ACIT 12(3)(2), MUMBAI V. LASHKARIA COSNTRUCTION P. LTD, MUMBAI

ITA 1769/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0100 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINEGSHEN
• Keywords: Bogus purchase; Opportunity of cross examination
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 1769/MUM/2016 (ASSESSMENT YEAR 20 11 - 12 ) ACIT 12(3)(2) ROOM NO. 147B 1 ST FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. L ASHKARIA CONSTRUCTION PVT. LTD. 102, DIAMOND BUILDING NEAR AIR INDIA BUILDING NEW LINK ROAD JOGESHWARI WEST MUMBAI - 400 102. ( APPELLANT ) ( RESPONDENT ) C.O. NO. 192/MUM/2017 (ASSESSMENT YEAR 2011 - 12) M/S. LASHKARIA CONSTRUCTION PVT. LTD. 102, DIAMOND BU ILDING NEAR AIR INDIA BUILDING NEW LINK ROAD JOGESHWARI WEST MUMBAI - 400 102. VS. ACIT 12(3)(2) ROOM NO. 147B 1 ST FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACL6508R ASSESSEE BY SHRI RAKESH JOSHI DEPARTMEN T BY S HRI M.C. OMI NINEGSHEN DATE OF HEARING 14 . 8 . 201 7 DATE OF PRONOUNCEMENT 31 .8 . 201 7 O R D E R PER B ENCH : - THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 30.12. 2015 PASSED BY THE LEARNED CIT(A) - 20, MUMBAI AND THEY RELATE TO A.Y. 2011 - 12. 2. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN GRANTING RELIEF TO THE ASSESSEE TO THE EXTENT OF 90% OF THE ADDITION MADE BY THE M/S. LASHKARIA CONSTRUCTION PVT. LTD. 2 ASSESSING OFFICER RELATING TO BOGUS PURCHASES. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN CONFIRMING THE ADDITION TO THE EXTENT OF 10%. 3. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN CONSTRUC T ION BUSINESS. IT FILED ITS RETURN OF I NCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF ` 643.25 LAKHS. THE DEPARTMENT CARRIED OUT A SURVEY OPERATION ON 9.2.2011 AND DURING THE COURSE OF SURVEY, IT WAS NOTICED THAT THE ASSESSEE HAS RECORDED CASH TRANSACTION IN THE FORM OF CASH RECEIPTS PERTAIN ING TO SCRAP SALES, CHARGES FOR AMENITIES PROVIDED AND ON - MONEY RECEIVED AGAINST SALE OF FLATS. THE ASSESSEE MADE A VOLUNTARY DISCLOSURE OF ` 501.00 LAKHS DURING THE COURSE OF SURVEY AND THE SAME WAS ALSO DISCLOSED IN THE RETURN OF INCOME . 4. THE REVENUE RECEIVED INFORMATION FROM THE SALES TAX DEPARTMENT THAT CERTAIN DEALERS ARE ENGAGED IN PROVIDING ACCOMMODATION BILLS ONLY, WITHOUT ACTUALLY SUPPLYING THE MATERIALS. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PUR C HASE D MATERIALS TO THE EXTENT OF ` 584.43 LAKHS FROM 29 PARTIES IDENTIFIED BY THE SALES TAX DEPARTMENT AS INVOLVED IN PROVIDING ACCOMMODATION BILLS. THE ASSESSING OFFICER ISSUED NOTICES U/S. 133(6) OF THE ACT TO THOSE PARTIES, BU T ALL OF THEM WERE RETURNED BACK BY THE POSTAL AUTHORITY. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE DID NOT FURNISH RECONCILIATION OF PURCHASES. HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT THE PURCHASES MADE FROM THE ABOVE SAID PARTIES ARE BOGUS AND ACCORDINGLY DISALLOWED THE SAME AND ADDED ` 584.43 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT IT IS OFFERING INCOME UNDER PERCENTAGE OF COMPLETE METHOD IN RESPECT OF CONSTRUCTION ACTIV ITY. IT FURTHER SUBMITTED THAT ALL THESE PURCHASES HAVE BEEN INCLUDED IN WORK IN PROGRESS ACCOUNT. IT FURTHER SUBMITTED THAT IT HAS FURNISHED COPIES OF PURCHASE INVOICES, DETAILS OF PAYMENT MADE THROUGH BANKING CHANNEL S , LEDGER ACCOUNT COPIES , DELIVERY C HALLAN S , QUANTITATIVE DETAILS OF PURCHASES AND ITS M/S. LASHKARIA CONSTRUCTION PVT. LTD. 3 UTILIZATION ETC. IN ORDER TO PROVE THE GENUINENESS OF THE PURCH ASE TRANSACTIONS AGGREGATING TO ` 584.43 LAKHS. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER DID NOT EXAMINE OR MAKE ANY COMMENT UPON T HE EVIDENCES PRODUCED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS MADE ADDITION WITHOUT MAKING ANY FURTHER INQUIRY OR BRINGING ANY MATERIAL ON RECORD TO PROVE THAT THE TRANSACTIONS WERE N OT GENUINE. IT WAS CONTENDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF ` 584.43 LAKHS. THE ASSESSEE ALSO PLACED RELIANCE ON VARIOUS CASE LAWS TO CONTEND THAT THE ASSESSING OFFICER COULD NOT MAKE ANY ADDITION MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT. 6. THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSING OFFICER DID NOT FURNISH COPIES OF STATEMENT AND ALSO DID NOT PROVIDE OPPORTUNITY TO CROSS EXAMINE THE PARTIES WHO HAVE GIVEN STATEMENT BEFORE THE SALES TAX DEPARTMENT. ACCORDINGLY IT WAS SUBMITTED THAT , WITHOUT GRANTING COPIES OF STATEMENT AND WITHOUT PROVIDING OPPORTUNITY TO CROSS EXAMINE , THE ADDITION MADE IS NOT SUSTAINABLE. THE ASSESSEE ALSO CONTENDED THAT THE ASSESSING OFFICER HAS MADE ADDITION WITHOUT REJECTING THE BOOK RESULTS AND HENCE THE IMPUGNED ADDITION WAS NOT JUSTIFIED. THE ASSESSEE ALSO SUBMITTED THAT IT HAS BEEN SHOWING NET PROFIT IN THE RANGE OF 11% WHICH IS COMPARABLE WITH THE INDUSTRIES STANDARD. IT WAS SUBMITTED THAT THE ASSESSEE HAS DECLARED NET PROFIT OF 22.72% AFTER INCLUDING THE ADDITIONAL DISCLOSURE OF 5.01CRORES. 7. THE LEARNED CIT(A), UPON CONSIDERING THE ARGUMENTS AND EVIDENCES, TOOK THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ADDING ENTIRE ALLEGED BOGUS PURC HASES. THE LEARNED CIT(A) ALSO TOOK THE VIEW THAT THE PROFIT ELEMENT EMBEDDED IN THE ALLEGED BOGUS PURCHASES SHOULD ONLY BE ADDED. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO MAKE ADDITION OF 10% OF THE ALLEGED BOGUS PURCHASES WITH THE FOLLOWING OBSE RVATIONS: - 6.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS MADE IN THIS REGARD. IT IS NOTED THAT THE A.O. HAD MADE ADDITION OUT OF M/S. LASHKARIA CONSTRUCTION PVT. LTD. 4 PURCHASE MADE BY THE ASSESSEE TO THE TUNE OF 5,84,43,750/ - ON THE BASIS OF THE INFORMATION RECEIVED FR OM THE VAT AUTHORITIES. THE A/R OF THE ASSESSEE HAS VEHEMENTLY OPPOSED THE ADDITIONS AND SUBMITTED THAT THE PURCHASES WERE GENUINE. IT IS ALSO SUBMITTED THAT PAYMENTS WERE ALL MADE THROUGH BANKING CHANNEL AND THE DELIVERY OF MATERIALS WERE SUPPORTED BY DEL IVERY CHALLANS. IT IS STATED THAT THE A.O. HAD MADE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM VAT AUTHORITIES WITHOUT AFFORDING OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE. IT IS NOTED THAT THE ENTIRE MATTER PERTAINS TO HAWALA PURCHASES FROM SO CALLED SUSPICIOUS DEALERS AS PER THE INFORMATION OF VAT AUTHORITIES. THE A.O. HAS DISALLOWED THESE PURCHASES AS THE ASSESSEE COULD NOT PRODUCE THESE PARTIES FOR VERIFICATION. IT IS NOTED THAT PRIMARY ONUS TO ESTABLISH THAT THE PURCHASES WERE GENUINE WAS ON THE ASSESSEE. THE ASSESSEE IS ONLY PARTLY ABLE TO DISCHARGE THE COMPLETE ONUS. IT IS ALSO NOTED THAT A.O. HAS SIMPLY MADE ADDITION ON THE BASIS OF INFORMATION RECEIVED FROM THE VAT AUTHORITIES ABOUT SUSPICIOUS DEALERS WITHOUT MAKING MUCH ENQUIRY INTO T HE FACTS OF THE CASE. ON THE OTHER HAND ASSESSEE HAS FILED COPIES OF BILLS, BANK STATEMENT ETC. TO ESTABLISH THAT PURCHASES WERE GENUINE. ON THE FACE OF THESE EVIDENCES THE ENTIRE PURCHASES CANNOT BE HELD TO BE BOGUS MERELY ON THE BASIS OF A STATEMENT OF S ELLER WHO WAS NEVER CROSS EXAMINED BY THE ASSESSEE. IT IS ALSO NOTED THAT THE ITEMS PURCHASED WERE USED AS INPUT INTO ASSESSEE'S PRODUCT FOR SALES WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT. 6.4 IT IS NOTED THAT ONLY PROFIT ELEMENT IS LIABLE TO TAX IN SU CH CASES AS WAS HELD IN THE CASE OF : 1. CIT VS. BHOLANATH POLY FAB LTD. (2013) 355 ITR 290 (GUJ)(HC) 2. CIT V SIMIT P. SHETH (2013) 356 ITR 451 (GUJ) (HC) 3. CIT VS. SANJAY OIL CAKE INDUSTRIES (2009) 316 ITR 274 (GUJ) (HC) 4. ITO VS. PERMANAND (2007) 107 TT3 395 (JD)(TRIB.) 5. SHRI MADHUKANT B. GANDHI VS. ITO ITA NO. 1950/M/2009 BENCH 'B' DT. 23 - 02 - 2010 (AY 2005 - 06) (MUM.)(TRIB.) 6. SANJEEV WOOLEN MILLIS VS. CIT (2005) 279 ITR 434 (SC) 6.5. IN VIEW OF THE ABOVE DISCUS SION IT IS SEEN THAT THE ADDITION MADE BY THE A.O. ON ACCOUNT OF ALLEGED BOGUS PURCHASE CANNOT BE SUSTAINED FULLY IN APPEAL. HAVING REGARDS TO FACTS OF THE CASE IT WOULD BE FAIR AND REASONABLE IF THE ADDITION MADE IS RESTRICTED TO G.P. ADDITION OF 10% ON T HE ALLEGED BOGUS PURCHASE OF 5,84,43,750/ - WHICH COMES TO ` 58,44,375/ - . ACCORDINGLY THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED . M/S. LASHKARIA CONSTRUCTION PVT. LTD. 5 8. BEFORE US, THE LD D.R PLACED STRONG RELIANCE ON THE ORDER PASSED BY THE AO. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THERE WAS NO SCOPE FOR SUSTAINING ADDITION TO THE EXTENT OF 10%, SINCE THE ASSESSEE HAS FURNISHED ALL THE DETAILS INCLUDING THE RECEIPT AND CONSUMPTION OF GOODS. THE LD A.R FURTHER SUBMITTED THAT THESE MATERIALS HAVE BEEN INCLUDED IN THE WORK IN PROGRESS AND THE ASSESSEE HAS BEEN DECLARING INCOME UNDER PERCENTAGE COMPLETION METHOD. ACCORDINGLY HE SUBMITTED THAT THE ADDITION, IF ANY, SUSTAINED WILL GO TO REDUCE THE VALUE OF WORK IN PROGRESS ONLY. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE R ECORD. SINCE THE ASSESSEE HAS FURNISHED THE DETAILS OF RECEIPTS AND CONSUMPTION OF MATERIALS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN OBSERVING THAT THE PROFIT ELEMENT, IF ANY, INVOLVED IN THE ALLEGED BOGUS PURCHASES ALONE CAN BE BROUGHT TO TAX. THE LD A.R CONTENDED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION WITHOUT EXAMINING THE MATERIALS FURNISHED BEFORE HIM AND WITHOUT REJECTING THE BOOK RESULTS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS MADE THE ADDITION BY SIMPLY RELYING U PON THE STATEMENT GIVEN BY THE SUPPLIERS BEFORE THE SALES TAX AUTHORITIES WITHOUT MAKING ANY INDEPENDENT ENQUIRY. THE LD A.R SUBMITTED THAT THE AO DID NOT FURNISH COPIES OF THOSE STATEMENTS AND ALSO DID NOT AFFORD OPPORTUNITY OF CROSS EXAMINATION. ACCORD INGLY IT WAS CONTENDED THAT THE ENTIRE ADDITION SHOULD BE DELETED. 10. HOWEVER, WE ARE UNABLE TO FULLY AGREE WITH THE CONTENTIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS ISSUED NOTICES U/S 133(6) OF THE ACT AND ALL THE NOTICES HAVE BEEN RETURNED BA CK BY THE POSTAL AUTHORITIES UN - SERVED. WE ALSO NOTICE THAT THE ASSESSEE DID NOT OBTAIN ANY CONFIRMATION LETTER FROM THE SUPPLIERS NOR DID IT PRODUCE THOSE PARTIES BEFORE THE AO. HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS COMPLETELY PROVED THE GENUINE NESS OF PURCHASES. SINCE THE ASSESSEE HAS PROVED THE RECEIPT AND CONSUMPTION OF MATERIALS, AS STATED EARLIER, THE LD CIT(A) WAS JUSTIFIED IN OBSERVING THAT TH E PROFIT ELEMENT INVOLVED IN THE ALLEGED BOGUS PURCHASES ALONE SHOULD BE ASSESSED. THE LD A.R SU BMITTED THAT THE VAT RATE APPLICABLE TO THE MATERIALS IS AROUND 4%. IT WAS M/S. LASHKARIA CONSTRUCTION PVT. LTD. 6 SUBMITTED THAT THE SUPPLIERS CAUGHT HOLD OF THE SUPPLIERS, SINCE THEY FAILED TO PAY VAT COLLECTED FROM THE PARTIES. HENCE THE PRESUMPTION IS THAT THE ASSESSEE MIGHT HAVE SAVED VAT AMOUNT IN THOSE CASES. CONSIDERING THE FACT THAT THERE IS A POSSIBILITY FOR THE ASSESSEE TO SOURCE THE MATERIALS AT A LOWER RATE ALSO, WE ARE OF THE VIEW THAT THE PROFIT ELEMENT EMBEDDED IN THE ALLEGED BOGUS PURCHASES MAY BE FIXED AT 8%. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO ESTIMATE THE PROFIT ELEMENT AT 8% OF THE VALUE OF ALLEGED BOGUS PURCHASES. 11. THE LD A.R SUBMITTED THAT ALL THE PURCHASES HAVE BEEN INCLUDED IN THE WORK IN PROGRESS, SINCE THE CONCERNED PROJEC T WAS UNDER CONSTRUCTION. IN THAT CASE, THERE IS MERIT IN THE SUBMISSION OF THE ASSESSEE THAT THE PROFIT AMOUNT COMPUTED AT 8% OF THE VALUE OF ALLEGED BOGUS PURCHASES SHOULD GO TO REDUCE THE VALUE OF WORK IN PROGRESS. ACCORDINGLY WE DIRECT THE AO TO REDU CE THE PROFIT AMOUNT SO COMPUTED FROM THE VALUE OF WORK IN PROGRESS, INSTEAD OF ASSESSING THE SAME DURING THE YEAR UNDER CONSIDERATION. WE ORDER ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION OF T HE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 31 . 8 .201 7. SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 31 / 8 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI M/S. LASHKARIA CONSTRUCTION PVT. LTD. 7 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI