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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 present cross-appeals are directed against the order passed by the CIT(Appeals)-1, Raipur, dated 17.08.2018, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (for short ‘the Act’) dated 31.03.2016 for assessment year 2013-14. We shall first take up the appeal filed by the revenue in ITA No.11/RPR/2019 for A.Y. 2013-14 wherein the impugned order has been assailed before us on the following grounds of appeal:
“1. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs.26,76,511/- out of total addition of Rs.34,52,750/- ignoring the fact that these purchases are nothing but bogus purchases managed through bogus bills?" 2. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs.16,43,550/- on account of peak credits of purchases made from bogus concerns.?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs.1,49,79,900/- on account of short yield shown by the assessee in comparison to
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percentage of rice yield as mentioned in the contract executed by the assessee with Chhattisgarh State Govt. Authority.?" 4. "Whether on points of law and on facts & 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?" 5. "Whether on points of law and on facts as 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?" 6. "Whether on points of law and on facts & 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 Taxmann.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?" 7. Whether on points of law and on points of facts & 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.26,76,511/- out of total addition made by the AO as the assessee could not substantiate the alleged transaction as genuine by producing the relevant documents against the finding of the AO.?" 8. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee, if any without allowing the AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of I T Rules?" 9. "Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in restricting the addition upto only 3.26% out of total 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 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?"
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"Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) has erred in law by holding the decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which without conclusion is based?" 11. The order of Ld. CIT (A) is erroneous both in law and on facts. 12. Any other ground that may be adduced at the time of hearing.”
Succinctly stated, the assessee firm which is engaged in the business of running a rice mill and trading of food grains had filed its return of income for the assessment year 2013-14 on 04.09.2013, declaring an income of Rs.42,51,880/-. 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, inter alia, observed by the A.O that survey proceeding u/s.133A of the Act were conducted over the period 15.03.2016 to 18.03.2016 on certain brokers/entry providers and rice traders, which revealed that certain rice millers/traders had procured bogus bills from the brokers/entry providers without any actual purchase of goods. It was observed by the A.O that substantial incriminating material substantiating the aforesaid various activities of providing of bogus purchase bills had surfaced in the course of survey proceedings. It was noticed by the A.O that survey action was also carried out in the case of Nagarik Sahakari Bank, Raipur where some of the brokers/entry operators maintained their bank accounts. It was further
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observed by the A.O that certain brokers/entry operators had in their respective statements that were recorded on oath had admitted of having provided bogus bills to certain rice traders and millers without any actual supply of goods. Also, it was noticed by the A.O that certain rice millers had also admitted in their statements that were recorded on oath of being involved in nefarious activities of providing bogus bills without any corresponding sale of goods. The AO after considering the modus-operandi that was adopted by the brokers/entry operators and certain rice millers who had admitted of their involvement in providing/facilitating providing of bogus bills in lieu of commission, and after referring to their statements which were recorded u/s.131 of the Act a/w. that recorded in the course of their cross- examination by rice millers who were alleged by them as beneficiary, therein observed that the bogus purchase bills were being provided in the name of the following paper firms:
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The A.O on the basis of the aforesaid details observed that the assessee had claimed to have made purchases from six tainted parties whose names had
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figured in the aforesaid list of the paper concerns which were involved in providing bogus purchases bills, as under:
Sl. No. Fake Firm Name (Bogus Purchases) Amount in Rs. 1. Shri Shyamji Rice Industries, 44,54,830/- Abhanpur 2. Balaji Grain Processing Ind. Abhanpur 59,73,300/- 3. Samleshwari Foods, Raipur 12,60,000/- 4. Tulsi Agro, Raipur 10,40,000/- 5. Bajrang Foods Products, Raipur 2,29,600/- 6. Balaji Rice Ind., Raipur 8,53,300/- Total 1,38,11,030/-
The assessee rebutted the relance that was placed by the A.O on the statements of the aforesaid parties, for the reason that while for its case pertained to a period of three years ago while for the impugned statements were recorded only recently. In sum and substance, the assessee claimed to have made genuine purchases from the aforementioned parties.
The assessee on being called upon by the A.O to substantiate the authenticity of the purchase transactions in question by producing supporting documentary evidence, viz. gate pass, proof of transportation and purchase register etc., though produced the purchase bills but failed to place on record the transportation details. On being queried as to whether
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the impugned purchases were made directly or though brokers or through intermediaries it was stated by the assessee that the same were made directly and also through brokers. As the assesee could not on the basis of irrefutable documentary evidences i.e. lorry receipt and details of payment to the transporters substantiate the genuineness and veracity of its claim of having made genuine purchases from the aforementioned parties, therefore, the A.O held a conviction that the assessee had not made any genuine purchases from them. The aforesaid view of the A.O was further supported by the fact that the supplier parties had themselves admitted that they neither owned any godown nor had any stock available with them. The A.O in the totality of the facts involved in the case held the entire purchase that were claimed by the assessee to have been made from the aforementioned six tainted parties of Rs.1,38,11,030/- as bogus.
4.1 The A.O after treating the impugned purchases in question as bogus rejected the books of accounts of the assessee u/s.145(3) of the Act. Relying on the order of the ITAT, Ahemdabad in the case of in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.), the A.O impliedly being of the view that the assessee 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 accounts, but had factually procured the same from open/grey market, thus, made a disallowance of Rs.
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34,52,757/- i.e 25% of the value of bogus purchases i.e. Rs.1,38,11,030/-. The A.O further being of the view that the outstanding balances reflected in the books of accounts of the assesee firm against the name of the aforementioned six tainted parties was undisputedly bogus/non-existent, therefore, made an addition of the peak amount of purchases aggregating to Rs.16,43,550/- in its hands, as under:
Sl. No. Name of the party Peak Purchases (Rs.) 1. Shri Shyamji Rice Industries, 3,38,250/- Abhanpur 2. Balaji Grain Processing Ind. 3,91,000/- Abhanpur 3. Samleshwari Foods, Raipur 2,32,000/- 4. Tulsi Agro, Raipur 3,50,000/- 5. Bajrang Foods Products, 44,800/- Raipur 6. Balaji Rice Ind., Raipur 2,87,500/- Total 16,43,550/-
Also, the A.O holding a conviction that the assesee had shown shortage/suppressed yield of rice at 61.30% (total consumption of paddy : 114173 quintals against the rice production : 69983 quintals) which was far below as per the FCI norms i.e. 67% to 68%, thus, made an addition of the variance of 5.70% of total paddy consumption amounting to Rs.1,49,79,900/-. The A.O on the basis of his aforesaid deliberations after making the abovementioned additions/disallowances vide his order passed
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u/s.143(3), dated 31.03.2016 determined the income of the assessee firm at Rs.2,43,28,090/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals). Apropos, the addition made by the A.O as regards the bogus purchases though the CIT(Appeals) principally concurred with the same, but at the same time substituted the quantification of the profit element which the A.O had determined @25% of the value of the impugned purchases by the overall disclosed GP rate of the assessee firm for the year under consideration i.e 3.26%. Accordingly, the CIT(Appeals) on the basis of the aforesaid observation sustained the addition on the issue of bogus purchases to the extent of Rs.7,76,239/- (out of the addition of Rs.1,38,11,030/- that was made by the A.O).
The CIT(Appeals) as regards the addition that was made by the A.O towards peak addition of purchases appearing in the accounts of the tainted parties against whose names bogus purchases were booked by the assessee firm, was of the view that as the payment of the purchase consideration of the goods in question were made by the assessee through disclosed bank accounts, therefore, the peak concept would noty be applicable in its case. Accordingly, the CIT(Appeals) vacated the entire addition of Rs.16,43,550/- that was made on the said count by the A.O.
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On the issue of short/suppressed yield of rice of 5.70% (supra), it was observed by the CIT(Appeals) that the impugned addition was made by the AO on the basis of misconceived and incorrect facts. It was noticed by the CIT(Appeals) that the A.O while computing the yield of rice had failed to consider the quantity of broken rice. It was observed by the CIT(Appeals) that yield of rice of the assessee was in fact 68.25% which was well as per norms fixed by the state government. Accordingly, the CIT(Appeals) on the basis of the observations recorded in his order vacated the addition of Rs.1,49,79,900/- made by the A.O.
The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
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 that have been pressed into service by them to drive home their respective contentions.
As observed by us hereinabove the revenue by preferring the present appeal has sought our indulgence for adjudicating three issues, viz. (i). deletion by the CIT(Appeals) of an addition of Rs.26,76,511/- (out of total addition of Rs.34,52,750/-) that was made by the AO in respect of bogus purchases; (ii) deletion by the CIT(Appeals) of an addition of Rs.16,43,550/-
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that was made by the A.O towards peak amount of purchases that were claimed by the assessee to have been made from 6 bogus parties; and (iii) deletion by the CIT(Appeals) of an addition of Rs. 1,49,79,900/- that was made by the AO towards low yield of rice.
As the order of the CIT(Appeals) has been assailed by the department on the basis of multi-facet contentions before us, therefore, we shall deal with the same in a chronological manner as under:-
(A). Re : Bogus purchases :-
Controversy involved in the present appeal as regards the aforesaid issue hinges around the quantification of the profit which the assessee would have made by procuring the goods in question not from the aforementioned six bogus parties, but at a discounted value from the open/grey market. Ostensibly, the A.O for quantifying the amount by which the assessee would have inflated the impugned bogus purchases on the basis of bills procured from the aforesaid parties vis-a vis the actual price for which the same would have been actually procured by him had disallowed 25% of the value of bogus purchases. However, on appeal the addition made by the AO was scaled down by the CIT(Appeals) to 3.26% i.e. to the extent of the overall disclosed GP rate of the assessee for the year under consideration.
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As observed by us herein above, now when the assessee had admittedly purchased the goods in question from the open/grey market i.e from the sellers operating in the unorganized sector, but had routed the same through its books of accounts on the basis of bogus purchase bills of the aforesaid six parties, therefore, it can safely be concluded that by so doing it would have inflated the purchases in its books of accounts. We, say so, for the reason that the goods are available in the open/grey market i.e unorganized sector at a discounted value as in comparison to the price at which they are available in the organized sector. Undeniably the quantification of such price variance would require certain estimation for arriving at the profit/savings which the assessee would have made by procuring the goods from the open/grey market i.e the unorganized sector as against the price booked in its books of accounts. Although the aforesaid process of estimation can by no means lead to total accuracy but there should be some logical basis/reasoning forming the very basis of such estimation. We would however on a perusal of the basis adopted by both the lower authorities for estimating the profit/discounts which the assessee would have made/received by purchasing the goods from the open/grey market, mince no words in observing that the same in both the cases is totally devoid and bereft of any logical basis/reasoning. Admittedly, in a case where the assessee had purchased goods not from the organized sector but from the open/grey market, then, it can safely be concluded that he would
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have procured such goods at a discounted value by making savings on manifold factors, i.e., sales tax, other government levies, cash discounts etc. as in comparison to the price at which such goods would otherwise be available in the organized sector. As our indulgence in the present case is confined to the quantification of the profit which the assessee would have made by procuring the goods in question at a discounted value from the open/grey market, therefore, we restrict our adjudication to the said aspect alone.
We find that on the issue of quantification of the profit which the assessee would have made by procuring the goods in question from the open/grey market 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 No1004 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 bogus 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
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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 observed by the Hon’ble High Court that the addition in respect of purchases which were found to be bogus/unproved 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. We, thus, on the basis of the aforesaid observation of the Hon’ble High Court, are of the considered view that on the same lines the profit which the assesee would have made by procuring the goods at a discounted value from the open/grey market can safely be determined by
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bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.
Our attention was drawn by the ld. AR towards the bifurcated details of bogus purchases in question aggregating to Rs.1,38,11,030/-, viz. (i) purchase of 8050 quintals of broken rice: Rs.1,00,83,250/-; (ii) purchase of 2228 quintals of paddy : Rs.24,58,180/-; (iii) purchase of 600 quintals of bran : Rs.10,40,000/-; and (iv) purchase of 15000 gunny bags : Rs.2,29,600/-, along with the average purchase rate (per quintal/nos. of bags), which reads as under:-
PADDY A/C. Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 1,07,618.86 12,93,81,561 1,202.22 Less alleged bogus purchases 2,228 24,58,180 1,103.31 DIFF. 98.91 NETT 1,05,390.86 12,69,23,381 1,204.31 DIFF 101.00 MARKET RATE HIGHER
BROKEN RICE A/C Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 129824.09 184710242 1,422.77 Less alleged bogus purchases 8,050 1,00,83,250 1,252.58 DIFF. 170.20 NETT 1,21,774 17,46,26,992 1,434.02 DIFF 181.45 MARKET RATE HIGHER
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BRAN A/C. Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 3,250 56,55,000 1740.00 Less alleged bogus purchases 600 10,40,000 1,733.33 DIFF. 6.67 NETT 2650 46,15,000 1741.51 DIFF 8.18 MARKET RATE HIGHER GUNNY BAG A/C Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 3,60,859 65,25,636 18.08 15000 2,29,600 15.31 DIFF. 2.78 NETT 3,45,859 62,96,036 18.20 DIFF 2.90 MARKET RATE HIGHER
As observed by us herein above the entire exercise for quantifying the profit which the assessee would have made by procuring the goods in question at a discounted value from the open/grey market, i.e, by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases is that by so doing the monetary benefits which though would have accrued to the assessee, but had been withheld by it in its financial statements by booking the purchases at an inflated value on the basis of bogus purchase bills in its books of accounts would get neutralized.
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A). Paddy (2228 quintals of bogus/unproved purchases):
Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities (as can be gathered from the certificate filed along with his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of paddy were made by the assessee @1103.31 per quintal (average rate), as against the purchase of the genuine paddy that was made by him @ 1204.31 per quintal (average rate). On the basis of the aforesaid facts, now when the purchase rate of the bogus purchase of paddy (average rate) is of a lower value then that at which he had made genuine purchases of paddy (average rate), therefore, as per the ratio of the judgment of the Hon’ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason that as the Hon’ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the bogus purchases of paddy rate i.e Rs.1103.31 per quintal (average rate) is already lower than the genuine purchases of
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paddy rate i.e Rs.1204.31 per quintal (average rate), and as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of paddy as in comparison to the GP rate of genuine purchases of paddy is already on the higher side, therefore, no addition on the said count could have validly been made in its hands. We, thus, in terms of our aforesaid observations, vacate the addition of 3.26% of the value of bogus/unproved purchases of paddy of Rs.24,58,180/- (2228 quintals) sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs.80,137/- [Rs.24,58,180/- X 3.26%] sustained by the CIT(Appeals).
B). Broken Rice (8050 quintals of bogus purchases):
Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities (as can be gathered from the certificate filed along with his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of broken rice were made by the assessee @1252.58 per quintal (average rate), as against the purchase of the genuine broken rice that was made by him @ 1434.02 per quintal (average rate). On the basis of the aforesaid facts, now when the rate of bogus purchase of broken rice (average rate) is of a lower value then that at which he had made genuine purchases of broken rice (average rate), therefore, as per the ratio of the judgment of the Hon’ble High Court of
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Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason that as the Hon’ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the bogus purchases of broken rice rate i.e Rs.1252.58 per quintal (average rate) is already lower than the genuine purchases of broken rice rate i.e Rs.1434.02 per quintal (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of broken rice as in comparison to the GP rate of genuine purchases of broken rice is already on the higher side, therefore, no addition on the said count could have validly been made in its hands. We, thus, in terms of our aforesaid observations, vacate the addition of 3.26% of the value of bogus/unproved purchases of broken rice of (8050 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs.3,28,714/- [Rs.1,00,83,250/- X 3.26%] sustained by the CIT(Appeals).
C). Bran (600 quintals of bogus purchases):
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Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities (as can be gathered from the certificate filed along with his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of bran were made by the assessee @1733.33 per quintal (average rate), as against the purchase of the genuine bran that was made by him @ 1741.51 per quintal (average rate). On the basis of the aforesaid facts now when the purchase rate of the bogus purchase of bran (average rate) is of a lower value then that at which he had made genuine purchases of bran (average rate), therefore, as per the ratio of the judgment of the Hon’ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason that as the Hon’ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the rate of bogus purchases of bran i.e Rs.1733.33 per quintal (average rate) is already lower than the genuine purchases of bran rate i.e Rs.1741.51 per quintal (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate
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of bogus purchases of bran as in comparison to the GP rate of genuine purchases of bran is already on the higher side, therefore, no addition on the said count could have validly been made in its hands. We, thus, in terms of our aforesaid observations vacate the addition of 3.26% of the value of bogus/unproved purchases of bran of (600 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs.33,904/- [Rs.10,40,000/- X 3.26%] as had been sustained by the CIT(Appeals).
D). Gunny Bags (bogus purchases of 15000 gunny bags):
Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities (as can be gathered from the certificate filed along with his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of gunny bags was made by the assessee @15.31 per bag (average rate), as against the genuine purchase of genuine gunny bags that was made by him @ 18.20 per bag (average rate). On the basis of the aforesaid facts now when the rate of bogus purchase of gunny bag (average rate) is of a lower value than that at which he had made genuine purchases of gunny bag (average rate), therefore, as per the ratio of the judgment of the Hon’ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no justification for making any addition on the said count in the
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hands of the assessee. We, say so, for the reason that as the Hon’ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the bogus purchases of gunny bag rate i.e Rs.15.31 per gunny bag (average rate) is already lower than the genuine purchases of gunny bag rate i.e Rs.18.20 per gunny bag (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of gunny bags as in comparison to the GP rate of genuine purchases of gunny bag is already on the higher side, therefore, no addition on the said count could have validly been made in its hands. We, thus, in terms of our aforesaid observations vacate the addition of 3.26% of the value of bogus/unproved purchases of gunny bags of (15000 nos.) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs.7,485/- [Rs.2,29,600/- X 3.26%] as had been sustained by the CIT(Appeals). Before parting, we may herein observe that the support that is drawn by the department by relying on the judgment of the Hon’ble High Court of Bombay in the case of Shoreline Hotel (P) Ltd. Vs. CIT, Central -1 92018) 98 taxmann.com234 (Bom) and the order of the ITAT, Mumbai in the case of Soman Sun City Vs. JCIT, ITA No. 2960/Mum/2016, dated
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23.10.2017 being distinguishable on facts would not assist its case. Unlike the case of the present assessee before us, wherein the AO by disallowing 25% of the value of the bogus/unproved purchases had impliedly admitted that the sales corresponding to the impugned purchases were accounted for by the assessee in his books of accounts, in both the aforesaid cases it was found that the respective assessee’s could not prove the consumption/utilization of the goods in question in their business. The Grounds of appeal Nos. 1, 4 to 10 are dismissed in terms of our aforesaid observations
Now, we shall take up the grievance of the revenue that the CIT(Appeals) had erred in deleting an addition of Rs.16,43,550/- that was made by the A.O on account of peak purchase credit of the six parties from whom bogus purchases were admittedly claimed to have been made by the assessee.
Ostensibly, the A.O after referring to the modus operandi that would in normal routine be adopted by a beneficiary for obtaining bogus purchases bills, had observed, that after making payments to the accommodation entry provider/entry operator vide cheques/RTGS the said amount would be received back by the beneficiary in cash from them. Holding a conviction that in certain cases the amount would be returned by the accommodation entry provider/entry operator to the beneficiary after the amount would be
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credited in his bank account and withdrawn by him, which in several instances would involve substantial time, the AO, thus, was of the view that the assessee in order to satisfy the demand of funds would for the time being either manage to show some bogus liability or some advance payments suiting to the circumstances. On the basis of his aforesaid deliberations the A.O had made an addition of the peak credit running through the accounts of all the six parties aggregating to an amount of Rs.16,43,550/-.
On appeal, the CIT(Appeals) after deliberating on the issue in hand did not concur with the view taken by the A.O. It was observed by the CIT(Appeals) that it was not a case where the assessee has made certain purchases out of unaccounted cash which would justify the addition of peak of purchases. Accordingly, the CIT(Appeals) treating the addition as devoid and bereft of any merit vacated the same.
After hearing the Ld. Authorized Representatives of both the parties, we find substance in the claim of the Ld. AR that as it is not a case that the assessee had made any purchases from his unaccounted money, therefore, the very basis for making the impugned addition of peak purchases could not be sustained and had rightly been struck down. As observed by the CIT(Appeals) and, rightly so, the aforesaid addition has no legs to stand upon in the backdrop of the facts involved in the case before us. Admittedly, the payments towards the impugned purchases have been made by the
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assessee from his bank accounts which were duly disclosed in his books of accounts. In our considered view the concept of peak addition would come into play in a case where the assessee had made certain undisclosed purchases out of his unaccounted money lying in a bank account, wherein, after considering the withdrawals made from the said account the addition in all fairness has to be restricted to the extent of peak credit appearing in the said account.
Be that as it may, in our considered view, now when the assessee had admittedly made the payments for making the impugned purchases from his duly disclosed sources i.e. bank accounts, therefore, there could be no justification for the A.O to have made an addition of the amount of peak purchase of Rs.16,43,550/- (supra). We, thus, concur with the view taken by the CIT(Appeals) and uphold his order to the said extent. Thus, the Ground of appeal No.(s) 2 is dismissed in terms of our aforesaid observations.
We shall now advert to the grievance of the revenue that the CIT(Appeals) had erred in vacating the addition of Rs.1,49,79,900/- that was made by the A.O on account of short yield of rice as in comparison to the percentage of yield as mentioned in the contract that was executed by the assessee with Chhattisgarh State Government Authority.
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As observed by us hereinabove, the A.O was of the view that as the yield of rice of the assessee concern during the year was 61.30% (total consumption of paddy :114173 quintals against which the rice production : 69983 quintals) as in comparison to the yield of 67% to 68% that was fixed as per the norms of the State Government, thus, there was a suppressed yield of 6513 quintals of rice. Accordingly, the A.O valuing the suppressed yield i.e 6513 quintals @ Rs.2300 per quintal made a consequential addition of Rs.1,49,79,900/-.
We after hearing the Ld. Authorized Representatives of both the parties on the issue in hand find substance in the claim of the Ld. AR that as the addition was made by the A.O on the basis of misconceived and incorrect facts, thus, the same had rightly been vacated by the CIT(Appeals). On a perusal of the orders of the lower authorities, it transpires that the A.O while arriving at the assessee’s yield of rice (own milling) for the year under consideration at 61.30% had erred on two counts, viz. (i) that the actual yield of rice (own milling) was 62.65% and not 61.30% as stated by the A.O; and (ii) that the A.O had erred in not considering the 5.60% yield of kanka (broken rice). In sum and substance, though the yield of rice of the assessee was 68.25% [62.65% (rice) + 5.60% (kanka)], but the same was wrongly taken by the A.O at 61.30%. The CIT(Appeals) after considering the aforesaid issue had held as under:
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4.3 I have gone through the submission of the appellant and also perused the assessment order. As per the opinion of the Ld. AO the assessee that shown lesser yield than accepted figure of 67% therefore the value of shortfall should be added as concealed income. As per page 22 of agreement with state govt the yield of rice should be 67% and if it is usna variety of paddy then the yield should be 68%. AO has found that whereas the yield of assessee should be 67%, it has shown only 61.3%. This figure of 61.3% adopted by Ld AO is incorrectly taken and correct yield is 62.65% of rice and 5.6% of kanka (broken rice). Assessee has paddy purchase of 1,11,700 qtl on own account and 3,799 qtl for custom milling total being 1,15,499 qtl. The rice production is 69,983 qntl on own account and 2,473 qtl for custom milling, total being 72,456 qtl. The yield is 72456/115499 = 62.73% of rice. AO has not included the rice of 2473 qtl and has adopted yield of 69983/ (111700 +2479) = 61.3%. Appellant has furnished copy of agreement dated 1.06.2013 entered with Chhattisgarh Rajya Sahakari Vipanan Sangh Maryadit. This agreement is executed every season between the custom millers and Vipanan Sangh on behalf of state government. As per clause 6.1 of the agreement the quality of rice should be such that the yield will be 67% and if the rice is usna the yield should be 68%. If government of India makes any changes in the yield, both the parties will agree to comply the same. As per clause 7.5 of the said agreement the custom miller is bound to maintain quality of rice as fixed by the govt. of India. Assessee has furnished copy of letter dated 6 August 2012 of Department of Food & Public Distribution Ministry of Consumer Affair, Food & Public Distribution Govt of India addressed to Secretary Food & Civil Supplies of all state governments, which specifies the uniform specification for grade 'A' common rice. As per this specification, in the yield of rice, the various impurities should not exceed the following limits-
Refractions Maximum Limit % Grade A Common Broken Raw 25 25 Parboiled 16 16 Foreign matter 0.5 0.5 Damages grains Raw 3 3
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Parboiled Discoloured Raw 3 3 grains Parboiled 5 5
As seen above, the yield of 67 or 68% (usna) the percentage of various impurities etc. should be within the limits prescribed as reproduced here. Broken rice along with other impurities is part of accepted quality of rice as per these norms, provided the quantity of broken rice does not exceed 25% in case of raw rice and 16% in case of usna rice. AO has excluded the broken rice while deciding the yield criteria. Together with the broken rice (kanka) of 5.6% the yield of the assessee is (62.65 + 5.6) is 68.25. Therefore the assessee's yield is as per accepted level. The yield in AY 2011-12 was 68.57% and in AY 2012-13 was 68.63% which have been accepted in the assessment. In the remand report the Ld. AO has opposed this plea of the assessee, which I do not find to be valid. The reason being that in the schedule of quality to be maintained by rice millers in the state, the maximum limit of various impurities have been prescribed. Thus, in the rice which has to be supplied to the state govt., in case of grade A rice of Raw variety, as per above table the quantity of broken rice should not exceed 25%, foreign matter should not exceed 0.5%, damaged/slightly damaged grains should not exceed 3.0% and so on. Therefore if the yield has been fixed at 67% which means assessee has t6 supply 67 qtls of rice for every 100 qtls of paddy, then in such rice weighing 67 qtls, the broken rice and various other components should be within the above limits. Thus in the prescribed yield broken rice is very much included and AO's case that yield should not include broken rice has not basis. Therefore, no addition is warranted on the basis of yield.” We, thus, on a perusal of the aforesaid observations of the CIT(Appeals) are persuaded to subscribe to the view arrived at by him. As observed by the CIT(Appeals) and, rightly so, as the yield of rice as per norms of the State Government was 67% (68% for Usna variety of paddy) while for that in the case of the assessee worked out at 68.25% i.e. after considering 5.60% of
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Kanka (broken rice), therefore, there was no justification on the part of the A.O to conclude that the same was below the norms fixed by the state government. As a matter of fact, as observed by the CIT(Appeals) by referring to the specification of various impurities fixed by the government the broken rice (kanka) a/w. other impurities form a part of the accepted quality of rice as per the norms fixed, though, subject to the condition that the quantity of broken rice does not exceed 25% in case of raw rice and 16% in case of Usna rice. Controversy in hand had arisen primarily for the reason that the A.O had excluded the yield of broken rice (kanka) while working out the yield criteria. As the yield of rice alongwith yield of broken rice (kanka) works out at 68.25%, therefore, in our considered view the CIT(Appeals) had rightly vacated the adverse inferences drawn by the A.O.
Apart from that, we find that a perusal of the yield of rice of the assessee during the year under consideration as in comparison to that of the immediately preceding two years which had been accepted by the department in the course of respective scrutiny assessments for the said years, further fortifies its claim that no adverse inferences as regards its yield of rice for the year under consideration was liable to be drawn. For the sake of clarity the comparative yield position for the year under consideration as also of those for the immediately preceding two years is culled out as under:
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S. Assessment year 2013-14 2012-13 2011-12 2008-09 * No. (Qntls.) yield % (Qntls.) yield % (Qntls.) yield % (Qntls.) yield % 1. Paddy Milled 111700 - 109700 - 29300 - 85900 - 2. Rice obtained 69983 62.65% 72258 65.87% 19674 67.15% 54486 63.43% 3. Kanki (Broken Rice) obtained 6260 5.6% 3029 2.76% 416 1.42% 3455 4.02% Total of Rice Yield 68.25% 68.63% 68.57% 67.45% 4. Bran obtained 5595 5.01% 5465 4.98% 1465 5.00% 4768 5.55% 5. Total yield 73.26% 73.61% 73.57% 72.9%
We, thus, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs.1,49,79,900/- made by the assessee on account of short yield of rice uphold his order to the said extent. Thus, the Ground of appeal No.3 is dismissed in terms of our aforesaid observation. ITA No.210/RPR/2018 A.Y.2013-14
We shall now deal with the appeal filed by the assessee wherein the impugned order has been assailed on the following grounds of appeal: “1. That under the facts and the law, the learned CIT (Appeals) erred in maintaining addition by applying gross profit rate (as per accounts) i.e., 3.26% on so-called suspicious purchases of Rs.2,38,11,030/- and maintained addition of Rs.7,76,239/- which be deleted. 2. That under the facts and the law, the learned CIT (Appeals) erred in maintaining addition of Rs.7,76,239/- on suspicious purchases of Rs.2,38,11,030/- (correct figure is Rs. 1,38,11,030/-) whereas the Appellant has already offered profit on sale out of impugned purchases and the impugned purchases were duly recorded in
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accounts and in quantity record. Prayed, the addition of Rs.7,76,239/- is uncalled-for and be deleted. 3. That without prejudice, under the facts and the law, the learned CIT (Appeals) further erred in applying gross profit rate of 3.26% on Rs.2,38,11,030/- whereas the correct figure of impugned purchase is Rs.1,38,11,030/-. Prayed, without prejudice that no addition is called-for, the addition be restricted on Rs.1,38,11,030/-.”
At the very outset of the hearing of the appeal it was submitted by the Ld. AR that the CIT(Appeals) had grossly erred in law and facts in adopting the aggregate amount of bogus purchases that were claimed to have been made from six parties in question at an amount of Rs. 2,38,11,030/- (as against the actual amount of Rs. 1,38,11,030/-) and thus, had wrongly worked out the disallowance by applying the overall disclosed GP rate of 3.26% on the same. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as culled out by the A.O in the body of the assessment order the total purchases made by the assessee from the six parties aggregated to an amount of Rs.1,38,11,030/-. The Ld. A.R in order to buttress his aforesaid contention had taken us through Page 42 of the assessment order wherein the aggregate amount of the impugned purchases were shown at Rs.1,38,11,030/- (supra).
We have given a thoughtful consideration to the aforesaid issue in hand. As we have while disposing off the revenues appeal in ITA No. 11/RPR/2019 had deliberated on the issue of quantification of the profit/savings which the assessee would have made on the bogus purchases
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in question, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposing off the present appeal filed by him in ITA No. 210/RPR/2018. Accordingly, the appeal filed by the assessee is disposed off in terms of our aforesaid observations. Thus, the Grounds of appeal No.(s) 1 to 3 are disposed off in terms of our aforesaid observations.
In the result, appeal of the assessee is disposed off in terms of our aforesaid observations.
Resultantly, the appeal of the revenue is dismissed while for that of the assessee is disposed off in terms of our aforesaid observations.
Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- ARUN KHODPIA RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 17th October, 2022 ***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.