AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 1247
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.... 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. 16,43,550/- on account of peak credits of purchases made from bogus concerns.?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in deleting the addition Rs. 1,49,79,900/- on account of short yield shown by the assessee in comparison to percentage of rice yield as mentioned in the contract executed by the assessee with Chhattisgarh State Govt. Authority.?" 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, 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 as circumstances of the case, the ld. CIT(A) was justified in ig....
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.... 2. Succinctly stated, the assessee firm which is engaged in the business of running a rice mill and trading of food grains had filed its return of income for the assessment year 2013-14 on 04.09.2013, declaring an income of Rs. 42,51,880/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of the assessment proceedings, it was, inter alia, observed by the A.O that survey proceeding u/s. 133A of the Act were conducted over the period 15.03.2016 to 18.03.2016 on certain brokers/entry providers and rice traders, which revealed that certain rice millers/traders had procured bogus bills from the brokers/entry providers without any actual purchase of goods. It was observed by the A.O that substantial incriminating material substantiating the aforesaid various activities of providing of bogus purchase bills had surfaced in the course of survey proceedings. It was noticed by the A.O that survey action was also 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 certain brokers/entry o....
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....ases were made directly or though brokers or through intermediaries it was stated by the assessee that the same were made directly and also through brokers. As the assessee could not on the basis of irrefutable documentary evidences i.e. lorry receipt and details of payment to the transporters substantiate the genuineness and veracity of its claim of having made genuine purchases from the aforementioned parties, therefore, the A.O held a conviction that the assessee had not made any genuine purchases from them. 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 had any stock available with them. The A.O in the totality of the facts involved in the case held the entire purchase that were claimed by the assessee to have been made from the aforementioned six tainted parties of Rs. 1,38,11,030/- as bogus. 4.1 The A.O after treating the impugned purchases in question as bogus rejected the books of accounts of the assessee u/s. 145(3) of the Act. Relying on the order of the ITAT, Ahemdabad in the case of in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.), the A....
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....p;1,38,11,030/- that was made by the A.O). 6. The CIT(Appeals) as regards the addition that was made by the A.O towards peak addition of purchases appearing in the accounts of the tainted parties against whose names bogus purchases were booked by the assessee firm, was of the view that as the payment of the purchase consideration of the goods in question were made by the assessee through disclosed bank accounts, therefore, the peak concept would not be applicable in its case. Accordingly, the CIT(Appeals) vacated the entire addition of Rs. 16,43,550/- that was made on the said count by the A.O. 7. On the issue of short/suppressed yield of rice of 5.70% (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 was in fact 68.25% which was well as per norms fixed by the state government. Accordingly, the CIT(Appeals) on the basis of the observations recorded in his order vacated the additio....
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.... the basis of bogus purchase bills of the aforesaid six parties, therefore, it can safely be concluded that by so doing it would have inflated the purchases in its books of accounts. We, say so, for the reason that the goods are available in the open/grey market i.e unorganized sector at a discounted value as in comparison to the price at which they are available in the organized sector. Undeniably the quantification of such price variance would require certain estimation for arriving at the profit/savings 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 in its 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 forming the very basis of such estimation. We would however on a perusal of the basis adopted by both the lower authorities for estimating the profit/discounts 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....
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....es 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. 20,98,62 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 assesse....
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....sp; 3,250 56,55,000 1740.00 Less alleged bogus purchases 600 10,40,000 1,733.33 DIFF. 6.67 NETT 2650 46,15,000 1741.51 DIFF 8.18 MARKET RATE HIGHER GUNNY BAG A/C Overall purchase Avg. Rate Remark Paddy Qy. Amount AVG. RATE 3,60,859 65,25,636 18.08 15000 2,29,600 15.31 DIFF. 2.78 NETT 3,45,859 62,96,036 18.20 DIFF 2.90 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 benefits which though would have accrued to the assessee, but had been withheld by it in its financial statements by booking ....
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.... 17. 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 fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of broken rice were made by the assessee @1252.58 per quintal (average rate), as against the purchase of the genuine broken rice that was made by him @ 1434.02 per quintal (average rate). On the basis of the aforesaid facts, now when the rate of bogus purchase of broken rice (average rate) is of a lower value then that at which he had made genuine purchases of broken 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 as 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....
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....e rate of bogus purchases of bran i.e Rs. 1733.33 per quintal (average rate) is already lower than the genuine purchases of bran rate i.e Rs. 1741.51 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. We, thus, in terms of our aforesaid observations vacate the addition of 3.26% of the value of bogus/unproved purchases of bran of (600 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs. 33,904/- [Rs.10,40,000/- X 3.26%] as had been sustained by the CIT(Appeals). D). Gunny Bags (bogus purchases of 15000 gunny bags): 19. 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 fact had also not been rebutted by the ld. DR, it transpires that the bogus purchases of gunny bags was made by the assessee @15.31 ....
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....liedly admitted that the sales corresponding to the impugned purchases were accounted for by the assessee in his books of accounts, in both the aforesaid cases it was found that the respective assessee's could not prove the consumption/utilization of the goods in question in their business. The Grounds of appeal Nos. 1, 4 to 10 are dismissed in terms of our aforesaid observations 20. Now, we shall take up the grievance of the revenue that the CIT(Appeals) had erred in deleting an addition of Rs. 16,43,550/- that was made by the A.O on account of peak purchase credit of the six parties from whom bogus purchases were admittedly claimed to have been made by the assessee. 21. Ostensibly, the A.O after referring to the modus operandi that would in normal routine be adopted by a beneficiary for obtaining bogus purchases 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. 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 c....
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....t. Thus, the Ground of appeal No. (s) 2 is dismissed in terms of our aforesaid observations. 25. We shall now advert to the grievance of the revenue that the CIT(Appeals) had erred in vacating the addition of Rs. 1,49,79,900/- 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 that was executed by the assessee with Chhattisgarh State Government Authority. 26. As observed by us hereinabove, the A.O was of the view that as the yield of rice of the assessee concern during the year was 61.30% (total consumption of paddy :114173 quintals against which the rice production : 69983 quintals) as in comparison to the yield of 67% to 68% that was fixed as per the norms of the State Government, thus, there was a suppressed yield of 6513 quintals of rice. Accordingly, the A.O valuing the suppressed yield i.e 6513 quintals @ Rs. 2300 per quintal made a consequential addition of Rs. 1,49,79,900/-. 27. We after hearing the Ld. Authorized Representatives of both the parties on the issue in hand find substance in the claim of the Ld. AR that as the addition was made by the A.O on the basis o....
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....ated 6 August 2012 of Department of Food & Public Distribution Ministry of Consumer Affair, Food & Public Distribution Govt of India addressed to Secretary Food & Civil Supplies of all state governments, which specifies the uniform specification for grade 'A' common rice. As per this specification, in the yield of rice, the various impurities should not exceed the following limits- Refractions Maximum Limit % Grade A Common Broken Raw 25 25 Parboiled 16 16 Foreign matter 0.5 0.5 Damages grains Raw Parboiled 3 3 Discoloured grains Raw 3 3 Parboiled 5 5 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. AO has excluded the broken rice while deciding the yield criteria. Together with the broken rice (kanka) of 5.6% the yield of the assessee is (62.65 + 5.6) is 68.25. Therefore the as....
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....by the A.O. 28. 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: S. No. Assessment year 2013-14 2012-13 2011-12 2008-09 * (Qntls.) yield % (Qntls.) yield % (Qntls.) yield % (Qntls.) yield % 1. Paddy Milled 111700 - 109700 - 29300 - 85900 - 2. Rice obtained 69983 62.65% 72258 65.87% 19674 67.15% 54486 63.43% 3. Kanki (Broken Rice) obtained 6260 5.6% 3029 2.76% 416 1.42% 3455 4.02% Total of Rice Yield 68.25% 68.63% 68.57% 67.45% 4....