THE ACIT, KOCHI vs M/S.PRINCE ROLLER FLOUR MILLS P. LTD, PALAKKAD

Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

For Appellant: Shri C.B.M. Warrier, FCA, Smt. A.S. Bindhu, Sr. DR

Hearing: 14/11/2019Pronounced: 20/12/2019

PerCHANDRA POOJARI, AM:

These cross appeals filed by the assessee and the revenue are directed against the

common order of the CIT(A)-III, Kochi dated 17/10/2018 and pertain to

assessment years 2009-10 to 2014-15.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

The assessee has raised the following common grounds of appeals:

1) The order of the assessing authority as well as the first appellate authority in so far as it is prejudicial to the appellant, is opposed to law, facts and circumstances of the case.

2) The Assessing Officer and the Commissioner of Income Tax (Appeals) has gone wrong in rejecting the transactions of sale of wheat to Sri. P.K.Kunjumoideen assuming that, wheat products are sold to Sri. P.K.Kunjumoideen.

3) The Assessing Officer has not considered the statement of retraction given by Sri. P.K.Kunjumoideen and also not accepted that wheat is sold by the appellant Company.

4) The Assessing Officer has gone wrong in omitting to consider the facts that Sri. P.K.Kunjumoideen is engaged in purchase and sale of wheat and purchases are made by him from Government Agencies through tenders and purchases from others.

5) The Commissioner of Income Tax (Appeals) has gone wrong in sustaining the addition to the extent of 50% after finding that wheat is sold by the appellant company to Sri. P.K.Kunjumoideen.

6) For the above grounds and evidences produced at the time of hearing, the appellant may request the Hon'ble Income Tax Appellate Tribunal to cancel the assessment order.

The Revenue has raised the following common grounds of appeals:

1) The order of the CIT(A) is opposed to law, weight of evidence and facts of the case.

2) The CIT(A) erred in restricting the addition made by the Assessing Officer, on the issue of suppressed sales to 50%, without any reasoning, whereas the addition made by the Assessing Officer was arrived at scientifically on the basis of production data of the assessee’s recorded transactions.

3) The CIT(A) has not pointed out any specific deficiencies in the methodology employed by the Assessing Officer in the assessment order for restricting the addition to 50%.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

3.1 The crux of the above grounds is that the assessee was aggrieved by the

sustenance of addition at 50% made by the Assessing Officer and the Department

was aggrieved by the granting of relief of 50% to the assessee on the estimated

profit from estimated undisclosed turnover of wheat products.

We shall consider the facts as narrated in assessee’s appeal in ITA

No.37/Coch/2019. A search under section 132 of the IT ACT was conducted in the

residential and commercial premises of the assessee group on 5/9/2013. During the

search operations, incriminating materials related to suppression in Sales and

Incomes of the assessee group were unearthed in the various premises of the

assessee group. Statements given by Shri. T.K. Abdul Karim, Shri. Anub Sha and

Shri. Ahmed Faizal Sha and their employees confirmed the practices of the assessee

group in doing so. The assessee filed return of income in response to notice u/s

153A dated 30.07.2014 on 04/12/2014. The case was selected for scrutiny vide

notice u/s.143(2) dated 01.07.2015.

4.1 From the statements given by the Directors and the Employees, it was seen

that the assessee group in the Wheat flour manufacturing front, resorted to

different methodologies to generate unaccounted sales and income from the trade.

The assessee had used Shri. P.K. Kunjumoideen (PAN- AHDPK83Q1E) as a front.

Shri. P.K. Kunjumoideen was shown as the proprietor of M/s. Teekay Rice Mill with

premises at Pallimukku, Thathamangalam, Palakkad. The property at the said

address was owned by Shri. T.K. Abdul Karim himself and many of his other

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

concerns had offices in the same address itself. At the time of the search, Shri. P.K.

Kunjumoideen was not available in the business address of his. He was found to be

residing at Chengamanad near Aluva running a Grocery shop there. He had been

living and seeking a living out of the business for the past 20 years at

Chengamanad. The assessee had used the business address of M/s. Teekay Rice

Mill, to show that a portion of its wheat procured is sold to the said concern, which

in turn has sold the same in the open market. In actuality the wheat shown as sold

to M/s. Teekay Rice Mill was milled in the assessee's factory itself and was sold as

Wheat flour in its various forms (Atta, Sooji. Maida and Bran). The assessee used to

bill the Wheat at 1% markup on its funding cost to M/s. Teekay Rice Mill. In Reality,

the assessee used to mill the wheat and sell it at a higher profit in the market. The

difference is the additional income to the assessee from this circumrouting activity.

4.2 Shri. P.K. Kunjumoideen was questioned about his business activities on the

day of the search to which he has described his Grocery business at Chengamanad

as his source of income. This individual was not aware of the trading activities in his

name at M/s. Teekay Rice Mill. He said that Shri. Abdul Kareem and Shri. Ameer Ali

are his cousin brothers living at Palakkad and are owning the Prince Group of

concerns and added that they are running some business in his names, for which he

has given various signed forms and cheques to them and he is not aware of exactly

what kind of business is run in his name. When questioned about his bank account,

he could recall only his bank account at the local bank at Aluva and not that of the

one at Palakkad. Eventually when reminded of the bank account in his name at 4

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Palakkad, he said that Shri. Abdul Kareem had obtained signatures from him on

several forms and cheques and he himself had not operated any transactions in this

account.

4.3 Shri. P.K. Kunjumoideen justified the necessity to lend his name for the

business requirements of Prince Group as out of blood relationship and also the fact

that family members of Prince Group used to pay to his bank account at Aluva

amounts periodically in reciprocation. He said the amounts are required to meet his

living expenses as also the medical expenses of his ailing mother. He said Prince

Group has taken a PAN in his name and is filing the Return of Income at Palakkad in

his name. From the enquiries with him, it was evident that Shri. P.K. Kunjumoideen

is just a name lender to this concern and in actuality was not at all involved in Us

transactions. The statements of other officials of Prince Roller Flour Mills ratify and

strengthen his version.

4.4 Shri. Premil Deep, Manager of M/s. Prince Roller Hour Mills P Ltd. Kinassery,

(PRFM) Palakkad had also deposed on the day of the search that the accounts for

the concern of M/s. Teekay Rice Mill were actually controlled from the business

premises of M/s Prince Roller Flour Mills P Ltd. Kinassery, Palakkad and the accounts

were maintained by one Subramaniyam. Shri Premil in his deposition had stated

that actually no raw wheat was passed on to the firm M/s. Teekay Rice Mill and the wheat billed in the name of M;s Teekay Rice Mill was milled at M/s Prince Roller

Flour Mills itself and is sold in the market as Wheat flour in the form of Atta. Maida,

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Sooji etc. The Billing to M/s. Teekay Rice Mill is seen done at the instructions of

Shri. Abdul Kareem. The sale proceeds of M/s. Teekay Rice Mill was remitted into its

bank account by the Roller Flour Mill staff only from moneys given to them by Shri.

Abdul Kareem. The amount payable to PRFM is then remitted from its account into

PRFM account.

4.5 A similar deposition was given by Shri. Sabarigireesan, Accountant of the

assesses. He also stated that no Raw wheat was sent to M/s. Teekay Rice Mill. He

stated that only two wheal purchases made from Food Corporation of India on

27/8/20/2 and 9/10/2012 were actually done by it. Wheat purchases shown to have

made from PRFM was only accommodative in nature. The billing was made at 1%

markup on the landing cost to PRFM. He also identified materials in CHN/11/J3-

14/EAM/A- 38 as the sales collection made on the milled flour by PRFM from these

sales and the said sums were not entered in the Tally accounts and the amounts

were given to Shri. Abdul Kareern direct.

4.6 From the above depositions it was evident that the assesses was resorting to

methods to understate its true sales revenue and incomes. There cannot be any

situation where three of the active participants of a trade will depose on the modus

operandi used by them in the same manner. Hence, there were no reasons to

disbelieve their depositions. The assessee tried to save on its actual GP on the

Wheal Quantity routed through M/s. Teekay Rice Mill and also on the VAT tax

components therein.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

4.7Sales of Wheat to M/s Teekay Rice Mill

The assesseswas found to have made the following Raw Wheat sales to M/s Teekay

Rice Mills:

FY Raw wheat sales to M/s. Teekay Rice Mill in Metric Tonnes 2007-08 - 2008-09 162,000 2009-10 7877.000 2010-11 5431.400 2011-12 2995.800 2012-13 3088.000 2013-14 2178.100

As per the finding of the search and related materials, the above quantum of Wheat

was milled in the premises of PRFM itself and was sold to the market in its normal

business channel.

Calculation of Unaccounted incomes of M/s Prince Roller Flour Mills P Ltd.

The above said quantum of Wheal was therefore milled and sold to the

markets at the normal selling price of the assessee. It becomes imperative to

calculate the quantum of different Wheat products that could be produced from the

above quantity of wheat. It was seen that the rate of yield of the wheat produce

would change according to the quality of wheat milled. Therefore, the assessee's

average rate of yield for the year was used to compute the quantity of each product

that could be produced from the above quantum of 162.000 MT of wheat stated to

be sold to M/s Teekay Rice Mill. These observations of the Assessing Officer were

for all the Assessment Years. 7

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

5.1 Details of as per the assessment order for the assessment years separately are

given below:

AY 2009-10

Table 1

Sl. No. Products Qty. Produced Production Sale Value Sale Quantity Average Selling in yield % Rate per tonne 1. Maida 6081.548 61.72% 101483622.70 6057.883 16752.32 2. Sooji 828.493 8.41% 14798857.49 846.653 17479.25 3. Atta 731.648 7.43% 12763754.75 751.041 16994.75 4. Bran 2042.200 20.73 18520453.00 2085.290 8881.48 98.29% Wheat 9853.130 milled

The production yield was derived in Column 4 and the average selling rate on real

time basis was worked out in Column 7. On the above basis, the sale value of wheat

products that could be produced from the circumvented sale of 162 MT the A Y was

worked out below:

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tonne 1. Maida 99,990 61.72% 16752.32 16752.32 2. Sooji 13,622 8.41% 17479.25 238096.19 3. Atta 12.029 7.43% 16994.75 204436.19 4. Bran 33,577 20.73% 8881.48 2415802.09 98.29% Wheat sold to P.K. Kunjumoideen 162.000 Sale value of wheat to P.K. Kunjumoideen 2164672.28 Profit 25112981

The assessee's unaccounted income from the above trade practice was worked out

below:

Sale Value of milled Wheat Flours (as in Table 2) Rs.21,64,672 Less: sale value of Wheat to P.K. Kunjumoideen Rs.24,15,802 Income undisclosed in the hands of the Assessee Rs. 2,51,130 [1]

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Savings on VAT on the said Rs.[4-1] = 3% [24,15,802 x 3%] Rs.64,940/- [2]

The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2008-09. Thus there was an unfair enrichment of

Rs. 3,16,070/- (1) +(2) in the hands of the assesses out of this activity.

Addition: Rs.3,16,070/-

Penalty proceedings u/s. 271(1)(c) of the Income Tax Act were initiated separately.

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs.30,93,270/- Addition (as per para 5.3] Rs. 3,16,070/- Addition as per order u/s. 143 (3) dt. 13.7.2011 Rs. 1,50,000/- Total Income Assessed Rs.35,59,340/-

Deemed income u/s. 115JB Rs.28,73,031/-

AY 2010-11

Table 1

Sl. No. Products Qty. Produced Production Sale Value Sale Quantity Average Selling in yield % Rate per tonne 1. Maida 7558.224 60.38 138827637.94 7614.544 18231.90 2. Sooji 1068.949 8.54 1991985411 1060.039 18791.62 3. Atta 920.527 7.35 15766326.52 901.821 17482.77 4. Bran 2807.850 22.43 27385048.00 2758.495 9927.53 98.70% Wheat 12517.695 milled

5.2 The production yield was derived in Column 4 and the average selling rate on

real time basis was worked out in Column 7. On the above basis, the sale value of 9

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

wheat products that could be produced from the circumvented sale of 12517.695MT

for the A Y was worked out below:

Table-2

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tone 1. Maida 4756.158 60.38 18231.90 86713810.82 2. Sooji 672.657 8.54 18791.62 12640311.45 3. Atta 12.029 7.35 17482.77 10127055.35 4. Bran 33,577 22.433 9927.58 17540892.57 127022070.19 Wheat sold to P.K. Kunjumoideen 7877.00 Sale value of wheat to P.K. Kunjumoideen 10632611594 Profit 2069595

The assessee's unaccounted income from the above trade practice was worked out

below:

Sale Value of milled Wheat Flours (as in Table 2) Rs.12,70,22,070 Less: sale value of Wheat to P.K. Kunjumoideen Rs.10,63,26,115 Income undisclosed in the hands of the Assessee Rs. 2,06,95,955 [1]

Savings on VAT on the said Rs.12,70,22,070 [4-1] = 3% [12,70,22,070x 3%] Rs.38,10,662/- [2]

The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2009-10. Thus, there was an unfair enrichment

of Rs.2,45,06,617/- (1) + (2) in the hands of the assesses out of this activity.

Addition: Rs.2,45,06,617/-

Penalty proceedings u/s. 271(1)(c) of the Income Tax Act were initiated separately.

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs. 26,26,850/- 10

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Addition (as per para 5.3] Rs.2,45,06,617/- Total Income Assessed Rs.2,71,33,467/-

Deemed income u/s. 115JB Rs.30,70,160/-

AY 2011-12

Table 1

Sl. Products Qty. Produced Production Sale Value Sale Quantity Average Selling No. in yield % Rate per tone 1. Maida 10330.061 58.70 202034147.71 10378.160 19467.24 2. Sooji 1518.089 8.63 30303306.97 1530.759 19796.26 3. Atta 1130.821 6.43 21031695.83 1142.502 18408.45 4. Bran 4379.56 24.88 48661543.20 4441.160 10956.94 98.64% Wheat milled 5431.400

The production yield was derived in Column 4 and the average selling rate on real

time basis was worked out in Column 7. On the above basis, the sale value of wheat

products that could be produced from the circumvented sale of 5431.400 MT for the

A Y was worked out below:

Table-2

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tonne 1. Maida 3187.989 58.70 19467.24 6261351.64 2. Sooji 468.502 8.63 19796.26 9274582.38 3. Atta 348.986 6.43 1848.45 6424289.66 4. Bran 1351.588 24.88 10956.94 14809277.27 92569500.95 Wheat sold to P.K. Kunjumoideen 5431.400 Sale value of wheat to P.K. Kunjumoideen 83439379.67 Profit 914121

5.3 The assessee's unaccounted income from the above trade practice was worked

out below:

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Sale:Value of milled Wheat Flours (as in Table 2) Rs. 9,25,69,501 Less: sale value of Wheat to P.K. Kunjumoideen Rs.8,34,39,3809 Income undisclosed in the hands of the Assessee Rs. 91,40,121 [1]

Savings on VAT on the said Rs.9,25,69,501 [4-1] = 3% [9,25,69,501x3%]Rs.27,77,084/- [2]

The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2010-11. Thus, there was an unfair enrichment

of Rs.1,19,07,199/- (1) + (2) in the hands of the assesses out of this activity.

Addition: Rs.1,19,07,199/-

Penalty proceedings u/s. 271(1)(c) of the Income Tax Act were initiated separately.

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs. 3304990/- Addition (as per para 5.3] Rs.11907199/- Total Rs.15212189/- Less: Chapter VIA Deduction (80G) Rs. 1500/- Total Income Assessed Rs.15210689/-

A.Y. 2012-13

Sl. Products Qty. Produced Production Sale Value Sale Quantity Average Selling No. in yield % Rate per tone 1. Maida 14528.698 60.77 272247800.53 14423.143 18875.76 2. Sooji 1820.881 7.62 35064443.36 1817.269 19295.13 3. Atta 1261.643 5.28 23238391.53 1269.196 18300.89 4. Bran 5834.635 24.4 67499940.00 4441.160 10956.94 98.07% Wheat milled 23908.930

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

5.4 The production yield was derived in Column 4 and the average selling rate on

real time basis was worked out in Column 7. On the above basis, the sale value of

wheat products that could be produced from the circumvented sale of 2995.800 MT

for the A Y was worked out below:

Table-2

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tonne 1. Maida 1820.523 60.77% 18875.76 34363755.22 2. Sooji 228.166 7,62% 19295,13 4402492.632 3. Atta 158.091 5.28% 18300.89 2893206.001 4. Bran 731.111 24.40 11613.12 8490479.776 50149933.63 Wheat sold to P.K. Kunjumoideen 2995.800 Sale value of wheat to P.K. Kunjumoideen 37373850.04 Profit 12776083.59

The assessee's unaccounted income from the above trade practice was worked out

below:

Sale:Value of milled Wheat Flours (as in Table 2) Rs.5,01,49,933 Less:sale value of Wheat to P.K. Kunjumoideen Rs.3,73,73,850 Income undisclosed in the hands of the Assessee Rs.1,27,76,083 [1]

Savings on VAT on the said Rs.5,01,49,933/- [4-1] = 3% [5,01,49,933x3%] Rs.15,04,498/- [2] The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2011-12. Thus, there was an unfair enrichment

of Rs.1,42,80,581/- (1) + (2) in the hands of the assesses out of this activity.

Addition: Rs.1,42,80,581/-

Penalty proceedings u/s. 271(1)(c) of the Income Tax Act were initiated separately.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs. 4919560/- Addition (as per para 5.3] Rs.14280581/- Total Rs.192900141/- Less: Chapter VIA Deduction (80G) Rs. 2500/- Total Income Assessed Rs.19197641/-

Deemed income u/s. 115JB Rs.44,69,606/-

AY 2013-14

Table 1

Sl. Products Qty. Produced Production Sale Value Sale Quantity Average Selling No. in yield % Rate per tone 1. Maida 12165.779 61.74% 265845916..6 12322.247 21574.47 2. Sooji 1506.042 7.64% 33669626.72 1514.622 19796.26 3. Atta 1206.178 6.12% 23768699.99 1198.925 19825.01 4. Bran 429.225 22.99% 64357599 4552.91 14135.42 98.49% Wheat milled 19704.550

5.5 The production yield was derived in Column 4 and the average selling rate on

real time basis was worked out in Column 7. On the above basis, the sale value of

wheat products that could be produced from the circumvented sale of 3088.000 MT

for the A Y was worked out below:

Table-2

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tonne 1. Maida 1906.561 61.74% 21574.47 .1 2. Sooji 236.019 7.64% 22229.72 5246636.285 3. Atta 189.026 6.12% 19825.01 3747442.34 4. Bran 709.798 22.99% 14135.42 10033292.85 60160414.57 Wheat sold to P.K. Kunjumoideen 3088.000 Sale value of wheat to P.K. Kunjumoideen 42118437.55 Profit 18041977.02

The assessee's unaccounted income from the above trade practice was worked out

below: 14

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Sale:Value of milled Wheat Flours (as in Table 2) Rs. 6,01,60,414 Less: sale value of Wheat to P.K. Kunjumoideen Rs. 4,21,18,437 Income undisclosed in the hands of the Assessee Rs.1,80,41,977 [1]

Savings on VAT on the said Rs.9,25,69,501 [4-1] = 3% [9,25,69,501x3%] Rs.27,77,084/- [2]

The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2011-12. Thus, there was an unfair enrichment

of Rs.1,80,41,977/- (1) + (2) in the hands of the assesses out of this activity.

Addition: Rs.1,80,41,977/-

Penalty proceedings u/s. 271(1)(c) of the Income Tax Act were initiated separately.

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs. 4812959/- Addition (as per para 5.3] Rs.18041977/- Total Rs.22854956/- Less: Chapter VIA Deduction (80G) Rs. 2500/- Total Income Assessed Rs.22852436/-

AY 2014-15

Table 1

Sl. Products Qty. Produced Production Sale Value Sale Quantity Average Selling No. in yield % Rate per tone 1. Maida 13471.78 60.77 343938538 13552.485 25378.26 2. Sooji 1708.666 7.71 44029446.31 1711.706 25722.55 3. Atta 1572.911 7.10 34542429.02 1561.91 22115.51 4. Bran 5069.765 22.87 79387964 5079.05 15630.47 98.44% Wheat milled 22169.120

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

5.6 The production yield was derived in Column 4 and the average selling rate on

real time basis was worked out in Column 7. On the above basis, the sale value of

wheat products that could be produced from the circumvented sale of 2178.200 MT

for the A Y was worked out below:

Table-2

Sl. No. Products Qty. Produced Production Average Selling Sale Value in yield % Rate per tonne 1. Maida 1323.653 60.77% 25378.26 33592009.98 2. Sooji 167.883 7.71% 25772.55 4318378.862 3. Atta 154.544 7.10% 22115.51 3417819.377 4. Bran 498.124 22.87% 15630.47 7785912.238 49114120.46 Wheat sold to P.K. Kunjumoideen 2178.200 Sale value of wheat to P.K. Kunjumoideen 38276401.16 Profit 10837719.3

The assessee's unaccounted income from the above trade practice was worked out

below:

Sale:Value of milled Wheat Flours (as in Table 2) Rs. 4,91,14,120 Less: sale value of Wheat to P.K. Kunjumoideen Rs. 3,82,76,401 Income undisclosed in the hands of the Assessee Rs.1,08,37,719

The assessee when pricing the product in the open market would not differentiate

between its VAT levied and non levied items and could have priced it at the same

rate. VAT rates were 4% for F.Y. 2013-14. Thus, there was an unfair enrichment

of Rs.1,08,37,719/- in the hands of the assesses out of this activity.

Addition: Rs.1,08,37,719/-

There is an amount of Rs.5,038/- booked as compounding fee in the P&L a/c of the assessee. This expense will be disallowed.

Addition:5,038/-

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Accordingly, the assessment was completed as under:

Income from Business[as returned] Rs. 47,72,756/- Addition (as per para 5.3 Rs.1,08,37,719/- Addition (as per para 5.4) Rs. 5,038/- Total Rs.1,56,15,513/- Less: Chapter VIA Deduction (80G) Rs. 2500/- Total Income Assessed Rs.1,56,13,013/-

On appeal, the CIT(A) observed that immediately after the search, all the

employees, whose statements were recorded during the course of search decided to

file affidavits retracting from statements given during the course of search. The

CIT(A) observed that they have all stated that statements were taken from them

under pressure and duress. However, the CIT(A) noticed that in their affidavits,

none of them have mentioned as to what pressure was exerted on them and what

was the portion of statement, which was untrue. On the other hand, the CIT(A)

observed that in the assessment order, the AO had nowhere mentioned regarding

these retractions. According to the CIT(A), since there was nothing specific in the

retractions, there was no need to consider the retractions and clearly, the

retractions were the afterthought having no bearing on the facts of this case.

6.1 According to the CIT(A), on the basis of the various statements recorded, the

AO reached the conclusion that the assessee did not sell the raw-material to M/s.

Teekay Rice Mill and it was used only for the name sake. In fact, finished products

like Maida, Sooji etc. was sold and the resultant profit was pocketed by the assessee

without routing through the books of the assessee with a purpose to evade taxes. 17

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Regarding the first limb, on the facts and circumstances of this case, the CIT(A) was

convinced that the transaction which had been entered into between M/s. Teekay

Rice Mill and the assessee was only a fictitious transaction, carried on only on

paper, and the goods were directly sold by the assessee, through its own channels,

in the market and the resultant profit was pocketed by the assessee. Thus, he

dismissed the grounds of appeal, relating to this limb.

6.2 In the second limb, the CIT(A) observed that the AO had concluded that

finished products were sold wherein the profit margins are much higher, in place of

raw material as claimed by the assessee. The AO reached this conclusion on the

basis of statements recorded during the course of search, whereas the assessee

contended that only the raw material, with low profit margin was sold, that the

statements were given under pressure and duress which were subsequently

retracted and no material was found during the course of search evidencing sale of

finished products like Maida and Sooji. According to the CIT(A), the Assessing

Officer’s working of profit from sale of finished products was an estimation which

was not based on any cogent material, but on assumption, presumption and

surmises. It was observed that the amount of wheat claimed to have been sold to

M/s. Teekay Rice Mill was available and the AO had applied the manufacturing ratio

of the assessee to work out production finished product and had then applied the

market rate to reach the profits on the presumed sale of the same. On the facts and

circumstances of the case, CIT(A) was of the opinion that the claim of the assessee

was not correct and on the other side, the AO's estimation of profit, was definitely 18

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

on the higher side. According to the CIT(A), since, such material was not available,

on the basis of which exact calculation of suppressed profit could be done, the only

option left was to make a reasonable estimate of profits. Thus, taking an overall

view, in his opinion, if the profit was restricted to 50% of the profit estimated by the

AO, it shall meet the ends of justice. Thus, the resultant suppressed profit shall

be as follows:

A.Y. Profit worked out 50% of the by the A.O. same 2009-10 1,51,130/- 1,25,565/-

2019-11 2,06,95,955/- 1,03,47,978/- 2011-12 91,40,121/- 45,70,000/- 2012-13 1,27,76,083/- 63,88,041/- 2013-14 1,80,41,977/- 90,20,989/- 2014-15 1,08,37,719/- 54,18,860/-

Thus, the CIT(A) restricted the additions to 50% of the additions made by the AO

on this account and balance 50% was deleted.

Against this, the assessee is in appeal before us. The Ld. AR submitted that in

respect to the A.Y.'s 2009-10 to 2014-15 the assessee had sold wheat to Shri. P.K.

Kunjumoideen, M/s. Teekay Rice Mill, Palakkad. The assessing officer considered

what was sold by the assessee company were wheat products such as atta, maida,

sooji etc, instead of wheat. After presuming this position the assessing officer

estimated the profit of wheat products for the A. Y. as under:

A.Y. Alleged Profit Alleged Savings on Total Addition VAT 2009-10 251130.00 64940.00 316070.00 2010-11 20695955.00 3810662.00 24506617.00 2011-12 9140121.00 2777084.00 11917205.00 19

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

2012-13 12776083.00 1504498.00 14280581.00 2013-14 18041977.00 0.00 18041977.00 2014-15 10837719.00 0.00 10837719.00

7.1 It was submitted that the assessee had accounted the sale of wheat to

P.K.Kunjumoideen, M/s. Teekay Rice Mill and already included profit @ 1% on sales.

After reducing this profit the assessing officer has made the following additions in

respect to the following assessment years.

AY Sale value of wheat to Mark up profit P.K.Kunjumoideen Excluding @1% included in VAT Col.2 (Amount in Rs.) (Amount in Rs.) 2009-10 2164672.00 21432.00 2010-11 106326114.00 1052734.00 2011-12 83439380.00 826132.00 2012-13 37373850.00 370038.00 2013-14 42118437.00 417014.00 2014-15 38276401.00 378974.00

7.2 Regarding Shri P.K. Kunjumoideen, it was submitted as follows:

Shri P.K. Kunjumoideen started his business in Palakkad by taking M/s Teekay Rice

Mill at Thathamangalam in 1986. He was given KCST Registration in the same year.

M/s. Prince Roller Flour Mills (P) Ltd started in the year 1990 only i.e., 4 years after

he started his business. Shri P.K. Kunjumoideen ran his business independently as

proprietor. His trading activities included purchase and sale of wheat, steel scrap,

paddy, gunny bags etc. He was an assessee under the rolls of the Income Tax

Department from very early period which can be cross checked. He purchased

wheat not only from M/s. Prince Roller Flour Mills (P) Ltd. but from various parties in

North Indian Stales like Uttar Pradesh, Madhya Pradesh, Rajastan etc., through

Railway Wagons. He purchased wheat from Food Corporation of India and Kerala 20

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

State Civil Supplies Corporation Ltd. also through open sales wheat tender. He was

supplying wheat purchased from open market to many established companies in

and around Malabar even during the eighties. Hence, it was not correct to state that

he was not carrying out any trading operations. The Ld. AR drew our attention to

the summary of major purchases effected by him over the years to establish that

the transactions were not limited to one or two dealings, but there were continuous

transactions, involving substantial quantities. It was submitted that he was not

entirely associating with the assessee, but was also dealing with other business

entities too. Almost the entire transactions were being regularly routed through his

bank account, which also establishes the genuineness of such dealings. The

statement given by him to the contrary was only due to the fact that he was under

tremendous pressure to make such a statement. It was submitted that in his

statement he mentioned that even the licence and KVAT registration of M/s. Prince

Roller Flour Mills (P) Ltd. was in his name. It was also admitted fact that the search

conducted at his premises, or the survey at his business premises did not yield any

documentary evidence to show that what was sold to him by the assessee was not

wheat but wheat products. A scrutiny of the Income tax/VAT return filed by him

would reveal that he had been regularly trading in wheat and steel scrap. The fact

that he has supplied substantial quantities of wheat to well established concerns like

M/s. Yamuna Roller Flour Mills and also to the assessee was evident from the books

of accounts impounded. He submitted that copies of confirmation of supply of

wheat to M/s Yamuna Roller Flour Mills was filed before CIT(A). It was submitted

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

that to discredit these concrete evidences, which are part of the records, evidencing

the nature of transactions, just on the strength of a statement recorded is not what

in expected of while completing the assessment. The assessing authority ought to

have compared these evidences with the findings emanating from the sworn

statements.

7.3 In the action under Section 133A, in the case of Shri. P.K. Kunjumoideen, it

was submitted that no material evidences to the contrary were recovered from his

premises or from the premises of Prince Roller Flour Mills (P) Ltd. The entire sale of

wheat effected by the assessee to P.K. Kunjumoideen were duly supported by credit

invoices issued by the assessee and entries in the stock register, receipt of sale

proceeds from him through proper banking channels, various statutory returns,

monthly as well as annually filed by us and him before the VAT Authorities,

remittance of tax to the slate exchequer on such sales etc. It was submitted that

the assessment proceedings under the VAT Rules also stands completed without

any adverse remarks. It was submitted that the assessee was selling wheat without

manufacturing or processing to others (Quantities in Metric Tonne) for various years

as follows:

Sl. No. Name of Party A.Y. 2010-11 A.Y. 2011-12 A.Y.2012-13 A.Y. 2013-14 A.Y. 2014-15

Bindu Traders 125.60 86.310 2. Central Stores 62.090 3. Coimbatore Roller 239.230 Flour Mills 4. Essem Traders 54.100 5. Harikrishna 31.480 40,700 148.960 Agencies 22

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Maliakkal Roller 159.690 Flour Mills 7. Periyar Agro 70.760 Products 8. Premier Agro 10.080 506.280 Products 9. Retail Sales 4760.600 625.600 83.500 10. S.R. Traders 93.410 41.600 11. Sreerama Roller 263.90 Flour Mills 12. Srinivasa Roller 70.990 Flour Mills 13. Star Trading Co. 308.475 14. V.P. Roller Flour 332.850 Mills 15. Veliyath Agro 191.030 Total 4770.680 1884.285 406.00 240.990 1008.700

7.4 The Ld. AR submitted that the copies of sales invoices, VAT returns and Ledger

accounts of the customers to this effect were filed before the lower authorities. It

was submitted that in fact the commercial tax authorities had on many occasions

inspected their premises and verified the books and records etc relating to

purchase, production, sale etc. periodically. Even on 12.07.2013, a few days before

the search under section 132, there was an inspection by the VAT Authorities. The

Ld. AR also submitted that copies of Mahasars dated 12.07.2013 and proceedings

dated 30.01.2014 issued by the VAT Department to this effect were filed before

CIT(A). The Ld. AR submitted that contrary to the proceedings under section 132

where no effort was made by the Department to physically verify and reconcile the

stock available at the premises, the VAT Department had elaborately conducted

physical verification of the entire stock at their premises and the alleged variation

was very miniscule which itself is indicative of the fact that the transaction between

P.K.Kunjumoideen and Prince Roller Flour Mills (P) Ltd. as recorded in the various

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

books are genuine. An analysis of these facts goes to clearly prove that what was

sold by Prince Roller Flour Mills (P) Ltd. was raw wheat only to P.K. Kunjumoideen

7.5 In the sworn statement taken from Shri Sabarigireesan, Accountant, it was

stated that there was no actual sale of Wheat to Sri. P.K. Kunjumoideen but the

items sold were wheat products viz. Maida, Sooji, Atta and Bran. This statement

was also one which was recorded under tremendous pressure situation. It was

submitted that the statement recorded from Shri Sabarigireesan also suffered from

serious mistakes and it was on recognising this that he had retracted from his own

findings, before the assessing authority.

7.6 In the statement of Shri Premil Deep, Manager, he had just stated that he was

looking after the administration side of the Group of companies, and had not

concurred with the statements made by Mr Sabari Gireesan nor had given any

indication of the sort, to point unaccounted transaction. What was said was only

that since the matter was personally being handled by Mr. Sabari Gireesan, he

would be a better person to throw light on the facts and this cannot be termed as

an admission by itself of unaccounted transaction, by any stretch of imagination.

This statement was retracted by him as he had written the same under coercion

and threat. It was submitted that retraction statements by way of Affidavit were

prepared on 06.09.2013 without seeing the copies of the statement recorded on the

previous date from the respective persons who felt that the statements given were

wrong and the same was given under pressure from the Investigating Officers.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Subsequently both Shri Sabarigireesan and Shri P.K. Kunjumoideen have applied for

the copies of statements on 18.11.2014 and it was received on the same day. The

Ld. AR drew our attention to the copies of the retraction statements of these two

persons which were placed in Paper Book, Page Nos. 57 to 66 and 109 to 140 filed

before us. The Assessing Officer had not made any reference to the retraction

statements filed by these persons in the Assessment Order, though it was placed

before him.

7.7 It was submitted that sworn statements were taken from Shri T.K. Abdul

Karim, Managing Director of the Company on 05.09.2013 and 30.09.2013 and no

specific question was asked to him whether the sale to Shri P.K. Kunjumoideen were

sale of Wheat or Wheat Products.

7.8 It was submitted that the only one seized document referring in the

Assessment order Para 3.7 in support of the addition made vide reference no.

CHN/11/13-14/EAM/A-38. These documents represented the collection on sale of

wheat products on 04.09.2013, the immediate previous day of the search on

05.09.2013. It was submitted that normally the entries of the previous day were

made in the accounts on the subsequent day. Since the search had commenced at

10.30 am on 05 09 2013, the entry of the transaction could not be entered in the

computer. It was submitted that the total amount of Rs. 1,50,985/- out of which

Rs. 93,545/- were by way of Cheques and the balance of Rs. 57,440/- was in cash

and after the search this transaction was entered in the accounts and the copy of

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

seized document with the copies of ledger in respect of debtors mentioned in the

seized documents were produced before the CIT(A) in Paper Book Page Nos. 157

to 198. Thus, it was submitted that the entire search and survey operation that took

place at the premises of Prince Roller Flour Mills (P) Ltd. or Shri P.K. Kunjumoideen

did not unearth even a single piece of paper which can point out unaccounted

dealings like list of Sundry Debtors or collection. It was submitted that in a search

assessment, additions can only be made on the strength of material evidences

unearthed during the course of such proceeding, which in the present case was

absent. It was submitted that there were no evidence or incriminating documents

seized at the time of search and no documentary evidence to prove that the sale

was effected as wheat products were obtained at the time of search both at the

premises of the assesses and in the premises of Shri P.K. Kunjumoideen and hence,

the assessment now done stands to be cancelled.

7.8.1 Further, it was submitted that there are no evidences or incriminating

documents seized at the time of search. No documentary evidence to prove that the

sale was effected as wheat products, are obtained at the time of search both at the

place of assessee company and in the place of Shri P.K. Kunjumoideen. It was

submitted that in the absence of any such evidence it is wrong to pursue that the

sales effected as wheat products to enable the differential income in the assessment

and in the absence of any evidences to indicate that the Wheat is sold as Wheat

Products, the Assessment after assuming the Quantity of Wheat is sold as Wheat

Products is illegal and liable to be cancelled. 26

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

7.8.2 The Ld. AR submitted that the CIT(A) assumed that the assessee sold wheat

products to Shri P.K.Kunjumoideen of M/s. Teekay Rice Mill without any evidence.

The Assessing Officer and the CIT(A) had come to the conclusion that wheat

products were sold without any evidences seized at the time of search. It was

submitted that the Assessing Officer verified the stock, production and sales records

of wheat products and could not find out any mistake. In addition to this, the sale of

wheat products to Shri P.K.Kunjumoideen was not evidenced at the time of search

by supporting documents. The Ld. AR submitted that the CIT(A) sustained the

addition of 50% of the addition made by the Assessing Officer as per the

observation in Page No. 24 of the appellate order. It was submitted that in the

absence of any evidence seized at the time of search regarding the sale of wheat

products, the estimated addition assuming the sale is wrongly made and the

addition may be cancelled completely.

7.9 Regarding assessment of VAT as income, the Ld. AR submitted that the

Assessing Officer made additions of Income by way of VAT for all the assessment

years. It was submitted that there was no evidence showing that the assessee

collected VAT and not paid to authorities. In the absence of any evidence the

assessment of VAT for the various assessment years were without basis and the

assessments of VAT as income may be cancelled.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

AY 2009-10 Rs.64940/- A.Y 2010-11 Rs.3810662/- A.Y 2011-12 Rs.2777084/- AY 2012-13 Rs.1504498/- AY 2013-14 Nil A.Y 2014-15 Nil

7.9.1 It was submitted by the Ld. AR that there were documentary evidence in

support of the contentions of the assessing officer that Wheat products were sold to

Shri P.K. Kunjumoideen, Shri Sabarigireesan and Sri P.K. Kunjumoideen had filed

retraction statements before the Assessing officer, but the Assessing Officer had not

referred the retraction statements in the Assessment order. It was submitted that

there were no other seized documents to indicate that wheat products were sold to

Shri P.K. Kunjumoideen as claimed by the assessing officer. In the absence of any

such evidence the assessment of the additional Income for the various assessment

years by way of differential profit are liable to be cancelled.

AY 2009- 10 2,51,130/-

AY 2010-11 2,06,95,955/-

AY 2011-12 91,40,121/-

AY 2012-13 1,27,76,083/-

AY 2013-14 1,80,41,977/- AY 2014-15 1,08,37,719/-

Hence, it was submitted by the Ld. AR that as per the reasons stated above, the

assessments of the above income in the respective assessment years were found

without basis and accordingly, the additions may be cancelled.

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

The Ld. DR submitted that the assessee is engaged in manufacture of wheat

products and that Shri P.K. Kunjumoidueen was only name lender, being the

proprietor of M/s. Teekay Rice Mill. According to the ld. DR, M/s. Teekay Rice Mill is

a benami concern of the present assessee. The assessee itself had manufactured

wheat products and sold in the name of M/s. Teekay Rice Mill. This was confirmed

by the assessee as well as by Prince Flour Mills. According to the Ld. DR,

production and manufacture of wheat products is based on the production yield

derived by the assessee for these assessment years and rate of net profit computed

at the same rate that was actually earned by the assessee in these assessment

years and there is no question of reducing it to 50% by the CIT(A). He relied on the

order of the Assessing Officer and made a plea to confirm the assessment order in

all the assessment years.

FINDINGS :-

We have heard the rival submissions and perused the material on record. The

assessments herein were framed in these six assessment years u/s 143(3) r.w.s.

153A of the Act, consequent to search action u/s 132 of the Act on 05.09.2013.

Once a search takes place under Section 132 of the Act, notice under Section

153A(1) will have to be mandatorily issued to the person searched requiring him to

file returns for six AYs immediately preceding the previous year relevant to the AY in

which the search takes place. Assessments and reassessments pending on the date

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

of the search shall abate. The total income for such AYs will have to be computed

by the AOs as a fresh exercise. The AO will exercise normal assessment powers in

respect of the six years previous to the relevant AY in which the search takes place.

The AO has the power to assess and reassess the 'total income' of the

aforementioned six years in separate assessment orders for each of the six years. In

other words there will be only one assessment order in respect of each of the six

AYs in which both the disclosed and the undisclosed income would be brought to

tax. Although Section 153A does not say that additions should be strictly made on

the basis of evidence found in the course of the search, or other post-search

material or information available with the AO which can be related to the evidence

found, it does not mean that the assessment can be arbitrary or made without any

relevance or nexus with the seized material. Obviously assessment has to be made

under this Section only on the basis of seized material. In absence of any

incriminating material, the completed assessment can be reiterated and the abated

assessment or reassessment can be made. The word 'assess' in Section 153 A is

relatable to abated proceedings (i.e. those pending on the date of search) and the

word 'reassess' to completed assessment proceedings. Insofar as pending

assessments are concerned, the jurisdiction to make the original assessment and

the assessment under Section 153A merges into one. Only one assessment shall be

made separately for each AY on the basis of the findings of the search and any

other material existing or brought on the record of the AO. Completed assessments

can be interfered with by the AO while making the assessment under Section 153 A

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

only on the basis of some incriminating material unearthed during the course of

search or requisition of documents or undisclosed income or property discovered in

the course of search which were not produced or not already disclosed or made

known in the course of original assessment.

9.1 In these cases, the addition is based on the statements recorded from

various persons and seized documents bearing No.CHN/11/13-14/EAM/A-36,

No.CHN/11/13-14/EAM/A-37 and No.CHN/11/13-14/EAM/A-38. Now we will go

through these statements and seized documents one by one. Statement recorded

from Shri P.K. Kunjumoideen recorded u/s. 132(4) of the Act on 05/09/2013 which

reads as follows:

Please Introduce yourself?

(A) My name is P. K. Kunjumoideen, S/o. Padiyath Koya aged 52 years. My family is from Mambra in Thrissur District. I am residing now at Chengamanad in Ernakulam District and is running a grocery shop here.

What is your annual turnover from this business? (A) Approximate Turnover of 20 Lakhs Rupees.

Are you filing income tax returns?

(A)No, I don't that much income from my shop

How long you have been doing this shop

(A) Approximately 22 years

Do you have a PAN No.

(A) No

In which banks you are operating your bank accounts

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

(A) Aluva Urban Co-operative Bank, Chengamanad Branch (A/c No. 6433) and Indian Bank, Chengamanad Branch (A/c No. 746281754)

Do you have any Bank account in Palakkad

(A) Yes, I have an account in SB1, Palakkad branch, I don't remember its number. That account is operated by T.K. Abdul Karim and T.K. Ameeraly. They are running Prince Steel and Prince Roller Flour Mills (P) Ltd., Kinassery, Palakkad. They are operating this account.

What is your relationship to this firm,

(A) The License, Registration, KVAT registration of flour mill is on my name. I have taken PAN there. It was taken by them for the purpose of Prince Roller Flour Mills (P) Ltd. They are my mother's elder sister sons (My Cousins). Their family is also from Mambra in Thrissur District.

We are showing a Bank Account statement of A/c No. 00000010620044052 SB1, Palakkad Branch which is in your name. Please explain.

(A) There is a firm named Teekay Rice_Mills in my name. The day-to-day business are carried out by Shri T. K. Abdul Karim and Ameerally T. K. The cheque book of that account are already signed by myself and is kept by T. K. Abdul Karim and T. K. Ameerally. Hence the details of transactions are not known to me. The statement showing transactions from 17/9/2010 to 18/10/2010 are without my knowledge. Shri T. K. Abdul Karim and Shri. T. K. Ameerally can explain about these transactions.

10.

Are you the Managing Partner of Teekay Rice Mill.

(A) Since the firm is in my name, the above said persons took PAN in my name and has filed income tax return regularly at Palakkad Income Tax Office. For that purpose I do sign various forms. C.K.Nair & Co, Chartered Accountants firm is filing my return. Sabari and Venkitesh are submitting the accounts to them.

11.

Please explain about the Credit in the Bank Statement of A/c No. 746281754 of Indian Bank Chengamanad Branch.

(A) The money received at Indian Bank, Chengamanad Branch are sent by T. K Abdul Karim, Ahamed Faizal, Anup Sha, Khadeeja, Aishabi on monthly basis. I guess it may be the profit of business running in my name. 32

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

12.

Do you include income from the grocery shop at Chengamanad in the IT return filed at Palakkad.

(A) No. I do sign papers at C.K.Nair & Co on the directions of Sabarigireesh and Venkatesh.

13.

Do you include turnover of your grocery shop at Chengamanad in the VAT return filed at Palakkad.

(A) No. VAT Return does not include turnover of shop at Chengamanad

14.

Please explain, towards which account the deposits from Palakkad to Indian Bank, Chengamanad Branch are made? Many times the amounts are different.

(A) Sometimes they may be sending depends upon the profit from Teekay Rice Mill. I don't enquire about it. As stated above, Teekay Rice Mill is in my name and its license and papers also. Though I left 20 years ago from there and I am still getting money as a share of profit. I am not checking its records, it is T.K. Abdul Karim who handles its accounts and records.

(A) All the business at Palakkad are looked after by T.K. Abdul Karim and T.K. Ameerali. They are preparing and filing Income Tax Return and VAT return in my name. I am just signing for them. I am living with their help. I have only a residence with 33 cents. I may be pardon for wrong doing if any from my side.

9.2 Shri P.K. Kunjumoideen had retracted the above statement vide affidavit dated

06/09/2013 which reads as follows:

“I, P.K.Kunjumoideen, S/o. Padiyath Koya, aged 52 years residing at Padiyath House, Chengamanad, PIN : 683578, Ernakulam District solemnly state as under.

I state that I am a business man doing business at Thathamangalam, Palakkad District and Chengamand, Ernakulam District.

I state that the Income Tax Officials conducted a search u/s 132 of the Income Tax Act in the business premises of Prince Group of Companies, Palakkad on 05.09.2013 and as part of this investigation, I was called to the Office of Income Tax at Aluva and the officers recorded my statement on the same day. 33

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

The officers forced me to sign the statement written and prepared by them which was not according to the facts.

I state that the statement recorded on 05.09.2013 is not true and voluntary. I was forced, threatened and compelled to sign and write the declaration in the statement without my consent. I therefore hereby retract the statement signed by me before the Income Tax Officials on 05.09.2013.

I state that, I am executing this sworn affidavit so that I may make use of this affidavit in case the Income Tax Officials use my statements either against me or the above mentioned Companies.”

9.3Similarly, statement was recordedu/s. 132(4) of the Act from Shri M. Premil

Deep, who was a manager of the assessee company on 05/09/2013 which reads as

follows:

“Q. No. 3 Kindly explain the main duties attached to you in Prince Roller flour Mills (P) Ltd.?

A. No. 3 I am mainly looking after the administrative side of Prince Roller Flour Mills. All the governmental as well as banking duties (liaison work) connected with the concern are attended by me. In addditlon, I am assisting the MD Shri T. K Abdul Karim in finalizing the payment of cheques to various parties and receipt of cheques. The verification of these cheques are done by me before finalization by MD. The verification of final accounts are also done by me. We are maintaining the books of accounts in the Tally software and monthly verification is done by me. The corrections with regard to the invoices is also look after for each and every bill before making the payment of those cheques is also one of my duty. The unit wise accounts are maintained in the concerned units. However, data synchronization is done every day among the units and the same is available in the server in this unit.

Q, No.4. On verification of accounts in the tally software by the Income-tax dept today. It is noticed that, a ledger account of Shri Kunjumoideen, was seen which relates to the sale of raw wheat tohim and also containing the details of Wheat purchased from him. Kindly explain the transaction with him?

A. No. 4. There is a book entry in the tally software relates to the purchase and sale of raw wheat fromShri Kunjumoideen. Shri Kunjumoideen is a relative of Shri T K Abdul Kareem, MD of Prince group of concerns. It is learned that, there is no actual sale or purchase of wheat was done with Shri 34

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Kunjumoideen. The ledger account was created only as accommodating entries. The receipt and payment towards this transaction are done through a bank account bearing No. 10620044052 at SBI, English Church Road, Palakkad.

Q.No. 5: On questioning the billing staff with regard to the sale of wheat, they stated that, they have not made any invoice with regard to the sale of wheat to Shri Kunjumoideen. Kindly offer your comments?

A. No.5: The version of billing staff is correct. It is worth mentioning that our MD had a personal accountant Shri Subramanian, who on instruction by the MD makes the invoices for the sale of wheat. As stated earlier to my answer for Question No. 4, There is no actual sale of Wheat to ShriKunjumoideen. Only Bills were prepared and accounted in the tally software. Likewise bogus purchase bills were also prepared against Shri Kunjumoideen. Out of the total purchases recorded against him, certain transactions are genuine, which were obtained directly from FCI godown.

Q. No. 6 From the answers given to the last two questions, it is very clear that the wheat shown as bogus sale to Shri Kunjumoideen have been processed and sold as its bye products Maida, Sooji , Atta and Bran. Since all the expenses related to the purchase and production has been accounted in the books of accounts maintained there will be a higher gross profit from the transaction. Please explain more about this.

A. No. 6. Accounts of Prince Roller Flour Mills is looked after by Shri Sabari Gireesh. It is true that, all the expenses related to purchase and manufacturing have been fully accounted in the books of account. The profit from the above referred transaction can be explained in detail by Shri Sabari Gireesh.

Q. No.7. How do you maintain the daily physical cash statements? Please explain the method of reporting to the MD.

A. No. 7. The cashier prepares the cash statement and forwarded to the accounts department. After taking note of the same, they report it to the MD.

Q. No. 8 . Do you have anything else to say?

A.No. 8. Nothing.”

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9.4 Shri M. Premil Deep had retracted the above statement vide affidavit dated

06/09/2013 which reads as follows:

“I, Premil Deep. M, aged 53 years residing at H.No. B, Access Revera, Checkdam Road, Yakkara , Palakkad solemnly state as under:

I state that I am Manager of M/s. Prince Roller Flour Mills (P) Ltd, 9/75, Anappuramkadu, Kinassery Post, Palakkad 678707.

I state that the Income Tax Officials conducted a search u/s 132 of the Income Tax Act in the above company on 05.09.2013 at around 10.30 am and in the course of investigation the officers recorded my statement at the late night on the same day. The officers forced me to sign the statement written and prepared by them which was not according to the facts.

I state that, I am executing this sworn affidavit so that I may make use of this affidavit in case the Income Tax Officials use my statements either against me or the above mentioned Company.”

9.5 Similarly, statement was recorded u/s. 132(4) of the Act from Shri

Sabarigireeshan, Accountant of the assesse-company on 05/09/2013 which reads

as follows:

Please introduce yourself. (A) My Name is Sabarigirisan. B. and I am B.com Graduate. From 2002 onwards I am working as an Accountant at Prince Group corporate office

2) What are your responsibilities being an Accounting at Prince Group corporate officeat Palakkad ?

(A) My primary duty is the accounting of M/s. Prince Roller Flour Mills (P) Ltd under the Prince Group. Accounting works of other companies under the

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Prince Group are being handled at its own premises. The transactions relating to Banks are handled in this Corporate Office. 3) Please describe the operations of M/s. Prince Roller Flour Mill (P) Ltd of which you are an Accountant.

(A) M/s. Prince Roller Flour Mill (P) Ltd purchases wheat from Rajasthan, Madhya Pradesh, Utter Pradesh, Gujarat etc., and process into products like Maida, Sooji, Atta, Bran etc., and sells in the market. In addition wheat is also purchased from F.C.I. under open sale and sometimes small quantities are procured from local traders also. Mill is situated in Kinassery. Godown adjacent to Mill and a nearby Gajendra Rice Mill are main places where wheat is stocked. The processed products like Maida, Atta, etc., are kept stored inside the Mill itself. The sales Proceedings, bill preparation and collection from Cash Sales are done from the ground floor of this building (Counter).

4) How are the books of accounts maintained in M/s. Prince Roller Flour Mill (P) Ltd

(A) Books of Accounts of the financial transactions are maintained in Computer software Viz., Tally. My self is updating the accounts. In addition, I am also maintaining details related to purchase, expenses along with copy of Invoices, Bills and vouchers.

5) What is the approximate percentage of yield from the processing of wheat in M/s. Prince Roller Flour Mill (P) Ltd

(A) The approximate percentage of yield from the processing of wheat is as under 1. Maida 59% 2. Atta 7% to 8% 3. Sooji 24% 4. Bran 25% 59%

Depending upon the quality of wheat there will be a slight variation in yield of wheat, in addition to the above there will be approximately 2% wastage also.

6) While conducting the search by the Income Tax Department in this firm today, the records shows there are sales of raw wheat as well as purchase of raw wheat in huge volume from/to Sri. P. K. Kunjumoideen, when officials asked about these to Sri. Balasubramanian who is the personal accountant of Sri. P. K. Kunjumoideen and the Managing Director of this firm Sri. T. K. Abdul Karim, they have stated that the purchase and sales with Sri. P. K. Kunjumoideen are bogus. Please explain in detail. 37

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

(A) The Sales and Purchase of wheat with Sri. P. K. Kunjumoideen is recorded in the books of accounts and the supporting sales bills and purchased invoice are maintained. But in reality there is no sales made to Sri. P. K Kunjumoideen. Instead the entire quantity shown as sales are used in the process of wheat and its products like maida, atta, sooji, bran are sold. It is also shown in the records that there are many purchases made from Sri. P.K.Kunjumoideen. The purchases made on 27/08/2012 for Rs.26,86,600/- are on 09/10/2012 for Rs.1,58,06,500/- are real. These purchases are again procurement of wheat on Open Sales of F.C.I, by Sri. P.K. Kunjumoideenby checking the purchases of wheat from F.C.I. by Sri. P. K. Kunjumoideen you can understand whether there is more purchases like this. Payment against these purchases are made by remitting cheques from the account P.K.Kunjumoideen maintained in SBI, Palakkad.

7) You said wheat sales made in the name of Sri. P. K. Kunjumoideen are actually processed here and the products are sold from here. But the records of such sales are not shown in the book of accounts, please explain about this.

(A) The so called sales of wheat to Sri. P. K. Kunjumoideen will be shown as retail sales by Sri. P. K. Kunjumoideen to various parties, Sri. Balasubramanianis recording and preparing books of accounts of Sri. P. K. Kunjumoideen. These records are kept at M/s.Teekay Rice Mill, Thathamangalam. The sales of wheat to Sri. P. K. Kunjumoideen shown are actually processed at M/s. Prince Flour Mill (P) Ltd to Maida, Atta etc., and sold. These sales are not shown inbook of accounts of by M/s. Prince Roller Flour Mill (P) Ltd. These sales made without providing bills. Income from these cash sales are handed over to the Managing Director Sri. T. K. Abdul Karim and the amount he gives will be remitted to Sri. P. K. Kunjumoideen's bank account. These cash remittances are shown in the accounts as made out of retail sales accounted in P.K.Kunjumoideen's books.

8) While showing wheat sales to Sri. P. K. Kunjumoideen what is percentage of margin you have added?

(A) We have added 1% of profit margin over the landing cost of wheat pure from inter-state.

9) You are selling wheat to Sri. P. K. Kunjumoideen by showing 1% of profit margin over the landing cost of wheat, but in reality while these wheat are processed and products sold not only you could earned a high rate of profit margin especially since expenses like purchases cost freight and coolie charges, production expenses are already shown in books of accounts. 38

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

Considering these facts profit from these transactions should be very high. What is your comment on this.

(A) As you said by processing these wheat into products and selling it could have earned more than 1% shown in the books of accounts. The cost of purchases as well as production costs are included in the books of accounts.

10) What will be the approximate profit margin earned while transacting these products.

(A) It could only be ascertained by calculating rate of purchase and sales and other related details of each year.

11) We are showing the materials marked CHN/11/13-14/EAM/A36, CHN/11/13-14/EAM/A-37, paper bunch seized by Income tax, today while conducting search. Please check and explain.

I have checked it. These are computer printout of ledger account of Sri. P. K. Kunjumoideen prepared in Tally software.

12) We are showing the materials marked CHN/ 11/ 13-14/EAM/A38 seized by Income tax, today while conducting search. Please check and explain.

I have checked it. From page 1 to 20, the details of arrival of wheat load. Page 21 contains collection details of cheque and cash received on 04/09/2013 from various parties against sales. Cash collections are not shown in the book of accounts, it is usually handed over to the Managing Director.

13) While conducting search today, it is found that the actual cash balance in less than the Cash Book balance. What is your explanation in this regard?

The Cashier Sri. Sankarakrishnan only can explain this.

14) Do you have anything more to submit.

Nothing more than what I have submitted hereinabove.”

9.6 The seized materials as reference to section 132(4) statement from Shri B.

Sabarigireesan are as follows:

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

S.No. Search Doc. Reference No. Contents 1. CHN/11/13-14/EAM/A-36 Bunch of Loose Sheets serially numbered from 1 to 13 containing ledger accounts in the case of the appellant regarding wheat sold to P.K. Kunjumoideen for the Financial Year 2012-13 2. CHN/11/13-14/EAM/A-37 Bunch of Loose Sheets serially numbered from 1 to 13 containing ledger accounts of Shri P.K. Kunjumoideen from 1.4.2013. 3. CHN/11/13-14/EAM/A-38 Bunch of Loose Sheets serially numbered from 1 to 21 containing wheat receipt from Godown and Daily Collection report as on 04.09.2013.

9.7The above statement was retracted by Shri Sabarigireesan vide affidavit dated

06/09/2013 which reads as follows:

“I, Sabari GireesanB., S/o Balachandran,43 years residing at “Nandhanam” Pazhathara Post, Thenkurissi, Alathur Taluk, Palakkad District solemnly state as under:

I state that I am an Accountant of M/s. Prince Roller Flour Mills (P) Ltd, 9/75, Anappuramkadu, Kinassery Post, Palakkad 678707.

I state that, I am executing this sworn affidavit so that I may make use of this affidavit in case the Income Tax Officials use my statements either against me or the above mentioned Company.”

10.

On the statements recorded from Sri.P.K. Kunjumoideen and the employees,

the Assessing Officer noticed that the assessee group in the Wheat flour 40

I.T.A. Nos. 36 to 41/Coch/2019 & ITA Nos. 21 to 26/Coch/2019

manufacturing front, resorted to different methodologies to generate unaccounted

sales and income from the trade. The assessee had used Shri. P.K. Kunjumoideen

(PAN- AHDPK83Q1E) as a front. Shri. P.K. Kunjumoideen was shown as the

proprietor of M/s. Teekay Rice Mill with premises at Pallimukku, Thathamangalam,

Palakkad. The property at the said address was owned by Shri. T.K. Abdul Karim

himself and many of his other concerns had offices in the same address itself. At

the time of the search, Shri. P.K. Kunjumoideen was not available in the business

address of his. He was found to be residing at Chengamanad near Aluva running a

Grocery shop there. He had been living and seeking a living out of the business for

the past 20 years at Chengamanad. The assessee had used the business address of

M/s. Teekay Rice Mill, to show that a portion of its wheat procured is sold to the

said concern, which in turn has sold the same in the open market. In actuality the

wheat shown as sold to M/s. Teekay Rice Mill was milled in the assessee's factory

itself and was sold as Wheat flour in its various forms (Atta, Sooji. Maida and Bran).

The assessee used to bill the Wheat at 1% markup on its funding cost to M/s.

Teekay Rice Mill. In reality, the assessee used to mill the wheat and sell it at a

higher profit in the market. The difference is the additional income to the assessee

from this circumrouting activity.

10.1 Shri. P.K. Kunjumoideen was questioned about his business activities on the