Commissioner of Income Tax vs Metro Shoes Ltd.

R.S. Mohite, J.—The common questions of law as raised in para 5 of all these appeals are the same and are as under:

(i) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was legally justified in relying upon its decision dated 19-12-2001 in ITA Nos. 1776, 1753 to 1759, 4957, 2543, 3101 to 3107 and 3645/Mum/1999 in the case of M/s Metro Shoes Ltd. in assessment years 1987-88 to 1994-95 and 1996-97 without appreciating the fact that the said decision of the learned Tribunal has not been accepted and further appeal against the same u/s 260A of the Income Tax Act, 1961 is being filed before the Hon''ble High Court ?

(ii) Whether on the facts and circumstances of the case and in law, the learned Tribunal was legally justified in holding that the statement recorded initially is not enough evidence for making addition, ignoring its own decision in the case of (1996) 59 ITD 29 , wherein it was held that subsequent retraction by the deponent has no evidentiary value ?

(iii) Whether on the facts and circumstances of the case and in law, the learned Tribunal was legally justified in holding that the revenue could not show that the assessee did manipulate the accounts of Jaihind and Jaibharat Leather Co-op. Societies for its own benefit ?

(iv) Whether on the facts and circumstances of the case and in law, the learned Tribunal was legally justified in holding that Jaihind and Jaibharat Leather Co-op. Societies incurred heavy expenditure apart from direct costs and such expenditure was met from out of the amounts charged over and above direct cost by these societies from the assessee ?

(v) Whether on the facts and circumstances of the case and in law, the learned Tribunal was legally justified in placing reliance upon the audited accounts of Jaihind Society without appreciating the fact that this society was not found to be genuine by the Mumbai Police and other authorities of the State Government and had been deregistered by the State Government ?

(vi) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was legally justified in holding that the facts of the assessee''s case in assessment year 1986-87 were different from the facts in the case of M/s Metro Shoes Ltd. in assessment year 1995-96 and were actually Comparable to the facts in the case of M/s Dawood & Co., whereas the assessee had itself admitted before the learned Commissioner (Appeals) that the facts in its case were similar to assessment year 1995-96 in the case of M/s Metro Shoes Ltd.?

(vii) Whether on the facts and in the circumstances of the case and in law, the learned Tribunal was legally justified in directing the assessing officer to adopt the gross profit @ 25 per cent in respect of retail sales, whereas there was inflation of 60 per cent in the cost of purchases shown in the books of the assessee ?

(viii) Whether on the facts and circumstances of the case and in law, the learned Tribunal was legally justified in holding that consideration of non-payment of sales-tax during assessment year 1986-87 was a figment of imagination ?

The brief facts from which these appeals arise are as follows:

(a) The Economic Offences Wing of Mumbai Police conducted an investigation into the conduct of several shoe traders including the present assessee M/s Metro Shoes Ltd. The investigation was conducted on the allegations that the assessee and other shoe traders had floated numerous co-operative societies of cobblers which included a large number of bogus or non-existent members with the intention of obtaining from the Government various facilities including soft loans at low interest rates as contemplated by various Government schemes meant to benefit individual and poor cobblers. In the course of these investigations, it was suspected that the assessee and other shoe traders had inflated their rate of purchases from these co-operative societies with a view to reduce profits chargeable to Income Tax. This was done either by obtaining bogus purchase bills or over invoicing the purchase amounts of the cooperative shoe manufacturing co-operative societies. The present assessee was suspected to have floated and controlled the operations of three such co-operative societies by name M/s Jaihind Sahakari Charmoutpadak Sangh Ltd (JHSCL), M/s Jai Bharat Leather Producers Co-operative Society Ltd. (JBLPCSL) and Vishal Leather Industrial Cooperative Society (VLICS). On enquiries made into the affairs of these societies, the Income Tax authorities concluded that cheap loans were obtained in the names of fictitious members from various financial institutions and other Government agencies at normal rate of interest. That the loans so obtained were withdrawn by bearer cheques and were utilised for financing their purchases by Metro Shoes and M/s Metro Shoes Ltd., the two main concerns of the ''Metro Group''. That the co-operative societies were also used by over invoicing the purchases made by these two concerns and for this, the societies were charging a commission at 2 percent to 3 per cent and the balance was being refunded in cash to Mr. Rafique Malik who was one of the partners of Metro Shoes.

(b) Another aspect which came to notice of the IT department was that the purchases from the co-operative societies were exempted from sales-tax upto 31-3-1994 and thereafter from May, 1994, these cooperative societies were required to pay 4 per cent sales-tax on their sales. The records of these societies indicated that they were manufacturing shoes by purchasing raw material and also making payments of labour charges. But on enquiries made, it was found that no such manufacturing activities were done by these societies. It was also found that the loans obtained in the names of cobblers were withdrawn from their bank account by bearer cheques and ultimately routed to the persons who managed the Metro Group.

(c) On such investigation the office bearers of the 3 co-operative societies as mentioned hereinabove were examined u/s 131 of the Income Tax Act as well as by the assessing officer and they were also examined by the Excise department.

(d) Insofar as present assessee is concerned, on the basis of statements recorded as aforesaid, the assessing officer concluded that they had inflated their purchase costs to the extent of 60 per cent and it was the inflated amount that was reflected in the books of account maintained by the assessee. The assessing officer therefore, issued a show-cause notice to the assessees. The reply as filed in response to the show-cause notice was rejected and the purchase cost was reduced by 60 per cent from the cost price as recorded in the books of account of the assessees. The first assessment made by the assessing officer was for the assessment year 1995-96 and on the aforesaid basis, amount of Rs. 2,36,20,278 was added to the income of the M/s Metro Shoes Ltd. and amount of Rs. 2,75,26,480 was added to the income of M/s Metro Shoes.

(e) Aggrieved by these additions the assessees filed an appeal before the Commissioner (Appeals) and these appeals were decided by the Commissioner (Appeals) by his order dated 18-1-1999. By his order the Commissioner (Appeals) came to the conclusion that there was no evidence to indicate that the inflation in the purchase price by the Metro Group from the co-operative societies was adopted at the uniform rates of 60 per cent. He discussed the statements of various witnesses and concluded that there were various contradictions in such statements. He held that the books of account maintained by the assessee did not reflect true and correct profits on the business of the assessees. He held that extent of inflation of purchase price could not be determined with exactitude as the amount of inflation varied from pair to pair depending on the design, quality and price of the footwear. He noted that in the case of Regal shoes, the gross profit rate was 48 per cent. That the Metro Group was also in the same business and functioning from the same locality and in such circumstances, Commissioner (Appeals) applied GP rate of 48 per cent on the sales proportionate to the purchases made from the various co-operative societies. After detailed working, the Commissioner (Appeals) sustained an addition of Rs. 42,34,505 in the case of M/s Metro Shoes and amount of Rs. 44,71,900 in the case of M/s Metro Shoes Ltd.

(f) Against the orders passed by the Commissioner (Appeals), cross-appeals were filed before the Tribunal and the 4 appeals were disposed of by a detailed common judgment and order by which the Tribunal reduced the GP rate in respect of the assessees from 48 per cent to 43.57 per cent The two appeals filed by the firm and company belonging to the Metro Group were therefore, allowed to the aforesaid extent and the 2 cross-appeals filed by revenue were dismissed.

(g) The record indicates that aggrieved by this decision of Tribunal, the Income Tax department filed IT Appeal Nos. 486/2002 and 487/2002. The record indicates that these appeals however, came to be dismissed as long back as on 7-11-2000 for non-removal of office objections and for more than 7 years no attempt has been made to restore these appeals.

(h) After the assessment of the Metro Group for the assessment year 1995-96, the IT department reopened the assessments of M/s Metro Shoes Ltd. and M/s Metro Shoes and a partner Rafique Malik for a block period from 1987 to 1997. These assessments were also carried upto the stage of Tribunal and Tribunal relying upon its earlier decision passed for the assessment year 1995-96 gave the same findings by fixing the GP of a Metro Group at Rs. 43.57 per cent. They observed that from the assessment years 1988-89 to 1994-95 the GP rates of the assessee were 42.10 per cent, 41.79 per cent, 41.35 per cent, 41.39 per cent, 40.87 per cent, 42.35 per cent 41.95 per cent and 41.53 per cent. That these GP rates were in conformity with the rate of 43.57 per cent determined in the Tribunal''s order for the year 1995-96. The present appeals have been filed by revenue against the findings of Tribunal for the block assessment period.

(i) We find that in this case the main appeals i.e., 486 of 2002 and 487 of 2002 against the original reasoned order fixing the gross profit at 43.57'' per cent, have been dismissed over 7 years ago. No efforts have been made by the Income Tax department to set aside the order of dismissal. Even otherwise, on perusal of the impugned judgment and order passed by Tribunal, we find that the books of account maintained by the assessee were consistently and at every stage held to be unreliable. In the circumstances, the method which has been consistently followed by the appellate authorities and the Tribunal was to find out as to what could be said to be a proper and fair GP in similarly placed shoes industries. As far as Metro Group is concerned, the finding is that the gross profit shown by them is a highest and is consistent with the gross profit disclosed for a number of years prior to the year when the irregularities came.

We find that question as to what should be the gross profit for the purposes of taxing such income is purely a question of fact. There is no substantial question of law involved in the questions as raised, and the said questions turn purely on questions of fact. In the circumstances, in our opinion, this is not a fit case for entertaining the appeals. Appeals stand dismissed.