DCIT, PATIALA vs. PRIME STEEL INDUSTRIES PRIVATE LIMITED, DIRBA

The appeal in this case (ITA No.275/Chd/2024) has been filed by the Assessee against the order dated 14.03.2024 of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi.

Following Grounds have been raised by the Assessee. "1. That the appellate order is bad both on facts and law to the extent additions are upheld.

From the perusal of the above grounds of appeal, it is clearly evident that issue involved in both the appeals of the Assessee and Revenue is same, i.e., on account of bogus purchases.

The Ld. Counsel of the assessee brought to our attention that since the issue involved is common in both the appeals, the arguments as being advanced by the ld. Counsel may be considered in both the appeals as stated above.

The facts, in brief, as argued by the ld. Counsel of the assessee are that the assessee company is engaged in manufacturing "TMT Bars and M.S. Billet" and audited books of accounts' and during the course of assessment proceedings, the assessee furnished all the requisite details as asked for by the Assessing Officer from time to time and the Assessing Officer arrived at the figure of alleged bogus purchases to the tune of Rs.68,26,38,327/- on the basis of information given by the GST department, giving the names of the parties and other particulars and it was informed by the GST department, that in respect of the above purchases from certain parties, the GST department had cancelled the registration of the parties with retrospective effect and some of the parties had even voluntarily surrendered the GST registration.

Further, it was stated that the Assessing Officer had also sent notices u/s 133(6) of the Act to the alleged bogus suppliers but 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 7 nobody responded to the said notices and, accordingly, the show cause notice, initially, was issued by the Assessing Officer, dated 07.12.2022. It was vehemently argued by the Ld. Counsel that the assessee filed the following information during the course of assessment proceedings: -  Copy of confirmation from each party along with CA certificate provided by supplier CA, having 'UDIN No.' on the same.  Copy of ledger account in the books of supplier.  Copy of ledger account of party in the books of assessee.  Copy of relevant extract of bank statement of the assessee highlighting the relevant transaction as proof making the payment by RTGS.  Copy of all invoices of each party, E-way Bills, Bilty copy, Kanda receipt, along with Toll Plaza Receipt, A.G.T receipt of the H.P. Border entry of goods entering Himachal Pradesh @ Rs. 37.50 per ton, Aadhar card, PAN and Driving license of driver, Photo of driver with the truck, and cheque endorsed in name Truck owner of the payment of freight.

Further, it was vehemently argued that the assessee has filed the evidences for purchase of goods, payments of goods, transportation and delivery of goods before AO & CIT(A) both.

It was further argued that as and when the truck carrying the raw material enters the State of Himachal Pradesh, there is levy of 'additional goods tax' by the State Excise Department, Himachal Pradesh and our attention was drawn to the the assessment order of 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 10 "Additional Goods Tax on Iron & Steel u/s 4A of H.P. PGT Act 1955" for the relevant financial year was furnished in order to substantiate that such raw material as purchased from the alleged doubtful parties entered to the State of Himachal Pradesh and ultimately to the premises of the assessee at Barotiwala.

Further, the counsel of assessee argued that all the records of the purchases in quantity and amount have been maintained, as well as, record in respect of sales, production register, stock register and day to day consumption register to prove that the goods as purchased from alleged bogus parties have gone into production and the Ld. Assessing Officer and CIT(A) have not been able to find out any defect in such maintenance of voluminous record and corresponding sales out of such material from the doubtful parties have not been doubted.

Regarding the cancellation of GST Numbers retrospectively, it has been argued that the Assessing Officer has failed to appreciate that as on the date when we have bought the goods from the respective parties, the parties had valued GST Number and also that the 'e-way bill' at that particular time could be generated only, when there was a valid GST Number and, if subsequently, the GST

The Ld. Counsel of the assessee also stated that the GST Registration was valid at the time of generation of 'e-way bill' and that the assessee had purchased the, goods only when the GST registration of the supplier was 'active'. Thus, no doubt could be raised on such purchases made from the alleged doubtful parties.

The Ld. Counsel of the assessee also relied upon the judgment of Calcutta High Court in the case of M/s LGW Industries Limited and Ors, vs. Union of India & Ors.in WPA No. 23512 of 2019, dated 13.12.2021, in which, the Hon'ble High Court has held as under:-

Similar view has been taken by the Calcutta High Court. in the case of 'Sanchita Kundu Vs Assistant Commissioner of State Tax' in WPA No. 7231 of 2022, dated 05.05.2022.

Further, the Ld. Counsel of the assessee brought to our attention that, though, the notices were issued u/s 133(6) to the alleged doubtful parties and they did not respond and for that, the Ld. Counsel of the assessee relied upon the judgment of 'Apex Court' in the case of CIT Vs Orissa Corporation reported in 159 ITR 0078 and judgment of lTAT Delhi in dated 12.12.2018, in which, it has been held that the assessee having filed the confirmed copies of account of the parties and apart from issuance of notice u/s 133(6), the Assessing Officer did not pursue the matter further and under such circumstances, the assessee could not do

It was further argued that the Ld. Assessing Officer after considering all the facts and circumstances, finally rejected the books of accounts of the assessee u/s 145(3) as per the order of Assessing Officer and, regarding the alleged bogus purchases of Rs.68,26,38,.327/-, he held that the purchases have been made, may not be from the same parties, as it was claimed to have been made, as per finding given by the Assessing Officer. It was held that only profit embeded in such bogus purchases could be disallowed and applied a rate of 12.5% on total purchases of Rs. 68,26,38,327/- and made disallowance of Rs. 8,53,29,790/-.

The Ld. Counsel of the assessee referred to order of CIT(A) where, the issue of bogus purchases have been discussed by the Ld. CIT(A) and the detailed submissions of the assessee have been reproduced in the order and the finding on this issue have been discussed from. The CIT(A) has disproved the finding of the Assessing Officer with regard to rejection of books of accounts u/s 145(3) of the Act and, finally he had held that only profit element embedded in 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 14 such purchases may be subjected to tax and applied the gross profit ratio for the financial year under consideration @ 5.94% on the total alleged bogus purchases and against that, the assessee is in appeal and, whereas, the department is in appeal only upon the deletion of above addition on account of such bogus purchases, wherein, the Assessing Officer had applied a rate of 12.5% on the alleged bogus purchases of Rs. 68,26,38,327/-.

The Ld. Counsel of the assessee has argued that the CIT(A) having accepted the books of accounts of the assessee and rejected the contention of the Assessing Officer about the rejection of books of accounts, thus, no doubt could be made on account of sale and purchases and neither with regard to quantum of purchases and stock record and other quantitative details having not been disproved, either by the Assessing Officer/CIT(A) and relied upon on number of judgments of jurisdictional Punjab & Haryana High Court in the case of CIT Vs Om Overseas, reported in 315 ITR 185 (P&H), Delhi High Court in the case of CIT Vs. Paradise Holidays, 325 ITR 13 and other case laws that under such circumstances, where no specific defects have been pointed out in the maintenance of record,

The Ld. Counsel also relied upon the number of judgments of Hon'ble 'Apex Court', Punjab & Haryana High Court and also the judgment of ITAT in the case of M/s Supertech Forgings (India) Pvt. Ltd. in vide order, dated 12.12.2018, which has been approved by the Hon'ble Punjab 8t Haryana High Court in and many other judgments of different Benches of the Jurisdictional ITAT and Others for the preposition that since the sales have not been doubted and inflation in the purchases and no defects have been found in day to day maintenance of quantitative record, consumption register, stock tally and, as such, no addition could be made on account of such bogus purchases.

Further, as regards the profit element embedded, the Ld. Counsel drew our attention to the chart submitted before the Ld. CIT (A) for the preposition that the finding of the Authorities below regarding the profit embedded in such purchases, is wholly misconceived and not sustainable, because the rates on which, the material have been purchased from the alleged doubtful parties, is same or less than the rates with regard to the rates of other parties

Our attention was also drawn to the judgment of Supreme Court in the case of PCIT Vs Tejua Rohit Kumar Kapadia, reported in 94 taxman. Com 325, in which, it has been held as under: - "Section 69C of the Income-tax Act, 1961 - Unexplained expenditure (Bogus purchases) - Assessing Officer had disallowed some expenditure treating purchases as bogus and made addition - High Court in impugned order noted that purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque and seller also confirmed transaction and there was no evidence to show that amount was recycled back to assessee, and held that addition was not called for - Whether, on facts, SLP against said order was to be dismissed - Held, yes - In favour of assessee.

Our attention is also invited to the judgment of Punjab & Haryana High Court in the case of CIT Vs Leaders Valves (P) Ltd. reported in 285 ITR 435, in the said judgment, it has been held as under:- Held : "The analysis and conclusions drawn by the CIT(A) on the appreciation of material on record, have been concurred with by the Tribunal after taking notice of the fact that the trading results of the assessee had all along been accepted and the purchases of scrap from the seven parties could also be not termed as bogus for the reason that in the subsequent assessment year, i.e., 1987-88, the purchases from these very parties stood accepted by the 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 18

The Ld. Counsel of the assessee has drawn our attention to the documentary evidence on account of delivery of raw material at the factory premises and there is documentary evidence of the goods having been entered into the State of Himachal Pradesh, where the Unit of the assessee is located at Barotiwala, Distt. Solan, H.P. and sales have been accepted by the CIT (A), the books of accounts of the assessee stands accepted and it was found that no sales were 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 19 undervalued or the purchases were inflated. Though, both the assessee and department have accepted the fact that the raw material have been reached at the factory premises of assessee concern and regarding the profit element, since it has been proved by the assessee, beyond any iota of doubt that since the purchases were not under-valued or inflated and, thus, the sustaining of addition by applying the gross profit rate of 5.94% on the alleged bogus purchases was not justified and the appeal of the department be dismissed.

The Ld. CIT, DR brought to our attention to the facts and circumstances of the case based on addition made by the Assessing Officer and argued that the notices sent to the doubtful parties u/s 133(6) were not responded to by those parties and, thus, the said parties are bogus and, as such, the Assessing Officer was fully justified in applying a profit rate of 12.5% on such purchases of raw material from the parties concerned. It was also argued by the Ld. CIT, DR that the information was received from the GST department about such parties being bogus and the GST department had 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 20 cancelled the GST registration of the parties with retrospective effect and, thus, the very authenticity of the parties in existence was doubtful and, thus, the rates on which, the raw material have been purchased by the parties could not be said to be verifiable.

It was stressed before us that though, the Assessing Officer has accepted that in fact, the goods were not purchased from the parties as claimed by the assessee but from the other parties, and the Assessing Officer has not doubted the sales, it could be most appropriate if the profit' element embedded to the tune of 12.5% on such bogus purchases be sustained.

We have considered the findings of the ld. CIT(A) in his order, submissions filed by the ld. Counsel of the Assessee and his arguments during the proceedings before us. We have also considered the arguments put forward by the ld. DR on these issues. We find that the Assessing Officer has made addition of Rs. 8,53,29,790/- at the rate of 12.5% on doubtful purchases of Rs. 68,26,38,327/-. The Assessing Officer in his order has given his findings that there may be inflated price on which the Assessee might have procured the raw

We have considered the findings of both the Assessing Officer as well as ld. CIT(A) and we find the ld. CIT(A) has accepted the books of 275 & 500-Chd-2024 – Prime Steel Industries Pvt. Ltd., Dibra, Sangrur, 22 account presented by the Assessee which was earlier rejected by the Assessing Officer and he has also accepted that the alleged purchases were made at par of other purchases made or even at lower rates. In such a situation, we find no reason to sustain any addition made on this ground, it is because if such alleged purchases were either at par to the rate of other purchases or at lower rate than the purchases made in the books of account, then, where is the possibility of earning extra income ( i.e. from so called profit embedded purchases ) from such purchases?.

Keeping in view these facts as well as various case laws brought on record by the ld. Counsel of the Assessee, the findings of the CIT(A) of restricting the disallowance @ 5.9% for such alleged purchases from bogus parties cannot be sustained. Accordingly, Assessee’s appeal on this ground is allowed.

As we have already dealt with this issue raised by the Department in its appeal as discussed above, therefore, Departmental appeal on this issue is dismissed.

In the result, the appeal of the Assessee is allowed whereas, the appeal filed by the Revenue stands dismissed. Order pronounced on 20.09.2024.