DCIT 9(1), MUMBAI v. BHAGWATI STEEL CAST P. LTD, MUMBAI

ITA 4462/MUM/2009 | 2006-2007
Pronouncement Date: 07-01-2011 | Result: Dismissed

Appeal Details

RSA Number 446219914 RSA 2009
Assessee PAN AAACB8416C
Bench Mumbai
Appeal Number ITA 4462/MUM/2009
Duration Of Justice 1 year(s) 5 month(s) 11 day(s)
Appellant DCIT 9(1), MUMBAI
Respondent BHAGWATI STEEL CAST P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 07-01-2011
Assessment Year 2006-2007
Appeal Filed On 27-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI T.R. SOOD AM AND SHRI R.S. PADVEKAR J M I.T.A. NO.4462/MUM/2009 ASSESSMENT YEAR : 2006-07 DEPUTY COMMISSIONER OF INCOME TAX 9(1) AAYAKAR BHAVAN 4 TH FLOOR M.K. MARG MUMBAI M/S. BHAGWATI STEEL CASCT P. LTD. 121 UDYOG BHAVAN SONAWALA LANE GOREGAON (E) MUMBAI 400 063 PAN NO: AAACB8416C (APPELLANT) VS. (RESPONDENT) & I.T.A NO.4448/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. BHAGWATI STEEL CAST P. LTD. 121 UDYOG BHAVAN SONAWALA LANE GOREGAON (E) MUMBAI 400 063 PAN NO: AAACB8416C DEPUTY COMMISSIONER OF INCOME TAX 9(1) AAYAKAR BHAVAN 4 TH FLOOR M.K. MARG MUMBAI (APPELLANT) VS. (RESPONDENT) ORDER PER T.R. SOOD (AM) : THIS APPEAL FILED BY THE REVENUE AGAINST THE ORD ER DATED 22.05.2009 OF COMMISSIONER OF INCOME TAX (APPEALS)- IX MUMBAI AND RELATES TO THE ASSESSMENT YEAR 2006-07. APPELLANT BY : SHRI HEMANT LAL RESPONDENT BY : SHRI SAJJAN KUMAR TULSIYAN APPELLANT BY : SHRI SAJJAN KUMAR TULSIYAN RESPONDENT BY : SHRI HEMANT LAL 2 2. THESE ARE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE AND THE ISSUE INVOLVED IS COMMON. THEREFORE THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 3. THE REVENUE AND THE ASSESSEE HAVE RAISED THE FO LLOWING GROUNDS:- REVENUES GROUND 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF RS.14 45 98 219/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASES TO RS.1 81 62 469/- BEING ALLEGED P EAK PAYMENT TO THE PARTIES MENTIONED IN THE ASSESSMENT ORDER WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY VID E LETTER DATED 13.04.2007 FILED BEFORE DDIT(INV.) UNIT-IV(1) SUBM ITTED THAT PURCHASES FROM THE PARTIES UNDER REFERENCE WERE WIT HOUT MOVEMENT OF ANY MATERIAL AND WERE NOT GENUINE . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) FURTHER ERRED IN RESTRICTING THE ADD ITION TO RS.1 81 62 469/- WITHOUT APPRECIATING THE FACT THAT MR. RAMGOPAL S. SHARMA PROPRIETOR OF THE CONCERNS (IN WHOSE BAN K ACCOUNTS THE CHEQUES ISSUED BY THE ASSESSEE WERE DEPOSITED AND C ASH WAS WITHDRAWN) IN HIS STATEMENT U/S. 131 OF THE I.T. AC T DATED 29.06.2006 RECORDED BY THE DDIT(INV) ADMITTED THAT HE USED TO DEPOSIT CHEQUES IN HIS BANK ACCOUNTS AND THEREAFTER RETURNED CASH AMOUNT TO M/S. BHAGWATI STEEL CAST LIMITED I.E. THE ASSESSEE AFTER DEDUCTION HIS COMMISSION AND THAT HE NEVER SUPPLIED ANY MATERIAL TO THE ASSESSEE AND THESE TRANSACTIONS WERE ONLY PA PER TRANSACTIONS. 3. THAT THE LD. CIT(A) HAS FURTHER ERRED IN ACCEPT ING THE ASSESSEES WORKING OF PEAK CREDIT OF SALES RECEIPTS AND PURCHASE PAYMENTS IN RESPECT OF SUCH PARTIES WITHOUT ALLOWIN G ASSESSING OFFICER AN OPPORTUNITY OF BEING HEARD. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 ASSESSEES GROUNDS 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS WELL AS IN LAW THE LEARNED CIT(APPEAL) HAS ERRED IN UPH OLDING THE ADDITION OF RS.1 81 62 469/- AS UNDISCLOSED INCOME ON THE BASIS OF PEAK STATEMENT OUT OF THE TOTAL ADDITION ON ACCOUNT OF ALLEGED BOGUS PURCHASES MADE BY THE AO IN THE ASSESSMENT OR DER OF RS.14 45 98 219/-. THE LEARNED CIT (APPEALS) OUGHT TO HAVE ACCEPTED THE ENTIRE PURCHASES MADE BY THE APPELLANT AS GENUINE AND ACCORDINGLY EVEN NO ADDITION ON THE BASIS OF PE AK THEORY IS JUSTIFIED. 2. SHE HAS FURTHER ERRED IN HOLDING THAT THE ACTUA L PURCHASES WERE MADE BY THE APPELLANT FROM UNDISCLOSED SOURCES WHICH WAS REPLACED BY THE PURCHASES INVOICES ISSUED BY THE AL LEGED FOUR PARTIES. SHE HAS FAILED TO APPRECIATE THAT THE PURC HASES MADE BY THE APPELLANT WERE TOTALLY GENUINE AND SUPPORTED WI TH PROPER DOCUMENTARY EVIDENCES AND PAYMENT WAS ALSO MADE BY WAY OF ACCOUNT PAYEE CHEQUES. 3. SHE HAS FURTHER ERRED IN ACCEPTING THE STATEMENT GIVEN BY THE THIRD PARTY THAT THEY HAVE ISSUED ONLY INVOICES OF SALE TO THE APPELLANT WITHOUT ACTUAL GOODS. SHE HAS FAILED TO A PPRECIATE THAT DURIN G THE COURSE OF SURVEY NO INCRIMINATING DOCU MENTS PAPERS UNACCOUNTED CASH AND OTHER ASSETS ETC. WERE FOUND T O CORROBORATE THAT THE STATEMENT GIVEN BY THE THIRD PARTY WAS TRU E. APPELLANT CONTENDS THAT NEITHER THE COPY OF COMPLETE STATEMEN T GIVEN BY THE SAID PARTY WAS PROVIDED NOR ANY OPPORTUNITY TO CROS S EXAMINE HIM WAS GIVEN. 4. WITHOUT PREJUDICE THE LEARNED CIT (APPEALS) HAS ERRED IN NOT GIVING SET OFF OF GROSS PROFIT OF RS.1 22 04 47 6/- ALREADY DECLARED BY THE APPELLANT ON THE TURNOVER MADE BY I T AGAINST THE ALLEGED BOGUS PURCHASES WHILE MAKING THE PEAK ADDIT ION OF RS.1 81 62 469/- UPHELD BY THE CIT(A). 5. APPELLANT CRAVES LEAVE TO ADD ALTER AND/OR MODI FY THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 4. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- 4 5. THE INVESTIGATION WING OF THE DEPARTMENT RECEIV ED SOME INFORMATION THAT CERTAIN PARTIES WERE OPERATING BAN K ACCOUNTS IN THE DEVELOPMENT CREDIT BANK CRAWFORD MARKET BRANCH MU MBAI WHEREIN CRORES OF CASH WAS BEING WITHDRAWN IMMEDIATELY AFTER THE D EPOSIT OF THE CHEQUES. THIS INFORMATION WAS RECEIVED IN RESPECT OF M/S. SWASTIK TRADING COMPANY M/S. GRAVITY EXPORTS PVT. LTD. AND M/S. GINNI MERCANTILE PVT LTD. THESE ACCOUNTS WERE BEING OPERATED BY ONE SHRI. RAMGOPAL S.SHARMA WHO WAS A PROPRIETOR OF M/S. SWASTIK TRADING COMPANY AND ALSO A DIRECTOR OF M/S. GRAVITY EXPORTS PVT. LTD. AND SHRI CHANDRAKANT SHARMA WAS A PROPRIETOR O F M/S. SARVODAYA TRADING CO. LTD AND M/S. COSMOS ENTERPRISES. ENQUIRES WERE CONDUCTED WITH THESE PERSONS AND ULTIMATELY IT WAS DETECTED THAT SHRI. R AMGOPAL S.SHARMA HAD ISSUED BOGUS ACCOMMODATION BILLS TO THE ASSESSEE ON COMMISSION BASIS. THE STATEMENT OF SHRI. RAMGOPAL S.SHARMA WAS ALSO RECOR DED U/S.131 ON 29.06.2006 AND THE RELEVANT Q.NO.3 AND ANSWER TO THE SAME HAS BEEN EXTRACTED BY THE AO AT PAGE 3 OF ASSESSMENT ORDER WHICH IS AS UNDER : Q.3. PLEASE STATE THE NATURE AND DETAILS OF YOUR T RANSACTION MADE WITH M/S. M/S. BHAGWATI STEEL CAST LIMITED STEEL CA ST LTD. 121 161 UDYOG BHAWAN GOREGAON (E) MUMBAI. ANS. I HAVE ISSUES BOGUS BILLS TO M/S. BHAGWATI ST EEL CAST LIMITED OF RS.10 44 19 527/- WITHOUT PHYSICAL DELIVERY OF A NY GOODS. I RECEIVED THE CHEQUES OF TOTAL AMOUNT OF RS.10 44 19 527/- ON VARIOUS DATES FROM M/S. BHAGWATI STEEL CAST LIMITED . I USED TO DEPOSIT THE CHEQUES IN MY BANK ACCOUNTS AND THEREAF TER RETURNED THE CASH AMOUNT TO M/S. BHAGWATI STEEL CAST LIMITED AFTER DEDUCTING MY COMMISSION. I HAVE NEVER SUPPLIED ANY MATERIAL TO THEM AND THESE TRANSACTIONS ARE ONLY PAPER TRANSACT IONS. 6. ON THE BASIS OF THE ABOVE INFORMATION A SURVEY ACTION U/S.133(A) OF THE ACT WAS ALSO CARRIED OUT ON THE PREMISES OF THE ASSESSEE ON 09.03.2007 BY DDIT (INV.) MUMBAI. DURING THE SURVEY SOME DOCUME NTS WERE IMPOUNDED AS WELL AS THE STATEMENT WAS RECORDED U/S. 131 FROM SH RI AMIT. M. BORAKIA 5 DIRECTOR OF THE ASSESSEE COMPANY. IN THE STATEMENT GIVEN BY SHRI AMIT. M. BORAKIA. VARIOUS QUESTION REGARDING PURCHASES FROM M/S. SARVODAYA TRADING CO. LTD. M/S. SWASTIK TRADING M/S. GRAVITY EXPORT S PVT. LTD. M/S. GINNI MERCANTILE PVT LTD. AND M/S. COSMOS ENTERPRISES WE RE ASKED AND SHRI AMIT. M. BORAKIA. MAINLY STATED THAT PURCHASES WERE GENUI NE AND THE SAME WERE CONDUCTED THROUGH BROKERS AND IT WAS DENIED THAT AN Y CASH WAS RECEIVED BY THE ASSESSEE COMPANY. AFTER FURTHER ENQUIRIES ULTIMATEL Y THE ASSESSEE COMPANY WROTE A LETTER ON 13.04.2007 IN WHICH IT WAS STATED AS UNDER: - RELEVANT PORTION REPRODUCED BY THE AO IS AS UNDER:- IT IS THE MARKETS PRACTICE THAT TRADING IS DONE T HROUGH BROKERS. THE TRADING UNDER REFERENCE WAS DONE THROUGH BROKER AND WE DO NOT HAVE ANY DIRECT INTERACTION WITH THE BUYERS AND SUPPLIERS. UNDER THE ABOVE CIRCUMSTANCES WE HEREBY AGREE THAT THE PURCHASES FROM THE PARTIES UNDER REFERENCE ARE WITH OUT MOVEMENT OF ANY MATERIAL AND ARE NOT GENUINE AND ACCORDINGLY THE CORRESPONDING SALES A RE ALSO NOT GENUINE AS THE SA ME IS ALSO WITHOUT ANY MOVEMENT OF MATERIAL. THE TOTAL PURCHASES FROM THE PARTIES UNDER REFERENC E AMOUNT TO RS.23.31 CRORES AND CORRESPONDING SALES IN RS.25.44 CRORES AND RESULTANTLY THE GROSS PROFIT OF RS.21.3 CRORES HAS BEEN ADDED TO OUR BUSINESS PROFITS WHICH WORK OUT TO 8.35% (APPROX.) . IN VIEW OF THE ABOVE IT IS QUITE CLEAR THAT WE HAV E DONE THESE TRANSACTIONS OUT OF OUR BUSINESS COMPULSIONS AND TH E ULTIMATE RESULT OF THESE TRANSACTIONS IS THE ADDITION OF RS. 2.13 CRORES TO OUR GROSS PROFITS IN OUR BOOKS OF ACCOUNTS. WE RESPECTF ULLY SUBMIT TO YOUR HONOUR TO KINDLY CONSIDER THE MATTER SYMPATHET ICALLY. 7. THROUGH LETTER DATED 08.12.2008 IT WAS STATED T HAT ASSESSEE CANNOT COMMENT UNLESS ENTIRE STATEMENT OF SHRI. RAMGOPAL S .SHARMA WAS PROVIDED TO THE ASSESSEE. HOWEVER AO OBSERVED THAT SHRI RAMGOP AL S.SHARMA HAVE HIMSELF CONFIRMED THAT HE HAD ISSUED BOGUS BILLS TO THE ASSESSEE AND THEREFORE 6 ASSESSEES OBJECTION CANNOT BE ENTERTAINED. MOREOVE R IT WAS STATED THAT ASSESSEE HAD CARRIED OUT THE SALES AND PURCHASES FROM BROKER S BUT THE NAMES OF BROKERS WERE NOT MENTIONED IN THE BILLS AND ONLY NOMINAL BR OKERAGE OF RS.3 18 800/- WAS PAID ON HUGE PURCHASES OF ABOUT RS.128 CRORES. HE ALSO NOTED THAT DURING THE YEAR THE GP RATIO WAS 1.65% ON TOTAL SALES OF R S.155.42 CRORES AGAINST THE G.P. RATIO OF 2.79% ON SALES OF RS.101.66 CRORES IN THE PRECEDING YEAR. HE ALSO NOTED THAT EVEN IN A.Y. 2004-05 THE SURVEY WAS COND UCTED IN THE PREMISES OF ASSESSEE AND SOME UNACCOUNTED STOCK WAS FOUND. HE A LSO NOTED THAT THERE IS NO FORCE IN THE SUBMISSION THAT IF PURCHASES WERE HELD TO BE BOGUS THEN SALES SHOULD ALSO BE HELD BOGUS BECAUSE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT SALES WERE BOGUS. IN THIS BACK GROUND A SUM OF RS.14 45 9 8 219/- WAS ADDED U/S.69C TO THE INCOME THE ASSESSEE. 8. BEFORE THE LEARNED CIT (APPEALS) IT WAS MAINLY CONTENTED THAT NO INCRIMINATING DOCUMENTS OR PAPERS OR UNACCOUNTED CA SH OR OTHER ASSETS WERE FOUND IN THE BUSINESS PREMISES OF THE ASSESSEE DURI NG THE SURVEY. IT WAS FURTHER SUBMITTED THAT IN THE STATEMENT RECORDED DURING THE SURVEY SHRI AMIT. M. BORAKIA NEVER ADMITTED THAT PURCHASES WERE BOGUS. A LL THE DETAILS AND CONFIRMATIONS WERE FILED DURING THE ASSESSMENT PROC EEDINGS AND EVEN ENQUIRIES WERE CONDUCTED U/S.133(6) EXCEPT FOR THE FOUR PARTI ES FROM WHOM THE PURCHASES WERE SAID TO BE BOGUS. NO DEFECT OR DEFICIENCY WAS FOUND IN THE BOOKS OF ACCOUNTS. IT WAS ARGUED THAT ADDITION HAD BEEN MAIN LY MADE ON THE BASIS OF STATEMENT OF SHRI RAMGOPAL S.SHARMA WHICH WAS RECO RDED BY THE INVESTIGATION WING WITHOUT CONDUCTING ANY INDEPENDENT ENQUIRIES A ND NO CORROBORATORY EVIDENCE HAVE BEEN BROUGHT ON RECORD. IT WAS FURTH ER SUBMITTED THAT SHRI. RAMGOPAL S.SHARMA OR SHRI CHANDRAKANT SHARMA WERE N OT IN ANY WAY RELATED WITH THE ASSESSEE COMPANY. 7 9. IT WAS FURTHER ARGUED THAT IF SUCH PURCHASES WE RE ADDED TO THE INCOME OF THE ASSESSEES THEN G.P. WOULD SHOOT UPTO 32.3% WHICH IS JUST NOT POSSIBLE IN STEEL INDUSTRY. IT WAS POINTED OUT THAT SINCE PURCHASES WERE CONDUCTED THROUGH BROKERS THE SAME ITEMS WERE SOLD THROUGH BROKERS AND IN THAT CASE THE SALE SHOULD ALSO HELD TO BE BOGUS. RELIANC E WAS ALSO PLACED ON VARIOUS CASE LAWS AND AN ALTERNATE SUBMISSION WAS ALSO MADE THAT ASSESSEE HAD ALREADY CREDITED A SUM OF RS.1 22 04 476/- BY WAY OF GROSS PROFIT BECAUSE IT IS DIFFERENCE IN THE SALES AND PURCHASES WHICH AUTOMAT ICALLY STAND CREDITED TO THE PROFIT & LOSS A/C. 10. THE LEARNED CIT (APPEALS) AFTER CONSIDERING T HE RIVAL SUBMISSION HELD THAT THE ASSESSEE HAD DEFINITELY MADE BOGUS PU RCHASES SINCE THE ASSESSEE HAS FAILED TO PROVE THAT SALES WERE ALSO BOGUS. THE REFORE PURCHASES AND SALES MUST HAVE BEEN MADE FROM OTHER PARTIES. IN FACT IN THIS REGARD HE OBSERVED VIDE PARA 4.2 WHICH IS AS UNDER :- 4.2 IN THE INSTANT CASE SINCE THE PARTY HAS FAIL ED TO PROVE THAT ITS SALES WERE BOGUS THE ONLY PROBABILITY REMAINS IS T HAT THE ACTUAL PURCHASE MADE FROM UNDISCLOSED SOURCE WAS REPLACED BY PURCHASE INVOICE ISSUED BY THE SAID SHRI RAM GOPAL AND HIS A SSOCIATES AND THE ACCOUNT OF THE UNDISCLOSED SELLER IS SETTLED TH ROUGH THE CASH EITHER RECEIVED FROM THE PARTY ISSUING THE ACCOMMOD ATION INVOICE VIZ. SHARMA IN THIS CASE OR THROUGH THE CASH GENERA TED FROM UNDISCLOSED SOURCES. THIS WILL ALSO ANSWER THE APPE LLANTS CASE THAT DURING THE COURSE OF SURVEY NO CASH WAS FOUND SINCE SUCH CASH WAS ALWAYS USED FOR MAKING CASH PURCHASES. IT IS IN THIS REGARD THE APPELLANT WAS ASKED TO FILE THE PEAK CRE DIT WORKING OF SALES RECEIPTS AND PURCHASE PAYMENTS IN RESPECT OF SUCH PARTIES. IN RESPONSE TO WHICH THE APPELLANT HAS FILED THE DETAI LS OF AMOUNT RECEIVED AGAINST SALES AND ALSO AMOUNT OF PAYMENT M ADE TO SHARMA AND HIS ASSOCIATES. ON PERUSAL OF THE SAME I T IS FOUND THAT THE APPELLANT HAD MADE PEAK PAYMENT OF RS.1 81 62 4 69/- WHICH IS THE AMOUNT OF PAYMENT WHICH WOULD BE MADE AGAINST P URCHASES WITHOUT ANY SOURCE AVAILABLE AND HENCE THE SAME IS TREATED AS UNDISCLOSED INCOME OF THE APPELLANT WHICH IS USED F OR MAKING 8 PAYMENT AGAINST THE PURCHASES FROM PARTIES AGAINST WHICH THE SALES WERE MADE. IN THIS REGARD THE APPELLANT HAS F URTHER SUBMITTED THAT SINCE THE APPELLANT HAD ALREADY DISCLOSED THE GROSS PROFIT MARGIN ON SALES IN ALL AMOUNTING TO RS.1 22 04 376/ - THE SAME SHOULD BE DELETED. I AM UNABLE TO ACCEDE TO THE APP ELLANTS CLAIM SINCE GP MARGIN HAS ALWAYS BEEN BOOKED IN ACCOUNTS WHERE AS THE PAYMENTS MADE TO PARTIES ON PEAK BASIS WAS OUT OF B OOKS AND HENCE WOULD NOT HAVE ANY RELEVANCE TO THE AMOUNT PA ID FOR PURCHASES AND ACCORDINGLY THE APPELLANTS THIS GROU ND CAN NOT BE ACCEPTED. HOWEVER NO FURTHER ADDITION ON G.P. ON T RADING ACTIVITY IS REQUIRED TO BE MADE AS THE APPELLANT HAS SHOWN G ROSS PROFIT OF 8.18% IN THE TOTAL TRADING ACCOUNT WHICH IS REASONA BLE CONSIDERING THE NATURE OF BUSINESS. THE GROSS PROFIT IN RESPECT OF PURCHASES MADE FROM THE ABOVE SAID FOUR CONCERNS THE APPELLA NT HAS SHOWN A GROSS PROFIT OF RS.1 22 04 476/- WHICH IS ALREADY INCLUDED IN THE TOTAL TRADING ACCOUNT AND THE G.P. RATIO THEREON CO MES TO 8.07% WHICH IS COMPARABLE WITH THE GROSS PROFIT RATIO OF THE TOTAL TRADING ACCOUNT. THEREFORE CONSIDERING THE OVERALL FACTS O F THE APPELLANT COMPANY THE AO IS DIRECTED TO RESTRICT THE ADDITION TO THE EXTENT OF RS.1 81 62 469/- SUBJECT TO VERIFICATION OF THE PEA K WORKING OF PAYMENTS MADE TO ABOVE SAID 4 PARTIES AND RECEIPTS AGAINST CORRESPONDING SALE AS AGAINST RS.14 45 98 219/- MAD E BY THE AO. 11. BEFORE US THE LEARNED DR SUBMITTED THAT IN THE STATEMENT RECORDED FROM SHRI AMIT. M. BORAKIA DIRECTOR OF THE ASSESSE E COMPANY (COPY OF THE SAME IS AVAILABLE AT PG. 46 TO 50) DURING A SURVEY U/S. 131 IT WAS CLEARLY ADMITTED THAT ASSESSEE HAD NEVER RECEIVED THE GOODS AND THE SAME WERE BEING DISPATCHED DIRECTLY VIDE Q.NO.7. IN REPLY TO THE Q. NO.8 IT WAS STATED BY HIM THAT ORDER WAS PLACED THROUGH BROKERS AND HE DID NO T REMEMBER THE NAME OF THE BROKERS. THIS STATEMENT CLEARLY SHOWS THAT PURCHASE S MADE BY THE ASSESSEE COMPANY FROM M/S. SARVODAYA TRADING COMPANY M/S. S WASTIK TRADING M/S. GRAVITY EXPORTS PVT. LTD. M/S. GINNI MERCANTILE PV T LTD. WERE ONLY BOGUS PURCHASES. HE THEREFORE ARGUED THAT IF THE PURCHAS ES WERE MADE THROUGH BROKERS THEN ATLEAST NAMES OF THE BROKERS SHOULD HA VE BEEN KNOWN TO THE DEPARTMENT WHICH HAS NOT BEEN DONE. MOREOVER NO BR OKERAGE HAS BEEN PAID BY THE ASSESSEE COMPANY. THEN HE REFERRED TO THE PG. 1 0 OF THE LEARNED CIT 9 (APPEALS) ORDER AND POINTED OUT THAT EVEN LEARNED C IT (APPEALS) HAS EXTRACTED THE Q.NO.3 AND ANSWER TO THE SAME BY SHRI SHRI. RAM GOPAL S.SHARMA WHOSE STATEMENT WAS RECORDED BY THE INVESTIGATION WING AN D IN THAT STATEMENT HE HAD CLEARLY STATED THAT HE HAD ONLY ISSUED BOGUS BILLS TO M/S. BHAGWATI STEEL CAST LTD. THIS CLEARLY SHOWS THAT PURCHASES WERE BOGUS. IN ANY CASE THIS FACT WAS ADMITTED BY THE ASSESSEE COMPANY THROUGH LETTER FIL ED WITH THE REVENUE ON 13.04.2007 (COPY OF WHICH IS AVAILABLE AT PAGE 209 AND 107 OF THE PAPER BOOK) WHEREIN THE ASSESSEE HAD AGREED THAT PURCHASES ARE NOT GENUINE. THE ASSESSEES TOTAL PURCHASES WERE AROUND 150 CRORES AND IT WAS A CLEAR CASE OF IN FLUCTUATION OF PURCHASES. THOUGH THE LEARNED CIT (APPEALS) AGRE ED WITH THIS PREPOSITIONS STILL HE PROPOUNDED A NEW THEORY THAT THESE PURCHAS ES AND SALES MUST HAVE BEEN CARRIED OUT BY THE ASSESSEE COMPANY THROUGH SOME OT HER PARTIES. THIS THEORY IS TOTALLY WRONG BECAUSE ASSESSEE COMPANY NEVER TRIED TO PROVE THAT SALES WERE ALSO BOGUS THE PAYMENTS HAVE BEEN DULY RECEIVED FRO M CUSTOMERS AND THEREFORE SALES COULD NOT BE CALLED BOGUS. HE ALSO STRONGLY RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. LA MEDICA 250 ITR 575. 12. ON THE OTHER HAND THE LEARNED COUNSEL OF THE A SSESSEE CARRIED US THROUGH THE ASSESSMENT ORDER AND POINTED OUT THAT A DDITION HAS BEEN MADE MERELY ON THE BASIS OF STATEMENT OF SHRI. RAMGOPAL S.SHARMA. HE ARGUED THAT NO INCRIMINATING MATERIAL OR DOCUMENT OR UNACCOUNTE D CASH WAS FOUND DURING THE SURVEY IN THE PREMISES OF ASSESSEE WHICH COULD SHOW THAT PURCHASES MADE BY THE ASSESSEE COMPANY WERE BOGUS. INFACT NO DEFEC T WAS FOUND IN THE BOOKS OF ACCOUNT AND THEREFORE SAME COULD NOT HAVE BEEN REJECTED. THERE IS ONLY MENTION REGARDING FALL IN G.P. RATE DURING THE YEAR FOR WHICH VARIOUS REASONS WERE THERE AND DETAILED REPLY WAS GIVEN EXPLAINING REASONS FOR FALL IN G.P. VIDE LETTER DATED 08.10.2008 AND 16.10.2008 (COPY OF WHI CH IS AVAILABLE AT PAGE 195 TO 208) AND THE MAIN REASON WAS FALL IN SALE PRICE OF TMT BARS FOR RS.23000/- 10 PER METRIC TON TO RS.20 825/- PER METRIC TON. THE A O HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT GP RATE OF 32.33% AFTER T HE ADDITION WAS THERE IN COMPARABLE CASES ALSO. HE ARGUED THAT REJECTION OF BOOKS CANNOT BE MADE WITHOUT ANY SPECIFIC DEFECT IS POINTED OUT AND IN T HIS REGARD HE RELIED ON THE DECISION OF TRIBUNAL IN THE CASE OF RAKESH PUROHIT VS. ACIT 14 ITR 414 AND ITO VS. KANCHANWALA JAVES 12 ITR 175. 13. HE POINTED OUT THAT THOUGH IT HAS BEEN MADE ON THE BASIS OF STATEMENT OF SHRI. RAMGOPAL S.SHARMA BUT THIS STATE MENT WAS NEVER PROVIDED TO THE ASSESSEE DESPITE THE FACT THAT SPECIFIC REQUEST WAS MADE VIDE LETTER DATED 31.10.2008 (COPY OF WHICH IS AVAILABLE AT PAPER BOO K AT PAGE 216) AND 25.11.2008 (COPY OF WHICH IS AVAILABLE AT PAGE 51 T O 58) AND LETTER DATED 08.12.2008 (COPY OF WHICH IS AVAILABLE AT PAGE 218 AND 219). DESPITE THESE SPECIFIC REQUESTS THE STATEMENT WAS NOT PROVIDED TO ASSESSEE. HE ARGUED THAT IT IS SETTLED POSITION OF LAW THAT UNLESS AND UNTIL THE S TATEMENT OF THIRD PARTIES IS CONFRONTED TO THE ASSESSEE NO ADVERSE INFERENCE CAN BE TAKEN AGAINST THE ASSESSEE AND IN THIS REGARD HE RELIED ON THE DECISI ON OF HONBLE SUPREME COURT IN CASE OF KISHANCHAND CHELLARAM VS. CIT 125 ITR 71 3 AND CIT VS. INSTANT COMMERCIAL ENTERPRISES 210 ITR 103 (CAL) PRAKASH C HAND NAHTA VS. CIT 301 ITR 134 (MP) AND MANY OTHER DECISIONS. 14. HE ARGUED THAT THOUGH ADDITION HAS BEEN MADE O N THE BASIS OF STATEMENT OF SHRI SHRI. RAMGOPAL S.SHARMA COPY OF WHICH IS NEVER SUPPLIED TO THE ASSESSEE COMPANY. THEREFORE IT IS IMPORTANT TO LOOK AT THE REPLY OF SHRI RAMGOPAL S.SHARMA TO Q.NO.3 WHICH HAS BEEN REPRODU CED BY AO AS WELL AS LEARNED CIT (APPEALS) WHICH IS AS UNDER :- 11 Q.3. PLEASE STATE THE NATURE AND DETAILS OF YOUR T RANSACTION MADE WITH M/S. M/S. BHAGWATI STEEL CAST LIMITED STEEL CA ST LTD. 121 161 UDYOG BHAWAN GOREGAON (E) MUMBAI. ANS. I HAVE ISSUES BOGUS BILLS TO M/S. BHAGWATI ST EEL CAST LIMITED OF RS.10 44 19 527/- WITHOUT PHYSICAL DELIVERY OF A NY GOODS. I RECEIVED THE CHEQUES OF TOTAL AMOUNT OF RS.10 44 19 527/- ON VARIOUS DATES FROM M/S. BHAGWATI STEEL CAST LIMITED . I USED TO DEPOSIT THE CHEQUES IN MY BANK ACCOUNTS AND THEREAF TER RETURNED THE CASH AMOUNT TO M/S. BHAGWATI STEEL CAST LIMITED AFTER DEDUCTING MY COMMISSION. I HAVE NEVER SUPPLIED ANY MATERIAL TO THEM AND THESE TRANSACTIONS ARE ONLY PAPER TRANSACT IONS. 15. IN THE ABOVE STATEMENT SHRI RAMGOPAL S.SHARMA HAS REFERRED TO THE BOGUS BILLS AMOUNTING TO RS.10 44 19 527/-. HOW EVER DURING THE YEAR THE PURCHASES ADDED BY AO AMOUNT TO RS.14 45 98 219/- A ND IN SUBSEQUENT YEAR ALSO THERE WERE PURCHASES OF RS.8 85 41 410/- WHICH TOTALS TO RS.23 311 39 629/-. THIS CLEARLY SHOWS THAT SHRI RA MGOPAL S.SHARMA HAS MENTIONED JUST A CASUAL FIGURE AND THEREFORE THE STATEMENT ITSELF IS NOT CORRECT. 16. FURTHER HE ALSO POINTED OUT THAT AO HIMSELF HA S NOTED THAT SHRI RAMGOPAL S.SHARMA WAS A PROPRIETOR OF M/S. SWASTIK TRADING COMPANY AND ALSO A DIRECTOR OF M/S. GRAVITY EXPORTS PVT. LTD. W HEREAS ADDITIONS HAVE BEEN MADE IN RESPECT OF FOUR PARTIES I.E. M/S. SARVODAYA TRADING CO. LTD. M/S. SWASTIK TRADING M/S. GRAVITY EXPORTS PVT. LTD. M/ S. GINNI MERCANTILE PVT LTD. NO STATEMENTS HAS BEEN RECORDED EITHER FROM SH RI CHANDRAKANT SHARMA WHO WAS A PROPRIETOR OF M/S. SARVODAYA TRADING CO. LTD OR INRESPECT OF M/S. GINNI MERCANTILE PVT LTD AND THEREFORE THOSE ADDI TIONS COULD NOT HAVE BEEN MADE AT ALL. THUS IT IS CLEAR THAT SOME OF THE ADDI TIONS HAVE BEEN MADE WITHOUT ANY THIRD PARTY STATEMENT. 17. HE THEN REFERRED TO VARIOUS DOCUMENTS IN THE P APER BOOK AND POINTED OUT THAT ASSESSEE HAD FILED ALL THE DETAILS FOR PURCHASES SUCH AS PURCHASE 12 BILLS MONTHLY QUANTITATIVE DETAILS ETC. ALL THE P ARTIES FROM WHOM PURCHASE HAVE BEEN MADE ARE DULY REGISTERED UNDER THE SALES TAX L AWS AND ALSO HAVE PAN NUMBERS AND THEREFORE SUCH PURCHASES COULD NOT HA VE BEEN DOUBTED IN THE ABSENCE OF DIRECT EVIDENCE. 18. HE THEN REFERRED TO THE STATEMENT OF THE SHRI AMIT. M. BORAKIA DIRECTOR OF THE COMPANY AND POINTED OUT THAT IN THE INITIAL STATEMENT RECORDED ON 09.03.2007 SHRI SHRI AMIT. M. BORAKIA CLEARLY STATE D THAT PURCHASES WERE MADE THROUGH BROKERS AND HE NEVER ACCEPTED THAT PURCHASE S WERE BOGUS OR ANY CASH WAS RECEIVED. HE THEN REFERRED TO THE LETTER DATED 13.04.2007 (COPY OF WHICH IS AVAILABLE AT PAGE NO. 209 & 210 OF THE PAPER BOOK) WHICH HAS BEEN STRONGLY RELIED BY THE AO AS WELL AS BY THE LEARNED DR. HE R EAD OUT THE CONTENTS AND POINTED OUT THAT THROUGH THIS LETTER ONLY POINT MAD E OUT WAS THAT THERE WAS A SYSTEM OF MAKING PURCHASES AND SALES THROUGH BROKER S AND ASSESSEE HAS DONE THE SAME. IT WAS ALSO STATED THAT ASSESSEE HAS MADE THE BUYING OR SELLING THROUGH BROKERS AS PER MARKET PRACTICE AND THEREFORE ASSE SSEE WAS UNDER THE BONAFIDE BELIEF THAT PURCHASES AND SALES WERE GENUINE. IT WA S FURTHER POINTED OUT THAT ASSESSEE COMPANY WAS UNDER PRESSURE FROM ITS BANKER S TO SHOW HIGHER TURNOVER AND GOOD PROFITABILITY AND THAT IS WHY ASSESSEE COM PANY HAD STARTED TRADING OPERATIONS. IN THIS BACKGROUND IT WAS POINTED OUT T HAT WHEN IF THE REVENUE WAS GOING TO TREAT THE PURCHASES FROM THE SAID PARTIES AS BOGUS THEN THE CORRESPONDING SALES ALSO NEEDS TO BE TREATED AS BOG US BUT IT DOES NOT MEAN THAT ASSESSEE HAS ACCEPTED THAT PURCHASES WERE BOGUS. HE SUBMITTED THAT IT IS NOT CORRECT TO SAY THAT ASSESSEE HAS NOT PAID ANY BROKE RAGE INFACT THE AO HAS HIMSELF MENTIONED THAT BROKERAGE OF RS.3 18 000/- O NLY WAS PAID BY THE ASSESSEE. HE THEN REFERRED TO THE DECISION OF MUMBA I BENCH IN CASE OF ITO VS. SURANA TRADERS 93 TTJ 875 WHEREIN IT WAS OBSERVED T HAT IF THE ASSESSEE HAS MAINTAINED COMPLETE DAY TO DAY WEIGHT WISE STOCK RE GISTER AND THE SAME WAS PRODUCED BEFORE THE AUTHORITIES THEN IF PURCHASES W ERE HELD TO BE GENUINE THEN 13 SALES COULD NOT TO BE TREATED AS HAWALA. SIMILARLY IF IN CASE BEFORE US IF THE PURCHASES WERE TO BE TREATED AS BOGUS AND THEN AS T HE SAME ITEMS HAVE BEEN SOLD BY THE ASSESSEE THEN SUCH SALES SHOULD ALSO BE TREATED AS BOGUS. INFACT THE LETTER DATED 13.04.2007 WAS GIVEN BY THE ASSESSEE C OMPANY BECAUSE THERE WAS A LOT OF PRESSURE AND CONTINUOUS ALLEGATIONS FROM THE DEPARTMENT REGARDING BOGUS PURCHASES. 19. HE SUBMITTED THAT THE RESULTS DECLARED BY THE ASSESSEE COMPANY WERE QUITE FAIR AND IN RESPECT OF TRADING TRANSACTI ONS ASSESSEE HAD DECLARED ABOUT 8% GROSS PROFIT AND IF THE ADDITIONS REGARDIN G BOGUS PURCHASES WAS MADE THE TOTAL GROSS PROFIT RATE WOULD JUMP TO 32% WHICH IS ALMOST IMPOSSIBLE IN TRADING AND STEEL ITEMS. HE SUBMITTED THAT AS FAR A S FALL OF GROSS PROFIT MENTIONED BY AO WOULD CONCERN THE ASSESSEE HAD ALRE ADY EXPLAINED THROUGH VARIOUS LETTERS (COPY OF WHICH IS ENCLOSED AT PAGE NO. 195 TO 208 OF THE PAPER BOOK) AND ONE OF THE MAIN REASON WAS THAT SELLING P RICE OF THE TMT BARS HAD FALLEN DURING THE RELEVANT TIME FROM RS.23 000/- PE R METRIC TON IN MARCH 2005 TO RS.20 825/- PER METRIC TON BY MARCH 2006. 20. HE ALSO SUBMITTED THAT AO HAS STRONGLY RELIED U/S.69C WHICH DEALS WITH UNEXPLAINED EXPENDITURE AND THEREFORE SAME C ANNOT BE INVOKED FOR DISALLOWANCE BOGUS PURCHASES BECAUSE THIS FORMS PAR T OF THE TRADING ACCOUNT AND PURCHASES REQUIRED VERIFICATION OF STOCK ETC. 21. HE SUBMITTED THAT DECISION RELIED ON BY THE LE ARNED DR IN CASE OF CIT VS. LA MEDICA 250 ITR 575 IS TOTALLY DISTINGUIS HABLE BECAUSE IN THAT CASE DETAILED ENQUIRIES WERE MADE BY THE AUTHORITIES FRO M THE BANKS AND EVEN THE PEOPLE WHO INTRODUCED THE ACCOUNT ETC. WHEREAS IN C ASE BEFORE US THE ADDITIONS HAS BEEN MERELY MADE ON THE BASIS OF STATEMENT OF O NLY SHRI RAMGOPAL S. 14 SHARMA AND EVEN THAT STATEMENT WAS NOT SUPPLIED TO THE ASSESSEE AND NO STATEMENTS WERE RECORDED FROM OTHER SUPPLIERS. 22. HE ALSO SUBMITTED THAT THEORY PROPOUNDED BY LE ARNED CIT (APPEALS) THAT ASSESSEE MUST HAVE PURCHASED AND SOL D GOODS THROUGH OTHER SOME PARTIES IS ONLY AN IMAGINATION AND THERE IS NO EVIDENCE ON RECORD. IN THE ALTERNATIVE HE SUBMITTED THAT IN ANY CASE IF THE LE ARNED CIT (APPEALS) WAS OF THE VIEW THAT SALES AND PURCHASES BOTH ARE GENUINE AND WERE CONDUCTED THROUGH OTHER PARTIES AND PEAK AMOUNT WAS TO BE CALCULATED THEN HE SHOULD HAVE ALLOWED THE CREDIT FOR THE G.P WHICH ALREADY STOOD CREDITED IN THE BOOKS OF ACCOUNTS BECAUSE OF SALES AND PURCHASES HAVE BEEN RECORDED I N THE BOOKS AND PROFIT OF RS.1 22 04 476/- WHICH WAS ALREADY INCLUDED IN THE ACCOUNTS. 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIUND THAT CERTAIN BANK ACCOUNTS WERE EXAMINED BY THE INVESTIG ATION WING OF THE DEPARTMENT AND IT WAS NOTICED THAT HEAVY CASH WITHD RAWALS HAVE BEEN MADE IMMEDIATELY AFTER THE CHEQUES WERE DEPOSITED. ON TH E BASIS OF THIS ENQUIRY CERTAIN ACCOUNTS IN THE NAME OF M/S. SWASTIK TRADIN G COMPANY M/S. GRAVITY EXPORTS PVT. LTD. AND M/S. GINNI MERCANTILE PVT LTD . ETC WERE FURTHER EXAMINED AND IT WAS NOTICED THAT SHRI RAMGOPAL S.SHARMA WAS A PROPRIETOR OF M/S. SWASTIK TRADING COMPANY AND ALSO A DIRECTOR OF M/S. GRAVITY EXPORTS PVT. LTD. THE STATEMENT U/S.131 FROM SHRI RAMGOPAL S.SHARMA W AS RECORDED AND RELEVANT Q.NO.3 HAS BEEN REPRODUCED BY AO AT PAGE 3 OF THE A SSESSMENT ORDER WHICH IS AS UNDER:- Q.3. PLEASE STATE THE NATURE AND DETAILS OF YOUR T RANSACTION MADE WITH M/S. M/S. BHAGWATI STEEL CAST LIMITED STEEL CA ST LTD. 121 161 UDYOG BHAWAN GOREGAON (E) MUMBAI. ANS. I HAVE ISSUES BOGUS BILLS TO M/S. BHAGWATI ST EEL CAST LIMITED OF RS.10 44 19 527/- WITHOUT PHYSICAL DELIVERY OF A NY GOODS. I 15 RECEIVED THE CHEQUES OF TOTAL AMOUNT OF RS.10 44 19 527/- ON VARIOUS DATES FROM M/S. BHAGWATI STEEL CAST LIMITED . I USED TO DEPOSIT THE CHEQUES IN MY BANK ACCOUNTS AND THEREAF TER RETURNED THE CASH AMOUNT TO M/S. BHAGWATI STEEL CAST LIMITED AFTER DEDUCTING MY COMMISSION. I HAVE NEVER SUPPLIED ANY MATERIAL TO THEM AND THESE TRANSACTIONS ARE ONLY PAPER TRANSACT IONS. 24. ON THE BASIS OF THIS STATEMENT FURTHER ENQUIRI ES WERE MADE FROM THE ASSESSEE AND THEN A SURVEY WAS CONDUCTED IN PREMISE S OF THE ASSESSEE AND STATEMENT OF SHRI AMIT. M. BORAKIA DIRECTOR OF THE ASSESSEE COMPANY WAS ALSO RECORDED ON 09.03.2007 BY DDIT (INVESTIGATION) MUMB AI RELEVANT PORTION OF THE STATEMENTS WHICH HAS BEEN REPRODUCED BY AO AT P AGE 3 WHICH IS AS UNDER :- Q.6 . PLEASE GO THROUGH THE ACCOUNTS AND EXPLAIN WHETHE R ANY OF YOUR GROUP CONCERNS HAVE MADE PURCHASES FROM 1) SAR VODAYA TRADING CO. 2) SWASTIK TRADING CO. 3) GRAVITY EXP ORTS PVT LTD. 4) GINNI MERCANTILE 5) COSMOS ENTERPRISES ? ANS. AS PER OUR ACCOUNTS WE HAVE PURCHASED ONLY IN M/S . BHAGWATI STEEL CAST LTD. FROM THESE PARTIES. THE ST ATEMENT OF ACCOUNTS FROM OUR BOOKS ARE BEING SUBMITTED TO YOU. Q.8 PLEASE EXPLAIN WHO IS THE CONCERNED PERSON TO WHOM THE ORDER FOR PURCHASES FROM THE ABOVE MENTIONED PARTIE S WERE MADE. ANS. MY ACCOUNT INFORMED ME THAT THE PURCHASES WERE MA DE THROUGH THE BROKERS. THEY DO NOT REMEMBER THE NAME OF BROKER THROUGH WHOM THE ORDERS WERE BOOKED. Q.9 PLEASE SATE WHICH ARE THE PARTIES TO WHOM YOU HAVE SOLD THE GOODS PURCHASED FROM ABOVE MENTIONED FOUR PARTIES. ANS. FURNISHING OF ONE TO ONE DETAILS IS NOT POSSIBLE R IGHT NOW. WE WILL FURNISH YOU THE SAME ON MONDAY. Q.11 I AM ONCE AGAIN ASKING YOU PLEASE SATE WHETHER YOU HAVE RECEIVED ANY CASH FROM SRI RAM GOPAL SHARMA IS LIEU OF CHEQUES GIVEN BY YOU AND WHETHER THE TRANSACTIONS ARE GENUI NE. ANS. I SAY THAT TRANSACTIONS RECORDED IN OUR BOOKS ARE GENUINE AND WE HAVE NOT RECEIVED ANY CASH AGAINST CHEQUES I SSUED TO THESE PARTIES. I FURTHER SATE THAT I DO NO KNOW WHO IS RA M GOPAL SHARMA. 16 25. THUS FROM THE ABOVE STATEMENT IT IS CLEAR THAT DIRECTOR OF THE COMPANY SHRI AMIT. M. BORAKIA DENIED THAT ANY BOGUS PURCHASES WERE MADE. FURTHER AO REFERRED TO THE STATEMENT OF SHRI RAMGOP AL S.SHARMA AND IT SEEMS THAT FURTHER DISCUSSIONS WERE HELD AND ULTIMATELY A SSESSEE WROTE A LETTER DATED 13.04.2007 (COPY OF WHICH IS AVAILABLE AT PAPER BOO K PG. 209 & 210) WHICH IS AS UNDER :- TO THE DY. DIRECTOR OF INCOME TAX (INV.) UNIT-IV (1) 417 SCINDIA HOUSE BALLARD ESTATE MUMBAI-400 038 SUB: SURVEY U/S.133A OF THE INCOME TAX ACT 1961. THIS HAS REFERENCE TO THE DISCUSSION UNDERSIGNED PE RSONALLY HAD WITH YOUR GOOD SELVES IN THE ABOVE MATTER AND WE STATE AS UNDER WE ARE IN THE BUSINESS OF MANUFACTURING OF M.S. ING OTS CMT AND TMT BARS. WE ARE ALSO DOING SOME TRADING IN OTHER STEEL PRODU CTS. WE ARE HAVING CREDIT FACILITIES FROM BANK AND THE SAME ARE REVIEWED BY T HEM FROM TIME TO TIME. WE ARE UNDER GENUINE BUSINESS COMPULSIONS TO MEET WITH THE TARGETS TO CONTINUE/RENEW THE CREDIT FACILITIES. DURING THE PERIOD UNDER REFERENCE OUR TURNOVER AND PROFIT MARGINS WERE UNDER PRESSURE DUE TO MANUFACTURING DIFFICULTIES AND PREV AILING MARKET CONDITIONS. IN ORDER TO MEET WITH THE MINIMUM TARGETS GIVEN TO THE BANK WE HAVE DONE TRADING OF STEEL PRODUCTS WITH AN INTENTION TO HAVE BETTER TURNOVER AND PROFITABILITY. IT IS THE MARKETS PRACTICE THAT TRADING IS DONE TH ROUGH BROKERS. THE TRADING UNDER REFERENCE WAS DONE THROUGH BROKER AND WE DON NOT HAVE ANY DIRECT INTERACTION WITH THE BUYERS AND SUPPLIERS. WE HAVE NEVER MET THE BUYERS AND SUPPLIERS UNDER REFERENCE. WE HAVE PURCHASED AND SO LD THE MATERIAL UNDER BONAFIDE BELIEF THAT THE TRANSACTIONS UNDER REFEREN CE WERE DONE BY THE BROKER WITHOUT MOVEMENT OF ANY MATERIAL AND THESE ARE NOT GENUINE BUSINESS TRANSACTION. 17 UNDER THE ABOVE CIRCUMSTANCES WE HEREBY AGREE THAT THE PURCHASES FROM THE PARTIES UNDER REFERENCE ARE WITHOUT MOVEMENT OF ANY MATERIAL AND ARE NOT GENUINE AND ACCORDINGLY THE CORRESPONDING SALES ARE ALSO NOT GENUINE AS THE SAME IS ALSO WITHOUT ANY MOVEMENT OF MATERIAL. THE TOTAL PURCHASES FROM THE PARTIES UNDER REFERENC E AMOUNT OT RS.23.31 CRORES AND CORRESPONDING SALES IS RS.25.44 CRORES AND RESU LTANTLY THE GROSS PROFIT OF RS.21.3 CRORES HAS BEEN ADDED TO OUR BUSINESS PROFI TS WHICH WORK OUT TO 8.35% (APPROX). TO SUBSTANTIATE THE ABOVE WE ARE ENCLOSING HEREWIT H THE DETAILED STATEMENT OF PURCHASES FROM THE PARTIES UNDER REFERENCE AND CORR ESPONDING SALES WHICH CLEARLY REFLECTS THAT THE PURCHASES AND SALES ARE Q UANTATIVELY EQUAL HAVING SAME DESCRIPTION AND DONE ON THE SAME DATE. WE ARE ALSO ENCLOSING HEREWITH SAMPLE COPY OF PURCH ASE BILL FROM EACH PURCHASE PARTY UNDER REFERENCE WITH CORRESPONDING S ALE BILL FOR YOU INSTANT REFERENCE. THE BALANCE BILLS WILL BE PRODUCED IN OR IGINAL AT THE TIME OF HEARING FOR YOUR VERIFICATION AND DOING THE NEEDFUL. IN VIEW OF THE ABOVE IT IS QUITE CLEAR THAT WE HAV E DONE THESE TRANSACTIONS OUT OF OUR BUSINESS COMPULSIONS AND THE ULTIMATE RESULT OF THESE TRANSACTIONS IS THE ADDITION OF RS.2.13 CRORES TO OUR GROSS PROFITS IN OUR BOOKS OF ACCOUNTS. WE RESPECTFULLY SUBMIT TO YOUR HONOUR TO KINDLY CONSID ER THE MATTER SYMPATHETICALLY. THANKING YOU YOURS FAITHFULLY FOR BHAGWATI STEEL CAST LIMITED AMIT BURAKIA (DIRECTOR) ENCL : AS STATED ABOVE. 26. THE REVENUE HAS ULTIMATELY MADE ADDITION ON TH E BASIS OF THE STATEMENT OF SHRI RAMGOPAL S.SHARMA AS WELL AS BY THE LETTER OF THE ASSESSEE. 18 27. THOUGH WE FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL OF THE ASSESSEE THAT IF THE STATEMENT OF THE THIRD PAR TY I.E. SHRI RAMGOPAL S.SHARMA WAS TO BE RELIED BUT THE SAME WAS NEVER GIVEN TO AS SESSEE FOR ASKING ANY CROSS EXAMINATION AND IN THE ABSENCE OF ANY OTHER ENQUIRI ES BY THE REVENUE THE ADDITION IS REQUIRED TO BE DELETED PARTICULARLY IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN CASE OF KISHANCHAND CHELLARAM VS. CIT (SUPRA) AND VARIOUS OTHER DECISIONS CITED BY HIM. FURTHER SHRI RAMGOPAL S. SHARMA WAS PROPRIETOR OF M/S. SWASTIK TRADING COMPANY AND ALSO A DIRECTOR OF M/S. GRAVITY EXPORTS PVT. LTD BUT PURCHASES HAVE BEEN MADE EVEN FROM M/S . SARVODAYA TRADING CO. LTD. & M/S. GINI MERCHANTILE PVT. LTD. & NO STATEME NT HAVE BEEN RECORDED FROM PERSONS WHO WERE OPERATING THESE ACCOUNTS. HERE WE WOULD LIKE TO MENTION THAT IN THIS BACKGROUND EVEN THE DECISION OF HONBLE DEL HI HIGH COURT IN CASE OF CIT VS. LA MEDICA (SUPRA) IS DISTINGUISHABLE BECAUS E IN THAT CASE NOT ONLY DETAILED ENQUIRIES WERE MADE WITH THE BANKERS AND T HE SUPPLIERS INCLUDING THE STATEMENT OF THE PEOPLE WHO HAD HELPED THE SUPPLIER S IN OPENING SUCH ACCOUNT BUT ALSO ALL SUCH MATERIAL WAS PROVIDED TO THE ASSE SSEE FOR FURTHER COMMENTS. AT THE SAME TIME THE LETTER DATED 13.04.2007 WHICH WE HAVE REPRODUCED ABOVE CANNOT BE IGNORED. 28. IN THE ABOVE LETTER THOUGH IT IS AGAIN MENTION ED THAT ASSESSEE WAS UNDER THE IMPRESSION THAT PURCHASES AND SALES WERE MADE THROUGH BROKERS AND THEREFORE WERE GENUINE BUT ASSESSEE HAS FURTHER AG REED THAT PURCHASES FROM THE PARTIES UNDER REFERENCE WERE WITHOUT MOVEMENT OF AN Y MATERIAL AND NOT GENUINE. THEREFORE IN OUR VIEW MERELY BECAUSE STAT EMENT OF THE THIRD PARTY WAS NOT GIVEN THE ADDITION CAN NOT BE KNOCKED DOWN ON T HAT BASIS ALONE. BUT IN THIS LETTER ASSESSEE HAS FURTHER MENTIONED THAT SUCH PUR CHASES MAY BE TREATED AS NON GENUINE AND ACCORDINGLY CORRESPONDING SALES MAY ALS O BE IGNORED. THE LEARNED COUNSEL HAD CATEGORICALLY STATED WITH REFERENCE TO THE DOCUMENTS THAT ITEMS 19 PURCHASED FROM THESE PARTIES WERE DIRECTLY SOLD TO VARIOUS PARTIES THROUGH THE SAME BROKERS. 29. WE ARE OF THE VIEW THAT SUCH SALES COULD NOT H AVE POSSIBLY MATERIALISE IF THERE IS PURCHASES AT ALL AND THERE FORE WE THINK THAT THEORY PROPOUNDED BY THE LEARNED CIT (APPEALS) SEEMS TO BE MOST PLAUSIBLE HAPPENINGS. IF ONLY PURCHASES ARE IGNORED THEN THE G.P. OF THE ASSESSEE WOULD SHOOT UP TO 32% WHICH IS NOT POSSIBLE IN THE STEEL INDUSTRY. OTHERWISE ALSO NO DEFECT HAS BEEN FOUND IN THE BOOKS OF ACCOUNTS OR T HE QUANTITY STATEMENT AND THEREFORE SUCH SALES COULD NOT HAVE BEEN CONDUCTED AT ALL BECAUSE IF THERE ARE NO GOODS AVAILABLE THEN THERE IS NO POSSIBILITY OF ANY SALE AT ALL. 30. IN THE LIGHT OF ABOVE DISCUSSION IT SEEMS THAT THE LEARNED CIT (APPEALS) HAS VERY RIGHTLY OBSERVED THAT SALES AND PURCHASE MUST HAVE BEEN MADE THROUGH SOME OTHER PARTIES AND CASH GENERATED FROM SHRI RAMGOPAL S.SHARMA WAS UTILISED FOR MAKING SUCH PURCHASES. H OWEVER IF THAT IS THE CASE THEN THE LEARNED CIT (APPEALS) SHOULD HAVE ACCEPTED THE ALTERNATE SUBMISSION OF THE ASSESSEE THAT PROFIT WHICH ALREADY GOT GENER ATED FROM THE SALES AND PROFIT RECORDED IN THE BOOKS OF ACCOUNTS THAT WAS REQUIRED TO BE REDUCED FROM THE PEAK AMOUNT DETERMINED BY THE LEARNED CIT (APPEALS) BECA USE WHAT LEARNED CIT (APPEALS) HAS DONE IS THAT HE HAS GONE ON THE ASSUM PTION THAT ALL PURCHASES AND SALES ARE GENUINE AND SINCE THE SAME ARE ALREADY RE CORDED IN THE BOOKS OF ACCOUNTS THAT MEANS SALES AND PURCHASES GOT REFLECT ED IN THE TRADING ACCOUNT. THEREFORE THE ORDER OF THE LEARNED CIT (APPEALS) T HUS REQUIRE MODIFICATION TO THE EXTENT THAT WHATEVER PROFIT IS ALREADY CREDITED IN THE BOOKS OF ACCOUNTS AMOUNTING TO RS.1 22 04 476/- IS REQUIRED TO BE RED UCED FROM TRADING ADDITION. THEREFORE IN OUR VIEW THE ACTUAL ADDITION WHICH IS REQUIRED TO BE MADE IS ONLY RS.59 57 993/- (I.E. 1 81 62 469 RS.1 22 04 476) BECAUSE PROFIT TO THE EXTENT OF RS.12 20 44 761/- HAS ALREADY BEEN RECORDED IN T HE BOOKS. IN VIEW OF THIS 20 DETAILED DISCUSSIONS WE SET ASIDE THE ORDER OF THE LEARNED CIT(APPEALS) AND DIRECT THE AO TO MAKE THE ADDITION OF RS.59 57 993/ -. 31. IN THE RESULT THE REVENUES APPEAL IS DISMISSE D AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 7 TH DAY OF JANUARY 2011. SD/- SD/- (R. S. PADVEKAR) (T. R . SOOD) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI DT: 07/01/2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR B- BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI