TMI Blog2013 (9) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... at the sale price as per the bills of Vishal Traders is comparable with other suppliers - Assessee has maintained quantitative details in which no defect is pointed out by the assessing officer and the yield percentage of the present year is better than the preceding year - GP and NP rate of the present year are better than the previous year - Only a token disallowance will meet the ends of justice in the facts of the present case as noted above - 5% disallowance out of purchase from Vishal Traders will meet the ends of justice in the facts of the present case – Partly decided in favor of Assessee. Disallowance on the applicability of section 40A(3) of the Income Tax Act - Reliance placed by the Ld. D.R. on the judgement of Hon'ble Gujarat High court rendered in the case of Hynoup Food and Oil (P) Ltd. [2005 (2) TMI 99 - GUJARAT High Court], on this contention that the provisions of Section 40A(3) are to be invoked in the present case and disallowance has to be made of the entire amount – Held that:- Facts of the present case are different from the abovementioned case - As per the facts of that case, the assessee was engaged in an illegal business and the transactions were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Hynoup Food and Oil Ind. (P) Ltd., 290 ITR 702(Guj.). 3) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,98,868/- made on account of unutilized MODVAT/CENVAT credit. 4) While granting relief the Ld. CIT(A) erred in applying the judicial decisions ignoring that the said decisions were pronounced in the context of the provisions of Section 145 of the Act and not in the context of Section 145A of the Act that is applicable in the assessment years under consideration and the adjustment of CENVAT/MODVAT is mandatory by virtue of the Explanation to clause (a) of the Section. 5) On the facts and in the circumstances of the case and in law, the CIT (A) ought to have upheld the order of the A.O. 6) It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent. 2.1 The grounds raised by the assessee in IT (SS) A No.123/Ahd/2012 are as under: 1. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on fact in confirming the addition to the extent of 25% of the purchase from M/s. Vishal Traders, Virpur of Rs. 15,41,770/- on the ground that the seller was not gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p, of Vishal Traders was examined and his statement was recorded u/s.131 of the IT Act by the ITO(Inv.), Unit-1, Ahmedabad. Shri Dharmendra J. Pandya admitted that M/s Vishal Traders (business address at F/532, Market Yard, Virpur, Dist. Kheda.) did not carry out any business activity for the years F.Y.2006-07 to 2O07-08. Shri Dharmendra J. Pandya, Prop, of Vishal Traders further admitted that Bogus bills for oil seeds, oil cakes and various other commodities, in the name of M/s.Vishal Traders, Virpur have been issued to a large number of concerns of Gujarat for the purpose of adjustment of the accounts/profits. During the course of statement, Shri Dharmendra J. Pandya supplied names of various beneficiaries of bogus bills. One of the major beneficiaries of the bogus bills he named is M/s.Gujarat Ambuja Exports Ltd. Further Shri Dharmendra J. Pandya stated that he had issued bogus bills to number of parties being introduced by Shri Madanlal L. Shah (Chandak). A search action u/s 132 of the IT Act had been carried out in the case of Shri Madanlal Shah (Chandak) on 01.09.2008. During the course of post-search proceedings, Shri Madanlal Shah admitted to have acted as a conduit between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported at 99.88% as against 98.44% in the preceding year. He submitted that in the light of these facts, it cannot be said that the purchases claimed from Vishal Traders is bogus purchase. He also submitted that regarding the statement of Shri Madanlal R Chandak on 22.09.2008 u/s 131 of the Income tax Act, 1961, the reply given by him in his statement and the comments of the assessee are noted by Ld. CIT(A) on page 22 of his order for the assessment year 2008-09 and from the same, it does not come out that M/s. Vishal Traders is not the actual supplier of the goods to the assessee. He pointed out that in reply to Question No.10, it was stated by Mr. Chandak that he was agent of M/s. Vishal Traders and he had given reference of various parties to Vishal Traders for its business. The comments of the assessee are that Shri Piyushbhai B Acharya has stated that the business is carried out by Shri Chandak and Shri Dharmendra J Pandya also stated that the business is carried out and controlled by Mr. Chandak. He also pointed out that in reply to question No.13, it was stated by Shri Chandak that he was not getting anything from these transactions but as per his knowledge, Vishal Trader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase and the sales were effected without purchases. Hence, the action of the A.O. of making 100% disallowance in respect of purchases from M/s. Vishal Traders is totally baseless. At this juncture, an observation was made by the bench that even if 100% disallowance is not justified, even then, some disallowance out of purchases from M/s. Vishal Trades may be required to be made because under the facts of the present case, it cannot be said that there cannot be any over invoicing in respect of purchases from Vishal Traders. In reply to this, Ld. A.R. placed reliance on the Tribunal decision rendered in the case of Totaram B Sharma Vs ITO in I.T.A.No. 2239 2291/Ahd/2004 dated 25.01.2008 and he submitted a copy of this Tribunal decision. He pointed out that as per this tribunal decision, no disallowance is justified. He further submitted that against this tribunal order, appeal was filed by the revenue before Hon'ble Gujarat high court and the same was dismissed in tax appeal No.1344 and 1355/2008 as per the judgement dated 09.02.2010. He submitted a copy of this judgement of Hon'ble Gujarat High Court also. 2.5 In addition to this, he also placed reliance on the tribunal decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in the present case because the facts are different. Regarding difference in facts, it was submitted that in that case, the payments were made in the course of illegal business and it was admittedly made in cash whereas, in the present case, payments were made by the assessee to M/s. Vishal Traders by way of a/c payee cheques and, therefore, this judgement of Hon'ble Gujarat High court cited by the revenue is not applicable in the present case. 2.10 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgements cited by both the sides. We find that in respect of purchases from M/s. Vishal Traders, 100% disallowance was made by the A.O. by holding that the entire purchase is bogus purchase. First of all, we would like to point out that the assessee has furnished quantitative tally of the purchases and sales and no defect has been pointed out by the A.O. in the same and the A.O. has accepted the sales made by the assessee. Yield reported by the assessee in the present year is better than the preceding year and the same is almost 100% and, therefore, it cannot be said that any extra quantity of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. In fact, it is noted by the Hon'ble Gujarat High court in that case that there is no allegation of inflation of purchase also. Hence, it is seen that in that case, there was not an allegation that there is any inflation in purchase price and hence, for deciding this aspect of matter, this judgement of Hon'ble Gujarat High court is not relevant. Although in the present case also, there is no such allegation of the A.O. but we feel that in the facts of the present case i.e. conflicting statements of three persons, we should consider this aspect later on but otherwise, this judgment also supports the case of the assessee for nil disallowance. 2.14 Now, we consider the applicability of the tribunal decision rendered in the case of M/s. Raj Exports (supra). In that case, the Tribunal has considered and followed the tribunal decision as well as judgement of Hon'ble Gujarat High Court rendered in the case of Totaram B Sharma (supra) and came to the conclusion that no disallowance is justified. Hence, it is apparent that in that case also, the Tribunal has not considered the possibility of inflation of purchase price and hence, in spite of this Tribunal decision, this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declined to entertain the appeal of the Revenue by observing that it is not a question of law. Hence, this decision of the tribunal and subsequent decision of Hon'ble High Court is not relevant in the present case because we are not concerned with profit element of the alleged bogus purchase because higher GP and NP is reported by the assessee even after considering this purchase. 2.18 Now, we consider the applicability of the tribunal decision cited by the learned DR of the revenue having been rendered in the case of Swetamber Steels (Supra). We find that this tribunal decision is not applicable in the present case as the facts are different. As per the facts of that case, the supplier was not found at the given address and even the bank account of the supplier was with fictitious address having been introduced by some fictitious person. In the present case, the supplier is very much available and was examined by the A. O. and as per the same, this can be in dispute as to who is the real owner of this party Vishal Traders but it cannot be said that no goods was purchased by the assessee as claimed. So, this judgment is not applicable in the present case. Having considered all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in relation to the said business. Under these facts, it was held by Hon'ble Gujarat High court that the provisions of Section 40A (3) are applicable and exceptions carved out in Rule 6DDJ were not available to the assessee and disallowance was confirmed. In the present case, the facts are different. As per the books of accounts of the assessee, entire purchases from Vishal Traders are accounted for and the payments were made by way of a/c payee cheques and we have already held that the entire purchases is not disallowable and we have confirmed only 5% disallowance of purchases from M/s. Vishal Traders. Hence, it becomes clear that the payments in respect of purchases from Vishal Traders was not made in cash and, therefore, there is no occasion to even consider the applicability of provisions of Section 40A(3) in the present case. 2.20 There is no other ground in the appeal of the assessee for this year. 2.21 As per the revenue's appeal for the assessment year 2007-08, there is one more issue raised by the revenue as per grounds No.3 4 noted above i.e. regarding the addition of Rs.1,98,868/- made on account of unutilized MODVAT/CENVAT credit. Regarding this issue, Ld. D.R. s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) ought to have examined its admissibility under Section 40A(3) of the Income Tax Act in the light of the parameters laid down in the decision on the case of CIT vs. Hynoup Food and Oil Ind.(P) Ltd., 290 ITR 702(Guj.). 3) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.21,19,45,382/- made on account of bogus purchases from M/S. Amber Trading Co. 4) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,33,42,5447- made on account of disallowance of speculation loss. 5) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 19,31,7697- made on account of unutilized MODVAT/CENVAT credit. 6) While granting relief the Ld.CIT(A) erred in applying the judicial decisions ignoring that the said decisions were pronounced in the context of the provisions of Section 145 of the Act and not in the context of Section l45A of the Act that is applicable in the assessment years under consideration and the adjustment of CENVAT/MODVAT is mandatory by 'virtue of the Explanation to clause (a) of the Section. 7) On the facts and in the circumstances of the case and in law, the CIT(A) ought to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and the same was decided by the Tribunal in favour of the assessee by observing as under: 12.1.1 Ld. D.R. supported the assessment order whereas Ld. A.R. supported the order of Ld. CIT(A). He further submitted that the issue raised by the revenue in grounds NO. 1 2 is covered in favour of the assessee by the judgement of Hon'ble Apex Court rendered in the case of CIT Vs Indo Nippon Chemicals Co. Ltd. as reported in 261 ITR 275 and also by the judgement of Hon'ble Gujarat High Court rendered in the case of CIT Vs Unique Industries as reported in 307 ITR 350. Regarding ground No.3, he placed reliance on the judgement of Hon'ble Karnataka High Court rendered in the case of CIT Another Vs Sagar Talkies as reported in 325 ITR 133 and regarding ground No.4, he placed reliance on the judgement of Hon'ble Gujarat High Court rendered in the case of CIT Vs Amba Impex as reported in 282 ITR 144. 12.1.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgments cited by the Ld. A.R. Regarding grounds No. 1 2, we find that this issue is covered in favour of the assessee by both the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding ground No.3 of the revenue's appeal, we find that a disallowance of Rs.2119.45 lacs was made by the A.O. on account of alleged false purchase from Amber Trading Co. This disallowance was deleted by Ld. CIT (A) by making following observations in para 14.3 of his order: 14.3 M/s. Amber Trading Co., Dahod has accepted that the goods are sold to the appellant, produced all such evidences that such goods are delivered at the factory of the appellant and appellant has made payment for goods so purchased by account payee cheque, and the appellant also produced all the necessary evidences to prove genuineness of the impugned purchases, after all such materials on records, there is no scope for AO to treat the purchases as non-genuine. Furthermore the Assessing Officer of the firm (M/s. Amber Trading Co.) treated the URD purchases of M/s. Amber Trading Co., Dahod as genuine, then there is no space left for imagination that the URD purchases of the supplier (M/s. Amber Trading Co.) are bogus. Accordingly, I direct the Assessing Officer to treat all such URD purchases as genuine and direct to delete addition of Rs.21,19,45,382/-. Ground No. 1 related to M/s. Amber Trading Co, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the judgment of Hon'ble Gujarat High court rendered in the case of Pankaj Oil Mills Vs CIT (Supra). The relevant Para of the order of the learned CIT (A) is reproduced below for the sake of ready reference: I have considered the facts of the case and submissions of the appellant carefully, also appraised position of law, making distinction between hedge transactions and speculative transactions. There is no dispute about the fact that the appellant has entered in soya oil sale transactions with NBOT and NCDEX. The appellant is manufacturer of soya oil and these transactions are undertaken to guard against losses through future price fluctuations in respect of its contracts for actual delivery, which is permitted under proviso (a) of s. 43(5) of the Act. The appellant is having ample stock of soya oil and soya seeds to manufacture soya oil, which is much more than the hedge contracts under taken by the appellant company, which is permitted under proviso (b) of s. 43(5) of the Act. The appellant, furnished that the hedge contracts in every month are lesser than the stock of soya oil and soya seeds, such contracts are entered to minimize losses in ready market i.e. sales d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding u/s. 143(3) determining total income at Rs.88,69,11,095/-. The A.O. made the following variations / additions / disallowances. 4. Against the order of AO, appeal was preferred before Hon'ble CIT (A)-I, Ahmedabad. Hon'ble CIT(A)-I has passed order vide Appeal No. CIT(A)-I/CC.1 (1)7395710-11 dated 29-12-2011, the appeal was partly allowed. Being aggrieved by the aforesaid the Appellant prefers the present appeal on the accompanied grounds of appeal. For, Gujarat Ambuja Exports Ltd. Grounds raised by the revenue in this yea in I.T.A.No. 494/Ahd/2012 are as under: 1) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.27,21,398/- out of total addition of Rs.36,28,531/- made on account of bogus purchases from M/S.Vishal Traders. 2) Having arrived at his conclusion that the balance amount has been incurred as expenditure made for the purchase, the Ld.CIT(A) ought to have examined its admissibility under Section 40A(3) of the Income Tax Act in the light of the parameters laid down in the decision on the case of CIT vs. Hynoup Food and Oil Ind. (P) Ltd., 290 ITR 702(Guj). 3] The Ld.CIT(A) has erred in law and on facts in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No.4 of the revenue's appeal is regarding disallowance of Rs.201.83 lacs in respect of alleged speculation loss. This issue was decided by us in assessment year 2008-09 in favour of the assessee as per Para 3.13 above. In the present year, Ld. D.R. could not point out any difference in facts and hence, we find no reason to take a contrary view in this year and accordingly, in this year also, this issue is decided in favour of the assessee on similar lines. Ground no.4 of the revenue's appeal is also rejected. 4.5 As per grounds No.5 6 of the revenue's appeal, the issue involved is regarding addition made by the A.O. of Rs.33.25 lacs on account of unutilized MODVAT/CENVAT. This issue was decided by us in favour of assessee in both the years i.e. assessment year 2007-08 and 2008-09. On the same liens, in this year also, this issue is decided in favour of the assessee and both these grounds of the revenue are rejected. 4.6. In the result, appeal of the assessee is partly allowed whereas the appeal of the revenue is rejected for the assessment year 2009-10. 5. In the combined result, all the three appeals of the revenue are dismissed whereas all the three appeals of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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