AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 828
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....gus bills?" 2. "Whether on points of law and on facts & circumstances of the case, the Ld.CIT(A) was justified in deleting the addition Rs. 30,55,700/- made by the AO on account of peak purchases credit without appreciating the fact of the case that outstanding expenditure at the end of the year relating the alleged concerns are also bogus and non-genuine?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 10,39,700/- made by the on account of short yield in comparison to the percentage of yield as mentioned in contract executed with Chhattisgarh State Government Authority?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 11,07,64,618/- out of total addition of Rs.11,55,49,250/- made by the AO on account of unaccounted sales by applying the ratio of GP @ 2.62% without appreciation the fact of the case that the assessee has shown the goods in the name of bogus concerns?" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addit....
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....d not substantiate the alleged transaction as genuine by producing the relevant documents against the finding of the AO.?" 11. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee, if any without allowing the AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of I T Rules?" 12. "Whether on points of law and on facts & circumstances of the case, the ld. CIT(A) was justified in restricting the addition in the ratio of GP of current year which is contrary to the evidence on record as the alleged concerns have not sold any items to the assessee, indulgence of such concerns providing of bogus bills only in lieu of commission, as relied upon by the AO in his assessment order a finding which is factually incorrect thereby rendering a decision, which is perverse?" 13. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in law by holding the decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon wh....
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....hases 1. M/s. Siddhi Vinayak Agro Industries 3,94,87,500/- 2. M/s. Sakshi Gopal Corporation 8,00,000/- 3. M/s. ShrikhandAgrotech 30,50,000/- 4. M/s. Eden Rice Mill 1,73,75,000/- 5. M/s. Balaji Rice Mill 1,81,41,000/- 6. M/s. Balaji Grain Processing Unit 1,10,15,000/- 7. M/s. Balaji Rice Industries 1,07,18,700/- Total 9,42,87,200/- 4. The A.O considering the fact that the assessee had admittedly procured goods in question not from the aforementioned seven parties but from the open/grey market, thus, rejected his books of account u/s.145(3) of the Act. The AO further holding a conviction that the assessee by procuring bogus purchase bills would have booked purchases at an inflated value, i.e, at an amount higher than that at which the same would have been actually procured by him, thus, disallowed 25% of the value of the impugned purchases and made a consequential disallowance of Rs.2,35,71,800/- ( 25% of Rs.9,42,87,200/-). Also the A.O after referring to the modus operandi that would have been adopted by the assessee for procuring bogus purchases bills from various entry operators, therein, made an add....
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....d of rake, therefore, the same was completed with the help of other parties who would make the corresponding payments through demand drafts. It was submitted by the assessee that he had claimed the transportation expenses of Rs. 38,81,114/- as regards the 23565 quintals which were loaded by him. It was further claimed by the assessee that 82615 quintals were loaded by the buyers who had made payments for the corresponding transportation charges. Accordingly, the assessee came forth with an explanation as regards 106180 quintals [23565 quintals + 82615 quintals] of rice/broken rice that was over the year loaded in the railway rakes. The AO considering the aforesaid explanation of the assessee called upon him to explain the balance unaccounted sales of 303080 quintals of rice[409260 quintals (-) 106180 quintals]. In his reply the assessee filed with the A.O rake details which, inter alia, revealed that in the list of parties who were claimed to have dispatched/transported their goods through railway rakes booked by the assessee there were four such parties which were admittedly bogus firms from whom bogus bills were procured by the assessee. The A.O on the basis of the aforesaid fact....
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....resaid facts did not find favour with the claim of the assessee and concluded that the 303080 quintals (supra) of rice that was transported by him through railway rakes over the year was in fact his unaccounted sales. Accordingly, the AO after adopting the sale price of Rs.1525/- per quintal quantified the value of the unaccounted sales at an amount of Rs.46,21,97,000/- (303080 quintals X Rs. 1525 per quintal). Thereafter, the AO relying on the order of the ITAT, Ahmadabad in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.) worked out the addition as regards the suppressed sales @ 25% of value of the unaccounted sales and made a consequential addition of Rs.11,55,49,250/-(46,21,97,000 X 25%). Also, the A.O made an addition of an amount aggregating to Rs.1,59,41,676/- that was shown by the assessee in the name of four sundry creditors, viz. (i) M/s. Shivshankar Chawal Udyog : Rs.65,00,000/-; (ii) M/s. Amira Pure Foods Pvt. Ltd. : 16,60,433/-; (iii) M/s. Lal Mahal Ltd. :Rs. 9,49,943/-; and (iv) M/s. Shri Shyamji Rice Industries: Rs.68,31,300/-, as the unexplained income of the assessee. After, inter alia, making the aforesaid additions/disallowances the A.O vide his orde....
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....ds were prepared and signed by him. It was further noticed by the CIT(Appeals) that the aforesaid person had categorically stated that the railway authorities were only concerned that the wagons are loaded properly and locked, wagons are duly secured and all the details of the goods being transported are listed and signed by the person who had booked the railway rake. It was observed by the CIT(Appeals) that the aforementioned person had clearly stated that loading of the goods was the full responsibility of the person who had booked the railway rake. It was further observed by the CIT(Appeals) that the claim of the assessee that as a matter of trade practice the goods of certain other persons were also transported in the railway rakes which were booked by him was supported by the very fact that the assessee himself had during the year transported 56876.75 quintals of rice valued at Rs.10.09 crore through railway wagons which were booked by a total of 18 third parties. Also, it was observed by the CIT(Appeals) that the assessee had transported 80131 quintals of broken rice valued at Rs.11.52 crore through the wagons which were booked by third parties during the year under considera....
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....th 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. 11. As observed by us hereinabove the revenue by preferring the present appeal has sought our indulgence for adjudicating five issues, viz. (i). deletion by the CIT(Appeals) of an addition of Rs.2,11,01,475/- (out of total addition of Rs.2,35,71,800/-) that was made by the AO in respect of bogus purchases; (ii).deletion by the CIT(Appeals) of an addition of Rs.30,55,700/- that was made by the A.O towards peak amount of purchases that were claimed by the assessee to have been made from 7 bogus parties; (iii). deletion by the CIT(Appeals) of an addition of Rs. 10,39,700/- that was made by the AO towards low yield of rice; (iv). deletion by the CIT(Appeals) of an addition of Rs.11,07,64,618/- (out of total addition of Rs.11,55,49,250/-) that was made by the A.O towards unaccounted sales that were detected on the basis of details gathered by him from the railway authorities about the rice transported by the assessee; and (v). deletion by the CIT(Appea....
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....ice at which they are available in the organized sector. Undeniably the quantification of such price variance would require certain estimation i.e for arriving at the profit/saving which the assessee would have made by procuring the goods from the open/grey market i.e the unorganized sector as against the price booked by him in his books of accounts. Although the aforesaid process of estimation can by no means lead to total accuracy, but there should be some logical basis/reasoning behind such estimation. We would, however, on a perusal of the basis adopted by both the lower authorities for estimating the profit/discount which the assessee would have made/received by purchasing the goods from the open/grey market, mince no words in observing that the same in both the cases is totally devoid and bereft of any logical basis/reasoning. Admittedly, in a case where the assessee had purchased goods not from the organized sector but from open/grey market, then, it can safely be concluded that he would have procured such goods at a discounted value by making savings on manifold factors i.e. sales tax, other government levies, cash discounts etc., as in comparison to the price at which such....
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....of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs." It was observed by the Hon'ble High Court that the addition in respect of purchases which were found to be bogus/unproved in the case of the assessee before them, who was a trader, was to be worked ....
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.... bogus purchase billsin his books of accounts at an inflated value, thus, would be neutralized. A). Rice (51585 quintals of bogus/unproved purchases): 18. Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities (as can be gathered from the certificate filed alongwith his paper book), which fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of rice were made by the assessee @1719.24 per quintal (average rate), as against the purchase of the genuine rice that was made by him @ 1729.86 per quintal (average rate). On the basis of the aforesaid facts, now when the purchase rate of the bogus purchase of rice (average rate) is of a lower value than that at which he had made genuine purchases of rice (average rate), therefore, as per the ratio of the judgment of the Hon'ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason that the Hon'ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpo....
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....age rate) would stand reduced to an amount of Rs.1363.32 per quintal [i.e Rs.1400/- per quintal (-) 2.62% of Rs.1400/-]. As per the judgment of the Hon'ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) the profit made by the assessee by procuring the goods from the open/grey market is to be determined by bringing the GP rate of the bogus/unproved purchases to the same rate as that of the other genuine purchases. As the CIT(Appeals) had sustained the addition @ 2.62% of the value of the impugned bogus purchases of broken rice, the same, thus, brings the purchase price (average rate) of the bogus purchase of broken rice to an amount of Rs.1363.32 (average rate), i.e., lower than the purchase value (average rate) of the genuine purchase of broken rice of Rs.1370.80 per quintal (supra). Although the addition sustained by the CIT(Appeals) i.e @2.62% as regards 4000 quintals of broken rice (valued at Rs.56 lacs) in the backdrop of our aforesaid deliberations is found to be pitched on the higher side by an amount of Rs. 7.42 per quintal [Rs. 1370.80 per quintal (-) Rs. 1363.32 per quintal], but then considering the fact that the assessee has not assailed th....
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....n entry provider/entry operator vide cheques/RTGS the said amount would be received back by the beneficiary in cash from them. The A.O holding a conviction that in certain cases the amount would be returned by the accommodation entry provider/entry operator to the beneficiary only after the same would be credited in the latters bank account and is withdrawn by him, thus, in several instances substantial time would therein get involved. The A.O was of the view that the assessee in order to satisfy the demand of funds under such circumstances would either manage to show some bogus liability or some advance payments suiting to his need. On the basis of his aforesaid deliberations the A.O had made an addition of the peak credit running through the accounts of all the seven parties aggregating to an amount of Rs.30,55,700/-. 24. On appeal, the CIT(Appeals) after deliberating on the issue in hand did not concur with the view taken by the A.O. It was observed by the CIT(Appeals) that it was not a case where the assessee has made certain purchases out of unaccounted cash which would justify the addition of peak of purchases. Accordingly, the CIT(Appeals) treating the addition as devoid ....
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....arties on the issue in hand, we find substance in the claim of the Ld. AR that as the addition was made by the A.O on the basis of misconceived and incorrect facts, thus, the same had rightly been vacated by the CIT(Appeals). On a perusal of the orders of the lower authorities, it transpires that the A.O while arriving at the assessee's yield of rice for the year under consideration at 65% had failed to consider 3% yield of Kanka(broken rice). In sum and substance, though the yield of rice of the assessee was 68% [65% (rice) + 3% (kanka)], but the same had wrongly been taken by the A.O at 65%. The CIT(Appeals) after considering the aforesaid issue had held as under: "4.3 Addition has been made stating that yield of the assessee's business is 65 percent of rice, whereas as per the Government norms the yield should be 67%. On going through the assessee's submission and quantitative details it is seen that yield shown by the assessee is sufficient. As per agreement with state govt the yield of rice should be 67% and if it is usna variety of paddy then the yield should be 68%. AO has found that whereas the yield of assessee should be 67%, it has shown lesser y....
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....in case of Usna rice. Controversy in hand had arisen solely for the reason that the A.O had excluded the yield of broken rice (kanka) while working out the yield criteria. As the yield of rice alongwith yield of broken rice (kanka) works out at 68%, therefore, in our considered view the CIT(Appeals) had rightly vacated the adverse inferences drawn by the A.O. 30. Apart from that, we find that a perusal of the yield of rice of the assessee during the year under consideration as in comparison to that of the immediately preceding two years which had been accepted by the department in the course of respective scrutiny assessments for the said years, further fortifies its claim that no adverse inferences as regards its yield of rice for the year under consideration was liable to be drawn. For the sake of clarity the comparative yield position for the year under consideration as also of those for the immediately preceding two years is culled out as under: Comparative yield position is as below: Particular A.Y.2013-14 A.Y.2012-13 A.Y.2011-12 (Qty. In quintals)(Qty. In quintals)(Qty. In quintals) Paddy consumed- 28,080 84,985 1,12,598 Rice obtained- 1....
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....ed by the assessee i.e. broken rice to the aforesaid party and on 31.03.2014, an amount of Rs.42 lacs (Cr.) was payable by the assessee to the aforementioned party ( as per running account). As observed by the CIT(Appeals) that due to certain dispute which had surfaced between the assessee and the aforementioned party the matter was referred for arbitration and the same was finally settled by the Arbitrator, New Delhi, vide his order dated 12.12.2017, and pursuant thereto the assessee had finally handed over a cheque for Rs.11 lac as per the terms of a settlement agreement. On a perusal of the account of the aforementioned party (as appearing in the books of account of the assessee) we find that the entire account of the said party was squared up on 12.12.2017 and the outstanding balance was reduced to Rs. Nil. 36. We after giving a thoughtful consideration to the aforesaid facts, concur with the view taken by the CIT(Appeals) that as the authenticity of the aforesaid creditor, viz.M/s. Amira Pure Foods Pvt. Ltd. (supra) was duly substantiated by the assessee on the basis of supporting documentary evidence, therefore, there was no justification for the A.O to have drawn adverse ....
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....gainst the aforesaid party, viz. M/s Shyamji Rice Mills (supra). For the sake of clarity the observations of the CIT(Appeals) as regards the aforementioned party, viz. M/s. Shyamji Rice Mill are culled out as under: "Regarding Shyamji Rice Mill, its proprietor Mohanlal Agrawal has given statement that he did not actually sold goods and has only provided bills. Part of the addition made in the assessment on the basis of the statement has been sustained by me hereinabove, because the purchases by the assessee are not above suspicion. However the amount of trade with this party has already been included in the amount of suspicious purchases which has been dealt with earlier." Our attention in the course of the proceedings was drawn by the Ld. AR to the copy of the account of the aforementioned party, viz. M/s. Shyamji rice Industries, Page 144 of APB. Also, the Ld. AR had taken us through the copy of the account of the aforementioned party for the subsequent years i.e. A.Y.2014-15 and A.Y 2015-16, which reveals purchases made by the assessee from the said part in the succeeding years a/w. payments made through cheques to the said party. However, as both the aforesaid docum....
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....m the railway authorities. Also, the department has assailed before us the admission of certain documents as additional documentary evidence by the CIT(Appeals) under Rule 46A of the Income Tax Rules, 1962. 41. Controversy involved qua the issue in hand pertains to the addition that was made by the A.O as regards the unaccounted sales of the assessee that had surfaced in the course of verification of the expenses that were claimed by the assessee to have been incurred on transportation of rice through railway rakes. On a perusal of the records, it transpires that the assessee had debited an amount of Rs.38,81,114/- under the head "rack expenses" in his Profit & Loss account for the year under consideration. On being queried, it was submitted by the assessee that the same were the expenses which were incurred by him for transportation of 23565 quintals of rice through railways during the year. The A.O in order to verify the factual position called for the details from Sr. Station Manager, SECR, Tilda as regards the quantitative details of rakes that were dispatched by the assessee during the year. In reply, it was intimated to the A.O that the assessee had dispatched 409260 quint....
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.... have been used by some other parties in the garb of the aforesaid four concerns could not be ruled out. 43. The A.O for the sake of clarity, thereafter, called upon the railway authorities to furnish the details about the process of rake booking. In reply, it was intimated by the railway authorities that the rake is booked in the name of an individual and only his goods were loaded in the booked rake and nobody else's goods would be loaded. In fact, the railway authorities had also filed a copy of declaration that was given by the assessee in respect of rakes that were booked by him during the year alongwith full details of goods loaded in each wagon. Also complete payment details were provided by the railway authorities which revealed that the entire amount of payment was made by the assessee. The AO considering the explanation of the assessee that certain third parties would use the railway rake booked by the assesee for transporting their goods called upon him to substantiate the same on the basis of supporting documentary evidences. In reply, the assessee furnished the names of the parties who had loaded their goods in the railway rakes that were booked by him, quantity of ....
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....unable to load the entire wagon, then, the unused wagon in the normal course would be loaded by third parties. In order to fortify his aforesaid observation it was noticed by the CIT(Appeals) that during the year the assessee had himself transported/dispatched 56876.75 quintals of rice valued at Rs.10.09 crore through the railway wagons which were over the year booked by a total of 18 third parties. Also, it was observed by him that the assessee had during the year transported 80131 quintals of broken rice valued at Rs.11.52 crore through railway wagons which were booked by other parties as per the details which were filed before him. Although, the aforesaid details were not filed by the assessee in the course of the assessment proceedings, but the CIT(Appeals) taking cognizance of the fact that the A.O had not allowed sufficient opportunity to the assessee to substantiate his claim and had in fact drawn adverse inferences on the basis of details gathered and statement of the railway authority viz. Shri Mangesh Kumar(supra) that was recorded at his back, therefore, admitted the same under Rule 46A of the Income Tax Rules, 1962. The A.O on being confronted with the aforesaid additio....
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....tails that they had transported their rice/broken rice through railway rakes booked by the assessee merits acceptance. The complete details of the rice/broken rice loaded in 16 rakes booked in the name of the assessee during the year are culled out as under: Particulars Quantity (MT) Amount (Rs.) Total quantity in 16 rakes4,05,144.50Rs. 66,65,57,581 Quantity loaded by Appellant -89,795.50 Rs.14,99,67,828 Quantity loaded by others: 1. Where confirmations and invoices filed before A.O 2,08,222.00 Rs. 33,39,70,241 2. Where confirmations and 1,07,127.50 Rs. 18,26,19,512 Invoices not received 4,05,145.50 Rs. 66,65,57,581 Our attention was drawn by the Ld. AR to the "Quantity and value details of Loading in Railway Rakes allotted to assesssee - AY 2013-14", Page 35 of APB. 48. On a perusal of the aforesaid details, it transpires that the assessee had not been able to substantiate his claim that 107127.50 quintals (valued at Rs.18,26,19,512/-) of rice/broken rice was transported by third parties in the railway rakes that were booked by him during the year. Our attention was also drawn by the L....
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....ooked the rake is loaded in the wagon, but we cannot remain oblivion of the fact that he had categorically stated that the railway authorities are only concerned that the wagons are properly loaded and locked, doors of the wagons are duly secured, and that the documents containing the complete details of the goods that are being transported are signed by the person to whom the rake is allotted; while for the loading of the goods is the full responsibility of the person who had booked the rake. On a careful perusal of the aforesaid statement of Shri Manjesh Kumar (supra), we are of the considered view that the same in no way can be construed to arrive at a conclusion as has been drawn by the A.O that the goods of third parties could not have been loaded by the assessee in the railway rakes that were booked by him. Considering the fact that the assessee himself had during the year transported rice/broken rice of a substantial value through wagons booked by third parties, which claim of his had neither been doubted nor dislodged by the department, we are of the considered view that no infirmity does emerge from the order of the CIT(Appeals) who after taking cognizance of the said prev....