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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 ..... 0,509/- 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 Rs. 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 case the Ld. CIT(A) was wholly wrong and unjustified in confirming the disallowance on a/c of purchase of raw materials i.e. M.S Waste & Scrap worth Rs. 2,19,75,602/- & Rs. 3,82,65,967/- made from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Rs. 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 assessee company has incurred expenses of Rs. 60,309/- related to earlier years. The ASSESSING OFFICER was of the view that as per accounting standard, prior period expenses are not eligible for deduction. Hence, no expenditure related to the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow Rs. 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 Rs. 2,19,75,602/-, M/s Ganapati Udyog Rs. 3,82,65,967/- and M/s Kalimata Vyapar Pvt. Ltd. Rs. 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. In view of the above, an enquiry was carried out by deputing inspector of Income Tax in respect of the actual existence and nature of business of above three parties. This issue was discussed with assessee and explanation was sought. The assessee has submitted explanation vide its letter dated 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases 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 proves beyond any doubt that such raw materials had been purchased from the aforesaid three persons also In addition to purchase from other suppliers. i) ............................ ............................... ....................................... ......................................... j) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties amounting to Rs. 8,62,86,046/- is bogus therefore he made addition to the tune of Rs. 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 Rs. 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 corresponding sales which is to railways only have not been doubted by the assessing officerand the entire focus and the reliance by the assessing officer is on Excise report. Assessee has contended that such report itself i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 merely based on Excise Department's allegation which is wholly unjustified. The assessing officer ought to verify the bill for purchases, the receipt of material, the payments by cheque, the entry made in the stock register & production register etc. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 substantial question of law arises from the impugned order of the ITAT. 5. In these circumstances, the Review Petitions are dismissed." 16.The assessing officer has treated the purchases as bogus without rejecting the books of account u/s 145(3) and hence assessing officer's action is bad in law.We note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant 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 by the Appellate Tribunal. Indeed, no reasons have been furnished by the Appellate Tribunal in disregarding the physical verification of the stocks carried out by the Assessing Officer. Further, the area of the godown as indicated in the FCI certificate was of no consequence since the Assessing Officer found stocks piled outside the god ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces 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 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, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 respect of disallowance of PF / ESI dues which has been added by the Assessing officer by invoking the provisions of section 36(1)(va) read with Section 2(24)(x) and the same involved is Rs. 3,03,447/-. The assessee has placed the relevant materials in such respect and has brought to my attention that there is some delay in the payment of PF / ESI dues. However, the same has been paid within the grace period allowed as per relevant Act. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 allowed. Such ground is regarding addition of Rs. 4,79,83,865/- and Rs. 1,24,78,157/- being provision for ascertained liability for gratuity and the leave encashment as deductible in the computation book profit u/s 115JB. I find that the Assessing officer has not given any reason for such treatment and how such items are not required to be allowed as per the provision of Section 115JB. Such sums i.e. provision for gratuity and provision for leave encashment are based on actuarial valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the unabsorbed losses, the assessing officer was of the opinion that it includes 'lapsed losses" of AY 2000-01 and 2001-02 of Rs. 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 is that where there has been amalgamation of a company owning an industrial undertaking (M/s MSL) with another company (the assessee M/s. HEIL) then notwithstanding anything contained in any other provisions of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company (M/s. MSL) shall be deemed to be the loss of the amalgamated company (the assessee M/s. HEIL) for the previous year in which the amalgamation was affected and other provisions of this Act relating to set off of carry forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates 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 considered by the BIFR before passing the sanctioned scheme as per CBDT circular, the assessing officer was duty bound to give effect to the recommendation made by the BIFR. So, when the BIFR schemes consider, relief u/s. 72(3), means the limitation period prescribed u/s. 72(3) of the Act i.e. 8 years has to be lifted and assessing officer has to give effect to it and carry forward of loss has to be given more than 8 years. Moreover, we note that clause (b) para 15.8 of the BIFR Scheme recommends CBDTto exempt the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-conditions stipulated in section 72A(2) of the Act for invoking section 72A(1) of the Act, needsto be exempted and becomes in-operative and necessarily has to be overlooked and so, in effect the assessing officer has to give effect to Sec. 72A(1) without looking into the conditions laid in sec. 72A(2) of the Act." The Hon'ble Tribunal in its order has categorically directed for allowance of the losses so claimed by the assessee. Hence the Assessing officer is directed to allow the claim of unabsorbed depreciation, deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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