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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 13.03.2019, which in turn arises from the order passed by the A.O under Sec 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 31.03.2016 for assessment year 2013-14. Before us the revenue 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. 48,46,852/- out of total addition of Rs.57,87,365/- 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. 19,71,750/- made by the AO on account peak credit?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 1,47,07,640/- made by the AO on account of suppression in yield?" 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/brokers 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 & circumstances of the case, the Id. 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?"
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"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 CFI', 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. 48,46,852/- 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 allowing relief to the assessee without taking cognizance of facts brought on record by the Assessing officer that there was no any actual purchases made from bogus dealers and only cheques were issued by the assessee in the name of bogus dealers followed by immediate cash withdrawal from their bank accounts, thereby coloring the transaction as genuine? 10. "Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in ignoring the ratio of the landmark decision of the Supreme Court in the case of McDowell and Co. Ltd. Vs Commercial Tax Officer 154 ITR 148 (SC), as the same ratio of this landmark decision is applicable to the facts and circumstances of the instant case of the assessee?" 11. "Whether on points of law and on facts & circumstances of the case, the ITAT was justified in giving a decision without discussing the issue on merits and without giving any cognizance to the decision of the Hon'ble Supreme Court in the case of M/s N. K. Protien in SLP 759 of 2017 dated 16.02.2017. 12. 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 vs. Jansampark Advertising 86 Marketing (P.) Ltd. reported in [2015] 56 taxmann.com 286(Delhi) held that "though it is obligation of assessing officer to conduct proper scrutiny
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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." 13. "Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in giving a decision, thereby without considering and distinguishing the ratio of the judgment of the cases such as Rameshwar Prasad Bagla 68 ITR 653 (Allahabad) & Homi Vs CIT 41 ITR 135, 142 by (Supreme Court) wherein it is stated that the totality of circumstances must be considered in a case of circumstantial evidenced and the totality of the circumstances has to be taken into consideration and the combined effect of all those circumstances is determinative of the question as to whether or not a particular act is proved. 14. "Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in restricting the addition upto 3.89% 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?" 15. "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?" 16. The order of Ld. CIT (A) is erroneous both in law and on facts. 17. Any other ground that may be adduced at the time of hearing.”
Succinctly stated, the assessee firm which is engaged in the business of manufacturing of floor and rice had filed its return of income for the A.Y 2013-14 on 04.09.2013, declaring an income of Rs.42,12,230/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
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During the course of the assessment proceeding, it was, inter alia, observed by the A.O that as per the information that had surfaced in the course of survey proceedings conducted u/s.133A of the Act over the period 15.03.2016 to 18.03.2016 on the rice milling industry revealed that certain rice millers would procure bogus bills from brokers/entry operators without any actual purchase of goods. It was observed by the A.O that substantial incriminating material evidencing the aforesaid facts were found in the course of the aforesaid proceedings. The A.O also noticed that survey action was carried out in the case of Nagarik Sahakari Bank, Raipur where some of the brokers/entry operators maintained their bank accounts. It was further observed by the A.O that brokers/entry operators had in their respective statements that were recorded on oath had admitted of having provided bogus bills to rice traders and millers without any actual supply of goods. Also, it was noticed by the A.O that certain rice millers had in their statement that were recorded on oath admitted of being involved in the nefarious activities of providing bogus bills without any corresponding sales of goods. After deliberating at length on the modus-operandi that was adopted by the brokers/entry operators and certain rice millers who had admitted their involvement in providing/facilitating bogus bills in lieu of commission, and referring to their statements which were recorded u/s.131 of the Act a/w. that recorded in the course of their cross examination by rice millers who were alleged by them as beneficiary, it was observed by the A.O
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that the bogus purchase bills were being provided in the name of the following firms:
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The A.O on a perusal of the records observed that the assessee during the year had claimed to have made purchases from the following rice millers whose names had figured in the aforesaid list of tainted parties who were involved in the nefarious activities on providing accommodation bills:-
Sl. No. Fake Firm Name (Bogus Purchases) Amount in Rs. 1. Balaji Grain Processing Industries 7958500 2. Shyamji Rice Industries 1935000 3. Balaji Rice Industries 1791360 4. Bajrang Food Products, Raipur 9569600 5. Tulsi Agro 1030000 6. Samleshwari foods 865000 Total 2,31,49,460
3.1 The assessee on being confronted with the aforesaid facts declined the aforesaid allegation and claimed that it had made genuine purchases from the aforesaid firms. The assessee rebutting the adverse inferences that were sought to be drawn by the A.O claimed that while for its case pertained to a period of three years ago, while for the statements of the aforesaid parties were recorded only recently. 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
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bills, but failed to place on record its transportation details. The assessee on further being queried as to whether the impugned purchases were made directly or though brokers or through intermediaries stated that the same were made directly and also through brokers. As the assesee could not substantiate the genuineness and authenticity of its claim of having purchased the goods in question from the aforementioned parties on the basis of irrefutable documentary evidences i.e. lorry receipt and details of payments to the transporters, therefore, the A.O held a conviction that the assessee had not made any genuine purchases from the aforementioned parties. 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 any stock. The A.O in the totality of the facts involved in the case held the entire purchase of Rs.2,31,49,460/- (supra) as bogus.
3.2 After treating the impugned purchases in question as bogus the A.O rejected the books of accounts of the assessee u/s.145(3) of the Act. The A.O by relying on the order of the ITAT, Ahmadabad in the case of in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.), impliedly being of the view that the assessee had purchased goods in question not from the aforementioned tainted parties from whom only bills were procured for routing the same through its books of account, but had procured the same from the open/grey market, thus, made a disallowance of 25% of the value
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of bogus purchases amounting to Rs.57,87,365/-. Also, the A.O observing that the outstanding balance reflected in the books of accounts of the assesee firm against the name of the aforementioned six tainted parties was undisputedly bogus, therefore, made an addition of the peak credit of purchases aggregating to Rs.19,71,750/-, as under:
Sl. No. Name of the party Peak Purchases (Rs.) 1. Balaji Grain Processing 312000 Industries 2. Shyamji Rice Industries 315000 3. Balaji Rice Industries 288750 4. Bajrang Food Products, 406000 Raipur 5. Tulsi Agro 340000 6. Samleshwari foods 310000 Total 19,71,750/-
Further, the A.O observing that the yield of rice of the assessee of 62.62% ( rice production of 102825 quintals against paddy consumption of 16,4200 quintals) was far below the FCI norms i.e. 67% to 68%, therefore, made an addition of the shortfall/deficit of yield of rice of 4.38% (of the total paddy consumption) i.e. 1,64,200 quintal = 7192 quintals rice and made a consequential addition of Rs.1,47,07,640/- to the returned income of the assesee firm.
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3.3 After making the aforesaid additions/disallowances, the A.O vide his order passed u/s.143(3) of the Act dated 31.03.2016 determined the income of the assessee at Rs.2,66,78,990/-.
Aggrieved, the assesee 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 3.89%. Accordingly, the CIT(Appeals) on the basis of his aforesaid observation sustained the addition on the issue of bogus purchases to the extent of Rs.9,00,513/- (out of addition of Rs.57,87,365/- made by the A.O).
4.1 As regards the addition that was made by the A.O towards peak credit of purchase appearing in the accounts of the tainted parties, the CIT(Appeals) holding a conviction that the peak concept was not applicable in the case of the assessee as the payments towards purchases of the goods in question were made through disclosed banking transactions, thus, vacated the entire addition of Rs.19,71,750/- that ewas made by the A.O.
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4.2 On the issue of shortage/suppressed yield of rice of 4.38% (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 firm was in fact 68.48% which was well as per the norms fixed by the state government. Accordingly, the CIT(Appeals) on the basis of his observations recorded in his order vacated the addition of Rs.1,47,07,640/- 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 primarily three issues viz. (i). deletion by the CIT(Appeals) of an addition of Rs.48,46,852/- (out of total addition of Rs.57,87,365/-) in respect of bogus purchases; (ii). deletion by the CIT(Appeals) of an addition of Rs.19,71,750/- that was made by the
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A.O towards peak amount claimed to have purchased by the assessee from bogus parties; and (iii). deletion by the CIT(Appeals) of an addition of Rs.1,47,07,640/- that was made by the A.O towards low yield of rice.
As the revenue had assailed the aforesaid issues 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 :-
As the order of 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 six parties (supra) had not been carried any further in appeal by the assessee, therefore, it can safely be concluded that the latter had admitted of not having made any genuine purchases and had only procured bogus bills aggregating to Rs. 2,55,66,660/- (wrongly taken by the A.O at Rs.2,31,49,460/-, Page 42 of the assessment order) from the aforementioned parties.
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 aforesaid goods in question not from the aforementioned six parties, but at a discounted value from the open/grey market. Ostensibly, the A.O for quantifying the amount by which
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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, which, however, was thereafter scaled down by the CIT(Appeals) to 3.89% i.e. the overall disclosed GP rate of the assessee for the year under consideration.
On a perusal of the observations of both the lower authorities, we would not hesitate to observe that the basis adopted by them for quantifying the amount by which the assessee would have inflated the impugned bogus purchases in its books of accounts is devoid and bereft of any 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 it 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 the said goods would otherwise be available in the organized sector. Accordingly, the assessee by procuring the goods at a discounted value from the open/grey market, but routing the purchases through his books of accounts on the basis of bogus purchase bills of the aforesaid parties, in all likelihood would have inflated such purchases. As our indulgence in the present case is confined to the quantification of the profit which the assessee would have
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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.
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, we find that the Hon’ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, 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 purchases at the same rate of other genuine purchases. The Hon’ble High Court while concluding as hereinabove had observed as under: “8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-
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"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, thus, observed by the Hon’ble High Court that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate as that of other genuine purchases. On the basis of the aforesaid observation of the Hon’ble High Court, we are of the considered view that on the same lines the profit made by the assessee in the case before us by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.
Our attention was drawn by the ld. AR towards the bifurcated details of bogus purchases in question aggregating to Rs.2,55,66,660/- (wrongly taken by the A.O at Rs.2,31,49,460/-, Page 42 of assessment order), viz. (i) purchase of 742 quintals of paddy: Rs.8,01,360/-; (ii) purchase of 9925 quintals of broken rice : Rs.1,21,32,500/-; (iii) purchase of 1300 quintals of
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bran : Rs.21,95,000/-; (iv) purchase of 15000 gunny bags : Rs.2,32,200/- ; and (v) purchase of 6471 quintals of Charota Bija (seeds) : Rs.1,02,05,600/- , as under:-
S. Name of parties A.Y.2013-14 No. Qty. in.qtl. Amount in Rs. 1. M/s. Shri Shyamji Rice Industries Broken 1575.00 1935000.00 2. Shri Bajrang Food Products Charota Bija 6471.00 10205600.00 Gunny bags 15000 Nos. 232200.00 3. M/s. Balaji Grains Processing Ind. Broken 6750.00 7957500.00 4. M/s. Samleshwari Food Bran 500.00 865000.00 Broken 1000.00 1250000.00 5. M/s. Balaji Rice Industries Broken 600.00 990000.00 Paddy 742.00 801360.00 6. M/s. Tulsi Agro Bran 800.00 1330000.00 Total 18438.00 2,55,66,660.00
Also the assessee has relied on a “chart” which therein, inter alia, reveals the average purchase rate [per quintal/numbers (in case of gunny bags)] of both the genuine purchases and those of bogus purchases, as under:-
PADDY A/C. Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 1,56,606.89 20,28,95,129 1295.57 Less alleged bogus purchases 742 8,01,360 1,080.00 DIFF. 215.57
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NETT 1,55,864.89 20,20,93,769 1296 DIFF 216.60 MARKET RATE HIGHER
BROKEN RICE A/C Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 1,37,898.55 18,93,40,214 1373.04 Less alleged bogus purchases 9925 1,21,32,500 1222.42 DIFF. 150.62 NETT 1,27,974 17,72,07,714 1384.72 DIFF 162.30 MARKET RATE HIGHER BRAN A/C. Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 3,300 57,33,500 1737.42 Less alleged bogus purchases 1300 21,95,000 1688.46 DIFF. 48.96 NETT 2000 35,38,500 1769.25 DIFF 80.79 MARKET RATE HIGHER GUNNY BAG A/C Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 368360 46,72,875 12.69 15000 232200 15.48 DIFF. (2.79) NETT 3,53,360 44,40,675 12.57 DIFF (2.91) MARKET RATE HIGHER
CHATORA BIJA A/C.
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Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 10,951.70 1,72,13,290 1,571.75 Less alleged bogus purchase 6471 1,02,05,600 1,577.13 DIFF. (5.38) NETT 4,481 70,07,690 1,563.97 DIFF (13.16) 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 benefit that would have accrued to the asessesee but withheld by him in his financial statements by booking the purchases at an inflate value on the basis of bogus purchase bills in his books of accounts would stand neutralized.
We shall now deal with the sustainability of the view taken by the CIT(Appeals) as regards quantification of the profit element qua the bogus purchases of the aforementioned items, as under:
(A) Paddy :- 15. 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 have not been rebutted by
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the department, it transpires that the bogus purchases of 742 quintals of paddy was made by the assessee @1,080.00 per quintal (average rate), as against the genuine purchase of paddy that was made @ 1,296.60 per quintal (average rate). On the basis of the aforesaid facts, now when the assessee had made bogus purchase of paddy (average rate) at a value lower than that at which it had made genuine purchase 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 occasion much the less any 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. As in the case of the assessee before us the rate of bogus purchase of paddy i.e Rs.1,080.00 per quintal (average rate) is lower than the rate of genuine purchase of paddy i.e Rs. 1296.60 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 his hand.
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Be that as it may, as the assessee has not filed any appeal before us, therefore, we despite our aforesaid observations are constrained to sustain the addition as regards the bogus purchase of 742 quintals of paddy (valued at Rs. 8,01,360/-) as had been upheld by the CIT(Appeals) i.e to the extent of 3.89% of the value of the aforesaid impugned bogus purchases.
(B) Broken Rice :- 17. On a perusal of the records it transpires that bogus purchase of 9925 quintals of broken rice was made by the assessee @1222.42 per quintal (average rate), as against the purchase of genuine broken rice that was made by him @ 1384.72 per quintal (average rate). On the basis of the aforesaid facts, now when the assessee had made bogus purchase of broken rice (average rate) at a value lower than that at which it had made genuine purchase of rice (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 occasion much the less any 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
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same rate as that of other genuine purchases. As in the case of the assessee before us the rate of bogus purchase of broken rice i.e Rs.1222.42 per quintal (average rate) is lower than the rate of genuine purchases of broken rice i.e Rs. 1384.72 per quintal (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchase of broken rice as in comparison to the GP rate of genuine purchase of broken rice is already on the higher side, therefore, no addition on the said count could have validly been made in its hands.
Be that as it may, as the assessee has not filed any appeal before us, therefore, we despite our aforesaid observations are constrained to sustain the addition as regards the bogus purchase of 9925 quintals of broken rice (valued at Rs. 1,21,32,500/-) as had been upheld by the CIT(Appeals) to the extent of 3.89% of the value of such impugned bogus purchases.
(C) Bran :- 19. On a perusal of the record, it transpires that the bogus purchases of 1300 quintals of bran had been made by the assessee @1688.46 per quintal (average rate), as against the purchase of genuine bran that was made by him @ 1769.25 per quintal (average rate). On the basis of the aforesaid facts, now when the assessee had made bogus purchase of bran (average rate) at a value lower than that at which it had made genuine purchase of bran (average rate), therefore, as per the ratio of the judgment of the Hon’ble High
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Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no occasion much the less any 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. As in the case of the assessee before us the rate of bogus purchases of bran i.e Rs.1688.46 per quintal (average rate) is lower than the rate of genuine purchases of bran i.e Rs.1769.25 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 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.
Be that as it may, as the assessee has not filed any appeal before us, therefore, we despite our aforesaid observations are constrained to sustain the addition as regards the bogus purchase of 1300 quintals of bran (valued at Rs. 21,95,000/-) as had been upheld by the CIT(Appeals) i.e to the extent of 3.89% of the value of the said impugned bogus purchases.
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(D) Gunny Bags :- 21. 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 purchases of 15000 (Nos.) of gunny bags valued at Rs.2,32,200/-. 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 3.89% i.e. to the extent of overall disclosed GP rate of the assessee for the year under consideration.
As can be gathered from the details filed by the assessee as had been culled out by us hereinabove, the assessee had made bogus purchases of gunny bags @ Rs.15.48 (per bag) (average rate), while for the genuine purchase of gunny bags was made @ Rs.12.57 per bag (average rate). Admittedly, the bogus purchases of gunny bags i.e. average rate is found to be on the higher side by an amount of Rs.2.91 per bag (average rate). Considering the addition that had been sustained by the CIT(Appeals) i.e. @ 3.89% of the value of the impugned purchases, it transpires, that by applying the same the purchase value per gunny bag (average rate) would stand reduced to an amount of Rs.14.88 per gunny bag [i.e. Rs.15.48/- per gunny bag (-) 3.89% of Rs.15.48/-]. 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
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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 pursuant to the addition sustained by the CIT(Appeals) i.e @ 3.89% of the value of the bogus purchases of gunny bags the rate of purchase per unit of gunny bag at an amount of Rs.14.88 (supra) per gunny bag, which, is still higher than the value at which the impugned bogus purchase of gunny bags had been booked by the assessee i.e. @ 12.57 per gunny bag, therefore, in order to bring the GP rate of the bogus purchases of gunny bags at parity with the GP rate of genuine purchases of gunny bags [by taking the sale rate (average) as static], a further addition of Rs.2.31 per gunny bag [ i.e. Rs.14.88 (-) Rs.12.57] would be called for in the hands of the assessee. We, thus, in terms of our aforesaid observation set-aside the order of the CIT(Appeals) in so far the same pertains to bogus purchase of gunny bags and direct the A.O to make an addition of Rs.34,650/- [15,000 (Nos. of gunny bags) X Rs. 2.31 per gunny bag].
(E) Charota Bija (Seeds) :- 23. On a perusal of the records, it transpires that the assessee had made bogus purchases of 6471 quintals of Charota Bija (Seeds) valued at Rs.1,02,05,600/-. 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 3.89% i.e. to the
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extent of overall disclosed GP rate of the assessee for the year under consideration.
As can be gathered from the details filed by the assessee as had been culled out by us hereinabove, the assessee had made bogus purchases of Charota Bija (Seeds) @ Rs.1577.13 per quintal (average rate), while for the genuine purchase of Charota Bija (Seeds) were made @ Rs.1563.97 per quintal (average rate). Admittedly, the bogus purchases of Charota Bija (Seeds) i.e average rate is found to be on the higher side by an amount of Rs.13.16 per quintal (average rate). Considering the addition that had been sustained by the CIT(Appeals) i.e @ 3.89% of the value of the impugned purchases, it transpires, that by applying the same the purchase value per quintal of Charota Bija (Seeds) (average rate) would stand reduced to an amount of Rs.1515.78 per quintal [i.e Rs.1577.13/- per quintal (-) 3.89% of Rs.1577.13/-]. 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 addition sustained by the CIT(Appeals) @ 3.89% of the value of the impugned bogus purchases of Charota Bija (Seeds) brings the purchase price (average rate) of the bogus purchase of Charota Bija (Seeds) to an amount of Rs.1515.78 (supra), i.e.,
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lower than the purchase value (average rate) of the genuine purchase of Charota Bija (Seeds) at Rs.1563.97 per quintal (supra), therefore, the profit/saving which the assessee would have made by procuring the same from the open/grey market would be well taken care of.
Be that as it may, as the assessee has not filed any appeal before us, therefore, we despite our aforesaid observations are constrained to sustain the addition as regards the bogus purchase of 10951.70 quintals of Charota Bija (valued at Rs. 1,72,13,920/-) as had been upheld by the CIT(Appeals) i.e to the extent of 3.89% of the value of the said impugned bogus purchases.
We, thus, in terms of our aforesaid observations partly uphold the order of the CIT(Appeals) as regards the addition of the impugned bogus purchases of the aforesaid items as had been sustained by him i.e @ 3.89% of the value of impugned purchases in question. Thus, the Grounds of appeal No.(s) 1, 6 to 10, 12 & 13 (to the extent relevant) are partly allowed 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.19,71,750/- that was made by the A.O on account of peak purchase credit running in the accounts of the six parties from whom bogus purchases were admittedly claimed to have been made by the assessee.
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Ostensibly, the A.O after referring to the modus operandi that would in normal routine be adopted by a beneficiary for obtaining bogus purchase 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 after the amount would be credited in his bank account and withdrawn by him, which in several instances would involve substantial time, thus, was of the view that the assessee in order to satisfy the demand of funds would either manage to show some bogus liability or some advance payments suiting to the circumstances. The A.O on the basis of his aforesaid deliberations made an addition of the peak credit running through the accounts of all the six parties aggregating to an amount of Rs.19,71,750/-.
The CIT(Appeals) on appeal 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 had 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.
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We have heard the Ld. Authorized Representatives of both the parties, and 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 by the CIT(Appeals). 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 his bank account, wherein, 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, 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 purchases of Rs.19,71,750/- (supra). We, thus, concur with the view taken by the
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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.1,47,07,640/- 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 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 62.62% as in comparison to the yield of 67% to 68% as was fixed as per the norms of the FCI, thus, there was a suppression of the yield of 102825 quintals of rice which was valued by him @ Rs.2045 per quintal. Accordingly, the A.O on the said count made a consequential addition of Rs.1,47,07,640/-.
We have heard the Ld. Authorized Representatives of both the parties as regards the issue in hand, and find substance in his 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). We find from a perusal of the orders of the lower authorities that the A.O while arriving at the assessee’s yield of rice for the year under consideration at 62.62% had failed to consider the yield of Kanka (broken rice). In sum and substance,
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though the yield of rice of the assessee was 68.48% but the same had wrongly been taken by the A.O at 62.62%. The CIT(Appeals) after considering the aforesaid issue had held as under:
“3.3 On going through the above facts, it seen that Ld. AO has made addition of 4.38 percent on account of allegation that the assessee has shown yield of rice at 62.62 percent whereas per the norms of FCI the yield should be 67-68 percent. In his remand report, the AO has made following comment on yield- Addition of Rs.1,47,07,640/- The contract No.AC062013440510 dated 01.06.2013, vide para no. 06, it is clearly mentioned that the rice millers have to process the paddy @ of 67% and 68% for Arva (non-boiled paddy) and Usna (Boiled Paddy) respectively. But, this contract does not allow taking in consideration the broken rice as included within the 67% and 68% of yield, while the assessee has included 5.86% of broken rice, which is a byproduct, to meet the yield as per the norm. Kindly, refer to the page No.10 of assessee's submission, the paddy milled is 1,64,200 Quintal, as per Annexure-`G' of the TAR, the yield is 62.62% (102825/164200). Now, kindly refer to the agreement of the assessee with the Govt. of Chhattisgarh (starting from page No. 23), the rice to be supplied is Usna (parboiled)(page No. 24). The yield for parboiled rice is 68%. Thus, the yield shown less by the assessee is 5.38% (68- 62.62). However, the AO has made the addition 4.38% instead of 5.38% on account of the short yield, shown by the assessee. The closing stock of rice as per the TAR at page No.41 of assessee's submission is 760 Quintal. The closing stock of rice is valued at Rs.17,48,000/- in the Balance Sheet, Shedule-7 (page No. 53). Thus, the closing stock of rice comes to Rs. 2300 per Quintal. Since, the assessee has suppressed the yield made sales out of books; the amount of such sales is worked out correctly taking the value as Rs. 2045 per Quintal. Since, the entire expenses are already booked by the assessee, no expenses are allowed out of the addition made by the AO of Rs.1,47,07,640/-. As discussed in detail above, the yield is not 68.48%. The AO has discussed the yield of rice only which is shown at 62.62% instead of 68%. The assessee has included the broken rice component to inflate the yield figures and misguided your honour.
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The addition made by the AO is based on figures supplied in the TAR & Audit Report and the facts unearthed regarding transportation done by the assessee out of books. Therefore, the additions may kindly be confirmed. Addition has been made stating that yield of the assessee's business is 62.62 percent of rice, whereas as per the Government norms the yield should be 67%. Ongoing through the assessee's submission and quantitative details it is seen that yield shown by the assessee is sufficient due to the following reason. AO has in the remand report stated that contract with state govt does not allow broken rice to be included in the yield. Ongoing through the contract, the relevant clauses are as under-
Thus 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 Sahakari Vipanan 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-
Refractions Maximum Limit % Grade A Common 1. Broken Raw 25 25
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Parboiled 16 16 2. Foreign 0.5 0.5 matter 3. Damages Raw 3 3 grains Parboiled 4 4 4. Discoloured Raw 3 3 grains Parboiled 5 5 5. Chalky Raw 5.0 5 grains 6. Red grains Parboiled 3.0 3 7. Admixtures Raw/parboiled 6.0 - of lower class 8. Dehusked Raw/parboiled 12.0 12 grains 9. Moisture Raw/parboiled 14.0 14 content 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. Limit of broken rice for raw rice is 25%. If broken rice is excluded then the rice along with other impurities from 2 to 9 would be 75% and if all these impurities are present to maximum limit then 46% of impurities will be allowed and remaining rice will be only 29% which will be absurd. Obviously this is incorrect way to look at it. In fact the assessee during the year received 2999.20 qtl of paddy from the government and supplied 2009.90 qtl of rice which gives the yield of 67%. The supply was made in 8 lots and quality check is available and has been furnished by the assessee for all the lots. In lot 1 delivered on 8.12.2012 which was lot number 6653 assessee supplied 269.1 qtl rice. As per ananlysis report, it has 24.2% broken rice, 30.2 % other material totaling to 54.4% leaving 45.6% unbroken rice. If AO's observation is accepted then yield of assessee was 45.6% then the govt should not have accepted assessee's rice. However the yield of the assessee was ( 45.6 unbroken rice + 24.2 broken rice) 69.8% for this lot. Total consumption of paddy by the assessee was
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1,64,200/- qtl paddy out of which 1,02,825 qtl rice and 9614 qtl broken rice was obtained given yield of 112439/164200= 68.48% . In fine from the quantity supplied to the government and accepted by the government, the conclusion is that broken rice is included in the yield and is accepted by the government. Assessee's yield is as per the norms and no inference of low yield can be drawn. Therefore no addition is warranted on the basis of yield. The addition is therefore deleted.” 35. We have given a thoughtful consideration to 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% as in case of Usna variety of paddy), while for that in the case of the assessee worked out at 68.48% i.e. after considering Kanka (broken rice), therefore, there was no justification on the part of the A.O in concluding that the same was below the norms fixed by the State government. 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 along with yield of broken rice (kanka) works out at 68.48%, therefore, in our considered view the CIT(Appeals) had rightly vacated the adverse inferences drawn by the A.O.
We, thus, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs.1,47,07,640/- made by the assessee on account of short yield of rice, uphold his order to the said extent.
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Thus, the Ground of appeal No.3 is dismissed in terms of our aforesaid observation.
In the result, appeal of the revenue is partly allowed 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 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.