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purchases could not be treated as genuine even if the purchase bill produced and payment is made through banking channel and other evidence is lacking?"

4. "Whether on points of law and on points of facts & circumstances of the case, the Ld. CIT(A) was justified in ignoring the ratio of the Hon'ble Bombay High Court in case of Shoreline Hotel(P) Ltd vs. CIT, Central-1 [2018] 98 Taxman.com 234(Bombay) wherein it has been held it was held that if assessee could not supplier, the addition under section 69C on the basis of GP ratio is unjustified"?

5. Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s. 250(4) of the Act, was justified in deletion the addition of Rs. 1,43,22,138/- out of total addition made by the AO as the assessee could not substantiate the alleged transaction as genuine by producing the relevant documents against the finding of the AO?"

6. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in accepting the fresh evidence produced by the assessee, if any without allowing the AO, proper opportunity to examine the same, thereby violating the provision on law under Rule 46A of I. T. Rule?'

7. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in allowing relief to the assesee without taking cognizance of facts brought on record by the Assessing Officer that there was no any actual purchases made from bogus dealers and only cheques were issued by the assessee in the name of bogus dealers followed by immediate cash withdrawal from their bank accounts, thereby coloring the transaction as genuine?"

8. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) was justified in ignoring the ratio of the landmark decision of the Supreme Court in the case of Mcdowell and Co. Ltd., vs Commercial Tax Officer 154 ITR 148(SC), as the same ratio of this landmark decision is applicable to the facts and circumstances of the instant case of the assessee?"

9. "Whether on points of law and on facts and circumstances of the case, the ITAT was justified in giving a decision without discussing the issue on merits and without giving any cognizance to the decision of the Hon'ble Supreme Court in the case of M/s. N. K. Protien in SLP 759 of 2017 dated 16.02.2017?"

10. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) was justified in ignoring the ratio of Hon'ble Delhi

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High Court in the case of CIT-II vs Jansampark Advertising 86 Marketing (P) ltd. Reported in (2015) 56 taxmann.com 286(Delhi) held that " though it is obligation of assessing office to conduct proper scrutiny of material, in even of assessing officer failing to discharge his functions properly, obligation to conduct proper inquiry shifts to Commissioner(Appeals) and Tribunal and they cannot simply delete addition made by assessing officer on ground of lack of inquiry?"

11. "Whether on points of law and on facts and circumstances of the case, the Ld. CIT(A) was justified in giving a decision, thereby without considering and distinguishing the ratio of the judgment of the cases such as Rameshwar Prasad Bagla 68 ITR 653(Allahabad) 85 Homi vs CIT 41 ITR 135, 142 by (Supreme Court) wherein it is stated that the totality of circumstances must be considered in a case of circumstantial evidence and the totality of the circumstances has to be taken into consideration and the combined effect of all those circumstances is determinative of the question as to whether or not a particular act is proved?"

12. "Whether on points of law and on facts & circumstances of the case, the ld. (CIT(A) was justified in restricting the addition upto 3.92% which is contrary to the evidence on record as the alleged concerns have not sold any items to the assessee, indulgence of such concerns providing of bogus bills only in lieu of commission with the help of brokers, as relied upon by the AO in his assessment order a finding which is factually incorrect thereby rendering a decision, which is perverse?"

13. "Whether on points of law and on facts & circumstances of the case, the Id. CIT(A) has erred in law by holding the decision in favour of the assessee and against the revenue through there is no nexus between the conclusion of fact and primary fact upon which without conclusion is based?"

14. The order of Ld. CIT(A) is erroneous both in law and on facts.

15. Any other ground that may be adduced at the time of hearing."

On the other hand the assessee has challenged the impugned order on the following grounds of appeal:

"1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in estimating GP rate at 8% without any basis and without considering the past history of 7.06% GP for the preceding year i.e.

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AY 2012-13 while, the gross receipts has been increased 2 times from the preceding A.Y.2012-13 i.e. from Rs.9.90 crores to Rs.16.66 crores.

2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in giving credit of declared GP on the alleged 'bogus purchases' at 4.08% instead of 4.82% as shown /declared in the ROI for the AY 2013-14, which is before charging interest and remuneration to partners.

3. The appellant craves leave, to add, urge, alter, modify or without any grounds before or at the time of hearing."

2. Succinctly stated, the assessee who is engaged in the business of rice milling and trading of paddy, rice, broken rice etc. had e-filed its return of income for the assessment year 2013-14 on 28.09.2013, declaring an income of Rs.3,06,410/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.

3. During the course of the assessment proceedings, it was, inter alia, observed by the A.O that survey proceedings were conducted u/s.133A of the Act on 15.03.2016 on certain brokers/entry operators. It was observed by the A.O that the aforesaid brokers/entry operators had in their statements recorded u/s.131 of the Act admitted that they had acted as intermediaries for facilitating providing of bogus purchase bills to certain parties without actual delivery of goods. The A.O on the basis of the facts that had surfaced in the course of the survey conducted against the brokers/entry operators summoned the assessee u/s.131(1) of the Act. The A.O confronted the assessee with the statements of the brokers/entry

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operators who had accepted of having merely provided bogus purchases bills without any supply of material and called upon it to substantiate its claim of having made purchases from seven tainted parties, as under:

In reply, it was the claim of the assessee that it had made genuine purchases

from the aforementioned parties. The A.O in order to verify the genuineness

and veracity of the purchases which the assessee had claimed to have made

from the aforesaid parties directed him to place on record supporting

documentary evidences, viz. gate entry pass, proof of transportation,

purchase register etc. In compliance the assessee though produced the

purchase bills but failed to place on record any documentary evidence which

would substantiate the transportation of goods in question. The assessee on

being queried as to whether it had purchased goods directly or through

intermediaries stated that the same were made through brokers.

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As the assessee had failed to substantiate the genuineness and veracity of its claim of having made purchases from the aforementioned seven tainted parties on the basis of documentary evidences which would have irrefutably evidenced the same, viz. lorry receipts, transportation payments etc., therefore, the A.O held the impugned purchases as bogus. The A.O impliedly holding a conviction that the assessee had purchased the goods in question not from the aforementioned hawala parties but from the open/grey market, therefore, relied on the order of the ITAT, Ahmadabad in the case of Vijay Proteins Vs. ACIT, (1996) 58 ITD 428 (Ahd.) and made an addition of Rs. 1,71,16,444/- i.e @ 25% of the value of impugned purchases of Rs.6,84,65,775/-. Also, the A.O being of the view that as the assessee had not made purchases from the aforementioned seven parties, therefore, he made a further addition of Rs.25,69,200/- towards peak purchase credit as was running in the accounts of the aforementioned seven parties over the year. The A.O on the basis of his aforesaid deliberations vide his order passed u/s.143(3), dated 31.03.2016 determined the income of the assessee firm at Rs.1,99,92,050/-.

4. Aggrieved, the assesee carried the matter in appeal before the CIT(Appeals). Apropos the addition made by the A.O as regards the bogus purchases, the CIT(Appeals) was of the view that as the GP rate of 8% would meet the ends of justice, therefore, after considering the assessee's overall

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disclosed GP rate of 4.08% he sustained the addition @ 3.92% [8% (-) 4.08%] of the impugned purchases in question of Rs.6,84,75,775/-. Accordingly, the CIT(Appeals) sustained an addition of Rs.27,94,306/-(out of the addition of Rs.1,71,16,444/- that was made by the A.O).

5. The CIT(Appeals) was further of the view that the addition that was made by the A.O towards peak credit of purchases running in the accounts of the aforesaid seven tainted parties against whose name bogus purchases were booked by the assessee firm could not be sustained. The CIT(Appeals) was of the view that as the payments towards purchase of the goods in question were made by the assessee through its disclosed banking transaction, thus, the peak concept for making of the impugned additions could not be triggered in its case. Accordingly, the CIT(Appeals) vacated the entire addition of Rs.25,69,200/- made by the A.O.

6. The revenue being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.

7. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

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8. As observed by us hereinabove, the revenue by preferring the present appeals has sought our indulgence for adjudicating as to whether or not the CIT(Appeals) is right in law and the facts of the case in vacating the addition of Rs.1,43,22,138/- (out of the total addition of Rs.1,71,16,444/- that was made by the A.O) in respect of bogus purchases. On the other hand the assessee has assailed the order of the CIT(Appeals), for the reason that he had without any basis estimated the addition as regards the bogus purchases by adopting an ad-hoc GP rate of 8% and sustaining an addition @3.92% of the value of the impugned bogus purchases [ i.e. 8% (ad-hoc basis) (-) 4.08% (overall disclosed GP rate)].

9. As the issues raised in the present cross-appeals are inextricably interwoven, therefore, we shall dispose off the same by way of a consolidated order.

(A). Bogus purchases :-

10. Controversy involved in the present appeal hinges around the quantification of the profit/savings which the assessee would have made by procuring the aforesaid goods in question not from the aforementioned seven tainted parties, but at a discounted value from the open/grey market. Ostensibly the A.O for quantifying the amount by which the assessee would have inflated the impugned bogus purchases on the basis of bills procured from the aforesaid tainted parties vis-a vis the actual price for which the

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same would have been actually purchased by him had disallowed 25% of the value of bogus purchases, which, however, was thereafter scaled down by the CIT(Appeals) to 3.92% i.e. [i.e.8% ( ad-hoc rate of profit adopted by the CIT(Appeals) (-) 4.08% (overall disclosed GP rate of the assessee)].

11. On a perusal of the observations of both the lower authorities, we would not hesitate to observe that the basis adopted by them for quantifying the amount by which the assessee would have inflated the impugned bogus purchases in its books of accounts is devoid and bereft of any reasoning. Admittedly, in a case where the assessee had purchased goods not from the organized sector but from the open/grey market, then, it can safely be concluded that he would have procured such goods at a discounted value by making savings on manifold factors i.e. sales tax, other government levies, cash discounts etc., as in comparison to the price at which the said goods would otherwise be available in the organized sector. Accordingly, in a case where an assessee had though procured the goods at a discounted value from the open/grey market, but thereafter routed the same through his books of accounts on the basis of bogus purchase bills, thus, in all likelihood would have inflated such purchases. As our indulgence in the present case is confined to the quantification of the profit which the assessee would have made by procuring the goods in question at a discounted value

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from the open/grey market, therefore, we restrict our adjudication to the said aspect alone.

12. On the issue of quantification of the profit which the assessee would have made by procuring the goods in question from the open/grey market, we find that the Hon'ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, ITA No1004 of 2016, dated 11.02.2019, while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate as that of other genuine purchases. The Hon'ble High Court while concluding as hereinabove had observed as under:

"8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-

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"So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue."

9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs."

It was, thus, observed by the Hon'ble High Court that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate as that of other genuine purchases. On the basis of the aforesaid observations of the Hon'ble High Court, we are of the considered view that on the same lines the profit made by the assessee in the case before us by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.

13. Our attention was drawn by the ld. AR towards the bifurcated details of bogus purchases in question aggregating to Rs.6,84,65,775/- a/w. the average rate of purchase of the various items, viz. (i) purchase of 27350 quintals of rice: Rs.4,67,45,125/-; (ii) purchase of 10,500 quintals of broken

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rice (Kanki) : Rs.1,48,64,000/- and (iii) purchase of 4470 quintals of paddy Rs.51,07,400/-, which reads as under:-

(Purchase rate of Kanki)

( Purchase rate of Rice)

( Purchase rate of paddy)

As observed by us herein above the entire exercise for quantifying the profit

which the assessee would have made by procuring the goods in question at

a discounted value from the open/grey market, i.e, by bringing the GP rate

of the bogus purchases at the same rate as that of other genuine purchases,

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is that by so doing the monetary benefit which would have accrued to the assessee but withheld by him in his financial statements by booking the purchases at an inflated value on the basis of bogus purchase bills would stand neutralized.

14. We shall now deal with the quantification of the profit which the assessee would have made by procuring the goods at a discounted value from the open/grey market, as under:

(A) Broken Rice ( Kanki) (10,500 quintals) :-

15. Considering the aforesaid details which are stated by the assessee to have been filed before the lower authorities, it transpires that the bogus purchases of broken rice (Kanki) was made by the assessee @1415.62 per quintal (average rate), as against the purchase of the genuine broken rice (kanki) that was made by him @ 1437.47 per quintal (average rate). On the basis of the aforesaid facts, now when the assessee had made bogus purchase of broken rice (kanki) (average rate) at a value lower than that at which it had made genuine purchase of broken rice (kanki) (average rate), therefore, as per the ratio of the judgment of the Hon'ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no occasion much the less any justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason

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that the Hon'ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent that the GP rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the rate of bogus purchases of broken rice (kanki) i.e Rs.1415.62 per quintal (average rate) is lower than the rate of genuine purchases of broken rice (kanki) i.e Rs. 1437.47 per quintal (average rate), therefore, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of broken rice (kanki) as in comparison to the GP rate of genuine purchases of broken rice( Kanki) is already on the higher side, therefore, no addition on the said count could have validly been made in its hand. We, thus, in terms of our aforesaid observations vacate the addition of 3.92% of the value of bogus/unproved purchases of broken rice (10500 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs. 5,82,668/- [Rs. 1,48,64,000/- X 3.92%] sustained by the CIT(Appeals).

(B) Rice (27350 quintals) :-

16. On a perusal of the records, it transpires that the assessee had made bogus purchases of 27350 quintals of rice (value of Rs.4,67,45,125/-). As observed by us hereinabove the A.O had quantified the profit on the

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purchase of bogus rice by disallowing 25% of the value of the impugned purchases, which, however, was scaled down by the CIT(Appeals) to 3.92% (supra) i.e. to the extent of difference between 8% (ad-hoc rate adopted by the CIT(Appeals) and the overall disclosed GP rate of 4.08% of the assessee for the year under consideration.

17. As can be gathered from the details filed by the assessee, the assessee had made bogus purchases of rice @ Rs.1709.14 per quintal (average rate), while for the genuine purchase of rice was made @ Rs.1636.76 per quintal (average rate). Admittedly, the bogus purchases of rice i.e average rate is found to be on the higher side by an amount of Rs.72.38 per quintal (average rate). Considering the addition that had been sustained by the CIT(Appeals) i.e @ 3.92% of the value of the impugned purchases, it transpires, that by applying the same the purchase value per quintal of rice (average rate) would stand reduced to an amount of Rs.1642.14 per quintal [i.e Rs.1709.14/- per quintal (-) 3.92% of Rs.1709.14/-]. As per the judgment of the Hon'ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) the profit made by the assessee by procuring the goods from the open/grey market is to be determined by bringing the GP rate of the bogus/unproved purchases to the same rate as that of the other genuine purchases. As the aforesaid addition had been sustained by the CIT(Appeals) @ 3.92% of the value of the impugned bogus purchases of rice, the same,

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thus brings the purchase price (average rate) of the bogus purchase of rice to an amount of Rs.1642.14 (supra), which, however is still in excess of the purchase of genuine rice (average rate) of Rs.1636.76 per quintal by an amount of Rs.5.38 per quintal. We, thus, in terms of our aforesaid observations direct the A.O to make an addition of Rs.1,47,143/- [i.e. 27350 quintals (bogus purchases) X Rs.5.38/- per quintal].

(C) Paddy (4470 quintals) :-

18. On a perusal of the records, it transpires that the bogus purchases of paddy had been made by the assessee @ Rs. 1142.60 per quintal (average rate), as against the purchase of the genuine paddy that was made by him @ 1232.32 per quintal (average rate). On the basis of the aforesaid facts, now when the assessee had made bogus purchase of paddy (average rate) at a value lower than that at which it had made genuine purchase of paddy (average rate), therefore, as per the ratio of the judgment of the Hon'ble High Court of Bombay in the case of M/s. Mohhomad Haji Adam & Company (supra) there could be no occasion much the less any justification for making any addition on the said count in the hands of the assessee. We, say so, for the reason that the Hon'ble High Court in the case of M/s. Mohhomad Haji Adam & Company (supra), had held, that for the purpose of quantifying the profit which the assessee would have made by carrying out bogus/unproved purchases the addition is to be made to the extent the GP

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rate of the bogus/unproved purchases is brought to the same rate as that of other genuine purchases. As in the case of the assessee before us the rate of bogus purchase of paddy i.e Rs.1142.60 per quintal (average rate) is lower than the rate of genuine purchase of paddy i.e. Rs. 1232.32 per quintal (average rate), and thus, as a consequence thereto [by taking the sale rate (average) as static] the GP rate of bogus purchases of paddy as in comparison to the GP rate of genuine purchases of paddy is already on the higher side, therefore, no further addition on the said count could have validly been made in his hand. We, thus, in terms of our aforesaid observations vacate the addition of 3.92% of the value of bogus/unproved purchases of paddy (4470 quintals) as sustained by the CIT(Appeals). Accordingly, the A.O is directed to vacate the addition of Rs. 2,00,210/- [Rs. 51,07,400/- X 3.92%] out of that sustained by the CIT(Appeals).

19. We, thus, in terms of our aforesaid observations partly uphold the order of the CIT(Appeals) as regards the additions that have been sustained by him towards the profit which the assessee would have made by procuring the aforesaid goods i.e. broken rice (kanki)/ rice/paddy from the open/grey market. Thus, the grounds of appeal No.(s) 1 to 10 raised by the revenue are partly allowed in terms of our aforesaid observations.

20. As the grounds of appeal nos. 11 & 12 raised by the revenue are general, therefore, the same are dismissed as not pressed.

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21. In the result, appeal of the revenue is partly allowed in terms of our aforesaid observations.

22. Adverting to the appeal filed by the assessee, it transpires that it has assailed before us the very basis that was adopted by the CIT(Appeals) for sustaining part addition made by the A.O. However, as while disposing off the appeal of the revenue deliberated at length and substituted the very basis for estimation of the profit/savings which the assessee would have made by making the impugned purchases from the open/grey market, therefore, the present claim of the assessee would be taken care of and stand subsumed by our aforesaid observations. Thus, the Grounds of appeal No.(s) 1 to 3 raised by the assessee are partly allowed in terms of our aforesaid observations.

23. In the result, appeal of the assesee in ITA No.168/RPR/2019 for the assessment year 2013-14 is partly allowed in terms of our aforesaid observations.

24. Resultantly, both the appeals of the revenue and the assessee are partly allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.

Sd/- Sd/-

ARUN KHODPIA RAVISH SOOD

(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)

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रायपरु

/ RAIPUR ; दनांक / Dated : 17^thOctober, 2022 ***SB

आदेश क त ल प अ े षत / Copy of the Order forwarded to :

1. अपीलाथ / The Appellant.

2. यथ / The Respondent.

3. The CIT(Appeals)-1, Raipur (C.G)

4. The Pr. CIT-1, Raipur (C.G)

5. वभागीय त न ध, आयकर अपील य अ धकरण,रायपुर बच, रायपरु

/ DR, ITAT, Raipur Bench, Raipur.

6. गाड फ़ाइल / Guard File.

आदेशानुसार / BY ORDER, // True Copy //

नजी स चव / Private Secretary आयकर अपील य अ धकरण, रायपुर / ITAT, Raipur.