Mere discrepancy in mentioning vehicles nos. on gate pass cannot make Purchases bogus

MADHYA PRADESH HIGH COURT

CIT v. Prestige Foods Ltd.

IT APPEAL NO. 23 OF 2010

JUNE 19, 2012

JUDGMENT

1. The respondent-Company derives income from manufacture of Soyabeen oil. The assessing officer for the assessment year 1992-93, vide order of assessment dated 27.3.1995, found the claim of the respondent-Company in respect of purchase of Soya seed from M/s. M.M. General Merchants, M/s. Garg Traders and M/s Nilesh Traders to be bogus and held that there was no delivery of goods by these parties. The Commissioner of Income Tax (Appeals-II), vide order dated 23.11.1995, had set aside the said finding of the assessing authority by holding that the purchases claimed by the respondent from these parties were not bogus. Accordingly the Commissioner deleted the addition of Rs. 84,25,342/- made by the assessing authority on this account. The Income Tax Appellate Tribunal, vide order dated 27.11.2009, has affirmed the finding of the Commissioner.

2. Learned counsel appearing for the appellant submitted that the Tribunal has committed an error in taking the view that the purchases made by the respondent from the aforesaid parties were not bogus. He further submitted that the tribunal is not right in holding that the assessee was not required to prove the source of purchase.

3. Having heard the learned counsel for the appellant, it is found that the question as to whether the purchases made by the respondent from the parties concerned were genuine or bogus is a pure question of fact. The Commissioner as well as ITAT have elaborately dealt with this issue and have concurrently found that the purchases made by the respondent from the concerned parties were not bogus. While arriving at the said finding, the Commissioner as well as the ITAT have taken into account all the relevant circumstances as well as the material on record.

4. The Commissioner while dealing with the aforesaid aspect of the matter has held as under :-

“5.3 After applying my mind to the facts of the case, I am inclined to hold that the above submissions of the learned counsel are quite justified. The AO has simply mentioned in the asstt. Order that on enquiry some of the vehicles shown to have been involved in the supply of seeds have been found to be two-wheelers and cars and not trucks & metadors, but has not given any specific instance. Therefore, the charge made by the AO to this extent cannot be verified by this office. Even otherwise, it is a fact that the vehicle Nos. are being mentioned at the gate-passes by the security staff who are not highly literate and who may write an alphabet of insurance in such a way that any person may read it to be some other alphabet. For example it is quite possible that the gate-keeper writes the alphabets OD on the gate pass which the next record may read as OO or DO or DD for the simple reason that the first person might have written the two alphabets in a near similar fashion. Therefore, no adverse inference can be derived only for the reason of discrepancy in the vehicle numbers. The fact remains that the appellant has been showing purchases from the three concerns and total purchases made in the two Units from three concerns in the present assessment year is found to be as under :-

Thus as against purchases of nearly 3.70 Crores, the purchases are being doubted only to the extent of Rs. 82,25,342/- and not the entire purchases. It shows that the Department has believed existence of these parties and the fact of major part of supplies made by these parties to be genuine and has doubted supplies of the remaining part only for the reason that such person shown to have made purchases from certain parties who are being held by the Deptt. not to be in a position to sale soya seed, because their claim of agricultural activity has been found to be false. Even if such finding and views of the Department were to be upheld, nothing prevented Shri Bharat Modi to purchase soya seeds from the market in his name and in the name of his family members and contact these three parties for effecting the sales in order to give uniform to his story and on the instructions of these three parties direct the persons from whom he had made purchases to deliver the goods at the Plants of the appellant and obtain delivery receipts and thereafter to take such receipts to the three traders for obtaining payments. The Department has simply not established that directors or any employee of the appellant Co. was in collusion with Shri Bharat Modi and his family members and on the contrary all the three traders have admitted to have supplied goods to the appellant and such supply duly finds place in the records of the appellant to the extent that it is seen to have entered the laboratory records, where quality testing is done and on the basis of which final purchase price is determined and payments are made. The appellant can only be asked to prove the identity of the seller and once such identity is established by producing all such persons before the Department, the appellant should not have been questioned in case it was found that there is some discrepancy in the record of these three concerns in relation with the fact of purchases made by them as also in relation with withdrawal of the cash amount from the bank immediately after sale realisation, and adverse action if any can be taken only against Shri Bharat Modi and family members or against these three traders, but certainly not the appellant company, who has shown to have made purchases from the persons of established identity, who are found to be regular suppliers of not only the appellant but also other Soya Plants and when the receipts of goods has been duly recorded in the books of a/cs and others documents. The AO has also not been justified in substantiating his finding by working out the yield rate, because as per actual hand book of soya oil Producers Association, it is found that yield varies between 98% to 102% from plant to plant and year to year and when the appellant had disclosed yield of 99.54% and loss of .46% in the last year, the disclosed yield of 99.9% in the present assessment year should have been held by the A.O. to be reasonable and not low and similarly the loss of .10% shall also not have been held excessive when loss of .46% has already been accepted by the Deptt. in the last year. Therefore, viewed from any angle, the charge of making of bogus purchases by the appellant to the extent of goods purchased from three persons which were shown to have been purchased by them from Bharat Modi and family members cannot be upheld because the record show that the appellant had received the goods and the principle of natural justice demands that it should not be made to suffer by making inquiries of source of source. Therefore, the addition of Rs.82,25,342/- is fully deleted.”

5. The order of the Commissioner was challenged in appeal by the revenue before the ITAT. The Tribunal has re-appreciated the entire circumstances and has affirmed the said finding. The Tribunal has rightly noted that the production of the assessee and the sales have not been doubted. The payments were made by the respondent to the concerned parties through cheque and the delivery of goods was duly taken from the concerned traders. It was also noted that the assessee had adopted the proper procedure for receiving the goods supported by the gate-pass and goods were subject to lab testing, weighment etc. and they were duly recorded in the stock register. The payments were made by account payee cheque which were deposited in the Bank.

6. Learned counsel appearing for the appellant could not point out any perversity in the finding which have been recorded by the Commissioner as well as the Tribunal. Thus the issue which the appellant is raising in respect of bogus nature of purchase, is concluded against the appellant by the finding of fact which has been noted above.

7. Counsel for the appellant has also submitted that the Tribunal has committed an error in holding that the assessee was not required to prove the source of purchase. No such finding from the order of the Tribunal could be pointed out by the counsel for the appellant. The respondent has duly proved the source of purchase from the concerns whose names have been noted above. The tribunal has taken the view that the assessee is not supposed to prove the source of source. The counsel for the appellant could not point out any illegality in the said view of the Tribunal.

8. Keeping in view the aforesaid, the questions which the appellant is raising do not arise for consideration in this appeal since the same are concluded by the finding of fact recorded by the Commissioner and the Tribunal.

9. The appeal does not involve any question of law and is accordingly dismissed.

Click Here to Read More Case Laws/ Articles on Bogus purchases

NF