MUKESH MANUPRASAD TRIVEDI, MUMBAI V. DCIT CC 2, THANE

ITA 224/MUM/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6061 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Unexplained cash credit; Unexplained investment; Search and seizure; Additional evidence; Tax effect; Reason to believe; TDS
• Section: 44AD; 69C; 142(1); 153A; 133(6); 250; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No 224/Mum/2020 (A.Ys: 2008-09) ITA No 225/Mum/2020 (A.Ys: 2009-10) ITA No 226/Mum/2020 (A.Ys: 2010-11) ITA No 227/Mum/2020 (A.Ys: 2011-12) ITA No 228/Mum/2020 (A.Ys: 2012-13) ITA No 229/Mum/2020 (A.Ys: 2013-14) Shri Mukesh Manu Prasad Trivedi, B-205, Meri Gold Vazira Naka, NR Ram Mandir Road, Borivali (W), Mumbai – 400092 Vs. DCIT – CC -2 6 th Floor, Ashar IT Park Thane, Maharashtra – 400604 PAN/GIR No. : AACPT0784C Appellant .. Respondent ITA No 1069/Mum/2020 (A.Y: 2008-09) ACIT – CC -2 6 th Floor, Ashar IT Park, Thane, Maharashtra – 400604 Vs. Shri Mukesh Manu Prasad Trivedi, B-205, Meri Gold, Vazira Naka, N R Ram Mandir Road, Borivali (W), Mumbai – 400092 PAN/GIR No. : AACPT0784C Appellant .. Respondent Appellant/Respondentby Shri.Jain Dixit.AR Respondent/Appellantby Shri.B.K.Bagchi.DR Date of Hearing 04.03.2022 Date of Pronouncement 16.03.2022 ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 2 - आदेश / O R D E R PER BENCH: The assessee has filed these appeals against the common order of Commissioner of Income Tax (Appeals)-11,Pune for the A.Y 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 passed under sec143(3) r.w.s 153A and 250 of the Act. Whereas, the revenue has filed the cross appeal for the A.Y 2008-09. Since, the issues involved in these appeals are identical, similar and inter connected, hence are clubbed, heard and consolidated order is passed. For the sake of convenience we shall take up the assessee’s appeal in ITA No. 224/Mum/2020, for the A.Y 2008-09 as a lead case and the facts narrated therein. The assessee has raised the following grounds of appeal. “1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 36,82,500/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon’ble CIT(A) erred in confirming the addition to the extent of Rs. 1,02,23,000/- being alleged bogus purchases ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 3 - as unexplained purchases u/s 69C without appreciating that all the purchases are genuine and have been used for execution of contract of BMC a semi Govt organization and the reason assigned for doing so are wrong and contrary to the provisions of Income Tax Act and rules made there under: 3. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 2. The Brief facts of the case are that the assessee is a civil contractor and Labour contractor. The assessee has filed the return of income for the A.Y 2008-09 on 10.03.2014 with a total income of Rs. 38,30,087/-.There was a search and seizure u/sec132 of the Act carried out on SMC group on 23.05.2012 and the assessee’s father Shri Manu Prasad Trivedi (Prop. Of M/s Mukesh Brothers) is one of the major sub contractors of SMC group. Whereas, the assessee as a Labour contractor connected to the main assessee and was covered by the Search operations. The SMC Group is primarily engaged in the business of construction as civil contractors for infrastructure projects of Thane Municipal Corporation and various departments of Government of Maharashtra.The Assessing officer ( A.O.) has issued notice u/s 153A of the Act and the assessee has filed a letter to treat the return of income filed for the 2008-09 on ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 4 - 10.03.2014 as due compliance. Subsequently the A.O. has issued notice u/s 143(2) and 142(1) of the Act. In response to the notice, the Ld. AR of the assessee appeared and filed letter dated 3-12-2014 with the details comprising of the copy of acknowledgement of return of income, computation of income, profit and loss account, balance sheet and bank statements. Further the A.O has called for the additional information referred at page 3 Para 6 of the assessment order as under: 6. There was no response by the assessee to this notice. Thereafter another notice under section 142(1) was issued to the assessee on 12.02.2015 according him final opportunity to submit information sought. Vide said notice the assessee was asked to furnish inter alia information as below- 1) Please furnish details of Labour charges paid of Rs. 2,74,65,0001- and Rs. 93,60,0001- with Name, address and PAN of the person to whom amount is paid. Also produce copy of ledger extract and original Bills/vouchers for verification. 2) Please furnish the details of purchases made amounting to Rs. 3,40,76,6931- alongwith month wise summary of the same. 3) On perusal of balance sheet for F. Y. 2007-08 compare with F. Y. 2006-07, it is seen that there is fresh investment of Rs. 22,44,1651- in F. Y. 2007-08. Please explain the source of investments along with documentary evidence. 4) As per balance sheet for F. Y. 2006-07, shown loan liability on account of housing loan of Rs. 14,62,1321-, However, as per balance sheet for F. Y. 2007-08 no liability on housing loan has been shown. From the above it is clear that you ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 5 - have square up housing loan of Rs. 14,62,1321-. Please explain the same along with documentary evidence, furnish the copy of bank extract also. 5) As per AIR information you have purchase immovable property valued at Rs. 30,60,0001- on 1511212007 & Rs. 50,00,0001- on 2810112008. Please furnish copy of purchase deed & furnish the details of source of investments alongwith documentary evidence. 6) Please furnish copy of TDS Return filed. Furnish the details of payment to contractor & proof of TDS deposited into the Govt. account. 7) Please furnish loan confirmation of unsecured loan from various parties amounting to Rs. 40,00,0001- and Rs. 21,51,1201- along with proof of credit worthiness of donor as well as evidence of payment in the form of bank statement.. 8) Please furnish the details of deposit made amounting to Rs. 1,00,00,000/-. 9) Please furnish detail of sundry creditors of Rs. 1,57,78,772/- alongwith confirmation and copy of ledger extract party wise. 10) Please furnish details with Name, amount and PAN of sundry debtors of Rs. 1,03,26,215/- 3. The assessee has filed the details on 23.02.2015 and 27.02.2015 referred at page 4 and 5 of the order: Reply dated: 23.02.2015 1. The assessee is a proprietor of M/ s. Mukesh Trading Co. and doing the labour charges work. 2. Copies of Audited Balance Sheet, Audited Profit 85 Loss Account along with all the schedules, Tax Audit report, Computation of total income, have already been submitted. 3. Details of Bank account along with statements has already been filed 4. Details of sales along with names and addresses of the parties. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 6 - Since the assessee is doing the labour/ job work, therefore there is no closing stock. 5. There is no addition to Immovable property during the year 6. The bussiness activities are carred out form B-205, Marigold, Vazira Naka, Ram mandir road, Borivali(W), Mumbai 400092 7. There is no any branch, factory or godown in india. 8. No addition to capital during the year 9. Details of loans taken during the year along with the confirmation 10. There is no addition to fixed assets during the year 11. There is no debtors outstanding during the year Reply dated: 27.02.2015 1. The assesse has done the labour work at various sites during the year. The Labour charges have been paid in cash to workers at site in petty amount. So vouchers have been prepared while making the payments. 2. Monthwise details of purchases made amounting to Rs 3,40,76,673.94 3. Details of Investments: The source of investments is out of internal accruals only. 4.The housing loan has been repaid during the year. We are enclosing copy of bank extract for your reference. 5. Copy of the agreement for purchase of property 6. We have not deducted any TDS, Therefore TDS return has not been filed. 7. Loan confirmations have already been filed. 8. Details of deposits 9. Details of Sundry Debtors along with PAN No. of the party. 4.(i) The A.O on perusal of the facts and verification of the information submitted by the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 7 - assessee in the course of assessment proceedings observed that the assessee was engaged in labour works at various sites in the said financial year and in most of the places the labour charges are paid in cash to the workers/labours. The A.O. in respect of consolidated labour charges paid of Rs.2,74,65,000 and Rs.93,65,000/- has called for the name, address and PAN of the persons to whom the amounts are paid and to produce the copy of ledger account, original bills and vouchers. Whereas the assessee could not substantiate with proper evidences in respect of claims. The A.O considering the facts of cash payments has estimated the adhoc addition @10% of the claim which worked out to Rs.36,82,500/-. 4 (ii) The disputed issue is with respect to unexplained purchases, were the A.O. has issued notice u/s 142(1) of the Act dated 12.02.2015 to furnish the details of purchases amounting to Rs.3,40,68,693/- along with month wise summary and also to submit the details of sundry creditors of Rs. 1,57,78,792/- along with the confirmation and ledger account of the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 8 - parties. In response to the requisite information, the assessee has filed the details containing the list of parties. The A.O based on the books of accounts seized on 23.05.2012 from the office premises of M/s Mukesh Brothers,(Proprietary concern of the Assessees father) found the name and address of some parties. Whereas, the A.O. has issued notice u/s 133(6) of the Act on 18.02.2015 to do independent verification on the 14 parties and there was no response. Therefore the A.O has issued a show cause notice on 04.03.2015 on the assessee and was not satisfied with the clarifications, details and treated the purchases and sundry creditors aggregating to Rs 4,98,55,465/- as unexplained purchases and made the disallowance. 4. (iii) The A.O has received information that the assessee has purchased immovable property on 15-12-2007 valued at Rs.30.60 Lakhs and on 28.01.2008 valued at Rs.50Lakhs. The assessee was asked to produce the documentary evidence and sources of funds. Whereas the assessee holding 50% share has furnished the copy of agreement for purchase of the property of Rs. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 9 - 50,00,000/-and in respect of other property no information was submitted. Finally, the A.O has made the addition of Rs. 30,60,000/- and 50% of the Rs. 50,00,000/- total aggregating to Rs. 55,60,000. 4.(iv) The A.O. found that the assessee has obtained unsecured loans from various parties amount to Rs. 40 lakhs and Rs 21.51 lakhs. The A.O. has called for the proof of creditworthiness and the evidence of payments and the assessee has furnished the ledger account copies. The A.O. find that the assessee has not produced any evidence of creditworthiness of loan creditors and made addition of Rs.61,51,120/- as unexplained credits and assessed the total income of Rs. Rs.6,89,11,210/- and passed the order u/s 143(3) r.w.s 153A of the Act dated 27.03.2015. 5.(i) Aggrieved by the order, the assessee has filed an appeal with the CIT(A). Whereas the CIT(A) considered the grounds of appeal, finding of the A.O, submissions of the assessee and the findings of the Honble settlement commission in the assesses father and brothers case and passed a common order for the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 10 - A.Y 2008-09 to 2013-14. Whereas in respect of disallowance @10% of Labour charges on adhoc basis by the A.O. the CIT(A) has observed that the assessee has filed the details of Labour charges and places of payments and supported with the judicial decisions. The CIT(A) dealt on the provisions of Sec. 153A of the Act on the incriminating documents and on the observations of the Honble settlement commission order in the case of Shri Manu Prasad Trivedi (Father of the assessee) and Shri Rajesh Trivedi and dealt at page 10 to 13 of the order and also called for the remand report of the A.O. The CIT(A) has considered the assessment information of the related parties of the assessee and the statement of the site supervisor and the vouchers submitted during the remand proceedings before the A.O. Finally, the CIT(A) was not satisfied with the explanations and relied on the remand report and confirmed the action of A.O. and dismissed this ground of appeal. 5(ii) Whereas, the CIT(A) on the second disputed issue with respect of bogus purchases and sundry creditors dealt on the transactions and the nature of the bogus purchases and called for report of the A.O under Rule 46A of I T Rules for admitting the additional evidence. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 11 - The CIT(A) considered the submissions made by the assessee’s father and brother before the Honble settlement commission. Further, the CIT(A) has considered the facts, nature of business, and time of purchase, statement U/sec132(4) of the Act and the history of the transactions and finally has restricted the bogus purchases u/sec69C of the Act to the extent of 30% as against 100% by the A.O. In respect of outstanding sundry creditors balance as on 31.03.2008 of Rs.1,57,78,772/-, the assessee has submitted the details of sundry creditors and the CIT(A) has observed that the total purchases made during the year are more than the respective vendors and once the total purchases have been considered for the disallowance on estimated basis and again adding the sundry creditors outstanding balances will be double tax effect and is not a prudent act of the A.O. Accordingly, the CIT(A) directed the Assessing officer to delete the addition. 5.(iii) On the third disputed issue, with respect of unexplained investments, the CIT(A) find that the A.O has made an addition of Rs.55,60,000/-.The CIT(A) has dealt on the explanations and the information of purchase of properties referred at Para 28 of the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 12 - order. Finally the CIT(A) was satisfied with the explanations of the sources / information and considered the remand report and the funds of the assesses father and brother are utilized for the purchase of the properties and deleted the addition of unexplained investments. 5 (iv). The CIT(A) find that the A.O has made addition of unexplained cash credits and the assessee has filed the details. The CIT(A) considered the information and found that the assessee could not establish the creditworthiness of loan creditors and upheld the action of the A.O. and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal. 6. At the time of hearing, the Ld AR submitted that the CIT(A) has erred in confirming the addition of labour charges on adhoc basis which are genuine. Further the CIT(A) has erred in restricting addition of 30% of bogus purchases u/s 69C of the Act. The contentions of the Ld. AR are that the labour payments are made to workers at various sites and who are uneducated and does not have bank account and in many places/sites there is no access to any ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 13 - other mode of payment except cash. Further the assessee is engaged/involved in execution works of main contractor of BMC, being a semi government organization of Maharashtra government. The purchases are genuine but the CIT(A) has restricted the purchases as bogus to the extent of 30% on adhoc basis without identifying any particular transaction or amount. The Ld. AR substantiated with the written submissions and judicial decisions and prayed for allowing the appeal. Contra, the Ld. DR supported the order of the CIT(A) in respect of the disputed issues. 7. We heard the rival submissions and perused the material on record. The Ld. AR contentions are that the CIT(A) has erred in confirming the adhoc addition of 10% of labour charges as disallowance though it was demonstrated that the assessee is engaged in the business of road construction and construction of small bridges and other projects. In the assessment proceedings, the assessee has submitted the details duly supported with evidences but the A.O was not satisfied with the information and made a adhoc disallowance of labour charges @ 10%. The assessee is engaged in execution of projects as a contractor of BMC and engages laboures /workers and the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 14 - payments are made in cash and in few cases by cheques .When the payments are made in cash, generally there are self made vouchers and signed by the labourer on revenue stamp affixed on cash vouchers and the cheque payments are identified in the bank account statements. The A.O has made 10% adhoc disallowance without considering the facts and not appreciating the nature of execution of contract works with daily labourers who are in the unorganized sector and not educated and does not have bank account and payments are made on daily basis/ weekly and was incurred in the normal course of business operations. The Ld. DR submitted that the assessee should have maintained proper records in respect of the labour charges and has not provided complete details. We find that the nature of works under taken by the assessee as a road contractor and construction of small bridges and various other projects awarded by the BMC to the main project/contractor and intern it was given to the assessee as a sub contractor. The fact remains that the assessee is working in unorganized sector and engages the labour on daily basis which cannot be ruled out. The only dispute is that the assessee was ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 15 - making the most of the payments in cash and the valid reasons were also submitted before the A.O and the CIT(A). Whereas, the assessee has clearly explained that the payments were made by self made vouchers and signed by labour and supervisor on behalf of labour on the revenue stamp and the cash book was produced for verification before revenue authorities. Further in a unorganized sector getting each labour is a difficult task therefore all the labourers/workers have work at one place under the supervisior who shall be in charge to make the payments. Therefore, the action of the supervisor is payment of wages to the labourers with his signature can be acceptable and the revenue authorities should understand that the labourers who are engaged on daily wages are not maintaining the bank account and the place of site at different places and the assessee has to employ the local labour. We considering the facts, circumstances and the reasons for payment of cash to the labours on site and the documentary evidence submitted are of the opinion that the assessee is working in the highly unorganized sector where there is no streamline of labours and the contractors have to work at various places and sites ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 16 - as per the work schedule provided by the main contractor. The assessee has to arrange the supervisors and the labours from the local site as the labours will not be transported from one place to another, where the travel distance is far/long and the cash is the only source as payment towards labour charges/wages and no labour is permanent worker and hired on daily wages. The A.O’s observation thus no evidence was produced at the time of assessment at Para 8 of the assessment order shows that the A.O. has not disputed the labour work charges and required the assessee to provide PAN and addresses of the recipients. It is a very difficult task to obtain the all the details where the labour payments are made to the persons and not to the firms and for various reasons the assessee could not produce certain details due to non collection of information and non availability of concerned persons. Therefore, the A.O has not doubted the labour charges but considering the fact that there is discrepancy in respect of the maintaining of the records and the labour charges are paid without any proper verification and made an adhoc addition @ 10%. The A.O has made addition without any proper ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 17 - verification or enquiry. We are of the opinion that the addition @ 10% on the adhoc basis is without primary evidence and cannot be sustained but the fact remains that the assessee should fallow the minimum necessary norms and maintain such records necessary for authentication of the claims before the appropriate authorities and the assessee shall be bound to maintain the records at least in future. Accordingly, we modify the order of the CIT(A) on this disputed issue and restrict the disallowance to the extent @ 3% instead of @10% and partly allow this ground of appeal of the assessee. 8. On the second disputed issue with respect to addition of 30% alleged bogus purchases sustained by the CIT(A). The assessee is in a business of contract works and has made various purchases of goods for execution of works directly/indirectly on subcontract works. The A.O has made a 100% addition of purchases as no proper details are furnished in the assessment proceedings. The A.O. has issued the notice u/s 133(6) of the Act on the parties and no reply was received, hence the A.O was under the presumption that it is an alleged bogus purchase and 100% disallowance was considered. Whereas the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 18 - CIT(A) in the course of the appellate proceedings observed that the assessee has submitted the additional evidences in respect of the purchases supported by the ledger account, bills and bank statements reflecting the payment made to the purchase parties. The CIT(A) considering the additional evidence has relied on the provisions of Rule 46A of I T Rules and referred the additional evidences for comments of the A.O. Whereas, in the remand proceedings, the A.O has called for the details of purchases and the assessee has very diligently submitted all the details. The CIT(A) has relied on the remand report and is of the opinion that only the assessee should be taxed on the profit element of the bogus purchases and not on the total purchases. Therefore, the A.O action of 100% disallowance of bogus purchases is not proper. The CIT(A) has relied on the statement of the assessee’s father and brother recorded in the search proceedings u/s 132(4) of the Act and findings of the Honble Settlement Commission. The Ld.AR submitted that the statement of assessee’s brother and father, which the CIT(A) has relied and made 30% addition of purchases as bogus purchases has been retracted by them ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 19 - subsequently and which cannot be disputed. The assessee’s father and brother have filed an application before the Hon’ble Settlement Commission and offered the income of Rs. 4.02 crores and Rs.1.79 crores respectively on purchases made of Rs. 87 crores and Rs. 24.78 crores and GP rate worked out to 4.59% and 7% respectively in their hands and the observations of the CIT(A) is one sided and wrongly sustained the partial addition. The Ld. AR submitted that if the addition made by the CIT(A) is sustained and the G P of the assessee would be around 95.43% which is unreasonable and not as per the bench mark of the industry. The Ld.AR emphasized that the assessee has offered in the impugned assessment year Gross Profit(GP) rate @ 7.22% and net profit(NP) rate@ 6.28% which is higher than the bench mark of industry standards. The contentions raised by the Ld.AR that the total purchases cannot be disbelieved and also considering the fact that the assessee is offering GP of 7.22% which is more than the 4.59% and 7% offered by the assessee’s father and brother before the Honble Settlement Commission which the CIT(A) has relied. We are of the opinion that the submissions of the Ld. AR are realistic and the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 20 - statements u/sec132(4) of the Act was retracted by the assessee’s father and brother and the same was not considered by the CIT(A). We find the coordinate Bench of the Honble Tribunal on similar isssues in the case of M/s. Ramesh Kumar and Co. Vs ACIT in ITA No. 2959/Mum/2014 dated 28.11.2014 has dealt and observed at page 5 Para 8 to 9 read as under: 8. We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealer by the Sales tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion . Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done. The Ld. CIT(A) has also confirmed the addition made by the AO by going on the suspicion and the belief that the suppliers of the assessee are Hawala traders. We also find that no effort has been made to verify the work done by the assessee from the Municipal Corporation of Greater Mumbai. We agree with the submissions of the Ld. Counsel that if there were no purchases, the assessee would not have been in a position to complete the civil work. 8.1. On civil contract receipts of Rs. 32.05 crores, the assessee has shown gross profit at 14.2% and net profit at 9.72%. 8.2. Even if for the sake of argument, the books of accounts are rejected, the profit has to be computed on the sales made by the assessee U/s. 44AD of the Act, the presumptive profit ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 21 - in case of civil contractors is 8% and in case of a partnership firm, a further deduction is allowed in respect of salary and interest paid to the partners. The ratio analysis of the profitability is also in favour of the assessee. In our considered opinion, the purchases are supported by proper invoices duly reflected in the books of account. The payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash book from the suppliers. The additions have been made merely on the report of the Sales tax Department but at the same time it cannot be said that purchases are bogus. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition of Rs. 4,98,80,892/-. 9. In the result, the appeal filed by the assessee is allowed. 9. Similarly, we find the Hon’ble Tribunal in the case of ACIT Vs. Pratap Utham Purohit in ITA No. 5193/M/2014 dated 04.11.2016 dealt on the purchases and additions and observed at page 5 para 7 to 9 read as under: 7. With regard to purchases of Rs.92,40,232/-, the CIT(A) has upheld addition of 15% amounting to Rs.13,86,035/- being profit element embedded in such purchases. 8. The assessee is in further appeal before us against the addition of Rs.13,86,035/- as upheld by the CIT(A). From the record, we found that with regard to these purchases, what is to be seen is utilisation of goods purchased which has been proved by assessee by providing all the details. From the record we found that the during year under consideration, assessee had sales of Rs.1,01,88,39,392/- on which assessee has declared gross profit of Rs.17,79,05,770/- . Thus, assessee has declared gross profit rate of 17.46%. However, in the assessment year 2009-2010 and 2010-2011, the gross profit rate so declared by assessee was 8.60% and 10.64% ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 22 - respectfully. Thus, it is very much clear that during the year consideration, assessee has declared much better gross profit rate of 17.46% as compared to the earlier years, therefore, making further addition of 15% on such purchase appear to be very unreasonable. Thus, keeping in view the gross profit rate so declared by the assessee during the year under consideration, we upheld the addition of 2% on such purchases in place of 15% as upheld by CIT(A). We direct accordingly. 9. In the result, appeal of the revenue is dismissed, whereas the appeal of the assessee is allowed in part. 10. We considering the facts and circumstances and the ratio of the judicial decisions are of the opinion if any addition has to be made it should be based on the profit element and it was rightly pointed out by the Ld. AR that the GP worked out by the assessee is around 7.22%. We Considering the factual aspects, nature of the business and the assessee could not produce the proper evidence with the records are of the considered view that the assessee has to be taxed on the profit element if the purchases are treated as a alleged bogus purchases as the assessee could not completely produce evidences of the genuineness of the transactions. We are of the view that the addition made by the CIT(A) @ 30% is on the higher side considering the GP rate @ 7.22% offered by the assessee. Accordingly, we restrict the addition of the ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 23 - CIT(A) to the extent @ 4%, and partly allow the ground of appeal of the assessee. In the result the assessee appeal is partly allowed. ITA No 1069/Mum/2020, A.Y 2008-09. 11. The revenue has raised the following grounds of appeal. 1. On the facts and circumstances of the case, the Ld CIT(A) erred in deleting the addition of Rs. 2,38,53,672/- made on account of bogus purchases. 2. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not appreciating the fact that the onus to justify the claim of expenses is on the assessee and the same has failed to discharge it in relation to purchases made wherein no reply to notices u/s133(6) were submitted by the parties from the whom purchases were claimed not confirmed the purchases and sundry creditors by assessee by not producing the stock register. 3. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not appreciating the law correctly that once the purchases were unverifiable/ not genuine/the same should have been disallowed entirely, particularly in view of the ratio of the decision of the Hon'ble Gujrat High Court in Tax appeal no 242 of 2003 dtd 20.06.2016 in the case of N.K. Proteins Ltd. against which the SLP was dismissed by the Hon'ble Apex Court. 4. The appellant craves to leave or amend or alter any grounds or add a new around which may be necessary. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 24 - 12. At the time of hearing, the Ld DR submitted that the CIT(A) has granted the relief irrespective of the fact that the assessee has failed to discharge his obligation on submitting proper details and also the notice u/s 133(6) of the Act from the parties are returned un served by the postal authorities. The CIT(A) erred in restricting 30% addition as non genuine purchases instead of confirming the order of the A.O and relied on the order of the A.O. 13. Contra, the Ld. AR submitted that the assessee has filed cross appeal in respect of the addition sustained by the CIT(A) as the GP rate/the profit element is very much less than the partial adhoc addition sustained by the CIT(A) and supported the order of the CIT(A) on this disputed issue of ground of appeal. 14. We heard the rival submissions and perused the material available on record. Prima-facie the Ld. DR contended that the CIT(A) has erred in granting the relief by sustaining only partial percentage to adhoc addition as bogus purchases instead of total addition. The Ld.DR emphasized that the genuineness ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 25 - has been not verified and the action of the CIT(A) is not tenable.At this juncture we considered it appropriate to refer to the observations of the CIT(A) at page 20 Para 22 read as under: 22. From the facts of the case and the remand report of the AO dated 10/10/2019; it is evident that on the basis of the evidence collected during the course of search in SMC Group, both the father of the appellant and the brother had admitted booking bogus purchases through various vendors. These parties are also enlisted under the list of suspicious vendors by Maharashtra Sales Tax and are also part of the list of purchases by the appellant. As a result of the group search, the fact is that both the father of the appellant and the brother of the appellant, in their respective Proprietorship concerns have admitted these bogus purchases from the enlisted parties and offered Rs.2.52 Crores and Rs.1.29 Crores as additional income before the Settlement Commission. An additional Rs.1.5 crores and Rs.50,00,000/- was offered on account of bogus purchases during the settlement proceedings. As this is consequent to the same search in which the appellant was also covered and the parties from whom purchases were claimed to have been made were admitted to be bogus and in the case of the appellant, the claim of purchases are from those very parties which are enlisted above; there is sufficient reason to believe that these constitute sufficient incriminating material against the appellant for the A.Y. 2008-09. These evidences have been corroborated by the verifications carried out by the AO when the notices u/s 133(6) issued to the vendors returned back with the postal remark of left " and not known" etc. The fact that no evidence could be produced during the assessment ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 26 - proceedings on behalf of the appellant, regarding delivery of the claimed purchases, such as truck receipt, delivery challans, stock register etc. further confirms that the purchases from these parties were used to inflate the expenses claimed. However, it is also true that all these purchases cannot be bogus, as there is evidence that the projects claimed to have been carried out were actually executed. The fact that the denial of purchases entirely, as is done by the AO would raise the gross profit of the appellant to a level of 95.43%, which would be extremely unfair. In the case of Manuprasad Trivedi Prop. M/s Mukesh Borthers (Father of the appellant) out of the total purchases of Rs. 86,94,95,255/- undisclosed income on account of bogus purchases of Rs. 26,45,88,621/- have been admitted in the statement u/s 132(4), which is approximately 30%. Similarly, in the case of Rajesh Trivedi of the total purchases of Rs. 24,78,09,165/- not genuine bills of Hawala Dealers of Rs. 7,54,08,326/- has been admitted in the statement, which is again approximately 30%. Drawing parallel in the case of the appellant, it is held that 30% of the purchases of the appellant are not genuine and therefore out of the total purchases of Rs. 3,40,76,674/-, 30% of the same i.e. Rs. 1,02,23,002/- is determined as the non-genuine purchases or Hawala purchases by the appellant during the year and the same are added to the total income of the assessee. The addition made by the AO on account of bogus purchases for A.Y. 2008-09, is therefore restricted to Rs. 1,02,23,002/-. We on perusal of the facts find that the CIT(A) was methodical in making the observations and relied on elaborate material information. The Ld. DR could not ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 27 - controvert the findings of the CIT(A) with any cogent evidence or information and relied only on the assessment order. Accordingly, we do not find any infirmity in the decision of the CIT(A) on this particular disputed issue and upheld the same and dismiss the grounds of appeal of the revenue. In the result, the appeal filed by the revenue is dismissed. ITA 225/Mum/2020, A.Y 2009-10. 15. The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 12,36,550/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. 2. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 16 As the facts and circumstances in this appeal is identical to ITA No 224/Mum/2020 for A.Y.2008-09 except the variance in figures. Therefore, the decision rendered in above paragraph no 7 would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the assessee are partly allowed. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 28 - ITA 226/Mum/2020, Assessment Year 2010-11 17. The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 3,30,000/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. 2. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 18. As the facts and circumstances in this appeal is identical to ITA No. 224/Mum/2020 for A.Y.2008-09 except the variance in figures. Therefore, the decision rendered in paragraph no 7 would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the assessee are partly allowed. ITA 227/Mum/2020, A.Y 2011-12 19. The assessee has raised the following ground of appeal: 1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 9,56,370/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 29 - 2. On the facts and in the circumstances of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 15,25,000/- made by the Ld. AO on account of outstanding current liability without appreciating that the said outstanding liability is genuine and fully verifiable and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under:. 3. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 20. In respect of ground of appeal No.1 on disputed issue of labour charges quantification, the issue is identical to ITA No. 224/Mum/2020 for A.Y.2008-09 except the variance in figures. Therefore, the decision rendered in paragraph no 7 would apply mutatis mutandis for this issue also. Accordingly, this ground of appeal of the assessee is partly allowed. 21. As far as ground of appeal No.2, we find in assessment proceedings A.O has called for the details in respect of the outstanding current liabilities being labour charges payable in respect of two parties and the assessee has complied with the directions but the AO was not satisfied with the documentary evidences and made addition of Rs 15,25,000/- treating as a bogus liability. On appeal, the CIT(A) has called for the remand report on the additional evidences filed. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 30 - Whereas the CIT(A) has overlooked the fact in respect of the subcontract payments and confirmed the addition of the A.O. In the appeal before the Honble ITAT, the Ld. AR submitted that the assessee has carried out subcontract works with the two parties M/s. Poonam Enterprises of Rs. 7.5 lakhs and Maitree constructions of Rs. 7.75 lakhs and the payment was remained outstanding payable as on 31.03.2011. Whereas in the assessment proceedings, the assessee was made to prove the identity, genuineness of the party with the confirmations. Whereas, the assessee has submitted the ledger account copy, confirmation, income tax return, profit and loss account, balance sheet and bank statements of both the parities and the CIT(A) has sustained the additions. The Ld.AR contentions are that the assessee has submitted the details before the A.O and both the parties have offered their corresponding income in the income tax return filled for that the impugned assesseement year. Whereas, the addition was sustained by the CIT(A) as the parties have not complied with the notice issued u/s 133(6) of the Act. We considering the facts and the information are of the opinion that the assessee is engaged in the business of subcontracts and working ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 31 - at various sites and has to depend on the various parties in respect of execution of works. The assessee has substantiated the closing balance of liabilities as on 31.03.2011 in respect of two parties before the appellate authorities. The A.O has not doubted the genuineness of expenses claimed in the profit and loss account filed in the course of the assessment proceedings but disbelieved the outstanding liability of labour charges payable as on 31-02-2011 reflected in the balance sheet. Accordingly, we set aside the order of the CIT(A) on this ground of appeal and direct the A.O to delete the addition and allow the ground of appeal in favour of the assessee. In the result, the appeal filed by the assessee is partly allowed. ITA 228/Mum/2020, Assessment Year 2012-13 22. The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 9,56,370/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 32 - 2. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 23. As the facts and circumstances in this appeal is identical to ITA No. 224/Mum/2020 for A.Y.2008-09 except the variance in figures. Therefore, the decision rendered in above paragraph no 7 would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the assessee are partly allowed. ITA 229/Mum/2020, Assessment Year 2013-14 24. The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstance of the case and in law the Hon’ble CIT(A) erred in upholding the addition of Rs. 5,63,220/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. 2. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 25. As the facts and circumstances in this appeal is identical to ITA No. 224/Mum/2020 for A.Y.2008-09 except the variance in figures. Therefore, the decision rendered in above paragraph no 7 would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the assessee are partly allowed. ITA.no224 to 229/Mum/2020&1069/Mum/2020 Shri MukeshManuprasad Trivedi, Mumbai. - 33 - 26. In the result, the appeal filed by the assessee for A.Y 2008-09 is partly allowed and the appeal filed by the revenue for A.Y.2008-09 is dismissed. The appeals filed by the asssessee for A.Y. 2010-11 to 2013-14 are partly allowed. Order pronounced in the open court on 16.03.2022 Sd/- Sd/- ( S RIFAUR RAHMAN) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 16.03.2022 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. आ आ / The CIT(A) 4. आ आ ( ) / Concerned CIT 5. ! !" , आ $ %, हमद द / DR, ITAT, Mumbai 6. () * + / Guard file. ान ु सार/ BY ORDER, ! //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai