IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH: JODHPUR

BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER.

ITA NO. 175/Jodh/2014

(A.Y. 2009-10) Smt. Pushpa Devi Singla Vs The J.C.I.T Prop. M/s Singla & Sons Range New Dhan Mandi, Sadulshahar Sriganganagar PAN : AYQPS 3767 E (Appellant) (Respondent) Assessee by : Shri Suresh Ojha Department by : Shri N.A. Joshi- DR. Date of hearing : 03/06/2014. Date of pronouncement : 31/07/2014.

O R D E R

PER HARI OM MARATHA, J.M. : This appeal of the assessee for A.Y. 2009-10 is directed against

the order of ld. CIT(A), Ajmer, dated 28.02.2014.

2. Briefly stated, the facts of the case are that the assessee Smt.

Pushpa Devi Singla is proprietor of M/s Singla & Sons, which runs a

Cotton Ginning Factory. She filed her return of income (ROI) for A.Y.

2009-10 on 27/09/2009 declaring total income at Rs. 2,57,890/- in the

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status of an individual which was processed on 3.8.2010 u/s 143(1) of

the Income-tax Act, 1961 ['the Act', for short]. From the books of

account, it was found that the purchases of cotton were made to the

tune of Rs. 1,18,26,270/- which were not supported by any vouchers.

Most of these purchases were found to be in cash. The A.O asked the

assessee to explain this position, the assessee filed letter dated

13.12.2011, the observations of the A.O and submissions of the

assessee read as under:

3.2 "Your case for the A.Y. 2009-10 was taken for

scrutiny by issuing notice u/s 143(2) of the IT. Act, 1961

on 19.08.2010 and sent to you registered post which was

served upon you on 21.08.2010. Thereafter, a notice u/s

142(1) alongwith questionnaire was issued to you on

15.04.2011 fixing your case for 04.05.2011. On

04.05.2011 your counsel Sh. Sunil Aggarwal sought

adjournment and case was adjourned to 19.05.2011. On

19.05.2011 again applied for adjournment and case was

adjourned to 14.06.2011. On 14.06.2011 none attended.

On 17.06.2011 Sh. Sunil Aggarwal attended the

proceeding and again sought adjournment. The case was

re-fixed on 01.08.2011. On 01.08.2011 Sh. Sunil Aggarwal

attended the proceeding and informed that copy of the

questionnaire has been misplaced, so the copy of the

same supplied and case was adjourned to 08.08.2011. On

08.08.2011 a telephonic message was received from Sh.

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Sunil Aggarwal that due to heavy rain he could not

come to office, so case was adjourned to 09.08.2011.

On 09.08.2011, Sh. Sunil Aggarwal attended and filed

incomplete reply, he was asked to produce books of

account with complete vouchers and case was adjourned

to 11.08.2011. On 11.08.2011 none attended, the case was

re-fixed for 07.09.2011. On 07.09.2011 Sh. Sunil

Aggarwal alongwith Sh. Krishan Kumar, husband of

assessee and Sh. Amar Lal, Accountant attended the

proceeding and produced books of accounts. On

verification, it is found that assessee has shown

purchases of 2268 Qtls. 68 Kg. of Cotton from

different persons amounting to Rs.1,18,26,270/- for

which he has no purchases vouchers, when they were

asked why they don't have the purchase vouchers, it was

stated that this Cotton has been purchased directly from

farmers. They were pointed out that assessee herself has a

Cotton ginning factory and why she purchased Cotton

from farmers and from where the farmers had sold such

a huge quantity of Cotton. It was pointed out to assessee

that :-

1. No evidence is available with her, as regard to the

Dalali paid.

2. The reason for extra paid stamp duty of purchases of

shop.

3. She has no evidence for the payment of TDS.

4. No Kapas and Narma Exp. vouchers.

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3.3 The case was adjourned to 15.09.2011. On

15.09.2011 Sh. Sunil Aggarwal filed adjournment

application and case was adjourned to 04.10.2011, the

long adjournment was given as advocate pleaded that he is

busy in time barring returns and case was adjourned to

04.10.2011. On 04.10.2011 Sh. Sunil Aggarwal attended the

proceedings he filed certain details he was asked to file the

list of employees of sister concerns, electricity bills and

rent deed of the factory. He was also asked to produce the

persons from whom he purchased Cotton. Case was

adjourned to 14.10.2011. On 14.10.2011, Sh. Sunil

Aggarwal filed the letter, in this letter it is submitted as

under :-

"That in the previous hearing as per your direction

assessee called to farmer for presence in your office.

But no farmers comes today"

3.4 Assessee has not filed complete documents; assessee

was asked to produce the production register and was

given another opportunity to produce the farmers on

02.11.2011. On 02.11.2011 assessee sought adjournment

and case was adjourned to 09.11.2011. On 09.11.2011,

assessee again filed part details and also stated that

farmers from whom Cotton was purchased cannot be

produced. The case was adjourned to 17.11.2011. On

16.11.2011, Sh. Deepak Jain, Advocate attended and filed

the power of attorney and sought adjournment, case was

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adjourned to 25.11.2011. On 25.11.2011 Sh. Deepak Jain,

Advocate did not attend the proceeding however, filed the

written reply.

3.5 From the above facts it has become clear that though

sufficient opportunity has been given to you to produce

the farmers from whom you have allegedly purchased

Cotton directly. But you have failed to produce them.

Perusal of the accounts of these farmers as appearing in

your books of account reveals that in most of the cases,

you have not made the payment immediately. Rather

you have made them most of the payments after a long

time. For instance in the case of Sh. Nirmal Singh S/o Kaur

Singh, Village Khar a you have shown purchase of Cotton

amounting to Rs.4,14,019/- on 19.04.2008, the payment of

which has been made in the month of April, May, June,

August and final payment of three lacs has been made on

31.10.2008. Similarly in the case of Sh. Kaur Singh out of

the total purchase of Rs.5,26,826/-, the payment of four

lacs has been made on 26.03.2009. Similar are the facts in

respect of other farmers. It clearly shows that in these

transactions are genuine, these farmers are having very

good terms with you and there should not be any problem in

producing them. Though, you have not filed any documents/

details regarding the farmers from whom you alleged to

have been purchased. This office has made independent

inquires from the banks of sadulshahar and it came are

notice that these farmers have opened there accounts in

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State Bank of Bikaner & Jaipur, Punjab National Bank, both

of Sadulshahar from these banks. Bank statements and

copies of the cheque deposited and the cheque by which

amount withdrawn was obtained from the banks by these

persons were obtained. Perusal of these account and other

documents reveals that all the cases the withdrawal cheque

are bearer and in the same handwriting and have been

withdrawn from bank by a person named Mr. Gagan. As per

information filed by you, Mr. Gagan is an employee of your

sister concern M/s Kapil Trading Company. So all these facts

clearly show that all these entries of the alleged purchase of

Cotton and payment made there off are accommodating

entries obtain by you to cover-up you outside the books

purchase of Narma.

3.6 As per local inquiry made by this office most of

these persons have small holding and some of them even

do not own any land. Further as per information most of

them have not grown Narma during the relevant season.

Even in those cases where Narma has been grown area of

land was too small. Further as per the bye laws of the

Krishi Upaj Mandi Samiti, you can't purchase agriculture

product directly without paying the market fee and other

taxes. These facts clearly indicate that in fact you have

purchased Narma outside the books of accounts to avoid

the payment of market fee, VAT, Arhat etc. As per

information collected the Krishi Upaj Mandi Samiti fee on

Narma is 1.6%, Arhat is 2.00% and VAT is 5.00%, Vayapar

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Mandal Rs. 0.10, Gaushala Rs.0.05 per hundred rupees.

Thus you have been able to save taxes + arhat etc. of

8% of the purchases. In fact you have purchased Narma

outside the books of account and the same has been

processed in your Cotton ginning factory and to cover up

the production of Cotton sold by you, you have shown the

purchase of Cotton directly. By doing this, you have also

concealed the sale of Cotton seeds produced from the

ginning of Narma and profit there off.

3.7 As per details filed alleged purchases of Cotton

which in fact is production out of the Narma purchased

outside the books of accounts is due the tune of 2268.98

Qtl. Yourself you have shown production of Cotton from

Narma 34.4% production of Cotton seed at 63.9% and

shortage 1.7%. Thus, to produce 2268.98 Qtls Cotton,

you purchased 6595.87 Qtls. Narma, as per your on

trading account the average price of Narma is 2652 Per

Qtls. Thus the value of Narma comes to Rs.1,74,92,247/-

. By ginning of this Narma your production 2268.98 Qtl.

Cotton and 4214.76 Qtls. Cotton seed. As per your own

trading account the average sale price of Cotton is

Rs.5587/- and average sale price of Cotton seeds is

Rs.1380/-. Thus the total value of Cotton and Cotton seeds

sold by you is as under:-

Cotton 2268.98 Qtl. @Rs.5587/- Value Rs. 1,26,76,791/- Cotton Seeds 4214.76 Qtl @ Rs. 1380/- Value Rs. 58,16,368/-

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Total Rs. 1,84,93,159/-

The cost of Narma as disused above Rs. 1,74,92,247/

assessee has made purchases outside

the books of account on which he has

made a saving of 8% on a/c of tax market

fee, Arhat etc. 13,99,379/-

Net Profit

(the exp. already booked 10,00,912/-

Total 1,98,92,538/-

Thus, I purposed to make addition of Rs. 1,98,92,538/-

to your returned income as discussed above. In case

you have any objection please file the same

alongwith documentary evidence.

3.8 Notice u/s 142(1) of the I.T. Act, 1961 is enclosed

herewith; your case is fixed for 13.12.2011. Please note

that no adjournment will be allowed. "

4. In response to this notice, Sh. Sunil Aggarwal,

Advocate alongwith Sh. Krishan Lai Singla Proprietor of

the firm M/s Kapil Trading Company and husband of

assessee attended the proceedings, they filed written

reply. However they sought adjournment on the plea that

Sh. Deepak Jain, Advocate has gone to Jaipur to attend a

case before CIT(A), Central Jaipur. The case was adjourned

to 14.11.2011, the reply filed by the assessee is

reproduced below:-

"Re: Smt. Pushpa Devi Prop/of M/s. Singla & Sons,

Sadulshahar. Asstt. year 2009-10.

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4.1 The assessee is in receipt of your show cause No.

JCIT/R-SGNR7 2011-12/1431 Dated 2nd December 2011

which was served on the assessee only on 8th December

2011. With the letter the assessee is willing to file some

evidences in support of the contention but as the time

allowed was very short and 10th and 11th were the Holiday

due to Saturday and Sunday and so the assessee can't gather

the evidences which will be filed on the next date of

hearing.

4.2 In the starting of letter you have pointed out

some of the queries, the information/documents

which were not supplied by the assessee. In the para 1 on

page 2 you have mentioned that the assessee was asked

that while the assessee is having Cotton ginning factory

then why she has purchased Cotton from the farmers and

from where the farmers have sold such a huge quantity of

Cotton.

4.2 In this regard it is stated that the assessee is a

dealer in Cotton and Cotton Seed. Generally the

processors purchase the raw Cotton i.e. Narma and Kapas

and after getting the same ginned in the factory separates

the lint and seed. The lint is sold separately and Cotton

seed is sold separately. In general practice the lint is sold

either loose in shapes of Boras or in the compressed form in

the shapes of Bales. From the above you will please

appreciate that the main business of the assessee is not to

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sale the raw Cotton (Narma Kapas) but the products

obtained from Narma by processing the same in the

factory. Whenever the assessee get a chance to purchase

the Cotton lint she purchases the same which saves her from

the expenses on the processing and also saves the time

involved in processing. Here it would be pertinent to

bring to your kind notice that it is the sweet will of the

assessee that how he/she wants to run his/her business.

The business expectancy is to be looking into by the

assessee himself.

4.3 Your second query is about the availability of the

loose Cotton lint with the farmers. In this regard it is

stated that if the yield of a particular variety sawn by the

farmers is good then the farmer try to keep the seed of

that variety for next season as the Cotton seeds available in

the market are somehow costly. Secondly all the farmers

have some cattle and the Cotton seed is the best available

food for the cattle and so just for the purposes of cost

cutting of the seeds and cheaper food for their animals,

the farmer get the seeds separated from the Narma Kapas

and sells the lint in the open market. It is but obvious that

for selling the Cotton lint first of all the farmer will come

to the traders with whom he is having the regular

dealings. If the assessee desires to purchases the Cotton

lint then the farmer sells the same to assessee or otherwise

sell the same in the open market. Details of purchase of

entire goods have already been submitted.Photostat copies

of the account have already been submitted therefore the

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information in respect of the details is available with your

goodself. From the details of the purchases of Cotton lint

your good self will please find that the Cotton lint is

purchased in small quantity from different farmers who

were not attached with the assessee. The major part of

the Cotton lint was purchased from the farmers who are

the regular constituents of the assessee or her family

concerns. Here it would not be out of place to mention

that by doing this the farmers are also looking their

interest so as to earn better returns. In this way the farmers

are keeping the Cotton seed with them and selling rest of

the material to the prospective buyer. This act is also

putting them some comfort because in this way they save

the carriage charges and also time. The farmers are also

fetching good price seating at their own farm.

Comments :- The contention of the assessee is without

any supporting evidence the quantity ofBinola suppose to

the be produced from ginning of Narma by these alleged

these farmers can't be used only for the cattle.

Moreover, these farmers are not prosper one they can

retain the agriculture produce for long time and then wait

for the payment when they are them self are under debts.

As all the five farmers which were produced by the

assessee admitted in their statements they have taken

loans from banks and Arhtia (Commission Agent) for

agriculture need as well as family needs.

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4.5 Regarding the evidence of the Dalali paid it is stated

that in the market the rate of the Brokerage is fixed. The

assessee has filed the copies of account of the Brokers and

the quantity sold by the assessee is quite evident from the

trading accounts filed with the return. In this area the

brokers do not issue the bills for their services. After the

completion of the deal the traders either credits the

account of the broker with the amount of brokerage or pay

the brokerage in cash. The Brokerage is paid almost on all

the deals. The system adopted by the assessee is not new

one but this is a common market practice. This fact can be

verified from any of the trader of this line. Anyhow the

assessee is trying the obtain a certificate to this effect from

the Traders Association and if could be obtained the same

will be filed on next date of hearing.

4.6 You have asked the reason for payment of extra stamp

duty on the purchase of shop. In this regard it is stated that

the State Government has fixed the area wise market value

of the properties and accordingly charges the stamp duty.

The assessee has shown the purchase consideration for

which she has purchased the shop but as the Circle rates

decided by the Government are higher so the assessee has

paid the extra stamp duty on the same. As per rules of

registration if the stamp duty is less than the prescribed rate

of that area and the purchaser challenge the same then the

documents shall be impounded and thereafter there is a

long process in respect of obtaining the document. The

purchaser/seller used to mention the amount actually

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received but so as to purchase peace and avoid litigation they

used to make the payment of duty on the basis of rate as

laid down by the Government therefore there was

compelling circumstances and there is no other way for

registration hence has to accept this way. This is not only in

the case of the assessee but almost in all cases of

registration. The fact can be verified from the office of the

sub registrar.

4.7 Regarding the evidence of payment of T.D.S. it is

stated that the copy of the T.D.S. challans has already been

filed with letter dated 04.10.2011.

4.8 Regarding the vouchers for the expenses incurred on

Narma & Kapas it is stated that these are mainly the labour

charges. There are several processes in the trading and

ginning of the Narma and Kapas. The Narma & Kapas comes

loose on the Platform of the assessee. Upto the time of

auction by the Krishi Upaj Mandi Samity, the responsibility

of the goods remains with the farmer and after the auction

the responsibility shifts to assessee. After the auction the

goods have to be weighed, packed in Hessian Cloth (Palli),

loaded in the Trolleys, carried to the factory premises,

unloaded there, cleaning of the Narma Kapas by hand picking

the weeds etc., carrying of raw goods to the machines and

after completion of ginning get the lint and seed removed

from the machines, send the lint to Press machines,

packing of seeds in the Bags, weighment of the seeds

shifting the same to the godowns and also shifting of the lint

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bales to the godowns. In the books of accounts the assessee

has debited two type of expenses one expenses directly

debited in the trading account and one debited in the Profit

and Loss account. The expenses mentioned in the Trading

account are of the nature as mentioned above whereas the

expenses debited in the profit and loss account is on account

of ginning and pressing expenses which cannot be bifurcated

directly to any particular trading account.

4.9 All the above works are done through the labour

attached with the Paledar Union. The rate of each work is

fixed by the Union and the assessee has to make the payment

accordingly. As the rates of the labour are fixed and the

quantity is also available in the records and hence even in

the absence of the vouchers the expenses are fully verifiable.

This is a common practice in this line of trade and is also

subject to verification from other traders. The assessee is

trying to obtained a certificate in this respect also from The

Traders Association. If obtained the same will be filed on the

next date of hearing.

4.10 You have further mentioned in the letter that the

assessee has not produced the farmers. In the same para you

have observed that the assessee has not made the payments

to the farmers immediately but the payments were made

after a long period, in support of your contention you have

also quoted the name of two farmers i.e. Sh. Nirmal Singh

S/o Kaur Singh, Village Khara and Sh. Kaur Singh. You have

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also mentioned that from the above fact it is quite clear that

these transactions are genuine and these farmers are having

the good terms with the assessee. The observations given by

you are very true, the transactions with farmers are genuine

and the assessee is having the good relations with these

farmers. The assessee was never hesitant in producing these

farmers but due to one or the other reason the farmers could

not be produced earlier. The name of the farmers and

addresses thereof are available with you. If you think it

proper, you yourself can verify the correctness in respect of

the transactions.

Comments: - The contention of the assessee is

factually incorrect after availing number of

opportunities vide order sheet entry dated

09.11.2011 assessee counsel clearly stated that

farmers can't be produced.

4.11 After the last date of hearing some of the farmers

informed the assessee that some Inspector from your

office has approached them and recorded their statements.

From the same the assessee came under the impression that

you are making the direct enquiry from the farmers and so

the assessee has not produced these farmers on his own. If

any such inquiry is made then the copies of the same may be

provided to the assessee. Now also the assessee has no

hesitation in producing the farmers and on hearing from

you and if you allow time the farmers may be produced.

Till then the assessee has requested the farmers to file an

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Affidavit confirming the fact of selling the Cotton lint to

the assessee. As the notice is served on the assessee only

on 8th December 2011 so in such a short time the assessee

could not contact the farmers for presenting before your

goodself or for providing the Affidavit and so it is

requested that some time may please be allowed to the

assessee to produce the farmers.

4.12 Next you have mentioned that on the enquiry made

by your Office it came to your knowledge that though the

payments were made to these farmers through banking

channel but the payments were through bearer cheques

and all the cheques for withdrawals were in the single

hand writing and the withdrawals were by Sh. Gagan

employee of sister concern M/s. Kapil Trading Company. By

mentioning the above facts you have observed that this

shows that the all the entries relating to the purchases and

payment are accommodating entries obtained by the

assessee. In this regard it is stated that the farmers are not

very conversant with the banking systems and they generally

ask the trader to help them in banking and other

government works and being the constituent the traders

help them in every respect. The cheques are issued by the

accountants and so it is but natural that these may be in

the same handwriting. It is general practice in all the

Mandies of the area that the traders sent their persons to

help the farmer in getting the money from the bank. Due to

this reason the assessee has deputed Mr. Gagan to help the

farmers. The reason for deputing the employee of sister

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concern M/s. Kapil Trading Company it is stated that all

most all the farmers were the constituents of that firm

and are familiar with Mr. Gagan, who handles the work of

these farmers in that firm. Due to this Mr. Gagan was

deputed for the bank work of the farmers.

4.13 Sir above mentioned practice is the common

practice in the area and this does not indicate any

anomaly in the system. On the basis of these observations

one can't be assure that the entries under question are

accommodating entries but any presumption may be

assumed.

4.14 In the next para you have informed that you have

made some local inquiries and found that these farmers

have small holding, some of them even do not own any

land, most of them have not grown Narma and even if

the Narma is grown then the area of the land under

cultivation was too small. In this regard it is requested that

the copies of informations gathered on the back of the

assessee may please be supplied so that the assessee may

give her comments on the same.

4.15 Without prejudice to the same in this regard it is

stated that the assessee has come to know from some

farmers that the Patwari has sent some report about their

land holding and Girdawari to the Income-tax

Department. From the same it appears that you have

made the inquiry from the Patwari of the area. Sir the

report of the Patwari may be correct but the ground

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position is totally different. The Patwari might have

informed you the land holding and Girdawari of the

persons whose names were given by you to him. Factually

in the villages the farmers resides in joint family and the

land belongs to several family members but only a few

family members go to Mandi to handle the work there and

in the books of the traders the name of those persons

appear on behalf of the whole family. The traders

generally do not go by the revenue records for opening

the account. Thus total land holding of the family may be

far more than the land holding in the single name.

Secondly in the villages it is very common that some

farmers takes the land of the other farmer on Contract

basis and produce the crop in that land also. Here it

would be pertinent to mention that in Rajasthan all the

lands are lease hold land and there is no free hold land.

The fact can be verified from the Jamabandi of the land

in which in the column 'Owner of the Land' the word 'Raj

Sarkar' is mentioned and the name of the farmer is

mentioned in the column 'who is cultivating the land'. In

this way when a farmer takes the land on contract his

name do not appear in Girdawari but the name of the

original lessee will appear. Contrary to the above the

lands in Haryana & Punjab are Free hold land and in those

states when the land is taken on Contract then in the

column 'who is cultivating the land', the name of the

farmer who have taken the land on Contract is given.

From the above you will please appreciate that there is

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every possibility that these farmers are cultivating more

land then appearing in their name in the revenue records.

Comments :- As regard the contention of the assesses

in Para 4.10 to 4.15 is concerned, when the assessee was

not coming the farmers from whom alleged Cotton has

been purchased. This office made local inquiries regarding

the land holding, the crop grown etc. of these farmers

and vide this office letter dated 02.12.2011 (Para 3.6)

assessee was confronted with the out cum inquiry.

Therefore, the claim of the assessee that result of the

inquiries made at the back of the assessee is not correct.

4.16 Without prejudice to above just for the sake of argument if

it is accepted that you might be right but in our case purchases

are there. In some cases some agriculturist also used to

purchase the agriculture produce of their neighbor and after

holding the same for some time when market is improve they

used to sale the agriculture produce purchased from the other

farmers. Some time the farmers having lesser holding of land

used to cultivate the land of the other farmers and so for this

reason it can't be a sole criteria for deriving adverse inference.

Comments :- The contention of the assessee that some time

the farmers purchase the crop of the neighbor also has no

force because as discussed in details of the subsequent

paras of this order. It is proved beyond doubt that these

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farmers are not mains of means.

4.17 You have observed that these so called entries

of purchase of Cotton lint are accommodating entries

to cover up the unaccounted purchase of Narma. Here

first of all it is stated that these purchases are not the so

called entries of purchases but are the real purchase

made by the assessee. It is further requested to clarify

by any evidence that these are the accommodating

entries. Kindly let the assessee know how you are

treating the entries as accommodating entries when all

the evidence are with the assessee. You have further

mentioned that as per the bylaws of Kris hi Upaj Mandi

Samity, one cannot purchase agriculture products directly

without paying the market fees, VAT, Arhat etc. which

are about 8% of the purchase price. The assessee agrees

with your point of view. There cannot be any

presumption against the provisions of law. As far as

the matter of purchase of Cotton lint directly from the

agriculturist is concerned it is stated that it is the

byproduct of the crop of Narma and in Rajasthan the

farmer is free to use his crop in any manner he like and if

he sell any product in the market he is free to do so.

The best example of this practice is production of 'Gur' by

the farmers producing Sugarcane. There is no market

committee fees payable by the farmer when he sell the

goods in the market to the end user. The fact can be verified

from the market committee also. Without prejudice to above

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just for the sake of argument if we accept your version even

then how the purchases became bogus only by nonpayment of

Market Fees or VAT.

Comments:- The contention the assessee not force,

because large quantity of agriculture produce can

be sold only in Mandi, the example given the by

assessee is without any based. Assessee has asked

that on what basis I am claiming that she has not

purchased the Cotton from the farmers and instated

purchase the Narma and ginned the same to

produced Cotton. Here I will like to reproduced the

observation of Hon'ble Justice Jawahar Lai Gupta,

Hon'ble Punjab and Harvana Court in the case ofCIT

Vs. Monika Oswal reported at 267 ITR 308 "Mr.

Sharma is right in contending that the onus is on the

Revenue. It is also correct that the court cannot

proceed on surmises and suspicions. However, one

cannot lose sight of the fact that dark deeds are

performed under the cover of darkness. Direct

evidence can never be available for everything.

Sometimes, the facts speak loud and clear. Very often

the courts have to draw inferences from attendant

circumstances ".

4.18 It is further observed by your good self that the

assessee has purchased the Narma outside the books and

processed the same in the factory of the assessee to cover

up the production of Cotton sold by the assessee. By doing

22

so the sale of Cotton seed is also suppressed. In this

regard I would like to bring to your kind notice that for

argument sake if it is presumed that the assessee has

purchased the Narma out of the books and also sold the

Cotton Seed out of the books then what was the hitch to

the assessee in selling the Cotton also outside the books.

From the yield declared by the assessee your good self will

please find that the without considering the Cotton lint

purchased by the assessee, the yield declared by the

assessee is quite fair and the shortage is also very well less

than the general shortage. If the assessee can purchase the

Narma out of books, sell the Cotton Seed out of books then

why he will not 'sell the Cotton lint out of the books. For

doing any work there must be some motive or intention

but in the case of the assessee there is no such motive.

4.18 If for argument sake it may be treated that the

assessee has purchased the Narma out of the books even

then why the assessee will bring part of the unrecorded

transaction in the books of account that also without any

gain. It was very easy for the assessee to sell the whole

goods out of books. This clearly indicates that the

transactions declared by the assessee are genuine

transaction and the assessee has purchased the Cotton lint

and honestly declared the same in the books of account. In

the local laws there are no such restrictions in respect of

purchases from the unregistered dealers or agriculturist.

The assessee is at liberty to purchase the agriculture

23

produce from anyone. This may just be the matter that how

the local taxes will be paid and who will be liable to pay the

local taxes.

4.19 On the basis of the above mentioned observations

you have finally presumed that the assessee has purchased

6595.87 Qtls of Narma and after processing the same have

obtained 2269.98 Qtls. Cotton and 4214. 76 Qtls. of Cotton

Seed. You have adopted the rates of all the three

commodities on the basis of the average price as per the

trading account filed with the return of income i.e.

Rs.2652/- per Qtls. for Narma; Rs.5587/- per Qtls for Cotton

and Rs.1380/- per Qtls for Cotton Seed. Thus you have

proposed an addition ofRs. 19892538/- on this account. The

summarized breakup of the addition is as under :-

Cost of Narma 6595.87X2652

17492247/-

Taxes & Expenses 8% saved

13993 79/-

Net profit in sale of Cotton lint & Seed =

1000912/-

4.21 Without prejudice to the fact that the assessee

deny to have done any such transaction and just to rebut

the presumption adopted by you it is stated as under :-

24

4.22 First of all if it is presumed that the assessee has

purchased this quantity of Narma then it is not possible to

purchase this quantity in a single day. At the most what

can happen that the assessee used to purchase the

Narma out of books in small lots and after getting the

same processed sold the Seeds out of books and

introduced the Cotton lint in the books. Thus it is quite

clear that if this out of books work is done by the assessee

then the same was done in parts and for investing in the

fresh purchases of Narma the assessee was getting the

money shown paid to farmers in the regular books of

account and also the sale consideration of the Cotton

seed sold out of the books which may be treated as again

invested in the purchase of the Narma. In other words if

you think that the addition on this account is to be

made then the benefit of telescoping should be allowed

to the assessee. Here it would not be out of place to

mention that from the details of the Cotton lint

purchased you will please found that most of the

quantity of the lint was purchased in the month of

April 2008 itself and the remaining quantity was

purchased in the month of November, 2008 to February

2009. Thus the amount of investment in the stock of the

month of April 2008 is available for investment in the

month of November and onwards and the telescoping of

the same should be allowed. Theory of peak if applicable

can be applied in respect of purchase amount.

25

4.23 Here one more thing to be discussed about the

proposed addition of Rs.1399379/- on account of 8%

expenses of Market fees, VAT, Arhat etc. You yourself

have mentioned that the assessee has saved this amount

on the purchases out of the books. In this regard it is

stated that for estimating the purchase or Narma you

have taken the average rate shown in the regular books

of accounts which are inclusive of all these expenses and

hence the figure of purchase estimated by you already

included these figures and so no separate addition for

these expenses can be made.

4.24 You have adopted the sale consideration of the

Cotton lint for working out the profit in these

transactions. In this regard it is stated that the purchase

and sales of the Cotton lint has already been disclosed in

the regular trading accounts. The total purchase of

Cotton lint is shown at Rs. 11826270/- and the sale of

this comes to Rs.12685216/- and thus the assessee has

already disclosed Rs.858946/- as profit in the dealing of

this Cotton which may be excluded from the figure of Rs.

1000912/- profit estimated by your good self.

4.25 At the end of this letter it is again requested that

the assessee has not done any trading outside the books

of accounts. The transactions disclosed by the assessee

are genuine transactions and so it is requested that the

same may please be accepted and no addition on this

account may be made ".

26

Thereafter, on 14.12.2011, Shri Deepak Jain, Advocate appeared

alongwith Shri Kishan Lal, the husband of the assessee and produced

the following farmers as witnesses to prove that the cotton was

purchased from them. These farmers are as under:

1. Shri Gurmail Singh

2. Shri Jaswant Singh

3. Shri Harbans Singh

4. Shri Surjeet Singh

5. Shri Kaur Singh

Their statements were recorded and incorporated by the A.O. in his

order from pages 12 to 22. After considering these statements, in the

light of the inspector’s report who had allegedly made enquiries in this

case, the A.O. also obtained report from the Halka Patwari. The

assessee was asked to file copies of accounts of all the 11 farmers from

whom she allegedly purchased cotton between 1.4.2007 upto

2.12.2011 from the books of account of M/s Kapil Trading Company

and M/s Singla & Sons.

3. On 21.12.2011, reply from assessee’s side was filed which is as

under:

"On the last date of hearing the assessee has produced 5

farmers i.e. S/Sh. Kaur Singh, Sarjeet Singh, Gurmail Singh,

Harbans Singh and Jaswant Singh The statement of those

27

farmers were recorded. You asked the assessee to file the

following information in regard to the statement of I those

farmers. As desired by you the following documents are attached

herewith:-

1. Copy of the Jama Bandi of all the five Farmers.

2. Copy of the Khasra Girdawari of these farmers.

3. In the statements the farmers have stated that they have taken

the land of the other persons on Contract basis. As all the

contractors were the near and dear of the farmers and so they

have not created any written contract. Anyhow now the

farmers have obtained their affidavits confirming the fact that

in the relevant year their lands were given on Contract to the

farmers appeared before you. The affidavit are attached

herewith.

4. The copy of the Jama Bandi of the persons who have given their

land on contract.

5. The copy of the Khasra Girdawari of the persons who have given

their land on contract.

On the last date of hearing M/s. Kapil Trading Company has

filed the copies of account of the farmers from the assessment

year 2007-08 to 2009-10. On the last date of hearing you asked

the assessee to file the copies of account of these farmers from

01.04.2009 to upto date. It is hereby informed by M/s. Kapil

Trading Company, that in the period starting from 01.04.2011

that firm has I not done any business of Kachhi Arhat and so the

copies of account of the farmers upto 31.03.201O are attached

herewith.

28

You have asked the assessee to produce the remaining farmers.

The assessee approached to the other farmers but due to the

season of Cotton Picking and due to time for preparation of the

land for the crop of Wheat they have refused to come. Anyhow

they have assured that they can come if some time is allowed.

Looking to the circumstances and the fact that the case is going

to be time barred on 31.12.2011 the assessee has obtained the

affidavit of the following farmers which are attached herewith:-

Sh. Jagroop Singh S/o Angrej Singh

Sh. Darshan Singh S/o Gurdeep Singh

Sh. Jaskaran Singh S/o Sardul Singh

Sh. Buta singh S/o Harnek Singh

Sh. Nirmal Singh S/o Kar Singh

Sh. Hukma Ram S/o Laxman Dass

Sh. Shanakar Lal S/o Kapura Ram

The assessee has also obtained the copies of the Jama

bandi and Khasra Girdawari of these farmers and the

same are attached herewith. Besides these farmers have

also taken some lands on contract. In support of the

same the affidavit of the contractor alongwith the Jama

Bandi and Khasra Girdawari are also attached herewith.

The assessee could not obtained the supporting

document of the affidavit of S/Sh. Hukama Ram S/o

Lichhman Dass, Nirmal Singh S/o Kar Singh and Shankar

Lai S/o Kapoora Ram. The assessee is trying to obtain the

relevant documents and as and when received the same

will be filed.

29

On the last date of hearing the farmers have stated

that the ginning of the Narma was got gone though the

mobile ginning machines which are attached to the

Tractors. For your ready reference and records the

photograph of the machine are attached herewith.

On the last date of hearing the assessee has stated

that the brokerage is paid as per the market practice

and also the payment of the labour is made as per the

rates of the Paledar Union. The certificate to this effect

from the Sadulshahar Vyapar Mandal is attached

herewith for your ready reference and records. "

4. After considering the above reply and other replies filed in the

process, alongwith statements of the farmers who were produced and

by deriving adverse inference from the non production of some of the

farmers for examination, inter alia, the A.O. has found that the

assessee purchased cotton, which in fact, is the production out of

narma purchased outside the books of account. The assessee had

showed yield of narma @ 34.4% and cotton seeds @ 63.9% and shortage

at 1.7%. Thus, to produce 226898 quintals of cotton, the assessee may

have purchased 6595.87 quintals of narma and value of this narma

purchased outside the books of account comes to Rs. 1,74,92,247/- as

per average price taken from trading account of the assessee which is

2652 per quintal. He has observed that by ginning of this narma, the

30

assessee could produce 2268.98 quintals of cotton and 4214.76 quintals

of cotton seeds. He has adopted sale price of cotton at Rs. 5,587/- per

quintal and average sale price of cotton seeds at Rs. 1380/- per quintal

and thus the A.O. has found that the assessee made investment of Rs.

1,74,92,247/- outside the books of account which has been assessed as

unexplained investment u/s 69 of the Act and has been added to the

returned income of the assessee. Further, the A.O. has made addition

of Rs. 1,41,966/- being profit earned on sale out of books and of Rs.

13,99,379/- by treating fees of Krishi Upaj Mandi Samiti, VAT, adhat,

etc. @ 8% on the purchases made outside the books and has thus

arrived at taxable income of Rs. 1,92,91,480/- [rounded off as the

total income comes to Rs. 1,92,91,482/-]. Aggrieved, the assessee

filed appeal and the ld. CIT(A) has given part relief to the assessee.

The assessee is further aggrieved and has filed this appeal by raising

the following grounds:

“1. That the order passed by the Assessing officer and

sustained by the CIT (A) is illegal and against the law.

2. That in absence of rejection of books of accounts by

knocking the provisions of section 145 of the Income-tax

Act, the assessment completed is illegal and against the

law.

31

3. That the addition made by the Income-tax Officer

amounting to Rs. 1,74,92,247.00 on account of alleged

bogus purchases is illegal and against the law and sustained

by the CIT(A) is illegal and against the law, furthermore

without following the case-law referred before him.

4. That the addition of Rs. 1,74,92,247.00 made on

account of alleged unexplained investment is illegal and

against the law made by the Assessing Officer under

section 69 of the Income-tax Act and sustained by the

CIT(A).

5. That the addition of Rs. 56,56,289.00 made by the

Income-tax Officer is illegal and against the law because

the purchases are covered by rules 6 DD of the Income-tax

Rules as well as by the circular issued by the CBDT.

6. That the addition sustained is against the judicial

decorum and judicial discipline because the purchase are

squarely covered.

7. That the addition of Rs. 13,99,379.00 made on account

of alleged saving of fees taxes etc. is illegal and against

the law made by the Assessing Officer and sustained by the

CIT(A).

32

8. That the assessee successfully discharged the burden as

provided in the act as such the finding in respect of bogus

purchases is against the law as well as against the judicial

pronouncement.

9. That the order passed by the CIT(A) is illegal and

against the law. Because the CIT(A) fail to follow the

consistency as well as past history/subsequent practice

which is binding upon the CIT(A) as well as the AO.

10. That in the reply of remand report the Assessing

Officer almost conceded the submission and submitted

reply without explaining the reason.

11. That the CIT(A) should have accepted the written

submission, the evidence adduce before him and case laws

referred before him in course of hearing.

12. That the charging of interest by the Assessing Officer

and sustained by the CIT(A) is illegal and against the law.”

5. We have heard the rival submissions and have carefully perused

the entire material on record.

6. Ground No. 1 is general in nature and does not require any

adjudication from our side.

33

7. Second ground pertains to the invoking of provisions of section

145 of the Act. It is argued that the A.O., without rejecting the books

of account, has invoked the provisions of section 145 of the Act. It was

a vehement argument that the A.O. has nowhere rejected the books of

account and has still made estimation.

8. On the other hand, the ld. D.R. has stated that there is no

requirement of rejection of books of account for making the impugned

addition.

9. After considering the rival submissions, we have found that

before the ld. CIT(A), the assessee had relied on numerous decision

through his authorized representative which gave ratio decidendi that

without rejection of books of account, no estimated addition under the

provisions of section 145 can be made. The ld. A.R. has relied on all

those decisions before us, which are contained in his written

submissions also.

10. After considering the overall facts and legal position of this issue,

we have found that the A.O. has nowhere rejected the books of

account of the assessee either impliedly or expressly. Therefore,

34

without rejecting the books of account, provisions of section 145 of the

Act cannot be invoked. We allow Ground No. 2 of assessee’s appeal.

11. Ground Nos. 3 and 4 are against the confirmation of addition of

Rs. 1,74,92,247/- made on account of alleged bogus purchases u/s 69

of the Act which has also been confirmed by the ld. CIT(A).

12. It was argued by the ld. A.R. that this addition is based on

surmises and conjectures and after rejecting all sorts of evidence

produced by the assessee to prove the purchase by producing farmers,

some of whose statements were also recorded and for others duly

sworn affidavits were filed. All these farmers have supported the

version of the assessee and without disproving the averments of the

affidavits and submissions and simply relying on the report of his

inspector, which was prepared behind the back of the assessee and

were never confronted to her. The A.O. has made the impugned

addition, which is not justified, and cannot be sustained in the eyes of

law.

13. On the other hand, the ld. D.R. has supported the orders of the

authorities below and has referred to various points in the statements

35

of the farmers and has given some reasons as have been given by the

authorities below to make or confirm the impugned addition.

14. After considering the rival submissions in the light of the

obtaining facts of this issue, we have found that the A.O. has made all

sorts of enquiries in this regard and by doubting one evidence, he has

moved further which created more doubts in his mind. The assessee

submitted affidavits of all agriculturists from whom she has claimed to

have purchased narma. The assessee produced in as much as six

farmers including Shri Gurmail Singh, Shri Jaswant Singh, Shri Harbans

Singh, Shri Surjeet Singh, Shri Kaur Singh and Shri Kishan lal for

examination before the A.O. All of them have confirmed the purchases

as claimed by the assessee of narma from them. The assessee

produced duly sworn in affidavits of the farmers Shri Jagroop Singh,

Shri Darshan Singh, Shri Jaskaran Singh, Shri Buta Ssingh, Shri Nirmal

Singh, Shri Hukma Ram and Shri Shankar Lal. All of them have

confirmed the version of the assessee. Apart from this, the assessee

has produced the affidavits of one of contractor who gave land to the

farmers on patta basis for cultivation. The assessee has produced land

holding records of 13 farmers which included jama bandi and Khasra

Girdawari. These documents were returned back by the A.O. as is

36

verily evident from the assessment order itself and this act is contrary

to the procedure which has to be followed by the A.O. The assessee

tried to mark all the documents, which were produced before the

authorities below including this Tribunal. We have found it for a fact

that the assessee has been following same and similar practice of

purchasing cotton directly from farmers in the past years and also in

the future years. Sample copies of assessment orders for A.Ys 2008-09

and 2010-11 are enclosed in the paper book and have found that no

adverse inference has been drawn by the A.O. in those years.

Therefore, in our considered opinion, the entire exercise of the A.O. is

based on his own surmises and conjectures. Apart from finding faults I

the evidence produced by the assessee, the A.O. has not brought any

cogent evidence which can be contradict the claim of the assessee,

may be the evidence produced before the A.O., and before the ld.

CIT(A) as well as before us. We have noticed that the A.O. has not

rebutted any of such evidence produced by the assessee. In our

considered opinion, the primary onus cast on the assessee has been

discharged, whereafter, the A.O. was required to rebut the same with

the help of cogent evidence, which should be brought on record. The

A.O. has not done so. Therefore, his exercise became futile. The

report of the inspector was obtained behind the back of the assessee

37

and even after copy of which was asked to be given to her, the A.O.

refused to give the same. This fact is evident from the assessment

record itself. The A.O. has tried to find something or the other from

the statement of the farmers who have basically admitted the fact

that the narma was purchased by the assessee from them and they had

taken money for their worth or more than that because it is a ongoing

process of sale and purchase between the assessee and the farmer.

The ld. A.R. has relied on numerous decisions and some of them have

really helped his case but we do not need to reproduce them in our

order. Most of the decisions are from Jodhpur and Jaipur Bench of the

Tribunal inter alia. In fact, whatever queries were raised by the A.O.,

all were aptly replied by the assessee. The A.O. has given more

importance to minor relevancies and has ignored the relevant factors

in arriving at his conclusion. He has simply ignored the fact that it is

common practice for agriculturists to take agricultural land belonging

to others on patta basis and grow crops of their desired nature. It is

also common place experience that the Patwari many a times do not

record correct crop grown by the agriculturists as they rarely go to

fields to find out the facts and complete their record by sitting in their

office. We have mentioned the statements of these farmers, which

was recorded by the A.O. The statements support the version of the

38

assessee and so is the case in regard those farmers who have filed their

affidavits. The A.O. has shown more concern towards farmers to

whom the money was paid by the assessee and has tried to relate the

fact with the death of farmers based on some newspaper reports. He

has written a thesis regarding the scenario of agricultural sector in

India. Thus, he has been swayed by such consideration by plight of

farmers instead of deciding the issues raised in this A.Y. pertaining to

assessment of the assessee. Such generalized views cannot be applied

to the assessment made by the A.O. Such an exercise and penchant

for care for an agriculturist is admirable and the A.O. has done good

job in that direction but we are afraid that such subjective analysis

cannot be applied to the factual facts arising in a case. The A.O. has

relied on and has referred to a secret independent enquiry, which has

no place in judicial proceedings. Accordingly, when the assessee has

claimed and proved that he has purchased narma and produced

requisite cotton from that narma simply because the purchases were

not through mandi, purchases cannot be ignored. Therefore, we are

convinced that the addition of Rs. 1,74,92,447/- made on account of

alleged bogus purchases is not justified and therefore, we order to

delete the same. As a result, we allow Ground Nos. 3 and 4 of

assessee’s appeal.

39

15. Ground No. 5 pertains to addition of Rs. 5656289/- made under

the provisions of section 40A(3) of the Act.

16. The A.O. has found that the purchases being in cash exceeded Rs.

20,000/- in violation of provisions of section 40A(3) of the Act. The

contention of the assessee has been that purchases are from farmers

and in such purchases this provision is not applicable. As we have

already held, the purchases from farmers the impugned addition is

uncalled for and deserves to be deleted in view of Rule 6DD of the I.T.

Rules and CBDT Circular, which are duly enclosed in the paper book

filed by the assessee. Accordingly, we order deletion of addition of Rs.

56,56,289/- and allow Ground No. 5 of this appeal.

17. Ground No. 6 is also connected with Ground No. 5 and is, in fact,

argument of Ground No. 5. Therefore, this ground shall go alongwith

Ground No. 5 itself and stands allowed.

18. Ground Nos. 7 is regarding addition of Rs. 13,99,379/-. This

addition has resulted from the fact that the purchases were made

directly from agriculturists and not from the mandi and thus the

assessee has saved market fees, VAT, Adhat, etc. In view of our

40

finding given above, there is no question of alleged saving of tax etc.

Therefore, we order deletion of addition of Rs. 13,9,379/-. Ground No.

7 stands allowed.

19. Ground Nos. 8 to 12 are general in nature and most of these

grounds are argumentative without raising any material ground.

Therefore, these grounds do not require any adjudication and are

dismissed.

20. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 31st July, 2014.

Sd/- Sd/-

[N.K. Saini] [Hari Om Maratha] Accountant Member Judicial Member Dated: 31st July, 2014. VL/ Copy to :

1. The Appellant 2. The Respondent BY ORDER 3. The CIT 4. The CIT(A) 5. The DR

ASSISTANT REGISTRAR ITAT, Jodhpur