The DCIT, (OSD), Circle-9, Ahmedabad V. M/s. Satya Sankalp Developers, Ahmedabad

ITA 1879/AHD/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2097 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bogus purchase; Cost of acquisition; Corroborative evidences; Valuation report
• Section: 44AD

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 1879/AHD/2014 ( ASSESSMENT YEAR : 2007-08) DCIT (OSD) CIRCLE-9, AHMEDABAD / VS. M/S. SATYA SANKALP DEVELOPERS DHARAMDEV HOUSE, SHYAMAL CROSS ROADS, SATELLITE, AHMEDABAD - 380015 ( APPELLANT ) .. ( / RESPONDENT ) & CO NO. 240/AHD/2014 (IN ITA NO. 1879/AHD/2014) ( ASSESSMENT YEAR : 2007-08) M/S. SATYA SANKALP DEVELOPERS DHARAMDEV HOUSE, SHYAMAL CROSS ROADS, SATELLITE, AHMEDABAD - 380015 / VS. DCIT (OSD) CIRCLE-9, AHMEDABAD ./ ./ PAN/GIR NO. : ABEFS0080P ( APPELLANT ) .. ( / RESPONDENT ) / REVENUE BY : SHRI S. K. DEV, SR. D.R. / ASSESSEE BY : SHRI ASEEM THAKKAR, A.R. DATE OF HEARING 24.10.2018 !'# / DATE OF PRONOUNCEMENT 14 /11/2018 ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 2 - / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XX, AHMEDABAD (CIT(A) IN SHORT) DATED 2 8.03.2014 EMANATING FROM THE ASSESSMENT ORDER DATED 30.12.200 9 PASSED BY THE ASSESSING OFFICER (AO) UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AY 2007-08. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN T HE AFORESAID REVENUES APPEAL. 3. THE REVENUE IN ITS APPEAL HAS CHALLENGED THE ACT ION OF THE CIT(A) IN DELETING THE ADDITIONS OF RS.90,24,206/- OUT OF TOTAL ADDITION OF RS.1,12,80,256/- MADE ON ACCOUNT OF ALL EGED BOGUS PURCHASES. THE ASSESSEE HAS ALSO SIMULTANEOUSLY CH ALLENGED THE ACTION OF THE CIT(A) FOR DENYING THE REMAINING RELIEF AS P ER ITS CROSS OBJECTIONS. 4. BRIEFLY STATED, THE ASSESSEE-FIRM IS CARRYING ON BUSINESS OF CONSTRUCTION AND IS PURSUING THE BUSINESS AS DEVELO PER. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME A T RS.10,09,820/-. THE RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO S CRUTINY ASSESSMENT. IN THE COURSE OF THE SCRUTINY ASSESSMENT, THE AO MA DE CERTAIN INDEPENDENT INQUIRIES UNDER S.133(6) AND S.131 OF T HE ACT WITH REFERENCE TO SEVEN DIFFERENT SUPPLIERS AND CREDITOR S. AS PER PARA 4 OF THE ASSESSMENT ORDER, THE AO OBSERVED THAT ON VERIF ICATION OF DETAILS FURNISHED BY THE ASSESSEE AND CROSS INQUIRIES FROM THE CREDITORS AND SUPPLIERS, IT IS FOUND THAT SOME OF THE CREDITORS V IZ., GHANSHYAM ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 3 - ELECTRICALS, AMBICA MARBLE AND GRANITES, VISHWAKARM A GLASS ENTERPRISES, NAKODAJI STEEL TRADERS HAVE DENIED MAK ING ANY TRANSACTION WITH THE ASSESSEE WHILE INQUIRY FROM OT HER CREDITORS NAMELY SHREE GOPINATH CORPORATION & KARNAVATI TIMBE R CORPORATION UNDER S.133(6) OF THE ACT HAVE REVEALED THAT NO CRE DIT BALANCE IS FOUND. OTHER CREDITOR NAMELY MADHU TRADERS WAS NOT FOUND AT THE ADDRESS GIVEN. THE AO FURTHER OBSERVED THAT THE ASS ESSEE HAS ALSO FAILED TO SUPPORT THE CREDITORS AND SUPPLIERS BY TH E RELEVANT PURCHASE BILLS. AFTER CONFRONTING THE COPIES OF REPLIES REC EIVED FROM RESPECTIVE PARTIES, THE AO CONCLUDED THAT THE ASSESSEE HAS FAI LED TO SUPPORT THE TRANSACTIONS BY COPY OF DELIVERY CHALLANS, LORRY RE CEIPTS, INVOICES TOWARDS SUPPLY, CONSUMPTION DETAILS AND IN THE WAKE OF INFORMATION RECEIVED FROM DIFFERENT PARTIES, THE PURCHASES CLAI MED AMOUNTING TO RS.1,12,80,256/- IS UNSUBSTANTIATED AND BOGUS IN NA TURE. THE AO ACCORDINGLY PROCEEDED TO MAKE ADDITION OF RS.1,12,8 0,256/- TO THE TOTAL INCOME ON ACCOUNT OF BOGUS PURCHASES. 5. THE PARTY-WISE DETAILS OF ALLEGED BOGUS PURCHASE S IN QUESTION IS TABULATED BELOW FOR READY REFERENCE: (I) GHANSHYAM ELECTRICALS RS.41,083/- (II) SHRI GOPINATH CORPORATION RS.27,12,300/- (III) AMBICA MARVELS & GRANITE RS.9,16,230/- (IV) KARNAVATI TIMBER CORPORATION RS.8,40,868/- (V) VISHWAKARMA GLASS ENTERPRISE RS.12,32,980/- (VI) MADHU TRADERS RS.3,14,235/- (VII) NAKODAJI STEEL TRADERS RS.46,60,560/- (VIII) OMEGA ELEVATORS RS.5,62,000/- TOTAL RS.1,12,80,256/- 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 4 - 7. THE CIT(A) OBSERVED THAT THE POSSIBILITY OF SUPP LY OF THE GOODS BY THE RESPECTIVE PARTIES CANNOT BE OUTRIGHTLY REJE CTED WHILE IT IS QUITE POSSIBLE THAT BILLS/INVOICES MIGHT HAVE BEEN ARRANG ED BY OTHER PARTIES. THE CIT(A) OBSERVED THAT GOODS PURCHASED AND CONSUM ED HAVE NOT BEEN DENIED BY THE AO. LIKEWISE, WORK IN PROGRESS (WIP) / SALES HAVE ALSO BEEN ACCEPTED BY THE AO. THE CIT(A) FURTHER O BSERVED THAT GP RATE SHOWN IS MUCH HIGHER THAN THE GP RATE OF THE I MMEDIATELY PRECEDING YEAR. THE CIT(A) NEXT OBSERVED THAT THE GP RATE EXCLUDING THE ALLEGED BOGUS PURCHASE WORKS OUT TO 27.57% AS A GAINST WHICH THE NORMAL RATE OF 8% AS PER PRESUMPTIVE TAX SCHEME IN THIS LINE OF BUSINESS UNDER S.44AD OF THE ACT. THE CIT(A) ACCOR DINGLY RELIED UPON VARIOUS DECISIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL AND THE HONBLE GUJARAT HIGH COURT IN SATYANARAYAN P RA THI (2013) 351 ITR 150(GUJ) AND CIT VS. SIMIT P. SHETH (2013) 219 TAXMAN 85 (GUJ) AND OTHERS AND HELD THAT IT WILL BE BEFITTING TO ESTIMATE DISALLOWANCE TO THE EXTENT OF 20% OF THE ALLEGED BO GUS PURCHASE ON ACCOUNT OF OVERSTATEMENT OF PURCHASE COSTS. THE CI T(A) ACCORDINGLY SUSTAINED THE DISALLOWANCE TO THE EXTENT OF RS.22,5 6,051/- AND DELETED THE REMAINING AMOUNT OF RS.90,24,206/-. 8. AGGRIEVED, BOTH ASSESSEE AND REVENUE ARE IN APPE AL BEFORE THE TRIBUNAL. 9. THE LEARNED DR FOR THE REVENUE STRONGLY RELIED U PON THE ORDER OF THE AO AND SUBMITTED IN FURTHERANCE THAT THE ACT ION OF THE CIT(A) IS COSMETIC AND CIT(A) HAS PROCEEDED ON A TOTALLY W RONG FOOTING. THE LEARNED DR FOR THE REVENUE SUBMITTED THAT THERE WAS NO WEIGHT IN THE REASONINGS OF THE CIT(A) IN AS MUCH AS THERE WAS NO NECESSITY FOR AO TO INVOKE PROVISIONS OF SECTION 145(3) OF THE ACT A ND REJECT BOOKS OF ACCOUNTS IN SUCH A SITUATION WHERE PURCHASE COST IS NOT CORROBORATED AT ALL. THE LEARNED DR POINTED OUT THAT THE ASSESSEE HAD FAILED TO ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 5 - CORROBORATE PURCHASES BY ANY TANGIBLE EVIDENCES LIK E INVOICES, DELIVERY CHALLAN, TRANSPORTATION DETAILS, CONSUMPTI ON DETAILS ETC. AND MERELY SEEKS TO RELY UPON A CERTIFICATE OF GOVERNME NT APPROVED VALUER FOR THE PURPOSE OF VALUATION OF WIP (WORK IN PROGRESS) DECLARED IN THE P&L ACCOUNT. THE LEARNED DR THUS S UBMITTED THAT THE RATIO OF VARIOUS DECISIONS REFERRED TO AND RELIED U PON BY THE CIT(A) IS NOT APPLICABLE AT ALL. THE LEARNED DR ALSO STRONGL Y PROFESSED THAT ESTIMATION OF GP IN THE LINE OF SECTION 44AD OF THE ACT HAS NO BASIS IN THE FACTUAL MATRIX. THE LEARNED DR ACCORDINGLY SUBMITTED THAT ADDITIONS MADE BY THE AO REQUIRES TO BE RESTORED IN FULL AND CONSEQUENTLY PARTIAL RELIEF GRANTED BY THE CIT(A) R EQUIRES TO BE REVERSED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ESSENTIAL CONTROVERSY REVOLVES AROUND THE QUANTIFIC ATION OF ELEMENT OF POSSIBLE OVERSTATEMENT OF PURCHASE COST AND CONSEQU ENT DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES. WHILE IT IS THE CA SE OF THE REVENUE THAT THE CIT(A) WAS NOT JUSTIFIED IN ESTIMATING SUP PRESSION ELEMENT IN THE BOGUS PURCHASE CLAIM TO THE EXTENT OF 20% ONLY INSTEAD OF THE DISALLOWANCE OF ENTIRE BOGUS PURCHASE, THE ASSESSEE ON THE OTHER HAND BY WAY OF ITS CROSS OBJECTION MEMO CLAIMS THAT THE CIT(A) OUGHT TO HAVE GIVEN FULL RELIEF AND OUGHT TO HAVE ACCEPTED T HE PURCHASE COST OFFERED BY THE ASSESSEE AS BONAFIDE AND GENUINE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. FEW FACTS ARE RELEVANT TO APPRECIATE THE FACTS IN PERSPECTIVE; FIRSTLY, THE ASSESSEE HAD FAILED TO FURNISH THE SUP PORTING EVIDENCES IN THE FORM OF PURCHASE BILLS, TRANSPORTATION BILLS, C ONSUMPTION OF THE GOODS PURCHASE IN QUESTION ON THE GROUND THAT THE R ECORDS ARE DESTROYED ON ACCOUNT OF WATER LOGGING ETC. THEREFO RE, THE BEST EVIDENT POSSIBLE IN THE INSTANT CASE WERE NOT PLACED EITHER BEFORE THE AO OR ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 6 - BEFORE THE APPELLATE AUTHORITY OR BEFORE US. THE A SSESSEE PRIMARILY RELIES UPON A VALUATION REPORT BY A REGISTERED VALU ER TO SUPPORT THE TOTAL COST INVOLVED FOR THE PURPOSES OF VALUATION O F WORK-IN- PROGRESS/SALES AND CONTENDS THAT WITHOUT THE PURCHA SE OF THESE ITEMS ALLEGED TO BE BOGUS PURCHASES AND WITHOUT INCURRING EXPENDITURE AS PER THE PURCHASE BILLS, THE ASSESSEE COULD NOT HAVE CARRIED OUT ITS CONSTRUCTION WORK. THE AO HAS CAST ASPERSIONS ON S UCH VALUATION REPORT AND HAS OBSERVED THAT IT IS DIFFICULT TO UND ERSTAND AS TO HOW BY MERELY LOOKING AT THE CONSTRUCTION SITE BY PERSONAL VISIT ON 19.12.2009 (DATE OF VALUATION REPORT) AND GOING THROUGH THE BI LLS OF PERIPHERAL EXPENSES, THE VALUER COULD PROVIDE CERTIFICATION OF THE WORK-IN- PROGRESS AS ON 31.03.2007. WE ALSO NOTE OTHER INFI RMITIES FOUND BY THE AO AS A RESULT OF THREADBARE INQUIRIES NOTED IN THE PRECEDING PARAGRAPHS. MANY OF THE SUPPLIERS HAVE ALTOGETHER REJECTED THE SUPPLY HAVING MADE TO THE ASSESSEE IN RESPONSE TO NOTICE U NDER S.133(6) OF THE ACT OR SUMMONS UNDER S.131(1) OF THE ACT. IT I S THUS THE CASE OF THE AO THAT IN THE ABSENCE OF BOOKS OF ACCOUNTS, BI LLS AND VOUCHERS AND IN VIEW OF THE OUTCOME OF INQUIRY FROM THE SUPP LIERS, THE CULPABILITY ON THE PART OF THE ASSESSEE CANNOT BE D ISPLACED. THE ASSESSEE ON THE OTHER HAND HAS ATTEMPTED TO ATTRIBU TE THE ABSENCE OF BOOKS OF ACCOUNTS AND OTHER CORROBORATIVE EVIDENCES OF DIRECT NATURE OWING TO NATURAL CALAMITY. THE ASSESSEE PRIMARILY RELIES UPON THE VALUATION REPORT BY A REGISTERED VALUER TO SUPPORT THE WORK-IN- PROGRESS WHERE THE SUPPLY IS STATED TO BE CONSUMED. THE ASSESSEE HAS ALSO OBJECTED TO THE RELIANCE PLACED BY THE AO ON T HE OUTCOME OF INQUIRY WITHOUT PROVIDING CROSS OBJECTION OF THE SU PPLIERS. IT IS ALSO THE CASE OF THE ASSESSEE THAT THE PAYMENTS HAVE BEE N MADE BY ACCOUNT PAYEE CHEQUES. THEREFORE, THE DENIAL OF TRANSACTIO NS CANNOT BE TAKEN AS SACROSANCT. WE ALSO TAKE NOTE OF THE CONTENTION ON BEHALF OF THE ASSESSEE THAT IF THE PURCHASES IN QUESTION ARE PRES UMED TO BE NOT GENUINE, THE PROFITS SO DERIVED WITHOUT SUCH PURCHA SES WOULD LEAD TO ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 7 - HIGHLY UNREALISTIC STATE OF AFFAIRS/PROFITS WHICH I S FAR DIVORCED FROM THE STATE OF AFFAIRS PREVAILING IN THE CONSTRUCTION ACTIVITY. 12. TAKING INTO ACCOUNT THE PECULIAR FACTS EXISTING IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHERE NO DIRECT EVIDENCE IS AVAILABLE TO SUPPORT OF THE SUPPLY AND ONE HAS TO ONLY DEPEND ON PERIPHERAL ESTIMATIONS IN THE FORM OF VALUATION REPORT ETC. SO ME REASONABLE ESTIMATION TOWARDS ALLEGED OVERSTATEMENT IN PURCHAS E COSTS AND CONSEQUENT SUPPRESSION IN PROFITS REQUIRES TO BE ES TIMATED. WHILE WEIGHING FACTS AND CIRCUMSTANCES NARRATED ON BEHALF OF THE REVENUE, WE ALSO OBSERVE THAT THE TOTAL PURCHASE CLAIMED BY THE ASSESSEE DURING THE YEAR STANDS AT RS.307.66 LAKHS. OUT OF THIS, P URCHASE WORTH RS.112.80 LAKHS IS ALLEGED TO BE BOGUS. CORRESPOND ING WORK-IN- PROGRESS (CONSTRUCTION-IN-PROGRESS) SHOWN IN THE P& L ACCOUNT STANDS AT RS.465.62 LAKHS. THUS, IF THE PURCHASE AMOUNT O F RS.112.80 LAKHS IS EXCLUDED FROM THE TOTAL PURCHASE SHOWN (RS.307.6 6 LAKHS), THE FINANCIAL RESULT WOULD BE QUITE FANTASTIC, UNREAL A ND ABNORMAL. THUS, DESPITE DOUBTFUL CIRCUMSTANCES GALORE IN THE PRESEN T CASE, THE BENEFIT OF THE DOUBT REQUIRES TO GO TO THE ASSESSEE ON THE FACE OF ACCEPTANCE OF WORK-IN-PROGRESS. AS SUCH, IT IS DIFFICULT TO HOLD THE APPEAL ON BEHALF OF THE REVENUE THAT THE ENTIRE ALLEGED PURCHASE AMO UNT IS BOGUS. IT IS QUITE POSSIBLE THAT SUPPLIER PARTIES MAY BE NON-EXI STING OR BOGUS BUT THE FACTUM OF SUPPLY OF MATERIAL PER SE CANNOT BE OUTRIGHTLY REJECTED. IN THESE CIRCUMSTANCES, IT IS QUITE JUST AND FAIR T O ESTIMATE THE PROBABLE INFLATION IN COST OF PURCHASE TO ARTIFICIA LLY REDUCE PROBABLE PROFITS FOR THE PURPOSES OF TAXATION. THE CIT(A) H AS MADE SUCH ESTIMATIONS AT 20% OF THE VALUE OF ALLEGED BOGUS PU RCHASES. KEEPING IN MIND THE TOTAL ABSENCE OF DIRECT EVIDENCES TO SU PPORT THE PURCHASES, WE ARE OF THE OPINION THAT SUCH ESTIMATIONS ARE QUI TE LOW. THE ASSESSEE IS ENGAGED IN CONSTRUCTION ACTIVITY WHERE THE PROFITS VARY WIDELY AND ARE NOT GENERALLY COMPARABLE. TAKING GU IDANCE FROM THE ITA NO.1879/AHD/14 WITH CO NO.240/AHD/14 [M/S. SATYA SANKALP DEVELOPERS] A.Y. 2007-08 - 8 - DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF VIJAY PROTEINS LTD. 58 TAXMANN.COM 44 (GUJ) AND SANJAY OI L CAKE INDUSTRIES (2009) 316 ITR 274 (GUJ), THE FAIR ESTIMATE IN OUR VIEW WOULD BE 25% OF THE ALLEGED BOGUS TRANSACTIONS, PROFITS TO WHICH EXTENT IS DEEMED TO BE SUPPRESSED. THEREFORE, WE CONSIDER IT EXPEDIENT TO MODIFY THE ESTIMATION MADE BY THE CIT(A) TO 25% IN PLACE OF 20 %. THE DECISIONS CITED AND RELIED UPON BY THE RESPECTIVE SIDES DO NO T PROVIDE ANY ASSISTANCE TO ADJUDICATE THE FACTUAL ISSUE OWING TO THE PECULIAR FACTS IN THE INSTANT CASE. THE FACTUAL MATRIX WARRANTS INDE PENDENT ADJUDICATION WHICH HAS BEEN DONE AS NOTED ABOVE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 14/11/2018 S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 TRUE COPY /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 14/11/2018