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2016 (9) TMI 261 - ITAT VISAKHAPATNAM

2016 (9) TMI 261 - ITAT VISAKHAPATNAM - TMI - Additions towards inflation of purchases - A.O. was of the opinion that the assessee has inflated purchases by recording higher value in the books of accounts - Held that:- We find force in the arguments of the assessee for the reason that though there is a difference between value recorded in the books of accounts and provisional invoices, the assessee has explained the differences with final invoices which is matching with the amount recorded in th .....

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cted the A.O. to delete the additions made towards inflation of purchases. We do not see any error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. - Addition towards low yield of rice bran oil - A.O. made additions on the sole ground that there is a difference in percentage of yield of rice bran oil - Held that:- No merits in the findings of the A.O. for the reason that before estimation of suppres .....

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oticed that during the year under consideration, the assessee has purchased 3 varieties of rice bran which is containing different percentage of rice bran oil content. We further observed that purchase of rough rice bran has been doubled when compared to the last financial year because of which there is a reduction in yield of rice bran oil. But, the other final products of rice bran oil extraction is increased because of low yield of rice bran oil. Therefore, the A.O. was not correct in holding .....

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not confirmed the transactions - Held that:- No additions can be made u/s 68 of the Act, towards trade creditors when genuineness of the purchases are not doubted. In the present case on hand, the A.O. has not doubted the genuineness of the purchases. The A.O. made additions toward trade creditors for the simple reason that the creditors have not confirmed the transactions with the assessee. Therefore, we are of the view that the A.O. was not correct in making additions towards trade creditor’s .....

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thy, DR Respondent by : Shri A.V. Raghuram, AR ORDER Per G. Manjunatha, Accountant Member This appeal filed by the revenue is directed against the order of CIT(A), Vijayawada dated 9.6.2014 and it pertains to the assessment year 2011-12. 2. The brief facts of the case are that the assessee is a Private Limited company, which is engaged in the business of manufacturing and sale of rice bran oil, solvent extraction and power generation. The assessee has filed its return of income for the assessmen .....

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the assessment and determined total income of ₹ 8,53,22,530/- by making following disallowances. 1) Additions towards inflation of purchases ₹ 72,26,330/- 2) Additions towards suppression of sales turnover on account of low yield ₹ 4,24,61,798/-. 3) Additions towards unexplained credits u/s 68 of the Act ₹ 2,97,62,203/- 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has made elaborate written subm .....

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ngs, the A.O. noticed that in 7 cases, there is a difference between purchase value as per purchase bills and amount recorded in the books of accounts of the assessee. The A.O. observed that the assessee has inflated the purchase by recoding higher value in the books of accounts. It was further observed that the purchase value as per the invoices is less than the amount recorded in the books of accounts, therefore, issued a show cause notice and asked to explain the reasons for difference betwee .....

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s reached the factory, after quality analysis, the price will be fixed. It was further submitted that once final price is determined, the suppliers will issue final invoices as per which the purchases are recorded in the books of accounts, therefore, there is no difference between purchase invoices and amount recorded in the books of accounts. The assessee further submitted that it has made the payment directly to the supplier s bank accounts by way of account payee cheques or electronic transfe .....

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ons made additions of ₹ 72,26,313/-, being difference between invoice value and amount recorded in the books of accounts. 5. The Ld. D.R. submitted that the CIT(A) without appreciating the facts that there is a difference between amounts shown in the books when compared to the invoices deleted the additions based on the additional evidences submitted by the assessee in the form of C forms and final invoices, without checking the correctness of final invoices, ignoring the observations of t .....

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R. for the assessee strongly supported the CIT(A) order. The A.R. further submitted that it is the usual practice in this line of business that the rice millers will supply goods on provisional invoices because of peculiar facts of the business. The A.R. further submitted that assessee has purchased goods from Orissa and West Bengal through middlemen without knowing the suppliers. The goods have been supplied on provisional invoices for movement of goods and once the quality of the goods has bee .....

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is a difference in the value shown in the books of accounts when compared to the sale invoices. 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. made additions towards inflation of purchases for the reason that there is a difference between value shown in the invoices and amount recorded in the books of accounts. The A.O. was of the opinion that the assessee has inflated purchases by recording higher valu .....

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arguments of the assessee for the reason that though there is a difference between value recorded in the books of accounts and provisional invoices, the assessee has explained the differences with final invoices which is matching with the amount recorded in the books of accounts. It is also an admitted fact that the assessee has made the payment for the amount recorded in the books of accounts by way of account payee cheques or electronic transfers. The assessee also issued C form for the value .....

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8. The next issue that came up for our consideration is addition towards low yield of rice bran oil. The A.O. made additions of ₹ 4,24,61,798/- towards suppressed turnover on account of low yield of rice bran oil. The A.O. observed that on analysis of the details of yield from rice bran, it was noticed that there is a decline in the rice bran oil yield when compared to the assessment year 2008-09 & 2009-10 and also to assessment year 2011-12 and 2012-13. According to the A.O., the yie .....

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in price of raw materials it has purchased more rough bran oil which is having 6% yield. The assessee further submitted that there are 3 varieties of rice bran oil in the market. The price of the rice bran is fixed on the basis of percentage of yield of rice bran oil. Accordingly, during the year under consideration to reduce the cost of raw materials, it has purchased more rough rice bran and because of which the final yield of rice bran oil is reduced. However, the average yield of rice bran o .....

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ression of sales turnover of rice bran oil. 9. The Ld. D.R. submitted that the CIT(A) ought to have confirmed the additions made by the A.O. towards low yield of rice bran oil, as there was suppression of turnover of rice bran oil by way of increasing the yield of rice bran extraction, which resulted in suppression of turnover to the extent of ₹ 4,24,61,798/-. The D.R. further submitted that the CIT(A) without appreciating the facts, simply deleted the additions ignoring the factual positi .....

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fference between input raw materials used during the year under consideration which resulted in variation in yield of rice bran oil and rice bran extraction. The A.R. further submitted that because of steep increase in raw materials, the assessee has purchased more rough rice bran which is having less oil content because of which the yield of rice bran oil has come down. However, there is no difference in the total yield of final products being rice bran oil and rice bran extraction put together .....

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s financial years which is not correct. The A.R. further submitted that the A.O. made additions on the basis of comparison of total cost of purchase, but the fact is that during the year under consideration the raw material cost has been increased, therefore, though assessee matches the total purchases cost there is a difference in quality of raw materials purchased because of which there is a variation in the final yield. Therefore, the A.O. was not correct in making addition based on estimatio .....

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the average yield of rice bran oil for all these years is at 17.87%, whereas the yield of rice bran oil for the year under consideration is 14.7%. Therefore, opined that the assessee has purportedly suppressed the turnover by manipulating the yield of rice bran oil so as to reduce the sales. It is the contention of the assessee that because of increase in raw materials cost of rice bran it has purchased more rough rice bran because of which there is a reduction in the yield percentage of rice b .....

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he purpose of extraction of rice bran oil. 12. The A.O. made additions on the sole ground that there is a difference in percentage of yield of rice bran oil. According to the A.O., the average yield of rice bran oil for the earlier and subsequent period is 17.87%, whereas for the year under consideration, the yield of rice bran oil is at 14.7%. The A.O. further was of the opinion that the assessee has purportedly manipulated the percentage of yield of rice bran oil so as to reduce the sales. We .....

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or the current year compared the average yield of rice bran oil which is not correct. We further noticed that during the year under consideration, the assessee has purchased 3 varieties of rice bran which is containing different percentage of rice bran oil content. We further observed that purchase of rough rice bran has been doubled when compared to the last financial year because of which there is a reduction in yield of rice bran oil. But, the other final products of rice bran oil extraction .....

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came up for our consideration is addition towards unexplained credits u/s 68 of the Act. The A.O. made additions of ₹ 2,97,62,203/- towards trade creditors u/s 68 of the Act. The A.O. was of the opinion that the assessee has failed to prove the genuineness of the creditors. The A.O. further observed that out of 771 trade creditors, none of the creditors have confirmed the transaction with the assessee. All the letters issued to the creditors have been returned unserved or no such addresse .....

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s that the A.O. issued letters to the creditors by giving 5 days time and expects them to submit the statement of accounts within a span of 5 days, which is practically impossible. Therefore, the A.O. was not correct in making additions towards trade creditor s u/s 68 of the Act, unless he doubted the genuineness of the purchases. 14. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. invoked the provisions of .....

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s has confirmed the transactions with the assessee. It is the contention of the assessee that the A.O. has not given sufficient time to the creditors to confirm transactions. The A.O. issued letters on 18.3.2014 giving them five days to confirm the transactions with the assessee. The assessee further contended that all the creditor s balances are running accounts and aroused towards supply of raw materials or services which were paid during the subsequent financial year. It is further contended .....

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when purchases are accepted as genuine, he cannot doubt trade creditors which are aroused out of credit purchases. We further observed that A.O. has accepted the financial statement filed by the assessee and on the basis of such financial statement, the net profit has been taxed. This impliedly proves that the A.O. has not doubted the financial results declared by the assessee. Therefore, we are of the opinion that when the purchases having been accepted as genuine, balance remaining outstanding .....

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responding with sundry debtors. On perusal of the financial figures declared by the assessee, we noticed that trade creditor s payable to the suppliers of the goods is almost equal to the stock in trade held by the assessee and amount receivable from the debtors. It is not a case of A.O. that there is investment in personal assets which was explained by trade creditors. Under these circumstances, the A.O. was not correct in making additions towards trade creditors by invoking the provisions of s .....

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as recorded a categorical finding of fact based on appreciation of materials and evidence on record that the AO had accepted the purchases, sales as also the trading result disclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of s. 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as, on the basis of the findings recorded b .....

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.10.10. The coordinate bench of this Tribunal, under similar circumstances held that amount represents purchase on credit, provisions of section 68 of the Act cannot be applied. The relevant portion of the order is reproduced hereunder: We have heard the rival submissions and carefully perused the record. The main objection of the assessee is that the trade credits cannot be added as unexplained credits under section 68 of the Act. In this regard, the Learned Authorised Representatives has relie .....

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officer has accepted the purchases as genuine. The bench also noticed that the outstanding amount had been paid in the subsequent period. Hence the bench did not find any infirmity in the decision of the Learned CIT(A). 19. The assessee relied upon the decision of ITAT, Allahabad in the case of JCIT Vs. Mathura Das Ashok Kumar (2006) 101 TTJ 810. The coordinate bench of this Tribunal, under similar circumstances held that additions cannot be made u/s 68 of the Act towards trade creditors. The re .....

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ases recorded in this manner have been accepted in toto without any kind of controversy whatsoever. After the purchases of sarees supported by the 'Purjas' have been accepted, any further verification about the Karigars in whose favour such Purjas' have been issued is really not necessary; the reason being that it is the Karigar who come to the saree dealers and offers his stock for being dealt with by the same dealers. The dealers also have no occasion to feel concerned about the na .....

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ere should be an insistence for producing the Karigars. The instructions like this, although may not be capable of being treated as having binding effect, nonetheless they lay down necessary guidelines for completion of assessment in a particular line of trade. This logic is applicable with all its force in the present case. Necessity to have the addresses of the Karigars may arise only for the purposes of making enquiries from the Karigars, so far as the assessment of the same dealers is concer .....

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Karigars" and against all the 15 'Purjas', necessary information in this respect has been given. Naturally, in the records of the assessee, only such names and addresses would be found recorded, as told to it by the Karigar themselves. Beyond this, the assessee is not concerned to ascertain correct or full addresses of the Karigars as the purchases have been made on credit. It is for the Karigars concerned or his nominee and/or transferee of the 'Purja' to collect his payme .....

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and sales have been duly accepted. This leads to a conclusion that Purjas themselves as also contents thereof have got great evidentiary value. If payment against the 'Purja' is recorded in the books of account, then the liability in relation to such 'Purja' has to be treated as genuine unless of course some material is brought on record that the assessee has actually made payment against the same which is not recorded. In the present case, no such material having been brought on .....

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' in nature and that is why he felt anxious to have the identities of the creditors established. In this respect, first of all, credits 'in the sundry creditors (Udhar Khareed) Khata' are referable to the purchases of sarees made on credit basis. As the purchases have been held to be genuine and accepted as such, the credits that remained outstanding in such account cannot be treated to have remained unexplained. The balance appearing in this account, which included the disputed addi .....

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