmbH Hof 05/02/2010 14,567 FTT0225
Copy of th e Party ledger is enclosed. [ Annexure-C(ii)] These items were used for making finished goods which have been exported and recorded as sales in our profit and loss account & offered for taxation, if the goods purchased are not genuine then how exports have taken place. Thus you are requested to delete the addition as the purchase are genuine & properly recorded in the books of account of assessee.”
Considering the submissions of the assessee together with the assessment order the CIT-A opined that the findings recorded by the AO were mainly based on the survey conducted u/s. 133A of the Act and the AO did not conduct any independent enquiry to ascertain that the purchases were bogus. Relevant portion of which is reproduced herein below:- 5.1.3 Decision: I have carefully gone through the findings of the Assessing Officer, the material placed on record and submissions put forth on behalf of the appellant. The action of the Assessing Officer is mainly based on the findings recorded during the course of survey under sec. 133A of the Act. It is fact that certain goods were found in stock for which the appellant could not produce purchase bills, and part of the stock were not taken in the stock register. The Assessing Officer did not accept the explanation offered by the appellant mainly on the ground that in the first instance, there was no response to notice under sec. 133(6) in respect of one of the parties, namely, Star Hide Company. According to him, it was unbelievable that “ stock available was of M/s Star hide and not of other parties when the same items of raw material is purchased from other parties and cheque payments and Vat registration cannot be accepted as Guarantee to show actual affairs of the transactions as per the facts and circumstances of the case ... ". For this, the Assessing Officer has derived strength from the statement one, Shree Shyam Bagaria recorded on 29-01-2010 during the survey proceedings, it has been stated vide answer to question no. 4 as under when asked about nature to business, that "We bring raw and semi - finished leather namely wet blue from various parties outside Bengal and consignment directly goes to Bantala leather complex to various parties for job work."
Now, in this case, the addition has apparently been based on the information gathered during the course of survey under sec. 133A of the Act. The Assessing Officer does not appear to have made any independent enquiries to ascertain that the purchases were bogus. The statement of the said Shree Shyam Bagaria is so general in nature that does not support the view that, the appellant had not made any purchases from the three concerns.] There is no material on record to show that cross- examination of statement was allowed. In this case, all the transactions are duly recorded in the books and disclosed in regular return of income. No incriminating material was found during survey. All transactions were through account payee cheques. Further, there is a basic difference between statement under sec. 133A(3) (iii) and 132. Statement recorded u/s. 133A cannot be given evidentiary value as such evidentiary value is not attached with by the provisions of Section 133A of the Act. There is no corroborative material brought on record to make the addition. Suspicion however strong, cannot take form of evidence. In Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC), the principle of law laid down by the Hon'ble Supreme Court is that in making the assessment under section 143, the Assessing Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicision to support the assessment under section 143(3). Therefore, having regard to the facts and circumstances of the case, in my opinion, the Assessing Officer was not justified in making the impugned addition of Rs.49,01,811/- on account of bogus purchases. The addition cannot be sustained. The same is hereby deleted. This ground of appeal is accordingly allowed. “
9. Before us the ld.DR submits that as per the survey the purchases found in the books worth of Rs.1,02,27,452/- whereas the assessee reduced the same in its return to Rs.54,21,113/-. During the assessment proceedings the AO asked the assessee to explain the same. The assessee could not file any documents supporting the same. The AO could not verify any of the evidences in respect of Pradhan Tanners, Star Hide Company and M/s. Lodwing Import except M/s. Zessan Enterprises. The CIT-A deleted the said addition only on the basis of stock register. The ld.DR submits that during the course of scrutiny proceedings, the assessee produced only stock register, but he did not file the same for verification by the AO. He supported the order of the AO.
10. On the other hand, the ld. AR submits that the stock register was submitted before the AO for his verification and referred to page 2 of the AO’s order. He submits that the assessee filed the details of ledger before the AO and referred to page 36 onwards of the paper book. The CIT-A examining all the details as available before him deleted the impugned addition made by the AO. The ld.AR of the assessee urged to dismiss the ground raised by the revenue.
11. Heard rival submissions and perused the material available on record. We find that the issue on which the addition was made relating to reduction of purchase Rs.54,21,113/- as against the net profit shown by the assessee of Rs.1,02,27,452/- on the date of survey. It is observed from the assessment order that the purchases were not recorded as on the date of survey and the assessee reduced the same in the return filed. But, the AO found the receipt of goods from M/s. Zessan Enterprises of Rs.5,19,302/- were supported with evidence and in respect of other parties for not furnishing any document evidencing the purchase from such parties treated the purchase as bogus and ingenuine. Basing on which, the AO added the impugned addition to the total income of the assessee. Before the CIT-A the assessee contended that the goods found physically on the date of survey were duly recorded in the stock register and thereafter exported the same. The assessee filed the details of purchases from the said three parties before the CIT-A against whom the AO made the additions. We find that the assessee filed relevant details in respect of all the three parties. The CIT-A examining the same found that Pradhan Tanners is registered in VAT and as such claimed refund from VAT Authorities. The payments were made through account payee cheques. The CIT-A found satisfaction with the copy of ledger along with bank statements in respect of said payment. The CIT-A further observed that Pradhan Tanners confirmed the same u/s. 133(6) proceedings. We find that all the details i.e. stock register, claim of VAT payments, ledger copy and statements u/s. 133(6) of the Act were on record available before the AO/CIT-A. Likewise, the CIT-A examining all the details in respect of other two parties, Star Hide company and Lodwing Voigtlander GMBH, Germany found satisfaction that all the details were made available before the AO. But, the AO proceeded to make addition on suspicion that the assessee did not produce stock register and the receipts showing purchases from the said three parties were bogus and incorrect. We find that the CIT-A examined all the details of said three parties and found satisfied that all the transactions are duly recorded in the books and disclosed the same in the return filed after the date of survey. We further find that all the transactions with the said parties were made through account payee cheques and the same were confirmed under 133(6) of the Act proceedings by the said parties. Therefore, we find no infirmity in the impugned order of the CIT-A and it is justified. Ground no. 1 raised by the revenue is dismissed.
12. Ground no. 2 relates to deletion of addition of Rs.30,22,659/- made on account of difference found in stock.
During the course of scrutiny proceedings the AO found that the assessee filed reconciliation statement by reducing the stock against the stock as per account found as on the date of survey. The AO required the assessee to explain the difference in stock after and before production. The AO also sought explanation as to why the production entries and entries of consumption were not recorded regularly. The assessee filed written submission on 17-01-2013 and 22-01-2013, which are as under:-
" Stock of Ready exportable goods were reduced at the time of survey as the production entries for the month of Jan 2010 were not recorded upto the date of survey but sales were recorded as and when bills were raised as per the practice of the assessee. Physical stock of Raw material were reduced by quantities that were used in production of ready exportable goods in the month of Jan 2010 but entries for consumption are done at the end of the month instead of day to day basis as per the practice of the assessee". That Entries relating to consumption and production since internal to them are recorded at the end of the month. And closing stock has been valued on the basis of accounting standard and generally accepted accounting principles consistently followed. During the hearing on 29-1-213, Representative of the assessee Sh Sunil Ganeriwal was asked to explain regarding stock in respect of (Finished Goods) being entered on daily basis (Day to day basis) as per Stock register, it was explained as under. “ Entries are done on day to day basis as per stock register (in the stock register) on the end of the month when goods produced of the whole month are entered in the stock register on respective dates of production Finally Goods are produced and finished at our premises. "
The AO did not find merit in submissions of the assessee that the production entries were not recorded upto date and sales were recorded as and when bills raised. Accordingly, the AO made an addition of Rs.30,22,659/- being difference found in stock as per account and stock physically found as on the date of survey of Rs.3,02,659/- (Rs.1,73,44,602-Rs.1,43,21,943).
Before the CIT-A the assessee contended that the AO made double additions on account of bogus purchases and also on reduction of stock. The assessee also contended that the physical stock of raw materials was reduced by quantities as it was used in the production of exportable goods. The same were recorded when the bills raised. The CIT-A found that the submissions of the assessee were reasonable. Accordingly, he deleted the impugned addition by stating as under:- 5.2.3. Decision: I have considered the facts of the case and the submissions put forth on behalf of the appellant. The Assessing Officer observed that the appellant firm did not offer any explanation as to why the production entries were not recorded regularly and up to the date of survey and also as to why the entries of consumptions were done at the month end instead of day to day basis. According to him, when goods are finally produced and finished in appellant's premises, there was no reason as to why entries on month of the whole month instead of regular entries as per daily production and that too on the respective date of production and thus submission of the appellant regarding reduction was disallowed. The finding of the Assessing Officer that the purchases to the extent of Rs. 49,01,811/- is not borne out from records. Since, during survey, the stock found was less than what is declared in the books, the action of the Assessing Officer in holding that the entire difference in stock to the extent of Rs. 30,22,659/- represented suppressed profit or income is not justified. This naturally could lead to the inevitable conclusion that the difference is on account of unrecorded sales, and not on account of unrecorded purchases. The appellant is running a 100% export-oriented unit. No incriminating documents or any other material was found to show that the appellant had suppressed sales or sold goods elsewhere. The Assessing Officer has not brought on record any material to find fault in the explanation offered by the appellant for the difference by way of the reconciliation statement furnished by the appellant. The fact that the appellant has been following the same method of maintaining stock records as in the past has also not been rebutted. There is merit in the submissions of the appellant that "Stock of Ready Exportable Goods were reduced at the time of survey as the production entries for the month of Jan 2010 were not recorded up to the date of survey but sales were recorded as and when bills were raised as per the practice of the appellant and that physical stock of raw material were reduced by quantities that were used in production of ready exportable goods in the month of Jan 2010 but entries for consumption were being done at the end of the month instead of day to day basis as per the practice of appellant. The finding of the Assessing Officer that the margin of profit declared by the appellant firm is low on the basis of working of profit of article nos. 1212135 (Glove, White Crome leather 2*24) and holding that the low net profit disclosed was taken care of by the additions on account of bogus purchases and difference in stock is also not justified, particularly because the margin of profit in a particular item could not indicator of the overall margin of profit. Having regard to the facts and in the circumstances of the case, I am of the considered opinion that the Assessing Officer was not justified in making the addition on account of difference between the stock found on physical verification and that found recorded in the regular books of account as on the date of survey. Therefore, the addition of Rs.30,22,659/- made in this regard is hereby deleted. The appeal of the appellant is allowed on this ground. "
The ld.DR submitted that the AO found that during the survey physical stock deficit as compared to the stock maintained by the assessee as per books. The entries of stock were not maintained properly on day to day basis. The AO did not accept the contention of the assessee that the entries were recorded at the end of the month.
On the other hand, the ld.AR submits that the entries were recorded in respect of exportable goods at the time of sales , which were recorded as and when bills raised. He further submits that the CIT-A examining the export register found satisfaction with the same and deleted the addition made by the AO. He relied on the order of the CIT-A.
Heard rival submissions and perused the material available on record. We find that the AO made the addition on the difference of stock value as found as per books maintained by the assessee and stock found physically as on the date of survey. The assessee explained such difference as the production entries were not recorded upto the date of survey and it was the practice to record the same at the time of sales. According to AO, the entries should have been made day to day and not at the end of the month. We find that the contention of the assessee is that the raw material required in production of exportable goods were not recorded up to the date of survey and the AO did not consider the same in his right perspective together with the bills raised by the assessee at the time of sales. The CIT-A considering the submissions deleted the impugned addition made by the AO. The AO made the addition on account of difference between the stock found on physical verification and recorded in the regular books of account as on the date of survey, which is not justified. The assessee is running a 100% export oriented unit and no incriminating material was found to show that the assessee had suppressed sales of goods. We further find that the AO has not brought on record any material to find fault in the explanation offered by the assessee for such difference by way of reconciliation statement furnished by the assessee. We find that the assessee has been following the same method of maintaining of stocks as followed in the earlier years. We find that before the AO the assessee has provided every detail of raw materials and production thereon and practices adopted in their business, which were not accepted by the AO on the ground that different in stock found as per books and as on the date of survey. We find that the submissions of the assessee made before the AO and CIT-A were same and found reasonable and acceptable to the facts of the case. The CIT-A was justified in deleting the same. We uphold the same. Ground no. 2 raised by the revenue is dismissed.
In the result, the appeal filed by the revenue is dismissed. Order Pronounced in the Open Court on 09-06-2017.