ORDER
1. This appeal is preferred by the Revenue in respect of the asst. yr. 1990-91
against the order of the GIT(A).
2. The facts of the case are that the respondent is a private limited company engaged in the business of manufacturing iron ingots from scrap. Detailed records are maintained for purchase of raw material and production of finished goods as required under Central Excise Act. The daily stock registers in respect of purchase of raw materials and production of finished goods are also verified regularly by the Central excise authorities as required under the relevant statutes. The assessee had also furnished weekly, fortnightly and quarterly returns before the Central excise authorities in respect of raw materials, production, etc. In the asst. yr. 1989-90, purchases made from 23 parties were not accepted by the AO, on the ground that these were not produced before the AO for verification. The additions made were deleted by the CIT(A) and the order of the CIT(A) was also upheld by the Tribunal, Guwahati Bench, Guwahati. In the current year also an addition of Rs. 1,77,36,885 has been made by the AO disallowing the purchases from 17 parties out of the 23 parties involved in the last year. The addition by the AO has been made on the basis of his findings and decisions in the asst. yr. 1989-90. The sales as disclosed by the assessee has been accepted and no addition has been made in this respect. In addition to the above, further addition were made in respect of contribution towards shares capital, Objection has also been raised by the Revenue for relief allowed by the CIT(A) in respect of calculation of tax under Section 115J and calculation of depreciation.
3. Ground Nos. 1 and 2 relate to addition made in respect of purchase of raw-material. Mr. D.K. Biswas, the learned Departmental Representative, argued that in the assessment made for the preceding assessment year viz., the asst. yr. 1989-90, the purchases made from the 17 parties were not allowed deduction for the detailed reasons recorded in the assessment order. He further argued that the assessee was specifically required to furnish the detailed addresses of the parties and in order to verify the scrap purchases, letters were sent by registered post with A/D to the addresses furnished by the assessee. Almost all letters came back unserved with the postal remark “not known”. Local enquiries were made but was of no use. The assessee was required to establish the genuineness of the purchases of scrap claimed to have been made from such parties by producing the concerned parties. The assessee failed to produce any of the parties within the time allowed. He then submitted that the assessee’s submission vide its letter dt. 25th Feb., 1992, in course of the assessment proceedings for the asst. yr. 1989-90 was not accepted for the reasons received in the relevant assessment order and the expenditure claimed on the scrap purchases from the concerned parties were not allowed as a deduction. He also submitted that in spite of sufficient opportunities allowed the assessee had failed to produce the supplier or furnish their current address.
4. Mr. Sampat Kr. Jain, the learned authorised representative, vehemently argued against the addition made. He submitted that in accordance with the letter, dt. 25th Feb., 1992, to the AO the following points were raised before the AO :
(i) That the addresses of the scrap suppliers given were the addresses found in
the bills given by these parties at the time of purchase of iron scraps;
(ii) That all the payments to these parties have been made either by a/c payee cheque or by bank drafts.
(iii) That these parties had supplied M.S. scrap at the assessee’s factory site and payments collected from the assessee’s office only as and when made to them. The assessee never visited suppliers’ shop/godowns. He also submitted that most of the scrap dealers had their stock placed in the outskirt area of the city of Guwahati and due to disturbed political condition and extortion threats by certain organisations, these parties had shifted out from Guwahati city by closing their business. It was further pointed out that the assessee had maintained complete record and registers as per Central Excise Rule, 1944, regarding day-to-day purchases, consumption of raw materials and production and sales of finished products. These registers were periodically checked by the Central excise authorities and also no discrepancy therein has been found. It was, therefore, requested that no adverse inference should be taken for the non-availability of the parties at a particular point of time which was beyond the control of the assessee-company. It was further pointed out to the AO that since all the payments were made through the bank account, the genuineness of these transactions for purchases are verifiable from the bank’s records.
Mr. Sampat Kr. Jain, the learned authorised representative, appearing on behalf of the assessee-company submitted that it was not physically possible for the assessee-company to manufacture M.S. ingots without purchasing M.S. scrap. The AO has not disputed the fact that the assessee-company had maintained quantitative record as per Central Excise Rules and therefore his action in disbelieving the purchase simply for non-production of those parties was not justified.
He further argued that from a plain reading of the assessment order for asst. yr. 1990-91, it will be very much clear and apparent that the addition by the AO has been made on the basis of his decision for asst. yr. 1989-90 against the principles of res judicata submitted that the decision of the AO in asst. yr. 1989-90 stand reversed by the CIT(A) and the order of the CIT(A) has been upheld by the Tribunal, Guwahati Bench, Guwahati. He further, intimated that the Revenue has also accepted the decision of the Tribunal,. Guwahati Bench, Guwahati and has not preferred any appeal before the High Court on this point. In view of this the issue is finally settled in favour of the assessee.
5. We have considered the rival submissions made before us. We find that accounts of the assessee are audited and in the audit report under Section 44AB of the IT Act, quantitative details of purchase of raw materials and sales of finished products are duly certified by the auditor. The AO has admitted the sales of finished products but declined to accept the purchases for the same is unreasonable. Unless the purchase of scrap has been made, it would not be possible for the assessee to produce goods. It has been held by the Hon’ble Guwahati High Court in Kamal Kr. Saharia v. CIT (1994) 1 GLR 291 as follows :
“It is a settled law that the tax authorities having relied on one part of a transaction cannot reject the other part of the same transaction”.
6. Moreover, we find that the assessee had maintained daily stock register in respect of purchase of raw-material and production of finished goods as required under Central Excise Act and Rules. As per rules these are periodically checked by the Central excise authorities. The assessee had also furnished weekly, fortnightly and quarterly returns before the Central excise authorities. The AO has failed to point out any defect in such register. In such situation the factum of purchase of raw materials cannot be disputed.
7. We find that all the payment against purchase from these parties were made by account payee cheques/bank draft. If the AO had any doubt regarding the genuineness of payments he could have easily verified the same from the payee’s bank account. He has concluded that the payments are not genuine only on the basis that suppliers were not produced before him, The assessee does not have the legal power to enforce the attendance. As such he cannot be called upon to do something which is beyond his power. Any adverse inference drawn on the basis of such failure of the assessee, cannot be sustained.
8. The learned CIT(A) at page No. 2 of his order has given detailed finding in respect of these 17 parties and genuineness of the transactions. The learned Departmental Representative has failed to produce before us any material to controvert the above findings of the CIT(A). In view of the findings, the purchase transactions cannot be held as not genuine.
9. Further, we find that the AO has made the additions on the basis of his finding and decisions in the asst. yr. 1989-90. In appeal before the CIT(A) the decision of the AO in the asst. yr. 1989-90 in respect of purchase of raw materials, holding them as not genuine was reversed. The learned CIT(A) while passing the order had duly heard the assessee as well as the AO. The decision of the CIT(A) was upheld by the Tribunal, Guwahati Bench, Guwahati passed in ITA No. 132(Gau) of 1994, dt. 28th Feb., 2001. The IT Department has also accepted the decision and has not filed any appeal on this point before the Hon’ble Guwahati High Court. The facts of the case are similar in this year also. As such the issue is already settled in favour of the assessee.
10. Considering the entirety of the facts and circumstances of the case we find that the transactions of purchase of raw-materials are genuine and acceptable.
11. Taking into consideration of all these facts and factors and following the order of the Tribunal in the earlier year in the case of the assessee, we have no hesitation in confirming the action of the learned CIT(A) in deleting the disallowances. We do so.
12. Ground Nos. 3, 4 and 5 are directed against deleting of addition of Rs. 1 lakh in respect of contribution towards share capital by Mr. Mukesh Kr. Goel The learned Departmental Representative argued against the deletion made and relied upon the observations made in the assessment order. He also argued that the addition under Section 68 of the Act can always be made in respect of share capital also.
13. Mr. Sampat Kr. Jain, F.C.A., authorised representative, relied upon his submission at page Nos. 41 to 44 of his paper book. He vehemently argued that no addition can be made in respect of contribution towards share capital. He placed reliance on the following judgments :
(a) CIT v. Stellar Investments Ltd.;
(b) CIT v. Steller Investment Ltd. (1991) 192 ITR 287 (Del);
(c) CIT v. Sophia Finance Ltd. (1994) 205 ITR 90 (Del) (FB);
(d) Saraogi Credit Corporation v. CIT (1976) 103 ITR 344 (Pat);
(e) Tolaram Daga v. CIT (1966) 59 ITR 635 (Gau); and
(f) Pibco India (P) Ltd. v. Dy. CIT ITA No. 219 (Gau) of 1994 order dt. 22nd Aug., 2001.
14. We have carefully considered the facts of the case and the submission of the learned representatives of the parties. We have also carefully perused the order of the AO. The Hon’ble Supreme Court in CIT v. Steller Investment Ltd. (supra) has confirmed the order of the Hon’ble Delhi High Court in CIT v. Steller Investment Ltd. (supra). The Hon’ble High Court has held as follows :
“It is evident that even if it is assumed that the subscribers to the increased share-capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee”.
Since in this case also the amount was contributed towards share capital, following the Supreme Court decision we hold that the same cannot be treated as income of the assessee. Accordingly, we uphold the order of the CIT(A).
15. Ground Nos. 6, 7 and 8 are directed against deletion of addition of Rs. 5 lakhs in respect of money received as contribution towards share capital. The learned Departmental Representative argued against the deletion and relied upon the observations made in the assessment order. He also argued the addition under Section 68 can always be made in respect of share capital.
Mr. Sampat Kr. Jain, the learned authorised representative of the assessee, vehemently supported the order of the CIT(A). He submitted that the assessee received share application money of Rs. 5,00,000 from M/s Kabia Iron & Steel Co. (P) Ltd. M/s Kabia Iron & Steel Co. (P) Ltd. was an income-tax assessee and assessed under GIR No. K-5/Ward-1/ITO/Hisar. The investment in shares was duly reflected in the balance sheet of M/s Kabia Iron & Steel Co. (p) Ltd. as on 31st March, 1990. He also submitted that the AO has observed as follows :
“The assessee furnished a confirmation letter from the concerned company in support of the shares application money as per which the company was assessed by the ITO, Ward-1/Hisar (Haryana) Vide GIR No. K-5.” “The concerned company also filed a copy of its balance-sheet as on 31st March, 1990. and a copy of a T.A. bill in respect of Sri R.P. Singh before the AO at Hisar, which were forwarded to this office”.
“As per the balance sheet as on 31st March, 1990, the only source of company fund was share application money amounting to Rs. 24,00,000 shown as
received during the previous year ended 31st March, 1990.”
He further submitted that M/s Kabia Iron & Steel Co. Pvt. Ltd. had confirmed
the transaction vide their reply to the AO Hisar.
The learned authorised representative also argued that in view of the Supreme Court judgment in CIT v. Steller Investment (P) Ltd. (supra), no addition can be made in respect of share capital. He also relied upon various judicial pronouncements as submitted while arguing for ground Nos. 3,4 and 5.
We have carefully considered the facts of the case and the submission of the learned representatives of the parties. We have also carefully perused the order of the AO. We find that M/s Kabia Iron & Steel Co. (P) Ltd. is an income-tax assessee under GIR No. K-5, Ward-1, ITO (Hisar). The company had also confirmed the transaction while appearing before ITO, Hisar. The audited balance sheet of the company was also furnished to the AO which reflected the investment. The company had also confirmed the fact of contribution to share capital being made in cash. The T.A. bill of concerned employee was also produced before the AO. The AO has disbelieved the evidences produced simply on the basis of conjectures and surmises. We find that the assessee has proved the identity of the party and genuineness of transactions. The creditworthiness of the company has also been proved by way of audited balance sheet of the company. Thereafter, the Revenue could not bring any sufficient material on record to disprove the same. As such we hold that when the identity of the company, genuineness of transactions and creditworthiness of the assessee is established the addition under Section 68 was rightly deleted by the CIT(A).
Moreover, in view of the judgment of the Hon’ble Supreme Court in CIT v. Steller Investment (P) Ltd. (supra), no addition can be made in respect of contribution towards share capital. This view has been consistently upheld by this Tribunal as in the case of Pibco India (P) Ltd. v. Dy. CIT (Asst), S.R.-l, Guwahati, in ITA No. 219 (Gau) of 1994, order, dt. 22nd Aug., 2001.
In the view of the above facts and various judicial pronouncement we have no hesitation in upholding the order of the CIT(A) on this point also.
16. Ground No. 9 is directed against the direction of the CIT(A) to take W.D.V. as computed on the basis of an appeal effect order for the asst. yr. 1989-90. The learned Departmental Representative supported the order of the AO and the learned authorised representative relied upon the order of the CIT(A).
We find nothing wrong in the direction of the CIT(A) and accordingly the same is upheld.
17. Ground Nos. 10 and 11 are directed against the direction of the CIT(A) for computation of book profit under Section 115J of the IT Act.
18. We find that only direction given by the CIT(A) was to look into the objection and make proper adjustments as per Section 115J. We find nothing wrong in the directions and there is no scope of grievance by the Revenue on such directions. As such the order of the CIT(A) is upheld on this point also.
19. In the cross-objection in ground No. 1, the point has been raised that the learned CIT(A) while deleting the addition of Rs. 1,77,36,085 made by the AO on account of alleged ingenuine purchase erred in not considering the argument and submission of the assessee’s counsel, that the purchases could
not be disbelieved when the opening and closing, stock have been accepted by
the AO. This cross-objection has already been disposed of in favour of the
assessee.
Cross-objection Nos. 2 to 7 are in support of the order of the CIT(A). TheCIT(A)’s order had already been upheld as above.
20. In conclusion, the appeal filed by the Revenue is dismissed and the cross-objection by the assessee is allowed.