KL CRESCENT INFRASTRUCTURE PVT LTD., NAVI MUMBAI V. INCOME TAX OFFICER-15(2)(1), MUMBAI

ITA 172/MUM/2023

AI Insights

KL Crescent Infrastructure Pvt Ltd appealed against the orders of the Learned Commissioner of Income Tax (Appeals), which sustained the disallowance of purchases amounting to INR 8,22,77,351 for the assessment years 2010-11 and 2011-12. The disallowance was based on the finding that these purchases were non-genuine, linked to hawala transactions. The Tribunal found that while the purchases were non-genuine, only the profit element embedded in these purchases should be taxed, not the entire amount. This decision was supported by various precedents and the fact that the sales from these purchases were accepted as genuine.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123706 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Next Hearing Date: 15-03-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 17-01-2023
• Other Referred Cases: Nikunj Eximp Enterprises (P) Ltd. vs. [35 taxmann 384 (Bombay)], Odeon Builders Pvt. Ltd. vs. [110 taxmann 64 (Supreme Court)], Nitin Ramdeoji Lohia vs. [145 taxmann 546 (Bombay)], Bholanath Polyfab Pvt. Ltd vs. [355 ITR 290], CIT vs. Simit P. Seth [38 taxman.com 385], CIT vs. Nikunj Eximp [216 Taxman.com 171]
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 147; 131; 271(1)(c); 143(3); 142(1); 143(2); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI BEFORE SHRI VIKAS AWASTHY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 172/MUM/2023 (A.Y: 2010-11) KL Crescent Infrastructure Pvt Ltd A-390/39, TTC Industrial Zone MIDC, Mahape, Post Ghansoli Navi Mumbai- 400701 PAN: AADCK3832C v. ITO 15(2)(1) Aayakar Bhavan Mumbai- 400020 (Appellant) (Respondent) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd A-390/39, TTC Industrial Zone MIDC, Mahape, Post Ghansoli Navi Mumbai- 400701 PAN: AADCK3832C v. ACIT 15(2)(2) Aayakar Bhavan Mumbai- 400020 (Appellant) (Respondent) Assessee Represented by : Shri Bhupendra Shah Department Represented by : Smt. Sujatha Iyangar Date of conclusion of Hearing : 16.03.2023 Date of Pronouncement : 30.05.2023 ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 2 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 16.01.2023 and 21.12.2022 for the A.Y. 2010-11 and 2011-12 respectively. 2. Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 172/MUM/2023 for Assessment Year 2010-11 as a lead appeal. ITA.NO. 172/MUM/2023 (A.Y. 2010-11) 3. Brief facts of the case are, assessee is engaged in the business of construction of civil and Infrastructural work as a contractor and also engaged in the business of trading of all type of construction materials. Assessee had filed its return of income for A.Y. 2010-11 on 13.10.2010 declaring total income of ₹.52,59,310/- and the return was processed u/s.143(1) of the Income-tax Act, 1961 (in short “Act”). Subsequently, Assessing Officer received information from DGIT (Investigation), that ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 3 assessee is engaged in the practice of inflating the purchases through hawala parties. Based on the information, Assessing Officer has reopened the assessment u/s. 147 by issue of notice u/s.148 of the Act. In response assessee vide letter dated 04.12.2015 filed return of income and asked the copy of reasons for reopening and the same was provided to assessee. Notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response Authorised Representative of the assessee attended and submitted the relevant information as called for. 4. During re-assessment proceedings, Assessing Officer observed that assessee had entered into Hawala Transactions for Purchases amounting to ₹.8,22,77,351/- from the below mentioned parties for F.Y.2009-10. Sr.No. NAME OF THE SUPPLIER TIN F.Y. AMOUNT 1. NATIONAL TRADING co. 27210561220V 2009-10 16,26,527 2. SIDDHIVINAYAK TRADING COMPANY 27830560491V 2009-10 54,28,314 3. DEEPALI ENTERPRISES 27100503032V 2009-10 246,49,843 4. REKHA TRADING 27520270001V 2009-10 221,45,361 5. RENUKA SALES CORPORATION 27400626348V 2009-10 251,74,233 6. S. S. ENTERPRISES 27850562074V 2009-10 32,53,073 Total 8,22,77,351 5. An independent survey was also carried out by the erstwhile ITO- 10(3)(2), Mumbai on 14.12.2012. As per the information available, the ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 4 companies from whom the assessee had obtained hawala purchase bills amounting to ₹.9,47 crores for F.Yrs. 2009-10 and 2010-11 are as under: - Sr.No NAME OF THE SUPPLIER TIN F.Y. AMOUNT 1 JNATIONAL TRADING CO. 27210561220V 2009-10 16,26,527 2 SIDDHIVINAYAK TRADING COMPANY 27830560491V 2009-10 54,28,314 3 DEEPALI ENTERPRISES 27100503032V 2009-10 246,49,843 4 REKHA TRADING CO. 27520270001V 2009-00 221,45,361 5 RENUKA SALES CORPORATION 27400626348V 2009-10 251,74,233 6 S S ENTERPRISES 27850562074V 2009-10 32,53,073 7. PRAYASH STEELAGE 27720524516V 2010-11 15,06,078 8 VATEKA TRADING 27570642308V 2010-11 1,06,13,634 9 AMRUTLAL SALES PVT. LTD 27290769338V 2010-11 2,47,248 10 SHIVMANI TRADERS PVT, LTD, 27290589500V 2010-11 1,41,189 Total 9,47,85,500 6. The assessee was asked to prove the genuineness of the purchases made from various parties referred in Assessment Order. Assessee submitted its submissions vide letter dated 29.01.2016 and the same is reproduced in the Assessment Order at Page No. 3 to 5 of the Assessment Order, for the sake of brevity it is not reproduced below. Assessing Officer observed that during the course of survey on 14.12.2012, it was noticed that assessee had booked purchases to inflate his expenses. Some expenses were found booked as cash paid to the above mentioned issuers of Hawala Bills. Various cash vouchers were found which were not entered into books of accounts and were admitted to be incurred on behalf of assessee's principal. It was also ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 5 found that assessee was preparing bogus expenses bills by creating bills in respect of various parties for whom blank bill books were found during the survey. The assessee admitted that it utilizes these third party bill books for inflating expenses and the expenses inflated through these bills are approximately ₹.75,000/- per month against these parties. The assessee contended that these expenses are actually incurred by him on cash but in the absence of supporting vouchers he is preparing bills in respect of these parties as advised by his Chartered Accountant. 7. In response, Assessee furnished summary of party wise purchases and sales and other evidences and submitted that the purchases made are genuine. Assessee further submitted that the payments are made through account payee cheques as such contended that all the purchases are genuine. 8. Not convinced with the submissions of the assessee the Assessing Officer treated the purchases as non-genuine and he was of the opinion that assessee had obtained only accommodation entries without there being any transportation of materials and the assessee might have made purchases in the gray market. Assessing Officer observed that inquiries conducted by the Inspectors reveals that the claim of expenses are not ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 6 genuine transactions and the assessee has not produced the parties before the Assessing Officer. It is the finding of the Assessing Officer that the assessee failed to produce the parties before the Assessing Officer to prove the claim of the assessee. Therefore, Assessing Officer treated purchases of ₹.8,22,77,531/- as non-genuine and added to the income of the assessee. 9. Aggrieved assessee preferred appeal before Ld.CIT(A) and filed detailed submissions and Ld.CIT(A) considering the evidences and various submissions of the assessee sustained the action of the Assessing Officer. 10. Aggrieved assessee filed an appeal before us raising following grounds of appeal: - “1. In the facts and the circumstances of the case and in law, the Ld. AO erred in passing the order u/s 143(3) r.w.s. 147 and therefore rendering the whole re-assessment bad in law, also on the basis of borrowed satisfaction, presumption and surmises and also erred in disregarding various objections raised in this regard. 2. In the facts and circumstances of the case and in law, the Assessing Officer erred in disallowing Rs. 8,22,77,351/- as alleged bogus purchases being 100% of the total purchases amounting to Rs. 8,22,77,351/- a. By disregarding the case of M/s Haji Mohd Adam which was also followed by the jurisdictional ITAT in several cases holding that only differential GP ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 7 between amount of purchases which is not verifiable. b. Even though the payment for purchases is made from the books by A/C payee cheque and cannot be termed as non-genuine even though the same has been fully allowed by the jurisdictional Mumbai Tribunal in many cases. c. Only on the basis of the information on the website www.mahavat.gov.in about 6 suspicious dealers whose copy of statement recorded were not furnished to the appellant and without affording cross examination u/s 131 d. Without appreciating the fact that no addition can be made if the suppliers are not traceable as per the judgment of the Bombay High Court. e. No sales can be made by a trader without purchases. 3. In the facts and circumstances of the case and in law, the AO erred in levying penalty u/s 271(1)(c) and charging interest u/s 234A, B & C. 4. In the facts and circumstance of the case and in law, the CIT(A) NFAC erred in disregarding voluminous paper book and written submissions filed by the appellant and also disregarding various case laws quoted and also rejecting recent case law of Bombay High Court in the case of Nitin Ramdeoji Lohia (2022) 145 taxmann.com 546 (Bombay) [21.10.2022]” 11. At the time of hearing, Ld. AR of the assessee submitted that when the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine purchases. Ld. AR further brought to our notice Page No. 150 of the Paper Book and submitted that the Gross Profit for the Financial Year 2009-10 and 2010-11 are 7.30% and 7.82% respectively, and requested that addition be restricted to the Gross ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 8 Profit. In support of his contentions, Ld. Counsel for the assessee relied on the following decisions: - (i) Nikunj Eximp Enterprises (P) Ltd., [35 taxmann 384 (Bombay)] (ii) Odeon Builders Pvt. Ltd., [110 taxmann 64 (Supreme Court)] (iii) Nitin Ramdeoji Lohia [145 taxmann 546 (Bombay)] 12. On the other hand, Ld. DR relied on the orders of the Authorities below. 13. Considered the rival submissions and material placed on record, it is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been accepted as genuine the entire purchases cannot be treated as non-genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as a natural corollary not the entire amount covered under such purchases would be subject to tax but only the profit element embedded therein. Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxman.com 385]. Simply because the parties were not produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171]. ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 9 14. Taking the totality of facts and circumstances, keeping in view the nature of business of the assessee i.e., Civil contractors and reseller of construction materials, and the Gross Profit shown by the assessee, it would be justified if the profit element embedded in those purchases are estimated at 12.5%. Accordingly, we direct the Assessing Officer to estimate the profit element from the non-genuine purchases at 12.5% and restrict the disallowance of purchases to 12.5% and compute the income accordingly for the assessment year under consideration i.e. A.Y.2010-11. 15. The jurisdictional issue in Ground No. 1 and other issues raised in Ground Nos. 3 and 4 are not pressed. Accordingly, these grounds are dismissed as not pressed. 16. In the result, appeal of the assessee is partly allowed. ITA.NO. 3242/MUM/2022 (A.Y. 2011-12) 17. Assessee has raised following grounds in its appeal: - “1. In the facts and the circumstances of the case and in law, the Ld. AO erred in passing the order u/s 143(3) r.w.s. 147 and therefore rendering the whole re-assessment bad in law, also on ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 10 the basis of borrowed satisfaction, presumption and surmises and also erred in disregarding various objections raised in this regard. 2. In the facts and circumstances of the case and in law, the Assessing Officer erred in disallowing Rs. 20804303/- as alleged bogus purchases being 100% of the total purchases amounting to Rs. 20804303/- a. By disregarding the case of M/s Haji Mohd Adam which was also followed by the jurisdictional ITAT in several cases holding that only differential GP between amount of purchases which is not verifiable. b. Even though the payment for purchases is made from the books by A/C payee cheque and cannot be termed as non-genuine even though the same has been fully allowed by the jurisdictional Mumbai Tribunal in many cases c. Only on the basis of the information on the website www.mahavat.gov.in about 6 suspicious dealers whose copy of statement recorded were not furnished to the appellant and without affording cross examination u/s 131 d. Without appreciating the fact that no addition can be made if the suppliers are not traceable as per the judgment of the Bombay High Court. e. No sales can be made by a trader without purchases. 3. In the facts and circumstances of the case and in law, the AO erred in levying penalty u/s 271(1)(c) and charging interest u/s 234A, B & C. 4. In the facts and circumstance of the case and in law, the CIT(A) NFAC erred in disregarding voluminous paper book and written submissions filed by the appellant and also disregarding various case laws quoted.” ITA NO. 172/MUM/2023 (A.Y: 2010-11) ITA NO. 3242/MUM/2022 (A.Y: 2011-12) KL Crescent Infrastructure Pvt Ltd Page No. | 11 18. Coming to the appeal relating to A.Y. 2011-12, since facts and the parties involved are same in this case are mutatis mutandis, therefore the decision taken in A.Y. 2010-11 is applicable to this assessment year also. Accordingly, this appeal is partly allowed. 19. To sum-up, appeals filed by the assessee are partly allowed. Order pronounced in the open court on 30 th May, 2023 Sd/- Sd/- (VIKAS AWASTHY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 30/05/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum