Appeal details
Counselvise Citation
[2021] 107 COUNSELVISE.COM (IT) 3952 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 3 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
24-09-2021
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Next Hearing Date
01-07-2021
Assessment Year
2011-2012
Appeal Filed On
31-05-2017
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH B, CHANDIGARH (VIRTUAL COURT) .., ! '# .. , $ %& BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM ITA NO. 894/CHD/2017 ASSESSMENT YEAR : 2011-12 THE ASST. CIT CIRCLE, PATIALA M/S VISHAL PAPER INDUSTRIES PVT. LTD. VILL: KHUSROPUR, MAIN ROAD, PATIALA PAN NO: AACCV2149L APPELLANT RESPONDENT !' ASSESSEE BY : SHRI MAYANK JAIN, ADVOCATE SHRI MADHUR JAIN, ADVOCATE #!' REVENUE BY : SHRI SANDEEP DAHIYA, CIT $ %! & DATE OF HEARING : 01/07/2021 '()*! & DATE OF PRONOUNCEMENT : 24/09/2021 %'/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORD ER DT. 23/03/2017 OF THE LD. CIT(A), PATIALA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L: 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), PATIALA IS LEGALLY CORRECT IN DELETING THE ADDITION RS. 2,49,01,874/- MADE ON ACCOUNT OF BOGUS PURCHASE OF RICE HUSK. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), PATIALA IS LEGALLY CORRECT IN DELETING THE ADDITION RS. 52,12,000/- MADE ON ACCOUNT OF UNDERVALUATION OF CLOSING STOCK. 3. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET AS IDE AND THAT OF THE A.O. RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROU NDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSED OF. 2 3. GROUND NO. 3 & 4 ARE GENERAL IN NATURE SO DO NOT REQUIRE ANY COMMENT ON OUR PART. 4. VIDE GROUND NO. 1 THE GRIEVANCE OF THE DEPARTMEN T RELATES TO THE DELETION OF ADDITION OF RS. 2,49,01,874/- MADE BY T HE A.O. ON ACCOUNT OF BOGUS PURCHASE OF RICE HUSK. 5. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A DOMESTIC PRIVATE LTD. COMPANY AND WAS ENGAGED IN THE BUSINESS ACTIVITY OF MANUFACTURING OF PAPER. THE RETURN OF INCOME WAS E-FILED ON 30/09/2011 DECL ARING AN INCOME OF RS. 1,11,05,644/-. LATER ON THE CASE WAS SELECTED FOR S CRUTINY. 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAD SHOWN PURCHASES WORTH RS. 14,35,20,713 /- OF RICE HUSK AND THAT THE SOME VERIFICATION MADE REGARDING THE GENUINENESS OF THE PURCHASES OF RICE HUSK MADE BY THE ASSESSEE, REVEALED THAT THE ASSESSEE HA D SHOWN BOGUS PURCHASES AT LARGE SCALE. THE A.O. OBSERVED THAT THE ASSESSEE WAS ARRANGING ONLY PURCHASE BILLS WITHOUT GETTING THE DELIVERY OF RICE HUSK JUST TO INFLATE ITS MANUFACTURING EXPENSES AND MADE BOGUS PURCHASES THR OUGH TWO OF ITS SISTER CONCERNS, THE PROPRIETOR OF EACH OF THOSE WERE THE DIRECTORS OF THE ASSESSEE COMPANY. THE A.O. OBSERVED THAT THE PURCHASE OF RIC E HUSK WORTH RS. 94,38,395/- WERE MADE FROM ITS TWO SISTER CONCERN NAMELY M/S SU RAJ BHAN & BROTHERS, PATIALA AND M/S BABU RAM RAM GOPAL, PATIALA. THE PROPRIETOR OF THOSE CONCERNS NAMELY SHRI VIDYA SAGAR AND SHRI SURAJ BHAN RESPECT IVELY WERE THE DIRECTORS OF THE ASSESSEE COMPANY. THE A.O. FURTHER OBSERVED THA T BOTH THESE CONCERNS WERE SHOWING PURCHASES OF RICE HUSK FROM M/S JAI MA A KALI FOODS, ALIPUR ROAD, PATIALA WHICH WAS PROPRIETARY CONCERN OF SHRI AJAY MALIK WHO DISCLOSED THAT HE WAS ONLY PROVIDING PAPER ENTRIES OF GETTING AND ISS UING BILLS AND ALSO ADMITTED THAT NEITHER ACTUAL DELIVERY OF RICE HUSK WAS TAKEN BY HIM NOR THE SAME WAS GIVEN BY HIM TO M/S SURAJ BHAN & BROTHERS AND M/S B ABU RAM RAM GOPAL, PATIALA WHO HAD SHOWN THE SALE OF RICE HUSK ONLY TO THE ASSESSEE. THE A.O. WAS 3 OF THE VIEW THAT THERE WAS A NEXUS OF BOGUS SALES & PURCHASE OF RICE HUSK WITHOUT ANY DELIVERY OF GOODS, HE ACCORDINGLY ISSUE D SHOW CAUSE NOTICE DT. 21/03/2014 TO THE ASSESSEE TO FURNISH THE EXPLANATI ON. 5.2 THE A.O. REPRODUCED THE STATEMENT OF SHRI AJAY MALIK PROPRIETOR OF M/S JAI MAA KALI FOODS WHO WAS EXAMINED UNDER SECTION 131 O F THE ACT, AT PAGE NO. 5 TO 10 OF THE ASSESSMENT ORDER DT. 30/03/2014, FOR T HE COST OF REPETITION THE SAME IS NOT REPRODUCED HEREIN. ON THE BASIS OF THE STATE MENT OF SHRI AJAY MALIK, THE A.O. WAS OF THE VIEW THAT SHRI AJAY MALIK WAS GIVIN G ONLY SALES BILLS OF HUSK TO M/S SURAJ BHAN & BROTHERS AND M/S BABU RAM RAM GOPAL, H E WAS NOT GIVING ANY ACTUAL DELIVERY OF GOODS I.E. HUSK AND THAT THE ENT IRE PURCHASE FROM THOSE TWO CONCERNS HAD BEEN SHOWN TO THE ASSESSEE. 5.3 THE A.O. ALSO MENTIONED THAT DURING THE COURSE OF EXAMINATION OF SHRI AJAY MALIK ,A REQUEST WAS MADE TELEPHONICALLY TO M/ S SURAJ BHAN & BROTHERS AND M/S BABU RAM RAM GOPAL ASKING THEM TO COME TO THE O FFICE FOR CROSS EXAMINATION OF SHRI AJAY MALIK BUT THEY DID NOT CO ME FOR CROSS EXAMINATION. HE THEREFORE HELD THAT THE ASSESSEE HAD SHOWN BOGUS PU RCHASES OF RS. 94,38,395/- OF HUSK FROM THE ABOVE SAID TWO SISTER CONCERNS. HE ALSO MENTIONED THAT THE EVIDENCE REGARDING SALES AND PURCHASE WITHOUT THE D ELIVERY OF GOODS BY M/S SURAJ BHAN & BROTHERS AND BABU RAM RAM GOPAL WAS SU PPORTED BY FOLLOWING FACTS. 1 ON THE PURCHASE BILLS OF M/S SURAJ BHAN & SONS AND BABU RAM RAM GOPAL THE TRUCK NUMBERS MENTIONED ARE DIFFERENT FROM THE TRUC K NUMBERS MENTIONED IN THE SALE BILL TO YOUR CONCERN. HOW IT IS POSSIBLE THAT YOUR SISTER CONCERN AT THE SAME STATION WOULD PURCHASE HUSK IN A DIFFERENT TRUCKS A ND WOULD DELIVER THE SAME HUSK TO YOUR CONCERN IN DIFFERENT TRUCKS. BESIDES DIFFIC ULT TASK OF LOADING AND UNLOADING OF HUSK, THERE ARE HEAVY LOADING AND UNLOADING EXPE NSES ARE ALSO INVOLVED . THIS IS HUMANLY NOT POSSIBLE IN A TRANSACTIONS AMONG THE SISTER CONCERN. 2 MOST OF THE TRUCK NUMBERS MENTIONED ON THE SALE & P URCHASE BILLS ARE BOGUS . FOR INSTANCE TRUCK NUMBERS QUOTED ON BILL N O. 027 TRUCK NO. PB11AC9935 AND PB11 P 4512 ARE MOTOR CYCLES , BILL NO. 033 .TR UCK NO. PB11T4976 IS MOPED. 4 3 DATES OF PURCHASE BY YOUR SISTER CONCERNS AND DATES OF SALE TO YOU BY YOUR SISTER CONCERNS ARE DIFFERENT WHICH IS NOT ACCEPTAB LE IN THE CASE OF SALE AND PURCHASE OF HUSK AS NEITHER ANY GODOWNS WERE MAINTA INED BY YOUR SISTER CONCERNS NOR BY M/S JAI MAA KALI FOODS. 4 SH. AJAY MALIK INTIMATED THAT HE HAD NO GODOWN & WAS DOING ONLY BILLING WORK. M/S SURAJ BHAN & BROTHER & M/S BABU RAM RAM GOPAL H AS ALSO NOT SHOWN ANY GODOWN. M/S SURAJ BHAN & BROTHERS AND M/S BABU RAM RAM GOPA L HAVE NOT CLAIMED ANY LOADING AND UNLOADING CHARGES. 5.4 THE A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED TO HAVE MADE PURCHASES FROM M/S MAHA LAKSHMI TRADING COMPANY, PU RMANDAL MORH, JAMMU. HE ISSUED THE NOTICE UNDER SECTION 133(6)OF THE ACT TO THE SAID CONCERN WHICH WAS RECEIVED BACK UNSERVED WITH THE REMARKS THAT NO SUCH PARTY EXISTS. HE THEREFORE ASKED THE ASSESSEE TO SHOW CAUSE AS TO WH Y THE PURCHASES SHOWN FROM THE SAID CONCERN AMOUNTING TO RS. 1,16,54,006/ - MAY NOT BE DISALLOWED BY TREATING THE SAME AS BOGUS. IN RESPONSE THE ASSESSE E FURNISHED THE REPLY DT. 27/03/2014 WHICH READS AS UNDER: 'PLEASE REFER OFFICE LETTER DATED 21.03.2014 IN THE ABOVE NOTED CASE, THE ASSESSEE HAS BEEN ASKED TO SHOW CAUSE AS TO WHY THE PURCHASE OF HUSK AMOUNTING TO RS. 94,38,495/- FROM YOUR SISTER CONCERNS M/S SURAJ BHA N & BROTHERS AND M/S BABU RAM RAM GOPAL PATIALA MAY NOT BE TREATED AS BOGUS AND D ISALLOWED. THE ASSESSEE COMPANY MAKES FOLLOWING SUBMISSIONS FOR KIND CONSID ERATION AND NECESSARY PERUSAL: 1. IT IS WRONG TO SUGGEST THAT BOTH CONCERNS NAMELY M/S SURAJ BHAN & BROTHERS AND M/S BABU RAM RAM GOPAL ARE BEING RUN UNDER ONE ROOF OF A SHOP NO. 66, NEW GRAIN MARKET PATIALA. BOTH CONCERNS ARE BEING RUN F ROM DIFFERENT PREMISES. M/S SURAJ BHAN & BROTHERS IS BEING RUN FROM SHOP NO. 66 -A, NEW GRAI MARKET, PATIALA AND M/S BABU RAM RAM GOPAL FROM SHOP NO 66NEW GRAIN MARKET, PATIALA. 2. IT IS WRONG TO SUGGEST THAT BOTH CONCERNS NAMELY M/S SURAJ BHAN & BROTHERS AND M/S BABHU RAM RAM GOPAL ARE SISTER CONCERNS OF OUR COMPANY. SH. VIDYA SAGAR IS PROPRIETOR OF M/S SURAJ BHAN & BROTHERS AND SH. SURAJ BHAN IS PROPRIETOR OF M/S BABU RAM RAM GOPAL. BOTH ARE DIRECTORS IN OUR COMPA NY BUT BOTH DIRECTORS DO NOT HAVE SUBSTANTIAL INTEREST IN THE COMPANY. A PER SON IS DEEMED TO HAVE A SUBSTANTIAL INTEREST IN THE BUSINESS CARRIED ON BY A COMPANY IN CASE HE CARRIES NOT LESS THAN 20% OF THE VOTING POWER IN CASE OF A COMP ANY. IT IS, THEREFORE, WRONG TO SUGGEST THAT BOTH CONCERNS ARE SISTER CONCERNS OF T HE ASSESSEE COMPANY SIMPLY 5 BECAUSE THE PROPRIETORS OF THE CONCERNS HAPPENS TO BE DIRECTORS IN OUR COMPANY. 3. THE ASSESSEE COMPANY MADE PURCHASES OF HUSK WORT H RS. 52,06,719/- FROM M/S SURAJ BHAN & BROTHERS PATIALA AND WORTH RS. 42,31,7 76/- FROM M/S BABU RAM RAM GOPAL PATIALA DURING THE FINANCIAL YEAR 2010-11 REL EVANT TO ASSESSMENT YEAR 2011- 12. WE HAVE FILED CONFIRMATIONS FROM THESE TWO CONC ERNS ON THE LAST DATE OF HEARING. THEY HAVE CONFIRMED SALE OF HUSK TO OUR CO MPANY IN THIS RELEVANT PERIOD. THEY HAVE RECEIVED PAYMENTS AGAINST SALE OF HUSK FROM OUR COMPANY. WE ARE ENCLOSING HEREWITH NOTARIZED SOLEMN AFFIRMATIONS FR OM PROPRIETORS OF THESE TWO CONCERNS. (PAGE NO. 1 TO 2). THEY HAVE AGAIN CONFIR MED SALE OF HUSK TO OUR COMPANY IN THIS RELEVANT PERIOD. 4. PLEASE REFER YOUR OFFICE LETTER DATED 21.03.2014, W E RESPECTFULLY SUBMIT THAT THE STATEMENT OF ONE SH. AJAY MALIK SON OF SH. RAKESH M ALIK SHOULD HAVE BEEN ADDRESSED TO PROPRIETORS OF M/S. SURAJ BHAN & BROTH ERS PATIALA AND M/S BABU RAM RAM GOPAL PATIALA RATHER THAN TO OUR COMPANY. WE HA VE NOT PURCHASED ANY GOODS FROM SH. AJAY MALIK SON OF SH. RAKESH MALIK O F M/S JAI MAA KALI FOODS, PATIALA. THE GOODS HAVE BEEN PURCHASED BY OUR COMPA NY FROM M/S SURAJ BHAN & BROTHERS PATIALA AND M/S BABU RAM RAM GOPAL, PATIAL A AND THESE PARTIES HAVE CONFIRMED SALE OF HUSK TO OUR COMPANY. WE ARE NOT P RIVY TO THE CONTRACT BETWEEN SH. AJAY MALIK AND BOTH THESE CONCERNS. ALL THE CONTENTS OF THE STATEMENT OF SH. AJAY MALIK SHOULD BE ADDRESSED TO THE PROPRIETORS OF THESE CONCERNS. THE PROPRIETORS OF THESE CONCERNS SHOULD BE SUMMONED IN YOUR OFFICE AND BY YOUR OFFICE FOR MAKING NECESSARY ENQUIRIES I N THIS REGARD. WE ARE READY TO PRODUCE THESE PROPRIETORS IN YOUR OFFICE, IF SO DES IRED BY YOUR HONOUR. WE HAVE DISCHARGE ONUS PUT ON US BY FILING THEIR SOLEMN AFF IRMATIONS ALONGWITH THESE SUBMISSIONS. 5. PLEASE REFER YOUR OFFICE LETTER DATED 21.03.2014, W E RESPECTFULLY SUBMIT THAT ALL THE ASSESSEE COMPANY IS MAKING ENQUIRIES FROM THE C ONCERNED AUTHORITIES WITH REGARDS TO SOME TRUCK NUMBERS ALLEGEDLY NUMBERS OF MOTORCYCLE AND MOPED, THESE ALLEGED TWO WRONG NUMBERS OF THE VEHICLES SHO ULD NOT BE TAKEN ADVERSELY AN&IT SHALL BE UNJUSTIFIED AND UNREASONABLE TO TREA T THE OTHER VALID VEHICLE NUMBERS BEING BOGUS. THERE IS NO SUPPORTING ADVERSE EVIDENCE ON THIS ACCOUNT IN RESPECT OF OTHER VEHICLES NUMBERS. 6. PLEASE REFER YOUR OFFICE LETTER DATED 21.03.2014, W E RESPECTFULLY SUBMIT THAT ALL THE ENQUIRIES IN RESPECT OF SERIAL NUMBER 1 TO 4 GI VEN AT PAGE NUMBER 6 SHOULD BE ADDRESSED TO M/S SURAJ BHAN & BROTHERS PATIALA AND M/S BABU RAM RAM GOPAL PATIALA. WE ARE NOT PRIVY TO ALL THESE FACTS. 7. IN VIEW OF ABOVE SUBMISSIONS, IT IS RESPECTFULLY SU BMITTED THAT PURCHASES OF HUSK FROM THESE TWO PARTIES ARE GENUINE. NO DISALLOWANCE IS CALLED FOR IN THE CASE OF THE COMPANY. 8. WITH REGARDS TO PURCHASE OF WASTE PAPER FROM M/S MA HA LAKSHMI TRADING COMPANY JAMMU, IT IS RESPECTFULLY SUBMITTED THAT TH E SELLING CONCERN STILL EXIST AT THE SAID PREMISES. WE HAVE RECEIVED NECESSARY CONFI RMATIONS FROM THE SAID PARTY AND THE SAME ARE ENCLOSED HEREWITH. IT HAS BEEN CON FIRMED BY THE SELLING PARTY THAT THEY ARE RUNNING BUSINESS FROM THE SAID PREMIS ES. THEY HAVE ALSO SENT COPY OF 6 ACCOUNT FROM THEIR BOOKS OF ACCOUNTS, ACKNOWLEDGMEN T OF RETURN OF INCOME, SALES TAX REGISTRATION CERTIFICATE AND A CONFIRMATO RY LETTER. (PAGE NO. 3 TO 12). IF ANY OTHER INFORMATION IS REQUIRED, WE SHALL BE GLAD TO FURNISH THE SAME. 9. WITH REGARDS TO PURCHASES FROM M/S ABHISHEK ENTE RPRISES, KHANNA, IT HAS BEEN STATED IN YOUR OFFICE LETTER DATED 26.03.2014 THAT THE SUMMONS UNDER SECTION 131 (1) HAD BEEN RECEIVED BACK TO YOUR OFFICE WITH THE REMARKS 'INCOMPLETE ADDRESS AND NOT KNOWN', IT IS RESPECTFULLY SUBMITTED THAT W E NEED TIME TO ASCERTAIN THE REASONS FOR NON-DELIVERY OF OFFICE LETTER AT THE SA ID ADDRESS. WE ARE ENCLOSING HEREWITH A COPY OF ACCOUNT OF THE SAID CONCERN FROM OUR BOOKS OF ACCOUNTS. (PAGE NO. 14 TO 16). THE PAYMENTS HAVE BEEN MADE BY PAYEES ACCOUNT CHEQUE. IT IS THEREFORE PRAYED THAT THE PURCHASES F ROM THE SAID CONCERN ARE GENUINE. 10. WITH REGARDS TO FURNISHING OF DETAILS OF CONSUM PTION OF HUSK FOR THE IMMEDIATE PRECEDING TWO YEARS VIS-A-VIS CONSUMPTION OF RAW MA TERIAL AND PRODUCTION, THE DETAILS ARE ENCLOSED. (PAGE NO. 17). HOPE THE ENTIRE QUARRIES HAVE BEEN EXPLAINED AND YO UR HONOUR SHALL BE KIND ENOUGH IN APPRECIATING THE RESPECTFUL SUBMISSIONS M ADE IN THIS REPLY LETTER.' 5.5 HOWEVER THE A.O. DID NOT FIND MERIT IN THE EXPL ANATION OF THE ASSESSEE FOR THE FOLLOWING REASONS : I. ASSESSEE'S CONTENTION THAT M/S SURAJ BHAN & BR OTHER AND M/S BABU RAM RAM GOPAL WERE NOT THEIR SISTER CONCERNS IS TOTALLY MISLEADING AS TWO DIRECTORS OF THE ASSESSEE'S COMPANY WERE RUNNING THESE CONCERNS UNDER THEIR PROPRIETORSHIP. II. ASSESSEE'S SUBMISSION THAT NEITHER SH. SURAJ BH AN NOR SH. VIDYA SAGAR HAD SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY BECAUS E THEY WERE NOT HAVING VOTING POWER MORE THAN 20% IS BASELESS. BOTH SH. SU RAJ BHAN AND SH. VIDYA SAGAR ARE THE DIRECTORS OF THE COMPANY. THEY ARE INVOLVED IN DAY TO DAY FUNCTIONING OF THE COMPANY. THE ASSESSEE HAS NOT MENTIONED THE SHA RE HOLDING HELD BY THEM EVEN THOUGH IT DOES NOT MAKE MUCH DIFFERENCE IF THE Y WERE HAVING LESS THAN 20% SHARE HOLDING. BOTH THE DIRECTORS ARE ACTIVELY INVO LVED IN THE FUNCTIONING OF THE ASSESSEE COMPANY. III. ASSESSEE'S CONTENTION THAT THEY HAVE MADE PURC HASES OF HUSK WORTH RS.52,06,719/- FROM M/S SURAJ BHAN & BROTHERS , PAT IALA AND RS.42,31,776/- FROM M/S BABU RAM RAM GOPAL, PATIALA FOR WHICH THEY HAVE FIL ED SOLEMN AFFIRMATIONS FROM THE TWO DIRECTORS NAMELY SH. SURAJ BHAN AND SH. VID YA SAGAR IS NOT OF MUCH IMPORTANCE BECAUSE THE FACTS HAS ALREADY ESTABLISHE D THAT THE ASSESSEE ONLY MADE BOGUS PURCHASE BILLS ARRANGEMENTS THROUGH THES E CONCERNS. IV. WHEN THE FACTS CLEARLY INDICATE THAT NEITHER M/ S SURAJ BHAN & BROTHER NOR M/S BABU RAM RAM GOPAL HAD TAKEN THE ACTUAL DELIVER Y OF THE HUSK, HOW CAN THE ASSESSEE CLAIM THAT THEY ACTUALLY SUPPLIED HUSK TO THESE TWO CONCERNS. V. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE IN TH E SHAPE OF GATE-PASS REGISTER ETC INDICATING THE EVIDENCE OF INCOMING AN D OUTGOING VEHICLES, 7 WEIGHMENT SLIPS, STOCK REGISTER, FREIGHT PAYMENTS, LABOUR CHARGES FOR LOADING AND UNLOADING OF RICE-HUSK AT ITS PREMISES. VI. FOR THE PURPOSE OF COMPARATIVE STUDY OF CONSUMP TION OF RICE-HUSK BY THE ASSESSEE DURING THE LAST TWO ASSESSMENT YEARS, THE ASSESSEE WAS REQUESTED TO FURNISH THE QUANTITATIVE DETAILS OF CONSUMPTION OF HUSK VIS A VIS PRODUCTION OF FINISHED GOODS, THE ASSESSEE HAS NOT FURNISHED THE REQUISITE INFORMATION FOR THE REASONS BEST KNOWN TO HIM. VII. THE COPY OF THE AUDITED ACCOUNTS SUBMITTED BY THE ASSESSEE BEARS THE SIGNATURES OF SH. VIDYA SAGAR, DIRECTOR FROM WHICH IT IS CLEAR THAT HE HAD A VITAL ROLE IN THE FUNCTIONING OF THE ASSESSEE COMPANY. VIII. IN MOST OF THE INSTANCES VERIFIED, BOTH THE A FORESAID SISTER CONCERNS HAVE SHOWN SUPPLY OF RICE-HUSK TO THE ASSESSEE IN VEHICL ES DIFFERENT FROM THE VEHICLES IN WHICH THE PURCHASES SHOWN BY THESE TWO CONCERNS FOR WHICH, THE ASSESSEE OFFERED NO EXPLANATION AS IT WOULD LEAD TO UNNECESSARY EXPENSES INVOLVED IN LOADING AND UNLOADING. NO GODOWNS OR AN Y OTHER STORAGE SPACE WITH THESE TWO CONCERNS HAD BEEN PROVED. MOREOVER, WHY I N THE ORDINARY COURSE THEY WOULD CHANGE THE VEHICLE WHEN THE DELIV ERY IS GIVEN TO THE SISTER CONCERN AT THE SAME STATION I.E PATIALA. ALL THIS C IRCUMSTANTIAL EVIDENCE CLEARLY INDICATES BOGUS TRANSACTIONS UNDERTAKEN BY THE ASSE SSEE. IX. DURING THE COURSE OF RECORDING OF STATEMENT OF SH. AJAY MALIK U/S 131 OF THE INCOME TAX ACT, THE ASSESSEE WAS CONVEYED TELEP HONICALLY TO CROSS EXAMINE MR. AJAY MALIK. THE COUNSEL OF THE ASSESSEE, HOWEVE R, DECLINED THE SAME FOR REASONS BEST KNOWN TO HIM OR THE ASSESSEE. X. FURTHER, THE PERUSAL OF THE INCOME TAX RETUR NS OF M/S SURAJ BHAN AND BROTHERS, M/S BABU RAM RAM GOPAL AND SH. AJAY MALIK SHOW SALES MADE BY THESE CONCERNS AT NIL WHICH FURTHER PROVES CORROBORATIVEL Y THAT THESE CONCERNS NEVER SUPPLIED RICE-HUSK TO THE ASSESSEE. XI. THE ASSESSEE COMPANY COULD NOT BRING ANYTHING O N RECORD SUCH AS STOCK REGISTER, GATE REGISTER, WEIGHMENT SLIPS, PROOF OF PAYMENTS FOR FREIGHT AND LABOUR TO SUBSTANTIATE THAT THE GOODS ACTUALLY LANDED AT I TS BUSINESS PREMISES. 5.6 THE A.O. TREATED THE ASSESSEES PURCHASE FROM M /S SURAJ BHAN & BROTHER AND M/S BABU RAM RAM GOPAL AS BOGUS PURCHASES WHICH WERE SHOWN TO INCREASE THE PRODUCTION COST AND THEREBY TO REDUCE THE PROFITS. HE ACCORDINGLY MADE THE ADDITION OF RS. 94,38,395/- ON ACCOUNT OF BOGUS PURCHASES MADE FROM THE AFORESAID TWO CONCERNS. 5.7 THE A.O. ALSO OBSERVED THAT THE ASSESSEE PURCHA SED THE HUSK AMOUNTING TO RS. 69,69,553/- FROM M/S SHARTHI COMMISSION AGEN T, SHOP NO. 157 B , NEW GRAIN MARKET SUNAM BUT THERE WAS NO CONCERN ON THE SAID ADDRESS WITH THE 8 NAME OF M/S SHARTHI COMMISSION AGENT. HE THEREFORE ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AFORESAID PURCHASES MAY NO T BE DISALLOWED. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: III) PURCHASES MADE FROM M/S SHARTHI COMMISSION AGE NT SHOP NO. 157 B. NEW GRAIN MARKET SUNAM (TOTAL PURCHASES RS. 69,69,553/- ) : THE PURCHASES FROM THE ASSESSEE WERE MADE DURING THE FINANCIAL YEAR 2010-1 1 RELEVANT TO ASSESSMENT YEAR 2011 -12. THE SUPPLIER IS DULY REGISTERED UNDE R PUNJAB VALUE ADDED TAX ACT 2005 WITH TIN 03982074829. THE REGISTERED ADDRESS O F THE PARTY AS PER VAT RECORDS WITH THE DEPARTMENT OF EXCISE AND\ TAXATION IS SHOP NO. 157 B, NEW GRAIN MARKET, SUNAM. THE BUSINESS HAS BEEN CLOSED BY THE SELLING DEALER AS A RESULT OF WHICH THE BUSINESS PREMISES HAVE ALSO BEEN VACATED. THE SELLING PARTY WAS RUNNING BUSINESS IN THE YEAR UNDER CONSIDERATION AN D THEREFORE IT IS WRONG TO SUGGEST THAT THE PURCHASES MADE FROM THE ABOVE PART Y ARE NOT GENUINE SIMPLY BECAUSE OF THE FACT THAT THE BUSINESS PREMISES ARE NOW BEING USED IN THE CURRENT FINANCIAL YEAR 2013-14 BY M/S GOBIND TRADING COMPAN Y SUNAM. THE PURCHASES MADE FROM, M/S SARTHI COMMISSION AGENT SUNAM ARE GE NUINE. 5.8 HOWEVER THE A.O. DID NOT FIND MERIT IN ASSESSEE S CONTENTION AND MADE THE ADDITION OF RS. 69,69,993/- BY OBSERVING IN PAR A 5 OF THE ASSESSMENT ORDER DT. 30/03/2014 AS UNDER: 5. ASSESSEE'S CONTENTION ABOUT THE GENUINENESS PURC HASES FROM M/S SARTHI COMMISSION AGENT IS TOTALLY BASELESS. THE ASSESSEE HAS FAILED TO PRODUCE ANY PERSON FROM M/S SARTHI COMMISSION AGENT IN SUPPORT OF HIS CONTE NTION. MERE BILL TRANSACTION WITHOUT DELIVERY OF THE GOODS CANNOT BE TREATED AS GENUINE FOR WHICH NO CORROBORATIVE EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE. ON ENQU IRY MADE FROM THE TELEPHONE NUMBER 92556-44009 MENTIONED ON SALE INVOICE OF M/S SARTHI COMMISSION AGENT, SUNAM, IT WAS GATHERED THAT NO SUCH BUSINESS ACTIVITY WAS DONE BY THE PERSON HOLDING THIS TELEPHONE NUMBER. THE INQUIRY MADE BY THE INSPECTOR OF INCOME TAX FROM THE LOCALITY REVEALS THAT NO SUCH CONCERN HAS EVER OPERATED FROM THE ADDRESS OF THE BUSINESS PREMISES GIVEN BY THE ASSESSEE AND SHOWN IN THE PUR CHASE BILLS DURING LAST 10 YEARS. NONE OF THE PERSONS IN THE AREA HAS EVER HEARD OF THE NA ME OF M/S SARTHI COMMISSION AGENTS. THE ASSESSEE DID NOT PRODUCE ITSELF THE SAID PERSON FOR EXAMINATION IF IT WAS SO SURE OF THE GENUINENESS OF ITS TRANSACTION WITH M/S SARTHI COMM ISSION AGENTS. THE ASSESSEE HAS SHOWN PURCHASE OF HUSK WORTH RS.69,69,993/-. IN THE ABSEN CE OF ANY EVIDENCE REGARDING THE GENUINENESS OF PURCHASE, THE SAID PURCHASE OF RS.69 ,69,993/- IS DISALLOWED. ACCORDINGLY, AN ADDITION OF RS.69,69,993/- IS MADE TO THE RETURNED INCOME OF THE ASSESSEE ON A /C OF DISALLOWANCE OF BOGUS PURCHASES OF HUSK BY THE ASSE SSEE. 5.9 THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAD SHOWN PURCHASE OF RICE HUSK AMOUNTING TO RS. 22,50,396/- FROM M/S ABHISHEK ENTERPRISES, LALHARI ROAD, NEAR RLY FATAK, KHANNA. HE ISSUED A NOTICE UNDER SE CTION 131 OF THE ACT TO SAID PARTY WHICH HAD BEEN RECEIVED BACK UNDELIVERED WITH REMARKS GIVEN BY THE 9 POSTAL DEPARTMENT NOT KNOWN. THE A.O. ASKED THE ASSESSEE TO PROVE THE GENUINENESS OF THE SAID PURCHASES. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: 'WITH REGARDS TO PURCHASES FROM M/S ABHISHEK ENTERP RISES, KHANNA, IT HAS BEEN STATED IN YOUR OFFICE LETTER DATED 26.03.2 014 THAT THE SUMMONS UNDER SECTION 131 (1) HAD BEEN RECEIVED BAC K TO YOUR OFFICE WITH THE REMARKS 'INCOMPLETE ADDRESS AND NOT KNOWN', IT IS RESPECTFULLY SUBMITTED THAT WE NEED TIME TO ASCERTA IN THE REASONS FOR NON-DELIVERY OF OFFICE LETTER AT THE SAID ADDRE SS. WE ARE ENCLOSING HEREWITH A COPY OF ACCOUNT OF THE SAID CO NCERN FROM OUR BOOKS OF ACCOUNTS. (PAGE NO. 14 TO 16). THE PAYMENT S HAVE BEEN MADE B Y , PAYEES ACCOUNT CHEQUE. IT IS THEREFORE PRA YED THAT THE PURCHASES FROM THE SAID CONCERN ARE GENUINE.' 5.10 HOWEVER THE A.O. DID NOT FIND MERIT IN THE SUB MISSIONS OF THE ASSESSEE AND MADE THE ADDITION OF RS. 22,50,396/- BY OBSERVING A S UNDER: ASSESSEE'S SUBMISSION HAS BEEN CONSIDERED AND THE S AME IS NOT ACCEPTABLE. THE STATION KHANNA IS NOT A VERY FAR AWAY STATION. IT I S ONLY 35 KMS FROM PATIALA. THE ASSESSEE COULD HAVE EASILY PRODUCED THE CONCERNED P ERSONS WHICH HE HAS FAILED. AS SUCH, THE ASSESSEE HAS FAILED TO PROVE T HE GENUINENESS OF PURCHASE OF THE AFORESAID RICE-HUSK FROM M/S ABHISHEK ENTERPRIS ES, KHANNA BY ANY OTHER CORROBORATIVE AND CONTEMPORANEOUS RECORDS OR EVIDEN CES. ACCORDINGLY, AN ADDITION OF RS.22,50,396/- IS MADE TO THE RETURNED INCOME OF THE ASSESSEE BY DISALLOWING THE PURCHASE OF RICE-HUSK AS DISCUSSED ABOVE. 5.11 THE A.O. FURTHER OBSERVED THAT ALTHOUGH IT WAS NOT POSSIBLE TO VERIFY EVERY BILL TO KNOW THE GENUINENESS OF THE PURCHASES OF RI CE HUSK. HOWEVER CERTAIN INSTANCES INDICATING BOGUS PURCHASES OF RICE HUSK B Y THE ASSESSEE CAME TO HIS KNOWLEDGE IN RESPECT OF THE PURCHASES OF RICE HUSK MADE BY THE ASSESSEE FROM THE FOLLOWING CONCERNS: 1. M/S MANDEEP KUMAR & BROTHERS, VILLAGE MAIN, DIST RICT PATIALA. 2. M/S RADHA KRISHNA TRADERS, GRAIN MARKET, MOONAK. 3. M/S GEETA RAM & SONS, SEETA GEETA STREET, SAMANA. 4. M/S SUKHBIR SINGH AND BROTHERS. VILLAGE MAIN. 5.12 THE A.O. OBSERVED THAT THE INDICATION OF BOGUS PURCHASES OF RICE HUSK FROM THE AFORESAID PARTIES HAD BEEN NOTICED ON THE BASIS OF FOLLOWING FACTS: A) FAKE VEHICLE NUMBER FOUND TO BE MENTIONED ON SOME BILLS BY WHICH THE HUSK WAS SUPPLIED TO THE ASSESSEE. FOR INSTANCE IN THE PURCHASE OF HUSK SHOWN BY THE ASSESSEE FROM M/S MANDEEP KUMAR & BROTHERS, VIL LAGE MAIN, PATIALA ON PURCHASE BILL NO. 354 DATED 03/08/2010, THE TRUCK N UMBER MENTIONED IS PB 11T 10 7760 BUT , AS PER ENQUIRY MADE FROM THE DTO , PATIAL A, THE SAID VEHICLE NUMBER IS OF MOTOR CAR. SIMILARLY, VEHICLE NUMBER PB 11AJ 828 3 MENTIONED ON BILL NO. 361 DATED 06/08/2010 IS OF MOTORCAR AND THE VEHICLE NUM BER PB 11AC 9029 MENTIONED ON BILL NO. 359 DATED 04/08/2010 IS OF CA R. THE PURCHASE OF HUSK BY THE ASSESSEE HAS BEEN SHOWN AT RS. 1,66,86,309/- FROM T HIS CONCERN. THE ENQUIRY MADE FROM M/S MANDEEP KUMAR & BROTHERS, HE COULD NOT FUR NISH ANY EVIDENCE REGARDING THE SOURCE FROM WHERE HE ARRANGED THE TRU CKS FOR SUPPLY OF HUSK TO THE ASSESSEE . NO WEIGHMENT SLIPS WERE AVAILABLE WITH T HE ASSESSEE AND THERE WAS NO EVIDENCE OF LOADING AND UNLOADING. THE SAID CONCERN COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF PURCHASE OF HUSK TO THE EXTE NT TO WHICH HE HAS SHOWN SALE TO M/S VISHAL PAPER INDUSTRIES PVT. LTD, VILLAGE KH USROPUR. B) NO EVIDENCE OF FREIGHT PAYMENT WAS AVAILABLE WIT H THESE CONCERNS WHEREAS ACCORDING TO SALE BILLS THEY SUPPLIED HUSK TO THE ASSESSEE ON F.O.R BASIS. AS SUCH THE VERY BASIS OF EVIDENCE OF TRANSPORTATIO N OF THE GOODS WAS MISSING C) NONE OF THEM WAS HAVING GODOWN FOR THE STORAGE OF T HE HUSK STILL THERE WAS TIME GAP BETWEEN PURCHASE OF HUSK BY THEM AND S ALE OF HUSK TO THE ASSESSEE. D) NONE OF THEM WERE HAVING WEIGHMENT SLIPS WHICH COUL D BE AN EVIDENCE IN SUPPORT OF LOADING/ UNLOADING OF THE HUSK E) THE PURCHASE OF HUSK WAS SHOWN BY THEM IN DIFFERENT VEHICLE NUMBERS AND THE SAME WERE SHOWN TO HAVE SUP PLIED TO THE ASSESSEE IN DIFFERENT NUMBERS WHICH IS QUITE UNUSUAL IN THIS TR ADE AND THE ASSESSEE HAS OFFERED NO EXPLANATION FOR THE SAME. F) THE MOST OF PURCHASES OF RICE-HUSK SHOWN BY THEM IN THEIR BOOKS OF A/C HAS BEEN FOUND TO BE IN CASH. THEY FAILED TO ADDUCE ANY CORROBORATIVE OR CONTEMPORANEOUS RECORD SUCH AS WEIGHMENT SLIPS, FRE IGHT/LABOUR PAYMENTS AND STOCK REGISTER TO SUBSTANTIATE THAT THEY HAVE ACTUA LLY SUPPLIED THE RICE-HUSK TO THE ASSESSEE. THE ASSESSEE ON ITS PART FAILED TO PRODUCE ANY CORR OBORATIVE EVIDENCE WHICH IS MAINTAINED IN THE ORDINARY COURSE OF BUSINESS SUCH AS STOCK REGISTER, GATE REGISTER, WEIGHMENT SL IPS ETC. 5.13 THE A.O. MADE THE ADDITION OF RS. 62,43,090/- BY OBSERVING AS UNDER: FROM THE ENTIRE DISCUSSIONS OF THE FACTS MENTIONED ABOVE, IT IS WELL ESTABLISHED THAT THE ASSESSEE IS IN THE HABIT OF BOOKING BOGUS EXPENSES IN ITS BOOKS OF ACCOUNT UNDER THE HEAD 'PURCHASE OF HUSK' TO A VERY LARGE EXTENT. HOWEVER, IT IS NOT POSSIBLE TO VERIFY EACH AND EVERY PURCHASE BILL OF RICE-HUSK OUT OF THE TOTAL PURCHASES OF RICE-HUSK AMOUNTING TO RS.14,35,20,713 /-. AS PER THE FACTS DISCUSSED ABOVE, THERE IS VERY STRONG CIRCUMSTANTIAL EVIDENCE OF DIRECT AND INDIRECT NATURE TO SUGGEST THAT THE PURCHASE OF RICE-HUSK CANNOT BE ] REGARDED AS GENUINE IN TOTALITY. DISALLOWANCE OF RS. 1,86,58,884/-(RS.94,3 8,495/- + RS.69,69,993/- + RS.22,50,396/-) HAS ALREADY BEEN MADE ON ACCOUNT OF BOGUS PURCHASES OF RICE- HUSK BY THE ASSESSEE FROM SISTER CONCERNS, FROM M/S SARTHI COMMISSION AGENT, SUNAM AND FROM M/S ABHISHEK ENTERPRISES, KHANNA. TH E REMAINING PURCHASES OF RICE-HUSK IS OF RS. 12,48,61,829/-( 14,35,20,713 1, 86,58,884). HENCE, DISALLOWANCE 11 AT THE RATE OF 5% OF THE REMAINING RICE-HUSK PURCH ASED IS DISALLOWED ON A/C OF BOGUS PURCHASES CLAIMED BY THE ASSESSEE IN VIEW OF THE FACTS DISCUSSED ABOVE IN DETAIL. THIS 5% DISALLOWANCE COMES TO RS.62,43,090/ - I.E. 5% OF REMAINING RICE- HUSK PURCHASES OF RS. 12,48,61,829/-. ACCORDIN GLY, AN ADDITION OF RS. 62,43,090/- IS MADE TO THE RETURNED INCOME OF THE ASSESSEE ON A /C BOGUS PURCHASES OF THE RICE-HUSK| FROM DIFFERENT PARTIES OTHER THAN THE CO NCERN IN RESPECT OF WHICH SEPARATE ADDITIONS HAVE ALREADY BEEN MADE AS DISC USSED ABOVE. 5.14 ACCORDINGLY, THE ADDITION OF RS. 2,49,01,874/- (RS. 94,38,395/- + RS. 69,69,993/- + RS. 22,50,396/- + RS. 62,43,090/-) ON ACCOUNT OF BOGUS PURCHASES OF RICE HUSK WAS MADE. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: I) THE LEARNED A.O. HELD PURCHASES MADE FROM M/S S URAJ BHAN & BROTHERS & M/S BABU RAM RAM GOPAL PATIALA WORTH RS. 94,38,495/ - AS BOGUS ON THE FOLLOWING GROUNDS WHICH ARE DEVOID OF ANY MERIT. A) THE LEARNED A.O. HAS DRAWN ADVERSE INFERENCE FROM THE FACT THAT THE PROPRIETORS OF M/S SURAJ BHAN & BROTHERS & M/S BABU RAM RAM GOPAL FROM WHOM THE ASSESSEE PURCHASED RICE HUSK WERE DIRECTORS OF THE COMPANY AND WERE ACTIVELY INVOLVED IN THE FUNCTIONING OF THE COMPANY (PARA (/) & (II) ON PAGE 20 & 21 OF ORDER U/S 143(3)). IT WAS BROUGHT TO LEARNED. A.O. S NOTICE THAT NEITH ER SH. SURAJ BHAN NOR SH. VIDYA SAGAR PROPRIETOR OF THE SAID CONCERNS WAS SUBSTANTI ALLY INTERESTED IN THE COMPANY NOR THEY WERE ACTIVELY INVOLVED IN THE FUNCTIONING OF THE ASSESSEE COMPANY. ANYHOW, NO ADVERSE INFERENCE CAN BE DRAWN LEGALLY S IMPLY DUE TO THE FACT THAT SH. SURAJ BHAN & SH. VIDYA SAGAR WERE DIRECTORS IN COMPANY SINCE NOWHERE IN THE LAW PURCHASES FROM THE DIRECTORS BY THE ANY COMPANY ARE PROHIBITED. ONLY RESTRICTION PLACED IS UNDER SECTION 40A(2) WHEREIN IT IS PROVIDED THAT SERVICES RENDERED BY PERSONS SUBSTANTIALLY INTERESTED IN THE COMPANY ARE TO BE DISALLOWED IF ANY EXPENDITURE INCURRED ON SUCH PURCHASES OR SE RVICES IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERVICES OR PURCHASES. IN THE CASE OF THE ASSESSEE COMPANY, THE SAID TWO DIRECTORS ARE NOT SUBSTANTIALLY INTERESTED PERSONS, HENCE EVEN QUESTI ON OF APPLICATION OF THE PROVISIONS OF SECTION 40A (2) DOES NOT ARISE. THE P URCHASES MADE BY THE ASSESSEE COMPANY FROM SAID PERSONS ARE BEYOND THE AMBIT OF A NY DOUBT. B) THE LD A.O. HAS HELD THAT AFFIDAVITS OF SH. SURAJ BHAN & SH. VIDYA SAGAR ARE NOT OF MUCH IMPORTANCE BECAUSE THE FACTS HAVE ALREA DY ESTABLISHED THAT SAID PERSONS WERE MAKING BOGUS PURCHASES (PARA (ILL) ON PAGE 21). THE LD A.O. IS NOT JUSTIFIED IN ARRIVING AT SUCH A C ONCLUSION WITHOUT EXAMINING SH. SURAJ BHAN & SH. VIDYA SAGAR WHEN THEY HAVE ON SWOR N STATEMENT AFFIRMED THE SALES OF RICE HUSK TO THE ASSESSEE COMPANY. 12 C) THE LD A. O. HAS STATED THAT IT IS NOT UNDERSTOOD HOW THE ASSESSEE CAN CLAIM THAT M/S SURAJ BHAN & BROTHERS & M/S BABU RAM RAMGOPAL HAD ACTUALLY SUPPLIED RICE HUSK WHEN THEY DID NOT TAKE ACTUAL DE LIVERY OF RICE HUSK (PARA (IV) PAGE 22). THE LD A.O. COULD EXAMINE PROPRIETORS OF THESE CONCE RNS IF HE HAD ANY DOUBT REGARDING ACTUAL DELIVERY OF RICE HUSK. NO ADDITION CAN BE MADE SIMPLY ON THE BASIS OF SURMISES AND CONJECTURES OR SUSPICION. D) THE LD A.O. HAS STATED THAT ASSESSEE HAS NOT PROD UCED ANY EVIDENCE IN THE SHAPE OF GATE PASS, REGISTER ETC. INDICATING THE EV IDENCE OF INCOMING AND OUTGOING VEHICLES, WEIGHMENT SLIPS, STOCK REGISTER, FREIGHT PAYMENTS, LABOUR CHARGES FOR LOADING AND UNLOADING OF RICE HUSK AT I TS PREMISES (PARA (V) PAGE 22). IN THIS RESPECT IT IS SUBMITTED THAT THE ASSESSEE C OMPANY WAS NEVER REQUIRED TO PRODUCE ANY SUCH EVIDENCE. THE DELIVERY OF RICE HUS K WAS GIVEN TO ASSESSEE S COMPANY ON FOR BASIS, HENCE THERE WAS NO QUESTION OF ANY LOADING CHARGES, UNLOADING WAS DONE BY THE LABOUR REGULARLY WORKING IN THE COMPANY. THE LD A.O. HAS OBSERVED THAT ASSESSEE HAS FAILED TO FILE INFORMATION REGARDING CONSUMPTION OF RICE HUSK DURING THE LAST TWO YEARS WHICH HAS NOT BEEN DONE (PARA (VI) PAGE 22). A CHART INDICATING COMPARATIVE CONSUMPTION OF RICE HUSK DURING THE LAST TWO ASSESSMENT YEARS WAS DULY FILED BEFORE THE LD A.O. ( COPY ENCLOSED) BUT HE DID NOT CONSIDER THE SAME. HAD HE CONSIDERED THE SAID C HART THERE WOULD HAVE BEEN NO OCCASION FOR HIM TO MAKE ANY ADDITION SINCE THE CONSUMPTION OF RICE HUSK DURING THE YEAR UNDER CONSIDERATION COMPARES FAVORA BLY WITH THE CONSUMPTION OF RICE HUSK IN EARLIER ASSESSMENT YEARS. THE LD A.O. D ID NOT CONSIDER THE SAID CHART PERHAPS DUE TO THE FACT THAT HE WAS SOMEHOW OR OTHE R BENT UPON MAKING THE ADDITION. E) THE LD A.O. HAS DRAWN ADVERSE INFERENCE ON ACCOUN T OF THE FACT THAT AUDITED ACCOUNTS WERE SIGNED BY SH. VIDYA SAGAR WHICH INDIC ATES THAT HE HAD A VITAL ROLE IN THE FUNCTIONING OF THE ASSESSEE COMPANY (PARA (V II) PAGE 23). AS ALREADY SUBMITTED, SH. VIDYA SAGAR HAS NO SUBSTA NTIAL INTEREST IN THE COMPANY. MOREOVER, SIGNING OF THE AUDIT REPORT OF THE COMPAN Y CANNOT MAKE PURCHASES FROM HIS CONCERN BOGUS WHEN HE HAS EMPHATICALLY ADM ITTED THE SALE TO THE ASSESSEE COMPANY AND SALE TAX RECORD OF HIS CONCERN ALSO PROVE THE SAME. F) THE LD A.O. HAS DRAWN ADVERSE INFERENCE SINCE THE VEHICLES IN WHICH RICE HUSK WAS SUPPLIED TO THE ASSESSEE COMPANY WERE DIFFERENT FROM THE VEHICLES IN WHICH RICE HUSK WAS SUPPLIED TO M/S SURAJ BHAN & SONS AND M/S BABU RAM RAMGOPAL. THE LD A.O. HELD THAT THERE WERE NO REASONS WITH THE M TO CHANGE THE VEHICLE WHEN THE DELIVERY WAS TO BE GIVEN TO THE ASSESSEE C OMPANY AT THE SAME STATION (PARA (VIII) OF PAGE 23). IN THIS CONNECTION IT IS SUBMITTED THAT IF THE LD A .O. HAD ANY DOUBT HE COULD RECORD THE STATEMENT OF THE PERSONS CONCERNED TO CL ARIFY THE DOUBT. WITHOUT 13 DOING SO HE IS NOT JUSTIFIED IN DRAWING ANY ADVERSE INFERENCE ON THE BASIS OF SUSPICION ONLY. G) THE LD A.O. HAS DRAWN ADVERSE INFERENCE ON THE GR OUND THAT DURING THE COURSE OF RECORDING OF STATEMENT OFSH. AJAY MALIK U /S 131 OF THE INCOME TAX ACT, THE ASSESSEE WAS CONVEYED TELEPHONICALLY TO CR OSS EXAMINE SH. AJAY MALIK AND HE DECLINED THE SAME (PARA (IX) PAGE 24). THE ASSESSEE VEHEMENTLY DENIES ANY SUCH TELEPHONIC CALL. MOREOVER, THERE WAS NO REASON TO CALL THE ASSESSEE SINCE HE HAS NO BUSI NESS TRANSACTION WITH SH. AJAY MALIK. HENCE NO ADVERSE INFERENCE CAN BE DRAWN. H) THE LD A.O. HAS DRAWN ADVERSE INFERENCE ON THE GR OUND THAT THE INCOME TAX RETURNS OF M/S SURAJ BHAN AND BROTHERS, M/S BABU RA M RAMGOPAL AND SH. AJAY MALIK SHOW SALES MADE BY THESE CONCERNS AT NIL WHICH PROVES CORROBORATIVELY THAT THESE CONCERNS NEVER SUPPLIED RICE HUSK TO THE ASSESSEE (PARA (X) PAGE 24). IN THE INCOME TAX RETURNS M/S SURAJ BHAN & BROTHERS AND M/S BABU RAM RAMGOPAL HAVE DULY SHOWN THE SALES MADE TO THE ASSE SSEE COMPANY (COPIES OF RELEVANT DOCUMENTS ENCLOSED). AS REGARDS SH. AJAY M ALIK, THE ASSESSEE COMPANY HAS NOT MADE ANY PURCHASES FROM HIM AND AS SUCH QUE STION OF HIS SHOWING ANY SALES TO THE ASSESSEE COMPANY DOES NOT ARISE. I) THE LD A.O. HAS DRAWN ADVERSE INFERENCE ON THE GR OUND THAT ASSESSEE COMPANY DID NOT BRING ANYTHING ON RECORD SUCH AS ST OCK REGISTER, GATE REGISTER, WEIGHMENT SLIPS, AND PROOF OF PAYMENTS FOR FREIGHT AND LABOUR TO SUBSTANTIATE THAT THE GOODS ACTUALLY LANDED AT ITS BUSINESS PREM ISES (PARA (XI) PAGE 24). THE LD A.O. COULD NOT DRAW ANY ADVERSE INFERENCE ON THIS ACCOUNT SINCE NO SUCH EVIDENCE WAS EVER CALLED FROM THE ASSESSEE.' 6.1 THE LD. CIT(A) FORWARDED THE SUBMISSIONS OF THE ASSESSEE TO THE A.O. FOR HIS COMMENTS. IN RESPONSE THE A.O. RELIED ON THE ASSESS MENT ORDER. IN HIS REJOINDER THE ASSESSEE SUBMITTED THAT FROM THE CONFESSION OF SHRI AJAY MALIK BEFORE THE A.O. (REPRODUCED AT S.NO. 6 PAGE 8 OF ASSESSMENT OR DER), IT TRANSPIRES THAT HE PURCHASED RICE HUSK IN CASH IN VIOLATION OF SECTION 40A(3) OF THE ACT AND OUT OF FEAR OF INCOME TAX SCRUTINY, HE TWISTED THE FACTS A ND POSED AS ACCOMMODATION ENTRY PROVIDER. IT WAS FURTHER SUBMITTED THAT THE A SSESSEE COULD NOT BE PENALIZED IF THE OTHER PARTY ENTERS IN ANY DUBIOUS TRANSACTIO NS AND THAT THE ASSESSEE AS A PURCHASER WAS CONCERNED WITH THE GOODS AND THE ONLY OBLIGATION REMAINED WAS TO MAKE THE PAYMENT. IT WAS FURTHER STATED THAT THE ASSESSEE DID NOT HAVE TO RECOVER MONEY FROM THOSE PARTIES, HENCE HE WAS NOT REQUIRED TO CONFIRM ON 14 THEIR CREDIT WORTHINESS AND HENCE SIT OVER TO INVES TIGATE THE GENUINENESS OF THE PARTIES OR THEIR BUSINESS TRANSACTIONS. IT WAS ALS O STATED THAT THE ASSESSEE AS A BUSINESS MAN HAD TAKEN DUE CARE IN GETTING NECESSAR Y DETAILS WHICH WERE PRODUCED BEFORE THE A.O. DURING THE ASSESSMENT PROC EEDINGS BUT THE A.O. FAILED TO APPRECIATE THAT THE ASSESSEE HAD BEEN PUR CHASING RICE HUSK FROM M/S BABUR RAM RAM GOPAL AND M/S SURAJ BHAN & BROS IN TH E EARLIER YEAR I.E; A.Y. 2010-11, THE ASSESSMENT OF WHICH WAS COMPLETED UNDE R SECTION 143(3) OF THE ACT AND THERE WAS NO ISSUE REGARDING PURCHASES OF R ICE HUSK FROM THE SAID PARTY. 6.2 LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION OF RS. 94,38,395/- BY OBSERVING AS UNDER: 5.4 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUB MISSIONS MADE BY THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RECORD. T HE CASE LAWS RELIED UPON BY THE COUNSEL OF THE APPELLANT HAS ALSO BEEN PERUSED. ON APPRECIATION OF MATERIAL ON RECORD, IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT IT IS PRIMARILY ON THE BASIS OF STATEMENT RECORDED U/S 131 OF ONE SH. AJAY MALIK PR OP. MS/ JAI MAA KALI TRADERS THAT THE A.O. HELD THAT THE SAID PURCHASES OF RS. 96 ,45,645/- AS BOGUS. THE FACT REMAINS THAT THE APPELLANT HAD FILED SWORN AFFIDAVI TS OF TWO PARTIES WITH THE REQUEST TO EXAMINE THEM IN PERSON. IT IS ALSO UNDIS PUTED THAT PAYMENTS FOR THESE PURCHASES WERE MADE THROUGH NORMAL BANKING CHANNELS , ETC. TO ESTABLISH GENUINENESS OF THE AFORESAID PURCHASES. FROM THE RE CORD IT IS EVIDENT THAT THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED AND AO HAS NOT DOUBTED THE CONSUMPTION OF RICE HUSK AND THEREFORE IT WOULD BE LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING MADE, THE ASS ESSEE COULD NOT HAVE CONSUMED THE STATED QTY. OF RICE HUSK. THE CLAIM OF APPELLANT REGARDING PURCHASE OF RICE HUSK FROM SAID TWO PARTIES IN PRECEDING YEA RS IS NOT DISPUTED BY THE A.O. IN MY CONSIDERED VIEW, THE AO HAS NOT BROUGHT ON REC ORD ANY MATERIAL EVIDENCE TO CONCLUSIVELY PROVE THAT THE SAID PURCHA SES ARE BOGUS. MERE RELIANCE BY THE A.O ON THE STATEMENT OF A THIRD PARTY HAVING NO BUSINESS CONNECTION WITH APPELLANT WOULD NOT IN ITSELF SUFFICE TO TREAT THE PURCHASES AS BOGUS AND MAKE THE ADDITION U/S 69C OF THE ACT. IF THE AO DOUBTED THE G ENUINENESS OF THE SAID PURCHASES, IT WAS INCUMBENT UPON HIM TO CAUSE FURTH ER INQUIRIES IN THE MATTER IN ORDER TO ASCERTAIN THE GENUINENESS OR OTHERWISE OF THESE TRANSACTIONS. WITHOUT CAUSING ANY FURTHER ENQUIRIES TO BE MADE IN RESPECT OF THE SAID PURCHASES, THE AO CANNOT MAKE THE ADDITION U/S 69C OF THE ACT BY ME RELY RELYING ON STATEMENT OF THIRD PARTY RECORDED AT THE BACK OF APPELLANT. T HE AO HAD ALSO FAILED TO SUBSTANTIATE HIS CLAIM THAT ASSESSEE WAS AFFORDED A N OPPORTUNITY TO CROSS EXAMINE THE SAID SH. AJAY MALIK. THE AO FAILED TO MA KE ANY ENQUIRY TO ESTABLISH HIS SUSPICIONS THAT THE SAID PURCHASES WERE BOGUS. HOWEVER, THE APPELLANT HAS BROUGHT ON RECORD DOCUMENTARY EVIDENCES TO ESTABLIS H THE GENUINENESS OF THE SAID PURCHASE TRANSACTIONS LIKE PURCHASE BILLS, SAL ES TAX RECORD AND ITRS OF SUPPLIERS AND EVIDENCE OF PAYMENT THROUGH BANKING CHANNEL. WH EN THE PAYMENTS FOR THE SAID PURCHASES ARE THROUGH PROPER BANKING CHANNELS AND NO EVIDENCE IS BROUGHT 15 ON RECORD BY THE AO TO ESTABLISH THAT THE SAID PAYM ENTS WERE ROUTED BACK TO THE APPELLANT, HIS ACTION IN BRUSHING ASIDE THESE EVIDE NCES CANNOT BE ACCEPTED AND THE ADDITION MADE BY THE AO IS UNSUSTAINABLE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS. ASHISH INTERNATIONAL IN ITA NO. 4299 OF 200 9 (BOM) NIKUNJ EXIMP ENTERPRISES (P.) LTD. VS. CIT [2013] 21 6 TAXMAN 171/35 TAXMANN.COM 384 (BOM). 6.3 AS REGARDS TO THE ADDITION OF RS. 69,69,993/- F ROM M/S SARTHI COMMISSION AGENT THE ASSESSEE SUBMITTED AS UNDER: 'II) THE LD A.O. HELD PURCHASES OF RS. 69,69,993/- F ROM M/S SARTHI COMMISSION AGENT, SUNAM BOGUS ON THE GROUND THAT ASSESSEE HAS FAILED TO PRODUCE ANY PERSON FROM M/S SARTHI COMMISSION AGENT IN SUPPORT OF HIS CONTENTION THAT PURCHASES WERE GENUINE. THAT ON INQUIRY MADE VIDE T ELEPHONE NUMBER 92556- 44009 MENTIONED ON SALE INVOICE OF M/S SARTHI COMMI SSION AGENT, SUNAM, IT WAS GATHERED THAT NO SUCH BUSINESS ACTIVITY WAS DONE BY THE PERSON HOLDING THIS TELEPHONE NUMBER. THAT THE INQUIRY MADE BY THE INSP ECTOR OF INCOME TAX FROM THE LOCALITY REVEALS THAT NO SUCH CONCERN HAS EVER OPERATED FROM THE ADDRESS OF THE BUSINESS PREMISES GIVEN BY THE ASSESSEE AND SHO WN IN THE PURCHASE BILLS DURING LAST 10 YEARS (PARA 5 OF PAGE 34 & 35). THE ASSESSEE WAS ONLY INFORMED THAT NO SUCH CONCERN WAS PRESENTLY WORKING AT 175-B, NEW GRAIN MARKET, SUNAM, THE ADDR ESS GIVEN ON THE SALES INVOICES ISSUED BY M/S SARTHI COMMISSION AGENT, SUN AM. THE LD A.O. WAS SUPPLIED VAT NUMBER OF THE PARTY AS PER VAT RECORDS OF THE P UNJAB VAT DEPARTMENT TO PROVE THE GENUINENESS OF THE SAID PARTY. THE MERE F ACT THAT DURING THE FINANCIAL YEAR 2014-15 IT WAS FOUND THAT THE ASSESSEE HAS CLO SED ITS BUSINESS WAS NOT ENOUGH TO DRAW ANY ADVERSE INFERENCE WHEN THE IDENT ITY OF THE PARTY IS ESTABLISHED, SALES ARE VOUCHED AND PAYMENT HAS BEEN MADE TO THE PERSON CONCERNED THROUGH ACCOUNT PAYEE CHEQUE. IN THIS CON NECTION YOUR KIND ATTENTION IN DRAWN TO THE DECISION IN THE CASE OF M ATHER PIATT (INDIA) LTD. V/S COMMISSIONER OF INCOME TAX (1987) 168 ITR 493 (CAL. ) WHEREIN IT WAS HELD THAT IF ASSESSEE HAS ESTABLISHED IDENTITIES OF COMMISSION A GENTS TO WHOM IT HAD MADE PAYMENT, THE FACT THAT SUMMONS SENT TO THEM BY THE DEPARTMENT CAME BACK UNSERVED FOUR YEARS LATER WOULD NOT MEAN THAT THEY WERE NON-EXISTENT AT THE TIME OF PAYMENT. HENCE, NO ADVERSE INFERENCE ON THIS ACC OUNT COULD BE DRAWN. MOREOVER, COPIES OF SALES TAX RECORDS OF THE ASSESS EE WHICH CONFIRM THE FACTUM OF SALES TO THE ASSESSEE COMPANY WHICH COULD NOT BE FILED DUE TO PAUCITY OF TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IS ALS O ENCLOSED TO ESTABLISH THE GENUINENESS OF THE SALES OF RICE HUSK TO THE ASSESS EE COMPANY. THE ASSESSEE WAS NEVER INFORMED OF THE ALLEGED TELEPHONIC CONVERSATI ON OR INSPECTORS REPORT THAT NO SUCH CONCERN WORKED AT THE SAID PREMISES DURING THE LAST 10 YEARS. IN THE ABSENCE OF THE SAID FACTS BEING CONFRONTED TO THE A SSESSEE COMPANY NO ADVERSE INFERENCE COULD BE DRAWN. 16 IN VIEW OF THE FACT DISCUSSED ABOVE, IT IS ESTABLIS HED THAT THE LD A.O. HAD NO MATERIAL / EVIDENCE WITH HIM TO HOLD THE RICE HU SK PURCHASES FROM THE SAID CONCERN AS BOGUS. HIS SALE TAX RECORD, ACCOUNT BOOK S AND BANK ACCOUNT CONFIRM THE FACTUM OF SALES OF RICE HUSK TO THE ASSESSEE CO MPANY. UNDER THE CIRCUMSTANCES, IT IS REQUESTED THAT ADDITION OF RS. 69, 69,993/- MAY KINDLY BE DELETED.' 6.4 THE LD. CIT(A) FORWARDED THE SUBMISSIONS OF THE ASSESSEE TO THE A.O. FOR HIS COMMENTS. IN RESPONSE THE A.O. RELIED ON THE ASSESS MENT ORDER. IN REJOINDER THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: M/S GANESH DASS PIARA LAL JAIN VS. THE ITO, WARD-4, AMBALA CITY IN ITA NO. 83/CHD/2013 (CHD TRIB) ITO VS. KASHMIR IND. PALACE 99 TAXMANN (CHD)(MAG) MATHER PLATT (INDIA) LTD. VS. CIT (1987) 168 ITR 49 3(CAL.) 6.5 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND THE REPORT OF THE A.O. DELETED THE ADDITION OF RS. 69,6 9,993/- BY OBSERVING AS UNDER: 6.4 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SU BMISSIONS MADE BY THE D OTHER MATERIAL AVAILABLE ON RECORD. THE CASE LAWS R ELIED UPON BY THE COUNSEL OF THE APPELLANT HAVE ALSO BEEN PERUSED. ON APPRECIATIO N OF MATERIAL ON RECORD, IT IS EVIDENT FROM ORDER OF ASSESSMENT THAT IT IS PRIM ARILY ON THE BASIS OF APPELLANT'S INABILITY TO PRODUCE THE SUPPLIER IN PERSON BEFORE A.O. THAT THE A.O. HELD THE SAID PURCHASES AMOUNTING TO RS. 69,69,993/- AS BOGUS. IT IS ALSO THE CASE OF A.O. THAT AS PER VERIFICATION, NO SUCH PARTY IN THE NAME OF M/S SARTHI COMMISSION AGENT EXISTED AT THE GIVEN ADDRESS. AT THE SAME TIME THE APPELLANT HAS STATED THAT A.O. NEVER CONFRONTED THE APPELLANT THE RESULT OF THE VE RIFICATION/ENQUIRY OF THE SAID SUPPLIER. THE APPELLANT WAS ONLY INFORMED THAT NO S UCH CONCERN WAS PRESENTLY WORKING AT 157-B, NEW GRAIN MARKET, SUNAM, THE ADDR ESS GIVEN ON THE SALES INVOICES ISSUED BY M/S SARTHI COMMISSION AGENT, SUN AM. THE A.O. WAS SUPPLIED VAT NUMBER OF THE PARTY AS PER VAT RECORDS OF THE P UNJAB VAT DEPARTMENT TO PROVE THE GENUINENESS OF THE SAID PARTY. THE MERE F ACT THAT DURING THE F.Y. 2014- 15 IT WAS FOUND THAT M/S SARTHI COMMISSION AGENT HA D CLOSED ITS BUSINESS WAS NOT ENOUGH TO DRAW ANY ADVERSE INFERENCE WHEN THE IDENT ITY OF THE PARTY IS ESTABLISHED, SALES ARE VOUCHED AND PAYMENT HAS BEEN MADE TO THE PERSON CONCERNED THROUGH ACCOUNT PAYEE CHEQUE. IT IS ALSO UNDISPUTED THAT PAYMENTS FOR THESE PURCH ASES WERE MADE THROUGH NORMAL BANKING CHANNELS WHICH FAIRLY ESTABLISH THE GENUINENESS OF PURCHASES. FURTHER, THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTE D AND AO HAS NOT DOUBTED THE CONSUMPTION OF RICE HUSK AND THEREFORE IT WOULD BE LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING MADE, THE APP ELLANT COULD NOT HAVE CONSUMED THE STATED QTY. OF RICE HUSK. 17 IN MY CONSIDERED VIEW, THE AO HAS NOT BROUGHT ON RE CORD ANY MATERIAL EVIDENCE TO CONCLUSIVELY PROVE THAT THE SAID PURCHASES ARE B OGUS. MERE RELIANCE BY THE AO ON THE FACT THAT SUPPLIER WAS NOT PRODUCED IN THE COURSE OF ASSESSMENT PROCEEDINGS OR AS PER HIS ENQUIRY IN THE MARKET, NO SUCH PARTY WAS AVAILABLE IN THE A.Y.2014-15 WOULD NOT IN ITSELF SUFFICE TO TREA T THE PURCHASES AS BOGUS AND MAKE THE ADDITION U/S 69C OF THE ACT. IF THE AO DOUB TED THE GENUINENESS OF THE SAID PURCHASES, IT WAS INCUMBENT UPON HIM TO CAUSE FURTHER INQUIRIES IN THE MATTER IN ORDER TO ASCERTAIN THE GENUINENESS OR OTHERWISE OF THESE TRANSACTIONS. WITHOUT CAUSING ANY FURTHER ENQUIRIES TO BE MADE IN RESPECT OF THE SAID PURCHASES, THE AO CANNOT MAKE THE ADDITION U/S 69C OF THE ACT. HERE, THE AO HAS FAILED TO CAUSE ANY ENQUIRY TO ESTA BLISH HIS SUSPICIONS THAT THE SAID PURCHASES WERE BOGUS, WHEREAS THE APPELLANT HA S BROUGHT ON RECORD DOCUMENTARY EVIDENCES TO ESTABLISH THE GENUINENESS OF THE SAID PURCHASE TRANSACTIONS LIKE PURCHASE BILLS, SALES TAX RECORD AND ITRS OF SUPPLIERS, PAYMENT THROUGH BANKING CHANNEL. WHEN THE PAYMENTS FOR THE SAID PURCHASES ARE THROUGH PROPER BANKING CHANNELS AND NO EVIDENCE IS BROUGHT ON RECORD BY THE AO TO ESTABLISH THAT THE SAID PAYMENTS WERE ROUTED BACK T O THE APPELLANT, THE ACTION OF THE AO IN BRUSHING ASIDE THESE EVIDENCES CANNOT BE ACCEPTED AND THE ADDITION MADE BY IS UNSUSTAINABLE. IN VIEW OF THE CASE LAWS CITED BY APPELLANT AND FACTUAL MATRIX OF THE CASE, ADDITION OF RS. 69,69,993/- IS ORDERED TO BE DELETED. 6.6 AS REGARDS TO THE ADDITION OF RS. 22,50,396/- F ROM M/S ABHISHEK ENTERPRISES THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) AS UND ER: 'III) THE LD A.O. HELD PURCHASES OF RS. 22,50,396/- FROM M/S ABHISHEK ENTERPRISES, KHANNA ON THE GROUND THAT NOTICE U/S 131 OF THE I. T ACT, 1961 WAS ISSUED TO THE SAID PERSON WAS RECEIVED UN-SERVED WITH THE POSTAL DEPARTMENT REMARKS 'NOT KNOWN'. THAT ASSESSEE HAS FAILED TO PRODUCE EVIDENC E REGARDING GENUINENESS OF PURCHASE FROM THE SAID CONCERN (PARA G OF PAGE 36 & 37 OF ORDER U/S 143(3)). A LETTER DATED 26.03.2014 WAS RECEIVED FROM THE LEA RNED A.O. ON 26.03.2014 INFORMING THE ASSESSEE THAT NOTICE U/S 131 OF THE I NCOME TAX ACT POSTED ON THE ADDRESS OF M/S ABHISHEK ENTERPRISES, KHANNA WAS REC EIVED BACK WITHOUT SERVICE WITH THE REMARKS 'INCOMPLETE ADDRESS AND NOT KNOWN' . THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PURCHASES MADE FROM THE SAID CONCERN SHOULD NOT BE DISALLOWED AS BOGUS. THE CASE WAS FIXED FOR 27.0 3.2014 AT 11:00 A.M. (COPY OF LETTER ENCLOSED). A WRITTEN REPLY WAS FILED ON 27.0 3.2014 INFORMING THE ASSESSING OFFICER THAT WE NEED TIME TO ASCERTAIN THE REASONS FOR NON DELIVERY OF NOTICE AT THE SAID ADDRESS. A COPY OF ACCOUNT OF THE SAID CON CERN IN OUR BOOKS OF ACCOUNT WAS FILED AND THE LD A.O. WAS INFORMED THAT ALL THE PAYMENTS WERE MADE THROUGH PAYEES ACCOUNT CHEQUE WHICH ESTABLISHED GEN UINENESS OF THE PURCHASES MADE FROM THE SAID CONCERN. THE RELEVANT EXTRACT OF THE LETTER DATED27.03.2014 READS AS UNDER: 'WITH REGARDS TO PURCHASES FROM M/S ABHISHEK ENTERP RISES, KHANNA, IT HAS BEEN STATED IN YOUR OFFICE LETTER DATED 26.03.2014 THAT THE SUMMONS UNDER SECTION 131(1) HAD BEEN RECEIVED BACK TO YOUR OFFICE WITH T HE REMARKS 'INCOMPLETE ADDRESS AND NOT KNOWN', IT IS RESPECTFULLY SUBMITTE D THAT WE NEED TIME TO 18 ASCERTAIN THE REASONS FOR NON-DELIVERY OF OFFICE LE TTER AT THE SAID ADDRESS. WE ARE ENCLOSING HEREWITH A COPY OF ACCOUNT OF THE SAID CO NCERN FROM OUR BOOKS OF ACCOUNTS. THE PAYMENTS HAVE BEEN MADE BY PAYEES ACC OUNT CHEQUE. IT IS THEREFORE PRAYED THAT THE PURCHASES FROM THE SAID C ONCERN ARE GENUINE.' (COPY OF LETTER ENCLOSED) IN VIEW OF THE WRITTEN REPLY FILED BY THE ASSESSEE THERE WAS NO REASON WITH THE LD A.O. TO HOLD THE PURCHASES FROM THE SAID CONCERN AS BOGUS WITHOUT MAKING ANY ENQUIRY REGARDING THE GENUINENESS OF PAYMENTS M ADE TO SAID PERSONS. MOREOVER, MERE FACT THAT NOTICE U/S 131 WAS RECEIVE D BACK UN SERVED DOES NOT ESTABLISH THAT THE PARTY DID NOT EXIST WHEN THE PAY MENTS, IN RESPECT OF PURCHASES MADE FROM HIM, HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES ONLY WHICH ITSELF ESTABLISHING THE GENUINENESS OF THE PERSON. IN THIS CONNECTION YOUR KIND ATTENTION IN DRAWN TO THE DECISION IN THE CASE OF M ATHER PIATT (INDIA) LTD. V/S COMMISSIONER OF INCOME TAX (1987) 168 TTR 493 (CAT. ) WHEREIN IT WAS HELD THAT IF ASSESSEE HAS ESTABLISHED IDENTITIES OF COMMISSION A GENTS TO WHOM IT HAD MADE PAYMENT, THE FACT THAT SUMMONS SENT TO THEM BY THE DEPARTMENT CAME BACK UNSERVED FOUR YEARS LATER WOULD NOT MEAN THAT THEY WERE NON-EXISTENT AT THE TIME OF PAYMENT. HENCE, NO ADVERSE INFERENCE ON THIS ACC OUNT COULD BE DRAWN. MOREOVER, COPIES OF SALES TAX RECORDS OF THE ASSESS EE WHICH CONFIRM THE FACTUM OF SALES TO THE ASSESSEE COMPANY WHICH COULD NOT BE FILED DUE TO PAUCITY OF TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IS ALS O ENCLOSED TO ESTABLISH THE GENUINENESS OF THE PURCHASES OF RICE HUSK FROM THE SAID PERSON TO THE ASSESSEE COMPANY. IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS ESTABLI SHED THAT THE LD A.O. HAD NO MATERIAL / EVIDENCE WITH HIM TO HOLD THE RICE HUSK PURCHASES FROM THE SAID CONCERN AS BOGUS. HIS SALE TAX RECORD, ACCOUNT BOOK S AND BANK ACCOUNT CONFIRM THE FACTUM OF SALES OF RICE HUSK TO THE ASSESSEE CO MPANY. UNDER THE CIRCUMSTANCES, IT IS REQUESTED THAT ADDITION OF RS. 22,50,396/- MAY KINDLY BE DELETED. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: NIKUNJ EXIMP ENTERPRISES(P.) LTD. VS. CIT[2013] 216 TAXMAN 171/35 TAXMANN.COM 384 (BOM). CIT VS. NANGALIA FABRICS (P.) LTD. [2014] 220 TAXMA NN 17/[2013] 40 TAXMANN.COM 206(GUJ). CIT VS. M.K. BROS. [1987] 163 ITR 249 / 30 TAXMAN 5 47 (GUJ). ASSTT. CIT VS. AKRUTI DYEING & PRINTING MILLS(P.) L TD. [TAX APPEAL NO. 997 OF 2008, DATED 27/01/2009]. DIAGNOSTICS VS. CIT [2011] 334 ITR 111/[2012] 20 TA XMANN.COM 692 (CAL.) ITO VS. TOTARAM B. SHARMA [ TAX APPEAL NOS. 1344/200 8 & 1355 / 2008, DATED 09/02/2010. DY. CIT VS. ADINATH INDUSTRIES [2001] 252 ITR 476/[ 2002] 120 TAXMAN 822 (GUJ) CIT VS. PRECIOUS JEWELS CORPN. [2012] 17 TAXMANN.CO M 264/205 TAXMAN 22 (RAJ.) 19 6.7 THE LD. CIT(A) FORWARDED THE SUBMISSIONS OF THE ASSESSEE FOR COMMENTS OF THE A.O. WHO MAINLY RELIED ON THE ASSESSMENT ORDER. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION OF RS. 22,50,396/- BY OBSERVING AS UNDER: 7.4 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RECORD. T HE CASE LAWS RELIED UPON BY THE COUNSEL OF THE APPELLANT HAS ALSO BEEN PERUSED. ON APPRECIATION OF MATERIAL ON RECORD, IT IS EVIDENT FROM ORDER OF ASS ESSMENT THAT IT IS PRIMARILY ON THE BASIS OF NON COMPLIANCE OF SUMMONS ISSUED U/S 1 31 ON THE PART SUPPLIER M/S ABHISHEK ENTERPRISES, KHANNA, THAT THE A.O. HELD THE SAID PURCHASES AMOUNTING TO RS. 22,50,396/- AS BOGUS. THE APPELLANT WAS ASKE D TO SHOW CAUSE AS TO WHY THE PURCHASES MADE FROM THE SAID CONCERN SHOULD NOT BE DISALLOWED AS BOGUS. THE APPELLANT VIDE LETTER DT. 27.03.2014 INFORMED T HE ASSESSING OFFICER THAT SOME TIME NEEDS TO BE GIVEN TO ASCERTAIN THE REASONS FOR NON DELIVERY OF NOTICE AT THE GIVEN ADDRESS. IN THE MEAN TIME ASSESSEE SUPPLIED A COPY OF ACCOUNT OF THE SAID CONCERN AS PER ITS BOOKS OF ACCOUNT AND ALSO V AT NUMBER OF THE PARTY AS PER VAT RECORDS OF THE PUNJAB VAT DEPARTMENT TO PRO VE THE GENUINENESS OF THE SAID PARTY. IT IS ALSO UNDISPUTED THAT PAYMENTS FOR THESE PURCH ASES WERE MADE THROUGH NORMAL BANKING CHANNELS, WHICH FAIRLY INDICATES THE GENUINENESS OF PURCHASES. FURTHER, THE BOOKS OF ACCOUNT HAVE NO T BEEN REJECTED AND AO HAS NOT DOUBTED THE CONSUMPTION OF RICE HUSK AND TH EREFORE IT WOULD BE LOGICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BE ING MADE, THE ASSESSEE COULD NOT HAVE CONSUMED THE STATED QTY. OF RICE HUS K. IN MY CONSIDERED VIEW, THE AO HAS NOT BROUGHT ON REC ORD ANY MATERIAL EVIDENCE TO CONCLUSIVELY PROVE THAT THE SAID PURCHA SES WERE BOGUS. MERE RELIANCE BY THE AO ON THE FACT THAT SUPPLIER HAS NOT COMPLIED WITH THE SUMMONS ISSUED U/S 131 WOULD NOT IN ITSELF SUFFICE TO TREAT THE PURCHASES AS BOGUS AND MAKE THE ADDITION U/S 69C OF THE ACT. IF THE AO DOUB TED THE GENUINENESS OF THE SAID PURCHASES, IT WAS INCUMBENT UPON HIM TO CAUSE FURTHER INQUIRIES IN THE MATTER IN ORDER TO ASCERTAIN THE GENUINENESS OR OTH ERWISE OF THESE TRANSACTIONS. WITHOUT CAUSING ANY FURTHER ENQUIRIES IN RESPECT OF THE SAID PURCHASES, THE AO CANNOT MAKE THE ADDITION U/S 69C OF THE ACT MERELY OWING TO NON COMPLIANCE OF SUMMONS U/S 131. IN THE FACTUAL MATRIX OF THE CASE ON HAND, WHEREAS THE AO FAILED TO CAUSE ANY ENQUIRY TO ESTABLISH HIS SUSPICIONS THAT THE SAID P URCHASES WERE BOGUS, THE APPELLANT HAS BROUGHT ON RECORD DOCUMENTARY EVIDENC ES TO ESTABLISH THE GENUINENESS OF THE SAID PURCHASE TRANSACTIONS LIKE PURCHASE BILLS, SALES TAX RECORD AND EVIDENCE OF PAYMENT THROUGH BANKING CHAN NEL. MOREOVER, WHEN THE PAYMENTS FOR THE SAID PURCHASES ARE THROUGH PRO PER BANKING CHANNELS AND NO EVIDENCE IS BROUGHT ON RECORD BY THE AO TO ESTAB LISH THAT THE SAID PAYMENTS WERE ROUTED BACK TO THE APPELLANT, THE ACTION OF TH E AO IN BRUSHING ASIDE THESE EVIDENCES CANNOT BE ACCEPTED AND THE ADDITION MADE BY HIM IS UNSUSTAINABLE. HENCE, THE ADDITION OF RS. 22,50,396 /- IS DIRECTED TO BE DELETED. 20 6.8 AS REGARDS TO THE DISALLOWANCE OF RS. 62,43,90/ - THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) AS UNDER: 'THE LD A. O. HAS STATED THAT ON SOME SALE BILLS NUM BER OF TRUCKS MENTIONED BY WHICH HUSK WAS SUPPLIED TO THE ASSESSEE WERE FOUND TO BE FAKE. THAT ON BILL NUMBER 354 DATED 03.08.2010, THE TRUCK NUMBER MENTI ONED IS PB 11T 7760 BUT AS PER ENQUIRY MADE FROM THE DTO PATIALA THE SAID VEHIC LE NUMBER IS OF MOTOR CAR. SIMILARLY, VEHICLE NUMBER PB 11AJ 8283 MENTIONED ON BILL NO. 361 DATED 06.08.2010 IS OF MOTOR CAR AND THE VEHICLE NUMBER PB 11 AC 902 9 MENTIONED ON BILL NO. 359 DATED 04.08.2010 IS OF CAR. THAT M/S MANDEEP KUMAR & BROTHERS COULD NOT FURNISH ANY EVIDENCE REGARDING THE SOURCE FROM WHERE HE ARR ANGED THE TRUCKS FOR SUPPLY OF HUSK TO THE ASSESSEE. THAT NO WEIGHMENT SLIPS WE RE AVAILABLE WITH THE ASSESSEE AND THERE WAS NO EVIDENCE OF LOADING AND UNLOADING. THAT NO EVIDENCE OF FREIGHT PAYMENT WAS AVAILABLE WITH THE CONCERNS MEN TIONED ABOVE. THAT NONE OF THEM WERE HAVING A GODOWN FOR STORAGE OF THE HUSK. THAT NONE OF THEM HAVE WEIGHMENT SLIPS WHICH COULD BE EVIDENCE IN SUPPORT FOR LOADING/ UNLOADING OF THE RICE HUSK. THAT PURCHASE OF HUSK SHOWN BY THEM WAS IN DIFFERENT VEHICLE NUMBER AND THE SAME WERE SHOWN TO HAVE SUPPLIED TO THE ASSESSEE IN DIFFERENT NUMBERS WHICH IS UNUSUAL. THAT MOST OF THE PURCHASE S OF RICE HUSK HAVE BEEN FOUND IN CASH AND THAT THEY FAILED TO PRODUCE ANY E VIDENCE WHICH MAY PROVE THAT THEY HAD ACTUALLY SUPPLIED RICE HUSK TO THE AS SESSEE. (PARA H PAGE 37 TO 41 OF THE ASSESSMENT ORDER U/S 143(3)). THE ENQUIRIES ALLEGED TO HAVE BEEN MADE FROM THE FO UR CONCERNS STATED ABOVE WERE NEVER CONFRONTED TO THE ASSESSEE. NO MAT ERIAL COLLECTED BY ENQUIRIES MADE BY THE LD A.O. CAN BE USED AGAINST THE ASSESSEE UNTIL AND UNLESS HE IS INFORMED OF THE EVIDENCE COLLECTED AND IS GIVEN AN ADEQUATE OPPORTUNITY OF EXPLAINING THE SAME. THE HONBLE ALLAHABAD HIGH COUR T IN THE CASE OF MUNNA LAL MURLIDHAR VS. CTT REPORTED IN 79 TTR 540 HELD THAT THE TTO MUST GIVE REASONABLE TIME AND OPPORTUNITY TO THE ASSESSEE TO PRODUCE EVI DENCE OTHERWISE THE ORDER OF ASSESSMENT WILL BE VITIATED. THE HON'BLE SUPREME CO URT IN THE CASE OF C. VASANT LAI & COMPANY VS. CTT REPORTED IN 45 TTR 206 HELD T HAT IT IS OPEN TO THE TTO TO COLLECT MATERIALS TO FACILITATE ASSESSMENT EVEN BY PRIVATE ENQUIRY. BUT IF HE DESIRES TO USE THE MATERIAL SO COLLECTED, THE ASSESSEE MUST BE INFORMED OF THE MATERIAL AND MUST BE GIVEN AN ADEQUATE OPPORTUNITY OF EXPLAI NING IT. SINCE THE ADDITION HAS BEEN MADE WITHOUT CONFRONTING THE RESULT OF ENQ UIRIES TO THE ASSESSEE COMPANY THE SAME DESERVES TO BE DELETED. WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT NO ADDITION ON AD-HOC BASIS CAN BE MADE WITHOUT REJECTING THE BOOKS OF AC COUNT WHICH HAS NOT BEEN DONE BY THE LD A.O. AS NO DISCREPANCY IN THE ACCOUN T BOOKS WAS NOTICED BY HIM. ON THIS SCORE ALONE THE ADDITION DESERVES TO BE DELETED. EVEN OTHERWISE ON THE BASIS OF ENQUIRIES FROM A FEW PERSONS THE PURCH ASES OF RICE HUSK MADE FROM OTHER PERSONS CANNOT BE HELD TO BE BOGUS. FROM THE FACTS DISCUSSED ABOVE, IT IS ABUNDANTLY CL EAR THAT ADDITION ON ACCOUNT OF BOGUS PURCHASES HAS BEEN MADE ON THE BAS IS OF SURMISES AND CONJECTURES ONLY AS ALL THE PERSONS FROM WHOM PURCH ASES HAVE BEEN MADE ARE IDENTIFIABLE, PAYMENTS HAVE BEEN MADE THROUGH ACCOU NT PAYEE CHEQUE ONLY AND SALES HAVE BEEN SHOWN BY THEM IN THEIR SALES TA X RETURNS. 21 THE HON'BLE SUPREME COURT IN THE CASE OF DHIRAJ LAI GIRDHARI LAI V/S CIT REPORTED AT 26 ITR 736 HAS HELD THAT AN ASSESSMENT BASED ON MERE CONJECTURES, SURMISES OR SUSPICION OR IRRELEVANT AND INADMISSIBLE EVIDENCE A ND MATERIAL IS INVALID AND UNSUSTAINABLE IN LAW. UNDER THE CIRCUMSTANCES IT IS REQUESTED THAT ADDITION OF RS. 62, 43,090/- MAY KINDLY BE DELETED KEEPING IN VIEW THE LEGAL AND FACTUAL POSITION EXPLAINED SUPRA. THE AFORESAID SUBMISSION OF THE ASSESSEE WERE REFER RED TO THE A.O. WHO RELIED ON THE ASSESSMENT ORDER. 6.9 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE ADDITION OF RS. 62,43,090/- BY OBSERVING IN PAR A 8.3 OF THE IMPUGNED ORDER AS UNDER: 8.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE APPELLANT AND OTHER MATERIAL AVAILABLE ON RECORD. T HE CASE LAWS RELIED UPON BY THE COUNSEL OF THE APPELLANT HAVE ALSO BEEN PERUSED . ON APPRECIATION OF MATERIAL ON RECORD, THE AO NOTED DISCREPANCIES IN TH E REGISTRATION NUMBERS OF TRANSPORT VEHICLES MENTIONED IN THE BILLS/GRS AS TH ESE WERE NOT FOUND TO BE OF TRUCKS. THE SUPPLIERS COULD NOT TELL THE SOURCE OF SUPPLIES WHICH WERE EVENTUALLY MADE TO THE APPELLANT. THERE WAS NO EVIDENCE OF FRE IGHT PAYMENTS BY THE SUPPLIERS, ALTHOUGH THEY SUPPLIED GOODS TO THE APPE LLANT ON FOR BASIS. HENCE, THE A.O. CONCLUDED THAT REMAINING PURCHASE OF RICE H USK I.E. 5% OF (RS. 12,48,61,829/-) AMOUNTING TO RS. 62,43,090/- IS LIA BLE TO BE DISALLOWED TREATING THE SAME TO BE BOGUS. IT IS THE CASE OF THE APPELLANT THAT THE FINDINGS O F ENQUIRIES ALLEGED TO HAVE BEEN MADE FROM THE AFORESAID CONCERNS AND ELSE WHERE WERE NEVER CONFRONTED TO IT BY THE ID. A.O. DURING THE COURSE O F ASSESSMENT PROCEEDINGS. IT HAS FURTHER BEEN ARGUED THAT NO MATERIAL COLLECT ED BY ENQUIRIES MADE BY THE A.O. CAN BE USED AGAINST THE APPELLANT UNTIL AND UNLESS IT WAS INFORMED OF THE EVIDENCE COLLECTED AND IS GIVEN AN ADEQUATE OPP ORTUNITY OF REBUTTING/EXPLAINING THE SAME. THE CONTENTION OF AP PELLANT IS WELL SUPPORTED BY VARIOUS DECISIONS. THE A.O. HAS NOT DISPUTED THE CONTENTION OF THE APPE LLANT THAT IT WAS NOT CONFRONTED WITH THE ENQUIRIES MADE FROM THE SELECT FEW SUPPLIERS. FURTHER, THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED AND AO HAS NOT DOUBTED THE CONSUMPTION OF RICE HUSK. THEREFORE, IT WOULD BE LO GICAL TO CONCLUDE THAT WITHOUT CORRESPONDING PURCHASES BEING MADE, THE ASSESSEE CO ULD NOT HAVE CONSUMED THE STATED QTY. OF RICE HUSK. IT IS SETTLED LAW THA T NO ADDITION ON ADHOC BASIS CAN BE MADE WITHOUT REJECTING BOOKS OF ACCOUNT. MOREOVE R, BASED ON THE ENQUIRIES MADE FROM A SELECT FEW PURCHASERS, THE AO WAS NOT JU STIFIED TO HOLD THAT THE PURCHASES OF RICE HUSK MADE FROM OTHER PERSONS WERE ALSO BOGUS. 22 IN MY CONSIDERED VIEW, FROM THE FACTS DISCUSSED ABO VE, IT IS ABUNDANTLY CLEAR THAT AD HOC ADDITION ON ACCOUNT OF BOGUS PURC HASES HAS BEEN MADE ON THE BASIS OF SURMISES AND CONJECTURES ONLY AS ALL T HE PERSONS FROM WHOM PURCHASES HAVE BEEN MADE ARE IDENTIFIABLE, PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE ONLY AND SALES HAVE BE EN SHOWN BY THOSE PERSONS IN THEIR SALES TAX RETURNS. THE HON'BLE SUP REME COURT IN THE CASE OF DHIRAJ LAI GIRDHARI LAI V/S CIT REPORTED AT 26 ITR 736 HAS HELD THAT AN ASSESSMENT BASED ON MERE CONJECTURES, SURMISES OR SUSPICION OR IRREL EVANT AND INADMISSIBLE EVIDENCE AND MATERIAL IS INVALID AND UNSUSTAINABLE IN LAW. THUS, THE ACTION OF THE A.O. IS NOT SUSTAINABLE AND THE ADDITION MADE IS DIR ECTED TO BE DELETED. 7. NOW THE DEPARTMENT IS IN APPEAL. 8. THE LD. CIT DR STRONGLY SUPPORTED THE ORDER PASS ED BY THE A.O. AND REITERATED THE OBSERVATIONS MADE THEREIN. IT WAS FU RTHER SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS ACTIVITY OF MA NUFACTURING OF PAPER AND DURING THE YEAR CONSUMED THE ELECTRICITY OF RS. 80 LAC WHILE PURCHASES OF RICE HUSK WORTH RS. 14,35,20,713/- WAS SHOWN. IT WAS CON TENDED THAT THE ASSESSEE PURCHASED THE RICE HUSK FROM THE COMMISSION AGENTS AND NOT FROM THE INDUSTRIAL ENTERPRISES AND THAT NO CLOSING STOCK OF THE RICE H USK WAS SHOWN WHICH IS NOT BELIEVABLE. IT WAS FURTHER STATED THAT THE ASSESSEE WAS GETTING THE ELECTRICITY SUPPLY FROM THE STATE ELECTRICITY DEPARTMENT AND AL SO HAD ITS OWN ARRANGEMENT FOR PRODUCTION OF ELECTRICITY BUT THERE WAS VARIATI ON IN CONSUMPTION OF ELECTRICITY UNITS FOR PER MT OF PRODUCTION OF FINISHED GOODS. I T WAS STATED THAT THE A.O. POINTED OUT SPECIFIC DEFECTS ON ACCOUNT OF PURCHASE S, CONSUMPTION OF ELECTRICITY ETC. AND MADE THE SPECIFIC ADDITION THA T IS WHY THE BOOKS OF ACCOUNTS WERE NOT REJECTED. 8.1 IT WAS REITERATED THAT THE BOOKS WERE NOT RELIA BLE BUT ACCEPTED BY THE A.O. FOR THE REASONS THAT HE WANTED TO MAKE SPECIFI C ADDITIONS. IT WAS SUBMITTED THAT THE ASSESSEE PURCHASED RICE HUSK WORTH RS. 94, 38,395/- FROM TWO SISTER CONCERNS AND THE DIRECTORS OF THE ASSESSEE COMPANY WHO WERE THE PARTNERS IN THE SISTER CONCERN ACTED AS CONDUIT. IT WAS STATED THAT THE ASSESSEE ALTHOUGH HAD SHOWN THE PURCHASE OF RICE HUSK BUT HAD NOT SHO WN ANY EXPLANATION ON ACCOUNT OF FREIGHT PAYMENT, LOADING AND UNLOADING C HARGES AND EVEN THERE 23 WAS NO GODOWN TO STORE THE RICE HUSK PURCHASED IN S UCH A LARGE QUANTITY. IT WAS STATED THAT STATEMENT OF THE PROPRIETOR OF M/S JAI MAA KALI FOOD NAMELY SHRI AJAY MALIK WAS RECORDED UNDER SECTION 131 OF THE AC T AND IN THE SAID STATEMENT IT WAS ADMITTED THAT HE WAS DOING ONLY PAPER TRANSA CTION MEANING THEREBY THAT HE HAD GETTING BILL OF PURCHASE AND ISSUED SALE BIL L WITHOUT GETTING ANY DELIVERY OF GOODS AND WITHOUT GIVING DELIVERY OF GOODS, REFE RENCE WAS MADE TO PAGE NO. 5 TO 10 OF THE ASSESSMENT ORDER WHEREIN THE STA TEMENT DT. 19/03/2014 OF SHRI AJAY MALIK HAS BEEN INCORPORATED. ON THE BASIS OF T HE SAID STATEMENT, IT WAS CONTENDED THAT SHRI AJAY MALIK, PROPRIETOR OF M/S J AI MAA KALI FOODS WAS GIVING ONLY SALE BILLS OF RICE HUSK TO M/S SURAJ BHAN & BR OTHERS AND M/S BABU RAM RAM GOPAL SISTER CONCERN OF THE ASSESSEE FROM WHOM THE PURCHASE OF RICE HUSK HAD BEEN SHOWN BY THE ASSESSEE. THEREFORE THE SAID PURC HASE OF RICE HUSK AMOUNTING TO RS. 94,38,395/- WAS BOGUS PURCHASE AND RIGHTLY ADDED BY THE A.O. 8.2 THE LD. CIT DR REITERATED THE OBSERVATIONS MADE BY THE A.O. IN PARA 10(C) OF THE ASSESSMENT ORDER WHICH WE HAVE ALREADY REPRO DUCED IN THE FORMER PART OF THIS ORDER. IT WAS STATED THAT THE ASSESSEE COM PANY COULD NOT BRING ANYTHING ON RECORD SUCH AS STOCK REGISTER, GATE REGISTER, WE IGHMENT SLIPS, PROOF OF PAYMENTS FOR FREIGHT AND LABOUR TO SUBSTANTIATE THA T THE GOODS ACTUALLY LANDED AT THE BUSINESS PREMISES OF THE ASSESSEE. 8.3 IT WAS FURTHER STATED THAT THE PURCHASES HAD BE EN SHOWN TO HAVE BEEN MADE BY THE ASSESSEE FROM M/S SHARTHI COMMISSION A GENT, SHOP NO. 157B, SUNAM WORTH RS. 69,69,553/-, HOWEVER, ON INQUIRY IT WAS FOUND THAT THE SAID CONCERN CLOSED ITS BUSINESS. IT WAS POINTED OUT THA T THE CONTENTION OF THE ASSESSEE THAT PURCHASES MADE FROM M/S SHARTHI COMMI SSION AGENT WERE GENUINE WAS TOTALLY BASELESS SINCE THE ASSESSEE FAI LED TO PRODUCE ANY PERSON FROM M/S SHARTHI COMMISSION AGENT IN SUPPORT OF IT S CONTENTION AND THE INQUIRY MADE BY THE INCOME TAX DEPARTMENT REVEALED THAT NO SUCH CONCERN HAD OPERATED FROM THE ADDRESS OF THE BUSINESS PREMISES GIVEN BY THE ASSESSEE AND 24 SHOWN IN THE PURCHASE BILLS FOR THE LAST TEN YEARS. THEREFORE THE ADDITION MADE BY THE A.O. WAS JUSTIFIED AND THE LD. CIT(A) WAS NOT J USTIFIED IN DELETING THE SAME. 8.4. AS REGARDS TO THE THIRD ADDITION AMOUNTING TO RS. 22,50,396/-, THE LD. DR SUBMITTED THAT THE ASSESSEE HAD SHOWN PURCHASE OF R ICE HUSK AMOUNTING TO RS. 22,50,396/- FROM M/S ABHISHEK ENTERPRISES, KHANNA. HOWEVER THE NOTICE UNDER SECTION 131 OF THE ACT ISSUED TO THE SAID PARTY RET URNED UNDELIVERED AND THE ASSESSEE COULD NOT PRODUCE ANY PERSON TO PROVE THE GENUINENESS OF THE PURCHASE OF RICE HUSK FROM M/S ABHISHEK ENTERPRISES . THEREFORE THE ADDITION OF RS. 22,50,396/- WAS RIGHTLY MADE BY THE A.O. 8.5 AS REGARDS TO THE ANOTHER ADDITION OF RS. 62,43 ,090/- BEING 5% OF THE REMAINING RICE HUSK PURCHASED WORTH RS. 12,48,61,82 9/-. 8.6 THE LD. CIT(A) SUBMITTED THAT THE ASSESSEE WAS IN A HABIT OF BOOKING BOGUS EXPENSES IN ITS BOOKS OF ACCOUNT BY GIVING FA KE VEHICLE NUMBER ON SOME OF THE BILLS WHICH WERE MENTIONED AS OF THE TRUCK, HOWEVER, ON AN ENQUIRY MADE FROM THE DTO PATIALA , IT WAS FOUND THAT THE SAID N UMBERS WERE OF MOTOR CARS AND NOT OF THE TRUCKS AND THE ASSESSEE COULD NOT PR ODUCE ANY EVIDENCE REGARDING THE SOURCE FROM WHERE THE TRUCKS WERE ARR ANGED FOR SUPPLYING THE HUSK TO THE ASSESSEE, EVEN NO WEIGHMENT SLIPS WERE AVAILABLE AND THERE WAS NO EVIDENCE OF LOADING OR UNLOADING, THEREFORE, THE AD DITION MADE BY THE A.O. @5% OF THE ANOTHER PURCHASE WAS FAIR AND REASONABLE . RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS. CENTURY BUILDING INDUSTRIES (P.) LTD. [2007 ] 163 TAXMAN 188 (SC) JUGGILAL KAMALPAT VS. CIT [1969] 73 ITR 702 (SC) GOENKA JEWELLERS VS. CIT I, JAIPUR [2018] 100 TAXMA NN.COM 517 (RAJ) N.K. PROTEINS LTD. VS. DCIT [2017] 84 TAXMANN.COM 1 95 (SC) M/S LUNAWAT GEMS CORPORATION, LUNAWAT MARKET, DARRA , HALDION KA RASTA,JAIPUR VS. THE CIT, N.C.R.B., JAIPUR AND DCIT, JAIPUR B.T. STEELS LTD. VS. CIT [2011] 196 TAXMAN 362 (P&H ) 25 9. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S TRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 9.1 IT WAS FURTHER SUBMITTED THAT THE ADDITION OF R S. 94,38,395/- ON ACCOUNT OF PURCHASE OF RICE HUSK FROM M/S SURAJ BHAN & BROTHER S, PATIALA AND M/S BABU RAM RAM GOPAL, PATIALA WAS RIGHTLY DELETED BY THE LD. C IT(A). IT WAS STATED THAT THE SAID ADDITION WAS MADE BY THE A.O. MERELY ON THE BA SIS OF STATEMENT OF ONE SHRI AJAY MALIK, PROPRIETOR OF M/S JAI MAA KALI GOODS WH ICH WAS A THIRD PARTY AND WAS HAVING NO CONNECTION WITH THE ASSESSEE, HIS SUB MISSION WAS RECORDED AT THE BACK OF THE ASSESSEE WITHOUT GIVING ANY OPPORTUNITY OF CROSS EXAMINATION. FURTHERMORE THE ASSESSEE HAD FILED SWORN AFFIDAVITS OF THE TWO PARTIES FROM WHOM THE PURCHASES WERE MADE, WITH THE REQUEST TO EXAMIN E THOSE PERSONS. HOWEVER THE A.O. FAILED TO MAKE ANY INQUIRY FROM THE PROPRI ETORS OF M/S SURAJ BHAN & BROTHERS, PATIALA AND M/S BABU RAM RAM GOPAL, PATIA LA, REFERENCE WAS MADE TO PAGE NOS. 4 & 5 OF THE ASSESSEES PAPER BOOK WHI CH ARE THE COPIES OF THE AFFIDAVIT OF M/S SURAJ BHAN & BROTHERS, PATIALA AND M/S BABU RAM RAM GOPAL, PATIALA AND SHRI VIDYA SAGAR. 9.2 IT WAS STATED THAT THE ASSESSEE DISCHARGED ITS ONUS BY PRODUCING THE RELEVANT RECORD SHOWING THE GENUINENESS OF THE PURC HASES IN THE FORM OF PURCHASE BILLS, SALES TAX RECORD AND INCOME TAX RET URN OF THE SUPPLIERS ALONGWITH EVIDENCE OF PAYMENT THROUGH BANKING CHANNELS TO PRO VE THE GENUINENESS OF THE TRANSACTIONS RELEVANT TO THE PURCHASES OF RICE HUSK, THOSE EVIDENCES FURNISHED BY THE ASSESSEE WERE NOT FOUND TO BE FABR ICATED OR FALSE BY THE A.O. AND NOTHING WAS BROUGHT ON RECORD BY THE A.O. TO SU BSTANTIATE THAT THE PAYMENTS MADE BY THE ASSESSEE WERE ROUTED BACK TO I T. IT WAS SUBMITTED THAT BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE NO T REJECTED AS THE SAME WERE NOT DOUBTED AND EVEN CONSUMPTION OF RICE HUSK WAS NOT DOUBTED. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE ORDER OF T HE ITAT FOR THE A.Y. 2010-11 IN 26 ITA NO. 829/CHD/2014 WHEREIN NO SUCH ADDITION WAS M ADE BY THE A.O. IN THE PRECEDING YEAR WHEREIN THE PURCHASES WERE MADE BY T HE ASSESSEE FROM THE SAME PARTIES. 9.3 IT WAS STATED THAT THE SIMILAR PURCHASE MADE BY THE ASSESSEE FROM THE SAME PARTIES IN THE PRECEDING YEARS WERE NOT DISPUT ED BY THE A.O. THEREFORE THE ADDITION OF RS. 98,34,495/- MADE BY THE A.O. WAS RI GHTLY DELETED BY THE LD. CIT(A). 10. AS REGARDS TO THE SECOND ADDITION OF RS. 69,69, 993/- MADE BY THE A.O. ON ACCOUNT OF M/S SARTHI COMMISSION AGENT WHICH WAS DE LETED BY THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID ADDITION WAS MADE SIMPLY ON THE GROUND THAT ASSESSEE FAILED TO PRODUC E ANY PERSON FROM THE SUPPLIER M/S SARTHI COMMISSION AGENT AND THAT NO SU CH CONCERN OPERATED FROM THE ADDRESS OF THE BUSINESS PREMISES GIVEN BY THE A SSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE HAD FURNISHED VAT NUMBER OF THE AFORES AID PARTY WHICH IS AS PER RECORD OF THE PUNJAB VAT DEPARTMENT TO PROVE THE EX ISTENCE OF THE PARTY AND THE GENUINENESS OF THE PURCHASE TRANSACTIONS. 10.1 IT WAS FURTHER STATED THAT THE ASSESSEE FURNIS HED THE SALE TAX RECORD BEFORE THE LD. CIT(A) WHICH COULD CONFIRM THAT THE SAID SA LES WERE MADE TO THE ASSESSEE AND THAT PAYMENTS FOR THE SAID PURCHASE WE RE THROUGH BANKING CHANNELS THEREFORE THE LD. CIT(A) RIGHTLY HELD THAT THE MERE FACT THAT DURING THE F.Y. 2014-15 IT WAS FOUND THAT M/S SARTHI COMMISSIO N AGENT HAD CLOSED ITS BUSINESS WAS NOT ENOUGH TO DRAW ANY ADVERSE INFEREN CE, WHEN THE IDENTITY OF THE PARTY WAS ESTABLISHED, SALES WERE VOUCHED AND P AYMENTS HAD BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE. THEREFORE NON PRODUCT ION OF THE PARTY COULD NOT BE A GROUND OF DISALLOWANCE OF PURCHASES. IT WA S ALSO STATED THAT THE REPORT OF THE INSPECTOR IF ANY, WAS NOT CONFRONTED TO THE ASSESSE FOR REBUTTAL AND THAT THE A.O. FAILED TO CONSIDER THE DOCUMENTARY EVIDENC ES PRODUCED BY THE ASSESSEE LIKE PURCHASE BILLS, ACCOUNT BOOKS, BANK A CCOUNT STATEMENTS, SALES TAX 27 RECORD AND ITRS OF SUPPLIERS, PAYMENT THROUGH ACCO UNT PAYEE CHEQUE ETC. THEREFORE THE ADDITION WAS RIGHTLY DELETED BY THE L D. CIT(A). 11. AS REGARDS TO THE ANOTHER ADDITION OF RS. 22,50 ,396/- ON ACCOUNT OF BOGUS RICE HUSK PURCHASE FROM M/S ABHISHEK ENTERPRISES, K HANNA. IT WAS SUBMITTED THAT THE SAID ADDITION WAS MADE SIMPLY ON THIS BASIS THA T THE NOTICE ISSUED UNDER SECTION 131OF THE ACT TO M/S ABHISHEK ENTERPRISES, KHANNA WAS RECEIVED BACK UNSERVED. IT WAS STATED THAT THE RETURNING OF THE N OTICE UNDER SECTION 131 OF THE ACT CANNOT BE A GROUND TO MAKE THE ADDITION PARTICU LARLY WHEN PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE AND THE ASSESSEE FURNISHED DOCUMENTARY EVIDENCES LIKE COPY OF ACCOUNT, VAT NUM BER OF THE PARTY, SALES TAX RECORD ETC. THEREFORE THE LD.CIT(A) RIGHTLY HEL D THAT THE A.O. HAD NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO CONCLUSIVELY PRO VE THAT THE PURCHASES FROM THE SAID PARTY WERE BOGUS AND THAT THE MERELY RELIA NCE BY THE A.O. ON THE FACT THAT THE SUPPLIER HAD NOT COMPLIED WITH THE SUMMON UNDER SECTION 131 WOULD NOT ITSELF SUFFICE TO TREAT THE PURCHASE AS BOGUS. 12. AS REGARDS TO THE REMAINING ADHOC ADDITION OF R S. 62,43,090/- @ 5% OF THE REMAINING PURCHASES OF RICH HUSK AMOUNTING TO RS. 1 2,48,61,829/-,THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID ADDITION W AS WITHOUT ANY BASIS AS THE A.O. MADE CERTAIN INQUIRIES BY SELECTING ONLY FEW S UPPLIERS, HOWEVER, THOSE INQUIRIES WERE NEVER CONFRONTED TO THE ASSESSEE AND THAT ANY MATERIAL COLLECTED AND INQUIRIES MADE BEHIND THE BACK OF THE ASSESSEE COULD NOT BE USED AGAINST THE ASSESSEE, UNLESS THE ASSESSEE WAS INFORMED OF T HE EVIDENCES COLLECTED AND GIVEN AN OPPORTUNITY TO EXPLAIN THE SAME. MOREOVER NO ADDITION COULD HAVE BEEN MADE ON ADHOC BASIS WITHOUT REJECTING THE BOOK S OF ACCOUNT AND THE A.O. DID NOT POINT OUT ANY SPECIFIC DISCREPANCY IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT WAS ALSO STATED THAT THE A.O. MADE THE INQUIRIES FROM FEW SELECTED SUPPLIERS AND DID NOT MAKE THE IN QUIRIES FROM ALL THE SUPPLIERS. THEREFORE THE ADDITION BASED ON SURMISES AND CONJEC TURES WAS INVALID IN THE EYES OF LAW AND THE LD. CIT(A) RIGHTLY DELETED THE SAME. AS REGARDS TO THE 28 CONTENTION OF THE LD. CIT DR THAT NO PAYMENT WAS MA DE FOR THE FREIGHT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DELIVERY WA S F.O.R. BASIS SO THERE WAS NO QUESTION FOR MAKING THE PAYMENT BY THE ASSESSEE FOR FREIGHT, LOADING AND UNLOADING. ACCORDINGLY, IT WAS SUBMITTED THAT THE A DDITION OF RS. 1,86,58,884/- MADE BY THE A.O. BY HOLDING THE PURCHASES AS BOGUS AND DISALLOWANCE OF RS. 62,43,090/- @ 5% OUT OF THE REMAINING PURCHASES WER E RIGHTLY DELETED BY THE LD. CIT(A). 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS NOTICED THAT THE A.O. MADE THE ADDITION ON ACCOUNT OF PURCHASES MADE FROM TWO PARTIES NAMELY M/S SURAJ BHAN & BROTHERS, PATIA LA AND M/S BABU RAM RAM GOPAL, PATIALA AMOUNTING TO RS. 94,38,395/-. THE A. O. TREATED THE SAID PURCHASES AS BOGUS ON THE BASIS OF STATEMENT OF ONE SHRI AJAY MALIK WHO CLAIMED TO HAVE GIVEN THE BILLS ONLY TO THE SAID PARTIES. HOWEVER N O OPPORTUNITY TO CROSS EXAMINE THE SAID PERSONS WAS GIVEN TO THE ASSESSEE THE SIMI LAR PURCHASE MADE FROM THE SAID PARTIES IN THE PRECEDING YEARS HAD BEEN ACCEPT ED. THE ASSESSEE FURNISHED SWORN AFFIDAVIT OF THE PROPRIETORS OF THE SAID PART IES FROM WHOM RICE HUSK WAS PURCHASED AND ALSO FURNISHED DOCUMENTARY EVIDENCE I N THE FORM OF PURCHASE BILLS, SALES TAX RETURN, INCOME TAX RETURNS OF THE SAID PARTIES, THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL AND IT IS NOT THE CASE OF THE A.O. THAT THE CONSUMPTION OF RICE HUSK WAS EXCESSIVE IN COMPARISO N TO THE EARLIER YEARS. THE LD. CIT(A) AFTER APPRECIATING THE DOCUMENTARY EVIDE NCES FURNISHED BY THE ASSESSEE, DELETED THE ADDITION. WE DO NOT SEE ANY V ALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) WHILE DELETING THE A DDITION OF RS. 94,38,395/-. 14. AS REGARDS TO THE ANOTHER ADDITION OF RS. 69,69 ,993/- DELETED BY THE LD. CIT(A). IT IS NOTICED THAT THE SAID ADDITION WAS M ADE BY THE A.O. FOR THE REASONS THAT THE ASSESSEE FAILED TO PRODUCE ANY PERSON FROM M/S SARTHI COMMISSION AGENT, FROM WHOM THE RICE HUSK WAS PURCHASED BY THE ASSESSEE TO PROVE THE GENUINENESS OF THE PURCHASE MADE FROM THE SAID PART Y. THE ASSESSEE FURNISHED 29 VAT NUMBER ISSUED BY THE PUNJAB VAT DEPARTMENT TO P ROVE THE EXISTENCE OF THE SAID PARTY AND ALL THE PAYMENTS WERE MADE THROUGH B ANKING CHANNEL. THE ASSESSEE ALSO FURNISHED SALES TAX RECORD WHICH CONF IRMED THAT THE SALES WERE MADE TO THE ASSESSEE BY M/S SARTHI COMMISSION AGENT THEREFORE THE LD. CIT(A) RIGHTLY HELD THAT THE MERE FACT THAT DURING THE F.Y . 2014-15 IT WAS FOUND THAT THE SAID PARTY M/S SARTHI COMMISSION AGENT CLOSED ITS B USINESS AT THAT TIME WAS NOT ENOUGH TO DRAW ANY ADVERSE INFERENCE FOR THE F.Y. 2 010-11 RELEVANT TO THE A.Y.2011-12 UNDER CONSIDERATION. IN THE PRESENT CA SE, WHEN THE IDENTITY OF THE PARTY WAS ESTABLISHED PURCHASES / SALES WERE VOUCHE D AND PAYMENTS WERE MADE THROUGH BANKING CHANNEL BY THE ACCOUNT PAYEE C HEQUE, WE ARE OF THE VIEW THAT THE IMPUGNED ADDITION MADE BY THE A.O. WA S RIGHTLY DELETED BY THE LD. CIT(A). 15. AS REGARDS TO THE ANOTHER ADDITION OF RS. 22,50 ,396/- MADE BY THE A.O. ON ACCOUNT OF BOGUS RICE HUSK PURCHASED FROM M/S ABHIS HEK ENTERPRISES WHICH WAS DELETED BY THE LD. CIT(A) BY HOLDING THAT THE A.O. HAD NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO CONCLUSIVELY PROVE THAT TH E SAID PURCHASES WERE BOGUS IS CONCERNED, IT IS NOTICED THAT THE A.O. MAD E THE SAID ADDITION ONLY ON THIS BASIS THAT NOTICE ISSUED UNDER SECTION 131 OF THE ACT TO THE SUPPLIER WAS RECEIVED BACK UNSERVED WITH REMARKS INCOMPLETE ADD RESS AND NOT KNOWN. IT APPEARS THAT THE A.O. WITHOUT VERIFYING THE COMPLET E ADDRESS OF THE SAID PARTY ASSUMED THAT THE PARTY WAS NOT AVAILABLE AT THE SAI D ADDRESS. ON THE CONTRARY THE ASSESSEE FURNISHED DOCUMENTARY EVIDENCE, LIKE C OPY OF ACCOUNT, VAT NUMBER OF THE PARTY, SALES TAX RETURN ETC AND THE P AYMENTS WERE MADE THROUGH BANKING CHANNEL TO PROVE THE GENUINENESS AN D IDENTITY OF THE SAID PARTY. MOREOVER THE BOOKS OF THE ASSESSEE WERE NOT REJECTED, THEREFORE, THE SAID ADDITION WAS RIGHTLY DELETED BY THE LD. CIT(A). 16. AS REGARDS TO THE ANOTHER ADDITION OF RS. 62,43 ,090/- @5% OF THE REMAINING PURCHASES AMOUNTING TO RS. 12,48,61,829/-, DELETED BY THE LD. CIT(A), IT IS NOTICED THAT THE SAID ADDITION WAS MADE BY THE A.O. ON THE BASIS OF INQUIRY MADE FROM 30 FEW SUPPLIERS BUT THE SAID INQUIRY WAS NEVER CONFRO NTED TO THE ASSESSEE, MOREOVER, THE A.O. HIMSELF ACCEPTED THAT 95% OF THE PURCHASE WERE GENUINE BUT CONSIDERED ONLY 5% AS BOGUS THAT TOO ON ADHOC B ASIS AND EVEN WITHOUT REJECTING THE BOOKS OF ACCOUNT. IT IS WELL SETTLED THAT NO ADHOC ADDITION CAN BE MADE WITHOUT REJECTING THE BOOKS OF ACCOUNTS. MOREO VER THE A.O. DID NOT POINT OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN REGULAR COURSE OF BUSINESS AND EVEN CONSUMPTION OF THE RICE HUSK PURCHASED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES WAS NOT DOUBTED. WE THEREFORE DO NOT SEE VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. 17. THE NEXT ISSUE RAISED BY THE DEPARTMENT VIDE GR OUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 52,12,000/- MADE BY THE A.O. ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 18. THE FACT RELATED TO THIS ISSUE IN BRIEF ARE THA T THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THERE WAS A DIF FERENCE IN THE STOCK STATEMENT AS ON 31/03/2011 GIVEN BY THE ASSESSEE TO STATE BANK OF INDIA, CIVIL LINE BRANCH, LUDHIANA AND AS RECORDED IN THE BOOKS OF ACCOUNTS. THE A.O. ASKED THE ASSESSEE TO SHOW CAUSE AND EXPLAIN THE DI FFERENCE IN THE STOCK STATEMENT, VIDE LETTER DT. 10/11-03-2014 WHICH READ AS UNDER: 'YOU HAVE AVAILED CC LIMIT FROM STATE BANK OF INDIA , CIVIL LINES BRANCH, LUDHIANA DURING THE FINANCIAL YEAR 2010-11 RELEVANT TO A.Y. 2011-12. THE INFORMATION REGARDING THE STOCK STATEMENT GIVEN BY YOU TO THE B ANK AS ON 31/03/2011 WAS CALLED FOR FROM THE SAID BANK U/S 133(6) OF THE I.T ACT, 1961. THE STOCK STATEMENTS GIVEN BY YOU TO THE BANK DID NOT MATCH WITH THE STO CK AS PER YOUR BOOKS OF ACCOUNT. THE POSITION OF THE STOCK AVAILABLE IN YOU R REGULAR BOOKS OF A/C AND STOCK POSITION AS PER HYPOTHECATED STOCK STATEMENT IS REPRODUCE BELOW :- 31 IN VIEW OF THE ABOVE DETAILS, THERE IS HUGE DIFFERE NCE IN STOCK AS ON 31.03.2011 FOR WHICH YOU HAVE NOT FURNISHED ANY EXP LANATION. YOU ARE REQUIRED TO SHOW CAUSE AS TO WHY THE ADDITION OF DI FFERENCE AMOUNT MAY NOT BE MADE TO YOUR RETURNED INCOME. 18.1 IN RESPONSE TO THE SAID LETTER THE ASSESSEE SU BMITTED BEFORE THE A.O. AS UNDER: A. OUR COMPANY HAS FILED STOCK STATEMENT AS ON 31.0 3.2011 IN STATE BANK OF INDIA CIVIL LINES BRANCH, LUDHIANA. THE STOCK STATEMENT G IVEN TO THE BANK MATCH WITH STOCKS AS PER OUR BOOKS OF ACCOUNTS WHICH INCLUDES DAY TO STOCK REGISTERS MAINTAINED IN THE REGULAR COURSE OF BUSINESS AS PRE SCRIBED UNDER THE CENTRAL EXCISE ACT & RULES. THE FACTS & FIGURES GIVEN IN TH E STOCK STATEMENT AND OUR BOOKS OF ACCOUNT ARE EXPLAINED HEREUNDER: A) WASTE PAPER : AS PER STOCK STATEMENT, WE HAVE SHOWN 371 MT OF WAS TE PAPER (IMPORTED) 2072 MT (INDIAN) AND THE SAME TALLIES WI TH OUR STOCK POSITION AS ON 31.03.2011 IN OUR STOCK REGISTER PRESCRIBED UNDER T HE CENTRAL EXCISE ACT & RULES.(PAGE NO. 50 TO 51). SO THERE IS NO DIFFERENC E IN TERMS OF QUANTITY OF WASTE PAPER. THE VALUATION OF WASTE PAPER IN THE STOCK ST ATEMENT HAS BEEN MADE AT A HIGHER PRICE THAN THE COST PRICE WHEREAS THE VALUAT ION OF WASTE PAPER I.E. RAW MATERIAL HAS BEEN MADE AT A COST PRICE. THE VALUATI ON OF WASTE PAPER HAS BEEN MADE AS PER METHOD OF VALUATION SHOWN IN CLAUSE 12 (A) OF TAX AUDIT REPORT IN FORM 3CD DATED 28.08.2011. THE ASSESSEE COMPANY HAS PLACED ON RECORD THE INVENTORY OF CLOSING STOCK AND ITS BASIS OF VALUATI ON DURING THE PREVIOUS DATES OF HEARING. SO THE DIFFERENCE IN VALUATION OF WASTE PA PER STANDS EXPLAINED. THE VALUATION IN BOOKS OF ACCOUNTS IS PROPER AND GENUIN E. B) STORES & SPARES : AS PER STOCK STATEMENT, WE HAVE SHOWN STORES & SPAR ES (WRONGLY WRITTEN AS STOCK & SPARES IN THE OFFICE LE TTER) WORTH RS. 360.27 LACS IN THE 32 STOCK STATEMENT AS ON 31.03.2011, THE STORES & SPAR ES INCLUDES CHEMICALS, DIESEL, SPARES, FUELS AND PACKING MATERIAL, WE HAVE ATTACHE D DETAILS OF STORES & SPARES GIVING THEREIN ITS DIFFERENT COMPONENTS AND ITS VAL UE, THESE DETAILS INCLUDE ALL THE ITEMS GIVEN ABOVE. IN CONTRAST TO STORES & SPARES W ORTH RS. 360.25 LACS, WE HAVE SHOWN STORES & SPARES WORTH RS. 503.57 LACS IN OUR BOOKS OF ACCOUNTS (PLEASE REFER SCHEDULE-VII OF AUDITED STATEMENTS OF ACCOUNTS). SO THE STORE & SPARES IN OUR BOOKS OF ACCOUNTS ARE MORE THAN SHOWN IN THE STOCK STATEMENT FILED WITH THE BANK. THERE IS, THEREFORE, NO DEFICIENCY IN THE CLO SING STOCK OF STORE & SPARES. (PAGE NO.52). PAPER & SEMI FINISHED GOODS : AS PER STOCK STATEMENT, WE HAVE SHOWN 142 MT OF FINISHED PAPER AND 50 MT SEMI-FINISHED AND THE QUAN TITY OF FINISHED PAPER TALLIES WITH OUR STOCK POSITION AS ON 31.03.2011 IN OUR STO CK REGISTER PRESCRIBED UNDER THE CENTRAL EXCISE ACT & RULES.(PAGE NO. 53 TO 54). T HE QUANTITY OF SEMIFINISHED GOODS IS 72 MT IN OUR STOCK REGISTER, THE QUANTITY OF SEMIFINISHED GOODS IS MORE THAN SHOWN IN THE STOCK STATEMENT. SO, THERE IS NO DEFICIENCY IN TERMS OF QUANTITY IN FINISHED AND SEMIFINISHED GOODS. THE VALUATION O F FINISHED AND SEMI-FINISHED GOODS IN THE STOCK STATEMENT HAS BEEN MADE AT A HIG HER PRICE THAN THE COST PRICE OF THE GOODS WHEREAS THE VALUATION OF FINISHE D AND SEMIFINISHED GOODS HAS BEEN MADE AT A COST PRICE AS PRESCRIBED IN CLAUSE 1 2 (A) OF TAX AUDIT REPORT IN FORM 3CD DATED 28.08.2011. THE ASSESSEE COMPANY HAS PLACED ON RECORD THE INVENTORY OF CLOSING STOCK AND ITS BASIS OF VALUATI ON DURING THE PREVIOUS DATES OF HEARING. SO THE DIFFERENCE IN VALUATION OF FINISHED AND SEMI-FINISHED GOODS STANDS EXPLAINED. THE VALUATION IN BOOKS OF ACCOUNTS IS PR OPER AND GENUINE. D) PRODUCTION : THERE IS NO DIFFERENCE IN QUANTITY OF PRODUCTION SH OWN IN THE STOCK STATEMENT AND THE BOOKS OF ACCOUNTS INCLUDING STOCK REGISTERS. THE SALE PROCEEDS HAVE BEEN SHOWN AT RS. 5967.02 LACS IN THE STOCK ST ATEMENTS WHEREAS THE SALES IN THE BOOKS OF ACCOUNTS HAVE ALSO BEEN SHOWN RS. 5967 .02 LACS. YOUR HONOR HAS ADOPTED THE FIGURE OF RS. 5997.81 LACS WHICH INCLUD ES EXPORT INCENTIVE OF RS. 30.79 LACS WHICH HAVE BEEN SHOWN AS INCOME UNDER THE HEAD OTHER INCOME. SO THERE IS NO DIFFERENCE IN TERMS OF SALE SHOWN IN THE STOC K STATEMENT AND THE BOOKS OF ACCOUNTS. STOCK POSITION CHART AS ON 31.03.2011 AS PER STOCK STATEMENT AND AS PER STOCK REGISTER AND THERE VALUATION AS PER BOOKS OF ACCOUNTS IS ENCLOSED TO SUPPORT ABOVE EXPLANATIONS. COPY OF STOCKS OF WASTE PAPER, FINISHED GOODS AND SEMI FINISHED GOODS SHOWN IN THE STOCK REGISTERS MA INTAINED UNDER THE CENTRAL EXCISE ACT & RULES ARE ENCLOSED. ' 18.2 THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT FOLLOWING DIFFERENCE WERE NOTICED IN THE HYPOTHECAT ION STATEMENT AND THE VALUATION OF THE STOCK AS PER BOOKS OF ACCOUNT. SR.NO ITEMS VALUATION SHOWN IN THE HYPOTHECATION STATEMENT ( IN LACS) VALUATION AS PER BOOKS OF A/C 'S ( IN LACS) LESSER VALUE SHOWN BY THE ASSESSEE IN THE BOOKS OF A/C (IN LACS) 1 IMPORTED PAPER 80.47 61.76 18.71 2 INDEGENIOUS 197.61 196.29 1.38 3 CHEMICALS 120.64 102.65 17.99 33 4 DIESEL 2.43 - 2.43 5 SPARES 46.43 37.50 8.93 6 PACKED PAPER 38.16 35.48 2.68 TOTAL DIFFERENCE 52.12 18.3 THE A.O. FURTHER OBSERVED THAT THE EXPLANATION OF THE ASSESSEE REGARDING THE LESSER VALUATION OF STOCK OF RS. 52.12 LACS MEN TIONED IN THE BOOKS OF ACCOUNT WAS NOT CORRECT AS THE STOCK STATEMENT GIVEN TO THE BANK BY THE ASSESSEE COULD NOT BE AT VARIANCE WITH VALUE OF STOCK SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. HE FURTHER OBSERVED THAT THE ASSESSEE HAD NOT OFFERED ANY EXPLANATION REGARDING THE COST PRICE OF VALUATION O F CLOSING STOCK. HE POINTED OUT THAT THE VALUE OF THE CLOSING STOCK OF IMPORTED PAPER WAS SHOWN AT RS. 80.47 LACS TO THE BANK AS AGAINST RS. 61.76 LACS AS PER B OOKS WHICH YIELDED G.P RATE OF 30.5% WHERE AS THE G.P. RATE SHOWN BY THE ASSESSEE DURING THE YEAR WAS MERELY 11.5% WHICH CONTRADICTED THE EXPLANATION RENDERED B Y THE ASSESSEE. HE FURTHER OBSERVED THAT IN THE CASE OF CHEMICALS IN WHICH THE ASSESSEE WAS NOT DEALING AS THOSE CHEMICALS WERE ONLY CONSUMABLES THEREFORE COS T PRICE AND MARKET PRICE THEREOF SHOULD HAVE BEEN THE SAME FOR THE ASSESSEE, MOREOVER NO WORKING OF THE BASIS OF VALUATION FOR THOSE ITEMS HAD BEEN DIS CLOSED BY THE ASSESSEE EITHER TO THE BANK OR IN THE BOOKS OF ACCOUNT. THE A.O. TH EREFORE MADE THE ADDITION OF RS. 52.12 LACS ON ACCOUNT OF THE LESSER VALUE OF TH E ITEMS OF THE STOCK MENTIONED IN THE BOOKS OF ACCOUNT VIS A VIS THE VALUE SHOWN I N THE HYPOTHECATION STATEMENT TO THE BANK. 19. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: 'THE LD A.O. HAS MADE ADDITION OF RS. 52.12 LACS ON ACCOUNT OF DIFFERENCE BETWEEN VALUE OF STOCK OF VARIOUS ITEMS SHOWN FOR HYPOTHECA TION PURPOSES TO THE BANK AND VALUATION OF STOCK AS PER BOOKS OF ACCOUNT AS ON 31 .03.2011. THIS ADDITION HAS BEEN MADE BY THE LD A.O. AFTER MAKING FOLLOWING OBSERVAT ION: I) THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION REG ARDING THE COST PRICE OF VALUATION OF CLOSING STOCK. 34 II) NO WORKING OF THE BASIS OF VALUATION OF THESE I TEMS HAS BEEN DISCLOSED BY THE ASSESSEE EITHER TO THE BANK OR SHOWN IN THE BOOKS OF ACCOUNTS. III) THAT ADDITION ON ACCOUNT OF EXCESS STOCK SHOW N TO THE BANK IS CALLED FOR IN THE LIGHT OF DECISION OF THE HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OFB. T. STEELS LTD. VS. CTT DECIDED ON 06.10.2010. (PLEASE REFER P AGES 47 TO 50 OF ORDER U/S 143(3)) THE LD A.O. S OBSERVATION: I) THAT ASSESSEE HAS NOT OFFERED ANY EXPLANATION RE GARDING THE COST PRICE OF THE VALUATION OF THE CLOSING STOCK IS INCORRECT AND VEHEMENTLY DENIED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE COMPANY HAS FILED CHARTS INDICATING THAT THE VALUATION OF CLOSI NG STOCK AS PER ACCOUNT BOOKS WAS MADE ON COST PRICE IN THE CASE OF RAW MAT ERIAL AND CONSUMABLES AND ON COST OF PRODUCTION IN THE CASE O F SEMI FINISHED AND FINISHED GOODS (COPIES OF CHART FILED ENCLOSED). IT IS UNFORTUNATE THAT LD A.O. HAS MADE OBSERVATIONS WHICH ARE TOTALLY FALSE AND BASELESS ONLY FOR MAKING ADDITION. II) AGAIN IT IS UNFORTUNATE AND DEPLORABLE THAT THE LD A.O. HAS MADE A FALSE OBSERVATION ONLY TO MAKE THE ADDITION AND PENALIZE THE ASSESSEE UNNECESSARILY. THE WRITTEN EXPLANATION FILED BY THE ASSESSEE IN THIS CONNECTION AND QUOTED BY THE LD A.O. IN ASSESSMENT ORDER AT PAGE 44 ESTABLISHES BEYOND DOUBT THAT LD A.O. IS MAKING OBS ERVATION WHICH IS AGAINST THE MATERIAL ON RECORD. THE RELEVANT EXPLAN ATION QUOTED IN THE ASSESSMENT ORDER READS AS UNDER: 'THE ASSESSEE COMPANY HAS PLACED ON RECORD THE INVE NTORY OF CLOSING STOCK AND ITS BASIS OF VALUATION DURING THE PREVIOUS DATES OF HEA RING.' A CHART INDICATING WORKING OF THE BASIS OF VALUATIO N OF THE SAID ITEMS AS SHOWN IN THE BOOKS OF ACCOUNT WAS DULY FILED BEFORE THE LEARNED A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS (COPY ENCLOSED). NO BASIS OF VALUATION OF HYPOTHECATED STOCK WITH THE BANK WAS FURNISHED TO THE BANK AS TH ERE IS NO SUCH REQUIREMENT. III) THE CASE RELIED UPON BY THE LD A.O. IS NOT APP LICABLE IN THE ASSESSEES CASE AS THERE IS NO EXCESS STOCK HYPOTHECATED WITH THE BANK. THE LD A.O. HAS HIMSELF ADMITTED THAT THE DIFFERENCE OF RS. 52.12 LAC IS ON ACCOUNT OF LE SSER VALUATION IN THE BOOKS OF ACCOUNT. THE RELEVANT OBSERVATION READS AS UNDER: 'THE ASSESSEES EXPLANATION REGARDING THE LESSER VAL UATION OF STOCK OF RS. 52.12 LACS MENTIONED IN BOOKS OF A/C IS NOT CORRECT. THE STOCK STATEMENT GIVEN TO THE BANK BY THE ASSESSEE CANNOT BE AT VARIANCE WITH THE VALUE OF ST OCK SHOWN BY THE ASSESSEE IN ITS BOOKS OF A/C.' UNDER THE CIRCUMSTANCES NO ADDITION ON THE BASIS OF SAID DECISION CAN BE MADE SINCE THERE IS NO EXCESS STOCK HYPOTHECATED WITH THE BANK AND DIFFERENCE IS ON ACCOUNT OF VALUATION ONLY. IT HAS BEEN HELD IN THE CASE OF IND IA MOTOR PARTS & ASSOCIATES PVT. LTD. V/S CIT60ITR 53 (MAD) AND CIT VS. APCOM COMPUTERS P VT. LTD. 292 ITR 630 (MAD.) THAT NO ADDITION ON ACCOUNT OF DIFFERENCE BETWEEN VALUAT ION OF STOCK HYPOTHECATED TO THE BANK AND VALUE OF STOCKS AS PER BOOKS OF ACCOUN TS CAN BE MADE. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T NO ADDITION ON ACCOUNT OF VALUATION OF CLOSING STOCK CAN BE MADE IF THE CLOSI NG STOCK HAS BEEN VALUED AT COST PRICE OR MARKET PRICE WHICHEVER IS LOWER SINCE THIS IS ACCEPTED PRINCIPLE OF ACCOUNTANCY THAT NO PERSON CAN MAKE NOTIONAL PROFIT S. IT HAS BEEN HELD BY THE 35 VARIOUS HON'BLE JUDICIAL AUTHORITIES THAT NO ADDITI ON ON ACCOUNT OF VALUATION OF CLOSING STOCK CAN BE MADE IF THE SAME IS VALUED AT COST PRI CE. THE RELEVANT DECISIONS ARE AS UNDER: CTT VS. WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 2 54 'WHILE ANTICIPATED LOSS IS TAKEN INTO ACCOUNT, ANTI CIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUG HT INTO ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASE IN PROFITS BEFOR E ACTUAL REALIZATION' CHAINROOP SAMPATRAM V/S CIT 24 ITR 481 (SC) 'THOUGH LOSS DUE TO FALL IN PRICE BELOW COST IS ALL OWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALIZED. NO QUESTION OF CHARGING THE APPR ECIATED VALUE OF CLOSING STOCK AND NOTIONAL PROFIT CAN ARISE. IT IS A MISCONCEPTION TO THINK THAT ANY PROFIT ARISES OUT OF VALUATION OF THE CLOSING STOCK' ALA FIRM V/S CTT 189 ITR 285 (SC) 'BUT ON NO PRINCIPLE CAN ONE JUSTIFY THE VALUE OF T HE CLOSING STOCK AT A MARKET VALUE HIGHER THAN COST AS THAT WILL RESULT IN TAXATION OF NOTIONAL PROFITS WHICH THE ASSESSEE HAS NOT REALIZED' KEEPING IN VIEW THE FACTUAL AND LEGAL POSITION IN T HIS CASE AS EXPLAINED ABOVE; ADDITION OF RS. 52.12 LAC MAY KINDLY BE DELETED.' 19.1 THE SAID SUBMISSION FURNISHED BY THE ASSESSEE WAS FORWARDED TO THE A.O. WHO IN HIS REMAND REPORT MAINLY RELIED ON THE ASSES SEE ORDER. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE REPORT OF THE A.O. OBSERVED THAT THE ASSESSEE VEHEMENTLY REFUTED THE CLAIM OF T HE A.O. REGARDING NON FURNISHING OF EXPLANATION RELATING TO THE VALUATION OF CLOSING STOCK. HE FURTHER OBSERVED THAT THE ASSESSEE FILED THE CHART DURING T HE ASSESSMENT PROCEEDINGS INDICATING THAT THE VALUE OF THE CLOSING STOCK IN T HE BOOKS OF ACCOUNT WAS MADE ON COST PRICE FOR THE RAW MATERIAL AND CONSUMABLES AND ON COST OF PRODUCTION FOR SEMI FINISHED AND FURNISHED GOODS AND THAT THE INVENTORY OF THE CLOSING STOCK WAS FURNISHED BEFORE THE A.O. 19.2 THE LD. CIT(A) SUMMARIZED THE SUBMISSIONS OF T HE ASSESEE AS UNDER: IN NUTSHELL IT IS THE CASE OF APPELLANT THAT A) THERE IS NO DIFFERENCE IN QUANTITY BETWEEN THE S TOCK AS PER BOOKS AND THAT DECLARED TO THE BANK. LD. A.O. HAS HIMSELF ADMITTED THAT THE DI FFERENCE OF RS. 52.12 LAC IS ON ACCOUNT OF LESSER VALUATION IN THE BOOKS OF ACCOUNT. 36 B) THE ASSESSEE COMPANY, IN THE COURSE OF ASSESSMEN T PROCEEDINGS PLACED ON RECORD THE INVENTORY OF CLOSING STOCK AS ON 31.03.2011. THE SA ME HAS BEEN VALUED AS PROVIDED UNDER SECTION 145 A OF THE ACT. DETAILS OF INVENTORY AND ITS VALUATION HAS NOT BEEN DISPUTED BY ID. A.O. C) THE VALUE AS PER BANK STOCK STATEMENT WAS ON EST IMATED BASIS. NO BASIS OF VALUATION OF HYPOTHECATED STOCK WITH THE BANK WAS FURNISHED TO T HE BANK AS THERE IS NO SUCH REQUIREMENT. THE ACCEPTED POSITION IS THAT STOCK GI VEN TO THE BANK CANNOT BE GIVEN PREFERENCE OVER THE STOCK ACTUALLY MAINTAINED AND V ALUED BY THE ASSESSEE. 19.3 THE LD. CIT(A) FURTHER OBSERVED THAT THE MATER IAL ON RECORD REVEALED THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF GOODS AS PER BANK STATEMENT AND CLOSING STOCK AS PER BOOKS OF ACCOUNT. AS REGARDS T O THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S B.T. STEELS LTD. VS. CIT DT. 06/10/2010 RELIED BY THE A.O, THE LD. CIT(A) OBSERV ED THAT IN THE SAID CASE THE BANK HAD ACTUALLY VERIFIED THE STOCK HELD BY THE AS SESSEE AND THE ASSESSEE FAILED TO FURNISH EXPLANATION REGARDING DIFFERENCE IN THE STOCK, BUT IN THE CASE OF THE ASSESSEE, THERE WAS NO EXCESS STOCK HYPOTHECATE D WITH THE BANK, ONLY THE DIFFERENCE OF RS. 52.12 LAC WAS ON ACCOUNT OF LESSE R VALUATION IN THE BOOKS OF ACCOUNTS. 19.4 THE LD. CIT(A) FURTHER OBSERVED THAT THE A.O. HAD NOT ADVERSELY COMMENTED ON THE MAINTENANCE OF THE BOOKS WHICH WER E ACCEPTED BY HIM AND THAT HE HAD GIVEN NO ADVERSE FINDINGS REGARDING PURCHASE AND SALE AND ANY UNRECORDED TRANSACTION, THEREFORE, THE ACTION O F THE A.O. IN HOLDING THAT THE STOCK STATEMENT FURNISHED TO THE BANK FOR AVAILING HIGHER LIMIT REFLECTED THE TRUE STOCK POSITION COULD NOT BE UPHELD. ACCORDINGLY THE LD. CIT(A) DELETED THE ADDITION OF RS. 52,12,000/- MADE BY THE A.O. THE RE LIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CIT VS. SANSPAREILS GREENLANDS PRIVATE LIMITED (201 3) 85 CCH 0113 (ALL) INDIA MOTOR PARTS & ASSOCIATES PVT. LTD. VS. CIT 60 ITR 53 (MAD) CIT VS. APCOM COMPUTERS PVT. LTD. 292 ITR 630 (MAD) 20. NOW THE DEPARTMENT IS IN APPEAL. 37 21. THE LD. CITDR STRONGLY SUPPORTED THE ASSESSMENT ORDER PASSED BY THE A.O. AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSM ENT ORDER. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: N.K. PROTEINS LTD. VS. DCIT (2017) 84 TAXMAN.COM 19 5 (SC) M/S LUNAWAT GEMS CORP, JAIPUR VS. CIT JAIPUR, ITA N O. 272/2018 JUDGMENT DT. 29/03/2019 OF THE HON'BLE RAJASTHAN HIGH COURT B.T STEELS LTD. VS. CIT (2011) 196 TAXMAN 362(P&H) 22. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F URTHER SUBMITTED THAT THERE WAS NO DIFFERENCE IN THE QUANTITY OF THE STOCK SHOW N IN THE BOOKS OF ACCOUNT AND DECLARED TO THE BANK. IT WAS ALSO SUBMITTED THA T NO ADDITION ON ACCOUNT OF DIFFERENCE BETWEEN VALUATION OF STOCK HYPOTHECATED TO THE BANK AND VALUE OF STOCK AS PER BOOKS OF STOCK CAN BE MADE. IT WAS SUB MITTED THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS PLACED ON RECORD THE INVENTORY OF CLOSING STOCK AS ON 31/03/2011 AND THE VALUATION OF THE STOCK AS PER SECTION 145A OF THE ACT IN THE BOOKS OF ACCOUNT WHICH WERE NOT DISPUTED BY THE A.O. IT WAS REITERATED THAT THE VALUATION OF CLOSING STOCK AS PER BOOKS OF ACCOUNT WAS MADE ON COST PRICE FOR THE RAW MATERIAL & CONSUMABL ES AND ON COST OF PRODUCTION FOR SEMI FINISHED AND FURNISHED GOODS WH ILE THE VALUATION OF THE STOCK TO THE BANK WAS ON ESTIMATED BASIS AND THAT NO BASI S OF VALUATION OF HYPOTHECATED STOCK WAS REQUIRED TO BE FURNISHED TO THE BANK. THEREFORE, THE LD. CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE A.O . BY OBSERVING THAT THE A.O. HAD ACCEPTED THE BOOKS OF ACCOUNT AND HAD NOT GIVEN ANY ADVERSE FINDINGS REGARDING PURCHASES AND SALES. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: CALCUTTA NATIONAL BANK LTD. VS. CIT [1953] 24 ITR 2 80 A.L. A. FIRM VS. CIT [1991] 189 ITR 285 ITO VS. DEVI DAYAL RICE MILLS [2002] 75 TTJ 24 (ITAT ASR) 23. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CA SE, IT IS AN ADMITTED FACT THAT 38 THERE WAS NO DIFFERENCE IN THE QUANTITATIVE DETAILS OF THE STOCK FURNISHED TO THE BANK AND MAINTAINED IN THE BOOKS OF ACCOUNT, THE DI FFERENCE IN THE VALUATION WAS EXPLAINED BY THE ASSESSEE WHICH WAS DUE TO THE VALUATION IN STOCK STATEMENT FURNISHED TO THE BANK ON ESTIMATE BASIS W HILE IN THE BOOKS OF ACCOUNT THE ASSESSEE VALUED THE RAW MATERIAL & CONSUMABLES ON THE COST PRICE BASIS WHILE THE SEMI FINISHED & FINISHED GOODS WERE VALUE D ON THE COST OF PRODUCTION BASIS. THE A.O. DID NOT POINT OUT ANY DEFECT IN THE SAID VALUATION. IT IS ALSO NOT THE CASE OF THE A.O. THAT THE VALUATION IN THE BOOK S OF ACCOUNT WAS NOT IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIO N 145A OF THE ACT. 23.1 ON A SIMILAR ISSUE THE ITAT AMRITSAR BENCH IN THE CASE OF ITO VS. DEVI DAYAL RICE MILLS(SUPRA) HELD AS UNDER: WHERE THE CONTENTION ASSESSEE THAT THE STOCK STA TEMENT FURNISHED TO BANK WAS INFLATED AND THAT STATEMENT ALSO INCLUDED THE STOCK OF THE A GRICULTURISTS LYING IN THE GODOWN OF THE ASSESSEE, WAS NOT CONTROVERTED BY THE ASSESSING OFF ICER ADDITION MADE BY THE ASSESSING OFFICER ONLY ON THE BASIS OF THE STOCK STATEMENT SU BMITTED TO THE BANK WAS NOT JUSTIFIED. IT IS WELL SETTLED THAT THERE IS A REAL DIFFERENCE BETWEEN PLEDGING AND HYPOTHECATION BECAUSE IN THE CASE OF THE PLEDGING, THE GOODS REMA IN UNDER THE LOCK AND KEY OF THE BANK AND, THEREFORE, ARE LIABLE TO BE PHYSICALLY CH ECKED AND EXAMINED BUT IN THE CASE OF HYPOTHECATION SUCH GOODS REMAIN INT EH CUSTODY OF T HE ASSESSEE AND THE PHYSICAL VERIFICATION OF THE GOODS HYPOTHECATED TO THE BANK IS NORMALLY NOT DONE. THE FIGURES REPORTED TO THE BANK AUTHORITIES CANNOT BE TAKEN AT THEIR FACE VALUE AS TRUE AND CORRECT AND THE ASSESSING OFFICER CANNOT MAKE ADDITIONS ON SUCH BASIS. IT IS EVIDENT THAT THE STATEMENTS SUBMITTED TO THE BANK WERE ON ESTIMATE B ASIS FOR HYPOTHECATION OF GOODS AND NOT FOR PLEDGING OF GOODS. THERE WAS NO JUSTIFICATI ON ON THE PART OF THE ASSESSING OFFICER TO MAKE ADDITION PARTICULARLY WHEN NO APPARENT MISTAKE S IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, AND THE METHOD OF ACCOU NTING EMPLOYED, WAS NOTICED BY HIM. 23.2 IN THE PRESENT CASE ALSO THE STOCK HYPOTHECATE D TO THE BANK WAS VALUED ON ESTIMATE BASIS WHILE STOCK WAS VALUED IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT IN THE BOOKS OF ACCOUNT I.E ; RAW MATERIAL AND CONSUMABLES ON THE BASIS OF COST PRICE, FURNISHED G OODS AND SEMI FINISHED GOODS ON THE BASIS OF COST OF PRODUCTION. IT IS ALS O NOT THE CASE OF THE A.O. THAT THERE WAS ANY VARIATION IN THE METHOD OF VALUATION OF STOCK IN THE BOOKS OF ACCOUNT FROM THE EARLIER YEARS. THEREFORE THE ADDIT ION MADE BY THE A.O. ONLY ON THIS BASIS THAT VALUATION OF STOCK IN THE STATEMENT GIVEN TO BANK WAS DIFFERENT FROM THE STOCK MENTIONED IN THE BOOKS OF ACCOUNT WA S RIGHTLY DELETED BY THE LD. 39 CIT(A). WE, DO NOT SEE ANY VALID GROUND TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. 24. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 24/09/2021 ) SD/- SD/- .. .., (R.L. NEGI ) ( N.K. SAIN I) $ %&/ JUDICIAL MEMBER ! / VICE PRESIDENT AG DATE: 24/09/2021 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR
