Addition to Income cannot be made for mere Excess quantity under Essential Commodities Act, 1955: HC

Brief of the Case

Punjab & Haryana High Court held In the case of The CIT Vs Bharat Bhushan held that no addition is sustainable where the purchases had been accounted for in the regular books of accounts maintained, duly audited and there is nothing to show that the quantity had been purchased and sold outside the books. The fact that the assessee is maintain the sugar stock which is more than permissible as per department of Food & Civil Supplies under Section 7 of the Essential Commodities Act, 1955 , has not relevant for making addition on the assessee in the given circumstances.

Facts of the Case

The assessee was doing the business of trading sugar, ghee and other items at old Grain Market, Moga. The assessee filed his return of income for the assessment year 2010-11 on 13.10.2010 declaring the taxable income of Rs. 1,36,79,960/-, which was processed under Section 143(1). During the assessment year 2010-11, a raid was conducted on its godown at Ludhiana on 17.9.2009. The sugar weighing approximately 97500 quintals was found and the godown was sealed by the Food & Civil Supplies Department under Section 7 of the Essential Commodities Act.

A criminal case was also registered against the assessee and the investigation was conducted by the Revenue. In view of the information received, the notice under Section 143(2) was issued on 5.9.2011. After examination of the facts, the Assessing Officer disbelieved the assessee that the sugar had been purchased on credit though noticing that the parties had issued bills and accordingly added a sum of Rs. 26,64,68,073/- in the assessment order dated 30.12.2011.

Held by CIT (A)

CIT (A) dismissed the appeal of the assessee. It was held that the assessee, before the Food & Supplies Department, had admitted that he owned the sugar which had been purchased from different sources but never stated that he had sold the same. It was only on afterthought in the form of sale invoices before the date of seizure which had been structured with an intention to escape the rigors of law with reference to hoarding of sugar.

Held by ITAT

ITAT allowed the appeal. It was held that there was no dispute that there was a purchase from the 45 parties from whom the appellant had purchased the sugar. The same had already been purchased from one M/s S.M.Edible Private Limited and the sugar was already lying in the godowns The parties were the traders duly registered with the Sales Tax Authorities whose TIN numbers are also mentioned in the bills issued. The VAT returns had been accepted by the authorities of the purchases declared by the appellant. The parties having sold the sugar to the appellant had also been confirmed by recording the statement of the said parties by the department itself apart from the fact that the documents showing its sale. The copy of the account books were also taken into consideration. The factum of rent receipts issued to the said vendor and the confirmations and the ledger accounts of the appellant in the books of the said vendors were also noticed. Merely because the bills were not shown to the raiding party which is the Department of Food & Civil Supplies and the statement given to the said department would not have any applicability for deciding the issue in hand.

Held by High Court

It was rightly noticed that a letter had been written by the assessee that the sugar had already been sold to various parties and a complete list of the parties had been given to the Deputy Commissioner/Deputy Magistrate. Once the said parties had confirmed the purchase which had been duly supported by the bills and they were regular traders and were unrelated to each other, therefore, the allegation made was held to be without any basis.

The said findings pertaining to the goods lying at the spot and whether the purchases had been made on credit basis and thereafter sold are all questions of facts which are now being raised, which have been extensively dealt with in detail by the Tribunal. The findings have been recorded that the sellers and purchasers are all dealing in sugar and the purchases had been accounted for in the regular books of accounts maintained, duly audited and thus, there is nothing to show that the quantity of sugar had been purchased and sold outside the books.

Merely because the assessee was being prosecuted for keeping the sugar beyond the permissible limit and was trading in the same by sale and purchase on as is where is basis and as per his own case on credit could not entitle the Assessing Officer to add the value of the sugar to his undisclosed income which was done on the basis of conjectures i.e. incomplete information.

Accordingly, appeal of the revenue dismissed..