TaxTMI 
TaxTMI 
2012 (10) TMI 1254
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.... authority should not have accepted the sales made by certain parties which were neither traceable at the given addresses nor were having valid TAN numbers. It was also pleaded that the impugned order is against the ratio laid down by the Tribunal in the case of M/s Agrawal Coal Corporation Limited. A plea was also raised that all the ingredients of section 68 were not fulfilled by the assessee. It was emphatically contended that M/s A.K. Intex and other parties were not traceable at the given addresses in spite of detailed inquiries made by the Assessing Officer to whom substantial sales were claimed to be effected by the assessee. The genuineness of sales along with the identity of the buyers was argued to be in dispute. 2.1 On the other hand, the learned counsel for the assessee defended the impugned order by submitting that regular books of accounts are maintained by the assessee and the same were produced for verification. It was also claimed that such books are supported by purchase/sale invoices along with stock register of raw material, consumption, production of finished goods, audit report. It was submitted that the total turnover of refined oil was Rs. 67.63 crores on....
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....s gross profit on such sales i.e, Rs. 84,74,907/- . Against this order the assessee has preferred this appeal. 3. During the course of appellate proceedings the appellant had filed its written submissions on 02/09/2011, which is reproduced as below: "01) The appellant company is engaged in manufacturing of soya oil and de-oiled cake from soya seed in its solvent extraction plant located at Dewas since 1994. Regular books of accounts have been maintained which are quantitative and supported by purchase and sale invoices, vouchers, tax audit report U/S 44AB of Income tax Act and Annual report under Companies Act. 02) Sales of D-oiled cake is effected outside India whereas sales of refined oil is effected within MP as well as outside MP. Past history of the appellant proves beyond doubt that accounts of the company have been accepted by the Department all along. The owners of the company are known for their loyalty and honesty. During the year total turnover was Rs. 149.58 crores whreas sales of soya refined oil was Rs. 67. 63 crores liable to VAT and Central Sales tax. 03 Common practice prevailing in the State regarding sales of soya oil by Solvent Extract....
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....:- a) Sales effected to M/s.A.K. Impex, Delhi Rs. 5,16,04, 000/- b) Sales effected to three parties of MP at Rs. 2,15,74,455 Rs. 7,31, 78,455/- c) Gross profit on above deducted @ 11.59% (Rs. 59,81,306/- + Rs. 24,93,601/-) = (-)Rs. 84,74,907/- d) Net sales after deducting above gross profit treated as cash credit U/S 68 of IT Act Rs. 6,47,03,548/-. Addition so made U/S 68 of the Act is challenged before your honour on merits as well as on legal grounds as under:- ON MERITS:- 01) Genuineness of Sale versus Identity of buver: 1.1 The Assessing Authority doubted upon the identity of the debtor viz. Mis. A.K. Impex, Delhi who had purchased the goods from the appellant due to following reasons :- a) Notice issued U/S 133(6) of the Act at the address of Mis. A.K. Impex, Delhi was returned un-served with the remarks uno such form at this address". The debtor Mis. A.K. Impex, was not available at the address given by appel/ant or the debtor himself or otherwise and the same was found incorrect as per departmental enquiry. b) PAN given by Mis. A.K Impex, belongs to Shri Ashok Kumar of Delhi....
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....ithin the meaning of "counter sale". The AD, thereafter, concluded that because existence of Mis. A.K. Impex was not proved as confirmed by DDIT & ITI as well VAT Authorities of Delhi, sales effected by the appellant to MIs. A.K. Impex were not genuine. According to the AD, assessee did not discharge the burden casted upon him to prove the nature and source of any sum credited in the books of accounts, whether it is on account of sale consideration or otherwise, was not discharged. For this purpose he relied upon the observations in the case of CIT vs. Sophia Finance Ltd 2005 ITR Delhi by distinguishing the same from the observations made in CIT Vs. Lovely Exports Pvt Ltd 216 CTR 195 and CIT Vs. Steller Investment Ltd 251 ITR 263 (SC). 1.2 Sales were also effected to three dealers of MP who were also found to be non-exist at the addresses given by them. The Commercial tax department, MP. reported that aforesaid parties are not registered under MP VAT Act. The broker, however, confirmed that commission was received from the appellant against sales to such parties but did not provide the address of the parties or their where-abouts. One DD & two pay orders of Rs. 80....
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....losed to the VAT department. Such buyers always take delivery at factory by depositing sale price in cash or by pay order or through RTGS. They do not disclose such turnover in their books of accounts just to facilitate evasion of VAT/Entry tax/Income tax on such trading transactions. It is 9, matter of great strange that such non-compliance of statutory requirements by the buyers has been presumed against the appellant Company so as to treat the sales as non-genuine. 2.2 It appears that the buyer Mis. A.K. Impex had melafide intention since beginning to avoid the payment of due taxes as evident from the enquiries made by the AD:- a) Wrong address was given by the buyer; b) 'C' form books obtained in an unauthorized manner; c) Address on the PAN was different than the business address; d) In bank account, address was the same and such bank account was operated also but probably not disclosed in the books; e) Remittances were made directly as well as through other parties who were also probably involved in such transactions and their address were also found to be incorrect. Normal trade practice adopted by such dealers su....
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....rding remittance made in support of the fact that the broker was also aware of such transactions; f) Copy of account of M/s. A.K. Impex proves beyond doubt that amounts were received in advance against sales; g) Excess receipt of Rs. 31, 526/- was remitted back to the debtor by A/c payee cheque. It is submitted that when the amounts are received in advance before dispatch, the appellant was not under any obligation to make an enquiry from the buyer regarding source of depositing the amount. Neither the Supreme Court (72 ITR 194) nor the Bombay High Court in 104 ITR 493 have held that in case the amounts are received as advance towards sale proceeds, the assessee has to prove the source of amount deposited by buyer. 2.5 Burden discharged bv appellant :_ On one hand, the A.O recognized the fact that bank account of M/s. A.K Impex, in Punjab National Bank was having same address as reported by the appellant. He also considered that such account was being operated by Mis. A.K. Impex as Hawala account yet the burden has been shifted on the appellant to prove the genuineness of sales. The fact that the amount was adjusted against sale invoice ....
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.... these dealers were submitted along with copies of inyoi-es and cash receipts issued to them. f) Such sales were spot delivery sale g) the amount was received in cash at the time of taking delivery of goods. h) Such receipts were not in the form of advances even for a day. i) Such receipts not like amount received from Delhi party. j) The goods were delivered against cash and on the receipt issued to the party, invoice no. and date was also stated. Thus sales to all three parties were in the nature of "counter sale" only through broker and the buyer took the delivery on the spot by depositing cash with the cashier after weighment of goods at factory premises of the appellant. " 03) Validity of Applicability of section 68 of the Act As submitted above, the nexus of sale proceeds and the amount received in advance from all the parties was proved beyond doubt as evident from the books of accounts. The Assessing Authority stated that the nexus was not proved without giving any justification I thereof In case, the amounts are remitted by the buy~r through any other parties, it cannot be denied by the seller because ....
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....ces as unexplained cash credits under section 68 - Addition deleted. " Other judgments relied upon by the appellant are :- a) Asstt. CIT Vs. Shri Ram Nutrients Ltd (2010) 14 ITJ 219 (Indore Bench) b) Dy. CIT Vs. A.S.N. Agri Genetic Pvt Ltd (2010) 15 ITJ 160 (Indore Bench) 3.2 The appellant vide its submission dated 17/10/2011 further submitted as under:- "Request for admission of additional evidences under Rule 46A of Income tax Rules In continuation to submissions made earlier regarding genuineness of sales of oil effected by the appellant to various parties, we submit that various documents were produced before the Assessing Authority but addition has been made U/S 68 of the Act considering the amount sale proceeds of refined oil to four parties as unexplained credits. As submitted earlier refined oil is being purchased by many dealers by obtaining its delivery at factory site and sale proceeds are being deposited in advance through RTGSIDDslPay orders. Some dealers are also depositing the amount in cash against which delivery was given on same day. In support of aforesaid normal practice adopted by the buyer and to substantia....
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.... in the trading activities outside the books of accounts for which the appellant cannot be held responsible. Transactions of cash deposit was in the nature of counter sale only and the delivery was given on same day whereas DD / RTGS were received in advance directly or through brokers against supplies which were effected within a weeks time. It is again submitted that such evidences are not additional evidence in any manner but it is in the form of break-up of sales and mode of receipt just to prove the fact that the AD choosed only 4 parties out of 79 dealers having similar transactions and assessed the remittance received by the appellant towards sales of refined oil U/S 68 of the Act. Under the circumstances, the action of the Assessing Authority to tax the amount received in advance against sales U/S 68 of the Act is based on presumptions and surmises and the same deserves to be quashed. " 3.3 Remand report under rule 46A of the IT Rules was called from the AO on the basis of the written submissions and the evidences furnished by the appellant vide letter dated 24/01/2012. The AO submitted his report on 09/02/2012 requesting not to admit additional evidence a....
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....n Commissioner of Income tax (Appeals), request was made under Rule 46A of the Act vide letter dated 17.10.2011 so that it can be examined by the AO. 2) Opportunity to the appellant :- As regards, comments made in para 3 to 5 of the letter, we submit that on perusal of case records it is evident that voluminous details were submitted by the appellant as and when called for and the appellant attended the proceedings along with regular books of accounts, sale invoices, vouchers, receipt books etc. Therefore, it has been claimed before your honour that observations made in the assessment order are based on presumption solely on the ground that the buyers could not be traced because of the reasons well explained in earlier submission. 3) Party-wise details of sales have been submitted because the same was enquired by the then Commissioner of Income tax (A) so that the normal practice prevailing in oil trade can be viewed. Such details supports to the claim of the appellant that certain parties are carrying on the business outside the books (in cash) in contravention to the provisions of section 40A(3) of the Act with the ulterior motives for which the appella....
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....oved by the seller. 4) The decisions of Hon'ble ITAT, Indore Bench, Indore have been quoted in support of the claim that sales effected by an assessee cannot be treated as cash credits U/S 68 of the Act because sale consideration was duly entered in the books of accounts. 5) As regards double taxation, the comment of the AD that gross profit declared was reduced from such receipts is in fact a misleading statement because to the extent of the value of goods (after deduction o fGP), the double taxation did occur which can be explained by an example as under:- TRADING ACCOUNT (Rs.in crores) Opening Stock 1.00 Sales 53.00 Purchases 50.00 Closing stock 2.00 Direct expenses 0.50 Gross profit 3.50 Total 55.00 55.00 Gross profit as above Rs. 3.50 crore Less : Gross profit on sales to unidentified buyers worth Rs. 7 crores (-) Rs. 0.46 Crores 3.04 crore Add : Sale proceeds treated as cash Credits Rs. 7.00 crore Total Rs. 10.04 crore Thus, on one hand cost of sales has been added and on the other hand sale proceeds hav....
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....stretch of imagination. Such receipts were adjusted against the sale of goods credited to profit and loss account and it amounted to double taxation of the same amount which is unwarranted and unauthorized by law as held in following judgments: i) Namra Mahila Evam Bal Kalyan Samiti Vs. ACIT (2010) 15 ITJ 581 (Indore Bench) : In this case donations were received by a society who was granted registration U/S 12AA of the Act and it was also approved U/S 80G. Donations were received by the society in cash and same were deposited in bank within a " short span of time which were treated as bogus hence addition was made U/S 68 of the Act. The Hon 'ble Tribunal held that donations received is taxable as income U/S 2(24) of the Act and the same has also been offered for tax hence provisions of section 68 cannot be applied. ii) Bhimsen Khosla vs. CIT New Delhi (1982) 133 ITR 619 (Delhi). The Court had occasion to consider the point of double taxation and held as under .'- "However we should like to say that the department can not seek to maintain the assessment of the same income in both sets of years. Consequent on our decision ....
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....the company did not make any payment of freight to the transporters. Tanker/Truck number by which goods were transported have been invariably mentioned on all sale invoices, as a regular system followed while dispatching the goods along-with entries recorded at the factory gate. M/s. A.K. Impex, Delhi arranged the oil tankers through its transporter viz. M/s. H. G. Oil Carriers, 79, Transport Center, Rohtak Road, New Delhi. A list containing complete details of sales with respective tanker numbers. is enclosed for king perusal along with the certificate of the transporter stating the tanker numbers, date as well the gross weight of oil transported. It has further been certified by the transporter that the freight was paid by Mls.A.K. Impex only. As regards sales effected to three parties of Shajapur Distt. (MP.) following details are enclosed:- a)M/s. Mohan Traders arranged Truck bearing no. MP-09-GE-1651 to carry the goods from factory site against cash payment. The registration copy of vehicle downloaded from the website of Transport Department of MP. is annexed from which it is evident that the vehicle was duly registered as pick-up van by whi....
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.... found to be genuine. Since the purchases has been held to be genuine, the corresponding sales cannot, by any stretch of imagination be termed as hawala transactions. " 2) ITO vs. Super Chemicals Distributors (2005) 1 SOT 102 (Del.) Held - "It was incumbent upon the assessing officer to found out actual location and present were about of the firm "A" and to verify the fact, and that simply because inspector was unable to locate firm 'A' , the A. O. could not jump to conclusion that this was a bogus creditors and treat the same as cash credits u/s. 68 of the Act. " 3) Smt. Harshila Chordia vs. ITO (2007) 208 CTR 208 (Raj) Held - "Cash credit - Cash received from customers - Tribunal has found as a fact that the assessee was receiving money from the customers against which delivery of vehicles was made - Such cash deposits are self explanatory and would not attract sec. 68 - Therefore, no addition could be made. " It is submitted that the facts of the case before ITA T, Mumbai, Delhi Bench and Rajasthan High Court are not only similar to the facts of the present case but more stronger because there was no outstanding for a single d....
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....required to explain the circumstances as to exceptions provided under clauses (a), (b), (c) or (d) to rule 46A (1) of the Rules. 2) The appellant had clearly stated at the time of assessment proceedings that the buyer namely Ms A.K. Impex arranged the tankers at its own because the delivery of oil was given at factory. Had the assessing officer doubted upon the tanker numbers mentioned on the sale invoices, the appellant would have submitted the certificate at that stage itself Such tanker were arranged by the buyers only and the company did not make any payment of freight to the transporters. Tanker number by which goods were transported have been invariably mentioned on all sale invoices, as a regular system followed while dispatching the goods along-with entries recorded at the factory gate. 3) MIs. A.K. Impex, Delhi arranged the oil tankers through its transporter viz. MIs. H. G. Oil Carriers, 79, Transport Center, Rohtak Road, New Delhi. A list containing complete details of sales with respective tanker numbers' was therefore submitted for kind perusal along with the certificate of the transporter stating the tanker numbers, date as well the gross weight ....
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....ed upon the observations in the case of CIT vs. Sophia Finance Ltd 2005 ITR Delhi by distinguishing the same from the observations made in CIT V s. Lovely Exports Pvt Ltd 216 CTR 195 and CIT V s. Steller Investment Ltd 251 ITR 263 (SC). Relying upon the ratio of judgment in the case of CIT Vs. Madhavnagar Cotton Mills Ltd 104 ITR 493 (Born) he rejected the books of accounts U/S 145 of the Act and assessed additional income as cash credit U/S 68 of the Act by accepting sales disclosed as per books of account in following manner :- a) Sales effected to M/s. A.K. Impex, Delhi Rs. 5,16,04,0001-. b) Sales effected to three parties of MP at Rs. 2,15,74,455 Rs. 7 ,31,78,455/-. c) Gross profit on above deducted @ 11.59% (Rs. 59,81,306/- + Rs. 24,93,60l/-) (-) Rs. 6,47,03,548/-. d) Net sales after deducting above gross profit treated as cash credit u/s 68 of I T Act Rs. 6,47,03,548/-. 6.14 As regards sales effected to three parties of Shajapur Distt. namely Mis Praveen Trading Co., Mis Mohan Traders and Mis Maa Bhagwati Traders, the basis of making addition U/S 68 of the Act was :- a) The amounts were received in c....
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....ere effected to 73 dealers of M.P. and 6 dealers outside M.P., who remitted the amount in cash as well as pay orders DD, RTGS and by cheques. Like the above four parties, the deliveries were also given at site to all these dealers. Out of those 73 dealers of M.P. 33 dealers remitted the amount in cash. The A.O. has doubted the genuineness of the sales made to above four parties only, in respect of which he has made the enquiry and not found existed at the given address. Transaction of cash deposit was in the nature of counter sale only and the delivery was given on the same day whereas, DD/RTGS were received in advance directly or through brokers against supplies which were effected within a weeks time. 6.19 The appellant is maintaining sales register and stock register day to day basis containing requisite details for the whole year, which were produced by the appellant during the appellate proceedings also. It was observed that appellant is maintaining complete quantitative records relating to purchase, production and sales and sales were properly accounted for in the sales register and same were reduced from the stock register. 6.20 The claim of the appellant t....
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.... 6.23 Reliance is further placed on the decision of the ITAT, Mumbai Bench in the case of ITO vs. Surana Traders, (2005)93 TTJ 875: (2005)92 ITD 212, the relevant observation of the Mumbai Bench were as under :- "So merely because for the reasons that the purchaser parties were not traceable, the assessee could not be penalized. In the sales documents, the assessee has made available all necessary details, i.e. the total weight sold as well as the rate per kilogram. Undisputedly, the assessee has maintained complete books of accounts alongwith day to day and kilogram to kilogram stock register. These were produced before the A 0 by the assessee. The assessee also submitted stock tally sheet along with the audited accounts. The audit report of the assessee also bears ample testimony in favour of the assessee. The factum of the assessee having maintained stock register and quantitative details have been mentioned by the A 0 in the assessment order. No mistake were pointed out by the AO in these records maintained by the assessee----Since the purchases have been held to be genuine, the corresponding sales cannot, by any stretch of imagination be termed as hawala trans....
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....llant. 6.5 The appellant's contention that Mis. A.K. Impex, Delhi was also carrying on the business with ulterior motives should be considered in its real prospective. On perusal of details of amounts received from M/s. A.K. Impex, Delhi and sales effected to it, the fact remains that such sales were effected immediately within a period of 3 to 5 days and the amounts were adjusted against sale proceeds only. The buyer being a new party, introduced during the year by the broker, insistence for remitting money before dispatching of goods by the appellant cannot be adversely viewed just to invoke provisions of section 68 of the Act. It can be applied were such credits : are lying in the books for considerable time to the credit of a person whose identity, creditworthiness and genuineness of the transaction is not proved. In the case of Mis. A.K. Impex, Delhi the identity was rather proved from facts stated above except that he could not be traced at given address after time gap of 2 ½ years. 6.6 The PAN of Shri Ashok Kumar cannot be doubted upon just because it was not in the name of M/s. A.K. Impex, Delhi or because he was not filing the return of income.....
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....of additional evidence is concerned, the assessee had made a request for admitting additional evidences. It is observed that most of the evidences w.r.t. the effecting of sales to the parties, whose sales were treated as cash credit u/s 68, were furnished by the appellant before the A.O. Appellant has furnished a certificate of the transporter during the appellate proceedings which is only supporting in nature. Besides, the appellant has furnished copies of Sale Invoices, MTR, Stock Register, Broker details and Tanker No. etc., which were before the A.O. during the assessment proceedings. However, the remand reports under Rule 46A and u/s 250(4) were also called for from the A.O. and duly considered. 6.10 These evidences cannot be ignored either on the ground that the TIN of M/s. A.K. Impex, Delhi was cancelled by Sales tax department and during assessment year under appeal A.K. Impex could not be traced. The allegation of the appellant against the buyers that many parties are carrying on the trade outside the books and change their trade name or place of business after short interval to avoid due taxes has more substance. The fact that 'C' forms issued by M/s. A.K....
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....deal of Mis A.K. Impex with the appellant. It is also observed that the appellant has recorded these sales in its regular books of account. Taxing these sales again tantamount to double taxation. 6.13 Appellant had supplied the goods to the parties after receiving advance payments, which were credited in the core banking account through cheques/DDlPayorderslR TGS and after verification of receipt of payments, the appellant had delivered the refined oil to the party through the tanker arranged by him. The appellant is making necessary entries in its regular books of accounts and in the stock register. Appellant has furnished the evidences in support of its contentions and established the genuineness of the transaction and nature and source of the reciepts. Thus application of section 68 by the A.O. on those receipts is not justified." In view of the above uncontroverted finding more specifically when the Assessing Officer has not doubted the genuineness of the purchases and when the stocks tally has been accepted by the Assessing Officer then there is no reason to doubt the sales. The broker from Gwalior who arranged the sales with the said party also confirmed in his st....