Bhavnesh Saini, Judicial Member:
1. This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals) (Central), Gurgaon dated 14.11.2013 for assessment year 2003-04, challenging addition of Rs. 92,25,641/- on purchases on ground Nos. 1 and 2. Ground No. 3 is challenged to reopening of assessment under section 147 of the Act.
2.In this case, the original return of income was filed on 28.11.2003 showing total income of Rs. 11,42,98,930/- which was assessed under section 143(3) of the Act on 31.1.2005 at an income of Rs. 21,54,65,790/-. On information received by the Assessing Officer from the office of Director General of Central Excise, Intelligence that the assessee had wrongly availed CENVAT credit for the period 21.3.2003 to 24.8.2005, the case was reopened under section 148 of the Act by issuing notice to the assessee on 30.3.2010. In response to the said notice, the assessee filed return of income on 29.7.2010 declaring the same income of Rs. 11,42,98,930/- as was declared in the original return.
3.The Assessing Officer during the course of assessment proceedings, issued show cause notice to the assessee alleging that it had availed fraudulent CENVAT credit for the period 21.3.2003 to 24.8.2005 on invoices issued by M/s Haryana Steel & Alloys Ltd. without receiving the consignments. As per the information, it was seen that the assessee had filed an application before the Settlement Commission, Customs & Central Excise (Principal Bench), New Delhi against the said show cause notice by the Addl. Director General of Central Excise Intelligence. The final order of the Settlement Commission was passed imposing penalty of Rs. 4,11,84,835/-. As per the list of invoices pertaining to bogus purchases made by the assessee from M/s Haryan Steel & Alloys Ltd., attached with the show cause notice, the total purchases made during the relevant assessment year worked out to Rs. 92,25,641/-.
4.In response to the said show cause notice, the assessee made detailed reply stating that the assessee had purchased Non Alloy Steel Billet for its unit Shanti Steel New Rolling Mill-II from various non-duty paid sources like open market trades, etc. It was the contention of the assessee that though it did not physically receive the material from M/s Haryana Steel & Alloys Ltd. but an identical quantity of inputs were purchased from various non-duty paid sources. It was also submitted that in the application filed before the Customs & Central Excise Settlement Commission, the said fact has already been stated. The Settlement Commission settled the case at Rs. 4,11,84,834/- and no penalty was imposed. The total amount of CENVAT credit pertaining to bills of M/s Haryana Steel & Alloys Ltd. was Rs. 12,23,560/-. The assessee produced quantitative records of day-to-day raw material purchases, consumption and also production and sales records of finished goods which were verified. The copies of inward gate pass for raw material purchased was also produced. The chart showing the monthly yield was also submitted before the Assessing Officer and it was contended that for yield for January, 2003, if the purchases from open market are not carried comes to 101.87%, which was not possible in assessee's line of manufacture. It was further contended that the closing stock would have been negative without considering the open market purchases which is never possible. Thus, the assessee stated that the material had been actually received and went to the production of the finished goods. Therefore, the contention of the assessee was that no disallowance on account of such purchases was warranted. The assessee relied upon the judgment of the Punjab & Haryana High Court in the case ofCITv.Leader Valves (P.) Ltd. 285 ITR 435.
5.From the reply submitted by the assessee, the Assessing Officer came to the conclusion that the assessee had made purchases for the said material from other sources including open market purchases. He came to the conclusion that the assessee has claimed bogus CENVAT on the purchases shown to be made from M/s Haryana Steel & Alloys Ltd. amounting to Rs. 92,25,641/-. The CENVAT credit on said purchases from M/s Haryana Steel & Alloys Ltd. was amounting to Rs. 12,23,560/-. On these basis, the Assessing Officer made addition of Rs. 12,23,560/-.
6.Further the Assessing Officer held that the such bogus transactions being embedded in the trading/manufacturing account of M/s Shanti Steel New Rolling Mill-II Unit of the assessee, the correctness of the books of account of the assessee was distorted on these basis. He rejected the books of account of the said unit. Further, since the GP rate of the assessee had come down to 7.6% during the relevant assessment year as against 8.4% in the preceding assessment year, he applied the rate of G.P. shown in the preceding assessment year on the total turnover of Rs. 71,53,41,741/- and made an addition of Rs. 57,22,734/-. However, he did not made separate addition of Rs. 12,23,560/- on account of wrong availment of CENVAT credit as the same was considered to be in overall addition of Rs. 57,22,734/-.
7.The assessee went into appeal before the learned CIT (Appeals) challenging the rejection of books of accounts, estimation of GP rate of 8.4% as well as the addition on account of CENVAT credit. Before the learned CIT (Appeals), it was again reiterated that the purchases of Non Alloy Steel Billet for its unit Shanti Steel New Rolling Mill-II was made from various non-duty paid sources like open market trades, etc. It was submitted that the assessee did not physically receive the material from M/s Haryana Steel & Alloys Ltd. but an identical quantity of inputs were purchased from other sources. The assessee preferred not to press the issue of CENVAT credit before the learned CIT (Appeals). Further detailed submissions were made challenging the rejection of books of account and estimation of gross profit rate. It was submitted that due to increase in power and fuel expenses as compared to earlier year, there was fall in GP.
8.However, the learned CIT (Appeals) by holding the treatment of income given by the Assessing Officer to be erroneous issued an enhancement notice dated 18.9.2013 to the assessee. Thereby it was proposed that the total amount of purchases of Rs. 92,25,641/- shown to be from M/s Haryana Steel & Alloys Ltd. to be added to the income of the assessee.
9.In reply to the said notice, the assessee again made detailed submissions before the learned CIT (Appeals) reiterating the same submissions as were made before the Assessing Officer. The assessee relied upon the judgment of Hon'ble Punjab & Haryana High Court in the caseLeader Valves (P.) Ltd.(supra) and also the judgment of Hon'ble Gujarat High Court in the case ofCITv.Bholanath Polyfab (P.) Ltd. 355 ITR 290/ 220 Taxman 82 (Mag.)/ 40 taxmann.com 494for the proposition that no addition could be made on account of bogus purchases in view of the fact that physically the stock has actually been received, though from a different source. It was also submitted that in subsequent years 2004-05 to 2006-07, the assessee filed application before the Settlement Commission and Department did not propose for addition for bogus purchases. Only amount of CENVAT credit was offered for taxation and no other addition has been made.
10.The learned CIT (Appeals) rejecting the submissions of the assessee held that the assessee was consciously indulged in the fictitious arrangement for purchase from M/s Haryana Steel & Alloys Pvt. Ltd. The learned CIT (Appeals) was of the view that since the assessee has not been able to provide any evidence to the effect that similar quantity of material was purchased from the open market, the statement so made by the assessee carries no credence. Further the learned CIT (Appeals) held that nowhere the Assessing Officer has stated that similar quantity from the open market was purchased by the assessee. Relying on the decision of the Hon'ble Delhi High Court in the case ofCITv.La Medica 250 ITR 575/117 Taxman 628the learned CIT (Appeals) held that the payments to M/s Haryana Steel & Alloys Pvt. Ltd. were emanated from bogus purchases and fraudulent claim of CENVAT. In other words, unexplained expenditure expended towards the bogus purchases to the tune of Rs. 92,25,641/-. In this way, the learned CIT (Appeals) made an addition of Rs. 1,04,49,201/- comprising of Rs. 92,25,641/- being the total purchases from M/s Haryana Steel & Alloys Pvt. Ltd. and the amount of Rs. 12,23,560/- being the CENVAT credit availed by the assessee on the said purchases.
11.The learned counsel for the assessee while arguing before us preferred not to press Ground No. 3, challenging the validity of reopening u/s 147 of the IT Act. Hence, ground No. 3 is dismissed as not pressed.
12.Ground Nos. 1 & 2 are interrelated.
13.While arguing before us, the learned counsel for the assessee took us to the various pages of the paper book filed by the assessee. Our attention was drawn to paper book pages 27 to 36 which are the copies of documents seized by the Department during the search and seizure operation carried on the business premises on 3rd March, 2010. It was shown that these pages reveal the details of the material purchased from open market in years 2002-03 to 2005-06 which was shown to have been purchased from M/s. Haryana Steel & Alloys Pvt. Ltd. in the books of accounts. These facts in this paper book were shown to emphasize that goods have actually been received by the appellant and consumed for the purposes of manufacturing. The contention of the learned counsel for the assessee was that the goods were physically purchased in the same quantity, not from M/s Haryana Steel & Alloys Pvt. Ltd. but from the open market.
14.The other fact which the learned counsel for the assessee drew our attention was pages 19 and 20 of the paper book which is an extract of the report filed by the Commissioner of Income Tax under Rule 9 before the settlement commission during the proceeding in succeeding years before the Commission. The emphasis was laid on the following paragraph:
"Bogus purchase took place during the period 01.04.2003 to 24.08.2005, hence, bogus Cenvat Credit amounting to Rs. 1,16,10,188/- Rs. 1,27,82,132 and Rs. 1,55,68,957/- respectively on such bogus purchases would represent the income of the assessee for these assessment years i.e. 2004-05, 2005-06 & 2006-07. The fact would remain that assessee actually derived the benefit the first day it manufactured and sold the goods after booking bogus purchases. Accordingly, claim of CENVAT on bogus purchase represents assessee's suppressed income and as such Addition only on this account works out to Rs. 1,16,10,188/- Rs. 1,27,82,132/- and Rs. 1,55,68,957/- for the A.Y. 2004-05, 2005-06 & 2006-07 respectively for which assessee should also be liable for penalty under section 271(1) (c ) of the Income Tax Act."
From the above it was emphasized that the department having taken a stand to add to the CENVAT Credit benefit availed by the assessee on bogus purchases in the subsequent years 2004-05 to 2006-07 cannot take the different stand of making addition of the whole amount of purchases in the current year.
15.The learned counsel for the assessee also took us to paper book page 43 whereby a chart showing the calculation of yield on monthly basis for rolling division was prepared. It was submitted that without taking into consideration the purchases made from the open market in the month of January and February, 2003, the yield comes to 101.87% and 98.15%, which is unreasonably high and not possible in this line of manufacturing. It was shown to us to emphasize that the purchases were actually made though not from Haryana Steel & Alloys Pvt. Ltd. but from the other sources.
16.Regarding the estimation of G.P made by the AO, rejecting the books of account it was submitted that Gross Profit in the relevant year has fallen to 7.6 per cent as against 8.4 per cent in the preceding year, which is only a nominal fall. The assessee submitted before the Assessing Officer as well as the CIT(A) that the reason of said fall in Gross Profit was on account of increase in power of fuel expenses as compared to the preceding years. In terms of percentage expenses of power and fuel during the assessment year 2002-2003 it was 5.36% whereas during the relevant assessment year it has come to 6.28%. Merely because of fall in Gross Profit rate during the year under appeal compared with the Gross Profit of the last year, the contention of the assessee was that the books should not have been rejected and profit should not have been estimated at an estimated rate. Further, the learned counsel for the assessee has also made submission to the effect that the enhancement of income made by CIT(A) is also bad in law. The learned CIT (Appeals) cannot change the character of income computed by the Assessing Officer or its source and relied on251 ITR 864 (Delhi).
17.Ld. DR relied upon the orders of Assessing Officer as well as the learned CIT (Appeals).
18.We have heard the rival contention and perused the material on record. The first issue to be decided is whether the assessee has actually made purchases or not. It can be seen from the perusal of Assessing officer's order, at the end of para 5.2, that the Assessing officer himself admits that from the reply submitted by the assessee, it has transpired that the assessee-company had made purchases for the said material from the other sources. The material seized by the Department during the course of search, forming part of the paper book also gives support to the argument of the assessee that the goods were actually purchased though not from the Haryana Steel & Alloys Pvt. Ltd. but from some other sources. Also the fact that assessee having shown substantially volume of goods manufactured and sold during the year it cannot be denied that the same have been done without purchases. There cannot be any goods manufactured or sold without their being any corresponding purchases. Nowhere, in their order, Assessing officer or CIT(A) have doubted goods being manufactured or sold. In fact while estimating the gross profit Assessing Officer has made the turnover shown by the assessee as its basis, which shows that he does not deny the fact that the goods have actually been manufactured and sold. Further, from the perusal of monthwise yield chart filed by the assessee it is quite evident that without the receipt of such huge quantity of material physically, assessee could not have manufactured finished goods or indulged in selling the same. The yield per month would have been quite abnormal as compared to the other months if purchases made from open market are not considered. No other defects have been pointed out in the books of account. It is quite evident that the purchases have in fact being made, the source of these material physically, coming not from Haryana Steel & Alloys Pvt. Ltd. but from open market. The issue arose because of the fact that assessee received excise duty element on sales from customers but paid the Government from that amount which remains payable after reducing the CENVAT credit available because of the fact that it made purchases from Haryana Steel & Alloys Pvt. Ltd. The whole excises carried on by the assessee was to get the benefit of these CENVAT Credit. Therefore, the only addition warranted in such case is to disallow the CENVAT Credit availed by the assessee on the purchases shown to have been made from Haryana & Steel Alloys Pvt. Ltd. The assessee has preferred not to pressed the ground related to these CENVAT Credit before the CIT(A), the same is also not contended before us. The fall in GP rate was due to increase in power and fuel expenses in year under appeal as compared to preceding year. The learned CIT (Appeals) enhanced the addition because the Assessing Officer did not state in assessment order that similar quantity was purchased from open market. This finding is incorrect because the Assessing Officer so stated in the assessment order and same fact is supported by seized material in search (PB-27 to 36).
19.Our view gets strengthened by the judgement of the Jurisdictional High Court in the case ofLeaders Valves (P.) Ltd.(supra) which has also been relied upon by the assessee. In this case, exactly in the background of similar facts, the Hon'ble High Court observed as under:
"The assessee's contention that out of total purchases of non-ferrous metals of Rs. 2.44 crores, the AO had treated purchases worth Rs. 1.49 crores only as bogus and it was impossible to manufacture the goods shown to have been manufactured by it out of the remaining purchases if the AO's conclusion is accepted, also found favour with the Tribunal. This, in our view, is a simple finding of fact based upon appreciation of the material on record and, thus, hardly gives rise to any question of law."
In another judgement of Hon'ble Gujrat High Court, in the case ofBholanath Poly Fab (P.) Ltd.(supra) Hon'ble Gujrat High Court held as under:
"5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of entire 102514 meters of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of M/s. Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Protiens.
6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell 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. This was the view of this Court in the case ofSanjay Oilcake Industriesv.CIT,316 ITR 274 (Guj.)Such decision is also followed by this Court in a judgement dated 16.8.2011 in Tax Appeal No. 679 of 2010 in the case ofCITv.Kishor Amrutlal Patel.
In the result, tax appeal is dismissed."
20.Another point to be appreciated is that in subsequent years i.e., 2004-05 to 2006-07, the assessee was before the Income Tax settlement commission, whereby the same plea was taken by it. During the said proceedings on the perusal of report of the CIT (Central) Gurgaon, as submitted to the settlement commission, which we have already quoted, it can be seen that Department has not proposed any addition on account of these purchases. Only the amount of CENVAT Credit so availed by the assessee was offered for taxation in its application by the assessee before the Income Tax Settlement Commission and the department has accepted the same. No addition on account of said bogus purchases has been made.
21.In view of the above discussion, it is quite evident that the assessee had made purchases from the open market an
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d shown the same to be made from Haryana Steel & Alloys Pvt. Ltd. just to avail the CENVAT Credit. Therefore, no addition on account of total purchases is warranted. The assessee having already offered the CENVAT Credit so availed as its income. Further the Department having accepted the fact that the only issue remaining in the said factual background is that of CENVAT Credit, having not proposed any addition on account of bogus purchases in subsequent years, no different stand can be taken in the relevant assessment year. Our view gets strengthened by the decision of the Jurisdictional High Court in the case ofCITv.Vikas Chemi Gums India 276 ITR 32/146 Taxman 256 (Punj. & Har.), whereby it has been held that Department having not challenged the earlier year order cannot raise the issue in current year. In the case ofUnion of Indiav.Satish Panalal Shah 249 ITR 221/117 Taxman 373 (SC), Hon'ble Apex Court has gone to the extent that revenue having not filed appeal on the same issue in earlier year in case of one assessee, it cannot challenge the same in the subsequent year in case of another assessee. Principle of consistency has also been emphasized by the Apex Court in the case ofRadha Sawami Satsangv.CIT 193 ITR 321/60 Taxman 248 (SC). The addition made by the learned CIT (Appeals) by enhancing the addition on bogus purchases was not justified. May be books are rejected need not necessarily to make addition. We rely on the judgment of Hon'ble Rajasthan High Court in the case ofGotan Lime Khanij Udyog, 256 ITR 243. However, in the factual background of the case, it would not be appropriate for Revenue to challenge the position which it has been sustaining in the other year on identical facts. The addition made by the authorities below in sum of Rs. 12,23,560/- on account of CENVAT credit, therefore, stands as not challenged. However, the orders of authorities below are set aside to delete entire addition on account of GP and bogus purchases. 22.In view of the above, the addition made by the learned CIT(A) on account of total purchases of Rs. 92,25,641/- is hereby deleted. 23.In the result, the appeal of the assessee is partly allowed as indicated above.