LOKHANDWALA KATARIA CONSTRUCTION (PVT) LTD , MUMBAI V. DY CIT CC 8(3) , MUMBAI

ITA 1345/MUM/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8046 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Period of limitation; Time period of passing order; Condonation of delay; Reassessment proceedings
• Section: 148; 143(3); 133(6); 143(1); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.1345/Mum./2020 (Assessment Year : 2010–11) ITA No.1344/Mum./2020 (Assessment Year : 2011–12) Lokhandwala Kataria Construction Pvt. Ltd. 77, Gandhi Nagar Dainik Shivner Road Worli, Mumbai 400 018 PAN – AAACL5105A ................ Appellant v/s Dy. Commissioner of Income Tax Central Circle–8(3), Mumbai ................Respondent Assessee by : Shri Dhaval Shah Revenue by : Shri Mehul Jain Date of Hearing – 15/06/2022 Date of Order – 12/09/2022 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeals have been filed by the assessee challenging the separate impugned orders of even date 14/05/2019, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals)–50, Mumbai, [“learned CIT(A)”], for the assessment years 2010-11 and 2011–12. 2. Since, the identical issue is, inter-alia, involved, therefore, both the appeals are taken up together and disposed off by this common order for Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 2 the sake of convenience. With the consent of both the parties, the appeal of the assessee for the assessment year 2010-11 was taken up as the lead case and the decision rendered therein would apply with equal force in appeal for assessment year 2011-12, except with variance in figures. 3. Both the appeals filed by the assessee before us are delayed by 177 days. Along with the present appeals, assessee has filed separate application seeking condonation of delay in filing the appeals, which is also supported by an affidavit sworn by the Head of Taxation and Accounts Manager of the assessee company. In the affidavit, the deponent has submitted that impugned order was received on 05/07/2019. However, due to some inadvertent oversight on his part, he failed to inform the same to the Chartered Accountant to file the appeal before the Tribunal. During the course of hearing, learned Authorised Representative („learned AR‟) submitted that due to the proceedings before the Hon‟ble National Company Law Tribunal („Hon’ble NCLT‟), the Manager Taxation of the company forgot to hand over the copy of impugned order to the Chartered Accountant for filing the appeal and therefore there was a delay in filing the appeal. Learned AR also furnished copy of orders passed by the Hon‟ble NCLT in insolvency proceedings initiated against the assessee under section 7 of Insolvency and Bankruptcy Code. We find that vide order dated 16/10/2019, the Hon‟ble NCLT in terms of settlement reached between the parties allowed the assessee to function independently through its board of directors from immediate effect. On the other hand, learned Departmental Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 3 Representative („learned DR’) did not raise any serious objection against the application seeking condonation of delay. Having perused the application, which is also supported by an affidavit, we are of the considered view that there exist sufficient cause for not filing the present appeals within the limitation period and therefore we condone the delay in filing the appeals by the assessee and we proceed to decide the appeals on merits. ITA no.1345/Mum./2020 Assessee’s Appeal – A.Y. 2010–11 4. In its appeal, the assessee has raised following grounds: “1. On the facts and circumstances of the Appellant's case and in law the Learned Assessing Officer erred in making an addition Rs.94,02,069/- on account of Unproved purchases as per Para 6 of the impugned assessment order.” 5. The only grievance of the assessee in this appeal is against the addition made by the Assessing Officer („AO’) on account of purchases by way of bogus bills. 6. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a private limited company engaged in the business of development and construction of residential units. For the year under consideration, the original return of income was e-filed by the assessee on 15/10/2010 declaring total loss of Rs. 2,03,05,370. The return filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case was reopened and accordingly notice under section 148 was issued on 19/03/2014, inter-alia, on the basis of information Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 4 received from the Investigation Wing, Mumbai that the assessee is a beneficiary of bogus purchases amounting to Rs. 94,02,069 from an entity viz. M/s Sai International Impex. In the reasons recorded for reopening the assessment, it was further stated that the person connected with the above mentioned entity has mentioned in a statement that they have not sold any item to the assessee firm but have only issued bogus bills. In response to notice issued under section 148 of the Act, the assessee filed a letter stating that original return filed under section 139(1) should be considered as return filed in response to the notice issued under section 148 of the Act. During the course of reassessment proceedings, assessee submitted that the construction cost includes purchase of building material such as steel, cement, etc. made by the assessee. The assessee submitted documents such as copies of invoices, delivery challan and payment details before the AO. The notice issued under section 133(6) to M/s Sai International Impex for seeking the information pertaining to the transaction was returned as “unserved”. Due to failure on the part of the assessee to produce this party for examination, the AO vide order dated 27/03/2015 passed under section 147 r/w section 143(3) of the Act treated the aforesaid party as non- existence and the above transaction as bogus. Accordingly, the AO made an addition of Rs. 94,02,069 to the total income of the assessee. 7. In appeal, learned CIT(A) vide impugned order noted that assessee has failed to adduce any evidence regarding actual utilisation of material mentioned in the bogus bills and no details of the work in progress or stock Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 5 has been furnished by the assessee to prove the genuineness of these tainted purchases. The learned CIT(A) by placing reliance upon decision of Hon‟ble Supreme Court in NK Proteins Ltd in SLP 759 of 2017, dated 16/01/2017, upheld the entire amount of disallowance made by the AO on account of bogus purchases. Being aggrieved, assessee is in appeal before us. 8. During the course of hearing, learned AR submitted that the impugned purchases have been made through brokers therefore it is not possible to get the current details of the supplier. The learned AR also referred to the copies of the invoices and delivery challans forming part of the paper book. The learned AR further submitted that the correct total purchase from M/s Sai International Impex is only Rs. 62,15,132. Learned AR also submitted that the assessee is having declared loss of Rs. 2,03,05,370 and thus there is no benefit in claiming expenditure to an extent of Rs. 62,15,132 by seeking bogus bills. 9. On the other hand, learned DR submitted that the assessee has not produced any stock book, inward/output register, proof with regard to storage of the material purchased, transport details like lorry receipts etc. in support of purchases claimed by the assessee as genuine. 10. We have considered the rival submissions and perused the material available on record. We have also considered the case laws relied upon by both the sides. In the present case, on the basis of the information received Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 6 from the Investigation Wing, Mumbai that assessee is the beneficiary of bogus purchases from an entity viz. M/s Sai International Impex, reassessment proceedings in the case of the assessee were initiated. Further, notices issued under section 133(6) by the AO to the aforesaid entity were also returned unserved. The AO made addition of the entire alleged bogus purchases made from the aforesaid supplier. It is the plea of the assessee that all the purchases were made through brokers and therefore it is not possible to get the details of the aforesaid supplier. In support of the assessee‟s claim, reliance has been placed upon copies of invoices and delivery challans forming part of the paper book. Further the assessee has also claimed that all the transaction has been made through banking channel and therefore the purchases are genuine. However, we find that before the lower authorities, the assessee was unable to produce this party and expressed its inability in tracing and getting present address of this party. Even before us, no such details were furnished by the assessee. Therefore, from the material available on record it is evident that assessee has failed to prove the genuineness of the purchases made from M/s Sai International Impex. However, at the same time it is not dispute that the assessee is in construction business and the material alleged to have been purchased from the aforesaid entity are required in the construction business. From the perusal of the financial statement of the assessing along with the relevant schedules for the year ending 31/03/2010, forming part of the paper book from page No. 3 – 24, we find that during the relevant financial year assessee has claimed to have received a letter from Slum Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 7 Rehabilitation Authority lifting the stop work notice against the real estate development project „Minerva’ located near Arthur Road jail. It has further been claimed that the company would have to modify the structural plan of the project and also modify certain existing structures. However, we find that no doubt has been raised by the Revenue in respect of such a claim of the assessee nor there is any material contrary to the above on record. Thus, it cannot be denied that even if the construction could not be done due to aforesaid impediment, the assessee has to keep the construction material ready for completing the aforesaid development project now when the stop work notice has been lifted. In the impugned order, learned CIT(A) has noted that the assessee has failed to produce evidence regarding actual utilisation of the material mentioned in the bogus bill and has also failed to adduce details regarding work in progress or stock. From page No. 55 and 55A, we find the details of work in progress for the year under consideration. Further as noted above, the company will be restarting its construction activity after lifting of stop work notice by the Slum Rehabilitation Authority, therefore, in such a situation we are of the considered view that actual utilisation of the construction material cannot be available with the assessee and the company can only have the details of inventory ready to be used. It is evident that the AO has not raised any doubt regarding the above claim of the assessee. Further, it cannot be doubted that without the purchase of construction material the construction activity as claimed to be restarted by the assessee cannot be carried out. Therefore, it appears to be a case of bogus bills arranged from aforesaid Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 8 entity and construction material purchase from somewhere else at low cost. Thus, we are of the considered view that the entire bogus purchases cannot be added in such a suggestion. Considering the business activities of the assessee and the nature of material purchased from the hawala dealers, we are of the view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. Therefore, the addition is restricted to 12.5% of disputed purchases. We find that the same is in line with the judgment of Hon‟ble jurisdictional High Court in PCIT vs Paramshakti Distributors Ltd. in ITA No. 413 of 2017 decided on 15/07/2019. Further, apart from the ledger account of M/s Sai International Impex in books of assessee, no other evidence is brought on record to support the assessee‟s claim that purchases were only to an extent of Rs. 62,15,132 from the said entity and accordingly, plea of the assessee is rejected in this regard. Therefore, we direct the AO to restrict the addition to 12.5% of alleged bogus purchases. As a result, the sole ground raised in present appeal is partly allowed. 11. In the result, appeal by the assessee for assessment year 2010-11 is partly allowed. ITA no.1344/Mum./2020 Assessee’s Appeal – A.Y. 2011–12 12. In its appeal, the assessee has raised following grounds: “1. On the facts and circumstances of the Appellant's case and in law the Learned Assessing Officer erred in making an addition of Rs.8,75,39,835/- on account of Unproved purchases as per Para 3 of the impugned assessment order. Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 9 2. On the facts and circumstances of the Appellant's case and in law the Learned Assessing Officer erred in making an addition of Rs.56,268/- on account of Insurance paid as per Para 4 of the impugned assessment order 3. The Appellant craves leaves to alter amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing.” 13. The issue arising in ground no. 1, raised in assessee‟s appeal, is similar to the sole ground raised in assessee‟s appeal for assessment year 2010–11 except with variance in amount of addition. Therefore, our findings / conclusions in aforesaid appeal for assessment year 2010-11 shall apply mutatis mutandis to this ground also. As a result, ground no. 1, raised in assessee‟s appeal, is partly allowed. 14. The issue arising in ground no. 2, raised in assessee‟s appeal, is pertaining to addition of Rs. 56,268 on account of insurance payment on the policy of the Directors. Learned CIT(A) vide impugned order held that such payment is the personal liability of the Director and therefore, cannot be said to have been incurred wholly and exclusively for the purpose of the construction business of the assessee and thus not allowable under section 37(1) of the Act. Considering the material available on record, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground no.2, raised in assessee‟s appeal, is dismissed. 15. In the result, appeal by the assessee for assessment year 2011-12 is partly allowed. Lokhandwala Kataria Construction Pvt. Ltd. ITA No.1344/Mum./2020 and ITA no.1345/Mum./2020 Page | 10 16. To sum up, both the appeals by the assessee are partly allowed. Order pronounced in the open Court on 12/09/2022 Sd/- S. RIFAUR RAHMAN ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 12/09/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai