ITAT deletes Entire Additions on account of alleged Bogus Purchases & Bogus Sales

ACIT Vs Sanjay Kumar Kochar (ITAT Raipur)

ACIT vs. Sanjay Kumar Kochar ITA No.99/RPR/2018 (Date of Order : 26.07.2022) relating to deletion of addition on account of Bogus Purchases & Bogus Sales. Entire Addition was deleted.

As regards the infirmities in the vehicle registration numbers as was relied upon by the A.O for supporting his conviction that the assesee had only obtained bogus bills and not made any genuine purchases of the goods in question, we find that the assesee qua the said issue vide his letter dated 20.12.2016 that was filed before the CIT(Appeals), had came forth with necessary clarifications and correct vehicle numbers which matched with the weighment slips at CCI. On a perusal of the aforesaid factual position, we are of the considered view that now when the assessee had corrected the mistakes and provided the correct vehicle numbers which tallied with the weighment slips of CCI, then, there remained no occasion for doubting the authenticity of the assessee’s claim of having purchased the goods in question. As regards the sustainability of the adverse inferences that were drawn by the A.O qua the authenticity of the purchase transactions, for the reason that now when the registration of the sellers in question had been cancelled, therefore, the same belied the claim of the assessee of having purchased goods from the said concerns, we are afraid is a view arrived at on the basis of half-baked facts. As observed by the CIT(Appeals), and rightly so, though the registration of some of the suppliers had been cancelled by the Commercial Tax Department prior to the impugned purchases claimed by the assessee, but then on the said standalone basis it could not have been inferred that the business of the said suppliers was completely closed down, because there was evidence that goods were supplied by the said parties to the assessee through the brokers. Apart from that, as observed by the CIT(Appeals), we find that except for in the case of 4 suppliers registrations in the case of the remaining suppliers was cancelled by the Commercial Tax Department much after the end of the relevant financial year in which the assessee had purchased rice from them. Also, we concur with the view taken by the CIT(Appeals) that for the reason that the suppliers in question had not shown rice sales in their sales tax returns filed with the Commercial Tax Department, adverse inferences as regards the genuineness of the assessee’s claim of having purchased goods from them could not have justifiably been drawn, specifically when supporting documentary evidence was placed on record by the assessee. We are, also, in agreement with the view taken by the CIT(Appeals) that now when the assessee had made payments to the suppliers through banking channels i.e., RTGS/NEFT and A/c payee cheques, therefore, it was incorrect on the part of the A.O in absence of any supporting material to conclude that the amount in question would have been withdrawn and returned to the assessee after deducting commission on the same. Also, we find substance in the view of the CIT(Appeals) that though the A.O had pressed into service the statements of the brokers/accommodation entry provides wherein they had elaborated at length the modus-operandi of providing of bogus bills and accommodation entries, but in the absence of any direct and specific admission or reference by them, therein alleging that they had merely provided bogus bills and had not supplied any goods to the assessee; or that the invoices were false and fabricated, there was no justification on his part to have adopted a generalized approach for drawing adverse inferences in the hands of the assessee on the basis of the said statements. Apart from that, we concur with the observation of the CIT(Appeals) that as the assessee, viz. Shri Sanjay Kumar Kochar in his statement recorded on 16.12.2016 had at no stage admitted of having booked bogus purchases or procured accommodation bills, but on contrary had provided correct registration numbers of the vehicles in which material was transported from the suppliers to CCI, the same, thus, adduced his claim of having made genuine purchases from the aforementioned parties. As regards the support drawn by the A.O from the statement of Shri Suresh Sahu, a transporter who owned vehicle No.CG 04-J-4701 and had claimed that though in the bill (stated to have been issued by him) it was mentioned that goods had been transported to Nagpur, but his vehicles in question did not ply on the Nagpur route and plied on the Orissa route, we find, that as observed by the CIT(Appeals) the same had rightly been rebutted by the assesee by placing on record copy of weighment slips i.e, RST number 1128 of CCI, wherein, the aforesaid truck number was found mentioned on the invoice. Considering the aforesaid facts, we concur with the view taken by the CIT(Appeals) that as the A.O had not controverted the material which was submitted by the assessee during the course of the assessment proceedings, viz. vehicle numbers (which were corrected in the assessment proceeding), bank details, transportation details of trucks, custom clearance details, export sales and domestic sales documents, confirmation from exporters a/w. copies of account, but had chosen to focus more on the modus operandi adopted by the firms/brokers for providing bogus bills/accommodation entries, therefore, in absence of dislodging of the aforesaid supporting documents/materials there was no justification on his part in drawing adverse inferences as regards the authenticity of the purchases in question.

We, thus, in terms of our aforesaid observations, finding no infirmity in the well-reasoned view taken by the CIT(Appeals) as regards the authenticity of the purchases claimed by the assessee to have been made from the aforesaid suppliers/brokers, uphold his view to the said extent.

Adverting to the authenticity of the sale of goods in question, we find that the A.O holding a conviction that as the assessee had merely procured bogus purchase bills and had not made any genuine purchase of goods in question, therefore, there could be no occasion of having carried out any corresponding sales of the same, had thus on a pro-rata basis disallowed the corresponding sales and recharacterized the same as unexplained credits in the books of accounts of the assessee. As we have on the basis of our aforesaid deliberations concluded that the assessee had made genuine purchases, which thereafter, were proved to the hilt to have been sold to the aforementioned buyers i.e., both for export and domestic sales, therefore, finding no basis for drawing of adverse inferences as regards the authenticity of the sale transactions by the A.O., we concur with the well-reasoned view of the CIT(Appeals) who had rightly vacated the said addition. Accordingly, the order of the CIT(Appeals) who had vacated the recharacterization of the duly accounted sales of Rs.11,29,52,261/- of the assessee as unexplained cash credits by the A.O is also upheld. Thus, the grounds of appeal raised by the Revenue are dismissed in terms of our aforesaid observations.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal filed by the Revenue is directed against the order passed by the CIT (Appeals)-II, Raipur, dated 28.03.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-Tax Act, 1961 (for short ‘the Act’) dated 30.12.2016 for assessment year 2014-15. Before us the Revenue has assailed the impugned order on the following grounds of appeal:

“1. “Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in considering the bogus purchases of Rs.10,17,58,794/- as genuine and admissible expenditure; as against the findings of the AO that these purchases are nothing but bogus purchases managed through accommodation entries?”

2. “Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in giving a finding that the books of account of the assessee as reliable, as against the rejection of the books of account of the assessee by the AO by applying the due provision of law u/s 145(3) of the I.T. Act?”

3. “Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in ignoring the findings of the Commercial Tax Department Chhattisgarh, and whose findings regarding the bogus purchases through accommodation entries have been relied upon by the A.O. in his assessment order?.”

4. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in ignoring the affirmation on oath in statements recorded u/s 131 of the I.T. Act by the proprietors of the concerns, during investigation by the Income Tax Department, thereby admitting and confessing on oath that these concerns are bogus entities indulging in accommodation entries and money laundering?”

5. “Whether on points of law and on facts & circumstances of the case, the Hon’ble ITAT was justified in ignoring the ratio of the landmark decision of the Supreme Court in the case of McDowell and Co. Ltd. Vs Commercial Tax Office 154 ITR 148(SC), as the same ration of this landmark decision is squarely applicable to the facts and circumstances of this instant case this assessee?”

6. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in ignoring the ratio of the ITAT Mumbai in the case of Soman Sun City VS. JCIT, as the same ration of this decision is squarely applicable to the facts and circumstances of this instant case of this assessee?”

7. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in ignoring the ratio of the Hon’ble Delhi High Court in the case of CIT vs Arun Malhotra 47 com 385 (Delhi) / [2014] 363 ITR 195, as the same ration of this decision is squarely applicable to the facts and circumstances of this instant case of this assessee?”

8. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee without allowing the AO/TPO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of I T Rules?”

9. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding which is cont4rary to the evidence on record as the findings of the Sales Tax Department, Chhattisgarh, non­existence of the alleged entity at the given address, cancellation of registration of alleged entity before the purchases and non-transportation of the material through vehicle as mentioned in purchase bill as relied upon by the AO in his assessment order a finding which is factually incorrect thereby rendering a decision, which is perverse?”

10. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in law by holding the decision in favour of the assessee and against the revenue though there is no nexus between the conclusion of fact and primary fact upon which without conclusion is based?”

11. “Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred in allowing the assessee’s appeal that the said transactions are genuine.”

12. “The order of Ld. CIT(A) is erroneous both in law and on facts.

13. Any other ground that may be adduced at the time of hearing.”

2. Succinctly stated, the assessee which is the engaged in the business of trading in rice under the name and style of M/s. Digi Trader, Raipur, a proprietary concern had filed his return of income for the assessment year 2014-15 on 04.11.2014, declaring an income of Rs.15,07,690/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.

3. During the course of the assessment proceedings, it was gathered by the A.O on the basis of information received from the Commercial Tax Department, Chhattisgarh that the assessee was one of the beneficiaries who had procured bogus purchase bills from certain accommodation entry providers. Apart from that, it was observed by the A.O that survey proceedings conducted by the Income-Tax Department on certain rice millers and traders of rice and Kanki from 15.03.2016 to 18.03.2016 revealed that various concerns by availing the services of brokers/entry providers had provided bogus bills to rice millers and rice traders. Also, it was observed by the A.O that pursuant to a survey action conducted on Nagarik Sahakari Bank, Raipur the bank accounts which were opened by the brokers/entry providers to facilitate providing of accommodation bills had surfaced. On a perusal of the purchase ledger of the assessee concerned, it was noticed by the A.O that the latter had claimed to have made purchases of rice and Kanki from 17 traders whose names were found in the list of the bogus concerns during the course of aforesaid survey proceedings conducted on the rice millers/traders. After deliberating at length on the various facets of the impugned purchase transactions, viz. (i) statements of the proprietors of bogus concerns recorded u/s.131 of the Act; (ii) enquiries in respect of vehicles through which transportation of rice was claimed to have been carried out; (iii) enquiries in respect of bogus concerns so carried out by the Commercial Tax Department; (iv) statements u/s.131 of the Act of the brokers through whom the assessee had claimed to have made purchases from the aforesaid tainted concerns; and (v) difference in the signatures of the owners of the concerns through whom purchases were claimed to have been made as in comparison to that appearing on the purchase bills and statements recorded on oath, the A.O being of the view that the assessee had failed to fortify his claim of having made genuine purchases of Rs.10,17,58,794/- from the aforementioned 17 parties, thus, after rejecting its books of account u/s. 145(3) of the Act dubbed the impugned purchase transactions as bogus and added the entire amount of Rs.10,17,58,794/- to the returned income of the assessee.

4. Also, being of the view that now when the assessee had not made any genuine purchases in question, therefore, there was no question of sale of the same, the A.O held the corresponding sales on a pro-rata basis as unexplained credits in the books of account of the assessee. Accordingly, the A.O on the basis of his aforesaid deliberations made a further addition of Rs.11,29,52,261/- i.e., by recharacterizing the impugned sales as unexplained credits in the books of account of the assessee. On the basis of his aforesaid observations the A.O vide his order passed u/s.143(3), dated 30.12.2016 determined the income of the assessee at Rs.21,62,18,740/-.

5. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Considering the fact that purchase of goods in question was not only supported by the description of the suppliers in the respective invoices, but also the details as regards the weight, quantity and quality of rice, transportation vehicle nos., names of drivers, bank statement of the assessee showing payments made, confirmations of the brokers and delivery of the goods at the container depot of M/s. Container Corporation of India (CCI), a Government of India undertaking having its address at Inland Container Depot, Near Railway Store Depot, Kapa, Raipur a/w. loading of the goods in the railway wagons for which bills were issued by the railways and thereafter had been cleared by the assessee, the CIT(Appeals) was of the view that the purchases in question could not be said to be bogus. Accordingly, the CIT(Appeals) on the basis of his exhaustive deliberations qua the various facets of the issue in hand, Page 24 to 29 – Para 14 to 22 of his order, vacated the view taken by the A.O that the assesee had not made any genuine purchases. Adverting to the genuineness of the sales as claimed by the assessee, it was observed by the CIT(Appeals) that sale of rice was supported by requisite documentary evidence. It was observed by the CIT(Appeals) that the confirmation of the accounts a/w. account statement of the assessee in the books of account of the exporters duly evidenced the sales made by the assessee. Backed by his aforesaid observations the CIT(Appeals) was of the view that the A.O had wrongly held the sales made by the assessee as bogus. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations vacated the addition made by the A.O and allowed the appeal.

6. The Revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

7. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR to drive home his contentions.

8. As is discernible from the assessment order, information received by the A.O from the Commercial Tax Department, Chhattisgarh a/w. that which had surfaced in the course of survey proceedings conducted on the rice millers and traders of rice and Kanki from 15.03.2016 to 18.03.2016, revealed, that the assessee had claimed to have made purchases aggregating to Rs.10,17,58,794/- from the following 17 tainted parties:

As observed by us hereinabove, the A.O on the basis of his exhaustive deliberations on the various facets of the purchase transactions in question, viz. (i) statement of the proprietors of bogus concerns recorded u/s.131 of the Act; (ii) enquiries in respect of vehicles through which transportation of rice was claimed to have been carried out; (iii) enquiries in respect of bogus concerns carried out by the Commercial Tax Department; (iv) statements recorded under Sec. 131 of the Act of the brokers through whom the assessee had claimed to have made purchases from the aforesaid tainted concerns; and (v) difference in the signatures of the owners of the concerns through whom purchases were claimed to have been made as were discernible from the purchase bills, as against that put by them in their respective statements recorded on oath, concluded, that the assessee had not made any genuine purchases and only procured accommodation bills. For the sake of clarity the observations of the A.O on the basis of which he had held the impugned purchases made by the assessee as bogus/non-genuine are culled out as under:

“1. The assessee could not establish the business activity of the concerns from purchases has been shown.

2. The assessee could not provide any other address or business premise of the concerns till date. But it is observed that the assessee has made the payment in the next financial years also.

3. The assessee could not provide the details of transportation bilti etc. It is also observed the vehicle mentioned at the respective bills were non-transport vehicles such as motorcycle, tractors, car etc. It is well known fact, that material weighed in MT could not be transported through such vehicle. It is also pertinent to mention that the assessee in his written reply on 20.12.2016 admitted that in some instances vehicle mentioned at bills of such dealers may be mistaken. But he had not provided the details of all such vehicles where mistake have been occurred till date so it may be verified.

4. During enquiry, it is also observed that the owners of the some vehicles denied that they have not transported any material for M/s Digi Trade. Thus, the assessee was confronted with the same fact. He stated that the materials have been received from the same vehicle. But as earlier stated the assessee had already admitted that there were mistake in the vehicle no. mentioned at respective bill. Then, how the same may be considered that the assessee had received the material through the same vehicle as mentioned in bill. The onus to prove the genuineness of the delivery lies on the assessee as he had already admitted that the unloading of materials are being done by his employee or agents. Thus, it is clear that the assessee claim of purchase from such concerns is acceptable as he unable to establish the transportation of item purchased also.

5. The assessee claimed that he had received the materials. But he could not provide any documentary proof in respect of such receipt during assessment proceedings. The assessee also stated that there were not godowns during the year under consideration.

6. The assessee claimed that the payment have been made through cheque or RTGS. But it is well known fact, the payment through cheque or RTGS are one of the types of mode of payments. The payment through cheque or RTGS does not prove the genuineness or rationale of the transaction. Thus, the burden to prove the genuineness and reason for payments through any mode lies on the assessee. But the assessee had not discharged the same till date. During enquiry it is also proven that the payments through cheque or RTGS are made to colour the transaction as genuine. Actually, the payments made through banking channel are withdrawn in cash. The same was being return to the assessee who had made the payment to such bogus concern.

7. It is also observed that the registrations of some concerns were cancelled by the commercial tax department before the purchase made i.e. before A.Y. 2014-15. The assessee had not stated anything about the above finding. He could not provide any explanation how he had purchased the material from a cancelled concern. Thus, it is clear that the assessee had not purchased any material from such concern. The asseessee had taken the bogus bill from such concern.

8. It is also observed that the assessee had shown the purchase for M/s Samleshwari Foods, Raipur but TIN (22131103722) mentioned at the said bill was registered in name of M/s Shubh Laxmi Traders, Raipur. In the same way the assessee had shown the purchase from M/ s Sanjeevani Agro Produce, Raipur but TIN (22343605770) mentioned at bill was registered in the name of M/s Bhagwati Trading Co. The assessee was asked to explain the reason of such discrepancy. The assessee stated that the bill are being provided by the broker. The same is not being looked after by him. But as discussed above, the brokers also stated that the details of such broker are being provided by the assessee. The asseessee’s plea is not acceptable as the assessee had shown the purchases. It’s the sole responsibility of the owner of the concern to look after the matter in respect of all activities of business.

9. During enquiry, the details of sales made by such concerns were also called from commercial tax department. They replied that these concerns either were not involved in the trading of any material during the year. The above concerns have not sold any items to M/s Digi Trade during the year consideration. This also proves that the assessee had not made any purchases from such bogus concern.

10. The assessee claimed that the material have been purchased through brokers. But on verification, the brokers stated that they did not know about such concerns. The details of these concerns were provided by the assessee. The assessee had paid the commission against such bills.

Thus, it is clear that the assesee had tried shift the onus on broker, giving a meager amount of commission. The asssessee had tried to provide a coluour of genuine transaction through broker. But the brokers have no role in respect of such concern. It means the assessee had given the commission to broker for bogus bill not for purchases.”

On the basis of his aforesaid view, the A.O had also dubbed the sales transactions as bogus and held the sale proceeds credited by the assessee as unexplained credits in his books of accounts.

9. On appeal, the CIT(Appeals) after deliberating at length on the contentions advanced by the assessee, had found favour with the same and vacated the adverse inferences that were drawn by the A.O as regards the authenticity of the purchase transactions in question. Also, the view taken by the A.O that the sales corresponding to the impugned purchases were unexplained credits in the books of account of the assessee was also set-aside by the CIT(Appeals). On a perusal of the order of the CIT(Appeals), we find that he had on the basis of exhaustive deliberations on the various facets of the adverse inferences that were drawn by the A.O as regards the genuineness and veracity of the purchase transactions in question, had found favour with the contentions of the assessee and observed as under:

“14. I have considered grounds no 2 and 3, seen the assessment order of the AO and gone through the submissions of the appellant and perused the assessment records of the appellant for the AY 2014-2015 and the submissions made during the assessment proceedings. According to the AO information was received from the Commercial Tax Department regarding some bogus concerns who were providing bogus bills which involved no physical transfer and sale and purchase of goods. The Income Tax Department also conducted surveys wherein it was detected that many concerns were showing bogus purchases on the basis of bogus bills. The AO relied on the statements recorded by the investigation wing and also himself recorded the statements of eight suppliers, four brokers and one transporter and after gathering material came to the conclusion that the purchases shown by the appellant was bogus and accordingly disallowed the same along with the relatable quantum of sales. There was no survey conducted in the appellant’s own case but the statements recorded from the brokers and suppliers form basis for the disallowances made by the AO.

15. During the appeal proceedings the Id. Counsels appearing on behalf of the appellant brought to my notice that the appellant is trader of rice and neither owns or has taken on rent any ware house or godown or depot for receipt despatch or storage of rice and as per terms and conditions the sales of rice is on free on-rail / road (F.O.R. on destination) basis where the loading, arrangements of goods carriages and transportation of rice through them is the responsibility of rice millers or traders, the destination point where the risks and rewards associated with the goods is transferred is the container Depot of M/s. Container Corporation of India(CCI) a Government of India Undertaking with its address at Inland Container Depot near Railway Store Depot, Kapa, Raipur.

On perusal of the invoices issued by the concerns I notice details therein such as TIN, name , addresses, statutory details, description of goods, total number of bags, invoice amounts and bank account details. I also notice that the delivery destination is also specified b ng the Inland Container Depot at Container Corporation of India (CCI) a Govt. of India undertaking at Kapa Raipur. The bills also bears the truck numbers, name of the driver, and name of the brokers. The invoices issued are annexed with the weighment slips of weigh bridges at the CCI before entering the CCI’s container depot. The information in the weighment-slip matches that of the details as appearing in the invoices issued by the broker/firm. The extracts from the gate register of CCI enclosed with the submissions were also brought to my notice which showed the date, arrival time of truck, vehicle number consignor, commodity, number of bags and out time of the vehicle when it left the premises of CCI. Details of clearance by custom authorities of ICD Raipur for export sales were shown. These details are part of assessment records which were brought to my notice during the appeal hearings.

Payments to the suppliers as per details provided in the invoices by the brokers pertaining to the suppliers have been made through cheques/RTGS/NEFT which have been debited from the bank accounts of the appellant. In this context the bank statement of Digi Trade at UCO Bank with account number 18340510000151 Bose Building Pension Bada Branch was brought to my notice showing the payments made to parties. The payments made to the concerned parties in the statement are as per the names appearing in the invoices. From the details of the rice purchase register my attention was drawn to their submission that the quantity of rice purchased was genuine and there were no instances of price inflation of purchases as the same were in accordance with the prevailing market rates and comparable with the other independent parties in the same line of business. It was submitted that this aspect was never questioned or disputed by the AO who only had doubts regarding the purchases from billing concerns.

Letters of confirmation from the brokers indicate the names of concerns from whom rice has been procured by them and details of PAN, brokerage, names and addresses of concerns reveal the quantity and quality of rice purchased along with the truck number for unloading at the CCI. It was explained that the appellant would not be having full knowledge about these concerns which was known to the brokers in detail and any shortcoming on the part of the supplier cannot be fastened on the appellant. In this context the payments of cheques, deduction of tax at source as per provisions of section 194H and reflection of transactions in the quarterly transaction statements was brought to my notice in the assessment records.

My attention was drawn to the accounts confirmations showing rice sales which was ultimately exported to foreign ports/ countries by the following buyers (i) K. N. Resources Pvt. Ltd. K.N.Building, Subhash Road, Ganjpara, Raipur (C.G.) – PAN:AACCK5983B, (ii) Outspan India Pvt. Ltd. A/c. Olam Agro (I) Pvt. Ltd. Floor No.5, Bishop Jerome Nagar, Kollam (Ker.)-PAN : AAACO5798A (iii)PEC Limited, Hansalaya, 15, Barakhamba Road, New Delhi —01-PAN : AAACT0101G. I also notice the accounts of the appellant in the books of the impugned buyers of the appellant. Further I was also shown the invoices of Railway Freight, CCI, and the necessary payments made on account of Railway containers for despatch to these buyers. The letters of confirmations from the export houses and distilleries duly confirming the transactions in terms of value and receipt of quantity of rice sold by him with form no. ‘H’ (relating to exports) bills of lading and reports of technical surveyors are seen on record for the goods sold to export houses and distilleries.

In this context it was explained that in the absence of purchases there could not be corresponding sales as mentioned in the preceding para and when the AO has not doubted the genuineness of such sales duly recorded in the books of accounts which is a part of the assessment records there can be no reason to suspect the purchases shown by the appellant and no disallowances can be made. The judicial pronouncements on the above was brought to my notice.

Regarding the observations of the AO that 17 persons/parti were issuing bogus bills or providing accommodation entries as enumerated at para 3. page no. 5 of the assessment order the appellant pointed out that in respect 9 concerns, which have been mentioned in his submissions in appeal neither any statement recorded by the investigation wing nor by the ld. AO, nor is there any reference of any such statements or reliance in the assessment order. In the submissions it was further pointed out that the AO did not conduct any independent enquiry to ascertain the veracity and genuineness or otherwise of the concerns mentioned by him and no incriminating evidence had been brought on record in support of the allegations regarding bogus purchases. In their submissions during the appeal proceedings the counsels urged that the statements rendered by the proprietors of bogus billing concerns relating to search and seizure proceedings or surveys in other groups could not. be plainly relied upon by simply quoting from the excerpts from such statements and could not render an automatic application in the case of the appellant.

The appellant further submitted that mere information from the Sales Tax / VAT / Commercial Tax Department. regarding concerns involved in bogus billing or registered as hawala dealers or accommodation entry providers without conduct independent enquiry by the AO could not be used against the appellant drawing a parallel with the bogus transactions with such concerns by the appellant. In this context the appellant relied on judicial pronouncements that have been reproduced in their written submissions reproduced herein above.

16. With the above material on record regarding purchases I am of the view that the purchases with their description in the invoices, along with the names of suppliers, weight, quality and quantity, transportation vehicle numbers, names of drivers, bank statements of the appellant showing the payments made, confirmation of brokers and delivery at the CCI which is a government body and loaded into railway wagons and for which bills have been issued by the railways which has been paid by the appellant as is evident from the railway receipts and such payments have been debited in the P&L account claimed as freight payments cannot be overlooked and purchases be treated as bogus. From the Commission bills of brokers I also note that in the same bill there are names of other suppliers that have not been held as bogus and hence if it is a case of bogus billing some of the concerns cannot be said to be bogus and others genuine in the same bill of the broker if it is to be treated as unreliable.

That the purchases made by the appellant found their way to exports and domestic sales is evidenced by the `14 forms showing the exports and domestic sales made by KN Resources Pvt td, Outspan India Pvt Ltd and PEC Limited located at Raipur, Kollam, and New Delhi respectively who are the buyers from the appellant and recognized export houses. The is Cements from these houses show the quantity sold and gross sales made to them by the appellant. These export houses have not only furnished confirmations to the effect of having received material from the appellant but have also enclosed the copy of accounts of the appellant in their books of accounts. Logically therefore no sales could have been made by the appellant to these houses, without having made purchases, who also have provided the II forms to the appellant for the exports made by them of the material provided by the appellant. The counsels also submitted that export items had received custom clearance by custom authorities at in land Container Depot Raipur and proof to this effect was in the assessment records.

17. In this context it also important to note that during the year the appellant had purchased rice amounting to Rs 38,96,59,632/- equivalent to 2,39,672.74 quintals with corresponding sales to the tune of Rs 41,88,64,313/- equivalent to 2,26,65.18 quintals with no opening stock and closing stock valued at Rs 1,40,04,084/- equivalent to 11,800.16 quintals. In the light of such details the contentions of the AO there were no sales and purchases and no physical movement and transactions of material in the case of the appellant has no basis. Furthermore, the suppliers, brokers, and buyers/export houses, and transporters are identifiable along with relevant records and proof which are clear indicators that in the case of the appellant the purchases cannot be held as non-genuine.

In the assessment the AO has observed that the vehicle registration numbers showing rice transported by the appellant were of tractors, scooters, motorcycles and cars and not of trucks and heavy goods transport vehicles. I observe from the assessment records that vide their letter submitted to the AO on 20/12/2016 necessary clarifications were made by the appellant and the vehicle numbers were corrected which matched with the weighment slips at the CI showing that the vehicles in which the material was transported to the container depot were trucks and goods carriers. The weighment slips and bills are enclosed with the impugned letter filed on 20.12.2016 in the assessment records.

18. The cancellation/ registration of suppliers by the Commercial Tax Department relied upon by the Ld.AO in drawing adverse inference against the appellant does not indicate that business of the suppliers had completely closed down as there are evidences of material being supplied to the appellant through the brokers. From the findings recorded by the Ld. A at page no:16 of the assessment order the cancellation of registration of most of the s pliers (except at Si. No: 2,4,12&14 mentioned therein) had been done by the commercial Tax department much after the end of the relevant financial year in which the appellant had purchased rice from them. Even the suppliers whose Registrations were, cancelled during or before the financial year the quantum of purchases as per the figures recorded in the table by the AO is of 1321.210 MT out of total purchases of 23,967.274 M.T if the argument that firms supplying rice did not have license to do their business is taken. It is worth mentioning here that the Ld.AO has himself recorded a finding in his assessment order at para 3.3 at page 3 that the state has prohibited direct selling of paddy to the millers. However, this is openly violated by rice millers and the farmers and such direct selling and purchasing between the farmer and miller is a well known fact. This is especially true if the farmer’s production does not meet the mandated norms set by the state government; in that case he prefers to sell to the millers. It was brought to my notice that payments were being made by the appellant into the bank accounts of the suppliers evidencing purchases from them. As regards the findings of the AO that the suppliers have not shown any rice sales in their sales tax returns filed with the C.T. Department the same may not have been done for the reason that rice being a food grain comes under the essential commodities act and the suppliers may be denying their liability to file returns. Importantly the statutory liabilities of the suppliers and to comply with them is not the responsibility of the appellant and the onus cannot be shifted to the appellant for proving the same as the Id. Counsels have rightly submitted. It was submitted by the appellant that the payments to the suppliers have been made through RTGS and account payee cheques and none of the payments have been withdrawn and returned to the appellant which the Ld.AO has erroneously mentioned without any evidence in the possession of the Ld AO. I observe that there are no cogent material brought on record by the AO in arriving at such conclusions.

19. In the assessment the AO has reproduced the statements recorded of brokers and suppliers of material to the appellant. The statements were recorded by the DDIT(Inv)-1 Raipur in the survey’s conducted and also by the AO during the assessment proceedings. In almost all the statements the manner of procuring orders and material, transportation and unloading of material purchased and their procedures have been enumerated and also the modus operandi of issuing bogus bills have been stated but at no place there is direct and specific admission by the suppliers or brokers that they had provided bogus bills to the appellant and the material and the details mentioned in the commission bills or in the invoices were false and fabricated pertaining to the appellant. I have not come across an instance where the suppliers and brokers have stated that the bills and invoices in possession of the appellant provided by them are bogus and fabricated against which no transaction had taken place. One of the brokers Shri Navratan Jain in reply to question no: 27 replied that he could not confirm whether Shyam Agro one of the suppliers had issued bogus bills or not as the same was not in his knowledge. Similarly in reply to question no: 15 the other broker Shri Ajay Shrivastava has confirmed that purchases of rice and transportation are being done but full and complete details could not be confirmed by him. Though bogus billing may be prevalent in this line of business no direct evidences indicting the appellant is seen from the statements recorded of various persons in the assessment order. It is also true that if a supplier or broker is known to be giving bogus bills it would not automatically lead to the inference that their bills given to the appellant are invariably bogus unless the same is brought on record by material-proof.

20. In the statement of Shri Sanjay Lothar recorded on 16.12.2016 various queries were put to him regarding the bogus purchases. On perusal of the statement from page no. 35 of the assessment order to page no. 43 the appellant has not stated that bogus purchases were made by him, that they were unaccounted, that payments made to suppliers were returned to him and importantly during the assessment proceedings he provided the correct registration numbers of vehicles in which the material was transported from the suppliers to CCI. he counsels of the appellant further submitted that among the transporters the only statement recorded was of Shri Suresh Sahu owner of vehicle number CG-04-J-4701 reproduced at page no. 15 of the assessment order and relied upon by the ld. AO for drawing adversity against the appellant which needs to be seen in the context of what the truck owner submitted in his statement. Ongoing through his statement in reply to question no. 7 Shri Suresh Sahu stated that in the bill it was mentioned that goods have been sent to Nagpur but his vehicle does not ply on the Nagpur route rather his vehicle runs on the Orrisa route. During the appeal hearings the ld. Counsels brought to my notice the copy of invoice issued against the impugned truck number and copy of corresponding weighment slip in respect of the said invoice. The truck number mentioned as CG-04-J-4701 mentioned in weighment slip RST number 1128 is the same as mentioned in the invoice with stamping entries of CCI. In his statement recorded on 16.12.2015 I further observe that the appellant had elaborately stated the modus operandi of his business and did not accept involvement in bogus sale purchases / bills as held by the AO against the appellant.

21. I find that no survey was conducted against the appellant u/s. 133A of the Act and the adverse views taken against him are based on material / statement of other persons during the survey conducted in those persons from 15.3.2016 to 18.3.2016 pertaining to the subsequent financial year. The AO has also mentioned in para 3.1 that survey action was carried out at Nagrik Sahakari Bank Raipur where some of these bogus bank accounts were opened. In this context it was brought to my notice that the appellant had no bank account with Nagrik Sahakari Bank Raipur at any point of time. Regarding observations of the AO the appellant did not own or operate any godowns or mills it was clarified by the counsels that the appellant had submitted all along that he never had any godowns and the material was supplied to the Container Corporation of India and hence his business did not require maintenance of godowns and ware houses.

22. I observe that the AO has not controverted the material submitted during the course of assessment proceedings pertaining to purchases of material, vehicle registration numbers which was clarified during the assessment proceedings, Bank details, transportation details of trucks and Container Corporation of India, Custom clearance details, export and domestic sale documents and confirmation from the exporters along with their copies of accounts. Instead of discussing the modus operandi of the firms involved in bogus billing / purchases as in the statements recorded and relying on reports the AO ought to have returned a finding that the bills and invoices submitted to him or unearthed by him were bogus and did not reflect the affairs of the appellant. The bills and invoices submitted to him during the assessment proceedings have not been held bogus and fabricated by the AO and in fact there is no discussion on them in the assessment order.

In the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. Reported in 372 ITR 619 (Bom. HC) it was held that the appellant had filed letters of confirmations of suppliers copies of bank statements showing entries of payments through account payee cheques to suppliers and copies of invoices for purchases. Accordingly, the hon’ble Court held that taking into account all facts the purchases could not be treated as bogus. In CIT vs. M K Brothers reported in 163 ITR 249 the hon’ble Gujarat High Court held that there was no evidence anywhere that these concerns gave vouchers to the assessee.

Even the two statements do not implicate the transactions with the assessee in any way. The hon’ble Court held that it cannot be said that the entries for purchases for goads made in the books of accounts were bogus entries. In a similar decision the hon’ble Gujarat High Court in the case of Nangalia Fabrics Private Limited reported in 220 Taxmann 17 held that when payments have been made by cheques and sales have been accepted purchases cannot be held to be bogus. In Maruti Vs. JCIT reported in ITA No.3823 /Mum /2014 the hon’ble Tribunal held as under:

“Theory that transaction “defies human probabilities” cannot be applied to purchases in isolation but has to be applied to the entire transaction in the light of documentary evidence produced by the assessee. Sales are accepted as genuine-Purchases cannot be disallowed. The tribunal held that there cannot be sales without purchases and the fact that the assessee has exported the goods was not controverted. It is a known fact that the claim of export cannot be considered to be genuine since the export cannot take place without clearance from Customs Authorities another arm of Government of India. Hence the claim of export has to be necessarily accepted on the basis of relevant documents.”

In the light of the above observations and discussions there is no merit in the disallowances made on account of purchases as the AO has not brought on record cogent material in support of the views taken by him for making the impugned disallowances accordingly the disallowance pertaining to purchases is deleted and ground no. 2 is allowed.”

10. Also, as observed by us hereinabove, the CIT(Appeals) after referring to the supporting documentary evidence that was filed by the assessee to substantiate the genuineness of the sales which were held by the A.O as bogus, had vacated the said adverse inferences and deleted the consequential addition of Rs.11.29 crore by observing as under:

23. Coming to ground no. 3 pertaining to sales the AO has made proportionate disallowance of sales relating to the purchases which he had held as bogus. I find that the sales of rice by the appellant in terms of quantity and monitoring is supported by documentary evidences which were filed during the assessment proceedings. The copies of accounts of the exporters / distilleries showing sales made, confirmation of accounts and accounts statements of the appellant in the books of accounts of the exporters are strong material proof of sales made by the appellant. There is therefore no concrete basis for making the addition on account of sales in the light of the documents submitted by the appellant in support thereof during the assessment proceedings. Accordingly, the addition on account of is deleted and this ground of appeal is allowed.

After having given a thoughtful consideration to the observations of the CIT(Appeals) in the backdrop of the contentions advanced by the Ld. Authorized Representatives of both the parties, we are of the considered view, that as stated by the Ld. AR, and rightly so, the CIT(Appeals) after considering the issue in question i.e., genuineness of the purchase/sales of the goods in question in the backdrop of the material available on record had rightly vacated the adverse inferences drawn by the A.O.

11. Adverting to the authenticity of the purchase transactions in question, we find that the assessee who is a trader in rice and does not own or had taken on rent/lease any warehouse or godown for storage of rice, would after purchasing rice carry out sale of the same on free on-rail/road basis (F.O.R. on destination basis), while for the loading, arrangement of goods carriages and transportation of rice would be the responsibility of the rice millers or traders who would deliver the same at the container Depot of M/s. Container Corporation of India(CCI) i.e., a Government of India Undertaking with its address at Inland Container Depot, near Railway Store Depot, Kapa, Raipur. As observed by the CIT(Appeals), purchases made by the assessee would either be routed as export sales or sales for the domestic market, which factual position was irrefutably evidenced from the Form “H” substantiating the exports and domestic sales carried out by the buyers i.e, recognized export houses, viz. (i). M/s KN Resources Pvt. Ltd; (ii). M/s Outspan India Pvt. Ltd.; and (iii). M/s PEC Limited located at Raipur, Kolkam and New Delhi. Confirmations from the export houses and distilleries had been filed in the course of the proceedings before the lower authorities a/w. copy of the account of assessee as appearing in their books of account which clearly established the factum of their having received goods from the assessee. As observed by the CIT(Appeals), and rightly so, there could have been no sales by the assessee to the aforesaid recognized export houses without corresponding purchases on his part. Apart from that, the fact that the goods purchased by the aforesaid recognized export houses from the assessee had received custom clearances from the Custom Authority at the Inland Container Depot, Raipur, therein, dispels all doubts as regards the factum of the assessee having carried out genuine sales to the aforementioned parties. On the basis of the aforesaid facts, now when the evidence placed on record by the assessee proves to the hilt delivery of goods in question at the destination point i.e., Container Depot, CCI, a Govt. of India undertaking, therefore, we are unable to comprehend that as to on what basis the AO had concluded that the purchases claimed by the assessee were to be held as bogus.

12. At this stage, we may herein observe, that as noticed by the CIT(Appeals) the invoices issued by the seller concerns mentioned the requisite details, viz. TIN, names, addresses, statutory details, description of goods, total number of bags, invoice amounts and bank account details etc. Also, as noticed by the CIT(Appeals) the purchase bills did also bear the truck numbers, names of the drivers and that of the brokers. Fact that the weighment slips of the weigh bridges issued at the CCI before entering the CCI’s Container Depot as mentioned on the invoices seizes the issue in question and irrefutably evidences the authenticity of the assessee’s claim of having delivered the goods purchased to the aforementioned parties i.e., recognized export houses which in turn had exported the same. Observation of the CIT(Appeals) that the information in the weighment-slips matched with the details as appearing on the invoices issued by the brokers/firms, therein, proves to the hilt the authenticity of the sale transactions. Apart from that, as observed by the CIT(Appeals) that the extracts from the gate register of CCI revealed the date, arrival time of truck, vehicle number, commodity, number of bags and the time when the vehicle left the premises of CCI, therein, fortifies the claim of the assessee of having sold the goods in question to the aforesaid parties. Also, the details of clearance of Custom’s authority, ICD Raipur of export sales of goods in question by the aforesaid parties who had purchased the goods from the assessee proves the authenticity of the latter’s claim of having sold the goods in question.

13. On a perusal of the assessee’s bank account no.18340510000151 with UCO Bank, Pension Bada Branch, as observed by the CIT(Appeals) revealed that payments were made by the assessee to the suppliers in question through RTGS/NEFT and reference of the same was provided in the invoices issued by the brokers. Also, it was observed by the CIT(Appeals) that the confirmation from the brokers clearly indicated the names of the concerns from whom rice was procured by them a/w. details of PAN, brokerage, names and addresses of concerns, quantity and quality of rice purchased and the truck numbers which had unloaded the goods at CCI. Considering the confirmations of the buyers, viz. (i) K. N. Resources Pvt. Ltd.; (ii) Outspan India Pvt. Ltd. & (iii) PEC Limited that the goods in question purchased from the assessee had ultimately been exported by them to the foreign ports/countries, therein, puts to rest all doubts as regards the genuineness of the claim of the assessee of having purchased the goods in question and sale of the same to the aforementioned parties. Also, copies of the invoices of Railway Freight, CCI, and the necessary payments made on account of Railway containers for dispatch to the aforesaid buyers as were produced by the assessee before the CIT(Appeals) further fortifies his claim of having purchased the goods in question and delivering the same to the abovementioned parties. Also, as observed by the CIT(Appeals), and rightly so, letters of confirmations from the export houses and distilleries duly confirming the transactions in terms of both value and receipt of quantity of rice sold by the assessee a/w. Form No. ‘H’ relating to exports, bills of lading and reports of technical surveyors duly substantiates the assessee’s claim of having sold the goods in question to the export houses and distilleries. Backed by the aforesaid facts, we concur with the view taken by the CIT(Appeals) that in absence of purchase of goods in question there could not have been any corresponding sales by the assessee to the aforementioned parties.

14. Adverting to the view taken by the A.O that as the assessee had claimed to have procured goods from 17 tainted parties who were involved in the business of providing bogus bills and accommodation entries, therefore, corresponding purchase transactions were to be held as bogus, we are afraid could not have been summarily so held by him by discarding the substantial documentary evidences that were filed by the assessee in support of the authenticity of the purchase transactions in question. On a perusal of the orders of the lower authorities, we find that in case of 9 concerns (out of 17 concerns) neither any statement was recorded by the Investigation Wing or by the A.O nor there was reference of any such statement in the assessment order. Also, as is discernible from the orders of the lower authorities no incriminating material had been brought on record to support the claim of the A.O that the assessee had booked bogus purchases. On the contrary, as observed by the CIT(Appeals), and rightly so, now when purchases in question had duly been substantiated by the assessee by placing on record invoices of the suppliers which clearly make a reference of the names, weight, quality and quantity, transportation vehicle numbers, names of drivers, bank statements of the assessee showing the payments made, confirmations of brokers, delivery of the goods at the CCI which is a government body and loading of the goods into railway wagons for which bills had been issued by the railways that were cleared by the assessee, the A.O without dislodging the authenticity of the aforesaid documents could not have held the purchases in question as bogus.

15. As regards the infirmities in the vehicle registration numbers as was relied upon by the A.O for supporting his conviction that the assesee had only obtained bogus bills and not made any genuine purchases of the goods in question, we find that the assesee qua the said issue vide his letter dated 20.12.2016 that was filed before the CIT(Appeals), had came forth with necessary clarifications and correct vehicle numbers which matched with the weighment slips at CCI. On a perusal of the aforesaid factual position, we are of the considered view that now when the assessee had corrected the mistakes and provided the correct vehicle numbers which tallied with the weighment slips of CCI, then, there remained no occasion for doubting the authenticity of the assessee’s claim of having purchased the goods in question. As regards the sustainability of the adverse inferences that were drawn by the A.O qua the authenticity of the purchase transactions, for the reason that now when the registration of the sellers in question had been cancelled, therefore, the same belied the claim of the assessee of having purchased goods from the said concerns, we are afraid is a view arrived at on the basis of half-baked facts. As observed by the CIT(Appeals), and rightly so, though the registration of some of the suppliers had been cancelled by the Commercial Tax Department prior to the impugned purchases claimed by the assessee, but then on the said standalone basis it could not have been inferred that the business of the said suppliers was completely closed down, because there was evidence that goods were supplied by the said parties to the assessee through the brokers. Apart from that, as observed by the CIT(Appeals), we find that except for in the case of 4 suppliers registrations in the case of the remaining suppliers was cancelled by the Commercial Tax Department much after the end of the relevant financial year in which the assessee had purchased rice from them. Also, we concur with the view taken by the CIT(Appeals) that for the reason that the suppliers in question had not shown rice sales in their sales tax returns filed with the Commercial Tax Department, adverse inferences as regards the genuineness of the assessee’s claim of having purchased goods from them could not have justifiably been drawn, specifically when supporting documentary evidence was placed on record by the assessee. We are, also, in agreement with the view taken by the CIT(Appeals) that now when the assessee had made payments to the suppliers through banking channels i.e., RTGS/NEFT and A/c payee cheques, therefore, it was incorrect on the part of the A.O in absence of any supporting material to conclude that the amount in question would have been withdrawn and returned to the assessee after deducting commission on the same. Also, we find substance in the view of the CIT(Appeals) that though the A.O had pressed into service the statements of the brokers/accommodation entry provides wherein they had elaborated at length the modus-operandi of providing of bogus bills and accommodation entries, but in the absence of any direct and specific admission or reference by them, therein alleging that they had merely provided bogus bills and had not supplied any goods to the assessee; or that the invoices were false and fabricated, there was no justification on his part to have adopted a generalized approach for drawing adverse inferences in the hands of the assessee on the basis of the said statements. Apart from that, we concur with the observation of the CIT(Appeals) that as the assessee, viz. Shri Sanjay Kumar Kochar in his statement recorded on 16.12.2016 had at no stage admitted of having booked bogus purchases or procured accommodation bills, but on contrary had provided correct registration numbers of the vehicles in which material was transported from the suppliers to CCI, the same, thus, adduced his claim of having made genuine purchases from the aforementioned parties. As regards the support drawn by the A.O from the statement of Shri Suresh Sahu, a transporter who owned vehicle No.CG 04-J-4701 and had claimed that though in the bill (stated to have been issued by him) it was mentioned that goods had been transported to Nagpur, but his vehicles in question did not ply on the Nagpur route and plied on the Orissa route, we find, that as observed by the CIT(Appeals) the same had rightly been rebutted by the assesee by placing on record copy of weighment slips i.e, RST number 1128 of CCI, wherein, the aforesaid truck number was found mentioned on the invoice. Considering the aforesaid facts, we concur with the view taken by the CIT(Appeals) that as the A.O had not controverted the material which was submitted by the assessee during the course of the assessment proceedings, viz. vehicle numbers (which were corrected in the assessment proceeding), bank details, transportation details of trucks, custom clearance details, export sales and domestic sales documents, confirmation from exporters a/w. copies of account, but had chosen to focus more on the modus operandi adopted by the firms/brokers for providing bogus bills/accommodation entries, therefore, in absence of dislodging of the aforesaid supporting documents/materials there was no justification on his part in drawing adverse inferences as regards the authenticity of the purchases in question.

16. We, thus, in terms of our aforesaid observations, finding no infirmity in the well-reasoned view taken by the CIT(Appeals) as regards the authenticity of the purchases claimed by the assessee to have been made from the aforesaid suppliers/brokers, uphold his view to the said extent.

17. Adverting to the authenticity of the sale of goods in question, we find that the A.O holding a conviction that as the assessee had merely procured bogus purchase bills and had not made any genuine purchase of goods in question, therefore, there could be no occasion of having carried out any corresponding sales of the same, had thus on a pro-rata basis disallowed the corresponding sales and recharacterized the same as unexplained credits in the books of accounts of the assessee. As we have on the basis of our aforesaid deliberations concluded that the assessee had made genuine purchases, which thereafter, were proved to the hilt to have been sold to the aforementioned buyers i.e., both for export and domestic sales, therefore, finding no basis for drawing of adverse inferences as regards the authenticity of the sale transactions by the A.O., we concur with the well-reasoned view of the CIT(Appeals) who had rightly vacated the said addition. Accordingly, the order of the CIT(Appeals) who had vacated the recharacterization of the duly accounted sales of Rs.11,29,52,261/- of the assessee as unexplained cash credits by the A.O is also upheld. Thus, the grounds of appeal raised by the Revenue are dismissed in terms of our aforesaid observations.

18. In the result, appeal of the Revenue is dismissed in terms of our aforesaid observations.

Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.