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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 16.07.2024 for the Assessment Year 2018-19.
None present for the assessee. Since there is no representation from the assessee in the several hearings for the past, we proceeded to hear the case with the assistance of the ld. DR of the Revenue.
Brief facts of the case are, assessee filed his return of income for Assessment Year 2018-19 on 31.10.2018 declaring total income of Rs.5,99,163/-, the same is declared under the head ‘income from business’ which consists of remuneration of Rs.2,54,936/- and interest of Rs.3,44,227/- received from partnership firm, M/s. AL-Aysha Foods. The case of the assessee was selected for a limited scrutiny to examine the cash withdrawal with the underlying rationale that the aggregate of cash withdrawals by the assessee during the year as reported in SFT-003 and SFT-004 are very large as compared to the declared profit before interest and taxes or the returned income. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee.
During assessment proceedings, the AO observed that assessee has declared gross receipts from sale/service of goods. He further observed that assessee has withdrawn an amount of Rs.40 lakhs to Rs.50 lakhs for every 2 to 3 days. When the assessee was asked to explain such withdrawals during the year under consideration, the assessee vide its reply dated 05.11.2020 Submitted that he is a meat supplier in the capacity of proprietorship and regular cash was withdrawn from his bank account maintained with HDFC Bank, Moradabad. The assessee also filed cash book and bank book in support of the transactions. The assessee was also asked to submit the ledger extracts of major parties to whom assessee supplied the meat. In responses, assessee has submitted the details and also submitted that the Buffaloes are purchased from various farmers from local market and has to pay cash immediately, therefore, the cash was used to pay towards purchases of Buffaloes. Further it was stated that assessee had purchased about 12,222 Buffaloes during the year under consideration and the same was purchased by weight. In support, assessee has also submitted its financial statements. The AO observed that assessee has declared turnover of Rs.45,09,62,003/-and it was claimed that his accounts are not liable for audit under section 44AB of the Act. After considering the submission of the assessee, AO has found the same to be not acceptable and assessee was asked to submit details of the persons from whom Buffaloes were purchased along with names and number of Buffaloes purchased, complete details of purchasers and details of work related slaughtering, transportation, etc.. He observed certain observations that expenses are like rent etc. are not claimed by the assessee even though assessee claimed to have purchased huge Buffaloes. He further observed that the major meat purchaser from the assessee is India Frozen Foods. They transferred money to the assessee in the range of Rs.50 lakhs for every 2 – 3 days and as soon as the assessee received the funds, assessee withdraws the same completely. Since assessee failed to furnish the identity of various persons from whom he had purchased the Buffaloes meat to the extent of Rs.44.08 crores nor he submitted any confirmation from the persons that they had received cash from the assessee, accordingly, he brought to tax Rs.44,68,51,836/- under section 69A of the Act.
Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. After considering the detailed submissions, a remand report was called for from the AO which AO has filed on 27.06.2024 and the same is reproduced in the impugned order. After considering the same, ld. CIT (A) addressed the issue raised by the assessee and observation of the AO in the remand report and deleted the addition by observing as under :-
“7.3Findings in the assessment order have been summarized by the AO in his remand report. Pont-wise issues/ findings/ observations, rebuttal of appellant on them, and final findings/ decision are as below:
(i)Observations of AO: During the assessment proceedings the assessee had furnished the ledger of purchase. The same was perused and difference of Rs. 3,00,63,697/- was found between the purchase of buffalos and cash withdrawals from bank account during the period 06.04.2017 to 20.04.2017. As during the aforesaid period huge negative cash balance was found. No satisfactory explanation regarding huge negative cash balance was received from the assessee. In reply submitted before your good-self the assessee stated that he was purchasing buffalos on credit also whereas during the assessment proceedings he stated that the purchase of buffaloes were made from the farmers from local market and payment of the same was made in cash immediately. The reply given before your good-self and the one given at the time of assessment proceedings are contradictory to each other. It seems that the reply given by the assessee before your good-self is nothing but cooked up story and hence, the reply and other documents furnished by the assessee are not reliable and acceptable.
Submission of appellant:
The assesses is an illiterate person who buys buffaloes from different villages, haats and local market and sells them to slaughter house, which slaughters the same and pay s as per quantity of meat obtained. It is acceptable practice some buffaloes are purchased on immediate cash payment basis such as in haats and local market and others such as from different fanners, through commission agents on some credit. Purchase and cash withdrawal are two different thing. Purchase may be on cash or credit basis while withdrawals may be for different reasons and there can not be a compassion. Nothing has been cooked up and if there is any doubt, assessees’ statement of account may be summoned from slaughter house to which buffaloes has been supplied and the same compared w ith the statement of the assesses Sir. they are big registered slaughter house and export house which arc regularity audited and assessed and such huge payments without evidence can not escape departments eye. Further there is no doubt a difference between purchase and cash withdrawals because of some credit purchase but there was never a negative cash balance as is evident from cash hook produced before the Ld. A.O.
Findings of this office: In my opinion, submission of appellant has due weight in it. Before this office, appellant has also submitted ledger accounts in respect of purchases made by him and a good number of confirmations from such suppliers also. These documents were duly provided to the AO at the time of seeking remand report.
In this type of business, purchases/ sales may be made in cash/ credit. Further, there are many types of other expenses which may have been incurred in cash. Accordingly, cash withdrawals may not be directly linked to purchases. Therefore, arriving at a negative cash balance from cash withdrawals and purchases, in my opinion, is not a correct appreciation of facts, and thus cannot be held to be a correct finding.
Moreover, the sales are being made to a big slaughterhouse, and the AO has not contended anywhere that the credits in the bank account of the appellant are from unaccounted sources. Infact, it is clearly verifiable from the bank account that the receipts are from Indian Frozen Food, whose identity is also verifiable from social media. It is also not the case of AO that Indian Frozen Food has booked bogus purchases/ expenses through the appellant assessee.
(ii)Observations of AO: The purchase register produced by the assessee during the assessment proceedings was not reliable and accompanied with any evidences. During the assessment processing the assessee was asked to furnish the details of seller of buffaloes. However, the assessee failed to furnish the confirmation of even single seller. Hence, in the absence of any concrete evidence, the assessing officer had rightly not accepted the details furnished in the purchase register. Further, in the balance sheet of the ITR, no balance of Rs. 29,00,000/- as claimed by the assessee, towards creditor is appearing. In view of above, the claim of the assessee in point no 2 in his reply is not tenable.
Submission of appellant:
2.Sir, the Ld.A O has failed to apprehend village type of business. It is common knowledge that in a village if you buy. Buffalos or bulls or goat and even chicken you pay them and the product belongs to you. If known to you or your commission agent you can even buy them on credit. There is no sale receipt or any thing given and the same is accepted tact The purchase ledger produced before the I d . A.O. has full detail of purchase such name of party from whom purchase was made, weight and amount of purchase, then how can be it unreliable especially when its sale proceeds is matched with crossed cheque payments. Further as reply was given in crores and lakhs only crore and lakhs were talked about, the Balance Sheet clearly shows creditors as Rs. 26,68.518 and debtors as Rs. 29,90,000/=.
Findings of this office: As mentioned above, during the appellate proceedings, the appellant has submitted ledger accounts in respect of purchases made by him and a good number of confirmations from such sellers. As regards the AO’s contention that balance of Rs. 29,00,000/- is not appearing in the balance sheet, there seems to be a miss by the Ld. AO. Amount of Rs. 29,90,000/- is clearly reflecting on debit side of the balance sheet against the name of Al Aysha Foods (meat purchaser from the assessee) and Rs. 26,68,518/- is appearing on credit side as sundry creditors (from whom the purchases were made by the appellant assessee). Relevant balance sheet is as below:
……………………..
Thus, no adverse may be drawn on this issue as well
(iii)Observations of AO: M/s Indian Frozen Food is a slaughter house near Moradabad as claimed by the assessee in the reply submitted before your goodself is not substantiated with any documentary evidence. Hence, the facts mentioned at point no. 3 cannot be treated as reliable and acceptable.
Submission of appellant:
3.Your honour it seems the Ld. A.O. has made addition for the sale of addition \1 s Indian Frozen Food, village Begumpur. Sarnbhai about 30Km from Moradabad I'VN AAL H6070.I is well established Export House. Which is authorised to slaughter and process meat in accordance to Uttar Pradesh laws then how can facts mentioned in Point no. 3 to sour reply be unreliable and unacceptable.
Findings of this office: As mentioned above, it is clearly verifiable from the bank account that the receipts are from Indian Frozen Food, whose identity is also verifiable from social media. It is also not the case of AO that Indian Frozen Food has booked bogus purchases/ expenses through the appellant assessee. Moreover, the AO has not contended anywhere that the credits in the bank account of the appellant are from unaccounted sources.
(iv)Observations of AO: The Profit and loss account and all other documents furnished by the assessee during the assessment proceedings were false and fabricated and the payment of rent of Ware-house and salary paid to employees were not substantiated with proper evidences. Hence, profit and loss account furnished by the assessee cannot be relied upon. Hence, the facts mentioned at point no. 4 cannot be treated as reliable and acceptable.
Submission of appellant:
4 All expenses under different heads have been shown in different heads in P&L account of die assesses During assessment whatever was asked for the some was provided. Further How can supply of 12.222 buffaloes in a year be done without employing people or providing shed for buffaloes. Hence the facts mentioned at Point Mo 4 to your reply can be fully relied upon.
Findings of this office: In respect of above observation, AO in his remand report has not provided any specific query raised by him seeking evidence for payment of salary/ wages or for rent. Perusal of P&L account, on the other hand, shows that an amount of RS. 20,58,000/- has been booked as salary & wages, and Rs. 1,32,000/- as warehouse rent. Trading and P&L account is as below:
……………
There is no basis, in absence of any specific contrary finding by the AO, to say that profit and loss account furnished by the appellant assessee cannot be relied upon.
(v)Observations of AO: In the reply submitted at your good-self the assessee is stating that once the money is received from M/s Indian Frozen Food the payment was made to the farmers after withdrawals of money from the bank account. Whereas, during the assessment preceding, the assessee stated that buffaloes were purchased from farmers and payment for the same was made in cash immediately. Both the above statements are contradictory to each other. The assessee is changing his statement only to prove his case. However, the facts are altogether different, which the assessee is still not disclosing. Hence, the facts mentioned at point no. 5 cannot be treated as reliable and acceptable.
Submission of appellant:
5.Nothing is contradictory as payment can only be made if cash is available or made available from withdrawal from bank. Withdrawal from bank can be verified from bank statement and payment from cash book and ledger. Purchase were made on cash/credit bases and at no time assesses said that all payment of buffaloes were made by immediate cash buses All facts aver disclosed then how can it be said that it is not reliable and acceptable.
Findings of this office: In my opinion, the appellant assessee has sufficiently explained his case that purchases were made on cash as well as credit.
(vi)Observations of AO: During the assessment proceedings, the assessee clearly stated that the purchases of buffaloes were made from farmers from local market and payment was made in cash immediately. Further, during the assessment proceedings, it was noticed from the reply of the assessee that the farmers were not know to him. Therefore, the assessee’s contention before your good-self that the buffalos were purchase on credit is not acceptable because no one will sell anything on credit to an unknown person.
The sell and purchases were not found bonafide at all and it was not rejected merely on assumption by the assessing officer. The Assessing Officer made thorough investigation and rightly concluded that source of credit to the tune of Rs. 44,68,51,836/- in the bank account no. 50200003691919 with HDFC bank of the assessee was unexplained/undisclosed money as per the provisions of section 69A of the I.T. Act, 1961.
Submission of appellant:
6.It is true that most of the sellers were unknown to the assesses. But they were known to the commission agents. It was clearly stated in reply filed to Ld. A.O. that purchases were made from local markets and through commission agents. Credit purchase was made on the assurance and guarantee given by commission agents to sellers. No one is saving that credit was given to unknown persons. The sale and purchase are all Bonafide and can be verified from books of account which has been accepted and sale proceeds received by the assessee in his bank account and can in no way to be said as unexplained undisclosed money as per the provision of section 69 A of the I.T. Act 1962.
Findings of this office: Argument of the AO is based on the assumption that no one will sell anything on credit to an unknown person. Rebuttal of appellant to that also, in my opinion, has merit in it.
7.4From the above discussions, it is seen that the AO has mainly contended that the assessee is not furnishing correct facts in respect of cash withdrawals, payments made and in respect of purchases made by him. After discussing at length about ‘purchases’, Ld. AO has held that source of ‘credits’ in the bank account could not be explained and therefore treated the same as undisclosed income of the appellant assessee, and that too u/s 69A of the Act.
7.5In my opinion, this is not a correct appreciation of facts as well as of law. As discussed above, on facts, purchases cannot be held to be bogus or from bogus parties and the appellant has satisfactorily explained his purchases/ expenses. On law as well as on accounting principles, if the purchases are at doubt, there cannot be any addition in respect of credits in bank account, which obviously are receipts (either from sales or from any other means). Moreover, without deliberating on credits in bank account, without doubting the source of credits in the body of order (except mentioning in last para), AO has gone to apply section 69A of the Act. It cannot be comprehended that when credits are duly recorded in the books as sales, what according to the Ld. AO is not found recorded in books, warranting application of section 69A.
7.6Keeping all the above in mind, I am constrained to delete the addition of Rs. 44,68,51,836/- made by the AO.”
Aggrieved with the above order, Revenue is in appeal before us raising following grounds of appeal :-
“(i). Law and on facts of the case by deleting the addition of Rs.44,68,51,836/-u/s 69A of the Act made by AO after conducting proper enquiry who has made the addition after recording the detailed reasons for doing so in length in the order itself and blamed the AO for not conducting enquiry and failed to ensure that effective inquiry and logical conclusion have been drawn having coterminous power with the AO.
(ii). Law and on facts of the case by not proving the sundry creditor of the assessee anywhere from whom purchases were made and doubted by AO in absence of supporting documents regarding purchase and sale during assessment.
(iii). Law and on facts of the case by not directing the AO to conduct inquiry in relation to transaction with India Frozen Foods in whose case addition has been made due to non-compliance and by coming to conclusion that MIs India Frozen Food has booked bogus purchases/expenses through appellant assessee, ignoring the remand report of the AD which clearly states that purchases and sales were not found bonafide at all and source of credit to the tune of Rs.44,68,51,836/-remained unexplained money.
(iv)Law and on facts of the case by relying on the submission of the assessee and not coming to the logical conclusion that Shahjada was used only as conduit by M/s India Frozen Foods for siphoning of profit of company under the guise of purchase of India Frozen Foods which was paid to Shahjada and he withdrew the cash under the guise of purchasing animal in organised way.”
At the time of hearing, ld. DR of the Revenue brought to our notice detailed findings of the ld. CIT (A) and submitted that ld. CIT (A) has given relief to the assessee without making proper enquiry and not given proper opportunity to the AO and prayed that the same may be remanded back to the ld. CIT (A) to adjudicate the same.
Considered the submissions of the ld. DR of the Revenue and material placed on record. We observed that assessee is a supplier of Buffaloes to India Frozen Foods. From the operation of the assessee and also we have dealt with the similar issues in the past, assessee being an agent working for the India Frozen Foods who give purchase indent to the assessee along with required funds to purchase from the local market. Accordingly, assessee withdraws the cash from the bank account maintained by him and purchases the Buffaloes from the market and supplies the same to India Frozen Foods. The India Frozen Foods process the slaughtering and processing of meat at their facility. The nature of work of the assessee is only to the extent of procuring of Buffaloes from the local market and supplies the same for a tight commission. We observed that in this line of business, the commissions are paid to the assessee in the range of 0.2% to 0.5%. In this line of business, the turnover recorded by the assessee is to justify purchases and sales and actual income for the assessee is only commission income earned for rendering the services of procuring of Buffaloes. This is nothing but the purchase of Buffaloes for India Frozen Foods to regularize their purchases by employing local agents who gives the services of purchases for them for commission. Therefore, it is not possible for the assessee to bring each seller/farmer from whom assessee procured the Buffaloes from the local market.
Further we find force from the decision of coordinate Bench in the case of Mohd. Gulzar vs. ITO in ITA No.4097/Del/2024 order 08.10.2025 dated wherein it is held as under :-
10.Considered the rival submissions and material placed on record. We observe that the assessee has declared huge turnover of Rs.165.23 crores and also declared huge purchases and declared a GP of 0.29%. It is also observed that GP declared by the assessee is same as declared in the preceding assessment year of 0.21%. From the facts available on record, we observe that assessee purchases live stock from the farmers/local markets and supplies the same at the indent raised by the Allana Group. From the records, we observe that Allana Group raises the indent to the assessee and assessee purchases the live stock and accordingly supplies the carcass/meat/bones to the Allana Group. The main purchaser in this transaction is only Allana Group. Since the Allana Group cannot purchase directly from the villages/local markets, in order to regularize the purchases they appoint middleman/pass through entities like assessee who manages the purchases on behalf of the Allana Group and supplies the same. From the books and records brought on record, we observe that Allana Group makes the payment as advances to the assessee and they adjust the same according to the indent raised by them. Therefore, there is no risk involved in the purchase/processing of the carcass/meat to the assessee. That being the case, the assessee was compensated with competitive percentage of commission or compensation for processing of purchase, rather it can be considered that the compensation is towards regularization of the purchases. From the profit & loss account submitted before us, it indicates that assessee has very little control over the process. It is noticed that the assessee has got very little administrative expenditure and it is fact on record that assessee is only a pass through entity functions with a thin margin of purchase commission.
11.Since the assessee has already submitted modus operandi and process of purchase and sale before the lower authorities, Assessing Officer could have verified the same information by calling information from Allana Group by issue of notice u/s 133(6) of the Act in the second round of proceedings. From the record, the Assessing Officer has merely asked for information from the assessee and assessee is only a pass through entity having information relating to indent raised by Allana Group, assessee has to purchase the live stock from the villagers and all these transactions are being done only through cash. The assessee is involved in the live stock, this transaction is already exempt under Rule 6DD of the Income-tax Rules, 1962. That being the case, what is relevant is the sales invoice raised to the Allana Group is the main document which assessee has already submitted before the lower authorities. From the modus operandi, it is clear that assessee is only involved and working for Allana Group who are utilising the services of the assessee only to regularize their purchases. Therefore, after considering the financial statements, the assessee is regularly declaring the GP of 0.29%. It is also brought on record that on similar facts on record, the coordinate Bench in ITA Nos.1045 & 1046/Del/2018 has sustained the addition of 0.50% relying on similar cases. After considering the facts on record and case laws relied before us, we observe that the GP in the similar line of business relating to live stock the estimated income by the coordinate Bench at 0.50%. The cases will vary case to case basis and the coordinate Bench has decided the issue of turnover of independent live stock dealer @ 0.50% whereas when dealing with the big group with high turnover, the same margin cannot be expected. Therefore, in the given case, assessee is declaring around 0.29% consistently over the years. For the sake of overall justice, we are inclined to estimate the GP of 0.40% of the gross sales.
12.In the result, the appeal filed by the assessee is partly allowed.”
Respectfully following the above decision and material facts available on record, the assessee has merits at his side. We have declared in the order sheet that it is allowed for statistical purposes. However, at the time of dictation, we observed the above factual matrix and to avoid unnecessary litigation and unfruitful second round of proceedings, We proceeded to adjudicate the same. Therefore, after considering the detailed submissions by the assessee before the ld. CIT (A) and detailed findings of the ld. CIT (A), we do not see any reason to disturb the findings of the ld. CIT (A) and accordingly, the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.