Vijay Proteins Ltd. v. Assistant Commissioner of Income-tax

Per B.M. Kothari, AM - These cross appeals, one by the assessee and the other by the Revenue, are directed against the order passed by the learned Commissioner of Income-tax (Appeals), Rajkot for assessment year 1991-92.

2. The assessee is a public limited company incorporated under the provisions of the Companies Act on 24th March, 1986. The said company had taken over the entire running business of the erstwhile dissolved firm of M/s. Vijay Oil Mills with effect from 1-4-1990 along with its assets and liabilities. The company is engaged in the business of producing edible oils. As per para 3 of the assessment order, the assessee-company carried out the following production activities during the year under consideration :-

(1)Groundnut seeds from groundnut.

(2)Groundnut oil & oil cake from groundnut seeds.

(3)Solvent extraction groundnut oil from groundnut oil cake.

(4)Rapeseed oil and oil cake from rapeseed.

(5)Solvent extracted rapeseed oil from rapeseed oil cake.

(6)Soyabean oil and oil cake from soyabean.

(7)Solvent Extracted soyabean oil from soyabean oil cake.

3. The company filed a return of income declaring an income of Rs. 2,99,270. The assessment was made by the Assistant Commissioner of Income-tax, Junagadh under section 143(3) on 18th March, 1994 at an income of Rs. 1,28,22,500.

3.1 The ACIT had inter alia made the following additions/variations :-

(a)Addition of Rs. 39,25,071 towards suppressed oil production, comprising of :-

(b)Addition of Rs. 3,19,618 towards introduction of oil cake.

(c)Addition of Rs. 70,03,826 towards payment on account of bogus purchases.

(d)Addition of Rs. 17,99,788 towards credit balances in respect of bogus purchases.

(e)Addition of Rs. 5,02,752 being kharajat expenses in respect of bogus purchases.

3.2 The CIT(Appeals), inter alia, deleted/confirmed various additions as per details mentioned below :—

(a)Deleted the addition of Rs. 1,89,982,

(b)Reduced the additions of Rs. 37,35,089 and Rs. 3,19,618 (shown in (a)(ii ) and (b) above to Rs. 30,00,000 and

(c)Upheld the additions of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,02,752 [shown in 3(c), ( a) and (e) above].

3.3 The assessee has challenged the various additions which have been sustained by the CIT(A) in ITA No. 5898/Ahd./1994. The Revenue has challenged the additions which have been deleted by the learned CIT(A) in ITA No. 413/Ahd/1995.

4. We will first deal with the addition made on account of suppressed oil production as well as on account of introduction of oil cake. The Assessing Officer made addition of Rs. 1,89,982 on account of low oil recovery in respect of rapeseed purchased from outside Gujarat State (OGS for short). The addition was deleted by the learned CIT(A). This is the grievance of the revenue in ground No. 1.

4.1 The Assessing Officer made addition of Rs. 37,35,089 on account of low oil recovery in respect of rapeseeds purchased from within Gujarat State (WGS for short). He made a further addition of Rs. 3,19,618 towards introduction of oil cake. Out of the aforesaid two amounts the CIT(A) granted relief of Rs. 10,54,707 and sustained an addition of Rs. 30 lakhs out of the aggregate of the aforesaid two additions of Rs. 40,54,707 (Rs. 37,35,089 + Rs. 3,19,680). The CIT(A) thus granted a relief of Rs. 10,54,707 which has been challenged in ground No. 2 of revenue's appeal. The assessee has challenged the addition of Rs. 30 lakhs sustained on account of alleged suppressed oil production and introduction of oil cake in ground No. 3 of their appeal.

4.2 The assessee-company carried on the activity of crushing of oil seeds at one oil mill owned by itself as well as one oil mill of the associate concern where the crushing was carried out on job work basis and for which the assessee-company had paid crushing charges. The break-up of crushing carried out at both the places has been given by the assessee in its letter dated 10th December, 1995. The assessee's own oil mill had a total capacity of crushing 50 tons of seeds per day while the oil mill of the associate concern had the crushing capacity of 62.500 tons per day. The said associate concern M/s. Vijay Solvent Extraction Pvt. Ltd. has an oil mill as aforesaid as well as the Solvent Extraction Plant (SEP for short).

4.3 In the oil mill division the oil seeds are crushed to recover oil. In the process, oil cakes are obtained. Oil is sold in the market, whereas oil cakes are sent for further processing on job-work basis to SEP belonging to its aforesaid associate concern.

4.4 In the SEP the oil cakes obtained during crushing as stated above as well as oil cakes purchased from the market are processed to obtain solvent extracted oil as well as de-oiled cakes. Solvent extracted oil is sold in the indigenous market whereas de-oiled cakes are usually exported.

4.5 The Assessing Officer examined the production results of rapeseeds extensively in the assessment order. After collecting various relevant details from assessee's own records as well as from the records of other comparable cases like M/s. Grofed, M/s. Laxmi Oil Mill and M/s. Harshad Gin Mill, the Assessing Officer issued a very detailed show-cause notice dated 5th June, 1993 to the assessee. The assessee submitted various replies such as reply dated 8-7-1993, 18-8-1993 and 6-9-1993. The Assessing Officer considered the facts stated in these replies also at considerable length in his assessment order. At pages 158 and 159 of the assessment order, the Assessing Officer after taking into consideration all the relevant facts and material has determined certain percentages of oil and oil cake which should, have been obtained by the assessee by crushing rapeseed purchased WGS as well as the percentages of such yield from rapeseeds purchased from OGS. On the basis of such percentage of expected yield which should have been obtained from crushing of rapeseeds, the Assessing Officer worked out the actual oil and actual oil cake which ought to have been recovered by the assessee from the crushing of the quantity of rapeseeds crushed by the assessee. On that basis he made an addition of Rs. 37,35,089 on account of low oil recovery in respect of rapeseeds purchased from WGS and Rs. 1,89,982 on account of low oil recovery in respect of rapeseeds purchased from OGS. The necessary working and the charts on the basis of which the aforesaid amounts of addition have been worked are given at page 159 of the assessment order. The Assessing Officer in para 36 of the assessment order further worked out the amount of additions on account of oil cake introduced to fill up the gap between the suppressed oil production and actual oil production. The details thereof have also been given at page 159 of the assessment order. The Assessing Officer on that basis has made an addition of Rs. 3,90,618. The assessment order contains an elaborate discussion with precise facts and figures on the basis of which the aforesaid additions were made.

4.6 The CIT(A) in para 4 of the order passed by him observed that no sector wise approval of accounts can be made ignoring the fact that sufficient evidence has been brought on record by the Assessing Officer to prove that certain purchases were bogus and therefore, the accounts have to be held as unreliable. He thereafter dealt with separate additions made on account of low recovery of oil from rapeseeds from OGS and WGS. He deleted the addition of Rs. 1,89,982 made in respect of low recovery of oil relating to rapeseed purchased from OGS.

4.7 As regards two separate additions of Rs. 37,35,089 for low oil recovery in respect of rapeseeds purchased from WGS and oil cake held as introduced from undisclosed income of Rs. 3,19,618 the CIT(A) held that in view of the non-feasibility of a uniform yield rate in all years and on the circumstances of the present case it shall be fair, if such addition is restricted only to Rs. 30 lakhs. Such findings have been given at pages 18 and 19 of the order passed by him. He thus granted a relief of Rs. 10,54,707.

5. The learned Authorised Representative of the assessee invited our attention to the following detailed submissions made on behalf of the assessee before the departmental authorities:-

(i)Letter dated 18-8-1993 submitted to ACIT at pages 72 to 131 of Paper Book 'C'.

(ii)Submissions in general made before the CIT(A), copy placed at pages 6 to 22 of the PB 'C'.

(iii)Submissions made before the CIT(A), copy placed at pages 27 to 31 of PB 'C'.

(iv)Submissions before CIT(A) vide letter dated 30th September, 1994 copy placed at pages 149 to 165 of PB 'C'.

(v)Record note of all submissions made before the CIT(A) on 3-10-1994 copy placed at pages 269 to 273 of Paper Book 'C'.

(vi)Copy of Miscellaneous Application made before CIT(A) copy placed at pages 274 to 283 of PB 'C'.

(vii)Order of CIT(A) on M.A. passed on 10-1-1995 copy placed at page 284 of PB 'C'. By this order the CIT(A) directed that at page No. 13 of the order passed by him, in para No. 5, in third line after the words "in view of the" and before the word "guarantee", the following should be added:—

"absence of"

In the order passed by the CIT(A) prior to this rectification the relevant opening part of para 5 was as under:-

"The addition in respect of yield from purchase of rapeseeds from Gujarat State however stands on a different footing in view of the absence guarantee of 40.3196 oil content given by the suppliers."

At the portion indicated as the words "absence of" have been added by the learned CIT(A) vide rectification order passed on 10-1-1995.

5.1 The gist of the submissions made by the learned AR of the assessee in respect of the aforesaid ground is briefly as under:—

(a)No defects in books of account or in stock registers were found.

(b)The alleged bogus purchases are of oil cakes, which have nothing to do with the crushing of rapeseeds.

(c)The books of account and the quantity records have been audited by Chartered Accountants as well as by the Civil Supplies Department.

(d)The G.P. declared by the assessee has not been found to be unsatisfactory.

(e)The additions have been made on the basis of results of other concerns which are not at all comparable. It was pointed out that M/s. Laxmi Oil Mill and Harshad Gin Mill are having oil mill and no SEP. Those who have SEP facilities carry out only primary crushing as the oil content remaining in the cakes will be recovered by them during solvent extraction process. Likewise, reliance placed on the results of GROFED is also not valid as they did not crush as single Kg. of rapeseed during the year under assessment.

(f)The Assessing Officer has ignored the results of other comparable cases.

(g)The yield depends on several factors such as quality of rapeseed purchased, moisture content therein, prices paid, and various other factors. All such factors justifying a wide variation in the yield have been ignored by the authorities below.

(h)None of the parties with whom comparison for yields has been made, have been offered for cross-examination. Thus, the comparison is inadequate.

(i)The Assessing Officer initially started by taking the guaranteed yield for the rapeseed purchased from OGS as the basis for the entire quantity of rapeseed crushed. When it was explained to him that the quantity of such rapeseed purchased from OGS is only about 10% of the rapeseed crushed and for the rest of the material purchased from WGS there is no guarantee and the price of such seeds is also significantly less, the Assessing Officer treated the, rapeseeds purchased from WGS differently.

(j)The fact that there is a significant price difference between the rapeseed purchased locally and those purchased from OGS has not been properly appreciated by the CIT(A).

(k)The entire exercise made by the Assessing Officer for computing the notional yield is based on assumptions, presumptions, surmises and conjectures.

(l)Tax can be levied on actual income or actual production and sale and not on hypothetical production/sales/income.

(m)The approach of the learned CIT(A) in respect of this ground was totally unjust and incorrect having deleted the addition of Rs.1,89,982. There was no justification in confirming the larger portion of the additions on account of low yield in respect of rapeseed purchased from WGS.

(n)The CIT(A) has attempted to cover up the issues by passing a brief and cryptic rectification order under section 154 substituting certain words.

(o)The learned AR also invited our attention towards various decisions referred to at page 10 of Paper Book 'C'.

(p)The assessee's AR also invited out attention to certain charts submitted in PB 'E' pages 4, 5, 14 and 99. At page 4 the details of yield out of rapeseed purchased from OGS on the basis of guarantied yields in the month of March 1991, have been given. The yield of oil is at 31.67%, oil cake at 63.36% and shortages 4.97%. It has been stated that there was no purchase of rapeseeds from OGS on the basis of guaranteed yields in any other month. At page 5 month-wise yield out of rapeseeds purchased otherwise than on the basis of guaranteed yields have been given. The yield of oil ranges from 24.71% to 28.95% in different months. The percent age of oil cake ranges between 66.17% to 72.85%. The shortage ranges between 1.51% to 5.01%. At page 14 the assessee has tried to explain the impact of price difference on yield in crushing of rapeseeds purchased on the basis of guaranteed oil content and other purchases. At page 99 the assessee has given the yield of oil in different years as under:-

(q)The assessee's AR made elaborate arguments both in writing as well as orally on different dates on hearing. He strongly urged that the CIT(A) ought to have deleted the entire amount of addition made on account of alleged low recovery of oil from crushing of rapeseeds and addition made on account of alleged introduction of oil cakes.

6. The learned Sr. Departmental Representative also vehemently argued the aforesaid points from various us different angles. He strongly placed reliance on the very elaborate, convincing and sound reasons given in the assessment order. He submitted that the CIT(A) ought to have confirmed the entire amounts of additions made on account of the aforesaid ground of oil yield and introduction of unaccounted oil cakes. The learned CIT(A) has erred in granting relief of Rs.1,89,982 as well as relief of Rs. 10,54,707. Shri Chaudhary, the learned Sr. D.R. also submitted detailed written submissions dated 22nd September, 1995. In paras 3.3.1, 3.2.10 to 3.2.16 he has made detailed arguments to support additions made on account of low oil recovery. In para 3.3.1 the learned Sr. D.R. has made arguments in support of revenue's appeal against deletion of the addition of Rs. 1,89,982. In para 3.3.2 to 3.3.5 the learned Sr. D.R. has submitted his arguments with regard to reducing the addition to Rs.30 lakhs. Thus, arguments in para 3 relate to various grounds raised in the revenue's appeal.

6.1 The gist of the arguments submitted by the learned Sr. D.R. orally as well as in writing is as under:-

(a)The provisions of section 145(2) of the Income-tax Act are clearly applicable in the case of the assessee as the assessee has failed to establish the genuineness of the oil cakes purchased aggregating to Rs. 93,06,326 including freight charges. The assessee has failed to prove the genuineness of the aforesaid purchases, has failed to produce the suppliers, failed to produce the brokers in spite of repeated opportunities granted by the departmental authorities as well as the repeated opportunities granted by the Tribunal. The Assessing Officer has proved beyond reasonable doubt that 27 of such suppliers did not exist at all and the remaining 6 have denied having made any such supplies of goods to the assessee. The transporters also either did not exist or they have denied to have done any such transportation work. The Assessing Officer has established that cheques for payment of such alleged supplies of oil cake were never received by the suppliers or the brokers and were in facts collected back by the assessee-company through the bank account of M/s. PUJA Traders operated under the control and directions of the Managing Director of the assessee-company. He invited our attention towards a statement of Shri M.M. Waghela, proprietor of M/s. POJA Traders referred to at pages 143 to 145 of the assessment order. The assessee never asked for cross-examination of Shri Waghela in spite of forwarding of his statement recorded by the Assessing Officer along with letter dated 5-6-1993. In view of such a serious detection of bogus purchases of more than Rs. 93 lakhs, the various grounds taken by the assessee that book results should be accepted are baseless.

(b)The bogus purchases though detected in assessment year 1991-92 are not confined only to assessment year 1991-92 but similar bogus purchases existed in assessment years 1990-91 and 1992-93. Necessary action under section 147/148 have also been taken by the Department, for the earlier year. The. Sr. D.R. has further pointed out that shortage claimed at 4.97% in the month of March 1991 (page 4 of PB "E") in OGS purchases is far in excess of oil shortage of 3.7% in WGS purchases, where the OGS quality is said to be better. The learned Sr. D.R. pointed out that the shortage becomes much more excessive when it is compared to only 3.16% as claimed in March 1991 in WGS purchases by assessee itself at page 5 of PB "E". He invited our attention towards the discussion on page 5 of the assessment order. Likewise, the learned Sr. D.R. has pointed out that it is incorrect on the part of the assessee to contend that no discrepancy or defects have been found by the Assessing Officer in the matter of oil recovery.

(c)The learned Sr. D.R. has further pointed out that the contention of the assessee that in OGS purchases, subsequent oil recovery will be much higher at SEP stage as compared to WGS purchases also does not have any merit. He has given certain percentages with reference to chart submitted at pages 5 & 7 of PB "E".

(d)The Sr. D.R. submitted that Civil Supplies Department has found vital defects as noted in assessment order at pages 60 & 61 leading to confiscation of oil of 150 Kgs. valued at Rs. 4,800 and imposing a penalty of Rs. 500. The imposition of penalty and confiscation of part of excess stock found cannot be said to be on account of minor defects noticed.

(e)The learned Sr. D.R. submitted that it is a clear case of manipulation of records by introducing bogus purchases, preferring claim of bogus freight charges continuously over the years and this is a case of unreliable and fabricated records.

(f)He placed reliance on various judgments referred to in paras 3.2.7, 3.2.8 and 3.2.9 of the written submissions.

(g)The learned Sr. D.R. invited our attention to chart submitted by the assessee at page 99 of the PB "E". The average yield over a period of 7 years comes to 30.5% approximately in the case of the assessee-company and earlier erstwhile firm. The Assessing Officer has already given adequate margin for the assessee's contention that in some of the cases the units had resorted to secondary crushing as the Assessing Officer had taken yield of 30% only against more than 32% yield shown in other cases.

In the written submissions the learned Sr. D.R. has met almost all the arguments raised on behalf of the assessee at the time of hearing and the arguments submitted in various written submissions.

7. The learned AR of the assessee has submitted a detailed written submissions by way of rejoinder on the subject of addition on account of low oil recovery in paper book marked as "G". Such written submissions in respect of the aforesaid ground appear at pages 2 to 11 of PB "G". A chart showing impact of price and yield for OGS and local purchases has been placed at pages 12 to 14. A copy of the decision in the case of Bishen Singh Gill v. Assessing Officer reported in [1995] 128 Taxation 29 (Trib.) has also been submitted in the PB "G" at pages 15 and 16.

8. We have carefully gone through all the facts and submissions made in the aforesaid written submissions included in PB "G". In the said written submissions, by way of rejoinder the assessee's learned AR has made the following submissions :—

A. Rejection of book results

(i)The rejection of book results is not correct as no defect of any kind was found in the oil mill section.

(ii)Even in the section of SEP day-to-day quantitative records were maintained and no defects were found. In fact the production results have been expressly accepted. The receipt of material on the same day which it was shown in the Awak Gate Pass is proved.

(iii)The assessee has all along been saying that the purchases of oil cakes as per the usual trade practice in this business were made through brokers and they do not come into contact with the suppliers.

(iv)Such so-called non-genuine purchases of oil cakes have also been made at comparative prices.

B. Regarding brokers

The learned AR of the assessee has contended that the allegation that genuineness of brokers has not been established is not proper. The learned AR has mentioned a few reasons in support of this contention.

C. Regarding Shroff

The assessee has denied the allegation that money represented by the cheques issued in favour of various alleged bogus suppliers was collected back by the assessee-company through the bank account of M/s. Pooja Traders. The assessee's AR has given certain reasons in support of this contention. The learned AR has then given his para wise comments with reference to the written submissions made by the learned Sr. D.R. These submissions relate to the percentage of yield/shortage elaborately discussed in the written submissions of the learned Sr.D.R.

D. The learned AR has also distinguished the facts of the various decisions relied upon by the learned Sr. D.R. at page 6.

E. At page 7 of the PB "G" he has made brief submissions as to how the various comparable cases considered by the Assessing Officer are not at all comparable with the assessee's case.

F. On the same page 7 the AR has explained that sectorwise reliability of accounts must be taken into consideration. Since not a single instance of out of book purchase or sale of rapeseed or oil has been noticed and the yield achieved by the assessee is within the normal range, the declared figures ought to have been accepted.

G. The AR then placed heavy reliance on the decision reported in D.D. Kochhar & Sons v. ITO [1988] 25 ITD 317 (Delhi)(TM) and ITO v. Arun Oil Industries [1985] 13 ITD 769 (Jp.)(TM). At page 9 the AR has further given comments on various decisions cited by the learned Sr. D.R. He has also requested that the decision cited by him at pages 9 to 11 of PB "F", which are relevant to the subject-matter of appeal should be considered. He then gave a summary of his submissions at page 11.

It is neither proper nor practicable to reproduce all the written arguments submitted in number of compilations submitted during the course of hearing. However, we have gone through each and every word of their written submissions very carefully and have tried to give our most careful consideration to all the submissions made before us.

9. Before giving our decision on the aforesaid grounds raised in the assessee's appeal and the revenue's appeal in relation to low recovery of oil from rapeseeds purchased from OGS and rapeseeds purchased from WGS, we consider it necessary to discuss the basic facts relating to the main addition made on account of bogus purchases of oil cakes and we would also like to deal with the arguments advanced by the learned representatives of both the sides in relation to that main ground, as a decision over that ground will have a significant bearing on the question as to whether on the facts and circumstances of the present case, the provisions of section 145(2) of the Act can be validly invoked or not? We will, therefore, now proceed to deal with the brief facts relating to the main addition made on account of bogus purchases of oil cakes, freight expenses, etc., incurred in relation thereto as well as the arguments made by the learned representatives of both the sides in respect of the said main ground of assessee's appeal.

10. The Assessing Officer in his elaborate assessment order running into 172 pages has elaborately discussed the entire relevant facts relating to bogus purchases of oil cakes made by the assessee from various parties. Such facts find mention at different places in the assessment order. At pages 159 to 161 of his order the Assessing Officer in para 38 has observed the various factors about the purchases of oil cakes from the 33 suppliers and the non-genuineness thereof have been discussed in paras 22, 23, 24 and other paras at length of the assessment order. The rejection of the books of the account on the basis of various evidence available has also been discussed in the earlier para of the assessment order in detail. On the basis of entire evidence available on record, the Assessing Officer has summarised the amount of additions made in respect of payment shown to have been made to these alleged bogus suppliers at pages 160 and 161 of the assessment order. The total of such payments which have been mentioned item wise at pages 160 and 161 of the assessment order comes to Rs. 70,03,826.24. The Assessing Officer in para 39 at page 161 of the assessment order, after reproducing the chart of payments shown to have been made to these alleged bogus suppliers, has observed that a detailed discussion about rejection of books of account has been made vide paras 22 to 31 of the assessment order which says that the aforesaid transactions shown in the books of accounts of the assessee with the said 33 bogus suppliers, are found as non-genuine and fabricated one. The Assessing Officer, therefore, disallowed the amount of expenditure claimed by the assessee for purchases made from these 33 bogus suppliers mentioned in para 38 of the assessment order. The total amount of Rs. 70,03,826.24 shown as amount paid to them was therefore, added to the total income of the assessee. The Assessing Officer at page 162 of the assessment order has once again reiterated the abnormal characteristics and features which proved beyond doubt that the transactions with these 33 bogus parties were never entered into.

10.1 Such unusual and abnormal features and characteristics of the transactions made with these 33 bogus parties, inter alia, included the following features :—

(a)Payments against the various purchases were shown against the bogus suppliers, through crossed cheques.

(b)All the crossed cheques given to these different 33 suppliers were invariably collected through bank account of M/s. Pooja Traders, Junagadh being Bank Account No. 71082.

(c)Shri M.N. Vaghela, Prop. of M/s. Pooja Traders in his statement dated 1-10-1992 admitted that his bank account was opened with the help of one of the directors of the company and that he is doing business only for M/s. Vijay Proteins Ltd. (the assessee). He accepted the summons only after permission of Shri Rameshbhai V. Domadia, one of the directors of the company.

(d)Many suppliers were not available at the given address. That shows that they did not exist at all at the addresses given in their respective purchase vouchers/invoices. Few who were found available at the given addresses did not confirm the transactions reflected in the books of accounts of the assessee or have denied to have sent any goods to the assessee. The suppliers were not produced before the Assessing Officer.

(e)Not only the suppliers but the transporters were also not available and those who were found at the address given have totally denied to have sent any goods as claimed by the assessee.

(f)Copy of the bills and transport vouchers submitted by the assessee did not contain seal/stamp of inter-State check-post or, office of ACTO, Palanpur or Sales-tax check-post authorities at Abu Road, etc.

(g)The brokerage is not debited to supplier's account unlike other genuine transactions.

(h)The freight is not debited to the supplier's account unlike other genuine transactions.

(i)The assessee completely failed to produce any material evidence despite grant of adequate opportunities to prove the genuineness of these payments aggregating to Rs. 70,03,826.24 made by it.

The Assessing Officer has therefore, disallowed the said sum of Rs. 70,03,826.24.

10.2. The Assessing Officer further found that there were credit balances in the accounts of these 33 bogus suppliers at the end of the year on 31st March, 1991. The facts relating to the aforesaid credit balances has been discussed in para 40 at pages 163 and 164 of the assessment order. The Assessing Officer in view of the elaborate discussions made in the assessment order has arrived at the conclusion that the expenditure claimed by the assessee and shown as outstanding credit balance as on 31st March, 1991 amounting to Rs. 17,99,788.75 is disallowed, as the same is claimed to have been made against non-existent, non-genuine and by making fabricated bills, vouchers and bogus entries in the books of account of the assessee.

10.3 The Assessing Officer in para 41 of the assessment order further observed that the supply of the goods shown to have been made by these 33 bogus suppliers are stated to have been market as "For Junagadh Delivery" and the bill amount includes transportation charges also. But the amount equal to freight is shown as paid by the assessee to the truck drivers/transporters. As per the cheques shown to have issued to the suppliers the net amount is paid and these payments have been made as shown to truck drivers and transporters. The observations relate to: payment to truck drivers/transporters in para 42 of the assessment order also. The AO in view of elaborate discussions made in paras 41 and 4,2 and in other paras of the assessment order came to the conclusion that the aggregate amount of freight of Rs. 5,02,752 is also non-genuine and these represented fabricated transactions. Since these transactions of purchase of oil cakes from these 33 parties themselves are fabricated one, there is no question of paying any amount as freight or amount equal to the freight as claimed by the assessee to the truck drivers of the transporters. The Assessing Officer thus disallowed a further sum of Rs. 5,02,752. This is how the Assessing Officer made additions on account of bogus purchases of oil cakes amounting to Rs. 70,03,826, Rs. 17,99,788 and made further disallowance of alleged truck freight on such bogus purchases amounting to Rs. 5,02,752.

11. The learned CIT(A) after a very careful consideration of the entire relevant facts and evidence existing on record came to the conclusion that the additions of for bogus purchases of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,02,752 are held to be made on adequate grounds for which voluminous details have been incorporated in the assessment order and which consequently have not been repeated for the sake of brevity by the CIT(A) in his order. He thus confirmed the entire additions made on account bogus purchases and freight thereon, as made by the Assessing Officer.

12. The learned AR of the assessee strongly argued that the Assessing Officer has grossly erred in making the aforesaid additions on account of alleged bogus purchases and the learned CIT(A) has also grossly erred in confirming the same. Arguments were made by him orally as well as in writing. The written submissions have been placed in different paper books submitted during the course of hearing from time to time. The learned AR submitted his final arguments in PB marked "G". He has invited our specific attention towards the following detailed submissions made in relation to the aforesaid points:—

(a)Copy of submissions made before CIT(A) (pages 32 to 35 of PB "C").

(b)Copy of letter dated 18th August, 1993 addressed to the ACIT in response to his show-cause notice dated 5-7-1993 at pages 72 and 73 of PB "C" along with copy of written submissions dated 18-8-1993 made in compliance to show-cause notice dated 5-7-1993 (copy at pages 74 to 120 of PB "C").

(c)Summary of submissions as regards additions of Rs. 70,03,826, Rs. 17,99,788 and Rs.5,92,752 on account of alleged bogus purchases (pages 166 to 169 of PB "C").

(d)Copy of record note of oral submissions made before CIT(A) on 3-10-1994 (pages 269 to 273 of PB "C"). The submissions regarding bogus purchases appear at page 273.

(e)Copy of letter dated 30th December, 1994 addressed to CIT(A) being application for rectification of order passed by him on 16-11-1994. The order under section 154 was passed on 10-1-1995. The submissions regarding bogus purchases have also been mentioned at pages 278 to 283 of PB "C".

(f)Gist of submissions regarding aforesaid aggregate addition of Rs. 93,06,366 made on account of bogus purchases (pages 14 to 35 of PB "D" submitted before the Tribunal) duly accompanied by a copy of the order of ITAT in the case of Arun Industries v. Dy. CIT [IT Appeal No. 2609 (Ahd.) of 1984 dated 31-1-1992] (pages 35 to 45 of PB "D").

(g)Documents submitted in PB marked "File-A" and "File-B" do not contain any index of the various documents nor the voluminous documents lying in these files were specifically pointed out or brought to our notice during the course of hearing except showing one specimen copy each of the alleged bogus purchase invoice, broker's Note, transport voucher, etc. and stating that each transaction of so-called bogus purchase is supported by such documents. However, the assessee failed to produce the concerned suppliers, transporters and brokers in spite of various opportunities granted to them.

(h)The learned AR also relied upon pages 6 to 13 and 15 to 48 submitted in compilation marked "E".

(i)In PB "G" the assessee has made written submissions by way of rejoinder on the subject of addition on account of alleged bogus purchases in reply to written submissions made by the learned Sr. D.R.

12.1 The gist of various submissions made by the learned AR of the assessee in respect of this ground can be briefly summarised as under :

I. Reference to submissions already made before departmental authorities :

Various written submissions were made during the course of assessment proceedings as well as proceedings before the CIT(A). The assessee once again invited attention to the above-referred written submissions made before the departmental authorities.

II. Evidences produced :

The assessee produced printed bills of each purchases, account of suppliers, printed Awak Gate Pass, printed transport receipts, printed souda issued by brokers through whom the purchases were made. It will be worthwhile at this stage to point out that no document relating to souda issued by brokers were produced before the Assessing Officer. Those were for the first time produced before the CIT(A). The assessee failed to produce any of the brokers before the CIT(A). The Tribunal also gave specific opportunities to the assessee to produce the brokers before the Assessing Officer who was directed to make certain verifications. The assessee again failed to produce any of the brokers or suppliers before the Assessing Officer in spite of opportunities granted by the Tribunal.

III. Fact of material received and used in production of goods sold undisputed :

The assessee has time and again highlighted this point saying that the material which is shown to have been purchased from the 33 alleged bogus suppliers have really been received and has been used for carrying out manufacturing. The fact of receipt of material has not been disputed by the departmental authorities nor by the learned Sr. D.R. In fact, the departmental authorities have accepted the fact of having received the material in question.

IV. Modus operandi of purchases not appreciated :

The assessee with reference to contents of its letter dated 18-8-1993, written submissions dated 20th September, 1994 and 3rd October, 1994 tried to explain that transactions of purchase and sales were made through brokers and not directly with the parties. Reliance was again placed on various documents mentioned by the assessee in support of such purchases shown to have been made from the alleged 33 bogus parties.

V. Enquiries with suppliers - Inconclusive evidence :

(a)The assessee has submitted that out of the total purchases, the purchases considered as bogus are only 14% to 86% purchases have been found to be genuine and deduction has been allowed.

(b)Out of 33 parties, purchases from whom have been considered as non-genuine, only four parties have denied the transactions and two parties have confirmed the transactions in part. The remaining 27 parties are reportedly untraceable. The parties may not be traceable because they might have closed down or shifted their business.

(c)The department has not questioned those parties as to how bills have been raised on their printed stationery and whose signatures appear on the bills and whether they have taken any action if the bills in question have been lost and/or forged, it was submitted that it is quite likely that the parties concerned have not accounted for the transactions in their books. The Department does not seem to have bothered to initiate any proceedings in the case of these parties. The parties have also not been produced for cross- examination by the assessee-company. The assessee has submitted various points under such a head at pages 18 to 20 of PB "D".

VI. Enquiries with transporters - How far reliable :

It has been indicated at pages 20 and 21 of PB "D" that the enquiries made with transporters are neither reliable nor relevant. There are 12 lakh transport operators and most of the transporters frequently change their names. The transport companies who prepare the LR do not come into contact with the consignee. Various other reasons have been given with a view to show that enquiries made by the Assessing Officer in relation to transport charges are not relevant.

VII. Cheques encashed through Shroff Puja Traders:

The assessee's AR has submitted that their responsibility is over as soon as they issue the crossed cheques to the supplier party. It is the regular business practice that the suppliers get their cheques discounted with discounting agencies in order to get a repayment. There are number of such discounting agencies doing their business in Junagadh. Therefore, the fact that cheques issued in favour of all these suppliers were subsequently encashed through one M/s. Pooja Traders is not at all relevant for holding the purchases as bogus purchases.

There is no evidence to show that amounts given by the assessee- company in favour of the suppliers by crossed cheques have come back to the assessee in any form.

VIII. Assessing Officer's observations regarding characteristics of transactions considered as non-genuine :

The assessee has made submissions with regard to various observations made by the Assessing Officer in relation to the so-called non- genuine transactions. It was submitted that freight was not debited to suppliers' account as the credit in suppliers' account was made only in respect of the net amount excluding freight. The seal/stamp of another check-post is affixed on all transactions. Where the driver does not stop or is not stopped by check-post there will be no stamp.

IX. Five important questions which arise in relation to such bogus purchases and bogus freight payments :

(a)Whether the purchases in question are non-genuine ?

(b)If the purchases are considered as non-genuine, whether the assessee is entitled to a deduction in respect of, a reasonable price for purchase of the goods in question in view of the fact that the receipt of material purchased is not in doubt ?

(c)Whether expenses on purchases are allowable in view of section 40A(3) on the ground that the payments for actual purchases must have been made in cash, as the payments shown to have been made by crossed cheques to 33 bogus suppliers are found to be non-genuine ?

(d)If the expenditure is hit by section 40A(3) is it covered by exceptions specified in Rule 6DD(J) of the IT Rules ?

(e)If the assessment of income at such a high figure of Rs. 128 lakhs sustainable ?

The learned A.R. after framing these important questions gave elaborate arguments at pages 24 to 34 of PB "D". A copy of decision of ITAT in the case of Arun Industries ( supra) dated 31-1-1992 has also been submitted at pages 35 to 45 of PB "D".

12.2 The learned AR vehemently argued that the assessee has established the fact of receipt and consumption of material in question. The assessee is, therefore, entitled to get deduction in respect of reasonable amount of purchase price even if it is held that the assessee did not purchase the goods in question from the 33 suppliers as shown in assessee's records. He submitted that such transactions would not attract the provisions of section 40A(3) in view of the elaborate reasons given in written submissions made in PB "D". Even if technically it is held that provisions of section 40A(3) applied, the transactions in question would be covered by exceptions provided in rule 6DD. Hence the question of disallowance of entire amount of purchase price of oil cakes shown as purchased from these 33 parties does not arise.

12.3 At this stage it will be worthwhile to mention that after hearing the case partly on 19/20-7-1995 the Tribunal vide order sheet entry dated 20-7-1995 required the assessee as well as the Assessing Officer to comply with various requirements made in the said order sheet. A copy of the said order sheet was sent to both the parties. The Tribunal inter alia required the assessee to prepare monthly quantitative details of rapeseeds purchased from OGS and from WGS, monthly quantitative details of input of raw material and of finished goods in SEP, complete list of alleged bogus purchases made from 33 parties giving full particulars as to date of purchase, quantity/weight of oil cakes purchased, percentage. of oil content guaranteed by those suppliers, purchase price, etc.

12.4 It was also mentioned in the said order sheet that assuming that all the purchases made from alleged 33 bogus parties are not genuine and the accounts of all those 33 parties are treated as one common and consolidated account, calculate the peak amount in the manner indicated in the said order sheet. Various other details relating to M/s. Pooja Traders, Shroff, through whose bank accounts cheques given to alleged 33 bogus parties were encashed, were also required.

12.5 The Assessing Officer was also required to scrutinise all the details which have been required from the assessee so that the figures which will be submitted to the Tribunal will be the figures duly verified by the Assessing Officer.

12.6 The Sr. DR was also requested to submit para-wise reply and comments in writing on various written submissions given on behalf of the assessee. The Sr. DR was particularly requested to state if the material in question shown as purchases through purchase invoices of 33 bogus parties was really received by the assessee and consumed in the process of production, then why a deduction of reasonable amount of purchase value be not allowed as deduction while estimating the profit as per section 145(2) of the Act.

12.7 It was also indicated in the said order sheet that why the peak amount to be computed as per directions given in the said order sheet, which is a part of the total addition made by the Assessing Officer on account of alleged bogus purchases he not sustained under section 68 and/or section 69 etc. of Income-tax Act.

13. The learned AR of the assessee apart from the aforesaid arguments which have been mentioned, herein before, also made various Submissions with reference to the ' aforesaid queries raised, in the order sheet entry dated 20-7-1995. The assessee's AR in addition to the a fore said replies also made further submissions from time to time, it will, therefore, be appropriate to give a reference of those submissions which have not been discussed earlier with a view to ensure careful consideration of all the arguments advanced on behalf of the assessee as under :—

(a)A paper book was submitted which has been marked as Paper Book "F". In this paper book the assessee has made written submissions in respect of various grounds raised in departmental appeal along with various other papers and the copy of decision of ITAT reported in Srinivasa Rice & Oil Mills v. ITO [1991] 41 TTJ (Hyd.) 165.

(b)The assessee has submitted further written submissions by way of rejoinder to explain as to why section 40A(3) does not apply in respect of alleged bogus purchases. Such written submissions made by the assessee contain hand-written date as 15-9-1995.

(c)The assessee has submitted a copy of letter dated 5-8-1995 addressed to the ACIT along with necessary chart to show that purchase price of oil cakes charged in the so-called bogus bills was almost same as purchase price paid by the assessee to other regular suppliers.

(d)Copy of letter dated 10-11-1995 addressed to the ACIT reference to certain directions given in the aforesaid office note dated 20-10-1995 along with various details.

(e)Copy of letter dated 10-11-1995 and letter dated 4-12-1995 along with various charts of peak credit for the period upto 31-3-1991 and the second chart for the period from 1-4-1991 to 1-9-1992. In this Paper Book marked as "H" the assessee has also made further written submissions vide letter dated 14-11-1995 at pages 36 and 37. A consolidated chart showing peak position from assessment years 1989-90 to 1993-94 was also submitted.

13.1 The learned AR of the assessee submitted elaborate arguments with regard to non-applicability of section 68 or section 69 or section 69C, etc. made in PB "G" at pages 25 to 31. The sum and substance of his contentions is that the credit balance lying in the account of the alleged bogus suppliers should be accepted as correct. He has submitted that although the assessee is not in a position to produce the suppliers/brokers for the alleged non-genuine purchases, it should be accepted that keeping in view the prevailing practice in trade for purchase on credit no addition should be made on account of the credit in question which even the Assessing Officer has not considered as abnormal. It was submitted that provisions of section 68 or section 69 are not at all applicable. The subject-matter of the appeal before the Tribunal is whether the expenditure is allowable. The question whether the source of the expenditure is explained or not is not the subject-matter of appeal before the Tribunal. Therefore, the proposal to invoke provisions of section 68 or section 69 or section 69C are beyond the powers of the Tribunal. He has placed reliance on various decisions to support this contention.

13.2 The Assessing Officer alone could invoke the provisions of section 68 or section 69C in respect of the alleged unexplained investment made for purchase of oil cakes in cash. The Tribunal has no power to invoke these provisions for the first time at the stage of the appeal before them.

13.3 As regards taking the peak expenditure or telescoping, the learned AR of the assessee has made elaborate submissions at pages 31 to 38 of PB "G". The assessee has calculated the amount of peak at Rs. 17,99,788 as per details shown at pages 15 to 20 of PB "E". The learned AR has inter alia submitted that even if it is assumed that such purchases must have been paid off on the date of receipt of materials, it is submitted that payments made for the first 'Purchase should be treated as available for the next purchase and only the peak amount should be considered for the purpose of determining whether the source thereof is explained or not. The money which has gone out of the coffers of the assessee-company has been utilised only for the purpose of purchase of materials. No credit for this money has been claimed for any other expenditure or investment or for any other purpose. On page 32 para (vi) of paper book "G" the learned AR invited our attention towards the commentary on this subject of peak credit/telescoping and has also annexed the copies of certain articles and decisions to support his contention that the assessee is entitled to offer alternative explanations and can demand that instead of disallowing the entire amount of so-called bogus purchases only the peak amount should be added. This statement was also made subject to assessee's firm stand that the purchases shown from 33 parties were genuine and correct.

13.4 The learned AR of the assessee concluded his submissions by saying that the fact of receipt and consumption of materials is proved and it has been admitted by the Department. The price inclusive of freight is comparable with the price for the purchases accepted as genuine. Therefore, even if the supplier of the material is "Y" instead of "X" this has no effect on the profit shown. Even if the books of account are rejected and the deduction for the purchase is given at a reasonable price, the results shown need not be disturbed. He placed reliance on decision reported in M. Sreedhara Panicker v. ITO [1979] 7 TTJ (Cochin) 573 to support his contention that there is no rule that when accounts are rejected an addition to the trading account is inevitable. The learned AR also submitted that if the peak is worked out on the basis of normal credit available in the case of genuine purchases, the amount of peak would come to Nil.

13.5 The learned Sr. DR has also made written submissions.

13.6 After going through all the written submissions made by the learned representatives of both the parties the Tribunal once again on 17-10-1995 gave certain queries vide order sheet entry dated 17-10-1995. The Tribunal inter alia required the assessee to make definite, certain and categorical statement to either confirm or deny as to whether he admits the fact of bogus purchase invoices and existence of really unaccounted money in circulation in respect of which an alternative claim for applying the theory of peak and telescoping has been made.

13.7 It was also pointed out that transactions through the bank account of M/s. Pooja Traders continued from 9-3-1989 to September 1992. The cheques given to almost same set of alleged bogus suppliers were credited in the said bank account in the name of M/s. Pooja Traders and all those suppliers got their cheques encashed through M/s. Pooja Traders. The assessee was, therefore, directed to prepare such a peak statement for the entire period from 9-3-1989 to September 1992 in respect of entries in all the accounts of alleged bogus suppliers. It was directed that such compilation should be produced before the Assessing Officer so that the correctness of the working of such peak amount for the period from 9-3-1989 to September 1992 may be determined after verification by the Assessing Officer.

13.8 On the next date of hearing on 8-12-1995 the Bench required the learned AR of the assessee to make a definite and categorical statement to either confirm or deny as to whether he admits the fact of bogus purchase invoices as required in order sheet entry dated 17-10-1995. The learned AR submitted that his answer to the enquiry is an "Emphatic No" with background given in written submissions at pages 36 and 37 along with letter dated 10-11-1995. In the letter dated 14-11-1995 submitted at pages 36 and 37 the learned AR has submitted that the assessee purchased materials through brokers and has not been in direct contact with suppliers whose invoices are alleged to be bogus. The assessee has received and used the material. This fact has been established and admitted by the departmental authorities. The assessee's claim is therefore for a deduction for the cost of materials at a reasonable price. According to the assessee the prices paid are comparable with prices for the purchases accepted as genuine. In concluding para (xi) of letter dated 14-11-1995 the assessee submitted that they do not admit the fact of having fabricated the bogus purchase invoices and there being in existence of real unaccounted money in circulation in respect of the purchases in question. The learned AR thereafter summarised his request for acceptance of the following facts :—

(a)The materials in question have been received and used by the assessee for production and sales which in turn have been reflected in the books of account.

(b)The prices paid are comparable.

(c)All payments for materials have been made from unaccounted sources.

(d)The Assessing Officer has never questioned the source of expenditure.

(e)Even if it is assumed that purchases have been paid off on the date of receipt of materials, it is only the peak unpaid purchase price which should be subjected to tax and not the total income.

13.9 The learned AR thus very vehemently made his submissions which have been briefly stated herein before.

14. The learned Sr. DR has also presented his submissions in an equally admirable manner. Oral arguments were made on various dates of hearing. Shri R.K Chaudhary, the learned Sr.-DR finally submitted elaborate written arguments dated 22-9-1995. The gist of various submissions made by the learned Sr. DR can be briefly stated as follows :-

(a)The evidence on the basis of which the assessee has claimed deduction in respect of purchases including freight aggregating to Rs. 93,06,366 has been established to be bogus, fabricated and to tally unreliable evidence by detailed enquiries made by the Assessing Officer. The gist of the results of such enquiries has been given in para 30 of the assessment order at pages 152 to 154. The assessee has not been able to produce the suppliers and brokers at the assessment stage. He has failed to produce any of them as per further opportunity given by the Tribunal in the course of hearing on 15-9-1995. On the other hand, the representative of the assessee has declared that it will not be possible to produce even the brokers even if further opportunity is given.

(b)The Assessing Officer has established that out of 33 suppliers of such oil-cakes 27 were non-existent (pages 96 to 141 of assessment order), two of them have denied part of the transactions entered in their name (pages 90 and 96 of the assessment order) and remaining four have denied having made any such transactions.

(c)The transporters through whom such goods are being claimed to have been transported to Ahmedabad have been established to be either non-existent or have denied to have carried out any work on behalf of the assessee (pages 149 to 150 of assessment order).

(d)The most clinching evidence of these suppliers being bogus which has been brought on record by the Assessing Officer is that all the cheques issued to such suppliers by the assessee allegedly for supplies made by them amounting to Rs. 70,03,826 were encashed through the bank account of one M/s. Pooja Traders, Junagadh. Shri M.N. Waghela, proprietor of M/s. Pooja Traders has admitted in the course of his statement under section 131 on 1-10-1992 that he got introduced in banking transaction by Shri Vijaykumar Domadia who introduced him to Shri Hemantbhai Arjan Patel who in turn introduced his bank account. The learned Sr. DR also gave reference of certain questions and answers from the said statement dated 1-10-1992 to prove that there is sufficient evidence to the effect that the money withdrawn from bank account of M/s. Pooja Traders had gone back to the assessee company. It is absolutely improbable or impossible that all the 33 suppliers stationed at various places of all over Rajasthan would give for encashment of cheques through M/s. Pooja Traders, whereas in case of other genuine payment no encashment or discounting of cheques have been done by genuine suppliers through this account of M/s. Pooja Traders.

(e)The learned Sr. DR also pointed out that the cheques obtained from the banker, State Bank of India, Junagadh shows that there was absolutely no endorsement by any of the suppliers in favour of M/s. Pooja Traders. Even the word "bearer" on the cheque was not crossed out. The amount of cheques was encashed and withdrawn almost on the same dates on all the occasions.

(f)The Assessing Officer issued a detailed show-cause notice dated 5-6-1993 to the assessee to place him with the entire evidence collected regarding suppliers, transporters and regarding bank account of M/s. Pooja Traders, etc. but the assessee only gave evasive replies and has made no efforts to produce either the suppliers or the brokers. The assessee had transactions with the same set of suppliers for a period of nearly 31, years i.e., from 9-3-1989 to September 1992. Yet, the assessee could not produce any one of them nor any one of the brokers to prove the genuineness of these purchases.

(g)The assessee did not choose to cross-examine Shri M.M. Waghela, proprietor of M/s. Pooja Traders. It is also a fact that account of M/s. Pooja Traders was closed almost at the same time when the Department started making enquiries about the encashment of various cheques issued by the assessee to the bogus suppliers.

(h)The Department has established beyond doubt that M/s. Pooja Traders was a dummy account set by assessee-company for the purpose of encashment of cheques issued against various purchases in the names of bogus suppliers.

(i)The learned Sr. DR submitted that once it has been established that all the 33 suppliers were bogus parties, the entire amount of purchase shown to have been made from them has to be disallowed.

(j)The onus lies on the assessee to establish any claim for deduction for expenditure incurred. He placed reliance on judgment of Hon'ble Gujarat High Court reported in CIT v. Chandravilas Hotel [1987] 164 ITR 102¹, CIT v. Narsari Cotton & Silk Mills Ltd. [1982] 135 ITR 546² and 199 ITR 29 (sic).

(k)The learned Sr. DR contended that assessee's reluctance to produce the brokers or suppliers on the pretext that they were not found available at the given address when registered posts were sent to

qq

them or due to passage of time or there being no further contact with them, is again a denial of obvious fact as the transactions with bogus parties continued till late 1992 and then suddenly all of them together could not have evaporated in thin air immediately thereafter. The assessee was specifically required by questionnaire dated 5-6-1993. This exposes the falsity of the assessee's stand.

(l)The learned Sr. DR submitted that even if the material in question has been really received and used in production process, the assessee will not get deduction in respect of any amount as the vouchers for purchases produced by the assessee have been proved to be false and fictitious.

(m)The assessee's alternative claim for grant of deduction of a reasonable amount of purchase price is also hit by the doctrine of estoppel as laid down in section 115 of the Indian Evidence Act. The learned Sr. DR relied upon judgment reported in M.K Mohammad Kunhi v. Commissioner Of Income-Tax. [1973] 92 ITR 341 (Ker.) and Kantilal Chimanlal Shah v. CIT [1954] 26 ITR 303 (Bom.) in this regard.

(n)The learned Sr. DR also placed reliance on elaborate observation made in the assessment order to support the total disallowance of the amount of bogus purchases and freight thereon.

(o)The learned Sr. DR also distinguished the decisions of ITAT, Ahmedabad Bench in the case of M/s. Arun industries and in case of M/s. Balaji Textile Industries etc. referred at page 27 of his written submissions.

(p)The learned Sr. DR also vehemently argued that provisions of section 40A(3) are fully applicable in respect of such bogus purchases shown to have been made from 33 fictitious parties. The payments made to them are clearly hit by section 40A(3). It was also argued that decision of ITAT in the case of Hynoup Food and Oil Industries Ltd. is not applicable and that decision, with respect, does not lay down the correct law. He placed heavy reliance on the judgment reported in S. Venkata Subba Rao v. Commissioner Of Income-Tax. [1988] 173 ITR 340 ¹ (AP) to support his contention that provisions of section 40A(3) will be fully applicable on the facts of the present case.

(q)The learned Sr. DR then placed reliance on the decision of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh v. ITO [1991] 191 ITR 667 ² regarding applicability of section 40A(3) in respect of such bogus purchases.

(r)The learned Sr. DR then made his submissions with regard to applicability of section 68, section 69, section 69C etc., at pages 35 and onwards of the written submissions. On the basis of elaborate submissions made, the learned Sr. DR has strongly argued that the provisions of section 68 and/or section 69C shall be clearly attracted on the facts and circumstances of the present case.

(s)The learned Sr. DR submitted that the Tribunal was competent and in fact has the duty to examine all the pleas raised in connection with the addition/disallowance which are the subject- matter of appeal. He placed reliance on judgment of Hon'ble Kerala High Court reported in CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624 ¹ and Hon'ble Gujarat High Court in [IT Reference No. 156 of 1979 in the case of Kirtidev Chinubhai (HUF) v. CIT dated 10-12-1992. According to him, it is permissible for the respondent to take up additional plea for sustaining an addition already made by the Assessing Officer. In the present case, the Department is not raising any additional ground nor it wants an addition of any additional amount to be made. But the department only wants to support the addition already made by the Assessing Officer by taking shelter of section 68 and/or section 69C etc. Invoking of the provisions of section 68 or section 69 or section 69C on the facts of the present case does not involve fresh investigation or examination of the facts but it is purely and simply a legal issue which can be raised by any side at any time of the appellate proceedings.

14.1 One of the argument made by the learned AR for the assessee was that the income has been assessed by the Assessing Officer at Rs.1,28,22,500 which is an impossibility and thus the order passed by the Assessing Officer is an absured order. In reply to this, the learned Sr. DR gave a written note. He submitted that the income after giving effect to the order of the learned CIT(Appeals) has been reduced to Rs.1,15,77,811. The assessee has shown gross turnover of Rs. 16,38,06,681. The total profit shown by the assessee as per P & LA/c. is only Rs. 2,77,384 which includes other income amounting to Rs. 41,20,985. The details of other income credited in the profit and loss account are as under :—

If the aforesaid items of income are excluded, there will be a net loss of Rs. 28,51,387. It is impossible to believe that the assessee could suffer a net loss of Rs.28.51 lakhs on gross turnover of nearly Rs. 16.38 crores. The income assessed by the Assessing Officer after giving effect to the order of the CIT(Appeals) works out to nearly 7.08 per cent which is also inclusive of the profits resulting from exports amounting to Rs. 31,28,771. If these export incentives are excluded the percentage of profit will come to 5, 15 per cent of gross turnover, which cannot be said to he abnormal or fantastic.

14.2 The learned Sr. DR submitted that the assessee is not entitled to grant of benefit of peak or telescoping, as he has not admitted the fact that the payments shown as made by crossed cheques to 33 bogus suppliers are not genuine. Unless it is admitted, the assessee cannot claim that money paid to them, when it was withdrawn from bank account of M/s. Pooja Traders, should be treated as available for making the next bogus purchase. Unless the assessee admits as a matter of fact, a direct link between the amount received from batik account of M/s. Pooja Traders as being available for making subsequent cash purchases of oil cakes such a prayer for grant of benefit of peak cannot be taken as a legal alternative plea. He placed reliance on judgment reported in Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 ¹ (SC), CIT v. Nabadwip Chandra Dey [1991] 190 ITR 133 (Gauhati), CIT v. Kulwant Kaur [1980] 121 ITR 914 ² (Delhi), 123 ITR 457, 190 ITR 133 and 121 ITR 914 .

14.3 The learned Sr. DR also invited our attention towards the object of introducing Explanation 2 to section 271(1)(iii) of the Act. The Wanchoo Committee (refer page 5803 of Income-tax Law by Chaturvedi and Pithisaria, Volume 5) recommended that law should be amended to provide that where intangible additions made in earlier year are cited by an assessee as source of his funds, assets, etc. in a subsequent year, the said funds, assets should be deemed to represent the assessee's concealed income within the meaning of section 271(1)(c). In order to implement the said recommendations a new Explanation 2 was inserted with effect from 1-4-1976 in which it has been specifically provided that the assessee would become liable to penalty for concealment in respect of additions made in the earlier years in which the additions were made, in case where such additions are sought to be utilised for explaining the sources of investment, etc., in a subsequent year. The specific admission by the assessee in the present case was also, therefore, necessary in view of Explanation 2 to section 271(1)(iii) of the Act.

14.4 The learned Sr. DR thus vehemently argued that the entire amount of bogus purchases and freight has rightly been disallowed by the Assessing Officer and such disallowance has rightly been confirmed by the CIT (Appeals). He urged that no interference could be justified.

15. We have given a very deep and thoughtful consideration to the various arguments made by the learned representatives of both sides. We have also carefully gone through the orders of the learned departmental authorities as well as various documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of the parties.

16. We would first like to deal with the main question relating to genuineness of the alleged bogus purchase of oil cakes aggregating to Rs. 93,06,326 including freight charges. It is settled law that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the onus in the present case squarely lies on the assessee to prove the genuineness of purchase of oil cakes said to have been made from the 33 parties, which have been held to be bogus parties by the learned departmental authorities.

16.1 The Assessing Officer gave a detailed show-cause notice dated 5-6-1993 to the assessee which has been reproduced in para 10 on pages 7 to 34 of the assessment order. It was inter alia clearly stated in the said notice that the transactions made with the 33 parties in question appeared to be non-genuine transactions in view of elaborate reasons given in the said notice. The assessee was required to submit evidence in support of genuineness of these transactions, was also requested to produce suppliers of the goods in question. It was also indicated that since the goods are claimed to have been transported from various places of Rajasthan to Gujarat, there must have been some evidence of various check-posts at Rajasthan/Gujarat Border. The assessee was required to produce entire evidence to prove the genuineness of the said transactions. In reply to the show-cause notice the assessee mainly relied on the documents in the form of purchase bill inward gate pass and payments claimed to have been made by crossed cheques to those parties. The assessee did not produce the suppliers in spite of specific opportunities granted by the Assessing Officer. It will also be worthwhile to state that the documents relating to brokers were not at all produced before the Assessing Officer at any stage of the assessment proceedings. Those were produced for the first time before the CIT(Appeals). The assessee was thereafter required to produce the brokers but it failed to produce them on one pretext or the other. It is evident from the elaborate discussions made in the assessment order that the assessee did not make any serious efforts to produce the suppliers, brokers and transporters at any stage of the proceedings before the Assessing Officer or before the CIT (Appeals).

16.2 The Assessing Officer made serious efforts to conduct necessary enquiries from all those 33 parties. The results of such enquiries and investigation made by the Assessing Officer are noteworthy and will have a very significant bearing on the question relating to determination of genuineness of purchases made from these 33 parties.

16.3 Four suppliers out of those 33 parties clearly denied to have sent any goods to the assessee. The names and other relevant details of transactions with these four parties have been given at pages 85 to 90 of the assessment order. It would be interesting to go through some of the contents of the replies sent by them as follows:—

(a)M/s. Balaji Oil Mills, Chitorgarh, in response to letter issued under section 133(6) replied that their factory is closed since last 15 years and no business was done by them in their name. They have also denied having made any transactions. with the assessee.

(b)M/s. Charbhuja Oil Mills, Siddhpur have also stated in their reply to the AO that no such sales were made by them during the year 1991 and three years before or in the later y ears. They further stated that they never had any business relations with the assessee.

(c)M/s. Mahesh Oil Industries, Shahpura sent a communication to the AO stating that their firm closed the business five years back and no transactions took place during the period from 1-4-1990 to 31-3-1991. They also categorically stated that they have no dealings with M/s. Vijay Proteins/Vijay Oil Mills/Vinay Solvent Extraction Industries, Junagadh.

(d)Nakoda Oil Industries, Dungla in their reply to the AO have stated that anything done by the assessee in the name of their firm is absolutely wrong. They have not made any sales or purchases from M/s. Vijay Proteins Ltd., Junagadh during the period from 1-4-1990 to 31-3-1991.

The AO has reproduced the copies of accounts of the four suppliers as appearing in the books of account of the assessee at pages 85 to 89 which shows that the assessee has shown purchases of Rs. 2,01,535-75, Rs.3,27,683-50, Rs. 19,49,11-75 and Rs. 6,31,487 respectively made from these parties mentioned at (a) to (d) above. In the said copies of accounts, payments said to have been made to these four suppliers by cheques have also been shown. All these transactions have been totally denied by these four parties. The assessee did not make any efforts to contact these parties and produce them before the AO. It just tried to shift the burden on the revenue by saying that its responsibility came to an end after receiving the goods and after handing over the cheque to the suppliers. Such submissions have been made in complete disregard of the fact that the burden clearly lies on the assessee to prove the genuineness of the transactions. It was incumbent on the assessee to prove that these suppliers were genuine suppliers of oil cakes, they really supplied such oil cakes to the assessee and the assessee really made payment by cheques to these very parties and none else. Such a burden had to be discharged by the assessee with very strong and clinching evidence in view of a blatant denial by these four parties. No serious efforts were made by the assessee to discharge such burden of proving the genuineness of the transactions with these parties.

16.4 The Assessing Officer at page 90 of the assessment order has observed that two suppliers out of the 33 suppliers who were found available at the given addresses have only confirmed the transactions in part and have denied the remaining transactions. These two parties are (1) M/s. Anil Industries Kekadi and (ii) M/s. Kailash Udyog, Nivai. The Assessing Officer has discussed the facts relating to transactions in the account of M/s. Anil Industries and M/s. Kailash Udyog at pages 90 to 96 of the assessment order. After elaborate scrutiny of each and every item he has arrived at the conclusion that the transactions recorded in the account of these two parties are also non-genuine.

16.5 Apart from the 6 suppliers mentioned above, the remaining 27 suppliers to whom payment was shown to have been made by crossed cheques and the amount of cheques was collected in cash through the bank account No. 71082 in the name of M/s. Pooja Traders with State Bank of India, Junagadh, the Assessing Officer has brought adequate evidence on record which indicated that the transactions shown by the assessee in the books of account with these parties are not genuine and no such transactions in fact took place with them. The facts relating to transactions with all these 27 parties have been discussed by the Assessing Officer extensively at pages 96 to 141 of the assessment order. At page 21 of the assessment order the Assessing Officer has categorically stated that none of these 27 parties were found available at the addresses given on their respective sale invoices, etc. These parties were not found at the given addresses. The Assessing Officer therefore, gave a show-cause notice to the assessee communicating to him the aforesaid fact. The assessee did not make any serious effort to trace out the whereabouts of the owners/partners of those 27 concerns and it failed to produce them before the departmental authorities. Apart from the fact that these 27 parties were not found in existence at the given addresses the Assessing Officer has made elaborate discussions about other aspects relating to transactions with these parties in the assessment order. For instance, at pages 96 to 98 of the assessment order the Assessing Officer observed that the assessee produced vouchers for transport charges in respect of goods claimed to have been supplied by M/s. Agarwal Oil and Dal. Mills, Visnagar. The Assessing Officer made enquiries in this regard. The ACIT, Ajmer informed the Assessing Officer that M/s. Jaishanker Transport Co., Ajmer through whom the goods were claimed to have been transported did not transport any goods to Gujarat. Like this, the Assessing Officer in the assessment order has elaborately discussed the facts relating to an the 27 parties at pages 96 to 141 of the assessment order. The Assessing Officer has given convincing reasons for arriving at the conclusion that the transactions claimed to have been made with these parties are not genuine transactions.

16.6 The Assessing Officer has also elaborately discussed the facts relating to transactions carried out through the bank account of M/s. Pooja Traders. At page 142 and onwards the Assessing Officer has reproduced various questions and answers recorded in the statement dated 1-10-1992 of Shri M.N. Waghela, proprietor of M/s. Pooja Traders. Those questions and answers reproduced in the assessment order at pages 142 to 144 reveal that Mr. Waghela admitted that the business of M/s. Pooja Traders was done solely for the assessee in the year under consideration. He accepted the summons from the Department only after consulting Shri R.V. Domadia who is one of the directors of the assessee-company. The close link of M/s. Pooja Traders with the assessee-company thus clearly stands established. It is also an unusual and strange coincidence that all the 33 bogus parties of Rajasthan had chosen to get their crossed cheques encashed through the bank account of M/s. Pooja Traders. The Assessing Officer has observed in the assessment order that the payment to other suppliers who have been treated as genuine suppliers, were made by demand drafts sent to their respective places.

16.7 The Assessing Officer has extensively dealt with various aspects relating to purchases in question with these 33 parties. He has given convincing reasons for arriving at the conclusion that transactions with these 33 parties are not genuine. At page 162 he has again summarised the special features and characteristics of such abnormal and unusual nature of all such transactions with these parties. On the strength of such material evidence brought on record and in view of the failure on the part of the assessee to prove the genuineness of the transactions made with these 33 parties as well as genuineness of the payment of freight on such bogus purchases, the Assessing Officer came to the conclusion that payment of Rs. 70,03,826 said to be made to these 33 parties towards purchase of oil cakes from them are not genuine and no such transactions were ever entered into by the assessee with these bogus parties. Likewise, the Assessing Officer at page 163 has further held that the balances shown as outstanding in the accounts of 12 bogus suppliers out of the aforesaid 33 bogus suppliers also represent bogus transactions. The outstanding balance as on 31-3-1991 amounting to Rs. 17,99,788-75 was also disallowed by holding that the same is claimed to have been made against non- existent, non-genuine parties and by making fabricated bills, vouchers and bogus entries in the books of account of the assessee.

16.8 The Assessing Officer thereafter considered the genuineness relating to freight payment of Rs. 5,02,752 in relation to such bogus purchases at pages 164 and 165 of the assessment order. He has referred to elaborate discussions made in earlier paras of the assessment order on the basis of which it has been held by the Assessing Officer that transactions in question with 33 suppliers are bogus. Those parties were not in existence, the transactions are non-genuine and vouchers for purchases, transport, etc., have been fabricated. The Assessing Officer has summarised the facts relating to transport vouchers and has arrived at the conclusion that the freight payment in question is also not genuine. The Assessing Officer has further observed that the claim of freight has been made against non- genuine and fabricated transactions. The transporters were either not available or they have denied having sent any goods as claimed by the assessee.

16.9 The learned CIT(A) after a very careful consideration of the entire facts and material and evidence existing on record agreed with the findings given by the Assessing Officer.

16.10 The Tribunal after hearing the learned representatives of the parties on two occasions, gave a specific opportunity to the assessee vide order-sheet entry dated 20th July, 1995 to produce both the brokers through whom the alleged bogus purchases are claimed to have been made before the Assessing Officer along with all other relevant books of account, records, copies of broker's notes, bank pass-books, etc., within a fortnight for recording of their statement on oath by the Assessing Officer. The Tribunal also gave a final opportunity to the assessee to. produce before the Assessing Officer all the suppliers, transporters, etc., It will be worthwhile to produce paras (k) and (n) of order-sheet entry dated 20th July, 1995 as follows:

"(k) Produce both the brokers before the Assessing Officer through whom alleged bogus purchases are claimed to have been made along with all their relevant books of account, records, copies of broker's notes, bank pass books, etc. within. a fortnight for recording their statements on oath.

(n) It was admitted by the counsel for the assessee during hearing that copies of statements of suppliers, transporters, shroff, etc., recorded by the Assessing Officer during assessment proceedings behind the back of the assessee were made known to him and thereafter assessee did not request the Assessing Officer to examine/ cross-examine all or any of them. It was indicated that the onus lies on the assessee to prove its claim for deductions including the alleged bogus purchases. The assessee is therefore, granted this final and last opportunity to produce all such persons before the Assessing Officer for their examination/cross-examination before the Assessing Officer within 22 days from the date of service of this note. In case he fails to produce them before the Assessing Officer an adverse inference may be drawn against the assessee."

16.11 The assessee failed to produce any of the suppliers, brokers or transporters before the Assessing Officer in spite of such a specific opportunity granted by the Tribunal. It was stated on behalf of the assessee that those suppliers and the brokers are now not available. Registered letters sent to them have been returned back. These reasons given by the learned AR of the assessee are mere pretexts which cannot absolve the assessee from discharging the burden of proving the genuine-ness of such a seriously doubted transactions. In case the assessee would have been serious in producing them or in case those suppliers and/or the brokers would have been really in existence, the assessee with little more efforts could easily have found out their present whereabouts and could have produced if not all but at least some of them before the Assessing Officer. It is unimaginable that all the suppliers and all the brokers suddenly vanished from the seen soon after the enquiries were started by the Assessing Officer. The transactions with these suppliers started in the month of March 1989 and continued up to July 1992. The cheques given to these suppliers were encashed through the bank account of M/s. Pooja Traders and the assessee has itself given a statement showing peak position in relation to transactions with these suppliers pertaining to assessment years 1989-90 to 1993-94. The Assessing Officer has given a show-cause notice as early as on 5th June, 1993. The assessee failed to produce these suppliers and the brokers before the Assessing Officer and also before the CIT(A). The assessee further failed to produce them even after grant of a specific final opportunity by the Tribunal.

16.12 The assessee has merely repeated that the material in question was purchased through the brokers and the assessee had no direct contact with these suppliers, whose invoices are said to be bogus. It has further relied upon the fact that the material in question has really been received and this position has been accepted by the departmental authorities. The assessee further relied upon certain charts to prove that prices of the oil cakes purchased through alleged bogus invoices are comparable with the prices for the purchases accepted as genuine. On these grounds the assessee-company has stated that even if it is assumed that purchases were made from 'X' but bills were taken from 'Y' it will not result in any addition in the declared profits in view of the aforesaid circumstances. Such a stand taken by the assessee is not at all valid and justified. The assessee made entries in its books of account in respect of oil cakes purchased from these 33 parties on the strength of sales invoices alleged to have been issued by these suppliers. It has shown that payments were made to these 33 suppliers of Rajasthan by crossed cheques. However, the Assessing Officer conducted deep and thorough enquiry and investigation, as a result of which he found that most of these 33 parties did not even exist at the given addresses. He has also brought adequate material on record to prove that the transactions of purchases shown to have been made with these 33 parties are bogus transactions. The payments shown to have been made to them by crossed cheques have in fact not been given to these parties as they were not in existence and the transactions shown with them are fictitious, but such cheques have been got encashed from one bank account in the name of M/s. Pooja Traders. The cheques issued in the names of those 33 bogus suppliers had been credited in that bank account and money has been withdrawn in cash almost on the same day. The Assessing Officer has established that the bank account in the name of M/s. Pooja Traders was opened and operated merely with a view to accommodate the assessee for carrying out such fictitious transactions of purchases. The stand taken by the assessee that all transactions were made through brokers and they had no direct contact with the suppliers is also not believable. The broker's note and all the papers relating to brokers were not produced before the Assessing Officer. Those papers for the first time were produced before the CIT(A). The Tribunal gave a specific opportunity to the assessee to produce the brokers but at this stage also the assessee failed to produce them. The amount of brokerage has not been debited in the account of these bogus suppliers as has been done in the cases of purchases made from other genuine suppliers. This point has been summarised at page 162 of the assessment order. The assessee has not brought any evidence in rebuttal on these facts and observations made by the Assessing Officer.

16.13 In view of the aforesaid facts, material and evidence existing on records, we are of the considered opinion that the transactions in respect of oil cakes shown as purchases by the assessee from these 33 parties are not genuine transactions. It is reasonably clear and glaringly obvious that all those 33 parties are bogus parties, the sales invoices claimed to have been issued by them are fictitious ones and the bank account in the name of M/s. Pooja Traders was opened and operated mainly with a view to accommodate these fictitious transactions carried out by, the assessee in respect of oil cakes shown as purchased from such bogus suppliers. The findings given by the Assessing Officer that the sales invoices in question, vouchers for freight payments in respect of purchases in question are fictitious ones are absolutely justified on the facts and circumstances of the present case.

17. However, the question which then arises for our consideration is as to whether the entire amount of the said bogus purchases and freight payments made in relation thereto should be disclosed or the assessee should be held to be eligible for grant of deduction of a reasonable amount of purchase price of the oil cake in question in view of the fact that receipt of the material in question by the assessee is supported by various registers and books of account maintained by the assessee and the department has not disputed the fact relating to reality of the receipt of material in question. In fact, the learned Sr. DR pursuant to a specific query by the Bench and after the matter was thoroughly examined once again pursuant to order sheet entry dated 20th July, 1995 was fair enough to state that the material in question shown as purchases through such fictitious invoices in the names of these 33 bogus parties appears to have been really received because without receiving such material, the corresponding production and sales would not have been possible. This statement was made at the Bar on 15th September, 1995. Thus, the receipt of material in question is not in doubt but the material has been received from sources best known to the assessee and those goods in question Were not received from those 33 suppliers from whom it is shown to have been purchased.

17.1 The learned AR of the assessee placed reliance on the following decisions to support his contention that the assessee is entitled to a deduction of the cost of material consumed :

(a) Balaji Textile Industries (P.) Ltd. v. Third ITO [1994] 49 ITD 177 (Bom.).

(b) Arun Industries case (supra ).

(c) Ninth ITO v. Upper India Trading Co. [IT Appeal No. 694 (Bom. of 1989) dated 24-4-1994]

(d) M. Sreedhara Panicker's case (supra).

(e)Decision of Shri M.S. Darda, CIT(A)-V, Ahmedabad in the case of M/s. Hiranand Thakerdas.

(f) Sanjay Oil Cake Industries v. IAC [IT Appeal Nos. 2553, 2654 & 2655 (Ahd. of 1988)].

(g) Commissioner Of Income-Tax v. S.M Omer. [1993] 201 ITR, 608 (Cal.).

There cannot be any dispute about a well settled legal proposition that tax Can be levied only on real income. It is an elementary rule of accountancy as well as of taxation laws that profit from business cannot be ascertained without deducting cost of purchases from sales, otherwise it would amount to levy of income-tax on gross receipts or on sales. Such a recourse is not permissible unless it is specifically authorised to do so under any particular provisions contained in the Act.

18. It will, therefore, be imperative for us to first examine the question relating to applicability of the provisions of section 40A(3) in relation to these transactions.

18.1 The Assessing Officer has discussed the question relating to applicability of section 40A(3) in para 43 at pages 167 to 169 of the assessment order. He has held that the assessee has clearly violated the provisions of section 40A(3). However, no separate addition was made under section 40A(3) as the entire amount of bogus purchases had already been disallowed by him.

18.2 The learned AR for the assessee submitted that so far as the assessee is concerned, it has made the payments by crossed cheques in favour of the suppliers. There is no evidence to show that the amount of cheques has come back to the assessee and this cash has been used to purchase oil cakes in cash from the open market. He has placed reliance on the following decisions to support his contention that provisions of section 40A(3) are not at all applicable to such facts and circumstances:

(a)Decision of CIT (Appeals) in the case of M/s. Hiranand Thakerdas, a copy of which was also furnished in the paper book.

(b) New Narayan Builders v. ITO [1992] 43 TTJ (Ahd.) 508.

(c)The learned AR further submitted that even if it is assumed that Section 40A(3) is attracted, the assessee's case would be covered by the exceptions laid down under Rule 6DD(J). For this purpose, he placed reliance on the decision of ITAT, Ahmedabad in the case of Hynoup Food and Oil Industries (P.) Ltd. v. ACIT [1993] 47 TTJ 556. The Ahmedabad Tribunal in the said case after considering all the aspects of the case and the decision of Andhra Pradesh High Court in the case of S. Venkata Subba Rao (supra) came to the conclusion that assessee's case is covered by exceptions as business recorded in the books is within the rule as business outside the books is an exception. The Tribunal also considered the judgment of Hon'ble Gujarat High Court reported in Hasanand Pinjomal v. CIT [1978] 112 ITR 134 as well as judgment of Hon'ble Supreme Court in the case of CIT v. S.C. Kothari [1971] 82 ITR 794 .

(d) M. Sreedhara Panicker's case (supra).

(e) E.N.M Libbas (P.) Ltd. v. IAC [1992] 44 TTJ (Delhi) 679. The learned A.R. submitted in the written submissions made on 15-9-1995 that in the present case the payment by crossed cheques has been proved but the payment by cash is only alleged against the assessee. On the basis of the aforesaid decision, no disallowance can be made under section 40A(3) under such circumstances.

(f)Referring to the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh (supra) the learned A.R. said that the object of section 40A(3) was to regulate the business transactions and to prevent the use of unaccounted money. In the present case payments have been made to the so-called bogus suppliers by cheques from the accounted sources. On this ground also section 40A(3) is not applicable.

(g)Decision of ITAT, Madras in the case of Taj Tanning Co. v. ITO [1990] 32 ITD 302 was also relied upon by the learned AR for the assessee. For non-applicability of section 40A(3) various other decisions were cited and elaborate arguments in writing have been submitted in different compilations in relation to this point. It would be unnecessary to deal with all the case laws in this order. However, we have gone through each and every case cited by the learned representatives and have carefully tried to examine the relevance of the ratio of all those cases in relation to the facts and circumstances of the present case.

18.3 The learned Sr. DR also made very persuasive arguments in relation to applicability of section 40A(3). In the written submissions dated 22nd September, 1995 he has given elaborate arguments from pages 29 to 35 of the written submissions. It has been pointed out that the judgment of Hon'ble Andhra Pradesh High Court in the case of S. Venkata Subba Rao (supra) directly covers the points in issue. It has been clearly held in that case that the provisions of section 40A(3) would also be applicable in relation to a business carried on illegally. The burden lies on the assessee to prove that the payments are covered by the exceptions provided under Rule 6DD(J). The learned Sr. DR also placed reliance on the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh ( supra) in which it was held that provisions of section 40A(3) are also applicable in relation to expenditure incurred for purchase of stock-in-trade. The learned Sr. DR submitted that the assessee has failed to produce any evidence to bring his case within the ambit of exceptions provided under Rule 6DD(J). The disallowance of entire amount of bogus purchases and freight thereon is therefore, fully justified in view of the clear provisions of section 40A(3).

18.4 We have given a very anxious consideration to the rival submissions urged before us. It has been held that the transactions of oil cakes shown as purchased from the 33 bogus suppliers are fictitious. The books of accounts maintained by the assessee have, therefore, been found to be unreliable and incorrect. The provisions of section 145(2) are therefore, clearly attracted in the present case. The entries in relation to such purchases made from the 33 bogus parties which have been found to be fictitious will have to be ignored for the purpose of computing the profits and gains of business. It would be entirely different fact if deduction of reasonable amount of purchase price is allowed to the assessee in respect of receipt of the materials in question by invoking section 145(2). In case the disallowance is made by invoking the provisions of section 40A(3) on the basis of entries in relation to such purchases made from 33 parties, the entries recorded in the books of account show that those payments were shown to have been made by crossed cheques. If these payments are treated as having been shown as made to 33 bogus parties, and the amount in question shown as paid by cheques and encashed through the bank account of M/s. Pooja Traders, came back to the assessee out of withdrawals made from bank account in the name of M/s. Pooja Traders, these entries of payments will have to be ignored. Thus, on the basis of entries recorded in the books of accounts of the assessee, the provisions of section 40A(3) would not be applicable as such payments have been shown to have been made by crossed cheques. If these entries are ignored, the books of account stand rejected under section 145(2) and then the income will have to be estimated on the basis of best judgment. The Ahmedabad Bench of Tribunal in the case of Hynoup Food and Oil Industries (P.) Ltd. (supra) considered all these aspects in relation to interpretation of section 40A(3). It also took into consideration the judgment of the Hon'ble Andhra Pradesh High Court relied upon by the learned Sr. DR. The judgment of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh (supra) relied upon by the learned Sr. DR has upheld the constitutional validity of the provisions of section 40A(3) and has further held that the provisions of section 40A(3) would also be attracted to payment made for acquiring stock-in-trade and other material. It has also been held in the said judgment that it will be open to the assessee to furnish to the satisfaction of the Assessing Officer the circumstances under which the payment in the manner prescribed in section 40A(3) was not practicable or would have caused genuine difficul-ties to the payee. It is, therefore, clear that in order to decide as to whether a particular payment for expenditure would be covered under the exceptions provided in Rule 6DD(j) will depend on the peculiar acts and circumstances of each case. The facts of the decision given by ITAT, Ahmedabad Bench in the case of Hynoup Food and Oil Industries (P.) Ltd. (supra) are almost similar with the facts of the present case. Respectfully following the reasons given in the said decision and the reasons given in various other decisions relied upon by the learned AR of the assessee, we hold that provisions of section 40A(3) would not be applicable and even if they are held to be applicable, the expenditure would be covered by the exceptions provided in Rule 6DD(j) of the Rules.

19. We will now consider as to how much deduction should be allowed to the assessee in respect of cost of purchase of oil cakes said to have been really received by them but the bills produced in support thereof were not genuine bills. It is absolutely clear from the facts, material and evidence brought on record that the assessee produced fictitious vouchers in support of purchase of oil cakes shown as purchased from the 33 bogus suppliers. It also produced fictitious vouchers for transportation of those goods. The goods were not received from the parties from whom it is shown to have been purchased but such material was received from a different source which is exclusively within the knowledge of the assessee and none else. Even after the Assessing Officer brought adequate material on record which exposes the false stand taken by the assessee, the assessee did not come out with the truth as to where from it had purchased the oil cakes in question which are shown to have been purchased from the said 33 bogus parties.

19.1 There could be various possible alternative sources where from the assessee could have acquired oil cakes for production in their SEP, viz.:

(a)It is generally known that the oil mills are engaged in carrying out unaccounted production of oil as well as oil cakes. The assessee might have purchased such oil cakes out of unaccounted production done by various oil mills.

(b)The Assessing Officer in the written submissions made before the Tribunal in Part-B of the paper book of the Department has also indicated about one more possibility, viz., that the assessee is having an oil mill and is also producing the oil cakes. The bogus purchase of oil cakes shown by the assessee according to the Assessing Officer might be out of their own unaccounted production for which the bills have been prepared by the assessee themselves in the names of bogus concerns. In this regard it would be worthwhile to make a reference to letter dated 10th December, 1995 submitted on behalf of the assessee. It has been indicated that the crushing capacity of assessee's own oil mill is approximately 50 tons per day and the crushing capacity of the assessee's associate concern is approximately 62.500 tons per day. It has been further stated that crushing was carried out only for 110 days in the year under appeal in assessee's own mill. The chart showing power consumption vis-a-vis crushing in assessee's own mill has also been submitted along with this letter. The figures of production and these details given in the aforesaid letter show that the installed capacity of the oil mill belonging to the assessee has been used only partly. The ratio of consumption per unit of power with reference to the production carried out in different months has also not been taken into consideration for determining the reasonableness of production shown by the assessee in this oil mill. The possibility indicated by the Assessing Officer in the written submissions made in compilation marked as Part-B cannot totally be ruled out but the Assessing Officer while making an addition on account of low yield in the oil mill has himself restricted the addition on account of introduction of oil cake only to the extent of Rs. 3,19,618 apart from the alleged low yield of oil obtained from rapeseed.

19.2 In any case, the oil cakes so received and used by the assessee in the production activities has come out of the unaccounted production of oil cakes of other mill owners or partly from other mill owners and partly from oil mills belonging to the assessee and their associate concerns. Nothing definite can be said because the true source wherefrom the assessee acquired such oil cakes shown as having been purchased from 33 bogus suppliers is known only to the assessee and none else. But one thing is certain that the assessee has definitely inflated the expenditure in question by showing higher amount of purchase price through the fictitious invoices in the names of 33 bogus suppliers.

19.3 It is well known that if purchases are made from open market without insisting for the genuine bills, the supplies may be willing to sell those products at a much lower rate as compared to the rate which they may charge in case the dealer has to give a genuine sale invoice in respect of that sale and supply the goods. There may be various factors due to which there is bound to be a substantial difference between the purchase price of unaccounted material and rate of purchase of accounted for goods. There may be a saving on account of sales-tax and other taxes and duties which may be leviable in respect of manufacture or sale of goods in question. The suppliers or the manufacturers make a substantial saving in the income-tax in respect of income from sale of unaccounted goods produced and sold by them. This may also be one of the factors due to which the seller may be willing to charge lower rates for unaccounted goods as compared to accounted for goods. Keeping all these factors in mind and also keeping in view the decision of the ITAT in the case of Sanjay Oil Cake Industries (supra) we hold that 25% of the purchase price accounted for in the books of accounts through such fictitious invoices in the name of 33 bogus parties should be disallowed out of the amount of purchases shown to have been made from those 33 bogus suppliers. The total purchases shown as made from these 33 parties which have been disallowed by the Assessing Officer are as under :

We direct the Assessing Officer to disallow 25% of the aforesaid amount on account of inflation of purchase price. The amount of disallowance would accordingly come to Rs. 22,00,903 which may be rounded to Rs. 22 lakhs. The amount of expenditure shown by way of freight on the aforesaid purchases has been separately disallowed by the Assessing Officer to the tune of Rs. 5,02,752. Since the assessee has failed to prove that such oil cakes were received from outside the State, as shown as per the fictitious invoices, we agree with the view taken by the departmental authorities in respect of disallowance of the entire amount of freight in relation to the aforesaid purchases. The disallowance of Rs. 5,02,752 is also therefore, confirmed. Thus, the Assessing Officer is directed to restrict the disallowance to an aggregate sum of Rs. 27,02,752 (Rs. 22 lakhs plus Rs. 5,02,752) as against the aggregate disallowance of Rs. 93,06,366 made by the Assessing Officer comprising of Rs. 70,03,826, Rs. 17,99,788 and Rs. 5,02,752.

20. Now, we will consider the point relating to addition in respect of peak amount of investments made out of unaccounted money by the assessee for purchase of the above referred oil cakes shown as purchased from 33 bogus suppliers. While dealing with the point of granting or denying of benefit of peak amount or telescoping, we will also deal with the question relating to applicability of section 68, 69 or 69C of the Act thereof.

20.1 It will be worthwhile to reproduce certain extracts from the various written submissions made on behalf of the assessee in respect of the aforesaid point as follows:

Page 31 of Paper Book 'G':

"(iii) The peak amount of purchases in question is Rs. 17,99,788.75 as shown at pages 15 to 20 of paper book E. This peak amount has been worked out as per the guidelines given by the Honourable Tribunal in the note-sheet. The correctness of this amount has been admitted by the learned D.R. in the course of hearing on 15-9-1995."

Page 32 of Paper Book 'G' :

"(v) Even if it is assumed that such purchases must have been paid for on the date of receipt of materials, it is submitted that the payment made for the first purchase should be treated as allowable for the next purchase and only the peak amount should be considered for the purpose of determining whether the source thereof is explained or not. The appellant-company very respectfully submits that the money which has gone out of its coffers has been utilised only for the purpose of purchase of materials. No credit for this money has been claimed for any other expenditure or investment or for any other purpose.

(vi) It is respectfully submitted that in all cases as such, it is always the peak amount which is subjected to tax."

Pages 32 and 33 of Paper Book 'G' :

"It is submitted that the appellant's case is not where it claims set off of any such intangible addition or addition on account of G.P. etc., is claimed against the alleged unexplained source for the purchase of materials. The credit required to be given is not of any income from, undisclosed sources not accounted in the books of account but of payments made for the same purpose out of the accounted funds. Further, in the appellant's case the link between the payments made from the books of account for the purchase of materials with the purchases is quite obvious and direct, unlike the above kinds of cases where the link between addition on account of estimate of income and the cash credits would always be indirect and somewhat remote.

(viii) In cases such as the present one, even at the assessment stage, it is always the peak amount of credit/expenditure which is subjected to tax."

Letter dated 14-11-1995 of the assessee :

"(viii) In spite of this, if it is assumed that such purchases have been paid for on the date of receipt of materials and an addition is sought to be sustained on the ground that the source of the purchase on the date of receipt is not explained, we have submitted that in such a case, the payment made for the first purchase should be treated as available for the next purchase and only the peak amount should be considered for the source of determining whether the source thereof is explained or not. We reiterate that the money which have gone out of our coffers towards the payment for the purchases in question have been utilised only for the purpose of the purchase of materials and no other credit for this money for any investment or expenditure or for any other purposes has been claimed by us."

20.2 The aforesaid submissions have been made by the assessee without prejudice to its main contention that the invoices obtained from 33 suppliers are genuine invoices. The assessee has dealt with those parties through brokers and had no direct contacts with them. Even if those parties are treated as not genuine, it was submitted that it should be presumed that credit is available for alleged non-genuine purchases of oil cakes as is available for genuine purchases. If the fact of usual credit available in relation to purchase of oil cakes is allowed, the assessee submitted that no addition in respect of unexplained investment for purchase of oil cake can be validly made. Such submissions have also been made without prejudice to assessee's contention that the Assessing Officer did not make any addition on account of unexplained sources of the expenditure but the amount was disallowed by way of bogus purchases only. The learned Sr. D.R. submitted that unless the assessee admits that there is a direct nexus of the amount withdrawn from bank account of M/s. Pooja Traders with the purchase of oil cakes made from the open market from undisclosed suppliers, the benefit of peak should not be allowed. According to the learned Sr. D.R., the amount can be disallowed wholly as a bogus purchase and such disallowance can also be sustained in view of provisions of sections 68 and 69C. The assessee has failed to prove the identity of the suppliers in whose accounts closing balance aggregating to Rs. 17,99,788-75 exists. It was also pointed out by the learned Sr. D.R. that not only the amount of peak amount of unexplained investment should be added but in addition to that amount the profit derived by the assessee on account of inflation of purchase price through such fictitious invoices of 33 bogus suppliers should also be added.

20.3 We have given a very deep and thoughtful consideration to all the submissions made by the learned representatives of both sides. The Assessing Officer made an addition of Rs. 17,99,788-75 as per discussions made at pages 163 and 164 of the assessment order. The aforesaid amount represents closing balance as on 31st March, 1991 appearing in the account of 12 parties out of the 33 bogus suppliers. The details have been given at page 163 of the assessment order. At page 164 the Assessing Officer has given the following findings :

"Out of 33 suppliers, the payment is shown to have made in the next year for 12 suppliers only. The payment for the above mentioned transactions are amounting to Rs. 17,99,788-75 and related to the supply claimed to have made, according to the assessee during the financial year 1990-91. On the basis of material available on records and various factors discussed vide paras 22 to 31 and elements of bogus transactions as also enumerated vide para 36, the transactions are proved as bogus beyond doubt. Therefore, the expenditure claimed by the assessee and shown as outstanding as on 31-3-1991 amounting to Rs. 17,99,788-75 is disallowed, as the same is claimed to have been made against non-existent, non-genuine and by making fabricated bills, vouchers and bogus entries in the books of account of the assessee."

The aforesaid findings clearly reveal that the Assessing Officer had added the aggregate amount of Rs. 17,99,788.75 on the ground that these parties were not in existence, not genuine and the vouchers in their names are fabricated and bogus ones. The contention of the assessee that invoking of provisions of section 68 or section 69C is beyond the jurisdiction of the Tribunal is not correct as the addition of the closing credit balance lying in the accounts of these bogus suppliers was added as income by the Assessing Officer. The absence of any mention of the relevant section would not mean that the addition already made by the Assessing Officer cannot be supported by the higher appellate authorities on one more section apart from confirming the same in view of the elaborate reasons mentioned in the assessment order itself.

20.4 The assessee was directed to compute the peak amount of unexplained money utilised for purchase of oil cakes, wrongly shown in the books of the account as having been purchased from the said 33 bogus suppliers. Such working was made by the assessee which was submitted before the ACIT for necessary verification. The assessee has submitted such details along with letter dated 5th August, 1995 in PB marked 'E'. The peak amount for the year under consideration has been calculated as per details mentioned at pages 21 to 26 of PB 'E'. The peak amount according to the said chart comes to Rs. 18,00,145.86 as on 18th March, 1991 which is almost equivalent to the closing balance in the accounts of various parties out of those 33 bogus suppliers. The addition in respect of unexplained investment made in relation to oil cakes purchased from undisclosed parties or undisclosed sources but wrongly shown in the books of account as having been purchased from 33 bogus suppliers is, therefore, required to be added as assessee's income and we therefore, hold that he Assessing Officer was right in making an addition of Rs. 17,99,788.75 representing the closing balance in the accounts of those bogus suppliers, which happens to be the maximum amount of peak balance in the accounts of those bogus suppliers at any time during the year under consideration. However, as we have already sustained an addition of more than Rs. 27 lakhs out of the aggregate amount of purchases made of oil cakes shown as made from these 33 bogus suppliers, we are of the view that such disallowance of more than 27 lakhs will adequately cover the unexplained peak amount of investment made in purchase of such oil cakes. Therefore, no separate addition of Rs. 17,99,788.75 should be made and that amount should be treated as covered by the separate addition of Rs. 27 lakhs sustained out of bogus purchases and freight thereof.

20.5 It will also be relevant to mention here that the assessee was directed to work out the peak position for the period from 20th March, 1989 till July 1992 i.e. relating to the entire period during which transactions with these bogus suppliers were shown to have been made and payments made to them by crossed cheques were got encashed through the account of M/s. Pooja Traders. The assessee prepared such chart which has been submitted in PB marked 'H' alongwith letter dated 10th November, 1995. The summary of peak position as shown in the chart, given by the assessee is reproduced hereunder:-

20.6 It will not be proper for us to give any finding in relation to the years other than the year under appeal before us, as those matters may be pending before the departmental authorities. However, even if the peak amount of earlier years is taken into consideration, it will not affect the amount of addition sustained in the year under consideration, as we have already directed the Assessing Officer not to make a separate addition in respect of the unexplained amount of peak credit as the same is adequately covered by the separate disallowance of more than Rs. 27 lakhs made out of bogus purchases and freight thereon. The amount of peak position relating to earlier years, or subsequent years will have to be independently examined by the concerned authorities in accordance with law and particularly in the light of the Explanation 2 to section 271(1)(iii) of the Act.

21. We will now deal with the common ground raised in the appeal by the assessee as well as by the Revenue in relation to the addition made on account of low oil yield from crushing of rapeseeds as well as addition on account of introduction of oil cake. The assessee is aggrieved by the addition sustained by the CIT(A) to the extent of Rs. 30 lakhs and the revenue is aggrieved by the deletion of addition of Rs. 1,89,982 made by the Assessing Officer on account of low oil recovery in respect of rapeseeds purchased from OGS and relief of Rs. 10,54,707 granted out of addition made on account of low oil recovery in respect of rapeseeds purchased from WGS and out of addition of Rs. 3,19,618 made on account of oil cake held as introduced from undisclosed income.

21.1 We have already considered the facts relating to bogus purchase invoices in respect of oil cakes shown as purchased by the assessee from 33 bogus suppliers. We have confirmed the findings given by the author-ities below that those purchase invoices in the name of 33 bogus parties are not genuine documents and they do not 'represent genuine transac- tions. We have however, held that material in question was received by the assessee from undisclosed sources or from unknown parties which are within the special and exclusive knowledge of the assessee and the assessee is not willing to disclose the true facts to the Department. The detection of such serious mistakes by the Assessing Officer in the vouchers produced by the assessee and that too of such a large amount fully justifies the rejection of books of account made by him. The correctness of the books of account cannot be determined sector wise, as contended on behalf of the assessee. It was pointed out by the assessee that no mistakes have been found in the oil mill section. This is also not a correct expression of facts. In fact, one of the items produced by the oil mill is oil cake, which is a raw material for the Solvent Extraction Plant (SEP). In SEP Division it has been found that oil cake purchased has been debited in the books of account on the basis of fictitious invoices in the names of 33 bogus suppliers. We are, therefore, of the considered opinion that books of account maintained by the assessee are neither reliable nor correct. The provisions of section 145(2) are clearly attracted on the facts and circumstances of the present case.

21.2 It is true that in all cases where books of account are rejected it is not necessary to always make some addition in the declared trading or manufacturing results. It will always depend upon the facts and circumstances of each case and that too in relation to each year as to whether any addition should be made even after rejecting the books of account maintained by the assessee.

21.3 In the present case, the learned CIT(A) very carefully considered all the relevant facts and material existing on record. He has considered the elaborate reasons mentioned in the assessment order and has also given a very serious consideration to the various arguments advanced on behalf of the assessee.

21.4 After such thoughtful and careful consideration the learned CIT(A) came to the conclusion that addition of Rs. 189,98 made in respect of rapeseed purchased from OGS cannot be sustained. The assessee has made various specific submissions in order to justify the oil recovery from rapeseed purchased with guaranteed oil recovery from OGS in PB 'F' at pages 11 to 15. After going through the entire material and the submissions made by the learned representatives of both sides we agree with the finding given by the learned CIT(A) in relation to deletion of the addition of Rs. 1,89,982.

21.5 The learned CIT(A) has also carefully considered the entire material brought on record by the Assessing Officer in support of an addition of Rs. 37,35,089 made on account of low oil recovery in respect of rapeseeds purchased from WGS and a further addition of Rs. 3,19,618 made on account of oil cakes held as introduced from undisclosed income. The learned CIT(A) has sustained an ad hoc addition of Rs. 30 lacs out of the aggregate addition of Rs. 40,54,707 consisting of Rs. 37,35,089 and Rs. 3,19,618.

21.6 The Assessing Officer has discussed this point in various paras of the assessment order. In para 34 of the assessment order he has arrived at the conclusion that recovery of oil from rapeseeds purchased from WGS should be taken as 30% and oil cakes should be taken at 67%. The shortage was taken by him at 3%. This is how he calculated an addition of Rs. 37,35,089 on account of low oil recovery from rapeseeds purchased from WGS. The addition on account of oil cakes introduced to fill up the gap between the suppressed oil production and actual oil production was also arrived at by the Assessing Officer on the basis of aforesaid percentages of production determined by him-and the amount of addition on that score was calculated at Rs. 3,19,1618 in para 36 of the assessment order.

21.7 The learned AR for the assessee has relied upon several decisions and has also submitted written arguments which form part of different paper books submitted from time to time. He also made oral arguments on different dates of hearing. According to the learned AR, the Assessing officer has grossly erred in making addition of hypothetical production of oil and oil cake on mere surmises and presumptions. The yield from crushing of various oil seeds is bound to vary from lot to lot depending on various factors. He has also submitted that the Assessing Officer had wrongly placed reliance on result of other cases. The Assessing Officer ignored results of cases which are favourable to the assessee. Various other arguments were also advanced which need not be repeated. The learned AR for the assessee has also made great efforts to prove that once the oil recovery out of rapeseeds purchased from OGS declared at 31.67% has been treated as reasonable by the CIT(A) there was no justification in confirming the addition in relation to yield of oil obtained from rapeseeds purchased from WGS. Elaborate charts were submitted showing the impact of price difference between two different types of rapeseeds purchased from OGS and WGS. Those charts were submitted before the Assessing Officer for his verification on which the Assessing Officer has not made any comments. On the strength of these charts the learned AR further submitted that the yield of oil shown by the assessee from rapeseeds purchased from WGS Should also be accepted as true and correct. The learned Sr. D.R. relied upon the elaborate reasons given in the assessment order and also submitted elaborate written arguments.

21.8 In our view, once the books of account are held to be not reliable and not correct, it would be necessary to examine the reasonableness of the declared percentage of yield of oil and oil cakes, etc. The assessee has himself submitted a chart at page 99 of the PB 'E' showing the percentage of yield of oil in different years as below :-

The yield shown by the assessee in the year under consideration is 27.1%. Assuming that the Assessing Officer did not properly compare the results of other comparable cases, the best comparison can always be made with the results declared by the assessee itself in the preceding as well as in the subsequent years. The aforesaid chart gives the details of results declared by the assessee in the preceding three years as well as subsequent three years. The Assessing Officer has taken the yield from rapeseeds purchased from WGS at 30%. The adoption of the rate of 30% could not be assumed as arbitrary or extremely excessive or unreasonable. However, the CIT(A) after taking into consideration the entirety of the facts and circumstances granted a further relief and restricted the addition to an amount of Rs. 30 lakhs as against the aggregate addition of Rs. 40,54,707 made by the Assessing Officer in respect of low yield of oil from rapeseeds from WGS and oil cake introduced from undisclosed income. Therefore, the yield taken by the Assessing Officer at 30% has further been reduced by the CIT(A). The view so taken by the learned CIT(A) cannot be treated as erroneous or incorrect in any manner.

21.9 It will also he worthwhile to mention that the yield shown by certain other oil mills in A.Y. 1991-92 was comparatively more than what has been applied by the Assessing Officer which has been further reduced by the CIT(A) by granting some relief. M/s. Jagdish Export Industries in financial year 1990-91 (Assessment year 1991-92) had declared yield of oil at 32.01% oil cake at 65.02% and shortage at 2.97% as per Annexure-A submitted in PB marked as 'Part B' by the department. The assessee in its written submissions made in PB 'F' at page 7 has, inter alia, submitted that M/s. Jagdish Export Industries have declared a shortage of 4.31%. The aforesaid contention of the assessee is incorrect as M/s. Jagdish Export Industries in financial year 1990-91 had claimed shortage of only 2.97% but shortage of 4.31% was claimed in financial year 1991-92 which relates to assessment year 1992-93 and not assessment year 1991-92 which is the year under consideration. M/s. Jagdish Export Industries had declared yield of oil at 31.72% in financial year 1991-92 and yield of 33.54% in financial year 1992-93. The assessee further stated that the Assessing Officer ignored the oil recovery shown by M/s. Atlas Soya. M/s. Atlas Soya had declared yield of oil in financial year 1990-91 at 28.47% but in that year they had declared oil cake production at 70.46% and thereby had claimed shortage of only 1.17% in that year. The assessee has claimed shortage in respect of purchases from WGS at 3.71%. The oil recovery shown by M/s. Atlas Soya in financial years 1991-92 and 1992-93 was 30.58% and 30.50% respectively. The assessee has also made a mention about the shortage shown by M/s. Dipak Vegetables at 4.74% at page 7 of PB 'F'. In the Department's PB No. 'B' the Sr. D.R. has presented an Annexure-C giving details of production shown by M/s. Dipak Vegetables. M/s. Dipak Vegetables have shown in financial year 1990-91 yield of oil at 31.17% and oil cake at 64.08% and shortage at 4.74%. The yield of oil which is the most vital item of finished goods shown by M/s. Dipak Vegetable and Oil Industry is substantially more than the yield of oil shown by the assessee. In the subsequent two years also M/s. Dipak Vegetables have shown yield of oil at 32.68% and 33.18% respectively. Some of these figures have been stated with a view to indicate that the assessee only wanted to twist the result of other comparable cases in a manner that only the favourable pail out of such comparable result should be compared and overall yield of other comparable cases should be ignored. This is certainly not a correct approach for deciding as to whether the view taken by the learned departmental authorities was reasonable and justified on the facts and circumstances of the case. After a very very careful consideration we are of the considered opinion that the view taken by the CIT(A) is a very just and reasonable view which has been taken by him after a very careful scrutiny and consideration of all the relevant facts and circumstances. We therefore, do not find any justification in interfering with the findings given by him in relation to such a common ground raised by both the assessee as well as by the Revenue in their respective appeals. The view taken by the learned CIT(A) restricting the addition to a lumpsum addition of Rs. 30 lakhs is therefore, confirmed. We also confirm the action of the learned CIT(A) of granting the relief of Rs. 10,54,707 out of the aggregate addition of Rs. 5,40,54,707 consisting of the two addition of Rs. 37,35,089 and Rs. 3,19,618. Hence ground No. 2 taken by the revenue in their appeal and the ground No. 3 taken by the assessee in its appeal are rejected.

21.10 It will be worthwhile to mention that the learned representatives of both sides had cited several judgments during the course of hearing. We have carefully gone through all those judgments and have borne in mind the principles of law laid down by different courts in the various decisions cited by them. It is neither proper nor necessary to discuss the ratio laid down in various cases and its applicability or otherwise on the facts and circumstances of the present case. It is well settled law that in any case even a locus classicus is an authority for what it decides. It is permissible to extend the ratio of a decision to cases involving identical situations, factual and legal, but care must be taken to see that this is not done mechanically, that is, without a close examination of the rationale of the decision which is cited as a precedent. Such observations were made by the Hon'ble Supreme Court in the judgment reported in Denna Alias Deen Dayal v. Union of India AIR 1983 SC 1155. The Hon'ble Apex Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 ¹ have also held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court.

21.11 In the present case, the various grounds raised in both the appeals involved consideration of the entire relevant facts, material and evidence existing on record. The facts of the various cases cited by the learned representatives of both sides cannot said to be exactly identical and similar with the facts of the assessee's case. It was therefore, necessary for us to decide all those points on the basis of appreciation of facts and evidence existing on record rather than travelling at length with the various findings given in different court decisions based on different facts. We have therefore, chosen not to make a detailed discussion of the various principles of law laid down by different Hon'ble Courts in the cases cited by the learned representatives.

22. Before parting, we wish to express our feelings of appreciation for the admirable manner in which the learned Sr. D.R. Shri R.K. Chaudhary and the learned A.R. Shri D.H. Vadodaria presented their respective arguments.

23. In the result, the assessee's appeal is partly allowed and the Revenue's appeal is dismissed.