Vildirect: IncomeTax-caselaws-2005-VIL-378-ALH-DT

2005-VIL-378-ALH-DT

ALLAHABAD HIGH COURT

ITR NO. 63 OF 1992

Date: 22.03.2005

KAVERI RICE MILLS

COMMISSIONER OF INCOME-TAX, KANPUR

For the Petitioner : Satish Mandhyan
For the Respondent : A.N. Mahajan

BENCH

R.K. AGRAWAL AND PRAKASH KRISHNA, JJ.

JUDGMENT

1. The Income-tax Appellate Tribunal, Delhi, has referred the following question of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) for opinion to this Court :-

"Whether the Tribunal was legally justified to treat the entire purchase of Kana as bogus and add their value at Rs. 36,817.95 to the income of the assessee?"

2. The reference relates to the assessment year 1984-85.

3. Briefly stated the facts giving rise to the present reference are as follows :

The applicant has been assessed to income-tax in the status of a registered firm. It is engaged in the business of manufacture and sale of rice by hauling paddy. In the process of manufacture of rice, the polishing is done and the powder produced in the course of producing rice is known as ‘Kana’ which is a waste product and is an animal fodder and also used for producing oil. The applicant had also been dealing in the purchase and sale of Kana. During the assessment proceedings it was found that the applicant had failed to explain the quantity of purchase of Kana. An attempt was made by the Assessing Officer to call for the alleged sellers from whom the Kana was alleged to have been purchased by the applicant and some of them denied having dealt within the quantity of Kana. The Assessing Officer, consequently, held that the alleged purchase of 300 quintals of Kana was bogus and not genuine. He accordingly added back the value of Rs. 36,817.95 the alleged purchase price of Kana as the income of the applicant. The plea that the entire purchase price cannot be added as the applicant has accounted for the entire quantity purchased in the sale account was not believed. The addition has been upheld by the Commissioner of Income-tax (Appeals) as also by the Tribunal.

4. We have heard Sri Satish Mandhyan, learned counsel for the applicant and Sri A.N. Mahajan, learned standing counsel for the revenue.

5. We find that the Tribunal has dealt with the matter in the following words :

"We have considered the rival submissions and the evidence available on record. It is undisputed that purchase vouchers in respect of Kana said to have been purchased by the assessee are not available. The assessment order indicates that when asked to produce the purchase bills, no explanation was filed by the assessee by 11-2-1987. Thereupon, the ITO had made enquiry from the persons, who it was alleged, had sold Kana to the assessee. Copies of the statements of the said persons had been placed on record. The statement of Ram Khelawan shows that he was a partner in the firm Bhagwat Trading Co. dealing in paddy, rice, oil seeds and grains. The said firm had two branches. As to why Sri Ram Khelawan who is a businessman, would deny having sold Kana to the assessee. There is nothing in his statement which may go to discard his testimony, Chitani Lal had stated that he was running a flour mill (Atta Chakki) in his own house which was installed by him in the year 1985 at a cost of Rs. 6,000. His daily earning is about Rs. 15 from the said Chakki. Prior to it, he was employed with Bhuteshwar Rice Mill, Girwan and he left that service in the year 1983. He had also stated that he never indulged in the business of rice and Kana. There is nothing to indicate that he was making a false statement. Since he never dealt in rice and Kana, there could be little occasion for him to have sold Kana to the assessee. Kashi Prasad had also denied having sold Kana to the assessee. He was an employee with M/s. Durga Rice Mills. He had also stated that he never entered into business of Kana. The statements of these persons lead us to believe that the story put up by the assessee regarding purchase of Kana from the said persons is not true and the authorities below were, therefore, right in holding that the purchases of 300 quintals of Kana shown by the assessee is bogus.

The learned counsel for the assessee had also argued that Kana purchased from the aforesaid three persons is reflected in the sales as this goes to show that the said quantity of Kana was actually purchased by the assessee. According to him, in absence of the purchase vouchers it may be held that the purchase is not verifiable but it would be wrong to hold that no purchases were actually made. He has also submitted that the profit declared by the assessee during the years in question is reasonable and for that reason also no adverse inference should be drawn against the assessee. We are unable to accept this argument of the assessee. Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourable as compared to the earlier years is not at all relevant. To neutralize the effect of inflation in purchases, the only course open to the Assessing Officer is to add back the amount of purchases to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in yester years.

In view of the above discussions, we uphold the addition of Rs. 36,818."

From the order of the Tribunal reproduced above, we are of the considered opinion that as the purchases made by the applicant had been found by all the authorities to be bogus and not genuine the Assessing Officer was justified in adding the sum of Rs. 36,818 towards its income. Further as the purchases were held to be not verifiable the Tribunal was justified in holding that no such purchase was made and, therefore, the benefit to set off could not have been granted. We, accordingly, find that the findings recorded by the Tribunal are based on appreciation of evidence and material on record and cannot be said to have suffered from any infirmity.

6. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the revenue and against the assessee. However, there shall be no order as to costs.

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