9911796707
TMI Blog1996 (1) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... traction groundnut oil from groundnut oil cake. (4) 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 --------- 39,25,071 --------- (b) Addition of Rs. 3,19,618 towards introduction of oil cake. (c) Addition of Rs. 70,03,826 towards payment on account of bogus purchases. (d) Addition of Rs. 17,99,788 towards credit balances in respect of bogus purchases. (e) Addition of Rs. 5,02,752 being kharajat expenses in respect of bogus purchases. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 its aforesaid associate concern. 4.4 In the SEP the oil cakes obtained during crushing as stated above as well as oil cakes purchased from the market are processed to obtain solvent extracted oil as well as de-oiled cakes. Solvent extracted oil is sold in the indigenous market whereas de-oiled cakes are usually exported. 4.5 The Assessing Officer examined the production results of rapeseeds extensively in the assessment order. After collecting various relevant details from assessee's own records as well as from the records of other comparable cases like M/s. Grofed, M/s. Laxmi Oil Mill and M/s. Harshad Gin Mill, the Assessing Officer issued a very detailed show-cause notice dated 5th June, 1993 to the assessee. The assessee submitted various replies such as reply dated 8-7-1993, 18-8-1993 and 6-9-1993. The Assessing Officer considered the facts stated in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm 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 invited our attention to the following detailed submissions made on behalf of the assessee before the departmental authorities :--- (i) Letter dated 18-8-1993 submitted to ACIT at pages 72 to 131 of Paper Book ' C '. (ii) Submissions in general made before the CIT(A), copy placed at pages 6 to 22 of the PB ' C '. (iii) Submissions made before the CIT(A), copy placed at pages 27 to 31 of PB ' C '. (iv) Submissions before CIT(A) vide letter dated 30th September, 1994 copy placed at pages 149 to 165 of PB ' C '. (v) Record note of all submissions made before the CIT(A) on 3-10-1994 copy placed at pages 269 to 273 of Paper Book ' C '. (vi) Copy of Miscellaneous Application made before CIT(A) copy placed at pages 274 to 283 of PB ' C '. (vii) Order of CIT(A) on M.A. passed on 10-1-1995 copy placed at page 2 84 of PB ' C '. By this order the CIT(A) directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity 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 significant price difference between the rapeseed purchased locally and those purchased from OGS has not been properly appreciated by the CIT(A). (k) The entire exercise made by the Assessing Officer for computing the notional yield is based on assumptions, presumptions, surmises and conjectures. (l) Tax can be levied on actual income or actual production and sale and not on hypothetical production/sales/income. (m) The approach of the learned CIT(A) in respect of this ground was totally unjust and incorrect having deleted the addition of Rs. 1,89,982. There was no justification in confirming the larger portion of the additions on account of low yield in respect of rapeseed purchased from WGS. (n) The CIT(A) has attempted to cover up the issues by passing a brief and cryptic rectification order under section 154 substituting certain words. (o) The learned AR al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments in support of revenue's appeal against deletion of the addition of Rs. 1,89,982. In para 3.3.2 to 3.3.5 the learned Sr. D.R. has submitted his arguments with regard to reducing the addition to Rs. 30 lakhs. Thus, arguments in para 3 relate to various grounds raised in the revenue's appeal. 6.1 The gist of the arguments submitted by the learned Sr. DR orally as well as in writing is as under :--- (a) The provisions of section 145(2) of the Income-tax Act are clearly applicable in the case of the assessee as the assessee has failed to establish the genuineness of the oil cakes purchased aggregating to Rs. 93,06,326 including freight charges. The assessee has failed to prove the genuineness of the aforesaid purchases, has failed to produce the suppliers, failed to produce the brokers in spite of repeated opportunities granted by the departmental authorities as well as the repeated opportunities granted by the Tribunal. The Assessing Officer has proved beyond reasonable doubt that 27 of such suppliers did not exist at all and the remaining 6 have denied having made any such supplies of goods to the assessee. The transporters also either did not exist or they have denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kgs. valued at Rs. 4,800 and imposing a penalty of Rs. 500. The imposition of penalty and confiscation of part of excess stock found cannot be said to be on account of minor defects noticed. (e) The learned Sr. D.R. submitted that it is a clear case of manipulation of records by introducing bogus purchases, preferring claim of bogus freight charges continuously over the years and this is a case of unreliable and fabricated records. (f) He placed reliance on various judgments referred to in paras 3.2.7, 3.2.8 and 3.2.9 of the written submissions. (g) The learned Sr. D.R. invited our attention to chart submitted by the assessee at page 99 of the PB " E ". The average yield over a period of 7 years comes to 30.5% approximately in the case of the assessee-company and earlier erstwhile firm. The Assessing Officer has already given adequate margin for the assessee's contention that in some of the cases the units had resorted to secondary crushing as the Assessing Officer had taken yield of 30% only against more than 32% yield shown in other cases. In the written submissions the learned Sr. D.R. has met almost all the arguments raised on behalf of the assessee at the time of hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned AR has also distinguished the facts of the various decisions relied upon by the learned Sr. D.R. at page 6. E. At page 7 of the PB " G " he has made brief submissions as to how the various comparable cases considered by the Assessing Officer are not at all comparable with the assessee's case. F. On the same page 7 the AR has explained that sectorwise reliability of accounts must be taken into consideration. Since not a single instance of out of book purchase or sale of rapeseed or oil has been noticed and the yield achieved by the assessee is within the normal range, the declared figures ought to have been accepted. G. The AR then placed heavy reliance on the decision reported in D.D. Kochhar & Sons v. ITO [1988] 25 ITD 317 (Delhi)(TM) and ITO v. Arun Oil Industries [1985] 13 ITD 769 (Jp.)(TM). At page 9 the AR has further given comments on various decisions cited by the learned Sr. D.R. He has also requested that the decision cited by him at pages 9 to 11 of PB " F ", which are relevant to the subject-matter of appeal should be considered. He then gave a summary of his submissions at page 11. It is neither proper nor practicable to reproduce all the written ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 70,03,826.24. The Assessing Officer in para 39 at page 161 of the assessment order, after reproducing the chart of payments shown to have been made to these alleged bogus suppliers, has observed that a detailed discussion about rejection of books of account has been made vide paras 22 to 31 of the assessment order which says that the aforesaid transactions shown in the books of accounts of the assessee with the said 33 bogus suppliers, are found as non-genuine and fabricated one. The Assessing Officer, therefore, disallowed the amount of expenditure claimed by the assessee for purchases made from these 33 bogus suppliers mentioned in para 38 of the assessment order. The total amount of Rs. 70,03,826.24 shown as amount paid to them was therefore, added to the total income of the assessee. The Assessing Officer at page 162 of the assessment order has once again reiterated the abnormal characteristics and features which proved beyond doubt that the transactions with these 33 bogus parties were never entered into. 10.1 Such unusual and abnormal features and characteristics of the transactions made with these 33 bogus parties, inter alia, included the following features :--- (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and shown as outstanding credit balance as on 31st March, 1991 amounting to Rs. 17,99,788.75 is disallowed, as the same is claimed to have been made against non-existent, non-genuine and by making fabricated bills, vouchers and bogus entries in the books of account of the assessee. 10.3 The Assessing Officer in para 41 of the assessment order further observed that the supply of the goods shown to have been made by these 33 bogus suppliers are stated to have been market as " For Junagadh Delivery " and the bill amount includes transportation charges also. But the amount equal to freight is shown as paid by the assessee to the truck drivers/transporters. As per the cheques shown to have issued to the suppliers the net amount is paid and these payments have been made as shown to truck drivers and transporters. The observations relate to payment to truck drivers/transporters in para 42 of the assessment order also. The AO in view of elaborate discussions made in paras 41 and 42 and in other paras of the assessment order came to the conclusion that the aggregate amount of freight of Rs. 5,02,752 is also non-genuine and these represented fabricated transactions. Since these transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regarding bogus purchases appear at page 273. (e) Copy of letter dated 30th December, 1994 addressed to CIT(A) being application for rectification of order passed by him on 16-11-1994. The order under section 154 was passed on 10-1-1995. The submissions regarding bogus purchases have also been mentioned at pages 278 to 283 of PB " C ". (f) Gist of submissiones regarding aforesaid aggregate addition of Rs. 93,06,366 made on account of bogus purchases (pages 14 to 35 of PB " D " submitted before the Tribunal) duly accompanied by a copy of the order of ITAT in the case of Arun Industries v. Dv. CIT [IT Appeal No. 2609 (Ahd.) of 1984 dated 31-1-1992] (pages 35 to 45 of PB " D "). (g) Documents submitted in PB marked " File-A " and " File-B " do not contain any index of the various documents nor the voluminous documents lying in these files were specifically pointed out or brought to our notice during the course of hearing except showing one specimen copy each of the alleged bogus purchase invoice, broker's Note, transport voucher, etc. and stating that each transaction of so-called bogus purchase is supported by such documents. However, the assessee failed to produce the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1994 tried to explain that transactions of purchase and sales were made through brokers and not directly with the parties. Reliance was again placed on various documents mentioned by the assessee in support of such purchases shown to have been made from the alleged 33 bogus parties. V. Enquiries with suppliers -- Inconclusive evidence : (a) The assessee has submitted that out of the total purchases, the purchases considered as bogus are only 14% to 86% purchases have been found to be genuine and deduction has been allowed. (b) Out of 33 parties, purchases from whom have been considered as non-genuine, only four parties have denied the transactions and two parties have confirmed the transactions in part. The remaining 27 parties are reportedly untraceable. The parties may not be traceable because they might have closed down or shifted their business. (c) The department has not questioned those parties as to how bills have been raised on their printed stationery and whose signatures appear on the bills and whether they have taken any action if the bills in question have been lost and/or forged. It was submitted that it is quite likely that the parties concerned have not acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as non-genuine, whether the assessee is entitled to a deduction in respect of a reasonable price for purchase of the goods in question in view of the fact that the receipt of material purchased is not in doubt ? (c) Whether expenses on purchases are allowable in view of section 40A(3) oh the ground that the payments for actual purchases must have been made in cash, as the payments shown to have been made by crossed cheques to 33 bogus suppliers are found to be non-genuine ? (d) If the expenditure is hit by section 40A(3) is it covered by exceptions specified in Rule 6DD(j) of the IT Rules ? (e) If the assessment of income at such a high figure of Rs. 128 lakhs sustainable ? The learned A.R. after framing these important questions gave elaborate arguments at pages 24 to 34 of PB " D ". A copy of decision of ITAT in the case of Arun Industries dated 31-1-1992 has also been submitted at pages 35 to 45 of PB " D ". 12.2 The learned AR vehemently argued that the assessee has established the fact of receipt and consumption of material in question. The assessee is, therefore, entitled to get deduction in respect of reasonable amount of purchase price even if it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd consumed in the process of production, then why a deduction of reasonable amount of purchase value be not allowed as deduction while estimating the profit as per section 145(2) of the Act. 12.7 It was also indicated in the said order sheet that why the peak amount to be computed as per directions given in the said order sheet, which is a part of the total addition made by the Assessing Officer on account of alleged bogus purchases be not sustained under section 68 and/or section 69 etc. of Income-tax Act. 13. The learned AR of the assessee apart from the aforesaid arguments which have been mentioned hereinbefore, also made various submissions with reference to the aforesaid queries raised in the order sheet entry dated 20-7- 1995. The assessee's AR in addition to the aforesaid replies also made further submissions from time to time. It will, therefore, be appropriate to give a reference of those submissions which have not been discussed earlier with a view to ensure careful consideration of all the arguments advanced on behalf of the assessee as under : (a) A paper book was submitted which has been marked as Paper Book " F ". In this paper book the assessee has made writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 68 or section 69 or section 69C are beyond the powers of the Tribunal. He has placed reliance on various decisions to support this contention. 13.2 The Assessing Officer alone could invoke the provisions of section 68 or section 69C in respect of the alleged unexplained investment made for purchase of oil cakes in cash. The Tribunal has no power to invoke these provisions for the first time at the stage of the appeal before them. 13.3 As regards taking the peak expenditure or telescoping, the learned AR of the assessee has made elaborate submissions at pages 31 to 38 of PB " G ". The assessee has calculated the amount of peak at Rs. 17,99,788 as per details shown at pages 15 to 20 of PB " E ". The learned AR has inter alia submitted that even if it is assumed that such purchases must have been paid off on the date of receipt of materials, it is submitted that payments made for the first purchase should be treated as available 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 money which has gone out of the coffers of the assessee-company has been utilised only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 1992. The cheques given to almost same set of alleged bogus suppliers were credited in the said bank account in the name of M/s. Pooja Traders and all those suppliers got their cheques encashed through M/s. Pooja Traders. The assessee was, therefore, directed to prepare such a peak statement for the entire period from 9-3-1989 to September 1992 in respect of entries in all the accounts of alleged bogus suppliers. It was directed that such compilation should be produced before the Assessing Officer so that the correctness of the working of such peak amount for the period from 9-3-1989 to September 1992 may be determined after verification by the Assessing Officer. 13.8 On the next date of hearing on 8-12-1995 the Bench required the learned AR of the assessee to make a definite and categorical statement to either confirm or deny as to whether he admits the fact of bogus purchase invoices as required in order sheet entry dated 17-10-1995. The learned AR submitted that his answer to the enquiry is an " Emphatic No " with background given in written submissions at pages 36 and 37 alongwith letter dated 10-11-1995. In the letter dated 14-11-1995 submitted at pages 36 and 37 the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y given by the Tribunal in the course of hearing on 15-9-1995. On the other hand, the representative of the assessee has declared that it will not be possible to produce even the brokers even if further opportunity is given. (b) The Assessing Officer has established that out of 33 suppliers of such oil-cakes 27 were non-existent (pages 96 to 141 of assessment order), two of them have denied part of the transactions entered in their name (pages 90 and 96 of the assessment order) and remaining four have denied having made any such transactions. (c) The transporters through whom such goods are being claimed to have been transported to Ahmedabad have been established to be either non-existent or have denied to have carried out any work on behalf of the assessee (pages 149 to 150 of assessment order). (d) The most clinching evidence of these suppliers being bogus which has been brought on record by the Assessing Officer is that all the cheques issued to such suppliers by the assessee allegedly for supplies made by them amounting to Rs. 70,03,826 were encashed through the bank account of one M/s. Pooja Traders, Junagadh. Shri M. N. Waghela, proprietor of M/s. Pooja Traders has admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR submitted that once it has been established that all the 33 suppliers were bogus parties, the entire amount of purchase shown to have been made from them has to be disallowed. (j) The onus lies on the assessee to establish any claim for deduction for expenditure incurred. He placed reliance on judgment of Hon'ble Gujarat High Court reported in CIT v. Chandravilas Hotel [1987] 164 ITR 102, CIT v. Narsari Cotton & Silk Mills Ltd. [1982] 135 ITR 546 and 199 ITR 29 (sic). (k) The learned Sr. DR contended that assessee's reluctance to produce the brokers or suppliers on the pretext that they were not found available at the given address when registered posts were sent to them or due to passage of time or there being no further contact with them, is again a denial of obvious fact as the transactions with bogus parties continued till late 1992 and then suddenly all of them together could not have evaporated in thin air immediately thereafter. The assessee was specifically required by questionnaire dated 5-6-1993. This exposes the falsity of the assessee's stand. (l) The learned Sr. DR submitted that even if the material in question has been really received and used in production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce which are the subject matter of appeal. He placed reliance on judgment of Hon'ble Kerala High Court reported in CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624 and Hon'ble Gujarat High Court in [IT Reference No. 156 of 1979 in the case of Kirtidev Chinubhai (HUF) v. CIT dated 10-12-1992. According to him, it is permissible for the respondent to take up additional plea for sustaining an addition already made by the Assessing Officer. In the present case, the Department is not raising any additional ground nor it wants an addition of any additional amount to be made. But the department only wants to support the addition already made by the Assessing Officer by taking shelter of section 68 and/or section 69C etc. Invoking of the provisions of section 68 or section 69 or section 69C on the facts of the present case does not involve fresh investigation or examination of the facts but it is purely and simply a legal issue which can be raised by any side at any time of the appellate proceedings. 14.1 One of the argument made by the learned AR for the assessee was that the income has been assessed by the Assessing Officer at Rs. 1,28,22,500 which is an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of introducing Explanation 2 to section 271(1)(iii) of the Act. The Wanchoo Committee (refer page 5803 of Income-tax Law by Chaturvedi and Pithisaria, Volume 5) recommended that law should be amended to provide that where intangible additions made in earlier year are cited by an assessee as source of his funds, assets, etc. in a subsequent year, the said funds, assets should be deemed to represent the assessee's concealed income within the meaning of section 271(1)(c). In order to implement the said recommendations a new Explanation 2 was inserted with effect from 1-4-1976 in which it has been specifically provided that the assessee would become liable to penalty for concealment in respect of additions made in the earlier years in which the additions were made, in case where such additions are sought to be utilised for explaining the sources of investment, etc., in a subsequent year. The specific admission by the assessee in the present case was also, therefore, necessary in view of Explanation 2 to section 271(1)(iii) of the Act. 14.4 The learned Sr. DR thus vehemently argued that the entire amount of bogus purchases and freight has rightly been disallowed by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Assessing Officer at any stage of the assessment proceedings. Those were produced for the first time before the CIT(Appeals). The assessee was thereafter required to produce the brokers but it failed to produce them on one pretext or the other. It is evident from the elaborate discussions made in the assessment order that the assessee did not make any serious efforts to produce the suppliers, brokers and transporters at any stage of the proceedings before the Assessing Officer or before the CIT (Appeals). 16.2 The Assessing Officer made serious efforts to conduct necessary enquiries from all those 33 parties. The results of such enquiries and investigation made by the Assessing Officer are noteworthy and will have a very significant hearing on the question relating to determination of genuineness of purchases made from these 33 parties. 16.3 Four suppliers out of those 33 parties clearly denied to have sent any goods to the assessee. The names and other relevant details of transactions with these four parties have been given at pages 85 to 90 of the assessment order. It would be interesting to go through some of the contents of the replies sent by them as follows : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with very strong and clinching evidence in view of a blatant denial by these four parties. No serious efforts were made by the assessee to discharge such burden of proving the genuineness of the transactions with these parties. 16.4 The Assessing Officer at page 90 of the assessment order has observed that two suppliers out of the 33 suppliers who were found available at the given addresses have only confirmed the transactions in part and have denied the remaining transactions. These two parties are (i) M/s. Anil Industries Kekadi and (ii) M/s. Kailash Udyog, Nivai. The Assessing Officer has discussed the facts relating to transactions in the account of M/s. Anil Industries and M/s. Kailash Udyog at pages 90 to 96 of the assessment order. After elaborate scrutiny of each and every item he has arrived at the conclusion that the transactions recorded in the account of these two parties are also non-genuine. 16.5 Apart from the 6 suppliers mentioned above, the remaining 27 suppliers to whom payment was shown to have been made by crossed cheques and the amount of cheques was collected in cash through the bank account No. 71082 in the name of M/s. Pooja Traders with State Bank of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced in the assessment order at pages 142 to 144 reveal that Mr. Waghela admitted that the business of M/s. Pooja Traders was done solely for the assessee in the year under consideration. He accepted the summons from the Department only after consulting Shri R.V. Domadia who is one of the directors of the assessee-company. The close link of M/s. Pooja Traders with the assessee-company thus clearly stands established. It is also an unusual and strange coincidence that all the 33 bogus parties of Rajasthan had chosen to get their crossed cheques encashed through the bank account of M/s. Pooja Traders. The Assessing Officer has observed in the assessment order that the payment to other suppliers who have been treated as genuine suppliers, were made by demand drafts sent to their respective places. 16.7 The Assessing Officer has extensively dealt with various aspects relating to purchases in question with these 33 parties. He has given convincing reasons for arriving at the conclusion that transactions with these 33 parties are not genuine. At page 162 he has again summarised the special features and characteristics of such abnormal and unusual nature of all such transactions wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged bogus purchases are claimed to have been made before the Assessing Officer along with all other relevant books of account, records, copies of broker's notes, bank pass-books, etc., within a fortnight for recording of their statement on oath by the Assessing Officer. The Tribunal also gave a final opportunity to the assessee to produce before the Assessing Officer all the suppliers, transporters, etc., It will be worthwhile to produce paras (k) and (n) of order-sheet entry dated 20th July, 1995 as follows : "(k) Produce both the brokers before the Assessing Officer through whom alleged bogus purchases are claimed to have been made along with all their relevant books of account, records, copies of broker's notes, bank pass books, etc. within a fortnight for recording their statements on oath. (n) It was admitted by the counsel for the assessee during hearing that copies of statements of suppliers, transporters, shroff, etc., recorded by the Assessing Officer during assessment proceedings behind the back of the assessee were made known to him and thereafter assessee did not request the Assessing Officer to examine/cross-examine all or any of them. It was indicated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the fact that the material in question has really been received and this position has been accepted by the departmental authorities. The assessee further relied upon certain charts to prove that prices of the oil cakes purchased through alleged bogus invoices are comparable with the prices for the purchases accepted as genuine. On these grounds the assessee-company has stated that even if it is assumed that purchases were made from ' X ' but bills were taken from ' Y ', it will not result in any addition in the declared profits in view of the aforesaid circumstances. Such a stand taken by the assessee is not at all valid and justified. The assessee made entries in its books of account in respect of oil cakes purchased from these 33 parties on the strength of sales invoices alleged to have been issued by these suppliers. It has shown that payments were made to these 33 suppliers of Rajasthan by crossed chequcs. However, the Assessing Officer conducted deep and thorough enquiry and investigation, as a result of which he found that most of these 33 parties did not even exist at the given addresses. He has also brought adequate material on record to prove that the transactions of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified on the facts and circumstances of the present case. 17. However, the question which then arises for our consideration is as to whether the entire amount of the said bogus purchases and freight payments made in relation thereto should be disclosed or the assessee should be held to be eligible for grant of deduction of a reasonable amount of purchase price of the oil cake in question in view of the fact that receipt of the material in question by the assessee is supported by various registers and books of account maintained by the assessee and the department has not disputed the fact relating to reality of the receipt of material in question. In fact, the learned Sr. DR pursuant to a specific query by the Bench and after the matter was thoroughly examined once again pursuant to order sheet entry dated 20th July, 1995 was fair enough to state that the material in question shown as purchases through such fictitious invoices in the names of these 33 bogus parties appears to have been really received because without receiving such material, the corresponding production and sales would not have been possible. This statement was made at the Bar on 15th September, 1995. Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to such facts and circumstances : (a) Decision of CIT (Appeals) in the case of M/s. Hiranand Thakerdas, a copy of which was also furnished in the paper book. (b) New Narayan Builders v. ITO [1992] 43 TTJ (Ahd.) 508. (c) The learned AR further submitted that even if it is assumed that section 40A(3) is attracted, the assessee's case would be covered by the exceptions laid down under Rule 6DD(j). For this purpose, he placed reliance on the decision of ITAT, Ahmedabad in the case of Hynoup Food and Oil Industries (P.) Ltd. v. ACIT [1993] 47 TTJ 556. The Ahmedabad Tribunal in the said case after considering all the aspects of the case and the decision of Andhra Pradesh High Court in the case of S. Venkata Subba Rao came to the conclusion that assessee's case is covered by exceptions as business recorded in the books is within the rule as business outside the books is an exception. The Tribunal also considered the judgment of Hon'ble Gujarat High Court reported in Hasanand Pinjomal v. CIT [1978] 112 ITR 134 as well as judgment of Hon'ble Supreme Court in the case of CIT v. S. C. Kothari [1971] 82 ITR 794. (d) M. Sreedhara Panicker's case. (e) E.N.M. Libbas (P.) Ltd. v. IAC [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring his case within the ambit of exceptions provided under Rule 6DD(j). The disallowance of entire amount of bogus purchases and freight thereon is therefore, fully justified in view of the clear provisions of section 40A(3). 18.4 We have given a very anxious consideration to the rival submissions urged before us. It has been held that the transactions of oil cakes shown as purchased from the 33 bogus suppliers are fictitious. The books of accounts maintained by the assessee have, therefore, been found to be unreliable and incorrect. The provisions of section 145(2) are therefore, clearly attracted in the present case. The entries in relation to such purchases made from the 33 bogus parties which have been found to be fictitious will have to be ignored for the purpose of computing the profits and gains of business. It would be entirely different fact if deduction of reasonable amount of purchase price is allowed to the assessee in respect of receipt of the materials in question by invoking section 145(2). In case the disallowance is made by invoking the provisions of section 40A(3) on the basis of entries in relation to such purchases made from 33 parties, the entries recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, the expenditure would be covered by the exceptions provided in Rule 6DD(j) of the Rules. 19. We will now consider as to how much deduction should be allowed to the assessee in respect of cost of purchase of oil cakes said to have been really received by them but the bills produced in support thereof were not genuine bills. It is absolutely clear from the facts, material and evidence brought on record that the assessee produced fictitious vouchers in support of purchase of oil cakes shown as purchased from the 33 bogus suppliers. It also produced fictitious vouchers for transportation of those goods. The goods were not received from the parties from whom it is shown to have been purchased but such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Even after the Assessing Officer brought adequate material on record which exposes the false stand taken by the assessee, the assessee did not come out with the truth as to where from it had purchased the oil cakes in question which are shown to have been purchased from the said 33 bogus parties. 19.1 There could be various possible alternative sources wherefrom th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly from other mill owners and partly from oil mills belonging to the assessee and their associate concerns. Nothing definite can be said because the true source wherefrom the assessee acquired such oil cakes shown as having been purchased from 33 bogus suppliers is known only to the assessee and none else. But one thing is certain that the assessee has definitely inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers. 19.3 It is well known that if purchases are made from open market without insisting for the genuine bills, the supplies may be willing to sell those products at a much lower rate as compared to the rate which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. There may be various factors due to which there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted for goods. There may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture or sale of goods in question. The suppliers or the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to applicability of section 68, 69 or 69C of the Act thereof. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as is available for genuine purchases. If the fact of usual credit 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 unexplai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er itself. 20.4 The assessee was directed to compute the peak amount 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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer not to make a separate addition in respect of the unexplained amount of peak credit as the same is adequately covered by the separate disallowance of more than Rs. 27 lakhs made out of bogus purchases and freight thereon. The amount of peak position relating to earlier years, or subsequent years will have to be independently examined by the concerned authorities in accordance with law and particularly in the light of the Explanation 2 to section 271(1)(iii) of the Act. 21. We will now deal with the common ground raised in the appeal by the assessee as well as by the Revenue in relation to the addition made on account of low oil yield from crushing of rapeseeds as well as addition on account of introduction of oil cake. The assessee is aggrieved by the addition sustained by the CIT(A) to the extent of Rs. 30 lakhs and the revenue is aggrieved by the deletion of addition of Rs. 1,89,982 made by the Assessing Officer on account of low oil recovery in respect of rapeseeds purchased from OGS and relief of Rs. 10,54,707 granted out of addition made on account of low oil recovery in respect of rapeseeds purchased from WGS and out of addition of Rs. 3,19,618 made on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er such thoughtful and careful consideration the learned CIT(A) came to the conclusion that addition of Rs. 189,982 made in respect of rapeseed purchased from OGS cannot be sustained. The assessee has made various specific submissions in order to justify the oil recovery from rapeseed purchased with guaranteed oil recovery from OGS in PB ' F ' at pages 11 to 15. After going through the entire material and the submissions made by the learned representatives of both sides we agree with the finding given by the learned CIT(A) in relation to deletion of the addition of Rs. 1,89,982. 21.5 The learned CIT(A) has also carefully considered the entire material brought on record by the Assessing Officer in support of an addition of Rs. 37,35,089 made on account of low oil recovery in respect of rapeseeds purchased from WGS and a further addition of Rs. 3,19,618 made on account of oil cakes held as introduced from undisclosed income. The learned CIT(A) has sustained an ad hoc addition of Rs. 30 lacs out of the aggregate addition of Rs. 40,54,707 consisting of Rs. 37,35,089 and Rs. 3,19,618. 21.6 The Assessing Officer has discussed this point in various paras of the assessment order. In para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view, once the books of account are held to be not reliable and not correct, it would be necessary to examine the reasonableness of the declared percentage of yield of oil and oil cakes, etc. The assessee has himself submitted a chart at page 99 of the PB ' E ' showing the percentage of yield of oil in different years as below : Asst. Year Yield of Oil 1988-89 34.23% 1989-90 32.61% 1990-91 28.95% 1991-92 27.17% 1992-93 29.39% 1993-94 31.58% 1994-95 30.93% The yield shown by the assessee in the year under consideration is 27.1%. Assuming that the Assessing Officer did not properly compare the results of other comparable cases, the best comparison can always be made with the results declared by the assessee itself in the preceding as well as in the subsequent years. The aforesaid chart gives the details of results declared by the assessee in the preceding three years as well as subsequent three years. The Assessing Officer has taken the yield from rapeseeds purchased from WGS at 30%. The adoption of the rate of 30% could not be assumed as arbitrary or extremely excessive or unreasonable. However, the CIT(A) after taking into consideration the entirety of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year 1990-91 yield of oil at 31.17% and oil cake at 64.08% and shortage at 4.74%. The yield of oil which is the most vital item of finished goods shown by M/s. Dipak Vegetable and oil industry is substantially more than the yield of oil shown by the assessee. In the subsequent two years also M/s. Dipak Vegetables have shown yield of oil at 32.68% and 33.18% respectively. Some of these figures have been stated with a view to indicate that the assessee only wanted to twist the result of other comparable cases in a manner that only the favourable part out of such comparable result should be compared and overall yield of other comparable cases should be ignored. This is certainly not a correct approach for deciding as to whether the view taken by the learned departmental authorities was reasonable and justified on the facts and circumstances of the case. After a very very careful consideration we are of the considered opinion that the view taken by the CIT(A) is a very just and reasonable view which has been taken by him after a very careful scrutiny and consideration of all the relevant facts and circumstances. We therefore, do not find any justification in interfering with the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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