ROSHAN LAL AGRAWAL,KORBA vs. INCOME TAX OFFICER , WARD-3, KORBA (C.G.)
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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 12.05.2023, which in turn arises from the order passed by the AO under Sec. 143(3) of the Income- tax Act, 1961 (in short ‘the Act’) dated 20.12.2018 for assessment year 2011- 12. The assessee has assailed the impugned order on the following grounds of appeal:
“1. That under the facts and the law, the Ld. Commissioner of Income Tax (Appeals), NFAC Delhi erred in confirming the addition of Rs.22,78,200/- made by the Ld. Assessing Officer being bogus purchases. Prayed to delete the addition of Rs.22,78,200/-. 2. That the appellant reserves right to add, amend or alter any ground or grounds of appeal at the time of hearing with due permission of the Honourable Court.”
Succinctly stated, the assessee which is engaged in the business of running a rice mill under the name and style of M/s. Agrawal Rice Mill, Pahanda, Korba (C.G.) had filed his return of income for A.Y.2011-12 on 07.10.2011, declaring an income of Rs.6,22,230/-.
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On the basis of information received from the Assistant Director of Income Tax (Inv-1), Raipur, that as per details shared by Commercial Tax Department, the assessee was one of the beneficiaries who had taken bogus purchase bills amounting to Rs.10,35,950/- and Rs.12,42,250/- from two tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader respectively, the A.O initiated proceedings u/s.147 of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had, inter alia, claimed to have purchased paddy/broken rice from the following two parties:
S. No. Name of the party Total Purchase 1. M/s. Balaji Traders, Raipur 10,35,950/- 2. M/s. Shubh Laxmi Traders, Raipur 12,42,250/- Total 22,78,200/-
In order to verify the authenticity of the aforesaid purchase transactions, the A.O though issued notice(s) u/s.133(6) of the Act to both the aforementioned parties on 26.11.2018 but the same were returned by the postal authority with remark “Not Known” of this address. Considering the aforesaid facts, the A.O called upon the assessee to put forth an explanation as to why the purchases that were claimed to have been made from the aforesaid hawala /accommodation entry provide concerns may not be treated as bogus and
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added to his income. Accordingly, the A.O directed the assessee to substantiate his claim of having made genuine purchases from the aforementioned parties. On a perusal of the details filed by the assessee, it was observed by the A.O that though the assessee had submitted bills/vouchers for purchases of the parties from whom paddy was purchased by him, but no bills/vouchers in support of purchases that was stated to have been made from the aforementioned parties, viz, M/s. Balaji Trader and M/s. Shubh Laxmi Trader were produced before him for verification of the same. Also, it was noticed by him that no transportation details regarding the purchase transactions under consideration were filed by the assessee. Further, it was observed by the A.O that the assessee at the time of examination of his books of accounts had also failed to submit bilty of the trucks pertaining to the aforesaid transactions under consideration a/w. the weighbridge slips.
Considering the aforesaid facts, it was observed by the A.O that the assessee had merely procured /arranged the aforesaid purchase bills from the aforementioned tainted parties in order to facilitate accounting of the cash purchases which he would have made from outside the mandi, i.e. from open/grey market. Also, the A.O called for the requisite information from the Commercial Tax Officer, Circle-1, Korba u/s.133(6) of the Act, which revealed
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that the purchases claimed by the assessee to have been made from the aforementioned parties, i.e. M/s. Balaji Trader and M/s. Shubh Laxmi Trader aggregating to Rs.22.78 lacs (approx.) were held as bogus purchases by the said department.
On the basis of his aforesaid deliberations, the A.O, after rejecting the books of accounts of the assessee u/s.145(3) of the Act, therein, vide his order passed u/s.143(3) dated 20.12.2018 held the purchases of Rs.22.78 lacs (supra) as bogus, and after making an addition of the entire amount of the same to his returned income, assessed his income at Rs.29,00,430/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. The CIT(Appeals) observing that the assessee had failed to substantiate the genuineness of the purchase transactions under consideration by placing on record supporting documentary evidence, i.e. delivery challans, transport bills etc., and had also that the notice(s) issued by the A.O u/s.133(6) of the Act to the said parties were returned back by the postal authority with the remark “Not Known”, thus held a conviction that no infirmity did emerge from the order of the A.O who had rightly dubbed the said purchases as bogus.
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Apropos the claim of the assessee that the name of the aforementioned parties has been changed, viz. the name of M/s. Shubh Laxmi Traders was changed to M/s Samleshwari Foods and the name of M/s. Balaji Traders was changed to M/s.Shakambari Agrotech, both of which were registered dealers under VAT Act, the same did not find favor with the CIT(Appeals). Accordingly, the CIT(Appeals) upheld the addition made by the A.O by observing as under: “7.1 I have carefully considered the submission of the appellant as reproduced in the preceding paragraph and the facts emanating from the AO's order, wherein addition has been made. The brief facts of the case are that the Investigation Wing of Commercial Tax Department took an elaborate exercise in Raipur and detected and identified many paper concerns who were issuing merely the Bills without affecting any delivery of goods. Accordingly, the beneficiaries who have obtained bogus purchase Bills from these concerns were identified and the information was shared with the various Departments. It was in this context that the information in the case of appellant was received by the AO in respect of bogus purchase made by the appellant from two parties namely M/s Balaji Traders and M/s Shubh Laxmi Traders. In order to examine the genuineness of purchased of the appellant from these two parties, the AO asked the assessee to proof that the purchase Bills are genuine and are duly supported by delivery challans and transport Bills etc. The appellant outrightly denied to have made any purchases from the said parties instead of making any efforts to file any evidence in this regard. Thereafter, notices u/s. 133(6) were issued by the AO to both these parties which were returned back with remarks "Not known". 7.2 During the appellate proceedings, the appellant continued his stance and completely denied to have made any purchases from M/s Balaji Traders and M/s Shubh Laxmi Traders. Moreover, the appellant in his reply dated 07.05.2023 as reproduced above has placed reliance on a number of cases where the Hon'ble ITAT, Surat Bench, on similar facts of the case, has taken a view that 5% disallowance of impugned bogus purchases is reasonable. However, the case of appellant is distinguishable from all the case laws cited in the sense that in all those cases the purchase even though made from bogus Hawala dealers but the same were duly recorded in the regular books of account of respective parties, whereas in the case of appellant the purchases from above mentioned two bogus parties were not recorded in the regular books of account. 7.3 In his submissions the appellant has submitted that the name of two parties namely M/s Shubh Laxmi Traders has been changed to shri
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Samleshwari foods and the name of M/s Balaji Traders has been changed to M/s Shakambari Agrotech and both are registered dealer under Vat Act. However, the appellant is completely silent regarding the non-compliance of inquiry notices issued by the AO u/s. 133(6) to these parties. The facts remains that both these parties were found to be Hawala dealers and merely change of name will not alter the prime fact that these parties were issuing bogus Bills. Accordingly, I do not find any merits in the submission of appellant, who could not discharge his onus to prove the genuineness of said purchases. 8. In the result the appeal of the appellant is dismissed. Order passed under section 250 read with section 251 of the Act.”
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
I have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by Ld. AR to drive home his contentions.
Admittedly, it is a matter of fact borne from the record that the assessee in the course of the proceedings before the lower authorities had failed to substantiate the genuineness of his claim of having made purchases from the aforementioned tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader. As the aforementioned parties were dubbed as bogus parties by the Commercial Tax Department, therefore, a very heavy onus was cast upon the assessee to substantiate the authenticity of his claim of having made genuine purchases from the aforesaid parties which, I am afraid that he had failed to
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do by placing on record documentary evidence to the satisfaction of the A.O. Apart from that, it is a matter of fact borne from record that the notice(s) u/s.133(6) of the Act which were issued by the A.O to both the aforementioned parties were returned by the postal authority with remark “Not Known”. Also, the assessee had failed to place on record delivery challans, inward details etc. which would have proved its claim of having made genuine purchases from the aforementioned parties. Considering the aforesaid facts which had not been dislodged on the basis of any material in the course of the proceedings before me, I have no hesitation in concurring with the view taken by the lower authorities that no genuine purchases were made by the assessee from the aforementioned concerns.
It is the claim of Shri G.S. Agrawal, Ld. Authorized Representative (for short ‘AR’) for the assessee that as the name(s) of the aforementioned suppliers/parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader were changed to M/s. Samleshwari Foods and M/s. Shakambari Agrotech, therefore, for the said reason proper verification about the genuineness of the purchase transactions in question could not be made in the course of the proceedings before the lower authorities. Carrying his contention further, it was stated by the Ld. AR that as the purchases made by the assessee from the aforementioned two concerns were duly reflected in his quantitative
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records for the year under consideration, therefore, there was no justification for the A.O to have disallowed/added the entire amount of the purchases made by the assessee from the said concerns. My attention was drawn by the Ld. AR to the day to day quantitative records (paddy), Page 1 of APB, which is culled out as under:
S. Date Particulars Party name Inward Outward Closing No. QTY (in QTY ( In QTY ( In Quintal) Quintal) Quintal) 1. 01.04.2010 Opening - - 1476.71 stock 2. 23.08.2010 Purchase Krishi Mandi, 120.00 0.00 1596.71 Janjgir Champa 3. 28.08.2010 Sale M/s. ABR 0.00 148.00 1448.71 Agency, Ranchi 4. 31.08.2010 Purchase Shri Samleshwari 200.00 0.00 1648.71 Foods 5. 19.09.2010 Purchase Shri Samleshwari 1000.00 0.00 2648.71 Foods 6. 20.09.2010 Purchase Sakambari 1000.00 0.00 3648.71 Agrotech 7. 21.09.2010 Transfer to Custom Milling 0.00 2000.00 1648.71 8. 30.09.2010 Purchase Krishi Mandi, 501.00 0.00 2149.71 Janjgir Champa 9. 08.01.2011 Sale M/s. Agarwal 0.00 201.00 1948.71 Rice Products, Korba 10. 15.03.2011 Purchase Krishi Mandi, 600.00 0.00 2548.71 Janjgir Champa 11. 16.03.2011 Purchase Krishi Mandi, 510.00 0.00 3058.71 Janjgir Champa
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17.03.2011 Purchase Krishi Mandi, 390.00 0.00 3448.71 Janjgir Champa 13. 31.03.2011 Transfer Custom Milling 2000.00 0.00 5448.71 from
On the basis of the aforesaid facts, it was the claim of the Ld. AR that as the purchases in question, i.e. those made from the aforementioned parties, i.e. M/s. Balaji Trader and M/s. Shubh Laxmi Trader (renamed as M/s Samleshwari Foods and M/s.Shakambari Agrotech) were duly accounted for by the assessee in his books of accounts, therefore, in case the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties were to be doubted, then, the addition was liable to be restricted only to the extent of the profit which the assessee would have made by procuring the goods at a discounted value from the parties operating outside the mandi, i.e from open/grey market. The Ld. AR in order to fortify the authenticity of his claim that the “Closing stock” (of paddy) of 5448.71 Qtls. (including purchases made from the aforementioned two parties) was duly disclosed in his books of account, therein, took us through the “Purchase account” (paddy)- Page 3 of APB and the details of “Cl. stock” of Raw Material (paddy) that was reflected at 11597.67 Qtls in “Annexure B” of his “audit report” in Form 3CB. On the basis of the aforesaid facts, it was claim of the Ld. AR that now when the assessee had duly accounted the purchases of
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paddy made from the aforementioned parties in his regular books of accounts, therefore, there was no justification for the A.O to have made addition/disallowance of the entire amount of said purchases while assessing his income for the year under consideration.
As observed by me hereinabove, it is the claim of the assessee before us that the name(s) of both the aforementioned tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader was changed to Samleshwari Foods and M/s. Shakambari Agrotech. On the basis of his aforesaid contention, it is the claim of the Ld. AR that now when purchases in the name(s) of the aforementioned concerns (though against their new names) were duly accounted for by the assessee in his books of account, therefore, in case authenticity of the purchases that was claimed by the assessee to have been made from the said parties was not to be accepted, then the addition in his case was liable to be restricted only to the extent of the profit which the assessee would have made by procuring the goods i.e paddy at a discounted value from the open/grey market.
Although I am principally in agreement with the claim of the Ld. AR that in case it is proved that the assessee had purchased the goods not from the aforementioned parties but from the parties operating outside mandi, i.e. those operating in open/grey market, then, there would be no justification for the A.O
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to have make addition/disallowance of the entire amount of purchases, and the same to the most could only be restricted to the extent of profit which the assessee would have made while procuring such goods at a discounted value from open/grey market, but at the same time cannot summarily accept the said contention as correct on the very face of it. I, say so, for the reason that the claim of the assessee about change in the name of the aforementioned tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader to new name(s) viz. M/s Samleshwari Foods and M/s. Shakambari Agrotech is except for the aforesaid claim of the Ld. AR, is not supported by any material/documentary evidence. Accordingly, in absence of any material which would prove to the hilt the aforesaid claim of the assessee about change of name(s) of the aforesaid parties, I am afraid that the same does not inspire any confidence and cannot be summarily accepted.
Apart from that, I find that the “Closing stock” (paddy) as is disclosed on 31.03.2011, Page 1 of APB, i.e. in the “statement of day to day quantitative records” filed by the assessee does not tally with that disclosed in “Annexure- B” forming part of the audit report in “Form 3CB” filed by the assessee for the year under consideration, Page 31 and Page 44 of APB.
Considering the aforesaid facts, I am of a firm conviction that the matter in all fairness requires to be restored to the file of the A.O for making
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necessary verification as regards both of the aforesaid issues, viz. (i) the fact that the names of both the aforesaid parties had been changed as claimed by the assessee/Ld.AR; and (ii). the impugned discrepancies in the “Closing stock” of paddy as disclosed in the quantitative records of the assessee, Page 1 of APB as against that disclosed in “Annexure-B” of the audit report in “Form 3CB”, Page 31/44 of APB.
In case the A.O after carrying out necessary verifications on both of the aforesaid issues finds the claim of the assessee in order, then, the A.O is directed to restrict the addition in the case of the assessee to the extent of the profit which the assessee would have made by procuring the goods in question (i.e paddy) at a discounted value from parties operating outside the mandi, i.e in the open/grey market, as in comparison to the price booked in his books of account. In so far the issue of quantification of such profit element is concerned, I find that the Hon’ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, ITA No. 1004 of 2016, dated 11.02.2019 while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate as those of
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other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under:
“8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs."
It was, thus, observed by the Hon’ble High Court that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of
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such bogus purchases at the same rate as that of other genuine purchases. On the basis of the aforesaid observations of the Hon’ble High Court, I am of the considered view that on the same lines the profit made by the assessee in the case before me by procuring the goods (paddy) at a discounted value from the parties operating outside the mandi, i.e in open/grey market, can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.
I, thus, in terms of my aforesaid observations restore the matter to the file of the A.O. However, as a word of caution, I may herein observe that the aforesaid exercise of restricting the addition in the case of the assessee, i.e to the extent of the profit which the assessee would have made by procuring the goods (paddy) at a discounted value from the parties operating outside the mandi, i.e those operating in the open/grey market, as against the price at which such purchases have been disclosed in his books of accounts shall only be resorted only on cumulative satisfaction of three conditions, viz. (i). the assessee is able to substantiate to the satisfaction of the A.O its claim about change in the name(s) of the aforementioned tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader to new name(s) viz. M/s Samleshwari Foods and M/s. Shakambari Agrotech; (ii). that the assessee is able to prove that the purchases (paddy) claimed by him to have been made from both the
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aforementioned tainted parties, viz. M/s. Balaji Trader and M/s. Shubh Laxmi Trader amounting to Rs.10,35,950/- and Rs.12,42,250/-, respectively, were duly accounted for in his books of accounts; and (iii). the assessee is able to reconcile before the A.O the “Closing stock” (of paddy) of 5448.71 Qtls. on 31.03.2011 (including purchases made from the aforementioned two parties) – as disclosed in his “day to day quantitative records (paddy)”, Page 1 of APB ; as against the “Cl. stock” of Raw Material (paddy) that was reflected at 11597.67 Qtls in “Annexure B” of his “audit report” in Form 3CB.
Resultantly, the matter is restored to the file of the A.O in terms of our aforesaid observations. Needless to say, the A.O shall in the course of the set-aside proceedings shall afford a reasonable opportunity of being heard to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes in terms of my aforesaid observations.
Order pronounced in open court on 14th day of September, 2023. Sd/- (रवीश सूद /RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 14th September, 2023. #***SB
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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals)-1, Raipur (C.G) 4. The Pr. CIT-1, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुर ब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
