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TMI Blog2022 (10) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... hases 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 ignoring the ratio of the ITAT Mumbai in the case of Soman Sun City Vs. JC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 operators had in their respective statements that were recorded on oath had admitted of having provided bogus bills to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.O impliedly being of the view that the assessee had purchased the goods in question not from the aforementioned tainted parties from whom only bills were procured for routi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases 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 addition of Rs. 1,49,79,900/- made by the A.O. 8. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 9. We have heard the ld. authorized representatives of both the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a case where the assessee had purchased goods not from the organized sector but from the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 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 the purchases at an inflated value on the basis of bogus purchase bills in its books of accounts would get neutralized. A). Paddy (2228 quintals of bogus/unproved purchases): 16. 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 paddy were made by the assessee @1103.31 per quintal (average rate), as against the purchase of the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate) 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 the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the bogus purchases of broken rice rate i.e Rs. 1252.58 per quintal (average rate) is already lower than the genuine purchases of broken rice rate i.e Rs. 1434.02 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 broken rice as in comparison to the GP rate of genuine purchases of broken rice is already on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus/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 per bag (average rate), as against the genuine purchase of genuine gunny bags that was made by him @ 18.20 per bag (average rate). On the basis of the aforesaid facts now when the rate of bogus purchase of gunny bag (average rate) is of a lower value than that at which he had made genuine purchases of gunny bag (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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 credited in his bank account and withdrawn by him, which in several instances would involve substantial time, the AO, thus, was of the view that the assessee in order to satisfy the demand of funds would for the time being either manage to show some bogus liability or some advance payments suiting to the circumstances. 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 six parties aggregating to an amount of Rs. 16,43,550/-. 22. On appeal, the CIT(Appeals) after deliberating on the issue in hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 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% (ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee's yield is as per accepted level. The yield in AY 2011-12 was 68.57% and in AY 2012-13 was 68.63% which have been accepted in the assessment. In the remand report the Ld. AO has opposed this plea of the assessee, which I do not find to be valid. The reason being that in the schedule of quality to be maintained by rice millers in the state, the maximum limit of various impurities have been prescribed. Thus, in the rice which has to be supplied to the state govt., in case of grade A rice of Raw variety, as per above table the quantity of broken rice should not exceed 25%, foreign matter should not exceed 0.5%, damaged/slightly damaged grains should not exceed 3.0% a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. Bran obtained 5595 5.01% 5465 4.98% 1465 5.00% 4768 5.55% 5. Total yield 73.26% 73.61% 73.57% 72.9% 29. We, thus, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs. 1,49,79,900/- 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. ITA No. 210/RPR/2018 A.Y.2013-14 30. We shall now deal with the appeal filed by the assessee wherein the impugned order has been assailed on the following grounds of appeal: "1. That under the facts and the law, the learned CIT (Appeals) erred in maintaining addition by applying gross profit rate (as per accounts) i.e., 3.26% on so-cal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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