TaxTMI 
TaxTMI 
1996 (1) TMI 144
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....Rapeseed oil and oil cake from rapeseed. (5) Solvent extracted rapeseed oil from rapeseed oil cake. (6) Soyabean oil and oil cake from soyabean. (7) Solvent Extracted soyabean oil from soyabean oil cake. 3. The company filed a return of income declaring an income of Rs. 2,99,270. The assessment was made by the Assistant Commissioner of Income-tax, Junagadh under section 143(3) on 18th March, 1994 at an income of Rs. 1,28,22,500. 3.1 The ACIT had inter alia made the following additions/variations :-- (a) Addition of Rs. 39,25,071 towards suppressed oil production, comprising of :-- (i) low oil recovery in respect of rapeseeds purchased from outside Gujarat State.1,89,982 (ii) low oil recovery in respect of rapeseeds purchased from within the State of Gujarat 37,35,089 ---------  ....
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....ich has been challenged in ground No. 2 of revenue's appeal. The assessee has challenged the addition of Rs. 30 lakhs sustained on account of alleged suppressed oil production and introduction of oil cake in ground No. 3 of their appeal. 4.2 The assessee-company carried on the activity of crushing of oil seeds at one oil mill owned by itself as well as one oil mill of the associate concern where the crushing was carried out on job work basis and for which the assessee-company had paid crushing charges. The break-up of crushing carried out at both the places has been given by the assessee in its letter dated 10th December, 1995. The assessee's own oil mill had a total capacity of crushing 50 tons of seeds per day while the oil mill of the associate concern had the crushing capacity of 62.500 tons per day. The said associate concern M/s. Vijay Solvent Extraction Pvt. Ltd. has an oil mill as aforesaid as well as the Solvent Extraction Plant (SEP for short). 4.3 In the oil mill division the oil seeds are crushed to recover oil. In the process, oil cakes are obtained. Oil is sold in the market, whereas oil cakes are sent for further processing on job-work basis to SEP belonging to it....
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....ts and figures on the basis of which the aforesaid additions were made. 4.6 The CIT(A) in para 4 of the order passed by him observed that no sectorwise approval of accounts can be made ignoring the fact that sufficient evidence has been brought on record by the Assessing Officer to prove that certain purchases were bogus and therefore, the accounts have to be held as unreliable. He thereafter dealt with separate additions made on account of low recovery of oil from rapeseeds from OGS and WGS. He deleted the addition of Rs. 1,89,982 made in respect of low recovery of oil relating to rapeseed purchased from OGS. 4.7 As regards two separate additions of Rs. 37,35,089 for low oil recovery in respect of rapeseeds purchased from WGS and oil cake held as introduced from undisclosed income of Rs. 3,19,618 the CIT(A) held that in view of the non-feasibility of a uniform yield rate in all years and on the circumstances of the present case it shall be fair, if such addition is restricted only to Rs. 30 lakhs. Such findings have been given at pages 18 and 19 of the order passed by him. He thus granted a relief of Rs. 10,54,707. 5. The learned Authorised Representative of the assessee inv....
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....ing solvent extraction process. Likewise, reliance placed on the results of GROFED is also not valid as they did not crush as single Kg. of rapeseed during the year under assessment. (f) The Assessing Officer has ignored the results of other comparable cases. (g) The yield depends on several factors such as quality of rapeseed purchased, moisture content therein, prices paid, and various other factors. All such factors justifying a wide variation in the yield have been ignored by the authorities below. (h) None of the parties with whom comparison for yields has been made, have been offered for cross-examination. Thus, the comparison is inadequate. (i) The Assessing Officer initially started by taking the guaranteed yield for the rapeseed purchased from OGS as the basis for the entire quantity of rapeseed crushed. When it was explained to him that the quantity of such rapeseed purchased from OGS is only about 10% of the rapeseed crushed and for the rest of the material purchased from WGS there is no guarantee and the price of such seeds is also significantly less, the Assessing Officer treated the rapeseeds purchased from WGS differently. (j) The fact that there is a signifi....
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....1992-93 29.39% 1993-94 31.58% 1994-95 30.93% (q) The assessee's AR made elaborate arguments both in writing as well as orally on different dates on hearing. He strongly urged that the CIT(A) ought to have deleted the entire amount of addition made on account of alleged low recovery of oil from crushing of rapeseeds and addition made on account of alleged introduction of oil cakes. 6. The learned Sr. Departmental Representative also vehemently argued the aforesaid points from various different angles. He strongly placed reliance on the very elaborate, convincing and sound reasons given in the assessment order. He submitted that the CIT(A) ought to have confirmed the entire amounts of additions made on account of the aforesaid ground of oil yield and introduction of unaccounted oil cakes. The learned CIT(A) has erred in granting relief of Rs. 1,89,982 as well as relief of Rs. 10,54,707. Shri Chaudhary, the learned Sr. DR also submitted detailed written submissions dated 22nd September, 1995. In paras 3.3.1....
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.... assessment years 1990-91 and 1992-93. Necessary action under section 147/148 have also been taken by the Department for the earlier year. The Sr. D.R. has further pointed out that shortage claimed at 4.97% in the month of March 1991 (page 4 of PB " E ") in OGS purchases is far in excess of oil shortage of 3.7 in WGS purchases, where the OGS quality is said to be better. The learned Sr. DR. pointed out that the shortage becomes much more excessive when it is compared to only 3.16% as claimed in March 1991 in WGS purchases by assessee itself at page 5 of PB " E ". He invited our attention towards the discussion on page 5 of the assessment order. Likewise, the learned Sr. D.R. has pointed out that it is incorrect on the part of the assessee to contend that no discrepancy or defects have been found by the Assessing Officer in the matter of oil recovery. (c) The learned Sr. D.R. has further pointed out that the contention of the assessee that in OGS purchases, subsequent oil recovery will be much higher at SEP stage as compared to WGS purchases also does not have any merit. He has given certain percentages with reference to chart submitted at pages 5 & 7 of PB " E ". (d) The Sr. D.....
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....n of SEP day-to-day quantitative records were maintained and no defects were found. In fact the production results have been expressly accepted. The receipt of material on the same day which it was shown in the Awak Gate Pass is proved. (iii) The assessee has all along been saying that the purchases of oil cakes as per the usual trade practice in this business were made through brokers and they do not come into contact with the suppliers. (iv) Such so-called non-genuine purchases of oil cakes have also been made at comparative prices. B. Regarding brokers The learned AR of the assessee has contended that the allegation that genuineness of brokers has not been established is not proper. The learned AR has mentioned a few reasons in support of this contention. C. Regarding Shroff The assessee has denied the allegation that money represented by the cheques issued in favour of various alleged bogus suppliers was collected back by the assessee-company through the bank account of M/s. Pooja Traders. The assessee's AR has given certain reasons in support of this contention. The learned AR has then given his parawise comments with reference to the written submissions made by the le....
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....ng to the main addition made on account of bogus purchases of oil cakes, freight expenses, etc., incurred in relation thereto as well as the arguments made by the learned representatives of both the sides in respect of the said main ground of assessee's appeal. 10. The Assessing Officer in his elaborate assessment order running into 172 pages has elaborately discussed the entire relevant facts relating to bogus purchases of oil cakes made by the assessee from various parties. Such facts find mention at different places in the assessment order. At pages 159 to 161 of his order the Assessing Officer in para 38 has observed the various factors about the purchases of oil cakes from the 33 suppliers and the non-genuineness thereof have been discussed in paras 22, 23, 24 and other paras at length of the assessment order. The rejection of the books of the account on the basis of various evidence available has also been discussed in the earlier para of the assessment order in detail. On the basis of entire evidence available on record, the Assessing Officer has summarised the amount of additions made in respect of payment shown to have been made to these alleged bogus suppliers at pages ....
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....duced before the Assessing Officer. (e) Not only the suppliers but the transporters were also not available and those who were found at the address given have totally denied to have sent any goods as claimed by the assessee. (f) Copy of the bills and transport vouchers submitted by the assessee did not contain seal/stamp of inter-State check-post or office of ACTO, Palanpur or Sales-tax check-post authorities at Abu Road, etc. (g) The brokerage is not debited to supplier's account unlike other genuine transactions. (h) The freight is not debited to the supplier's account unlike other genuine transactions. (i) The assessee completely failed to produce any material evidence despite grant of adequate opportunities to prove the genuineness of these payments aggregating to Rs. 70,03,826.24 made by it. The Assessing Officer has therefore, disallowed the said sum of Rs. 70,03,826.24. 10.2. The Assessing Officer further found that there were credit balances in the accounts of these 33 bogus suppliers at the end of the year on 31st March, 1991. The facts relating to the aforesaid credit balances has been discussed in para 40 at pages 163 and 164 of the assessment order. The Ass....
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....t bogus purchases and freight thereon, as made by the Assessing Officer. 12. The learned AR of the assessee strongly argued that the Assessing Officer has grossly erred in making the aforesaid additions on account of alleged bogus purchases and the learned CIT(A) has also grossly erred in confirming the same. Arguments were made by him orally as well as in writing. The written submissions have been placed in different paper books submitted during the course of hearing from time to time. The learned AR submitted his final arguments in PB marked " G ". He has invited our specific attention towards the following detailed submissions made in relation to the aforesaid points :--- (a) Copy of submissions made before CIT(A) (pages 32 to 35 of PB " C "). (b) Copy of letter dated 18th August, 1993 addressed to the ACIT in response to his show-cause notice dated 5-7-1993 at pages 72 and 73 of PB " C " along with copy of written submissions dated 18-8 1993 made in compliance to show-cause notice dated 5-7-1993 (copy at pages 74 to 120 of PB " C "). (c) Summary of submissions as regards additions of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,92,752 on account of alleged bogus purchases (pag....
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....y brokers through whom the purchases were made. It will be worthwhile at this stage to point out that no document relating to souda issued by brokers were produced before the Assessing Officer. Those were for the first time produced before the CIT(A). The assessee failed to produce any of the brokers before the CIT(A). The Tribunal also gave specific opportunities to the assessee to produce the brokers before the Assessing Officer who was directed to make certain verifications. The assessee again failed to produce any of the brokers or suppliers before the Assessing Officer in spite of opportunities granted by the Tribunal. III. Fact of material received and used in production of goods sold undisputed : The assessee has time and again highlighted this point saying that the material which is shown to have been purchased from the 33 alleged bogus suppliers have really been received and has been used for carrying out manufacturing. The fact of receipt of material has not been disputed by the departmental authorities nor by the learned Sr. D.R. In fact, the departmental authorities have accepted the fact of having received the material in question. IV. Modus operandi of purchases n....
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....e regular business practice that the suppliers get their cheques discounted with discounting agencies in order to get a repayment. There are number of such discounting agencies doing their business in Junagadh. Therefore, the fact that cheques issued in favour of all these suppliers were subsequently encashed through one M/s. Pooja Traders is not at all relevant for holding the purchases as bogus purchases. There is no evidence to show that amounts given by the assessee-company in favour of the suppliers by crossed cheques have come back to the assessee in any form. VIII. Assessing Officer's observations regarding characteristics of transactions considered as non-genuine : The assessee has made submissions with regard to various observations made by the Assessing Officer in relation to the so-called non-genuine transactions. It was submitted that freight was not debited to suppliers' account as the credit in suppliers' account was made only in respect of the net amount excluding freight. The seal/stamp of another check-post is affixed on all transactions. Where the driver does not stop or is not stopped by check-post there will be no stamp. IX. Five important questions which a....
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....hly quantitative details of input of raw material and of finished goods in SEP, complete list of alleged bogus purchases made from 33 parties giving full particulars as to date of purchase, quantity/weight of oil cakes purchased, percentage of oil content guaranteed by those suppliers, purchase price, etc. 12.4 It was also mentioned in the said order sheet that assuming that all the purchases made from alleged 33 bogus parties are not genuine and the accounts of all those 33 parties are treated as one common and consolidated account, calculate the peak amount in the manner indicated in the said order sheet. Various other details relating to M/s. Pooja Traders, Shroff, through whose bank accounts cheques given to alleged 33 bogus parties were encashed, were also required. 12.5 The Assessing Officer was also required to scrutinise all the details which have been required from the assessee so that the figures which will be submitted to the Tribunal will be the figures duly verified by the Assessing Officer. 12.6 The Sr. DR was also requested to submit para-wise reply and comments in writing on various written submissions given on behalf of the assessee. The Sr. DR was particular....
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.... the second chart for the period from 1-4-1991 to 1-9-1992. In this Paper Book marked as " H " the assessee has also made further written submissions vide letter dated 14-11-1995 at pages 36 and 37. A consolidated chart showing peak position from assessment years 1989-90 to 1993-94 was also submitted. 13.1 The learned AR of the assessee submitted elaborate arguments with regard to non-applicability of section 68 or section 69 or section 69C, etc. made in PB " G " at pages 25 to 31. The sum and substance of his contentions is that the credit balance lying in the account of the alleged bogus suppliers should be accepted as correct. He has submitted that although the assessee is not in a position to produce the suppliers/brokers for the alleged non-genuine purchases, it should be accepted that keeping in view the prevailing practice in trade for purchase on credit no addition should be made on account of the credit in question which even the Assessing Officer has not considered as abnormal. It was submitted that provisions of section 68 or section 69 are not at all applicable. The subject-matter of the appeal before the Tribunal is whether the expenditure is allowable. The question ....
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....tead of " X ", this has no effect on the profit shown. Even if the books of account are rejected and the deduction for the purchase is given at a reasonable price, the results shown need not be disturbed. He placed reliance on decision reported in M. Sreedhara Panicker v. ITO [1979] 7 TTJ (Cochin) 573 to support his contention that there is no rule that when accounts are rejected an addition to the trading account is inevitable. The learned AR also submitted that if the peak is worked out on the basis of normal credit available in the case of genuine purchases, the amount of peak would come to Nil. 13.5 The learned Sr. DR has also made written submissions. 13.6 After going through all the written submissions made by the learned representatives of both the parties the Tribunal once again on 17-10-1995 gave certain queries vide order sheet entry dated 17-10-1995. The Tribunal inter alia required the assessee to make definite, certain and categorical statement to either confirm or deny as to whether he admits the fact of bogus purchase invoices and existence of really unaccounted money in circulation in respect of which an alternative claim for applying the theory of peak and tele....
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....le. (c) All payments for materials have been made from unaccounted sources. (d) The Assessing Officer has never questioned the source of expenditure. (e) Even if it is assumed that purchases have been paid off on the date of receipt of materials, it is only the peak unpaid purchase price which should be subjected to tax and not the total income. 13.9 The learned AR thus very vehemently made his submissions which have been briefly stated hereinbefore. 14. The learned Sr. DR has also presented his submissions in an equally admirable manner. Oral arguments were made on various dates of hearing. Shri R.K. Chaudhary, the learned Sr. DR finally submitted elaborate written arguments dated 22-9-1995. The gist of various submissions made by the learned Sr. DR can be briefly stated as follows :--- (a) The evidence on the basis of which the assessee has claimed deduction in respect of purchases including freight aggregating to Rs. 93,06,366 has been established to be bogus, fabricated and to tally unreliable evidence by detailed enquiries made by the Assessing Officer. The gist of the results of such enquiries has been given in para 30 of the assessment order at pages 152 to 154. The....
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....M/s. Pooja Traders. Even the word " bearer " on the cheque was not crossed out. The amount of cheques was encashed and withdrawn almost on the same dates on all the occasions. (f) The Assessing Officer issued a detailed show-cause notice dated 5-6-1993 to the assessee to place him with the entire evidence collected regarding suppliers, transporters and regarding bank account of M/s. Pooja Traders, etc. but the assessee only gave evasive replies and has made no efforts to produce either the suppliers or the brokers. The assessee had transactions with the same set of suppliers for a period of nearly 31/2 years i.e., from 9-3-1989 to September 1992. Yet, the assessee could not produce any one of them nor any one of the brokers to prove the genuineness of these purchases. (g) The assessee did not choose to cross-examine Shri M. M. Waghela, proprietor of M/s. Pooja Traders. It is also a fact that account of M/s. Pooja Traders was closed almost at the same time when the Department started making enquiries about the encashment of various cheques issued by the assessee to the bogus suppliers. (h) The Department has established beyond doubt that M/s. Pooja Traders was a dummy account s....
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....pplicable in respect of such bogus purchases shown to have been made from 33 fictitious parties. The payments made to them are clearly hit by section 40A(3). It was also argued that decision of ITAT in the case of Hynoup Food and Oil Industries Ltd. is not applicable and that decision, with respect, does not lay down the correct law. He placed heavy reliance on the judgment reported in S. Venkata Subba Rao v. CIT [1988] 173 ITR 340 (AP) to support his contention that provisions of section 40A(3) will be fully applicable on the facts of the present case. (q) The learned Sr. DR then placed reliance on the decision of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 2 regarding applicability of section 40A(3) in respect of such bogus purchases. (r) The learned Sr. DR then made his submissions with regard to applicability of section 68, section 69, section 69C etc., at pages 35 and onwards of the written submissions. On the basis of elaborate submissions made, the learned Sr. DR has strongly argued that the provisions of section 68 and/or section 69C shall be clearly attracted on the facts and circumstances of the present case. (s) The lea....
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....; 39,814 5. Rate & Quality Difference 9,33,745 --------- Total 41,20,985 --------- If the aforesaid items of income are excluded, there will be a net loss of Rs. 28,51,387. It is impossible to believe that the assessee could suffer a net loss of Rs. 28.51 lakhs on gross turnover of nearly Rs. 16.38 crores. The income assessed by the Assessing Officer after giving effect to the order of the CIT(Appeals) works out to nearly 7.08 per cent which is also inclusive of the profits resulting from exports amounting to Rs. 31,28,771. If these export incentives are excluded the percentage of profit will come to 5.15 per cent of ....
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....d that no interference could be justified. 15.We have given a very deep and thoughtful consideration to the various arguments made by the learned representatives of both sides. We have also carefully gone through the orders of the learned departmental authorities as well as various documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of the parties. 16. We would first like to deal with the main question relating to genuineness of the alleged bogus purchase of oil cakes aggregating to Rs. 93,06,326 including freight charges. It is settled law that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the onus in the present case squarely lies on the assessee to prove the genuineness of purchase of oil cakes said to have been made from the 33 parties, which have been held to be bogus parties by the learned departmental authorities. 16.1 The Assessing Officer gave a detailed show-cause notice dated 5-6-1993 to the assessee which has been reproduced in para 10 on pages 7 to 34 of the....
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....6) replied that their factory is closed since last 15 years and no business was done by them in their name. They have also denied having made any transactions with the assessee. (b) M/s. Charbhuja Oil Mills, Siddhpur have also stated in their reply to the AO that no such sales were made by them during the year 1991 and three years before or in the later years. They further stated that they never had any business relations with the assessee. (c) M/s. Mahesh Oil Industries, Shahpura sent a communication to the AO stating that their firm closed the business five years back and no transactions took place during the period from 1-4-1990 to 31-3-1991. They also categorically stated that they have no dealings with M/s. Vijay Proteins/Vijay Oil Mills/Vinay Solvent Extraction Industries, Junagadh. (d) Nakoda Oil Industries, Dungla in their reply to the AO have stated that anything done by the assessee in the name of their firm is absolutely wrong. They have not made any sales or purchases from M/s. Vijay Proteins Ltd., Junagadh during the period from 1-4-1990 to 31-3-1991. The AO has reproduced the copies of accounts of the four suppliers as appearing in the books of account of the asse....
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....ndicated that the transactions shown by the assessee in the books of account with these parties are not genuine and no such transactions in fact took place with them. The facts relating to transactions with all these 27 parties have been discussed by the Assessing Officer extensively at pages 96 to 141 of the assessment order. At page 21 of the assessment order the Assessing Officer has categorically stated that none of these 27 parties were found available at the addresses given on their respective sale invoices, etc. These parties were not found at the given addresses. The Assessing Officer therefore, gave a show-cause notice to the assessee communicating to him the aforesaid fact. The assessee did not make any serious effort to trace out the whereabouts of the owners/partners of those 27 concerns and it failed to produce them before the departmental authorities. Apart from the fact that these 27 parties were not found in existence at the given addresses the Assessing Officer has made elaborate discussions about other aspects relating to transactions with these parties in the assessment order. For instance, at pages 96 to 98 of the assessment order the Assessing Officer observed ....
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....view of the failure on the part of the assessee to prove the genuineness of the transactions made with these 33 parties as well as genuineness of the payment of freight on such bogus purchases, the Assessing Officer came to the conclusion that payment of Rs. 70,03,826 said to be made to these 33 parties towards purchase of oil cakes from them are not genuine and no such transactions were ever entered into by the assessee with these bogus parties. Likewise, the Assessing Officer at page 163 has further held that the balances shown as outstanding in the accounts of 12 bogus suppliers out of the aforesaid 33 bogus suppliers also represent bogus transactions. The outstanding balance as on 31-3-1991 amounting to Rs. 17,99,788-75 was also disallowed by holding that the same is claimed to have been made against nonexistent, non-genuine parties and by making fabricated bills, vouchers and bogus entries in the books of account of the assessee. 16.8 The Assessing Officer thereafter considered the genuineness relating to freight payment of Rs. 5,02,752 in relation to such bogus purchases at pages 164 and 165 of the assessment order. He has referred to elaborate discussions made in earlier p....
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....us purchases. The assessee is therefore, granted this final and last opportunity to produce all such persons before the Assessing Officer for their examination/cross-examination before the Assessing Officer within 22 days from the date of service of this note. In case he fails to produce them before the Assessing Officer an adverse inference may be drawn against the assessee." 16.11 The assessee failed to produce any of the suppliers, brokers or transporters before the Assessing Officer in spite of such a specific opportunity granted by the Tribunal. It was stated on behalf of the assessee that those suppliers and the brokers are now not available. Registered letters sent to them have been returned back. These reasons given by the learned AR of the assessee are mere pretexts which cannot absolve the assessee from discharging the burden of proving the genuineness of such a seriously doubted transactions. In case the assessee would have been serious in producing them or in case those suppliers and/or the brokers would have been really in existence, the assessee with little more efforts could easily have found out their present whereabouts and could have produced if not all but at le....
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....ents shown to have been made to them by crossed cheques have in fact not been given to these parties as they were not in existence and the transactions shown with them are fictitious, but such cheques have been got encashed from one bank account in the name of M/s. Pooja Traders. The cheques issued in the names of those 33 bogus suppliers had been credited in that bank account and money has been withdrawn in cash almost on the same day. The Assessing Officer has established that the bank account in the name of M/s. Pooja Traders was opened and operated merely with a view to accommodate the assessee for carrying out such fictitious transactions of purchases. The stand taken by the assessee that all transactions were made through brokers and they had no direct contact with the suppliers is also not believable. The broker's note and all the papers relating to brokers were not produced before the Assessing Officer. Those papers for the first time were produced before the CIT(A). The Tribunal gave a specific opportunity to the assessee to produce the brokers but at this stage also the assessee failed to produce them. The amount of brokerage has not been debited in the account of these b....
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.... from sources best known to the assessee and those goods in question were not received from those 33 suppliers from whom it is shown to have been purchased. 17.1 The learned AR of the assessee placed reliance on the following decisions to support his contention that the assessee is entitled to a deduction of the cost of material consumed : (a) Balaji Textile Industries (P.) Ltd. v. Third ITO [1994] 49 ITD 177 (Bom.). (b) Arun Industries case. (c) Ninth ITO v. Upper India Trading Co. [IT Appeal No. 694 (Bom. of 1989) dated 24-4-1994] (d) M. Sreedhara Panicker's case. (e) Decision of Shri M.S. Darda, CIT(A)-V, Ahmedabad in the case of M/s. Hiranand Thakerdas. Sanjay Oil Cake Industries v. IAC [IT Appeal Nos. 2553, 2654 & 2655 (Ahd. of 1988)]. (g) CIT v. S.M. Omer [1993] 201 ITR 608 (Cal.). There cannot be any dispute about a well settled legal proposition that tax can be levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchases from sales, otherwise it would amount to levy of income-tax on gross receipts or on sales. Such a recourse is not permissible....
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....on 15-9-1995 that in the present case the payment by crossed cheques has been proved but the payment by cash is only alleged against the assessee. On the basis of the aforesaid decision, no disallowance can be made under section 40A(3) under such circumstances. (f) Referring to the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh the learned A.R. said that the object of section 40A(3) was to regulate the business transactions and to prevent the use of unaccounted money. In the present case payments have been made to the so-called bogus suppliers by cheques from the accounted sources. On this ground also section 40A(3) is not applicable. (g) Decision of ITAT, Madras in the case of Taj Tanning Co. v. ITO [1990] 32 ITD 302 was also relied upon by the learned AR for the assessee. For non-applicability of section 40A(3) various other decisions were cited and elaborate arguments in writing have been submitted in different compilations in relation to this point. It would be unnecessary to deal with all the case laws in this order. However, we have gone through each and every case cited by the learned representatives and have carefully tried to examine the rele....
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....sed cheques. If these payments are treated as having been shown as made to 33 bogus parties, and the amount in question shown as paid by cheques and encashed through the bank account of M/s. Pooja Traders, came back to the assessee out of withdrawals made from bank account in the name of M/s. Pooja Traders, these entries of payments will have to be ignored. Thus, on the basis of entries recorded in the books of accounts of the assessee, the provisions of section 40A(3) would not be applicable as such payments have been shown to have been made by crossed cheques. If these entries are ignored, the books of account stand rejected under section 145(2) and then the income will have to be estimated on the basis of best judgment. The Ahmedabad Bench of Tribunal in the case of Hynoup Food and Oil Industries (P.) Ltd. considered all these aspects in relation to interpretation of section 40A(3). It also took into consideration the judgment of the Hon'ble Andhra Pradesh High Court relied upon by the learned Sr. DR. The judgment of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh relied upon by the learned Sr. DR has upheld the constitutional validity of the provisions of sec....
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.... is generally known that the oil mills are engaged in carrying out unaccounted production of oil as well as oil cakes. The assessee might have purchased such oil cakes out of unaccounted production done by various oil mills. (b) The Assessing Officer in the written submissions made before the Tribunal in Part-B of the paper book of the Department has also indicated about one more possibility, viz., that the assessee is having an oil mill and is also producing the oil cakes. The bogus purchase of oil cakes shown by the assessee according to the Assessing Officer might be out of their own unaccounted production for which the bills have been prepared by the assessee themselves in the names of bogus concerns. In this regard it would be worthwhile to make a reference to letter dated 10th December, 1995 submitted on behalf of the assessee. It has been indicated that the crushing capacity of assessee's own oil mill is approximately 50 tons per day and the crushing capacity of the assessee's associate concern is approximately 62.500 tons per day. It has been further stated that crushing was carried out only for 110 days in the year under appeal in assessee's own mill. The chart showing p....
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....e of unaccounted goods produced and sold by them. This may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted for goods. Keeping all these factors in mind and also keeping in view the decision of the ITAT in the case of Sanjay Oil Cake Industries we hold that 25% of the purchase price accounted for in the books of accounts through such fictitious invoices in the name of 33 bogus parties should be disallowed out of the amount of purchases shown to have been made from those 33 bogus suppliers. The total purchases shown as made from these 33 parties which have been disallowed by the Assessing Officer are as under : (i) Bogus purchases as discussed in para 38 read Rs. with para 22 of the assessment order 70,03,826 (ii) Bogus purchases as discussed in para 40 of the assessment order 17,99,788 &....
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..... 20.1 It will be worthwhile to reproduce certain extracts from the various written submissions made on behalf of the assessee in respect of the aforesaid point as follows : Page 31 of Paper Book ' G ' : " (iii) The peak amount of purchases in question is Rs. 17,99,788.75 as shown at pages 15 to 20 of paper book E. This peak amount has been worked out as per the guidelines given by the Honourable Tribunal in the note-sheet. The correctness of this amount has been admitted by the learned DR. in the course of hearing on 15-9-1995. " Page 32 of Paper Book ' G ' : "(v) Even if it is assumed that such purchases must have been paid for on the date of receipt of materials, it is submitted that the payment made for the first purchase should be treated as allowable for the next purchase and only the peak amount should be considered for the purpose of determining whether the source thereof is explained or not. The appellant-company very respectfully submits that the money which has gone out of its coffers has been utilised only for the purpose of purchase of materials. No credit for this money has been claimed for any other expenditure or investment or for any other purpose. (vi) It....
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.... available in relation to purchase of oil cakes is allowed, the assessee submitted that no addition in respect of unexplained investment for purchase of oil cake can be validly made. Such submissions have also been made without prejudice to assessee's contention that the Assessing Officer did not make any addition on account of unexplained sources of the expenditure but the amount was disallowed by way of bogus purchases only. The learned Sr. D.R. submitted that unless the assessee admits that there is a direct nexus of the amount withdrawn from bank account of M/s. Pooja Traders with the purchase of oil cakes made from the open market from undisclosed suppliers, the benefit of peak should not be allowed. According to the learned Sr. D.R., the amount can be disallowed wholly as a bogus purchase and such disallowance can also be sustained in view of provisions of sections 68 and 69C. The assessee has failed to prove the identity of the suppliers in whose accounts closing balance aggregating to Rs. 17,99,788-75 exists. It was also pointed out by the learned Sr. D.R. that not only the amount of peak amount of unexplained investment should be added but in addition to that amount the pr....
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....nt of unexplained money utilised for purchase of oil cakes, wrongly shown in the books of the account as having been purchased from the said 33 bogus suppliers. Such working was made by the assessee which was submitted before the ACIT for necessary verification. The assessee has submitted such details alongwith letter dated 5th August, 1995 in PB marked ' E '. The peak amount for the year under consideration has been calculated as per details mentioned at pages 21 to 26 of PB ' E '. The peak amount according to the said chart comes to Rs. 18,00,145.86 as on 18th March, 1991 which is almost equivalent to the closing balance in the accounts of various parties out of those 33 bogus suppliers. The addition in respect of unexplained investment made in relation to oil cakes purchased from undisclosed parties or undisclosed sources but wrongly shown in the books of account as having been purchased from 33 bogus suppliers is, therefore, required to be added as assessee's income and we therefore, hold that he Assessing Officer was right in making an addition of Rs. 17,99,788.75 representing the closing balance in the accounts of those bogus suppliers, which happens to be the maximum amount ....
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....p; 13,98,822 1990-91 26-12-1989 27,93,285 1,042,691 -- 1991-92 28-3-1991 88,03,615 1,796,842 3,98,021 1992-93 22-12-1991 1,95,11,343 5,858,707 4,061,864 1993-94 06-07-1992 1,46,86,311 6,599,267 7,40.560 ----------- --------- &nbs....
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....parties which are within the special and exclusive knowledge of the assessee and the assessee is not willing to disclose the true facts to the Department. The detection of such serious mistakes by the Assessing Officer in the vouchers produced by the assessee and that too of such a large amount fully justifies the rejection of books of account made by him. The correctness of the books of account cannot be determined sectorwise, as contended on behalf of the assessee. It was pointed out by the assessee that no mistakes have been found in the oil mill section. This is also not a correct expression of facts. In fact, one of the items produced by the oil mill is oil cake, which is a raw material for the Solvent Extraction Plant (SEP). In SEP Division it has been found that oil cake purchased has been debited in the books of account on the basis of fictitious invoices in the names of 33 bogus suppliers. We are, therefore, of the considered opinion that books of account maintained by the assessee are neither reliable nor correct. The provisions of section 145(2) are clearly attracted on the facts and circumstances of the present case. 21.2 It is true that in all cases where books of ac....
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....ntages of production determined by him and the amount of addition on that score was calculated at Rs. 3,19,618 in para 36 of the assessment order. 21.7 The learned AR for the assessee has relied upon several decisions and has also submitted written arguments which form part of different paper books submitted from time to time. He also made oral arguments on different dates of hearing. According to the learned AR, the Assessing Officer has grossly erred in making addition of hypothetical production of oil and oil cake on mere surmises and presumptions. The yield from crushing of various oil seeds is bound to vary from lot to lot depending on various factors. He has also submitted that the Assessing Officer had wrongly placed reliance on result of other cases. The Assessing Officer ignored results of cases which are favourable to the assessee. Various other arguments were also advanced which need not be repeated. The learned AR for the assessee has also made great efforts to prove that once the oil recovery out of rapeseeds purchased from OGS declared at 31.67% has been treated as reasonable by the CIT(A) there was no justification in confirming the addition in relation to yield of....
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....nd restricted the addition to an amount of Rs. 30 lakhs as against the aggregate addition of Rs. 40,54,707 made by the Assessing Officer in respect of low yield of oil from rapeseeds from WGS and oil cake introduced from undisclosed income. Therefore, the yield taken by the Assessing Officer at 30% has further been reduced by the CIT(A). The view so taken by the learned CIT(A) cannot be treated as erroneous or incorrect in any manner. 21.9 It will also be worthwhile to mention that the yield shown by certain other oil mills in A. Y. 1991-92 was comparatively more than what has been applied by the Assessing Officer which has been further reduced by the CIT(A) by granting some relief. M/s. Jagdish Export Industries in financial year 1990-91 (Assessment year 1991-92) had declared yield of oil at 32.01%, oil cake at 65.02% and shortage at 2.97% as per Annexure-A submitted in PB marked as ' Part B ' by the department. The assessee in its written submissions made in PB ' F ' at page 7 has, inter alia, submitted that M/s. Jagdish Export Industries have declared a shortage of 4.31%. The aforesaid contention of the assessee is incorrect as M/s. Jagdish Export Industries in financial year ....
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....mmon ground raised by both the assessee as well as by the Revenue in their respective appeals. The view taken by the learned CIT(A) restricting the addition to a lumpsum addition of Rs. 30 lakhs is therefore, confirmed. We also confirm the action of the learned CIT(A) of granting the relief of Rs. 10,54,707 out of the aggregate addition of Rs. 5,40,54,707 consisting of the two addition of Rs. 37,35,089 and Rs. 3,19,618. Hence ground No. 2 taken by the revenue in their appeal and the ground No. 3 taken by the assessee in its appeal are rejected. 21. 10 It will be worthwhile to mention that the learned representatives of both sides had cited several judgments during the course of hearing. We have carefully gone through all those judgments and have borne in mind the principles of law laid down by different courts in the various decisions cited by them. It is neither proper nor necessary to discuss the ratio laid down in various cases and its applicability or otherwise on the facts and circumstances of the present case. It is well settled law that in any case even a locus classicus is an authority for what it decides. It is permissible to extend the ratio of a decision to cases invol....