M/S KRISHNA INDUSTRIES,RAIPUR vs. INCOME TAX OFFICER, WARD 1(2), RAIPUR, RAIPUR

The present appeal filed by the assessee firm is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 31.03.2022, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 22.12.2018 for assessment year 2016-17. The assessee has assailed the impugned order on the following grounds of appeal: “1. On the facts and circumstances of the case and in law, ld. CIT(A) has erred in sustaining addition of Rs.20,05,750 without giving opportunity to cross examine the alleged witness (third party statement); in absence of this, it is violation of principle of natural, justice which makes the order nullity as held in Andaman Timber Industries (2015) (SC); thus, addition of Rs.20,05,750 is liable to be deleted.

Succinctly stated, the assessee firm which is engaged in the business of manufacturing of rice and trading of food grains had e-filed its return of income for A.Y.2016-17 on 12.02.2016, declaring an income of Rs.2,63,040/-. Subsequently, the case of the assessee 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 had claimed to have made purchases of Rs.80.23 lacs from the following four parties:

Rebutting the aforesaid proposed action of the A.O, the assessee firm submitted before him that it had made genuine purchases from the aforementioned concerns. In support of its aforesaid claim, the assessee firm placed on record copies of the ledger accounts of the seller parties wherein transactions pertaining to the purchases in question were reflected. Also, copies of freight vouchers pertaining to the said purchases were filed before the A.O. It was further stated by the assessee that it had applied for copy of Mandi Aungya with Krishi Upaj Mandi and the same would be placed on record as and when received. However, the aforesaid claim of the assessee of having made genuine purchases from the aforesaid parties did not find favour with the A.O. Although the assessee was, inter alia, directed by the A.O to submit weigh bridge slips, challans of transportation, bilty etc. to substantiate the genuineness of its claim of having made genuine purchases from the aforesaid parties, however, it failed to do so. As the letters issued by the A.O to the aforesaid parties u/s.133(6) of the Act were returned unserved, therefore, he deputed an Inspector of the Income Tax Department to visit the respective addresses of the parties. In the report filed by the Inspector of Income-tax, it was stated by him

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without any success.

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

Ostensibly, the facts as are discernible from the orders of the lower authorities, reveals beyond doubt that the assessee had failed to substantiate the authenticity of the purchases of Rs.80.23 lac (supra) that were claimed to have been made from the aforementioned parties. In fact, nothing has been placed on record by the assessee to substantiate the authenticity of its claim of having made genuine purchases from the abovementioned concerns. Although, the A.O has specifically asked the assessee to produce weigh bridge slips, challans of transportation, bilty receipts etc. so that its claim of having made genuine purchases from the aforementioned parties could be verified but the assessee had failed to file the requisite documents. I find that the assessee except for placing on record copies of the purchase bills, copies of ledger accounts of the parties as appearing in its books of account, had absolutely failed to lead any such evidence on the basis of which it could safely be concluded that it had actually made genuine purchases from the aforementioned parties. On the contrary, the fact that the amounts paid by the assessee firm towards purchase consideration to the aforesaid parties were either on the same day or the day following withdrawn in cash from their bank accounts, fortifies

Apropos the grievance of Ld. AR that the A.O despite accepting the duly accounted sales of the assessee had grossly erred in treating the purchases in question as bogus, I am unable to fathom the said contention of the assessee. As the facts involved in the present case reveals beyond doubt that the assessee had not made any genuine purchases from the aforementioned parties, but had procured goods in question at a discounted value from the open/grey market, therefore, the A.O was duly justified in concluding that the assessee had inflated its purchases on the basis of bogus purchase bills procured from the aforementioned hawala parties. Accordingly, the A.O after rejecting the books of accounts of the assessee firm u/s. 145(3) of the Act had justifiably on an estimate basis disallowed 25% of the value of the impugned purchases in order to bring the same at par with the value at which the same would have actually been procured by him. Accordingly, finding no infirmity with the aforesaid view so taken by the A.O, I principally concur with him.

Adverting to the claim of the Ld. AR that addition made/sustained by the lower authorities is highly pitched/exorbitant, I to some extent concur with the said claim of the assessee. Admittedly,

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, 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, 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 of 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-

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 the 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, 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 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.

I, thus, in terms of my aforesaid observations restore the matter to the file of the A.O, with a direction to restrict the addition in the hands of the assessee as regards the impugned bogus/unverified

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