Case Law Details

Case Name : Tulsian Refinery Pvt. Limited Vs DCIT (ITAT Chennai)
Appeal Number : ITA No.65/Chny/2022
Date of Judgement/Order : 19/10/2023
Related Assessment Year : 2016-17

Tulsian Refinery Pvt. Limited Vs DCIT (ITAT Chennai)

The Income Tax Appellate Tribunal (ITAT) Chennai recently adjudicated on the matter of Tulsian Refinery Pvt. Limited versus Deputy Commissioner of Income Tax (DCIT). The case pertains to assessment years 2016-17 and 2017-18, arising from search proceedings. The crux of the dispute revolves around additions made to the income of the assessee, primarily related to alleged unexplained expenditures. The ITAT’s decision sheds light on the significance of sworn statements and reconciliation statements in such proceedings.

Background: The assessment in question stems from a search conducted in the case of Kaleeswari Refinery Private Ltd. (KRPL) on May 17, 2017. The assessment of Tulsian Refinery Pvt. Limited was framed based on incriminating material discovered during the search. The primary issue under consideration was the alleged bogus interest expenditure claimed by the assessee.

Assessment Proceedings:

The Assessing Officer (AO) focused on refined sunflower oil supplied by Tulsian Refinery Pvt. Limited to KRPL. It was revealed that some purchases lacked accompanying quality reports, rendering them allegedly bogus. The Managing Director, Shri Ajay Kumar Tulsian, admitted in a sworn statement that the company provided bogus and inflated bills to KRPL. The statement also indicated that the company engaged in inflating sales and book stocks to show higher profits for obtaining loans.

The AO, based on the statements and reconciliation statements provided by the assessee, concluded that the interest claimed by the assessee was bogus. Subsequently, an amount of Rs. 28.70 lakhs was added to the assessee’s income as unexplained expenditure for the assessment year 2016-17. Similar additions were made for the assessment year 2017-18, including alleged bogus import expenses.

Appellate Proceedings:

During the appellate proceedings, the assessee submitted a loan agreement, which was deemed a fabricated document and rejected. The retraction of earlier statements by the assessee was also dismissed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) concluded that the interest expenditure was essentially an accommodation entry provided by the assessee to KRPL, leading to the confirmation of the additions.

ITAT’s Findings and Adjudication:

The ITAT examined the order passed by the Income Tax Settlement Commission (ITSC) in the case of KRPL. The ITAT noted that the ITSC accepted KRPL’s claim regarding alleged bogus purchases for all years except 2016-17. The ITAT relied on the findings of the ITSC and observed that the KRPL’s claim for the disputed purchases was accepted, except for a specific year.

The ITAT emphasized that the additions made in the case of Tulsian Refinery Pvt. Limited were based on sworn statements and reconciliation statements provided by the assessee. The tribunal opined that the retraction made by the assessee was an afterthought and lacked concrete evidence. Therefore, the ITAT concurred with the CIT(A)’s decision to confirm the addition for the assessment year 2016-17 and delete the addition for the assessment year 2017-18.

Conclusion: The Tulsian Refinery Pvt. Limited vs. DCIT case highlights the significance of sworn statements and reconciliation statements in income tax proceedings. The ITAT’s decision underscores the need for consistency in the treatment of similar claims across different assessment years. Taxpayers are cautioned against making statements that may later be retracted, especially when such statements form a crucial basis for additions to their income. This case serves as a reminder of the meticulous scrutiny applied by tax authorities and the subsequent importance of providing accurate and consistent information during assessments.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. The grievance of the assessee in the aforesaid appeals for Assessment Years (AY) 2016-17 & 2017-18 is common i.e., additions arising out of certain search proceedings. The facts as well as issues are identical in both the years. The appeal for AY 2016-17 arises out of the order of learned Commissioner of Income Tax (Appeals)-18, Chennai, [CIT(A)] dated 30-11-2021 in the matter of an assessment framed by Ld. DCIT, Central Circle-3(4), Chennai (AO) u/s. 153C r.w.s 143(3) of the Income Tax Act on 30-12-2019. The grounds raised by the assessee read as under: –

1.The action of the Ld.CIT(A) upholding the order passed by the Assessing Officer is bad in law and against the facts and circumstances of the case.

2.The Ld.CIT(A) erred in confirming the addition made by the AO which was solely based on the statement recorded at the time of search and the submissions of the Director of the appellant who was undergoing treatment.

3.The Ld.CIT(A) erred in confirming the disallowance of Rs.28,70,959/- as unexplained expenditure of the appellant.

4.The Ld.CIT(A) ought not to have seen that in the light of the order of the Hon’ble Settlement Commission in the case of Kaleessuari Refineries P Ltd, there is no warrant for any addition or disallowance.

As is evident, the sole issue that arises for our consideration is addition of unexplained expenditure.

2. The Ld. AR advanced arguments and placed on record order passed by Hon’ble Income Tax Settlement Commission (ITSC) in the case of searched person i.e., M/s Kaleeswari Refinery Private Ltd. (KRPL) for AYs 2011-12 to 2018-19. The Ld. Sr. DR supported the orders of lower authorities. Having heard rival submissions and upon due consideration of case records, our adjudication would be as under.

Assessment Proceedings

3.1 The assessee being resident corporate assessee is stated to be engaged in supply of edible oils. Consequent to search action u/s 153A in the case of KRPL on 17-05-2017, impugned assessment was framed on assessee on the basis of certain incriminating material found during the course of search operations. The sole issue that arises is alleged bogus interest expenditure as claimed by the assessee.

3.2 The seized material, inter-alia, contained details of refined sunflower oil supplied by assessee to KRPL. It transpired that KRPL purchased oil from various parties including the assessee. M/s KRPL took delivery only after verifying the quality of oil by quality control department. Such quality reports form an integral part of record keeping along with invoices, weighing slips etc. However, some of the purchases were not accompanied with the quality reports and therefore, the same were held to be bogus in nature. For this year, this value for the assessee was quantified at Rs.25.37 lacs. The value for AY 2017-18 was quantified at Rs.80.59 Lacs. The said facts were put to Shri Ajay Kumar Tulsian (Managing Director of the assessee) and sworn statement was recorded on 05.07.2017.

3.3 In reply to question No.5, it was admitted that the assessee provided bogus and inflated bills / invoices to KRPL. The worksheet of the said bogus bills was also provided. It was admitted that the assessee booked both bogus and inflates sales in the assessee company and also inflated book stock to show more profit to the banks for getting loans. It was further stated that the assessee could not book any bogus expenses in the books but the profit was adjusted out of assessee’s accumulated losses. In reply to question no.8, the assessee submitted that it received interest free loan of Rs.6 Crores from KRPL. Since interest was to be paid as per law, the assessee made an arrangement that the assessee would issue bogus sales vouches to KRPL who would make payment thereof through RTGS. The assessee, in turn, would return the same amount as payment of interest towards loan receipts.

3.4 On the basis of statements as well as after considering the reconciliation statement filed by the assessee, Ld. AO concluded that the assessee issued bogus sales vouchers to KRPL which was used by the assessee to settle the interest dues to KRPL against loans availed from them. The interest of Rs.72 Lacs so claimed by the assessee was found to be bogus in nature. However, the assessee retracted the earlier statements and filed reply dated 24-12-2019 to submit that the assessee has not done any bogus sale. The interest was paid through banking channels after complying with TDS provisions. However, going by the statement of MD recorded on 05-07-2017 as well as subsequent reconciliation statement filed by the assessee, Ld. AO concluded that the payment of interest was only for the purpose of returning money to KRPL pertaining to bogus sales bills. Accordingly, the amount of Rs.28.70 Lacs was added to the income of the assessee as unexplained expenditure.

3.5 Similar assessment has been framed for AY 2017-18, wherein Ld. AO held that interest expenditure of Rs.72 Lacs was unexplained expenditure. Another addition made for this year was bogus import expenses of Rs.8.59 Lacs which are related to alleged bogus sales bills issued by the assessee to KRPL.

Appellate Proceedings

4. During appellate proceedings, the assessee submitted one loan agreement which was held to be made-belief document and rejected. The retraction made by the assessee was also rejected since the medical grounds raised by the assessee were held to be far-fetched only. The MD was actively participating in the affairs of the company without any impediment. Finally, it was held by Ld. CIT(A) that the interest expenditure was nothing but accommodation entry provided by the assessee for KRPL. Therefore, impugned additions were confirmed against which the assessee is in further appeal before us. Similar was adjudication for AY 2017-18.

Our findings and Adjudication

5. We have perused the order passed by Hon’ble ITSC in the case of KRPL which is placed on record. The Ld. AR relies on the findings of ITSC as contained in para 26.2 with respect to the assessee on the issue of bogus purchase bills. Upon perusal of para 6.1, it could be seen that alleged bogus purchases in the case of KRPL has been quantified at Rs.488.04 Lacs for AYs 2015-16 to 2017-18 which include alleged bogus purchases from the assessee. The Ld. AO has pleaded for confirmation of the addition. It was noted that KRPL could not produce the relevant documents for AY 2016-17 to the extent of Rs.20.83 Lacs. It was held by Hon’ble ITSC as under: –

26.2 We note that the applicant has produced computerized weigh bridge slips, quality reports, purchase invoices etc. as evidences for the purchase of refined sunflower oil in respect of companies mentioned at para 6.2 above except for the quantity amounting to Rs.9,52,577/- and Rs.20,83,560/- for the AYs 2016-17 sold to Tamilnadu Edible Oil Ltd., and Tulsian Refinery Limited respectively. The Quality reports are manually made as against other evidences made which are part of SAP. These were available for the rest of the transactions but they were not entered into the quality control register because of clerical error, as per the applicant. On the other hand, the department has not produced any corroborative evidence other than the sworn statement. Therefore, we accept the explanation of the AR and order for addition of the aforesaid amounts in the AY 2016-17.

It could thus be seen that the KRPL’s claim qua bogus purchases has been accepted for all the years except for AY 2016-17. Since the adjudication of Hon’ble ITSC has considered all the aspects of the matter including the objections of the revenue and arrived at the aforesaid conclusion, the bench is inclined to follow the same. In the present case also, we find that the alleged additions are based on sworn statements as well as reconciliation statements filed by the assessee during the course of assessment proceedings. In our considered opinion, the retraction made as late as on 24-12-2019 was merely an after-thought and the same was not evidenced by any concrete material and the same has rightly been rejected by Ld. CIT(A). Finally, considering the facts and circumstances of the case, the addition for AY 2016-17 stand confirmed whereas the addition for AY 2017-18 stand deleted. Both the appeals stand disposed-off accordingly.

6. The appeal for AY 2016-17 stand dismissed. The appeal for AY 2017-18 stand allowed.

Order pronounced in open court on 19th October, 2023.

Download Judgment/Order

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