Ms/ Millenium Infrastructure, Ahmedabad V. The DCIT, Circle-2(2)(1), Ahmedabad

ITA 25/AHD/2021

AI Insights

The case involves M/s. Millenium Infrastructure, a partnership firm engaged in real estate development, which faced scrutiny over alleged bogus purchases recorded in its books. The Assessing Officer (AO) reopened the assessment for the years 2015-16 to 2017-18 under sections 147 and 143(3) of the Income Tax Act, 1961, following which a significant portion of the purchases was disallowed as bogus. The CIT(A) partially upheld this disallowance, allowing a 12.5% estimation of the profit on these purchases. Both the assessee and the Revenue appealed against the CIT(A)'s decision to the Income Tax Appellate Tribunal, which dismissed the appeals, affirming the CIT(A)'s order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114091 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-10-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 21-03-2021
• Other Referred Cases: CIT vs. Simit P. Seth, CIT vs. Sathyanarayan P. Rathi, CIT vs. Bholanath Poly Fab (P) Ltd, M. K. Brothers vs. CIT, CIT vs. President Industries, ITO vs. Aquamech Engg. Corporation, N.K. Industries Ltd. vs. DCIT, CIT vs. Aashadeep Industries, PCIT vs. Mrs. Premlata Tekriwal, Shoreline Hotel (P.) Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Bogus purchase; Wrong claim; Set aside; Bogus
• Section: 147; 69; 145; 148; 143(3); 133(6); 143(1); 72; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member M/s. Millenium Infrastructure, Site Office, Sanidya Flora, Khodiyar Temple, New Ranip, Ahmedabad-382470 PAN: AAVFM4431A (Appellant) Vs The DCIT, Circle-2(2)(1), Ahmedabad (Respondent) The DCIT, Circle-2(2), Ahmedabad (Appellant) Vs M/s. Millenium Infrastructure, Site Office, Sanidya Flora, Khodiyar Temple, New Ranip, Ahmedabad-382470 PAN: AAVFM4431A (Respondent) Assessee Represented: Shri Tushar Hemani, Sr.Adv. & Shri Parimalsinh B. Parmar, A.R., Revenue Represented: Ms. Neeju Gupta, Sr.D.R. Date of hearing : 26-10-2023 Date of pronouncement : 31-10-2023 ITA Nos: 25 to 27/Ahd/2021 Assessment Years: 2015-16 to 2017-18 ITA Nos: 32 to 34/Ahd/2021 Assessment Years: 2015-16 to 2017-18 I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 2 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- These cross appeals are filed by the Assessee and Revenue as against three separate appellate orders all dated 21-01-2021 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad, arising out of the three assessment orders passed under sections 147 and 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years (A.Ys) 2015-16 to 2017-18. Since common issue is involved in all the above appeals the same are disposed of by this common order. 2. ITA No. 25/Ahd/2021 (filed by the Assessee) and ITA No. 32/Ahd/2021 (filed by the Revenue) for the A.Y. 2015-16 is taken as the lead case. The brief facts of the case is that the assessee is a Partnership Firm engaged in the business of real estate developer. The assessee firm developed a residential scheme of low housing (1 & 2 BHK Budget Apartments) under the name and style “Sandhiya Flora”. Land was purchased from the partners of the firm and construction of flats were entrusted to various contractors and agencies for which they provide labour/contract bills and consulting bills in their name and procure material for construction work for which they take bills in the name of assessee firm. 2.1. For the Assessment Year 2015-16, the assessee filed its original Return of Income declaring total income of Rs. 1,99,37,480/-. The return was processed u/s. 143(1) of the Act and I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 3 then reopened by issuing a notice u/s. 148 on 15.03.2019 on the ground that bogus suppliers and purchases were booked by the assessee which are merely accommodation entries. The assessee filed its Return of Income in response to the u/s. 148 notice and provided various details as required by the Assessing Officer namely the purchase of goods from: (1) Brahmani Traders Rs. 58,48,336/- (2) Mahakali Trading Co. Rs. 55,11,789/- (3) Perfect Steel Corporation Rs. 85,03,494/- (4) Prince Sales Corporation Rs. 84,23,633/- Total Rs. 2,82,87,252/- 2.2. The Assessing Officer issued summons u/s. 133(6) of the Act to the above suppliers and found no proper response from the suppliers. However the assessee produced various details namely current address, Phone Number, PAN and VAT Number, Addresses as per Invoices and as per ITR, Copy of the ITRs, Bank Account details. However the Assessing Officer has not cross verified the above details and disallowed the entire purchase as bogus claim and thereby treated the same as the income of the assessee and demanded tax thereon. 3. Aggrieved against the same, the assessee filed an appeal before Commissioner (Appeals). The Assessee submitted that the Partnership Firm has carried out construction activity from the year 2012 and the “Sandhiya Flora” project was under construction for the period 2012-13 to 2017-18. Till March 2016, profit was offered on estimate basis, whereas the sale has taken place in the assessment year 2017-18. Thus the Gross Profit ratio for the Assessment Years 2015-16 to 2017-18 was worked out as follows: I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 4 M/S MILLENNIUM INFRASTRUCTURE CHART SHOWING GROSS PROFIT Particulars F.Y. 2014-15 F.Y. 2015-16 F.Y. 2016-17 Total Sales - - 474,271,000 474,271,000 Closing W.I.P 263,800,000 480,000,000 300,229,000 300,229,000 Total Income 263,800,000 480,000,000 774,500,000 774,500,000 Opening W.I.P 16,300,000 263,800,000 480,000,000 16,300,000 Land cost - - 120,000,000 120,000,000 Material cost 150,963,320 103,612,712 67,452,465 322,028,497 Labour cost 46,140,960 44,213^800 47,142,91 1 137,497,671 other cost 21,229,965 32,459; 153 34,496,178 88,185,296 Interest Expense 190,673 4,295,290 4,317,303 ;8 r 803,266 GROSS PROFIT (Rs.) 28,975,082 31,619,045 21,091,143 81 £85,270 G.P Ratio (%) 10.98 6.59 7.16 10.77 3.1. Thus the assessee acted as a developer and construction had been carried out through various contractors, materials had been procured by contractors, bills have been taken by contractors in the name of the assessee, payments made by the assessee as per the instructions of the contractors. Though the Assessing Officer treated some of the purchases as bogus, correspondingly the sales have not been disputed by the A.O. and the Assessee relied upon various case laws. The Ld. CIT(A) after considering the above explanations and estimated disallowance of bogus purchases to the I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 5 extent of 12.5% and partly allowed the assessee appeal observing as follows:. “... 7.7 The observations made by the AO and submission of the appellant have been carefully perused and it is found that the sales of the appellant have not been doubted or in other words without consumption of the raw material the construction could not have take place. Since the appellant was in the business of development of real estate, therefore no day to day stock inventory of the raw material consumption is possible to be maintained. Moreover, during the year under consideration it has shown the GP rate of 6.59% on the WIP. However, it is also a fact that the purchases from the aforesaid parties could not be established fully genuine and unverifiable purchases could not be ruled out to a certain extent. 7.8 After careful consideration, it is found that in the case of M. K. Brothers, Hon'ble Gujarat High Court has decided the similar issue in favour of the appellant by saying that there was no evidence that those concerns gave bogus vouchers to the assessee as there was nothing to indicate that any part of the fund given by the assessee to those parties came back to the assessee in any form. Further, in the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. President Industries, the issue involved was with regard to taxation of the whole of the sale proceeds, or of the net profit embedded therein was decided. It is the settled position of law that when the sales are not in doubt then the entire purchases cannot be disallowed rather profit element embedded therein could be disallowed. On the similar facts the ITAT (SMC) bench, Mumbai in the case of ITO Vs. Aquamech Engg. Corporation in ITA No.2644 & 2645/Mum/2019 dated 13.11.2020 has confirmed the disallowance of bogus purchases to the extent of 12.5% as confirmed by the CIT(A). Similarly, in the case of CIT Vs. Simit P. Seth 356 ITR 451 Hon'ble Gujarat High Court has upheld the disallowance of 12.5% of the bogus purchases. 7.9 Having considered all the facts and submissions and respectfully following the judgments of Jurisdictional High Court and Tribunals (supra), it would be fair and reasonable to make the disallowance of alleged bogus purchases to the extent of Rs. 12.5% of alleged bogus purchases of Rs.2,66,07,954/- and the same is upheld which works out to Rs.33,25,994/-. Relief is granted for the balance disallowance. The grounds of appeal are partly allowed. I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 6 4. Aggrieved against the same, both the Assessee and Revenue are in appeal before us raising the following Grounds of Appeal: (Assessee Appeal in ITA No. 25/Ahd/2021 for A.Y. 2015-16) 1. The Ld. AO has erred in law and on facts in reopening of assessment u/s 147 of the Act. 2. The Ld. A.O. has erred in law and on facts in making addition in respect of purchases held to be bogus, without providing the adverse material/statements relied upon and also without providing an opportunity to cross-examine the concerned deponents. 3. The Ld. CIT(A) has erred in law and on facts in confirming addition/disallowance of bogus purchases to the extent of profit @ 12.50% amounting to Rs 35,35.906/- 4. The appellant reserves its right to submit further details in connection with additions/disallowances made by AO as fresh evidence as per Rule 46A of the I.T. Rule 1962 at the time of hearing of Appeal. 5. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. (Revenue Appeal in ITA No. 32/Ahd/2021 for A.Y. 2015-16) 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming only 12.5% of the addition of Rs.2,82,87,252/- made by the A.O. on account of disallowance of bogus purchases. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciation the fact that the assessee's claim in respect to expenditure of four parties i.e. Brahmani Traders, Mahakali Trading Co., Perfect Steel Corporation & Prince Sales Corporation, were found bogus and during the assessment proceedings the A.O. proved it beyond doubt that no such transactions took place between the assessee and these four parties. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 7 5. Ld. Senior Counsel Shri Tushar Hemani appearing for the assessee fairly submitted that he is not pressing for the Ground No. 1 namely reopening of assessment, and the other grounds except disallowance of bogus purchases to the extent of 12.5% made by the Ld. CIT(A). The Ld. Senior Counsel submitted that the Gross Profit declared on work-in-progress and sales in respective assessment years can be construed as fair and reasonable parameter in the line of construction business namely 10.98%, 6.59% and 7.16% relating to the Assessment Years 2015-16, 2016- 17 and 2017-18 and average Gross Profit at 10.77% which is a reasonable declared average Gross Profit. Hence, the Ld. CIT(A) is not correct in estimating the G.P. at 12.5%. 5.1. The Ld. Counsel further submitted that even the alleged bogus purchases in its entirety is considered for the three assessment years then the Gross Profit ratio are 21.71%, 12.13% and 12.85% and the average of the same will be 19.8% which is highly unrealistic in the trade of construction industry. Similarly as directed by the Ld. CIT(A) the bogus purchases at 12.5% is adopted, then the G.P. ratio will be 12.32%, 7.28% and 7.87% respectively for the Assessment Years 2015-16 to 2017-18 and the average of the Gross Profit could be 11.7%. Therefore three years average Gross Profit of 11.7% is to be adopted and Ld. Counsel relied upon various judgments rendered by the Jurisdictional High Courts (which are considered in later part of this order). 6. Per contra, the Ld. Sr. D.R. Ms. Neeju Gupta appearing for the Revenue supported the order passed by the Assessing Officer and I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 8 submitted the purchases are not being proved to be genuine and the existence of the suppliers was also not clear. Therefore the Ld. A.O. was correct in holding the entire bogus purchases as the income of the assessee and relied upon the following cases: (1) N.K. Industires Ltd. Vs. DCIT [2016] 72 taxmann.com 289 (Guj.) (2) CIT Vs. Aashadeep Industries [2018] 95 taxmann.com 135 (Guj.) (3) PCIT Vs.Mrs. Premlata Tekriwal [2022] 143 taxmann.com 173 (Calcutta) (4) Shoreline Hotel (P.) Ltd. Vs. CIT [2018] 98 taxmann.com 234 (Bombay) 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book and case laws filed by the assessee and the Revenue respectively. It is not in dispute that the impugned land was purchased by the assessee firm from its Partners and construction of flats were given to various contractors and the material purchases were made by contractors, structural consultant, architects, etc., as per the requirement and quality approval. The assessee received the above materials at the building site and the bills were sent to Accounting Section for payment purposes. Thus the suppliers of goods were in contact with the contractors, who approved the quality and payments were made by the assessee. Further the construction materials were kept at construction site under lock and key in godown and was supplied as and when the goods are required by the contractors. The suppliers of materials are working agents since they buy the materials from wholesalers and supply the same I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 9 to various construction sites. Payments are taken by contractors on behalf of the suppliers. Many a times payments are not made to the suppliers of materials, since the contractor prefer to make payment of that bills and keep the payment for material outstanding. Further if there is any dispute as to quality are rate, payments are halted and given to contractors as per the ratio of the labour or contract work. 7.1. It is seen from the assessment order that the assessee after providing different addresses in invoices and ITR’s in the case of M/s. Prince Sales Corporation and M/s. Perfect Steel Corporation. Though the assessee requested to issue notices u/s. 133(6) to the additional two addresses, however the A.O. has not issued summons to the parties. Even in case the sellers who failed to furnish reply to the notices issued by the Assessing Officer, that cannot be a ground to hold that the genuine purchases made by the assessee from them to be treated as bogus purchases. It is seen from the appellate order, the Ld. CIT(A) has considered the above issue in detail and then following judgments of Jurisdictional High Court and Tribunal made an average disallowance of 12.5% on the alleged bogus purchases made by the assessee. 7.2. This conclusion arrived by the Ld. CIT(A) in our considered view is found to be reasonable, since the average Gross Profit for the three years comes to 10.77%. The case laws relied by the Ld. Sr. D.R. are clearly distinguishable for the reasons that the assessee’s therein failed to adduce any evidences on the bogus purchases, whereas in the present case the assessee produced the I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 10 details namely address, Phone number, ITR, etc. of the sellers. Further the case law in CIT-Vs-Aashadeep Industries (cited supra) is only admission of Revenue appeal and not final judgment. Therefore the same is not applicable to the facts of the present case. 7.3. Whereas the case laws relied by the assessee are supported by the Jurisdictional High Court Judgments in the following cases: (i) CIT vs. Simit P. Sheth (2013) 356 ITR 451 (Guj-HC): in this case it is held that: "Section 145 of the Income-tax Act, 1961 Method of accounting - Estimation of Profits (Bogus purchases] - Assessment year 2006-07 Assessee was engaged in business of trading in steel on wholesale basis - Tills, held that purchases made from said parties were bogus - He. Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus. He, accordingly, added entire amount of purchases to gross profit of assessee - Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 per cent of purchase cost as probable profit of assessee extent of 12.5 per cent Tribunal however, sustained addition To Whether since purchases were not bogus but were made from parties other than those mentioned in books of account, only profit element embedded in such purchases could be added to assessee's income Held, yes Whether hence, order of Tribunal needed no interference - Held, yes (Paras 6, 7 & 9 In favour of assessee]” (ii) CIT vs. Sathyanarayan P. Rathi [2013] 38 taxmann.com 402 (Guj HC): in this case it is held that: "Section 143 of the Income-tax Act, 1961. Assessment Additions to income [Purchases from market] - Assessment year 2003-04 - Assessing Officer made addition of entire amount of purchase on ground that concerned suppliers had never supplied goods as named by assessee. Commissioner (Appeals) as well as Tribunal having found that though purchases were not made from parties from whom assessee claimed but such materials were purchased from open market incurring cash payment and bills were procured from various sources, held that only profit element at rate of 12.5 per cent was to be added to income of assessee Whether present case I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 11 being one of only purchase but not from disclosed sources it would be only profit element embodied in such purchase which could be added in income of assessee and thus, rightly so done by Commissioner (Appeals) and Tribunal - Held, yes [Paras 6 & 7] [In favour of assessee]." (iii) CIT vs. Bholanath Poly Fab (P) Ltd (2013) 355 ITR 290 (Guj-HC]: in this case it is held that: "Section 69 of the Income-tax Act, 1961 Undisclosed investments [Bogus purchases] - Assessment year 2005-06- Assessee was engaged in business of trading in finished fabrics - Assessing Officer found that concerned parties from whom material was purchased were not found at their addresses and held that purchases made by assessee were bogus Accordingly, he made disallowance Tribunal found that though purchases were made from bogus parties, but purchases themselves were not bogus as entire quantity of stock was sold by assessee and held that only profit margin embedded in such purchases would be subjected to tax and not entire purchases - Whether no illegality was commated by Tribunal - Held, yes [Para 6] [In favour of assessee]." 8. On appraisal of the above said finding, we notice that the AO raised the addition on the basis of non-proving the genuiness of the purchase from the four parties whose name has been mentioned above. No doubt, the notices u/s 133(6) of the Act were not served but it is incumbent upon the assessee to prove the transaction by adducing sufficient evidence on record which was done by the assessee, thus the assessee has discharged its initial onus cast upon it. The Ld. CIT(A) has exhaustively discussed the matter and decided the appeal on the basis of finding of the Gujarat High Court in the case of CIT Vs. Simit Sheth (2013) 38 Taxmann.com 385 (Guj) and other case laws. No distinguishable material has been produced before us by the Revenue, thus the factual position remains the same. The Revenue also raised the contentions in the cross-appeal that all amount of bogus purchase is required to be added, but the decision of the CIT(A) seems to be justifiable in view of the law mentioned above specifically in the circumstances when I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 12 books of account has not been rejected and sales declared are not disputed by the Ld. A.O. In the circumstances the only profit element is to be assessed and not the entire value of purchases as the income of the assessee. Therefore, we are of the considered view that the Ld. CIT(A) has passed the order judiciously and correctly which does not require any interference and the estimation of gross profit at 12.5% is hereby confirmed. Accordingly, the cross-appeals filed by both the assessee and Revenue are hereby dismissed. ITA Nos. 26 & 27/Ahd/2021 (by the Assessee and ITA Nos. 33 & 34/Ahd/2021 (by the Revenue) for the Assessment Years 2016-17 & 2017-18. 9. The facts of the above cases are namely “bogus purchase” from five different creditors and the facts narrated above while deciding the appeal is identical in ITA. No. 25/Ahd/2021, therefore the same is not repeated here, however, the figures of disallowances are different. The assessee challenged the addition of 12.5% upon the bogus purchase and the Revenue has challenged the deletion of 87.5% on account of bogus purchase, in view of the provision u/s 69C of the Act. The matter of controversy is quite similar to the matter of controversy as decided by us, while deciding the appeal in ITA. No. 25/Ahd/2021 and 32/Ahd/2021 in which we have confirmed the addition to the extent of 12.5% upon the bogus purchase. In view of the above finding, we dismiss the cross appeals upholding the order of the CIT(A). I.T.A Nos. 25 to 27/Ahd/2021 and ors. A.Ys. 2015-16 to 2017-18 Page No M/s. Millenium INfrasturcture vs. DCIT 13 10. In the result, the appeals filed by the Assessee and Revenue are hereby dismissed. Order pronounced in the open court on 31-10-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 31/10/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद