ACIT, VAPI CIRCLE, VAPI, VAPI vs. M/S. NORTHERN INDIA ALCORUY SYSTEMS, VAPI

The grounds of appeal raised by the Revenue are as follows: “i) On the facts and in the circumstances of the case and in law, the Ld.CIT (A) has erred deleting the addition of Rs.7,50,000,000/- made by the assessing officer on account of inflated sales without realizing that the inflated sales only reflected income, as no cost was incurred towards the same. ii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the assessing officer of Rs.61,49,921/- being 2.5% of unconfirmed purchases.

/AY.2011-12 M/s Northern India Alcobru Systems iii) It is therefore, prayed that the order of the CIT(A), be set-aside and that of the Assessing Officer be restored. iv) The assessee craves to add, modify or alter any grounds during the course of appeal proceedings.” 3. First, we shall take ground no.1 raised by Revenue which relates to deleting of addition of Rs.7,50,00,000/- made by the Assessing Officer on account of inflated sales.

Succinctly, the factual panorama of the case is that assessee before us is a partnership firm, and has filed its return of income, for the assessment year 2011-12, by way of e-filing, on 26.09.2011, bearing acknowledgement no. 292869611260911, declaring the total income at Rs.81,57,990/-. The assessee`s case had been selected for scrutiny manually and accordingly a notice u/s 143(2) of the Act has been issued on 27.09.2012, which was due on 18.10.2012. Subsequently a letter has been issued by this office on 11.04.2013 requesting the assessee to furnish the paper book containing the audit report in form no. 3CB, 3CDE, 3CEB, 10CCB, 10A, 10B and computation of total income. In response, the assessee, submitted the acknowledgement of return of income, computation of income and audited accounts, as on 25.04.2013. The assessing officer had issued further notice u/s 142(1) of the I.T. Act, to the assessee on 06.06.2013, wherein books of accounts and various details forming part of questionnaire were called for by 18.06.2013. In response to said notice, the assessee submitted the details on 18.06.2013. Further submissions were also made by the assessee before the assessing officer on 12.02.2014.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the /AY.2011-12 M/s Northern India Alcobru Systems addition made by the Assessing Officer. The ld CIT(A) observed that in the assessee`s case, the facts indicate that assessee had accounted for sale of Rs. 24.01 crores in the books of accounts, there is no relevance to loan of Rs. 19.50 crores granted by PNB and any such valuation of machinery supplied at Rs. 12 crores.

Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.

Learned CIT(DR) for the Revenue, argued that the entire conspiracy was done by the assessee- firm and M/s EKPPL to defraud the bank. To make the entire transaction as genuine, proper offer letter, sale bills were prepared and all transactions were routed through bank. However, during the discreet enquiry by the CBI, it was found that the machinery supplied by the assessee was of Rs.12 crore only instead of actual machinery of worth Rs. 19.50 crore. Hence, the documentary evidences in the form of offer letter, sale bills, ledger extract or bank statements showing genuineness of the transaction does not prove that the assessee did not siphon off the funds in connivance with EKPPL. Further, advancing of loans to the Directors of M/s. EKPPL and one proprietary concern of one of the Director is a further proof that the funds were returned to M/s EKPPL by the assessee. Hence, the amount of Rs.7.50 crore was rightly added to the income of the assessee on account misappropriation of sale of machinery which the Ld. CIT (A) failed to appreciate. Therefore, addition made by the assessing officer may be upheld.

Shri Suresh K. Kabra, Learned Counsel for the assessee, pleaded that assessee had furnished during the assessment proceedings, the offer letter, sale bills, ledger account and bank

We heard both sides in detail and also perused the records of the case including the paper book filed by the assessee company running in to 205 pages. The necessary facts of the case have already been discussed in paragraphs above. During the appellate proceedings, the ld CIT(A) observed from the Profit and Loss account and other relevant documentary evidences that the assessee had already accounted for sales worth Rs. 24.01 crore pertaining to M/s EKPPL. This fact was nowhere acknowledged by the assessing officer in the assessment order. It is apparent from the conclusion of the assessing officer in the assessment order that the assessing officer was bogged down with figures in the charge sheet of CBI against General Manager of PNB-Bank. Even in the remand report, the same issue was repeated to justify the addition. In the current case, the facts indicate that assessee had accounted for sale of Rs. 24.01 cr in the books of accounts, there is no relevance to loan of Rs. 19.50 crores granted by PNB and any such valuation of machinery supplied at Rs. 12 crores. Even this figure of Rs.12 crores was found incorrect as per CBI report itself. Considering the clear fact of recording of sales at Rs. 24.01 crores pertaining to EKPPL, there is no question of any /AY.2011-12 M/s Northern India Alcobru Systems unaccounted sales of Rs. 7.50 crores in the case of assessee. We also find merit in the arguments advanced by ld Counsel to the effect that entire sales have been offered to tax and once the profit embedded in the sales has been taxed by the Revenue, the same sales should not be taxed again, otherwise it would amount to double taxation on the same sales, which is not permitted under the Income Tax Act. At this juncture, we would like to reproduce a famous quote: Per Lord Halsbury, Scoble v Secretary of State for India 4 TC 618, 625 (HL): “The Income Tax is not and cannot be, I suppose from the nature of things, cast upon absolutely logical lines.” Thus, we note that double taxation occurs when the same sales/income is taxed twice, and this is not permitted even in international scenario. On a careful reading of the Ld.CIT(A) order and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the Ld.CIT(A), hence we dismiss ground No.1 raised by the Revenue.

Coming to ground No.2 raised by the Revenue, which relates to deletion of the addition made by the assessing officer of Rs.61,49,921/- being 2.5% of unconfirmed purchases.

Brief facts qua the issue are that during the assessment proceedings, the assessing officer observed that profit and loss account of the assessee shows a purchase of Rs.37,13,19,187/-, therefore the cross examination of these purchases have been done by the assessing officer by way of issuing notice u/s 133(6) of the Income Tax Act, 1961. Against the aforesaid purchases, an amount of Rs.12,53,22,335/- have been brought on record. However, the differential amount of Rs.24,59,96,852/- was still remaining to be /AY.2011-12 M/s Northern India Alcobru Systems brought to record. In view of the above observation, a show cause notice has been issued to the assessee- company on 14.03.2014, so as to provide the reason and substantial evidence to purport the claim.

In response to above show cause notice, the assessee- company submitted a written reply on 25.03.2014 and also attended the office of the assessing officer. The assessee-company has mentioned in the written reply that it is clear that almost 1/3rd of purchases are already confirmed and that the remaining vendors are almost three years old and some may have shifted /close down or relocated themselves. After going through the reply of the assessee, the assessing officer observed that assessee`s reply is justified to some extent, however as 2/3rd portion still remain to be verified, and considering natural justice an amount of 2.5% of Rs.24,59,96,852/- was not allowed and therefore, added back to the income of the assessee. Thus, an amount of Rs.61,49,921/- (2.5% of Rs.24,59,96,852) was added back to the income of the assessee.

On appeal, ld. CIT(A) has deleted the addition. The ld CIT(A) observed that assessing officer has not dealt with the fact that verification notices were sent in less than 50% of the purchase parties and no general conclusion could be drawn for balance purchases where no verification notices were sent. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us.

The ld. CIT(DR) for the Revenue, argued that during the course of assessment proceedings, the assessing officer issued notices u/s 133(6) of the Income Tax Act for verification of purchases of Rs.37,13,19,187/- shown by the assessee in its Profit & Loss account. Out of the total purchases of Rs.37,13,19,187/-, purchases of only

On the other hand, ld Counsel for the assessee pleaded that assessing officer sent verification notices to the parties for Rs.18,07,38,468/- worth of purchases, which is less than 50% of the total purchases of Rs.37,13,19,187/- debited in the Profit & Loss account and thus the conclusion was drawn by the assessing officer for sample purchases of less than 50% of purchases. The ld Counsel further argued that once sales are found accepted disallowance of purchases without any contrary adverse fact was not justified. Therefore, ld Counsel contended that order passed by the ld CIT(A) is just and proper and the same may be upheld.

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that Ld. Counsel for the assessee submitted the following documents and evidences before us, viz: (i) Details of purchases above Rs. 25 lakh (part of WIP – 31.03.2010 (vide Pb.2 to 5), (ii) Bifurcation of sales including sales of EKPPL (2010-11) (vide Pb.6 to 18), (iii) Balance sheet and P& L A/c for the year 2010-11 (AY 2011-12) (vide Pb.19 to 22), (iv) Submission dated 16.05.2018 before CIT(A) (vide Pb.23 to 42), (v) Ledger a/c copy of EKPPL for the year 2008-09, 2009-10, 2010-11 and 2011-12 in the books of the assessee (vide Pb.43 to 46), (vi) Details of purchases in /AY.2011-12 M/s Northern India Alcobru Systems excess of Rs. 5 lakh (2010-11)(vide Pb.115 to 118), (vii) Summary of sales for the year (vide Pb.119), (viii) Query letter by Assessing Officer regarding Remand Proceedings (vide Pb.121 to 122), (ix) Summary of purchases (vide Pb.123), (x) Details of WIP (vide Pb.124), (xi) Details of purchases made on a/c of the project of EKPPL (vide Pb.125 to 154) 18. We have gone through the above documents and evidences and observed that addition of Rs. 61,49,921/- pertaining to purchases, the assessing officer noted that the assessee could not explain for the purchase value of Rs.24,59,96,852/- out of total purchases of Rs.37,13,19,187/-. Thus, 2.5% of Rs.24,59,96,852/- i.e. Rs.61,49,921/- was disallowed and added to the total income. The ld CIT(A) noted that as regards disallowance of 2.5% unconfirmed purchases of Rs.24,59,96,852/- , the assessee contended that the assessing officer was requested vide letter dated 25/3/2014 to provide list of parties who had not complied to notices u/s 133(6) of the Act, but the assessing officer furnished such list only on 27/10/2014. The assessee also contended that the assessing officer had sent verification notices to parties for Rs.18,07,38,468/- worth purchases out of total purchases of Rs.37,13,18,187/- debited in Profit & Loss account. Thus, the conclusion was drawn by the assessing officer for sample purchases of less than 50% of purchases. It was also contended before ld CIT(A) that in the remand proceedings, all the sale bills copies were produced before the assessing officer for verification. Thus, it was argued by assessee that once sales are found accepted, disallowance of purchases without any contrary adverse facts were not justified.

In the result, the appeal filed by the Revenue is dismissed.