DCIT 9(2), MUMBAI V. MANGALAM INFRA DEVELOPMENT P.LTD, MUMBAI

ITA 684/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93264 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P SR
• Keywords: Bogus purchase; Depreciation; Income from undisclosed sources; Opportunity of cross examination; Corroborative evidences; Competent authority; Onus to prove; Sham transactions

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , , , BEFORE S/SH. JOGINDER SINGH ,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 684 /MUM/201 4 , / ASSESSMENT YEAR - 20 10 - 11 DCIT - 9(2) ROOM NO.218, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. VS M/S. MANGALAM INFRA DEVELOPMENT PVT. LTD. 16, GROUND FLOOR, SHREE JI S HOPPING C ENTRE , BORIVALI (E) MUMBAI - 400 066. PAN: AAFCM3854Q ( / APPELLANT ) ( / RESPONDENT ) . / CROSS OBJECTION NO. 53 /MUM/2015 - 2010 - 11 M/S. MANGALAM INFRA DEV ELOPMENT PVT. LTD.16, GROUND FLOOR, SHREEJI SHOPPING CENTRE, BORIVALI (E) MUMBAI - 400 066 VS DCIT - 9(2) ROOM NO.218, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI DHARMESH SHAH / REVENUE BY :SHRI ASGHAR ZAIN V.P. - SR.AR / DATE OF HEARING : 08 - 0 7 - 2015 / DATE OF PRONOUNCEMENT : 22 - 0 7 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 01.11.2013 OF THE CIT(A) - 20, MUMBAI ,THE ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN RESTRICTI NG THE DISALLOWANCE AT 11 % NET PROFIT ON ENTIRE BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FAILED TO PRODUCE THE PARTIES IN PERSON TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM THEM? 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE,HAS RAISED FO LLOWING GROUNDS OF APPEAL IN THE CROSS OBJECTIONS FILED BY IT : 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE LD.CIT(A)ERRED IN ESTIMATING NET PROFIT AT 11% ON TURNOVER OF THE APPELLANT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW THE L D.CIT(A)FAILED TO APPRECIATE THE FACT THAT IN THE BUSINESS OF CIVIL CONTRACTOR NO SUCH PROFIT IS FEASIBLE. ITA/ 684 /MUM/201 4 ,AY. 10 - 11 - MANGALAM 2 ASSESSEE - COMPANY,CARRYING ON CIVIL CONTRACTOR BUSINESS , FILED ITS RETURN ON 01.09.2010, DECLARING INCOME OF RS. 36,34,430/ - .THE AO FINALIS ED THE ASSESS MENT ON U/S.143(3)OF THE ACT ON 28.02. 2013, DETERMINING ITS INCOME AT RS. 3.45 CRORES. 2.EFFECTIVE GROUND OF APPEAL IS RELATED TO DISALLOWANCE OF PURCHASES TO THE EXTENT OF RS. 3,09,54, 330 / - MADE ON ACCOUNT OF NON - VERIFIABILITY. ACCORDING TO THE AO , THE ASSESS EE HAD SHOWN, PURCHASES FROM SEVEN PARTIES NAMELY M/S. NISHA ENTERPRISES (NE),M/S . OM CORPORATION (OC), M/S. BLUE NILE ENTERPRISES (BNE), M/S NAMAN ENTERPRISES (NAMAN), M/S SAVITA INTERNATIONAL (SI) NAVDEEP TRADING CORPORATION (NTC) AND M/S ARYEN SALES CORPORATION(AS C),THAT GENUINENESS OF THE PURCHASE FROM THOSE PARTIES HAD NOT BEEN PROVED .THE AO OBSERVED THAT THE ASSESSEE HAD NOT PRODUCED THE PARTIES,THAT IT HAD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF ITS EXPLANATION ,THAT IT HAD ALSO NOT GIVEN ANY INFORMATION REGARDI NG DELIVERY - CHALLAN NO., INWARD/OUTWARD REGISTER ENTRY NUMBER ,THAT NOTICE S U/S.133(6) OF THE ACT WERE ISSUED TO THE ABOVE SEVEN PARTIES ,THAT OUT OF SEVEN PARTIES IN CASE OF FOUR PARTIES SAME COULD NOT BE SERVED BECAUSE OF THEIR NON - AVAILABILITY ON THE GIVEN ADDRESSES,THAT SI AND ASC HAD CATEGORICALLY STATED THAT THEY DID NOT ENTERED INTO ANY - TRANSACTIONS WITH THE ASSESSEE.THE AO ISSUED A NOTICE U/S.142(L) OF THE ACT ON 18.03.2013 TO THE ASSESSEE, ASKING IT TO PRODUCE THE PARTIES. HOWEVER,T ILL THE DATE OF ASSESS MENT ORDER IT HAD NOT PRODUCED ANY OF SUCH PARTIES .AS STATED EARLIER TWO PARTIES HAD DENIED OF ANY SUCH TRANSACTIONS. IN SUCH CIRCUMSTANCES TRANSACTIONS SHOWN IN THE NAME OF THESE SEVEN PARTIES WERE REGARDED SHAM TRANSACTIONS. THEREFORE,THE AO DISALLOWED ENT IRE PURCHASES SHOWN IN THESE NAMES, TOTALING TO RS.3. 09 CRORES. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT THAT THE AO HAD DIS BELIEVED THE GENUINE TRANSACT - TI ONS WHEREAS PURCHASES HAD BEEN MADE FROM VARIOUS PARTIES IN DUE COURSE OF BUSINESS, THAT MERELY BECAUSE OF NON - SERVICE OF NOTICES AT GIVEN ADDRESS BY SELLING PARTIES TRANSACTION COULD NOT BE REGARDED AS IN - GENUINE,THAT IT HAD MADE CERTAIN PURCHASES FROM TH ESE SEVEN PARTIES,THAT THE MATERIAL WAS RECEIVED AND CONSUMED IN THE REGULAR COURSE OF BUSINESS,THAT THE PARTIES WERE IN EXISTENCE,THAT IT HAD PROVIDED THE AO WITH THEIR PAN, VAT NO., COMPLETE ADDRESSES AND COPIES OF BILLS,THAT THE AO STARTED INVESTIGATION ON GATHERING SOME INFORMATION FROM THE SALES TAX DEPARTMENT,THAT A LIST OF ABOUT 2,059 DEALERS WHO HAD ISSUED BILLS BUT NOT PAID THE VAT HAD BEEN DISPLAYED BY THE SALES TAX DEPARTMENT ON ITS WEBSITE,THAT POSSIBLY THE NAMES OF THOSE SEVEN PARTIES COULD HAV E APPEARED IN THE SAID LIST,THAT THE AO DID NOT MAKE INDEPENDENT ENQUIRY FROM THE SALE TAX DEPARTMENT NOR HAD ISSUED SUMMONS U/S.131 OF THE ACT TO THOSE PARTIES TO KNOW THE ACTUAL FACTS,THAT MATERIAL WAS RECEIVED AT CONSTRUCTION SITE AND PAYMENTS WERE MADE THROUGH A/C PAYEE CHEQUES AS EVIDENT FROM THE BANK STATEMENT OF THE ASSESSEE,THAT IT HAD PROVIDED ALL THE DETAILS,THAT THE TIME GRANTED WAS HARDLY A WEEK,THAT THE AO HAD NOT GRANTED OPPORTUNITY OF CROSS EXAMINATION TO THE ASSESSEE.IN SUPPORT OF ITS CONTEN TION,THE ASSESSEE SUBMITTED THE LEDGER ACCOUNT AND COPY OF BANK STATEMENT.HOWEVER,IT WAS SUBMITTED THAT SINCE IT HAD NOT MAINTAINED STOCK REGISTER,INWARD OR OUTWARD REGISTER OR DAILY CONSUMPTION REGISTER; A REASONABLE G.P.ADDITION ITA/ 684 /MUM/201 4 ,AY. 10 - 11 - MANGALAM 3 COULD BE MADE INSTEAD OF DISALLOWING ENTIRE PURCHASES.THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF M.K,BROTHERS(163ITR249),BAIAJI TEXTILES INDUSTRIE S(P.)LTD.(49ITD177),PERMANAND (107 TTJ 395), SAGAR BOSE(56 ITD561),RAJESH P SONI(100 TTJ 892). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THE ASSESSEE HAD SHOWN PURCHASES FROM SEVEN PARTIES,THAT SUCH PURCHASE OF MATERIAL WERE CLAIMED TO BE USED IN CONSTRUCTION BUSINESS,THAT THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE THE PARTIES FOR EX AMINATION BY THE AO,THAT GENUINENESS OF PURCHASES COULD NOT BE RELIED UPON,THAT MERELY ON THE BASIS OF DETAILS OF PAN, NAME AND ADDRESSES, PURCHASES BILLS AND PAYMENT THROUGH BANKING CHANNEL IT COULD NOT BE HELD THAT THE PURCHASES WERE GENUINE,THAT THOSE W ERE NOT THE CONCLUSIVE EVIDENCE,THAT THOSE EVIDENCES COULD BE IMPORTANT BUT IN THEMSELVES SAME WERE NOT SUFFICIENT WHEN GENUINENESS OF PURCHASE HAD BEEN DOUBTED, THAT THE AO HAD ISSUED NOTICE U/S.133(6) TO THE SEVEN PARTIES ON 11.02.2013,THAT OUT OF THOSE S EVEN NOTICES FOUR WERE RECEIVED UNSERVED,THAT NOTICE ON NAMAN WAS SERVED BUT NO INFORMATION WAS SUBMITTED,THAT TWO PARTIES NAMELY SI AND ASC HAD CATEGORICALLY DENIED ANY SUCH TRANSACTION WITH THE ASSESSEE,THAT IT WAS NOT ABLE TO PRODUCE THE PARTIES,THAT G ENUINENESS OF PURCHASES SHOWN IN THE NAME OF THOSE PARTIES WAS NOT ESTABLISHED,THAT THE CASE LAWS CITED BY THE ASSESSEE WERE HAVING DIFFERENT FOOTING AND CONTEXT,THAT BURDEN OF PROOF HAD BEEN DISCHARGED BY THE ASSESSEE. HE FURTHER HELD THAT PURCHASES FROM THE SEVEN PARTIES HAD NOT BEEN FULLY ESTABLISHED,THAT THE BOOK RESULT OF THE ASSESSEE COULD NOT BE ACCEPTED,THAT IT WAS NOT THE SIMPLE CASE OF TRADING I.E.A PURCHASE AND SALES OF GOODS,THAT IT WAS THE CASE WHERE CONSTRUCTION ACTIVITIES WERE DONE WHICH REQU IRED INPUTS OF MATERIAL,THAT THE AO HAD NOT BEEN ABLE TO POINT OUT THAT SUCH MATERIAL SO SHOWN HAD NOT BEEN UTILISED IN CONSTRUCTION OF BUILDINGS,THAT THERE WAS A CERTIFICATION FROM THE COMPETENT AUTHORITY,THAT UTILITY OF THE MATERIAL WAS NOT DOUBTFUL,THAT IT WAS NOT LEGALLY APPROVABLE THAT ADDITION OF ENTIRE PURCHASES SHOULD BE MADE,THAT PROBABILITY OF INFLATION OF EXPENDITURE COULD ALSO NOT BE DISCARDED IN SUCH SITUATION,THAT THERE WAS POSSIBILITY OF SUPPRESSION OF INCOME.REFERRING TO THE RECORDS PRODUCED BY THE ASSESSEE,THE FAA HELD THAT IN THE AY.2009 - 10 GROSS PROFIT WAS @ 18.10%,THAT NET PROFIT @5.67% WAS SHOWN BY THE ASSESSEE FOR THE SAME YEAR,THAT IN THE YEAR UNDER APPEAL GP AND NP HAD GONE DOWN TO 6.79% AND 2.51% RESPECTIVELY,THAT THE BOOK RESULT OF THE ASSESSEE COULD NOT BE ACCEPTED AS GENUINE. HE FURTHER HELD THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF THE = HAD GIVEN A LETTER DATED 24.01.2013, ADMITTING THE ADDITION WITH REFERENCE TO LOW G.P. / N.P. COULD BE MADE,THAT N.P. IN SUCH CASE RANGED 5% TO 12%,THAT BEFORE THE AO THE = HAD SUBMITTED CERTAIN DECISION OF THE TRIBUNAL,THAT IT HAD ALSO SUBMITTED THE RATE OF N.P. TO BE ADOPT ED IN THE RESPECTIVE CASES I.E.MODEM CONSTRUCTION(46SOT 309),KANHIYALAL CHAUDHARY (20TAXMANN. C OM 368),AGGARVAL C ONSTRUCTION CO.(198 TAXMAN.COM 476), PRABHU DAYAL KANOJIYA (137TTJ 4),ASSOCIATED CONTRACTORS(16 TAXMAN.COM 36),BDR PROJECTS P.LTD.(23 TAXMANN.COM 405).THE FAA PREPARED A CHART OF THE RATE OF REASONABLE PROFIT AND SAME READS AS UNDER: SN. CASE PROFIT RATE E STIMATED IN FINAL ASSESSMENT 1. MODERN CONSTRUCTION COMPANY 5% 2. KANHIYALAL CHAUDHARY 8%(BEFORE INTEREST & DEPRECIATION) 3. AGGARWAL CONSTRUCTION COMPANY 11% 4. PRABHU DAYAL KANOJIYA 8% 5. ASSOCIATED CONTRACTORS 4% 6. BDR PROJECTS PVT. LTD. 8% TOT AL 42% ITA/ 684 /MUM/201 4 ,AY. 10 - 11 - MANGALAM 4 AVERAGE OF SIX CASE 7% AS PER THE FAA THE AO HAD NOT ANALYSED THE FACTS OF EACH CASES,THAT HE HAD MERELY DISALLOWED THE PURCHASE WHICH WAS NOT APPROVABLE AS IT WAS BECAUSE OF UTILITY OF MATERIALS,THAT THE AO HAD NOT SCRUTINISED THE CONSTRUCTION ACCOUNT, USE AND INPUT OF MATERIAL SO PURCHASED,THAT IN THE CASE UNDER CONSIDERATION MAXIMUM PURCHASES WERE FOUND TO BE GENUINE,THAT A FEW PURCHASES WERE NOT BELIEVABLE BECAUSE OF LACK OF SOME EVIDENCE.THE FAA FURTHER HELD THAT ELEMENT OF LOW G.P./N.P. W AS VISIBLE IF RESULT OF THIS YEAR WERE COMPARED WITH THE EARLIER YEAR, THAT IT WOULD BE JUSTIFIABLE AND APPROPRIATE TO ASCERTAIN THE TAXABLE INCOME TAKING INTO CONSIDERATION THE POSSIBLE PROFIT IN SUCH BUSINESS.REFERRING TO THE MATTER OF AGGARWAL CONSTRUCT ION COMPANY HE HELD THAT IF N.P. @ 11% IS TAKEN ON ENTIRE TURNOVER OF RS.14,49,95,316/ - , THE ADDITION WOULD BE OF RS.1,59, 49,485/ - ,THAT IT WOULD COVER THE ENTIRE PURCHASES MADE FROM SI AND ASC,THAT IT WOULD ALSO TAKE CARE OF INFLATION OF RATES OR EXPE NDITURE OR SUPPRESSION OF PROFIT.SO,FINALLY THE FAA REDUCED THE ADDITION TO RS.1.59 CRORES. 4. DURING THE COURSE OF HEARING B EFORE US, DEPARTMENTAL REPRESENTATIVE(DR)STATED THAT THE ASSESSEE HAD NOT PRODUCED THE PARTIES BEFORE THE AO,THAT IN FOUR CASES NOTI CES ISSUED UNDER 133(6)REMAINED UNSERVED,THAT TWO OF THE SUPPLIERS HAD DENIED TO HAVE ANY TRANSACTIONS WITH THE ASSESSEE,THAT AO HAD RIGHTLY ADDED THE PURCHASES TO THE TOTAL INCOME OF THE ASSESSEE.AUTHRORISED REPRESENTATIVE(AR)ARGUED THAT OUT OF THE TOTAL PURCHASE OF 8. CRORES THERE WAS DOUBT ABOUT PURCHASES OF RS. 3.09 CRORES ONLY,THAT CONSUMPTION OF GOODS WAS NOT DOUBTED BY THE AO OR THE FAA,THAT THE AO DID NOT PROVIDE OPPORTUNITY OF CROSS EXAMINATION OF TWO PARTIES WHO HAVE DENIED THE TRANSACTIONS,THAT ALL THE PARTIES WERE PAID THROUGH BANKING CHANNELS,THAT THE FAA WAS NOT JUSTIFIED IN APPLYING UNIFORM RATE OF NET PROFIT ON ENTIRE PURCHASES,THAT THERE WAS NO EVIDENCE WAS THAT MONEY WAS RECEIVED BACK BY THE ASSESSEE.HE ALTERNATIVELY ARGUED THAT A REASONAB LE RATE OF GP/NP COULD BE APPLIED TO THE DOUBTFUL PURCHASES.HE RELIED UPON THE CASES OF . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A BUILDER,THAT THE AO MADE INQUIRIES ABOUT PUR CHASES MADE BY IT IN CASE OF SEVEN PARTIES,THAT TWO OF THE SUPPLIERS DENIED TO HAVE ENTERED IN TO ANY TRANSACTION WITH THE ASSESSEE,THAT THE AO DID NOT ALLOW THE ASSESSEE TO CROSS EXAMINE THOSE TWO PARTIES, THAT IN CASE OF FOUR PARTIES NOTICES ISSUE U/S.13 3(6)COULD NOT BE SERVED ON THE GIVEN ADDRESSES,THAT IT HAD NOT PRODUCED THE PARTIES BEFORE THE AO,THAT IN CASE OF ONE PARTY(OUT OF THE SEVEN)WHAT HAPPENED IS NOT CLEAR FROM THE ORDER OF THE AO/FAA,THAT THE FAA APPLIED NP RATE OF 11% FOR THE ENTIRE PURCHASE S MADE BY THE ASSESSEE DURING THE YEAR UNDER APPEAL. THE AO HAD STARTED THE INVESTIGATION IN RIGHT DIRECTION BUT COULD NOT TAKE IT TO LOGICAL END. HE HAD ISSUED NOTICES AND FOUR OF THEM WERE RECEIVED BACK UNSERVED.IN TWO CASES WHERE THE PARTIES HAD DENIED TO HAVE CARRIED OUT ANY TRANSACTION WITH THE ASSESSEE HE SHOULD HAVE GIVEN A CHANCE TO THE ASSESSEE TO CROSS - EXAMINE THEM.AS THE ASSESSEE HAD CLAIMED THAT ALL THE TRANSACTION WERE THROUGH BANKING CHANNELS THE CLAIM HAD TO BE VERIFIED TO FIND OUT THE TRAIL OF THE CHEQUES.IT APPEARS THAT BECAUSE OF TIME CONSTRAINT THE AO COULD NO COMPLETE THE INQUIRIES THAT HE HAD STARTED IN RIGHT DIRECTION.THE FACT MENTIONED BY THE FAA THAT IT IS A CASE OF A BUILDER AND CONSUMPTION OF GOODS HAS NOT BEEN DOUBTED.IN SUCH CASES ,GENERALLY THE PEAK INVESTMENT IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE,AS THE WHOLE TURNOVER CANNOT BE HELD TO BE UNACCOUNTED INCOME OR INVESTMENT WITHOUT SUPPORTING EVIDENCES.IN THESE PECULIAR FACT AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE THE DISALLOWANCE SHOULD BE RESTRICTED TO 11% FOR THE ALLEGED DOUBTFUL ITA/ 684 /MUM/201 4 ,AY. 10 - 11 - MANGALAM 5 PURCHASES I.E.RS.3.09 CRORES OR TO THE PEAK INVESTMENT WHICHEVER IS HIGHER.IN SHORT,WE ARE PARTLY REVERSING THE ORDER OF THE FAA.EFFECTIVE GROUND OF APPEA L FILED BY THE AO IS REJECTED.IN LIGHT OF OUR DISCUSSION,CO FILED BY THE ASSESSEE IS TREATED AS INFRUCTUOUS. AS A RESULT,APPEAL FILED BY THE AO AND THE CO OF THE ASSESSEE STAND DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY,2015. 22 , 2015 SD/ - SD/ - ( / JOGINDER SINGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 22 .07. 2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1.APPELLANT / 2. RESPONDENT / 3.THE CONCERNED CIT(A)/ , 4.THE CONCERNED CIT / 5.DR A BENCH, ITAT, MUMBAI / , , . . . 6.GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.