pushpa devi singla vs. the jcit range, sriganganagar
TRANSCRIPT
IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH: JODHPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER.
ITA NO. 175/Jodh/2014
(A.Y. 2009-10) Smt. Pushpa Devi Singla Vs The J.C.I.T Prop. M/s Singla & Sons Range New Dhan Mandi, Sadulshahar Sriganganagar PAN : AYQPS 3767 E (Appellant) (Respondent) Assessee by : Shri Suresh Ojha Department by : Shri N.A. Joshi- DR. Date of hearing : 03/06/2014. Date of pronouncement : 31/07/2014.
O R D E R
PER HARI OM MARATHA, J.M. : This appeal of the assessee for A.Y. 2009-10 is directed against
the order of ld. CIT(A), Ajmer, dated 28.02.2014.
2. Briefly stated, the facts of the case are that the assessee Smt.
Pushpa Devi Singla is proprietor of M/s Singla & Sons, which runs a
Cotton Ginning Factory. She filed her return of income (ROI) for A.Y.
2009-10 on 27/09/2009 declaring total income at Rs. 2,57,890/- in the
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status of an individual which was processed on 3.8.2010 u/s 143(1) of
the Income-tax Act, 1961 ['the Act', for short]. From the books of
account, it was found that the purchases of cotton were made to the
tune of Rs. 1,18,26,270/- which were not supported by any vouchers.
Most of these purchases were found to be in cash. The A.O asked the
assessee to explain this position, the assessee filed letter dated
13.12.2011, the observations of the A.O and submissions of the
assessee read as under:
3.2 "Your case for the A.Y. 2009-10 was taken for
scrutiny by issuing notice u/s 143(2) of the IT. Act, 1961
on 19.08.2010 and sent to you registered post which was
served upon you on 21.08.2010. Thereafter, a notice u/s
142(1) alongwith questionnaire was issued to you on
15.04.2011 fixing your case for 04.05.2011. On
04.05.2011 your counsel Sh. Sunil Aggarwal sought
adjournment and case was adjourned to 19.05.2011. On
19.05.2011 again applied for adjournment and case was
adjourned to 14.06.2011. On 14.06.2011 none attended.
On 17.06.2011 Sh. Sunil Aggarwal attended the
proceeding and again sought adjournment. The case was
re-fixed on 01.08.2011. On 01.08.2011 Sh. Sunil Aggarwal
attended the proceeding and informed that copy of the
questionnaire has been misplaced, so the copy of the
same supplied and case was adjourned to 08.08.2011. On
08.08.2011 a telephonic message was received from Sh.
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Sunil Aggarwal that due to heavy rain he could not
come to office, so case was adjourned to 09.08.2011.
On 09.08.2011, Sh. Sunil Aggarwal attended and filed
incomplete reply, he was asked to produce books of
account with complete vouchers and case was adjourned
to 11.08.2011. On 11.08.2011 none attended, the case was
re-fixed for 07.09.2011. On 07.09.2011 Sh. Sunil
Aggarwal alongwith Sh. Krishan Kumar, husband of
assessee and Sh. Amar Lal, Accountant attended the
proceeding and produced books of accounts. On
verification, it is found that assessee has shown
purchases of 2268 Qtls. 68 Kg. of Cotton from
different persons amounting to Rs.1,18,26,270/- for
which he has no purchases vouchers, when they were
asked why they don't have the purchase vouchers, it was
stated that this Cotton has been purchased directly from
farmers. They were pointed out that assessee herself has a
Cotton ginning factory and why she purchased Cotton
from farmers and from where the farmers had sold such
a huge quantity of Cotton. It was pointed out to assessee
that :-
1. No evidence is available with her, as regard to the
Dalali paid.
2. The reason for extra paid stamp duty of purchases of
shop.
3. She has no evidence for the payment of TDS.
4. No Kapas and Narma Exp. vouchers.
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3.3 The case was adjourned to 15.09.2011. On
15.09.2011 Sh. Sunil Aggarwal filed adjournment
application and case was adjourned to 04.10.2011, the
long adjournment was given as advocate pleaded that he is
busy in time barring returns and case was adjourned to
04.10.2011. On 04.10.2011 Sh. Sunil Aggarwal attended the
proceedings he filed certain details he was asked to file the
list of employees of sister concerns, electricity bills and
rent deed of the factory. He was also asked to produce the
persons from whom he purchased Cotton. Case was
adjourned to 14.10.2011. On 14.10.2011, Sh. Sunil
Aggarwal filed the letter, in this letter it is submitted as
under :-
"That in the previous hearing as per your direction
assessee called to farmer for presence in your office.
But no farmers comes today"
3.4 Assessee has not filed complete documents; assessee
was asked to produce the production register and was
given another opportunity to produce the farmers on
02.11.2011. On 02.11.2011 assessee sought adjournment
and case was adjourned to 09.11.2011. On 09.11.2011,
assessee again filed part details and also stated that
farmers from whom Cotton was purchased cannot be
produced. The case was adjourned to 17.11.2011. On
16.11.2011, Sh. Deepak Jain, Advocate attended and filed
the power of attorney and sought adjournment, case was
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adjourned to 25.11.2011. On 25.11.2011 Sh. Deepak Jain,
Advocate did not attend the proceeding however, filed the
written reply.
3.5 From the above facts it has become clear that though
sufficient opportunity has been given to you to produce
the farmers from whom you have allegedly purchased
Cotton directly. But you have failed to produce them.
Perusal of the accounts of these farmers as appearing in
your books of account reveals that in most of the cases,
you have not made the payment immediately. Rather
you have made them most of the payments after a long
time. For instance in the case of Sh. Nirmal Singh S/o Kaur
Singh, Village Khar a you have shown purchase of Cotton
amounting to Rs.4,14,019/- on 19.04.2008, the payment of
which has been made in the month of April, May, June,
August and final payment of three lacs has been made on
31.10.2008. Similarly in the case of Sh. Kaur Singh out of
the total purchase of Rs.5,26,826/-, the payment of four
lacs has been made on 26.03.2009. Similar are the facts in
respect of other farmers. It clearly shows that in these
transactions are genuine, these farmers are having very
good terms with you and there should not be any problem in
producing them. Though, you have not filed any documents/
details regarding the farmers from whom you alleged to
have been purchased. This office has made independent
inquires from the banks of sadulshahar and it came are
notice that these farmers have opened there accounts in
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State Bank of Bikaner & Jaipur, Punjab National Bank, both
of Sadulshahar from these banks. Bank statements and
copies of the cheque deposited and the cheque by which
amount withdrawn was obtained from the banks by these
persons were obtained. Perusal of these account and other
documents reveals that all the cases the withdrawal cheque
are bearer and in the same handwriting and have been
withdrawn from bank by a person named Mr. Gagan. As per
information filed by you, Mr. Gagan is an employee of your
sister concern M/s Kapil Trading Company. So all these facts
clearly show that all these entries of the alleged purchase of
Cotton and payment made there off are accommodating
entries obtain by you to cover-up you outside the books
purchase of Narma.
3.6 As per local inquiry made by this office most of
these persons have small holding and some of them even
do not own any land. Further as per information most of
them have not grown Narma during the relevant season.
Even in those cases where Narma has been grown area of
land was too small. Further as per the bye laws of the
Krishi Upaj Mandi Samiti, you can't purchase agriculture
product directly without paying the market fee and other
taxes. These facts clearly indicate that in fact you have
purchased Narma outside the books of accounts to avoid
the payment of market fee, VAT, Arhat etc. As per
information collected the Krishi Upaj Mandi Samiti fee on
Narma is 1.6%, Arhat is 2.00% and VAT is 5.00%, Vayapar
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Mandal Rs. 0.10, Gaushala Rs.0.05 per hundred rupees.
Thus you have been able to save taxes + arhat etc. of
8% of the purchases. In fact you have purchased Narma
outside the books of account and the same has been
processed in your Cotton ginning factory and to cover up
the production of Cotton sold by you, you have shown the
purchase of Cotton directly. By doing this, you have also
concealed the sale of Cotton seeds produced from the
ginning of Narma and profit there off.
3.7 As per details filed alleged purchases of Cotton
which in fact is production out of the Narma purchased
outside the books of accounts is due the tune of 2268.98
Qtl. Yourself you have shown production of Cotton from
Narma 34.4% production of Cotton seed at 63.9% and
shortage 1.7%. Thus, to produce 2268.98 Qtls Cotton,
you purchased 6595.87 Qtls. Narma, as per your on
trading account the average price of Narma is 2652 Per
Qtls. Thus the value of Narma comes to Rs.1,74,92,247/-
. By ginning of this Narma your production 2268.98 Qtl.
Cotton and 4214.76 Qtls. Cotton seed. As per your own
trading account the average sale price of Cotton is
Rs.5587/- and average sale price of Cotton seeds is
Rs.1380/-. Thus the total value of Cotton and Cotton seeds
sold by you is as under:-
Cotton 2268.98 Qtl. @Rs.5587/- Value Rs. 1,26,76,791/- Cotton Seeds 4214.76 Qtl @ Rs. 1380/- Value Rs. 58,16,368/-
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Total Rs. 1,84,93,159/-
The cost of Narma as disused above Rs. 1,74,92,247/
assessee has made purchases outside
the books of account on which he has
made a saving of 8% on a/c of tax market
fee, Arhat etc. 13,99,379/-
Net Profit
(the exp. already booked 10,00,912/-
Total 1,98,92,538/-
Thus, I purposed to make addition of Rs. 1,98,92,538/-
to your returned income as discussed above. In case
you have any objection please file the same
alongwith documentary evidence.
3.8 Notice u/s 142(1) of the I.T. Act, 1961 is enclosed
herewith; your case is fixed for 13.12.2011. Please note
that no adjournment will be allowed. "
4. In response to this notice, Sh. Sunil Aggarwal,
Advocate alongwith Sh. Krishan Lai Singla Proprietor of
the firm M/s Kapil Trading Company and husband of
assessee attended the proceedings, they filed written
reply. However they sought adjournment on the plea that
Sh. Deepak Jain, Advocate has gone to Jaipur to attend a
case before CIT(A), Central Jaipur. The case was adjourned
to 14.11.2011, the reply filed by the assessee is
reproduced below:-
"Re: Smt. Pushpa Devi Prop/of M/s. Singla & Sons,
Sadulshahar. Asstt. year 2009-10.
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4.1 The assessee is in receipt of your show cause No.
JCIT/R-SGNR7 2011-12/1431 Dated 2nd December 2011
which was served on the assessee only on 8th December
2011. With the letter the assessee is willing to file some
evidences in support of the contention but as the time
allowed was very short and 10th and 11th were the Holiday
due to Saturday and Sunday and so the assessee can't gather
the evidences which will be filed on the next date of
hearing.
4.2 In the starting of letter you have pointed out
some of the queries, the information/documents
which were not supplied by the assessee. In the para 1 on
page 2 you have mentioned that the assessee was asked
that while the assessee is having Cotton ginning factory
then why she has purchased Cotton from the farmers and
from where the farmers have sold such a huge quantity of
Cotton.
4.2 In this regard it is stated that the assessee is a
dealer in Cotton and Cotton Seed. Generally the
processors purchase the raw Cotton i.e. Narma and Kapas
and after getting the same ginned in the factory separates
the lint and seed. The lint is sold separately and Cotton
seed is sold separately. In general practice the lint is sold
either loose in shapes of Boras or in the compressed form in
the shapes of Bales. From the above you will please
appreciate that the main business of the assessee is not to
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sale the raw Cotton (Narma Kapas) but the products
obtained from Narma by processing the same in the
factory. Whenever the assessee get a chance to purchase
the Cotton lint she purchases the same which saves her from
the expenses on the processing and also saves the time
involved in processing. Here it would be pertinent to
bring to your kind notice that it is the sweet will of the
assessee that how he/she wants to run his/her business.
The business expectancy is to be looking into by the
assessee himself.
4.3 Your second query is about the availability of the
loose Cotton lint with the farmers. In this regard it is
stated that if the yield of a particular variety sawn by the
farmers is good then the farmer try to keep the seed of
that variety for next season as the Cotton seeds available in
the market are somehow costly. Secondly all the farmers
have some cattle and the Cotton seed is the best available
food for the cattle and so just for the purposes of cost
cutting of the seeds and cheaper food for their animals,
the farmer get the seeds separated from the Narma Kapas
and sells the lint in the open market. It is but obvious that
for selling the Cotton lint first of all the farmer will come
to the traders with whom he is having the regular
dealings. If the assessee desires to purchases the Cotton
lint then the farmer sells the same to assessee or otherwise
sell the same in the open market. Details of purchase of
entire goods have already been submitted.Photostat copies
of the account have already been submitted therefore the
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information in respect of the details is available with your
goodself. From the details of the purchases of Cotton lint
your good self will please find that the Cotton lint is
purchased in small quantity from different farmers who
were not attached with the assessee. The major part of
the Cotton lint was purchased from the farmers who are
the regular constituents of the assessee or her family
concerns. Here it would not be out of place to mention
that by doing this the farmers are also looking their
interest so as to earn better returns. In this way the farmers
are keeping the Cotton seed with them and selling rest of
the material to the prospective buyer. This act is also
putting them some comfort because in this way they save
the carriage charges and also time. The farmers are also
fetching good price seating at their own farm.
Comments :- The contention of the assessee is without
any supporting evidence the quantity ofBinola suppose to
the be produced from ginning of Narma by these alleged
these farmers can't be used only for the cattle.
Moreover, these farmers are not prosper one they can
retain the agriculture produce for long time and then wait
for the payment when they are them self are under debts.
As all the five farmers which were produced by the
assessee admitted in their statements they have taken
loans from banks and Arhtia (Commission Agent) for
agriculture need as well as family needs.
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4.5 Regarding the evidence of the Dalali paid it is stated
that in the market the rate of the Brokerage is fixed. The
assessee has filed the copies of account of the Brokers and
the quantity sold by the assessee is quite evident from the
trading accounts filed with the return. In this area the
brokers do not issue the bills for their services. After the
completion of the deal the traders either credits the
account of the broker with the amount of brokerage or pay
the brokerage in cash. The Brokerage is paid almost on all
the deals. The system adopted by the assessee is not new
one but this is a common market practice. This fact can be
verified from any of the trader of this line. Anyhow the
assessee is trying the obtain a certificate to this effect from
the Traders Association and if could be obtained the same
will be filed on next date of hearing.
4.6 You have asked the reason for payment of extra stamp
duty on the purchase of shop. In this regard it is stated that
the State Government has fixed the area wise market value
of the properties and accordingly charges the stamp duty.
The assessee has shown the purchase consideration for
which she has purchased the shop but as the Circle rates
decided by the Government are higher so the assessee has
paid the extra stamp duty on the same. As per rules of
registration if the stamp duty is less than the prescribed rate
of that area and the purchaser challenge the same then the
documents shall be impounded and thereafter there is a
long process in respect of obtaining the document. The
purchaser/seller used to mention the amount actually
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received but so as to purchase peace and avoid litigation they
used to make the payment of duty on the basis of rate as
laid down by the Government therefore there was
compelling circumstances and there is no other way for
registration hence has to accept this way. This is not only in
the case of the assessee but almost in all cases of
registration. The fact can be verified from the office of the
sub registrar.
4.7 Regarding the evidence of payment of T.D.S. it is
stated that the copy of the T.D.S. challans has already been
filed with letter dated 04.10.2011.
4.8 Regarding the vouchers for the expenses incurred on
Narma & Kapas it is stated that these are mainly the labour
charges. There are several processes in the trading and
ginning of the Narma and Kapas. The Narma & Kapas comes
loose on the Platform of the assessee. Upto the time of
auction by the Krishi Upaj Mandi Samity, the responsibility
of the goods remains with the farmer and after the auction
the responsibility shifts to assessee. After the auction the
goods have to be weighed, packed in Hessian Cloth (Palli),
loaded in the Trolleys, carried to the factory premises,
unloaded there, cleaning of the Narma Kapas by hand picking
the weeds etc., carrying of raw goods to the machines and
after completion of ginning get the lint and seed removed
from the machines, send the lint to Press machines,
packing of seeds in the Bags, weighment of the seeds
shifting the same to the godowns and also shifting of the lint
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bales to the godowns. In the books of accounts the assessee
has debited two type of expenses one expenses directly
debited in the trading account and one debited in the Profit
and Loss account. The expenses mentioned in the Trading
account are of the nature as mentioned above whereas the
expenses debited in the profit and loss account is on account
of ginning and pressing expenses which cannot be bifurcated
directly to any particular trading account.
4.9 All the above works are done through the labour
attached with the Paledar Union. The rate of each work is
fixed by the Union and the assessee has to make the payment
accordingly. As the rates of the labour are fixed and the
quantity is also available in the records and hence even in
the absence of the vouchers the expenses are fully verifiable.
This is a common practice in this line of trade and is also
subject to verification from other traders. The assessee is
trying to obtained a certificate in this respect also from The
Traders Association. If obtained the same will be filed on the
next date of hearing.
4.10 You have further mentioned in the letter that the
assessee has not produced the farmers. In the same para you
have observed that the assessee has not made the payments
to the farmers immediately but the payments were made
after a long period, in support of your contention you have
also quoted the name of two farmers i.e. Sh. Nirmal Singh
S/o Kaur Singh, Village Khara and Sh. Kaur Singh. You have
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also mentioned that from the above fact it is quite clear that
these transactions are genuine and these farmers are having
the good terms with the assessee. The observations given by
you are very true, the transactions with farmers are genuine
and the assessee is having the good relations with these
farmers. The assessee was never hesitant in producing these
farmers but due to one or the other reason the farmers could
not be produced earlier. The name of the farmers and
addresses thereof are available with you. If you think it
proper, you yourself can verify the correctness in respect of
the transactions.
Comments: - The contention of the assessee is
factually incorrect after availing number of
opportunities vide order sheet entry dated
09.11.2011 assessee counsel clearly stated that
farmers can't be produced.
4.11 After the last date of hearing some of the farmers
informed the assessee that some Inspector from your
office has approached them and recorded their statements.
From the same the assessee came under the impression that
you are making the direct enquiry from the farmers and so
the assessee has not produced these farmers on his own. If
any such inquiry is made then the copies of the same may be
provided to the assessee. Now also the assessee has no
hesitation in producing the farmers and on hearing from
you and if you allow time the farmers may be produced.
Till then the assessee has requested the farmers to file an
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Affidavit confirming the fact of selling the Cotton lint to
the assessee. As the notice is served on the assessee only
on 8th December 2011 so in such a short time the assessee
could not contact the farmers for presenting before your
goodself or for providing the Affidavit and so it is
requested that some time may please be allowed to the
assessee to produce the farmers.
4.12 Next you have mentioned that on the enquiry made
by your Office it came to your knowledge that though the
payments were made to these farmers through banking
channel but the payments were through bearer cheques
and all the cheques for withdrawals were in the single
hand writing and the withdrawals were by Sh. Gagan
employee of sister concern M/s. Kapil Trading Company. By
mentioning the above facts you have observed that this
shows that the all the entries relating to the purchases and
payment are accommodating entries obtained by the
assessee. In this regard it is stated that the farmers are not
very conversant with the banking systems and they generally
ask the trader to help them in banking and other
government works and being the constituent the traders
help them in every respect. The cheques are issued by the
accountants and so it is but natural that these may be in
the same handwriting. It is general practice in all the
Mandies of the area that the traders sent their persons to
help the farmer in getting the money from the bank. Due to
this reason the assessee has deputed Mr. Gagan to help the
farmers. The reason for deputing the employee of sister
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concern M/s. Kapil Trading Company it is stated that all
most all the farmers were the constituents of that firm
and are familiar with Mr. Gagan, who handles the work of
these farmers in that firm. Due to this Mr. Gagan was
deputed for the bank work of the farmers.
4.13 Sir above mentioned practice is the common
practice in the area and this does not indicate any
anomaly in the system. On the basis of these observations
one can't be assure that the entries under question are
accommodating entries but any presumption may be
assumed.
4.14 In the next para you have informed that you have
made some local inquiries and found that these farmers
have small holding, some of them even do not own any
land, most of them have not grown Narma and even if
the Narma is grown then the area of the land under
cultivation was too small. In this regard it is requested that
the copies of informations gathered on the back of the
assessee may please be supplied so that the assessee may
give her comments on the same.
4.15 Without prejudice to the same in this regard it is
stated that the assessee has come to know from some
farmers that the Patwari has sent some report about their
land holding and Girdawari to the Income-tax
Department. From the same it appears that you have
made the inquiry from the Patwari of the area. Sir the
report of the Patwari may be correct but the ground
18
position is totally different. The Patwari might have
informed you the land holding and Girdawari of the
persons whose names were given by you to him. Factually
in the villages the farmers resides in joint family and the
land belongs to several family members but only a few
family members go to Mandi to handle the work there and
in the books of the traders the name of those persons
appear on behalf of the whole family. The traders
generally do not go by the revenue records for opening
the account. Thus total land holding of the family may be
far more than the land holding in the single name.
Secondly in the villages it is very common that some
farmers takes the land of the other farmer on Contract
basis and produce the crop in that land also. Here it
would be pertinent to mention that in Rajasthan all the
lands are lease hold land and there is no free hold land.
The fact can be verified from the Jamabandi of the land
in which in the column 'Owner of the Land' the word 'Raj
Sarkar' is mentioned and the name of the farmer is
mentioned in the column 'who is cultivating the land'. In
this way when a farmer takes the land on contract his
name do not appear in Girdawari but the name of the
original lessee will appear. Contrary to the above the
lands in Haryana & Punjab are Free hold land and in those
states when the land is taken on Contract then in the
column 'who is cultivating the land', the name of the
farmer who have taken the land on Contract is given.
From the above you will please appreciate that there is
19
every possibility that these farmers are cultivating more
land then appearing in their name in the revenue records.
Comments :- As regard the contention of the assesses
in Para 4.10 to 4.15 is concerned, when the assessee was
not coming the farmers from whom alleged Cotton has
been purchased. This office made local inquiries regarding
the land holding, the crop grown etc. of these farmers
and vide this office letter dated 02.12.2011 (Para 3.6)
assessee was confronted with the out cum inquiry.
Therefore, the claim of the assessee that result of the
inquiries made at the back of the assessee is not correct.
4.16 Without prejudice to above just for the sake of argument if
it is accepted that you might be right but in our case purchases
are there. In some cases some agriculturist also used to
purchase the agriculture produce of their neighbor and after
holding the same for some time when market is improve they
used to sale the agriculture produce purchased from the other
farmers. Some time the farmers having lesser holding of land
used to cultivate the land of the other farmers and so for this
reason it can't be a sole criteria for deriving adverse inference.
Comments :- The contention of the assessee that some time
the farmers purchase the crop of the neighbor also has no
force because as discussed in details of the subsequent
paras of this order. It is proved beyond doubt that these
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farmers are not mains of means.
4.17 You have observed that these so called entries
of purchase of Cotton lint are accommodating entries
to cover up the unaccounted purchase of Narma. Here
first of all it is stated that these purchases are not the so
called entries of purchases but are the real purchase
made by the assessee. It is further requested to clarify
by any evidence that these are the accommodating
entries. Kindly let the assessee know how you are
treating the entries as accommodating entries when all
the evidence are with the assessee. You have further
mentioned that as per the bylaws of Kris hi Upaj Mandi
Samity, one cannot purchase agriculture products directly
without paying the market fees, VAT, Arhat etc. which
are about 8% of the purchase price. The assessee agrees
with your point of view. There cannot be any
presumption against the provisions of law. As far as
the matter of purchase of Cotton lint directly from the
agriculturist is concerned it is stated that it is the
byproduct of the crop of Narma and in Rajasthan the
farmer is free to use his crop in any manner he like and if
he sell any product in the market he is free to do so.
The best example of this practice is production of 'Gur' by
the farmers producing Sugarcane. There is no market
committee fees payable by the farmer when he sell the
goods in the market to the end user. The fact can be verified
from the market committee also. Without prejudice to above
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just for the sake of argument if we accept your version even
then how the purchases became bogus only by nonpayment of
Market Fees or VAT.
Comments:- The contention the assessee not force,
because large quantity of agriculture produce can
be sold only in Mandi, the example given the by
assessee is without any based. Assessee has asked
that on what basis I am claiming that she has not
purchased the Cotton from the farmers and instated
purchase the Narma and ginned the same to
produced Cotton. Here I will like to reproduced the
observation of Hon'ble Justice Jawahar Lai Gupta,
Hon'ble Punjab and Harvana Court in the case ofCIT
Vs. Monika Oswal reported at 267 ITR 308 "Mr.
Sharma is right in contending that the onus is on the
Revenue. It is also correct that the court cannot
proceed on surmises and suspicions. However, one
cannot lose sight of the fact that dark deeds are
performed under the cover of darkness. Direct
evidence can never be available for everything.
Sometimes, the facts speak loud and clear. Very often
the courts have to draw inferences from attendant
circumstances ".
4.18 It is further observed by your good self that the
assessee has purchased the Narma outside the books and
processed the same in the factory of the assessee to cover
up the production of Cotton sold by the assessee. By doing
22
so the sale of Cotton seed is also suppressed. In this
regard I would like to bring to your kind notice that for
argument sake if it is presumed that the assessee has
purchased the Narma out of the books and also sold the
Cotton Seed out of the books then what was the hitch to
the assessee in selling the Cotton also outside the books.
From the yield declared by the assessee your good self will
please find that the without considering the Cotton lint
purchased by the assessee, the yield declared by the
assessee is quite fair and the shortage is also very well less
than the general shortage. If the assessee can purchase the
Narma out of books, sell the Cotton Seed out of books then
why he will not 'sell the Cotton lint out of the books. For
doing any work there must be some motive or intention
but in the case of the assessee there is no such motive.
4.18 If for argument sake it may be treated that the
assessee has purchased the Narma out of the books even
then why the assessee will bring part of the unrecorded
transaction in the books of account that also without any
gain. It was very easy for the assessee to sell the whole
goods out of books. This clearly indicates that the
transactions declared by the assessee are genuine
transaction and the assessee has purchased the Cotton lint
and honestly declared the same in the books of account. In
the local laws there are no such restrictions in respect of
purchases from the unregistered dealers or agriculturist.
The assessee is at liberty to purchase the agriculture
23
produce from anyone. This may just be the matter that how
the local taxes will be paid and who will be liable to pay the
local taxes.
4.19 On the basis of the above mentioned observations
you have finally presumed that the assessee has purchased
6595.87 Qtls of Narma and after processing the same have
obtained 2269.98 Qtls. Cotton and 4214. 76 Qtls. of Cotton
Seed. You have adopted the rates of all the three
commodities on the basis of the average price as per the
trading account filed with the return of income i.e.
Rs.2652/- per Qtls. for Narma; Rs.5587/- per Qtls for Cotton
and Rs.1380/- per Qtls for Cotton Seed. Thus you have
proposed an addition ofRs. 19892538/- on this account. The
summarized breakup of the addition is as under :-
Cost of Narma 6595.87X2652
17492247/-
Taxes & Expenses 8% saved
13993 79/-
Net profit in sale of Cotton lint & Seed =
1000912/-
4.21 Without prejudice to the fact that the assessee
deny to have done any such transaction and just to rebut
the presumption adopted by you it is stated as under :-
24
4.22 First of all if it is presumed that the assessee has
purchased this quantity of Narma then it is not possible to
purchase this quantity in a single day. At the most what
can happen that the assessee used to purchase the
Narma out of books in small lots and after getting the
same processed sold the Seeds out of books and
introduced the Cotton lint in the books. Thus it is quite
clear that if this out of books work is done by the assessee
then the same was done in parts and for investing in the
fresh purchases of Narma the assessee was getting the
money shown paid to farmers in the regular books of
account and also the sale consideration of the Cotton
seed sold out of the books which may be treated as again
invested in the purchase of the Narma. In other words if
you think that the addition on this account is to be
made then the benefit of telescoping should be allowed
to the assessee. Here it would not be out of place to
mention that from the details of the Cotton lint
purchased you will please found that most of the
quantity of the lint was purchased in the month of
April 2008 itself and the remaining quantity was
purchased in the month of November, 2008 to February
2009. Thus the amount of investment in the stock of the
month of April 2008 is available for investment in the
month of November and onwards and the telescoping of
the same should be allowed. Theory of peak if applicable
can be applied in respect of purchase amount.
25
4.23 Here one more thing to be discussed about the
proposed addition of Rs.1399379/- on account of 8%
expenses of Market fees, VAT, Arhat etc. You yourself
have mentioned that the assessee has saved this amount
on the purchases out of the books. In this regard it is
stated that for estimating the purchase or Narma you
have taken the average rate shown in the regular books
of accounts which are inclusive of all these expenses and
hence the figure of purchase estimated by you already
included these figures and so no separate addition for
these expenses can be made.
4.24 You have adopted the sale consideration of the
Cotton lint for working out the profit in these
transactions. In this regard it is stated that the purchase
and sales of the Cotton lint has already been disclosed in
the regular trading accounts. The total purchase of
Cotton lint is shown at Rs. 11826270/- and the sale of
this comes to Rs.12685216/- and thus the assessee has
already disclosed Rs.858946/- as profit in the dealing of
this Cotton which may be excluded from the figure of Rs.
1000912/- profit estimated by your good self.
4.25 At the end of this letter it is again requested that
the assessee has not done any trading outside the books
of accounts. The transactions disclosed by the assessee
are genuine transactions and so it is requested that the
same may please be accepted and no addition on this
account may be made ".
26
Thereafter, on 14.12.2011, Shri Deepak Jain, Advocate appeared
alongwith Shri Kishan Lal, the husband of the assessee and produced
the following farmers as witnesses to prove that the cotton was
purchased from them. These farmers are as under:
1. Shri Gurmail Singh
2. Shri Jaswant Singh
3. Shri Harbans Singh
4. Shri Surjeet Singh
5. Shri Kaur Singh
Their statements were recorded and incorporated by the A.O. in his
order from pages 12 to 22. After considering these statements, in the
light of the inspector’s report who had allegedly made enquiries in this
case, the A.O. also obtained report from the Halka Patwari. The
assessee was asked to file copies of accounts of all the 11 farmers from
whom she allegedly purchased cotton between 1.4.2007 upto
2.12.2011 from the books of account of M/s Kapil Trading Company
and M/s Singla & Sons.
3. On 21.12.2011, reply from assessee’s side was filed which is as
under:
"On the last date of hearing the assessee has produced 5
farmers i.e. S/Sh. Kaur Singh, Sarjeet Singh, Gurmail Singh,
Harbans Singh and Jaswant Singh The statement of those
27
farmers were recorded. You asked the assessee to file the
following information in regard to the statement of I those
farmers. As desired by you the following documents are attached
herewith:-
1. Copy of the Jama Bandi of all the five Farmers.
2. Copy of the Khasra Girdawari of these farmers.
3. In the statements the farmers have stated that they have taken
the land of the other persons on Contract basis. As all the
contractors were the near and dear of the farmers and so they
have not created any written contract. Anyhow now the
farmers have obtained their affidavits confirming the fact that
in the relevant year their lands were given on Contract to the
farmers appeared before you. The affidavit are attached
herewith.
4. The copy of the Jama Bandi of the persons who have given their
land on contract.
5. The copy of the Khasra Girdawari of the persons who have given
their land on contract.
On the last date of hearing M/s. Kapil Trading Company has
filed the copies of account of the farmers from the assessment
year 2007-08 to 2009-10. On the last date of hearing you asked
the assessee to file the copies of account of these farmers from
01.04.2009 to upto date. It is hereby informed by M/s. Kapil
Trading Company, that in the period starting from 01.04.2011
that firm has I not done any business of Kachhi Arhat and so the
copies of account of the farmers upto 31.03.201O are attached
herewith.
28
You have asked the assessee to produce the remaining farmers.
The assessee approached to the other farmers but due to the
season of Cotton Picking and due to time for preparation of the
land for the crop of Wheat they have refused to come. Anyhow
they have assured that they can come if some time is allowed.
Looking to the circumstances and the fact that the case is going
to be time barred on 31.12.2011 the assessee has obtained the
affidavit of the following farmers which are attached herewith:-
Sh. Jagroop Singh S/o Angrej Singh
Sh. Darshan Singh S/o Gurdeep Singh
Sh. Jaskaran Singh S/o Sardul Singh
Sh. Buta singh S/o Harnek Singh
Sh. Nirmal Singh S/o Kar Singh
Sh. Hukma Ram S/o Laxman Dass
Sh. Shanakar Lal S/o Kapura Ram
The assessee has also obtained the copies of the Jama
bandi and Khasra Girdawari of these farmers and the
same are attached herewith. Besides these farmers have
also taken some lands on contract. In support of the
same the affidavit of the contractor alongwith the Jama
Bandi and Khasra Girdawari are also attached herewith.
The assessee could not obtained the supporting
document of the affidavit of S/Sh. Hukama Ram S/o
Lichhman Dass, Nirmal Singh S/o Kar Singh and Shankar
Lai S/o Kapoora Ram. The assessee is trying to obtain the
relevant documents and as and when received the same
will be filed.
29
On the last date of hearing the farmers have stated
that the ginning of the Narma was got gone though the
mobile ginning machines which are attached to the
Tractors. For your ready reference and records the
photograph of the machine are attached herewith.
On the last date of hearing the assessee has stated
that the brokerage is paid as per the market practice
and also the payment of the labour is made as per the
rates of the Paledar Union. The certificate to this effect
from the Sadulshahar Vyapar Mandal is attached
herewith for your ready reference and records. "
4. After considering the above reply and other replies filed in the
process, alongwith statements of the farmers who were produced and
by deriving adverse inference from the non production of some of the
farmers for examination, inter alia, the A.O. has found that the
assessee purchased cotton, which in fact, is the production out of
narma purchased outside the books of account. The assessee had
showed yield of narma @ 34.4% and cotton seeds @ 63.9% and shortage
at 1.7%. Thus, to produce 226898 quintals of cotton, the assessee may
have purchased 6595.87 quintals of narma and value of this narma
purchased outside the books of account comes to Rs. 1,74,92,247/- as
per average price taken from trading account of the assessee which is
2652 per quintal. He has observed that by ginning of this narma, the
30
assessee could produce 2268.98 quintals of cotton and 4214.76 quintals
of cotton seeds. He has adopted sale price of cotton at Rs. 5,587/- per
quintal and average sale price of cotton seeds at Rs. 1380/- per quintal
and thus the A.O. has found that the assessee made investment of Rs.
1,74,92,247/- outside the books of account which has been assessed as
unexplained investment u/s 69 of the Act and has been added to the
returned income of the assessee. Further, the A.O. has made addition
of Rs. 1,41,966/- being profit earned on sale out of books and of Rs.
13,99,379/- by treating fees of Krishi Upaj Mandi Samiti, VAT, adhat,
etc. @ 8% on the purchases made outside the books and has thus
arrived at taxable income of Rs. 1,92,91,480/- [rounded off as the
total income comes to Rs. 1,92,91,482/-]. Aggrieved, the assessee
filed appeal and the ld. CIT(A) has given part relief to the assessee.
The assessee is further aggrieved and has filed this appeal by raising
the following grounds:
“1. That the order passed by the Assessing officer and
sustained by the CIT (A) is illegal and against the law.
2. That in absence of rejection of books of accounts by
knocking the provisions of section 145 of the Income-tax
Act, the assessment completed is illegal and against the
law.
31
3. That the addition made by the Income-tax Officer
amounting to Rs. 1,74,92,247.00 on account of alleged
bogus purchases is illegal and against the law and sustained
by the CIT(A) is illegal and against the law, furthermore
without following the case-law referred before him.
4. That the addition of Rs. 1,74,92,247.00 made on
account of alleged unexplained investment is illegal and
against the law made by the Assessing Officer under
section 69 of the Income-tax Act and sustained by the
CIT(A).
5. That the addition of Rs. 56,56,289.00 made by the
Income-tax Officer is illegal and against the law because
the purchases are covered by rules 6 DD of the Income-tax
Rules as well as by the circular issued by the CBDT.
6. That the addition sustained is against the judicial
decorum and judicial discipline because the purchase are
squarely covered.
7. That the addition of Rs. 13,99,379.00 made on account
of alleged saving of fees taxes etc. is illegal and against
the law made by the Assessing Officer and sustained by the
CIT(A).
32
8. That the assessee successfully discharged the burden as
provided in the act as such the finding in respect of bogus
purchases is against the law as well as against the judicial
pronouncement.
9. That the order passed by the CIT(A) is illegal and
against the law. Because the CIT(A) fail to follow the
consistency as well as past history/subsequent practice
which is binding upon the CIT(A) as well as the AO.
10. That in the reply of remand report the Assessing
Officer almost conceded the submission and submitted
reply without explaining the reason.
11. That the CIT(A) should have accepted the written
submission, the evidence adduce before him and case laws
referred before him in course of hearing.
12. That the charging of interest by the Assessing Officer
and sustained by the CIT(A) is illegal and against the law.”
5. We have heard the rival submissions and have carefully perused
the entire material on record.
6. Ground No. 1 is general in nature and does not require any
adjudication from our side.
33
7. Second ground pertains to the invoking of provisions of section
145 of the Act. It is argued that the A.O., without rejecting the books
of account, has invoked the provisions of section 145 of the Act. It was
a vehement argument that the A.O. has nowhere rejected the books of
account and has still made estimation.
8. On the other hand, the ld. D.R. has stated that there is no
requirement of rejection of books of account for making the impugned
addition.
9. After considering the rival submissions, we have found that
before the ld. CIT(A), the assessee had relied on numerous decision
through his authorized representative which gave ratio decidendi that
without rejection of books of account, no estimated addition under the
provisions of section 145 can be made. The ld. A.R. has relied on all
those decisions before us, which are contained in his written
submissions also.
10. After considering the overall facts and legal position of this issue,
we have found that the A.O. has nowhere rejected the books of
account of the assessee either impliedly or expressly. Therefore,
34
without rejecting the books of account, provisions of section 145 of the
Act cannot be invoked. We allow Ground No. 2 of assessee’s appeal.
11. Ground Nos. 3 and 4 are against the confirmation of addition of
Rs. 1,74,92,247/- made on account of alleged bogus purchases u/s 69
of the Act which has also been confirmed by the ld. CIT(A).
12. It was argued by the ld. A.R. that this addition is based on
surmises and conjectures and after rejecting all sorts of evidence
produced by the assessee to prove the purchase by producing farmers,
some of whose statements were also recorded and for others duly
sworn affidavits were filed. All these farmers have supported the
version of the assessee and without disproving the averments of the
affidavits and submissions and simply relying on the report of his
inspector, which was prepared behind the back of the assessee and
were never confronted to her. The A.O. has made the impugned
addition, which is not justified, and cannot be sustained in the eyes of
law.
13. On the other hand, the ld. D.R. has supported the orders of the
authorities below and has referred to various points in the statements
35
of the farmers and has given some reasons as have been given by the
authorities below to make or confirm the impugned addition.
14. After considering the rival submissions in the light of the
obtaining facts of this issue, we have found that the A.O. has made all
sorts of enquiries in this regard and by doubting one evidence, he has
moved further which created more doubts in his mind. The assessee
submitted affidavits of all agriculturists from whom she has claimed to
have purchased narma. The assessee produced in as much as six
farmers including Shri Gurmail Singh, Shri Jaswant Singh, Shri Harbans
Singh, Shri Surjeet Singh, Shri Kaur Singh and Shri Kishan lal for
examination before the A.O. All of them have confirmed the purchases
as claimed by the assessee of narma from them. The assessee
produced duly sworn in affidavits of the farmers Shri Jagroop Singh,
Shri Darshan Singh, Shri Jaskaran Singh, Shri Buta Ssingh, Shri Nirmal
Singh, Shri Hukma Ram and Shri Shankar Lal. All of them have
confirmed the version of the assessee. Apart from this, the assessee
has produced the affidavits of one of contractor who gave land to the
farmers on patta basis for cultivation. The assessee has produced land
holding records of 13 farmers which included jama bandi and Khasra
Girdawari. These documents were returned back by the A.O. as is
36
verily evident from the assessment order itself and this act is contrary
to the procedure which has to be followed by the A.O. The assessee
tried to mark all the documents, which were produced before the
authorities below including this Tribunal. We have found it for a fact
that the assessee has been following same and similar practice of
purchasing cotton directly from farmers in the past years and also in
the future years. Sample copies of assessment orders for A.Ys 2008-09
and 2010-11 are enclosed in the paper book and have found that no
adverse inference has been drawn by the A.O. in those years.
Therefore, in our considered opinion, the entire exercise of the A.O. is
based on his own surmises and conjectures. Apart from finding faults I
the evidence produced by the assessee, the A.O. has not brought any
cogent evidence which can be contradict the claim of the assessee,
may be the evidence produced before the A.O., and before the ld.
CIT(A) as well as before us. We have noticed that the A.O. has not
rebutted any of such evidence produced by the assessee. In our
considered opinion, the primary onus cast on the assessee has been
discharged, whereafter, the A.O. was required to rebut the same with
the help of cogent evidence, which should be brought on record. The
A.O. has not done so. Therefore, his exercise became futile. The
report of the inspector was obtained behind the back of the assessee
37
and even after copy of which was asked to be given to her, the A.O.
refused to give the same. This fact is evident from the assessment
record itself. The A.O. has tried to find something or the other from
the statement of the farmers who have basically admitted the fact
that the narma was purchased by the assessee from them and they had
taken money for their worth or more than that because it is a ongoing
process of sale and purchase between the assessee and the farmer.
The ld. A.R. has relied on numerous decisions and some of them have
really helped his case but we do not need to reproduce them in our
order. Most of the decisions are from Jodhpur and Jaipur Bench of the
Tribunal inter alia. In fact, whatever queries were raised by the A.O.,
all were aptly replied by the assessee. The A.O. has given more
importance to minor relevancies and has ignored the relevant factors
in arriving at his conclusion. He has simply ignored the fact that it is
common practice for agriculturists to take agricultural land belonging
to others on patta basis and grow crops of their desired nature. It is
also common place experience that the Patwari many a times do not
record correct crop grown by the agriculturists as they rarely go to
fields to find out the facts and complete their record by sitting in their
office. We have mentioned the statements of these farmers, which
was recorded by the A.O. The statements support the version of the
38
assessee and so is the case in regard those farmers who have filed their
affidavits. The A.O. has shown more concern towards farmers to
whom the money was paid by the assessee and has tried to relate the
fact with the death of farmers based on some newspaper reports. He
has written a thesis regarding the scenario of agricultural sector in
India. Thus, he has been swayed by such consideration by plight of
farmers instead of deciding the issues raised in this A.Y. pertaining to
assessment of the assessee. Such generalized views cannot be applied
to the assessment made by the A.O. Such an exercise and penchant
for care for an agriculturist is admirable and the A.O. has done good
job in that direction but we are afraid that such subjective analysis
cannot be applied to the factual facts arising in a case. The A.O. has
relied on and has referred to a secret independent enquiry, which has
no place in judicial proceedings. Accordingly, when the assessee has
claimed and proved that he has purchased narma and produced
requisite cotton from that narma simply because the purchases were
not through mandi, purchases cannot be ignored. Therefore, we are
convinced that the addition of Rs. 1,74,92,447/- made on account of
alleged bogus purchases is not justified and therefore, we order to
delete the same. As a result, we allow Ground Nos. 3 and 4 of
assessee’s appeal.
39
15. Ground No. 5 pertains to addition of Rs. 5656289/- made under
the provisions of section 40A(3) of the Act.
16. The A.O. has found that the purchases being in cash exceeded Rs.
20,000/- in violation of provisions of section 40A(3) of the Act. The
contention of the assessee has been that purchases are from farmers
and in such purchases this provision is not applicable. As we have
already held, the purchases from farmers the impugned addition is
uncalled for and deserves to be deleted in view of Rule 6DD of the I.T.
Rules and CBDT Circular, which are duly enclosed in the paper book
filed by the assessee. Accordingly, we order deletion of addition of Rs.
56,56,289/- and allow Ground No. 5 of this appeal.
17. Ground No. 6 is also connected with Ground No. 5 and is, in fact,
argument of Ground No. 5. Therefore, this ground shall go alongwith
Ground No. 5 itself and stands allowed.
18. Ground Nos. 7 is regarding addition of Rs. 13,99,379/-. This
addition has resulted from the fact that the purchases were made
directly from agriculturists and not from the mandi and thus the
assessee has saved market fees, VAT, Adhat, etc. In view of our
40
finding given above, there is no question of alleged saving of tax etc.
Therefore, we order deletion of addition of Rs. 13,9,379/-. Ground No.
7 stands allowed.
19. Ground Nos. 8 to 12 are general in nature and most of these
grounds are argumentative without raising any material ground.
Therefore, these grounds do not require any adjudication and are
dismissed.
20. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 31st July, 2014.
Sd/- Sd/-
[N.K. Saini] [Hari Om Maratha] Accountant Member Judicial Member Dated: 31st July, 2014. VL/ Copy to :
1. The Appellant 2. The Respondent BY ORDER 3. The CIT 4. The CIT(A) 5. The DR
ASSISTANT REGISTRAR ITAT, Jodhpur