INCOME TAX OFFICER, WARD-2(1), RAIPUR vs. MESERS GOYAL AGRO INDUSTRIES, RAIPUR

The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 04.07.2019, which in turn arises from the order passed by the A.O. u/s.143(3) of the Income-tax Act, 1961 (for short ‘Act’), dated 31.03.2016 for A.Y. 2013-14. The revenue has assailed the impugned order on the following grounds of appeal before us:

Succinctly stated, the assessee firm which is engaged in the business of running a rice mill and trading of rice, broken rice and bran had e-filed its return of income for A.Y. 2013-14 on 26.09.2013, declaring an income of Rs.7,82,250/-. Subsequently, the case of the assessee firm was selected for scrutiny assessment u/s.143(2) of the Act.

During the course of the assessment proceedings, it was observed by the A.O that the assessee firm had claimed to have made purchases of paddy, rice, broken bran and bardana from the following tainted parties:

The A.O further in the course of the assessment proceedings observed that a survey operation u/s.133A of the Act was conducted at the business premises of Shri Sanjay Sharma, Hanuman market, Raipur and Shri Kamlesh Kesharwani, commission Agent, Ramsagarpara, Raipur on 15.03.2016, which revealed that certain rice millers would procure bogus bills from brokers/entry operators without any actual purchase of goods. It was observed by the A.O that substantial incriminating material evidencing the aforesaid facts were found in the course of the survey proceedings. The A.O also noticed that survey action was carried out in the case of Nagarik Sahakari Bank, Raipur where some of the brokers/entry operators maintained their bank accounts. It was further observed by the A.O that brokers/entry operators had in their respective statements that were recorded on oath u/s.131 of the Act admitted of having provided bogus bills to rice traders and millers without any actual supply of goods. Also, it was noticed by the A.O that certain rice millers had in their statements that were recorded on oath admitted of being involved in the nefarious activities of providing bogus bills without any corresponding sales of goods. After deliberating at length on the modus-operandi that was 5 ITO-2(1) Vs. M/s. Goyal Agro Industries adopted by the brokers/entry operators and certain rice millers who had admitted of their involvement in providing/facilitating bogus bills in lieu of commission, and referring to their statements which were recorded u/s.131 of the Act a/w. those recorded in the course of their cross examination by rice millers who were alleged by them as beneficiary, it was observed by the A.O that brokers namely, Shri Sanjay Sharma, Shri Aditya Sharma, Shri Kamelsh Kesharwani, Shri Ghansham Rijwani and Shri Narad Sahu had stated on oath that they had provided bogus entries or bogus bills to various rice millers. It was also observed by the A.O that the assessee had failed to substantiate the genuineness of the purchases that were claimed to have been made from the aforementioned parties on the basis of supporting documentary evidences.

The A.O after treating the impugned purchases of Rs.1,72,43,900/- in question as bogus, relied on the order of the ITAT, Ahmedabad in the case of Vijay Proteins Ltd. Vs. ACIT, (1996) 58 ITD 428 (Ahd.), and was of the view that the assessee firm had not purchased the goods in question from the aforementioned tainted parties. Accordingly, the A.O on the basis of his aforesaid conviction disallowed the entire amount bogus purchases and made a consequential addition of the same to the assessee’s returned income. On the basis of his aforesaid deliberations the A.O vide his order passed u/s.143(3), dated 31.03.2016 determined the income of the assessee firm at Rs.1,90,46,150/-.

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) was of the view that in the line of business of rice millers in the state the GP rate varied from 3% to 10% depending on various factors such as price of paddy paid by the government, level of crop production and quantity of procurement committed by the state government. Accordingly, the CIT(Appeals) adopting the GP rate @8%, therein, referring to the GP rate of 4.17% that was disclosed by the assessee firm during the year made an addition @ 3.83% [8%(-) 4.17%] on the bogus purchases of Rs.1,72,43,900/- and sustained an addition of Rs.6,60,442/-( out of Rs.1,72,43,900/-).

The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. As the assessee respondent despite having been intimated about the hearing of appeal had failed to put up an appearance before us, therefore, we are constrained to proceed with and dispose off the appeal as per Rule 25 of the Appellate Tribunal Rules, 1963, i.e, after hearing the appellant revenue and perusing the orders of the lower authorities.

The Ld. Departmental Representative (for short ‘DR’) relied on the order of the A.O. It was vehemently submitted by the Ld. DR that as the assessee had failed to discharge the primary onus that was cast upon it as regards proving the authenticity of its claim of having made purchases

We have heard the Ld. DR, perused the orders of the lower authorities and the material available on record.

We have given a thoughtful consideration to the issue in hand, i.e., dubbing of the impugned purchases as bogus by the lower authorities, as well as quantification of the profit which the assessee would have made by procuring the same at a discounted value from the open/grey market. Admittedly, as the assessee firm had failed to place on record copies of delivery challans a/w. other supporting documents which would have substantiated the authenticity of the aforesaid purchase transactions in question, therefore, the lower authorities had concluded that no genuine purchases were made by the assessee firm from the aforementioned parties.

As the assessee firm had failed to discharge the primary onus that was cast upon it as regards proving the authenticity of its claim of having

As the assessee firm had not made any genuine purchases from the aforementioned 2 parties in question, therefore, we shall now deal with the quantification of the profit which it would have made by procuring the goods under consideration at a discounted value from the open/grey market i.e. as against the inflated value at which the same had been booked on the basis of bogus bills in its books of account.

We find on a careful perusal of the order of the A.O that he had not given any cogent reason for working out the disallowance of the entire amount of the impugned bogus/unsubstantiated purchases. In fact, the only reason which can be gathered from a perusal of the assessment order is the reliance placed by the A.O on the order of the ITAT, Ahmedabad in the case of Vijay Proteins Ltd. (1996) 58 ITD 428 (Ahd.). Also, we are not impressed with the manner in which the CIT(Appeals) had sustained the 9 ITO-2(1) Vs. M/s. Goyal Agro Industries disallowance at Rs.6,60,442/- i.e. @ 3.83% of the value of the unsubstantiated purchases of Rs.1,72,43,900/-. As the very basis adopted by the lower authorities in making/sustaining the addition in the hands of the assessee firm is neither supported by any material or basis, therefore, we are unable to persuade ourselves to subscribe to the same.

Ostensibly the assessee firm had purchased the goods in question not from the aforementioned 2 parties, but at a discounted value from the parties operating in open/grey market. Our indulgence in the present appeal boils down to the quantification of the profit element which the assessee would have made by procuring the goods in question at a discounted value from the open/grey market.

Admittedly the addition in the hands of the assessee is liable to be restricted only to the extent of the profit which it would have made by procuring the goods at a discounted value from the open/grey market as against the inflated value at which the same were booked on the basis of the bogus bills in its books of account. In so far the issue of quantification of the profit which the assessee would have made by procuring the goods in question from the open/grey market is concerned, we 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, of 2016, dated 11.02.2019 while upholding the order of the Tribunal, had observed,

We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the assessee w.r.t the impugned bogus/unverified purchases by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Thus, Grounds of appeal No.(s) 1 to 3 raised by the revenue are allowed for statistical purposes in terms of our aforesaid observations.

On a perusal of the assessment order, it transpires that the A.O had observed that the assessee had though raised a claim of deduction of hamali expenses of Rs.19,70,192/- but the same were merely supported by self made vouchers. It was observed by the A.O that the assessee had not maintained any register for day to day works done by the hamals. It was further observed by the A.O that the vouchers did not contain the details of works and spot/location of the work. Apart from that, it was observed by the A.O that as the assessee had procured bogus purchases bills for substantial quantity of various goods, therefore, the corresponding hamali charges pertaining to the said bogus purchases could not be sustained. Accordingly, the A.O on the basis of his aforesaid observations, made an ad-hoc disallowance of Rs.5 lac out of assessee’s claim of hamali expenses.

We have heard the Ld. DR as regards the aforesaid issue under consideration. Although the A.O had observed that the assesee’s claim for deduction of hamali expenses were merely supported by certain self-made cash vouchers but strangely he had not referred any single instance where any such voucher was not found to his satisfaction. Apart from that, in the backdrop of our aforesaid observations that the assessee though had not procured goods in question from aforementioned parties from whom only purchase bills were obtained but had made such purchases from open/grey market, therefore, the very basis adopted by the A.O for drawing

We, thus, in terms of our aforesaid deliberations are unable to persuade ourselves to subscribe to the ad-hoc disallowance of Rs.5 lac towards hamali expenses made by the A.O. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the said disallowance, uphold his order. Thus, Ground of appeal No.4 raised by the revenue is dismissed in terms of our aforesaid observations.

We, thus, in terms of our aforesaid observations, finding no infirmity in the order of the CIT(Appeals) who had rightly vacated the disallowance of Rs.5.20 lacs out of milling expenses, thus, uphold his order to the said extent. Thus, Ground of appeal No.5 raised by the revenue is dismissed in terms of our aforesaid observations.

In the result, appeal of the revenue is partly allowed for statistical purposes in terms of our aforesaid observations.