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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 appeal filed by the department is directed against the order passed by the CIT(Appeals)-I, Raipur dated 04.09.2018, 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. Before us the department has assailed the impugned order 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. 2,11,01,475/- out of total addition of Rs. 2,35,71,800/ - 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. 30,55,700/- made by the AO on account of peak purchases credit without appreciating the fact of the case that outstanding expenditure at the end of the year relating the alleged concerns are also bogus and non-genuine?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 10,39,700/- made by the on account of short yield in comparison to the percentage of yield as mentioned in contract executed with Chhattisgarh State Government Authority?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 11,07,64,618/- out of total addition of Rs.11,55,49,250/- made by the AO on account of unaccounted sales by applying the ratio of GP @ 2.62% without appreciation the fact of the case that the assessee has shown the goods in the name of bogus concerns?" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs.
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84,91,733/- out of total addition of Rs. 1,59,41,676/ - made by the AO on account of bogus sundry creditors without appreciating the fact of the case and sustained the only credit balances of such bogus creditors not the total transactions made by the assessee?" 6. "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?" 7. "Whether on points of law and on facts & 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?" 8. "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 it was 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?" 9. Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in ignoring the ratio of Hon'ble Delhi High Court in the case of CIT-II vs. Jansampark Advertising & Marketing (P.) Ltd. reported in [2015] 56 taxmann.com 286(Delhi) held that "though it is obligation of assessing officer to conduct proper scrutiny of material, in even of assessing officer failing to discharge his functions properly, obligation to conduct proper inquiry shifts to commissioner(Appeals) and Tribunal and they cannot simply delete addition made by assessing office on ground of lack of inquiry." 10. 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 deletion the 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.?"
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"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?" 12. "Whether on points of law and on facts & 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 in lieu of commission, as relied upon by the AO in his assessment order a finding which is factually incorrect thereby rendering a decision, which is perverse?" 13. "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? 14. The order of the Ld. CIT(A) is erroneous both in law and on facts? 15. Any other ground that may be adduced at the time of hearing.”
Succinctly stated, the assessee who is engaged in the business of running a rice mill and trading of paddy, rice, broken rice etc. had e-filed his return of income for A.Y.2013-14 on 02.09.2013, declaring an income of Rs.11,47,166/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
On the basis of information that had surfaced in the course of survey proceedings conducted u/s. 133A of the Act on certain entry providers and the business premises of the assessee on 15.03.2016, it was
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observed by the A.O that the assessee as a beneficiary had obtained bogus purchase bills. It was observed by the A.O that the entry providers in their respective statements recorded u/s.133A and u/s.131(1) of the Act had demonstrated the modus-operandi that was adopted by them for providing bogus purchase bills. It was also noticed by the A.O that some of the entry providers had in their respective statements, inter alia, stated on oath that they had provided bogus bills in lieu of commission to the assessee concern. It was categorically stated by the aforesaid entry providers that neither they owned any godown or actual stock nor had carried out any genuine purchases/sales of goods. The assessee on being confronted with the aforesaid statements while cross examining of the aforesaid entry operators admitted of having procured bogus entries through them. In the statement recorded in the course of survey proceeding u/s.133A, dated 22.03.2016 the assessee had admitted that though certain purchases were made from various other firms but the same were routed through his books of accounts in the garb of bogus bills of the aforementioned bogus concerns. The assessee on being specifically directed to furnish the details of purchases which were made by him through bogus firms had vide his reply dated 22.03.2016 furnished details of such purchases which were claimed to have been made from seven tainted parties aggregating to an amount of Rs.8,32,72,000/-. However, the aforesaid details were thereafter
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revised by the assessee vide his reply dated 30.03.2016 to an amount of Rs.9,42,87,200/-, as under:-
S. No. Name of the party Total Purchases 1. M/s. Siddhi Vinayak Agro 3,94,87,500/- Industries 2. M/s. Sakshi Gopal Corporation 8,00,000/- 3. M/s. ShrikhandAgrotech 30,50,000/- 4. M/s. Eden Rice Mill 1,73,75,000/- 5. M/s. Balaji Rice Mill 1,81,41,000/- 6. M/s. Balaji Grain Processing 1,10,15,000/- Unit 7. M/s. Balaji Rice Industries 1,07,18,700/- Total 9,42,87,200/-
The A.O considering the fact that the assessee had admittedly procured goods in question not from the aforementioned seven parties but from the open/grey market, thus, rejected his books of account u/s.145(3) of the Act. The AO further holding a conviction that the assessee by procuring bogus purchase bills would have booked purchases at an inflated value, i.e, at an amount higher than that at which the same would have been actually procured by him, thus, disallowed 25% of the value of the impugned purchases and made a consequential disallowance of Rs.2,35,71,800/- ( 25% of Rs.9,42,87,200/-). Also the A.O after referring
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to the modus operandi that would have been adopted by the assessee for procuring bogus purchases bills from various entry operators, therein, made an addition of peak amount of purchases that were claimed by the assessee to have been made from the aforementioned bogus parties aggregating to an amount of Rs.30,55,700/-, as under:
S. No. Name of the party Total Purchases Peak Purchases Bill No./Date of purchase 1. M/s. Siddhi Vinayak Agro 3,94,87,500/- 4,72,500/- 1149/05-11-2012 Industries 2. M/s. Sakshi Gopal 8,00,000/- 4,00,000/- 353/29-05-2-12 Corporation 3. M/s. ShrikhandAgrotech 30,50,000/- 4,00,000/- 552/29-05-2-12 4. M/s. Eden Rice Mill 1,73,75,000/- 4,72,500/- 589/05-11-2012 5. M/s. Balaji Rice Mill 1,81,41,000/- 4,27,500/- 333/05-10-2012 6. M/s. Balaji Grain Processing 1,10,15,000/- 4,27,500/- 578/07-10-2012 Unit 7. M/s. Balaji Rice Industries 1,07,18,700/- 4,55,700/- 490/26-11-2012 Total 30,55,700/-
The A.O also taking cognizance of the fact that the yield of rice of the assessee i.e. 65% was lower than that fixed as per the norms of the State Government i.e. 67% (Usna variety : 68%), thus, concluded that the assessee had suppressed 2% of yield of rice during the year under consideration. Accordingly, the A.O quantified the shortfall/suppression of yield of rice at 562 quintals and made an addition of Rs.10,39,700/-
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(562quintals X Rs. 1850 per quintal). It was further observed by the A.O that the assessee had during the year under consideration debited an amount of Rs.38,81,114/- under the head rack expenses. On being queried, it was claimed by the assessee that the said expenditure was incurred by him during the year towards transportation of 23,565 quintals of rice/broken rice through railways. On the basis of verifications carried out by the A.O from the Station Manager, SECR, Tilda about the quantitative details of rakes which were dispatched by the assessee during the year under consideration, it was intimated that the assessee had during the year dispatched 409260 of rice/ broken rice quintals and had paid an amount of Rs.3,71,19,103/- towards transportation charges. On the basis of the aforesaid information the A.O called upon the assessee to explain as to why difference of 385695 quintals of rice may not be treated as his suppressed sales. In reply, it was the claim of the assessee that as on several occasions he would not have full load of rake, therefore, the same was completed with the help of other parties who would make the corresponding payments through demand drafts. It was submitted by the assessee that he had claimed the transportation expenses of Rs. 38,81,114/- as regards the 23565 quintals which were loaded by him. It was further claimed by the assessee that 82615 quintals were loaded by the buyers who had made payments for the corresponding transportation charges. Accordingly, the assessee came forth with an explanation as
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regards 106180 quintals [23565 quintals + 82615 quintals] of rice/broken rice that was over the year loaded in the railway rakes. The AO considering the aforesaid explanation of the assessee called upon him to explain the balance unaccounted sales of 303080 quintals of rice[409260 quintals (-) 106180 quintals]. In his reply the assessee filed with the A.O rake details which, inter alia, revealed that in the list of parties who were claimed to have dispatched/transported their goods through railway rakes booked by the assessee there were four such parties which were admittedly bogus firms from whom bogus bills were procured by the assessee. The A.O on the basis of the aforesaid facts called upon the assessee to explain as to why the value of goods that were allegedly dispatched by the aforesaid four bogus firms amounting to Rs. 16,10,44,860/- may not be treated as his suppressed sales. In reply it was the claim of the assessee that the possibility of goods being sent through those concerns by some other parties could not be ruled out. The A.O considering the aforesaid facts called upon the railway authorities to furnish details as regards the procedure that was involved in rake booking. Information was thereafter received by the AO from the railway authorities, wherein, it was intimated to him that the rakes were booked in the name of an individual and only his goods were loaded in the booked rake and nobody else’s goods were loaded. Also the railway authorities furnished with the A.O the copy of declaration that was given by the assessee in respect of rakes booked by
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him during the year alongwith full details of goods loaded in each wagon. The complete details of the payments that were made by the assessee were also provided by the railway authorities which revealed that the entire amount of payments were made by the assessee himself. The A.O considering the claim of the assessee that the goods of certain other parties were also dispatched in the railway rakes that were booked by him, thus, called upon him to furnish details a/w. documentary evidences to fortify his aforesaid claim. In reply, the assessee though filed with the A.O the names of the third parties whose goods were stated to have been dispatched/transported in the railway rakes booked by him a/w corresponding details of quantity of such goods and details of payments made by such third parties, but he failed to produce or submit any documentary evidences in support of his said claim. The A.O by referring to the statement of Shri. Manjesh Kumar, Chief Goods Clerk, South Eastern Central Railway (SECR), Raipur Division, Tilda railway station that was recorded by him u/s 131(1)(d) of the Act on 30.03.2016 observed, that as per information provided by the concerned authorities the railways used to load the rake with the stock of only that person who had booked the same. The AO in support of his aforesaid conviction also relied upon the declaration about the quantitative details of each wagon that was filed by the assessee with the railway authorities. The AO considering the aforesaid facts did not find favour with the claim of the assessee and concluded that
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the 303080 quintals (supra) of rice that was transported by him through railway rakes over the year was in fact his unaccounted sales. Accordingly, the AO after adopting the sale price of Rs.1525/- per quintal quantified the value of the unaccounted sales at an amount of Rs.46,21,97,000/- (303080 quintals X Rs. 1525 per quintal). Thereafter, the AO relying on the order of the ITAT, Ahmadabad in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.) worked out the addition as regards the suppressed sales @ 25% of value of the unaccounted sales and made a consequential addition of Rs.11,55,49,250/-(46,21,97,000 X 25%). Also, the A.O made an addition of an amount aggregating to Rs.1,59,41,676/- that was shown by the assessee in the name of four sundry creditors, viz. (i) M/s. Shivshankar Chawal Udyog : Rs.65,00,000/-; (ii) M/s. Amira Pure Foods Pvt. Ltd. : 16,60,433/-; (iii) M/s. Lal Mahal Ltd. :Rs. 9,49,943/-; and (iv) M/s. Shri Shyamji Rice Industries: Rs.68,31,300/-, as the unexplained income of the assessee. After, inter alia, making the aforesaid additions/disallowances the A.O vide his order passed u/s.143(3), dated 31.03.2016 determined the income of the assessee at Rs.16,04,24,940/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). The CIT(Appeals) though principally approved the view taken by the A.O that the assessee had not made any genuine purchases from the parties in question, but after referring to the overall disclosed GP rate
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of the assessee for the year under consideration i.e. 2.62%, therein, restricted the addition only to the extent of 2.62% of the value of the impugned purchases.
5.1. The CIT(Appeals) on the issue of addition that was made by the AO towards peak credit of purchases was of the view that as it was not a case that the assessee had made any payment for making the bogus/unproved purchases out of his unaccounted money, therefore, the A.O had misconceived the factual position and had wrongly made the addition, thus, vacated the entire addition of Rs.30.50 lacs (approx.).
5.2 The CIT(Appeals) on the issue of the addition on account of impugned low yield of rice that was made by the A.O, referred to the facts in context of the aforesaid issue, and observed, that the A.O had proceeded with on the basis of incorrect facts. It was noticed by the CIT(Appeals) that the A.O had failed to consider the yield of broken rice while arriving at the total yield of rice of the assessee at 65%. The CIT(Appeals) considering the fact that the total yield of rice of the assessee worked out at 68% [ 65% of rice + 3% of Kanka (broken rice)], which was in excess of yield of rice of 67% as was fixed as per the norms of the State government, thus, vacated the addition of Rs.10,39,700/- that was made by the A.O.
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It was further observed by the CIT(Appeals) that the AO on the issue of addition that was made by him on account of unaccounted sales of 303080 quintals of rice that was transported by the assessee through railway rakes that were booked by him on 16 occasions during the year, had relied on the statement of a railway authority which was recorded at the back of the assessee, i.e., without affording him any opportunity to rebut the same. It was observed by the CIT(Appeals) that a perusal of the statement of Shri Manjesh Kumar, Chief Goods Clerk, SECR, Tilda, Raipur revealed that the railway authorities were not concerned as to whose goods the allottee had loaded so long the details of the goods were prepared and signed by him. It was further noticed by the CIT(Appeals) that the aforesaid person had categorically stated that the railway authorities were only concerned that the wagons are loaded properly and locked, wagons are duly secured and all the details of the goods being transported are listed and signed by the person who had booked the railway rake. It was observed by the CIT(Appeals) that the aforementioned person had clearly stated that loading of the goods was the full responsibility of the person who had booked the railway rake. It was further observed by the CIT(Appeals) that the claim of the assessee that as a matter of trade practice the goods of certain other persons were also transported in the railway rakes which were booked by him was supported by the very fact that the assessee himself had during the year transported 56876.75
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quintals of rice valued at Rs.10.09 crore through railway wagons which were booked by a total of 18 third parties. Also, it was observed by the CIT(Appeals) that the assessee had transported 80131 quintals of broken rice valued at Rs.11.52 crore through the wagons which were booked by third parties during the year under consideration. As the aforesaid details were in the nature of additional documentary evidence which were filed by the assessee before him for the very first time under Rule 46A of the Income-tax Rules, 1962, therefore, the CIT(Appeals) after affording an opportunity to the A.O, who raised a general objection to the admission of the said documents, thus, taking cognizance of the fact that the assessee in the course of the assessment proceeding was not given any opportunity to file the aforesaid documentary evidence admitted the same.
Adverting to the explanation of the assessee as regards the bifurcated details of 405145.50 quintals of rice that was transported/dispatched through 16 railway rakes that were booked by him during the year, it was observed by the CIT(Appeals) that though the assessee had filed confirmations of the parties who had transported 208221 quintals (worth Rs.33,39,70,241/-) in the aforesaid railway rakes but had failed to file confirmations in respect of balance 107127.50 quintals of rice/broken rice (worth Rs.18,26,19,512/-), which though were also claimed by him to have been loaded and transported/dispatched by
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the other parties. The CIT(Appeals) considering the aforesaid facts was of the view that the 107127.50 quintals of rice (worth Rs.18,26,19,512/-) was in fact the out of books sales of the assessee. Ostensibly, treating the aforesaid 107127.50 quintals of rice as the unaccounted sales of the assessee the CIT(Appeals) worked out the corresponding addition of profit on such sales of Rs.18,26,19,512/- (supra) @ 2.62% (i.e. overall disclosed GP rate of the assessee during the year) and sustained the addition made by the A.O to the extent of Rs.47,84,632/-.
The CIT(Appeals) on the issue of the addition of the unconfirmed balances of the four sundry creditors of Rs.1,59,41,676/- vacated the addition in respect of two sundry creditors, viz. (i) M/s. Amira Pure Foods Pvt. Ltd., New Delhi: Rs.16,60,633/-and ; (ii) M/s. Shyamji Rice Industries: Rs.68,31,300/-. However, the addition as regards the remaining two sundry creditors, viz. (i) M/s. Shiv Shankar Chawal Udyog, Rawabhata, Raipur: Rs. 65 lacs; and (ii) M/s. Lal Mahal Limited: Rs. 9,49,943/- was upheld by him.
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
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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 five issues, viz. (i). deletion by the CIT(Appeals) of an addition of Rs.2,11,01,475/- (out of total addition of Rs.2,35,71,800/-) that was made by the AO in respect of bogus purchases; (ii).deletion by the CIT(Appeals) of an addition of Rs.30,55,700/- that was made by the A.O towards peak amount of purchases that were claimed by the assessee to have been made from 7 bogus parties; (iii). deletion by the CIT(Appeals) of an addition of Rs. 10,39,700/- that was made by the AO towards low yield of rice; (iv). deletion by the CIT(Appeals) of an addition of Rs.11,07,64,618/- (out of total addition of Rs.11,55,49,250/-) that was made by the A.O towards unaccounted sales that were detected on the basis of details gathered by him from the railway authorities about the rice transported by the assessee; and (v). deletion by the CIT(Appeals) of an addition of Rs.84,91,733/- (out of the total addition of Rs.1,59,41,676/-) that was made by the A.O on account of bogus sundry creditors.
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:-
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(A). Re : Bogus purchases :-
Before proceeding any further, we may herein observe that the order passed by the CIT(Appeals), wherein he had principally concurred with the view taken by the AO that the assessee had not made any genuine purchases from the aforesaid seven parties (supra) had not been carried any further in appeal by the assessee before us, and thus, on the said count had attained finality. Accordingly, it can safely be concluded that the assessee had admitted of not having made any genuine purchases from the aforementioned seven parties and had only procured bogus purchase bills aggregating to Rs. 9,42,87,200/- from them.
Controversy involved in the present appeal as regards the aforesaid issue in hand hinges around the quantification of the profit which the assessee would have made by procuring the goods in question not from the aforementioned seven 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 doctored 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
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2.62% i.e.the overall disclosed GP rate of the assessee for the year under consideration.
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 thereafter, routed the same through his books of accounts on the basis of bogus purchase bills of the aforesaid seven parties, therefore, it can safely be concluded that he by so doing would have inflated the purchases in his books of accounts. We, say so, for the reason that 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 i.e for arriving at the profit/saving 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 by him in his 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 behind such estimation. We would, however, on a perusal of the basis adopted by both the lower authorities for estimating the profit/discount 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
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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 open/grey market, then, it can safely be concluded that he would 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 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 No. 1004 of 2016, dated 11.02.2019, while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under:
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“8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs." It was 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
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the Hon’ble High Court, are of the considered view that on the same lines the profit which the present assessee before us would have made 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.
Our attention was drawn by the ld. AR towards the bifurcated details of bogus purchases in question aggregating to Rs.9,42,87,200/-, viz. (i) purchase of 51585 quintals of rice: Rs.8,86,87,200/-; and (ii) purchase of 4000 quintals of broken rice : Rs.56,00,000/-, which reads as under:-
Particulars Total purchases Purchases as reduced by impugned Impugned Bogus purchases Bogus purchases Qty. in Qtls. Value Average Qty. in Qtls Value Average Qty. in Value Average rate per rate per Qtls rate per Qtls Qtls Qtls Rice 127,280.50 219,630,075 1,725.56 75,695.50 130,942,875 1729.86 51,585 88,687,200 1719.24 Broken 192,028.45 263,348,958 1,371.41 188,028.45 257,748,958 1370.80 4000 5600000 1400.00 Rice
Also the assessee has relied on a “chart” which therein, inter alia, reveals the average purchase rate (per quintal) of both the genuine purchases and those of bogus purchases of rice and broken rice, as under:-
Particulars Overall Average Average Whether Difference Average rate per rate per alleged in rate per Rate of Qtls. As Qtls. of bogus Qtl. purchase reduced by impugned purchase per Qtl. impugned purchase are above purchase rate 1,725.56 1729.86 1719.24 Rice No 10.62
22 ITO, Ward 1(2) Vs. Shri Rajendra Kumar Agrawal ITA No. 15/RPR/2019
1,371.41 1370.80 1400.00 Broken Yes 29.20 Rice 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 him in his financial statements by booking the purchases on the basis of bogus purchase billsin his books of accounts at an inflated value, thus, would be neutralized.
A). Rice (51585 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 alongwith his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of rice were made by the assessee @1719.24 per quintal (average rate), as against the purchase of the genuine rice that was made by him @ 1729.86 per quintal (average rate). On the basis of the aforesaid facts, now when the purchase rate of the bogus purchase of rice (average rate) is of a lower value than that at which he had made genuine purchases of rice (average rate),
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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 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. Accordingly, now when in the case of the present assessee before us as the rate of bogus purchases of rice i.e Rs. 1,719.24 per quintal (average rate) is already lower than the rate of genuine purchase of rice i.e Rs. 1,729.86 per quintal (average rate), thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of rice as in comparison to the GP rate of genuine purchases of rice would on a higher side, leaving no scope for making any addition on the said count in his hand.
Be that as it may, as the assessee has not filed any appeal before us, therefore, despite our aforesaid observations we are constrained to sustain the addition as regards the bogus purchase of 51585 quintals of rice
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(valuedat Rs.8,86,87,200/-) as had been upheld by the CIT(Appeals) i.e @ 2.62% of the value of the aforesaid impugned bogus purchases of rice.
(B). Broken Rice (4000 quintals of bogus/unproved purchase) :
We shall now advert to the addition made by the A.O as regards the profit which the assessee would have made on the bogus/unproved purchases of 4000 quintals of broken rice valued at Rs.56 lacs. As observed by us hereinabove, the A.O had quantified the said profit by disallowing 25% of the value of the impugned purchases, which, however, was scaled down by the CIT(Appeals) to 2.62% i.e. to the extent of overall disclosed GP rate of the assessee for the year under consideration.
As can be gathered from the aforesaid details filed by the assessee as had been culled out by us hereinabove, the assessee had made bogus purchases of broken rice @ Rs.1400 per quintal (average rate), while for the genuine purchase of broken rice was made @ Rs.1370.80 per quintal (average rate). Admittedly, the bogus purchases of broken rice i.e average rate is found to be on the higher side by an amount of Rs. 29.20 per quintal (average rate). Considering the addition that had been sustained by the CIT(Appeals) i.e @ 2.62% of the value of the impugned bogus purchases, it transpires that by applying the same the purchase value per quintal of bogus purchase of broken rice (average rate) would stand
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reduced to an amount of Rs.1363.32 per quintal [i.e Rs.1400/- per quintal (-) 2.62% of Rs.1400/-]. As per the judgment of the Hon’ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) the profit made by the assessee by procuring the goods from the open/grey market is to be determined by bringing the GP rate of the bogus/unproved purchases to the same rate as that of the other genuine purchases. As the CIT(Appeals) had sustained the addition @ 2.62% of the value of the impugned bogus purchases of broken rice, the same, thus, brings the purchase price (average rate) of the bogus purchase of broken rice to an amount of Rs.1363.32 (average rate), i.e., lower than the purchase value (average rate) of the genuine purchase of broken rice of Rs.1370.80 per quintal (supra). Although the addition sustained by the CIT(Appeals) i.e @2.62% as regards 4000 quintals of broken rice (valued at Rs.56 lacs) in the backdrop of our aforesaid deliberations is found to be pitched on the higher side by an amount of Rs. 7.42 per quintal [Rs. 1370.80 per quintal (-) Rs. 1363.32 per quintal], but then considering the fact that the assessee has not assailed the order of the CIT(Appeals) any further in appeal before us, therefore, we refrain from dislodging the addition to the extent the same had been so sustained i.e @2.62% of the value of bogus purchases of broken rice. We, thus, in terms of our aforesaid observations uphold the order of the CIT(Appeals) as regards the addition of the impugned bogus purchases of both rice and broken rice as had been sustained by him i.e @
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2.62% of the value of the impugned purchases in question. Before parting, we may herein observe that the support sought to be 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, Cemtral -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 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. Although the department had in its grounds of appeal filed before us, inter alia, relied upon the judgment of the Hon’ble High Court of Delhi in the case CIT Vs. Jansampark Advertising & Marketing (P) Ltd. (2015) 56 taxmann.com 286 (Del), but in the course of hearing nothing was stated by the ld. DR as to in what context and as regards which issue support was being drawn by referring to the said judicial pronouncement. Thus, the Grounds of appeal No.(s) 1, 6 to 10, 12 & 13 (to the extent relevant) are dismissed in terms of our aforesaid observations.
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Now, we shall take up the grievance of the revenue that the CIT(Appeals) had erred in deleting an addition of Rs.30,55,700/- that was rightly made by the A.O on account of peak purchase credits of the seven bogus parties from whom purchases were 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. The A.O holding a conviction that in certain cases the amount would be returned by the accommodation entry provider/entry operator to the beneficiary only after the same would be credited in the latters bank account and is withdrawn by him, thus, in several instances substantial time would therein get involved. The A.O was of the view that the assessee in order to satisfy the demand of funds under such circumstances would either manage to show some bogus liability or some advance payments suiting to his need. 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 seven parties aggregating to an amount of Rs.30,55,700/-.
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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 cannot 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 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.
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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 have been no justification for the A.O to have made an addition of the amount of peak purchase of Rs.30,55,700/-(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. 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.10,39,700/- 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 contract executed by the assessee with Chhattisgarh State Government Authority.
As observed by us hereinabove, the A.O had observed that as the yield of rice of the assessee concern during the year was 65% as in comparison to the yield of 67% as was fixed as per the norms of the State Government, thus, there was a suppressed yield of 562 quintals of rice, which was valued by him @ Rs.1850 per quintal, therein,leading to a consequential addition of Rs.10,39,700/-.
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After hearing the Ld. Authorized Representatives of both the parties on the issue in hand, we 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 for the year under consideration at 65% had failed to consider 3% yield of Kanka(broken rice). In sum and substance, though the yield of rice of the assessee was 68% [65% (rice) + 3% (kanka)], but the same had wrongly been taken by the A.O at 65%. The CIT(Appeals) after considering the aforesaid issue had held as under:
“4.3 Addition has been made stating that yield of the assessee's business is 65 percent of rice, whereas as per the Government norms the yield should be 67%. On going through the assessee's submission and quantitative details it is seen that yield shown by the assessee is sufficient. As per 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 lesser yield. Assessee's yield is 65% of rice and 3% of kanka (broken rice). Appellant has furnished copy of agreement entered with Chhattisgarh Rajya SahakariVipanan Sangh Maryadit. This agreement is executed every season between the custom millers and Vipanan Sangh on behalf of state government. As per 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 government specification, in the yield of rice, the various impurities should not exceed the following limits-
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Refractions Maximum Limit % Grade A Common Broken Raw 25 25 Parboiled 16 16 Foreign matter 0.5 0.5 Damages grains Raw 3 3 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. A.O has excluded the broken rice while deciding the yield criteria. Together with the broken rice (kanka) the yield of the assessee is 68. Therefore, no addition is warranted on the basis of yield. The addition is therefore deleted.” We have perused the aforesaid observations of the CIT(Appeals) and 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% i.e. after considering 3% of Kanka (broken rice), therefore, there was no justification in concluding that the same was below the norms fixed by the state government. As a matter of
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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 a 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 solely 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%, 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:
Comparative yield position is as below: Particular A.Y.2013-14 A.Y.2012-13A.Y.2011-12
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(Qty. In quintals)(Qty. In quintals)(Qty. In quintals) Paddy consumed- 28,080 84,985 1,12,598 Rice obtained- 18,252 55,250 73,189 %ge of Rice- 65% 65% 65% Broken Rice Obtained 842 2550 3378 %ge of Broken Rice- 3% 3% 3% Total %ge of Rice & Broken rice- 68% 68% 68% Bran obtained- 1,404 4249 5630 %ge of Bran 5% 5% 5% If accepted in Assessment In past Yes (P.18, 19) Yes ( P 20, 22)
We, thus, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs.10,39,700/- 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.
We shall now deal with the grievance of the revenue that the CIT(Appeals) had erred in vacating the addition of Rs.84,91,733/- (out of total addition of Rs.1,59,41,676/-) made by the A.O on account of bogus sundry creditors.
On a perusal of the orders of the lower authorities, it transpires that the A.O had made an addition of the amounts shown by the assessee against four sundry creditors aggregating to Rs.1,59,41,676/- by treating
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the same as the unaccounted income of the assessee. On appeal, the CIT(Appeals) had though sustained the addition with respect to two sundry creditors, but had vacated the addition in respect of the remaining two creditors, viz. (i) M/s. Amira Pure Foods Pvt. Ltd.: Rs.16,60,633/-; and (ii) M/s. Shyamji Rice Industries: 68,31,300/-.
Aggrieved with the deletion of the addition pertaining to the aforesaid two creditors the revenue has carried the matter in appeal before us.
We have heard the Ld. Authorized Representative of both the parties in context of the issue in hand, i.e., sustainability of the order of the CIT(Appeals) as regards the deletion of the addition that was made by the A.O by treating the balances shown against the aforesaid two creditors as the unexplained income of the assessee, as under:-
(a) M/s. Amira Pure Foods Pvt. Ltd. : Rs.16,60,633/-:- 35. On a perusal of the records, it transpires that the amount of Rs.16,60,633/- (credit) was on 31.03.2013 shown as payable by the assessee company to the aforementioned party, viz. M/s. Amira Pure Foods Pvt. Ltd., New Delhi, Page 117 of APB. In the immediately succeeding year, i.e., during the period relevant to A.Y.2014-15 goods were supplied by the assessee i.e. broken rice to the aforesaid party and on 31.03.2014, an amount of Rs.42 lacs (Cr.) was payable by the assessee to
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the aforementioned party ( as per running account). As observed by the CIT(Appeals) that due to certain dispute which had surfaced between the assessee and the aforementioned party the matter was referred for arbitration and the same was finally settled by the Arbitrator, New Delhi, vide his order dated 12.12.2017, and pursuant thereto the assessee had finally handed over a cheque for Rs.11 lac as per the terms of a settlement agreement. On a perusal of the account of the aforementioned party (as appearing in the books of account of the assessee) we find that the entire account of the said party was squared up on 12.12.2017 and the outstanding balance was reduced to Rs. Nil.
We after giving a thoughtful consideration to the aforesaid facts, concur with the view taken by the CIT(Appeals) that as the authenticity of the aforesaid creditor, viz.M/s. Amira Pure Foods Pvt. Ltd. (supra) was duly substantiated by the assessee on the basis of supporting documentary evidence, therefore, there was no justification for the A.O to have drawn adverse inferences as regards the genuineness and veracity of the said party and treat the amounts shown against it as the unaccounted income of the assessee. We, thus, finding no infirmity in the view taken by the CIT(Appeals) in so far he had vacated the addition of Rs.16,60,633/- (supra) appearing in the name of the aforesaid party i.e. M/s. Amira Pure Foods Pvt. Ltd.(supra), uphold his order to the said extent.
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(b) M/s. Shyamji Rice Industries : Rs.68,31,300/- 37. Ostensibly, the A.O had made addition of the aforementioned amount solely for the reason that Shri Mohanlal Agrawal, proprietor of the said concern had himself admitted on oath that the aforesaid concern was a bogus concern. On appeal, it was submitted by the assessee before the CIT(Appeals) that Shri Mohanlal Agrawal (supra) had retracted from his earlier statement by filing an affidavit. The CIT(Appeals) after considering the aforesaid facts was of the view that as the amount of bogus purchases which were claimed by the assessee to have been made from the said party had already been considered while framing of the assessment in the case of the assessee, which thereafter had been sustained on appeal by him, therefore, no further adverse inferences were called for in his hands.
We have given a thoughtful consideration to the aforesaid issue in hand in the backdrop of the contentions advanced by the Ld. Authorized Representatives of both the parties. Although, it is observed by the CIT(Appeals) that as part of the addition that was made by the AO while framing the assessment in the case of the assessee on account of purchases (found to be bogus) which were claimed to have been made from the aforementioned party, viz. M/s Shyamji Rice Industries (supra), on appeal had been sustained in the hands of the assessee, therefore, no further adverse inferences were liable to be drawn in its case, but on a
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perusal of the assessment order the aforesaid observations are found to be factually incorrect. On a perusal of the details of the seven parties (supra) purchases from whom have been held to be bogus in the hands of the assessee, we find that the same does not make any reference of the aforementioned concern i.e. M/s. Shyamji Rice Mill. Accordingly, we are unable to concur with the reasons given by the CIT(Appeals) for vacating the impugned addition that was made by the A.O w.r.t the amount shown against the aforesaid party, viz. M/s Shyamji Rice Mills (supra). For the sake of clarity the observations of the CIT(Appeals) as regards the aforementioned party, viz. M/s. Shyamji Rice Mill are culled out as under: “Regarding Shyamji Rice Mill, its proprietor Mohanlal Agrawal has given statement that he did not actually sold goods and has only provided bills. Part of the addition made in the assessment on the basis of the statement has been sustained by me hereinabove, because the purchases by the assessee are not above suspicion. However the amount of trade with this party has already been included in the amount of suspicious purchases which has been dealt with earlier.”
Our attention in the course of the proceedings was drawn by the Ld. AR to the copy of the account of the aforementioned party, viz. M/s. Shyamji rice Industries, Page 144 of APB. Also, the Ld. AR had taken us through the copy of the account of the aforementioned party for the subsequent years i.e. A.Y.2014-15 and A.Y 2015-16, which reveals purchases made by the assessee from the said part in the succeeding years a/w. payments made through cheques to the said party. However, as both the aforesaid
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documents, viz. copies of account of the aforesaid party, viz. M/s Shyamji Rice Industries for A.Y 2014-15 and A.Y 2015-16, had been filed most casually by the ld. AR in the course of hearing of the appeal, i.e not as per the manner prescribed in Rule 29 of the Appellate Tribunal Rules, 1963, therefore, we decline to take cognizance of the same.
We have considered the aforesaid observations of the CIT(Appeals), which reveals that he had proceeded with on the basis of misconceived and incorrect facts and, had wrongly assumed that the purchases claimed by the assessee to have been made from the aforementioned party had been held to be bogus by the A.O, and the same thereafter on appeal was upheld by him. As the CIT(Appeals) had proceeded on the basis of facts which are factually incorrect, therefore, we are of the considered view that the matter requires to be restored to his file for fresh adjudication. As it is the claim of the assessee that Shri Mohanlal Agrawal (supra) had retracted his statement of having made bogus purchases by filing an “affidavit”, therefore, the assessee would remain at a liberty to substantiate the authenticity of the purchases which were claimed by him to have been made from the said party in the course of set-aside proceedings before the CIT(Appeals). We, thus, in terms of our aforesaid observations set-side the aforesaid issue to the file of the CIT(Appeals) with a direction to him to re- adjudicate the same after affording a reasonable opportunity of being
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heard to the assessee. Needless to say, the CIT(Appeals) shall in the course of the set-aside proceeding afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim on the basis of fresh documentary evidence, if any. Accordingly, the aforesaid grievance of the revenue is allowed for statistical purposes in terms of our aforesaid observations. Thus, the Ground of appeal No.5 is partly allowed for statistical purposes in terms of our aforesaid observation.
We shall now advert to the grievance of the department that the CIT(Appeals) had erred in law and facts of the case in vacating the addition of Rs.11,07,64,618/- ( out of total addition of Rs.11,55,49,250/-) that was made by the A.O on account of unaccounted sales, which was based on the details which were gathered in the course of the assessment proceedings from the railway authorities. Also, the department has assailed before us the admission of certain documents as additional documentary evidence by the CIT(Appeals) under Rule 46A of the Income Tax Rules, 1962.
Controversy involved qua the issue in hand pertains to the addition that was made by the A.O as regards the unaccounted sales of the assessee that had surfaced in the course of verification of the expenses that were claimed by the assessee to have been incurred on transportation of rice through railway rakes. On a perusal of the records, it transpires
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that the assessee had debited an amount of Rs.38,81,114/- under the head “rack expenses” in his Profit & Loss account for the year under consideration. On being queried, it was submitted by the assessee that the same were the expenses which were incurred by him for transportation of 23565 quintals of rice through railways during the year. The A.O in order to verify the factual position called for the details from Sr. Station Manager, SECR, Tilda as regards the quantitative details of rakes that were dispatched by the assessee during the year. In reply, it was intimated to the A.O that the assessee had dispatched 409260 quintals of rice/broken rice during the year for which transportation charges of Rs.3,71,19,103/- were paid by him. On the basis of the aforesaid facts the A.O called upon the assessee to explain as to why the difference of 385695 quintals of rice [409260 quintals (-) 23565 quintals] may not be treated as his suppressed sales of rice/broken rice for the year under consideration. In reply the assessee came forth with a three-fold explanation, viz. (i). expenses of Rs.38,81,114/- debited in the Profit & Loss account pertained to rice/broken rice that was loaded by him in the railway rakes during the year; (ii). that payment of transportation charges for 82615 quintals of rice that was loaded for transportation through railway rakes booked by the assessee during the year were made by buyers; and (iii). that as the assessee on several occasions was not able to fully load the railway rake, therefore, the unutilized space would be offered to and filled by third
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parties who would make the payments towards transportation charges for the same. The A.O after considering the aforesaid reply of the assessee though accepted his claim that 82615 quintals of rice was loaded by the buyers a/w. payment of transportation charges for the same by them, but called upon him to put forth an explanation as regards the balance unaccounted sales of 303080 quintals of rice [409260 quintals (-) 106180]. The assessee elaborating on his claim that during the year railway rakes booked by him had also been loaded by the third parties, filed with the A.O a chart giving details of the third parties which had dispatched their goods through the railway rakes which were booked by him during the year.
On a perusal of the aforesaid chart, it was observed by the A.O that the same, inter alia, referred to four parties which the assessee had accepted as bogus firms from whom he used to take bogus bills, viz. (i) M/s. Bajrang Food Products; (ii) M/s. Riddhi Siddhi Foods; (iii) M/s. Jayshree Traders; and (iv) M/s. Saraswati Paddy. On the basis of the aforesaid fact the A.O called upon the assessee to explain as to why dispatch of rice valued at Rs.16,10,44,860/- that was claimed to have been loaded by the aforementioned four bogus parties may not be treated as his out of books sales. The assessee controverting the aforesaid observation of the A.O, submitted that the fact that the railway rakes
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might have been used by some other parties in the garb of the aforesaid four concerns could not be ruled out.
The A.O for the sake of clarity, thereafter, called upon the railway authorities to furnish the details about the process of rake booking. In reply, it was intimated by the railway authorities that the rake is booked in the name of an individual and only his goods were loaded in the booked rake and nobody else’s goods would be loaded. In fact, the railway authorities had also filed a copy of declaration that was given by the assessee in respect of rakes that were booked by him during the year alongwith full details of goods loaded in each wagon. Also complete payment details were provided by the railway authorities which revealed that the entire amount of payment was made by the assessee. The AO considering the explanation of the assessee that certain third parties would use the railway rake booked by the assesee for transporting their goods called upon him to substantiate the same on the basis of supporting documentary evidences. In reply, the assessee furnished the names of the parties who had loaded their goods in the railway rakes that were booked by him, quantity of the goods dispatched by the third parties and the details of payments that were made by them towards transportation of their goods, but failed to file any such documentary evidence in support of his aforesaid claim. The A.O in order to dispel all doubts summoned the
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concerned railway authority, viz. Shri Manjesh Kumar, Chief Goods Clerk of SECR, Raipur Division, Tilda railway station and recorded his statement u/s.131(1)(d) of the Act on 30.03.2016. Shri Manjesh Kumar clearly stated that the railways used to load the rake with the stock of the person who used to book the same. Also, it was stated by him that the person who had booked the rake would give a declaration about quantitative details of goods loaded in each wagon to the railway authorities. However, the A.O after considering the aforesaid facts was not persuaded to subscribe to the claim of the assessee that the balance 303080 quintals of rice was transported by the third parties through the railway rakes that were booked by him during the year. Accordingly, the A.O concluded that 303080 quintals of rice that was transported in the railway rakes booked by the assessee were in fact his unaccounted sales. The AO by adopting the average sales price Rs.1525 per quintal as was shown by the assessee worked out the unaccounted sales at an amount of Rs.46,21,97,000/- (303080 quintals of rice X Rs.1515 per quintals). The A.O observing, that though no adverse inferences were called for as regards the purchase corresponding to the aforesaid sales, thus, confined himself to the quantification of the profit which the assessee would have made on the aforesaid unaccounted sales. The A.O drawing support from the order of the ITAT, Ahmadabad in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd), therein, concluded that profit of the assessee on the aforesaid
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unaccounted sales could safely be worked out @ 25% of the amount of the unaccounted sales and made a consequential addition of Rs.11,55,49,250/- ( Rs.46,21,97,000 X 25%).
On appeal, the CIT(Appeals) after deliberating at length on the explanation of the assessee as regards the 303080 quintals of rice that was transported through 16 railway rakes that were allotted in the name of the assessee during the year, therein, found favor with his claim that in his trade line it was a trade practice that if a trader to whom a railway rake is allotted is unable to load the entire wagon, then, the unused wagon in the normal course would be loaded by third parties. In order to fortify his aforesaid observation it was noticed by the CIT(Appeals) that during the year the assessee had himself transported/dispatched 56876.75 quintals of rice valued at Rs.10.09 crore through the railway wagons which were over the year booked by a total of 18 third parties. Also, it was observed by him that the assessee had during the year transported 80131 quintals of broken rice valued at Rs.11.52 crore through railway wagons which were booked by other parties as per the details which were filed before him. Although, the aforesaid details were not filed by the assessee in the course of the assessment proceedings, but the CIT(Appeals) taking cognizance of the fact that the A.O had not allowed sufficient opportunity to the assessee to substantiate his claim and had in fact drawn adverse inferences on the
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basis of details gathered and statement of the railway authority viz. Shri Mangesh Kumar(supra) that was recorded at his back, therefore, admitted the same under Rule 46A of the Income Tax Rules, 1962. The A.O on being confronted with the aforesaid additional documentary evidences that were filed by the assessee before him, vide his remand report dated 08.05.2018 is stated to have raised a general objection to the admission of the fresh evidence and had not commented on the merits of the explanation that was advanced by the assessee.
The CIT(Appeals) after considering the issue in hand was of the view that the assessee by placing on record confirmations of certain parties was though able to substantiate his claim that 208222 quintals of rice/broken rice were loaded by them in the railway rakes that were booked by him during the year, but had failed to come forth with any supporting documents to substantiate his similar claim as regards the balance 107127.50 quintals of rice/broken rice. Accordingly, on the basis of his aforesaid observation the CIT(Appeals) concluded that the assessee had carried out unaccounted sales of 102127.50 quintals of rice/broken rice (of a value of Rs.18,26,19,512/-). The CIT(Appeals) for quantifying the corresponding profit which the assessee would have made by carrying out the aforesaid unaccounted sales applied his overall disclosed GP rate of
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2.62% to the unaccounted sales of Rs.18,26,19,512/- and scaled down the addition to an amount of Rs.47,84,632/-.
We have given a thoughtful consideration to the aforesaid issue in hand in the backdrop of the contentions advanced by the Ld. Authorized Representatives of both the parties. Admittedly, it is a matter of fact borne from record that the assessee had over the year booked 16 railway rakes through which 405145.50 quintals of rice/broken rice was transported. As the assessee was able to substantiate his claim that the railway rakes booked by him were also used by certain parties for transporting their rice/broken rice only to the extent of 208222 quintals, therefore, the CIT(Appeals) had concluded that the balance 107127.50 quintals of rice/broken rice which was though claimed by the assessee to have been transported by third parties was in fact his unaccounted sales.
Apropos the scaling down of the unaccounted sales to 107127.50 quintals of rice/broken rice by the CIT(Appeals), as against that taken by the A.O at 303080 quintals of rice/broken rice, the same in our considered view being based on the confirmations provided by third parties who had clearly admitted on the basis of supporting documentary evidence/details that they had transported their rice/broken rice through railway rakes booked by the assessee merits acceptance. The complete details of the
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rice/broken rice loaded in 16 rakes booked in the name of the assessee during the year are culled out as under: Particulars Quantity (MT) Amount (Rs.) Total quantity in 16 rakes4,05,144.50Rs. 66,65,57,581 Quantity loaded by Appellant -89,795.50 Rs.14,99,67,828 Quantity loaded by others: 1. Where confirmations and 2,08,222.00 Rs. 33,39,70,241 invoices filed before A.O 2. Where confirmations and 1,07,127.50 Rs. 18,26,19,512 Invoices not received4,05,145.50Rs. 66,65,57,581
Our attention was drawn by the Ld. AR to the “Quantity and value details of Loading in Railway Rakes allotted to assesssee – AY 2013-14”, Page 35 of APB.
On a perusal of the aforesaid details, it transpires that the assessee had not been able to substantiate his claim that 107127.50 quintals (valued at Rs.18,26,19,512/-) of rice/broken rice was transported by third parties in the railway rakes that were booked by him during the year. Our attention was also drawn by the Ld. AR to the confirmations of the third parties as regards the transportation of rice/broken rice through the railway rakes that were booked by the assessee a/w. copies of the invoices substantiating the aforesaid factual position, Page 58 to 79C of APB. The complete details of rice/broken rice loaded by the third parties had been also filed before us, Page 38-39 of APB. We have considered the aforesaid
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facts; and have no hesitation to conclude that now when the assessee had duly substantiated that as a matter of trade practice certain duly identified third parties had transported/dispatched 208222 quintals of rice/broken rice in the railway rakes that were booked by him on 16 occasions during the year under consideration, therefore, no infirmity emerges from the order of the CIT(Appeals) who had rightly scaled down the quantum of unaccounted sales of the assessee as taken by the A.O at 303080 quintals to 107127.50 quintals.
We, further, concur with the observation of the CIT(Appeals) that now when the assessee had himself during the year under consideration transported/dispatched 56876.75 quintals of rice (valued at Rs.10.09 crore) through wagons booked by a total of 18 third parties and 80131 quintals of broken rice (valued at Rs.11.52 crore) through wagons booked by certain third parties, therefore, the same in itself was a sufficient evidence of the trade practice wherein in the normal course the party who had intended and was allotted the railway rake on not being able to fully load the wagons would make available the unutilized space for transporting of rice/broken rice of third parties who would bear the transportation charges for the same.
As regards the reliance drawn by the A.O on the statement of Shri. Manjesh Kumar, Chief Goods Clerk, SECR, Tilda, Raipur, we may herein
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observe that as the said statement was recorded by the A.O u/s.131 of the Act on 30.03.2016 i.e. at the back of the assessee, therefore, the using of the same for drawing of adverse inferences in the hands of the assessee is clearly a flagrant violation of the basic tenements of the principles of natural justice. Be that as it may, it transpires that as observed by the CIT(Appeals) and, rightly so, though the aforementioned person viz. Shri Manjesh Kumar (supra) had in his reply to Question No.7 of his statement claimed that the goods belonging to the person who had booked the rake is loaded in the wagon, but we cannot remain oblivion of the fact that he had categorically stated that the railway authorities are only concerned that the wagons are properly loaded and locked, doors of the wagons are duly secured, and that the documents containing the complete details of the goods that are being transported are signed by the person to whom the rake is allotted; while for the loading of the goods is the full responsibility of the person who had booked the rake. On a careful perusal of the aforesaid statement of Shri Manjesh Kumar (supra), we are of the considered view that the same in no way can be construed to arrive at a conclusion as has been drawn by the A.O that the goods of third parties could not have been loaded by the assessee in the railway rakes that were booked by him. Considering the fact that the assessee himself had during the year transported rice/broken rice of a substantial value through wagons booked by third parties, which claim of his had neither been
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doubted nor dislodged by the department, we are of the considered view that no infirmity does emerge from the order of the CIT(Appeals) who after taking cognizance of the said prevailing trade practice and supporting documentary evidence had accepted his duly substantiated claim that 208222 quintals of rice/broken rice of third parties were transported through railway rakes that were allotted to the assessee on 16 occasions during the year under consideration.
Adverting to the quantification of the profit that the assessee would have made by carrying out the unaccounted sales of the balance 107127.50 quintals of rice/broken rice (valued Rs.18,26,19,512/-), we find that the same was though quantified by the A.O @ 25% of the unaccounted sales, but the same thereafter on appeal was scaled down by the CIT(Appeals) to the overall GP rate of 2.62% that was disclosed by the assessee during the year. Apropos the issue in hand, we may herein observe that though the A.O had clearly concluded that the assessee had carried out unaccounted sales, but thereafter, he had in all his wisdom chosen to restrict the addition on an ad-hoc basis to 25% of the value of such unaccounted sales. Before proceeding any further, we would not mince any words to say that it is beyond our comprehension that in a case though the sales of an assessee are held to be unaccounted, but, the addition is restricted only to the extent of the profit which such assessee
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would have earned from carrying out the unaccounted sales. In fact, we find that the A.O in the case before us had categorically observed that no adverse inferences/addition was to be made with regard to the purchases corresponding to the unaccounted sales and the addition was only to be confined to the unaccounted sales alone.
Be that as it may, the genesis of the controversy in hand does not lie any beyond but the quantification of the addition which was confined by the A.O to 25% of the value of the unaccounted sales. In fact there is a categorical observation of the A.O that no adverse inferences are to be drawn as regards the purchases corresponding to the unaccounted sales. As the revenue by preferring the present appeal, as regards the issue in hand is only aggrieved with the scaling down of the addition of Rs.11,55,49,250/- (made by the A.O @25% of the value of unaccounted sales) to an amount of Rs.47,84,632/- (@2.26% of the value of the unaccounted sales) by the CIT(Appeals), therefore, we confine our adjudication to the said extent.
Controversy as regards the quantification of the profit which the assessee would have made by carrying out unaccounted sales hinges around the aspect, i.e., as to whether or not the CIT(Appeals) was right in law and the facts of the case in substituting the ad-hoc rate of 25% as was adopted by the A.O by the assessee’s overall disclosed GP rate of 2.62%? In
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our considered view there appears to be no logical reasoning for the A.O to have quantified the profit element involved in the unaccounted sales @25% of the value of the impugned sales. As in the case before us the issue herein involved hinges around the quantification of the profit on the unaccounted sales, therefore, the same in our considered view could fairly be determined by applying the overall disclosed GP rate of the assessee on the quantum of the unaccounted sales as had rightly been done by the CIT(Appeals). We, thus, fining no infirmity either as regards the quantification of the unaccounted sales of the assessee; or the quantification of the profit element/income therein involved as had been worked out by the CIT(Appeals) @ 2.62% (i.e. the overall GP rate disclosed by the assessee during the year under consideration) on the amount of the unaccounted sales of Rs. 18,26,19,512/- (107127.50 quintals of rice/broken rice), therefore, uphold the same in terms of our aforesaid observations. Thus, the Grounds of appeal No. 4 a/w. Ground of appeal No.11 (to the extent relevant to the issue under consideration) are 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.
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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 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.