ACIT-13(3)(2), MUMBAI V. M/S.MIDDLE EARTH ENTERPRISES, MUMBAI

ITA 5753/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3464 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 08-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AND CROSS OBJECTION
• Assessee Lawyers: IS DIRECTED AGAIN ST
• Keywords: Reopening of assessment; Bogus purchase; Accommodation entries; TDS
• Section: 142(1); 133(6); 147; 148

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI . , , , BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER, ITA NO.5753/MUM/2017 ASSESSMENT YEAR:-2011-12 ACIT-13(3)(2), ROOM NO.229, 02 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 / VS. M/S MIDDLE EARTH ENTERPRISES, 19/40, C-2, SEKSARIA INDUSTRIAL ESTATE, OFF S.V. ROAD, MALAD (W), MUMBAI-400064 ( / REVENUE) ( /ASSESSEE) P.A. NO.AAQFM8445I CROSS OBJECTION NO.325/MUM/2018 (ARISING OUT OF ITA NO.5753/MUM/2017) ASSESSMENT YEAR:-2011-12 M/S MIDDLE EARTH ENTERPRISES, 19/40, C-2, SEKSARIA INDUSTRIAL ESTATE, OFF S.V. ROAD, MALAD (W), MUMBAI-400064 / VS. ACIT-13(3)(2), ROOM NO.229, 02 ND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 ( /ASSESSEE) ( / REVENUE) P.A. NO. AAQFM8445I 2 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES ! '# $ / DATE OF HEARING : 28/02/2019 # $ / DATE OF ORDER: 30/04/2019 / O R D E R PER G. MANJUNATHA (ACCOUNTANT MEMBER) THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LD. C IT(A)-21, MUMBAI, DATED 16/06/2017 AND THEY PERTAINS TO AY 20 11-12. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, F OR THE SAKE OF CONVINCE, THE APPEAL OF THE REVENUE AS WELL AS C ROSS OBJECTION OF THE ASSESSEE WERE HEARD TOGETHER AND A RE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE REVENUE HAS FILED FOLLOWING GROUNDS OF APPEA L:- 1.WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS.2,38,78,468/- OUT OF TOTAL ADDITION OF RS.2,65,3 1,631/- MADE ON ACCOUNT OF BOGUS SUB-CONTRACT EXPENSES, IGN ORING THE FACT THAT THE SAID SUB-CONTRACT EXPENSES COULD NOT BE PROVED GENUINE BY THE ASSESSEE EVEN AFTER GIVING SU FFICIENT OPPORTUNITY. 3. THE BRIEF, FACTS OF THE CASE ARE THAT THE ASSES SEE, PARTNERSHIP FIRM IS ENGAGED IN THE BUSINESS OF CIVI L WORK CONTRACTOR & SECURITY SERVICE PROVIDER, FILED ITS R ETURN OF INCOME FOR AY 2011-12 ON 05/09/2011, DECLARING TOTAL INCOM E AT !' / ASSESSEE BY DR. K. SHIVARAM & MS. NEELAM JADHAV !' / REVENUE BY SHRI D.G. PANSARI 3 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES RS.5,00,25,440/-. THEREAFTER, THE CASE HAS BEEN REO PENED U/S 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE AC T) FOR REASONS RECORDED, AS PER WHICH INCOME CHARGEABLE TO TAX HAD BEEN ESCAPED ASSESSMENT ON ACCOUNT OF INFLATION OF PURCHASES BY BOOKING BOGUS ENTRIES AND ALSO BOGUS CONSULTANCY CHARGES. ACCORDINGLY, NOTICE U/S 148 DATED 09/01/2015 WAS SE RVED ON THE ASSESSEE. IN RESPONSE, TO THE NOTICE, THE ASSES SEE HAS FILED LETTER DATED 03/02/2015 AND STATED THAT THE RETURN OF INCOME FILED ON 07/09/2011 DECLARING TOTAL INCOME OF RS.5, 00,25,440/- MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTIC E U/S 148 OF THE ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRU TINY AND NOTICE U/S 143(2) AND 142(1) WERE ISSUED TO THE ASS ESSEE. IN RESPONSE, THE AUTHORISED REPRESENTATIVE OF THE ASSE SSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAIL S AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I N ORDER TO VERIFY THE CORRECTNESS OF THE CONSULTANCY CHARGES A ND ALSO SUB- CONTRACT CHARGES, THE AO CALLED UPON TO FILE NECESS ARY DETAILS IN VIEW OF SPECIFIC INFORMATION RECEIVED FROM DDIT(INV .), WHERE IT WAS FOUND THAT DURING THE COURSE OF SEARCH IN THE C ASE OF BVG INDIA LTD. THE ASSESSEE WAS ONE OF THE BENEFICIARY OF BOGUS 4 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES CONSULTANCY CHARGES AS WELL AS BOGUS SUB-CONTRACT E XPENSES BOOKED IN ORDER TO INFLATE EXPENDITURE AND REDUCE P ROFITS. IN RESPONSE, THE ASSESSEE HAS FILED COMPLETE DETAILS O F CONSULTANCY CHARGES AS WELL AS SUB-CONTRACT PAYMENT MADE TO SEV EN PARTIES AT LISTED BY AO IN ITS ASSESSMENT ORDER AT PARA-6. THE ASSESSEE FURTHER STATED THAT THE PAYMENT FOR ABOVE EXPENDITU RE HAVE BEEN PAID THROUGH PROPER BANKING CHANNEL AFTER DEDU CTING TDS AS APPLICABLE FROM TIME TO TIME. THEREFORE, THERE I S NO REASON TO DOUBT GENUINENESS OF ABOVE EXPENDITURE ON THE BASIS OF SEARCH CONDUCTED IN THIRD PARTY. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDING, IN ORDER TO VERIFY THE CLAIM OF THE ASSESSEE, ISSUED NOTICE U/S 133(6) TO ALL PARTIES A ND SUCH NOTICES WERE RETURNED UN-SERVED BY THE POSTAL AUTHO RITY WITH REMARK LEFT AND NOT KNOWN. THEREFORE, THE AO, B ASED O THE INFORMATION RECEIVED FROM MAHARASHTRA SALES TAX DEP ARTMENT AND ALSO EVIDENCE GATHERED DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, CAME TO THE CONCLUSION THAT SUB-CONTRA CT CHARGES DEBITED IN THE NAME OF SEVEN PARTIES IS NOT PROVED CONCLUSIVELY WITH NECESSARY EVIDENCES. THE AO FURTHER OBSERVED T HAT ALTHOUGH THE ASSESSEE HAS FILED CERTAIN BASIC DETAI LS INCLUDING 5 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES BILLS AND PAYMENT FOR SUCH EXPENDITURE, BUT FAILED TO FILE FURTHER EVIDENCES IN THE BACKDROP OF CLEAR FINDINGS FROM MAHARASHTRA SALES TAX DEPARTMENT, WHERE, IT WAS FOU ND THAT THESE PARTIES WERE INVOLVED IN PROVIDING BOGUS BILL S WITHOUT THERE BEING ANY BUSINESS ACTIVITY. ACCORDINGLY, HE OPINED THAT SUB-CONTRACT CHARGES TO ABOVE PARTIES ARE BOGUS IN NATURE AND HENCE MADE ADDITION OF RS.2,65,31,631/- TO THE RETU RNED OF INCOME OF THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 4. BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED EL ABORATE WRITTEN SUBMISSIONS, WHICH HAS BEEN REPRODUCED AT P ARA 6.6 OF THE PAGES 7 TO 14 OF THE LD. CIT(A)S ORDER. THE SU M AND SUBSTANCE OF ARGUMENT OF THE ASSESSEE BEFORE THE LD . CIT(A) ARE THAT IN RESPECT OF EACH PARTY, THE ASSESSEE HAS FIL ED COMPLETE DETAILS AND ALSO EXPLAINED THE NATURE OF WORK UNDER TAKEN BY THE PARTIES IN LIGHT OF CIVIL WORKS EXECUTED BY THE ASSESSEE FOR M/S BVG INDIA LTD. THE ASSESSEE FURTHER CONTENDED T HAT IT HAS DECLARED GROSS PROFIT OF 35.27% AND NET PROFIT OF 7.2%. IF THE GROSS PROFIT AS WELL AS NET PROFIT DECLARED FOR THE YEAR COMPARED TO OTHER CASES, WHERE SIMILAR NATURE OF WORK IS CAR RIED OUT, 6 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES BOOK RESULTS DECLARED BY THE ASSESSEE IS BETTER THA N THE TRADE AVERAGE, THEREFORE MERELY FOR THE REASON OF CERTAIN PARTIES ARE LISTED IN THE LIST OF HAWALA DEALERS, GENUINE PURCH ASES FROM THE ABOVE PARTIES CANNOT BE CONSIDERED AS BOGUS EXPENDI TURE. 5. THE LD. CIT(A), AFTER CONSIDERING THE RELEVANT S UBMISSIONS OF THE ASSESSEE AND ALSO RELIED UPON PLETHORA OF JU DICIAL PRECEDENCE HELD THAT ALTHOUGH THE AO HAS BROUGHT OU T VARIOUS REASONS FOR DISBELIEVING SUB-CONTRACT CHARGES DEBIT ED IN THE PROFIT & LOSS ACCOUNT IN THE NAME OF SEVEN PARTIES, BUT FACT REMAINS THAT THE ASSESSEE HAS FILED COMPLETE DETAIL S IN RESPECT OF ABOVE PARTIES INCLUDING CONFIRMATIONS FROM THE P ARTIES TO PROVE GENUINENESS OF SUB-CONTRACT PAYMENTS. THE LD. CIT(A) FURTHER OBSERVED THAT EVEN THOUGH NECESSARY DETAILS HAS BEEN FILED BEFORE THE AO, BUT FACT REMAINS THAT WHEN THE AO CALLED UPON THE ASSESSEE TO PRODUCE THE PARTIES IN PERSON, ASSESSEE COULD NOT DO SO, IN FACT, 133(6) NOTICES WERE ALSO RETURNED UN- SERVED. ACCORDINGLY, TAKING INTO ACCOUNT, OVER ALL FACTS AND ALSO PROFIT DECLARED BY THE ASSESSEE, SUSTAINED 10% OF A DDITIONS MADE BY THE AO TOWARDS BOGUS SUB-CONTRACT PAYMENT A ND DELETED 90% ON THE GROUND THAT IF 10% IS SUSTAINED, THE NET 7 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES PROFIT FOR THE YEAR GOES UP TO 11%, WHICH IS MORE T HAN NORMAL PROFIT IN THIS KIND OF BUSINESS. THE RELEVANT OBSE RVATIONS OF THE LD. CIT(A) ARE AS UNDER:- 6.7. I HAVE GONE THROUGH THE ASSESSMENT ORDER VERY CAREFULLY AND ALSO PERUSED THE PAPER BOOK AND SUBMISSION OF THE APPELL ANT. IT IS NOTED THAT ONE OF THE POINTS ON WHICH THE ASSESSMENT WAS REOPENED WAS IN RESPECT OF CONSULTANCY EXPENSES OF RS 10,00,00,000/ - CONSIDERED TO BE BOGUS. HOWEVER AFTER ALLOWING OPPORTUNITY TO THE AP PELLANT, THE TRANSACTION WAS HELD TO BE GENUINE AND NO DISALLOWA NCE IS MADE BY THE ASSESSING OFFICER. 6.8 IN RESPECT OF SUB-CONTRACT EXPENSES CONSIDERED AS BOGUS, THE MAIN CONTENTION OF THE ASSESSING OFFICER WAS THAT PURCHA SE OF GOODS PAYMENT WERE EFFECTED TO VARIOUS PARTIES WHICH ARE APPEARING IN THE LIST OF SUSPICIOUS DEALERS ENLISTED BY SALES TAX DEPARTM ENT, GOVERNMENT OF MAHARASHTRA. FURTHER, NOTICES ISSUED TO THESE PA RTIES WERE RETUNED BACK BY POSTAL AUTHORITIES WITH REMARKS 'LEFT'. THE SE PARTIES HAD ADMITTED BEFORE THE SALES TAX AUTHORITIES THAT THEY HAD NOT DONE ANY SUCH TRANSACTIONS WITH THE APPELLANT. FURTHER, AS P ER THE AO, THE APPELLANT COULD NOT PRODUCE THESE PARTIES. ON THE B ASIS OF THESE COMBINED REASONS, THE AO HELD THAT PURCHASES MADE F ROM THESE PARTIES ARE NOT GENUINE AND ACCORDINGLY, MADE ADDIT IONS OF RS. 2,65,31,631/-, OUT OF PURCHASES. 6.9 TO SUMMARIZE, ADDITION WAS MADE ON THE GROUND T HAT PARTIES FROM WHOM PURCHASES WERE MADE AND LABOUR CHARGES PAID WE RE ENLISTED ON SALES TAX WEBSITE AS SUSPICIOUS HAWALA DEALERS AND NOTICES ISSUED TO THESE PARTIES WERE EITHER NOT SERVED UPON OR NO REP LY WERE RECEIVED. 6.10 AS AGAINST THE ABOVE TWO ANALOGY OF THE ASSESS ING OFFICER, THE ASSESSEE HAS; SUBMITTED FOLLOWING DOCUMENTARY EVIDE NCCS:- A) LEDGER ACCOUNT CONFIRMATION OF ALL THE PARTIES A LONGWITH SAMPLE COPIES OF INVOICES ISSUED; B) PROOF OF PAYMENT MADE BY ACCOUNT PAYEE CHEQUE; C) COPIES OF TDS CERTIFICATES IN RESPECT OF ALL THE PAYMENTS MADE TO SUB-CONTRACTOR; AND D) CONFIRMATION OF THE PARTIES. 6.11. THE BOOKS OF ACCOUNTS OF THE APPELLANT WERE A UDITED BY A CHARTERED ACCOUNTANT FIRM AND NO DEFICIENCIES HAVE BEEN REPORTED. IT IS ALSO AN UNDISPUTED FACT THAT WHATEVER PURCHASES AND SUB-CONTRACT CHARGES WERE DISALLOWED, CORRESPONDING SALES THEREO F WAS ACCEPTED, RECOGNIZED AS SALES AND CREDITED IN PROFIT & LOSS A CCOUNT. THE PAYMENTS OF PURCHASES WERE MADE BY ACCOUNT PAYEE CH EQUE ONLY. 8 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES 6.12 I ALSO FIND THAT THE APPELLANT HAS EFFECTED TO TAL TURNOVER OF RS. 69,54,47,180. BREAK-UP OF THE TURNOVER, COST OF SAL ES, GROSS PROFIT AND GROSS PROFIT RATE OF ALL THE FIVE SEGMENTS REPORTED ARE AS UNDER:- PARTICULARS ASSESSMENT YEARS 2011-12 TURNOVER 69,54,47,180 LESS: DIRECT COST 45,01,89,180 GROSS PROFIT 24,52158, 000 GROSS PROFIT RATIO 35.27% NET PROFIT BEFORE TAX 5,00,23,333 NET PROFIT RATIO 7.20% 6.13 A REFERENCE TO THE ABOVE WOULD SHOW THAT THE A PPELLANT HAS EARNED GROSS PROFIT RATIO OF 35.27% WHICH IS EXTREMELY HIG H ON ANY GIVEN PARAMETER AND NET PROFIT RATIO 7.20% IS ALSO CLOSE TO THE NORMS OF 8% IN PRESUMPTIVE PROVISIONS OF TAXATION. THIS IS AFTER P AYMENT OF RS 10 CRORES AS PROFESSIONAL FEES TO PARTNERS. THE APPELLANT HAS PAID TAXES OF RS1,54,62,540/-. 6.14 DETAILS OF CONTRACTS AND NATURE OF WORK CARRIE D OUT WAS CALLED. IT WAS SUBMITTED BY THE LD. AR THAT M/S BVG CRYSTAL {JC} H AD OBTAINED A CONTRACT FROM BMC. THE CONTRACT WAS FOR PROTECTION OF WATER TRUNK MAINS AND ADJOINING MCGM LAND, RESERVOIRS AND PUMPING STA TIONS LANDS BY CONSTRUCTING COMPOUND WALL/FENCING, DEVELOPMENT AND MAINTAINING AFFORESTATION ETC. COPY OF WORK ORDER WAS SUBMITTED . THE CONTRACT WAS ASSIGNED TO THE APPELLANT. IT WAS SUBMITTED THAT TH ESE CONTRACTS ARE LARGE AND WHERE THE APPELLANT DOES NOT HAVE THE REQUISITE EXPERTISE, IT SUB- CONTRACTS THE SAME TO VARIOUS PARTIES. 6.15. THE PROJECTS AND PAYMENTS BY EMC IS AUDITED. IT CANNOT BE THAT SERVICES WERE NOT PROVIDED TO BMC. CERTAIN DECISION S CITED BY THE APPELLANT DOES SUPPORT THE ARGUMENTS OF THE APPELLA NT AS IS DISCUSSED NEXT. 6.16. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT, MUMBAI VS. NIKUNJ EXIMP 'ENTERPRISES PVT. LTD. (INCOME TAX .-P PEAL NO. G604 OF 2010) HELD THAT 'THE TRIBUNAL HAS DELETED THE ADDITIONS O N ACCOUNT OF BOGUS PURCHASES NOT ONLY ON THE BASIS OF STOCK STATEMENT I.E. RECONCILIATION STATEMENT, BUT ALSO IN VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDS THAT THE BOOKS OF ACCOUNTS OF THE RESPONDENT-ASSESSEE HAVE N OT BEEN REJECTED. SIMILARLY, THE SALES HAVE NOT BEEN DOUBTED AND IT I S AN ADMITLED POSITION THAT SUBSTANTIAL AMOUNT OF SALES HAVE BEEN MADE TO THE GOVERNMENT DEPARTMENT I.E. DEFENCE RESEARCH AND DEVELOPMENT LA BORATORY, HYDERABAD. FURTHER, THERE WERE CONFIRMATION LETTERS FILED BY THE SUPPLIERS, COPIES OF INVOICES FOR PURCHASES AS WELL AS COPIES OF BANK STATEMENT ALL OF WHICH WOULD INDICATE THAT THE PURCHASES WERE INFACT MADE. IN OUR VIEW, MERELY BECAUSE THE SUPPLIERS HAVE NOT APPEARED BEFO RE THE ASSESSING OFFICER OR THE CIT(A), ONE CANNOT CONCLUDE THAT THE PURCHASES WERE NOT MADE BY THE RESPONDENTASSESSEE.' 9 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES 6.17 IN CASE OF THE ASSESSEE ALSO SALES HAVE BEEN E FFECTED TO GOVERNMENT DEPARTMENT WHICH HAS NOT BEEN DOUBTED. T HE ASSESSEE HAS SUBMITTED CONFIRMATION LETTERS, BANK STATEMENT, TDS CERTIFICATE, PAYMENT BY ACCOUNT PAYEE CHEQUES ETC., SALES IS NOT CHALLEN GED AND WORK IS EXECUTED. 6.18. THE BOOKS OF THE APPELLANT ARE AUDITED BY A C HARTERED ACCOUNTANTS FIRM AND NO ADVERSE COMMENTS WERE MADE BY THE AUDIT ORS ON THE BOOKS OF ACCOUNTS IN THEIR AUDIT REPORT. THE ASSESSING OF FICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE WHICH PROVES THAT THE ASSESSED HAS MADE PAYMENT TO PARTIES AND RECEIVED MONEY OR MONEY'S WORTH BACK . WITHOUT PROVING THAT MONEY HAS BEEN RECEIVED BACK, SUCH ADDTION/DIS ALLOWANCE IS NOT PERMITTED AS HELD IN THE FOLLOWING CASES:- (I) DHAKESHWARI COTTON MILLS VS. CIT [1954] 26 ITR 775 (SC) (II) UMACHARAN SHAW & BROS. VS. CIT [1959] 37 ITR 2 71 (SC) (III) LAICHAND BHAGAT AMBICA RAM VS. CIT [199] 37 I TR 288 (SC) 6.19. THE ASSESSING OFFICER HAS REFERRED TO BUT NOT QUOTED THE STATEMENTS DENYING TRANSACTIONS WITH THE APPELLANT BY THE IMPU GNED PARTIES. IT IS ALSO NOT MENTIONED WHETHER SUCH STATEMENTS WERE PROVIDED TO THE APPELLANT. THE APPELLANT HAS ARGUED THAT THE MAIN REASON BEHIN D THE PARTIES DENYING SUCH TRANSACTIONS CAN BE NON-PAYMENT OF VAT, HOWEVE R, ONLY ON THIS BASIS, IT CANNOT BE PRESUMED THAT THE SAID PARTIES ARE SOLELY ENGAGED IN THE BUSINESS OF PROVIDING HAWALA ENTRIES AND NOT DO ING ANY GENUINE BUSINESS OF PURCHASE AND SALE OF GOODS. THIS IS ALS O CLEARLY EVIDENT FROM THE [ACT THAT THE PARTIES HAVE CONFIRMED THE TRANSA CTIONS WITH THE APPELLANT AND SUCH CONFIRMATIONS ARE IN PLACE. HOWEVER, SUCH CONFIRMATIONS CANNOT BE VERIFIED IF THE PARTIES ARE NOT TRACEABLE. IT IS ON RECORD AND PROVED THAT THE APPELLANT MADE THE PAYMENT BY ACCOUNT PAYEE CHE QUES. WHEN PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES, NOBODY CAN DENY THE EXISTENCE OF THE PARTIES. FURTHER, THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE PAYMENTS MADE TO PURCHAS E PARTIES WERE RECEIVED BACK IN CASH BY THE APPELLANT. 6.20 FURTHER, NOWHERE IN THE ASSESSMENT ORDER, THE A.O. HAS THROWN LIGHT ON THE FACT THAT WHEN THE PURCHASES HAVE BEEN FOUND TO BE BOGUS BY HIM, HOW THE CORRESPONDING SALES CAN BE HELD TO BE GENUI NE. SINCE BEGINNING TILL THE END OF THE ASSESSMENT ORDER, THE A.O. HAS FOCUSED ON THE INFORMATION RECEIVED FROM SALES TAX DEPARTMENT AND REPORT OF DIT INV) AND NON-SERVICE OF NOTICES AND NON-APPEARANCE OF PARTIE S TO HOLD THE PURCHASES MADE BY THE APPELLANT AS NON-GENUINE. HOW EVER, THE A.O. DID NOT PUT EFFORTS TO VERIFY THE GENUINENESS OF SALES CORRESPONDING TO SUCH PURCHASES AND SIMPLY ACCEPTED THE SALES AS SHOWN BY THE APPELLANT IN HIS PROFIT AND LOSS ACCOUNT. THE A.O. DID NOT APPRECIAT E THE FACT THAT A TRANSACTION OF PURCHASE IS A PART OF TRANSACTION OF SALE AND THAT NO SALES CAN BE CONCEIVED WITHOUT PURCHASES. 6.21 IT IS A WELL SETTLED PRINCIPLE OF LAW THAT ONE WHO APPROBATES CANNOT REPROBATE. THE HON'BLE SUPREME COURT DECIDED MAXIM OF 'QUI APPROBAT NON REPROBATE' IN CASE OF SHYAM TELELINK LTD. NOW S ISTEMA SHYAM. TELESERVICES LTD. VS. UO1 (2010) 10 SCC 165. THE SA ME VIEW HAS ALSO 10 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES BEEN TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF R. N. GOSWAIN VS. YASHPAL DHIR AIR 1993 SC 352 WHEREIN IT HAS BEE N HELD THAT 'LAW DOES NOT PERMIT A PERSON TO BOTH APPROBATE AND REPR OBATE. THIS PRINCIPLE IS BASED ON THE DOCTRINE OF ELECTION WHICH POSTULAT ES THAT NO PARTY CAN ACCEPT AND REJECT THE SAME INSTRUMENT AND THAT A PE RSON CANNOT SAY AT ONE TIME THAT A TRANSACTION IS VALID AND THEREBY OB TAIN SOME ADVANTAGE, TO WHICH HE COULD ONLY BE ENTITLED ON THE FOOTING THAT IT IS VALID AND THEN TURN AROUND AND SAY IT IS VOID FOR THE PURPOSE OF SECURI NG SOME OTHER ADVANTAGE.' THEREFORE, IF THE A.O. ACCEPTS THE SALES THEN FIE H AS TO ACCEPT THE CORRESPONDING PURCHASES. THUS, IF A.O. TREATED PURC HASES AS BOGUS, THEN SALES IS ALSO REQUIRED TO BE TREATED AS BOGUS. THUS , THE CORRESPONDING SALES IS REQUIRED TO BE DEDUCTED FROM INCOME WHICH WILL ENTITLE THE APPELLANT TO A RELIEF RATHER THAN ADDITION. THUS, T HE ACTION OF THE A.O. TO DISALLOW THE ENTIRE PURCHASES CANNOT BE ACCEPTED. 6,22 IN CIT VS. KASHIRAM TEXTILE MILLS (P) LTD. (20 06) 284 ITR 61 (GUJ), THE HON'BLE GUJARAT HIGH COURT HELD THAT THE TRIBUNAL H AS TAKEN NOTE OF THE FACT THAT REVENUE HAS NOT DISPUTED THE DETAILS OF T HE CLOSING STOCK. THEREFORE, THE TRIBUNAL HAS FOUND, THAT IN THE FACT S AND CIRCUMSTANCES OF THE CASE, THE EXISTENCE OF THE RAW MATERIALS PURCHA SED CANNOT BE DOUBTED, AND IF THAT IS THE SITUATION, THERE COULD BE NO CASE FOR DISPUTING THE PURCHASES. THE TRIBUNAL HAS FURTHER RECORDED TH AT THERE WAS NO MATERIAL ON RECORD TO CONCLUDE THAT IN ADDITION TO THE ALLEGED FICTITIOUS PURCHASES THERE WERE ALSO SOME OTHER PURCHASES FOR THE SAME MATERIAL UNDER DIFFERENT INVOICES WHICH COULD BE REFLECTED I N THE CLOSING STOCK. IT IS FURTHER RECORDED BY THE TRIBUNAL THAT TO THE CONTRA RY, FROM THE DETAILS SUBMITTED, EVEN IF SUCH A DOUBT EXISTED REGARDING E XISTENCE OF SOME PURCHASES OVER AND ABOVE THE ALLEGED FICTITIOUS PUR CHASES, THE DOUBT ON THIS ASPECT WAS ALSO REMOVED. FOR THIS PURPOSE THE TRIBUNAL HAS BY WAY OF ILLUSTRATION ANALYZED THE ACCOUNT OF ONE OF THE ITE MS, AND COME TO THE IRRESISTIBLE CONCLUSION THAT QUANTITY REMAINING IN THE CLOSING STOCK IS ONLY OUT OF THE PURCHASES EFFECTED BY THE ASSESSEE. IT I S IN LIGHT OF THE AFORESAID FINDINGS THAT THE TRIBUNAL HAS HELD THAT NO ADDITIO N WAS WARRANTED ON ACCOUNT OF ALLEGED FICTITIOUS PURCHASES. SIMILARLY, IN RELATION TO THE RATE OF PURCHASES, THE TRIBUNAL HAS RECORDED THAT IN ABSENC E OF ANY MATERIAL TO SHOW THAT THE PURCHASE PRICE SHOWN IN THE INVOICES WAS INFLATED, IT WAS NOT POSSIBLE TO SUSTAIN THE ADDITION ON THE SAID GROUND . THE TRIBUNAL HAS FURTHER RECORDED THAT THERE WAS NO EVIDENCE TO SHOW THAT A PART OF THE AMOUNT PAID TO THE SUPPLIERS HAD COME BACK TO THE A SSESSEE AND, THEREFORE, ALSO THERE WAS NO CASE FOR ANY ADDITION IN RESPECT OF SUCH PURCHASES. IT HAS FURTHER BEEN FOUND BY THE TRIBUNA L THAT PURCHASES AS SUCH ARE DEDUCTIBLE WHILE COMPUTING PROFITS AND HEN CE EVEN IF SOME HIGHER PURCHASE PRICE HAD BEEN PAID THAT WOULD BE N O GROUND FOR MAKING OR SUSTAINING ANY ADDITION, IN ABSENCE OF ANY EVIDE NCE TO SHOW WHAT WAS THE PREVAILING MARKET PRICE. THUS, ON READING THE I MPUGNED ORDER OF TRIBUNAL AS A WHOLE IT IS APPARENT THAT IT IS SOLEL Y BASED ON AN APPRECIATION OF EVIDENCE AND RECORDS FINDING OF FACT IN LIGHT OF THE EVIDENCE WHICH WAS LED BEFORE THE TRIBUNAL. IN THE CIRCUMSTANCES, THER E IS NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER. 11 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES 6.23 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF B ABULAL C. BORANA VS. ITO (282 ITR 251) HELD THAT WHERE IDENTITY OF PERSO N FROM WHOM GOODS HAVE BEEN PURCHASED AND SOURCE OF INVESTMENT IN SUC H GOODS HAD BEEN EXPLAINED BY ASSESSEE AND IT WAS ESTABLISHED THAT A MOUNTS PAID BY THE ASSESSEE BY CHEQUE FOR THOSE GOODS HAD BEEN RECEIVE D AND FURTHER, BOOKS MAINTAINED BY THE ASSESSEE HAD NOT BEEN REJEC TED BY A.O. AND IN FACT ADDITION WAS BASED ON ENTRIES MADE IN THOSE BO OKS IT COULD BE SAID THAT TRANSACTION WAS GENUINE. 6.24 IN THE CASE OF JITENDRA HARSHADLKUMAR TEXTILES VS. ITO (ITAT, MUMBAI)(ITA NO.771 & 2211/MUM/2011 FOR A.Y.2007-08) DATED 21.11.2012, A SURVEY ACTION WAS UNDERTAINE ON THE G ROUND CONCERNS OF SHRI RAKESH KUMAR GUPTA AND HIS FAMILY AND ON THE B ASIS OF STATEMENT GIVEN BY SHRI. RAKESH KUMAR GUPTA DURING SUCH SURVE Y, PURCHASES MADE BY THE ASSESSEE FROM HIS GROUP CONCERNS WERE TREATE D AS BOGUS AND THUS, ADDITION OF RS. 15,38,792/- WAS MADE. ON APPEAL BY THE ASSESSEE TO CIT(A), SUCH ADDITION WAS RESTRICTED TO RS. 3,72,07 9/- ON THE GROUND THAT ENTIRE PURCHASES CANNOT BE ADDED BACK AS UNEXPLAINE D AS THE ASSESSEE HAS ALREADY SHOWN THE SALE PROCEEDS AGAINST ALLEGED PURCHASES. THE HON'BLE ITAT DELETED THE ENTIRE ADDITION AND HELD T HAT 'THERE IS NO MATERIAL ON RECORD TO SAY THAT THE PURCHASES MADE BY THE ASSESSEE FROM THE SAID CONCERN WERE BOGUS EXCEPT THE GENERAL STATEMENT RECORDED BY THE DEPARTMENT IN THE CASE OF SHRI RAKESH KUMAR GUPTA, WHICH WAS LATE R ON RETRACTED. IN ABSENCE OF ANY MATERIAL BROUGHT ON RECORD AGAINST T HE SUBMISSIONS MADE BY SHRI RAKESH KUMAR GUPTA IN HIS LETTER DATED 20/1 212009 FILED BEFORE THE AO OF THE ASSESSEE, THE ADDITION, IF ANY, MADE IN THE CASE OF THE ASSESSEE WILL BE BASED ON PRESUMPTION ONLY AND IT C ANNOT BE SUSTAINED IN THE EYES OF LAW. AS AGAINST THAT ASSESSEE HAS SUBMI TTED VARIOUS EVIDENCES TO SHOW THAT THE ACTUAL DELIVERY OF GOODS WAS RECEIVED BY THE ASSESSEE FROM THE SCZD PARTY WHICH HAS NOT BEEN DIS CARDED BY THE AO. THE ADDITION SUSTAINED BY LCI. CIT(A) IS ALSO ON PR ESUMPTION BASIS. THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTAN CES OF THE CASE, WE ARE OF THE OPINION THAT ADDITIONS MADE BY THE AO DE SERVES TO BE DELETED IN ITS ENTIRETY.' THE ABOVE RULING OF ITAT, MUMBAI WAS ALSO FOLLOWED BY IT IN THE CASE OF M/S; C. CHOTALAL & CO. VS. ITO IN ITA NOS. 3960 TO 3967/MUM/2012 DATED 24.09.2013 AND M/S. PRAMIT TEXTILES VS. ITO IN ITA NOS. 3948 TO 3953/MUM! 2012 DATED 01.10.2013. 6.25. ON THE OTHER HAND THE FACT REMAINS THAT THE P ARTIES ARE NOT PRODUCED AND REMAIN UNTRACEABLE. THEIR CONFIRMATIONS CANNOT BE VERIFIED. THIS IS NOT A CASE OF TRADING CONCERN WHERE THERE IS ONE TO ONE CORRESPONDENCE BETWEEN EXPENSES AND SALES. HOWEVER, LOOKING TO THE FACTS THAT VARIOUS PARTIES WERE ENLISTED BY SALES TAX DEPARTMENT AS 'S USPICIOUS HAWALA DEALERS' AND NOTICES ISSUED WERE EITHER RETURNED OR COMPLIANCE NOT MADE, THE POSSIBILITY OF SOME INFLATED PURCHASES/COST CAN NOT BE RULED OUT, EVEN WHILE ACCEPTING THE SALES. THE APPELLANT HAS FAILED TO FURNISH THE DELIVERY CHALLAN EVIDENCING PROOF OF RECEIPT OF GOODS. THE A PPELLANT HAS FAILED TO PRODUCE THE PARTIES BEFORE THE LD ASSESSING OFFICER . THE NET PROFIT SHOWN IS 7.20 % WHICH IS LOWER THAN THE NORMATIVE 8% IN S UCH BUSINESS. THE ASSESSING OFFICER HAS DISALLOWED 100010 OF THE PURC HASE/EXPENSE FROM 12 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES THE IMPUGNED PARTIES, BASED ON WHICH THE NET PROFIT GOES UP TO 11%. IN VIEW OF THE ABOVE, 10% OF THE BOGUS PURCHASES MADE BY THE ID ASSESSING OFFICER AMOUNTING TO RS 26,53,163/- IS CONFIRMED. T HUS, THE APPELLANT IS ENTITLED TO RELIEF OF RS 2,38,78,468/-. THESE GROUN DS OF APPEALS ARE THUS, PARTLY ALLOWED.' 6. THE LD. DR SUBMITTED THAT THE LD. CIT(A) WAS ERR ED IN DELETING 90% SUB-CONTRACT EXPENSES IGNORING THE FAC T THAT SUCH SUB-CONTRACT EXPENSES CANNOT BE PROVED TO BE GENUIN E BY THE ASSESSEE EVEN SUFFICIENT OPPORTUNITY WAS GIVEN. THE LD. DR FURTHER SUBMITTED THAT FILING CONFIRMATION AND OTHE R DETAILS WOULD NOT SUFFICIENT ENOUGH TO PROVE GENUINENESS, W HEN INFORMATION GATHERED DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, CLEARLY PROVES THAT THE ASSESSEE IS A BENEFICIARY OF ACCOMMODATION BILLS PROVIDED BY HAWALA DEALERS. 7. THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, STRONGLY SUPPORTING THE ORDER OF THE LD. CIT(A) SUBMITTED TH AT ASSESSEE HAS FILED COMPLETE DETAILS INCLUDING CONFIRMATIONS FROM ALL PARTIES ALONG WITH SAMPLE COPIES OF INVOICES, TDS C ERTIFICATES, COPIES OF WORKOUT, ISSUED BY MCGM AND ALSO PAYMENTS CERTIFICATE FOR HAVING DONE THE WORK WERE ALSO FURN ISHED. THE AO HAS ACCEPTED BOOKS OF ACCOUNT OF THE ASSESSEE. A LL PAYMENTS MADE TO THE SUB-CONTRACTORS THROUGH PROPER BANKING 13 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES CHANNEL, AFTER DEDUCTING APPLICABLE TDS AS PER LAW. THE ASSESSEE HAS DECLARED SUBSTANTIAL INCOME FOR THE YE AR UNDER CONSIDERATION WHICH WORKS OUT TO 7.2% OF TOTAL TURN OVER. IF PAYMENT OF ROYALTY TO PARTNERSHIP ADDED BACK THEN N ET PROFIT DECLARED FOR THE YEAR WORKS OUT TO 21.57% WHICH IS MORE THAN THE INDUSTRY AVERAGE. THE LD. CIT(A) CONSIDERING AL L THESE ASPECTS, HAD RIGHTLY DELETED 90% OF EXPENSES DISALL OWED BY THE AO, HENCE, HIS ORDER SHOULD BE UPHELD. 8. WE HAVE HEARD BOTH PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE SOLE BASIS FOR MAKING ADDITIONS TOWARDS SUB- CONTRACT EXPENSES IS REPORT OF DGIT(INV.) WHICH WA S FURTHER SUPPORTED BY MAHARASHTRA SALES TAX DEPARTMENT REPOR T, WHERE, IT WAS NOTICED THAT CERTAIN PARTIES WERE INV OLVED IN PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY ACTUAL BUSINESS ACTIVITY. THE AO FURTHER TAKEN NOTE OF INFORMATION GATHERED DURING THE COURSE OF SEARCH IN THE CASE OF BVG GROUP. THE AO CAME TO THE CONCLUSION THAT SUB-C ONTRACT CHARGES PAID TO SEVEN PARTIES AS LISTED IN ASSESSME NT ORDER AT PARA 6 ARE BOGUS IN NATURE, WHICH ARE NOT SUPPORTED BY PROPER 14 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES EVIDENCES. THE AO REACHED TO THE ABOVE CONCLUSION O N THE BASIS OF REPORT OF MAHARASHTRA SALES TAX DEPARTMENT AND F URTHER COUPLED WITH THE FACT THAT PARTIES NEVER RESPONDED TO 133(6) NOTICES. IT IS AN ADMITTED FACT THAT THE ASSESSEE H AS ALSO FILED COMPLETE DETAILS INCLUDING CONFIRMATIONS FORM THE P ARTIES AND ALSO WORKSHEET ISSUED BY THE MCGM TO PROVE NATURE O F WORK CARRIED OUT BY THE ASSESSEE AND SUB-CONTRACTORS. TH E ASSESSEE HAS ALSO FILED PAYMENT CERTIFICATES ISSUED BY MCGM FOR HAVING DONE WORK AT SITE. ALL PAYMENTS ARE MADE TO THE PAR TIES THROUGH PROPER BANKING CHANNEL AFTER DEDUCTING APPLICABLE T DS. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS DECLARED SUBSTA NTIAL NET PROFIT WHICH IS 21.57% OF GROSS TURNOVER OF THE YEA R BEFORE THE PAYMENT OF ROYALTY TO PARTNERS. WHEN WE COMPARE TO FINANCIAL RESULT FOR YEAR UNDER CONSIDERATION TO THE NATURE O F BUSINESS CARRIED OUT BY THE ASSESSEE, WE FIND THAT PROFIT DE CLARED BY THE ASSESSEE IS MUCH BETTER THAN THE PROFIT NORMALLY DE CLARED IN THIS KIND OF BUSINESS. THE LD. CIT(A) AFTER CONSIDE RING ALL THESE ASPECTS AND ALSO TAKEN NOTE OF FACT THAT THE PARTIE S COULD NOT BE PRODUCED BEFORE THE AO AT THE TIME OF ASSESSMENT PR OCEEDINGS, MADE A REASONABLE ESTIMATE OF 10% DISALLOWANCE TOWA RDS BOGUS 15 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES SUBCONTRACT PAYMENTS. THE LD. DR ALTHOUGH MADE PLEN TY ARGUMENTS IN LIGHT OF FACTS BROUGHT OUT BY THE AO T O ARGUE THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF TRA NSACTIONS BUT FAIL TO MAKE OUT A CASE WITH ANY OTHER FURTHER EVIDENCES TO CONTRADICT FINDINGS OF FACT RECORDED BY LD. CIT(A). ON THE OTHER HAND, THE ASSESSEE HAS FILED COMPLETE DETAILS WHICH HAS BEEN RIGHTLY ACCEPTED BY THE LD. CIT(A). THEREFORE, WE A RE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDI NGS RECORDED BY THE LD. CIT(A) WHILE REDUCING DISALLOWANCES MADE BY THE AO TOWARDS ALLEGED BOGUS SUB-CONTRACT PAYMENTS TO THE EXTENT OF 10% OF SUCH EXPENSES, ACCORDINGLY, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISSED THE AP PEAL FILED BY THE REVENUE. 9. THE ASSESSEE HAS FILED CROSS OBJECTION CHALLENGI NG THE VALIDITY OF REOPENING OF ASSESSMENT. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT IF THE DEPARTMENTS APPEAL IS DISMISSED, THEN HE DOES NOT WANT TO PRESS CROSS OBJECTION FILED BY THE ASSESSEE CHALLEN GING THE VALIDITY OF REOPENING OF ASSESSEE. SINCE, WE HAVE A LREADY UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISSED APPEAL FILED BY THE 16 ITA NO.5753/MUM/201, CO NO.325/MUM/2018 M/S MIDDLE EARTH ENTERPRISES REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE, CHALLENGING REOPENING OF ASSESSMENT IS DISMISSED AS NOT PRESSED . 10. IN THE RESULT, APPEAL FILED BY THE REVENUE AS W ELL AS CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2019. SD/- SD/- ( RAVISH SOOD ) (G. MANJUNATHA) #'$ /JUDICIAL MEMBER %'$ / ACCOUNTANT MEMBER ! ' MUMBAI; ' DATED :30/04/2019 F{X~{T? P.S / /. . . &#'()*)+' / COPY OF THE ORDER FORWARDED TO : 1. () *+ / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ,- *+ / THE RESPONDENT. 3. .. ! / ( () ) / THE CIT, MUMBAI. 4. .. ! / / CIT(A)- , MUMBAI, 5. 1 2, 3 , .()$(34 , ! / DR, ITAT, MUMBAI 6. 2 5 / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI