2015 (8) TMI 1305 - AT - Income Tax

Reopening of assessment - bogus purchases - information received by the Assessing Officer from the office of Director General of Central Excise Intelligence that the assessee had wrongly availed CENVAT credit - Held that - It is quite evident that the assessee had made purchases from the open market and 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 back ground 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. 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 of Gotan Lime Khanij Udyog 2001 (7) TMI 19 - RAJASTHAN High Court . 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 CANVAT 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 92,25,641/- on purchases.
2. Reopening of assessment under section 147 of the Income Tax Act.
3. Rejection of books of account and estimation of Gross Profit (GP) rate.

Issue-wise Detailed Analysis:

1. Addition of Rs. 92,25,641/- on Purchases:
The primary issue was whether the assessee had legitimately made purchases from M/s Haryana Steel & Alloys Ltd. The Assessing Officer (AO) alleged that the assessee availed fraudulent CENVAT credit on purchases without receiving the consignments. The assessee contended that although the material was not physically received from M/s Haryana Steel & Alloys Ltd., an identical quantity was purchased from other non-duty paid sources. The AO concluded that the purchases were bogus and added Rs. 12,23,560/- as CENVAT credit to the income. The CIT (Appeals) further enhanced the addition to Rs. 1,04,49,201/- by including the total purchases from M/s Haryana Steel & Alloys Ltd. and the CENVAT credit.

The Tribunal noted that the AO admitted that the assessee made purchases from other sources. The Tribunal found that the goods were indeed purchased and used for manufacturing, and the only issue was the fraudulent claim of CENVAT credit. The Tribunal relied on the Punjab & Haryana High Court judgment in CIT Vs. Leader Valves Pvt. Ltd., which held that the entire amount of purchases should not be added if the goods were actually received and used. Therefore, the Tribunal deleted the addition of Rs. 92,25,641/- but upheld the addition of Rs. 12,23,560/- for the CENVAT credit.

2. Reopening of Assessment under Section 147:
The assessee challenged the reopening of assessment under section 147 of the Income Tax Act. However, the assessee's counsel chose not to press this ground during the Tribunal proceedings. Consequently, this ground was dismissed as not pressed.

3. Rejection of Books of Account and Estimation of Gross Profit (GP) Rate:
The AO rejected the books of account of the assessee's unit, Shanti Steel New Rolling Mill-II, on the grounds that the GP rate had fallen from 8.4% in the preceding year to 7.6% in the relevant assessment year. The AO applied the previous year's GP rate to the total turnover and made an addition of Rs. 57,22,734/-. The CIT (Appeals) upheld this rejection and enhancement.

The Tribunal found that the fall in GP rate was due to an increase in power and fuel expenses. The Tribunal noted that the AO and CIT (Appeals) did not deny the manufacture and sale of goods, and no other defects were pointed out in the books of account. The Tribunal relied on the Gujarat High Court judgment in CIT Vs. Bholanath Polyfab Pvt. Ltd., which held that only the profit margin embedded in the purchases should be taxed if the purchases were made from other sources. The Tribunal concluded that the rejection of books and estimation of GP rate were not justified, and the addition on account of GP rate was deleted.

Conclusion:
The Tribunal partly allowed the appeal of the assessee. The addition of Rs. 92,25,641/- on account of total purchases was deleted, while the addition of Rs. 12,23,560/- on account of CENVAT credit was upheld. The rejection of books of account and the estimation of GP rate were also set aside.