DCIT CEN CC 7(2), MUMBAI V. D.S.GUPTA CONSTRUCTION P.LTD, MUMBAI

ITA 4734/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8544 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 20-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Bogus purchase; Accommodation entries
• Section: 40A(3); 133A; 133(6)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO . 4618 /MUM/201 5 ( / ASSESSMENT YEA R S : 2010 - 11 ) M/S D . S . G UP TA CONSTRUCTION PVT LTD, (PRESENTLY KNOWN AS M/S DSG CORPORATION PVT.LTD) 306/307 - A WING, OBEROI CHAMBERS, NEW LINK ROAD, OPP SAB TV, ANDHERI (W), MUMBAI - 400053 / VS. DY.COMMISSIONER OF INCOME TAX - 8(1), MUMBAI ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A. NO . 4734 /MUM/201 5 ( / ASSESSMENT YEA RS : 201 0 - 11 ) DY.COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 7(2), R.NO.655, AAYAKAR BHAVAN, M .K.ROAD, MUMBAI - 400020 / VS. M/S D.S.GUPTA CONSTRUCTION PVT LTD, (PRE SENTLY KNOWN AS M/S DSG CORPORATION PVT.LTD) 306/307 - A WING, OBEROI CHAMBERS, NEW LINK ROAD, OPP SAB TV, ANDHERI (W), MUMBAI - 400053 ( / APPELLANT ) ( / RESPONDENT ) PAN: AAACD5064G / REVENUE BY : S HRI V VID HYADHAR / ASSESSEE BY : SHRI MANI JAIN / DATE OF HEARING : 1 9 . 9 .2017 / DATE OF PRONOUNCEMENT : 17. 11 . 2017 2 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 / O R D E R PER RAJESH KUMAR, A. M: THESE CROSS - APPEALS ARE DIRECTED AGAINST THE OR DER 18.5.2015 PASSED BY THE LD.CIT(A) - 16 FOR THE ASSESSMENT YEAR 20 10 - 11 . I.T.A. NO.4618/MUM/2015 2. THE FIRST GROUND OF APPEAL IS AGAINST THE DISALLOWANCE OF RS.15,65,591/ - BY THE LD.CIT(A) BEING 20% OF THE TOTAL PAYMENT MADE TO LABO UR AS AGAINST THE 1 00% DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE INCOME TAX ACT, 1961. 3. FACTS OF THE CASE ARE THAT A SURVEY WAS CONDUCTED UNDER SECTION 133A OF THE ACT AT THE PREMISES OF THE ASSESSEE COMPANY ON 28.1.2010 AND FOU ND THAT THE ASSESSEE HAS INCURRED EXPENDITURE DURING THE PERIOD FROM 1.4.2009 TO 28.1.2010 IN CASH OR OTHERWISE THAN BY WAY OF AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT AMOUNTING TO RS.78,27,945/ - . DURING THE COURSE OF SURVEY PROCEEDING, THE MANAGING DIRECTION OF THE COMPANY ADMITTED THAT SOME EXPENSES HAVE TO BE INCURRED IN CASH ON THE SITE IN EMERGENCY AND THEREFORE CANNOT BE AVOIDED. ON THE BASIS OF ADMISSION OF THE MANAGING DIRECTOR OF THE ASSESSEE , A SHOW CAUSE NOTI CE DATED 11.3.2013 WAS ISSUED TO THE ASSESSEE CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT OF RS.78,27,945/ - SHOULD NOT BE 3 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 DISALLOWED UNDER SECTION 40A(3) OF THE ACT . IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE VIDE REPLY DA T ED 18.3.201 3 SUBMITTED THAT IN VIEW OF ITS NATURE OF BUSINESS AS THAT OF PLUMBING , SANITARY INSTALLATION AND FIRE FIGHTING INSTRUMENT AND DIVERSIFIED PROJECTS SUCH AS HOTELS AND HOSPITALS INDUSTRIES ALL OVER INDIA, IT NEEDS TO GIVE ADVANCES IN CASH TO I T S EMPLOYEES T O INCUR DAY TO DAY EXPENSES . THE ACCOUNTS OF THE EMPLOYEES ARE DEBITING AT THE TIME OF GIVING ADVANCES WHICH UPON ADJUSTMENTS ARE CREDITED TO THE ACCOUNT S OF T HE EMPLOYEES ON THE BASIS OF BILLS RENDERED BY THEM . ON 25.3.2013, THE ASSESSEE FURNISHED BIL LS , VOUCHERS AND OTHER RECORDS EVIDENCING THE SAID FACT . THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN EXCESS OF RS.20,000/ - OTHERWISE THAN BY WAY OF AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BA NK DRAFT. THE LD. AR SUBMITTED BEFORE THAT THE ASSESSEE HAS INCURRED TOTAL EXPENSES OF RS.56,68,215/ - AS ADJUSTMENTS OF IMPREST MONEY TO EMPLOYEES WHICH REPRESENTED ADVANCES TO EMPLOYEES . THE LD. A O ALSO NOTED IN THE ASSESSMENT ORDER THAT THE ASSESS EE OFFERED THE NET DISALLOWANCE OF RS.21,49,730/ - U/S 40A(3) OF THE ACT DURING THE ASSESSMENT PROCEEDINGS. IN THE APPELLATE PROCEEDINGS . HOWEVER THE AO NOT SATISFIED WITH THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE AND FINALLY ADDED RS. 78,27,945/ - AS DISALLOWANCE U/S 40A(3) OF THE ACT TO THE INCOME OF THE ASSESSEE WHILE FRAMING ASSESSMENT. IN THE APPELLATE PROCEEDINGS THE 4 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 LD.CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE CONTENTION S RAISED BY THE ASSESSEE BY OBSERVING AND H OLDING AS UNDER : DECISION: I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. THE APPELLANT HAS FILED COPY OF THE LETTE R DATED' NIL' SUBMITTED BEFORE THE AO ALONG WITH SUPPORTING DOCUMENTS WHICH ARE AVAILABLE AT PAGE NO 59 TO 66 OF THE PAPER BOOK, ON PERUSAL OF THE SAME IT IS NOTICED THAT THE APPELLANT HAS NO WHERE ACCEPTED THE ADDITION TO THE EXTENT OF RS.21,49,730/ - AS MENTIONED BY THE A.O. FURTHER ON PERUSAL OF THE BIFURCATION OF THE PAYMENTS OF RS. 78,27,945/ - AS PLACED AT PAGE NO 61 TO 66 IT IS LEARNT THAT THE APP ELLANT HAS EXPLAINED EVERY EXPENDITURE AS BEING ADVANCE OR BELOW THE LIMIT CONSIDERED U/S 40A(3) OF TH E ACT. HOWEVER, IT CANNOT BE DENIED THAT THE APPELLANT OUGHT TO HAVE MAINTAINED CERTAIN RECORDS ABOUT THE LABOURERS TO WHOM THE SAID PAYMENTS ARE ULTIMATELY MADE. C ONSIDERING THE PROVISIONS OF SECTION 40A(3) VIS - A - VIS THE BUSINESS EXIGENCY AND NECESSITY I CONSIDER IT MORE REASONABLE TO RESTRICT THE DISALLOWANCE TO 20% OF SUCH PAYMENTS I.E.RS.15,65,591/ - . ACCORDINGLY GROUND NO.2 IS PARTLY ALLOWED 4. THE LD.AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ASSESSEE NEVER OFFERED ANY AMOUNT OF RS. 21,49,730/ - U/S 40(3) OF THE ACT AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER. THE LD COUNSEL SUBMITTED THAT THE SAID WRONG OBSERVATION BY THE AO WAS ALSO POINTED BEFORE THE CIT(A) WHO NOTED THE SAME IN THE APPELLATE ORDER. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN EXCESS OF RS.20,000/ - UNDER THE THE HEAD LABOR CHARGES AS HAS BEEN OBSERVED BY THE AO BUT CANDIDLY ADMITTED THAT IN 5 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 VIEW OF THE NATURE OF THE BUSINESS OF THE ASSESSEE, IT WAS IMPERATIVE DUE TO BUSINESS EXIGENCIES TO GIVE ADVANCES TO THE EMPLOYEES IN CASH AS IMPREST TO INCUR DAY TO DAY EXPENSES ON THE SITES ALL OVER INDIA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PLUMBING, SANITARY INSTALLATION S, FIRE FIGHTING INSTRUMENT S AND DIVERSIFIED PROJECTS SUCH AS HOTELS A ND HOSPITALS INDUSTRIES. THE ASSESSEE SUBMITTED THAT THE BILLS WERE RENDERED BY THE EMPLOYEES ON REGULAR BASIS AND NECESSARY ADJUST MENTS ARE MADE AGAINST THE ADVANCES GIVEN TO THE EMPLOYEES BUT IN SOME CASES WHICH ARE OFF AND ON , THE EMPLOYEES ADVANC ES CO ULD NOT BE ADJUSTED DUE TO SOME VALID REASONS . THE LD. AR SUBMITTED THAT THE ACTION OF THE LD. CIT(A) BY DISALLOWING THE AMOUNT BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT ON ESTIMATED AND ADHOC BASIS RESTRICTING THE ADDITION TO 20% OF RS.78,27,945/ - THE AMOUNT OF DISALLOWANCE BY THE AO IS NOT JUSTIFIED AS THE PROVISIONS OF SECTION 40A(3) OF THE ACT CLEARLY STATES THAT ANY EXPENDITURE IN CASH OR OTHERWISE OTHER THAN BY ACCOUNT PAYEE CHEQUE OR BANK DRAFT IN EXCESS OF RS.20,000/ - IS LIAB LE FOR DISALLOWANCE AND SHALL NOT BE ADMISSIBLE AND ALLOWABLE. THEREFORE, ADHOC DISALLOWANCE MADE U/S 40A(3) BY THE FIRST APPELLATE AUTHORITY IS TOTALLY INCORRECT AND AGAINST THE SPIRIT OF SECTION 40A(3) OF THE ACT AND SHOULD BE DELETED. 5 THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF T HE AO BY SUBMITTING THAT DURING THE COURSE OF SURVEY PROCEEDINGS THE CASH LEDGER 6 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 ACCOUNT FOR THE PERIOD FROM 1.4.2009 TO 28.1.2010 WAS TAKEN OUT FROM THE TALLY SOFTWARE OF THE ASSESSEE COMPANY IN WHICH THE ASSESSE E HAS BEEN FOUND TO HAVE INCURRED AN EXPEN SES IN CASH IN EXCESS OF RS.20,000/ - AND THEREFORE, THE ORDER OF THE AO SHOULD BE RESTORED. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT DURING THE COURSE OF SURVEY PROCEEDINGS, A CASH LEDGER WAS EXTRACTED BY THE SURVEY TEAM AND THE ASSESSEE WAS FOUND TO HAVE INCURRED EXPEN SES IN CASH TO THE LABOURERS AND TO THE EMPLOYEES WORKING ON SITES ALL OVER I NDIA, WHERE THE ASSESSEE WAS CARRYING OUT I T S BUSINESS ACTIVITIES AS MENTIONED ABOVE. THE ASSESSEE HAS BEEN ADVANCING THE MONEY IN CASH TO ITS EMPLOYEES AND THEREAFTER ADJUSTING THE SAME AGAINST THE BILLS RENDERED BY THE EMPLOYEES AND IN SOME CASE THE MO NEY ADVANCED REMAINED UNADJUSTED DUE TO SOME VALID REASONS. WE FIND THAT THESE ADVANCES IN CASH ARE PAID BY WAY OF ADVANCE S TO THE EMPLOYEES/MU N SHI S TO INCUR DAY TODAY EXPENSES ON THE PROJECT/WORK SITES . THE AO HAS FAILED TO POINT OUT ANY SPECIFIC INST ANCES OF EXPENSES INCURRED BY THE ASSESSEE EXCEPT THE ADVANCES TO EMPLOYEES. IT IS NECESSARY, IN ORDER TO INVOKE THE PROVISIONS OF SECTION 40A(3) OF THE ACT , THE AO HAS TO CLEARLY IDENTIFY THE EXPENDITURES INCURRED IN CASH ONLY THEN THE DISALLOWANCE COUL D BE MADE. THE LD. CIT(A) WENT STEP AHEAD BY ESTIMATING THE DISALLOWANCE U/S 40A(3) OF THE ACT AT THE RATE OF 20% ON ADHOC BASIS 7 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 WHICH IS ALSO AGAINST THE SPIRIT OF SECTION ITSELF. THUS, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) ON THIS ISSUE . ACCORDINGLY, KEEPING IN VIEW THESE FACTS WE ARE INCLINED TO SET ASIDE THE ORDER OF LD.CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7 . THE ISSUE RAISED BY THE ASSESSEE IN GROUNDS OF APPEAL N O. 2 TO 5 IS IN RESPECT OF PART CONFIRMATION BY THE CIT(A) OF ADDITION TO THE TUNE OF 12.5% OF THE BOGUS PURCHASE S BY THE LD. CIT(A) AS AGAINST THE DISALLOWANCE OF RS, 6,85,73,276/ - THE ENTIRE BOGUS PURCHASES BY THE AO. 8 . AT THE OUTSET, THE LD.AR SUBMITT ED THAT AN IDENTICAL ISSUE HAS CAME UP BEFORE THIS TRIBUNAL IN ASSESSEES OTHER GROUP CASES AND THE TRIBUNAL SUSTAINED THE ADDITION TO THE TUNE OF 6% OF THE BOGUS PURCHASES. THEREFORE, THE LD.AR PRAYED THAT THE SIMILAR DIRECTION BE GIVEN IN TH IS C ASE ALSO. THE LD. DR DID NOT PLACE ANY MATERIAL TO CONTROVERT THE SUBMISSIONS OF THE LD.AR. 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. WE FIND THAT IN ASSESSEES OWN CASE IN I.T.A. NO.6530/MUM/2016 (AY - 2006 - 07) ORDER DATED 31.10.2017, THE BE NCH SUSTAINED 6% OF THE ADDITION ON ACCOUNT OF BOGUS PURCHASE S . WE , FOR THE SAKE OF CONVENIENCE, REPRODUCE THE FINDINGS OF THE COORDINATE BENCH AS UNDER: 6. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL PLACED BEF ORE US INCLUDING THE ORDERS OF 8 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 AUTHORITIES BELOW. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WAS FOUND TO HAVE AVAILED ACCOMMODATION ENTRIES OF BOGUS PURCHASES FROM THE HAWALA DEALERS AMOUNTING TO RS.7,81,370/ - FROM DOSHI TRADING COMPANY WHICH IS THE HAWA LA OPERATOR LISTED IN THE WEBSITE OF SALES TAX DEPARTMENT, GOM. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PLUMBING. THE ASSESSEE HAS PRODUCED BEFORE THE AO COPIES OF BILLS AND VOUCHERS, LEDGER ACCOUNT AND CONSUMPTION REGISTER MAINTAINED BY THE ASSESSEE . FURTHER, DESPITE THE ASSESSEE HAVING SUPPLIED THE NAMES AND ADDRESSES OF THE PARTIES, THE AO DID NOT ISSUE NOTICE U/S 133(6) OF THE ACT AND THUS HAS NOT TAKEN ANY STEPS FOR VERIFICATION OF THE GENUINENESS OF PURCHASE AND THEREBY NOT CONDUCTED ANY IN QUIRY OR INVESTIGATION IN THE MATTER AND SOLELY HARPED ON THE BELIEF THAT THE PARTY WAS DECLARED AS HAWALA DEALER. THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY SUSTAINING THE ADDITION TO THE EXTENT OF 12.5% OF THE TOTAL BOGUS PURCHASE. I N THE PRESENT CASE BEFORE US IN SUCH TYPE OF CASES OF HAWALA PURCHASES THE ASSESSEE PURCHASE GOODS FROM THE GREY MARKET AND THEREBY SAVES BY NON - PAYMENT OF VAT AND OTHER INCIDENTAL TAXES. IN THE PRESENT CASE BEFORE US, THE APPLICABLE VAT RATE IS 4% AND TH EREFORE A REASONABLE CONCLUSION IS THAT THE ASSESSEE MIGHT HAVE SAVED 4% BY MAKING PURCHASES FROM THE GRAY MARKET. IN SIMILAR TYPE OF CASES, THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAVE BEEN TAKING A VIEW A REASONABLE RATE OF PROFIT DEPENDING ON THE V AT SAVED BY THE ASSESSEE SHOULD BE MADE. IN THE PRESENT CASE, SINCE THE VAT IS 4%, WE ARE OF THE CONSIDERED VIEW, IT WOULD BE FAIR AND REASONABLE IF THE ADDITION IS SUSTAINED EQUAL TO 6% OF THE TOTAL BOGUS PURCHASES. ACCORDINGLY, THE APPEAL OF THE ASSESS EE IS PARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED. THE FACT IN THE INSTANT CASE BEING IDENTICAL AND THEREFORE, MAINTAINING CONSISTENCY WITH THE EARLIER YEARS DECISION OF THE TRIBUNLA, WE DIRECT THE AO TO ADD 6% OF THE BOGUS PURCHASES BY SETTIN G ASIDE THE ORDER OF CIT(A) ON THIS ISSUE . RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9 I.T.A. NO. 4618/M/2015 AND 4734/M/2015 I.T.A. NO.4734/MUM/2015 10 . SINCE WE HAVE DECIDED THE ISSUE S IN ASSESSEES FAVOUR IN ITA NO 4618/MUM/2015 IN THE ASSESSEES APPEAL AND THEREFOR E THE GROUND S RAISED BY THE REVENUE IN ITS CROSS APPEAL RELATING TO THE SAME ISSUES ARE DISMISSED . THE APPEAL OF THE REVENUE IS DISMISSED . 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF REVENUE STANDS DISMISSED. ORDER PRONO UNCED IN THE OPEN COURT ON 17TH NOV , 20 17. S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; : DATED : 17. 11. 2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI