MPIL STEEL STRUCTURES LTD,MUMBAI vs. DCIT 8(2), MUMBAI

This is an appeal filed by the assessee challenging the order of ld.CIT(A) 22.8.2014 for the assessment year 2011-12.

The sole ground raised by the appellant –assessee is against the confirmation of disallowance made of purchases from 8 parties to the tune of Rs.63,29,735/-.

During the course of assessment proceedings, the AO on perusal of the profit and loss account found that the assessee debited an amount of Rs.87,15,74,585/- for purchases made during the year and asked the assessee to furnish parawise details of purchases above Rs.5 lakhs along with the bill and vouchers. The assessee filed details of purchases vide its submissions dated 11.10.2013. Thereafter notice under section 133(6) was issued to the suppliers in order to ascertain the creditworthiness of the parties on the addresses furnished by the assessee. Out of the above notices to the parties, some notices were not served and some were served but not replied and in some cases the parties denied to have any transactions with the assessee. In some cases notices were served and replies were received, , the details of which are enumerated in the assessment order at para 5.4 of the assessment order. The assessee was given opportunity by the AO to produce these parties but nothing fruitful happened. However, the assessee duly produced copies of bills and vouchers, 3 ledger accounts before the AO which the AO found that the said bill of the parties were not carrying details of transporters, Lorry Receipt No., Goods dispatch, Goods receipt note, goods inspection details, delivery challan, details of octroi paid and gate pass an vehicle details etc. Thus, finally, the AO came to the conclusion that purchases from those parties aggregating to Rs.2,59,44,084/- were not genuine as the identity, creditworthiness and genuineness of the transactions were not proved, the assessee failed to prove these facts on record, the details of parties and amount against their names are as under : S.No. Name of the party Amount (Rs.) 1 Comet Corporation 1357550 2 Sai steel Co. 20810277 3 Manodeep Marketing and Trading Pvt.Ltd 320250 4 Kotsons Impex P Ltd 1377050 5 Donnies Trading P Ltd 1380990 6. Balkrishna Trading P Ltd 697967 Total 25944084 Similarly, some of the parties did not respond at all and therefore, the AO added the entire purchases from those parties aggregating to Rs.4,79,47,502/- to the income of the assessee as detailed given in para 12 of the assessment order. Finally, the assessment was completed by making the above addition to the income of the assessee vide order dated 24.12.2013 passed under section 143(3) of the Act. Aggrieved by the order of the AO the assessee preferred an 4 appeal before the First Appellate Authority (FAA) challenging the addition on account of unexplained purchases. The ld. CIT(A) called for the remand report and in the said remand report the AO stated that out of total purchases disallowed of Rs.7,48,31,548, the purchases to the extent of Rs.6,58,01,813/- 1,813/- were explained and remaining difference of Rs.63,29,735/- was in respect of eight parties. In the remand report the AO further stated that the above 8 parties could not explain the purchases and no evidence was produced during the remand proceedings. In the remand report, it was also stated that out of 8 parties, four parties namely Comet Corporation, Kotsons Impex P Ltd, Donnies Trading P Ltd, Balkrishna Trading P Ltd were hawala dealers and were declared as suspicious dealers by the Maharashtra State Sales Tax Department on its web-site. Finally, the ld. CIT(A) partly sustained the addition to the tune of Rs.63.29,735/- by observing and holding as under : “”1.3.7 The Supreme Court in Keshav Mills Co. Ltd vs. CIT (1965) 56 ITR 365 (SC) has clearly held that the first appellate authority would be well within its jurisdiction to ask for and/ or to allow the assessee to produce additional evidence, records or documents in the manner he deems fit for deciding the appeal and the Revenue cannot claim to be aggrieved by the admission of such additional evidence. The facts of each case must be decided correctly in the light of the above judicial guidelines. Reading the Rule 46A alongwith the decisions rendered by various courts as stated above, it become apparent that the pre-conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the rule is meaningfully exercised. Powers conferred by Rule 46A to the CIT(A), while admitting additional evidence at First appellate stage, are not expected to be exercised in 5 routine, mechanical or cursory manner. While dealing with the appeal, the CIT(A) should recognize and maintain distinction between a case where the assessee invokes Rule 46A to adduce additional evidence before him and where without being prompted by the assessee, the CIT(A) considers it fit to make a further enquiry by virtue of the powers vested in him under sub-section (4) of Section 250 of the Act. When the CIT(A) exercises his statutory powers suo moto under Section 250(4) of the Act, the requirement of Rule 46A need not be followed. But whenever the assessee in an appeal invokes Rule 46A for submission of additional evidence, it is incumbent upon the CIT(A) to comply with the requirement of the rule strictly. The powers of the first appellate authority to admit additional evidence, in relation to an appeal filed by the assessee are sought to be regulated by the rule 46A of the Income-tax Rules under which there are certain restrictions imposed on the Commissioner of Income-tax (Appeals) to admit additional evidence. But the powers indicated in the rules framed cannot curtail the scope of the powers conferred by the statute to hear and decide the appeal for which the appellate authority is explicitly empowered to call for such additional evidence, records or documents to be furnished adduce any evidence as regards to the transport of these goods to the appellant premises and secondly no evidence was adduced by the appellant to show that the same were taken as part of its stock and the corresponding sales if any made by it by utilizing the said purchases as the raw material for final product. As can be seen from the details submitted by the appellant in respect of these parties, it can be seen that no creditable evidence was placed on record to prove that the same are genuine. In view of the foregoing, I find this office in agreement with the observations made by the Ld.AO that purchases to the extent of Rs. 63,29,75/- remained unexplained and need to be added back to the total income of the appellant. There is no question adding the GP or a higher value of GP as the amount of these purchases are part of the inflated purchases made by the appellant to reduce the GP. In view of the foregoing this ground of appeal is partly allowed.”

The ld. AR while arguing the case of the assessee submitted that the assessee was doing the business of manufacture, supply and erection of (PEB), 6 pre-engineered steel buildings, fabrication of structural steel, profiling of colour coated, cold formed, metal sheet for roofing and cladding etc. The turnover during the year was Rs.104.02 crores whereas the cost of material and direct expenses were to the tune of Rs.92.69 crores. The ld.AR submitted that the AO made the addition to the tune of Rs.7,48,31,548/- comprising of Rs.2,59,44,084/- from six parties to whom the notices u/s 133(6) were issued which were returned unnerved. Rs.4,79,47,502/- were related to 19 parties to whom notices u/s 133(6) were served but who could not respond. The ld. AR also submitted that the ld. CIT(A) during the course of appeal proceedings called for the remand report from the AO and the AO submitted that vide letter dated DCIT-8(2) /remand report 1415, dated 21.7.2014 on the basis of which the ld. CIT(A) deleted the addition to the tune of Rs.6,85,01,813/- and addition of which sustained was Rs.63,29,735 in respect of 8 suppliers. The ld. CIT(A) sustained the addition primarily for the reasons that the notices were returned un-served, non-confirmation from these parties and non production of financial statement and bank statements of the suppliers. Out of the said parties 4 parties namely Comet Corporation, Kotsons Impex P Ltd, Donnies Trading P Ltd were and Balkrishna Trading P Ltd declared hawala parties by the State Government of Maharashtra. However, the assessee proved the fact of purchases having been made from these parties and material having been received and duly entered in the stock register and finally consumed in the 7 manufacturing processing of the assessee. The assessee in order to substantiate the fact of purchase having been made by from it furnished a copies of ledger accounts in respect of suppliers bank statement evidencing the payments having been made by cheques. The copies of bills and delivery challans of the material received in respect of all the parties were also produced . The ld. Counsel submitted that both the authorities have failed to appreciate the fact that the assessee was doing manufacturing and trading of items on the large scale basis and therefore it could not be possible to have one to one contract with the suppliers or the person with whom the assessee the business dealings. The assessee maintained regular books of account which were subjected to audit under the Companies Act, 1956 and also tax audit report under section 44AB of the Act. The fact of payments for the said purchases having been made through banking channel and day to day maintenance of stocks in the stock register were not doubted by the tax authorities at all and were duly accepted by the AO also. However, the AO doubted the purchases made from six parties which were paid by account payee chaques for which proper books were paid produced before the AO along with the stock register and material consumption register, delivery challans etc. The ld.counsel of the assessee relied on numbers of decisions in support of its case namely: a) DCIT V/s Rajeev G Kalathial (2015) 67 SOT 0052(Mum); b) YFC Projects (P) Ltd V/s DCIT ((2010) 134 TTJ (Del) 167; 8 c) CIT V/s Jagdishchandra Vishwakarma (2011) 59 DTR (MP) 415

On the contrary, the ld.DR supported the orders of authorities below and submitted that the assessee could not prove or substantiate the genuineness of purchases made by it by not producing suppliers‟ confirmation and bank statements of supplier to corroborate the purchases and also submitted that out of 8 suppliers only four suppliers were declared suspicious nature by the Sales Tax Department of Maharashtra Government. The ld. DR finally prayed that the purchase were not genuine and were rightly disallowed and added to the total income of the assessee. The ld. DR submitted that the order of ld.CIT(A) do not require any interference at all.

We have carefully considered the rival submissions and perused the record placed before us including the orders of authorities below and case law relied upon by the parties. We find that the AO made the addition of Rs.7,48,31,548/- which was reduced to Rs.63,29,735/- by the ld. CIT(A) on the basis of remand report called for during the appellate proceedings which was furnished by the AO vide letter dated 31.7.2014. We find that the assessee submitted the copies of ledger account, copies of bank statements, copies of purchase bills, material delivery challans in order to substantiate the purchases made from those parties. Besides the assessee also produced stock register in which the entries of material received and consumed for production in order to prove the case of 9 assessee and ultimately sold all the finished goods for which no doubts were raised by the tax authority. We also note that the books of account were not rejected by the AO and only the purchases were doubted which were reduced by the ld. CIT(A) substantially. Now, the question before us is whether the purchases as made by the assessee were bogus despite the facts that the material was received with supporting bills and vouchers and payments were made through banking channels and all the material received was also consumed as shown in the stock register and ultimately sold by the assessee which were not doubted at all. The remand report reveals that the purchases were doubted primarily for the reasons such as non services of notices u/s 133(6), non production of supplies before the tax authorities, non-filing of the confirmation letters from the suppliers, non furnishing of bank statements, return of income, financial statements in support of claim of the assessee and lastly in respect of four parties, it was alleged that the parties were put on the website of Maharashtra Sales Tax department declaring them as suspicious hawala dealer. Looking to the facts and circumstances of case in totality, we are of the considered opinion that when material were purchased and payment were made through banking channel and the material consumed in the manufacturing process which was not at all in doubt then the tax authorities are not justified in treating the purchase as bogus. The books of accounts were rejected by the AO. The case of the assessee also finds supports from the following decisions:

In our opinion, the assessee has discharged the onus cast upon it in proving these purchases. We, respectfully following the ratio laid down in the above decisions, delete the addition sustained by the ld.CIT(A) and direct AO accordingly.