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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI ARUN KHODPIA
आदेश / ORDER
PER RAVISH SOOD, JM:
The captioned appeals filed by the revenue are directed against the respective orders passed by the CIT(Appeals)-I, Raipur dated 06.07.2018 and 28.09.2018, which in turn arises from the orders passed by the A.O. u/s.143(3) of the Income-tax Act, 1961 (for short ‘Act’) dated 27.12.2016 & 15.12.2017 respectively for assessment years 2014-15 & 2015-16. As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order.
We shall first take up the appeal filed by the revenue in A.Y.2014-15, and the order therein passed shall mutatis mutandis apply for disposal of the other appeal filed by the revenue in for A.Y.2015-16. The revenue has assailed the impugned order on the following grounds of appeal before us:
3 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
“1. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs. 5,37,29,238/- out of total addition of Rs.5,59,67,956/- ignoring the fact that these purchases are nothing but bogus purchases managed through bogus bills?" 2. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in ignoring the affirmation on oath in statements recorded u/s 131 of the I.T. Act by the proprietors of the concerns, during investigation by the Income Tax Department, thereby admitting and confessing on oath that these concerns are bogus entities indulging in accommodation entries and providing bogus bills only?" 3. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in ignoring the ratio of the ITAT Mumbai in the case of Soman Sun City Vs. JCIT, wherein it was held that purchases could not be treated as genuine even if the purchase bill produced and payment is made through banking channel and other evidence is lacking?" 4. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in ignoring the ratio of the Hon'ble Bombay High Court in case of Shoreline Hotel(P) Ltd. Vs CIT, Central-1[2018] 98 Taxman.com 234(Bombay) wherein it has been held that if assessee could not produce any material purchased by it nor it could ensure presence of supplier, the addition under section 69C on the basis of GP ratio is unjustified?" 5. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was justified in deleting the addition of Rs.5,37,29,238/- out of total addition made by the AO as the assessee could not substantiate the alleged transactions as genuine by producing the relevant documents against the finding of the AO?" 6. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in accepting the fresh evidences produced by the assessee, if any without allowing the AO proper opportunity to examine the same, thereby violating the provision of law under 46A of the I.T.Rules?" 7. "Whether on points of law and on fact & circumstances of the case, the Ld.CIT(A) was justified in restricting the addition in the ratio of GP of current year which is contrary to the evidence on record as the alleged concerns have not sold any items to the assessee, indulgence of such concerns providing of bogus bills only
4 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 in lieu of commission with the help of brokers, as relied upon by the AO in his assessment order a finding which is factually incorrect thereby rendering a decision, which is perverse?" 8. "The order of the Ld.CIT(A) is erroneous both in law and on facts." 9. "Any other ground that may be adduced at the time of hearing."
Succinctly stated, the assessee company which is engaged in the business of manufacturing and trading of rice and its by-products had e- filed its return of income for A.Y. 2014-15 on 29.09.2014, declaring an income of Rs.41,67,120/-. Subsequently, the case of the assessee company 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 company had claimed to have made purchases of broken rice from the following tainted parties:
Sr. Name of the Bogus firm Amount of Peak purchase Date of peak No. purchase amount purchase 1. M/s. Maa Sharda Process, Rs.4,51,11,475/- Rs.4,68,750/- 12/05/2013 Raipur 2. M/s. Shrikhand Agrotech, Rs.1,73,37,500/- Rs.4,85,000/- 07/02/2014 Abhanpur 3. M/s. Krishna Processors, Rs.5,65,06,250/- Rs.4,68,750/- 26/06/2013 Raipur 4. M/s. Sakshi Gopal Rs.1,68,52,500/- Rs.4,87,500/- 13/01/2014 Corporation 5. M/s. Bajrang Food Products Rs.44,25,000/- Rs.4,87,500/- 16/01/2014 6. M/s. Hardaha Agency Rs.1,73,20,000/- Rs.4,87,500/- 14/01/2014 Abhanpur
5 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
M/s. Agrawal Agro, Raipur Rs.63,75,000/- Rs.4,87,500/- 09/02/2014 8. M/s. Shree Annapurna Foods Rs.35,00,000/- Rs.4,87,500/- 16/01/2014 Raipur 9. M/s. Shri Tulshi Agro Raipur Rs.2,23,84,750/- Rs.4,87,500/- 19/12/2013 10. Shri Shyamji Rice Agrotech, Rs.62,75,000/- Rs.4,87,500/- 11/01/2014 Raipur 11. M/s. Shri Sanjeevni Agro Rs.2,77,84,350/- Rs.4,87,500/- 19/12/2013 Products, Abhanpur Total Bogus purchase Rs.22,38,71,825/- Rs.53,22,500/- The A.O considering the fact that the aforesaid tainted parties from whom the assessee company had claimed to have made purchases of Rs.22,38,71,825/- were in the course of investigation found to be bogus firms, thus called upon the assessee to substantiate the authenticity of the impugned purchase transactions on the basis of supporting documentary evidence. As the assessee company failed to discharge the onus that was cast upon it as regards substantiating the authenticity of the aforesaid purchase transactions in question by placing on record supporting documentary evidence, viz. gate entry pass, proof of transportation, purchase register etc., therefore, the A.O rejected its claim of having made genuine purchases from the aforementioned parties and dubbed the same as bogus purchases.
6 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
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 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
7 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 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.22,38,71,825/- in question as bogus, rejected the books of accounts of the assessee u/s.145(3) of the Act. The A.O by relying on the order of the ITAT, Ahmedabad in the case of Vijay Proteins Ltd. Vs. ACIT, (1996) 58 ITD 428 (Ahd.), was of the view that the assessee company had purchased the goods in question not from the aforementioned tainted parties from whom only bills were procured for routing the same through its books of account, but had procured such goods at a discounted value from the open/grey market. Accordingly, the A.O on the basis of his aforesaid conviction disallowed 25% of the value of bogus purchases and made a consequential addition of Rs.5,59,67,956-/- to the assessee’s returned income. On the basis of his aforesaid deliberations the A.O vide his order passed
8 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 u/s.143(3), dated 27.12.2016 determined the income of the assessee company at Rs.6,56,57,576/-.
7. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) observing that the assessee’s GP rate was already highly pitched at 9.3% as in comparison to 2% to 6% in the case of rice millers, thus, sustained the disallowance of Rs.22,38,718/- i.e. @1% of the value of unsubstantiated purchases of Rs.22,38,71,825/- and vacated the balance disallowance that was made by the A.O.
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
9. 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 from the aforementioned 11 tainted parties, therefore, the A.O had in all fairness disallowed 25% of the value of such bogus purchases. It was further submitted by the Ld. DR that as the CIT(Appeals) had without any basis or reasoning restricted the addition to 1% of the value of the impugned purchases, therefore, the order so passed by him being devoid and bereft of any basis could not be sustained and was liable to be set- aside.
9 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
Per contra, the Ld. Authorized Representative (for short ‘AR’) for the assessee had at the very outset supported the order of the CIT(Appeals). It was averred by the Ld. AR that the CIT(Appeals) in the backdrop of the overall GP rate of 9.3% disclosed by the assessee company, which was substantially highly pitched as in comparison to the GP rate of 2% to 6% disclosed by identically placed rice millers, had in all fairness restricted the addition to 1% of the value of bogus/unsubstantiated purchases. Apart from that, it was the claim of the Ld. AR that as the purchases made by the assessee during the year under consideration were in no way found to be inflated as in comparison to the preceding year, therefore, there was no substance in the appeal of the department which had sought to dislodge the well-reasoned order of the CIT(Appeals). On a specific query by the Bench as to whether the copies of delivery challans, gate entry pass a/w. other proof of transportation as regards the purchases claimed by the assessee company to have been made from the above-mentioned parties were made available either before the A.O or before the CIT(Appeals), the Ld. AR answered in the negative.
We 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
10 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 that have been pressed into service by them to drive home their contentions.
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 company 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 company from the aforementioned parties.
As the assessee company had failed to discharge the primary onus that was cast upon it as regards proving the authenticity of its claim of having made genuine purchases from the aforementioned 11 parties in question, therefore, it can safely be concluded that it had procured the goods in question not from the said parties but at a discounted value from the open/grey market. Considering the aforesaid facts, we are principally in agreement with the lower authorities that the assessee would have procured the goods from the open/grey market at a discounted value as 11 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 against that booked in its books of accounts on the basis of bogus bills of the aforementioned tainted parties.
As the assessee company had not made any genuine purchases from the aforementioned 11 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 @25% of the value 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 disallowance at Rs.22,38,718/- i.e. @ 1% of the value of the unsubstantiated purchases of Rs.22,38,71,825/-. As the very basis adopted by the lower authorities in making/sustaining the addition in the hands of the assessee company is neither supported by any material or basis, therefore, we are unable to persuade ourselves to subscribe to the same.
12 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
Ostensibly the assessee company had purchased the goods in question not from the aforementioned 11 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, 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 other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under:
13 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019
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."
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 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, we are of the considered view that on the same lines
14 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 the profit made by the assessee in the case before us by procuring the goods at a discounted value from the 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.
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 made by the assessee by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases.
Before parting, we may herein observe that the Ld. AR had placed on our record, viz. (i) overall GP rate of the assessee company for the year under consideration; and (ii) GP rate of the genuine purchases, as under:
S.N Particulars Page No. AY 2014-15 1. GP rates as per books 1 9.30% 2. GP rate after deducting:- 2 & 3 9.18% 1. Alleged bogus purchase 2. Sales related to alleged bogus purchase 3. Difference in GP rate, if GP at Nil Sr. No.1 is less than GP at Sr. No.2. 4. Details of sales relating to 4 - alleged bogus purchases
15 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 As the aforesaid details filed by the Ld. AR before us were not there before the lower authorities, therefore, we herein direct the A.O to consider the same in the course of the set-aside proceedings after making necessary verifications to his satisfaction. Be that as it may, the A.O shall in the course of set-aside proceedings, in terms of our aforesaid observations, quantify the profit element which the assessee company would have made by procuring the goods in question at a discounted value from the open/grey market by bringing the GP rate of the bogus/unsubstantiated purchases at the same rate as that of other genuine purchases, and thus, restrict the addition to the said extent. Needless to say, the A.O shall in the course of set-aside proceedings afford a reasonable opportunity of being heard to the assessee.
In the result, appeal of the revenue in A.Y.2014-15 is allowed for statistical purposes in terms of our aforesaid observations. A.Y.2015-16 21. As the facts and issues involved in the captioned appeal remains the same as were there before us in the revenue’s appeal in 2014-15, therefore, our order therein passed while disposing off the said appeal shall apply mutatis- mutandis for disposing off the captioned appeal i.e., ITA No.13/RPR/2019
16 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 for assessment year 2015-16. In this case also, we restore the matter to the file of the A.O with similar directions as were recorded in A.Y.2014-15.
Before parting, we may herein observe that the Ld. AR had placed on our record, viz. (i) overall GP rate of the assessee company for the year under consideration; and (ii) GP rate of the genuine purchases, as under:
S.N Particulars Page No. A.Y.2015-16 1. GP rates as per books 1 10.67% 2. GP rate after deducting:- 2 & 3 11.57% 1. Alleged bogus purchase 2. Sales related to alleged bogus purchase 3. Difference in GP rate, if GP at 0.90% Sr. No.1 is less than GP at Sr. No.2. 4. Details of sales relating to 4 - alleged bogus purchases As the aforesaid details filed by the Ld. AR before us were not there before the lower authorities, therefore, we herein direct the A.O to consider the same in the course of the set-aside proceedings after making necessary verifications to his satisfaction. Be that as it may, the A.O shall in the course of set-aside proceedings, in terms of our aforesaid observations, quantify the profit element which the assessee company would have made
17 ACIT-1(1), Raipur Vs. M/s. Tirupati Balaji Foods Pvt. Ltd. ITA No.13/RPR/2019 by procuring the goods in question at a discounted value from the open/grey market by bringing the GP rate of the bogus/unsubstantiated purchases at the same rate as that of other genuine purchases, and thus, restrict the addition to the said extent. Needless to say, the A.O shall in the course of set-aside proceedings afford a reasonable opportunity of being heard to the assessee.
In the result, appeal of the revenue in for A.Y.2015-16 is allowed for statistical purposes in terms of our aforesaid observations.
In the combined result, both the appeals of the revenue are allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 20th day of April, 2023.
Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 20th April, 2023 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :
1. 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,