Assessee cannot be Penalized for Purchasers’ Failure to Record Transaction

ACIT Vs Dewas Soya Limited (ITAT Indore)

In the case of ACIT vs. Dewas Soya Limited, the Income Tax Appellate Tribunal (ITAT) Indore dealt with an appeal from the Revenue regarding the treatment of certain transactions under Section 68 of the Income Tax Act. The crux of the case revolves around whether Dewas Soya Limited should be penalized for transactions with purchasing dealers who did not account for these transactions in their books.

Evidence Submitted by the Assessee:

• The assessee provided extensive documentation to prove the legitimacy of transactions with M/s A.K. Impex, Delhi. This included the buyer’s bank account details, sales tax department TIN, broker confirmations, correspondence, and transportation documents.
• The existence of M/s A.K. Impex was corroborated through these documents, despite the buyer being untraceable after 2.5 years.

CIT(A)’s Findings:

• The CIT(A) observed that Dewas Soya Limited conducted its transactions transparently and with due diligence.
• The assessee provided proof of bank transactions, sales invoices, and transportation records.
• The CIT(A) noted that the non-traceability of M/s A.K. Impex at a later date should not penalize the assessee, as they had proven the identity and transactions at the time they were conducted.
• The CIT(A) concluded that Section 68 was inapplicable since the transactions were genuine business receipts and properly documented.

Broker and Transporter Confirmations:

• The broker, Rajendra Kumar Arun Kumar, confirmed the transactions, stating he arranged the deals with M/s A.K. Impex.
• Transporters provided certificates confirming the delivery of goods, further substantiating the legitimacy of transactions.

Revenue’s Argument:

• The AO argued that the non-existence of M/s A.K. Impex and the lack of traceability made the transactions dubious.
• The AO invoked Section 68, treating the sales proceeds as unexplained cash credits, due to the inability to trace the buyer and the cancellation of their TIN by the Sales Tax Department.

ITAT’s Decision:

• The ITAT upheld the CIT(A)’s decision, stating the assessee had sufficiently proved the genuineness of the transactions.
• The ITAT pointed out that the assessee maintained quantitative stock records and sales were properly recorded and reconciled with stock.
• The ITAT noted that the assessee could not be held responsible for the purchasing dealers’ failure to account for the transactions in their books.

Legal Precedents Cited:

• The ITAT referenced several judicial decisions supporting the notion that the assessee should not be penalized for the purchaser’s actions.
• The Hon’ble Apex Court in Laxmichand Baijnath v. CIT (35 ITR 416) and the Hon’ble Patna High Court in Bahri Brothers (154 ITR 244) were cited, emphasizing that business receipts documented in the assessee’s books should be considered genuine unless contrary evidence is presented.

Additional Evidence and Remand Report:

• The ITAT noted that additional evidence provided by the assessee was appropriately considered. The AO had the opportunity to review and comment on this evidence during the remand process.
• The ITAT found no merit in the Revenue’s claim of procedural violation regarding the admission of additional evidence under Rule 46A.

Conclusion:

• The ITAT affirmed that the CIT(A)’s decision was based on substantial evidence and correct application of the law.
• The appeal by the Revenue was dismissed, reinforcing that the assessee cannot be penalized for the purchasing dealers’ failure to account for the transactions in their books.
• The ITAT emphasized the need for the AO to provide positive material evidence when challenging the legitimacy of such transactions.

Implications:

FULL TEXT OF THE ORDER OF ITAT INDORE

The Revenue is aggrieved by the impugned order dated 30^th March, 2012 passed by the learned first appellate authority, Ujjain.

2. During hearing of this appeal, we have heard Shri Darshan Singh, learned CIT DR and Shri P.D. Nagar, learned counsel for the assessee. The first ground raised by the Revenue is that the learned CIT(A) erred on facts and in law in deleting the addition of Rs.6,47,03,548/- made u/s 68 of the Act. The crux of arguments on behalf of the Revenue is identical with the ground raised by further submitting that the addition made by the Assessing Officer is quite justified and further erred in admitting the additional evidence filed before him which is violation of rule 46A of IT Rules and thus the learned first appellate authority should not have accepted the sales made by certain parties which were neither traceable at the given addresses nor were having valid TAN numbers. It was also pleaded that the impugned order is against the ratio laid down by the Tribunal in the case of M/s Agrawal Coal Corporation Limited. A plea was also raised that all the ingredients of section 68 were not fulfilled by the assessee. It was emphatically contended that M/s A.K. Intex and other parties were not traceable at the given addresses in spite of detailed inquiries made by the Assessing Officer to whom substantial sales were claimed to be effected by the assessee. The genuineness of sales along with the identity of the buyers was argued to be in dispute.

2.1 On the other hand, the learned counsel for the assessee defended the impugned order by submitting that regular books of accounts are maintained by the assessee and the same were produced for verification. It was also claimed that such books are supported by purchase/sale invoices along with stock register of raw material, consumption, production of finished goods, audit report. It was submitted that the total turnover of refined oil was Rs.67.63 crores on which VAT and Central Sales Tax was deposited. A plea was raised that sale of oil was against advance payment and the amounts were received in cash/demand draft/RTGs. On the issue of non-traceability of the parties, it was contended by the learned counsel that out of 73 dealers of the State about 50% remitted the amounts in cash and 2 dealers outside the State of Madhya Pradesh also deposited the amounts in cash. On the identity of M/s A.K. Impex it was claimed that the amounts were received in advance against sales and initially such firm was registered under Delhi VAT Act. On the issue of payment of VAT and sales tax it was contended by the learned CIT DR that such authorities never asked for identity of the parties to whom sales were effected and only on the basis of statement of the assessee, the tax was deposited.

3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in manufacturing of refined Soyabean oil and DOC from Soyabean seeds. The turnover of the assessee during the year, under consideration, was Rs. 149.58 crores on which a GP of 11.59% was shown. Before coming to any conclusion, we are reproducing hereunder the relevant portion from the impugned order :-

“ In the grounds of appeal bearing from no. 1 to 10, the appellant has challenged the additions made u/s 68 of the Act as unexplained cash credits at Rs. 6,47,03,548/-being sale proceeds realised by the appellant from four debtors after deducting an amount equal to 11.59% towards gross profit on such sales.

2. The facts of the case are that the appellant company is engaged in manufacturing of soya oil and de-oiled cake from soya seed in its solvent extraction plant located at Dewas since 1994. The case was selected for the scrutiny. Assessee has shown sales of soyabeen refined edible oil to one Mis A.K. Impex, New Delhi and three other parties M/s Praveen Trading Company, Sarangpur, M/s Maa Pagati Traders, Agar (Malwa) and M/s Mohan Traders Nalkheda. The AO made detailed inquiries in respect of above four parties to whom the assessee has effected sales at Rs. 7,31,78,455/- (1471.87 Metric Tones). After making enquiries the AO has treated these sales as unexplained credits and addition to total income has been made at Rs. 6,47,03,548/- by deducting an amount equal to 11.59% towards gross profit on such sales i.e, Rs. 84,74,907/- . Against this order the assessee has preferred this appeal.

3. During the course of appellate proceedings the appellant had filed its written submissions on 02/09/2011, which is reproduced as below:

“01) The appellant company is engaged in manufacturing of soya oil and de-oiled cake from soya seed in its solvent extraction plant located at Dewas since 1994. Regular books of accounts have been maintained which are quantitative and supported by purchase and sale invoices, vouchers, tax audit report U/S 44AB of Income tax Act and Annual report under Companies Act.

02) Sales of D-oiled cake is effected outside India whereas sales of refined oil is effected within MP as well as outside MP. Past history of the appellant proves beyond doubt that accounts of the company have been accepted by the Department all along. The owners of the company are known for their loyalty and honesty. During the year total turnover was Rs. 149.58 crores whereas sales of soya refined oil was Rs. 67. 63 crores liable to VAT and Central Sales tax.

03 Common practice prevailing in the State regarding sales of soya oil by Solvent Extraction Plants is as under :-

a) Sale are being made through brokers and rarely as direct sale. Brokerage is being paid to the brokers by Alc payee cheques after deduction of tax at source.

b) Enquiry is made by the brokers regarding availability of stock and rates and thereafter orders are placed telephonically by giving further details relating to name and address of the buyer, quantity, rate and mode of delivery etc.

c) Sales are normally made against immediate or advance payment. On confirmation, amount is received by the appellant either in cash/DD/pay order/cheque/RTGS.

d) Delivery of refined oil is given to the buyers in oil tankers arranged by them in case of spot delivery at factory site.

04 Initially sales effected to six parties were suspected by Assessing Authority because payments were received in cash/DD/pay order/cheque/RTGS from buyers against orders in advance.

Following details were submitted before the AO in support of sales effected to such parties against which amounts were received –

i) Copies of accounts of buyers in the books of the appellant;

ii) Copies of all sales invoices issued by the appellant to said buyer. iii) Copies of the cash receipts issued to the parties.

iv) Copies of bank slips relating to cheques received.

v) Copies of bank statements of the appellant.

vi) Stock register maintained by the appellant. vii) Letter from brokers confirming transactions. /

viii) Brokerage bills issued by the brokers of said buyers.

ix) Weighment slips issued at the time of dispatches.

x) Description regarding Truck/Tankers No, DO No. etc.

05. Submissions in detail were made by the appellant from time to time, the Assessing Authority did not accept the genuineness of sales effected to four parties out of six parties (one from Delhi & three dealers of MP). Enquiries were made by the Assessing Authority based on which the inference was drawn that such parties were non-exist. He, therefore, concluded that the appellant (selling dealer) introduced cash in its books of accounts as sale proceeds of goods. He therefore, rejected the books of accounts U/S 145 of the Act and assessed additional income as cash credit U/S 68 of the Act by accepting sales disclosed as per books of account in following manner :-

a) Sales effected to M/s. A. K. Impex, Delhi	Rs.5, 16, 04, 000/-
b) Sales effected to three parties of MP at	Rs.2,15,74,455
	Rs. 7,31, 78,455/-
c) Gross profit on above deducted @ 11.59% (Rs.59,81,306/- + Rs.24,93,601/-) =	(-) Rs. 84,74,907/-
d) Net sales after deducting above gross profit treated as cash credit U/S 680fl TAct	Rs. 6, 47, 03,548/-.

Addition so made U/S 68 of the Act is challenged before your honour on merits as well as on legal grounds as under:-

ON MERITS:-

01) Genuineness of Sale versus Identity of bovver:

1.1 The Assessing Authority doubted upon the identity of the debtor viz.

Mis. A.K. Impex, Delhi who had purchased the goods from the appellant due to following reasons :-

a) Notice issued U/S 133(6) of the Act at the address of Mis. A.K. Impex, Delhi was returned un-served with the remarks uno such form at this address”. The debtor Mis. A.K. Impex, was not available at the address given by appel/ant or the debtor himself or otherwise and the same was found incorrect as per departmental enquiry.

b) PAN given by Mis. A.K Impex, belongs to Shri Ashok Kumar of Delhi who did not file the return of income. Summon U/S 131 could not be served upon Mr. Ashok Kumar because the address of Mr. Ashok Kumar as per PAN was not correct address.

c) Commercial tax authority at New Delhi informed that though Mis. A.K. Impex was duly registered vide TIN: 07970322124 but such TIN was cancelled w.e.f 14.03.2007, because the said firm did not carry on the business at given address. The TIN of the party was cancelled prior to 01.04.2007 which means the party was not doing genuine business thereafter.

d) “C’forms issued by M/s. A.K. Impex to the appellant were in fact issued to other parties viz. Mis. S.S. Enterprises and M/s. Continental Pipe &

e) The broker was not aware of the existence of M/s. 1.K. Impex because commission was not received by him from the buyer. He was also not aware about the DDs issued by M/s. A.K. Impex to the appellant because’ he was not responsible to collect the payment.

f) There was no proof of transportation of goods to MIs. A.K. Impex.

g) On enquiry from the bank, amounts were received through RTGS on behalf of MIs. A.K Impex which were remitted by other parties. Such parties were not dealers in edible oil. Notices issued U/S 133(6) of the Act to some of the parties, who remitted the amount on behalf of MIs. A.K. Impex, were returned un-served. On enquiry thorough Investigation Wing, New Delhi, it was reported that such firms did not exist at the addresses given.

h) The broker MIs. Rajesh Kumar Arun Kumar, Gwalior confirmed the dealings between MIs. A.K. Impex and the appellant through him and he also provided Mobile number of MIs. A.K Impex.

i) Mobile No. was provided by the broker and the Inspector of Range-i, Gwalior talked to MIs. A.K. Impex on phone. The debtor also confirmed the address but on verification by Investigation Wing , Delhi, such address was again found incorrect.

j) The appellant remitted excess payment received over and above the sales at Rs.31,5281- by Alc payee cheque to Mis. A.K. Impex, which was credited in its bank account in Punjab National Bank, New Delhi. Address in the bank account was the same as was supplied by the debtor. According to A. O. such account was operated as Hawala Account

k) Since the account of the debtor was maintained by the appellant, the sales cannot be covered within the meaning of “counter sale”.

The AD, thereafter, concluded that because existence of Mis. A.K. Impex was not proved as confirmed by DDIT & ITI as well VAT Authorities of Delhi, sales effected by the appellant to MIs. A.K. Impex were not genuine. According to the AD, assessee did not discharge the burden casted upon him to prove the nature and source of any sum credited in the books of accounts, whether it is on account of sale consideration or otherwise, was not discharged. For this purpose he relied upon the observations in the case of CIT vs. Sophia Finance Ltd 2005 ITR Delhi by distinguishing the same from the observations made in CIT Vs. Lovely Exports Pvt Ltd 216 CTR 195 and CIT Vs. Steller Investment Ltd 251 ITR 263 (SC).

1.2 Sales were also effected to three dealers of MP who were also found to be non-exist at the addresses given by them. The Commercial tax department, MP. reported that aforesaid parties are not registered under MP VAT Act. The broker, however, confirmed that commission was received from the appellant against sales to such parties but did not provide the address of the parties or their where-about. One DD & two pay orders of Rs. 80, 000/- each were credited in the account of M/s. Praveen Trading Company (one buyer) which were issued from UP. Rest of the payments from three parties were received by the appellant in cash.

1.3 According to A.D., the appellant did not establish the nexus between the credits appearing in the accounts of Mis. A.K. Impex against sale proceeds shown in its books of accounts. Sales realization of Rs.5,16,07,472/- was, therefore, treated as unexplained cash credit after deducting gross profit @ 11.59%. On same footing sales effects to three buyers of MP. were also taxed. Thus, addition U/S 68 of the Act has been made solely on the ground that identity of the debtors and the persons from whom monies were received and credited against sales in the account of Mis. A.K Impex was not proved. The AD relied upon the ratio of judgment in the case of CIT Vs. Madhavnagar Cotton Mills Ltd 104 ITR 493 (Bom) which is distinguishable on facts.

1.6 Evidences furnished during the course of appellate proceedings were forwarded to the AO along with written submissions of the appellant for comments, who objected for admission of any new evidence. Copy of the comments received were given to the appellant. Regarding admissibility of evidences, the appellant claimed that no new evidence were furnished and supporting documents which already forms part of record or originals of which were produced during the course of assessment were submitted at the appellate stage.

02) In written submissions dated 02/09/2011, additions made by the A.O. have been challenged by the appellant on merits as well as on legal grounds which are reproduced here under:-

“Regarding Sales to A.I(. Impex, Delhi & 3 buyers of M.P.

2.1 It is well known fact that parties are carrying on trading activities outside the books either by maintaining various bank accounts or by changing their addresses quite often. Such traders not only avoid payment of Income tax on the earnings but also VAT, Central Sales tax or Entry tax. They are not purchasing the goods directly from manufacturer. Such business is carried on through brokers who are also hiding the fact for their vested interest because they are getting commission from the appellant on sales effected through them. Such parties do manage ‘C’ form books in an unauthorized manner so that the transactions are not disclosed to the VAT department. Such buyers always take delivery at factory by depositing sale price in cash or by pay order or through RTGS. They do not disclose such turnover in their books of accounts just to facilitate evasion of VAT/Entry tax/Income tax on such trading transactions. It is 9, matter of great strange that such non-compliance of statutory requirements by the buyers has been presumed against the appellant Company so as to treat the sales as non-genuine.

2.2 It appears that the buyer Mis. A.K. Impex had melafide intention since beginning to avoid the payment of due taxes as evident from the enquiries made by the AD:-

a) Wrong address was given by the buyer; b) ‘C’ form books obtained in an unauthorized manner; c) Address on the PAN was different than the business address; d) In bank account, address was the same and such bank account was operated also but probably not disclosed in the books; e) Remittances were made directly as well as through other parties who were also probably involved in such transactions and their address were also found to be incorrect. Normal trade practice adopted by such dealers such as incorrect address, cancellation of TIN and amount received from third parties on behalf of Mis. A.K. Impex was ignored by AD. The material fact regarding advance receipt of money immediately before sale proves the genuineness of sale beyond doubt.

2.3 Furnishing of False or fake ‘C’ form:-

It is settled law that the selling dealer cannot be penalized even if it is proved that the ‘C’ forms issued by the buyers were false or bogus unless there is any material to show that there was any collusion between the seller and purchasing dealer, as held in the case of ACTO vs. White Marble House (2006) 148 STC 14 (Raj).

In the case of Star paper Mills vs. CST (2005) 139 STC 245 (All), it was held that HR egistration certificate of buyer was cancelled still he issued declaration forms. The selling dealer was not aware and bonafide sold the goods against the form. Tax cannot be recovered from selling dealer”.

It is, therefore, submitted that the appellant cannot be penalized in any manner if the purchasing dealers did not account for the transactions in their books of account and ‘made the payment in cash against sales effected to them. Reliance is also placed on following judgments :_.

Plestar Electronic vs. A CST (1978) 41 STC 409 (SC) State of Madras vs. Radio & Electricals Ltd. (1996) 18 STC 222 (SC) Dy. CST vs. Bharat Refineries (1978) 41 STC 409 (Kerala – DB) State of A.P. vs. Askin Fabs (1999) 112 STC 550 (AP-DB) State of Orissa vs .Bharat Petroleum (2001) 122 STC 559 (Orissa _ DB) Agfa-Gavert India Ltd. vs. State of Tamil Nadu (2001) 123 STC 108 (Madras-DB)

2.4 Bonafides of the appellant:-

Genuineness of sales to M/s. A.K. Impex was proved from following documents (copies of which were not allowed to be submitted by the A.O):-

a) Sale, effected were properly recorded and VAT was deposited on entire sales @ 4% and CST payable on such sales was deposited @ 2%;

b) Quantitative records of purchase & consumption of soya seed, production of crude oil, refined oil & cake, sales of manufactured goods & stock was maintained on day to day basis;

c) Remittances are supported by covering letters from the buyer as and when they were received;

d) MTRs proving the dispatch of goods to M/s. A.K. Impex are available.

e) Letters issued by the broker regarding remittance made in support of the fact that the broker was also aware of such transactions;

f) Copy of account of M/s. A.K. Impex proves beyond doubt that amounts were received in advance against sales;

g) Excess receipt of Rs. 31, 526/- was remitted back to the debtor by A/c payee cheque.

It is submitted that when the amounts are received in advance before dispatch, the appellant was not under any obligation to make an enquiry from the buyer regarding source of depositing the amount. Neither the Supreme Court (72 ITR 194) nor the Bombay High Court in 104 ITR 493 have held that in case the amounts are received as advance towards sale proceeds, the assessee has to prove the source of amount deposited by buyer.

2.5 Burden discharged bv appellant :_

On one hand, the A.O recognized the fact that bank account of M/s. A.K Impex, in Punjab National Bank was having same address as reported by the appellant. He also considered that such account was being operated by Mis. A.K. Impex as Hawala account yet the burden has been shifted on the appellant to prove the genuineness of sales. The fact that the amount was adjusted against sale invoice issued to the party immediately on dispatch of goods, the burden on the part of the appellant regarding credit entry in the books of accounts stands discharged. The nexus of such credit entry was nothing else than the sales effected to the party. It may not be in the shape of “counter sale” like sale effected by a jeweller in his shop, but the nexus of receipt was proved beyond doubt from the entries in the books of accounts. Such amounts were received in advance by Cheque/RTGS, credit entries were made in the account of Mis. A.K. Impex and debit entry was made on the basis of sale invoice issued to him at the time of dispatches which were effected on next day or within a week There was no option left with the appellant except to pass such entries in the books when regular books of account are maintained. As regards, transportation of goods, it was evident from the sale invoices itself that the goods in fact moved from the factory and the tanker no. was stated on every invoice by which the goods were lifted by the buyer.

The amount remitted by various parties on behalf of Mis. A.K. Impex was also proved because the appellant was in possession of letters from such parties whenever the remittance were made by them and copies of such letters were also produced before the A 0 in support of the claim that such parties had remitted the amount on behalf of Mis. A.K Impex. However, these letters were not taken on record by the A 0 for the reasons best known to him. Copies of such letters and certificate from transporter who deliver the goods to Mis. A.K. Impex are annexed for kind perusal in support of submissions made above with a request to kindly consider the same because they support the existence of the buyer.

2.6 Sales tobuvers in MP:-

It is submitted that the intention of three parties of MP also appears as melafide because:-

a) in spite of having huge purchases effected by them, they were not registered dealers under MP VAT Act:

b) Entire purchases were effected by them in cash which is in contravention of provisions of sec. 40A(3) of the Act.

c) TIN informed to the appellant were found to be incorrect; d)The appellant is under no obligation to effect sales only to regd. dealers under MP. VAT Act and such sales can be effected to any person or to consumer. e) Details of sales effected to these dealers were submitted along with copies of inyoi~es and cash receipts issued to them.

f) Such sales were spot delivery sale

g)the amount was received in cash at the time of taking delivery of goods.

h) Such receipts were not in the form of advances even for a day.

i) Such receipts not like amount received from Delhi party .,

j) The goods were delivered against cash and on the receipt issued to the party, invoice no. and date was also stated.

Thus sales to all three parties were in the nature of “counter sale” only through broker and the buyer took the delivery on the spot by depositing cash with the cashier after weighment of goods at factory premises of the appellant. ” 03) Validity of Applicability of section 68 of the Act

As submitted above, the nexus of sale proceeds and the amount received in advance from all the parties was proved beyond doubt as evident from the books of accounts. The Assessing Authority stated that the nexus was not proved without giving any justification I thereof In case, the amounts are remitted by the buyer through any other parties, it cannot be denied by the seller because such amounts were credited directly in the bank account of the appellant. The parties who remitted the amount were unknown to the appellant but such amounts were remitted on behalf of M/s. A.K. Impex along with covering letters or even by informing through broker, hence credit was given to that account in the books and thereafter sale invoice was issued on dispatch of goods. How it can be concluded that there was no nexus of sale proceeds and the remittance received without proving the same otherwise ? If such sale proceeds are permitted to tax u/s 688 of the Act all transactions where advances are received against sale, will be taxed and will result into absurdity.

It is, therefore, submitted that sale proceeds cannot be taxed u/s 68 of the Act. The deposits from the parties were not in the form of credits or loan at any given point of time. Such deposits were in the nature of advances against which goods were dispatched immediately and such sales were also recorded properly in the books of accounts. There may be temporary credit balance in the account of the debtor for a nominal period of a day or two but it cannot be termed as “cash credit” within the meaning of section 68 of the Act. Just because the amounts were received from the buyers in cash, the appellant cannot be penalized because the restriction placed for payment U/S 40A(3) of the Act applies to buyer and not the seller. There being no restriction under the Act to accept cash against sales, the appellant Company cannot be penalized. The AO relied upon certain judgments for the purpose of making addition u/s 68 of the Act which are not relevant at all because they related to amount received as share application money or share capital from the shareholders.

The question for kind consideration is whether advances received in Cash against sale can be treated as un-explained cash-credit? Similar issue has been decided by Hon’ble Tribunal in following cases:-

1) Heera Steel Ltd Vs. ITO (2005) 4 ITJ 437 (Nagpur Bench)

Held that “Both the lower authorities failed to appreciate the case of the assessee that these were trade advances and not cash credits and against such advances, the assessee has supplied the material in due time as per details available on record. In view of the above, there is no justification for the revenue authorities to treat these cash advances as unexplained cash credits under section 68 – Addition deleted. “

Other judgments relied upon by the appellant are :-

a) Asstt. CIT Vs. Shri Ram Nutrients Ltd (2010) 14 ITJ 219 (Indore Bench)

b) Dy. CIT Vs. A.S.N. Agri Genetic Pvt Ltd (2010) 15 ITJ 160 (Indore Bench)

3.2 The appellant vide its submission dated 17/10/2011 further submitted as under:-

“Request for admission of additional evidences under Rule 46A of Income tax Rules

In continuation to submissions made earlier regarding genuineness of sales of oil effected by the appellant to various parties, we submit that various documents were produced before the Assessing Authority but addition has been made U/S 68 of the Act considering the amount sale proceeds of refined oil to four parties as unexplained credits. As submitted earlier refined oil is being purchased by many dealers by obtaining its delivery at factory site and sale proceeds are being deposited in advance through RTGSIDDslPay orders. Some dealers are also depositing the amount in cash against which delivery was given on same day. In support of aforesaid normal practice adopted by the buyer and to substantiate the claim of the appellant regarding normal trade practice we request your honour to consider certain details and documentary evidences and in case they are considered as additional evidence, the same may please be forwarded to the Assessing Authority:-

1) The Company effected sales of oil in tankers to 79 dealers of MP and outside State. Total turnover to such dealers was Rs. 63 crores as per statement annexed giving complete names, addresses, TIN, amount of sales effected and mode of realization. On perusal of the statement, it is evident that sales were effected to 73 dealers of MP and 6 dealers outside MP, who remitted the amount in cash as well by Pay orders, DD, RTGS and by cheques. Nature of sales transactions were similar for such dealers and the delivery was also given at site. Out of’73 dealers of the State about 50% dealers i.e. 33 dealers remitted the amount in cash. Similarly two dealers outside MP also deposited the amount in cash. This itself proves that the fact that many dealers carrying on the business in oils use to deposit the amount in cash with the appellant.

2) It is pertinent to note that out of such 33 parties of MP, who had deposited the amount in cash, the Assessing Authority had selected 3 parties only who had purchased the goods from the appellant and taxed the amount deposited in cash U/S 68 of the Act. Many dealers (20) remitted the .amount by DD and RTGS which was not doubted upon by the AO except the remittances made by Mis. A.K. Impex, Delhi. Break-up of sales realization from the dealers is as under :-

a)Remittances in cash	Rs. 6,36,31,328/-
b)By pay orders	Rs. 7,43,14,326/-
c)Remittances through DD/RTGS	Rs.13,83,04,831/-
d)Remittances by Cheques	Rs. 30, 49, 07, 455/-
e)Remittances by D/D	Rs. 3,56,11,450/-
j) Remittances through NBOT	Rs.5,95,70,137/-
Total	Rs.67,63,39,527/-

Copies of accounts of various parties to whom sales were effected over Rs.15 lacs are enclosed indicating complete details such as invoice no., date of invoice, amount of invoice and mode of payment etc.

It is therefore, submitted that the transaction of sales effected by the appellant were genuine and its receipt by cheque, cash or RTGS was normal feature in this line of trade. As submitted earlier, the dealers may be involved in the trading activities outside the books of accounts for which the appellant cannot be held responsible. Transactions of cash deposit was in the nature of counter sale only and the delivery was given on same day whereas DD / RTGS were received in advance directly or through brokers against supplies which were effected within a weeks time.

It is again submitted that such evidences are not additional evidence in any manner but it is in the form of break-up of sales and mode of receipt just to prove the fact that the AD choose only 4 parties out of 79 dealers having similar transactions and assessed the remittance received by the appellant towards sales of refined oil U/S 68 of the Act.

Under the circumstances, the action of the Assessing Authority to tax the amount received in advance against sales U/S 68 of the Act is based on presumptions and surmises and the same deserves to be quashed. “

3.3 Remand report under rule 46A of the IT Rules was called from the AO on the basis of the written submissions and the evidences furnished by the appellant vide letter dated 24/01/2012. The AO submitted his report on 09/02/2012 requesting not to admit additional evidence and reiterated the same facts as were mentioned in the assessment order. The appellant in its rejoinder dated 16/02/2012 submitted as under :

“Re : Additional evidence under Rule 46A of Income tax Rules and comments of AD Appeal pertaining to A. Y. 2008-09

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With reference to comments made by the Asstt. Commissioner of Income tax – 1(1), Ujjain regarding admission of additional evidence besides comments on submissions made before your honour during appellate proceedings, we submit the following for kind consideration :-

1) Additional Evidence :-

At the outset, we submit that all documents were furnished before AO during the course of assessment proceedings so as to prove that sales effected to Mis. A.K. Impex, Delhi and three local parties of Shajapur in normal course of business were genuine sales. These sales were doubted only on the ground that the buyers could not be traced by the department. The existence of the buyers viz. M/s. A.K. Impex, Delhi was otherwise proved from various documentary evidences. In support of the fact that sales were made to existing parties further evidences were placed on record in the form of copy of cash receipts issued to them and correspondence in the form of letters received from M/s. A.K. Impex, Delhi. Such correspondence and cash receipts were supporting evidence only and they were in fact produced before A O in original at the time of assessment. On receipt of assessment order, it was found that the fact stated at page 14 (para 6.4) by the AD was not correct hence such correspondence from M/s. A.K. Impex, Delhi were submitted at appellate stage.

Similarly, at para 6.6 of page 14 of the order, claim of the assessee that sales were made over the counter was disbelieved hence cash receipts were filed at appellate stage. Except filing of photo copies of the documents produced earlier (but not taken on record) no new evidence was submitted at the appellate stage. Such evidences were neither obtained subsequent to the assessment order passed by the AD nor they are in the nature of additional evidence but it became necessary to be produced to rebut the observations made in the assessment order. According to the appellant, they are not in the form of additional evidence yet at the instance of the then Commissioner of Income tax (Appeals), request was made under Rule 46A of the Act vide letter dated 17.10.2011 so that it can be examined by the AO.

2) Opportunity to the appellant :-

As regards, comments made in para 3 to 5 of the letter, we submit that on perusal of case records it is evident that voluminous details were submitted by the appellant as and when called for and the appellant attended the proceedings along with regular books of accounts, sale invoices, vouchers, receipt books etc. Therefore, it has been claimed before your honour that observations made in the assessment order are based on presumption solely on the ground that the buyers could not be traced because of the reasons well explained in earlier submission.

3) Party-wise details of sales have been submitted because the same was enquired by the then Commissioner of Income tax (A) so that the normal practice prevailing in oil trade can be viewed. Such details supports to the claim of the appellant that certain parties are carrying on the business outside the books (in cash) in contravention to the provisions of section 40A(3) of the Act with the ulterior motives for which the appellant (the seller) cannot be penalized.

3.4 As regards discharging of burden as to credits appearing against sale proceeds only, the appellant further submitted vide letter date 16/02/2012 as under:-

3) Onus upon the assessee U/S 68 of the Act

Admittedly, section 68 of the Act the obligation is casted upon the assessee to explain the credits in the books. At the outset, Section 68 is not applicable to the appellant’s case because no credits were appearing in the books of the assessee at any given point of time in the accounts of three buyers of MP which can be termed as cash credits. As evident from the books, amount was deposited by them on the same day on which sales were effected. Not a single day any credit was lying in the books of the assessee of such parties hence by any stretch of imagination payments received from three parties can not be covered within the meaning of credits in the books of the assessee. Similarly, amount received from Mis. A.K. Impex, Delhi were advance against orders placed by it and immediately on receipt of advance, through brokers duly supported by covering letters from Mis. A.K. Impex, Delhi, detailed confirmation of account received in normal course of business, sales were effected within a weeks time. Such advance receipt against sale which were exclusively adjusted against sale bills raised to said party cannot be termed as “cash credits” within the meaning of Section 68 of the Act. Just because the party could not be traced after two years, the appellant cannot be held responsible to locate the party, as expected by AO.

4) The appellant made allegation in its letter dated 02.09.2011 with regard to melafide intention of the buyers but in para 9 of the letter, the AD has treated the same as assertions on the part of the assessee. The manner in which the trade is being carried out in various commodities in the Country was explained by the appellant just to appraise of the correctness of facts. Instead of appreciating’ the fact, the AD has casted additional duty on the appellant to help the department to identify such buyers with whom the appellant had dealt in. If such duty is casted upon the seller, all retail stores and specially that of bullion and jewellery will not issue any sale invoice because identity of the buyers, who purchase such commodity against cash payment cannot be proved by the seller.

4) The decisions of Hon ‘ble ITAT, Indore Bench, Indore have been quoted in support of the claim that sales effected by an assessee cannot be treated as cash credits U/S 68 of the Act because sale consideration was duly entered in the books of accounts.

5) As regards double taxation, the comment of the AD that gross profit declared was reduced from such receipts is in fact a misleading statement because to the extent of the value of goods (after deduction of GP), the double taxation did occur which can be explained by an example as under:-

TRADING ACCOUNT

(Rs.in crores)

Opening Stock	1.00	Sales	53.00
Purchases	50.00	Closing stock	2.00
Direct expenses	0.50
Gross profit	3.50
Total	55.00		55.00

–

Gross profit as above	Rs. 3.50 crore
Less : Gross profit on sales to unidentified buyers worth Rs. 7 crores	(-) Rs 0.46 Crores
	3.04 crore
Add : Sale proceeds treated as cash Credits	Rs. 7.00 crore
Total	Rs. 10.04 crore

Thus, on one hand cost of sales has been added and on the other hand sale proceeds have been taxed without allowing any deduction towards cost of goods which resulted into double taxation. Judgments cited in relation to double taxation on page 11 and 12 of the submissions made earlier are, therefore, relevant for kind consideration.

We also submit that principal laid down in the judgment of Apex Court (291 ITR 278) squarely applies to the case of the assessee though it was decided against the assessee. It was held that the Assessing Officer should form the opinion objectively with reference to materials on record whereas in the instant case, the AO made the addition solely on the ground that the buyer could not be traced. Had it been a case of credits appearing at the close of the year in the account of the buyer by way of advance against sale and if the buyer who could not be traced, the addition would have been justified but there being no credits in the Balance sheet of the assessee and entire collection forms part of the sales appearing to the credit of profit and loss account duly confirmed by the buyer. at various stages, the A 0 did not appreciate the material facts of the business activity as a whole nor he considered-she regular quantitative books of accounts for the purpose of forming the opinion. The appellant has offered proper explanation regarding collection of sale proceeds and the burden regarding nature of such receipt was proved beyond doubt by various documents.

It is, therefore, submitted that the addition so made U/S 68 of the Act equal to the amount of sale proceeds already credited to profit and loss account deserves to be quashed. “

4. The additions made have also been challenged on the ground that the amount received form part of sale proceeds credited in the profit & loss account hence it amounted to Double Taxation of same income which is not permissible under the law. The submissions made vide letter dated 02/09/2011, in this connection are reproduced hereunder :-

“We further submit that additions made also deserves to be quashed on the ground that it resulted into double taxation. On one hand, net sales (after deducting gross profit) credited in the books and appearing on credit side of profit and loss account has been assessed to tax and on the other hand same amount has been assessed U/S 68 of the Act. As submitted above, sale proceeds cannot be treated as cash credit by. any stretch of imagination. Such receipts were adjusted against the sale of goods credited to profit and loss account and it amounted to double taxation of the same amount which is unwarranted and unauthorized by law as held in following judgments: i–

i) Namra Mahila Evam Bal Kalyan Samiti Vs. ACIT (2010) 15 ITJ 581 (Indore Bench) :

In this case donations were received by a society who was granted registration U/S 12AA of the Act and it was also approved U/S 80G. Donations were received by the society in cash and same were deposited in bank within a ” short span of time which were treated as bogus hence addition was made U/S 68 of the Act. The Hon ‘ble Tribunal held that donations received is taxable as income U/S 2(24) o ft he Act and the same has also been offered for tax hence provisions of section 68 cannot be applied.

ii) Bhimsen Khosla vs. CIT New Delhi (1982) 133 ITR 619 (Delhi). The Court had occasion to consider the point of double taxation and held as under .’-

“However we should like to say that the department can not seek to maintain the assessment of the same income in both sets of years. Consequent on our decision that it was rightly includible in the assessment year 1961-62, it is necessary that the department should take immediate steps to exclude the income from purview of the assessment for 1957-58 to 1960-61. We are quite sure that the department will take necessary administrative action to see that the double taxation is not maintained by giving the assessee appropriate relief in regard to the earlier years.”

iii) Similarly double taxation on same amount has been dis-approved

In

following cases also :-

a) Laxmipat Singhania vs. CIT (1969) 72 ITR 291 (SC)

b) Jotiprasad Agrawal & Others vs. ITO (1959) 37ITR 107 (All)

c)CIT MPvs. Mrs. BannoE. Cowasji (1984) 147ITR 744 (MP)

The Apex Court in the case of CIT Vs. P. Mohankala (2007) 291 ITR 278 (SC) had laid down the principal regarding the expression appearing in section 68 of the Act i. e. “the assessee offers no explanation means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion “.

In the case of CIT Vs. Devi Prasad Vishwanath Prasad (1969) 72ITR 194 (SC) it was held that “It is for the assessee to prove that even if the cash credit represents income, it is income from a source which has already been taxed”.

05) Specific query was raised during the course of appellate proceedings regarding mode of transportation of goods sold to M/s. A.K. Impex, Delhi and three traders of Shajapur (MP) which was suspected by the A.D. and to furnish documentary evidence there against. The appellant explained the same vide submission dated 16/02/2012 as under:-

“As evident from copies of sale invoices already placed on record, sales of oil was effected to MIs. A.K. Impex, Delhi in oil tankers whereas sales to local parties of Shajapur Distt. were effected in oil drums, hence they were transported by Trucks. Such tanker/Trucks were arranged by the buyers only and the company did not make any payment of freight to the transporters. Tanker/Truck number by which goods were transported have been invariably mentioned on all sale invoices, as a regular system followed while dispatching the goods along-with entries recorded at the factory gate.

M/s. A.K. Impex, Delhi arranged the oil tankers through its transporter viz.

M/s. H. G. Oil Carriers, 79, Transport Center, Rohtak Road, New Delhi. A list containing complete details of sales with respective tanker numbers. is enclosed for king perusal along with the certificate of the transporter stating the tanker numbers, date as well the gross weight of oil transported. It has further been certified by the transporter that the freight was paid by M/s. A.K. Impex only.

As regards sales effected to three parties of Shajapur Distt. (MP.) following details are enclosed:-

a) M/s. Mohan Traders arranged Truck bearing no. MP-09-GE-1651 to carry the goods from factory site against cash payment. The registration copy of vehicle downloaded from the website of Transport Department of MP. is annexed from which it is evident that the vehicle was duly registered as pick-up van by which oil drums were transported by the buyer.

b) In case of M/s. Maa Bhagwati Traders, registration certificates of all Trucks (Eleven) downloaded from the website of Transport Department of MP. by which goods were transported in oil drums by the buyer are enclosed along with complete details of sales effected to said party.

c) In case of M/s Pravin Trading Company, registration certificates of all Trucks (Seventeen) downloaded from the website of Transport Department of MP. by which goods were transported by the buyers in oil drums are enclosed along with complete details of sales effected to said party.

Such certificates of the vehicle registration support the fact that the Truck numbers stated on the sale invoices are genuine and goods sold to these parties against payment were in fact transported to them.

5.1 The assessee had further relied on certain case laws in which the courts have held that the advances and receipts against sale of the goods, cannot be assessed to tax U/S 68 of the IT Act. The written submission of the appellant dated 20103/2012 is reproduced as under:-

“In continuation to submissions made earlier regarding sale proceeds assessed to tax u/s. 68 of the Act, we invite your kind attention to identical judgments wherein advances were received from the customers against sale of finished goods, supplies of which was made after few days. The courts have held that such advances were ultimately adjusted against sale of goods, can not be assessed to tax u/s. 68 of the’ Act. The gist of the judgments are reproduced hereunder:-

1) ITO vs. Surana Traders 93 TTJ 875 (Mum.)

Held – “Merely because for he reasons that the purchase parties were not traceable, the assessee could not be penalized. In the sale documents the assessee has made available all necessary details i. e. the total weight sold as well as the rate per kilogram. Undisputedly, the assessee has maintained completed books of accounts alongwith day to day and kilogram to kilogram stock register and also submitted stock tally sheet alongwith the audited accounts……… The assessee can not be put to prove a negative. It was for the department to substantiate and prove the allegation being leveled by it. This, however, has not been done. Even in the remand report, the AO has stated that the sales were duly verified and found to be genuine. Since the purchases has been held to be genuine, ,the corresponding sales cannot, by any stretch of imagination be termed as hawala transactions. “

2) ITO vs. Super Chemicals Distributors (2005) 1 SOT 102 (Del.)

Held – “It was incumbent upon the assessing officer to found out actual location and present were about of the firm “A” and to verify the fact, and that simply because inspector was unable to locate firm ‘A’ , the A. O. could not jump to conclusion that this was a bogus creditors and treat the same as cash credits u/s. 68 of the Act. “

3) Smt. Harshila Chordia vs. ITO (2007) 208 CTR 208 (Raj)

Held – “Cash credit – Cash received from customers – Tribunal has found as a fact that the assessee was receiving money from the customers against which delivery of vehicles was made – Such cash deposits are self explanatory and would not attract sec. 68 – Therefore, no addition could be made. “

It is submitted that the facts of the case before ITA T, Mumbai, Delhi Bench and Rajasthan High Court are not only similar to the facts of the present case but more stronger because there was no outstanding for a single day in case of local parties and for more than a week’s time in case of A.K Impex, Delhi. “

5.2 Further remand report was called for from the AO U/S 250(4) vide letter dated 15/03/2012 for making necessary enquiries and comments on the evidences submitted by the assessee in respect of the transportation of goods to these buyers and quantitative stock tally maintained by the assessee, as in the remand report submitted by the AO vide letter dated 09/02/2012 there were no comments on these facts and also on the additional evidence in the nature of certificate dated 23/08/2011 from the transporter M/s H.G. Oil Carrier, New Delhi confirming loading and delivery of the oil to M/s A.K. Impex. This was submitted by the appellant during the course of appellate proceedings. A.O. again in his remand report dated 26/03/2012 requested to confirm the additions made by the then assessing officer without admitting any additional evidence. The appellant in its rejoinder dated 27/03/2012 submitted as under:

“This has a reference to the remand report submitted by the Asstt. Commissioner of Income Tax 1(1), Ujjain vide his letter dtd. 26.03.2012 copy of which was given to the appellant for its comment. In this connection we submit that during the course of appellate proceedings certificate regarding transportation of goods sold to M/s. A.K. Impex, Delhi was submitted by way of documentary evidence.

In reply to remand report we submit as under:

1) The copies of sale invoices were already placed on record, from which it was evident that sales of oil was effected to M/s. A.K. Impex, Delhi in oil tankers. On every sale invoice oil tanker no. was specifically mentioned from it which was proved beyond doubt that transportation was infact carried out. In the body of the assessment order it was stated that proof was transportation was not submitted therefore it became necessary to submit the certificate of the transporter before your honour. Neither any quarry was raised to submit such certificate nor any opportunity was given to prove the transportation of goods. Therefore the question of non submission of the certificate at the time of assessment stage did not arise. It is Claimed that such certificate is not additional evidence but it is a supporting document to prove the sales effected to Mis A. K. Impex, Delhi. The appellant is therefore not required to explain the circumstances as to exceptions provided under clauses (a), (b), (c) or (d) to rule 46A (1) of the Rules.

2) The appellant had clearly stated at the time of assessment proceedings that the buyer namely Ms A.K. Impex arranged the tankers at its own because the delivery of oil was given at factory. Had the assessing officer doubted upon the tanker numbers mentioned on the sale invoices, the appellant would have submitted the certificate at that stage itself Such tanker were arranged by the buyers only and the company did not make any payment of freight to the transporters. Tanker number by which goods were transported have been invariably mentioned on all sale invoices, as a regular system followed while dispatching the goods along-with entries recorded at the factory gate.

3) MIs. A.K. Impex, Delhi arranged the oil tankers through its transporter viz. MIs. H. G. Oil Carriers, 79, Transport Center, Rohtak Road, New Delhi. A list containing complete details of sales with respective tanker numbers’ was therefore submitted for kind perusal along with the certificate of the transporter stating the tanker numbers, date as well the gross weight of oil transported. It has further been certified by the transporter that the freight was paid by Mls. A.K. Impex only.

In view of above facts the submitted the remand report submitted by the A. O. is contrary to the facts and evidence submitted in support of transportation of goods to MIs A.K. Impex, Delhi may kindly be admitted. “

6. After taking into consideration the AO’s findings and the remand reports called during the course of appellate proceedings from the AO, appellant’s oral and written submission made in the course of hearing as well as the facts of the case, decisions on various grounds are made here under :-

6.1 Ground no. I to Ground No. 10:- The appellant has challenged the additions made by the AO U/S 68 of the Act as unexplained cash credits at Rs.6,47,03,548/- being sale proceeds realized by the appellant from four sale parties after deducting an amount equal to 11.59% towards gross profit on such sales.

6.2 The AO suspected :the amount received against sales effected to M/s. A.K. Impex, Delhi in the form of ChequelDD/RTGS and the amounts from three parties of Shajapur Distt. (MP) namely Mis Praveen Trading Co., Mis Mohan Traders and Mis Maa Bhagwati Traders in cash on same day when the sales were effected. The AO has made the addition U/S 68 of the Act because the amounts were received in cash from the three parties of MP and the Commercial tax department confirmed that the TIN informed by these parties were not correct and they are not traceable at the given addresses. The notices sent U/S 133(6) were returned back un-served with the remarks ‘incomplete address’, ‘not found and ‘no such name’. The AO made the enquiries through ITO Shajapur under whose jurisdiction the addresses of these parties fall. Similarly A. K. Impex was also not found existed at the given address after making enquiries. All these parties were not found in existence at the addresses supplied by the assessee. According to the AO, based on the enquiries made, the appellant failed to establish the identity of the buyers to whom such sales were effected. The assessee did not discharge the burden casted upon him to prove the nature and source of any sum credited in the books of accounts as to whether such receipts were on account of sale consideration or otherwise.

6.3 For this purpose the, A.O. relied upon the observations in the case of CIT vs. Sophia Finance Ltd 2005 ITR Delhi by distinguishing the same from the observations made in CIT V s. Lovely Exports Pvt Ltd 216 CTR 195 and CIT V s. Steller Investment Ltd 251 ITR 263 (SC). Relying upon the ratio of judgment in the case of CIT Vs. Madhavnagar Cotton Mills Ltd 104 ITR 493 (Born) he rejected the books of accounts U/S 145 of the Act and assessed additional income as cash credit U/S 68 of the Act by accepting sales disclosed as per books of account in following manner :-

a)Sales effected to M/s. A.K. Impex, Delhi	Rs.5,16,04,0001-.
b)Sales effected to three parties of MP at	Rs.2,15,74,455
	Rs. 7 ,31,78,455/-
c) Gross profit on above deducted @ 11.59% (Rs.59,81,306/- + Rs.24,93,60l/-) (-)	Rs. 84,74,907/-
d)Net sales after deducting above gross profit treated as cash credit u/s 68 of I T Act	Rs.6,47,03,548/-.

6.14 As regards sales effected to three parties of Shajapur Distt. namely Mis Praveen Trading Co., Mis Mohan Traders and Mis Maa Bhagwati Traders, the basis of making addition U/S 68 of the Act was :-

a) The amounts were received in cash;

b) The Commercial tax department confirmed that the TIN informed by these parties were not correct.

c) The parties are not found in existence at the address supplied by the appellant.

6.15 The amounts were received in cash! DDs from these three buyers of M.P. The appellant has made the delivery of the goods on the same day and sale invoice was issued. Cash receipts and sale invoices issued to such parties on the same day quoting cross numbers prove the fact that such receipts were nothing else than the sale proceeds credited to the profit & loss account of the appellant. None of the amounts from these three parties were received as advance for a single day. The AO over-looked these important factors and sales to such parties have been disbelieved.

6.16 As demonstrated by the appellant by filing copies of cash receipts, sale invoices as well proof of dispatch of goods on the same day and entries in the stock register regarding sale, such sales were in the nature of counter sales only to all the three parties. Claim of counter sales has been negatived by the AO only on the ground that “in case of counter sales the business man does not maintain ledger accounts of clients to whom the goods are sold. The sales are shown entirely in cash and in the books the individual ledger accounts of the clients are not maintained, while in ‘the assessee’s case, it has maintained Individual ledger accounts of clients”.

6.17 Aforesaid observations of the AO to disbelieve counter sales effected by the appellant is unsounded and unreasonable for the reason that the method of account followed by the appellant was more transparent and cannot be compared with the counter sale of any Kirana dealer who neither maintains quantitative records nor party wise details. Sales were effected to above three parties of MP through brokers to whom brokerage was paid after deduction of tax at source. Such brokers also confirmed sales effected to these parties. For making payment of brokerage also, maintenance of individual party ledger is necessary.

6.18 During the appellate proceedings the appellant submitted that the company had effected sales of oil in tankers to 79 dealers of M.P. and outside state. A statement was filed by the appellant which shows that total turnover to such dealers was 67.63 Crores. Out of these the sales were effected to 73 dealers of M.P. and 6 dealers outside M.P., who remitted the amount in cash as well as pay orders DD, RTGS and by cheques. Like the above four parties, the deliveries were also given at site to all these dealers. Out of those 73 dealers of M.P. 33 dealers remitted the amount in cash. The A.O. has doubted the genuineness of the sales made to above four parties only, in respect of which he has made the enquiry and not found existed at the given address. Transaction of cash deposit was in the nature of counter sale only and the delivery was given on the same day whereas, DD/RTGS were received in advance directly or through brokers against supplies which were effected within a weeks time.

6.19 The appellant is maintaining sales register and stock register day to day basis containing requisite details for the whole year, which were produced by the appellant during the appellate proceedings also. It was observed that appellant is maintaining complete quantitative records relating to purchase, production and sales and sales were properly accounted for in the sales register and same were reduced from the stock register.

6.20 The claim of the appellant that such addition resulted into double taxation of the same income in the same year is also acceptable because on one hand cost of the sales has been taxed (after deducting gross profit from same price ultimately credited to profit & loss account) and on the other hand amounts received from above parties has also been added u/s. 68 of the Act.

6.21 This view has been held by the Hon ‘ble Supreme Court in the case of CIT vs Devi Prasad Vishwnath Prasad (1969) 72ITR194 (SC) that “It is for the assessee to prove that even if the cash credit represents income, it is income from a source, which has already been taxed”. The assessee has already offered the sales for taxation hence the onus has been discharged by it and the same income cannot be taxed again. Reliance is also placed on the decision of Hon’ble Supreme Court in the case of CIT vs Durga Prasad More (1969) 72ITR807 (SC) in which it was held “If the amount represented the income of the assessee of the previous year, it was liable to be included in the total income and an enquiry whether for the purpose of bringing the amount to tax it was from a business activity or from some other source was not relevant”.

6.22 Reliance is further placed on the decision of Hon ‘ble Rajasthan High Court in the case of Smt. Harshila Chordia vs ITO (2008) 298 ITR 349 in which it was held that “Addition u/s 68 could not be made in respect of the amount which was found to be cash receipts from the customers against which delivery of goods was made to them”. Also on the decision of Hon’ble ITAT, Nagpur

Bench in the case of Mis Heera Steel Limited vs ITO (2005) 4 IT J 437 in which it was held that “Both the lower authorities failed to appreciate the case of the assessee that these were the trade advances and not cash credits and against such advance, the assessee has supplied the material in due time as per details available on record.

In view of the above, there is no justification for the revenue authorities to treat these cash advances as unexplained cash credit u/s 68″. Again the reliance is placed on the decision of Hon’ble M.P. High Court in the case of Addl. CIT vs. Ghai Lime Stone Co. (1983) 144 ITR 140(MP).It is evident from these judicial rulings that trade advances or cash received against which goods is supplied subsequently is not a cash credit as contemplated by section 68.

6.23 Reliance is further placed on the decision of the ITAT, Mumbai Bench in the case of ITO vs. Surana Traders, (2005)93 TTJ 875: (2005)92 ITD 212, the relevant observation of the Mumbai Bench were as under :_

” So merely because for the reasons that the purchaser parties were not traceable, the assessee could not be penalized. In the sales documents, the assessee has made available all necessary details, i.e. the total weight sold as well as the rate per kilogram. Undisputedly, the assessee has maintained complete books of accounts alongwith day to day and kilogram to kilogram stock register. These were produced before the A 0 by the assessee. The assessee also submitted stock tally sheet along with the audited accounts. The audit report of the assessee also bears ample testimony in favour of the assessee. The factum of the assessee having maintained stock register and quantitative details have been mentioned by the A 0 in the assessment order. No mistake were pointed out by the AO in these records maintained by the assessee—-Since the purchases have been held to be genuine, the corresponding sales cannot, by any stretch of imagination be termed as hawala transaction———– It is the burden of the department to prove the correctness of such additions. When, in such like cases, a quantitative tally is furnished, even if purchases are not available no addition is called for. “

7. In view of aforesaid discussions, the additions made by the A.O. u/s. 68 of the Act at Rs, 6,47,03,548/- by considering the sale proceeds as cash credits, cannot be sustained and the same is deleted in full.

8. In the result the appeal is allowed.”

4. If the observations made in the assessment order, conclusion drawn in the impugned order, assertion made by the learned respective counsel and also in the absence of any positive material brought on record by the Revenue in support of its claim are kept in juxtaposition, we find that the learned CIT(A) has exhaustively dealt with the issue by following various decisions from various judicial forums right from the Hon’ble Apex Court, Hon’ble High Courts and the Tribunal. The main ground for rejecting the claim of the assessee is with respect of M/s A.K. Impex, Delhi. There is a finding in the impugned order that necessary evidence with the help of various documents regarding existence of the buyers like copy of bank account of the buyer, TIN of sales tax department, confirmation of broker, correspondence regarding receipt/remittance of DD/RTGS, detailed copy of account appearing in its books, sale invoices and confirmation certificate of the transporter with tanker numbers, who delivered the oil to M/s A.K. Impex against payment of freight were filed. In the statement of bank account of M/s A.K. Impex, reflecting payment of freight. The relevant portion from the conclusion of the learned CIT(A) is reproduced hereunder :-

“6.4 As regard M/s. A.K. Impex, Delhi, the appellant furnished the evidences regarding the existence of the buyer by filing various documents. It has furnished the copy of the bank account of the buyer, TIN of Sales tax department, Delhi, confirmation of broker, various correspondences received while remitting the DD/R TGS, detailed copy of account as appearing in its books, sale invoices & confirmation certificate of transporter with tankers numbers who delivered the oil to Mis. A.P. Impex against payment of freight. The statement of the bank account of Mis. A.K. Impex, Delhi reflects encashment of the cheque of Rs. 31,528/remitted by the appellant.

6.5 The appellant’s contention that Mis. A.K. Impex, Delhi was also carrying on the business with ulterior motives should be considered in its real prospective. On perusal of details of amounts received from M/s. A.K. Impex, Delhi and sales effected to it, the fact remains that such sales were effected immediately within a period of 3 to 5 days and the amounts were adjusted against sale proceeds only. The buyer being a new party, introduced during the year by the broker, insistence for remitting money before dispatching of goods by the appellant cannot be adversely viewed just to invoke provisions of section 68 of the Act. It can be applied were such credits : are lying in the books for considerable time to the credit of a person whose identity, creditworthiness and genuineness of the transaction is not proved. In the case of Mis. A.K. Impex, Delhi the identity was rather proved from facts stated above except that he could not be traced at given address after time gap of 2 ¹/₂ years.

6.6 The PAN of Shri Ashok Kumar cannot be doubted upon just because it was not in the name of M/s. A.K. Impex, Delhi or because he was not filing the return of income. Entire modus operandi and the conduct of proprietor of Mis. A.K. Impex, Delhi proves beyond doubt that he was carrying on the business outside the books and accordingly managed remittances as well as ‘C’ forms. It is settled law as held in the judgments cited above by the appellant, for such an act of the buyer, the appellant (selling dealer) cannot be penalized in any manner.

6.7 The assessee is maintaining the quantitative stock details. It has also furnished the details of DDs, R TGS, cheques etc. received from Mis A.K. Impex, Delhi, which were credited in the accounts of the assessee. It has filed the copy of the accounts of the broker M/s Rajendra Kumar Arun Kumar, Gwalior through whom it had affected the sales to Mis A.K. Impex, Delhi. The appellant also filed the certificate from the transporter M/s H.G. Oil Carriers, 79, Transport Centre, Rohtak Road, New Delhi. It was certified by the transporter that it had loaded the Soya Refined Oil from the works of Mis Dewas Soya Limited, 96-97, Industrial Area, 3 A.B. Road, Dewas during the year 2007-08. The details of tanker nos. weight-of the oil and dates of dispatch were also provided. Perusal of the sale invoices shows that the assessee has maintained complete details of tankers, brokers and also who arranged the tankers by clearly mentioning in the sale invoices.

6.8 A.O. in his order has mentioned that appellant has not furnished any proof of transportation as it is not having lorry receipts or delivery challans as proof of transportation. Appellant has effected the sales of oil to M/s A.K. Impex, Delhi in oil tankers and on every sale invoice oil tanker no. was specifically mentioned. A.O. has not made any’ investigation in respect of transportation of goods. Therefore, appellant did not furnish any certificate from the transporter during the assessment proceedings. M/s A.K. Impex, Delhi arranged the tankers at its own because the delivery of oil was given at factory. In the case of appellant tankers were arranged by the Buyers only and it did not make any payment of freight to the transporter. Dispatch of the goods through tankers mentioning the tankers number were recorded in sale invoices alongwith the entries recorded at the factory gate. It was certified by the transporter also that the freight was paid by Mis A.K. Impex, Delhi only.

6.9 As far as admission of additional evidence is concerned, the assessee had made a request for admitting additional evidences. It is observed that most of the evidences w.r.t. the effecting of sales to the parties, whose sales were treated as cash credit u/s 68, were furnished by the appellant before the A.O. Appellant has furnished a certificate of the transporter during the appellate proceedings which is only supporting in nature. Besides, the appellant has furnished copies of Sale Invoices, MTR, Stock Register, Broker details and Tanker No. etc., which were before the A.O. during the assessment proceedings. However, the remand reports under Rule 46A and u/s 250(4) were also called for from the A.O. and duly considered.

6.10 These evidences cannot be ignored either on the ground that the TIN of M/s. A.K. Impex, Delhi was cancelled by Sales tax department and during assessment year under appeal A.K. Impex could not be traced. The allegation of the appellant against the buyers that many parties are carrying on the trade outside the books and change their trade name or place of business after short interval to avoid due taxes has more substance. The fact that ‘C’ forms issued by M/s. A.K. Impex, Delhi were also found to be non-genuine rather supports the claim of the appellant.

6.11 The conclusion of the A.O. because existence of M/s. A.K. Impex was not proved (as reported by DDIT & ITI) sales effected by the appellant to M/s A.K. Impex were not genuine is devoid of merits. According to the AO, assessee did not discharge the burden casted upon him to prove the nature and source of any sum credited in the books of accounts as to whether such receipts were on account of sale consideration or otherwise is incorrect. On perusal of day to day commodity wise quantitative records maintained by the appellant and its verification from sale invoices issued to above parties, it is evident that such receipts were against sale proceeds only.

6.12 The A.O has rejected the books of accounts u/s 145 on account of non existence of the parties after 2 ¹/₂ years, who purchases from. the appellant and payments made by him has been treated as cash credit u/s 68 of the IT Act’61. The appellant is maintaining the quantitative stock records and the records show that the sales were effected to the party and goods were actually loaded and delivered on the tankers arranged by the buyer party. This fact is evident from the sales bills on which details of tankers nos., broker name and the person who has arranged the transport have been mentioned. The A.O. has not made any enquiry from the transporter, who transported the goods for the buyer party. The A.O. has also not given any finding on the quantitative stock record maintained by the assessee. If the A.O. has doubted the sales made by the appellant. then he was required to give effect to the closing stock tally shown by it in the trading account. The A.O. has not doubted the genuineness of the purchases made by the appellant. If the stock tally has been acceptable to the A.O. then doubting the sales cannot be justified on the ground that the party was not traceable at the time of framing the assessment. When sales made to the party is to be treated as cash credit then A.a. has to give effect to the purchases accordingly by way of increasing the closing stock, which has not been done. The broker Mis Rajendrakumar Arunkumar, Gwalior who arranged the transaction with the said party has also confirmed in his statement before Addl, CIT, Range-I, Gwalior u/s 131 that he had done the deal of Mis A.K. Impex with the appellant. It is also observed that the appellant has recorded these sales in its regular books of account. Taxing these sales again tantamount to double taxation.

6.13 Appellant had supplied the goods to the parties after receiving advance payments, which were credited in the core banking account through cheques/DDlPayorderslR TGS and after verification of receipt of payments, the appellant had delivered the refined oil to the party through the tanker arranged by him. The appellant is making necessary entries in its regular books of accounts and in the stock register. Appellant has furnished the evidences in support of its contentions and established the genuineness of the transaction and nature and source of the receipts. Thus application of section 68 by the A.O. on those receipts is not justified.”

In view of the above uncontroverted finding more specifically when the Assessing Officer has not doubted the genuineness of the purchases and when the stocks tally has been accepted by the Assessing Officer then there is no reason to doubt the sales.

The broker from Gwalior who arranged the sales with the said party also confirmed in his statement recorded by the department confirming that he made the dealing with M/s A.K. Impex and consequently the assessee recorded the sales in its regular books of accounts. Even otherwise, the goods were supplied to the parties after receiving the advance payments which were credited through cheques/DDs/RTGs, etc. Therefore, we hold that the CIT(A) has rightly come to the conclusion that the addition made by the Assessing Officer u/s 68 of the Act by considering the sale proceeds as cash credits cannot be sustained. Likewise, the learned CIT(A) very elaborately dealt with the issue with regard to other parties like M/s Pravin Trading Co., M/s Mohan Traders and Maa Bhagwati Traders, etc. wherein the goods were delivered on the same day and sale invoices were issued quoting cross-numbers evidencing that such receipts were sale proceeds credited to the profit and loss account of the assessee. The entries were made in the stock register regarding sales which were in the nature of counter sales to these parties and such counter sales were doubted by the Assessing Officer without bringing any evidence on record. Uncontrovertibly, the brokers to whom brokerage was paid after deduction of TDS have also confirmed sale effected to these parties while recording their statement before the department. There is a further finding in the impugned order that the assessee effected sales of oil in tankers 279 dealers showing turnover to the tune of Rs. 67.63 crores out of which 6 dealers were out of the State of Madhya Pradesh. The transaction of cash deposit was in the nature of counter sale and delivery was given on the same day whereas DD/RTGS were received in advance either directly or through brokers against supplies which were effected within a week’s time. Uncontrovertibly the assessee was maintaining sale/stock register on day to day basis containing details of whole year which were placed before the learned CIT(A). It has been specifically observed by the learned first appellate authority that the assessee was maintaining complete quantitative records relating to purchase, production and sale which were properly accounted for. So far as cancellation of TIN by the Commercial Tax Authority is concerned, it was neither informed by the authorities to the assessee nor by the purchaser himself, therefore, at the later stage, the assessee cannot be punished for the deeds of somebody. Likewise, C-forms were issued and given to the assessee. The sale of such magnitude is normally possible through brokers and even otherwise so far as doing the business is concerned, it is up to the assessee. It is pertinent to mention here that evidence is furnished during first appellate stage by the assessee was forwarded to the Assessing Officer along with the written submissions and the copies of the comments of the Assessing Officer were given to the assessee, therefore, it cannot be said that the Assessing Officer was not provided any opportunity. Only after calling remand report the CIT(A) has decided the issue on merits. Under these circumstances there is no merit in the ground taken by Revenue with regard to violation of Rule 46A. If the purchasing dealers did not account for the transaction in their books, the assessee cannot be penalised. The learned CIT(A) has already dealt with the issue by following various pronouncements which are available at page 10 of the impugned order which has been reproduced above. The Hon’ble Apex Court in the case of Laxmichand Baijnath v. CIT; 35 ITR 416 held that amount credited in business books can normally be presumed as business receipts. The Hon’ble Patna High Court in Bahri Brothers (154 ITR 244) held that identity of creditors is not relevant for cheque transactions. In such a situation, if part payment through cheque/RTGS from the same party is accepted, how the cash sale which has been duly recorded can be doubted unless and until contrary material is brought on record. So far as the meaning of expression “books” with respect to section 68 is concerned, the Hon’ble Punjab & Haryana High Court in the case of Smt. Shantidevi; 171 ITR 532 held that such books denotes books of assessee himself and not of other assessee, therefore, the assessee is responsible for his books only and not of the books of other parties. Detailed findings recorded by CIT(A) is as per material on record, therefore, do not warrant any interference. In this view of the matter, we find no infirmity in the order of the learned CIT(A) and accordingly affirm the same.

In the result, the appeal of the Revenue stands dismissed.

This order was pronounced in the open Court on 31st October, 2012.