Income Tax Appellate Tribunal - Chandigarh
J.R. Solvent Industries (P) Ltd. vs Assistant Commissioner Of Income Tax. ... on 29 September, 1998
Equivalent citations: [1999]68ITD65(CHD)
ORDER
R.K. Bali, A.M. 31st January, 1997
1. These two cross-appeals-one by the assessee and the other by the Revenue relating to asst. yr. 1988-89 are disposed of by a common order for the sake of convenience.
ITA No. 655 of 1990 is the appeal by the assessee wherein the following grounds have been taken:
"1. In the facts and circumstances of the case the learned CIT(A) erred in holding that purchase of rice bran weighing 11,600 qtls. from Raj Kumar Raghbir Kumar were inflated to the tune of Rs. 36.69p. per qtl. and consequently erred in upholding an addition of Rs. 4,22,124 to the appellant's total income and merits to be deleted.
2. In the facts and circumstances of the case the learned CIT(A) erred in holding that purchase to the tune of Rs. 1,45,000 were bogus purchase though the books of accounts of the appellant were admitted by him. The addition of Rs. 1,45,600 is totally unjustified and merits to be deleted.
3. In the facts and circumstances of the case the learned CIT(A) 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 CIT(A) was not justified in upholding disallowance of 1/4th of the car expenses amount to Rs. 11,925 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 learned CIT(A) has erred in allowing relief of Rs. 15,32,276 on account of bogus purchases of rice bran inflating in the cost price of rice bran and bogus consumption of raw material shown by assessee from Raj Kumar Raghubir Kumar, Ludhiana out of addition made Rs. 21,00,000.
2. Briefly the facts are that the assessee is a private limited company engaged in the manufacture and sale of solvent oil extracted from rice bran and the products of the assessee are supplied mainly to Hindustan Level Ltd. and Oswal Agro Ltd. and similar other companies engaged in the manufacture of soap. The AO while examining the accounts of the assessee for asst. yr. 1987-88 and 1988-89 found that it had made purchases of raw material worth Rs. 5,76,645 and Rs. 17,25,300 for these years respectively from Raj Kumar Raghubir Kumar, 302 Miller Ganj, Ludhiana. The AO asked the assessee to prove the genuineness of purchase made by it from the aforesaid party and the assessee furnished a written explanation saying that it had purchased rice bran from Raj Kumar Raghubir Kumar, Ludhiana which was received f.o.r. and on arrival of the goods carrier it was weighed at the weigh-bridge installed by the assessee in the factory and duplicate weigh-bridge slips issued by the person at the weigh-bridge were prepared which were produced by the assessee before the AO and the stock on receipt was claimed to be entered in the stock register and were duly processed and the finished products were sold to reputed companies and the AO, however, made investigations and came to the conclusion that the assessee has resorted to take bogus purchase bills for the material and actually no material/goods were purchased by the assessee from Raj Kumar Raghubir Kumar, Ludhiana. In the asst. yr. 1988-89, the assessee had claimed to have purchased 11,600 qtls. of rice bran out of 1,00,668.77 qtls. for a consideration of Rs. 17,25,300. After enquiry the AO came to the conclusion that the firm Raj Kumar Raghubir Kumar was not a genuine firm and the purchases made from the said firm were bogus and sham and to that extent the assessee had claimed bogus expenses debited to the manufacturing account and thereby reduced the profit. The reasons given for the conclusion arrived at by the AO are summarised as under:
(i) Raj Kumar Raghubir Kumar was not available at the given address i.e. 302 Miller Ganj, Ludhiana nor anyone from them was produced by the assessee-company during the course of assessment proceedings.
(ii)(a) On the top right corner of the bills issued by Raj Kumar Raghubir Kumar, though place for telephone number was provided, no telephone number was printed.
(b) On the top left corner of the bills issued by Raj Kumar Raghubir Kumar, place for sales-tax number/Central sales-tax number was provided yet no ST/CST number was mentioned.
(iii) The appellant had not debited any expenses on account of unloading of materials.
(iv) Some of the registration numbers of vehicles by which rice bran was claimed to have been transported by 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, motorcycles, motor, cars, jeep, etc. by which rice bran could not be transported.
(Details of these given at p. 6 of the assessment order).
(v) The assessee has inflated the purchase price of rice bran purchased from 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 par at p. 12 of the assessment order, such inflated price had been worked by the AO at Rs. 4,25,625 for the assessment year under consideration.
(vi) Yield of bran oil shown by the assessee was low vis-a-vis a project report as prepared by DESMET India (P) Ltd. (as discussed in para x at p. 10 of the assessment order).
That AO also recorded a finding that it was strange that Raj Kumar Raghubir Kumar who were claimed to be operating from 302 Miller Ganj, Ludhiana, had opened an account in Union Bank of India, Sangrur where the payments received from the assessee were deposited and were withdrawn immediately after deposit.
From the above findings the AO concluded that the assessee had utilised the bogus firm of Raj Kumar Raghubir Kumar to defraud the Revenue. According to the AO, the assessee had inflated the cost price of the material allegedly purchased from Raj Kumar Raghubir Kumar and it had shown the purchase in the books of account from that party whereas no such purchases had actually been made. The Truck numbers by which it had claimed that the material was transported to its factory premises had either been non-existent numbers or were allotted to vehicles like scooters, motorcycles, cars, jeeps or tractors which were not capable of transporting 100 bags of rice bran on them. Accordingly the AO held that the accounts maintained by the assessee were such that the profit could not be worked out from them. He accordingly rejected the books of the assessee under s. 145(2) and processed to frame the assessment in the manner provided under s. 144 r/w s. 145(2). Accordingly he made an addition of Rs. 21,00,000 to the income of the assessee on account of suppression of the yield of rice bran oil, bogus consumption of raw material and bogus purchases shown by it from Raj Kumar Raghubir Kumar, Ludhiana.
3. The assessee appealed and the learned CIT(A) after recording the submissions of Mohan Lal, the learned counsel for the assessee in para 3.2 to 3.10 gave his findings in para 3.12 to 3.17 of the impugned order which was a combined order for both the assessment years i.e., 1987-88 and 1988-89 and confirmed an addition of Rs. 5,67,725 for asst. yr. 1988-89. Thus, the learned CIT(A) allowed a relief of Rs. 15,32,276 to the assessee. The Revenue is aggrieved with the relief of Rs. 15,32,276 allowed by the learned CIT(A) whereas the assessee is in appeal against the sustenance of addition of Rs. 5,67,725.
4. Sudhir Sehgal, the learned counsel for the assessee, submitted that the learned 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 p. 72 of the paper-books for asst. yrs. 1984-85 to 1988-89 as under :
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Asst. yr. Raw Rice Bran Par-B. oil R/B Phuck Total Total R/B Total DORB % of % of
received received Oil
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1984-85 58,433-11-250 28,131-99-200 11,152.84 97,717.94 12,731.10 84,939.00 13.03 86.72 1985-86 79,836-19-000 6,300-00-000 8,440.35 94,576.53 11,353.35 83,115-00 11.89 87.88 1986-87 43,556-17-850 -- 17,817.00 61,373-17.850 7,488.75 53,951-25 12.12 87.10 1987-88 89,573-39-000 -- 4,721.00 94,294.39 12,322.24 81,407-00 13.07 86.33 1988-89 94,133-60-000 -- 6,535.17 1,00,668.77 12,889-00 87,019-00 12.80 86.44
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It was submitted that the yields in the asst. yr. 1984-85 to 1986-87 were accepted by the AO by passing an order under s. 143(3) and since in the assessment year under consideration, the yield was comparable, the trading results ought to have been accepted. It was submitted that the assessee had purchased rice bran oil from Raj Kumar Raghubir Kumar, Ludhiana, in the assessment year under consideration for a period of 3 months only (the purchase in the assessment year under consideration started on 1st November, 1986, and the last purchase was on 4th January, 1987) and the entire payment by cheques was made before 30th January, 1987, except a cash payment of Rs. 800 which was made on 11th August, 1987 to square up the account. It was submitted that all the payments for purchases made from Raj Kumar Raghubir Kumar were made by account payee cheques which were deposited by that party in its account opened at Sangrur for facility of collecting the cheques on the same day when these were presented and after August, 1987, the assessee had no transaction with Raj Kumar Raghubir Kumar and as such when the case of the assessee was taken up by the AO in the year 1989, it could not produce the party as demanded by the AO. Nevertheless it was submitted that the assessee was not expected to keep a track of parties from whom goods were purchased by making payments by account payee cheques which were cleared by normal banking channels and the very fact that the departmental authorities had not been able to find Raj Kumar Raghubir Kumar at the address given on the bills should not be a ground for disbelieving the books of account maintained by the assessee in the normal course of business. As regards the observations of the AO that the fake truck numbers were given for the transportation of goods, it was submitted that it was common knowledge that some of unscruplous persons use fake truck numbers to conceal the identity of the vehicles owned by them and in support of the above contention certain Newspaper cuttings were filed. It was submitted that the goods were actually transported by trucks and the trucks 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 AO on the format of the bill issued by 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 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 keep doing business in taxable commodities. It was submitted that there was no specific finding by the AO that the money deposited in the bank account of Raj Kumar Raghubir Kumar went back to the assessee-company. It was submitted that in the asst. yr. 1987-88, the AO had made certain observations with regard to a certain bank draft purchased by the assessee on 4th October, 1986, for which there was a valid explanation and in that connection the learned first appellate authority had examined the cashier of the bank who explained that on that particular date i.e. 4th October, 1986, there was only one bank official dealing with payments as well as receipts which had caused some confusion which led to the AO to draw the inference, he drew. It was submitted that the allegation was that the assessee purchased a draft for Rs. 34,510 on 4th October, 1986, in favour of Financial Adviser & Chief Accounts Officer, Northern Railway, Ludhiana, for payment of freight on coal purchased by the assessee-company. Raj Kumar Raghubir Kumar had also withdrawn some money from their account on the same date and that it was out of such funds that the said draft was purchased by the assessee-company. However, in view of the statement of Dalip Khanna s/o B. D. Khanna, head cashier whose statement was recorded by the CIT(A) in the presence of the AO who produced paying cash register from 28th April, 1986, to 10th March, 1987, and receiving cash register from 20th May, 1986, to 10th October, 1986, he also produced cheque No. 073353 dt. 4th October, 1986, for Rs. 69,145 issued by Raj Kumar Raghubir Kumar (S.B. account No. 28044 and also draft voucher dt. 4th October, 1986, where the purchaser remitted a sum of Rs. 34,510 plus Rs. 69 (commission) for draft of Rs. 34,510 in favour of the Financial Adviser & Chief Accounts Officer Northern Railway, Ludhiana. The name and address of the remitter was mentioned as 'Ramesh Mangal, J.R. Solvent Industries, Ltd., Ubhawal Road Sangrur'. When the learned first appellate authority asked the cashier to explain as to how on the reverse of the cheque No. 073353 the following entry appeared:
"69,145
-----------
34,579
-----------
34,566"
The head cashier replied that it was an adjustment between receipt and payment of Rs. 69,145 and receipt of Rs. 34,579 and this had happened because both the counters i.e. payment and receipt counters were being handled by a single person due to shortage of staff. Dalip Khanna further submitted that paying cash register and receiving cash register both were signed by the same person and the documents namely, cheques and draft vouchers were also signed by the same person. Accordingly, it was submitted that the so-called discrepancy for asst. yr. 1987-88 from which the AO came to the conclusion that money deposited in the account of 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. Sehgal further submitted that if the monthly yield of rice bran oil was worked out by excluding the purchase from Raj Kumar Raghubir Kumar, then the position would be as under :
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Month Total Purchase from Net processed Rice bran oil Yield %
rice Raj Kumar produced
bran Raghubir Kumar
processed
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Nov. 1986 14,437.00 7,600.00 6,837.00 1,968.00 28.78
Dec. 1986 15,240.20 2,600.00 12,640.20 2,084.00 16.48
Jan. 1987 17,002.05 1,400.00 15,602.05 2,286.00 14.65
---------- ---------- ------------ -----------
Total 46,679.25 11,600.00 35,079.25 6,338.00
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This much yield could never be expected as per the statistics given at p. 6 above. It was further submitted that out of the total rice bran processed (rice bran inclusive of phuck) weighing 1,00,668.77 qtls., the rice bran oil obtained was 12,889 qtls. and DORB obtained was 87,019 qtls. Thus, the total products obtained were 99,908 qtls. giving a shortage of 760.77 qtls. which came to .75 per cent which was quite normal. However, if the allegation of the Department authorities that 11,600 qtls. of rice bran purchased by the assessee from Raj Kumar Raghubir Kumar was bogus, then the position would be as under:
Rice bran Processed : 1,00,668.77 - 11,600 = 89,068 qtls.
Products obtained :
Rice bran oil 12,889 qtls.
DORB 87,019 qtls.
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99,908 Qtls.
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Thus, in that situation the output would be more than the input which could never be possible. Accordingly, it was submitted that the finding of the AO that rice bran purchased from Raj Kumar Raghubir Kumar was only a bogus entry could not be accepted. It was submitted that once it was held that the assessee had made purchases from Raj Kumar Raghubir Kumar then the trading results being better than the earlier years could not be rejected and no addition whatsoever could be sustained. Reliance was placed in the case of Oswal Woollen Mills Ltd. ITA Nos. 168 & 185 1989, dt. 21st January, 1984.
6. It was further submitted that assuming though not admitting that the firm Raj Kumar Raghubir Kumar was not in existence or some unscruplous persons had opened this firm for a period of two years only and then closed the premises to avoid payment of legitimate taxes due to the Department, no adverse inference could be drawn against the assessee because the rice bran had actually been received by the assessee which was apparent from the fact that the same was processed and rice bran oil and DORB were sold to reputed firms and the sales duly accounted for in the books of accounts. It was submitted that the sales of the assessee had been accepted by the sales-tax Department and even the AO had not doubted them. Sehgal, however fairly admitted that for the asst. yr. 1987-88 in cross-appeals before the Tribunal, the decision was against the assessee. He, however, submitted that the Tribunal in ITA Nos. 654 & 619/Chd/1990 relating to asst. yr. 1987-88 had only considered the overall yield for the whole year for the rice bran which was 13.03 per cent shown by the assessee and which for the whole year worked out to 13.77 per cent if the purchases of Rs. 5,76,645 were treated as bogus and the yield of 13.77 per cent for the whole year was not considered as ordinarily unusual or incredible. It was submitted that the month chart prepared and extracted above indicated that if the purchases from 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 per cent, 16 per cent and 15 per cent respectively 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 asst. yr. 1987-88 as the same was not properly projected by the representative of the assessee. As such it was submitted that the case for asst. yr. 1987-88 was distinguishable on facts from the asst. yr. 1988-89 wherein it has been demonstratively shown that the yield would be abnormal if the purchases from Raj Kumar Raghubir Kumar were treated as bogus. It was further submitted that at the cost of repetition it was to be emphasised that if the purchases from Raj Kumar Raghubir Kumar were treated as bogus, then the outputs would be more than the inputs for the whole year as mentioned above.
7. Coming to the addition made by the AO on account of inflation in the purchase of rice bran from Raj Kumar Raghubir Kumar vis-a-vis other parties, it was submitted that the average rate of rice bran in the case of Raj Kumar Raghubir Kumar came to Rs. 148.73 per qtl. The AO had worked out the average rate by selecting some selected parties at Rs. 112.04 per qtl. details of which are given at p. 32 of the paper-book and thus made an addition of Rs. 4,22,124. It was, however, submitted that if the average rate for the whole year was taken into consideration of the entire purchases, then the average purchase rate of rice bran comes to Rs. 159.46 per qtl. whereas it had paid Rs. 148.73 per qtl. to Raj Kumar Raghubir Kumar as per calculations given at p. 34 of the paper-book. Accordingly, it was submitted that even the addition of Rs. 4,22,124 sustained by the CIT(A) was not justified.
8. Sehgal further submitted that the whole issue could be considered from another angle that if, for the sake of argument only, it was conceded that the allegation of the Department that the purchases by the assessee from Raj Kumar Raghubir Kumar to the extent of 11,600 qtls. of rice bran were bogus, then the sales of rice bran oil DORB cake produced from the alleged bogus purchases had to be reduced from the sales or closing stock shown by the assessee because admittedly the purchases from Raj Kumar Raghubir Kumar were duly entered in the books of account maintained by the assessee and the production of rice bran and DORB cake accounted for either in the sales or in the closing stock and in such an eventuality, no addition whatsoever would be justified because corresponding reduction had to be allowed from sales or closing stock equivalent to the quantity of rice bran oil or DORB cake which could be extracted from 11,600 qtls. of rice bran considered as bogus purchases. Reliance was placed on the decision of the Tribunal, dt. in the case of Shakti Metal Box in ITA No. 1161/Chd/1986, dt. 26th October, 1993 and in the case of Raj & Sandeep Ltd. in ITA No. 1853/Chd/1992, dt. 18th February, 1993 wherein the Tribunal accepted 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 AO in respect of which partial relief were allowed by the CIT(A), were not sustained because except for the failure of the assessee to produce 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 shown as sales to reputed parties which were not doubted by the AO even, the AO had not found any defect whatsoever in the accounts maintained by the assessee. It was submitted that the yield shown by the assessee in the assessment year under consideration compared favourably with the earlier years when the books results were accepted except for asst. yr. 1987-88, where the Tribunal held the purchases from Raj Kumar Raghubir Kumar as bogus, because the case of the assessee was not properly projected relying on the decisions of the Tribunal in the cases of Shakti Metal Box (supra) and Raj & Sandeep Ltd. (supra). He therefore, pleaded that even the addition sustained by the CIT(A) deserved to be deleted.
9. Coming to ground No. 2, it was submitted by Sehgal that the learned CIT(A) has erred in holding that the purchases to the tune of Rs. 1,45,600 were bogus as the same related to the rice bran which was transported to the premises of the assessee by Raj Kumar Raghubir Kumar on vehicles which had the registration numbers of moped, scooter, etc. because if an unscrupulous transporter but the number allotted to scooter, moped, etc. on his truck the assessee could not be blamed for that. Accordingly, it was submitted that even the addition of Rs. 1,45,600 was not justified and should be deleted.
10. The learned Departmental Representative strongly relied on the order passed by the AO as well as the order of the Tribunal in the case of the assessee for asst. yr. 1987-88. It was submitted that it was quite surprising that a party carrying on business running into lacs of rupees at Ludhiana would vanish into thin air within a couple of years and would open a bank account at Sangrur where the assessee-company was carrying on its business. It was submitted that it was not mere coincidence that Raj Kumar Raghubir Kumar was withdrawing moneys in cash of the depositing cheques in its current account in the Union Bank at Sangrur on the same date or on the following date. It was emphasised that the vehicles allegedly carrying the goods purchased in fact never reached Sangrur and hence the assessee's books of account were not reliable. It was submitted that the AO had brought sufficient material on record to prove that the registration of vehicles allegedly carrying the rice bran from Raj Kumar Raghubir Kumar were in certain cases 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 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 Departmental Representative tried to distinguish the case of Oswal Woollen Mills, referred to supra on the ground that in that case receipt of goods by Oswal Woollen Mills was proved by the payment of octroi and freight, etc. and the Tribunal had recorded finding of fact that the assessee had purchased rice bran from Sat Pal Suresh Kumar whereas in the present case there was no evidence in the form of payment or octroi or freight by the assessee in respect of the goods purchased from Raj Kumar Raghubir Kumar. She strongly relied on the order of the Tribunal in ITA Nos. 654 and 619/Chd/1990 relating to asst. yr. 1987-88 dt. 19th September, 1995, in the case of the assessee and submitted that the Tribunal may be pleased to follow the Tribunal's order in the case of the assessee in the earlier year as the facts were almost identical and the learned CIT(A) has passed a combined order for asst. yrs. 1987-88 and 1988-89 on 30th January, 1990.
11. In the rejoinder Sehgal submitted that the case of Oswal Woollen Mills applied to the case of the assessee because in the case of the assessee, the factory was situated outside the municipal limits and as such there was no question of payment of any octroi. It was further submitted that no freight was required to be paid by the assessee as the goods were sold by Raj Kumar Raghubir Kumar to the assessee on f.o.r. basis and the freight was paid by the seller namely, Raj Kumar Raghubir Kumar. He co-ocisically (sic) referred to pp. 18, 21 and 24 of the paper-book where the details of stock register in respect of rice bran purchased, rice bran oil and DORB cake were given and emphasised that no defect whatsoever had been found by the AO. Reference was also made to pp. 35 and 56 of the paper-book wherein the assessee had furnished monthly returns to the Deputy Director, Directorate of Vanaspati, Vegetables Oils and Fats indicating the quantity of rice bran oil and DORB on the prescribed proforma and submitted that no defects whatsoever had been found is the details furnished by the Directorate of Vanaspati, Vegetable Oils and Fats. Accordingly, it was submitted that the trading results declared by the assessee should have been accepted by the departmental authorities and should not have been rejected merely because the assessee was not in a position to produce one party, namely Raj Kumar Raghubir Kumar from whom the purchases of 11,600 qtls. of rice bran were made.
12. We have considered the rival submission and have gone through the orders passed by the AO as well as the learned CIT(A) along with the Tribunal's order in ITA No. 654 & 619/Chd/1990 dt. 19th September, 1995, relating to asst. yr. 1987-88 in the case of the assessee. The main charge of the AO against the assessee is that the firm Raj Kumar Raghubir Kumar was not a genuine firm and it was only a sham arrangement made by the assessee-company and the money deposited in the bank account of the seller by cheques issued by the assessee-company was withdrawn in cash and went back to the assessee-company. It is no doubt true that the assessee-company could not prove the identity of the firm Raj Kumar Raghubir Kumar because by the time the assessment proceedings were taken up, the firm 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 Raj Kumar Raghubir Kumar after January, 1987 except 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 IT Department on being deputed by the AO, sought to locate the firm 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 Raj Kumar Raghubir Kumar or from some other party/parties, did flow into the 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 production of oil. The AO has not pointed out any discrepancy in the day-to-day record of issue of rice bran for the production of oil. The yield shown by the assessee-company is reasonable vis-a-vis the yield shown in the previous year accepted by the Department as is evident from the chart of yield furnished by the assessee to us and reproduced at p. 6 of this order. Sales of rice bran oil and DORB extraction have been accepted by the AO. It, therefore, follows that the relevant quantity of the said goods so sold was available with the assessee-company. If the production stands accepted, it follows that the relevant quantity of purchase of rice bran/phuck also stands accepted, the question of any disallowance regarding the purchases made from Raj Kumar Raghubir Kumar treating entry as bogus should not arise. In case, the allegation of the AO that the entire purchase of rice bran by the assessee from Raj Kumar Raghubir Kumar were bogus is accepted then it will result into an yield of 28.78 per cent of rice bran oil in the month of November, 1986, 16.48 per cent in the month of December, 1986, and 14.65 per cent in the month of January, 1987, as mentioned in para 5 of this order which is simply not possible. Similarly, if the purchases of 11,600 qtls. of rice bran by the assessee from Raj Kumar Raghubir Kumar were considered as bogus, then the total rice bran processed would be 1,00,668.77 - 11,600 = 89,068.77 qtls. as against this, the production obtained and shown in the sales as well as in the closing stock by the assessee is as under :
Rice bran Oil DORB Total --------------- -------------- ------------ 12,889 Qtls. 87,018 Qtls. 99,907 Qtls.
Thus, the output in the form of rice bran oil and DORB would be more than the input by a figure of more than a 1,000 Qtls. which could never be possible in the rice bran oil extraction industry.
13. The allegation of the AO that the money deposited in the bank account of the seller of rice bran to the assessee Raj Kumar Raghubir Kumar, went back to the assessee was based on one specific instance of draft of Rs. 34,510 purchased by the assessee on 4th October, 1986 in favour of the Financial Adviser & Chief Accounts Officer, Northern Railway, Ludhiana for payment of freight 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 asst. yr. 1987-88 only. The facts in this case are also similar to the facts of the case of Oswal Woollen Mills (supra) decided by the Tribunal in ITA Nos. 168 & 185/Chd/1980 dt. 21st January, 1984, except that in the 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., asst. yr. 1987-88, the Tribunal had not accepted the plea of the assessee that the goods allegedly purchased from Raj Kumar Raghubir Kumar actually found their way into the factory of the assessee because the question of yield of rice bran oil and DORB cake month-wise was not considered by the Tribunal as the same was not properly projected by the representative of the assessee. The Tribunal also did not consider as to whether the outputs for the asst. yr. 1987-88 were more than the inputs, if the purchases from Raj Kumar Raghubir Kumar were considered as bogus. In fact, the assessee moved a miscellaneous petition against the order of the Tribunal for reconsideration of these aspects and that miscellaneous petition was rejected by the Tribunal vide order dt. August, 1996, and rightly so because that tantamount to a review of the order passed by the Tribunal and also the fact that no specific plea with regard to the production being in excess of inputs was raised while arguing the main appeal relating to asst. yr. 1987-88. Thus, keeping in view the totality of the facts and circumstances of the case, we hold that the assessee did purchase rice bran, whether from Raj Kumar Raghubir Kumar or from some other party/parties and the rice bran did go into production of oil, otherwise the assessee would have not been able to show the yield of rice bran oil and DORB comparable to that of earlier year. This is, however, not the end of the matter.
15. Another important aspect that arises for consideration is whether the assessee made purchases from Raj Kumar Raghubir Kumar in the manner shown to have been made or from some other party/parties and whether there is any element of inflation in the purchase price. The AO noted that during the asst. yr. 1988-89, the assessee purchased 11,600 qtls. of rice bran from Raj Kumar Raghubir Kumar and the average purchase rate of rice bran from Raj Kumar Raghubir Kumar worked out to Rs. 148.73 per qtl. The AO had also noticed that the average rate of purchase of rice bran from some other parties came to Rs. 112.04 per qtl. The AO accordingly made an addition of Rs. 4,22,124 (11,600 x 148.73 - 112-04). During the course of hearing before us, it was submitted that the average rate for the whole year in relation to the entire purchases came to Rs. 159.46 per qtl. as against Rs. 148.73 per qtl. paid to Raj Kumar Raghubir Kumar as per details given at p. 34 of the paper-book and accordingly the addition of Rs. 4,24,124 made by the AO and sustained by the CIT(A) was not justified. However, we find that there is a fallacy in the argument of the assessee because the average rate of Rs. 159.46 per qtl. as given at p. 34 of the paper-book had been arrived at by taking the total purchase at 98,450.72 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 P&L a/c. Accordingly, we uphold the action of the AO as well as the learned CIT(A) in holding that there had been an inflation in the cost of rice bran claimed to have been purchased from Raj Kumar Raghubir Kumar. We accordingly direct the AO to work out the addition in relation to 11,600 qtls. claimed to have been purchased from 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 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 Raj Kumar Raghubir Kumar reached the business premises of the assessee by the mode of transport given in the assessment order or not. In this connection, we are in agreement with the AO as well as the learned CIT(A) that rice bran cannot be transported on scooters, motorcycles, mopeds etc. Details of such vehicles have been given by the AO at p. 9 of the assessment order and by the learned CIT(A) at p. 13 in para 3 of the impugned order. We are unable to accept the contention of the learned representative of the assessee that whatever numbers of vehicles were given by the agents of the supplier, the drivers of the vehicles, were noted down by the assessee's employees who had no occasion to verify the numbers as the employee's of the assessee had to take delivery of the rice bran brought to the premises of the assessee-company. Accordingly, we hold that the learned CIT(A) was justified in holding that in the assessment year under consideration, 1,300 qtls. of rice bran (13x100 approximate weight) carried by a truck did not reached the assessee's premises and the claim of the assessee to that extent was not genuine. The addition of Rs. 1,45,600 was justifiably made by the lower authorities which is hereby confirmed.
17. Coming to ground Nos. 3 and 4 in the assessee's appeal, these were not pressed at the time of hearing by the learned counsel for the assessee. Accordingly, the same are dismissed as not having been pressed.
18. In the result, both the appeals are partly allowed.
U.B.S. Bedi, J.M. 12th June, 1997
1. I have gone through the proposed order of my learned brother but, with respect, have not been able to fully concur with the findings arrived at by him, as under.
2. It would not be worthwhile to repeat the facts, circumstances and the arguments of both the parties, which are all detailed in the order.
3. In the Revenue's appeal, ITA No. 620, on the basis of reasoning recorded by the AO, I uphold his action so far as rejection of books of account and invoking provisions of s. 145 of the IT Act, is concerned, in view of the facts and circumstances of the case and uphold the addition of Rs. 17,25,300 out of addition of Rs. 21,00,000 made on account of bogus purchase from Raj Kumar Raghubir Kumar, on the basis of reasoning given by the AO and also in view of the Tribunal's decision dt. 19th September, 1995, in ITA Nos. 654 and 619/1990 relating to asst. yr. 1987-88, if purchases 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 dt. 19th September, 1995 (supra), 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 purchase from 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 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 1,300 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 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. Grounds Nos. 3 and 4 were not pressed and rightly dismissed as such.
7. Both the appeals stand partly allowed.
R. M. Mehta, Vice President (As Third Member)
1. The following point of difference was referred to me as a Third Member by the Hon'ble President acting under s. 255(4) of the IT Act, 1961:
"Whether, on the facts and in the circumstances of the case, the view that addition on account of alleged bogus purchases made by the assessee from Raj Kumar Raghubir Kumar be retained at Rs. 1,45,600 plus further addition on account of inflation of purchases of 11,600 qtls. of rice bran from Raj Kumar Raghubir Kumar as per the direction given in para 15 of the order passed by the Accountant Member is correct or the view of the Judicial Member that the addition be retained at Rs. 17,25,300 on account of bogus purchases from Raj Kumar Raghubir Kumar, is justified?"
I have heard both the parties at length the learned counsel for the assessee strongly supporting the order passed by the learned Accountant Member and the learned Departmental Representative vehemently supporting the view expressed by the learned Judicial Member. To appreciate the controversy I find it necessary to summarise the basic facts which have been discussed at length by the learned Accountant Member in his order. These are to the effect that the assessee is a private limited company engaged in the manufacture and sale of solvent oil extracted from rice bran and the products of the assessee are supplied mainly to Hindustan Lever Ltd. and Oswal Agro Ltd. and various other companies engaged in the manufacture of soap. The AO while examining the accounts of the assessee found that it had made purchases of raw material amounting to Rs. 17,25,300 from one 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 slips issued by the person manning the weigh-bridge were produced by the assessee before the AO 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 AO, 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 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 1,00,668.77 qtls. for a consideration of Rs. 17,25,300. The AO, however, concluded that the firm Raj Kumar Raghubir Kumar was not a genuine firm and the purchases purported to have been made were bogus and sham and the assessee had claimed such bogus expenses by debiting them to the manufacturing account and reducing its profit. The main reasons which weighed with the AO in coming to the aforesaid conclusion can be summarised as under:
1. Raj Kumar Raghubir Kumar was not available at the address given and nobody from the said party was produced by the assessee during the course of the assessment proceedings.
2. The bills purported to have been issued by the said party did not mention any telephone number and nor was any ST/CST number mentioned.
3. No expenditure had been debited on account of unloading of material.
4. Some of the registration numbers of vehicles which were claimed to have transported the material to the assessee's factory premises were either not allotted by the registering authority or these pertained to scooters, motorcycles, motorcars, jeeps, etc.
5. The purchase price in respect of rice bran purchased from Raj Kumar Raghubir Kumar was inflated to the tune of Rs. 4,25,625.
6. The yield of bran oil shown by the assessee was low vis-a-vis the project report prepared by DESMET India (P) Ltd.
7. Raj Kumar Raghubir Kumar had opened a bank account in the Union Bank of India, Sangrur where payments received from the assessee were deposited and withdrawn immediately after the deposit.
2. On the basis of the aforesaid facts, the AO rejected the books of account under s. 145(2) and proceeded to frame the assessment in the manner provided under s. 144 r/w s. 145(2) and this resulted in an addition of Rs. 21 lakhs to the assessee's declared income on account of : (1) suppression of yield of rice bran oil, (2) bogus consumption of raw material and (3) bogus purchases shown by it from Raj Kumar Raghubir Kumar, Ludhiana.
3. Being aggrieved with the order passed by the AO, the assessee filed an appeal to the CIT(A). Before the first appellate authority the assessee's counsel argued the matter at length with reference to the material on record and his arguments are contained in paras 3.2 to 3.11 and the main points made can be summarised as under:
1. The additions had been made on surmises and conjectures since Raj Kumar Raghubir Kumar was not available on the given address at Ludhiana as the assessee was not dealing with the said party after January, 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 account 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 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 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 payment for the purchase of a draft which according to the AO had allegedly been purchased from the amount withdrawn by Raj Kumar Raghubir Kumar from its bank account. Further the amount for which the draft had been purchased by the assessee-company on 4th October, 1986 was duly debited in its books of account there being no link between the withdrawal by Raj Kumar Raghubir Kumar and the purchase by the company.
5. That no expenditure on account of unloading of material had been debited since the assessee had its own arrangement of labour for doing such work and there was no need to debit any expenses separately.
6. As regards the numbers of the transport vehicles which were stated to have transported the material purchased to the assessee premises, the explanation was that the assessee did not bother to verify the numbers since all that was required on the part of the company was to take delivery of the rice bran brought to its premises. The learned counsel, however, admitted before the CIT(A) that it was not possible to transport rice bran on scooters, buses, etc.
7. That all purchases of raw material from Raj Kumar Raghubir Kumar were supported by bills and payments were made by account payee cheques except in two instances. Further, the raw material so purchased and received in factory premises was used in the manufacturing process of rice bran oil and the assessee-company maintained day-to-day stock register in respect of purchases as also with respect to consumption/production and no fault was found by the AO with the said books of account maintained in the normal course of business and nor was the stock register adversely commented upon.
8. There had been no inflation in respect of the purchases made from the said party and the stand of the AO was in fact contradictory as on the one hand it was alleged that no purchases were made and it was also the case that the purchases were inflated. That both aspects of the matter were duly supported by bills.
9. As regards the yield of rice bran it was pointed out that the same was better as compared to the yield of 12.12 per cent in asst. yr. 1986-87 and 11.18 per cent in asst. yr. 1985-86 and both these having been accepted by the AO while framing the assessments. Further, the assessee's yield was better as compared to certain other cases [para 3 of the order of the CIT(A)].
4. 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 insofar as the project report was concerned which indicated recovery of rice bran oil from 20 per cent to 25 per cent, the plea of the counsel was to the effect that the said report was theoretical and not based on realities but prepared with the 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 learned counsel placed reliance on a number of reported decisions and which are adverted to in para 3.10 of CIT(A)'s order. The AO who appeared before the CIT(A) supported the order of the AO. The CIT(A) considered the case of both the parties and recorded the following findings of fact:
1. The raw material purchased by the assessee-company, whether from Raj Kumar Raghubir Kumar or from some other party/parties did flow into the factory premises of the company and went into the production of rice bran oil.
2. The assessee-company had kept day-to-day record of issue of rice bran and production of oil and the AO had not pointed out any discrepancy in the same.
3. The yield shown by the company was reasonable vis-a-vis the yield shown in some of the preceding assessment years and accepted by the Department and further sales of rice bran oil and deoiled rice bran extraction had been accepted by the AO. Further, if the production stands accepted, it should follow that the quantity of purchase of rice bran and other items also stands accepted.
4. The assessee had kept regular register of receipt and issue of rice bran and subsequent production and the AO had not pointed out any discrepancy in the record kept nor pointed out any other record which could have been kept but not kept.
5. No doubt the company could not prove the identity of the firm Raj Kumar Raghubir Kumar but it was to be seen that assessment proceedings were taken up when the said firm had ceased to exist and there was no occasion for the assessee-company to keep track of its activities. Same was the position with respect to the efforts made by the inspector of the Department to locate the said firm in December, 1988, or January, 1989, when it may have shifted to some other place.
6. The allegation of the AO that money deposited in the bank account of the seller went back to the company was based on one single instance with reference to a draft of Rs. 34,510 purchased on 4th October, 1988 in favour of Financial Adviser & Chief Accounts Officer, Northern Railway, Ludhiana, for payment of freight on coal purchased by the company and this allegation lost its significance in view of the statement of the head cashier, Union Bank of India, Sangrur, whose statement was recorded under s. 131 in the presence of the AO. On the basis of the same and other relevant facts it could be concluded that the money deposited in the bank account of Raj Kumar Raghubir Kumar did not go back to the assessee-company.
In concluding the CIT(A) held that the assessee had purchased rice bran whether from Raj Kumar Raghubir Kumar or some other party/parties and the said rice bran was used in the production process. On the facts of the case, however, he held that there had been inflation by an amount of Rs. 36.69 per qtl. and on this score he sustained an addition of Rs. 4,22,124 (11,600 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 1,300 qtls. did not reach the business premises of the company and purchase price debited was bogus. An addition of Rs. 1,45,600 (1,300 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 AO was reduced to Rs. 5,67,724 resulting in a relief of Rs. 15,32,276.
5. Being aggrieved with the order of the CIT(A), both the parties filed appeals before the Tribunal. The arguments advanced by the learned 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 learned counsel as per para 5 of the order of the learned Accountant Member when it was submitted that in case the purchases from Raj Kumar Raghubir Kumar made in the month of November, and December, 1986, and January, 1987, were excluded, then the yield of rice bran would show an abnormal percentage as compared to the other months as also compared to the preceding assessment years. It was also pointed out that if the purchases were so excluded, then the output would be more than the input which could never be possible. The further submission was to the effect that assuming though not admitting that the firm Raj Kumar Raghubir Kumar was not in existence or some unscrupulous persons had opened this firm for a period of two years only and then closed the same to avoid payment of legitimate taxes due to the Department no adverse inference could be drawn against the assessee because rice bran had actually been received in the factory premises, processed and rice bran oil and DORB were sold to reputed firms and sales duly accounted for in the books of account. Further sales shown by the assessee had been accepted by the Sales-tax Department and not doubted by the AO.
6. As regards the order of the Tribunal for asst. yr. 1987-88, which had gone against the assessee, the submission was to the effect that in the preceding assessment year the Tribunal had considered the overall yield for the whole year which was 13.03 per cent and in case the purchases alleged to be bogus amounting to Rs. 5,76,645 were excluded, then the yield would come to 13.77 per cent which was not considered extraordinary, unusual or incredible. As compared to this, in case the purchases during asst. yr. 1988-89 were excluded considering them as bogus, then the yield for the months of November, and December, 1986, and January, 1987, would be 29 per cent, 16 per cent and 15 per cent respectively which was incredible. The facts for both the assessment years i.e., 1987-88 and 1988-89, were sought to be distinguished on aforesaid grounds.
7. Coming to the addition made by the AO on account of inflation in the purchase of rice bran from Raj Kumar Raghubir Kumar in whose case average rate came to Rs. 148.73 per qtl. whereas the AO had worked out the average rate of some other selected parties at Rs. 112.04 per qtl. thereby making an addition of Rs. 4,22,124. The plea was to the effect that in case the average rate for the whole year was taken into consideration of the total purchases, then the 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 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 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 case of Shakti Metal Box dt. 26th October, 1993 in ITA No. 1161/Chd/1986 and Raj & Sandeep Ltd. dt. 18th February, 1993 in ITA No. 1853/Chd/1992 where the Tribunal had accepted such alternative argument.
8. As regards the addition of Rs. 1,45,600 sustained by the CIT(A) on account of bogus purchases from 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 learned 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 assessee could not be blamed for that. The learned Departmental Representative on the other hand, supported the order of the AO and placed strong reliance on the decision of the Tribunal in the assessee's own case for asst. yr. 1987-88. The main argument was to the effect that it was rather surprising that a party doing business at Ludhiana running into lakhs of rupees had vanished into thin air within a couple of years and would open a bank account at Sangrur where assessee was carrying on its business. It was submitted that Raj Kumar Raghubir Kumar was withdrawing money in cash after depositing cheques in its current account in the Union Bank of India at Sangrur on the same date or on the following date. A reference was also made to the type of vehicles which had purportedly been used for transportation and stress was used on the "material" which the AO had brought on record to "prove" that the purchases from the party were bogus and that no goods in fact had reached the assessee's premises. The learned Departmental Representative also sought to distinguish the decision in the case of Oswal Woollen Mills in ITA Nos. 168 & 185/80 referred to in the order of the CIT(A) on the ground that in that case receipt of goods was proved by the payment of octroi and freight whereas in the assessee's case there was no such evidence.
9. In the rejoinder the assessee's counsel reiterated that the case of Oswal Woollen Mills (supra) applied to the facts of the assessee's case and insofar as payment of octroi and freight was concerned, the submission was to the effect that assessee's factory was outside the municipal limit and there was no question of making any payment on account of octroi and further no freight was required to be paid as goods were sold by Raj Kumar Raghubir Kumar on f.o.r. basis and the freight was paid by the said seller. Attention was also invited to the monthly returns sent by the assessee to the Deputy Director, Directorate of Vanaspati, Vegetable Oils and Fats, indicating the quantity of rice bran oil and DORB on the prescribed proforma with the submission that no defects had been found in the details furnished. In concluding it was urged that the trading results declared by the assessee be accepted.
10. The learned Accountant Member who wrote the order accepted the pleas of the assessee's counsel in part inasmuch as he upheld the addition of Rs. 1,45,600 sustained by the CIT(A) agreeing with the CIT(A) that rice bran could not be transported on scooters, motorcycles, mopeds etc. The learned 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 learned Accountant Member held that 1,300 qtls. of rice bran did not reach the assessee's premises and claim of the assessee to that extent was not genuine.
11. 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 Raj Kumar Raghubir Kumar, the learned Accountant Member directed the AO to recompute the addition in relation to 11,600 qtls. claimed to have been purchased from 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.
12. As against the aforesaid view expressed by the learned Accountant Member, the learned Judicial Member confirmed the action of the AO in rejecting the books of account of the assessee by invoking provision of s. 145(2) of the IT Act. He did not dispute the facts as recorded by the learned Accountant Member as also the arguments of the parties but upheld an addition of Rs. 17,25,300 out of the addition of Rs. 21 lakhs made by the AO on account of alleged bogus purchases from Raj Kumar Raghubir Kumar. In doing so he followed the order of the Tribunal in assessee's own case for asst. yr. 1987-88 in ITA Nos. 654 & 619/90 dt. 19th September, 1995. He, however, deleted the addition of Rs. 4,22,124 on account of inflation in purchase price and also opined that the addition of Rs. 1,45,600 being the cost of 1300 qtls. of rice bran was also to be deleted. I may mention that the learned Judicial Member in his dissenting order did not make any reference whatsoever to the views expressed by the learned Accountant Member vis-a-vis the various points decided by him with reference to the total addition of Rs. 21 lakhs made by the AO.
13. During the course of hearing before me, the learned counsel for the assessee strongly supported the view taken by the learned Accountant Member but very fairly accepting that there was no categorical finding recorded by the learned Accountant Member in his order that the purchases had been made from Raj Kumar Raghubir Kumar. The learned counsel also highlighted the fact that the learned Judicial Member had not made any comments whatsoever on the order of the learned Accountant Member but had chosen to rely on the order of the Tribunal for the immediately preceding assessment year i.e., 1987-88. The learned counsel also pointed out to the detailed reasoning set out in the order of the learned Accountant Member and the absence of the same in the order of the learned Judicial Member. As the other arguments advanced by me learned counsel were the same as tendered before the Division Bench and which have been fully recorded by the learned Accountant Member and by me earlier on, I do not propose to once again repeat these arguments. In concluding the arguments the learned counsel urged that the view expressed by the learned Accountant Member be approved. As against this the learned Departmental Representative supported the view expressed by the learned Judicial Member contending that there was no change in the facts vis-a-vis the view expressed by the Tribunal in the preceding assessment year other than the fact that the learned 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 learned Departmental Representative there could be monthly fluctuations but to appreciate the results one had to take into account the figures for the whole year. The learned Departmental Representative also referred to the report of DESMET (India) (P) Ltd., referred to by the AO at p. 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 learned Members who had differed. In concluding she urged that the view taken by the learned Judicial Member may be confirmed.
14. In a rejoinder, the learned counsel for the assessee stated that the period of three months has been rightly considered by the learned Accountant Member since the purchases from the parties in question had taken place during those three months only. The learned counsel for the assessee also sought to highlight the abnormal results which would arise in case the purchases from the said parties were excluded.
In support of the figures of yield, the learned counsel referred to a letter of Solvent Extractors' Association of India, Bombay, at p. 73 of the paper-book, and also referred to pp. 35 to 71 of the paper-book pointing out that these were the copies of the returns to the Directorate of Vanaspati showing the relevant and correct figures. As regards the report of the DESMET (India) (P) Ltd., the submission of the learned counsel for the assessee was to the effect that this was entirely theoretical and did not set out the exact facts. He however, hastened to add that this report had not been considered either by the Division Bench or by the CIT(A). It was also the submission that no action had been taken under s. 148 in any of the preceding assessment years to bring to tax the suppression of yield which was the stand taken by the learned Departmental Representative in the course of the present hearing. The alternative argument advanced by the learned counsel was to the effect that in case the purchases were to be treated as bogus, then corresponding adjustment was required to be made in sales as also in the closing stock whose figures had been accepted by the AO.
15. The learned Departmental Representative in a short intervention stated that since the assessee had supported the yield, no adjustment could be made on account of the sales and closing stock. It may also be mentioned that the decisions cited by one party were sought to be distinguished by the other during the course of the hearing before me.
16. After examining the rival submissions, I am of the opinion that the view expressed by the learned Accountant Member on the facts and circumstances of the case is the correct one and requires to be approved. As already stated by me earlier, there is no categorical finding that the purchases in question were made from Raj Kumar Raghubir Kumar since the learned Accountant Member has observed at various places in his order that rice bran was purchased by the assessee "either from Raj Kumar Raghubir Kumar or from some other party/parties". It has also been noted by the learned Accountant Member that the assessee could not prove the identity of the said firm because it had ceased to exist by the time the assessment proceedings were taken up and there was no occasion for the assessee-company to keep track of its activities. It was also noted by the learned Accountant Member that the assessee had no dealings with Raj Kumar Raghubir Kumar after January, 1987, except for a nominal payment of Rs. 800. The learned Accountant Member also noted that possibility of the firm having shifted to some other place by the time the inspector of the IT Department deputed to locate the firm proceeded to do so. It was also noted that the raw material purchased from whatsoever 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 AO. The learned 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 AO 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.
17. The learned Accountant Member also noted the position which would emerge in case the entire purchases from Raj Kumar Raghubir Kumar were treated as bogus and excluded from the manufacturing process and the yield resulting therefrom would be quite abnormal not only as compared to the preceding assessment year but also with reference to the yield in the other months of the year. It was also noted that treating the purchases as bogus would result in a situation where the output in the form of rice bran oil and DORB would be more than the input by a figure of 1,000 qtls. which was not possible in the rice bran oil extraction industry. The learned Accountant Member also ruled out the diversion of funds from Raj Kumar Raghubir Kumar back to the assessee and referring to the specific instance of a draft of Rs. 34,510 purchased by the assessee on 4th October, 1986, observed that the explanation given by the assessee was reasonable and which was contained in para 4 at p. 8 of the order of the learned Accountant Member. The learned Accountant Member also placed reliance on the decision of the Tribunal dt. 21st January, 1984, in the case of Oswal Woollen Mills Ltd. (supra) categorically noting that the facts of both the cases were identical. The distinguishing feature was the payment of octroi and the learned Accountant Member observed that in the case of the assessee the question of payment of octroi did not arise as its factory was situated outside the municipal limits of Sangrur and the goods were received by the assessee-company on F.o.r. basis. The learned Accountant Member thereafter considered the decision of the Tribunal in the assessee's own case for asst. yr. 1987-88 and observed that the question of yield of rice bran oil and DORB cake monthwise was not considered by the Tribunal as the same was not properly projected by the assessee's counsel and the question of input and output was also not considered as had been done in asst. yr. 1988-89 and this apparently was also not projected on behalf of the assessee. The learned Accountant Member also referred to the miscellaneous petition filed by the assessee for asst. yr. 1987-88 and its rejection on the ground that it would tantamount to review of the order passed. The learned Judicial Member has not offered any comments whatsoever on these aspects as also on various other factual details and findings recorded by the learned Accountant Member in his order. In conclusion, the learned Accountant Member had rightly took the view that the assessee did purchase rice bran, whether from Raj Kumar Raghubir Kumar or from some other party/parties and such rice bran did go into the production 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 learned Accountant Member, in my opinion, appropriately directed the AO to recompute the addition in relation to 11,600 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 1,300 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 learned 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.
18. As I have agreed with the view expressed by the learned 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 learned counsel for the assessee did raise a plea to the effect that there was no difference of opinion in respect of the additions of Rs. 4,22,424 and Rs. 1,43,600. I have already demonstrated in disposing of the reference that this is not so and inasmuch as all the three items are the facet of a consolidated addition. The view of the learned Accountant Member has to be confirmed in toto.
19. The matter would now be listed before the Division Bench for passing an order in conformity with the majority opinion.