TMI Blog1996 (1) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mill of the associate concern had the crushing capacity of 62.500 tons per day. The said associate concern M/s. Vijay Solvent Extraction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom WGS and oil cake held as introduced from undisclosed income of Rs. 3,19,618 the CIT(A) held that in view of the non-feasibility of a uniform 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the guaranteed yield for the rapeseed purchased from OGS as the basis for the entire quantity of rapeseed crushed. When it was explained to him that the quantity 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Sr. DR also submitted detailed written submissions dated 22nd September, 1995. In paras 3.3.1, 3.2. 10 to 3.2.16 he has made detailed arguments to support additions made on account of low oil recovery. In para 3.3.1 the learned Sr. D.R. has made 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 Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He has given certain percentages with reference to chart submitted at pages 5 7 of PB " E ". (d) The Sr. D.R. submitted that Civil Supplies Department has found vital defects as noted in assessment order at pages 60 61 leading to confiscation of oil of 150 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this contention. The learned AR has then given his parawise comments with reference to the written submissions made by the learned Sr. D.R. These submissions relate to the percentage of yield/shortage elaborately discussed in the written submissions of the learned Sr. D.R. D. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has summarised the amount of additions made in respect of payment shown to have been made to these alleged bogus suppliers at pages 160 and 161 of the assessment order. The total of such payments which have been mentioned itemwise at pages 160 and 161 of the assessment order comes to 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 characterist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, 1991. The facts relating to the aforesaid credit balances has been discussed in para 40 at pages 163 and 164 of the assessment order. The Assessing Officer in view of the elaborate discussions made in the assessment order has arrived at the conclusion that the expenditure claimed by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B " C "). (c) Summary of submissions as regards additions of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,92,752 on account of alleged bogus purchases (pages 166 to 169 of PB " C "). (d) Copy of record note of oral submissions made before CIT(A) on 3-10-1994 (pages 269 to 273 of PB " C "). The submissions 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 br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the learned Sr. D.R. In fact, the departmental authorities have accepted the fact of having received the material in question. IV. Modus operandi of purchases not appreciated : The assessee with reference to contents of its letter dated 18-8-1993, written submissions dated 20th September, 1994 and 3rd October, 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of another check-post is affixed on all transactions. Where the driver does not stop or is not stopped by check-post there will be no stamp. IX. Five important questions which arise in relation to such bogus purchases and bogus freight payments : (a) Whether the purchases in question are non-genuine ? (b) If the purchases are 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. 12.6 The Sr. DR was also requested to submit para-wise reply and comments in writing on various written submissions given on behalf of the assessee. The Sr. DR was particularly requested to state if the material in question shown as purchases through purchase invoices of 33 bogus parties was really received by the assessee and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal. It was submitted that provisions of section 68 or section 69 are not at all applicable. The subject-matter of the appeal before the Tribunal is whether the expenditure is allowable. The question whether the source of the expenditure is explained or not is not the subject-matter of appeal before the Tribunal. Therefore, the proposal to invoke provisions 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 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deny as to whether he admits the fact of bogus purchase invoices and existence of really unaccounted money in circulation in respect of which an alternative claim for applying the theory of peak and telescoping has been made. 13.7 It was also pointed out that transactions through the bank account of M/s. Pooja Traders continued from 9-3-1989 to September 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , fabricated and to tally unreliable evidence by detailed enquiries made by the Assessing Officer. The gist of the results of such enquiries has been given in para 30 of the assessment order at pages 152 to 154. The assessee has not been able to produce the suppliers and brokers at the assessment stage. He has failed to produce any of them as per further opportunity 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 cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Department started making enquiries about the encashment of various cheques issued by the assessee to the bogus suppliers. (h) The Department has established beyond doubt that M/s. Pooja Traders was a dummy account set by assessee-company for the purpose of encashment of cheques issued against various purchases in the names of bogus suppliers. (i) The learned Sr. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. On the basis of elaborate submissions made, the learned Sr. DR has strongly argued that the provisions of section 68 and/or section 69C shall be clearly attracted on the facts and circumstances of the present case. (s) The learned Sr. DR submitted that the Tribunal was competent and in fact has the duty to examine all the pleas raised in connection with the addition/disallowance 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct link between the amount received from bank account of M/s. Pooja Traders as being available for making subsequent cash purchases of oil cakes such a prayer for grant of benefit of peak cannot be taken as a legal alternative plea. He placed reliance on judgment reported in Anantharam Veerasinghaiah Co. v. CIT [1980] 123 ITR 457 (SC), CIT v. Nabadwip Chandra Dey [1991] 190 ITR 133 (Gauhati), CIT v. Kulwant Kaur [1980] 121 ITR 914 (Delhi), 123 ITR 457, 190 ITR 133 and 121 ITR 914. 14.3 The learned Sr. DR also invited our attention towards the object 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us check-posts at Rajasthan/Gujarat Border. The assessee was required to produce entire evidence to prove the genuineness of the said transactions. In reply to the show-cause notice the assessee mainly relied on the documents in the form of purchase bill inward gate pass and payments claimed to have been made by crossed cheques to those parties. The assessee did not produce the suppliers in spite of specific opportunities granted by the Assessing Officer. It will also be worthwhile to state that the documents relating to brokers were not at all produced before 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 resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saying that its responsibility came to an end after receiving the goods and after handing over the cheque to the suppliers. Such submissions have been made in complete disregard of the fact that the burden clearly lies on the assessee to prove the genuineness of the transactions. It was incumbent on the assessee to prove that these suppliers were genuine suppliers of oil cakes, they really supplied such oil cakes to the assessee and the assessee really made payment by cheques to these very parties and none else. Such a burden had to be discharged by the assessee 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order. The Assessing Officer has given convincing reasons for arriving at the conclusion that the transactions claimed to have been made with these parties are not genuine transactions. 16.6 The Assessing Officer has also elaborately discussed the facts relating to transactions carried out through the bank account of M/s. Pooja Traders. At page 142 and onwards the Assessing Officer has reproduced various questions and answers recorded in the statement dated 1-10-1992 of Shri M.N. Waghela, proprietor of M/s. Pooja Traders. Those questions and answers reproduced 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 Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst non-genuine and fabricated transactions. The transporters were either not available or they have denied having sent any goods as claimed by the assessee. 16.9 The leaned CIT(A) after a very careful consideration of the entire facts and material and evidence existing on record agreed with the findings given by the Assessing Officer. 16.10 The Tribunal after hearing the learned representatives of the parties on two occasions, gave a specific opportunity to the assessee vide order-sheet entry dated 20th July, 1995 to produce both the brokers through whom the 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 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 1989-90 to 1993-94. The Assessing Officer has given a show-cause notice as early as on 5th June, 1993. The assessee failed to produce these suppliers and the brokers before the Assessing Officer and also before the CIT(A). The assessee further failed to produce them even after grant of a specific final opportunity by the Tribunal. 16.12 The assessee has merely repeated that the material in question was purchased through the brokers and the assessee had no direct contact with these suppliers, whose invoices are said to be bogus. It has further relied upon 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonably clear and glaringly obvious that all those 33 parties are bogus parties, the sales invoices claimed to have been issued by them are fictitious ones and the bank account in the name of M/s. Pooja Traders was opened and operated mainly with a view to accommodate these fictitious transactions carried out by the assessee in respect of oil cakes shown as purchased from such bogus suppliers. The findings given by the Assessing Officer that the sales invoices in question, vouchers for freight payments in respect of purchases in question are fictitious ones are absolutely 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 realit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no separate addition was made under section 40A(3) as the entire amount of bogus purchases had already been disallowed by him. 18.2 The learned AR for the assessee submitted that so far as the assessee is concerned, it has made the payments by crossed cheques in favour of the suppliers. There is no evidence to show that the amount of cheques has come back to the assessee and this cash has been used to purchase oil cakes in cash from the open market. He has placed reliance on the following decisions to support his contention that provisions of section 40A(3) are not at all applicable 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 afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly held in that case that the provisions of section 40A(3) would also be applicable in relation to a business carried on illegally. The burden lies on the assessee to prove that the payments are covered by the exceptions provided under Rule 6DD(j). The learned Sr. DR also placed reliance on the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh in which it was held that provisions of section 40A(3) are also applicable in relation to expenditure incurred for purchase of stock-in-trade. The learned Sr. DR submitted that the assessee has failed to produce any evidence to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther a particular payment for expenditure would be covered under the exceptions provided in Rule 6DD(j) will depend on the peculiar acts and circumstances of each case. The facts of the decision given by ITAT, Ahmedabad Bench in the case of Hynoup Food and Oil Industries (P.) Ltd. are almost similar with the facts of the present case. Respectfully following the reasons given in the said decision and the reasons given in various other decisions relied upon by the learned AR of the assessee, we hold that provisions of section 40A(3) would not be applicable and even if they are held to be applicable, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his oil mill. The possibility indicated by the Assessing Officer in the written submissions made in compilation marked as Part-B cannot totally be ruled out but the Assessing Officer while making an addition on account of low yield in the oil mill has himself restricted the addition on account of introduction of oil cake only to the extent of Rs. 3,19,618 apart from the alleged low yield of oil obtained from rapeseed. 19.2 In any case, the oil cakes so received and used by the assessee in the production activities has come out of the unaccounted production of oil cakes of other mill owners or partly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities in respect of disallowance of the entire amount of freight in relation to the aforesaid purchases. The disallowance of Rs. 5,02,752 is also therefore, confirmed. Thus, the Assessing Officer is directed to restrict the disallowance to an aggregate sum of Rs. 27,02,752 (Rs. 22 lakhs plus Rs. 5,02,752) as against the aggregate disallowance of Rs. 93,06,366 made by the Assessing Officer comprising of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,02,752. 20. Now, we will consider the point relating to addition in respect of peak amount of investments made out of unaccounted money by the assessee for purchase of the above referred oil cakes shown as purchased from 33 bogus suppliers. While dealing with the point of granting or denying of benefit of peak amount or telescoping, we will also deal with the question relating 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be considered for the source of determining whether the source thereof is explained or not. We reiterate that the money which have gone out of our coffers towards the payment for the purchases in question have been utilised only for the purpose of the purchase of materials and no other credit for this money for any investment or expenditure or for any other purposes has been claimed by us." 20.2 The aforesaid submissions have been made by the assessee without prejudice to its main contention that the invoices obtained from 33 suppliers are genuine invoices. The assessee has dealt with those parties through brokers and had no direct contacts with them. Even if those parties are treated as not genuine, it was submitted that it should be presumed that credit is available for alleged non-genuine purchases of oil cakes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee." The aforesaid findings clearly reveal that the Assessing Officer had added the aggregate amount of Rs. 17,99,788-75 on the ground that these parties were not in existence, not genuine and the vouchers in their names are fabricated and bogus ones. The contention of the assessee that invoking of provisions of section 68 or section 69C is beyond the jurisdiction of the Tribunal is not correct as the addition of the closing credit balance lying in the accounts of these bogus suppliers was added as income by the Assessing Officer. The absence of any mention of the relevant section would not mean that the addition already made by the Assessing Officer cannot be supported by the higher appellate authorities on one more section apart from confirming the same in view of the elaborate reasons mentioned in the assessment order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------- (1) (2) (3) (4) (5) ----------------------------------------------------------------------- 1989-90 20-3-1989 26,10,678 1,398,822 13,98,822 1990-91 26-12-1989 27,93,285 1,042,691 -- 1991-92 28-3-1991 88,03,615 1,796,842 3,98,021 1992-93 22-12-1991 1,95,11,343 5,858,707 4,061,864 1993-94 06-07-1992 1,46,86,311 6,599,267 7,40.560 ----------- --------- 4,84,05,232 65,99,267 ----------------------------------------------------------------------- 20.6 It will not be proper for us to give any finding in relation to the years other than the year under appeal before us, as those matters may be pending before the departmental authorities. However, even if the peak amount of earlier years is taken into consideration, it will not affect the amount of addition sustained in the year under consideration, as we have already directed the Assessing Officer not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is a raw material for the Solvent Extraction Plant (SEP). In SEP Division it has been found that oil cake purchased has been debited in the books of account on the basis of fictitious invoices in the names of 33 bogus suppliers. We are, therefore, of the considered opinion that books of account maintained by the assessee are neither reliable nor correct. The provisions of section 145(2) are clearly attracted on the facts and circumstances of the present case. 21.2 It is true that in all cases where books of account are rejected it is not necessary to always make some addition in the declared trading or manufacturing results. It will always depend upon the facts and circumstances of each case and that too in relation to each year as to whether any addition should be made even after rejecting the books of account maintained by the assessee. 21.3 In the present case, the learned CIT(A) very carefully considered all the relevant facts and material existing on record. He has considered the elaborate reasons mentioned in the assessment order and has also given a very serious consideration to the various arguments advanced on behalf of the assessee. 21.4 After such thoughtful a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also submitted that the Assessing Officer had wrongly placed reliance on result of other cases. The Assessing Officer ignored results of cases which are favourable to the assessee. Various other arguments were also advanced which need not be repeated. The learned AR for the assessee has also made great efforts to prove that once the oil recovery out of rapeseeds purchased from OGS declared at 31.67% has been treated as reasonable by the CIT(A) there was no justification in confirming the addition in relation to yield of oil obtained from rapeseeds purchased from WGS. Elaborate charts were submitted showing the impact of price difference between two different types of rapeseeds purchased from OGS and WGS. Those charts were submitted before the Assessing Officer for his verification on which the Assessing Officer has not made any comments. On the strength of these charts the learned AR further submitted that the yield of oil shown by the assessee from rapeseeds purchased from WGS should also be accepted as true and correct. The learned Sr. D.R. relied upon the elaborate reasons given in the assessment order and also submitted elaborate written arguments. 21.8 In our view, once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage of 4.31%. The aforesaid contention of the assessee is incorrect as M/s. Jagdish Export Industries in financial year 1990-91 had claimed shortage of only 2.97% but shortage of 4.31% was claimed in financial year 1991-92 which relates to assessment year 1992-93 and not assessment year 1991-92 which is the year under consideration. M/s. Jagdish Export Industries had declared yield of oil at 31.72% in financial year 1991-92 and yield of 33.54% in financial year 1992-93. The assessee further stated that the Assessing Officer ignored the oil recovery shown by M/s. Atlas Soya. M/s. Atlas Soya had declared yield of oil in financial year 1990-91 at 28.47% but in that year they had declared oil cake production at 70.46% and thereby had claimed shortage of only 1. 17% in that year. The assessee has claimed shortage in respect of purchases from WGS at 3.71%. The oil recovery shown by M/s. Atlas Soya in financial years 1991-92 and 1992-93 was 30.58% and 30.50% respectively. The assessee has also made a mention about the shortage shown by M/s. Dipak Vegetables at 4.74% at page 7 of PB ' F '. In the Department's PB No. ' B ' the Sr. D.R. has presented an Annexure-C giving details of producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a locus classicus is an authority for what it decides. It is permissible to extend the ratio of a decision to cases involving identical situations, factual and legal, but care must be taken to see that this is not done mechanically, that is, without a close examination of the rationale of the decision which is cited as a precedent. Such observations were made by the Hon'ble Supreme Court in the judgment reported in Denna Alias Deen Dayal v. Union of India AIR 1983 SC 1155. The Hon'ble Apex Court in the case of CIT v. Sun Engg. Works (P. Ltd. [1992] 198 ITR 297 have also held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. 21.11 In the present case, the various grounds raised in both the appeals involved consideration of the entire relevant facts, material and evidence existing on record. The facts of the various cases cited by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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