BHOOMI CONSTRUCTION , MUMBAI V. ACIT, CENTRAL CIRCLE-2, MUMBAI

ITA 1782/MUM/2023

• Counselvise Citation: [2023] 102 COUNSELVISE.COM (IT) 0649 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-09-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 17-05-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bogus purchase
• Section: 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1782/MUM/2023 (Assessment Year: 2010-11) Bhoomi Construction, Plot No. 2 and 3, Bhoomi Tower, Sector – 11, Opp. Juin Nagar – Railway Station, Sanpada, Navi Mumbai - 400604 [PAN: AAHFC3014C] Assistant Commissioner of Income Tax Central Circle - 2, Thane, 6 th Floor, Ashar IT Park, Wagle Industrial Estate, Thane (West)- 400604 ............. Vs ............. Appellant Respondent ITA No. 1873/MUM/2023 (Assessment Year: 2010-11) ITO-28(1)(1), Mumbai, Room No. 329, 3 rd Floor, 6 th Tower, Vashi Railway Station Complex, Vashi, Navi Mumbai - 400703 ............. Appellant Bhoomi Construction, Plot No. 2 and 3, Bhoomi Tower, Sector – 11, Opp. Juin Nagar – Railway Station, Sanpada, Navi Mumbai - 400705 Vs ............. Respondent ITA No. 1998/MUM/2023 (Assessment Year: 2011-12) Bhoomi Construction, Plot No. 2 and 3, Bhoomi Tower, Sector – 11, Opp. Juin Nagar – Railway Station, Sanpada, Navi Mumbai - 400604 [PAN: AAHFC3014C] ............. Appellant ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 2 Assistant Commissioner of Income Tax Central Circle - 2, Thane, 6 th Floor, Ashar IT Park, Wagle Industrial Estate, Thane (West)- 400604 Vs ............. Respondent ITA No. 1874/MUM/2023 (Assessment Year: 2011-12) ITO-28(1)(1), Mumbai, Room No. 329, 3 rd Floor, 6 th Tower, Vashi Railway Station Complex, Vashi, Navi Mumbai - 400703 ............. Appellant Bhoomi Construction, Plot No. 2 and 3, Bhoomi Tower, Sector – 11, Opp. Juin Nagar – Railway Station, Sanpada, Navi Mumbai - 400705 Vs ............. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Satyaprakash Singh Shri S.K. Jain Date Conclusion of hearing Pronouncement of order : : 20.09.2023 19.10.2023 O R D E R Per Bench 1. These are two cross appeals pertaining to assessment years 2010–2011 and 2011–2012. Since the appeals involved identical issues, the same were heard together and are being disposed by way of a common order. Assessment Year 2010-11 2. We would first take up cross-appeals for the Assessment Year ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 3 2010–11. 3. These cross-appeals pertaining to Assessment Year 2010-11 arising from the order, dated 29/03/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’], whereby the Ld. CIT(A) had partly allowed appeal of the Assessee against the Assessment Order, dated 15/03/2023, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 4. The Assessee has raised following grounds of appeal in ITA No. 1782/Mum/2023: “1. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition of Rs. 10,34,437/- being 12.5% of the alleged bogus purchases of Rs. 82,75,494/- merely on surmises and conjectures. 2. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition of Rs. 13,17,884/- being interest expenses u/s 36(1)(iii) of the Act even though the expenses are incurred wholly and exclusively for the purpose of business of the Appellant.” 5. The Revenue has raised following grounds of appeal in ITA No. 1873/Mum/2023 1. "Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in restricting the disallowance on account of bogus purchases to 12.5% of such bogus purchases without appreciating the fact that the assesse evaded the taxes on whole of such bogus purchases and by restricting the disallowance to only 12.5% the assessee continues to evade the taxes on the balance bogus purchases, in view of the judgment of Hon'ble Gujrat High Court in NK Proteins which was upheld by the Supreme Court?" ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 4 6. The relevant facts in brief are that the Assessee is a partnership firm constituted by partners having equal share which is engaged in the real estate business as a builder and developer. The Assessee filed return of income for the Assessment Year 2010– 11 on 15/10/2010 declaring income of INR 10,00,000/-. The case of the Assessee was selected for scrutiny and assessment was completed under Section 143(3) of the Act vide Assessment Order, dated 15/03/2013 at assessed income of INR 1,05,93,382/- after making disallowance of INR 82,75,494/- holding the same to be bogus purchases and INR 13,17,884/- being the interest expenses disallowed under Section 36(1)(iii) of the Act. 7. The Appeal preferred by the Assessee before the CIT(A) resulted in partial relief to the Assessee as, vide order dated 29/03/2023, the CIT(A) restricted disallowance on account of bogus purchases to 12.5% of the purchase amount while confirming the disallowance of INR 13,17,884/- made by the Assessing Officer under Section 36(1)(iii) of the Act. 8. Not being satisfied by the partial relief granted by the CIT(A) the Assessee is in appeal before us seeking deletion of the disallowances to the extent confirmed by the CIT(A), while the Revenue has preferred appeal against the order of CIT(A) restricted the disallowance of bogus purchases to 12.5% of the purchase amount. Ground No. 1 of Appeal by Assessee, & Ground No. 1 of Appeal by Revenue 9. Ground No. 1 of the Appeal preferred by the Assessee and ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 5 Ground No. 1 of the Appeal preferred by the Revenue pertain to the issue of bogus purchases and are, therefore, taken up together hereinafter. 9.1. The facts relevant for adjudication of the issue under consideration are that for the Assessment Year 2010-11 the Assessee had claimed deduction of expenses incurred for purchases of material aggregating to INR 4,29,73,191/-. The Assessing Officer noted that the name of the following 4 parties was reflected in the list of hawala dealers making bogus invoices available at the website of Sales Tax Department, Maharashtra: (i) Saj Enterprises INR 34,12,426/- (ii) Ghantalia Steels INR 32,19,043/- (iii) Omkar Enterprises INR 10,09,349/- (iv) Toral Enterprises INR 6,34,676/- INR 82,75,494/- 9.2. Since the Assessee has made purchase of material from the above 4 parties aggregating to INR 82,75,494/-, the Assessee was asked substantiate the transaction of purchase of material with these parties. However, the Assessee failed to produce the documents and details asked for by the Assessing Officer which included confirmation, purchase bills, return of income, and extract of bank statement. Further, the notices issued by the Assessing Officer under Section 133(6) of the Act the said 4 parties were returned as un-served. In view of the aforesaid, the Assessing Officer concluded that purchases of material aggregating to INR 82,75,494/- made by the Assessee from the aforesaid 4 parties were bogus and therefore, proceeded to ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 6 make disallowance of the aforesaid amount. 9.3. Being aggrieved, the Assessee carried the issue in appeal before CIT(A). The CIT(A) agreed with the Assessing Officer and confirm the finding that purchases of INR 82,75,494/- made by the Assessee were not genuine. However, taking note of the fact that the Assessing Officer had not doubted that the material purchased had entered in the books, the CIT(A) restricted the disallowance in respect of bogus purchases to 12.5% of such bogus purchases. 9.4. Being aggrieved both the Assessee as well as Revenue are in appeal before us on this issue. In Ground No. 1 raised by the Assessee in its appeal, the Assessee has contended that the addition to the extent of 12.5% of bogus purchases sustained by the CIT(A) should be deleted as the purchases were genuine, whereas Revenue has, in Ground No. 1 raised in the appeal preferred by the Revenue, contended that the CIT(A) had erred in reducing the disallowance to 12.5% of the purchases and has urged that the same should be restored to entire amount of bogus purchases. 9.5. We have heard the rival submissions and perused the material on record. Both the sides have failed to controvert the finding returned by the CIT(A). The concurrent findings given by the Assessing Officer and the CIT(A) that the Assessee has failed to provide any documents to substantiate the actual delivery of goods stated in the purchase invoices has gone uncontroverted in the appellate proceedings before us. On the other hand, the ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 7 Revenue has also failed to controvert the finding returned by the CIT(A) that the Assessing Officer had not doubted the books of the Assessee and had, therefore, accepted that material had entered the books and the same was consumed and/or lying in stock. No material has been placed before us warranting interference with the order passed by the CIT(A) in this regard. We note that the CIT(A) has restricted the disallowance to 12.5% of the alleged bogus purchases and thereby brought to tax the cost/tax savings and profit element embedded in purchases made by the Assessee from grey market. The Assessee is not engaged in the trading activity and therefore, the judgment in the case of PCIT Vs. Mohd. Haji Adam & Co.: [2019] 103 Taxmann.com 459 (Bombay) [11-02-2019] relied upon by the Ld. Counsel for the Assessee cannot be applied in the facts of the present case. In view of the aforesaid, we do not find any infirmity in the order passed by CIT(A) on this issue. Accordingly, Ground No. 1 raised by the Assessee and Ground No. 1 raised by the Revenue are dismissed. Ground No. 2 of Appeal by Assessee 10. Ground No.2 raised by the Assessee in appeal is directed against the disallowance of interest expenses of INR 13,17,884/- made by the Assessing Officer under Section 36(1)(iii) of the Act. 10.1. During the assessment proceedings, the Assessing Officer noted that the Assessee had borrowed interest bearing funds of INR 4,52,82,991/- and has paid interest of INR 70,47,412/- at an average rate of 12% on the same while on the other hand, the Assessee has granted interest free loan and advances to the ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 8 following parties aggregating to around INR 1.29 Crores: SNo. Name Amount (INR) 1 Bhaveshwar Trading Co. 11,51,600 2 Chandrakant D. Khania 2,08,860 3 Chhaganlal J. Patel (Tulsi Patel) 3,13,117 4 Dinesh K. Patel 3,38,593 5 Mathadi Kamgar Sahkari Gruh Nirman Sanstha Maryadit 23,90,500 6 N.G. Group 30,28,609 7 R. Patel and Co. 10,01,600 8 Vavia & Gajara Builders 25,00,000 9 Vinayaka Enterprises 20,00,000 Total 1,29,32,879 10.2. Therefore, the Assessee was asked to show cause why disallowance under Section 36(1)(iii) of the Act should not be made. In response, The Assessee filed reply contending that the loans/advances specified at Sl. No. 1, 5, 6, 8 & 9 of the table in paragraph 10.1 above were given to the sister concerns and out of the same advance to Bhaveshwar Trading Co. was made out of during the relevant previous year while the other four interest free loans/advances were carried forward from preceding assessment year. It was further submitted that the loans/advances to sister concerns were not made out of the borrowed funds. Further, the loans & advances to sister concerns were made on temporary basis out of the booking amount received by the Assessee to meet their requirements. However, ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 9 the aforesaid contention of the Assessee was rejected by the Assessing Officer who concluded that the Assessee had diverted interest bearing funds to sister concerns without establishing any commercial expediency and for non-business purposes, therefore, the Assessing Officer made disallowance of INR 13,17,884/- under Section 36(1)(iii) of the Act. 10.3. Being aggrieved, the Assessee carried the issue before the CIT(A). In the aforesaid appeal the CIT(A) concluded that even in the appellate proceedings before CIT(A), the Assessee had failed to establish commercial/business expediency and therefore, the CIT(A) sustained disallowance made by the Assessing Officer. 10.4. The Assessee is now in appeal before us seeking deletion of disallowance of INR 13,17,884/- under Section 36(1)(iii) of the Act sustained by the CIT(A). 10.5. We have heard the rival contention and perused the material on record. 10.6. Even in the appellate proceedings before us the Assessee has failed to demonstrate that the interest free loans and advances to sister concerns were made on account of commercial expediency. All that has been submitted before us is that the transaction with the sister concerns with the bonafide transaction undertaken to meet their respective requirements for funds on short-term basis out of booking amounts with the object of protecting the goodwill of the group as a whole. We do not find merit in the aforesaid contention advanced on behalf of the ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 10 Assessee as the same is not substantiated by any material on record. In view of the aforesaid, Ground No. 2 raised by the Assessee is dismissed. Assessment Year 2011-12 11. We would first take up cross-appeals for the Assessment Year 2011–12. 12. These cross-appeals pertaining to Assessment Year 2011-12 arising from the order, dated 29/03/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’], whereby the Ld. CIT(A) had partly allowed appeal of the Assessee against the Assessment Order, dated 20/03/2014, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 13. The Assessee has raised following grounds of appeal in ITA No. 1998/Mum/2023: “1. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition of Rs. 22,36,590/- being 12.5% of the alleged bogus purchases of Rs. 1,78,92,725/- merely on surmises and conjectures. 2. In the facts and circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition of Rs. 15,38,900/- being interest expenses u/s 36(1)(iii) of the Act even though the expenses are incurred wholly and exclusively for the purpose of business of the Appellant.” 14. The Revenue has raised following grounds of appeal in ITA No. 1874/Mum/2023 ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 11 2. "Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is justified in restricting the disallowance on account of bogus purchases to 12.5% of such bogus purchases without appreciating the fact that the assessee evaded the taxes on whole of such bogus purchases and by restricting the disallowance to only 12.5% the assessee continues to evade the taxes on the balance bogus purchases, in view of the judgment of Hon'ble Gujrat High Court in NK Proteins which was upheld by the Supreme Court?" 15. The relevant facts in brief are that the Assessee is a partnership firm constituted by partners having equal share which is engaged in the real estate business as a builder and developer. The Assessee filed return of income for the Assessment Year 2011– 12 on 28/09/2011 declaring income of INR 15,01,840/-. The case of the Assessee was selected for scrutiny and assessment was completed under Section 143(3) of the Act vide Assessment Order, dated 20/03/2014 at assessed income of INR 2,09,33,465/- after making disallowance of INR 1,78,92,725/- holding the same to be bogus purchases and INR 15,38,900/- being the interest expenses disallowed under Section 36(1)(iii) of the Act. 16. The Appeal preferred by the Assessee before the CIT(A) resulted in partial relief to the Assessee as, vide order dated 29/03/2023, the CIT(A) restricted disallowance on account of bogus purchases to 12.5% of the purchase amount while confirming the disallowance of INR 15,38,900/- made by the Assessing Officer under Section 36(1)(iii) of the Act. 17. Not being satisfied by the partial relief granted by the CIT(A) the Assessee is in appeal before us seeking deletion of the ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 12 disallowances to the extent confirmed by the CIT(A), while the Revenue has preferred appeal against the order of CIT(A) restricted the disallowance of bogus purchases to 12.5% of the purchase amount. Ground No. 1 of Appeal by Assessee, & Ground No. 1 of Appeal by Revenue 18. As was the case in cross-appeals for the assessment year 2010- 11 Ground No. 1 preferred by the Assessee and Ground No. 1 of the appeal preferred by the Revenue pertain to the issue of bogus purchases. While adjudicating cross-appeals for the Assessment Year 2010–11, we have declined to interfere with the order passed by CIT(A) on the issue of bogus purchases. Both the sides agreed that there is no change in facts and circumstances of the case in the assessment year before us and therefore, our findings and adjudication in cross appeals for the Assessment Year 2010-11 shall apply mutatis mutandis to cross- appeals for the Assessment Year 2011-12. Accordingly, in view of finding/adjudication in paragraph 9 to 9.5 above, we decline to interfere with the order passed by the CIT(A). Accordingly, order passed by the CIT(A) restricting disallowance on account of bogus purchases to 12.5% of such purchases is sustained. Ground No. 1 raised by the Assessee as well as Ground No. 1 raised by the Revenue is their respective appeals are dismissed. Ground No. 2 of Appeal by Assessee 19. Ground No. 2 raised by the Assessee and its appeal is directed against the disallowance of INR 15,38,900/- made by the Assessing Officer under Section 36(1)(iii) of the Act which has ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 13 been sustained by the CIT(A). 20. Both the sides adopted the arguments made in relation to Ground No. 2 raised in appeal for the Assessment Year 2010-11 and agree that the finding/adjudication in relation to Ground No. 2 shall apply mutatis mutandis in Ground No. 2 raised in the present appeal. Accordingly, in view of our funding/adjudication ground paragraph 10 to 10.6 above, we dismiss Ground No. 2 raised by the Assessee in appeal. 21. In result, all four appeals are dismissed. Order pronounced on 19.10.2023. Sd/- Sd/- (Prashant Maharishi) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 19.10.2023 Alindra, PS ITA No.1873 & 1874//Mum/2023 (Assessment Year 2010-11) ITA No.1782 & 1998/Mum/2023 (Assessment Year: 2011-12) 14 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai