ACIT CENTRAL CIRCLE 3 , COIMBATORE vs. SAKTHI MASALA PVT. LTD. , ERODE

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

Condonation petition has been filed. Reason shown for the delay

ITA No.1992/Mds/2017 :- 2 -: seems to be justified. Ld. Authorised Representative did not raise any serious objection. Delay is condoned. Appeal is admitted.

Revenue through its thirteen grounds, assail deletion of an 3. addition of Rs.2,01,74,275/- made by the ld. Assessing Officer towards inflation in purchase of turmeric.

ITA No.1992/Mds/2017 :- 3 -: materials were purchased, purchase details including supplier name, quantity and price were manually entered in a purchase register. Each raw material purchased was aggregated on a monthly basis and average purchase price for each of the raw material was computed manually and entered in such register. As per the ld. Assessing Officer, figures of quantities purchased and average price, extracted from such register were tabulated in the purchase report found at the time of search. Such details as per ld. Assessing Officer tallied with the purchase register except for turmeric. According to the ld. Assessing Officer the purchase register did not correctly record details regarding purchase of turmeric. Further, as per ld. Assessing Officer purchase of turmeric was by payment of cash. According to him, purchases of turmeric recorded in the purchase report when cross verified what was entered by the assessee in the accounts maintained on computer system, brought out huge inflation in turmeric purchase for the period of 01.11.2007 to 31.03.2014. As per ld. Assessing Officer, inflation of turmeric purchase during the period came to Rs.59,75,91,224/-. It seems this amount included the difference of �2,01,74,275/- for the period 1.11.2007 to 31.03.2008 mentioned in the preceding para.

ITA No.1992/Mds/2017 :- 4 -:

Further as per ld. Assessing Officer both Shri. P.C. Duraisamy as well as one of the employees of the assessee named Shri. P.P. Sampath had given vague replies regarding mismatch of turmeric purchases between what was given in the purchase report and what was recorded in the accounts. It is to be noted that Shri. Sampath had confirmed the purchase report to have been prepared by him and represented true purchases. Further, he also mentioned that with regard to turmeric purchases, he was not maintaining any register. In other words according to Shri. Sampath, he had no data with regard to turmeric purchases. Ld. Assessing Officer noted that assessee claimed purchase of substantial part of the turmeric directly from the farmers by making payment in cash. In support of the purchases assessee had cess bill given by the Erode Marketing Committee. However, as per the ld. Assessing Officer such cell bills could not be accepted as evidence for purchase of turmeric since it contained no details.

Assessee was put on notice on the above disparities. Reply 7. of the assessee was that turmeric purchases were correctly entered

ITA No.1992/Mds/2017 :- 5 -: in the computer system. According to the assessee turmeric was purchased from regulated markets and the various marketing committee had issued weighment slips which recorded quantity and cess amount. As per the assessee payments had to be made in cash when turmeric was brought directly from the agriculturists and for this bought note was prepared and kept. Another contention of the assessee in its reply was that purchase report was prepared only in the month of July, 2014 and this was confirmed by Shri. Sampath in the sworn statement recorded from him. As per the assessee, purchase report was prepared only for finding the average price of the raw materials and it was not authentic record of the actual transactions undertaken. Assessee also furnished comparative study of quantity of turmeric as per purchase report and as recorded in the books of accounts and this study read as under:-

Turmeric Purchases Month Actual Quantity as Quantity as per Difference per books of incriminating and (in Kgs.) accounts (in Kgs) alleged seized material (purchase Report) (in Kgs) April 2007 15,38,104.75 15,38,105.00 -0.25 May 2007 7,18,033.75 7,18,033.00 0.75 June 2007 2,78,938.75 2,78,938.00 0.75 July 2007 1,34,553.00 1,34,553.00 0.00

ITA No.1992/Mds/2017 :- 6 -:

August 2007 1,92,668.25 1,92,668.00 0.25 Sept 2007 1,37,733.50 1,37,733.00 0.50 Oct 2007 77,847.75 77,847.00 -0.25 Nov 2007 51,085.50 51,085.00 0.50 Dec 2007 7,81,999.25 7,96,108.00 -14,109.75 Jan 2008 2,11,407.00 2,11,407.00 0.00 Feb 2008 2,95,912.00 2,95,912.00 0.00 March 2008 9,16,944.75 3,07,460.00 6,09,484.75 Total 53,35,228.25 47,39,851.00 5,95,377.25 As per assessee, all purchases were included in the closing stock as on 31.03.2008.

According to him, purchase report was a genuine document since details of all raw material, other than turmeric recorded in such purchase report tallied with the books of accounts. Thus, according to him, assessee had indulged in bogus purchase of turmeric. Purchase report as per ld. Assessing Officer reflected much less purchase during March, 2008 than the actual purchase claimed by the assessee. He held that assessee had actually purchased turmeric worth

ITA No.1992/Mds/2017 :- 7 -:

Rs.4,98,23,804/- only during the period 1.11.2007 to 31.03.2008 against accounted purchase of Rs.6,99,98,079/-. An addition of Rs.2,01,74,275/- was made for the impugned assessment year for inflation in purchase of turmeric.

Further, as per assessee, if the purchases of turmeric as per purchase report was considered, it resulted in negative sock. For substantiating this argument a work out was furnished as under:-

Asst. Opening Purchases Consumption Closing Production year Stock Stock 2009-10 694729 2216926 4862940 -1951284 4679595 2010-11 (-)1951284 4930420 6500127 -3520991 5489508 2011-12 (-)3520991 5136457 6438894 -4823428 5336850 2012-13 (-)4823428 7137171 6752850 -4439107 5946431 2013-14 (-)4439107 6781556 7416915 -5074466 6460421 2014-15 (-)5074466 6939116 8250676 -6386026 6805379

ITA No.1992/Mds/2017 :- 8 -:

Assessee also relied on assessment orders passed by the ld. Assessing Officer for assessment years 2009-2010 to 2015-16 u/s.153A r.w.s.143(3) of the Act. As per the assessee in such assessments, ld. Assessing Officer had gave a clear finding that purchase of turmeric as per books of accounts reflected the actual purchase. Further, as

per the assessee in the statement recorded from Shri. P.C. Duraisamy u/s.132(4) of the Act, he had specifically mentioned that details found in the purchase report were not reliable and the actual purchases were recorded in the books of accounts maintained in the computer system. Contention of the assessee was that purchase report was prepared only for its guidance’s and figures therein could not be considered as verified and correct. Ld. Commissioner of Income Tax (Appeals) after considering the submission of the assessee and also the records relied on by the ld. Assessing Officer, came to a conclusion that purchase report did not have in it any reliable figures. According to him, if the purchase report was adopted as correct it would result in negative stock. Further as per ld. Assessing Officer in the assessment orders for the assessment years 2009-2010 to 2015-16, ld. Assessing Officer himself had confirmed purchase of turmeric as recorded in the books of accounts maintained in the computer system of the assessee as the actual purchase. Again, according to him, if there was inflation in purchase in turmeric as

ITA No.1992/Mds/2017 :- 9 -: concluded by the ld. Assessing Officer then there would have been some difference in physical stock when the search was conducted.

Thus, according to him, addition made by the ld. Assessing Officer, solely based on the purchase report could not be sustained. He deleted the addition made by the ld. Assessing Officer.

Now before us, ld. Departmental Representative strongly 10. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that except for turmeric all other items in purchase report tallied with the books of accounts. According to him, purchase report was a reliable document, since all figures therein, except these for turmeric were correct. Only possible conclusion according to him is what was recorded with regard to turmeric was also correct. Purchase of turmeric shown by the assessee for the month of March, 2008 was much less than what was recorded in the books. According to him, by assessee’s own admission the purchase report was prepared for working out the average cost and therefore assessee would not have relied on incorrect data for such work out. Further, as per ld. Departmental Representative, ld. Commissioner of Income Tax (Appeals) placed undue reliance on assessment orders for assessment years 2009-10 to 2015-2016. Contention of the ld. Departmental Representative was that during the said period the purchase report

ITA No.1992/Mds/2017 :- 10 -: might have tallied with the books of accounts but that did not mean that figures for the impugned assessment year also tallied. Ld. Departmental Representative also made submissions on each of the supporting grounds 3 to 12 of the appeal, regarding confidential nature of purchase report, statements of Shri Sampath, disclosure made by assessee during course of search, absence of purchase bills for turmeric, reliability of the statement of Accountant Shri. D.

Selvakumar in respect of bought note, on the statement recorded from Shri. P.C. Duraisamy disputing the figures in brought note and on exceptionally high process loss claimed by the assessee. Thus, according to him, addition made by the ld. Assessing Officer were deleted by the ld. Commissioner of Income Tax (Appeals) without any good reasons.

Per contra, ld. Authorised Representative submitted that 11.

impugned assessment order was done after reopening. As per ld. Authorised Representative even during the scrutiny of original return no defect was found in the books of accounts. Further, as per ld. Authorised Representative purchase report on which reliance was placed by the ld. Assessing Officer was prepared in July, 2014 and not a contemporaneous document. Thus, according to him, ld. Commissioner of Income Tax (Appeals) was justified in deleting the ITA No.1992/Mds/2017 :- 11 -: addition, considering the assessment done for the subsequent years.

per the purchase report is adopted, it would result in negative stock as per the table reproduced in para 9 above. As against this ld. Assessing Officer was of the view that data in the purchase report tallied with what was in the computer system except for turmeric.

What we find is that the purchase report is admitted to be in the handwriting of Shri. Sampath an employee of the assessee. There was a statement recorded from Shri. Sampath on 04.12.2014 u/s.131(1A) of the Act. Questions 11, 13 and 15 posed to Shri.Sampath and his answers to the are relevant for adjudication the issue and these are reproduced hereunder:-

‘’11: In your answer to earlier questions, you had deposed that you had prepared the ITA No.1992/Mds/2017 :- 12 -: purchase reports and handed over to the MD Shri.P.C.Duraisamy. The aforesaid purchase report contain the details of turmeric purchase also. If it is so; how you have extracted the data for the purchase of turmeric and provide the details to your MD Shri P.C.Duraisamy. Ans: For turmeric purchase I have no data with me and hence, I collect the details of stock details from the system and on the basis of that I prepared the purchase report in respect of turmeric. Q.13: Now, I am showing the summary of turmeric purchase by M/s.Sakthi Masala Private Ltd. which was provided at the time of search u/s.132 on 12.09.2014 regarding the turmeric coriander and other raw materials the figures mentioned in those registers are perfectly matching with the purchase report why the figures in the purchase summary of turmeric does not match with the figures reflected in the purchase report? Further, you had deposed in. your answer to Q.No.11 that you had given the figure based on the stock summary. In that case, the summary report provided at the time of search does not match with your purchase report. Please explain the reasons in detail? Ans: I have seen the summary of turmeric purchase shown by you. I also accept that in my earlier answer to Q.No.11 I had deposed that I had prepared the purchase report based on the stock summary details. Now, I clarify that I had not taken the figures reflected in the stock summary for preparing the purchase report. I take the stock summary as a base and give the figures on my own. Hence, the turmeric purchase is not matching with the figures in the purchase report. Since the turmeric purchases are local purchases and it is looking after by the MD himself the question can be answered by him only.

ITA No.1992/Mds/2017 :- 13 -:

Q .15: Please state how this purchase report is prepared and when it is prepared? Ans: The-purchase report is prepared based on the registers maintained for each purchase and it represent the true purchases. This purchase report was prepared during the month of July, 2014. After preparing this report and after taking printout I have deleted all the data relating to purchase report’’.

There is also a statement recorded from Shri. D. Selvakumar, Accountant of the assessee on 04.12.2014. Question Nos.10 & 11 posed to him are also relevant. These question and the reply given by him are reproduced hereunder:-

’Q.I0: Are you maintaining any manual purchase register for Turmeric purchased by the company? Ans: No Sir, I am not maintaining any manual purchase register for Turmeric purchased by the company. Q.

ITA No.1992/Mds/2017 :- 14 -:

What we discern from the above is that, Shri. Sampath though he originally stated that the purchase report was based on actual purchases, had at a later stage retracted from such statement, in so far as turmeric was concerned. That there was no manual purchase register maintained for turmeric was confirmed by Shri. D.

Selvakumar, Accountant of the assessee also. In the statement recorded from Shri. P.C. Duraisamy, Managing Director u/s.132(4) of the Act on 12.09.2014, a question was posed on purchases of turmeric and this question and his answer are reproduced hereunder:-

‘’Q.12: Please go through the purchase report for the period from 2001-2014 and also go through the purchases recorded in your software for the period from 01.11.2007 to 31.03.2014 in respect of turmeric. As per the purchase report, the total value of purchases is Rs.239,23,32, 102/ - whereas the purchases recorded and claimed in the books of accounts is to the tune of Rs.298,99,23,326/-. Thus, the purchases are overstated to the tune of Rs.59,75,91,224/-. Please state as to why the above mentioned Rs.59,75,91,224/- should not be treated as corresponding over statement of expenditure in the books of accounts of the company M/s. Sakthi Masala Pvt. Ltd.?

Ans: I have gone through the purchase report and also the extracts obtained from the system marked as Annexure-Ill & IV respectively and also I hereby affix my signature for having gone through the same. I would like to clarify that the details found in the system alone represent the actual purchases and the details found in the ITA No.1992/Mds/2017 :- 15 -: purchase report are not reliable because the same were not supported by further details and therefore, I am not in a position to substantiate the details compiled in the purchase report. Further, I would like to state that the figures were compiled on approximation basis for determining average price at which we can buy from the market yard in Erode. Therefore, I request you to not consider the said working of difference in purchases shown in purchase report and purchases recorded in system where books of accounts are maintained regularly wherein quantitative details are available datewise and bill wise, which can be subjected to further verification’’.

Only conclusion that can be reached from all the above is that authenticity of the figures in the purchase report was doubtful. Ld. Assessing Officer in assessment orders for assessment years 2009-10 to 2015-16, based on proceedings initiated on the assessee u/s.153A r.w.s. 143(3) of the Act, subsequent to the search had observed as under:-

"Other than the "Purchase Report" seized from the premise of the assessee, there is no other evidence to substantiate that the purchase of turmeric as per the books of account is an inflated figure. The above analysis logically and factually affirms the argument of the assessee that the purchase of turmeric as per the books of account maintained in the system is the actual purchase. Books of account for all the years involved were filed along with all schedules, quantitative details of purchases, sales, opening and closing stock etc. Copy of returns filed with sales tax authorities, wherein

ITA No.1992/Mds/2017 :- 16 -: quantitative details of month wise purchase and sales recorded were also submitted. Quantitative details of receipts and issues of each raw materials finished goods and that had been sold off were also submitted, verified and reconciled with the books of account’’.

Thus, for all subsequent years ld. Assessing Officer had accepted the contention of the assessee that purchase report seized from the premises of the assessee could not be relied upon and purchase of turmeric as per books maintained in the system reflected the actual purchase. As already mentioned by us the difference of �2,01,74,275/- computed for the period 1.11.2007 to 31.03.2008 was the part of a larger difference of �59,75,91,224/- for the period 1.11.2007 to 31.03.2014 originally alleged by the Revenue. When for subsequent years it was found that no such difference were actually there, we cannot fathom how such difference could be presumed for impugned assessment year alone. In our opinion a different conclusion could not have been reached for the impugned assessment year based on the very same evidence considered for the subsequent years. Assessee was able to show that the purchase report did not have in it correct data with regard to turmeric. Ld. Commissioner of Income Tax (Appeals) in our opinion was therefore justified in deleting the addition. We do not find any reason to interfere with the ITA No.1992/Mds/2017 :- 17 -: order of the ld. Commissioner of Income Tax (Appeals).

Order pronounced on Tuesday, the 12th day of December, 2017, at Chennai.