Commissioner of Income-tax Vs. Hi Lux Automotive (P.) Ltd. - Court Judgment

Excerpt:
- - in the opinion of the cit(a) such an inquiry could have, at best, led to some adjustment in profits but could not have led to complete disallowance of the expenses, payment in respect of which was made to the aforesaid parties. if this is the reason which persuaded the assessing authority to allow deletion of the addition made earlier, we fail to understand as to how same reasons would not be applicable in other cases where expenditure was disallowed. the tribunal took into consideration some other factors as well and the cumulative effect of all these factors clearly established that they were genuine suppliers who had received payment by means of account payee cheques.order1. we are concerned in this appeal with the assessment year 1996-97. the respondent herein (hereinafter referred to as 'the assessee') had filed the income-tax return for the aforesaid assessment year on 30-11-1996 declaring his income of rs. 3,21,840. the assessee is the manufacturer of tractor lights. in the said return, he had claimed deduction of expenditure made from various parties on account of purchases of raw material.2. the income-tax officer passed the assessment order dated 26-3-1999, disallowing the expenditure to the extent of rs. 26,73,663 in respect of ten parties, from whom the assessee had allegedly purchased the material.. as per the assessing officer, the assessee had not produced the requisite documents establishing the purchase of raw material from the said ten parties.3. the assessee filed appeal there against. the cit(a) allowed the appeal vide his order dated 19-1-2001 and remanded the case back to the assessing officer for fresh consideration. he, inter alia, observed in the said order that those ten parties, against whom inquiries are to be made, can be classified in three categories, namely, (a) where summons could not be served (b) where summons were served but there was no compliance and (c) where statements were recorded. the cit(a) mentioned that those parties to whom summons could not be served, the assessing officer had not made any attempt to verify the genuineness of transactions from the books of assessee, its bank account or the bills. he did not make inquiry from the receiving bank to determine whether or not the amounts were credited in the accounts of respective parties. so far as the second category of cases were concerned, the cit(a) was of the opinion that the assessing officer did not make any attempt to enforce attendance of those parties on summons issued by him. the other enquiries, as pointed out in respect of first category of cases, were also not made by him. qua the third category of parties, the observation of cit(a) was that those who had attended the assessing officer had found fault with their bills but it was nowhere stated by them that they had not worked for the assessee or that they had not supplied goods or the books of account of the assessee were incorrect. in the opinion of the cit(a) such an inquiry could have, at best, led to some adjustment in profits but could not have led to complete disallowance of the expenses, payment in respect of which was made to the aforesaid parties. it was on this basis that the case was remanded back to the assessing officer with direction to pass fresh order after making full inquiry and hearing the assessee.4. in the second round the assessing officer allowed the expenses claimed in respect of payments made to five out of the aforesaid ten parties. in respect of remaining five parties it was found that three parties could not be served at given addresses but other two parties who had appeared, namely, proprietor of m/s, bright enterprises and proprietor of m/s. shiv shakti painting works, the assessing officer did not believe their version and dealt with their cases in the following manner:shri hemant kumar, prop. bright enterprises attended the office of the undersigned in response to summons under section 131 of the income-tax act. he deposed that at present he has no books of account or bill book for verification. but he admitted that he used to supply wire assembly but he did not know the year in which he made supply. he further admitted that he received the payment sometimes in cash or sometimes by cheques. he did not remember how much sale he had made to the assessee-company. he was not maintaining any record for supply of wire assembly. considering the facts stated on oath, it is not clear whether the transaction with the company during the year under consideration and the facts narrated by him are vague. hence, the assessee is not entitled for any relief.shri subash mogha, prop. shiv shakti painting works attended the office of the undersigned in response to summons under section 131 of the income-tax act, 1961. his statement on oath was recorded. in the statement he deposed that he had done the job work for the assessee. though he was not maintaining any books of account, he was having only bill book from where he used to issue the bills for payment. he further deposed that he used to receive the goods for job work on challans 57f. he admitted that he has done job work for the assessee to the tune of rs. 1,74,000. after going through the statement of shri subash mogha and evidence furnished by the assessee and verification of books of account, the transactions done by the assessee with m/s. shiv shakti painting works appears to be genuine and addition of rs. 1,74,039 made earlier is deleted.as regards the additions made in the case of m/s. raj enterprises, o.s. industries, apex industries and aries enterprises, summons issued to these parties have been remained uncomplied with. hence the transactions with these parties remained unverified and the assessee also fails to produce these parties for verification.5. appeal of the assessee against the aforesaid order, after losing in the cit(a), has been allowed by the itat vide its judgment dated 17-11-2006 and assailing that judgment the present appeal is preferred under section 260a of the income-tax act.6. the tribunal has, in detail, explained the manufacturing process of the assessee which requires not only raw material but also some job work process. it is concluded therefrom that without the purchase of raw material, manufacture of tractor lights is not possible. after explaining this process, the tribunal has accepted the version of the assessee, believing in the genuineness of the transactions, namely, purchase of raw material from the aforesaid five parties on the following basis:(a) all the payments were made to the said parties by the assessee by account payee cheques only.(b) wherever required income-tax at source was also deducted.(c) the payments made to the same parties in subsequent years have been accepted and those payments were allowed as deductions,(d) the assessee had produced the bank statement of the said parties which manifest that the cheques issued by the assessee were duly received by those parties in their bank accounts.(e) the bank entries in the bank accounts of the parties produced also show that they were small dealers/job workers and were dealing mainly with the assessee because of which they had issued bills which are in serial numbers.7. learned counsel for the appellant submits that the four parties on the given addresses could not be served and from the statements of the proprietors of the two parties who had appeared, it was clear that they did not maintain the statement of accounts. therefore, the assessing authority was right in disallowing the expenditure claimed in respect of alleged payments made to those parties. she also drew our attention to the first assessment order passed by the assessing officer on the basis of which she endeavoured to argue that shri hemant kumar, the proprietor of bright enterprises, had given the statement which would not inspire confidence. she also highlighted that the bills produced by the assessee issued by the first five parties would show that they were in serial numbers and thus no sales were made by them to any other dealer/purchaser and it would create a suspicion about the genuineness of the said transactions. she also submitted that in respect of five parties where credence could be established, the assessing authority had fairly allowed the expenditure incurred in making payments to them. her submission was that by generally explaining the manufacturing process and without dealing specifically with each case, the itat could not have come to the conclusion that the payments made to those parties were also genuine. she also relied upon the judgment of this court in cit v. la medica : [2001] 250 itr 575 : 117 taxman 628 to buttress her aforesaid submissions.8. after hearing learned counsel for the parties we are of the opinion that there is no merit in any of the submissions of learned counsel for the appellant. the reasons which persuaded the itat to record its findings that payments were genuinely made to the said five suppliers/dealers have already been noted above. it would be of interest to note that the assessing authority in his second assessment order dated 28-3-2002 (passed after the remand of the case) himself allowed the expenditure incurred in respect of payments made to shiv engineering works and m/s. orient auto and electric only on the basis that the payments made to them were by means of account payee cheques and those payments were actually credited in their bank accounts. in respect of those two parties it was specifically noted that they were also not maintaining books of account. notwithstanding the fact that the assessing authority allowed the expenditure because the statement of account was produced by the proprietors of said suppliers. thus, while allowing the expenditure in respect of these two parties, the assessing officer did not give any significance to the fact that they were not maintaining books of account. what weighed with the assessing officer was that payments were made to these parties by account payee cheques and these were duly credited in their bank accounts. if this is the reason which persuaded the assessing authority to allow deletion of the addition made earlier, we fail to understand as to how same reasons would not be applicable in other cases where expenditure was disallowed.9. as noted above, even the proprietors of m/s. bright enterprises and m/s. shiv shakti painting works had made the statements that they had received the payment by means of account payee cheques and they had also specifically affirmed that they had been supplying the goods/raw material to the assessee. the assessee had itself produced the bank statements of all these parties which successfully demonstrated that payments made by the assessee vide account payee cheques were duly credited in the bank accounts of the said suppliers. insofar as bills which are in serial numbers produced by the suppliers are concerned, the tribunal has itself indicated that though it may raise some doubt but would not be conclusive to hold that payments for such parties are either bogus or sham. the tribunal took into consideration some other factors as well and the cumulative effect of all these factors clearly established that they were genuine suppliers who had received payment by means of account payee cheques. the tribunal rightly concluded that they were small dealers/job workers and were mainly dealing with the assessee only. it is also pointed out by the tribunal that transactions were entered into with these suppliers during the financial year ending on 31-3-1996 and an inquiry was conducted in the year 2002 and it was not unusual for such small parties to have left in between. thus, these two cases are at par with those in respect of which expenditure is allowed.10. the reason for disallowing expenditure in respect of other four parties was that when the notices were sent they were not available. we are of the opinion that even in their absence the assessee had produced sufficient material to show payments, namely the bank accounts of such parties. we are constrained to note that if the summons are not issued to those parties or the same could not be served at the given addresses, the assessing authority could have obtained their addresses from the banks as the bank statements were produced and could have made an endeavour to serve those parties at the said addresses.11. in view of the aforesaid discussion, we are of the opinion that the finding of fact arrived at by the tribunal is plausible and based on evidence. there is no perversity in this finding. hardly any question of law arises which needs to be determined in the present appeal.12. insofar as the judgment of this court in la medica's case (supra) is concerned, even a cursory reading thereof reveals that the parties, in that case, to whom the payments were allegedly made, were found to be fictitious. there was a finding of fact that the purported purchases were fictitious. in this backdrop, this court concluded that merely because some purchases were shown to have been made would not outweigh the substantial consideration, namely, involvement of small persons who gave fictitious addresses. that is not the position in the instant case.13. we, therefore, dismiss this appeal as being devoid of any merits.

Judgment:
ORDER

1. We are concerned in this Appeal with the assessment year 1996-97. The respondent herein (hereinafter referred to as 'the assessee') had filed the income-tax return for the aforesaid assessment year on 30-11-1996 declaring his income of Rs. 3,21,840. The assessee is the manufacturer of tractor lights. In the said return, he had claimed deduction of expenditure made from various parties on account of purchases of raw material.

2. The Income-tax Officer passed the assessment order dated 26-3-1999, disallowing the expenditure to the extent of Rs. 26,73,663 in respect of ten parties, from whom the assessee had allegedly purchased the material.. As per the Assessing Officer, the assessee had not produced the requisite documents establishing the purchase of raw material from the said ten parties.

3. The assessee filed appeal there against. The CIT(A) allowed the appeal vide his order dated 19-1-2001 and remanded the case back to the Assessing Officer for fresh consideration. He, inter alia, observed in the said order that those ten parties, against whom inquiries are to be made, can be classified in three categories, namely, (a) where summons could not be served (b) where summons were served but there was no compliance and (c) where statements were recorded. The CIT(A) mentioned that those parties to whom summons could not be served, the Assessing Officer had not made any attempt to verify the genuineness of transactions from the books of assessee, its bank account or the bills. He did not make inquiry from the receiving Bank to determine whether or not the amounts were credited in the accounts of respective parties. So far as the second category of cases were concerned, the CIT(A) was of the opinion that the Assessing Officer did not make any attempt to enforce attendance of those parties on summons issued by him. The other enquiries, as pointed out in respect of first category of cases, were also not made by him. Qua the third category of parties, the observation of CIT(A) was that those who had attended the Assessing Officer had found fault with their Bills but it was nowhere stated by them that they had not worked for the assessee or that they had not supplied goods or the Books of Account of the assessee were incorrect. In the opinion of the CIT(A) such an inquiry could have, at best, led to some adjustment in profits but could not have led to complete disallowance of the expenses, payment in respect of which was made to the aforesaid parties. It was on this basis that the case was remanded back to the Assessing Officer with direction to pass fresh order after making full inquiry and hearing the assessee.

4. In the second round the Assessing Officer allowed the expenses claimed in respect of payments made to five out of the aforesaid ten parties. In respect of remaining five parties it was found that three parties could not be served at given addresses but other two parties who had appeared, namely, proprietor of M/s, Bright Enterprises and proprietor of M/s. Shiv Shakti Painting Works, the Assessing Officer did not believe their version and dealt with their cases in the following manner:

Shri Hemant Kumar, Prop. Bright Enterprises attended the office of the undersigned in response to summons under Section 131 of the Income-tax Act. He deposed that at present he has no books of account or bill book for verification. But he admitted that he used to supply wire assembly but he did not know the year in which he made supply. He further admitted that he received the payment sometimes in cash or sometimes by cheques. He did not remember how much sale he had made to the assessee-company. He was not maintaining any record for supply of wire assembly. Considering the facts stated on oath, it is not clear whether the transaction with the company during the year under consideration and the facts narrated by him are vague. Hence, the assessee is not entitled for any relief.

Shri Subash Mogha, Prop. Shiv Shakti Painting Works attended the office of the undersigned in response to summons under Section 131 of the Income-tax Act, 1961. His statement on oath was recorded. In the statement he deposed that he had done the job work for the assessee. Though he was not maintaining any books of account, he was having only bill book from where he used to issue the bills for payment. He further deposed that he used to receive the goods for job work on challans 57F. He admitted that he has done job work for the assessee to the tune of Rs. 1,74,000. After going through the statement of Shri Subash Mogha and evidence furnished by the assessee and verification of books of account, the transactions done by the assessee with M/s. Shiv Shakti Painting works appears to be genuine and addition of Rs. 1,74,039 made earlier is deleted.

As regards the additions made in the case of M/s. Raj Enterprises, O.S. Industries, Apex Industries and Aries Enterprises, summons issued to these parties have been remained uncomplied with. Hence the transactions with these parties remained unverified and the assessee also fails to produce these parties for verification.

5. Appeal of the assessee against the aforesaid order, after losing in the CIT(A), has been allowed by the ITAT vide its Judgment dated 17-11-2006 and assailing that Judgment the present appeal is preferred under Section 260A of the Income-tax Act.

6. The Tribunal has, in detail, explained the manufacturing process of the assessee which requires not only raw material but also some job work process. It is concluded therefrom that without the purchase of raw material, manufacture of tractor lights is not possible. After explaining this process, the Tribunal has accepted the version of the assessee, believing in the genuineness of the transactions, namely, purchase of raw material from the aforesaid five parties on the following basis:

(a) All the payments were made to the said parties by the assessee by Account Payee cheques only.

(b) Wherever required income-tax at source was also deducted.

(c) The payments made to the same parties in subsequent years have been accepted and those payments were allowed as deductions,

(d) The assessee had produced the Bank Statement of the said parties which manifest that the cheques issued by the assessee were duly received by those parties in their bank accounts.

(e) The bank entries in the bank accounts of the parties produced also show that they were small dealers/job workers and were dealing mainly with the assessee because of which they had issued bills which are in serial numbers.

7. Learned Counsel for the appellant submits that the four parties on the given addresses could not be served and from the statements of the proprietors of the two parties who had appeared, it was clear that they did not maintain the Statement of Accounts. Therefore, the Assessing Authority was right in disallowing the expenditure claimed in respect of alleged payments made to those parties. She also drew our attention to the first Assessment Order passed by the Assessing Officer on the basis of which she endeavoured to argue that Shri Hemant Kumar, the proprietor of Bright Enterprises, had given the statement which would not inspire confidence. She also highlighted that the bills produced by the assessee issued by the first five parties would show that they were in serial numbers and thus no sales were made by them to any other dealer/purchaser and it would create a suspicion about the genuineness of the said transactions. She also submitted that in respect of five parties where credence could be established, the Assessing Authority had fairly allowed the expenditure incurred in making payments to them. Her submission was that by generally explaining the manufacturing process and without dealing specifically with each case, the ITAT could not have come to the conclusion that the payments made to those parties were also genuine. She also relied upon the Judgment of this Court in CIT v. La Medica : [2001] 250 ITR 575 : 117 Taxman 628 to buttress her aforesaid submissions.

8. After hearing learned Counsel for the parties we are of the opinion that there is no merit in any of the submissions of learned Counsel for the appellant. The reasons which persuaded the ITAT to record its findings that payments were genuinely made to the said five suppliers/dealers have already been noted above. It would be of interest to note that the Assessing Authority in his second Assessment Order dated 28-3-2002 (passed after the remand of the case) himself allowed the expenditure incurred in respect of payments made to Shiv Engineering Works and M/s. Orient Auto and Electric only on the basis that the payments made to them were by means of Account Payee cheques and those payments were actually credited in their Bank Accounts. In respect of those two parties it was specifically noted that they were also not maintaining Books of Account. Notwithstanding the fact that the Assessing Authority allowed the expenditure because the Statement of Account was produced by the proprietors of said suppliers. Thus, while allowing the expenditure in respect of these two parties, the Assessing Officer did not give any significance to the fact that they were not maintaining Books of Account. What weighed with the Assessing Officer was that payments were made to these parties by account payee cheques and these were duly credited in their Bank Accounts. If this is the reason which persuaded the Assessing Authority to allow deletion of the addition made earlier, we fail to understand as to how same reasons would not be applicable in other cases where expenditure was disallowed.

9. As noted above, even the proprietors of M/s. Bright Enterprises and M/s. Shiv Shakti Painting Works had made the statements that they had received the payment by means of Account Payee cheques and they had also specifically affirmed that they had been supplying the goods/raw material to the assessee. The assessee had itself produced the Bank statements of all these parties which successfully demonstrated that payments made by the assessee vide Account payee cheques were duly credited in the Bank accounts of the said suppliers. Insofar as bills which are in serial numbers produced by the suppliers are concerned, the Tribunal has itself indicated that though it may raise some doubt but would not be conclusive to hold that payments for such parties are either bogus or sham. The Tribunal took into consideration some other factors as well and the cumulative effect of all these factors clearly established that they were genuine suppliers who had received payment by means of Account Payee cheques. The Tribunal rightly concluded that they were small dealers/job workers and were mainly dealing with the assessee only. It is also pointed out by the Tribunal that transactions were entered into with these suppliers during the financial year ending on 31-3-1996 and an inquiry was conducted in the year 2002 and it was not unusual for such small parties to have left in between. Thus, these two cases are at par with those in respect of which expenditure is allowed.

10. The reason for disallowing expenditure in respect of other four parties was that when the notices were sent they were not available. We are of the opinion that even in their absence the assessee had produced sufficient material to show payments, namely the bank accounts of such parties. We are constrained to note that if the summons are not issued to those parties or the same could not be served at the given addresses, the Assessing Authority could have obtained their addresses from the banks as the bank statements were produced and could have made an endeavour to serve those parties at the said addresses.

11. In view of the aforesaid discussion, we are of the opinion that the finding of fact arrived at by the Tribunal is plausible and based on evidence. There is no perversity in this finding. Hardly any question of law arises which needs to be determined in the present appeal.

12. Insofar as the Judgment of this Court in La Medica's case (supra) is concerned, even a cursory reading thereof reveals that the parties, in that case, to whom the payments were allegedly made, were found to be fictitious. There was a finding of fact that the purported purchases were fictitious. In this backdrop, this Court concluded that merely because some purchases were shown to have been made would not outweigh the substantial consideration, namely, involvement of small persons who gave fictitious addresses. That is not the position in the instant case.

13. We, therefore, dismiss this appeal as being devoid of any merits.