M/S. ALLOY STEEL EMPORIUM PVT. LTD.,KOLKATA vs. ITO, WARD - 4(3), KOLKATA, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM:

raised by the assessee reads as follows:

1. That the assessment order dated 05.03.2013 framed u/s. 143(3)/147 is void and nullity in the eye of law as there are no recorded reasons to belief that the income chargeable to tax has escaped assessment.

2. That without prejudice to the ground no. (1) stated above, the recorded reasons are invalid and improper and as such, the assessment framed vide order dated 05.03.2013 is bad in the eye of law

3. For the facts and circumstances of the case the Ld. CIT(A) was not justified in confirming the addition of Rs.1,52,40,253/- made by the A.O. on account of alleged bogus purchase.

4. Without prejudice to the above grounds of appeal, the Ld. CIT(A) ought to have applied the gross profit rate on such alleged bogus purchases.

5. That the assessee craves leave to alter, amend, modify any of the grounds and / or take additional grounds before or at any time of hearing of this appeal.”

M/s Alloy Steel Emporium Pvt. Ltd. Assessment Year: 2007-08 3. Although, in this appeal, the assessee has raised a multiple grounds of appeal but at the time of hearing the solitary grievance of the assessee has been confined to ground No.3, that is, the addition of Rs.1,52,40,253/- made by the A.O. on account of alleged bogus purchase. Other grounds were not pressed by the assessee.

4. The brief facts qua the issue are that a survey proceeding u/s 133A was conducted by the Income Tax Officer, in the business premises of the company named M/s.Vikash Iron & Steels Pvt. Ltd. During the survey proceeding it was found that M/s. Vikash Iron & Steels Pvt. Ltd, raised fake sale bills against the assessee company during the relevant financial year. On the basis of the above findings, the case of the assessee company was reopened under section 147 of the I.T. Act, 1961 and the notice under section 148 of the I.T. Act 1961 was issued to the assessee dated 08.06.2011. The Director of the company M/s. Vikash Iron & Steels Pvt. Ltd., Shri Vikash Agarwal, was summoned under section 131 of the I.T. Act 1961 and his statement was recorded on different dates. He stated in his statement recorded on 05.03.2008 that “basically the transaction reflected in the accounts were mostly in the nature of paper transactions without actual movement of goods and I used to get commission thereon ... I used to get commission on my sale invoice which ranged between 10 paise to 15 paise per Rs. 100.” He also confessed that he gave accommodation entries to interested parties for which he got certain commission. He admitted that all the bills raised by him are fake, the motive of different parties taking accommodation entries from M/s. Vikash Iron &Steels Pvt. Ltd. was to inflate their purchases and thereby suppress the profits. Shri Vikash Agarwal has also admitted in his statement recorded under section 131 that all the transactions were merely paper transactions and without any actual movement of goods. The AO with this statement of Shri Vikash Agarwal taking note that since the assessee company was one of the parties who purchased goods from the M/s. Vikash Iron & Steels Pvt. Ltd. during the relevant period, had strong doubts as to the genuineness of the transactions and so he reopened the assessment. It was pointed out by the assessee during the assessment proceedings that the statement recorded of the Director, Shri Vikash Agarwal, is very general in nature and he, in his statement before the Assessing Officer, has used the word “basically the transaction reflected in the accounts were mostly in the nature of Page | 2 M/s Alloy Steel Emporium Pvt. Ltd. Assessment Year: 2007-08 paper transactions”. So according to the assessee it was clear from the statement of Shri Vikash Agarwal that all the transactions are not bogus. It was brought to the notice of the Assessing Officer that apart from the statement given by the Director of the company, there was no other evidence to conclude that the sales made by the company to the assessee company were bogus. The assessee submitted to AO that the impugned purchases of material from M/s. Vikash Iron & Steels Pvt. Ltd. worth Rs. 1,52,40,253/- was duly reflected in its purchase ledger and payment has been made to them against their relevant sales invoices by account payee cheques. The assessee drew the attention of the Assessing Officer that the goods purchased from the M/s Vikash Iron & Steels Pvt. Ltd were sold to some other parties which were also reflected in assessee company’s sales ledger and sales invoices has been duly raised by the assessee against the same and payment was also received from the customers. So, according to assessee, the transaction is genuine in all aspects. So, the assessee contended that since the purchases from M/s. Vikash Iron & Steels Pvt. Ltd. are genuine in nature so it should not be disallowed. The Assessing Officer did not heed to the submission and relevant documents submitted by the assessee to prove the genuineness of the purchases made by the assessee from M/s Vikash Iron & Steels Pvt. Ltd. and held it to be bogus and thus disallowed the entire purchase amounts.

5. Aggrieved by the order of the AO, the assessee filed an appeal before ld. CIT(A) who has confirmed the addition made by the AO. The ld.CIT(A) has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para. During the appellate proceedings, the assessee submitted that the statement of Director of M/s. VISPL is general in nature and he has used the word 'mostly' which indicates that not all transactions were bogus. The assessee also stated that apart from the statement of the Director there is no other evidence to conclude that the sales made by M/s. VISPL to the assessee company were bogus. The assessee also mentioned before the CIT(A) that no opportunity was provided to the assessee to cross examine the Director of M/s. VISPL at the assessment stage. However, the CIT(A) noted that during the assessment proceedings, at no any stage, the assessee had requested the A.O. for cross examination of the Director of M/s. VISPL and according to him, such a request could have been made either in writing or on the order sheet. Therefore, Page | 3 M/s Alloy Steel Emporium Pvt. Ltd. Assessment Year: 2007-08 according to ld. CIT(A), since no such request was available on record as made by the assessee, the ld. CIT(A) rejected the appeal & submissions of the assessee and confirmed the addition made by AO.

6. Not being satisfied with the order of ld. CIT(A), the assessee is in appeal before us. We have heard both the parties and perused the material available on record, we note that in the relevant assessment year, the assessee had made purchases to the tune of Rs.1,52,40,253/- from M/s. Vikash Iron & Steel Co. Ltd. According to the Ld. A.O., one of the directors of the said company during the course of a survey operation in its business premises stated that they were providing accommodation entries in the form of raising fake bills and got in turn commission. On the basis of the said statement, the ld. AO had come to a conclusion that the assessee-company had claimed bogus purchases to the tune of Rs.1,52,40,253/- and he disallowed the same. Before us, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld. Counsel for the assessee submitted that on perusal of the extract of the statement of the director of M/s. Vikash Iron & Steel Co. Ltd.(as reproduced at page no. 2 of the reassessment order), it is evident that the statement given by him is very general in nature. Shri Vikash Agarwal stated that "transactions in the accounts were mostly in the nature of paper transactions". So, according to ld. AR, it is clear that all the transactions are not bogus and nowhere the director of M/s. Vikash Iron & Steel Co. Ltd. had stated that the assessee company indulged in bogus purchases. The ld. AR brought to our knowledge that the Ld. AO did not provide any opportunity to cross examine the said director of M/s. Vikash Iron & Steel Co. Ltd. According to ld. AR, it is a well-settled principle of law that unless an opportunity to cross-examine is given to assessee, no credence can be given to the statement/report of any third party, which has been admittedly taken behind the back of the assessee. The ld. Counsel also pointed out before us that AO has not doubted the sales of the assessee and, in fact, has accepted it as correct. Therefore, according to ld. Counsel, in the case of a trading concern, when sales are not doubted, then purchases cannot be held as bogus. According to him, it is common knowledge that in case of a trading business, the assessee cannot make sales without purchases, therefore, when sales are not doubted rather accepted as in this case Page | 4 M/s Alloy Steel Emporium Pvt. Ltd. Assessment Year: 2007-08 by AO, then purchases ought not to have been held as bogus. The ld. AR drew our attention to the fact that before the AO, the assessee had submitted purchase bills, Challans, weight receipts, bank statement. The assessee also submitted before the AO, the tax audit report. The Tax audit report contains the quantitative details of closing stock as at 31.03.2007. The purchase bills, so submitted by the assessee contains CST number and VAT number and most of the purchases were at the rate of 4% VAT. According to the ld. AR all these documents goes on to prove that the purchases made by the assessee from M/s Vikash Iron & Steels Pvt. Ltd. are genuine and since the sale of the very same goods have been accepted by the AO, then the question of disallowing the purchases of the goods cannot stand the scrutiny of law.

7. Based on the factual position as pointed out by the ld. AR and evident from the Paper Book filed by the assessee, we note that the entire disallowance of the purchases of goods from M/s Vikash Iron & Steels Pvt. Ltd. is based on the statement of its director, Shri Vikash Agarwal recorded during survey at its premises. When admittedly the adverse inference was drawn against the assessee was on the strength of the statement recorded during survey of Shri Vikash Agarwal which was recorded behind the back of assessee, the AO ought to have given an opportunity to call Shri Vikash Agarwal for cross-examination by the assessee. We note that the Assessing Officer did not provide any opportunity to cross-examine the said director and even though, the assessee denied the allegations of Shri Vikash Agarwal that it provides accommodation entries to it and produced challans, weight receipts, bank statement, purchase bills etc to prove the genuineness of the purchase made by the assessee from M/s Vikash Iron & Steels Pvt. Ltd., however, we note that the AO brushed aside the entire evidence furnished by the assessee without making any enquiry to the credibility of the evidence furnished before him and the AO have simply believed the statement of Shri Vikash Agarwal to make the entire disallowance, cannot be countenanced. When the assessee was confronted by the AO with the statement given by Shri Vikash Agarwal during the survey conducted at the premises of M/s. Vikash Iron & Steel Co. Ltd., the assessee denied the allegations that the assessee had got fake bills in lieu of commission to M/s. Vikash Iron & Steel Co. Ltd. and that the entire purchases made therefore bogus. In order to prove that the purchases were genuine, the assessee had produced challans, weight receipts, bank statements, purchase bills etc. and the entire Page | 5 M/s Alloy Steel Emporium Pvt. Ltd. Assessment Year: 2007-08 transactions that had shown to the Assessing Officer that the transactions with M/s. Vikash Iron & Steel Co. Ltd. were through banking channels; and, we note that the Assessing Officer has not found any fault with the books of accounts maintained by the assessee and we note that the assessee’s books of accounts were duly audited. Therefore, we note that the assessee-company has discharged its onus by providing all the relevant evidences in supporting of the said purchases. Further, we note that the books of accounts of the assessee was duly audited and the assessee also maintained Stock Register which is evident from the Tax Audit Report (at page no.28 of the PB). We note that the quantitative details of the closing stock were also given in the Tax Audit Report (at page no.34 of the PB). We note that each and every transaction in respect of the abovementioned purchases along with corresponding sales are reflected in the stock register. In the light of the above said fact once the Assessing Officer has accepted the sales as genuine, he ought to have accepted the purchases without any cogent evidences to hold otherwise. In the light of the aforesaid evidences furnished by the assessee to prove the genuineness of the transactions with M/s. Vikash Iron & Steel Co. Ltd., in case AO still disbelieved the assessee’s contention then the Assessing Officer ought to have summoned Mr. Vikash Agarwal and should have elicited from him as to whether the assessee company was involved in the practice of taking fake bills in lieu of commission which we note that the Assessing Officer failed to do in the first place. Even if, he had taken the statement then also the Assessing Officer could not have used such adverse statement against the assessee, without giving an opportunity to the assessee to cross-examine Shri Vikash Agarwal. In this case in the first place, the Assessing Officer failed to directly examine Shri Vikash Agarwal, however, the AO used the general statement of Shri Vikash Agarwal which was recorded during survey conducted on 26.02.2008 in the premises of M/s. Vikash Iron & Steel Co. Ltd. wherein also assessee’s name has not been adversely commented upon by Shri Vikash Agarwal and the AO simply have disbelieved the evidences furnished by the assessee to prove the genuineness of the transactions. The Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE 281 CTR 214 (SC) has reiterated that without cross-examining a third party, the statement given by such third party cannot be used adversely against the assessee. Moreover, we note that in this case, the sales shown by the assessee of the very same goods that has been found to be bogus and disallowed by the Assessing Officer, has been accepted by him as correct when sales of the same goods have been shown by the assessee. When the sales figures shown by Page | 6