TMI Blog2001 (3) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,509.65 qtls. Rs. 4,20,184. ------------------------------------ -------------------------------------------------------------- The Assessing Officer received information from the ADI that Shri Sat Pal, partner of M/s. Ganesh Rice Mills had stated that the firm M/s. Ganesh Rice Mills had never purchased paddy from the assessee firm. The statement of said Shri Sat Pal was confronted to Shri Faqir Chand, partner of the assessee firm, by the ADI and the statement of Shri Faqir Chand was recorded by that authority on 18-12-1987. Shri Faqir Chand stated that the sales had been made against ST XXII forms received from M/s. Ganesh Rice Mills. Further enquiries were made from the Excise and Taxation Officer, Ferozepur who intimated that ST XXII forms upon which the assessee firm had relied, had never been issued to M/s. Ganesh Rice Mills. The Assessing Officer confronted the assessee firm with the gist of investigation made. Shri Faqir Chand partner of the assessee firm stated that the assessee firm had received the sales tax forms through the broker Shri Bachan Lal through whom the transaction was carried on. The assessee firm was called upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paddy to M/s. Ganesh Rice Mills. It was submitted that the assessee had filed sales-tax return for the period from 1-2-1987 to 28-2-1987 as per receipt placed at page 29 of the compilation in which R.D. sales had been shown at Rs. 4,20,184 at page 30 of the compilation. The summary of all the sales is available at page 31 of the compilation. Our attention was drawn to page 47 of the compilation in which the sale of paddy was shown at 2509.65 Qtls. Referring to page 51 of the compilation which related to the account of M/s. Ganesh Rice Mills in the books of the assessee, it was pointed out that the payments of Rs. 2,00,000 and Rs. 2,20,184 had been received by way of two pay orders. Pages 52 and 53 were referred to, to show that the amounts received were brought in the day book. 7. The learned Counsel referred to the statement of Shri Sat Pal recorded on 28-9-1987, copy of which is available at pages 65 66 of the compilation. The statement of Shri Faquir Chand partner of the assessee firm appearing at pages 67 to 70 was also referred to. 8. The main submissions of the learned Counsel were as follows :- (i) Shri Sat Pal partner of M/s. Ganesh Rice Mills had not been produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentary evidence on record in respect of the despatch of paddy by the assessee. As regards the cross-examination of Shri Sat Pal, the learned D.R. wondered as to whether any request in this regard had been made by the assessee. The learned D.R. strongly supported the confirmation of addition of Rs. 4,20,184. 11. In reply, Shri Sehgal filed a copy of the letter submitted before the learned CIT (A), Patiala in which it was contended that no opportunity to cross-examine Shri Sat Pal had been given to the assessee and that Shri Sat Pal may be summoned and necessary opportunity to cross-examine him should be given to the assessee, but no such opportunity was given. Reliance was placed on the Bombay High Court decision in the case of R. B. Jessaram Fatehchand (Sugar Deptt.) vs CIT [1970] 75 ITR 33 for the proposition that in the case of cash transaction where delivery of goods is taken against cash payment, it is hardly necessary for the seller to bother about the name and the address of the purchaser. 12. We have carefully considered the submissions of both the sides as also the facts on record. The Revenue has not pointed out any interpolations, cuttings or discrepancies in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had shown lower yield of rice and other by-products of paddy milled out of the paddy shown as sold but actually milled by the assessee. The total concealed income on that account was computed at Rs. 3,76,114 as per details given in the body of the assessment order. Since the Assessing Officer was making a higher addition of Rs. 4,20,184, no further addition of Rs. 3,76,114 was made and the same was telescoped in the main addition. 15. Before the learned CIT (A), a contention was raised by the Assessing Officer that a further addition of Rs. 3,76,114 be made. The learned CIT (A) held that there was no justification for making further addition of Rs. 3,76,114. 16. The learned D.R. submitted that so long as the higher addition of Rs. 4,20,184 was there, the addition of Rs. 3,76,114 could be said to have been telescoped in the higher addition but if the higher addition itself was to be deleted, then the addition of Rs. 3,76,114 would come alive and has to be considered in the hands of the assessee. In this regard, it was submitted that if the Tribunal was inclined to delete the higher addition of Rs. 4,20,184, then, in all fairness, the learned CIT (A) be directed to consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee's partner, Sh. Fakir Chand. Sh. Fakir Chand stood by the sale and relied upon ST-XXII, purported to be issued by the purchaser. 3. The revenue authorities then made enquiries regarding ST-XXII. The revenue also inquired about the foodgrain licence number of M/s. Ganesh Rice Mills, as mentioned in the documents produced by the assessee. The licence number and sales-tax number, as given by the assessee of M/s. Ganesh Rice Mills, were found to be different from one available in record of M/s. Ganesh Rice Mills. The revenue also enquired from the office of the Excise Taxation Officer and found that ST-XXII form, alleged to have been given to M/s. Ganesh Rice Mills, were never issued. This was again put to the assessee and Sh. Fakir Chand partner was asked to explain the position. In his statement dated 18-12-1987, Sh. Fakir Chand partner took the stand that paddy was sold through Sh. Bachan Lal broker, who had given document ST-XXII and other information to the assessee-firm. As direct contact with alleged purchaser was claimed to have been made by Sh. Bachan Lal and not by the partners of the assessee, (he Assessing Officer asked the assessee to produce Sh. Bachan Lal broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------- 4,63,538.60 ---------------- Rice bran 82.80 qtls. 8,280.00 @ Rs. 100 - per qtl. Phoose 3,764.00 ---------------- 4,75,582.60 Less sale proceeds of paddy 4,20,184.05 ---------------- 55,398.55 Less reasonable manufacturing expenses add for phuck (net) 5,000.00 ---------------- 50,398.55 Say Rs. 60,000." The assessee, as per above calculations, clearly admitted in computation that paddy shown to have been sold was, in fact, milled and rice obtained was sold. The assessee further admitted that sale proceeds of paddy shown at Rs. 4,20,184, as credited, be adjusted and deducted from total profit of Rs. 4,75,582. The assessee also wanted reasonable manufacturing expenses at Rs. 5.000. However, subsequently, the assessee claimed that the above state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, refused to entertain affidavit of Sh. Bachan lal. No request for additional evidence was made nor any is shown to have been considered in the impugned order of CIT (A). I do not find any error in the approach of CIT (A), who disposed of the appeal on 24-9-1990, after hearing the assessee and after considering the written reply of the Assessing Officer dated 19-9-1990. 7. Ld. CIT (A) also further found that cash in dispute was deposited with the Bank of Baroda, Amloh, where the assessee was carrying on business first and, thereafter, two pay orders were received. According to ld. CIT (A), "it does not stand to reason that M/s. Ganesh Rice Mills, Guru Har Sahai, Ferozepur, carried huge sums of Rs. 2 lakh on 3-3-1987 and Rs. 2,20,184 on the next day, i.e., on 4-3-1987, in cash, from Guru Har Sahai - a disturbed town - to Amloh, to convert the same into pay order". This abnormal conduct of carrying huge cash to the place of business of the assessee and then purchasing pay orders, shows that transaction is not genuine but was entered into with mala fide arrangement to evade tax. 8. There is considerable gap between alleged sale and delivery of paddy and receipt of consideration f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were treated as genuine. 11. In my view, facts in the present case are quite opposite to the facts in the case of Amar Rice General Mills . There, the principles of natural justice were held to be violated but here, at every stage, whatever information was collected by the revenue, was put to the assessee and statement of its partner was recorded. The assessee-firm claimed that ST-XXII forms Were obtained from the purchaser. The revenue made enquiries from the Sales Tax Department and found that no such ST-XXII forms were issued to the seller firm. The revenue further found that registration number and licence number furnished by the assessee-firm of the purchaser, were wrong. When this information was put to the assessee, the assessee took the stand that sale was made through Sh. Bachan Lal broker. The Assessing Officer gave opportunities to the assessee to produce said Sh. Bachan Lal and, in spite of several opportunities, Sh. Bachan Lal was not produced. So, all lacunas/defects found by the Tribunal in the case of Amar Rice General Mills were fulfilled in the present case. In spite of untiring efforts made by the revenue to lift the veil of falsity, it will not be fair an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the circumstances is required to be judicially seen. In the present case, when facts are so considered, no doubt is left that sale transactions of the disputed amount are bogus. Addition, therefore, is fully justified for the amount introduced in the books of a/c and is sustainable under section 68 of the Act. 14. Before close, I may refer to the copy of undated letter of the assessee addressed to CIT (A). Endorsement on the said letter says, "heard on 1-5-1996, filed on 2-5-1996". The appeal was heard on 1-5-1996 and this document appears to have been filed on 2-5-1996. After hearing the case by the Bench on 1-5-1996, file was given to Hon'ble A.M. for dictation. I find that reliance has been placed on the objections raised by the assessee in this document in the proposed order of Hon'ble A.M. There is mention of failure to provide opportunity to cross examine Sh. Sat Pal. There is further reference to copies of application form submitted by GRM with Bank of Baroda, Amloh, for preparing pay orders for making payment to the assessee. It is requested in the letter that above material be taken into evidence. It is not clear as to when undated letter was filed with CIT (A), as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year was shown in the manufacturing, trading and profit loss account at Rs. 3,42,081.85. Correspondingly sale of paddy of 2509.65 qtls. was shown at Rs. 4,20,184. The assessee has shown milling of paddy at 41,702 qtls. The total sale during the year was shown at Rs. 84,05,518.87. The net profit was shown at Rs. 55,445. Return of income was accordingly filed on 18-8-1987 declaring total income of Rs. 55,450 which was completed under section 143(1). Subsequently, information was received from the ADI that the assessee had shown bogus sale of paddy to the tune of Rs. 4,20,184 to M/s. Ganesh Rice Mills, Firozepur. The case was reopened under section 143(2)(b) of the Act. The Assessing Officer looked into the details of these sales and it was shown that the assessee made the following sales : ---------------------------------------------------------------------------- Sl. No. Bill No./Date Quantity Amount ---------------------------------------------------------------------------- 1. 65/16-2-1987 1437.15 Qtls. Rs. 2,40,004 2. 66/17-2-1987 1072.50 Qtls. Rs. 1,80,180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an addition only of Rs. 4,20,184 observing as follows : "As already held in para 1 above the amount of cash of Rs. 4,20,184 introduced by the assessee in its books of account on 3-3-1987 and 4-3-1987 is treated as concealed income from undisclosed sources. The addition on account of lower yield of rice and other by products and out of milling of paddy weighing 2509.65 qtls. shown as bogus sales by the assessee which was actually milled by the assessee and income out of these is calculated above comes to Rs. 3,76,114. The peak out of this concealed income and amount introduced by the assessee from undisclosed sources comes to Rs. 4,20,184. Accordingly, an addition of Rs. 4,20,184 is made to the total income of the assessee and it is treated as concealed income of the assessee for which the assessee has failed to prove the source thereof. This addition also covers Rs. 3,76,114." 5. The assessee thereupon took up the matter in appeal before the CIT (Appeals) against the addition of Rs. 4,20,184. The learned CIT (Appeals), however, upheld the addition made by the Assessing Officer from undisclosed sources under section 68/69A of the Income-tax Act, 1961. 6. The assessee also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was any wilful attempt to evade tax for which purpose, appellant resorted to creating of false evidence. Charge made is vehemently denied. Observation made is sheer presumptuous and against facts. In any case, upholding of addition of Rs. 4,20,184 in the facts and circumstances of the case was sheer presumptuous and unjustified. The amounts used in the purchase of pay orders represented the sale proceeds (according to appellant, of paddy... admitting but not conceding, could be considered as sale proceeds of rice milled out of paddy claimed to have been sold). (Viewing the matter in the total circumspectus, addition made at Rs. 4,20,184 by observing that the money used for purchase of pay orders was that of the appellant and upholding such action by the learned CIT (Appeals) was unjustified and unsustainable and thus addition upheld deserves to be deleted." I.T.A. No. 1727 (revenue's appeal) : 1. On the facts and in the circumstances of the case, the ld. CIT (A) has erred in law in holding that the addition of Rs. 3,76,114 on account of low yield of rice and allied by-products without recording of finding as to the reasonableness of the yield rate applied by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter has to be reconsidered by him. He, accordingly, directed that the same should be considered by the learned CIT (Appeals) and for this purpose the matter was restored to his file. 10. On the other hand, the learned Judicial Member was of the view that the addition of Rs. 4,20,184 was made on proper grounds. Firstly, the assessee is a firm engaged in shelling of paddy and not sale of paddy. The claim of sale of paddy amounting to 2509.65 qtls. to M/s. Ganesh Rice Mills was flatly denied by this party. The assessee was given opportunity to rebut the statement made by Shri Sat Pal, partner of the said M/s. Ganesh Rice Mills and recorded the statement of partner of assessee Shri Faqir Chand who stood by the sale to M/s. Ganesh Rice Mills. Shri Faqir Chand relied on ST-XXII purported to be issued by the purchaser. However, it was found that the ST-XXII was not issued by the Sale Tax Authorities and the Licence number and the sales-tax number given by the assessee to M/s. Ganesh Rice Mills were found to be different from the one available in the record of M/s. Ganesh Rice Mills. The claim of the assessee of selling paddy through Shri Bachanlal, broker was not confirmed. When the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as income from undisclosed sources under section 68 or under section 69A of the Income-tax Act, 1961. Shri Sudhir Sehgal further submitted that the sale transaction of paddy was rejected by the revenue authorities merely on the statement of Shri Sat Pal, denying the purchase of paddy from the assessee by M/s. Ganesh Rice Mills. On the other hand, the assessee had all the evidences including the brokers who handled the sale and also the S.T. Form XXII obtained by the assessee from the purchaser. If the purchaser did not record the purchase deliberately and issued false S.T. Forms to the assessee, the assessee cannot be faulted. The assessee duly accounted for the purchase and sale and also received the sale proceeds by pay order issued by the purchaser. In such a case, the onus is on the purchaser and the assessee cannot be blamed for the defects and the non-maintenance of books of account properly by the purchaser. The revenue raises objection in regard to the delay in the payment which is only 15 days. Such gap between the sale and payment cannot be said to be abnormal so as to cast doubt on the genuineness of the transactions. Shri Sudhir Sehgal further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id party. It is also submitted that mere payment by account payee cheques does not make the transaction genuine as the said payment cannot be held to be sacrosanct in view of the decision in the case of CIT vs Precision Finance (P.) Ltd. [1994] 208 ITR 465 ([1995] 82 Taxman 31.) (Cal.). The fact that the transactions were through banks was not conclusive. The assessee was to establish identity of creditors and their credit-worthiness. Since in this case the alleged purchaser totally denied the purchase the same has been rightly held as bogus and the amount has been treated as income from undisclosed sources. 13. Shri P. K. Shrivastava further submitted that the assessee itself conceded that there was no sale to M/s. Ganesh Rice Mills and surrendered the amount of Rs. 60,000 before the CIT (Appeals). Shri Bachanlal who was alleged to be the broker for the transaction was not produced and when insisted the name of Shri Angrez Lal was introduced as the real person which also was not produced. It is also incredible that the alleged purchaser will bring heavy cash all the way from Ferozpur to Amloh and deposit in the bank at Amloh for making out pay order. Even otherwise the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT (Appeals) considered the submissions of the assessee and eventually held that the Assessing Officer was justified in making addition of Rs. 4,20,184. According to him the Assessing Officer held that paddy weighing 2509.65 qtls. was not actually sold but milled by the assessee and the income therefrom was worked out by him. The income so estimated being less than the addition on account of deposit at Rs. 4,20,184, he therefore did not consider it necessary to make a separate addition. In this regard, reliance was placed on the direction of the Dy. CIT in the case of Shanker Rice Co. wherein it was directed that the addition, however, may be considered while making addition on account of bogus sale of paddy as normally the assessee would have ploughed back this profit in the guise of bogus sale of paddy. As a result, separate addition on account of this need not be made, if there is sufficient and plausible reason that this profit has been introduced back in the account books in the form of bogus sales. He, therefore, did not see any reason to enhance the addition by Rs. 3,76,114. 16. From the above facts, it is clear that the deposits of Rs. 4,20,184 made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the year and sold in the open market. In other words having found that the source of the deposits in the bank account amounting to Rs. 4,20,184 is the paddy milled by the assessee, the same cannot again be treated as undisclosed income under section 68/69A of the Act as rightly held by the learned Accountant Member. Even in any case the amount having been accounted for in the profit and loss a/c, it will not have any effect on the total income of the assessee as indicated earlier. There is, therefore, no infirmity in the order of the learned Accountant Member. 18. Further the learned Accountant Member did not stop at deleting the addition of Rs. 4,20,184. He, therefore, revived the issue regarding addition of Rs. 3,76,114 which was not considered by the learned CIT (Appeals) on the reasoning that the higher addition of Rs. 4,20,184 fully covered the issue. Since the learned CIT (Appeals) did not consider the same, it was restored back to him to consider the issue of addition of Rs. 3,76,114. The order on this point is not challenged by the assessee before the Tribunal. The revenue, however, challenged this issue. There is, however, no difference of opinion on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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