2022 (10) TMI 828 - AT - Income Tax

Estimation of income - Bogus purchases - quantification of the profit which the assessee would have made by procuring the goods in question not from the aforementioned seven parties, but at a discounted value from the open/grey market - HELD THAT - As the assessee has not filed any appeal before us, therefore, despite our aforesaid observations we are constrained to sustain the addition as regards the bogus purchase of 51585 quintals of rice (valued at Rs.8,86,87,200/-) as had been upheld by the CIT(Appeals) i.e @ 2.62% of the value of the aforesaid impugned bogus purchases of rice. Broken Rice (4000 quintals of bogus/unproved purchase - We find substance in the claim of AR that as it is not a case that the assessee had made any purchases from his unaccounted money, therefore, the very basis for making the impugned addition of peak purchases cannot be sustained and had rightly been struck down. As observed by the CIT(Appeals) and, rightly so, the aforesaid addition has no legs to stand upon in the backdrop of the facts involved in the case before us. Admittedly, the payments towards the impugned purchases have been made by the assessee from his bank accounts which were duly disclosed in his books of accounts. In our considered view the concept of peak addition would come into play in a case where the assessee had made certain undisclosed purchases out of his unaccounted money lying in a bank account, wherein, after considering the withdrawals made from the said account the addition in all fairness has to be restricted to the extent of peak credit appearing in the said account. Now when the assessee had admittedly made the payments for making the impugned purchases from his duly disclosed sources i.e. bank accounts, therefore, there could have been no justification for the A.O to have made an addition of the amount of peak purchase - We, thus, concur with the view taken by the CIT(Appeals) and uphold his order to the said extent. Thus, the Ground of appeal No. 2 is dismissed in terms of our aforesaid observations. Addition on account of short yield of rice as in comparison to the percentage of yield as mentioned in contract executed by the assessee with Chhattisgarh State Government Authorit y - HELD THAT - 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%. 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. 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. We, thus, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs.10,39,700/- made by the assessee on account of short yield of rice, uphold his order to the said extent. Thus, the Ground of appeal No.3 is dismissed in terms of our aforesaid observation. Addition on account of bogus sundry creditors - unaccounted income of the assessee - CIT-A deleted the addition - HELD THAT - As authenticity of the aforesaid creditor, viz.M/s. Amira Pure Foods Pvt. Ltd. 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 inferences as regards the genuineness and veracity of the said party and treat the amounts shown against it as the unaccounted income of the assessee. We, thus, finding no infirmity in the view taken by the CIT(Appeals) in so far he had vacated the addition appearing in the name of the aforesaid party i.e. M/s. Amira Pure Foods Pvt. Ltd. Addition for the reason that Shri Mohanlal Agrawal, proprietor of the said concern had himself admitted on oath that the aforesaid concern was a bogus concern - On a perusal of the details of the seven parties (supra) purchases from whom have been held to be bogus in the hands of the assessee, we find that the same does not make any reference of the aforementioned concern i.e. M/s. Shyamji Rice Mill. Accordingly, we are unable to concur with the reasons given by the CIT(Appeals) for vacating the impugned addition that was made by the A.O w.r.t the amount shown against the aforesaid party, viz. M/s Shyamji Rice Mills (supra). 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 - Admittedly, it is a matter of fact borne from record that the assessee had over the year booked 16 railway rakes through which 405145.50 quintals of rice/broken rice was transported. As the assessee was able to substantiate his claim that the railway rakes booked by him were also used by certain parties for transporting their rice/broken rice only to the extent of 208222 quintals, therefore, the CIT(Appeals) had concluded that the balance 107127.50 quintals of rice/broken rice which was though claimed by the assessee to have been transported by third parties was in fact his unaccounted sales. Apropos the scaling down of the unaccounted sales to 107127.50 quintals of rice/broken rice as against that taken by the A.O at 303080 quintals of rice/broken rice, the same in our considered view being based on the confirmations provided by third parties who had clearly admitted on the basis of supporting documentary evidence/details that they had transported their rice/broken rice through railway rakes booked by the assessee merits acceptance Now when the assessee had duly substantiated that as a matter of trade practice certain duly identified third parties had transported/dispatched 208222 quintals of rice/broken rice in the railway rakes that were booked by him on 16 occasions during the year under consideration, therefore, no infirmity emerges from the order of the CIT(Appeals) who had rightly scaled down the quantum of unaccounted sales of the assessee as taken by the A.O at 303080 quintals to 107127.50 quintals. We, further, concur with the observation of the CIT(Appeals) that now when the assessee had himself during the year under consideration transported/dispatched 56876.75 quintals of rice (valued at Rs.10.09 crore) through wagons booked by a total of 18 third parties and 80131 quintals of broken rice (valued at Rs.11.52 crore) through wagons booked by certain third parties, therefore, the same in itself was a sufficient evidence of the trade practice wherein in the normal course the party who had intended and was allotted the railway rake on not being able to fully load the wagons would make available the unutilized space for transporting of rice/broken rice of third parties who would bear the transportation charges for the same. Qualification of profit element involved in the unaccounted sales - There appears to be no logical reasoning for the A.O to have quantified the profit element involved in the unaccounted sales @25% of the value of the impugned sales. As in the case before us the issue herein involved hinges around the quantification of the profit on the unaccounted sales, therefore, the same in our considered view could fairly be determined by applying the overall disclosed GP rate of the assessee on the quantum of the unaccounted sales as had rightly been done by the CIT(Appeals). We, thus, fining no infirmity either as regards the quantification of the unaccounted sales of the assessee; or the quantification of the profit element/income therein involved as had been worked out by the CIT(Appeals) @ 2.62% (i.e. the overall GP rate disclosed by the assessee during the year under consideration) on the amount of the unaccounted sales of Rs. 18,26,19,512/- (107127.50 quintals of rice/broken rice), therefore, uphold the same in terms of our aforesaid observations.

Summary

Issues Involved:
1. Bogus Purchases
2. Peak Purchases Credit
3. Short Yield of Rice
4. Unaccounted Sales
5. Bogus Sundry Creditors
6. Statements Recorded u/s 131
7. Applicability of ITAT Mumbai and Bombay High Court Judgments
8. Acceptance of Fresh Evidence Without AO's Examination

Issue-wise Detailed Analysis:

1. Bogus Purchases:
The department challenged the deletion of Rs. 2,11,01,475/- out of Rs. 2,35,71,800/- made by the AO for bogus purchases. The CIT(A) concurred that the purchases from seven parties were not genuine but reduced the addition to 2.62% of the value of the bogus purchases, aligning with the overall GP rate of the assessee. The Tribunal upheld this reduction, citing the Bombay High Court's judgment in M/s. Mohhomad Haji Adam & Company, which mandates bringing the GP rate of bogus purchases to the same rate as genuine purchases.

2. Peak Purchases Credit:
The AO added Rs. 30,55,700/- for peak purchases credit, assuming the assessee managed funds through bogus liabilities or advances. The CIT(A) deleted this addition, reasoning that the purchases were made from disclosed bank accounts, not unaccounted cash. The Tribunal agreed, stating the peak addition concept applies only when purchases are made from undisclosed funds.

3. Short Yield of Rice:
The AO added Rs. 10,39,700/- for a short yield of rice, comparing the assessee's yield with state government norms. The CIT(A) found the AO's calculation incorrect as it excluded broken rice (kanka), which, when included, showed the yield was within norms. The Tribunal upheld the CIT(A)'s deletion, noting the yield was consistent with past accepted assessments.

4. Unaccounted Sales:
The AO added Rs. 11,07,64,618/- out of Rs. 11,55,49,250/- for unaccounted sales based on rice transported through railway rakes. The CIT(A) reduced this to Rs. 47,84,632/-, applying the overall GP rate to the unaccounted sales. The Tribunal upheld this reduction, agreeing that the assessee substantiated part of the transportation by third parties and the remaining unaccounted sales were correctly quantified using the GP rate.

5. Bogus Sundry Creditors:
The AO added Rs. 1,59,41,676/- for bogus sundry creditors. The CIT(A) deleted Rs. 84,91,733/-, retaining additions for two creditors. The Tribunal upheld the deletion for M/s. Amira Pure Foods Pvt. Ltd. but remanded the case of M/s. Shyamji Rice Industries for fresh adjudication, noting the CIT(A) based his decision on incorrect facts.

6. Statements Recorded u/s 131:
The department contended that the CIT(A) ignored statements recorded u/s 131, where proprietors admitted to providing bogus bills. The Tribunal found no merit in this, as the CIT(A) had considered the overall evidence and explanations provided by the assessee.

7. Applicability of ITAT Mumbai and Bombay High Court Judgments:
The department cited cases to argue against the genuineness of purchases. The Tribunal found these cases distinguishable, noting that in the present case, the AO accepted the sales corresponding to the purchases.

8. Acceptance of Fresh Evidence Without AO's Examination:
The department argued that the CIT(A) accepted fresh evidence without allowing the AO to examine it, violating Rule 46A. The Tribunal found the CIT(A) provided the AO an opportunity to comment on the new evidence, which the AO did not adequately address.

Conclusion:
The Tribunal partly allowed the revenue's appeal for statistical purposes, remanding the issue of M/s. Shyamji Rice Industries for fresh adjudication and upholding the CIT(A)'s decisions on other issues.