TMI Blog1998 (9) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... e husk from one Shri Balwant Singh of Rs. 52,54,635 during the period from January to March, 1989 relevant to the current assessment year. Shri Balwant Singh supplied rice husk in the name of his proprietary concern M/s Nanak Suppliers. The AO noted that the cheques issued by the assessee-company for purchase of rice husk were deposited in the bank account of Shri Balwant Singh by Shri S.K. Aggarwal and in most of the cases the amount was withdrawn immediately thereafter by him. In certain cases cash was withdrawn by Shri V.K. Kaushal who was senior vice president of the assessee-company at Bahadurgarh. The AO also noted that the bank account was closed during the year 1988-89. The AO therefore required the assessee to produce Shri Balwant Singh; Shri S.K. Aggarwal and Shri V.K. Kaushal for cross-examination. Shri Balwant Singh and Shri S.K. Aggarwal were produced before the AO on6th March, 1995, and their statements were recorded. Further on8th March, 1995, Shri V.K. Kaushal was also produced and he was examined. Shri Balwant Singh in his statement accepted having supplied the rice husk and he also pointed out in his statement that Shri S.K. Aggarwal in whose handwriting the chequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kaushal, the vice president of the assessee-company withdraw most of the payments from the account of Shri Balwant Singh, came to the conclusion that Shri Balwant Singh and his concern M/s Nanak Suppliers simply acted as an instrument for enhancing the purchase value of rice husk of the assessee-company and the purchases shown from him were not genuine. The AO, therefore, disallowed the purchases shown of rice husk from Shri Balwant Singh of Rs. 52,54,635. 3.1. On appeal the submissions made before the AO were reiterated. It was further contended that Shri Balwant Singh in fact supplied rice husk to the assessee-company. Shri Balwant Singh is assessed to tax and a copy of his assessment order for the current year was also produced before the AO. It was further explained that the assessee-company has followed the same modus operandi for all of its dealers and payments to them was made in the similar manner. Account of the dealer is opened with State Bank ofPatiala, Punjab University Branch, in a manner that the payment to supplier is not delayed. In every case supplier withdraws cash from its bank account and such practice is continuing since 1973 onwards. Since the amount involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lwant Singh of Rs. 25.50 lakhs on31st Jan., 1989, Rs. 16.18 lakhs on28th Feb., 1989and of Rs. 10.85 lakhs on7th March, 1989. The entire amounts were withdrawn on9th March, 1989,10th March, 1989and11th March, 1989. It is unusual that entire amount to the last rupee will be withdrawn from the bank account within four days of the deposit of the last of the three cheques. The contention of the appellant that consumption of rice husk was more this year as there were two winter seasons due to transitional year i.e. from1st Jan., 1988to31st March, 1989, now needs to be gone into. The appellant has furnished the following details in this regard: "Details of milk processed vesus husk consumed financial year 1988-89 S. No. Particulars Milk processed Husk consumed Consumption rate/MT 1. January to March 55,963 11,289 0.202 2. April to June 22,359 4,136 0.185 3. July to September 29,409 5,117 0.174 4. October to December 26,157 7,089 0.271 5. January to March 70,405 15,956 0.227 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he started this business and why he had to close it. Shri V.K. Kaushal in his statement recorded, confirmed the practice of seeking random verification as well as the fact that he had never received any cash out of the account of Shri Balwant Singh. Shri S.K. Aggarwal was a common employee of the assessee-company as well as Shri Balwant Singh and he in his statement has confirmed that he withdrew the amount from bank and handed over the same to Shri Balwant Singh for onward payment to the suppliers. Shri Syali also invited our attention to the statement of Shri Balwant Singh to submit that his statement was of a person well conversant with his business. The statement of Shri Balwant Singh was also duly corroborated by the statement of Shri S.K. Aggarwal and Shri V.K. Kaushal, vice president (finance) of the assessee-company. He also pointed out that Shri Kaushal in fact had written out only one cheque for Balwant Singh which was duly signed by Shri Balwant Singh and was verified by Shri Kaushal. In support attention was invited to a letter from the State Bank ofPatialaconfirming the procedure of seeking random verification where the cash withdrawals were substantial. 3.4. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e month of January to March, 1989 @ Rs. 100 per MT. The total consumption for this quarter is 15,956 MT. If the supplies made by Shri Balwant Singh are ignored the husk available for this quarter would only be 5,449 MT (15,956 - 10,509). This gives a consumption ratio of only 0.077 as against 0.195 accepted on annual basis as against 0.271 accepted by the Department in the quarter of October to December 1988. The ratio of 0.77 is not only unrealistic but entirely absurd. The learned counsel submitted that without purchase of rice husk from Balwant Singh production of milk was not possible and accordingly the purchase made therefrom cannot be disallowed in its entirety on that ground. 3.7. The learned counsel arguing further submitted that although for the quarter January to March, 1989 the consumption of rice husk was higher at 0.227 as compared to 0.202 for the quarter January to March, 1988, such increase in consumption of rice husk was on account of the following factors: (a) Installation of a new furnace/boiler; (b) Go-slow/labour strike. 3.8. The learned counsel invited our attention to a certificate at p. 147 of the paper book wherein it has been stated that new boile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel proceeding further submitted that for the purchase and supply of rice husk Balwant Singh did not require any capital. He was merely working as a commission agent in which capacity he purchased on credit and after supplies paid his dues on receipt of consideration from the assessee-company. The assessment records of Shri Balwant Singh amply support this stand. The learned counsel has also pointed out that a specific request was made before the lower authorities to summon the records of Shri Balwant Singh for examination but the Department took no steps on the request so made. The learned counsel, therefore, submitted that the Department cannot ignore the assessment order passed by itself in the case of Balwant Singh. 3.11. Coming to the reference made by the CIT(A) about supply of cream by Balwant Singh to assessee-company s sister concern M/s J. Ice cream, the learned counsel submitted that such reference was misconceived, though an allegation of supply being bogus was initially levelled but it did not survive as is evident from the sales-tax assessment order in the case of J. Ice cream in which the sale made by Balwant Singh to J. Ice cream had been duly accepted. 3.12. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order was made by the AO without conducting detailed and valid enquiries. The assessee, therefore, cannot seek support from such order passed in the case of Balwant Singh. The learned Departmental Representative has also pointed out that Shri S.K. Aggarwal in his initial deposition made before the ADI confessed that he had withdrawn money from the bank account and had given it to the management/company officials. He, however, later on retracted from his statement and blamed one Ramesh Kumar, leader of the workers union of the assessee-company as a cause for earlier statement. The earlier statement recorded was claimed to be under duress but the facts were otherwise. 3.14. The learned Departmental Representative also invited our attention to the two cheques written and encashed by Shri V.K. Kaushal and also raised doubt about bank s procedure. He rather laid emphasis on the fact that Shri V.K. Kaushal signed the cheques at the back indicating that the withdrawal was made by him and not by Balwant Singh. The learned Departmental Representative, therefore, submitted that on a cumulative persual of the facts and circumstances it is evident that the bank account in the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he documents placed in the paper book to which our attention was drawn during the course of hearing. We find that this is the case of a limited company. The accounting year being the transitional year was comprised of the period from1st Jan., 1988to31st March, 1989. The assessee-company follows mercantile system of accounting. The assessee-company during the year maintained books of account comprised of cash book, general ledger, milk control ledger, material control ledger, sale control ledger, sundry debtors control ledger, sundry creditors control ledger, stores ledger, selling and distribution expenses control ledger, bank book, general book, purchase register, sale register, production register, stores issue register, debit/credit note book, etc. The assessee thus maintained complete quantitative records of consumption of material as well as production of milk. These books of account have been audited by Price Waterhouse Co. Chartered Accountants. Further, the accounts maintained were also under excise regulations, cost audit, tax audit, etc. The auditors have not made any adverse comments on the books of account maintained by the assessee-company. 3.17. The assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared in the account of Nanak Suppliers as per details below: Rs. Bill No. 1, dt.20-1-1989 25,50,685 Bill No. 46, dt.24-2-1989 16,18,260 Bill No. 612, dt.8-3-1989 10,85,690 52,54,635 3.19. The assessee-company made payment to Balwant Singh through A/c payee cheques as per details below: Rs. Cheque dt.8-3-1989 25,50,685 Cheque dt.10-3-1989 16,18,260 Cheque dt.11-3-1989 10,85,690 3.20. It so appears, the cheques so issued were deposited by Shri S.K. Aggarwal in the bank account of Shri Balwant Singh maintained with the State Bank of Patiala, Punjab University Branch, and the amount claimed to have been withdrawn in cash by Shri S.K. Aggarwal on the strength of cheque issued by Shri Balwant Singh and the amount was handed over to Shri Balwant Singh for its disbursement to suppliers of rice husk on 11th March, 1989. There was a search conducted at the business and office premises of the company by the Department in November, 1992 and it so appears that the Department conducted certain enquiries thereafter. The Asstt. Director of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther deposed that he was associated with Balwant Singh, rice husk supplier, as part-time accountant. His books of account were maintained by him and he used to handle his banking transactions. Balwant Singh filed his income-tax return for the asst. yr. 1989-90 claiming a refund of Rs. 2,300. He also appeared on his behalf being accountant before the AO in response to notice under s. 143(2) on various dates and the assessment was completed by the AO under s. 143(2) creating an additional demand. Copy of the notice is placed at p. 87 of the paper book and a copy of the assessment order of Shri Balwant Singh for the asst. yr. 1989-90 is at pp. 88 and 88A of the paper book. As per the assessment order return was filed by Balwant Singh declaring income of Rs. 18,070. After processing of the return under s. 143(1)(a) the case was selected for scrutiny by the AO. The AO has noted that business of the assessee was to supply rice husk on commission basis. Balwant Singh filed audited accounts which had been verified with the account books produced. The information supplied was test-checked. He also made an addition of Rs. 9,500 subject to no penal action. The income was thus assessed at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Shri V.K. Kaushal is placed at pp. 65 to 68 of the paper book and the bank confirmation at p. 70 of the paper book. 3.24. It is evident from the various statements recorded and position explained that Shri S.K. Aggarwal was a regular employee of the assessee-company working as accountant. He admittedly deposited the cheques received from the assessee-company in the bank account of Balwant Singh. He also had written the cheques for Balwant Singh and also obtained payment from the bank in cash. He also admitted in the statement given before the ADI that the amount withdrawn by him from the bank account of Balwant Singh was handed over to Shri V.K. Kaushal for top management but in the subsequent statement recorded he retracted from the earlier statement on the ground that the same was given under threat and duress of Shri Ramesh Kumar, the erstwhile union leader of the assessee-company. The reasoning so given has been accepted by the AO and it is for this reason that he has not made use of the statement given by Shri S.K. Aggarwal initially before the ADI. We, therefore, need not go into the credibility of the earlier statement recorded by the ADI. However, in the subsequent s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company through various trucks and the Revenue failing to discharge such onus to prove to the contrary, the position of receipt of rice husk through various trucks at the premises of the assessee-company has to be taken and accepted as true. (iii) The Revenue searched the business and office premises of the assessee-company in November, 1992 and certain books of account and documents are claimed to be seized. However, no material evidence found and seized goes to establish that the said rice husk was not received at the premises of the assessee-company through the various trucks or the truck numbers given are fake or that no trucks with such number exist. Nor the Revenue has gathered any such material on enquiry and investigation. (iv) Though it is an admitted fact that the sale proceeds received from the assessee-company through A/c cheques were deposited by Shri S.K. Aggarwal in the bank account of Shri Balwant Singh and the amount was withdrawn by him in cash, according to Shri S.K. Aggarwal and also the assessee-company the amount so withdrawn from the bank of Rs. 52,54,635 was handed over to Balwant Singh for disbursement to suppliers of rice husk whereas according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent asst. yr. 1990-91 in substantial quantity and he also supplied cream to sister concern of the assessee-company M/s J. Ice Cream (P) Ltd. but the purchases so made both of rice husk and cream by the assessee as well as the sister concern have been accepted as genuine and no addition on that account has been made, though dealings through the bank appear to be on identical pattern as compared to the current assessment year. (vii) In the case of Devan Babu (P) Ltd. 190 Kg. of rough emerald were purchased by the assessee and this fact was corroborated by the statement of the sellor. The AO disbelieved the capacity of the seller to hold such an enormous quantity of emerald. The assessee made payments through cheques and the same were encashed on the same date. The Tribunal held that all this did not amount to evidence to prove that the amount was given back to the assessee by the seller. Disallowance made of the purchase amount was, therefore, deleted. (viii) In the case of M.K. Brothers, the assessee made purchases from certain parties of the value of Rs. 52,254. The selling parties subsequently admitted before the ST authorities that they had issued bogus vouchers. The AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . January to March 55,963 11,289 0.202 2. April to June 22,359 4,136 0.185 3. July to September 29,409 5,117 0.174 4. October to December 26,157 7,089 0.271 5. January to March 70,405 15,936 0.227 Total 2,04,293 43,587 0.213 3.29. According to the assessee rice husk is an agricultural by-product and as such there are no industry norms of power generation therefrom. The value of rice husk depends upon the quality of husk, its moisture contents and dust contents. On an average the consumption of rice husk is 0.19 per cent MT of milk processed whereas during the current year the consumption was 0.21 per cent MT of milk processed. The present accounting year comprised of 15 months being the transitional assessment year. The period from January to March, is peak season for milk processing and during that period atmospheric temperature is quite low. It, therefore, necessities more burning of rice husk. It is also explained that during the year there was a labour strike of forty-two days. Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company and the same was also withdrawn by him in cash. There is, however, no details given either by the assessee-company or by Balwant Singh about the parties from whom rice husk was purchased, the quantity of rice husk purchased from each party and the amount of payment made to each party. According to the assessee Shri Balwant Singh arranged the purchase of rice husk from various parties in the capacity of an agent but there are no details available about the commission paid to Balwant Singh by the assessee-company or commission received from various parties who supplied rice husk to the assessee-company. Shri Balwant Singh filed a return with the ITO,Patialashowing an income of Rs. 18,070 but there is no basis given about the income so declared. The facts so stated, therefore, do not repose confidence in us to believe that the purchase of rice husk was made through Balwant Singh but the purchases in such event could be directly made by the assessee-company in the name of Balwant Singh, may be for the reason that the selling parties were not willing to show sales through bills. We also find from page 45 of the paper book that the assessee-company also made purchases of ric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,53,161 under s. 43B against the disallowance made in the original assessment at Rs. 1,12,75,471. 4.4. When the matter was carried in appeal the CIT(A) noted that this issue is covered by the appellate order dt.6th Dec., 1994, for the asst. yr. 1991-92 wherein it was held that indirectly the instalments had been paid by the assessee-company under the IDBI scheme and interest thereon was paid to the IDBI through the media of other business and the assessee-company could be allowed a deduction in respect of such loan only on payment basis. He, therefore, upheld the action of the AO. 4.5. The learned counsel of the assessee has made a submission that the AO has not appreciated the facts relating to the interest accrued and not due. He has submitted that the provisions of s. 43B were not applicable to the claim of the interest as no interest was paid to any of the financial institution during the year. The assessee has also no arrangement whatsoever with any financial institution regarding any loan or borrowing. The supplier of the equipment, however did have arrangement of bill discounting with the IDBI. There, however, being no borrowings made from the IDBI by the assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, urged that the disallowance made deserves to be deleted. 4.6. The learned Departmental Representative on the other hand relied upon the orders of the authorities below and has further submitted that the learned AO while disallowing the interest claimed under s. 43B has relied upon the appellate order for the asst. yr. 1991-92. He, therefore, relied upon the reasoning given by the CIT(A) in his appellate order for the asst. yr. 1991-92. 4.7. We have considered the facts and the rival submissions. We have also gone through the orders of the lower authorities including the appellate orders for the asst. yr. 1990-91 and 1991-92 and also the bill rediscounting scheme of IDBI. 4.8. We find that the bill rediscounting scheme was introduced in April, 1965 by the IDBI which authorised it to accept discount or rediscount bills on exchange and promissory notes of industrial concerns subject to conditions prescribed. The object of the scheme was two-fold the manufacturer of machinery/capital equipment can push up the sales of their products by allowing deferred payment facilities to the prospective purchasers/users. The purchaser/user of the machinery on the other hand was enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring to the facilities accorded to the assessee-company, has mentioned for a limit of Rs. 5,50,00,000 lakhs for providing bank s co-acceptance of bills drawn on and accepted by the company under the IDBI scheme for purchases of machinery on deferred payment basis. The bank was to charge co-acceptance fee being @ 1 per cent p.a. and also to charge interest @ 15 per cent/16.5 per cent. Similarly, the State Bank ofPatialaas per its letter dt.19th April, 1986, placed at p. 127 of the paper book sanctioned deferred payment guarantee/co-acceptance facility of Rs. 161.84 lakhs under the Bills Re-discounting Scheme of IDBI. The assessee-company as per terms of credit was required to pay the amount of usance bills drawn by the suppliers of the equipment accepted/guaranteed by the bank under the proposed facility in ten instalments along with interest accrued thereon. The machinery/equipment procured was to be hypothecated with the bank with its net value. The bank was to charge commission @ 1 per cent per annum on deferred payment guarantee. The bank also demanded the personal guarantee of the managing director of the company. Standard Chartered Bank also almost on similar terms sanction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions of s. 43B would not apply as the interest payable is not to financial institutions/IDBI so far as the assessee-company is concerned. 4.12. We also find that though the disallowance of such interest in the asst. yr. 1991-92 was confirmed by the CIT(A) in his order dt.6th Dec., 1994, but the CIT(A) in his subsequent appellate order passed on14th Feb., 1997, for the asst. yr. 1990-91 has deleted the disallowance of interest made under s. 43B for the detailed reasons given in his order. The learned counsel of the assessee made statement at Bar that the Revenue has accepted the finding of the CIT(A) given in this behalf for the asst. yr. 1990-91 and no appeal thereagainst has been filed before the Tribunal. 4.13. Having regard to all the facts and circumstances discussed we are of the view that there is no merit in the disallowance made of the interest claimed on accrual basis and the same is directed to be deleted. 5. Ground Nos. 17 and 18 as raised by the assessee are as under: "17. That CIT(A) has erred in not considering claim of investment allowance amounting to Rs. 70,41,166 even though the same issue was raised in the grounds of appeal and detailed arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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