R.K Agrawal, J.:— The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), for opinion to this court:

“Whether the Tribunal was in law entitled to confirm the addition of Rs. 89,273 in chuni-bhusi account ignoring the fact that complete quantitative account was available before the Tribunal?”

2. The reference relates to the assessment year 1984-85. Briefly stated, the facts giving rise to the present reference are as follows:

The applicant has been assessed to income-tax in the status of a firm. It is engaged in the manufacture of gram, pulses, rice, chunni-bhusi, etc. While examining the account of the applicant, the Assessing Officer has noticed that the applicant has made purchases of chuni-bhusi from the following parties:

Name of party Bill No. and Date Quantity of chuni-bhusi Amount Rate (1) (2) (3) (4) (5) 1. M/s. Ayodhya Pd. Gupta, Banda 17 A 1-5-1983 280.50 qtls 28,330.50 at 101 —do.— 52B 24-6-1983 140.25” 13,744.50 at 98 3. M/s. Ram Prasad Gupta, Banda 1188 9-9-1983 207.00” 20,079.00 at 97 4. Chaudhary Bros, Chuni-bhusi dealer, Kanpur Nil 4-1-1984 135,00″ 13,095.00 at 97′

(1) (2) (3) (4) (5) 5. Pashu Aahar Kendra, Chuni-bhusi dealer, Kanpur Nil 6-1-1984 140.25″ 903.00″ 89,273.00

3. The Assessing Officer treated all the above five purchases as bogus. This was done after making enquiries wherein he found that the parties mentioned at items Nos. 4 and 5 never existed. After confronting the outcome of the enquiry to the applicant and considering his reply, the Assessing Officer had concluded that the purchases are bogus. Further, the persons, namely, Ayodhya Prasad Gupta and Ram Prasad Gupta, happen to be the brother of the partner of the applicant-firm and on examination of the records of the said firm it was found that the said two firms have made purchases from Pashu Aahar Kendra and/or Shiva Pashu Aahar Kendra, which firms never existed and, therefore, these purchases were also held to be bogus. The Assessing Officer had also noticed that there was no proof of transportation of chuni-bhusi from Kanpur to Banda. Certain other discrepancies were also found and it was also noticed that the bills of chuni-bhusi issued by M/s. Ayodhya Prasad Gupta and M/s. Ram Prasad Gupta have been prepared by the munim of the applicant. The Income-tax Officer had added the entire amount of such purchases in the income of the applicant. Feeling aggrieved, the applicant preferred an appeal before the Commissioner of Income-tax (Appeals) who has upheld the addition. The second appeal before the Tribunal has failed.

4. We have heard Sri Satish Mandhyan, learned counsel for the applicant, and Sri Shambhoo Chopra, learned standing counsel appearing for the Revenue.

5. Learned counsel for the applicant submitted that the applicant has made the purchases of chuni-bhusi from the four persons and even if two of them were not in existence, the addition could not have been made. He further submitted that in respect of the purchases made from M/s. Ayodhya Prasad Gupta and M/s. Ram Prasad Gupta, the applicant is not required to prove the source of their purchases, i.e, the source of the source and, therefore, the addition was not justified. In the alternative, he submitted that as the corresponding sales have brought to tax the benefit of the purchases ought to have been given and the entire amount of purchase could not have been added or treated as income at the hands of the applicant.

6. Learned standing counsel submitted that as all the purchases in question have been found to be bogus, the Assessing Officer was perfectly justified in adding the entire amount as the income. He submitted that there was sufficient material and evidence on record to hold that the purchases in question were bogus.

7. Having heard learned counsel for the parties, we find that the Tribunal had considered the submissions made on behalf of the applicant and has repelled the same in the following words:

“I have given our due consideration to the rival submissions as also to the material available on record. We are of the view that the authorities below have recorded weighty reasons for the conclusion that the purchases of chuni-bhusi are bogus. We see no reasons to take a contrary view. We need not repeat all those reasons in our order. It is, however, pertinent to mention that all sales and purchases made by the assessee are entered in satti bahi maintained by it. But no mention of the chuni-bhusi said to have been purchased by the assessee is to be found in the satti bahi or the stock register. On enquiry by the income-tax inspector, the firm M/s. Pashu Aahar Kendra, Shiva Pashu Aahar Kendra and Chaudhary Brothers were found to be non-existent. In the enquiry it has also come to light that such firms never existed in the past. It is also worthy of note here that in the statement Shri Ayodhya Prasad Gupta has stated that there was no fixed shop of Pashu Aahar Kendra and Shiva Pashu Aahar Kendra, while in the bills purporting to have been issued by the said firms, a definite address has been mentioned including the number of the building. The statement that the said firms had no fixed place of business, is contrary to the stand taken by the assessee and that fact also lends strength to the belief that the said firms were non-existent. It is also relevant to mention here that in the voucher dated January 6, 1984, issued to the assessee by M/s. Pashu Aahar Kendra, Shri Laxmi Narain has appended his signatures as proprietor of the said firm, but in the other bills issued by the same firm to Shri Ayodhya Prasad Gupta, Shri Kishan Lal purports to have appended his signatures as proprietor of the said firm. That fact also leads us to the same conclusion.

The purchases said to have been made from M/s. Ayodhya Prasad Gupta and M/s. Ram Prasad Gupta also deserves the same treatment. It is worthy of mention here that S/Shri Ayodhya Prasad Gupta and Ram Prasad Gupta are brothers of the partners of the assessee-firm. These persons claim to have made purchases of chuni-bhusi from Pashu Aahar Kendra and Shiva Pashu Aahar Kendra, and thereafter the chuni-bhusi so purchased was sold to the assessee. We have held above that M/s. Pashu Aahar Kendra and Shiva Pashu Aahar Kendra were never in existence. It follows, therefore, that M/s. Ayodhya Prasad Gupta and Ram Prasad Gupta did not acquire the chuni-bhusi, which they claim to have sold to the assessee. There are certain other features of the transactions as well which lead us to believe that such transactions are bogus. The bills purporting to have been issued by M/s. Pashu Aahar Kendra and Shiva Pashu Aahar Kendra to Ayodhya Prasad Gupta and Ram Prasad Gupta appears in the handwriting of the assessee's munim. The bills by Shri Ram Prasad Gupta had not been issued on the date of sale to the assessee. This fact was admitted by him in his statement, a copy of which appears at page 119 of the assessee's paper book. Moreover, Shri Ayodhya Prasad has admitted in his statement, a copy of which appears at pages 113-114 of the assessee's paper book, the purchases of chuni-bhusi have been entered by him in his books at the end of the year. It is thus obvious that the entry about the purchase of chuni-bhusi was not made by him on the date when he claims that the purchases were made by him. That fact also makes the transactions very doubtful.

8. Learned counsel for the assessee has filed copies of the accounts with M/s. Ayodhya Prasad Gupta and M/s. Ram Prasad Gupta. He has pointed out that numerous transactions took place between the said firms and the assessee during the year under consideration. He had also pointed out that the chuni-bhusi was purchased from the said firms on credit. According to him, the said firms had confirmed the sale of chuni-bhusi to the assessee, and the assessee is not bound to prove source of the source. Thus, it has been contended that it is not the duty of the assessee to prove as to from whom the said firms had made the purchases and since the said firms have confirmed that they had sold chuni-bhusi to the assessee, the burden which lay on the assessee stands discharged. We are unable to accept this line of argument. In the peculiar set of circumstances and the evidence available on record the conclusion is inevitable that the purchases shown by the assessee are bogus and that conclusion is further strengthened from the fact that the firms from which the sellers of the assessee, namely, Ayodhya Prasad and Ram Prasad Gupta claimed to have made purchases were never in existence.

9. It has also been argued on behalf of the assessee that the chuni-bhusi purchased by the assessee had been sold. According to him, the purchases made by the assessee are reflected in the sales. His submission was that since sales have been made, it would be reasonable to conclude that the purchases made have been made by the asses-see. He has contended that in case the purchases shown by the asses-see are held to be bogus, then in that event the conclusion that can be drawn is that the purchases made by the assessee are unvouched. In the circumstances, the entire amount of the purchases should not be added to the total income of the assessee. He has also submitted a statement of total sales and purchases of chuni-bhusi in the year which appears at pages 95-96 of the assessee's paper book. He has also pointed out that the gross profits shown by the assessee, out of the dealings in chuni-bhusi, compares favourably with the result in the earlier years and for that reason also no addition should have been made by the authorities below. He has also submitted that in case it is held that the assessee did not purchase the chuni-bhusi from the firms as alleged by it, it must have purchased the same from some other parties. In that connection he has referred to the findings of the Commissioner of Income-tax (Appeals) wherein he had disapproved the finding of the Assessing Officer that extra milling of dal was done by the assessee. After giving our anxious consideration to these submissions we find ourselves unable to accept the assessee's contention. It was never the case of the assessee that the chuni-bhusi in question had been purchased by it from some other parties. We, therefore think that a new case cannot be culled out at this stage. In case the assessee had made purchases from some other parties, we failed to understand as to what was the difficulty for the assessee in disclosing the real means and fabricating false vouchers. Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralise the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years.”

10. We find that it is not the case of the applicant that he is a trader. On the other hand, the applicant is a manufacturer and in the manufacturing process, chuni-bhusi also gets manufactured as a by-product. It is not the case of the applicant that it had made the purchases of chuni-bhusi from other persons also. The Assessing Officer had recorded a finding that in order to lower down the profits, the bogus purchases have been introduced. Taking into consideration the entire facts and circumstances of the case, we are of the considered opinion that the findings recorded by the Tribunal cannot be said to be based on irrelevant material and consideration. The applicant being a manufacturer of chuni-bhusi has not been able to establish the purchases in question which have been made from the non-existent firms. Further, the two firms owned by the brothers of the partners of the applicant-firm are said to have purchased the goods form the non-existent firm and even the invoices/bills have been prepared by the munim of the applicant. Merely because the applicant had been dealing with the firm that will not make the purchases of chuni-bhusi genuine when there was sufficient evidence to the contrary.

11. So far as the question of deduction of purchases from the corresponding sales are concerned, we may mention that the applicant being a manufacturer of chuni-bhusi and purchases having been found to be bogus and there is no other purchases of chuni-bhusi, the benefit of deduction of such purchases has rightly been disallowed. In view of the foregoing discussions, we accordingly answer the question referred to us in the affirmative, i.e, in favour of the Revenue and against the assessee. There shall be no order as to costs.