TMI Blog1998 (9) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and merits to be deleted. 3. In the facts and circumstances of the case the learned Commissioner (Appeals) erred in upholding disallowance of Rs. 2,000 out of telephone expenses on account of alleged personal use of the Managing Director. The disallowance being without any basis is wholly unjustified and merits to be deleted. 4. In the facts and circumstances of the case the learned Commissioner (Appeals) was not justified in upholding disallowance of 1/4th of the car expenses amounting to Rs. 11,923 on account of alleged personal use by the Managing Director. The disallowance being without any basis merits to be deleted." ITA No. 620 of 1990 is the appeal by the revenue wherein the only ground taken is as under:- "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in allowing a relief of Rs. 15,32,276 on account of bogus purchases of rice bran inflation in the cost price of rice bran and bogus consumption of raw material shown by assessee from M/s Raj Kumar Raghubir Kumar, Ludhiana out of addition made at Rs. 21,00,000." 2.1 Briefly the facts are that the assessee is a Private Limited company engaged in the manufacture and sale of solvent oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... top left corner of the bills issued by M/s Raj Kumar Raghubir Kumar, place for sales-tax number/Central sales-tax number was provided yet no S.T./CST number was mentioned. (iii) The appellant had not debited any expenses on account of unloading of material. (iv) Some of the registration numbers of vehicles by which rice bran was claimed to have been transported by M/s Raj Kumar Raghubir Kumar to the factory premises of the assessee company were either not allotted by the office of the Registering Authority or pertained to Scooters, motor-cycles, motor-cars, jeep etc. by which rice bran could not be transported (details of these given at page 9 of the assessment order). (v) The assessee had inflated the purchase price of rice bran purchased from M/s Raj Kumar Raghubir Kumar as the purchase price claimed to have been paid to the said party was far in excess as compared to the average purchase rate of raw-material as per discussion in para (xii) at page 12 of the assessment order. Such inflated price had been worked by the Assessing Officer at Rs. 4,25,625 for the assessment year under consideration. (vi) Yield or bran oil shown by the assessee was low vis-a-vis a project rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the ld. CIT(A) was not justified in sustaining any addition. He filed a chart indicating the yield shown by the assessee of rice bran oil as well as de-oiled rice bran cake at page 72 of the paper books for assessment years 1984-85 to 1988-89 as under:- ------------------------------------------------------------------------------------ Asst. Year Raw Rice Bran Par-Boil R/B Phuck Total Total R/B Received ------------------------------------------------------------------------------------ 1984-85 58433-11-250 28131-99-200 11152-84 97717-94 12731-10 1985-86 79836-18-000 6300-00-000 8440-35 94576-53 11353-35 1986-87 43556-17-850 - 17817-00 61373-17- 7488-75 850 1987-88 89573-39-000 - 4721-00 94294-39 12322-24 1988-89 94133-60-000 - 6535-17 100668-77 12889-00 ------------------------------------------------------------------------------------ -------------------------------------- Total DORB % of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the goods were actually transported by trucks and the truck operator might have been a person who had used the number allotted to some scooter or car by fixing the same on the truck for the reasons best known to the transporter. It was submitted that the goods were received in the factory premises of the assessee on F.O.R. basis and these were unloaded by the employees of the assessee to whom no extra payment was required to be made for unloading purposes. As regards the finding of the Assessing Officer on the format of the bill issued by M/s Raj Kumar Raghubir Kumar, it was submitted that, that could be no ground for drawing any adverse inference as the rice bran was not subject to levy of sales-tax or Central sales-tax and M/s Raj Kumar Raghubir Kumar may have made a provision for such numbers on the proforma bill as they may be desirous of starting business in other items subject to levy of sales-tax and Central sales-tax and ultimately they may or may have not been doing business in taxable commodities. It was submitted that there was on specific finding by the Assessing Officer that the money deposited in the bank account of M/s Raj Kumar Raghubir Kumar went back to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cheques and draft vouchers were also signed by the same person. Accordingly, it was submitted that the so-called discrepancy for assessment year 1987-88 from which the Assessing Officer came to the conclusion that money deposited in the account of M/s Raj Kumar Raghubir Kumar went back to the assessee was satisfactorily explained and no adverse inference from that could be drawn against the assessee. 5. Shri Sehgal further submitted that if the monthly yield of rice bran oil was worked out by excluding the purchases from M/s Raj Kumar Raghubir Kumar, then the position would be as under:- ---------------------------------------------------------------------------------- Month Total rice Purchase Net Rice bran Yield bran from Raj processed oil produced processed Kumar Raghubir Kumar ---------------------------------------------------------------------------------- Nov., 86 14437.00 7600.00 6837.00 1968.00 28.78 Dec, 86 15240.20 2600.00 12640.20 2084.00 16.48 Jan., 87 170 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. It was submitted that the sales of the assessee had been accepted by the Sales-tax Department and even the Assessing Officer had not doubted them. Shri Sehgal, however, fairly admitted that for the assessment year 1987-88 in cross appeals before the Tribunal, the decision was against the assessee. He, however, submitted that the Tribunal in ITA Nos. 654 and 619/Chd./1990 relating to assessment year 1987-88 had only considered the overall yield for the whole year for the rice bran which was 13.03% shown by the assessee and which for the whole year worked out to 13.77% if the purchases of Rs. 5,76,645 were treated as bogus and the yield of 13.77% for the whole year was not considered as extraordinarily unusual or incredible. It was submitted that the monthly chart prepared and extracted above indicates that if the purchases from M/s Raj Kumar Raghubir Kumar for the assessment year under consideration were considered as bogus, then the yield for the months of November and December and January came to 29%, 16%, 15% respectively to which is no doubt incredible. It was submitted that this aspect of the case was not considered by the Tribunal at the time of hearing of the appeals for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock equivalent to the quantity of rice bran oil or DORB cake which could be extracted from 11600 qtls. of rice bran considered as bogus purchases. Reliance was placed on the decision of the Tribunal in the case of Bhakti Metal Box [IT Appeal No. 1161 (Chd.) of 1986] dated 26-10-1993 and in the case of Raj Sandeep Ltd. [IT Appeal No. 1853 (Chd.) of 1992] dated 18-2-1993 wherein the Tribunal accepted the alternative argument raised on behalf of the assessee that no addition could be made in the case of the assessee for alleged bogus purchases because if purchases were held to be bogus, then corresponding adjustment would have to be made from the sales or the closing stock. Accordingly it was submitted that from whatever angle one may look at the facts of the case in dispute, the additions made to the declared results by the Assessing Officer in respect of which partial relief was allowed by the CIT(A), were not sustainable because except for the failure of the assessee to produce M/s Raj Kumar Raghubir Kumar from whom purchases were made by it, which were duly entered in the stock register and the production of rice bran oil and DORB cake in relation to these purchases was duly sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having the registration number of mopeds, scooters, motor-cycles, tractors etc. which possibly could not transport rice bran from Ludhiana to Sangrur. Accordingly it was submitted that the learned CIT(A) had committed an error in coming to the conclusion that the disputed goods claimed to have been purchased by the assessee from M/s Raj Kumar Raghubir Kumar had actually reached the assessee's premises and had been used for the production of rice bran oil and DORB cake. The learned D.R. tried to distinguish the case of Oswal Woollen Mills on the ground that in that case receipt of goods by Oswal Wollen Mills was proved by the payment of octroi and freight etc. and the Tribunal had recorded a finding of fact that the assessee had purchased rice bran from M/s Sat Pal Suresh Kumar whereas in the present case, there was no evidence in the form of payment of octroi or freight by the assessee in respect: of the goods purchased from M/s Raj Kumar Raghubir Kumar. She strongly relied on the order of the Tribunal in I.T.A. Nos. 654 and 619/Chd./1990 relating to assessment year 1987-88 dated 19-9-1995 in the case of the assessee and submitted that the Tribunal may be pleased to follow the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany could not prove the identity of the firm M/s. Raj Kumar Raghubir Kumar because by the time the assessment proceedings were taken up, the firm M/s. Raj Kumar Raghubir Kumar had ceased to exist and there was no occasion for the assessee-company to have kept a track of its activities. In this connection, it is pertinent to note that the assessee-company had no dealings with M/s. Raj Kumar Raghubir Kumar after January, 1987 accept that a payment of Rs. 800 was made in August, 1987, and thereafter the assessee-company had no dealings with the said firm. By the time, the inspector of the Income-tax Department on being deputed by the Assessing Officer, sought to locate the firm M/s. Raj Kumar Raghubir Kumar sometime in December, 1988 or January, 1989, the firm might have shifted to some other place. However, the fact remains that the raw-material in the form of rice bran purchased by the assessee either from M/s. Raj Kumar Raghubir Kumar or from some other party/parties, did flow into the factory premises of the assessee-company and went into production of rice bran oil. This fact is established by the day-to-day records kept by the assessee-company relating to issue of rice bran and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on coal purchased by the assessee-company for which the assessee gave a reasonable explanation as reproduced by us in para 4 at page 8 above and that transaction related to assessment year 1987-88 only. The facts in this case are also similar to the facts of the case of Oswal Woollen Mills decided by the Tribunal in ITA Nos. 168 185/Chd./1980 dated 21-l-1984 except that in that case there was evidence in the form of payment of octroi in relation to the goods purchased by the assessee from a party namely, Sat Pal Suresh Kumar which was subsequently found to be non-existent. In the case of the assessee, there was no question of any payment of octroi as the factory of the assessee was situated outside the municipal limits of Sangrur and the goods were received by the assessee-company on F.O.R. basis. 14. We may point out that in the earlier year i.e. assessment year 1987-88, the Tribunal had not accepted the plea of the assessee that the goods allegedly purchased from M/s Raj Kumar Raghubir Kumar actual found their way into the factory of the assessee because the question of yield of rice bran oil and DORB cake monthwise was not considered by the Tribunal as the same was not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... average rate of Rs. 159.46 per qtl. as given at page 34 of the paper book had been arrived at by taking the total purchases at 98450.72 qtls. for which the assessee had paid a sum of Rs. 1,56,99,930,61 whereas actually the total purchases of rice bran including phuck were of 1,00,668.77 qtls. for which the assessee had debited a sum of Rs. 1,62,78,733.89 as material cost in the profit and loss account. Accordingly we uphold the action of the Assessing Officer as well as the ld. CIT(A) in holding that there had been an inflation in the cost of rice bran claimed to have been purchased from M/s. Raj Kumar Raghubir Kumar. We accordingly direct the Assessing Officer to work out the addition in relation to 11600 qtls. claimed to have been purchased from M/s. Raj Kumar Raghubir Kumar on the basis of average purchase price for the entire year on the basis of audited accounts and the average purchase price of Rs. 148.73 per qtl. paid by the assessee to M/s Raj Kumar Raghubir Kumar. Accordingly ground No. 1 of the assessee is partly allowed. 16. Coming to ground No. 2, it has to be seen whether the raw-material purchased from M/s. Raj Kumar Raghubir Kumar reached the business premises of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases for whole of the year are excluded, percentage of oil is within the limits laid down. But I delete the balance addition, on the basis of the same reasoning as recorded by the Tribunal in its order dated 19-9-1995 and this ground gets accepted in the above terms. 4. Now, coming to ground No. 1 of the assessee's appeal, in my view, since addition of Rs. 17,25,300 is being upheld, as purchases from M/s Raj Kumar Raghubir Kumar have been held to be bogus, there appears to be no justification for making further addition of Rs. 4,22,124 on account of inflation of price of rice bran purchased from the said firm of M/s Raj Kumar Raghubir Kumar. Accordingly, this ground succeeds. 5. Ground No. 2 regarding addition of Rs. 1,45,600 made on account of cost of 1300 qtls. of rice bran carried in trucks, whose numbers were bogus, did not reach the assessee's factory premises and since whole of purchases of M/s Raj Kumar Raghubir Kumar have been held to be bogus, in my opinion, in view of the facts and circumstances of the case, this addition is not called for. This ground also succeeds. 6. Ground Nos. 3 and 4 were not pressed and rightly dismissed as such. 7. Both the appeals stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 17,25,300 from one M/s Raj Kumar Raghubir Kumar, 302, Miller Ganj, Ludhiana. On being asked to prove the genuineness of the purchases made from the aforesaid party, the assessee furnished a written explanation stating that it had purchased rice bran from the aforesaid party which was received F.O.R. and on arrival by goods carrier it was weighed at the weigh-bridge installed by the assessee in the factory. Duplicate weigh-bridge slip issued by the person manning the weigh-bridge were produced by the assessee before the Assessing Officer and it was also claimed that the stock on receipt was entered in the stock register and duly processed and finished products sold to reputed companies. The Assessing Officer, however, made his own investigations and came to the conclusion that the assessee had obtained bogus purchase bills for the material in question whereas in fact no such material/goods were purchased from M/s Raj Kumar Raghubir Kumar, Ludhiana. For the assessment year under consideration i.e. 1988-89, the assessee had claimed making purchases of 11600 qtls. of rice bran out of total purchases of 100668.77 qtls. For a consideration of Rs. 17,25,300. The Assessing Officer, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not available on the given address at Ludhiana as the assessee was not dealing with the said party after Jan., 1987 except for a solitary payment of Rs. 800 in August, 1987 and it may be even so that the said party might have shifted to some other place and there being no compulsion cast on the assessee to keep track of its whereabouts. 2. The said party was maintaining a regular bank a/c with Union Bank of India and had issued bills for all the purchases made by the company from it and with the exception of two payments of Rs. 20,000 and Rs. 22,000, all other payments had been made by account-payee cheques. 3. The non-mentioning of ST or CST numbers on the bills by M/s Raj Kumar Raghubir Kumar could not lead to any adverse inference since they may have kept a provision for such numbers but ultimately may not have done business in taxable commodities. 4. The allegation about the money deposited in the bank account of M/s Raj Kumar Raghubir Kumar having been withdrawn immediately did not hold good since the head cashier of Union Bank of India, Sangrur who was summoned during the course of the first appellate proceedings clarified that the assessee-company made their own paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(A)]. 5. On the basis of the aforesaid facts and submissions, the assessee's counsel contended before the CIT(A) that the yield shown was reasonable and in so far as the project report was concerned which indicated recovery of rice bran oil from 20% to 25%, the plea of the counsel was to the effect that the said report was theoretical and not based on realities but prepared with purpose of giving a bright picture to prospective customers. A reference was also made to the past history of the case with the further submission that the yield depended upon the quality of rice bran and the machinery used for its extraction. In support of the arguments advanced the ld. counsel placed reliance on a number of reported decisions and which are adverted to in para 3.10 of CIT(A)'s order. The Assessing Officer who appeared before the CIT(A) supported the order of the Assessing Officer. The CIT(A) considered the case of both the parties and recorded the following findings of facts:- 1. The raw-material purchased by the assessee-company, whether from M/s Raj Kumar Raghubir Kumar or from some other party/ parties did flow into the factory premises of the company and went i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his score he sustained an addition of Rs. 4,22,124 (11600 qtls. x Rs. 36.69). Referring to the mode of transport purported to have been used for transporting the rice bran, the CIT(A) did not fully subscribe to the view expressed by the assessee's counsel and looking to the relevant facts he held that 1300 qtls. did not reach the business premises of the company and purchase price debited was bogus. An addition of Rs. 1,45,600 (1300 x 112) was sustained for the assessment year under consideration. As a result of the aforesaid order the addition of Rs. 21 lakhs made by the Assessing Officer was reduced to Rs. 5,67,724 resulting in a relief of Rs. 15,32,276. 6. Being aggrieved with the order of the CIT(A), both the parties filed appeals before the Tribunal. The arguments advanced by the ld. counsel for the assessee were identical to those tendered before the CIT(A) and as I have already discussed these in the earlier part of the present order, I do not find it necessary to advert to the same once again. I, however, find it necessary to mention the submissions made by the ld. counsel as per para 5 of the order of the ld. Accountant Member when it was submitted that in case the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e average purchase rate of rice bran would come to Rs. 159.46 per qtl. whereas the assessee had paid Rs. 148.73 per qtl. i.e. lower to M/s Raj Kumar Raghubir Kumar. On this ground a plea was made for deleting the addition of Rs. 4,22,124. The further argument of the assessee's counsel was to the effect that in case the purchases from M/s Raj Kumar Raghubir Kumar were to be considered bogus, then corresponding sales or closing stock were also required to be excluded and in the case of such an eventuality, no addition whatsoever would be justified. Reliance was placed for the aforesaid proposition on two unreported decisions of the Chandigarh Bench of the Tribunal in the cases of Shakti Metal Box and Raj Sandeep Ltd. where the Tribunal had accepted such alternative argument. 9. As regards the addition of Rs. 1,45,600 sustained by the CIT(A) on account of bogus purchases from M/s Raj Kumar Raghubir Kumar with reference to the type of vehicles by which the item purchased had been transported to the assessee's premises, the submission of the ld. counsel was to the effect that if an unscrupulous transporter had put the number allotted to a scooter or a moped on his truck, then the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the CIT(A) that rice bran could not be transported on scooters, motorcycles, mopeds etc. The ld. Accountant Member turned down the explanation of the assessee's counsel to the effect that the numbers of vehicles given by the agents of the supplier and the drivers of the vehicles were noted down by the assessee's employees who did not verify the numbers themselves. In the final analysis, the ld. Account Member held that 1300 qtls. Of rice bran did not reach the assessee's premises and claim of the assessee to that extent was not genuine. 12. As regards the addition of Rs. 4,22,124 sustained by the CIT(A) on account of inflation in the purchase of rice bran from M/s Raj Kumar Raghubir Kumar, the ld. Accountant Member directed the Assessing Officer to recompute the addition in relation to 11600 qtls. claimed to have been purchased from M/s Raj Kumar Raghubir Kumar on the basis of average purchase price for the entire year with reference to the audited accounts and the average purchase price of Rs. 148.73 per qtl. paid by the assessee to the said party. 13. As against the aforesaid view expressed by the ld. Account Member, the ld. Judicial Member confirmed the action of the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the ld. Accountant Member had considered the yield for a period of three months and the conclusion arrived at thereof was not correct since yield for the whole year was required to be considered and not for a period of three months. According to the ld. D.R., there could be monthly fluctuations but to appreciate the results one had to take into account the figures for the whole year. The ld. D.R. also referred to the report of DESMET (India) Pvt. Ltd., referred to by the Assessing Officer at page 11 of the assessment order, but on a specific query she accepted that this report had not been discussed in the orders passed by the ld. Members who had differed. In concluding she urged that the view taken by the ld. Judicial Member may be confirmed. 15. In a rejoinder, the ld. counsel for the assessee stated that the period of three months has been rightly considered by the ld. Accountant Member since the purchases from the party in question had taken place during those three months only. The ld. counsel for the assessee also sought to highlight the abnormal results which would arise in case the purchases from the said party were excluded. In support of the figures of yield, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 1987 except for a nominal payment of Rs. 800. The ld. Accountant Member also noted the possibility of the firm having shifted to some other place by the time the Inspector of the Income-tax Department deputed to locate the firm proceeded to do so. It was also noted that the raw-material purchased from whatever source went into the production of rice bran oil and this stood duly established by day-to-day records kept by the assessee-company and in respect of which no discrepancies were pointed out by the Assessing Officer. The ld. Accountant Member further noted that the yield shown by the assessee was reasonable as compared to some of the preceding assessment years and accepted by the department and the sales had also been accepted by the Assessing Officer and this proved that the relevant quantity of goods sold were available with the assessee-company. In other words, if the production stood accepted, the quantity of purchases etc. would also stand accepted. 18. The ld. Accountant Member also noted the position which would emerge in case the entire purchases from M/s Raj Kumar Raghubir Kumar were treated as bogus and excluded from the manufacturing process and the yield resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of oil otherwise the assessee would not have been able to show the yield of rice bran oil and DORB comparable to that of earlier years. After opining so, the ld. Accountant Member, in my opinion, appropriately directed the Assessing Officer to recompute the addition in relation to 11600 qtls. on the ground that there was an element of inflation in the purchase price and the further confirmation of the addition of Rs. 1,45,600 on the ground that 1300 qtls. of rice bran did not reach the assessee's premises was also justified and to that extent the claim of the assessee was not genuine. As in the case of the main addition, the ld. Judicial Member as already noted by me has not offered any comments and proceeded to restore major addition to the tune of Rs. 17,25,300 deleting the other two additions of Rs. 4,22,124 and Rs. 1,45,600. 19. As I have agreed with the view expressed by the ld. Accountant Member that would mean the order in entirety and not a part of it where relief has been given to the assessee ignoring the part where additions have been sustained since at one point of hearing the ld. counsel for the assessee did rise a plea to the effect that there was no differe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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