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2015 (8) TMI 1305 - ITAT Chandigarh

2015 (8) TMI 1305 - ITAT Chandigarh - TMI - 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 .....

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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 ₹ 12,23,560/- on account of CANVAT credit, therefore, stands .....

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or assessment year 2003-04, challenging addition of ₹ 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 ₹ 11,42,98,930/- which was assessed under section 143(3) of the Act on 31.1.2005 at an income of ₹ 21,54,65,790/-. On information received by the Assessing Officer from the office of Director General of .....

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ssee alleging that it had availed fraudulent CENVAT credit for the period 21.3.2003 on 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 Commiss .....

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rom 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 ₹ 4,11,84 .....

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nded 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 .....

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Steel & Alloys Ltd. amounting to ₹ 92,25,641/-. The CENVAT credit on said purchases from M/s Haryana Steel & Alloys Ltd. was amounting to ₹ 12,23,560/-. On these basis, the Assessing Officer made addition of ₹ 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 disto .....

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he same was considered to be in overall addition of ₹ 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 s .....

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s 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 ₹ 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 .....

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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 CANVAT 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 lea .....

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CTR 314, the 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 ₹ 92,25,641/-. In this way, the learned CIT (Appeals) made an addition of ₹ 1,04,49,201/- comprising of ₹ 92,25,641/- being the total purchases from M/s Haryana Steel & Alloys Pvt. Ltd. and the amount of Rs,.12,23,56 .....

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k 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 th .....

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on during the proceeding in succeeding years before the Commission. The emphasis was laid on the following paragraph: Bogus purchase took placed during the period 01.04.2003 to 24.08.2005, hence, bogus Cenvat Credit amounting to ₹ 1,16,10,188/- ₹ 1,27,82,132 and ₹ 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 be .....

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artment 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 purchas .....

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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 he assessment year 20022003 it was 5.36% whereas during the relevant assessment year it has come to 6.28 %. Merely because of fall in Gross Profit rate d .....

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1 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 .....

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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 manufacture 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. I .....

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ryana Steel & Alloys Pvt. Ltd. but from open market. The issue arose because of the fact that assessee receive 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 .....

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ent 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 of Leaders 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: .....

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of law. In another judgement of Hon ble Gujrat High Court, in the case of CIT Vs. Bholanath Poly Fab Pvt Ltd.(2013) 355 ITR 290(Guj) 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 .....

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mbedded 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 th .....

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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 Cr .....

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al 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. Our view gets strengthened by the decision of the Jurisdictional High Court in the case of CIT vs. Vikas Che .....

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