Income Tax Appellate Tribunal - Amritsar
Puri Rice Mills,, Amritsar. vs Department Of Income Tax on 5 March, 2012
ITA No.297(Asr)/2011
Assessment year 2008-09
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P.JAIN, ACCOUNTANT MEMBER
I.T.A. No. 297(Asr)/2011
Assessment year:2008-09
PAN; AABFP5602N
The Income-tax Officer, Vs. M/s. Puri Rice Mills,
Ward 3(3), Amritsar. Amritsar.
(Appellant) (Respondent)
Appellant By:Sh. Tarsem Lal, DR
Respondent By: Sh. Anil Aggarwal, Adv.
Date of hearing :05/03/2012
Date of pronouncement:07/03/2012
ORDER
PERBENCH;
This appeal of the Revenue arises from the order of the CIT(A), Amritsar, dated 28.03.2011 for the assessment year 2008-09.
2. The Revenue has raised following grounds of appeal:
"1. On the facts and circumstances of the case, the Ld. CIT(A), Amritsar, was not justified in law and on the facts in deleting the addition of Rs.54,82,655/- made by the A.O. on account of over invoicing of purchase from M/s. A.K. Rice & Flour Mills, 2 ITA No.297(Asr)/2011 Ferozepur in spite of the fact that neither the party is found available at the given address nor it was produced by the assessee for verification.
2. On the facts and circumstances of the case, the Ld. CIT(A), Amritsar, erred in law in admitting additional evidence filed by the assessee in the form of bills of purchase made by some other parties, which otherwise are not relevant to the facts of the case, in violation of rule 46A of the Income Tax Rule, 1962.
3. On the facts and circumstances of the case, the Ld. CIT(A), Amritsar, has further failed to appreciate that the addition on facts and in the circumstances of the case has rightly been made by the AO without invoking the provisions of section 145 of the Income-tax Act, 1961."
3. The brief facts of case are that the assessee is a rice sheller and derives business income from trading in paddy/rice on wholesale basis. It was observed by the A.O. that the entire quantity of rice basmati of 10508.78 qtl. was sold during the year for Rs.3,64,28,447/- which resulted into loss of Rs.60,12,897/-. On non-compliance by one of the parties, M/s. A.K. Rice & Flour Mills, Ferozepur, purchase-verification was conducted through issuing commission u/s 131(1)(d) dated 4.11.2010 to the I.T.O. Ward 3(1), Ferozepur, who in turn on the basis of on the sport & local inquiries got conducted through his Inspector has intimated that:
"Sh. Ramjas Demra, Inspector vide his report dt. 10.11.2010 has reported that he visited Mandi Gur Harsahai and tried to locate M/s. A.K. Rice & Flour Mills at Mohan Ke Road, Gur Har Sahai but no factory/rice mill/flour mill or any shop under the name & stule M/s. A.K. Rice & Flour Mills exists at the given address i.e. Mohan Ke Road, Gur Har Sahai. Inquiries were also made from the shopkeepers 3 ITA No.297(Asr)/2011 of the area but no business premises of the above concern could be located."
In the assessment order, it has been stated by giving bill-wise detailed break- up of purchases made by the appellant firm from the above named party, M/s. A.K. Rice & Flour Mills, Ferozeur that total annual purchases amounted to Rs.2,41,70,000/- (almost 60% of the total purchases). Whereas, the assessee explained that it was afterwards learned by it that the Ferozepur party after incurring and suffering heavy losses has left the business without leaving their whereabouts. However, on finding the fact that out of the above mentioned purchases effected @ from Rs.5500 to Rs.5800/-, the appellant firm has effected sales of basmati @ Rs.4000/- per qtl. To M/s. Parbir Food Stuff Factory on 8.12.2007whereas on the same date, similar sales were made to M/s. Sadhu Singh Gurdip Singh @ Rs.4326/- per qtl. and according to A.O., the assessee has adopted this device with the motive to reduce the profit earned from other products like dealings in rice-parmal and paddy and for this purpose, the A.O. required the assessee firm to produce the above mentioned seller of Ferozepur. In response to the A.O.'s query, the appellant filed written submissions dated 21.12.2010 that in order to execute the forward sale at the agreed rate through the intermediator/broker, it has to effect purchases by lifting the goods at higher rate from outside parties due to non-availability of such goods in the local market under compelling 4 ITA No.297(Asr)/2011 circumstances. But it is alleged by the A.O. that the assessee firm has indulged in recording the purchases by over-invoicing the rates. For determining the prevalent open market purchase price of basmati, the A.O. opted to cite a comparable case of M/s. Sawaraj Overseas, who are stated to have effected such basmati in the month of November, 2007 @ Rs.3664.42. However, the A.O. found that the assessee firm has made purchases of rice basmati from M/s. A.K. Rice & Flour Mills on 26 and 27.9.2007 @ 4200/- per qtl. whereas it has effected sales of the same product to M/s. Parbir Food Stuff Factory @ Rs.3846/- per qtl. By quoting purchases at higher rates almost @ Rs.5500/- per qtl. from the above named Ferozepur party vis-à-vis sales to three prominent sellers (i) M/s. Sadhu Singh Gurdip Singh, Asr @ 4326.92 per qtl. (ii)M/s. Merchant Overseas, Amritsar @ Rs.3846/- per qtl. and (iii) M/s. Parbir Food Stuff Factory @ Rs.3846/- per qtl., total loss of Rs.54,82,655/- has been worked out which according to the A.O. is attributed to the over-invoiced purchases. By disallowing the above loss of Rs.54,82,655/- from the assessee's claim of total loss of Rs.60,12,897/-, he has made the addition of Rs.54,82,655/- .
4. Before the CIT(A), the assessee submitted additional evidences in the form of purchase bills of various dates from various local rice merchants establishing the prevalent purchase price in the local market ranging from 5 ITA No.297(Asr)/2011 Rs.5500/- to 6000/- as well as sale bill No.1822 dated 8.11.2007 showing the prevalent sale rate ranging from Rs.5000/- to Rs.5500/-. The A.O. had furnished remand report dated 11.3.2011 which was confronted to the assessee. The assessee has also filed the counter submissions vide letter dated 21.03.2011. The Ld. counsel for the assessee also submitted written submissions dated 23.2.2011 before the CIT(A) in support of his arguments and the grounds raised before the CIT(A). The Ld. CIT(A), vide para 6 of his order considering the submissions of the assessee, the remand report of the A.O., observed that AO's findings are one side approach without making complete inquiry. The assessee had made the forward/future dealings which are generally undergone in such line of business. When the Ferozepur party is stated to have left the business without leaving its whereabouts and on the other hand, the AO had allowed the loss claimed in similar manner in the same product from other parties. The AO was not justified without invoking the provisions of section 145 of the Act in making the addition of Rs.54,82,655/-. Accordingly, the ld. CIT(A) deleted the addition, so made by the A.O.
5. We have heard the rival contentions and perused the facts of the case. The Ld. DR, Sh. Tarsem Lal, heavily relied upon the order of the A.O. and argued that the payment through banking channels is not a conclusive 6 ITA No.297(Asr)/2011 evidence of the real transactions. The assessee has not produced the parties for verification. The onus lies upon the assessee to produce the parties when it is not found at the addresses given by the assessee. Moreover, the sales made by the assessee on the same date have been stated to be on verbal agreements and the copies of the Association for showing it as a general trend is not a conclusive evidence of the agreement made for forward/future deals. The transactions are clear cut sham transactions and, therefore, the appeal of the Revenue should be allowed.
6. On the other hand, the ld. counsel for the assessee, Sh. Anil Aggarwal, Advocate, heavily relied upon the order of the CIT(A).
7. On hearing both the parties and on the basis of material available on record, we are of the view that the assessee had made the purchases at the higher rates and sold the same at the lower rates. The objection of the Revenue mainly was that the purchases made from M/s. A.K. Rice & Flour Mills, Ferozepur are sham transactions alongwith the sales made at lower rate to the party which is also a sham transaction. As regards purchases made from M/s. A.K. Rice & Flour Mills, Ferozepur, the party was not available at a given address is not a disputed fact. It was submitted that the party has left the business place after incurring heavy losses. If it is so, how the party who had left the business place can be produced by the assessee. 7 ITA No.297(Asr)/2011 Even if the efforts are not made to trace the party, it is for the Revenue to issue summons under section 131 of the Act and if it is not traceable, even then an adverse view cannot be taken against the assessee at the first instance. The department has to follow other methods to find out the nature of the transaction, its genuineness etc. In the present case, option before the A.O. was to verify from the banks or other agencies for which the details were made available to him. The AO for the reasons best known to him chose not to adopt this procedure of verifying the genuineness of the transaction. The assessee had made the purchases and accordingly made the payments through A/c payee cheques, is not under dispute. The purchases made have been accounted for in the books of account and sales having been made. The A.O. has not rejected the books of account and accordingly no application of section 145(3) has been made. The assessee having declared better gross profit as compared to immediate preceding year is also not under dispute. As regards the sales, for which the verbal agreements had been made, the general prevalent market rate had been submitted through letters of association, which has not been proved to be false by the AO in the remand report. Therefore, in the circumstances and facts of the case and our view hereinabove, the A.O. was not justified in making any addition on this 8 ITA No.297(Asr)/2011 count and accordingly, we find no infirmity in the order of the ld. CIT(A). Thus, all the grounds of Revenue are dismissed.
9. In the result, the appeal of the Revenue in ITA No.297(Asr)/2011 is dismissed.
Order pronounced in the open court on 7th March, 2012.
Sd/- Sd/-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 7th March , 2012
/SKR/
Copy of the order is forwarded to :
1. The Assessee:M/s. Puri Rice Mills, Amritsar.
2. The ITO, Ward 3(3), Amritsar.
3. The CIT(A), Asr.
4. The CIT, Asr.
5. The SR DR, ITAT, Asr.
True copy
By Order
(Assistant Registrar)
Income Tax Appellate Tribunal
Amritsar Bench : Amritsar.