INCOME TAX OFFICER, WARD 1(2), RAIPUR vs. MESERS SATYANARAYAN NATHULAL, TILDA-NEORA

आदेश / ORDER PER RATHOD KAMLESH JAYANTBHAI, AM:

This appeal is filed by the revenue aggrieved from the order of the Commissioner of Income Tax (Appeal)- I, Raipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2014-15 dated 26.02.2018.

“1. Whether on points of law and un facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs 3,68,22,775/ out of total addition of Rs 4,18,44,062/ by lgnoring 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 restricting the addition up to Rs. 50,21,287/ out of total addition of Rs 4,18,44,062/ when 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? 3. Whether on points of law and on facts & circumstances of the case, the Ld CIT(A) was justified in ignoring the statement of the assessee recorded on oath u/s 131 of the IT. Act who, in confrontation of the statements of the brokers namely Shri Sanjay Sharma and Shri Kamlesh. Keshrarwani, admitted that bogus purchases were made from the dumy concerns namely Shri Dalvirnder Singh Bagal and others?" 4. 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. 254(4) of the Act, was justified

3 ITA No. 178/RPR/2018 A.Y.2014-15

in deletion the addition of Rs. 3,68,22,775/- out of total addition made by the AO as the assessee could not substantiate the alleged transaction as genuine by producing documentary evidence from genuine dealers for genuine purchase?”

4.1 The point of inquiry was of bogus bills that required through the broker and entry providers to the rice millers and rice traders. These brokers and entry providers were individuals related to the rice milling and rice trading business. Fake or bogus bills were provided to the rice millers by the brokers himself and through entry

4 ITA No. 178/RPR/2018 A.Y.2014-15

providers. Survey action was also carried out in the case of Nagrik Sahakari Bank, Raipur where some of these bank accounts were maintained. The official’s statements were recorded where they have admitted that they were aware that these accounts were run by a few other individuals (entry providers). It would be pertinent to mention here that all these bogus firm’s operators (brokers and entry providers) have admitted on oath at the time of their statement recorded u/s 131 of the IT Act that they never owned or operated any godowns or mills or never owned any stock in order to carry out any sale and purchase of goods. Their only work was to provide bogus bills to rice traders and millers.

4.2 In their statements, it was categorically admitted that they acted as an intermediary in arranging the bogus sale and purchase bills between the parties without actual delivery of goods. It was revealed from their statements that the modus operandi of these firms is to provide bogus purchase bills. Brokers Shri Sanjay Sharma, Shri Aditya Sharma, Shri Kamlesh Kesharwani, Shri Ghanshyam Rijwani, Shri Narad Sahu and others have stated on oath that they provided bogus entries or bogus bills to various rice millers in lieu of which they received commission income only. It was stated that after receiving the payment from the rice millers in their respective bank accounts, the same were withdrawn in cash on the same day. Later on, the cash withdrawn was given back to these millers after deducting their commission. These bogus bills had no transport or bill/transport challans or weigh bridge ships in support of its genuineness. In normal course of business events, the bills of purchases are accompanied by the bills of transport and with bridge ships. This is more important in present scenario where volume of goods purchased and transported is in huge quantity. But factually since no such physical movement of goods ever occurred, the bills do not accompanied the aforesaid vital documents. The survey action at multiple points supported the fact that these bogus bills were provided

5 ITA No. 178/RPR/2018 A.Y.2014-15

to the rice millers and traders. The rice millers then made an RTGS payments on these bogus bills into the bank account of these bogus firms. Cash was withdrawn by these operators from the banks and given back to the rice millers.

4.3 It was established that these bogus dealers don't carry any business activity either by way of purchase or sale of goods. Transactions are carried out by issuing bills to the intending purchasers without any transfer of goods. Such dealers indulging in the business of bogus bills and in some cases individuals, as above, have opened multiple firms by different names.

4.4 In view of above facts and categorical admittance, an opportunity was provided to the assessee vide order sheet 07/12/2016 asking to explain that : Survey operation u/s 133A of the Income Tax Act, 1961 have been carried out on 15/03/2016 in the business premises of three Rice millers at Tilda (including the premises of assessee) and two brokers at Raipur by the JCIT, Range-1, Raipur. In the statement recorded on oath stated that they provided bogus entries or bogus bill to various rice millers over the years in lieu of which they received commission. During the investigation it has been established that above named firms are bogus firm from whom you have shown purchases of Rs. 16,73,76,250/-. As per the detailed inquiry it has been established that these firms are only paper firm and providing bogus till to the rice millers. You are therefore required to submit your explanation as and why the amount of Rs. 16,73,76,250/- should not be disallowed u/s 69C of the Income Tax Act, 1961. 4.5 The assessee submitted in his written reply dated 19/12/2016 stated that "broken rice from the above parties was purchased through brokers. It has never happened that we have not purchased broken and only accommodate the bogus bills from the above suspicious dealer. The transaction was supported by proper bills. The purchase bills of venders contained TIN number of the venders. The purchase bills of the vendor is supported by Mandi Anugya which has deposited in Mandi samait. The payments were made through banking channels. The material purchases have been

6 ITA No. 178/RPR/2018 A.Y.2014-15

recorded in sock record. The broken rice purchased from the parties including the so- called suspicious parties has been sold to various parties. All the sales proceeds are received through banking channels. The assessee maintains day to day stock register. The sales were affected by the assessee out of the stock purchased from the above dealers. It is obvious that first purchase was made and then these were sold. It is an elementary rule of accountancy as well as of taxation laws that profit from business cannot ascertain without deducing cost of purchase from sales/otherwise it could amount to levy of income tax on gross receipts or on sales. The assessee has also filed an affidavit dated 26/12/2016. The affidavit filed by the assessee is not acceptable because the assessee (including two other rice millers) was then confronted on this issue of bogus purchase through cross examination before the Jt CIT, Range-1, Raipur on 17/03/2016 and the assessee had admitted that he used to get bogus entries through these brokers. The affidavit has failed by the assessee after 9 months of the cross examination, hence the same is not accepted by the lower authorities.

4.6 During the course of scrutiny proceedings, the assessee was specifically required to prove that the purchase bills are genuine and that he has actually purchased the items reflected in the bills and submit the confirmation from the creditors. This was more particularly so, because in all such cases where bogus purchase bill were procured, the invoices issued by the suspicious dealers was not found to be supported by delivery challans. The mode of inward transport, and Mandi passage Anugya, confirmation of transportation etc., for the goods was not available in the possession of the assessee. Thus, it is apparent that the goods have not been purchased from the aforesaid parties. This fact is also supported by the statement of bogus suppliers parties who have categorically admitted that they did not own any stock godown. The AO has relied on the decision of Hon'ble ITAT Bench, Ahmadabad in the case of Vijay Proteins Ltd (58 ITD 428).

7 ITA No. 178/RPR/2018 A.Y.2014-15

4.7 As mentioned in the above referred order, the AO made disallowance of 25% of the bogus purchases to the present case. Also, the facts mentioned above reveals that said amount of bogus purchase which leads to rejection of books of account for the specific purpose and for the reasons detailed above, the purchases recorded in the books of account of the assessee amounting to Rs. 167376250/- and out of that bogus purchase AO made disallowance of 25% of such purchase which worked out to Rs. 41844062/- and accordingly added to the total income of the assessee.

“2.3 Facts being as above, the assessee has obtained bills without any evidence of getting actual delivery of goods debited as purchase. On the basis of survey made by AO in the case of the assessee also there was no supply of material found. The only plea of the assessee is that the payment has been made by cheque and therefore the purchases are genuine. This alibi of payment in cheque cannot be accepted when there is no evidence regarding actual supply of material. Payment through banking channel in itself cannot be complete evidence to prove that the purchases are genuine. Withdrawals have been made from bank accounts through bearer cheques in cash by various persons. It doesn't appear from the kind of withdrawal that these were made for purchase of material from supplier companies like Indian Oil, BPCL etc. When the purchase by Shri Balaji Marketing has not been established, sale by the same to the assessee cannot be accepted. Although the purchases made by the assessee is doubtful but the same cannot be said about sale. Assessee has shown sale of Rs. 49.17 which has not been doubted. In AY 2013-14 on a sale of Rs. 25.44 Crores, GP of 2.83% was shown. In this year on a sale of Rs. 49.17 crores, GP of 2.16% has been shown. In quantity terms assessee has sold 315803.67 quintal broken rice. When the sale of 315803 qtl broken rice and small quantity of paddy and other items with Rs. 49.17 crores has been accepted, before treating the entire purchases as bogus the issue has to be viewed in the proper perspective instead of straight forward addition of 25%.

8 ITA No. 178/RPR/2018 A.Y.2014-15

Similar issue has been dealt with in many judicial decisions earlier. In the a ITAT Mumbai 'I' Bench has decided similar issue where in information from ST department was received that the parties from which assessee claimed the purchases were bogus (case M/s Geolife Organics ITA No. 3699/Mum/2016). The ITAT, after discussing some other similar cases, has noted that sales of the assessee have not been questioned. "Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the AO has not brought any material on record to conclusively establish the fact that purchase are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the AO could not have treated the purchases as bogus and made addition. When the payment to the concerned parties are through proper banking channel and there is no evidence before the AO that the payments made were again routed back to the assessee, the addition made by estimating further profit of 12.5% earned by the assessee is not sustainable in law and facts. Keeping in view the totality of facts and circumstances of the case, we are inclined to restrict the addition to the extent of 2% of such purchases." I think on these facts, since the sales has been accepted, it is only logical to treat the purchases as out of the book purchases on which sales must have been effected and add a suitable percentage of such amount to the income of the assessee. GP in current year is 2.16% which is on lower side. On the whole adopting GP 3% on the value of purchase held to be bogus will be justifiable figure. Balance addition is deleted. Rs 50,21,287/- sustained, balance relief.”

Aggrieved, from the order of the ld. CIT(A) the revenue has filed this appeal contending the findings of the CIT(A) on various grounds as extracted herein above.

“With reference to your observation in purchase made by the assessee during the year under scrutiny and your query why the same be not treated u/s 69C.

1 That the assessee is in the business of Rice Milling and trading activity and has made purchases and sales in regular course of business. That the assessee has

9 ITA No. 178/RPR/2018 A.Y.2014-15

produced all books of accounts, vouchers Bank Accounts, purchase ledger, sale ledger, cash book and ledger accounts, purchase, sale bills, Stock Register etc for your verification.

2 The assessee has made total broken purchase of Rs. 47,07,70,051.00 out of which your honor pointed out that the name of some selling dealer is placed on the purchase list submitted on 28.11.2016 as per Annexure "11-44" to "11-47" amounting to Rs.16,69,05,000.00 as a 'suspicious dealer i.e. a person who is suspected for issuing fake bills without selling the goods.

3 We are enclosing herewith the following evidences to prove the genuineness of the transaction and your ready verification of the same.

i) The transactions were supported by proper purchase bill which were produced before your honor for verification and it is verifiable.

ii) The purchase bills of the vendor contained TIN numbers of the vendors. (The TIN No. of the so called suspicious vendor i s enclosed herewith).

iii) All the purchase made during the year is supported by Mand Anugya which has deposited in mandy samiti monthly. The Mandi Anugya is issued by the local Krishi Upaj Mandi Samity of the vendor who supplies the paddy/rice and/or broken rice. (Part wise details of Mandi Anugya received from the so called suspicious vendor and submitted to mandi samity is enclosed herewith).

iv) The payments were made through banking channels. The bank statement has already produced as per Annexure "07-01" to "07 48" of our reply dated 02.06.2016.

v) The Purchase from the said parties are in facts lower and/or at same price and/or in some cases higher from which the Assessee had purchase from other suppliers. The price of the broken rice depends on the quality and demand. There is also variation in sale rate which can be verified from the party wise sale list enclosed herewith.

vi) The Materials Purchased has been recorded in Stock record. The trading activities are backed by detailed quantitative particulars.

10 ITA No. 178/RPR/2018 A.Y.2014-15

vii) Quantitative details of stock i.e. opening stock, purchase, sales, closing stock has already submitted in our audit report and the same is verifiable from the records produced before your verification.

ii. The Assessee maintained day to day stock register, which clearly shows that the materials purchased were consumed and goods produced, were sold to different parties. The Yield and input output ratio are in line with Past records and even within the year under consideration.

iii. The broken rice purchased from the said suspicious parties were lying part of closing, stock as on 31.03.2014 which has considered in closing stock also. (Closing Stock valuation has already submitted on point no. 10 of our reply dated 28.11.2016. In such case there is no impact on profitability of the assessee.

iv. All the transactions of purchase and sales were duly recorded in books of account. All these years accounts of the assessee was Audited and relevant record filed before appropriate statutory authorities.

v. The purchases are either reflected as sales or kept as closing stock only. All the quantitative details are properly and completely maintained by the assessee and verifiable also from the records. It is submitted that purchases cannot be termed as bogus when sales are genuine and real.

vi. The assessee has not manufactured rice from paddy during the year and only undertaken trading activity. Your honour should appreciate that there is no scope for any adjustment in quantitative details.

i. Attention to your good-self also invited to the facts that Assessment order u/s. 143(3) pertaining to Assessment year 2013-2014 was also passed by your honor on 17.02.2016. (Copy of the Asst Order Attached). Your honor considered the quantity details and fall in G.P. Ratio and N.P. Ratio. The quantitative details as well as

11 ITA No. 178/RPR/2018 A.Y.2014-15

purchase have been accepted by your honor and trading results have also been accepted.

ii. The Profitability of the Assessee since last three Assessment year are tabulated as under Particulars A.Y 2012-13 A.Y 2013-14 A.Y 2014-15 Sales 77,523,395 254,480,514 491,750,163 Increase in Sales 328.26% 193.24% from last year Gross Profit 5,734,302 7,192,251 10,600,080 Net Profit 284,339 454,178 554,820 G.P Ratio 7.40% 2.83% 2.16% N.P. Ratio 0.37% 0.18% 0.11%

Considering above facts and justification, it is clear that assessee had not made any bogus purchase to suppress the profits and the profits shown by the assessee is real and genuine. In the instant case the profitability has been in consistency with past trend and in-accordance with the assessment framed by your honor in regular assessment of previous year.

iii. The sales were affected by the assessee out of the stock purchased from the above dealers, it is obvious that first purchase was made and then these were sold.

i) TIN No. of the suspicious vendor. ii) Details of Mandi Anugya received from the so called suspicious vendor. iii) Quantitative details for the F.Y. 2013-2014. iv) Details of Party wise broken sale during the F.Y. 2013-14. v) Yield comparison of last three year. vi) Assessment order for the A.Y. 2013-2014. vii) Case Law Copy. viii) Ledger copy of the dealers as pointed out by you as suspicious showing credit for purchase and details of payment by cheque.

12 ITA No. 178/RPR/2018 A.Y.2014-15

ix) We are enclosing herewith the certificate in Form No. 26A regarding non deduction of TDS from Magma Fincorp Limited in terms of requirement of Section 201(1).

Hope you will find the same in order. If your honor requires any further information/ explanation we shall be glad to furnish the same to you.”

8 In the present case, as noted above, the assessee was a trader of fabrics. 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 sales 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 trader. 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.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions

13 ITA No. 178/RPR/2018 A.Y.2014-15

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, as to costs.

14 ITA No. 178/RPR/2018 A.Y.2014-15

to submit the correct and full details as may be required by the assessing officer in this matter.

In the result appeal of the revenue is allowed for statistical purposes.

Order pronounced in open court on 31st day of May, 2022. Sd/- Sd/-

RAVISH SOOD RATHOD KAMLESH JAYANTBHAI JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 31st May, 2022 Ganesh Kumar, PS, Jaipur 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,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.

15 ITA No. 178/RPR/2018 A.Y.2014-15

Date 1 Draft dictated on 25.05.2022 Sr.PS/PS 2 Draft placed before author 31.05.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order