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TMI Blog2020 (8) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... er production register and vis-a-vis all such documents, no adverse finding has been made by the assessing officer. When the sales figures shown by the assessee has been accepted in totality, the entire purchases made by the assessee cannot be held it to be bogus since it is common knowledge that sales of goods cannot taken place without purchase of goods in the first place. So, therefore, in the light of the evidences adduced to prove the genuineness of the transactions and when the fact remains that the sales has been accepted by the AO in totality, the action of the AO to disallow the entire purchases is not justifiable.We note that the assessee did purchases, manufactures the goods and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. Considering the facts narrated above and to cover the small misgivings we restrict the addition @4% of purchases. Belated payment of Employees Contribution to ESI without appreciating that the amendment to section 43B of I.T. Act is regarding Employer's Contribution and not Employee's Contributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the disallowance made in assessment of the prior period expenses of ₹ 60,509/- debited in the Audited P L a/c as per the details filed on a wrong notion that according to the mercantile system of accounting followed by the assessee company the expenses can be allowed only in the year in which it pertains irrespective of the date year of finalization and receipt of the bill amounts payable. 2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the disallowance of aforesaid prior period expenses of ₹ 60,509/- without considering the facts on record that the expenditure, though related to earlier years, were crystalised and settled during the year under assessment only upon receipt of the respective bills from the concerned parties during the year and bill amounts also cleared and paid during the year justifying the legality and validity of the assessee s claim of deduction of the said prior period expenses in A.Y 2011-12. 3. For that in view of the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at all considering the facts explained by the assessee with supporting documents that the purchases made and the prices paid by a/c payee cheques, duly recorded in its books of a/c e.g the purchase / stock / production Registers, were all genuine and that the raw materials purchased were consumed for production of excisable goods. 8. Without prejudice to the Gr. Nos. 6 7 above and without in any way accepting the addition of the said sum as bogus purchase, the addition so made is bad in law since the sale of finished excisable goods manufactured out of the consumption of the raw materials so purchased has not been doubted and hence it may kindly be held accordingly. 9. For that your petitioner craves the right to put additional grounds and / or to alter / amend / modify the present grounds before or at the time of hearing. Now, we shall adjudicate these grounds one by one. 3. Ground Nos. 1 and 2 pertaining to disallowance of prior period expenses of ₹ 60,509/-. 4. Brief facts qua the issue are that during the assessment proceedings, the assessing officer noticed that from the Profit and Loss Account as well as scheduleNo. 22(b) of Tax Audit Report, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r but having materialized during the year and in respect of which bills were received during the year therefore, the entire amount having been paid during the year, the whole of the amount is allowable during the assessment year 2011-12. Hence, we direct the assessing officer to allow ₹ 60,509/- on account of prior period expenses which has been crystallized during the assessment year 2011-12. 10.Ground Nos. 3 to 8 raised by the assessee relate to addition made by assessing officer on account of bogus purchases from three entities, namely M/s IRO Steel Corporation ₹ 2,19,75,602/-, M/s Ganapati Udyog ₹ 3,82,65,967/- and M/s Kalimata Vyapar Pvt. Ltd. ₹ 2,60,44,477/-. 11. Facts of the case which can be stated quite shortly are as follows: The assessing officer noticed during the scrutiny proceedings that assessee had fraudulently availed CENVAT credit on the basis of fake Central Excise invoices issued by three fictitious registered dealers namely:(i) M/s IRO Steel Corporation, Howrah Amta Road, Bargachia, Sandhya Bazar, Jagatballavpur, Howrah- 711404, (ii) M/s. Ganpati Udyog, Kaliatala, Balitikuri, Howrah-711 113 and (iii) M/s Kalimata Vyapar Pvt Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate at which similar raw materials have been purchased from other suppliers other than the aforesaid three persons and It Is not a case of the Department that the prices paid to the aforesaid three persons for purchases of raw materials were excessive or unreasonable as compared to payments to other for purchases of such raw materials. h) Quantitative-wise Stock Register has been maintained for purchases of raw materials, consumption of raw materials and sale of finished goods. AH the raw materials purchased from the aforesaid three persons are duly accounted for In such Stock Register and all such raw materials purchased from the aforesaid three persons have been consumed during the year and finished goods have been received on consumption of such raw materials and which have been sold to the Railways. It will be appreciated by your goodself that there could no production without consumption of raw materials and If the company has manufactured certain quantity of goods and those have been supplied to Railways, such production could not have been possible had such raw materials purchased from the aforesaid three persons not consumed In respect of such production and hence, It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made accommodation adjustments in respect of some of the parties. In view of the above findings, it was held by assessing officer that the purchases made during the financial year 2010-11 from these three parties amounting to ₹ 8,62,86,046/- is bogus therefore he made addition to the tune of ₹ 8,62,86,046/-. 12. Aggrieved by the order of the Assessing officer the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing officer observing the following: Such grounds are regarding addition of ₹ 8,62,86,046/- on account of bogus purchase. In such respect, the assessing officer has relied mainly on the enquires conducted by the Excise Department. The assessing officer had also attempted to verify the parties involved from whom the purchases is alleged to have been made. However, the parties could not be traced at such addresses as given by assessee. The assessee on it part has contended that the entire addition has been made without considering the day-to-day stock, production register etc. The assessee has also furnished the consumption of scrap before me and has contended that the production and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such parties and hence these additions were made by the assessing officer. The assessing officer failed to take cognizance of other evidences so placed by assessee. The Ld. CIT(A) merely reiterated the contention so made by the assessing officer and he has not given any separate finding vis-a-vis the contention raised before it by the assessee in the appellate proceedings especially with regard to payment through banking channel, stock of raw material having been duly received and also production (having been accepted byassessing officer) and also subsequent sale of finished goods (not disputed by assessing officer). We note that ldCIT(A) failed to address these issues.Since, sales and production were not challenged by assessing officer no addition could have been made in respect of purchases of input raw material. 15. We note that complete documentary evidences were furnished before the assessing officer i.e. the bill for purchases, the receipt of material, the payments by cheque, the entry made in the stock register production register and vis-a-vis all such documents, no adverse finding has been made by the assessing officer. Hence, assessing officer s contention is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, VAT Registration of the sellers their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for ₹ 19,39,60,866/-, is directed to be deleted. 4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direction given for taking sales of rice and bran into account before arriving at the additional income which could be said to have escaped assessment. 6. Before the Commissioner (Appeals), the assessee had relied on a document signed by an official of the Food Corporation of India that evidenced the stock figures at the relevant point of time. The Commissioner (Appeals) dealt with such aspect of the matter in great detail and by referring to the admitted statements of the representatives of the assessee, which were not sought to be controverted at any point of time on behalf of the assessee, concluded that it was the physical verification of the stocks undertaken by the Assessing Officer in course of the survey operation that was to be given primacy. Indeed, the Commissioner (Appeals) found that there was no evidence that the FCI official who had issued the certificate had undertaken any physical verification of the stock at the rice mill of the assessee and the document appeared to have been filled up by the assessee and merely signed by the FCI official. Such part of the order of the Commissioner (Appeals) was unexceptionable and could not have been interfered with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional income for tax to be assessed on such basis. Such view of the Appellate Tribunal does not call for any interference. 12. Accordingly, ITAT No.196 of 2015 and GA No.4047 of 2015 are disposed of by modifying the judgment and order of the Appellate Tribunal dated June 30, 2015 as indicated. 18. In sum and substance, we would like to state that complete documentary evidences were furnished before the assessing officer i.e. the bill for purchases, the receipt of material, the payments by cheque, the entry made in the stock register production register and vis-a-vis all such documents, no adverse finding has been made by the assessing officer.When the sales figures shown by the assessee has been accepted in totality, the entire purchases made by the assessee cannot be held it to be bogus since it is common knowledge that sales of goods cannot taken place without purchase of goods in the first place. So, therefore, in the light of the evidences adduced to prove the genuineness of the transactions and when the fact remains that the sales has been accepted by the Assessing Officer in totality, the action of the Assessing Officer to disallow the entire purchases is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of the merging company where there are clear violations of section 72A of the I.T. Act as directed by BIFR and upheld by AAIFR. 7. That the assessee craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or hearing of this appeal. 22. Ground Nos. 1 and 2 raised by the Revenue relate to disallowance of ₹ 3,03,447/- u/s 43B read with Section 36(1)(va) and 2(24)(x) of the Act. 23.Brief facts qua the issue are that during the scrutiny proceedings, the assessing officer noticed that employees` contribution collected by the employer is deemed to be his income u/s 2(24)(x) of the Act and is allowable as a deduction under section 36(1)(va) only if it is paid to the relevant fund by the due date as prescribed in the relevant legislation. Since the assessee has failed to deposit the same within the prescribed time therefore, the assessing officer disallowed ₹ 3,03,447/- under section 36(1)(va) of the Act. 24. Aggrieved by the order of the Assessing officer the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing officer observing the following: It is in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eave encashment in the book profit without appreciating the fact correctly that these provisions are unascertained liability and is to be added in the book profit as per clause (c) of Explanation 1 of Section 115JB of the Act. 29. Brief facts qua the issue are that the assessing officer made addition on account of provision for wealth tax and provision for gratuity and leave encashment while computing book profit u/s 115JB of the Act. The Book profit computed by the assessing officer under section 115JB, is as follows: 30. Aggrieved by the order of the Assessing officer the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing officer observing the following: Such ground is in respect of addition of ₹ 2,50,000/- for provision of wealth tax liability in the computation of book profit. I find merit in the submission so made by the assessee. Since the adjustment as allowed in the relevant provision i.e. 115JB refers only to Income Tax and it does not refer to Wealth tax or any other tax and hence Assessing officer is incorrect in adding the same to book profit. Hence this ground of the assessee is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, business loss can not be carried forward beyond eight years from the end of the assessment year in which the loss incurred. Hence, the set-off of brought forward loss of ₹ 58,17,10,822/- was disallowed by assessing officer. 36. Aggrieved by the order of the Assessing officer the assessee carried the matter in appeal before the ld. CIT(A) who has followed the co-ordinate bench s decision while disposing the appeal and allowed the appeal of the assessee observing as follows: 73 In respect of the unabsorbed losses, the assessing officer was of the opinion that it includes lapsed losses of AY 2000-01 and 2001-02 of ₹ 48.74 crores and the same cannot be considered as per the provisions of Act beyond eight years. The carry forward of unabsorbed losses as noted above, is governed by the special provision i.e. section 72A of the Act. So, when a special provision relating to carry forward and set off of accumulated loss on amalgamation is stipulated in section 72A of the Act, it will override the general provisions in respect of carry forward of losses given in section 72 of the Act. As per section 72A of the Act relevant to the present case, the law i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing assessment year and so on. However, we note that sub-sec.(3) of Sec.72 of the Act prescribes a limitation period of 8 assessment years immediately succeeding the assessment year for which the loss was first computed. In other words, there is an outer limit of 8 years for carry forward of losses from the first year loss was computed under this section. Since the definition of accumulated losses u/s. 72A of the Act, which is the special provision for carry forward of losses of amalgamated companies, incorporates the amalgamating company s accumulated loss which is entitled to carry forward and set off as per the provision of Sec.72 of the Act, sub clause (3) of section 72 of the Act prescribes a cap of eight assessment years immediately succeeding assessment year for which the loss was first computed. The assessing officer while giving effect to the BIFR order did not understand the binding nature of the CBDT circular and has not given effect to the sub-clause (a) of 15.8 wherein para (a) the BIFR has asked CBDT to consider exempt/grant relief to the company from the provisions of section72A(2), 72(3), 79, 80 read with sec. 139 etc. Since the department s view has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as unabsorbed depreciation will be allowed u/s. 72A(1) of the Act. However, as we stated above as per the latest CBDT circular (supra), since in this case the department s views/objections were duly considered by the BIFR, before passing the sanctioned scheme, the assessing officer has to give effect to even the recommendation given by it for consideration to the CBDT. In fact, as stated above, assessing officer has given to scheme and, allowed unabsorbed losses though in part. So, the BIFR recommendation given in sub-clause (a) to (h) of para 15.8 of the sanctioned scheme is to be given effect to by the assessing officer, since circular of CBDT is binding on him. We note that as per the sanctioned scheme sub para (a) of para 15.8, the BIFR has recommended CBDT to exempt/give relief of u/s. 72A(2) of the Act. Since the CBDT s objections were considered by the BIFR, before passing the sanctioned scheme, the recommendation/for consideration to CBDT has to be treated as mandatory by the assessing officer and has to be given effect. Resultantly, the sub para (a) to (h) has to be given effect it includes to exempt/grant relief u/s 72A(2) of the Act, which implies, the pre-condi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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