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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 ..... ring 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 act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition Rs. 26,76,511/- out of total addition of Rs. 34,52,750/- ignoring the fact 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. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness 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 operators had in their respective statements that were recorded on oath had admitted o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 routing the same through its books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, perused the orders of the lower authorities and the material available on record, as well as considered the judicial prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.e., sales tax, other government levies, cash discounts etc. as in comparison to the price at which such goods would otherwise be available in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of purchases which were found to be bogus/unproved in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases): 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 genuine paddy that was made by him @ 1204.31 per quintal (average rate). On the basis of the aforesaid facts, now when the purchase rate of the bogus purchase of paddy (average rate) is of a lower value then that at which he had made genuine purchases of paddy (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 ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 broken rice of (8050 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs. 3,28,714/- [Rs.1,00,83,250/- X 3.26%] sustained by the CIT(Appeals). C). Bran (600 quintals of bogus purchases): 18. 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 bran were made by the assessee @1733.33 per quintal (average rate), as against the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 gunny bag rate i.e Rs. 15.31 per gunny bag (average rate) is already lower than the genuine purchases of gunny bag rate i.e Rs. 18.20 per gunny bag (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of gunny bags as in comparison to the GP rate of genuine purchases of gunny bag is already on the higher side, therefore, no addition on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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 did not concur with the view taken by the A.O. It was observed by the CIT(Appeals) that it was not a case where the assessee has made certain purchases out of unaccounted cash which would justify the addition of peak of purchases. Accordingly, the CIT(Appeals) treating the addition as devoid and bereft of any merit vacated the same. 23. After hearing the Ld. Authorized Representatives of both the parties, 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 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%. The CIT(Appeals) after considering the aforesaid issue had held as under: 4.3 I have gone through the submission of the appellant and also perused the assessment order. As per the opinion of the Ld. AO the assessee that shown lesser yield than accepted figure of 67% therefore the value of shortfall should be added as concealed income. As per page 22 of agreement with state govt the yield of rice should be 67% and if it is usna variety of paddy then the yield should be 68%. AO has found that whereas the yield of assessee should be 67%, it has shown only 61.3%. This figure of 61.3% adopted by Ld AO is incorrectly taken and correct yield is 62.65% of rice and 5.6% of kanka (broken rice). Assessee has paddy purchase of 1,11,700 qtl on own account and 3,799 qtl for custom milling total being 1,15,499 qtl. The rice production is 69,983 qntl on own account and 2,473 qtl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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% and so on. Therefore if the yield has been fixed at 67% which means assessee has supply 67 qtls of rice for every 100 qtls of paddy, then in such rice weighing 67 qtls, the broken rice and various other components should be within the above limits. Thus in the prescribed yield broken rice is very much included and AO's case that yield should not include broken rice has not basis. Therefore, no addition is warranted on the basis of yield. We, thus, on a perusal of the aforesaid observations of the CIT(Appeals) are persuaded to subscribe to the view arrived at by him. 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per accounts) i.e., 3.26% on so-called suspicious purchases of Rs. 2,38,11,030/- and maintained addition of Rs. 7,76,239/- which be deleted. 2. That under the facts and the law, the learned CIT (Appeals) erred in maintaining addition of Rs. 7,76,239/- on suspicious purchases of Rs. 2,38,11,030/- (correct figure is Rs. 1,38,11,030/-) whereas the Appellant has already offered profit on sale out of impugned purchases and the impugned purchases were duly recorded in accounts and in quantity record. Prayed, the addition of Rs. 7,76,239/- is uncalled-for and be deleted. 3. That without prejudice, under the facts and the law, the learned CIT (Appeals) further erred in applying gross profit rate of 3.26% on Rs. 2,38,11,030/- whereas the correct figure of impugned purchase is Rs. 1,38,11,030/-. Prayed, without prejudice that no addition is called-for, the addition be restricted on Rs. 1,38,11,030/-. 31. At the very outset of the hearing of the appeal it was submitted by the Ld. AR that the CIT(Appeals) had grossly erred in law and facts in adopting the aggregate amount of bogus purchases that were claimed to have been made from six parties in question at an amount of Rs. 2,38,11,030/- (as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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