Appeals Upheld: Grape Sales Not Inflated, Revenue's Appeals Dismissed

The CIT(A) deleted the addition made by the A.O, ruling that the grape sales by the assessee to Sula Vineyards Pvt. Ltd. were not inflated. The ITSC found a 6.6% inflation rate, lower than claimed, based on various evidence. The appeals by the revenue were dismissed, upholding the CIT(A)'s decision. Additional appeals with identical facts were also rejected.

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Issues Involved:
1. Evidentiary value of statements given by farm managers.
2. Appreciation of incriminating material regarding inflation of grape purchases.

Issue-wise Detailed Analysis:

1. Evidentiary Value of Statements Given by Farm Managers:

The primary issue was whether the statements given by Shri Raman Bhawar and Shri Vinayak Nehe, who managed the farms for the assessee, held any evidentiary value. The Assessing Officer (A.O) relied on these statements to claim that the agricultural receipts from the farms were inflated. However, the Income Tax Settlement Commission (ITSC) found these statements unreliable for calculating inflated purchases. The ITSC noted that the statements did not account for factors such as new plantation and disease-infected crops, which could affect grape yield. Furthermore, the statements were not retracted, but the ITSC's order indicated that these were not considered factual pieces of evidence.

2. Appreciation of Incriminating Material Regarding Inflation of Grape Purchases:

The A.O also used a draft plan unearthed during a search action to argue that there was an inflation in the purchases of grapes. The draft plan indicated a proposal for inflating grape purchases to generate cash. However, the ITSC found that the actual inflation in grape purchases was around 6.6%, not the higher percentages initially suggested. The ITSC's findings were based on various pieces of evidence, including katcha slips, Farmer Vehicle Register, and data from the accounts department. The ITSC concluded that the inflation was used for non-business purposes and accepted a 6.6% inflation rate for the fiscal year 2016-17.

The assessee argued that the entire grapes grown were sold to M/s Sula Vineyards Pvt. Ltd., and there was no inflation as alleged. The assessee provided detailed records of grape sales and expenses, which were verified against the company's records. The ITSC also noted that the assessee's name did not appear in the list of parties involved in inflated transactions.

Conclusion:

The CIT(A) deleted the addition made by the A.O, concluding that the entire sale of grapes by the assessee to Sula Vineyards Pvt. Ltd. could not be considered inflated. The ITSC's findings supported this conclusion, showing that the inflation in grape purchases was significantly lower than initially claimed by the A.O. Consequently, the appeals filed by the revenue were dismissed, and the CIT(A)'s order was upheld.

Additional Appeals (ITA Nos. 2543/Mum/2021, 2544/Mum/2021, 2545/Mum/2021):

The facts and issues in these appeals were identical to those in ITA No. 2541/Mum/2021. Applying the same findings, these appeals were also dismissed.

Final Judgment:

All appeals by the revenue were dismissed, and the order was pronounced in the open court on 09.02.2023.

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