ITO, WARD - 2(4), DURGAPUR, DURGAPUR vs. SHRI NIRMALYA SAHA, KOLKATA

O R D E R

PER S.S.Godara, Judicial Member:

ITO Wd-2(4) DGP Vs. Sh. Nirmlya Saha Page 2 Ground No.1 relates to the addition of Rs.2,62,17,234/- claimed by the appellant as purchase of paddy. The aforesaid claim of purchase of paddy claimed by the appellant was not accepted by the A.O. on the ground that certain details were submitted on 30. 12.2016 there was not time to inquire about it. On the contrary the appellant had produced letter dated 26.12.2016 submitted before the A.O. wherein the detail of the purchase of paddy alongwith quantity, rate and full amount have been mentioned. Such purchase of paddy is claimed of Rs.2,62,17,234/-. The appellant has also produced letter dated 22.12.2016 which is duly received by the A.O. on the same date wherein at para No.10 the appellant has submitted the breakup of purchase party-wise wherein the purchase of diesel/petrol has been claimed to the tune of Rs.18,20,49,271.80 from Indian Oil Corporation Ltd., M/s. Ran Lubes and M/s. Dey's Enterprise. Remaining purchase of paddy was claimed from the farmers to the extent of Rs.2,62,17,234/- in cash. The appellant claimed that the purchase of paddy were made in cash and sale was also made in cash. The appellant submitted that the trading account of paddy business resulting into profit of 4.2%. The same is mentioned as under: ‘Opening stock of paddy Rs. 89,80,500.00 Add: purchase of paddy Rs.2,62,17,234.00 Total: Rs.3,51,97,734.00 Less: closing stock of paddy Rs.1,43,69,777.00 Cost of paddy sold Rs.2,08,27,957.00 Sales of paddy Rs.2,17,00,500.00 Profit from paddy business Rs. 8,72,543.00 Profit @ from paddy business 4.02%’ In this case it is pertinent to mention here that the appellant is running petrol pump where purchase were made from the Indian Oil Corporation (IOC). The price of sale and purchase are also fixed by the ONGC and the sale is made on commission and incentive basis; only. The appellant has submitted that the sale disclosed from pump business and paddy businesses are very apparent from trading account. In this regard the appellant submitted as under: "the assessing officer in his assessment order admitted that the appellant during the year under consideration made purchase of petroleum product to the tune of Rs.180829533/- from the Indian Oil Corporation Limited & others. Owing to high fluctuations in oil prices, the maximum to maximum profit on purchase of both Petrol & Diesel varies in-between 2.00 % to 3.00 % in any circumstances. If the Petroleum products purchased by the appellant was Rs.1808295331-/ as admitted by the A.O in the assessment order) and if the average profit percentage @ 3.00% maximum to maximum (though almost impossible) is calculated the sales of petrol & Diesel product should have been to RS,1805700861/- x 3.00% = Rs.1859871891- (keeping opening & closing stock untouched) + Lubricant & Distill Water sale Rs, 2627421-, then the total sales in any circumstances maximum to maximum should not have more than Rs.1862499311-, but the appellant disclosed total sales of Rs.2088678231- which is Rs.22617892/- more than, what it should have been. The A.O while passing his order accepted the excess sales of Rs, 22613404/-, which forms part of Paddy sales of Rs.21700500/- and part of sales out of stock adjustment of petroleum products (petrol & diesel) of Rs, 917392/-. During the course of assessment proceedings the said sales were duly explained before the learned ITO, but the learned ITO denied and disallowed the purchase of Paddy and opined that evidences produced / furnished by the appellant is "hard to accept" without justifying any reason. The thumb rule of the accountancy is that when there is a sale, there must be a purchase. No sale can be materialized without making a purchase.

ITO Wd-2(4) DGP Vs. Sh. Nirmlya Saha Page 3 Therefore when the AO admitted the sales of Paddy of Rs, 21700,500/- he should have admit purchase of Paddy of Rs.26217234/·, as furnished by the appellant. The evidences cannot be rejected on the wills/whims of the assessing officer unless he proves that the evidences so produced / furnished is/are false. " During the course of assessment proceedings the appellant had also submitted certain bills relating to purchase of paddy. Perusal of assessment order shows that the A.O. has not denied the claim of the paddy sale made by the appellant. It is also on record that purchase made by the appellant from ONGC was confirmed to the extent of Rs.18,08,29,533/-. The remaining purchase of Rs.2,57,447/- was claimed as lube charges and Rs.5,295/- was further claimed as distilled water purchase. During the course of appellate proceedings the appellant persuaded his case for earlier hearing and stay of demand and the sale of paddy was claimed to the tune of Rs.2,12,54,874/- and Rs.1,43,69,745/- was claimed as stock of paddy. The aforesaid information was submitted by the appellant on 09.03.2017 to the A.O. in his petition of stay which copy was also submitted to the undersigned. The A.O. considering the argument of the appellant on the same date remand report was called for and the remand report from the A.O. as under: "During the course of appellate proceedings the appellant has submitted that the details of purchases were submitted to the A.O. But A.O. accepted the say but the corresponding purchases were not allowed. The purchases were added without any reasons. The appellant further submitted that the appellant is dealing with Indian Oil Corporation Ltd. wherein purchase and sales both the prices are fixed. The appellant cannot fetch any extra income over and above. The A.O. has considered only difference in purchases which was explained to him as a purchase from paddy trading from the different farmers in cash which is exempted under Rule 6DD. Once his sales were admitted then purchases which were corresponding to the sale should have been allowed. The action of the A.O. is unilateral and unjustified that too without any basis. The A.O. has himself admitted in the assessment order that the appellant had produced details regarding purchase and without examining the same the A.O. has added entire difference of purchase. In this regard the contention of the appellant has to be examined in the light of his aforesaid submission." In his remand report the A.O. has submitted that the aforesaid addition was made because the confirmatory letter filed by the appellant were relating to only 20 parties and it is further commented that the appellant never produced any further details. It is also seen that the A.O. did not examine the claim of sale of paddy its opening stock and purchase claimed by the appellant neither it was denied. Perusal of fact submitted before me and before the A.O. shows that the ledger copy of entire purchase of paddy were submitted to the A.O. The sample confirmation from the farmer has also been submitted. The sale of paddy disclosed by the appellant has not been challenged by the A.O. The closing stock and sale of paddy which break up has been submitted prior to submission of remand report has not been commented upon by the A.O. It is also a case where no cash deposit was made in the bank account. Purchases were made in cash from the farmers and sales were also made in cash below Rs.20,000/- as claimed by the appellant. The appellant claimed that the dealing of paddy business were made with the farmers who tomes in the market now and then. The appellant has further submitted that if he had intention to hide the aforesaid turnover of paddy business then there was no trail with the department to bring the aforesaid turnover into tax net. The appellant made a bona ITO Wd-2(4) DGP Vs. Sh. Nirmlya Saha Page 4 fide claim of paddy business which was not through the banking channel. Considering the aforesaid submission of the appellant and observation of the A.O. that the addition was made due to lack of enquiry and even after providing him opportunity no further enquiry was made, it is a case where the gross profit of 4.2% on account of paddy business disclosed by the appellant on his own should have been accepted. The argument of the appellant that against pump business appellant has shown its sale at profit of more than 3%, is also acceptable because in pump business the purchase and sale prices are decided by the Oil companies and its low margin trading activity. The demand of the A.O. that he wants to make verification of sale and purchases has no gain for the department as the paddy trading claimed by the appellant has resulted in to gain of 4.2% of profit which is reasonably good. The sale & purchase which one claimed by the appellant both can be unverifiable as the same are claimed to be purchased and sold from & to the farmer what is relevant to the profit portion which is disclosed by the appellant. In view of the aforesaid observation once the sale as well as closing stock was accepted the A.O. was not justified in adding the purchase of paddy 'as there cannot be any sale without any purchase particularly in trading paddy. Hence the addition made by the A.O. to the extent of Rs.2,62,20,529/- is hereby deleted and the ground of appeal is allowed.” The Revenue challenges the above extracted findings that by accepting the taxpayer’s contentions of having declared profit at normal rate 4.02% without checking veracity of calculation as well as the source of figure, in absence of raising any query about storage and selling price of paddy, without considering the fact that assessee had disclosed only one business of selling petroleum products and also that there was no ledger book with respect to his paddy business, the CIT(A) has erred in law and on facts in reversing assessment findings. We find no substance in Revenue’s arguments as per its pleadings. There is no dispute that the instant taxpayer has been deriving income from sale of petroleum products as well as paddy / rice trading. The Revenue’s fair enough in not questioning correctness of income from the former source. Its grievance in instant appeal is confined to latter source of paddy / rice business. It fails to dispute that the assessing authority itself has accepted the very business in assessment years 2009-10 and 2011-12 involving scrutiny assessments. Coupled with this, there is no rebuttal of the fact that question before us; as per Revenue’s sole substantive grievance, is that of correctness of paddy purchase disallowances wherein the corresponding sales have already been accepted as business income. Page 75 of the paper book is assessee’s trading account ending on 31.03.2014. The relevant head of non-petroleum products therein specifically indicates the