JT. CIT -(OSD),CC- 6(3), MUMBAI V. KROSSLINK INFRASTRUCTURE LTD., MUMBAI

ITA 3122/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0948 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2005-2006
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Keywords: Bogus purchase; Search and seizure; Opportunity of cross examination; Third party statement; Valuation report; Accommodation entries; Condonation of delay
• Section: 143(3); 133A; 115JB; 143(1); 143(2); 13; 147; 131; 148; 132

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL H BENCH MUMB AI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 3122/MUM/2018 (ASSESSMENT YEAR 2005-06 ) JCIT (OSD), CENTRAL CIRCLE- 6(3) ROOM NO. 1926, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021 VS. M/S KROSSLINK INFRASTRUCTURE LTD., 507/511, VYPAR BHAVAN, 49, P.D. MELLOR ROAD, CARNAC BUNDER, MUMBAI- 400009 PAN: AABCK2801R APPELLANT RESPONDENT CROSS OBJECTION NO. 134/MUM/2019 (ASSESSMENT YEAR 2 005-06 ) M/S KROSSLINK INFRASTRUCTURE LTD., 507/511, VYPAR BHAVAN, 49, P.D. MELLOR ROAD, CARNAC BUNDER, MUMBAI- 400009 PAN: AABCK2801R VS. JCIT (OSD),CENTRAL CIRCLE- 6(3) ROOM NO. 1926, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI- 400021 APPELLANT RESPONDENT ITA NO. 3863/MUM/2018 (ASSESSMENT YEAR 2005-06 ) M/S KROSSLINK INFRASTRUCTURE LTD., 507/511, VYPAR BHAVAN, 49, P.D. MELLOR ROAD, CARNAC BUNDER, MUMBAI- 400009 PAN: AABCK2801R VS. ACIT, CENTRAL CIRCLE- 6(3) 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021 APPELLANT RESPONDENT REVENUE BY : SHRI B. SRINIVAS (CIT-DR) ASSESSEE BY : SHRI J.P. BAIRAGRA WITH SHRI S.K. MUTSADDI (AR) DATE OF HEARING : 17.09.2019 DATE OF PRONOUNCEMEN T : 05.12.2019 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 2 1. THESE CROSS APPEALS BY REVENUE AS WELL AS BY ASSESS EE AND ONE CROSS OBJECTION BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-54, MUMBAI DATED 21.02.2018 FOR ASSESSMENT YEAR 2005-06 . IN ALL CASES COMMON GROUNDS OF APPEAL ARE RAISED BY THE PARTIES, FACTS ARE COMMON, THEREFORE, ALL THE APPEAL WERE HEARD TOGETH ER AND ARE DECIDED BY COMMON ORDER. WE WILL DISCUSS AND ADJUDI CATE ALL THE GROUNDS OF APPEAL TOGETHER. THE REVENUE IN ITS APP EAL IN ITA NO. 3122/MUM/2018, HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 75,29,00,000/-, MADE ON ACCOUNT OF BOGUS PURCHASES. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE DECISI ON LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF N.K. PROTEINS LTD. IS SQUARELY APPLICABLE TO THE PRESENT CASE. 2. THE ASSESSEE IN ITS CROSS OBJECTIONS HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL: ON FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING A DISALLOWANCE OF RS. 22,60 ,00,000/- ON ACCOUNT OF ALLEGED BOGUS PURCHASES. THIS DISALLOWANCE OF RS . 22.60 CRORES MAY PLEASE BE DELETED. 3. THE ASSESSEE IN ITS APPEAL IN ITA NO. 3863/MUM/2018 , HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ON FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LEARNED CIT(A) HAS ERRED IN SUSTAINING A DISALLOWANCE OF RS. 22,60 ,00,000/- ON ACCOUNT OF ALLEGED BOGUS PURCHASES. THIS DISALLOWANCE OF RS . 22.60 CRORES MAY PLEASE BE DELETED. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 3 4. THE ASSESSEE VIDE ITS APPLICATION DATED 03.10.2016 HAS RAISED FOLLOWING ADDITIONAL GROUNDS OF APPEALS; (I) REOPENING THE CASE UNDER SECTION 148 OF THE INCOME TAX ACT. THE REOPENING BEING BAD IN LAW, THE SAME SHOULD BE ANNU LLED. (II) ASSESSING THE APPELLANTS INCOME AT RS. 94.34 CROR E AS AGAINST RS. 19.04 CRORE DECLARED BY THE ASSESSEE IN THE RETURN FILED BY IT. (III) REJECTING THE ASSESSEES BOOKS OF ACCOUNTS. (IV) MAKING ADDITIONS OF RS. 75.29 CRORE AS BOGUS PURCHA SES. (V) WITHOUT PREJUDICE TO THE ABOVE , THE ADDITIONS MADE OF RS. 75.29 CRORE IS AT THE BEST A RECEIPT WITHOUT CONSIDERATION THEREFO RE, THE SAME IS NOT COVERED WITHIN THE AMBIT AND SCOPES OF RECEIPT OF I NCOME U/S 2(24) OF THE INCOME TAX ACT, IT BEING A NON-TAXABLE CAPITAL RECE IPT. IN OTHER WORDS, IT BEING A GRATUITOUS PAYMENT, THE SAME IS NOT LIABLE TO BE INCOME TAX, BOTH UNDER THE NORMAL PROVISIONS AS WELL AS PROVISIONS O F SECTION 115JB OF THE INCOME TAX ACT. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN CONSTRUCTION AND DEVELOPMENT, FILED ITS ORIGINAL RE TURN OF INCOME ON 31-10-2005 DECLARING TOTAL INCOME AT NIL. THE ASSE SSMENT ON THIS RETURN OF INCOME WAS COMPLETED UNDER SECTION (U/S) 143(3) ON 28-12- 2007 DETERMINING TOTAL INCOME AT RS.19,04,92,024/- . SUBSEQUENTLY ON THE BASIS OF INFORMATION FROM ADIT(INV), UNIT-V II (1) & (2), MUMBAI THAT DURING THE COURSE OF SEARCH AND SEIZURE ACTION U/S 132 OF THE INCOME-TAX ACT, 1961 CARRIED OUT IN THE CASE OF PIPAV SHIPYARD GROUP ON 12-10-2011 AND THAT THE BUSINESS PREMISES OF KROSSLINK INFRASTRUCTURE LTD (ASSESSEE) WAS ALSO COVERED U/S 133A OF THE ACT. IT WAS INFORMED THAT DURING THE COURSE OF SEARCH / SUR VEY PROCEEDINGS ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 4 AND POST SEARCH ENQUIRIES IT WAS REVEALED FROM THE LEDGER ACCOUNTS THAT SUB-CONTRACT WORK TO THE TUNE OF RS.76,36,75,9 29/- WAS CLAIMED TO HAVE BEEN UNDERTAKEN BY A CONCERN IN THE NAME & STYLE OF M/S KHODIYAR INDUSTRIES LTD. HOWEVER, FROM LOCAL ENQUI RIES AND STATEMENT OF SHRI SOMIL MUKESH PARIKH, THE FINANCE IN CHARGE OF M/S KHODIYAR INDUSTRIES LTD, IT WAS PROVE THAT M/S KHOD IYAR INDUSTRIES LTD WAS INVOLVED IN ISSUING BOGUS BILLS AND ACCOMMO DATION ENTRIES AND THAT NO ACTIVITY LIKE EARTH FILLING ETC, WAS D ONE BY ASSESSEE AS ADMITTED BY SHRI SOMIL MUKESH PARIKH. THE MODUS OP ERANDI WAS ALSO EXPLAINED BY S. PARIKH THAT CHEQUES WERE TAKEN FROM ASSESSEE AND THEREAFTER MONEY WAS ROUTED BACK TO IT. ON THI S BASIS, THE ASSESSING OFFICER INVOKED PROVISIONS OF SECTION 147 AND A NOTICE U/S 148 DATED 15-03-2012 WAS ISSUED. 6. IN RESPONSE TO THE NOTICE UNDER SECTION 148, THE AS SESSEE FILED RETURN OF INCOME ON 09-05-2012 DECLARING TOTAL INCOME OF R S.19,04,92,024/- . IN RESPONSE TO STATUTORY NOTICES U/S 143(2) AND 142(1), THE ASSESSEE, VIDE LETTER DATED 10-05-2012 SOUGHT FOR REASONS REC ORDED FOR REOPENING OF THE CASE. THE ASSESSING OFFICER VIDE LETTER DATED 28-05- 2012 HAS INTIMATED THE REASONS TO THE ASSESSEE, WHI CH ARE AS UNDER:- 'IN THIS CASE INFORMATION HAS BEEN RECEIVED FROM AD JT(INV), UNIT-VII (]) & (2), MUMBAI THAT DURING THE COURSE OF SEARCH AND SE IZURE ACTION U/S.132 OF THE INCOME TAX ACT, 1961 CARRIED OUT IN THE CASE OF PIPAVAV SHIPYARD GROUP ON 12/10/2011, THE BUSINESS PREMISES OF M/S. KROSSL INK INFRASTRUCTURE LTD., ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 5 WAS ALSO COVERED U/S.133A OF THE ACT. DURING THE C OURSE OF SEARCH SURVEY PROCEEDING AND POST SEARCH ENQUIRIES IT WAS SEEN FR OM THE LEDGER THAT SUB- CONTRACT WORK TO THE TUNE OFRS.76,36,75,929/- WAS C LAIMED TO HAVE BEEN UNDERTAKEN BY A CONCERN IN THE NAME & ; STYLE OF M/S. KHODIYAR INDUSTRIES LTD. HOWEVER, FROM LOCAL ENQUIRIES AND STATEMENT OF SHRI SOMIL MUKESH PARIKH, THE FINANCE IN CHARGE OF M/S. KHODIYAR INDU STRIES LTD. IT WAS PROVEN THAT M/S. KHODIYAR INDUSTRIES LTD. WAS INVOLVED IN ISSUING BOGUS BILLS AND ACCOMMODATION ENTRIES AND THAT NO ACTIVITY LIKE EAR TH FILLING ETC. WAS DONE FOR ASSESSEE AS ADMITTED BY SHRI SOMIL MUKESH PARIKH. THE MODUS OPERANDI WAS ALSO EXPLAINED BY MR. PARIKH THAT CHEQUES WERE TAKEN FROM ASSESSEE AND, THEREAFTER MONEY WAS ROUTE D BACK TO IT. THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOME AM OUNTING TO RS.76,36,75,929/- HAS ESCAPED ASSESSMENT FOR A.Y. 2 005-06. THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOM E AMOUNTING TO RS.76,36,75,,929/- HAS ESCAPED ASSESSMENT FOR A, Y. 2005-06 .' 7. ON RECEIPT OF THE REASONS RECORDED, THE ASSESSEE F ILED APPLICATION BEFORE ASSESSING OFFICER DATED 19-06-2012 SEEKING STATEMENT OF SHRI SOMIL MUKESH PAREKH, WHICH WAS PROVIDED BY THE ASSE SSING OFFICER, VIDE LETTER DATED 21-06-2012. IN RESPONSE TO PROVI DING OF REASONS FOR REOPENING AS GIVEN TO THE ASSESSEE AND A SHOW CAUSE NOTICE DATED 27- 11-2012 AS TO WHY THE INCOME SHOULD NOT BE ENHANCED AS PER REASONS RECORDED FOR ISSUE OF RE-OPENING NOTICE, THE ASSESS EE VIDE LETTER DATED 22-01-2013 OBJECTED THE REOPENING BY RAISING THE OB JECTION AS FOLLOWS:- IN THE INTIMATION REGARDING REASONS FOR RE-OPENIN G OF ASSESSMENT FOR A.Y. 2005-06, A COPY OF A STATEMENT ON OATH, OF ONE MR. SAUMIL MUKESH PARIKH WAS GIVEN TO US & ACCORDINGLY THE ANSWERS TO THE QU ESTION 5, 6 & 7, THE SAID MR. SAUMIL PARIKH HAS CONTENDED THAT KHODIYAR INDUS TRIES LTD WAS INVOLVED ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 6 IN ISSUING BOGUS BILLS & ACCOMMODATION ENTRIES; FRO M WHOM KOATEX INDUSTRIES LTD (KIL) HAS TAKEN BOGUS BILLS TO THE T UNE OF RS.70 TO RS.80 CRORES & FACTUALLY NO SUCH ACTIVITY WAS EVER UNDERT AKEN OR DONE BY KHODIYAR INDUSTRIES LTD. THIS STATEMENT HAS BEEN FULLY RELI ED UPON BY THE REVENUE AUTHORITIES & THE CASE HAS BEEN REOPENED. WITHOUT ADMITTING THE CONTENTS OF THE STATEMENT, THE FACTUAL BASIS IN THIS REGARD, AS FAR AS, TAXABLE INCOME OF KIL IS CONCERNED, IS AS FOLLOWS. PIPAVAV DEFENSE OFF SHORE & ENGINEERING CO. LTD. (P DOBCL), FORMERLY KNOWN AS PIPAVAV SHIPYARD LTD. WAS DEVELOPING A MOD EM SHIPYARD AT PORT PIPAVAV IN ; GUJARAT. PORT' PIPAVAV WAS DEVELOPED BY SKI L INFRASTRUCTURE LT. WHICH HAS ALSO BEEN THE PROMOTER COMPANY OF PDOECL. AFTER SUCCESSFUL CONSTRUCTION OF A MASSIVE PORT AT PIPAVAV THE GROUP STARTED DEVELOPING THE SHIPYARD. THE LOCATION OF PIPAVAV IS ODDLY LOCATED & EARLIER COMMUTING TO THE PLACE WAS ALSO A CUMBERSOME PROCES S. AFTER THE PORT WAS STARTED, THE PLACE BECAME THE PROMINENT & AMONGST O THERS, IT CAUGHT ATTENTION OF LOCAL LEADERS & OTHER PRESSURE GROUPS. THE MASSIVE CONTRACTS IN THE DEVELOPMENT OF A SHIPYARD WERE GIVEN TO THE ASSESSES COMPANY, CONSIDERING ITS TRACK RECORD & EXPERIENCE I N DEVELOPMENT OF PIPAVAV PORT. IN THE ABOVE CIRCUMSTANCES, IT WAS INEVITABLE & ALM OST MANDATORY, TAKING INTO ACCOUNT THE COMPULSIVE, COMMERCIAL & PRACTICAL CONSIDERATIONS THAT CERTAIN PART OF THE CONTRACTS IS GIVEN TO THE RECOM MENDS OF LOCAL LEADERS & PRESSURE GROUPS. ONE HAS TO APPRECIATE THAT WITHOUT CONSIDERING SUCH A REQUEST, IT IS PRACTICALLY IMPOSSIBLE TO CARRY OUT THE PROJECT WORK SMOOTHLY. UNDER THESE CIRCUMSTANCES, WHO HAVE BEEN THE RECOMM ENDEES OF LOCAL LEADERS & PRESSURE GROUPS. THE COMPANY COULD NOT HA VE MADE PAYMENTS TO SUCH CONTRACTORS, DUE TO THE OBVIOUS CONSTRAINTS ON CASH PAYMENTS, WHICH LEFT THE COMPANY NO OTHER ALTERNATIVE BUT TO COMPLY WITH THEIR REQUIREMENTS WITH SOME COMMERCIAL ARRANGEMENT. IN THIS PROCESS, KIL R OUTED THE PAYMENTS TO THESE CONTRACTORS THROUGH KHODIYAR INDUSTRIES LTD., AS A MATTER OF SHEER CONVENIENCE. HOWEVER, AT A LATER DATE, WHILE SCRUTI NIZING THE ACCOUNTS, IT WAS NOTICED BY KIL THAT THE VARIOUS SUPPORTING THAT WOU LD BE REQUIRED TO PROVE ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 7 THESE TRANSACTIONS TO THE HILT ARE NOT LIKELY TO BE AVAILABLE DUE TO OBVIOUS NON CO-OPERATION OF THESE PARTIES, CONSIDERING THE PECU LIAR NATURE. THE COMPANY TOOK A HOLISTIC VIEW OF THE ENTIRE SITU ATION AND CAME TO THE CONCLUSION THAT IT S BETTER & PRUDENT TO REMOVE THE TOTAL EXPENDITURE OF THIS- NATURE, AS ALSO THE CORRESPONDING TURNOVER, WHILE CONSIDERING THE AUDIT & INCOME COMPUTATION OF THE COMPANY I.E. KIL. THE S CRUTINY OF THE AVAILABLE RECORD WAS CARRIED OUT FULLY & AMO UNT OF RS. 75,29,60, 000/- WAS REDUCED FROM THE EXPENDITURE ON TH E CONTRACTORS, AS ALSO THE CORRESPONDING TURNOVER (AT COST ONLY), RELATABLE T O SUCH EXPENSES. THE PROFIT ELEMENT OF THE SAID QUANTUM TURNOVER, HOWEVE R, WAS RETAINED IN THE P & L ACCOUNT TO AVOID ANY CONTROVERSY & OR DISPUTE & /OR ANY LITIGATION.' 8. THE ASSESSING OFFICER NOT ACCEPTED THE CONTENTION O F ASSESSEE HOLDING AS UNDER:- (A) THE ASSESSEE CLAIMS THAT ACTUALLY SOME WORK WA S DONE FOR WHICH SOME MONEY WAS TRANSFERRED TO M/S. KHODIYAR INDUSTRIES L IMITED. THE ASSESSEE HAS NOT BROUGHT ON RECORD ANYTHING TO PROVE THIS FA CT THAT ACTUALLY ANY WORK HAS BEEN DONE AT ALL IN LIEU OF RS.76,36,75,930/- B EEN GIVEN BY IT TO M/S. KHODIYAR INDUSTRIES LTD, ON THE CONTRARY, THE ABO VE STATEMENT OF SHRI SOMIL MUKESH PARIKH IN Q-7 AND IT REPLY CLEARLY STATES THAT FACTUALLY NO SUCH ACTIVITY WAS EVER UNDERTAKEN OR DONE AT ALL. THUS, ASSESSEE'S CLAIM WITHOUT ANY SUPPORTING FACTS .IN, HIS CASE IS PRO VED WRONG. (B) THE ASSESSEE CLAIMS THAT AMOUNT OF RS.76,36,75, 930/- WAS PAID TO RECOMMENCES OF LOCAL LEADERS AND PRESSURE GROUPS. O N THE CONTRARY, SHRI MUKESH PARIKH IN REPLY TO Q.6 IN ABOVE STATEMENT HA S CLEARLY STATED THAT CHEC1UES WE'RE- TAKEN BY M/S. KHODIVAR INDUSTRIES L TD AND MONEY WAS GIVEN BACK TO THE ASSESSEE (AND NOT PASSED ON TO ANY RECO MMENCES OF LOCAL LEADERS & PRESSURE GROUPS). THUS, ASSESSEE'S CLAIM ON THIS GROUND IS ALSO HELD TO BE FALSE. (C) THE ASSESSEE HAS NOT GIVEN ANY DETAILS OF CONTR ACTS GIVEN BY IT TO SUCH RECOMMENCES NOR ANY PROOF AT ALL WAS SUBMITTED IN S UPPORT OF ITS CLAIM. ONLY A SELF-SERVING STORY WAS SUBMITTED BY IT WHICH HAS NO REASONS TO BE BELIEVED. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 8 9. THE ASSESSEE FURTHER SUBMITTED CERTAIN BILLS RAISED BY ASSESSEE ON M/S. PIPAVAV DEFENSE & OFFSHORE ENGINEERING CO. LTD. (PD OECL), TOTALING RS.143.18 CRORES. (WHEREAS ASSESSEE IN ITS P & L A/C. SUBMITTED TO THE DEPARTMENT AT THE TIME OF SCRUTINY PROCEEDINGS U/S.143(3) SHOWED SALES TO PDOECL OF ONLY RS.67.89 CRORES). THE ASSESSEE FURTHER EXPLAINED THAT AT THE TIME OF SURV EY ACTION U/S.133A OF THE ACT CONDUCTED ON THE ASSESSEE ON 12/10/2011 BY ADIT(INV)-UNIT VLI(L), MUMBAI AT ITS PREMISES AT MUMBAI, TRAIL B ALANCE OF THE ASSESSEE AS ON 21/03/2005 DURING THE YEAR WAS RS. 1 43,18,94,129/- AND THE COST OF CONSTRUCTION WAS RS.75,29,59,383/-. HOWEVER, ON PERUSAL OF AUDITED BALANCE SHEET & PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AS SUBMITTED BY THE ASSESSEE DURING SCRUTI NY ASSESSMENT PROCEEDINGS U/S. 143(3) IT WAS NOTICED THAT THE ASS ESSEE HAS SHOWN SALES OF RS.67,89,34,000/- ONLY. THUS, THERE WAS A CLEAR CUT DISCREPANCY. ALONG WITH LETTER DATED 22/01/2013, T HE ASSESSEE ITSELF SUBMITTED A COPY OF ACTUAL BALANCE SHEET & PROFIT A ND LOSS ACCOUNT IN WHICH THE ACTUA1 TRANSACTION WAS RECORDED ON THE BA SIS OF ACCEPTABLE AND LEGAL ACCOUNTING PRINCIPLES. TO EXPLAIN THE ABO VE DISCREPANCY IN ACTUAL BALANCE SHEET AS PER ACCEPTABLE AND GAL ACCO UNTING PRINCIPLES AND THE BALANCE SHEET AS SUBMITTED BY ASSESSEE DURI NG ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE LETTER DATED 22/01/2 013 STATED AS UNDER:- ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 9 'THE COMPANY TOOK A HOLISTIC VIEW OF THE ENTIRE SI TUATION CAME TO THE CONCLUSION THAT IT S BETTER & PRUDENT TO REMOVE THE TOTAL EXPENDITURE OF THIS NATURE, A ALSO THE CORRESPONDING TURNOVER, WHILE CO NSIDERING THE AUDIT & INCOME COMPUTATION OF THE COMPANY I.E. KIL. THE SCR UTINY OF THE AVAILABLE RECORD WAS CARRIED OUT FULLY & AMOUNT OF RS. 75,29, 60,000/- WAS REDUCED FROM THE EXPENDITURE ON THE CONTRACTORS, AS ALSO TH E CORRESPONDING TURNOVER (AT COST ONLY), RELATABLE TO SUCH EXPENSES. THE PRO FIT ELEMENT OF THE SAID QUANTUM TURNOVER, HOWEVER, WAS RETAINED IN THE P & L ACCOUNT TO AVOID ANY CONTROVERSY &/OR DISPUTE &/OR ANY LITIGATION.' 10. THE ASSESSEE AGAIN VIDE ITS LETTER DATED 05/02/201 3 STATED AS UNDER :- 'FURTHER TO LETTER OF ASSESSEE DTD.22.01.2013 FILED WITH YOUR GOODSELVES, WE HAVE BEEN DIRECTED BY THE ASSESSEE COMPANY TO F ORWARD THE FOLLOWING FOR YOUR KIND PERUSAL: WE NOW SUBMIT THE ANALYSIS OF PURCHASE FOR BOTH FRO M KHODIYAR, WHICH ARE REVERSED & CORRESPONDING SALES BILLS TO PIPAVAV SHIPYARD LTD. THE TOTAL PURCHASES SO REVERSED ARE RS. 75.29 CRORES. A S AGAI.ST THE SAME THE SALE BILLS WERE OF RS. 83.42 CRORES, LEAVING THE MA RGIN OF RS. 8.13 CRORES. (RELEVANT STATEMENTS & COPIES OF BILLS ARE ENCLOSED). HOWEVER, AS A MATTER OF ABUNDANT PRECAUTION & TO AVOID ANY LITI GATION OR ADVERSE INFERENCE / PENAL ACTION, THE ASSESSEE COMPANY HAS REDUCED ONLY RS.75.29 CRORES FROM SALES AS WELL LEAVING MARGIN OF RS.8. 1 3 CRORES UNDISTURBED.' 11. THEREAFTER, IN RESPONSE TO SHOW CAUSE NOTICE TO DIS ALLOW ITS BOGUS PURCHASES TO M/S. KHODIYAR INDUSTRIES LTD., THE ASS ESSEE VIDE LETTER DATED 22/03/2013 STATED AS UNDER:- 1.'WE REFER TO THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY VIDE LETTERS DTD. 22.01.2013 & 05.02.20913. WE REQUEST YOUR GOOD SELF TO KINDLY REFER TO PARA 2 & 3, WHEREIN, THE COMMERCIAL CIRCUMSTANCES & COMPULSIONS IN GIVING CONTRACTS TO PERSON FROM WHOM BILLS, RECEIPTS & OTH ER SUPPORTING COULD NOT HAVE BEEN OBTAINED, HAS BEEN FULLY EXPLAINED. THE A SSESSEE COMPANY HAS ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 10 NEVER EVER ACCEPTED THESE TRANSACTIONS AS BOGUS, AS ALLEGED IN THIS CASE BY THE DEPARTMENT. 2. SINCE THE TRANSACTIONS WERE BUSINESS TRANSACTION S DULY ENTERED FOR THE CONTRACTS GIVEN & CORRESPONDING SALES BILLS RAISED TO THE PRINCIPAL; THESE ARE DULY RECORDED IN THE BOOKS OF ACCOUNTS. HOWEVER, T HE INTERNAL SCRUTINY BY THE AUDITORS AS WELL AS MANAGEMENT REVEALED THAT THE AD EQUATE & APPROPRIATE SUPPORTING FOR THESE TRANSACTIONS ARE DIFFICULT TO OBTAIN UNDER THE CIRCUMSTANCES & THEREFORE, AS ELABORATED IN PARA 4 OF LETTER DTD. 22.01.2013, A VOLUNTARY DECISION WAS TAKEN TO REDUCE THE CLAIM OF EXPENSES BY THE AMOUNT OF RS.75,29,60,000/-, AS A PRUDENT POLICY TO AVOID ANY PROCRASTINATING CONTROVERSY, LITIGATION, CONFLICT WITH THE DEPARTME NT. FURTHER EVEN THE CORRESPONDING SALES TO THE PRINCIPAL AMOUNTING TO R S.83.42 CRORES, (AS PER SUBMISSION DATED 05.02.2013 & ITS ENCLOSURES) WERE WRITTEN BACK. WHILE WRITING BACK CORRESPONDING SALES, ONLY THE COST HAS BEEN REDUCED LEAVING THE GROSS MARGIN OF RS.8.13 CRORES UNAFFECTED & THEREBY HAVE DULY BEEN CONSIDERED IN THE TOTAL INCOME. IT WAS ALSO DEMONST RATED BY SUBMITTING THE COPIES OF AUDITED ACCOUNTS & THE COPIES OF EARLIER UNAUDITED ACCOUNTS THAT AGAINST ORIGINAL TURNOVER OF RS. 143.18 CRORES, ONL Y EXPENDITURE ON SUB CONTRACT WAS ONLY RS. 75.29 CRORES. THEREFORE, AGAI NST THE TURNOVER, AS PER AUDITED BALANCE SHEET OF RS. 67.89 CRORES (BEFORE S TOCK VARIATION OF RS.38.46 CRORES) ONLY DEBIT IS FOR PURCHASES OF RS. 1 7 LACS . AS SUCH, YOUR PROPOSAL OF RECASTING ACCOUNTS BY CONSIDERING THE SATES AS GENU INE & PURCHASES OF BOGUS TO THE TUNE OF RS. 75.296 CRORES, IS COMPLETELY OUT OF PLACE, NOT SUPPORTED BY FACTS & LEGALLY UNTENABLE. THE PROPOSED RECASTING, IF DONE, WILL SHOW HE TURNOVER OF RS. 143.18 CRORES & EXPENSES OF ONLY RS . 17 LACS, WHICH IS COMPLETELY RIDICULOUS &.HAS NO SUBSTANCE IT IS IMPO SSIBLE TO HAVE TURNOVER OF THAT QUANTUM WITHOUT ANY INPUTS ON THE DEBIT SIDE. 3. THE ACTION OF THE INVESTIGATION WING OF THE DEPA RTMENT HAS GOT CERTAIN THINGS ON RECORD WITH RESPECT TO THE TRANSACTIONS W ITH KHODIYAR INDUSTRIES LTD. HOWEVER, THE BUSINESS COMPULSIONS ON THESE TRA NSACTIONS WERE EXPLAINED. THE ASSESSEE COMPANY HAS NEVER ACCEPTED THAT THE WORK REFLECTED IN THE BILLS ON KHODIYAR WAS NOT CARRIED OUT. THE O NLY GENUINE, CIRCUMSTANTIAL DIFFICULTY WAS OF GETTING WORK SUPPORTING DOCUMENTS FROM THE SUB- ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 11 CONTRACTORS, WHO HAD CARRIED WORK. BUT SINCE THIS P ARTICULAR REALITY IS DIFFICULT TO PROVE THE VOLUNTARY REDUCTION OF EXPENSES & CORR ESPONDING COST OF THE SALES WAS MADE. ONCE THERE IS NO SCOPE OF WHATSOEVE R FOR FORCIBLY BRINGING IN THE EXPENDITURE, NOT CLAIMED BY THE ASSESSEE COMPAN Y & TREATING THE CORRESPONDING SALE AS GENUINE BUT DIRECT EXPENSES T HEREON IN THE FORM OF SUB- CONTRACT CHARGES AS BOGUS, ESPECIALLY WHEN THERE AR E NO OTHER CHARGES DEBITED TO P & L ACCOUNT FROM WHERE THE TURNOVER COULD HAVE BEEN MADE, THEN SUCH ACTION IS ABSOLUTELY BASELESS, ILLOGICAL, IRRATIONA L, WHICH CANNOT HAVE ANY SUPPORT ON FACTS OR IN LAW. THEREFORE, THE PROPOSAL IS STRONGLY OPPOSED BY THE ASSESSEE COMPANY BY SHEER FACTS OF THE CASE, WHICH ARE ON RECORD. THE PROPOSED ADVERSE INFERENCE BY YOUR GOOD SELF IF DRA WN, WILL BE COMPLETELY PERVERT, WHICH WILL IGNORE BOTH THE GROUND REALITIE S OF ACCOUNTING PRINCIPLES & FACTS AS WELL AS FUNDAMENTAL NORMS OF TAXATION UN DER THE INCOME TAX ACT, 1961 & VIOLATE REAL INCOME THEORY AS WELL. 4. IT IS ALSO PERTINENT TO NOTE THAT UNDER THE AFOR ESAID PECULIAR CIRCUMSTANCES; EVEN THE CONTRACT EXPENSES CORRESPONDING TO SALES O F THE ASSESSEE COMPANY HAVE BEEN WRITTEN OFF & NOT CLAIMED BY THE PRINCIPA L COMPANY. THUS, THE ENTIRE CHAIN OF THE TRANSACTIONS HAS BEEN VOLUNTARI LY NOT CLAIMED BY ALL THE PARTIES. UNDER THE CIRCUMSTANCES, THERE IS NO SCOP E WHATSOEVER FOR FORCIBLY INTRODUCING IN THE BOOKS THE CHAIN AGAINST & CONTRA RY TO THE ACTION OF THE ASSESSEE & THRUSTING ON IT THE DISALLOWANCE, BY FIR ST RECASTING THE ACCOUNTS TO INTRODUCE THE DEBIT FOR EXPENSES NOT CLAIMED AND AG AIN DISALLOWING THE AS NOT CLAIMABLE. 12. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAS NOT SUBMITTED CORRECT BOOKS OF ACCOUNT AS PER ACCEPTABLE ACCOUNTING PRINCIPLE AND HAS CONSIDERED THE PARTICULARS OF ONE SALES TRANSACTION AND ALSO ONE P AYMENT MADE TO KHODIYAR INDUSTRIES LTD. CLAIMING IT AS A PURCHASE TRANSACTION. NO ACCOUNTING PRINCIPLE FOLLOWED MANDATES A JOURNAL EN TRY IN THE BOOKS TO OFFSET SUCH TRANSACTION WITH EACH OTHER AND THAT SUCH TRANSACTION ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 12 BEING NOT TO BE REFLECTED IN THE PROFIT AND LOSS AC COUNT. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESS EE BY INVOKING THE PROVISION OF SECTION 145(3) OF THE INCOME TAX ACT. THE ASSESSING OFFICER ALSO RECORDED THE FOLLOWING REASONS FOR NOT ACCEPTING THE SUBMISSION OF ASSESSEE; THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY PROOF TH AT THE PURCHASED EXPENSES CLAIMED BY THE ASSESSEE WERE PAI D TO KIL OF 75.29 CRORE IS GENUINE. THE ASSESSEE CLAIMED THAT EVEN THE PRINCIPAL COMPAN Y HAS NOT CLAIMED SUCH AN AMOUNT PAID TO THE ASSESSEE AS EXPE NSES IS LEGALLY FALSE. THE ASSESSEE HAS DONE WORK FOR PDOEC L WORTH MORE THAN RS. 143.18 CRORE AS CLAIMED DURING THE YE AR. IN AY 2005-06, PDOECL HAS NOT WRITTEN OFF OR SQUARED OFF ANY EXPENSES IN ITS BOOKS PERTAINING TO THE ASSESSEE AN D THIS IS A FINDING OF FACT. EVEN IN THE LATER YEARS, PDOECL HA S WRITE OFF/ SQUARED OFF ANY EXPENSES PERTAINING TO THE ASSESSEE THEN IT IS NOT PROVED THAT IT IS THIS RS.75.20 CRORE /- (OR EV EN RS.143.18 CRORE) WHICH IS TREATED AS BOGUS BY PDOECL. NO SUCH DOCUMENT IS BROUGHT ON RECORD BY THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS RECEIVED MONEY EQUIVALENT TO THE SALES TO PDOECL SH OWN AT 143.18 CRORE AND NOT JUST 67.89 CRORE AND THAT IT IS GENUINE RECEIPT FROM PDOECL BY THE ASSESSEE. ON THE OTHER H AND, IT IS PROVED THAT ASSESSEE HAS NOT INCURRED EXPENSES OF 75.29 CRORE ALLEGED TO BE PAID TO KIL. THUS, THE ASSESSEES CON TENTION THAT THEY ARE RECASTING BOOKS TO REFLECT THE ABOVE TRANS ACTION HAS NO SUBSTANCE IS WRONG AND BASELESS. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 13 THE ASSESSEES CONTENTION WITH RESPECT TO CERTAIN B USINESS COMPULSIONS IS ALREADY REJECTED SINCE ASSESSEE DOES NOT HAVE ANY SUPPORTING DOCUMENT IN THIS REGARD. THE ASSESSEE IS ONLY TRYING TO SAY THAT RECASTING O F PROFIT AND LOSS ACCOUNT CANNOT BE DONE. THIS CONTENTION ALREAD Y STANDS REJECTED. ONCE THE PROFIT AND LOSS ACCOUNT IS RECAS T AS PER RULES OF ACCOUNTING AND GENERALLY ACCEPTED ACCOUNTING PRI NCIPLE IN INDIA, THE CLAIM OF EXPENDITURE AS PER THIS PROFIT AND LOSS ACCOUNT HAS TO BE MADE AS PER PROVISION OF LAW AND FACTS OF THE CASE. THE ASSESSEE HAS NOT PROVED GENUINENESS OF PURCHASE S OF 75.29 CRORE AND THE PURCHASER KIL HAS ALREADY STATE D THAT THE SALES IS COMPLETELY BOGUS, THE AMOUNT OF RS.75.29 C RORE AS APPEARING THE RECAST PROFIT AND LOSS ACCOUNT IS DIS ALLOWED AND THE TOTAL INCOME IS COMPUTED ACCORDINGLY. 13. ON THE BASIS OF ABOVE OBSERVATION AND ON THE BASIS OF STATEMENT RECORDED BY INVESTIGATION WING THE EXPENSES OF 75.29 CRORE WAS TREATED BY ASSESSING OFFICER AS BOGUS AND DISALLOWE D AS KNOWN ALLOWABLE EXPENDITURE IN THE ASSESSMENT ORDER PASSE D UNDER SECTION 143(3) RWS 147 OF THE ACT DATED 30.03.2013. 14. AGGRIEVED BY THE ADDITIONS IN THE RE-ASSESSMENT ORD ER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A), CHALLENGING THE VAL IDITY OF REOPENING AS WELL AS ADDITIONS ON ACCOUNT OF ALLEGED UNEXPLAI NED EXPENDITURE /BOGUS EXPENDITURE. BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED DETAILS WRITTEN SUBMISSION WHICH HAS BEEN RECORDED BY LEARNED ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 14 CIT(A) IN THE IMPUGNED ORDER. AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, THE LEARNED CIT(A) UPHELD THE REOPENING B Y MAKING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N CASE OF ACIT V/S RAJESH JHAVERI STOCK BROKERS PRIVATE LIMITED (2 91 ITR 500) WHEREIN IT WAS HELD THAT IF THE ASSESSING OFFICER F OR WHATEVER REASONS, HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT, IT CONFERS THE JURISDICTION TO REOPEN THE ASSESSMENT, WHERE TH E CASE IS NOT COVERED BY THE PROVISO TO SECTION 147, INTIMATION U NDER SECTION 143 (1) CANNOT BE TREATED TO BE IN ORDER OF ASSESSMENT, AS THERE BEEN NO ASSESSMENT ORDER SECTION 143(1) THE QUESTION OF CHA NGE OF OPEN DOES NOT ARISE. HOWEVER, ON QUANTUM ADDITION THE LEARNED CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF 30% OF THE TOTAL PURCHASES OF 75.29 CRORES. THE LEARNED CIT(A) IS WHILE RESTRICTI NG THE ADDITION TO THE EXTENT OF 30% FOLLOWED THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF VIJAY PROTEINS LTD. V/S CIT (2015) 58 TAXMANN.COM 44 GUJARAT AND CIT V/S SIMITH P. SHETH (2013) 356 I TR 451 (GUJ). THEREFORE, AGGRIEVED BY THE DECISION OF LD. CIT(A) BOTH THE PARTIES HAVE FILED THEIR RESPECTIVE APPEALS RAISING THE GRO UNDS OF APPEAL AS WE HAVE RECORDED ABOVE. IN ADDITION TO FILING APPEAL, THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS IN THE APPEAL FILED BY THE REVENUE. 15. PERUSAL OF RECORD REVEALS THAT THERE IS DELAY OF 10 DAYS IN FILING APPEAL BY ASSESSEE BEFORE THE TRIBUNAL. IN SUPPORT OF COND ONATION OF DELAY ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 15 THE ASSESSEE HAS FILED APPLICATION FOR CONDONING TH E DELAY. THE APPLICATION FOR CONDONATION OF DELAY IS SUPPORTED B Y THE AFFIDAVIT OF DIRECTOR OF ASSESSEE, SHRI MADAN LAL. IN THE AFFIDA VIT, THE DIRECTOR OF ASSESSEE HAS PLEADED THAT THE ACCOUNTANT OF ASSESSE E COMPANY WAS NOT REGULARLY ATTENDING THE OFFICE WORK AND AS SUCH THERE IS A DELAY OF 10 DAYS IN HANDING OVER THE COMPLETE PAPERS TO CHAR TERED ACCOUNTANT FOR PREPARING AND FILING THE APPEAL BEFORE TRIBUNAL . THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THERE WAS NO INTENTION AL OR DELIBERATE DELAY IN FILING THE APPEAL BEFORE THE TRIBUNAL. THE DELAY OCCURRED DUE TO THE REASONS BEYOND THE CONTROL OF DIRECTORS OF T HE ASSESSEE. THE ASSESSEE HAS GOOD CASE ON MERIT AND IS LIKELY TO SU CCEED. THE LEARNED AR FURTHER SUBMITS THAT THE ASSESSEE IN ADDITION TO THE APPEAL, THE ASSESSEE HAS ALSO FILED CROSS OBJECTION, RAISING TH E IDENTICAL GROUNDS OF APPEAL IN ITS CROSS OBJECTIONS. THE LEARNED AR F OR ASSESSEE PRAYED FOR TAKING LENIENT VIEW AND TO CONDONE THE DELAY. 16. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE NO T SERIOUSLY OBJECTED THE CONTENTION OF THE LEARNED AR OF THE AS SESSEE. THE LD. DR FAIRLY CONTENDED THAT ON THE ISSUE OF CONDONATION O F DELAY, THE BENCH MAY TAKE DECISION AS PER ITS DISCRETION. CONSIDERIN G THE CONTENTION OF LEARNED AR OF THE ASSESSEE THAT THERE IS ONLY 10 DA YS DELAY IN FILING APPEAL AND THAT THE DELAY IS NOT DELIBERATE OR INTE NTIONAL. MOREOVER, THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS ON IDE NTICAL GROUNDS OF ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 16 APPEAL, FOR ASSAILING THE IMPUGNED ORDER. THEREFORE , KEEPING IN VIEW THE PRINCIPLE THAT THE PARTY SHOULD NOT BE CONDEMNE D WITHOUT GIVING OPPORTUNITY OF HEARING ON MERIT, INSTEAD OF DECLINI NG OPPORTUNITY ON TECHNICAL ISSUES, THE DELAY IN FILING THE PRESENT A PPEAL IS CONDONED AND THE APPEAL OF THE ASSESSEE IS ADMITTED FOR HEAR ING ON MERIT. 17. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE ON MERIT AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT INITIALLY T HE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28 TH DECEMBER 2007. SUBSEQUENTLY, THERE WAS A SEARCH AND SEIZURE ACTION UNDER SECTION 132 IN CASE OF PIPAVAV DEFENCE OFFSHORE & ENGINEERI NG CO. LTD. (PDOECL) ON 12 OCTOBER 2011. SIMULTANEOUSLY, SURVEY ACTION UNDER SECTION 133A WAS ALSO TAKEN ON ASSESSEE-COMPANY ON THE SAME DAY. NO INCRIMINATING MATERIAL WAS FOUND AND NO STATEMEN T ON BEHALF OF ASSESSEE-COMPANY WAS RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS AT THE ASSESSEE COMPANY. THE STATEMENT OF SAUMIL MUKESH PARIKH OF KHODIYAR INDUSTRIES LTD WAS RECORD ED UNDER SECTION 131 ON 15 TH NOVEMBER 2011, TO WHOM SUB-CONTRACT WAS GIVEN BY THE ASSESSEE COMPANY. ON THE BASIS OF STATEMENT OF S. MUKESH PARIKH, THE ASSESSMENT OF ASSESSEE WAS REOPENED UND ER SECTION 147 ON 15 MARCH 2012. WHILE SUPPLYING THE REASONS RECOR DED, THE COPY OF ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 17 STATEMENT OF S MUKESH PARIKH WAS PROVIDED TO THE AS SESSEE ALONG WITH THE ANSWER TO THE QUESTION NO. 5, 6 AND 7, WHE REIN S. MUKESH PARIKH CONTENDED THAT KHODIYAR INDUSTRIES LTD. WAS INVOLVED IN ISSUING BOGUS BILLS AND COMMISSION ENTRY, FROM WHOM KOATEX INDUSTRY LTD. HAS TAKEN A BOGUS BILLS TO THE TUNE O F 70 TO RS. 80 CRORE AND FACTUALLY NO SUCH ACTIVITY WAS EVER UNDER TAKEN OR DONE BY KHODIYAR INDUSTRY LTD. ON THE BASIS OF THIS STATEME NT, THE CASE OF ASSESSEE WAS REOPENED. 18. THE LEARNED AR OF THE ASSESSEE EXPLAINED THAT PDOEL WAS DEVELOPING A MODERN SHIPYARD AT PORT PIPAVAV AT GUJ ARAT. PORT PIPAVAVA WAS DEVELOPED BY SKIL INFRASTRUCTURE LTD, WHICH IS THE PROMOTER COMPANY OF PDOECL. AFTER SUCCESSFUL CONSTR UCTION OF THE PORT, THE GROUP STARTED DEVELOPING THE SHIPYARD. TH E LOCATION OF SHIPYARD IS ODDLY LOCATED AND COMMUTING TO THE PLAC E WAS ALSO A CUMBERSOME PROCESS. AFTER THE PORT WAS STARTED, THE PLACE BECOMES THE PROMINENT AND AMONGST OTHERS IT CAUGHT ATTENTIO N OF THE LOCAL LEADERS AND OTHER PRESSURE GROUPS. THE MASSIVE CONT RACTS INVOLVED IN THE DEVELOPMENT OF SHIPYARD WERE GIVEN TO THE ASSES SEE COMPANY, CONSIDERING ITS TRACK RECORD AND EXPERIENCE IN THE DEVELOPMENT OF PORT. IN THE ABOVE CIRCUMSTANCES, IT WAS INVITED WE LL AND ALMOST MANDATORY, TAKING INTO ACCOUNT THE COMPULSIVE, COMM ERCIAL AND PRACTICAL CONSIDERATIONS THAT CERTAIN PART OF CONTR ACT IS GIVEN TO THE ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 18 RECOMMENDATION OF LOCAL LEADERS AND PRESSURE GROUPS . ONE HAS TO APPRECIATE THAT WITHOUT CONSIDERING SUCH A REQUEST, IT IS PRACTICALLY IMPOSSIBLE TO CARRY OUT THE PROJECT WERE SMOOTHLY. UNDER THESE CIRCUMSTANCES, CERTAIN CONTRACTS WERE GIVEN BY THE COMPANY TO SUCH CONTRACTORS, WHO HAVE BEEN ON THE RECOMMENDATION OF LOCAL LEADERS AND PRESSURE GROUPS. THE ASSESSEE COMPANY COULD NOT HAVE MADE THE PAYMENT TO SUCH CONTRACTOR, DUE TO THE OBVIOUS CONS TRAINTS ON CASH PAYMENTS, COUPLED WITH REFUSAL OF THESE CONTRACTORS TO TAKE CHEQUE PAYMENTS, WHICH LEFT THE COMPANY NO OTHER ALTERNATI VE BUT TO COMPLY WITH THEIR REQUIREMENT WITH SOME COMMERCIAL ARRANGE MENT. IN THIS PROCESS KOATEX INDUSTRIES LTD. (KOATEX) ROUTED THE PAYMENT TO THESE CONTRACTORS THROUGH KHODIYAR INDUSTRIES LTD. AS A M ATTER OF SHEER CONVENIENCE. 19. THE LD AR FOR THE ASSESSEE SUBMITS THAT ALL THESE SUBMISSIONS WERE MADE BY ASSESSEE VIDE ITS LETTER DATED 22 JANUARY 2 013 AND THE ASSESSEE FURNISHED COPY OF BILLS DATED JULY 2004 FO R 110.59 CRORE, COPY OF BILLS DATED NOVEMBER 2004 FOR RS.32.59 CROR E, MAKING TOTAL OF 143.18 CRORE, COPY OF DRAFT BALANCE SHEET (BEFORE FINALISATION), A SET OF WHICH IS ALSO AVAILABLE IN SEIZED RECORD IN WHICH THE TURNOVER RECORDED IS 143.18 CRORE AND EXPENDITURE ON SUB-CONTRACT IN SCHEDULE 14 RECORDED AT RS. 75.29 CRORES. BEFORE LE ARNED CIT (A), THE ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 19 ASSESSEE VIDE ITS SUBMISSION DATED 29 TH MAY 2017 FURNISH THE FOLLOWING DOCUMENTS: SURVEY REPORT OF TOTAL AREA OF PAPER ABOVE SHIPYARD LTD, VALUATION REPORT OF LAND, CIVIL WORK, PLANT AND MAC HINERY AT POST UCCHAIYA VIA RAJULA, DISTRICT AMRELI GUJRAT, COMPLETION CERTIFICATE FOR THE SHIPBREAKING PROJECT UNDER THE CONTRACT AGREEMENT DATED 12 JUNE 1997, CERTIFICATE BY MAZOOMDAR ASSOCIATES PRIVATE LIMITED , VALUERS AND LENDERS, INDEPENDENT ENGINEERS APPOINTED BY THE CONSORTIUM OF LENDERS FOR THE SHIP-BREAKING FACILIT IES OF THE COMPANY, CERTIFYING THE VALUATION REPORT AND SURVEY REPORT. 20. THE LEARNED AR FURTHER SUBMIT THAT ASSESSEE EXECUTE D THE WORK AS PER CONTRACT TAKEN FROM GUJARAT PIPAVA PORT LTD OF 143.19 CRORE AND BOOKED THE SALES ON ACCOUNT OF CONTACT RECEIPT OF 143.19 CRORE. AGAINST THE SAID SALES, ASSESSEE COMPANY HAS BOOKED THE TOTAL EXPENSES OF 114.18 CRORE IN ITS PROFIT AND LOSS ACCOUNT WHICH INCLUDES 75.29 CRORE PAID TO KHODIYAR INDUSTRY LTD AS SUB -CONTRACT CHARGES IN RESPECT OF WORK TAKEN BY THEM OF EARTH F ILLING, LAND LEVELLING AND ON ACCOUNT OF DEVELOPMENT OF LAND. TH ERE IS NO OTHER RECEIPT OR EXPENSES INCURRED DURING THE YEAR. AGAIN ST THE SAID RECEIPT OF 143.19 CRORE, THE ASSESSEE COMPANY HAS INCURRED TO TAL EXPENSES ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 20 OF 114.18 CRORE AND DECLARED THE GROSS PROFIT OF 29.01 CRORE. THE GROSS PROFIT RATIO ON TOTAL RECEIPTS COMES TO 20.26 %. 21. THE REVENUE IN ITS GROUNDS OF APPEAL HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF N.K. PROTEINS LTD. THE LEARNED AR FOR ASSESSEE SUBMITS THAT RATIO OF DECISION AND SAI D CASE IS NOT APPLICABLE TO THE PRESENT CASE EVEN ON AFTER FAR-FE TCHED IMAGINATION. AS THE FACTS OF THAT CASE ARE ENTIRELY ON DIFFERENT FACTS. IN THE SAID CASE DURING THE SEARCH THE BLANK CHEQUES AND THE BILLS W ERE FOUND AT THE PREMISES OF THE ASSESSEE. HOWEVER, IN THE PRESENT C ASE PER SE IT IS NOT ESTABLISH THAT PURCHASES ARE BOGUS. IN THE PRESENT CASE THE ADDITIONS ARE BASED ON THIRD PARTY STATEMENT. 22. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT I T IS COMPLETELY INCORRECT NOTION ON THE FACTS THAT CUSTOMER OF THE ASSESSEE HAS TREATED THE SALE OF ASSESSEE AS NON-EST. THE PARTY TO WHOM SALES WERE MADE HAS STILL IN ITS BOOKS OF ACCOUNT, THESE ASSETS REF LECT AS A PART OF TOTAL ASSET. THE ONLY CONCEDED BY PIPAVA SHIPYARD LIMITED (PSL) THAT DURING SEARCH OPERATION TO AVOID PROLONGED LITIGATI ON PLS WILL NOT CLAIMED DEPRECATION THEREON. THIS IS CLEAR FROM THE STATEMENT OF BHAVESH GANDHI, MANAGING DIRECTOR OF PDOEL (NOW PS L) AS RECORDED IN PARA-7.3 OF LD. CIT(A)S ORDER. NO STRE TCH OF IMAGINATION IT CANNOT BE CLAIMED THAT THE SALE OF ASSESSEE AND PURCHASE BY PSL AS NON-EST. ONCE, SALE IS ESTABLISHED THE PURCHASES CA NNOT BE TAKEN AS ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 21 NIL. THE ALLEGATION WHICH IS BASED ON THE STATEMENT OF S. PARIKH OF KHODIYAR INDUSTRIES LTD. THAT CASH OF RS. 70 TO 80 CRORE AGAINST THE SUB-CONTRACT BILLS, HAS PER SE NOT BEEN CONTESTED BY THE ASSESSEE. THE ASSESSEE HAS CLEARLY PROVED WITH THE IMPEACHABLE EV IDENCE THAT ENTIRE WORK WAS EXECUTED AS PER RUNNING BILLS. HOWEVER, CO NSIDERING THE COMMERCIAL CIRCUMSTANCES AND LOCAL COMPULSIONS, THE WORK HAD TO BE GOT DONE FROM LOCAL PARTIES, FROM WHOM BILLS, RECEI PT AND OTHER SUPPORTING DOCUMENTS COULD NOT HAVE BEEN OBTAINED. ALL RUNNING BILLS CONTAINING FULL DETAILS OF ITEMS AND THEIR MEASUREM ENT OF WORK WERE FINISHED TO THE LOWER AUTHORITIES. THE CERTIFICATE ISSUED BY SITE ENGINEERS, LEDGER ACCOUNTS, INDEPENDENT THIRD PARTY SURVEY REPORT, VALUATION REPORT AND CERTIFICATE FROM GOVERNMENT AP PROVED REGISTERED VALUER, WHICH WAS THIRD PARTY EXPERT APP OINTED BY LENDERS CONSORTIUM FOR THE VALUATION OF WORK CARRIED OUT AT THE SITE, WHICH PROVED ACTUAL WORK DONE AT SITE. THE ASSESSEE DECLA RED GROSS PROFIT FOR YEAR 2005-06 OF RS. 29.01 CRORE, WHICH IS 20.26 %. 23. THERE IS NO EVIDENCE ON RECORD BROUGHT BY REVENUE, WHICH CAN LEAD TO AN INFERENCE THAT GP DECLARED BY ASSESSEE IS UNDERS TATED. THE ADDITIONAL DISALLOWANCE OF 30% OF THE TOTAL PURCHAS ES OF RS. 75.29 CRORE ADDED/ RESTRICTED BY LD. CIT(A) WOULD MAKE TH E GP AT 36.04%, WHICH IS COMPLETELY UNREALISTIC AND AS ALSO UNSUBST ANTIATED. THE ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 22 AVERAGE GP OF PRECEDING FOUR YEAR IS 13.01%. THE LD . AR ALSO FURNISHED THE DETAILS OF GP WORKING FOR FOUR PRECED ING YEARS. 24. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE DISALLO WANCE RESTRICTED TO 30% BY LD. CIT(A) IS ON A VERY HIGHER SIDE. THE ASS ESSEE HAS ALREADY DECLARED GP AT 20.26%. THE GP FOR PRECEDING YEAR WE RE RANGING FROM 11.08% TO 15.30%, IF DISALLOWANCE IF RESTRICTE D TO 30%, THE GP OF ASSESSEE WOULD BE UNREALISTIC, WHICH IS NOT POSS IBLE IN THE BUSINESS OF ASSESSEE. 25. THE LD. AR FURTHER SUBMITS THAT, THOUGH THE ASSESSE E HAS CHALLENGED THE VALIDITY OF REOPENING IN ADDITIONAL GROUND OF A PPEAL. THE ASSESSEE HAS ALSO RAISED THE GROUND OF APPEAL IN ITS CROSS O BJECTION FOR DELETING THE ENTIRE ADDITION. THE LD. AR FOR ASSESS EE IN HIS WITHOUT PREJUDICE SUBMISSION, SUBMITS THAT IN CASE DISALLOW ANCE ON ACCOUNT OF BOGUS PURCHASES IS RESTRICTED ON REASONABLE BASIS, THE ASSESSEE WOULD NOT PRESS ADDITIONAL GROUNDS WITH REGARD TO RE-OPEN ING AND THE GROUNDS OF APPEAL RAISED IN CROSS OBJECTION. 26. TO STRENGTHEN HIS SUBMISSIONS, ON REASONABLE DISAL LOWANCES, THE LD. AR FOR ASSESSEE RELIED UPON THE DECISION IN THE FOL LOWING CASE LAWS. PCIT VS. M/S MOHOMAMAD HAJI ADAM & CO. (ITA NO. 100 4 OF 2016 (BOM HC) DT. 11.02.2019. CIT VS. RATANSINGH M. RATHOD (371 ITR 135 (BOM). ACIT VS. SHRI HANVANTSINGH J. RANAWAT (ITA NO. 3718 /MUM/13), ITO VS M/S SHREE GAJANANDA INDUSTRIES INDIA PVT LTD (ITA NO. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 23 6242/MUM/2017), ACIT VS SANVIK ENGINEERS INDIA PVT LTD ( ITA NO.32 01/DEL/15) SMT. SUDHA LOYALKA VS. ITO (97 TAXMANN.COM 303. 27. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF ASSESSING OFFICER. THE LD. DR FURTHER SUBMITS THAT DURING THE SURVEY ACTION ON KHODIYAR INDUSTRIES LTD. SHRI S. MUKESH P ARIKH HAS ADMITTED IN THE STATEMENT RECORDED UNDER SECTION 13 1 THAT KHODIYAR INDUSTRIES LTD. WAS INVOLVED IN ISSUING BOGUS BILLS . THE LD. DR FOR REVENUE SUBMITS THAT THE ENTIRE PURCHASE WAS LIABLE TO BE DISALLOWED. THE CONTENTION OF ASSESSEE ABOUT RECASTING TO SHOW THE ACTUAL TRANSACTION IS TOTALLY BASELESS AND WITHOUT ANY SUP PORT OF LAW. IN SUPPORT OF HIS SUBMISSIONS THE LD. DR FOR THE REVEN UE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN SHORELINE HOTEL PVT LTD. VS CIT (ITA (IT) 332 OF 2016 DATED 10.09.2018). 28. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE ORDER OF LOWER AUTHORITIES. WE HAVE NOTED THAT INITIALLY ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.12.2007. T HE CASE WAS RE- OPENED ON THE BASIS OF INFORMATION RECEIVED FROM AD IT (INVESTIGATION), UNIT-VII (1) & (2) THAT DURING THE COURSE OF SEARCH AND SEIZURE ACTION ON PIPAVAV SHIPYARD GROUP ON 12. 10.2011 AND SIMULTANEOUSLY SURVEY UNDER SECTION 133A ON ASSESSE E. DURING THE COURSE OF SURVEY ENQUIRY WAS ALSO MADE AGAINST KHOD IYAR INDUSTRIES ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 24 LTD. ON THE BASIS OF ENQUIRIES ON KHODIYAR INDUSTRI ES LTD. STATEMENT OF SOMAIL MUKESH PARIKH, IT WAS REVEALED THAT ASSES SEE-COMPANY AVAILED ACCOMMODATION ENTRIES FROM KHODIYAR INDUSTR IES LTD. WHICH WERE ROUTED THROUGH KOATEX INDUSTRIES LTD. ON THE B ASIS OF SUCH INFORMATION, WHICH WERE SENT TO THE ASSESSING OFFIC ER, THE ASSESSMENT/CASE OF ASSESSEE FOR THE YEAR UNDER CONS IDERATION WAS RE- OPENED. WE MAY NOTE HERE THAT, WE ARE NOT DISCUSSIN G THE MERIT/VALIDITY OF RE-OPENING AT THIS STAGE. 29. DURING THE RE-ASSESSMENT PROCEEDING, THE ASSESSEE F ILED DETAILED REPLY, EXPLAINING THE CIRCUMSTANCES THAT DUE TO COM MERCIAL EXPEDIENCY AND COMPULSIVE CIRCUMSTANCES CERTAIN PAR T OF CONTRACTS WAS GIVEN TO THE RECOMMENDEES OF LOCAL LEADERS AND PRESSURE GROUP FOR SMOOTH COMPLETION OF PROJECT. IN SUCH CIRCUMSTA NCES, CERTAIN CONTRACTS WERE GIVEN TO THE LOCAL PERSON, THE PAYME NTS COULD NOT HAVE MADE DIRECTLY TO SUCH CONTRACTORS IN CASH, COUPLED WITH THE REFUSAL BY THOSE CONTRACTOR TO TAKE CHEQUE PAYMENTS. THE ASSES SEE-COMPANY MADE PAYMENT THROUGH KOATEX INDUSTRIES LTD. THE ASS ESSEE ALSO FURNISHED THE COPY OF VARIOUS BILLS SUBSTANTIATING THE CONTENTION THAT WORK WAS COMPLETED AT THE SITE AS PER CONTRACT FROM GUJARAT PIPAVA PORT LTD. THE ASSESSEE ALSO EXPLAINED THAT AGAINST THE SAID EXECUTION OF WORK (SALES), THE ASSESSEE COMPANY BOOKED TOTAL EXPENSES OF RS. 114.18 CRORE, WHICH INCLUDES RS. 75.29 CRORE PAID T O KHODIYAR ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 25 INDUSTRIES LTD., WHO UNDERTOOK OF EARTH FILLING, LA ND LEVELLING AND DEVELOPMENT OF SAID LAND. THE ASSESSEE DECLARED GRO SS PROFIT OF RS. 29.01 CRORE AND THE GROSS PROFIT AT 20.26%. THE EXP LANATION FURNISHED BY ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER DISCARDED THE EXPLANATION OF ASSE SSEE BY TAKING VIEW, WHICH WE HAVE MENTIONED IN PARA-12 (SUPRA). T HE ASSESSING OFFICER DISALLOWED THE ENTIRE PAYMENT/EXPENSES OF R S. 75.29 CRORE PAID TO KHODIYAR INDUSTRIES LTD. BY TREATING IT AS NON-GENUINE. 30. WE HAVE NOTED THAT THE ASSESSING OFFICER HAS NOT RE JECTED THE BOOKS OF ACCOUNT. THE ASSESSEE CLAIMED THAT THE WORK WAS EXECUTED AT SITE AS PER CONTRACT. THE ASSESSEE FURNISHED THE COPY OF VALUATION REPORT OF INDEPENDENT VALUER. NO INVESTIGATION OR INQUIRY ABO UT THE SCOPE OF WORK WAS CONDUCTED BY ASSESSING OFFICER. THE ASSESS EE ALSO FURNISHED THE CERTIFICATE OF MAZOODMDAR ASSOCIATES PVT. LTD., INDEPENDENT ENGINEERS APPOINTED BY CONSORTIUM OF LE NDERS FOR SHIP BREAKING FACILITY OF THE ASSESSEE-COMPANY CERTIFYIN G THE VALUATION REPORT OF SURVEY REPORT. NO ENQUIRY FROM MAZOODMDAR ASSOCIATES PVT. LTD. WAS CONDUCTED BY ASSESSING OFFICER. WE HA VE NOTED THAT VALUATION REPORT OF LAND, CIVIL WORK, PLANT & MACHI NERY AT POST UCCHAYA VIA RAJULA, DISTRICT-AMRELI, GUJARAT IS ON RECORD AT PAGE NO. 215 TO 267. THE COMPLETION CERTIFICATE FOR SHIP BRE AKING PROJECT UNDER THE CONTRACT AGREEMENT IS AVAILABLE AT PAGE NO. 268 OF PAPER BOOK. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 26 FURTHER, THE CERTIFICATE OF MAZOOMDAR ASSOCIATES PV T. LTD., INDEPENDENT ENGINEERS APPOINTED BY CONSORTIUM OF LE NDERS FOR SHIP BREAKING FACILITY, CERTIFYING THE VALUATION REPORT IS ALSO PLACED ON RECORD. NO COMMENTS OF ANY KIND ON THE AFORESAID RE PORTS WERE MADE BY ASSESSING OFFICER WHILE DISALLOWING THE EXPENSES PAID TO KHODIYAR INDUSTRIES LTD. 31. BEFORE THE LD. CIT(A), THE ASSESSEE CHALLENGED THE VALIDITY OF RE- OPENING AS WELL AS DISALLOWANCE OF EXPENSES. THE AS SESSEE FILED DETAILED WRITTEN SUBMISSION/EXPLANATION REPEATING T HE SAME SUBMISSION, WHICH IS DULY RECORDED BY LD. CIT(A) FR OM PARA-5.1 TO 7.1 OF THE IMPUGNED ORDER. BESIDES THE FACTUAL SUBM ISSION, THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS A DDED THE ENTIRE EXPENSES WITHOUT CONSIDERING THE FACT THAT WORK WAS EXECUTED ON SITE. THE WORK EXECUTED AT SITE IS NOT DISPUTED BY THE AS SESSING OFFICER. THE ASSESSEE ALSO EXPLAINED THAT SINCE THE ASSESSEE COULD NOT SUBSTANTIATE THE EXPENSES BY DOCUMENTARY EVIDENCES, THE ASSESSEE REDUCED THE SUB-CONTRACT AMOUNT OF RS. 7.29 CRORE F ROM BOTH INCOME AND EXPENDITURE SIDE. DURING THE SURVEY AT THE ASSE SSEE, NO INCRIMINATING MATERIAL WAS FOUND ONLY UNAUDITED TRI AL BALANCE FOR THE A.Y. 2005-06 WAS FOUND, WHEREIN THE SALES PROCEEDS WERE SHOWN AT RS. 143 CRORE. THE TRIAL BALANCE HAS A DEBIT OF RS. 75.29 CRORE WHICH WERE SUPPOSED TO HAVE BEEN PAID TO KHODIYAR INDUSTR IES LTD. THE ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 27 ASSESSING OFFICER RELIED UPON THE STATEMENT OF SOMA IL MUKESH PARIKH AND TREATED THE TRIAL BALANCE OF RS. 75.29 CRORE AS BOGUS. IT WAS ALSO EXPLAINED THAT IN THE RECAST PROFIT & LOSS A/C, THE ASSESSEE HAS TAKEN A RECEIPT AT RS. 143.18 CRORE AND HAD DISALLOWED 75 .29 CRORE WHICH WERE SUPPOSED TO HAVE BEEN PAID TO KHODIYAR INDUSTR IES LTD. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION AND FACTS O F THE CASE, AND BY REFERRING THE DECISION OF HONBLE GUJARAT HIGH COUR T IN VIJAY PROTEINS VS. CIT (58 TAXMANN.COM 44 (GUJ.), CIT VS. SIMITH P. SHETH [356 ITR 451 (GAJ.)] TOOK HIS VIEW THAT WHEN PURCHA SES CANNOT BE ESTABLISHED BUT THE SAILS HAVE NOT BEEN DOUBTED, TH E ENTIRE PURCHASES CANNOT BE ADDED AS INCOME AND ONLY THE PERCENTAGE O F THE PROFIT INVOLVED ON THESE PURCHASES CAN BE BROUGHT TO TAX. THE LD. CIT(A) CONSIDERED THAT RECEIPT OF SALES FROM PDOECL IS NOT DISPUTED. NO EVIDENCE IS COME ON RECORD THAT AMOUNT HAS BEEN RET URNED BACK TO PDOECL IN CASH. THE ASSESSEE HAS BROUGHT EVIDENCE O N RECORD TO SHOW THAT WORK HAS BEEN EXECUTED. THE LD. CIT(A) OB SERVED THAT IT IS A SIMPLE CASE OF PURCHASES MADE FROM UNVERIFIABLE P ARTIES. THE PRESENT CASE IS NOT A CASE OF SIMPLE TRADING BUT IT IS A CASE OF CONTRACT WHEREIN THE PURCHASES WERE SUPPOSED TO BE CONSUMED. ON THE BASIS OF ABOVE OBSERVATION, THE BOOKS OF ACCOUNT OF ASSES SEE WAS REJECTED. THE LD. CIT(A) AFTER REJECTING THE BOOKS OF ACCOUNT ESTIMATED THE PROFIT AT 30% OF THE IMPUGNED EXPENSES/PURCHASES OF RS. 75.29 CRORE. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 28 32. THE LD. AR OF THE ASSESSEE VEHEMENTLY ARGUED THAT T HE ASSESSEE HAS ALREADY SHOWN GROSS PROFIT OF 20.26% FOR THE YEAR U NDER CONSIDERATION, THE AVERAGE GROSS PROFIT FOR FOUR PR ECEDING YEAR WERE 13.01% AND IN CASE THE DISALLOWANCE RESTRICTED BY L D. CIT(A) IS UPHELD, THE GROSS PROFIT RATE WOULD INCREASE TO 36. 04%, WHICH IS UNREALISTIC IN THE BUSINESS UNDERTAKEN BY ASSESSEE DURING THE RELEVANT PERIOD. THE HONBLE BOMBAY HIGH COURT IN MOHAMMAD H AJI ADAM & CO. (SUPRA) HELD THAT PURCHASE CANNOT BE REJECTED WITHOUT DISTURBING THE SALE AND THE ADDITION IN RESPECT OF BOGUS PURCHASES IS TO BE LIMITED TO THE EXTENT OF BRINGING THE GROSS PROF IT RATE ON SUCH PURCHASES AT THE SAME RATE AS OF OTHER GENUINE PURC HASES. IT WAS FURTHER HELD THAT DECISION OF GUJARAT HIGH COURT IN CASE OF N.K. INDUSTRIES LTD. (SUPRA) CANNOT BE APPLIED WITHOUT R EFERENCE OF FACT. 33. FURTHER, THE HONBLE BOMBAY HIGH COURT IN CIT VS RA TANSINGH M. RATHOD (SUPRA) HELD THAT WHEN ASSESSING OFFICER AFT ER MAKING THE ENQUIRIES OF PURCHASES MADE, GENUINENESS OF SOME SU B-CONTRACTOR AND TREATED THE SUM AS INCOME OF ASSESSEE. THE LD. CIT( A) TOOK COGNIZANCE OF SEVERAL IRREGULARITIES IN ACCOUNTS OF ASSESSEE AND ESTIMATED INCOME OF ASSESSEE AT 8% OF TURNOVER ON T HE BASIS OF COMPARABLE CASES THAT NET RATE VARIED FROM 2.93% TO 9.96%, BUT THESE WERE BIG CONCERN, WHICH MAINTAIN PROPER ACCOUNTS AN D ALSO MAINTAIN ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 29 QUALITY STANDARD, WHEN ACCOUNTS WERE NOT RELIABLE, THE ESTIMATION OF NET PROFIT AT 8% WAS JUSTIFIED. 34. WE ARE OF THE CONSIDERED OPINION THAT UNDER INCOME TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FUR THER NOTE THAT EVEN IF THE TRANSACTION IS NOT FULLY VERIFIABLE, DU E TO ANY CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE, T HE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT. AND IN ORDER TO FULFI LL THE GAP OF REVENUE LEAKAGE THE DISALLOWANCE OF REASONABLE PERC ENTAGE OF SUCH PURCHASES CAN MEET THE END OF JUSTICE. SIMILAR VIE W WAS TAKEN BY HONBLE BOMBAY HIGH COURT IN CIT VS HARIRAM BHAMBHA NI IN ITA NO. 313 OF 2013 DECIDED ON 04.2.2015, THAT REVENUE IS NOT ENTITLED TO BROUGHT THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON THE TOTAL UNRECORDED SALES CONSIDER ATION ALONE CAN BE SUBJECT TO INCOME TAX. 35. CONSIDERING THE AFORESAID FACTUAL AND LEGAL DISCUSS ION AND THE SUBMISSION OF LD. AR OF THE ASSESSEE THAT AVERAGE G ROSS PROFIT FOR FOUR PRECEDING YEAR DECLARED BY ASSESSEE WERE 13.01 %. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED GROS S PROFIT AT 20.26%, IF THE FURTHER DISALLOWANCE @ 30% OF THE TO TAL PURCHASES/EXPENSES IS UPHELD, THE GROSS PROFIT OF A SSESSEE WOULD BE INCREASED DRASTICALLY I.E. MORE THAN 36%, WHICH IS UNREALISTIC. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AN D TO AVOID TO ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 30 POSSIBILITY OF REVENUE LEAKAGE, WE ARE OF THE VIEW THAT IF THE DISALLOWANCE OF ALLEGED PURCHASES/EXPENDITURE IS RE STRICTED TO 10%, THAT WOULD MEET THE END OF JUSTICE. 36. THE RATIO OF DECISION RELIED BY LD. DR FOR THE REV ENUE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN SHORELINE HOTEL PVT LTD. VS CIT (SUPRA) IS NOT APPLICABLE ON THE FACTS OF TH E PRESENT CASE, AS THE FACTS OF THIS CASE IS AT VARIATION. IN THE SAID CASE INFORMATION WAS RECEIVED FROM SALES TAX DEPARTMENT IN RELATION TO C ERTAIN PARTIES WHO WERE ENGAGED IN PROVIDING BOGUS PURCHASE BILLS AND THAT ASSESSEE WAS ALSO ONE OF BENEFICIARIES OF HAWALA BILLS GIVEN BY SUCH PARTIES. THE ISSUED SHOW CAUSE WHY THIS ENTIRE AMOUNT/BOGUS PURC HASES SHOULD NOT BE ASSESSED AS NON-GENUINE PURCHASES. THE ASSES SEE WITH A VIEW TO BUY PEACE AND TO AVOID UNENDING LITIGATION, ASSE SSEE OFFERED THAT GROSS PROFIT RATE OF SAID PURCHASES MIGHT BE ASSESS ED AS INCOME - ACCORDINGLY, ASSESSING OFFICER HELD 15 PER CENT OF SAID PURCHASES TO BE ASSESSED AS INCOME OF ASSESSEE. HOWEVER, IN THE PRESENT CASE THE ASSESSEE HAS CATEGORICALLY SUBMITTED THE WORK EXEC UTED THROUGH THE ASSESSEE IS IN ACCORDANCE WITH THE SCOPE OF WORK A WARDED AND THE SAME IS DULY APPROVED BY THE INDEPENDENT VALUER, WH ICH IS NOT EXAMINED BY THE ASSESSING OFFICER. 37. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED AND THE APPEAL OF REVENUE IS DISMISSED. ITA NO. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 386 3/ M/2018 M/S KROSSLINK INFRASTRUCTURE LTD. 31 38. AS WE HAVE NOTED ABOVE THAT THE LD. AR OF THE ASSE SSEE WHILE MAKING HIS SUBMISSION, SUBMITTED AT BAR THAT IN CAS E DISALLOWANCE IS RESTRICTED TO A REASONABLE BASIS, HE WOULD NOT PRES S THE VALIDITY OF RE- OPENING AS WELL AS OTHER GROUNDS AND THE CROSS OBJ ECTIONS. TAKING THE FACT IN CONSIDERATION, THAT WE HAVE RESTRICTED THE DISALLOWANCE ON REASONABLE BASIS, THEREFORE, THE OTHER GROUNDS OF A PPEAL AND CROSS OBJECTION FILED BY ASSESSEE ARE TREATED AS NOT PRES SED. IN THE RESULT, CROSS OBJECTION FILED BY ASSESSEE IS ALSO DISMISSED AS NOT PRESSED. 39. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED, APPEAL OF REVENUE AND CROSS OBJECTION OF ASSESSEE ARE DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/12/2019. SD/- SD/- SHAMIM YAHYA PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 05.12.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI