2022 (10) TMI 1247 - AT - Income Tax

Estimation of income - Bogus purchases - addition that was made by the A.O towards peak addition of purchases - HELD THAT - We find substance in the claim of the Ld. 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 could not 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. In our considered view, 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 be 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. Decided in favour of assessee. Addition 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 - 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 (own milling) for the year under consideration at 61.30% had erred on two counts, viz. (i) that the actual yield of rice (own milling) was 62.65% and not 61.30% as stated by the A.O; and (ii) that the A.O had erred in not considering the 5.60% yield of kanka (broken rice). In sum and substance, though the yield of rice of the assessee was 68.25% 62.65% (rice) 5.60% (kanka) , but the same was wrongly taken by the A.O at 61.30%. As observed by the CIT(Appeals) and, rightly so, as the yield of rice as per norms of the State Government was 67% (68% for Usna variety of paddy) while for that in the case of the assessee worked out at 68.25% i.e. after considering 5.60% of Kanka (broken rice), therefore, there was no justification on the part of the A.O to conclude that the same was below the norms fixed by the state government. As a matter of fact, as observed by the CIT(Appeals) by referring to the specification of various impurities fixed by the government the broken rice (kanka) a/w. other impurities form a part of the accepted quality of rice as per the norms fixed, though, subject to the condition that the quantity of broken rice does not exceed 25% in case of raw rice and 16% in case of Usna rice. Controversy in hand had arisen primarily 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 68.25%, therefore, in our considered view the CIT(Appeals) had rightly vacated the adverse inferences drawn by the A.O. CIT(Appeals) had rightly vacated the addition made by the assessee on account of short yield of rice uphold his order to the said extent - Decided in favour of assessee.

Summary

Issues Involved:

1. Bogus Purchases
2. Peak Credit Addition
3. Short Yield of Rice

Summary:

1. Bogus Purchases:

The revenue challenged the deletion of Rs. 26,76,511/- out of Rs. 34,52,750/- added by the AO for bogus purchases. The AO had disallowed 25% of the value of bogus purchases, but the CIT(A) scaled it down to 3.26%, the overall disclosed GP rate of the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, which stated that the addition should bring the GP rate of bogus purchases to the same rate as genuine purchases. The Tribunal found that the purchase rates of the bogus purchases were lower than the genuine purchases, thus no addition was justified. The Tribunal directed the AO to vacate the addition of Rs. 7,76,239/-.

2. Peak Credit Addition:

The revenue contested the deletion of Rs. 16,43,550/- added by the AO as peak credit of purchases from six bogus parties. The CIT(A) vacated the addition, noting that the payments were made through disclosed bank accounts, and the peak concept was not applicable. The Tribunal concurred with the CIT(A), stating that the addition was unsustainable as the purchases were made from disclosed sources. The AO was directed to vacate the addition.

3. Short Yield of Rice:

The revenue disputed the deletion of Rs. 1,49,79,900/- added by the AO for short yield of rice. The AO had calculated the yield at 61.30%, below the state government norm of 67%-68%. The CIT(A) found the actual yield to be 68.25% after including broken rice (kanka) and vacated the addition. The Tribunal upheld the CIT(A)'s decision, noting that the yield was within the accepted levels and consistent with previous years' assessments.

Conclusion:

The Tribunal dismissed the revenue's appeal and disposed of the assessee's appeal, directing the AO to vacate the additions as per the CIT(A)'s findings. The order was pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963.