Case Law Details

Case Name : Bhuwania Steel & Metal Pvt. Ltd. Vs Income Tax Officer (ITAT Mumbai)
Appeal Number : ITA No. 6515/Mum/2008
Date of Judgement/Order : 08/06/2011
Related Assessment Year : 1989- 90
Courts : All ITAT (4244) ITAT Mumbai (1416)

Bhuwania Steel & Metal Pvt. Ltd. Vs ITO (ITAT Mumbai)- On investigation of the assessee’s purchases, it was noticed that the same were from Shri Shivkaran Goel who admitted before the Customs authorities as well as AO that he had not supplied any goods to the assessee, with which flanges liners with 55% tin could be manufactured. He accepted to have received commission @ 2% plus 4% sales-tax from the assessee in lieu of supplying the bogus bills. These facts indicate that the assessee had in fact arranged for the bogus bills from Shri Shivkaran Goel to the tune of Rs.3.48 crores so as to help Shri Vijaykumar R. Bhuwania in making false claim of duty draw back worth crores of rupees.

Thus, such amount of purchase cannot be allowed deduction. The mere fact that the sales-tax assessment in the case of assessee as well as Shri Shivkaran Goel had been made accepting the sales as such, do not bring any change to the correct factual position prevailing in the case. In fact, the Sales-tax Deptt. could have no grouse against the artificial sales reflected at a higher figure resulting into more revenue than rightly due. We, therefore, hold that the AO was justified in treating the entire purchases of Rs.3.45 lakhs from Shri Shivkaran Goel as bogus and thereafter allowing deduction of Rs.65.66 lakhs towards the purchase   of lead by the assessee from the open market. We, therefore, uphold the impugned order.

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “B”,MUMBAI

BEFORE SHRI R.S. SYAL (AM) & SMT. ASHA VIJAYARAGHAVAN (JM)

I.T.A. No. 6515/Mum/2008

(A.Y. 1989- 90)

M/s. Bhuwania Steel & Metal P. Ltd.,C/o. M.L. Bhuwania & Co., Dahanukar Bldg., 5th floor, 480, Kalbadevi Road, Mumbai- -400002.

Vs.

Income Tax Officer, Ward 9(1)(2), Aaykar Bhavan, M.K. Road, Mumbai- 400020.

PAN: AADCB3220D.

Appellant

Respondent

ORDER

PER R.S. SYAL, AM:

This appeal by the assessee is directed against the order passed by the CIT(A) on 04-09-2008 in relation to the assessment year 1989-90.

2. The first ground is against the confirmation of addition of Rs. 2,83,17,200/- on account of alleged bogus purchases from three proprietorship concerns of Shri Shivkaran Goel. Ground no. 2, which is stated to be in support of ground no. 1, was not pressed by the ld. A.R. We, therefore, dismiss ground no. 2 and take up ground no. 1 for disposal on merits.
3. Briefly stated, the facts of the case are that the assessee did not file any return for the year under consideration. Notice u/s. 148 was issued requesting the assessee to file the return of income. In response to that, the assessee stated that its accounts were lying seized by the Customs Department and as such it was not practicable to file the return of income. Eventually, the assessment was completed u/s.144 on total income of Rs. 2,00,000/-. Thereafter, it was found by the Investigation Wing of the Deptt. from the inquiries conducted that the assessee had obtained hawala bills for purchases from one Shri Shivkaran Goel. The assessment was re-opened u/s. 148. Final assessment was made determining total income of Rs.2,78,58,127/-. The facts leading to re-opening of the assessment are that some information was received that the assessee had obtained hawala bills from Shri Shivkaran Goel. The assessee claimed itself to be engaged in the manufacturing of flanged liners which is a combination of tin and lead. The entire sale was made by it to a sister concern, namely, M/s. Siddharth Impex which was run by Shri Vijaykumar R. Bhuwania, brother of one of the directors of the assessee company. The entire raw material for manufacturing of flanges liners was claimed to have been purchased by the assessee from one Shri Shivkaran Goel, who was the proprietor of three concerns as under :

(1)

Shree Vina yak Trading Co.

Rs. 2,31,28,010/-

(2)

Peliance Sales Corporation

Rs. 34,23,249/-

(3)

Tirupati International

Rs. 83,33,122/-

Rs. 3,48,84,381/-

M/s. Siddharth Imp ex exported these flanged liners which it had purchased from the assessee company declaring that flanged liners contained 55% tin and 45% lead. Duty draw back on exports was claimed accordingly. Out of 26 consignments exported by M/s. Siddharth Imp ex to two countries, the Customs Department intercepted one consignment. After investigation, the Customs Deptt. came to the conclusion that the flanged liners exported by M/s. Siddharth Imp ex had metal content of around 98% lead as against its claim of 55% tin and 45% lead. Further investigation carried out by the Customs Deptt. divulged that M/s. Siddharth Imp ex was making fraudulent claim of duty draw back. Statement of Shri S.N. Sharma, one of the directors of the assessee company, and affidavit filed by Shri Shivkaran Goel confirmed the findings of the Customs Deptt. Shri Sharma, the director of the assessee company, admitted before the Customs authorities that tin and tin scrap shown in the delivery challans seized by the Customs Deptt. was actually not received in the factory and mere entries were made in the Raw material register and Production register maintained for the Central Excise & Customs for giving a colour of genuineness to these transactions. During the course of proceedings u/s.147, statement of Shri Shivkaran Goel was recorded by the AO on 04-03-1997 in which he emphatically submitted that no goods were ever supplied by him to the assessee company. He maintained that he merely supplied bills to the company in order to inflate its purchases and also to accommodate the assessee to enable it to show that the goods manufactured by the assessee and supplied to M/s. Siddharth Impex had metal content of 55% and 45% lead. He admitted that in order to facilitate such transaction through bogus bill, he was allowed commission @ 2% net plus 4% sales-tax. He further elaborated the modus operandi of transactions with the assessee company by stating that he was issuing bills in favour of the assessee company in respect of so-called purchases and the assessee was giving him cheques for the amounts mentioned in the bills. On the clearance of cheques, he was withdrawing the amounts from the bank and returning the same to the assessee company after retaining net commission of 2% plus 4% sales-tax.

4. On the basis of the evidence on record and information gathered during the course of assessment proceedings, the AO came to the conclusion that the assessee company had obtained bogus bills from the concerns of Shri Shivkaran Goel and no material whatsoever was actually purchased from the said person. It was also opined that the assessee company purchased the lead from the open market by payment in cash which was recorded in the books by way of purchases from the three concerns of Shri Shivkaran Goel. However, taking into account the fact that the assessee had, in fact, manufactured flanges liners containing about 100% lead only, he allowed deduction in respect of purchases of lead made by the assessee from the open market and its value was adopted at 65,66,600/-. This amount was held to be the actual expenditure incurred by the assessee towards purchase of lead which had gone into the production of fanged liners. This amount was set off against the amount of bogus purchases of Rs.3.48 crores made by the assessee from Shri Shivkaran Goel and the balance amount of Rs.2,83,17,200 was added to the total income of the assessee as bogus purchases.

5. The assessee preferred appeal against the said order of the AO before the ld. CIT(A) who set aside the assessment with a direction to decide the issue after in the light of certain relevant points. The set aside assessment was completed on 31-03-2000 confirming the findings given in the original assessment order making the above referred addition on account of bogus purchases. The assessee again went into appeal before the CIT(A), who held that the commission © 2% and sales-tax © 4% were the expenditure incurred by the assessee and hence it was entitled to deduction for such expenditure worked out at Rs. 20,93,088/-. To this extent, the income was reduced. Cross appeals were filed by the assessee as well as Revenue before the Tribunal. Vide order dated 14-11-2005, the Tribunal set aside the order of the CIT(A) with the following directions :

“Besides this, various statements of concerned persons were relied to make the addition question. It is also a fact that there is contradiction indifferent statements and affidavits by Sivka ran Goel before the different authorities. It is undisputed that the order of the Collector of Customs Department, is sub-judice before the Custom Tribunal and the issue in custom matter is found that this Income Tax matter. We also find that foreign party, the proprietor of importer had stated in his affidavit that goods imported were of good quality and were as per documents mentioned. The contents of this affidavit should not be rejected without providing due opportunity in totality and as per law. Similarly, there is also contradiction in the statement of other person mentioned above, whose statement has been relied by the Revenue for making the addition in question. It is undisputed that Sales Tax assessment of all three concerns of Shivkarn Goel had been accepted by the Department. We are of the view that without being prejudice to the above, the Assessing Officer is supposed to pass the order in set aside proceedings in the light of direction of the CIT(A) and as per law. In the facts and circumstances, we are of the view that this matter needs deep prove and we set aside the order of the CIT(A). Accordingly, we restore this matter to the file of the Assessing Officer with the direction to decide the same in the light of the above discussion and as per law after providing due opportunity of hearing to the assessee’.

6. In the present round of proceedings, the AO issued notices u/s.143(2) and 142(1) on the last known address of the assessee which were not served. On inquiry made by the AO, it transpired that the assessee had left the premises long back. Thereafter, notice was issued on the Authorised Representative of the assessee, M/s. M.L. Bhuwani & Co., C.As. The A.R. of the assessee, vide letter dated 03-12-2007 submitted that the matter was 18 years old and the assessee had closed its business activities in the year 1989. It was also stated that the Hon’ble Bombay High Court has appointed a Court Receiver in this case who has  taken over the properties of the assessee company. The AO also sought information from the Customs Deptt. regarding the status of the appeal pending before the Customs Appellate Tribunal in the case of Shri Vijaykumar R. Bhuwania, proprietor of M/s. Siddharth Impex. The ACIT, Customs, vide his letter dated 06-07-2007 furnished a copy of the order dated 24-10-2005 passed by the Customs Appellate Tribunal. On perusal of the said order, it was found that Shri Vijaykumar R. Bhuwania has been declared as an insolvent and the appeal was treated as abated in terms of Rule 22 of CESTAT (Procedure) Rules, 1982. As no further material was available with the AO, relying on his earlier view, he made the addition of Rs. 2.83 crores (bogus purchases of Shri Shivkaran Goel Rs. 3.48 crores minus set off of actual cost of lead Rs. 65.66 lakhs). No relief was allowed in the first appeal.

7. We have heard the rival submissions at length and perused the relevant material on record. From the narration of the above facts, it is amply borne out that the assessee company issued bills to M/s.Siddhath Imp ex, a proprietorship concern of Shri Vijaykumar R. Bhuwnia, who happens to be brother of Shri Rajiv Bhuwania, director of the assessee company. These bills were issued towards flanges liners allegedly containing 55% tin and 45% lead. The reason for issuing such bills to M/s. Siddharth Imp ex was to facilitate Shri Vijaykumar R. Bhuwani, proprietor of the said concern, to obtain duty draw back from Customs Dept., which was available on such flanged liners. Out of 26 consignments exported by M/s. Siddharth Imp ex, one consignment was intercepted. It transpired that the flanged liners exported had metal content of around 98% lead as against its claim of 55% tin and 45% lead. On that basis, the amount of duty draw back of Rs. 2.27 crores paid to M/s. Siddharth Impex in respect of all the shipping bills, was held by the Customs Deptt. to be refundable by M/s. Siddharth Impex. Eventually, when the matter reached the Customs Appellate Tribunal, Shri Vijaykumar R. Bhuwania, proprietor of M/s. Siddharth, had become insolvent and the appeal was treated as abated. The ld. counsel for the assessee has contended that no addition was called for on the ground that the sales-tax assessment of the assessee company was finalised accepting the amount of sales declared as correct. He further contended that the sales-tax assessment of Shri ShivkaranGoel was also framed by accepting the figure of sales shown by him as correct. Merely on the basis of the proceedings by the Customs Deptt., which eventually did not prove the fact of concealment by M/s. Siddharth Impex, the ld. AR contended that the assessee’s sale transactions and the resultant purchase transactions could not be disputed. He further submitted that even if some doubt was to be raised in respect of the purchases made by the assessee, the same should have been confined only to 26th transaction of export by M/s. Siddharth Imp ex, which was intercepted and found to be not correct. As against the remaining 25 transactions, the ld. AR claimed that there was no evidence against M/s Siddharth Imp ex and in turn the assessee company. He submitted that for the remaining 25 transactions, there was no possibility of any addition. In the opposition, the ld. DR strongly relied on the impugned order.

8 We are not convinced with the submissions on behalf of the assessee. It is obvious that M/s. Siddharth Imp ex was proprietorship concern of Shri Vijaykumar R. Bhuwania, who is brother of Shri Rajiv Bhuwania, the director of the assessee company. His only purchases were from the assessee company, which were exported by him for obtaining duty draw back in a fraudulent manner. Once his exports of flanged liners were found to be not containing 55% tin and 45% lead, the natural conclusion comes that the assessee company did not supply the goods described in the bills. Now, let us see the state of affairs of the assessee company. In order to show the sales of flanged liners containing 55% tin and 45% lead for facilitating the fraudulent claim of M/s. Siddharth Impex i.e. the brother of one of the directors, the assessee company showed fictitious purchases from three concerns of Shri Shivkaran Goel of flanged liners allegedly containing the required percentage of lead and tin. When Shri Shivkaran Goel, the proprietor of these three concerns, who alleged supplied raw material to the assessee company, was called upon by the AO on 04-03-1997, he confirmed the fact of having given bogus hawala bills to the assessee company. The same was confirmed by him by way of affidavit also. The entire modus operandi was also explained elaborating that he had charged 2% commission and 4% sales-tax in lieu of issuance of bogus bills. The matter does not end here itself. Shri S.N. Sharma, the other main director of the assessee company, was interrogated by the Customs authorities. He stated that the tin and tin scrap shown in the delivery challans seized by the Customs Deptt. were not actually received in the factory although the entries of tin were made in Raw material register and Production register maintained by the assessee company for Central Excise and Customs authorities. His submission was not confined only to the supply made by the assessee company against which Sh. Vijaykumar issued 26th bill, whose consignment was intercepted. It was the submission for all the supplies made by the assessee company, which resulted in exporting all the 26 consignments by Sh. Vijaykumar. Sh. Sharma also admitted that these challans were got prepared by Shri Rajiv Bhuwania, the other director of the assessee company. These facts indicate that there is nothing to believe the assessee’s theory of having made genuine purchase and sold flanged liners of the requisite specification which were, in turn, exported by the proprietorship concern of the brother of one of the directors of the assessee company. Not only the external but the internal evidence also points towards the connivance amongst the assessee company, M/s. Siddharth Impex and concerns of Shri Shivkaran Goel. The ultimate object was to defraud the Government by making false claim of duty draw back by Shri Vijaykumar R. Bhuwania. The assessee and Shri Shivkarn Goel became the instruments of Shri Vijaykumar R. Bhuwania in giving a logical conclusion to this deceptive practice. Once it was proved that Shri Vijauykumar R. Bhuwania had not exported the flanged liners with 55% tin, the needle of suspicion came towards the assessee company which was the sole supplier to M/s. Siddharth Impex. On investigation of the assessee’s purchases, it was noticed that the same were from Shri Shivkaran Goel who admitted before the Customs authorities as well as AO that he had not supplied any goods to the assessee, with which flanged liners with 55% tin could be manufactured. He accepted to have received commission @ 2% plus 4% sales-tax from the assessee in lieu of supplying the bogus bills. These facts indicate that the assessee had in fact arranged for the bogus bills from Shri Shivkaran Goel to the tune of Rs.3.48 crores so as to help Shri Vijaykumar R. Bhuwania in making false claim of duty draw back worth crores of rupees. Thus, such amount of purchase cannot be allowed deduction. The mere fact that the sales-tax assessment in the case of assessee as well as Shri Shivkaran Goel had been made accepting the sales as such, do not bring any change to the correct factual position prevailing in the case. In fact, the Sales- tax Dept. could have no grouse against the artificial sales reflected at a higher figure resulting into more revenue than rightly due.

9 We, therefore, hold that the AO was justified in treating the entire purchases of Rs. 3.45 lakhs from Shri Shivkaran Goel as bogus and thereafter allowing deduction of Rs. 65.66 lakhs towards the purchase   of lead by the assessee from the open market. We, therefore, uphold the impugned order.

10.  In the result, the appeal is dismissed.

Order pronounced on the 8th day of June, 2011.

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