ITO 31(2)(3), MUMBAI V. MANJULA S. SHAH, MUMBAI

ITA 7220/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8477 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLADR
• Assessee Lawyers: VIPUL J SHAH
• Keywords: Bogus purchase; Unexplained expenditure; Income from undisclosed sources; Document seized; Principle of natural justice; Corroborative evidences; Accommodation entries; Documents seized
• Section: 69C; 40A(3); 143(3); 133(6); 32; 27; 37; 6; 12; 28; 10; 2

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.7220/MUM/2014 ASSESSMENT YEAR: 2009-10 INCOME TAX OFFICER-31(2)(3), ROOM NO.704, C-11, PRATAYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA(EAST), MUMBAI-400051 / VS. MRS. MANJULA S. SHAH, PROP. OF M/S EASTMENT CHEMICALS, 3/202, RISHABH MANSION, S.V.ROAD, NR. ST. JOHN SCHOOL, GOREGAON (W), MUMBAI-400062 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO . AAPPS3790Q % & $ ' / DATE OF HEARING : 01/02/2017 & $ ' / DATE OF ORDER: 02/02/2017 ! / REVENUE BY MISS. ANUPAMA SINGLA-DR !'# $ ! / ASSESSEE BY SHRI VIPUL J. SHAH ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 2 / O R D E R PER JOGINDER SINGH(JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 29/09/2014 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ONLY GROUND RAISED BY THE REVENUE PERTAINS TO D ELETING THE ADDITION OF RS.58,17,619/- MADE ON ACCOUNT OF UNEXPLAINED PURCHASES FROM M/S MANAV IMPEX (RS.12,17,105/-), M/S KODIYAR INDUSTRIES (RS.30,74, 842/), M/S K.C. ENTERPRISES (RS.3,61,400/-) AND M/S V. S. IMPEX (RS.11,04,272/-), IGNORING THE FACT THAT IN RESPONS E TO NOTICES ISSUED U/S 133(6) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER THE ACT), THESE PARTIES NEITHER RESPON DED NOR WERE PRODUCED BY THE ASSESSEE. 2. DURING HEARING OF THIS APPEAL, MS. ANUPAMA SINGLA, LD. DR, DEFENDED THE ADDITION MADE BY THE A SSESSING OFFICER BY ADVANCING ARGUMENTS, WHICH IS IDENTICAL TO THE GROUND RAISED. IT WAS CONTENDED THAT SOME OF THE PA RTIES NEVER RESPONDED TO THE NOTICES ISSUED BY THE ASSESS ING OFFICER U/S 133(6) OF THE ACT AND SOME OF THE PARTI ES EITHER DENIED FOR MAKING THE SALE OR DID NOT APPEAR BEFORE THE ASSESSING OFFICER. THE IMPUGNED ADDITION WAS DEFEN DED. 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI VIPUL J. SHAH, DEFENDED THE CONCLUSI ON ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT NECESSARY DETAILS/EXPLANATION WERE FURNISHED BY THE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 3 ASSESSEE. RELIANCE WAS PLACED UPON THE DECISION FR OM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NI KUNJ EXMIP ENTERPRISES PVT. LTD. (ITA NO.5604 OF 2010) O RDER DATED 17/12/2012. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE, AN INDIVIDUAL AND PROPRIETOR OF M/S EASTERN CHEMICAL MANUFACTURING PRODUCTS DECLARED IN COME OF RS.84,900/- IN HER RETURN ON 24/08/2009. THE AS SESSEE FILED THE AUDITED PROFIT & LOSS ACCOUNT, BALANCE SH EET, TAX AUDIT REPORT IN FORM NO.3CA ALONG WITH DETAILS IN F ORM NO.3CD AND OTHER REQUISITE DOCUMENTS. THE ASSESSEE PURCHASED MATERIAL AMOUNTING TO RS.58,17,619/- FROM FOLLOWING FOUR PARTIES. SL. NO. NAME OF THE PARTY AMOUNT IN RS. 1 M/S MANAV IMPEX 12,77,105 2 M/S KHODIYAR INDUSTRIES 30,74,842 3 M/S K.C. ENTERPRICES 3,61,400 4 M/S V.S. IMPOEX 11,04,272 TOTAL 58,17,619/- DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED T HE NECESSARY DETAILS, HOWEVER, THE LD. ASSESSING OFFIC ER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THEREFORE , HE ISSUED NOTICE U/S 133(6) OF THE ACT TO M/S MANAV IMPEX, W HICH WAS RETURNED BY THE POSTAL AUTHORITIES AND THE REMA INING THREE PARTIES, AS PER THE REVENUE, DENIED OF HAVING ANY TRANSACTION WITH THE ASSESSEE. THE LD. ASSESSING OF FICER ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 4 RELIED UPON THE DECLARED LIST OF SUSPICIOUS DEALER FROM THE SALES TAX DEPARTMENT AND MADE THE ADDITION U/S 69C OF THE ACT, AMOUNTING TO RS.58,17,619/-. 2.3. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCO ME TAX (APPEAL), THE FACTUAL MATRIX WAS CONSIDERED AND FOLLOWING THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES PVT. LTD. ( SUPRA), THE ADDITION WAS DELETED. THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS TRIBUNAL. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, BROADLY, WE FIND THAT DGI(INVESTIGATION) VIDE LETTER DATED 26/12/2013 INF ORMED THE LIST OF BENEFICIARIES OF HAWALA DEALERS. THE S ALES TAX DEPARTMENT ALSO ISSUED A LIST OF SUCH DEALERS, WHO ARE TRANSACTING IN BOGUS PURCHASES. ON THE BASIS OF TH IS LIST THE LD. ASSESSING OFFICER SUSPECTED THAT THE ASSESSEE H AS ALSO INDULGED IN BOGUS PURCHASES FROM THESE PARTIES AND THUS HE MADE ADDITION U/S 69C OF THE ACT. WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS M/S CH IRAG CONSTRUCTION COMPANY IN ITA NO.3604/MUM/2013 FOR ASSESSMENT YEAR 2009-10, VIDE ORDER DATED 13/01/201 7, MADE AN ELABORATE DISCUSSION IN A CASE, WHERE, THER E WERE ALLEGEDLY BOGUS PURCHASES. THE FACTUAL MATRIX WAS ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 5 CONSIDERED IN THE LIGHT OF VARIOUS JUDICIAL PRONOUN CEMENTS AND THEREAFTER UPHELD THE ORDER OF THE LD. COMMISSI ONER OF INCOME TAX (APPEAL). THE RATIO LAID DOWN IN THE AFO RESAID CASE SQUARELY COVERS THE CASE OF THE ASSESSEE. THE RELEVANT PORTION FROM THE ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE AND ANALYSIS:- THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 14/02/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE REVENUE HAS CHALLENGED THE ADDITION, WHICH WAS DELETED BY T HE LD. COMMISSIONER OF INCOME TAX (APPEAL) AS THE SAME WAS ON ACCOUNT OF BOGUS PURCHASES OF RS.4,48,88,866/- AS THE ASSESSEE COULD NOT PRODUCE THE PARTIES BEFORE THE ASSESSING OFFICER FOR VERIFI CATION. 2. DURING HEARING, THE LD. DR, SHRI A. RAMACHANDRA N, DEFENDED THE ADDITION BY ADDUCING ARGUMENTS, WHICH IS IDENTI CAL TO THE GROUND RAISED BY CONTENDING THAT THE ASSESSEE MADE BOGUS P URCHASES FROM CERTAIN PARTIES AND DID NOT PRODUCE THEM FOR EXAMIN ATION BEFORE THE ASSESSING OFFICER, THUS, THE ADDITION WAS RIGHTLY M ADE. IT WAS FAIRLY AGREED BY THE LD. DR, THAT THE PAYMENTS WERE MADE T HROUGH CHEQUE. HE RELIED UPON THE DECISION IN THE CASE OF SHRI GANESH RICE MILLS VS CIT (2007) 294 ITR 316 (ALL.) AND CIT VS LA MEDICA (20 01) 117 TAXMAN 628 (DEL.); 250 ITR 575 (DEL.). 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE AS SESSEE, SHRI SHASHI TULSYAN, EXPLAINED THAT THE ASSESSEE IS A CI VIL CONTRACTOR, MADE TOTAL PURCHASES OF 5.66 CRORES AND THE ASSESSEE DIS CLOSED 1.51 CRORES, WHICH WERE SUSPECTED, PAID TAXES BY INCLUDING THEM IN THE RETURN. IT WAS EXPLAINED THAT THE NET PROFIT INCREASED FROM YE AR AFTER YEAR. IT WAS ASSERTED THAT THE ASSESSEE IS DOING JOB WORK FO R THE GOVERNMENT DEPARTMENTS, THE WORK WAS VERIFIED AND THEN THE PAY MENTS WERE MADE THROUGH CHEQUE. THE QUALITY AND QUANTITY DETAILS WE RE ALSO CLAIMED TO BE PROVIDED BY THE ASSESSEE. IT WAS EXPLAINED THAT THE PAYMENTS WERE MADE AFTER CERTIFICATION AND VERIFICATION BY THE AU THORITY AND CONSUMPTION OF MATERIAL. THE LD. COUNSEL EXPLAINED THAT DURING SURVEY, ON INCRIMINATING MATERIAL WAS FOUND EXCEPT FOR THRE E PARTIES FOR WHICH DUE DISCLOSURE WAS MADE. IT WAS ALSO CONTENDED THAT THE ASSESSEE CO- RELATED THE MATERIAL WITH JOB WORK AND PAYMENTS IN WHICH NO ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 6 DISCREPANCY WAS FOUND. IT WAS ALSO EXPLAINED THAT REMAND REPORT WAS SOUGHT FROM THE ASSESSING OFFICER, WHEREIN, THE MCG M AUTHORITIES WERE ASKED TO VERIFY THE GENUINENESS OF THE CLAIM. IT WA S EMPATHETICALLY ARGUED THAT THE GOVERNMENT AUTHORITIES DULY CONFIRM ED THAT THE JOB WORK WAS DONE BY THE ASSESSEE AS PER ORDER. IT WAS FURTHER CLAIMED THAT THE INVOICE BILL FROM THE PURCHASE PARTIES LIK E SALE TAX, ETC, WERE DULY PROVIDED BY THE ASSESSEE. THE CASES RELIED UPO N BY THE REVENUE TO BE ARGUED ON DIFFERENT FACTS. RELIANCE WAS PLACED U PON THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S NIKUNJ EXIM ENTERPRISES PVT. LTD. 372 ITR 619 (BOM.), DHAK ESHWARI COTTON MILLS LTD. VS CIT 26 ITR 775 (SC), HITAL CHUNILAL J AIN & ORS. (2016) 46 CCH 0020(MUM.) AND DCIT VS RAJEEV G. KALATHIL (2014 ) 41 CCH 552 (MUM.). 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE FINDING OF THE LD. CO MMISSIONER OF INCOME TAX (APPEAL) FOR PERUSAL AND ANALYSIS:- 20. I HAVE CONSIDERED THE STAND OF THE A.O. AS WELL AS THE SUBMISSIONS OF THE APPELLANT INCLUDING JUDICIAL- PR ONOUNCEMENTS AS WELL AS THE ABOVE REFERRED APPEAL ORDERS PLACED ON RECORD BY THE LD.A.R. THE ISSUES REGARDING DISALLOWANCE OF RS .4.48 CRORES IN RESPECT OF PURCHASE ARE DISCUSSED AND DECIDED HE REINAFTER. 20.1. THE ASSESSMENT WAS PRECEDED BY A SURVEY BY THE INVESTIGATION WING AND IN THE SAID SURVEY THE BOOKS OF ACCOUNTS, VOUCHERS AND DOCUMENTATION WERE THOROUGHL Y EXAMINED. THE INVESTIGATION WING HAD RESERVATIONS A BOUT THE GENUINENESS OF CERTAIN PURCHASES AND THE SAME W ERE SURRENDERED BY THE APPELLANT. AS PER THE PARA 3 OF THE OF THE RELEVANT ASSESSMENT ORDER , 'A SURVEY U1S.1334 OF I.T. ACT, 1961 WAS CONDUCTED AT THE OFFICE PREMISES OF THE ASSESSE E AT GOREGAON, MUMBAI-63 ON 25.08.2009 BY THE INVESTIGATION WING O F THE INCOME TAX DEPARTMENT, P4UMBAI. DURING THE COUR SE OF SURVEY, ASSESSEE OFFERED A SUM OF RS.1,51,45,603/- (68,49,2 74 + 21,55,128 + 61,41,201) IN RESPECT OF PURCHASES MADE FROM FOLLOWING THREE PARTIES - (I) KAVITA SALES - RS.68, 49,2741; (II) MANAV IMPEX - RS.21,55,128/- & (III) MAHAVIR IMPEX - RS.61,41,201/- FOR TAXATION ON THE BASIS OF BOGUS B ILLS FOR A.Y.2009-10. IT WAS ALSO NOTICED, DURING THE COURSE OF SURVEY, THAT SIGNED BLANK CHEQUES BELONGING TO THESE THREE PARTIES WERE FOUND AND THE PARTNER OF THE FIRM SUBMITTED IN STAT EMENT RECORDED ON OATH THAT THE SIGNED BLANK CHEQUE BOOKS WERE TAK EN FROM THESE THREE PARTIES TO SAFEGUARD ITS INTEREST SINCE THESE PURCHASES FROM THREE PARTIES WERE NOT GENUINE. ASSESSEE HAS A LSO OFFERED THIS AMOUNT OF RS.1,51,45,603/- AS ITS ADDITIONAL I NCOME IN COMPUTATION OF TOTAL INCOME FOR A. Y.2009-10 AND PA ID TAXES ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 7 ACCORDINGLY. THEREFORE, THE ADDITIONAL INCOME OF RS .1,51,45,603/- OFFERED BY THE ASSESSEE AS ADDITIONAL INCOME IS TAX ED AS SUCH.' THUS, AS ON THE DATE OF SURVEY THE BUSINESS AFFAIRS OF THE APPELLANT IN GENERAL AND THE PURCHASES MADE BY THE APPELLANT IN PARTICULAR WERE DEEMED TO HAVE BEEN VERIFIED BY THE INVESTIGATION WING AND THEY DID NOT DISCOVER ANYTHING AMISS IN TH E PURCHASE CLAIMS OTHER THAN THE PURCHASES FROM 3 PARTIES WHICH WERE SURRENDERED BY THE APPELLANT.' HOWEVER, THE A.O. HAS MADE FURTHER DISA LLOWANCE OF RS.4,48,88,866/- UNDER THE HEADING 'PURCHASES' REAS ONS FOR WHICH HAS BEEN GIVEN BY THE A.O. IN PARA 5 OF THE ASSESSMENT ORDER WHICH HAS ALREADY BEEN REPRODUCED EARLIER. 20.2. THE APPELLANT IS A CONTRACTOR WHO HAD UNDERTAKEN AM ONGST OTHER PROJECTS 'PREMIER NALLA PROJECT' WHERE ITS JOB INCL UDED WIDENING, REMODELING AND TRAINING OF 'PREMIER NALLA PROJECT'. IT IS SEEN THAT IN THE YEAR UNDER CONSIDERATION THE APPELLANT HAD CARR IED OUT CONTRACT WORK EXCLUSIVELY FOR GOVERNMENT DEPARTMENTS. IT WAS INVO LVED IN 16 CONTRACT JOBS OF VARIOUS SPECIFICATION. THE ADDITION OF RS.4 .48 CRORES MADE TOWARDS UNPROVED PURCHASES RELATES TO ONE SUCH PROJ ECT NAMED AS WIDENING/IMPROVING/REMODELING/TRAINING OF PREMIER NALLA SYSTEM IN CATCHMENT NO.501 (NEHRU NAGAR NALLA SYSTEM) IN SHO RT PREMIER NALLA FOR WHICH THE APPELLANT HAD SHOWN A TOTAL RE CEIPTS OF RS.12,69,19,180/- (PAGE NO.14 OF PAPER BOOK). 20.3.1. THE DISALLOWANCE OF PURCHASES OF RS. 4.48 CORES RELATES TO THE CONTRACT 'PREMIER NALLA'. THE APPELL ANT RECEIVED A SUM OF RS. 12,69,19,180/- FOR THE WORK D ONE ON THIS CONTRACT DURING THE YEAR AS PER THE PAYMENT CE RTIFICATE ISSUED BY THE MCGM (PAGE NO 15 TO 57 OF PAPER BOOK) , AS PER THE TERMS OF CONTRACTS BY THE MUNICIPAL CORPORA TION OF GREATER MUMBAI (MCGM), [WHICH IS IN PUBLIC DOMAIN AND'. AVAILABLE ON THE WEBSITE OF MUNICIPAL CORPORATION OF GREATER MUMBAI, AND WHICH WILL BE REFERRED AT THE APPROPRIATE PLACE RS IN THE ORDER, THE JOBS EXECUTED BY THE CONTRACTOR ( HERE THE APPELLANT), ALSO REQUIRE QUANTITY AND QUALITY SPECI FICATION OF THE MATERIAL TO BE SUPPLIED / CONSUMED AND THE CONTRACT RECEIPTS IN THE HANDS OF THE APPELLANT INVARIABLY PRECEDE SU CH VERIFICATION AND CERTIFICATION BY THE DEPARTMENTAL AUTHORITIES. THE RECEIPT SANCTIONED BY THE MCGM REFLECTS EXECUTI ON OF WORK AND SUPPLY/ UTILIZATION OF THE FOLLOWING MATER IAL AS PER THE WORK CERTIFICATE (PAGE NO 11 OF PAPER BOOK) . WHICH HAS ALREADY BEEN EXPLAINED AT LENGTH BY THE APPELLANT I N ITS SUBMISSIONS AND WHICH HAS BEEN REFLECTED IN EARLIER PARAGRAPHS AND FOR THE SAKE OF BREVITY, THE SAME IS NOT REPEAT ED HERE. 20.3.2. IT MAY BE POINTED OUT THAT THE EXECUTION OF THE CONTRACT, THE QUALITY AND THE QUANTITY OF THE MATER IAL SUPPLIED IS DIRECTLY UNDER THE SUPERVISION OF THE REPRESENTATIVE ENGINEER OF THE MCGM. THE APPELLANT HAS TO IN THE BEGINNING FURNISH SAMPLES OF THE MATERIAL TO BE SUPPLIED AND THE MATERIALS ARE LATER ON SUPPLIED ON APPROVAL OF SAMPLES. THIS IS ON ACCOUNT OF THE CLAUSE 59 OF GEN ERAL CONDITIONS OF CONTRACT FOR CIVIL WORKS ISSUED BY TH E MCGM ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 8 WHICH IS APPLICABLE TO ALL THE CONTRACTS AWARDED BY THE MCGM (PAGE NO 06 TO 08,1 OF PAPER BOOK). FOR SAKE OF FURTHER CLARIFICATION, THE RELEVANT EXTRACTS OF BYE LAWS RE LATED TO CONDITIONS OF CONTRACT REPRODUCED BELOW:- '59(A) MATERIAL TO BE PROVIDED BY THE CONTRACTOR: THE CONTRACTOR SHALL, AT THIS OWN EXPENSE, PROVIDE ALL MATERIALS REQUIRED FOR THE WORKS OTHER THAN THOSE WHICH ARE T O BE SUPPLIED BY THE MUNICIPAL CORPORATION. ALL MATERIALS TO BE PROVIDED BY THE CONTRACTOR SHAL L BE IN CONFORMITY WITH THE SPECIFICATIONS LAID DOWN IN THE CONTRACT AND THE CONTRACTOR SHALL, FURNISH PROOF TO THE SATISFAC TION OF THE ENGINEER THAT THE MATERIALS SO COMPLY. CONTRACTOR S HALL PRODUCE PROOF VIZ. CHALLANS, BILLS, VOUCHERS, ETC. SO AS TO ENSURE THAT THE MATERIAL WAS BROUGHT ON SITE AND QUANTITIES USED AS PER THE NORMS, SPECIFICATIONS, ETC. THE CONTRACTOR SHALL, AT HIS OWN EXPENSE AND WITHO UT DELAY, SUPPLY TO THE ENGINEER SAMPLES OF MATERIALS PROPOSED TO BE US ED IN THE WORKS. THE ENGINEER SHALL, WITHIN SEVEN DAYS OF SUPPLY OF SAMPLES OR WITHIN SUCH FURTHER PERIOD AS HE MAY REQUIRE AND INTIMATED TO THE CONTRACTOR IN WRITING, INFORM THE CONTRACTOR WHETHER THE SAMPLES ARE APPROVED BY HIM OR NOT. IF THE SAMPLES ARE NOT APPROVED THE CONTRA CTOR SHALL FORTHWITH ARRANGE TO SUPPLY TO THE ENGINEER FOR APP ROVAL FRESH SAMPLES COMPLYING WITH THE SPECIFICATIONS LAI D DOWN IN THE CONTRACT. THE ENGINEER SHALL HAVE FULL POWERS TO REQUIRE REMO VAL OF ANY OR ALL OF THE MATERIALS BROUGHT TO SITE BY THE CONTRACTOR WHICH ARE NOT IN ACCORDANCE WITH THE CONTRACT SPECIFICATIONS OR WHIC H DO NOT CONFORM IN CHARACTER OR QUALITY TO THE SAMPLES APPROVED BY HIM. IN CASE OF DEFAULT ON THE PART OF THE CONTRACTOR IN REMOVING T HE REJECTED MATERIALS, THE ENGINEER SHALL BE AT LIBERT Y TO HAVE THEM REMOVED BY OTHER MEANS. THE ENGINEER SHALL HAVE FUL L POWERS TO PROCURE OTHER PROPER MATERIALS TO BE SUBSTITUTED FO R REJECTED MATERIALS AND IN THE EVENT OF THE CONTRACTOR REFUSI NG TO COMPLY, HE MAY CAUSE THE SAME TO BE SUPPLIED BY OTHER MEANS. A LL COSTS, WHICH MAY ATTEND UPON SUCH REMOVAL AND / OR SUBSTIT UTION SHALL BE BORNE BY THE CONTRACTOR,' 20.3.3. THESE PARTICULARS HAVE ALSO BEEN INCORPORATED IN TH E TENDER DOCUMENT AS MENTIONED IN PARA.6.7.13 AT PAGE NO 04 OF THE PAPER BOOK. THE APPELLANT FURTHER PRODUCED A COPY O F THE RELEVANT PAGES OF THE TENDER DOCUMENT(PAGE NO 01 TO 05 OF PAPER BOOK) . THE WORK S CONTRACT FOR THE YEAR CERTIFIES THAT THE REQUISITE MATERIAL FOR WHICH DEDUCTION TOWARDS PURCHASES HAS BEEN MADE, HA S BEEN ACTUALLY RECEIVED / CONSUMED. THE APPELLANT MAINTAI NS A REGISTER WHICH INCORPORATES DETAILS OF VARIOUS ITEMS WHICH H AVE BEEN RECEIVED ON THE SITE AND WHICH HAVE BEEN CONSUMED OR SUPPLIE D UNDER THE SUPERVISION OF THE REPRESENTATIVE ENGINEER (PAGE NO 70 TO 105 OF P APER BOOK). THUS THERE IS COMPLETE QUANTITY CHECK OF VARIOUS PURCHAS E ITEMS IN TERMS OF THEIR DELIVERY ON THE CONTRACT SITE AND CO NSUMPTION IN THE EXECUTION OF CONTRACT JOB. THE APPELLANT HAS ALSO PREPARED ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 9 SUMMARY OF THE JOB WORK EXECUTED AND THE MATERIAL C ONSUMED WHICH MATCHES WITH THE SPECIFICATION AS REGARDS CONTRACT WORK DONE AND MATERIAL UTILIZED IN WORKS CONTRACT AS CERTIFIED BY THE MCGM AUTHORITY (PAGE NO. 58 TO 59 OF PAPER BOOK). THE APPELLANT PREPARED A BREAK UP AND SUMMARY OF THE TOTAL ITEMS PURCHASED / CONSUMED PARTYWISE AND THE SAID DETAILS WERE ENCLOSED IN THE SUBMISSION (PAGE NO 60 TO 69 OF PAPER BOOK). THIS DEMONSTRATES THAT THE APPELLANT HAD MADE THE REQUISITE PURCHASES TOWARDS COMPLETION OF WORK CONTRACT AND THE SAME ARE SUPPOSED TO HAVE BEEN SUP PLIED TO THE CONTRACTEE PARTIES IN THE JOB WORK LEADING TO CONTR ACT RECEIPTS OF RS. 12.69 CRORES. 20.3.4. IT HAS BEEN EXPLAINED BY THE APPELLANT THAT IT DOES NOT MAKE USE OF ITEMS OTHER THAN STEEL WHICH ARE SOLD IN BIG AND REPUTED STORES. THE ITEMS LIKE SAND AND CONCRETE ARE EXPLAINED TO HAVE BEEN PURCHASED FROM THE PARTIES WHO APPROACH THE AGENT OF THE APPE LLANT FOR THE SUPPLIES ON THE SITE AT COMPETITIVE RATES. MOST OF THE ITEMS PURCHASED ARE OF APPROVED STANDARD AND THEY ARE DELIVERED BY THE SUPPLIER. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE APPELLANT TO KNOW AS TO WHETHER THE SUPPLIER IS THE REAL SELLER OR HE IS ON LY A FRONT FOR THE REAL SUPPLIER. IN FACT, ONCE THE PAYMENTS A RE MADE TO SUCH PARTIES/SUPPLIERS AND TRANSACTIONS ARE OVER, T HE APPELLANT MAY NOT HAVE ANY CONTROL OVER THEM. THUS, IT CANNOT BE DENIED THAT THE PURCHASE OF MATERIAL WERE MADE BY T HE APPELLANT, WHICH WERE CONSUMED/ UTILIZED IN THE EXE CUTION OF CONTRACT AND UTILIZATION OF THESE SUPPLIES HAS R ESULTED IN THE CONTRACT RECEIPTS FROM MCGM. 20.3.5. IN THE PRESENT CASE, THE TOTAL SUPPLY OF MATERIAL C OSTING RS. 5,66,34,559/- IS STATED TO HAVE BEEN OBTAINED FROM 41 PARTIES OF WHICH 20 PARTIES WHO SUPPLIED MATERIAL WORTH RS. 4,48,88, 866/- HAVE BEEN HELD TO BE NON-GENUINE. IN THE IMPUGNED CONTRACT THE COST OF MATERIAL CONSTITUTES 44% OF TH E RECEIPTS. THE REJECTION OF PURCHASES FROM 20 PARTIE S WHICH IS 80% OF THE TOTAL PURCHASES OF THE MATERIAL MADE FOR THE EXECUTION OF THE CONTRACT WOULD LEAD TO THE PREPOST EROUS'. CONCLUSION OF HAVING EXECUTED CONTRACT INVOLVING MA TERIALS WITHOUT THERE BEING ANY CORRESPONDING GENUINE PURCHASE AND RECEIPT OF MATERIAL. IF SUCH DISALLOWANCES ARE TAKE IN TO CONS IDERATION, THE GROSS PROFIT RATIO AS WELL AS NET PROFIT RATIO WILL SHOOT UP IN A VERY HIGH RATIO IN DOUBLE DIGITS AND FOR WHICH ONUS WAS CAST ON THE A.O. TO BRING ON RECORD ANY SUCH COMPARABLE FIG URES/DATAS WHICH COULD SHOW THAT IN THE GOVERNMENT CIVIL CONTR ACTS THERE COULD BE A POSSIBILITY OF SUCH ABNORMAL GROSS PROFI T OR NET PROFIT. IN FACT, THE APPELLANT HAS BEEN ENGAGED IN SUCH ACTIVI TY FOR THE LAST SEVERAL YEARS. THE BOOK RESULTS OF THE APPELLA NT FOR THE CURRENT YEAR AND THE PRECEDING THREE YEARS HAVE ALR EADY BEEN REFLECTED IN APPELLANT'S REPLY IN TABULAR FORM IN EARLIER PARAGRAPHS AND WHERE NET PROFIT RATIO OF THE APPELL ANT FOR A.Y.2009-10 IS SHOWN AT 5.96% AS AGAINST 6.12%, 3.81% AND 3.23% RESPECTIVELY FOR RECEDING ASSESSMENT YEARS, 2008-09 , 2007- 08 8(2006-07. THE GROSS PROFIT RATIO OF THE APPELLA NT FOR ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 10 A.Y.2009-10 IS SHOWN AT 11.52% AS AGAINST 8.05%, 9. 75% AND 10.48% RESPECTIVELY FOR PRECEDING ASSESSMENT YEARS, 2008-0 9 . , 2007-08 & 2006-07. A GLANCE AT THE ABOVE COMPARATIVE FIGURES WILL SHOW THAT THE CURRENT YEAR'S RESULTS ARE MUCH BETTER AND IMPROVED NOT ONLY IN TERMS OF TURNOVER BUT ALSO PROFITABILITY. IT HAS BEEN POINTED OUT BY THE LD.A. R. THAT THE ASSESSMENT OF 3 PRECEDING YEARS HAVE BEEN COMPL ETED UNDER 143(3) AND IN THESE ASSESSMENT MOSTLY ADDITIO NS AND DISALLOWANCES HAS BEEN MADE OUT OF LABOUR CHARGES A ND SITE EXPENSES TO RAISE THE NET PROFIT RATE TO 8%. THE BO OKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED AND THE RETUR NS FILED IN EACH OF THESE YEARS WERE SUPPORTED BY TAX AUDIT REPORT IN T HE FORM .3CB & 3CD. FROM THE ASSESSMENT ORDER, IT IS ALSO SEEN THAT THE A.O. HAS NOT REJECTED THE TAX AUDIT REPORT IN CASE OF THE APPELL ANT. SINCE, THE APPELLANT HAS DONE JOB WORK EXCLUSIVELY FOR GOVERNM ENT DEPARTMENT, ITS RECEIPTS ARE 100% VERIFIABLE. AS PER THE TERMS OF CONTRACTS BY THE MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM), WHI CH IS IN PUBLIC DOMAIN AND AVAILABLE ON THE WEBSITE OF MUNICIPAL CO RPORATION OF GREATER MUMBAI, AND WHICH WILL BE REFERRED AT THE A PPROPRIATE PLACERS IN THE ORDER, THE JOBS EXECUTED BY THE CONT RACTOR (HERE THE APPELLANT) ALSO REQUIRE QUANTITY AND QUAL ITY SPECIFICATION OF THE MATERIAL TO BE SUPPLIED / CONS UMED AND THE CONTRACT RECEIPTS IN THE HANDS OF THE APPEL LANT INVARIABLY PRECEDE SUCH VERIFICATION AND CERTIFICAT ION BY THE DEPARTMENTAL AUTHORITIES. ON THE OTHER HAND, THE ONLY GROUND FOR REJECTING TH E PURCHASE IS MENTION OF THE NAMES OF PURCHASE PARTIE S ON THE WEBSITE OF SALES TAX DEPARTMENT UNDER THE CATEG ORY OF SUSPICIOUS DEALERS. THE A.O. HAS NOT FOUND ANY INFI RMITY WITH RESPECT TO RECEIPT OF PAYMENT FOR EXECUTION OF CONTRACTS FOR WHICH APPELLANT HAS OBTAINED, SUPPLIE D AND CONSUMED MATERIALS UNDER THE QUANTITY AND QUALITY SUPERVISON OF THE REPRESENTATIVE ENGINEER. THE A.O. HAS ALSO NOT BEEN ABLE TO BRING ON RECORD THE EVIDENCES THAT THE AMOUNT OF THE PAYMENT FOR PURCHASES WHICH WERE MADE BY THE APPELLANT TO THE RESPECTIVE PARTIES VIA BANKING CHANNELS, WERE RECEIVED BACK BY THE APPELLANT AND ULTIMATELY THERE WAS NO PURCHASE OF ANY MATERIAL. B UT THAT IS NOT POSSIBLE BECAUSE WITHOUT SUPPLY OF MATE RIAL, THE CONTRACT AWARDED BY MCGM CANNOT BE FULFILLED BY THE APPELLANT AND CONSEQUENTLY, THE MCGM WILL NOT MAKE ANY PAYMENT FOR THE SAME. IN FACT THE ENTIRE PROCESS IS INTER CONNECTED AND THE STATEMENT OF SUPPLIERS OF RAW MAT ERIALS CANNOT BE TAKEN AND READ INDEPENDENTLY RATHER IT HA S TO BE EXAMINED IN TOTALITY. IN VIEW OF THE ABOVE IT IS APPARENT THAT THE MERE APPEARANCE OF THE NAME OF THE PARTIES ON THE WEBSITE OF SALES TAX DEPARTMENT, CANNOT JUSTIFY THE CONCLUSION THAT THE PURCHASES MADE BY THE APPELLANT WERE NOT GENUINE. 20.3.6. THUS, THE CONTRACTS EXECUTED BY VARIOUS CONTRACTORS ARE SUBJECTED TO CHECK AS REGARDS THEIR SPECIFICATI ON, WORKMANSHIP, QUALITY AND QUANTITY OF MATERIAL UTILIZED BY THE AU DIT/VIGILANCE TEAM OF ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 11 THE MCGM. THE A.O. HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO SUGGEST THAT THERE WERE ANY DEFECT OR DEF ICIENCY IN THE QUANTITY AND QUALITY OF MATERIAL SUPPLIED AND T HE WORKMANSHIP OF THE JOB PERFORMED. 20.4,1. FURTHER, A LOOK AT THE AO'S REMAND REPORT SHOW THAT HE HAS ACCEPTED THAT THE CONCERNED PROJECTS FO R WHICH PAYMENTS HAVE BEEN SHOWN HAVE BEEN EXECUTED BY THE APPELLANT. HE HAS CARRIED OUT VERIFICATION FROM THE MCGM WHICH CONFIRMS THE CLAIM OF THE APPELLANT AS REGARD S THE PROJECT DETAILS PERTAINING TO THE EXECUTION AND CON SUMPTION OF MATERIAL. 20.4.2. THE DY. CHIEF ENGINEER (SWD), MCGM, GHATKOP AR HOWEVER CONFIRMED QUANTITATIVE USAGES OF RMC AND STEEL ONLY . AS REGARDS CONSUMPTION OF REUBBE, METAL POWDER AND SAND IS CON CERNED, IT WAS STATED BY THEM THAT QUANTITY OF THESE ITEMS IS NOT SEPARATELY RECORDED BY THEM. THE MCGM AUTHORITIES DID NOT CERTIFY THE PRICE AT WHICH THE RAW - MATERIAL PURCHASED / CONSUMED WAS ACQUIRED. T HE A.O. OBSERVED THAT HE HAD CALLED FOR DETAILS OF ALL THE RAW MATERIAL ACQUIRED FOR ALL THE PROJECTS EXECUTED DUR ING THE YEAR. THE APPELLANT HOWEVER, GAVE SUCH DETAILS WITH REGARD TO 'PREMIER NALLA PROJECT' ON THE GROUND THAT THE ADDI TION UNDER CONTEST IN APPEAL . RELATED TO THIS PROJECT A LONE. THE A.O. SUGGESTED THAT THERE IS A POSSIBILITY OF RAW M ATERIAL PURCHASED HAVING BEEN USED IN THE REMAINING 15 PROJ ECTS. IT HAS BEEN CONCLUDED BY THE A.O. THAT SINCE THE APPEL LANT HAS NOT PROVED THE GENUINENESS OF PURCHASES HAVING BEEN MAD E FROM THE PARTIES MENTIONED IN THE BOOKS OF ACCOUNTS AND, THE REFORE, HE EXPRESSED HIS DOUBTS THAT IT IS POSSIBLE THAT THE P URCHASES MAY HAVE BEEN MADE IN CASH AND SHOWN IN THE NAME OF BOGUS ENTRY PROVIDERS-PRESUMING THAT POSSIBILITY, T HE A.O. SUGGESTED THAT THE DISALLOWANCES SHOULD BE CONFIRME D BY APPLICATION OF SECTION 40A(3) OF THE I.T. ACT, 1961 THE APPREHENSION OF THE A,O. HAS BEEN STRONGLY CONTESTED BY THE A,R. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT IF TH E MCGM HAS NOT CERTIFIED QUANTITY OF ITEMS LIKE RUBBLE, METAL POWD ER, SAND ETC. UTILIZED IN THE EXECUTION OF THE CONTRACT AND THE MCGM HAS A LSO NOT CERTIFIED THE PURCHASE RATE OF RAW MATERIALS, THIS COULD BE IN THEIR ADMINISTRATIVE WISDOM THAT THE MCGM RECORD S DO NOT INCORPORATE DETAILS ABOUT THE ITEMS WHICH VARY DEPE NDING UPON THE PROJECT AND WHICH DO NOT COMMAND LOT OF VALUE. THE MCGM AUTHORITIES ALSO DO NOT MAINTAIN THE RATES OF MATER IAL WHICH KEEP ON FLUCTUATING BY DAY. THIS HOWEVER, DOES NOT IN ANY MANNER RAISE ANY QUESTION MARK ABOUT THEM ABOUT THE CLAIM OF THE APPELLANT IN REGARDS TO GENUINENESS OF THE P URCHASE OF MATERIAL FOR THE COMPLETION OF 'PREMIER NALLA PROJE CT'. THE APPELLANT HAS MADE CLAIM FOR PURCHASES FOR WHIC H PAYMENTS HAVE BEEN MADE BY CROSS- CHEQUE. WHERE PAYMENTS ARE MADE BY ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 12 ACCOUNT PAYEE CHEQUES NO BODY CAN DENY THE EXISTENC E OF THE PARTIES. THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGG EST THAT THE PAYMENTS MADE TO PURCHASE PARTIES WERE RECEIVED BAC K IN CASH BY THE APPELLANT AND NO FURTHER PAYMENTS WERE MADE BY THE APPELLANT TOWARDS PURCHASE OF ANY MATERIAL SO AS TO FULFILL THE CONDI TIONS OF CONTRACT IMPOSED BY THE MCGM WHICH HAS MADE PAYMENTS TOWARDS CONTRACT AWARDED TO THE APPELLANT. ONCE THE APPELLANT ESTABLISHES CONSUMPTION OF ITEMS PURCHASE D AS WELL NOTHING MORE REMAINS TO BE PROVED BY THE APPELLANT. AS FAR AS THE PRAYER FOR APPLICATION OF PROVISION OF SECTION 40A( 3) OF THE I.T. ACT, 1961 IS CONCERNED, IT CANNOT BE INVOKED ON THE BASI S OF SURMISES AND CONJECTURES. THE A.O. HAS NOT BROUGHT ANY MATER IAL ON RECORD TO SUGGEST THAT ANY PAYMENT TOWARDS PURCHASE WAS MA DE BY THE APPELLANT IN CASH EXCEEDING RS.20,000/- EACH FOR PU RCHASE. THE SUGGESTION OF THE A.O. CANNOT BE ACCEPTED AT THIS STAGE IN VIE W OF JUDICIAL PRONOUNCEMENTS. IN THIS REGARD, I WOULD LIKE TO REF ER AND RELY ON THE JUDGMENTS BELOW SINCE THE FACTS AND CIRCUMSTANCES O F THESE JUDGMENTS OF THESE CASES ARE APPLICABLE TO THE PRESENT CASE O F THE APPELLANT. THERE ARE AS UNDER:- (I) THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V M.K.BROTHERS REPORTED AT 163 ITR 249 HAS HELD THAT 'IT WAS CLEAR FROM THE TRIBUNAL'S ORDER THAT WHETHER THE SAID TRANSACTIONS WERE BOGUS OR NOT WAS A QUESTION OF FA CT. THE ASSESSEE WAS GIVEN CREDIT FACILITIES FOR A SHORT DU RATION AND THE PAYMENTS WERE GIVEN BY CHEQUES. WHEN THAT WAS S O, IT COULD NOT BE SAID THAT THE ENTRIES FOR THE - PURCHA SES OF THE GOODS MADE, IN THE BOOKS OF THE ACCOUNT WERE BOGUS ENTRIES. THUS, THE CONCLUSION ARRIVED AT BY THE TRI BUNAL WAS NOT AGAINST THE WEIGHT OF EVIDENCE. THE TRIBUNA L WAS, THEREFORE, JUSTIFIED IN DELETING THE ADDITION TO TH E INCOME OF THE ASSESSEE.' IN THIS CASE, 'DURING THE ASSESSMENT PROCEEDINGS IT CAME TO THE NOTICE OF THE ITO THAT IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAD MADE CERTAIN PURCHASES FROM SOME PARTIES, WHO W ERE NOT AVAILABLE TO CROSS-EXAMINE FOR THE GENUINENESS OF T HE ABOVE PURCHASES. IT WAS FOUND BY THE ITO THAT THOUGH THE PURCHASES WERE CLAIMED TO HAVE BEEN MADE ON CREDIT BASIS, THE PAYMENTS WERE SHOWN TO HAVE BEEN MADE AFTER SUB STANTIAL LAPSE OF TIME AFTER THE DATE OF PURCHASE. THE ITO H ELD THAT THE TRANSACTIONS RELATING TO THOSE PURCHASES WERE BOGUS AND, THEREFORE, TREATED THE AMOUNT ALLEGEDLY PAID FOR TH OSE PURCHASES AS INCOME OF THE ASSESSEE. ON SECOND APPE AL, THE TRIBUNAL FOUND THAT THERE WAS NO EVIDENCE ANYWHERE THAT THOSE CONCERNS GAVE BOGUS VOUCHERS TO THE ASSESSEE AND FURTHER THERE WAS NOTHING TO INDICATE THAT ANY PART OF THE FUND GIVEN BY THE ASSESSEE TO THOSE PARTIES CAME BACK TO THE ASSESSEE IN ANY FORM. HE, THUS, HELD THAT THE EVIDE NCE WAS NOT ADEQUATE TO CONCLUDE THAT THE PURCHASES MADE WE RE BOGUS AND, THEREFORE, DELETED THE AFORESAID ADDITION TO T HE INCOME OF THE ASSESSEE.' ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 13 (II) THE HON'BLE ITAT, JODHPUR BENCH IN THE CASE OF ITO V PERMANAND REPORTED AT 107 TT3 395 HAS HELD THAT 'IN THE INSTANT CASE, THE ADDITION RESTED MAINLY ONLY ON TH E OBSERVATION OF THE SALES-TAX DEPARTMENT. THE ASSESS EE WAS NEVER ASSOCIATED WITH THE ENQUIRIES MADE BY THE SAL ES- TAX DEPARTMENT TO THAT EXTENT THE SATISFACTION OF T HE ASSESSING OFFICER HIMSELF IS OF PRIME IMPORTANCE WH ILE MAKING ASSESSMENT OF AN INCOME AND THESE DUTIES CANNOT BE PERFORMED BY SUBSTITUTING SATISFACTION OF SOMEONE ELSE. THE ASSE SSEE DID PAY FOR THE PURCHASES HE MADE FROM THE ABOVE TWO PARTIES THROUG H CHEQUE AS WAS EVIDENT FROM THE RECORD. THE STATEMEN TS OR EVEN THE AFFIDAVITS OF THE SELLERS COULD NOT BE UTI LIZED AGAINST THE ASSESSEE, UNLESS AN OPPORTUNITY WAS GIV EN TO HIM TO CONFRONT THE SAID STATEMENT BY WAY OF CROSS-EXAM INATION, ETC. ADMITTEDLY, NO SUCH OPPORTUNITY WAS GIVEN TO T HE ASSESSEE TO CONFRONT THE ABOVE SELLERS IN THE INSTA NT CASE. FURTHER, THE ASSESSEE HAD ALSO DISCHARGED THE PRIMA RY ONUS CAST ON HIM BY SECTION 69 BY SHOWING THE PURCH ASES THEIR ENTRIES IN THE BOOKS OF ACCOUNT, PAYMENTS BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUCING THE VOUCHERS OF SALES OF THE G OODS. THE ASSESSING OFFICER DID NOT MAKE REQUISITE INVESTIGAT ION AGAINST THE TWO SELLERS. THEREFORE, THE COMMISSIONER(APPEALS) HAD R IGHTLY HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER MERELY ON TH E BASIS OF OBSERVATIONS OF SALES-TAX DEPARTMENT, WITHOUT CONDU CTING INDEPENDENT ENQUIRIES WAS NOT JUSTIFIED. SINCE THE PURCHASE IN QUESTION HAD BEEN HELD AS GENUINE PURCHASE, ADDITIO N OF RS. 55,632 COULD NOT BE MADE TO THE INCOME OF TILE ASSESSEE. H ENCE, THE REVENUE'S APPEAL WAS LIABLE TO BE DISMISSED' IN THIS CASE, 'THE ASSESSEE WAS TRADING IN NARMA, K APAS, FOODGRAINS AND ALSO DERIVED INCOME FROM COMMISSION. THE ASSESSING OFFICER ON THE BASIS OF INFORMATION RECEIVED FROM T HE SALES-TAX DEPARTMENT HELD THAT THE ASSESSEE HAD MADE BOGUS PU RCHASES FROM TWO PARTIES AND, THEREFORE, HE MADE CERTAIN AD DITION TO THE INCOME OF THE ASSESSEE UNDER SECTION 69. HE ALSO MA DE AN ADDITION OF RS, 55,632 TO THE INCOME OF THE ASSESSE E HOLDING THAT THE ASSESSEE DID NOT PAY ANY SALES-TAX OR MAND I TAX ON THE PURCHASES MADE FROM THE ABOVE TWO PARTIES AND, THUS , MADE EXTRA PROFIT. ON APPEAL, THE COMMISSIONER (APPEALS) , HELD THAT THE ASSESSING OFFICER HAD MADE ADDITION MERELY ON THE B ASIS OF OBSERVATION MADE BY SALES-TAX DEPARTMENT, WITHOUT C ONDUCTING INDEPENDENT ENQUIRIES. HE, THEREFORE, DELETED THE A DDITION.' (III) THE HON'BLE ITAT, JAIPUR BENCH IN THE CASE OF SHANTI KUMAR CHORDIA V ACIT REPORTED AT 128 TTJ 708 HAS HELD THAT 'WHERE ASSESSEE HAD DECLARED DOUBTFUL PURCHASES AND PURCHASES OF DIAMOND FROM UNREGISTERED DEALERS FOR WHICH NO VERIFICATION WAS GOT DONE BY ASSESSEE, IN ABSENCE O F ANY VERIFICATION OF PURCHASES FROM UNREGISTERED DEALERS AND VERIFICATION OF PURCHASES FROM CERTAIN OTHER PARTIE S, APPLICATION ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 14 OF SECTION 145(3) WAS JUSTIFIED [PARTLY IN FAVOUR O F ASSESSEE]' IN THIS CASE, 'WHERE THE ASSESSEE HAD DECLARED DOUB TFUL PURCHASES AND THE PURCHASES OF DIAMOND FROM UNREGISTERED DEAL ERS FOR WHICH NO VERIFICATION WAS GOT DONE BY THE ASSESSEE, IN THE A BSENCE OF ANY VERIFICATION OF PURCHASES FROM THE UNREGISTERED DEA LERS AND VERIFICATION OF THE PURCHASES FROM CERTAIN OTHER PA RTIES, APPLICATION OF SECTION 145(3) WAS JUSTIFIED; HOWEVER, THERE WAS NO JUSTIFICATION FOR , APPLICATION OF 25 PER CENT GP RATE AS DONE BY THE A SSESSING OFFICER AS PROFITS' MARGIN IN SUCH CASES WAS LOW.' (IV) THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF DIAGNOSTICS V CIT 4PORTED AT 334 ITR 111 HAS HELD THAT - 'HOWEVER, AS REGARDS THE PAYMENTS MADE TO M/S. SELV AS PHOTOGRAPHICS ARE CONCERNED AMOUNTING TO RS. 3,12,3 02, WE FIND THAT THOSE HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND THOSE HAVE BEEN ENCASHED THROUGH THE BANKERS OF M/S. SELV AS PHOTOGRAPHICS. IT APPEARS THAT ACCORDING TO THE APP ELLANT, AT THE TIME OF ASSESSMENT, THE APPELLANT HAD NO BUSINESS TRANSACTI ON WITH M/S SELVAS PHOTOGRAPHICS AND CONSEQUENTLY, THE SAID PARTY DID NOT CO-OPERATE WITH THE ASSESSING OFFICER. HOWEVER, THE TRANSACTION HA VING TAKEN PLACE THROUGH ACCOUNT PAYEE CHEQUES, WE ARE UNABLE TO ACC EPT THE CONTENTION OF MR. AGARWAL, THE LEARNED ADVOCATE APP EARING FOR THE REVENUE THAT THE TRANSACTION WAS A NON-EXISTENT ONE . IF AN ASSESSEE TOOK CARE TO PURCHASE MATERIALS FOR HIS BUSINESS BY WAY OF ACCOUNT PAYEE CHEQUES FROM A THIRD PARTY AND SUBSEQUENTLY, THREE YEARS AFTER THE PURCHASE, THE S AID THIRD PARTY DOES NOT APPEAR BEFORE THE ASSESSING OFFICER PURSUANT TO THE NOTICE OR EVEN HAS STOPPED THE BUSI NESS, THE CLAIM OF THE ASSESSEE ON THAT ACCOUNT CANNOT BE DISCARDED AS NONEXISTENT. IN THE CASE BEFORE US, TH E REVENUE HAS NOT PUT FORWARD ANY OTHER GROUND, SUCH AS, IT W AS NOT A GENUINE TRANSACTION FOR OTHER REASONS BUT HAS SIMPL Y REJECTED THE CLAIM ON THE GROUND AS IF THERE WAS NO SUCH TRA NSACTION. 10. THE TRANSACTION HAVING TAKEN PLACE THROUGH PAYM ENT BY ACCOUNT PAYEE CHEQUES, SUCH PLEA IS NOT TENABLE AND IN SUCH CIRCUMSTANCES, THE TRIBUNAL BELOW ERRED IN LAW IN R EVERSING THE FINDING ARRIVED AT BY THE COMMISSIONER OF INCOME-TAX (APPEA LS) ACCEPTING THE SAID TRANSACTION AS A GENUINE TRANSACTION' (V) THE HON'BLE ITAT, DELHI BENCH IN THE CASE OF YF C PROJECT PVT. LTD VS DEPUTY COMMISSIONER OF INCOME T AX REPORTED IN 46 DTR 496 / 134 TT) 167 (DELHI) HAS HELD THAT - 'THE ASSESSEE HAS ACHIEVED A TURNOVER OF RS. 884.81 LAKH S. IT HAS SHOWN NET PROFIT OF RS.79.11 LAKHS. ITS NET PROFIT IN TER MS OF PERCENTAGE IS ALMOST DOUBLE THAN THE PREVIOUS YEAR. ASSESSING OFFICER WAS UNABLE TO POINT OUT A SINGLE DEFECT IN ITS BOOKS OF ACCOUNT, MERELY NON-FILING OF CONFIRMA TION FROM TWO SUPPLIERS, IT CANNOT BE HELD THAT ASSESSEE HAS NOT RECEIVED THE GOODS FROM THESE PERSONS AND THE CREDIT BALANCE IN THE SHAPE OF ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 15 SUNDRY CREDIT APPEARING IN THE BOOKS OF ACCOUNT IS UNACCOUNTED MONEY OF THE ASSESSEE. THE ASSESSEE HAS FILED CERTI FICATE FROM THE BANK INDICATING THE FACTS THAT CHEQUE ISSUED BY IT WERE CLEARED, ASSESSING OFFICER IS HARPING UPON ONLY ONE ASPECT THAT NOTICE ISSUED TO SHRI SUBHASH CHAND RETURNED BACK W ITH A REMARK 'NOT KNOWN', THEREAFTER HE DID NOT TAKE ANY STEPS T O PROCURE THE PRESENCE OF THIS PERSON. ACCORDING TO THE ASSES SEE, NOTICE DID NOT CONTAIN THE FATHER'S NAME OF SHRI SU BHASH CHAND, THAT MAY BE THE REASON FOR' RETURN OF THE NO TICE OTHERWISE ON THE BILLS RAISED BY SHRI SUBHASH CHAND , HIS MOBILE NUMBER IS AVAILABLE. HE COULD HAVE BEEN CONT ACTED ON HIS MOBILE NUMBER.' IN VIEW OF THE ABOVE DISCUSSION, IN OUR OPINION, ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING THE DI SALLOWANCE OF PURCHASES MADE BY THE ASSESSEE. WE ALLOW THIS GROUN D OF APPEAL ALSO AND DELETE THE ADDITION OF RS. 6,64,521 AND RS.4,04,012. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED.' IN THIS CASE, GRIEVANCE OF THE ASSESSEE RELATES TO ADD ITION OF RS. 6,64,521 AND RS. 4,04,012. THE ASSESSEE HAD PURCHASED SAND F ROM ONE SUBHASH CHAND AND VISHAL ENTERPRISES. ASSESSING OFF ICER ON SCRUTINY OF THE ACCOUNTS FOUND THAT SAND OF RS. 6,64,521 WAS PURCHASED FROM SUBHASH CHAND ON VARIOUS DATES DURING THE YEAR AND HE PAID RS.2,61,700 ON TWO DATES. SIMILARLY, SAND OF RS.4, 04,012 WAS PURCHASED FROM VISHAL ENTERPRISES. ASSESSING OFFICE R HAD ISSUED NOTICE UNDER SECTION 133(B) TO SUBHASH CHAND R/O VILLAGE N AVRANGPUR (HR.) THE NOTICE WAS RETURNED BACK WITH THE REMARKS NOT KNOWN. ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT ASSESSEE FAILED TO FILE CONFIRMATION FROM THESE PER SONS IN SUPPORT OF ITS PURCHASES. DISSATISFIED WITH THE DIS ALLOWANCE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LE ARNED CIT (APPEALS). IT IS CONTENDED THAT ASSESSEE HAS SH OWN NET PROFIT OF RS, 79.11 LKHS ON THE TURNOVER OF RS 884 .81 LAKHS. THE NET PROFIT IN TERMS OF PERCENTAGE IS 8.94 PER C ENT WHEREAS THE NET PROFIT IN THE IMMEDIATE PREVIOUS YE AR WAS 4.79 PER CENT. IT WAS ALSO CONTENDED THAT ASSESSING OFFICER HAD ISSUED NOTICE TO SHRI SUBHASH CHAND WITHOUT MENTIONING FATHER'S NAME. IN A VILLAGE, IT IS QUITE DIFFICULT TO FIND THE PERSON IN THE SINGLE NAME WITHOUT MENTI ONING OF HIS FATHER'S NAME. THERE MAY BE SO MANY SUBHASH CHA ND, THE ASSESSEE HAS PRODUCED EVIDENCE FROM ITS BANKER INDICATING THE PAYMENT THROUGH THE CHEQUE. THE BILL S RAISED BY THESE TWO PERSONS ARE BEARING TELEPHONE NUMBERS. ASSESSING OFFICER COULD VERIFY BY MAKING A CALL TO THE TRUCK OWNERS WHO HAS CARRIED THE MATERIAL TO 'THE SITE OF THE ASSESSEE-COMPANY. LEARNED CIT (APPEALS) WAS NOT SAT ISFIED WITH THE CONTENTION OF THE ASSESSEE AND CONFIRMED T HE ADDITION.' THE APPELLANT WENT TO THE HIGHER JUDICIA L FORUM WHERE THE APPEAL OF THE ASSESSEE WAS ALLOWED. ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 16 (VI) THE HON'BLE ITAT, MUMBAI BENCH IN THE CASE OF FREE INDIA ASSURANCE SERVICES LTD V DCIT REPORTED AT . 2 DTR 349/(2011) 12 TAXMAN.COM 424 (MUM) HAS HELD THAT -' 13. GROUND NO. 4 IS AGAINST THE SUSTENANCE OF DISALLOWA NCE OF 20 PER CENT OF RS. 6,16,346 OUT OF CASH PURCHASE S OF RS. 30,80,730 UNDER SECTION 40A(3) AND GROUND NO. 1(U) IN . REVENUE'S APPEAL IN ITA NO. 3661/MUM/07 FOR ASSESSM ENT YEAR 2002-03 IS AGAINST THE RELIEF ALLOWED BY THE I D. CIT(A) OF RS. 24,65,384 OUT OF TOTAL DISALLOWANCE OF BOGUS PURCHASES RS.30,80,730. 14. THE FACTS OF THE ABOVE ISSUE ARE THAT THE ASSES SING OFFICER FOUND FROM PAGE NO. 140 OF THE SEIZED DOCUMENTS OF ANNEXURE A-6 SEIZED FROM PRIME PLAZA THAT THE ASSES SEE HAD MADE PURCHASES AMOUNTING TO RS. 30,80,730 FROM SHRI DEEPAK FOR WHICH THE ASSESSEE HAD ISSUED A CHEQUE O F RS. 30,80,730 AND IN LIEU THEREOF HE RECEIVED CASH FROM SHRI DEEPAK. THEREFORE, THE ASSESSING OFFICER ISSUED SHO W CAUSE NOTICE AS TO WHY THE PURCHASES OF RS. 30,80,7 30 SHOULD NOT BE DISALLOWED. THE ASSESSEE REPLIED VIDE LETTER DATED 8-3-2000 AS UNDER (PARA 8 AT PAGE 12 OF THE ASSESSMENT ORDER):- IN PARA 10, REFERENCE IS MADE FOR PAGE NO. 140 OF ANNEXURE A-6 SEIZED FROM PRIME PLAZA. THE AMOUNT MENTIONED IS RS, 30,80,730. IN THE SHOW-CAUSE NOTIC E, YOUR HONOUR HAVE MENTIONED THAT THESE ENTRIES PERTA INS TO DEEPAK BUT THESE ENTRIES PERTAIN TO M/S MIRA CLOTH AGENCY AND M/S SHREERAM SALES & SYNTHETICS WHICH IS ALREAD Y EXPLAINED IN THE EXPLANATION TO SEIZED MATERIALS. P URCHASE BILLS WERE TAKEN FROM THESE PARTIES TO COVER UP THE PURCHASE ACTUALLY MADE IN THE GREY MARKETS. THE CHEQUES WERE ISSUED TO THEM AGAINST WHICH CASH WAS RECEIVED AND THIS VERY CASH WAS IN TURN UTILISED FOR THE PAYMENT OF PURCHASES MADE OF FABRI CS FROM GREY MARKET. THIS FABRIC WAS PURCHASED IN THE YEAR 2001-02 (ASSESSMENT YEAR 2002-03) AND W - LYING IN STOCK AS ON 31-3-2002, THE CLOSING STOCK AS ON 31-3-2002 INCLUD ES THIS FABRIC PURCHASED AND THE AMOUNT OF CLOSING STOCK WA S SHOWN IN THE TRADING ACCOUNT ON THE CREDIT SIDE AND AGAINST WHICH THE EXPENSES UNDER THE HEAD PURCHASES WERE SHOWN ON THE DEBIT SI DE OF THE TRADING ACCOUNT. BY SHOWING THE CLOSING STOCK ON TH E CREDIT SIDE AND THE EXPENSE I.E. PURCHASES ON THE DEBIT SIDE OF THE TRA DING THERE REMAINS NO EFFECT ON THE PROFIT OF THE YEAR UNDER CONSIDERA TION. IT GOES WITHOUT SAYING THAT THERE CANNOT BE A CLOSING STOCK WITHOUT ITS CORRESPONDING PURCHASES. THE EFFECT OF BOTH THESE I TEMS CONSIDERED COLLECTIVELY RESULTS INTO NO EFFECT ON THE TAXABLE INCOME. AS SUCH NO DISALLOWANCE IS WARRANTED ON THIS COUNT.' HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE A SSESSEE'S EXPLANATION. ACCORDING TO THE ASSESSING OFFICER SHRI ASHISH MEHT A HIMSELF ACCEPTED IN THE STATEMENT, RECORDED UNDER SECTION 132(4) ON 26-6-2003 THAT THE ASSESSEE MADE CERTAIN CHEQUE PAYMENTS AND RECEI VED THE CASH BACK AND SINCE ASSESSEE HAD CLARIFIED THAT THE PURCHASES WERE NOT MADE FROM ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 17 DEEPAK ENTERPRISES BUT FROM THE GREY MARKET IT WAS ESTABLISHED THAT THE ASSESSEE DID NOT PURCHASE MATERIAL FROM M/S HIRA CL OTH AGENCIES AND M/S SHREERAM SALES & SYNTHETICS. HENCE THE ASSESSIN G OFFICER CONCLUDED THAT ASSESSEE ADMITTED BOGUS PURCHASES AM OUNTING TO RS, 30,80,730 FROM M/S HIRA CLOTH AGENCIES AND M/S SHRE ERAM SALES & SYNTHETICS AND ACCORDINGLY ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 15. ON APPEAL, THE ID. CIT(A) WHILE OBSERVING THAT AS L ONG AS THE STOCK IS REFLECTED IN THE BOOKS OF ACCOUNT, TO THAT EXTEN T OF FABRICS PURCHASED BY THIS FIRM, CREDIT HAS TO BE GIVEN TO THE PURCHASES MADE BY THE ASSESSEE AND SINCE IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD MADE THE PURCHASES BY WAY OF CASH FROM THE GREY MARKET HELD THAT THE PROV ISIONS OF SECTION 40A(3) ARE ATTRACTED AND HENCE HE DISALLOWED RS. 6,16,346 BEING 20 PER CENT OF PURCHASE OF RS. 30,80,730 AND THUS ALLOWED RELIEF O F RS.24,65,384. 16. AT THE TIME OF HEARING, THE ID. COUNSEL FOR THE ASS ESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE ASSESSING OFFICER AND ID. CIT(A) REFERS TO PAGE NOS. 145 TO 152 OF THE ASSESSEE'S PAPER BOOK TO SHOW THAT CHEQUES AMOUNTING TO RS.15, 50,730 AND RS.15,30,000 AGGREGATING TO RS. 30,80,730 WERE ISSUED TO TWO PARTIES M/S HIRA CLOTH AGENCIES AND M/S SHREERAM SA LES & SYNTHETICS RESPECTIVELY AGAINST THE PURCHASES OF FABRICS. HE F URTHER SUBMITS THAT AGAINST THE SAID CHEQUES PAYMENTS, THE ASSESSEE REC EIVED BACK THE AMOUNT IN CASH FROM THE SAID TWO PARTIES AND PURCHA SED THE CLOTH OF THE SAME AMOUNT FROM GREY MARKET. HE FU RTHER SUBMITS THAT THE SAID CLOTH AMOUNTING TO RS, 30,80,730 IS LYING IN THE CL OSING STOCK AS ON 31-3-2002 ONWARDS WHICH MAY BE VERIFIED FROM THE DE TAILS OF CLOSING STOCK AS ON 31-3-2003 APPEARING AT PAGE NO. 147 OF THE ASSESSEE'S PAPER BOOK. IN THE LIGHT OF THE ABOVE, HE SUBMITS THAT T HE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE ABOVE PURCHASES A S BOGUS PURCHASES WITHOUT VERIFYING THE FACT THAT THE ASSESSEE HAS SH OWN THE ABOVE PURCHASES IN THE REGULAR BOOKS OF ACCOUNT AND ALSO SHOWN THE SAME IN THE CLOSING STOCK IN THE REGULAR RETURN FILED BY TH E ASSESSEE. WITH REGARD TO THE DISALLOWANCE MADE BY THE ID. CIT(A) UNDER SECTI ON 40A(3), THE ID. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE COURSE OF SEARCH, NO SUCH MATERIAL WAS FOUND TO SHOW THAT THE ASSESSEE HAS MADE CASH P AYMENTS MORE THAN RS. 20,000 OR THE ASSESSEE HAS VIOLATED THE PROVISI ONS OF SECTION 40A(3), T HEREFORE, THE ID. CIT(A) WAS NOT JUSTIFIED IN INVOK ING THE PROVISIONS OF SECTION 40A(3) AND IN MAKING THE DISA LLOWANCE OF RS. 6,16,346 BEING 20 PER CENT OF THE ABOVE PURC HASES OF RS. 3080,730. IN SUPPORT THE RELIANCE WAS ALSO PLAC ED ON THE FOLLOWING DECISIONS:-- (1)RAJMAL LAKHICHAND V. ASSTT. CIT [2001] 79 ITD 84 (PUNE) .. (2)WESTERN INDIA BAKERS (P.) LTD. V. DY. CIT [2003 ] 87 ITD 607 (MUM.) (3)SHARMA ASSOCIATES V. ASSTT. CIT [1996] 217 ITR ( AT) 1/[1995] 55 ITD 171 (PUNE) (TM). ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 18 HE, THEREFORE, SUBMITS THAT THE ADDITION MADE BY TH E ASSESSING OFFICER AND SUSTAINED BY THE ID. CIT(A) B E DELETED. 17. ON THE OTHER HAND, THE ID. D.R. WHILE RELYING O N THE ORDER OF THE ASSESSING OFFICER SUBMITS THAT THE ASS ESSEE HAS PLACED NO MATERIAL ON RECORD TO SHOW THAT THE ASSES SEE HAS NOT MADE BOGUS PURCHASES OF RS. 30,80,730 AND HAS MADE CASH PAYMENTS AGAINST THE SAID PURCHASES LESS THAN RS. 20,000. HE , THEREFORE, SUBMITS THAT THE ASSESSING OFFICER WAS JUSTIFIED IN TREATIN G THE SAID PURCHASES OF RS. 30,80,730 AS BOGUS PURCHASES AND T HE ID. CIT(A) WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 40A(3) IN SUSTAINING THE ADDITION OF RS. 6,16,346. HE', THEREFORE, SUBMITS THAT THE ADDITION MADE BY THE AS SESSING OFFICER BE RESTORED. 18. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE F IND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE PAYMENTS O F RS. 30,80,730 BY CHEQUES TO M/S HIRA CLOTH AGENCIES AND M/S SHREERAM SALES 81. SYNTHETICS. DURING THE COURSE OF SEARCH, THE STATEMENT WAS ALSO RECORDED OF SHRI ASHISH MEHTA ON 20-6-2003 WHEREIN HE HAS STATED THAT AGAINST THE CHEQUE TRANS ACTIONS, CASH HAS BEEN RECEIVED WHICH IS FOUND RECORDED AT PAGE NO. 1 52 OF THE ASSESSEE'S PAPER BOOK. DURING THE COURSE OF ASSESSM ENT PROCEEDING, IT WAS STATED BY THE ASSESSEE THAT THE SAID CASH, AGAINST CHEQUE PAYMENTS WAS UTILISED TO PURCHASE CL OTH FROM THE GREY MARKET AND IN SUPPORT, THE ASSESSEE HAS AL SO FILED DETAILS OF CLOSING STOCK AS ON 31-3-2003 APPEARING AT PAGE 143 OF THE ASSESSEES PAPER BOOK WHEREIN FABRIC CLOTH TOTALING TO RS.30,80,730 IS APPEARING AS CLOSING STOCK. IN THE ABSENCE OF ANY M ATERIAL TO SHOW THAT NO SUCH CHEQUE PAYMENTS WERE MADE BY THE ASSESSEE OR CASH AMOUNT RECEIVED BY THE ASSESSEE AG AINST THE CHEQUE PAYMENTS WAS UTILISED BY THE ASSESSEE OTHER THAN PU RCHASES OR THE ENTRY RECORDED IN THE CLOSING STOCK AMOUNTING TO RS . 30,80,730 IS FOUND TO BE FICTITIOUS OR FALSE OR NO SUCH CLOSING STOCK WAS FOUND DURING THE COURSE OF SEARCH, WE ARE OF THE VIEW THAT THE ASSESSEE HAS MADE CASH PURCHASES OF RS. 30 ,80,730 WHICH UNDISPUTEDLY FOUND RECORDED IN THE INVENTORY OF CLO SING STOCK, THEREFORE, THE ASSESSING OFFICER WAS NOT JUS TIFIED IN TREATING THE SAID PURCHASES OF RS. 30,80,730 AS BOG US PURCHASES. 19. AS REGARDS THE APPLICATION OF PROVISIONS OF SE CTION 40A(3) OF THE ACT, WE FIND THAT DURING THE COURSE O F SEARCH, NO SUCH MATERIAL WAS FOUND TO SHOW THAT THE ASSESSE E HAS MADE CASH PAYMENTS IN VIOLATION OF PROVISIONS OF SE CTION 40A(3) OF THE ACT. DISALLOWANCE CANNOT BE MADE MERE LY ON P RESUMPTION BASIS THAT THE ASSESSEE HAD MADE THE PURCHASES BY WAY OF CASH FROM THE GREY MARKET IN VI OLATION OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 20. IN THE CASE OF RAJMAL LAKHICHAND (SUPRA) IT HAS BEEN HELD :-- ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 19 'THE PROVISION OF SECTION 40A(3) IS TO BE INVOKED WHEN THE DEPARTMENT HAS EVIDENCE WITH ITSELF THAT THE ASSESSEE HAS MADE PAYMENTS IN CASH EXCEEDING THE PRESCRIBED LIMITS. DISALLOWANCE CANNOT BE MADE MERELY ON A PRESUMPTION THAT THE ASSESSEE MUST HAVE MADE PAYMENTS IN CASH AND THAT TOO EXCEEDING THE PRESCRIBED LIMITS. HENCE, THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE COMMISSIONER (APPEALS) WAS TO BE DELETED.' (P.86). 21. IN THE CASE OF WESTERN INDIA BAKERS (P.) LTD. (SUP RA) IT HAS BEEN HELD 'WHEN A PROVISION OF LAW IS TO BE APPLIED, IT IS TO BE SEEN THAT ALL THE CIRCUMSTANCE S ALLIUNDE TO THE APPLICATION OF SUCH PROVISION DID E XIST. IF IT IS NOT POSSIBLE TO FIND OUT HOW THE VIOLATION OF THE P ROVISION WAS DONE, ADDITION CANNOT BE MADE ON THE BASIS OF INFER ENCE AND SURMISES. IN THE INSTANT CASE, IT WAS NOT KNOWN AT WHAT POINT OF TIME AND HOW ASSESSEE VIOLATED THE PROVISIONS OF SECTION 40A(3). AS SUCH, NO ADDITION ON THAT COUNT WAS WARR ANTED. (PARA 29)' (P. 609) 22. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS AND FOR THE REASO NS AS DISCUSSED ABOVE HOLD THAT THE ID. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 6,16,34 6 BEING 20 PER CENT OF TOTAL PURCHASE OF RS. 30,80,73 0 AND ACCORDINGLY WE DELETE THE ENTIRE ADDITION OF RS . 30,80,730. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED AND THE GROUND TAKEN BY THE REVEN UE IS DISMISSED' (VII) THE HON'BLE ITAT, PUNE BENCH IN THE CASE OF RAJMAL LAKHICHAND V ACIT REPORTED AT 79 ITD 84 HAS HELD THAT - 'IT WAS ON RECORD THAT AGAINST THE PURCHASE OF SILVER, THE ASSESSEE HAD SHOWN IN THE B OOKS PAYMENTS IN THE FORM OF CASH AND SALE OF GOLD, APART FROM A FEW PAYMENTS LATER BY DEMAND DRAFTS. THE REVENUE HA D NOT MADE ANY INVESTIGATION TO SHOW THAT THE PAYMENTS BY DEMAND DRAFTS WERE WITHDRAWN BY THE ASSESSEE OR HIS OWN MEN. IN VIEW OF THIS FACT, THE ASSE SSEE HAD DISCHARGED THE ONUS OF PROVING THE, FACT THAT IT HAD PAID FOR THE PURCHASE S OF SILVER AND THE DEPARTMENT HAD NOT CONTROVERTED THE ASSESSEE'S CLAIM THAT ALL THE PAYMENTS WERE TO THE PAYMENTS WERE MADE TO THE PARTIES ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 20 CONCERNED. IN FACT, AS THE ASSESSING OFFICER HAD MA DE AN ADDITION UNDER SECTION 69/69C, IT WAS INCUMBENT UPO N HIM TO SHOW THAT THE ASSESSEE HAD MADE PAYMENTS BEFORE THE DATE OF SEARCH OR ALTERNATIVELY TO PROVE THAT THE ALLEGED PAYMENTS SHOWN BY THE ASSESSEE WERE BOGUS. AS NONE OF THE ABOVE BURDENS WAS DISCHARGED BY THE ASSESSING OFFIC ER IT COULD BE ACCEPTED THAT THE ASSESSEE HAD MADE PAYMEN TS FOR THE PURCHASE OF SILVER AS SHOWN IN ITS BOOKS OF ACCOUNT AND, THEREFORE, NO ADDITION WAS POSSIBLE UNDER SECTION 69/69C. THE DEPARTMENT HAD BASED ITS ENTIRE CASE ON THE FACTS FOUND BY THE CUSTOMS AUTHORITIES. IT IS A WELL- SETTLED PRINCIPLE OF LAW THAT IF THE STATEMENT/DEPOSITION/ EVIDENCE /JUDGMENT IS TO BE RELIED UPON BY ANY AUTHORITY, RELIANCE MUST BE PLAC ED ON SUCH DOCUMENTS ENTIRELY. THE ASSESSING OFFICER W AS NOT JUSTIFIED IN PICKING A CONVENIENT PORTION OF SUCH JUDGMENT WHICH WAS ONLY IN HIS FAVOUR AND IGNORING THE PORTION WHICH WAS IN FAVOUR OF THE ASSESSEE. IN THI S CASE, THERE WAS NO DOUBT THAT THE DEPARTMENT ON ITS OWN H AD NOT MADE ANY ENQUIRIES TO PROVE THAT THE ASSESSEE HAD PURCHA SED THE CONTRABAND SILVER AND IT WAS ALSO NOT PROVED THAT T HE ASSESSEE HAD MADE PAYMENTS FOR THE SAME IN CASH AT THE TIME OF DELIVERY. THE DEPARTMENT HAD BASED THE ENTIRE ADDITION ON THE FINDINGS OF THE CUSTOMS AUTHORITIES, BUT IT HAD NOT GIVEN DU E WEIGHTAGE TO THE FINDING OF THE CEGAT THAT NO PAYMENT WAS MADE B Y THE ASSESSEE FOR THE ACQUISITION OF THE SUBJECT SILVER TILL THE DATE OF SEARCH. THE PROVISION OF SECTION 40A(3) IS TO BE IN VOKED WHEN THE - DEPARTMENT HAS EVIDENCE WITH ITSELF THAT THE ASSESSEE HAS MADE PAYMENTS IN CASH EXCEEDING THE PRESCRIBED LIMI TS. DISALLOWANCE CANNOT BE MADE MERELY ON A PRESUMPTION THAT THE ASSESSEE MUST HAVE MADE PAYMENTS IN CASH AND TH AT TOO EXCEEDING THE PRESCRIBED LIMITS. HENCE, THE IMPUGNE D ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE COMMISSIONER (APPEALS) WAS TO BE DELETED.' 20.4.3. A.O. IN HIS REMAND REPORT SUBMITTED THAT CO-RELATIO N OF THE STOCK REGISTER WITH THE TENDER DOCUMENT AND CER TIFICATE ISSUED BY MCGM IS NOT POSSIBLE BECAUSE STOCK REGIST ER CONSISTED MAINLY OF DETAILS LIKE PURCHASE PARTY NAM ES, MATERIAL PURCHASED, BILL NO ETC. THE CONTENTS OF ST OCK REGISTER WERE DOUBTFUL SINCE THE PURCHASES ITSELF A RE DOUBTFUL. FURTHER THE QUANTITY ANALYSIS DOES NOT PROVIDE THE RATE AT WHICH MATERIAL WAS PURCHASED AS THE SAME IS NOT CER TIFIED BY MC GM. HOWEVER, THE APPREHENSION AND THE VIEWS OF T HE A.O. ARE NOT JUSTIFIED AND RATHER MISPLACED BECAUSE OF T HE FACT THAT , FIRSTLY, A NORMAL STOCK REGISTER IS SUPPOSED TO INC ORPORATE MOVEMENT OF THE MATERIAL PURCHASED AND ITS CONSUMPT ION AND THE STOCK REGISTER OF THE APPELLANT HAS ALSO BEEN EXPLA INED AS ONE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 21 WHICH INCORPORATES THE NAME OF PURCHASE PARTY AND B ILL NUMBER ETC WHICH GIVE A COMPREHENSIVE VIEW OF THE STOCK AC QUIRED AND ITS UTILIZATION/SUPPLY. THE ASSESSING OFFICER WAS R EQUIRED TO VERIFY WHETHER THE STOCK ACQUIRED BY INCURRING PURCHASE EX PENSES WAS REFLECTED IN THE CONSUMPTION AND CLOSING STOCK. THI S HAS NOT BEEN DONE BY THE ASSESSING OFFICER. THE STOCK REGIS TER IS NOT NECESSARILY MEANT FOR VERIFICATION OF THE RATES AT WHICH THE MATERIAL WAS ACQUIRED. THERE IS NOTHING WRONG IN THE STOCK REGIS TER IF PURCHASE RATE IS NOT INCLUDED IN THE DETAILS RECORD ED IN IT. THE OBSERVATIONS OF ASSESSING OFFICER THUS ARE DEVOID OF ANY MERIT. MOREOVER THE DISALLOWANCES WERE BY A.O. BY D OUBTING THE PURCHASES MADE AND NOT THE BASIS OF THE RATE OF THE PURCHASE. 20.4.4. THE A.O. HAD REQUIRED THE APPELLANT FOR FURNISHING OF EXTENSIVE DETAIL IN RESPECT OF ALL THE PURCHASE PAR TIES FOR THE MATERIALS UTILIZED IN ALL THE CONTRACTS EXECUTED. H E HAD ALSO ASKED FOR PRODUCTION OF THE SUSPICIOUS PARTIES. THE APPELLANT HOWEVER, DID NOT FURNISH ALL THE NECESSARY DETAILS ON THE PLEA THAT THE SUBJECT MATTER OF APPEAL DOES NOT RELATE T O ALL THE PROJECTS AND FURTHER, THE PROJECTS DETAILS WERE NOT READILY AVAILABLE, HERE, THE A.O. HAS ACTUALLY TRAVELLED ON SOME OTHER ROUTE RATHER THAN WHAT WAS DIRECTED TO HIM IN THE R EMAND ORDER. THE A.O. MADE UNFRUITFUL EXERCISE ON THE ISS UE WHICH WAS NOT A SUBJECT MATTER OF APPEAL. 20.4.5. THE A.O. HAS MENTIONED THAT THE APPELLANT F AILED TO PROVIDE THE CORRECT ADDRESS OF TWO PARTIES NAMELY MAHADESHPURA ENTERPRISES & OM CORPORATION. THE ADDI TION OF UNPROVED PURCHASES HAS BEEN MADE IN REGARD TO ITEMS ACQUIRED FROM 20 PARTIES APPEARING ON MAHARASHTRA GOVERNMENT WEBSITE. THE A.O. HAD ISSUED 133(6) NOTICES TO 18 P ARTIES AS CURRENT ADDRESSES OF THE TWO PARTIES NAMELY MAHADESHPURA ENTERPRISES & OM CORPORATION, WERE NOT PROVIDED BY THE APPELLANT . OUT OF THE NOTICES ISSUED TO 18 PARTIES HOWEVER, THERE WAS SERVICE ON 6 PARTIES AND THE REMAINING NO TICES WERE RETURNED UNSERVED. AS PER INSPECTORS REPORT SERVICE COULD NOT BE AFFECTED ON OTHER PARTIES AS EITHER THEY WERE NOT A VAILABLE OR THEY HAD SHIFTED TO OTHER PLACE ADDRESS OF WHICH WAS NOT AVAILABLE. HERE, IT MAY BE MENTIONED THAT THE ASSES SING OFFICER HAD MADE ADDITION AS UNPROVED PURCHASES IN RESPECT OF 20 PARTIES. THE ADDITION WAS MADE ON THE BASIS OF T EST CHECK CARRIED OUT BY THE ASSESSING OFFICER OF THE GENUINE NESS OF PURCHASE PARTIES WHICH FIGURED ON THE WEBSITE OF MAHARASHTRA STATE SALES TAX DEPARTMENT. THE ADVERSE VIEW WAS TAKEN AS THE NOTICES ISSUED FOR VERIFICATION WERE EITHER UNSERVED OR UNRESPONDED. M ANY OF THESE NOTICES WERE NOT SERVED BECAUSE THE SUPPLIERS KEEP ON CHANGING THEIR PLACE OF BUSINESS AND THE NOTICE SEN T AT THE OLD ADDRESS COME BACK UNSERVED. IN THE COURSE OF REMAND PROCEEDINGS THE APPELLANT HAD PROVIDED CHANGED ADDR ESSES OF THE PARTIES WHICH WERE AVAILABLE WITH IT. THE AO IS SUED NOTICES TO THEM AND THERE WAS SERVICE ON 6 PARTIES. THE OTH ER ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 22 NOTICES COULD NOT BE SERVED FOR WANT OF AVAILABILIT Y OF CURRENT ADDRESSES. IT HAS BEEN EXPLAINED THAT THESE SUPPLIERS KEEP ON CHANGING SITE OF THEIR BUSINESS DEPENDING O N THE BUSINESS PROSPECTS. THE APPELLANT HAS ALREADY EFFEC TED PURCHASES AND MADE PAYMENT TO THEM BY ACCOUNT PAYEE CHEQUES. THUS, IT MAY NOT BE FEASIBLE NOR POSSIBLE FOR THE APPELLANT TO KEEP TRACK OF ALL THE PURCHASE PARTIES WITH WHOM BU SINESS WAS DONE AND COMPLETED IN PAST. 2.4.6. THE A,O. HAS ISSUED A LETTER TO MCGM FOR OBTAINING INFORMATION ABOUT THE RAW MATERIAL USED I N THE OTHER 15 PROJECTS. THERE HAS BEEN HOWEVER, PROGRESS IN TH E MATTER. IN THIS REGARD IT MAY BE MENTIONED THAT IF THE MCGM IS SLOW IS RE SPONDING TO THE REQUEST OF THE ASSESSING OFFICER IT CANNOT BE HELD AGAINST THE APPELLANT AT THIS STAGE. 20.4.7. ACCORDING TO THE A.O., THE ENQUIRIES MADE BY THE SALES TAX DEPARTMENT REVEALED THAT THE 20 PARTI ES APPEARING ON THEIR WEBSITE WERE ONLY ISSUING BILLS WITHOUT ACTUALLY SUPPLYING THE MATERIAL. THE AO HAS ENCLOSED WITH TH E REPORT STATEMENTS OF THE PARTIES AND OTHER DOCUMENTS LIFTED FROM THE WEBSITE OF THE SALES TAX DEPARTMENT TO SUPPORT THE CLAIM THAT THESE PART IES WERE NOT GENUINE TRADERS. IN THIS REGARD, IT MAY BE STAT ED THAT THE SALES TAX DEPARTMENT HAS MADE CERTAIN ENQUIRIES AND HAS R EACHED CERTAIN CONCLUSIONS AS REGARD CERTAIN DEALERS. THES E CONCLUSIONS ARE BASED ON THE STATEMENTS RECORDED OF THE PARTIES CONCERNED AND THE REPORTS OF THE DEPARTMENTAL OFFIC ERS. THEIR CONCLUSION IS VALID FOR AFFAIRS OF SALES TAX DEPART MENT. AS FAR AS AO IS CONCERNED THAT INFORMATION IS NOT ADEQUATE AND CONCLUSIVE. ANY VIEW AS REGARDS GENUINENESS OF PURCHASES, HAS TO BE FORMED TAKING INTO ACCOUNT THE TOTALITY OF THE FACTS AND CIRCUMST ANCES OF THE CASE. IF THE ASSESSING OFFICER REALLY WANTED TO APPLY THE TE NTATIVE INFERENCES OF THE SALES TAX DEPARTMENT TO THE ASSES SMENT PROCEEDINGS OF THE ASSESSEE HE WAS DUTY BOUND TO CA LL THE DEPONENTS AND MAKE THEM CONFIRM THE NATURE OF DEALINGS WITH THE APPELLANT. IF THEY DEPOSE THAT TH E DEALINGS WITH THE APPELLANT ARE NOT GENUINE, THE APPELLANT W OULD HAVE RIGHT TO CROSS EXAMINE THEM TO BRING THE TRUTH OF THE DEPOSITION ON THE SURFACE. THIS HAS NOT BEEN DO NE BY THE ASSESSING OFFICER. THE DATE OF STATEMENTS CLEARLY S TATE THAT THESE STATEMENTS WERE TAKEN BEFORE THE DATE OF ASSESSMENT ORDER AND THEY WERE AVAILABLE FOR TEST CHECK, VALIDATION AND GRANT OF OPPORTUNITY TO THE APPELLANT FOR CROSS EXAMINATION. THEIR SUBMISSIONS AT THE REMAND STAGE, WHEN THE ASSESSING OFFICER IS ONLY REQUIRED TO VERIFY THE CONSUMPTION OF RAW MATERIAL PURCHASED IN THE EXECUTION OF CONTRACT AND CROSS VERIFICATION WITH THE MCGM AUTHORITIES, IS TOTALLY OUT OF PLACE, IN THIS REGARD I WOULD LIKE TO REFER AND RELY ON THE DECISI ON OF SUPREME COURT IN THE CASE KISHINCHAND CHELLARAM VS CIT REPORTED IN 125 ITR 713 WHERE IT WAS HELD ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 23 '1. THE LETTERS, DATED 14-2-1955 AND 9-3-1959, DID NOT CONSTITUTE ANY MATERIAL EVIDENCE WHICH THE TRIBUNAL COULD LEGITIMA TELY TAKE INTO ACCOUNT FOR THE PURPOSE OF ARRIVING AT THE FINDING THAT THE AMOUNT OF RS. 1,07,350 WAS REMITTED BY THE ASSESSEE FROM ITS MADR AS OFFICE, AND IF THESE TWO LETTERS WERE ELIMINATED FR OM CONSIDERATION, THERE WAS NO MATERIAL EVIDENCE AT AL L BEFORE THE TRIBUNAL WHICH COULD SUPPORT ITS FINDING. WHAT THE MANAGER O F THE BANK WROTE IN HIS LETTERS COULD NOT POSSIBLY BE BASED ON HIS PERSONAL KNOWLEDGE BUT WAS BASED ON HERE SAY. THE REVENUE AUTHORITIES OUGH T TO HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMENTS AN D PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENT AND CONFRO NTED THE ASSESSEE WITH THOSE DOCUMENTS AND PAPERS. NO EXPLANATION HAS BEEN FURNISHED BY THE REVENUE AS TO WHAT HAPPENED WHEN THE MANAGER APPEARED IN OB EDIENCE TO THE SUMMONS AND WHAT STATEMENT HE MADE. 2. IT WAS NOT POSSIBLE TO HOLD, IN THE FACE OF THE APPLICATION FOR REMITTANCE SIGNED IN THE NAME OF T, THAT AMOUNT WAS REMITTED BY THE ASSESSEE AND THE FINDING TO THAT EFFECT REACHED BY THE TRIBUNAL MUST BE HELD TO BE UNREASONABLE AND PERVERSE. EVEN ASSUM ING THAT THESE LETTERS WERE TO BE TAKEN INTO ACCOUNT, THOSE LETTER S WOULD AT THE HIGHEST ESTABLISH THAT T, AN EMPLOYEE, REMITTED THE AMOUNT FROM MADRAS AND N, ANOTHER EMPL OYEE, RECEIVED IT AT BOMBAY. FROM THIS IT DID NOT FOLLOW THAT THE REMITTANCE WAS MADE AT MADRAS AND RECEIVED AT BOMBAY ON BEHAL F OF THE ASSESSEE. THE BURDEN WAS ON THE DEPARTMENT T O SHOW THAT THE MONEY BELONGED TO THE ASSESSEE BY BRINGING PROPER EVIDENCE ON RECORD AND THE ASSESSEE COULD NOT BE EX PECTED TO CALL T AND N, WHO LEFT THE SERVICE AT THE TIME WHEN THE AS SESSMENT WAS REOPENED, IN EVIDENCE TO HELP THE DEPARTMENT TO DIS CHARGE THE BURDEN THAT LAY UPON IT. 3. THEREFORE, THERE WAS NO EVIDENCE ON THE BASIS OF WHICH THE TRIBUNAL COULD COME TO THE FINDING THAT THE IMPUGNED AMOUNT WAS REMITTED BY THE ASSESSEE AND THAT IT REPRESENTE D ITS UNDISCLOSED INCOME.' 20.5. FROM THE ABOVE DISCUSSION IT IS SEEN THAT THE APPEL LANT HAD CARRIED OUT THE PREMIER NALLA PROJECT FOR WHICH IT RECEIVED TOTAL PAYMENT OF RS 12,69,19,180/- DURING THE YEAR. THE AO'S ENQUIRIES WITH THE MCGM HAVE CONFIRMED THA T THE PROJECT WAS ACTUALLY EXECUTED AND THE PAYMENTS AS C LAIMED WERE RECEIVED BY THE APPELLANT UPTILL NOW NO FLAW HAS BE EN REPORTED BY THE STATE AUTHORITIES REGARDING THE PROJECT COMPLETED BY THE APPELLANT. THE TENDER DOCUMENT AND THE PAYMENT DOCUMENT ISSUED BY THE MCGM ELABORATELY DISCUSS THE QUANTITY OF RAW MATERIAL CONSUMED. THE VERIFICATION OF THE AO ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 24 HAS NOT REVEALED ANY DEFICIENCY ON THIS SCORE.. 20.6. THE AO WAS DIRECTED TO CARRY OUT THE VERIFICATION O F THE STOCK REGISTER AND ITS CORRELATION WITH THE TENDER DOCUMENT AND CERTIFICATION BY THE MUNICIPAL CORPORATION OF G REATER MUMBAI AUTHORITIES. FOR NOT CARRYING OUT THIS PART OF VERIFICATION THE ASSESSING OFFICER HAS CITED THE FO LLOWING REASONS: I) STOCK REGISTER MAINLY CONSISTS OF PURCHASES PARTY N AMES, MATERIAL PURCHASED, BILL NO. IF THE PURCHASE ITSELF IS DOUBTFUL THEN THE STOCK REGISTER IS ALSO DOUBTFUL, THE STOCK REGI STER IS PREPARED BY THE ASSESSEE, SO IT CANNOT BE SAID THAT THE ASSE SSEE HAS GIVEN ANY EVIDENCES TO PROVE THAT THE BOGUS PARTIES (HELD BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER) ARE GENUINE. II) QUANTITATIVE ANALYSIS DOES NOT PROVIDE WITH THE RAT E OF PURCHASE OF RAW-MATERIAL AND THE SAME IS NOT CERTIF IED BY THE NICGM. III) THIS ONLY PROVES THAT THE WORK WAS EXECUTED AND THI S OFFICE IS NOT DENYING TH FACT THAT THE WORK WAS NOT EXECUTED. BUT THIS DOES NOT PROVE THAT THE RAW MATERIAL WAS PURCH ASED FROM THE SUSPICIOUS PARTIES. THE REASONS GIVEN BY THE AO ARE MERE PRETENCE. THE APPELLANT HAS RECEIVED PAYMENT FROM MUNICIPAL AUTHO RITIES AND THIS FACT HAS BEEN ACCEPTED BY THE AO. THE MCGM AUT HORITIES HAVE CERTIFIED CONSUMPTION OF MATERIAL IN EXECUTING THESE CONTRACTS. THEN IT BECOMES SELF OBVIOUS THAT THE MA TERIAL CONSUMED WAS DEFINITELY ACQUIRED BY THE APPELLANT B Y MAKING PURCHASES. IN THE CIRCUMSTANCES EVEN IF AO'S OBSERVATION RELATING TO ABSENCE OF EVIDENCE TO PROVE THE PURCHASE PARTIES I S TAKEN INTO ACCOUNT, STILL THERE CAN BE NO DENIAL OF PURCH ASE OF MATERIAL, ITS CONSUMPTION, EXECUTION OF JOB WORK BY UTILIZATION OF THESE MATERIALS AND THE AWARD OF PAYMENTS TO THE AP PELLANT. IT MAY BE STATED THAT ONCE THE APPELLANT HAS ESTABL ISHED THAT THE ITEMS SHOWN TO HAVE BEEN PURCHASED, HAVE BEEN FULLY CONSU MED/SUPPLIED TO THE PARTIES, THE ONLY AREA WHICH REQUIRES CONSIDERA TION IS WHETHER THE APPELLANT HAS BEEN ABLE TO ESTABLISH THE CORREC TNESS OF THE RATE AT WHICH MATERIAL HAS BEEN ACQUIRED. UNDISPUTE DLY, THE APPELLANT IS IN THE SAME BUSINESS FOR PRECEDING SEV ERAL YEARS AND ITS ASSESSMENT FOR 3 PRECEDING ASSESSMENT YEARS HAV E BEEN COMPLETED U/S 143(3) WHEREIN ADDITIONS AND DISALLOW ANCES HAVE BEEN MADE OUT OF LABOUR AND SITE EXPENSES TO R AISE THE NET RATE TO 8% ( AS PER PAGE NO.88 TO 98 OF THE PAP ER BOOK). IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE NET PRO FIT RATE COMPUTED ON THE BASIS OF RETURN INCOME COMES TO 7.5 11 /6 AND IF ALL THE DISALLOWANCES EXCLUDING THE ADDITION TOWARD S PURCHASES IS TAKEN INTO ACCOUNT THE NET RATE WOULD COME TO 8. 5% WHICH IS A SHADE BETTER THAN THE RATE OF 8 0 /C WHICH HAS BEEN ACCEPTED AS REASONABLE IN APPELLANT'S OWN CASE IN PRECEDING 3 A SSESSMENT YEARS. ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 25 FURTHER, IF THE ADDITION OF 4.48 CRORES IS TAKEN INTO CONSIDERATION SUCH RATE WOULD COME TO 13.24% WHICH IS UNREALISTIC AND ARBITRARY. THE ADDITIONS TOWARDS UNPROVED PURCHASES HAVE BEEN MADE IN THE 'PREMIER NALLA PROJECT'. IN THIS PROJECT THE TOTAL RECEIPTS DURING THE YEAR ARE STATED TO BE 12.69 CRORES AND T HE EXPENSES CLAIM ARE 9.37 CRORES INCLUSIVE OF PURCHASE OF MATERIAL A T 5.66 CRORES. IF THE PURCHASES TO THE EXTENT OF 4.48 CRORES ARE R EJECTED THE GROSS PROFIT WILL COME TO 61% WHICH IS IMPOSSIBLE I N THE NATURE OF BUSINESS WHICH THE APPELLANT IS CARRYING ON. THUS, IN THE CONTEXT OF PAST RECORDS OF THE APPELLANT, THE NATUR E OF BUSINESS CARRIED ON AND ON THE BASIS OF THE SUBMISSIONS, ADD ITION TO THE TUNE OF RS. 4.48 CRORES TOWARDS PURCHASES BY THE A.O., APPEARS TO BE TOTALLY UNREALISTIC. 20.8. AS REGARDS A.O.'S LETTER DATED 01.02.2013 AS WELL A S COMMENTS OF THE A.R. THEREUPON WHICH HAS ALREADY BE EN DISCUSSED IN EARLIER PARAGRAPHS, IT MAY BE STATED THAT THE IN FORMATION SENT BY THE A.O. IS IN CONTINUATION TO HIS EARLIER STAND AND NO FRESH ISSUE ARISES OUT OF THE SAME. SALES TAX OFFICER'S O RDER CONCERNING CANCELLATION OF VAT REGISTRATION IS DATE D 19.11.2011 AND DOES NOT PERTAIN TO THE FINANCIAL YE AR RELEVANT TO THE PRESENT ASSESSMENT YEAR UNDER APPEAL THE BAS IC ISSUE HAS ALREADY BEEN DISCUSSED IN EARLIER PARAGRAPHS. T HE SCRIBBLING WRITTEN BY JAIN TRADING CORPORATION IS W ITHOUT CROSS VERIFICATION AS WELL AS CROSS EXAMINATION FROM THE APPELLANT. AS REGARDS M/S.SAM ENTERPRISES ALSO, THE APPELLANT WAS NEVER ALLOWED CROSS EXAMINATION BY THE A.O.. THE INFORMAT ION ARISING FROM THEM DOES NOT PROVE THAT AFTER RECEIVI NG THE MONEY BY CHEQUE, THESE TWO PARTIES RETURNED BACK TH E MONEY IN CASH TO THE APPELLANT AND THE APPELLANT MA DE ANY NET PROFIT OUT OF THE,. SAME. IN THIS REGARD, REFER ENCE IS MADE AND RELIANCE IS PLACED ON THE FOLLOWING JUDGEMENTS: . I) THE HON'BLE ITAT, JAIPUR BENCH IN CASE OF ITO V. KANCHANWALA GEMS REPORTED IN 122 TTJ 854 HAS HELD UNDER THE ASSESSEE HAD FURNISHED ALL NECESSARY INFORMATIO N INCLUDING NAME, ADDRESS, PAN, RST/CST NUMBERS AND TELEPHONE NUMBERS OF THE SUPPLIERS, SUPPORTED WITH DOCUMENTS WHICH WAS EXPEC TED FROM A PRUDENT PURCHASER TO ESTABLISH THE GENUINENESS OF CLAIMED TRANSACTION; , BESIDES THE PAYMENTS HAD BEEN MADE THROUG14-1,- ACCOUNT-PAYEE CHEQUES AND GOODS PURCHASED FROM THE FOUR PARTIES HAD BEEN EXPORTED BY THE ASSESSEE IN T HE SAME SHAPE, SIZE AND WEIGHT, DULY VERIFIED BY THE CUSTOM S AUTHORITIES. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DOUBTING THE GENUINENESS OF THE CLAIMED PURCHASES MADE BY THE ASSESSEE FROM THE FOUR SUPPLIERS AND MAKING ADDITIO N MERELY ON BASIS THAT ON SUBSEQUENT OCCASION THE PARTIES WE RE NOT FOUND ON THE GIVEN ADDRESSES OR IN SOME OTHER CASES SOME .CONNECTED PERSON TO THE SUPPLIER HAD STATED T HAT THEY WERE ONLY ISSUING BILLS WITHOUT SUPPLYING GOOD S OR THAT THE MONEY PAID BY THE ASSESSEE AGAINST THE PURCHASES WAS WITHDRAWN BY THOSE PARTIES. UNDISPUTE DLY, ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 26 AFTER COMPLETION OF TRANSACTION A PURCHASER CANNOT HAVE ANY CONTROL OVER THE SUPPLIERS AND SUPPLIERS ARE ALWAYS AT LIBERTY TO USE THE MONEY PAID TO THEM AGAINST THE GOODS SOLD B Y THEM. THUS, IN THE ABSENCE OF ANY POSITIVE EVIDENCE THAT THE GO ODS WERE NOT PURCHASED FROM THE ABOVE PARTIES BUT FROM SOME NAMED PERSON OR THAT THE MONEY PAID BY THE ASSESSEE AGAINST THE GOODS WAS ULTIMATELY RETURNED TO THE ASSESSEE B Y THE SUPPLIERS, THERE WAS NO OCCASION BEFORE THE ASSESSI NG OFFICER TO DENY THE CLAIMED PURCHASES, ESPECIALLY W HEN THE GENUINENESS OF THE EXPORT OF THOSE GOODS BY THE ASS ESSEE HAD BEEN ACCEPTED BY THE ASSESSING OFFICER. THE COMMISSIONER (APPEALS) HAD, THUS, RIGHTLY DELETED T HE ADDITION' II) IN THE CASE OF ITO VS. PERMANAND, THE HON'BLE ITAT , JODHPUR BENCH REPORTED IN 107 TTJ 395 HAS HELD: 'IN THE INSTANT CASE, THE ADDITION RESTED MAINLY ON LY ON THE OBSERVATION OF THE SALES-TAX DEPARTMENT. THE ASSESS EE WAS NEVER ASSOCIATED WITH THE ENQUIRIES MADE BY THE 5AL E5-TAX DEPARTMENT TO THAT EXTENT. THE SATISFACTION OF THE ASSESSING OFFICER HIMSELF IS OF PRIME IMPORTANCE WH ILE MAKING ASSESSMENT OF AN INCOME AND THESE DUTIES CANNOT BE PERFORMED BY SUBSTITUTING SATISFACTION OF SOMEONE E LSE. THE ASSESEE DID PAY FOR THE PURCHASES HE MADE FROM THE ABOVE TWO PARTIES THROUGH CHEQUE AS WAS EVIDENT FROM THE RECORD, THE STATEMENTS OR EVEN THE AFFIDAVITS OF THE SELLER S COULD NOT BE UTILIZED AGAINST THE ASSE5SEE, UNLESS AN OPPORTUNIT Y WAS GIVEN TO HIM TO CONFRONT THE SAID STATEMENT BY WAY OF CRO SS- EXAMINATION, ETC. ADMITTEDLY, NO SUCH OPPORTUNITY W AS GIVEN TO THE ASSESSEE TO CONFRONT THE ABOVE SELLERS IN THE I NSTANT CASE. FURTHER, THE ASSESSEE HAD ALSO DISCHARGED THE PRIMA RY ONUS CAST ON HIM BY SECTION 69 BY SHOWING THE PURCHASES, THEIR ENTRIES IN THE BOOKS OF ACCOUNT, PAYMENTS BY WAY OF ACCOUNT PAYEE CHEQUE AND PRODUCING THE VOUCHERS OF SALES OF THE GOODS. THE ASSESSING OFFICER HAD MISERABLY FAILED T O BRING ON RECORD ANY CLINCHING EVIDENCE TO PROVE THAT THES E ALLEGED PURCHASES WERE BOGUS AND NOT GENUINE. FURTH ER, THE ASSESSING OFFICER DID NOT MAKE REQUISITE INVESTIGAT ION AGAINST THE TWO SELLERS. THEREFORE, THE COMMISSIONER (APPEA LS) HAD RIGHTLY HELD THAT THE ADDITION MADE BY THE ASSESSIN G OFFICER MERELY ON THE BASIS OF OBSERVATIONS OF SALES-TAX DE PARTMENT, WITHOUT CONDUCTING INDEPENDENT ENQUIRIES WAS NOT JU STIFIED. SINCE THE PURCHASE IN QUESTION HAD BEEN HELD AS GENUINE PURCH ASE, ADDITION OF RS.55,632 COULD NOT BE MADE TO THE INCOME OF THE AS SESSEE. HENCE, THE REVENUE'S APPEAL WAS LIABLE TO BE DISMIS SED.' III) IN THE CASE OF R.K.SYNTHETICS VS. ITO REPORTED AT 81 TTJ 909, THE HON'BLE ITAT, JODHPUR BENCH HAS HEL D; 'IT WAS AN UNDENIABLE FACT THAT THE ADDITION IN QUE STION UNDER SECTION 69 HAD BEEN MADE ON THE SOLE BASIS OF THE STATEMENT OF THE PARTNER OF THE ASSESSEE-FIRM RECOR DED BY THE CENTRAL EXCISE AUTHORITIES. THAT WAS ALSO AN UN DENIABLE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 27 FACT THAT THE ASSESSING OFFICER NEVER RECORDED ANY FURTHER STATEMENT OF THE SAID PARTNER OR ANYBODY ELSE. A CO PY OF THE STATEMENT RECORDED BY THE CENTRAL EXCISE AUTHORITIE S WAS NEVER PROVIDED TO THE ASSESSEE. NO INDEPENDENT INVE STIGATION WAS CARRIED OUT BY THE ASSESSING OFFICER EVEN THOUG H HE PROPOSED TO MAKE AN ADDITION UNDER SECTION 69 IN TH E HANDS OF THE ASSESSEE. THERE WAS NO EVIDENCE OF SUPPRESSED S ALES AS THE SALES DECLARED BY THE ASSESSEE HAD BEEN ACCEPTED FU LLY BY THE ' ASSESSING OFFICER AND NO ACTION HAD BEEN TAKEN BY THE SALES TAX DEPARTMENT DESPITE THERE BEING INFORM ATION REGARDING THE FACT THAT THE STATEMENT MADE BY THE S AID PARTNER HAD BEEN RETRACTED IN THE VERY NEXT OPPORTU NITY IMMEDIATELY AFTER .MAKING OF THE STATEMENT. THE ASS ESSEE HAD BEEN MAINTAINING COMPLETE FINANCIAL AND QUANTIT ATIVE RECORDS AT ALL STAGES OF PRODUCTION AND NO SPECIFIC DEFECTS HAD BEEN .POINTED OUT BY THE AUTHORITIES BELOW. THE COM MISSIONER (APPEALS) HAD CATEGORICALLY MENTIONED THAT THE ASSE SSING OFFICER HAD NOT POINTED OUT ANY DEFECTS IN THE BOOKS OF ACC OUNT NOR BROUGHT ANY ON RECORD AND THAT THE ASSESSING OFFICE R WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AGA INST WHICH THE DEPARTMENT HAD NOT COME IN SECOND APPEAL. IN THE CIRCUMSTANCES, THE TOTALITY OF THE FACTS AND CIRCUMSTANCES DID NOT JUSTIFY ADDITIONS UNDER SECTI ON 69 MERELY ON THE BASIS OF THE STATEMENT OF THE SAID PARTNER WITHOUT ANY FURTHER SUPPORTING EVIDENCE BEING ON RECORD. [PARA 10] IN THE RESULT, THE APPEAL WAS ALLOWED. [PARA 12]' 20.9.1. THUS IT IS SEEN THAT THE APPELLANT HAS PERFORMED HUNDREDS OF SMALL JOBS IN THE RELEVANT ACCOUNTING Y EAR OVER THE PERIOD AND EVEN THE DEPARTMENT AGREES THAT THE RECEIPTS AR E FULLY VERIFIABLE AND THAT THE PAYMENT CERTIFICATES BY MCG M ELABORATELY DEAL WITH THE QUALITY AND QUANTITY OF R AW MATERIAL THAT HAS BEEN CONSUMED. IN THE COURSE OF REMAND PROCEEDINGS THE A.O. MADE THE NECESSARY VERIFICATION OF THE RAW MATERIAL CONSUMED. HE CORRESPONDED WITH THE MCGM AUTHORITIES WHO HAVE CO NFIRMED THE VITAL FACTS OF THE APPELLANT'S BUSINESS AFFAIRS AS REGARDS CONSUMPTION OF MATERIALS AND PAYMENT RECEIPTS OF TH E 'PREMIER NALLA PROJECT', THE APPELLANT HAD GONE TO THE EXTENT OF SUBMITTING THAT THE EXECUTION OF THIS PRO JECT WAS SUBJECT TO VIGILANCE BY THE MCGM AUTHORITIES AND EV EN THEY HAVE CONFIRMED THE EXECUTION AND USE OF MATERIALS AS IS EVIDENT FROM THE CERTIFICATES FILED BEFORE ME. THEREFORE, T HIS INSPECTION DOES NOT BRING TO SURFACE ANY FLAW IN TH E EXECUTION OF THE PROJECT. 20.9.2. THE WHOLE CASE OF THE A.O. IS BUILT UP ON APPEARANCE OF CERTAIN PURCHASE PARTIES ON THE WEBSI TE OF MAHARASHTRA SALES TAX DEPARTMENT AND THE APPELLANT' S FAILURE TO PRODUCE THESE PARTIES BEFORE THE A.O. DE PARTMENT'S EFFORT TO VERIFY THE GENUINENESS OF PURCHASES IN RE SPECT OF THESE PARTIES DID NOT MAKE ANY PROGRESS AS VERY FEW OF THE NOTICES ISSUED COULD BE SERVED AND EVEN WHERE THEY WERE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 28 SERVED THERE WAS NO RESPONSE FROM THE PARTIES. IN M Y OPINION THE MERE APPEARANCE OF A PURCHASE PARTY ON THE WEBSITE OF STATE GOVERNMENT DOES NOT TURN A GENUINE PURCHASE INTO A NON GENUINE PURCHASE. THIS FACT ONL Y RAISES A QUESTION MARK AND ALLOWANCE OF PURCHASE EXPENSES OF APPELLANT HAS TO BE NECESSARILY DECIDED TAKING INTO VIEW THE TOTALITY OF THE CIRCUMSTANCES OF THE CLAIM. IT IS A LSO TO BE KEPT IN VIEW THAT ONCE A NAME OF THE PARTY APPEARS ON TH E WEBSITE OF THE STATE GOVERNMENT EVEN IF THE PARTY H AS MADE GENUINE SALES TO THE ASSESSEE HE WOULD TAKE HI MSELF UNAVAILABLE AND WOULD BE MOST RELUCTANT TO CO-OPERA TE WITH THE DEPARTMENT FOR THE VERIFICATION OF PURCHAS ES. THE APPELLANT HAS ALREADY FILED A NUMBER OF COURT/ ITAT DECISIONS WHICH ARE ON THE POINT. IN THE CASE OF M. K BROTHERS SUPRA THE HON'BLE GUJARAT HIGH COURT HELD THAT IN THAT CASE THE TRIBUNAL HAD FOUND THAT THERE WAS NO EVIDENCE TO SH OW THAT BOGUS VOUCHERS HAD BEEN ISSUED TO THE ASSESSEE AND THAT N OTHING HAD BEEN SHOWN TO INDICATE THAT ANY PART OF FUNDS GIVEN BY THE ASSESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY F ORM AND THE ASSESSEE HAD MADE PAYMENTS BY CHEQUES. THE HON' BLE COURT THEREFORE, HELD THAT THE TRIBUNAL WAS JUSTIFI ED IN DELETING THE ADDITION. IN THE CASE OF THE APPELLANT AS WELL THE DEPARTMENT DOES NOT ASSERT THAT THE SUSPICIOUS DEAL ERS HAVE SPECIFICALLY CLAIMED THAT THE SUPPLIES TO THE APPEL LANT ARE BOGUS. THE PURCHASE PAYMENTS HAVE BEEN MADE BY THE APPELLANT B Y CHEQUE AND THERE IS NO EVIDENCE NOT EVEN A SUGGESTI ON THAT THE FUNDS GIVEN BY ASSESSEE AS PURCHASE PRICE WERE RECEIVED BACK BY THE ASSESSEE. THIS JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT WOULD THEREFORE BE SQUARELY APPL ICABLE TO THE APPELLANT'S CASE. SIMILARLY HON'BLE CALCUTTA HI GH COURT IN CASE OF DIAGNOSTICS SUPRA HAS HELD THAT WHERE PAYME NTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES ADVERSE VIEW CANNOT B E TAKEN IF SUBSEQUENTLY THE DEALERS DO NOT CO-OPERATE WITH THE A.O. FOR VERIFICATION OF THE PURCHASES. IN THIS REGARD, I HAVE ALREADY REFERRED TO VARIOUS DECISION OF THE HON'BLE COURTS AND PLACED RELIANCE ON THE SAME. 20.9.3. AS MENTIONED EARLIER; IT WAS BROUGHT TO MY NOTICE THAT THE ASSESSMENT OF THE APPELLANT IN THE PRECEDI NG 3 YEARS HAVE BEEN COMPLETED U/S 143(3) AND A NET RATE OF 8% WAS CONSIDERED REASONABLE. IN THE ASSESSMENT UNDER CONSIDERATION, THE NET RATE ON THE BASIS OF RETURNE D INCOME COMES TO 7.5%. THE APPELLANT DURING THE-. YEAR HAS RECEIVED TOTAL CONTRACT RECEIPTS OF RS.12.69 CRORES FROM 'PR EMIER NALLA PROJECT'. IT HAS CLAIMED TO HAVE INCURRED MAT ERIAL AND OTHER EXPENSES OF RS.9.37 CRORES ON THIS PROJECT. IF THE PURCHASES OF VALUE OF RS.4,48 CRORES RELATING TO THIS PROJECT AR E REJECTED AND DISALLOWED THAT WOULD MEAN ENHANCEMENT OF PROFI T BY WHOPPING 35% TO 61% FOR THE 'PREMIER NALLA PROJECT ' WHICH IS UNIMAGINABLE AND UNREALISTIC. IT IS ALSO SEEN TH AT THE APPELLANT WAS SUBJECTED TO SURVEY BY THE INVESTIGAT ION WING. THE INVESTIGATION WING IS BELIEVED TO HAVE SCRUTINI ZED THE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 29 BUSINESS AFFAIRS OF THE APPELLANT AND WHEREVER ITS CLAIMS ABOUT PURCHASES OR EXPENSES WERE NOT FOUND TO BE AC CEPTABLE, THE APPELLANT WAS ASKED TO SURRENDER THE CLAIM RELATING TO PURCHASES AND EXPENSES. BY IMPLICATION ONE COULD INFER THAT THE I NVESTIGATION WING WAS SATISFIED ABOUT THE REMAINING CLAIMS AND T HE GENUINENESS OF REMAINING CLAIMS CANNOT BE TARNISHED MERELY BECAUSE SOME OF THE SUPPLIERS FIGURE ON THE STATE GOVERNMEN T WEBSITE AS SUSPICIOUS DEALERS. 20.9.4. THE A.O. HAS MADE A SUGGESTION THAT SINCE PURCHASE PARTIES ARE NOT AVAILABLE FOR VERIFICATION AND THERE IS EVIDENCE OF PURCHASE MATERIAL HAVING BEING UTILIZED THE APPELLANT MIGHT HAVE USED THESE PARTIES AS NAME LENDERS AND MAY HAV E MADE PURCHASES IN CASH IN WHICH SITUATION THE PROVISIONS OF SECTION 40A(3) MAY BE INVOKED FOR CONFIRMING THE ADDITION. THE CON TENTION OF THE A.O. IS NOT BASED ON ANY MATERIAL FACT. THERE IS NOTHING ON RECORD TO SUGGEST THAT APPELLANT HAD SHOWN PURCHASES FROM PAR TIES WHEREAS THE ACTUAL PURCHASES HAVE BEEN MADE FROM MA RKET IN CASH. SINCE SUCH SUGGESTION IS ONLY BASED ON SUSPICION AN D THERE IS NO DOCUMENTARY EVIDENCE TO ESTABLISH PURCH ASE OF MATERIAL IN CASH IN EXCESS OF PRESCRIBED LIMIT, THE PROVISIONS OF SECTION 40A(3) CANNOT BE APPLIED FOLLOWING THE D ECISION OF THE JURISDICTIONAL BENCH IN CASE OF FREE INDIA ASSU RANCE SERVICES LTD. AS REPORTED IN (2011) 12 TAXMAN.COM 424 (MUM). 20.9.5. IN THE REMAND REPORT THE A.O. HAS RAISED THE ISSUE THAT THE APPELLANT DID NOT CO-OPERATE WHEN HE WANTED TO GATHER INFORMATION MORE PARTICULARLY PURCHASES IN RESPECT OF OTHER 15 PROJECTS EXECUTED BY THE APPELLANT DURING THE YEAR. THE A.O. ALSO MENTIONED THE FACT THAT HE HAD SOUGHT FOR INFO RMATION ABOUT THOSE PROJECTS FROM MCGM AUTHORITIES. BUT THE SE AUTHORITIES WERE NOT VERY ENTHUSIASTIC IN RESPONDIN G TO HIM. I FEEL THAT THE A.O. COMPLETELY MISUNDERSTOOD THE M ANDATE OF THE REMAND ORDER AND MISDIRECTED HIMSELF IN LAUNCHI NG FRESH ENQUIRIES WHICH WERE BEYOND THE SUBJECT MATTER OF A PPEAL. THE APPELLANT IS BEFORE ME IN THE PRESENT APPEAL CO NTESTING THE DISALLOWANCE OF PURCHASES OF THE VALUE OF RS. 4 .48 CRORES WHICH RELATE TO 'PREMIER NALLA PROJECT'. THE ASSESS MENT ORDER DOES NOT MAKE ANY REFERENCE ABOUT PURCHASE CLAIMS O F THE APPELLANT ABOUT OTHER PROJECTS COMPLETED BY IT. IN THE REMAND ORDER SPECIFIC DIRECTION WAS GIVEN TO THE A.O. TO V ERIFY THE PURCHASE CLAIMS RELATING TO THIS PROJECT WHICH WERE FOR ADJUDICATION BY THIS OFFICE. IT IS THEREFORE, ABSOL UTELY CLEAR THAT THE A.O. COMPLETELY MISDIRECTED HIMSELF IN TRYING T O LAUNCH A VERIFICATION INTO PURCHASE AND OTHER EXPENSES CLAIM ED BY THE APPELLANT FOR OTHER PROJECTS. 20.9.6. THUS IT IS TO BE SEEN THAT THE APPELLANT MAINTAINS TAX AUDITED BOOKS OF ACCOUNTS WHICH INCLUDES STOCK REGI STER INCORPORATING ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 30 QUANTITY OF ITEMS PURCHASED, CONSUMED AND LYING-IN-STOCK. THE A.O. WAS DIRECTED TO MAKE VERIFICATION OF STOCK REGISTER WHI CH HE AVOIDED WITHOUT INDICATING ANY ACCEPTABLE REASONS. THE SALES/CONTRACT RECEIPTS OF THE APPELLANT ARE COMPLE TELY VERIFIABLE AS THEY ARE THROUGH ACCOUNT PAYEE CHEQUE S AND SUBJECT TO TDS AND A.O. ALSO DO NOT DENY IT. THERE IS COMPLETE VERIFICATION OF MATERIALS PURCHASED WITH REFERENCE TO STOCK R EGISTER AND PAYMENT CERTIFICATES ISSUED BY MCGM AUTHORITIES. OF COURSE THE MCGM AUTHORITIES HAVE NOT CERTIFIED THE RATE AT WHICH THE MATERIAL HAS BEEN A CQUIRED BY THE APPELLANT. THIS WOULD HOWEVER NOT MEAN ANY ADVERSE INFERENCE BECAUSE THE NET PROFIT RATE AFTER TAKING INTO ACCOU NT THE OTHER DISALLOWANCE MADE IN THE ASSESSMENT ORDER AND WHICH HAVE BEEN CONFIRMED IN THE EARLIER PART OF MY ORDER, GIV E A NET PROFIT RATE OF 8.5% WHICH IS BETTER THAN THE RATES WHICH THE DEPARTMENT ACCEPTED AS REASONABLE AND ADEQUATE IN T HE PRECEDING 3 ASSESSMENT YEARS WHEN THE ASSESSMENT WERE FRAMED IN SCRUTINY U/S 143(3) OF THE INCOME-TA X ACT. MERE APPEARANCE OF THE PURCHASE PARTIES ON THE WEBSITE O F SALES TAX DEPARTMENT DOES NOT FALSIFY THE PURCHASE CLAIMS MADE BY THE APPELLANT. THE PURCHASE PARTIES HAVE NO WHERE SPECIFICALLY STATED THAT THE DEALS WITH THE APPELLA NT WERE BOGUS. ALL THE PURCHASES OF MATERIALS HAVE BEEN DON E BY ACCOUNT PAYEE CHEQUES AND THERE IS NOTHING TO INDICATE THAT THE PAYMENTS MADE BY CHEQUE WERE PAID BACK TO THE APPELLANT AND THE P URCHASE WERE NOT GENUINE. IN THE LIGHT OF THE FOREGOING, I HAVE NO HESITATION IN MY MIND TO HOLD THAT THE A.O. ERRED IN DISALLOWING THE PURCHAS E OF RS.4.48 CRORES AND THE ADDITION MADE IS THEREFORE DELETED. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSER TIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AN D ANALYZED, THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE B USINESS OF CIVIL CONSTRUCTION AS A CIVIL CONTRACTOR MOSTLY DOING JOB WORK FOR THE GOVERNMENT DEPARTMENTS. A SURVEY WAS CONDUCTED ON 2 5/08/2009 AT THE OFFICE PREMISES OF THE ASSESSEE, WHEREIN, THE A SSESSEE OFFERED A SUM OF RS.1,51,45,603/- IN RESPECT OF PURCHASES MAD E FROM THREE PARTIES NAMELY KAVITA SALES (68,49,274/-), MANAV IM PEX (RS.21,55,128/-) AND MAHAVIR IMPEX (RS.61,41,201/-) AND THIS AMOUNT WAS DECLARED AS ADDITIONAL INCOME AND INCLUD ED RETURNED INCOME, PAID TAXES THEREUPON, IN ASSESSMENT YEAR 20 09-10. ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 31 2.4. DURING ASSESSMENT PROCEEDINGS, THE LD. ASSESS ING OFFICER ISSUED NOTICES U/S 133(6) OF THE ACT TO FEW PARTIES FROM WHOM THE ASSESSEE CLAIMED TO HAVE MADE PURCHASES. THE NO TICES SENT TO THESE THREE AFOREMENTIONED PARTIES WERE RETURNED UN SERVED. THE LD. ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE THE DETAILS/DOCUMENTS TO ESTABLISH THE GENUINENESS OF T HE PURCHASES. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE PARTIES. THE LD. ASSESSING OFFICER HAS MADE A DISCUSSION WITH RESPECT TO WEBSI TE OF THE MAHARASHTRA GOVERNMENT, SALES TAX DEPARTMENT, DISPL AYING A LIST OF SUSPICIOUS PARTY. THE ASSESSEE WAS ASKED TO PROVE T HE GENUINENESS OF THE PURCHASES FROM TWENTY PARTIES, MENTIONED HEREUN DER, AND DISCUSSED IN THE ASSESSMENT ORDER. SR. NO. NAME OF PARTY PURCHASE AMOUNT (IN RUPEES) 1 CARBON E NTERPRISE 688,460/ - 2 DEEPALI ENTERPRISE 23,58,009/ - 3 ENTECH ENTERPRISE 45,04,054/ - 4 FORAM TRADERS 7,33,514/ - 5 GANESH TRADERS 32,99,686/ - 6 G.M. INTERNATIONAL 80,09,274/ - 7 JAIN TRADING CORPORATION 7,13,594/ - 8 MAHADESHPURA ENTERPRISE 1,26,464/ - 9 NATIONAL TRADING CO. 10,32,028/ - 10 NEELAM ENTERPRISE 8,44,158/ - 11 OM CORPORATION 47,51,701/ - 12 RAJ TRADERS 21,02,813/ - 13 REAL TRADERS 18,04,606 14 SAM ENTERPRISE 7,22,866/ - 15 SHIV SAGAR ENTERPRISE 7,57,848/ - 16 SHRADDHA TRADING CO. 51,00,805 / - 17 SHREE ENTERPRISE 7,42,854/ - 18 SIDDHIVINAYAK CORPORATION 32,03,602/ - 19 S.S. ENTERPRISES 25,59,565/ - 20 VSK ENTERPRISES 8,32,165/ - TOTAL 4,48,88,866/- IT IS NOTED THAT DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE TOOK THE PLEA THAT NORMALLY THE PURCHASES ARE MADE BY TH E SITE SUPERVISORS AND THAT TO THROUGH AGENTS. THE INVOIC ES ARE THEN VERIFIED WITH THE MATERIAL, SO RECEIVED, AND SENT T O THE OFFICE OF THE ASSESSEE FOR PAYMENT. ALL THE EXPENSES WERE CLAIME D TO BE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 32 ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND MOST OF THE PAYMENTS ARE MADE THROUGH CHEQUE. PLEA WAS ALSO RAISED THAT LESS TIME WAS PROVIDED TO THE ASSESSEE TO PRODUCE THE PARTIES TO ATTEND THE ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER WAS N OT SATISFIED WITH THE REPLY OF THE ASSESSEE, DOUBTED THE GENUINE NESS OF THE PURCHASES AND MADE ADDITION OF RS.4,48,88,866/-. 2.5. THE ASSESSEE FELT AGGRIEVED AND CARRIED THE M ATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, MAD E SUBMISSIONS, AS MENTIONED IN THE IMPUGNED ORDER, BY CLAIMING THA T THE ASSESSEE CARRIED OUT THE CONTRACT WORK EXCLUSIVELY FOR THE G OVERNMENT DEPARTMENT INVOLVING SIXTEEN CONTRACT JOBS OF VARIO US SPECIFICATIONS. THE MAJOR PROJECT, WHICH WAS OF WID ENING, IMPROVING, REMODELING OF PREMIUM NALLA SYSTEM IN CA TCHMENT NUMBER 501 (NEHRU NAGAR NALLA SYSTEM) FOR WHICH THE ASSESSEE SHOWED TOTAL RECEIPT OF RS.12,69,19,180/- (PAGE-14 OF THE PAPER BOOK). THE LD. COMMISSIONER OF INCOME TAX (APPEAL) AFTER CONSIDERING THE FACTUAL MATRIX, EXAMINED THE CLAIM OF THE ASSESSEE, REMAND REPORT FROM THE ASSESSING OFFICER DELETED TH E ADDITION. THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS T RIBUNAL. 2.6. UNDER THE FACTS AVAILABLE ON RECORD, BEFORE ADVERTING FURTHER, WE ARE ANALYZING THE BOOK RESULT S OF DIFFERENT ASSESSMENT YEARS, WHICH ARE AS UNDER:- ASSESSMENT YEAR TURNOVER (IN CRORES) GROSS PROFIT (IN CRORES) G.P. RATIO (%) NET PROFIT (IN CRORES) NET PROFIT RATIO(%) 2009-10 96.46 11.11 11.52 5.75 5.96 2008-09 79.06 6.36 8.05 4.84 6.12 2007-08 42.71 4.16 9.75 1.63 3.81 2006-07 14.92 1.56 10.48 0.48 3.23 FROM THE ABOVE, IT IS NOTEWORTHY THAT COMPARATIVE F IGURES SHOW THAT THE CURRENT YEARS RESULTS ARE MUCH BETTER NOT ONLY IN TERM OF TURNOVER BUT PROFITABILITY ALSO. IT IS UNDISPUTED FACT THAT EARLIER THREE ASSESSMENT YEARS WERE COMPLETED U/S 143(3) OF THE A CT, WHEREIN, MOSTLY ADDITION AND DISALLOWANCES WERE MADE AND OUT OF LABOUR CHARGES AND SITE EXPENSES TO RAISE THE NET PROFIT R ATE TO 8%. THERE WAS NO ADVERSE FINDING WITH RESPECT TO PURCHASES MORE S PECIFICALLY WHEN THE ASSESSEE WAS DOING IDENTICAL JOB WORK FOR THE G OVERNMENT DEPARTMENTS, MEANING THEREBY, THE BOOK RESULTS WITH RESPECT TO ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 33 PURCHASES WERE ACCEPTED BY THE DEPARTMENT. THE BOOK S OF THE ASSESSEE ARE AUDITED AND THE RETURNS WERE SUPPORTED BY TAX A UDIT REPORT IN FORM 3CB AND 3CD. IT IS ALSO NOTED THAT THE JOB WORK WAS EXCLUSIVELY MADE FOR THE GOVERNMENT DEPARTMENTS, WHEREIN, RECEIPTS A RE 100% VERIFIABLE. THE PAYMENTS ARE MADE TO THE ASSESSEE AFTER VERIFYING THE QUALITY/QUANTITY OF MATERIAL USED BY THE ASSESSEE, AS PER SPECIFICATION, AND THERE IS NO DISPUTE WITH RESPECT TO CONSUMPTION OF MATERIAL. IT IS ALSO NOTEWORTHY THAT THE PAYMENTS ARE MADE TO THE A SSESSEE AFTER DUE VERIFICATION/CERTIFICATION OF THE WORK AND MATERIAL BY VARIOUS DEPARTMENTAL AUTHORITIES. IT IS NOT IN DISPUTE THAT MATERIAL WAS CONSUMED BY THE ASSESSEE. THE ONLY DISPUTE IS WITH RESPECT TO MATERIAL MADE FROM PARTICULAR PARTIES. THE INVESTIGATION WIN G WAS SUSPICIOUS OF GENUINENESS OF CERTAIN PURCHASES. HOWEVER, DURING SURVEY, NOTHING INCRIMINATING WAS FOUND SUGGESTING THAT THE ASSESSE E MADE PURCHASES FROM OTHER PARTIES AND WHEREVER SOME INCRIMINATING MATERIAL WAS FOUND WITH RESPECT TO THREE PARTIES, THE ASSESSEE M ADE THE SURRENDER, PAID TAXES THEREUPON, BY DISCLOSING THE SAME IN ITS RETURN. 2.7. IT IS ALSO NOTEWORTHY THAT EXECUTION OF THE C ONTRACT, QUALITY AND QUANTITY OF MATERIAL WAS DIRECTLY UNDER THE SUPERVISION OF REPRESENTATIVE ENGINEER FROM MCGM. THE SAMPLES OF T HE MATERIAL ARE VERIFIED/CERTIFIED BY THE SITE ENGINEER AS PER COND ITION MENTIONED IN CLAUSE-59 (GENERAL CONDITIONS) OF THE CONTRACT CIVI L WORKS ISSUED BY MCGM, WHICH IS APPLICABLE TO ALL CONTRACTS AWARDED BY MCGM (PAGE NO.6 TO 08.1 OF THE PAPER BOOK). THE RELEVANT EXTRA CTS ARE REPRODUCED HEREUNDER:- '59(A) MATERIAL TO BE PROVIDED BY THE CONTRACTOR: THE CONTRACTOR SHALL, AT THIS OWN EXPENSE, PROVIDE ALL MATERIALS REQUIRED FOR THE WORKS OTHER THAN THOSE WHICH ARE TO BE SUPPLIED BY THE MUNICIPAL CORPORATION. ALL MATERIALS TO BE PROVIDED BY THE CONTRACTOR SHAL L BE IN CONFORMITY WITH THE SPECIFICATIONS LAID DOWN IN THE CONTRACT AND THE CONTRACTOR SHALL, FURNISH PROOF TO THE SATISFAC TION OF THE ENGINEER THAT THE MATERIALS SO COMPLY. CONTRACTOR S HALL PRODUCE PROOF VIZ. CHALLANS, BILLS, VOUCHERS, ETC. SO AS TO ENSURE THAT THE MATERIAL WAS BROUGHT ON SITE AND QUANTITIES USED AS PER THE NORMS, SPECIFICATIONS, ETC. ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 34 THE CONTRACTOR SHALL, AT HIS OWN EXPENSE AND WITHOU T DELAY, SUPPLY TO THE ENGINEER SAMPLES OF MATERIALS PROPOSE D TO BE USED IN THE WORKS. THE ENGINEER SHALL WITHIN SEVEN DAYS OF SUPPLY OF SAMPLES OR WITHIN SUCH FURTHER PERIOD AS HE MAY REQ UIRE AND INTIMATED TO THE CONTRACTOR IN WRITING, INFORM THE CONTRACTOR WHETHER THE SAMPLES ARE APPROVED BY HIM OR NOT. IF THE SAMPLES ARE NOT APPROVED THE CONTRACTOR SHALL FORTHWITH ARR ANGE TO SUPPLY TO THE ENGINEER FOR APPROVAL FRESH SAMPLES COMPLYIN G WITH THE SPECIFICATIONS LAID DOWN IN THE CONTRACT. THE ENGINEER SHALL HAVE FULL POWERS TO REQUIRE REMO VAL OF ANY OR ALL OF THE MATERIALS BROUGHT TO SITE BY THE CONTRAC TOR WHICH ARE NOT IN ACCORDANCE WITH THE CONTRACT SPECIFICATIONS OR WHICH DO NOT CONFORM IN CHARACTER OR QUALITY TO THE SAMPLES APPR OVED BY HIM. IN CASE OF DEFAULT ON THE PART OF THE CONTRACTOR IN REMOVING THE REJECTED MATERIALS, THE ENGINEER SHALL BE AT LIBERT Y TO HAVE THEM REMOVED BY OTHER MEANS. THE ENGINEER SHALL HAVE FUL L POWERS TO PROCURE OTHER PROPER MATERIALS TO BE SUBSTITUTED FO R REJECTED MATERIALS AND IN THE EVENT OF THE CONTRACTOR REFUSI NG TO COMPLY, HE MAY CAUSE THE SAME TO BE SUPPLIED BY OTHER MEANS . ALL COSTS, WHICH MAY ATTEND UPON SUCH REMOVAL AND / OR SUBSTIT UTION SHALL BE BORNE BY THE CONTRACTOR. 2.8. THESE PARTICULARS ARE ALSO INCORPORATED IN THE TENDER DOCUMENT AS MENTIONED IN PARA 6.7.13 AT PAGE NO 04 OF THE PAPER BOOK (COPY OF THE RELEVANT PAGES OF THE TENDER DOCUMENT IS AVAILABLE AT PAGE NO 01 TO 05 OF PAPER BOOK). THE WORKS CONTRACT FOR THE YEAR CERTIFIES THAT THE REQUISITE MATERIAL FOR WHICH DEDUCTION TOW ARDS PURCHASES HAS BEEN MADE HAS BEEN ACTUALLY RECEIVED/CONSUMED BY TH E ASSESSEE IN THE PROJECT/JOB WORK. THE ASSESSEE MAINTAINS A REGISTER WHICH INCORPORATES DETAILS OF VARIOUS ITEMS WHICH HAVE BEEN RECEIVED O N THE SITE AND THE MATERIAL HAVE BEEN CONSUMED OR SUPPLIED UNDER THE S UPERVISION OF THE REPRESENTATIVE ENGINEER (PAGE NO 70 TO 105 OF PAPER BOOK). THUS THERE IS COMPLETE QUANTITY CHECK OF VARIOUS PURCHASE ITEM S IN TERMS OF THEIR DELIVERY ON THE CONTRACT SITE AND CONSUMPTION IN TH E EXECUTION OF CONTRACT JOB WORK. THE ASSESSEE HAD ALSO PREPARED S UMMARY OF THE JOB WORK EXECUTED AND THE MATERIAL CONSUMED WHICH MATCH ES WITH THE SPECIFICATION AS REGARDS CONTRACT WORK DONE AND MAT ERIAL UTILIZED IN WORKS CONTRACT AS CERTIFIED BY THE MCGM AUTHORITY ( PAGE NO 58 TO 59 OF PAPER BOOK). THE ASSESSEE ALSO PREPARED A BREAK UP AND SUMMARY OF THE TOTAL ITEMS PURCHASED / CONSUMED PARTY-WISE AND THE SAID DETAILS ARE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 35 AVAILABLE AT PAGES 60 TO 69 OF PAPER BOOK. THE ASSE SSEE DREW OUR ATTENTION TO THE SAMPLE BILLS OF REPRESENTATIVE PAR TIES (PAGE NO 106 TO 150 OF PAPER BOOK). ALL THESE DOCUMENTATION ESTABLI SHES THAT THE ASSESSEE HAD MADE THE REQUISITE PURCHASES AND THE S AME WERE SUPPLIED TO THE CONTRACTEE PARTIES IN THE JOB WORK LEADING T O CONTRACT RECEIPTS OF RS. 12.69 CRORES. 2.9. THE LD. COUNSEL FOR THE ASSESSEE, FURTHER CLAIMED/EXPLAINED THAT IT DOES NOT MAKE USE OF ITEM S OTHER THAN STEEL WHICH ARE SOLD IN BIG AND REPUTED STORES. THE ITEMS LIKE SAND AND CONCRETE ARE PURCHASED FROM THE PARTIES WHO APPROAC H THE AGENT OF THE ASSESSEE FOR THE SUPPLIES ON THE SITE AT COMPETITIV E RATES. MOST OF THE ITEMS PURCHASED ARE OF APPROVED QUALITY STANDARD AN D THEY ARE DELIVERED BY THE SUPPLIER. IT IS THEREFORE NOT POSS IBLE TO KNOW AS TO WHETHER THE SUPPLIER IS THE REAL SELLER OR HE IS ON LY A FRONT FOR THE REAL SUPPLIER. THE FACT HOWEVER, REMAINS THAT THE PURCHA SE OF MATERIAL HAS BEEN MADE. IT HAS BEEN CONSUMED/ UTILIZED IN THE EX ECUTION OF CONTRACT AND UTILIZATION OF THESE SUPPLIES HAS RESULTED IN T HE CONTRACT RECEIPTS WHICH ARE OFFERED FOR ASSESSMENT PURPOSES. THE ITEM S SUPPLIED, THEIR QUANTITY AND QUALITY ARE COMPLETELY CERTIFIED BY TH E REPRESENTATIVE ENGINEERS OF MCGM. IT THEREFORE LEAVES NO DOUBT ABO UT THE GENUINENESS OF THE PURCHASES. SINCE MANY OF THE DOCUMENTS WERE TO BE OBTAINED FROM THE GOVERNMENT DEPARTMENTS AND THE TIME ALLOWED BY THE ASSESSING OFFICER WAS EXPLAINED TO BE SHORT THESE DOCUMENTS C OULD NOT BE FURNISHED BEFORE THE ASSESSING OFFICER AND THEREFO RE THESE DOCUMENTS WERE SUBMITTED BY THE ASSESSEE AT THE FIRST APPELLA TE STAGE. THESE DOCUMENTS WERE DULY EXAMINED BY THE LD. CIT(A) AND THEREAFTER THE CONCLUSION WAS ARRIVED AT. NO CONTRARY MATERIAL/FAC TS WERE BROUGHT TO OUR NOTICE BY THE REVENUE, THUS, WE FIND MERIT IN T HE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. 2.10. THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED T HAT THE TOTAL SUPPLY OF MATERIAL COSTING RS. 5,66,34,559/- HAS BE EN OBTAINED FROM 41 PARTIES OF WHICH 20 PARTIES WHO SUPPLIED MATERIAL W ORTH RS. 4,48,88,866/- HAVE BEEN HELD TO BE NON-GENUINE. IN THE IMPUGNED CONTRACT THE COST OF MATERIAL CONSTITUTES 44% OF TH E RECEIPTS. THE REJECTION OF PURCHASES FROM 20 PARTIES WHICH IS 80% OF THE TOTAL PURCHASES OF THE MATERIAL MADE FOR THE EXECUTION OF THE CONTRACT WOULD LEAD TO THE PREPOSTEROUS CONCLUSION OF HAVING EXECU TED CONTRACT INVOLVING MATERIALS WITHOUT THERE BEING ANY CORRESP ONDING GENUINE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 36 PURCHASE AND RECEIPT OF MATERIAL. THIS IS NOT POSSI BLE BECAUSE THE JOB CONTRACT WAS COMPLETED BY THE ASSESSEE AS PER SPECI FICATION, AFTER VERIFYING THE CONSUMPTION OF MATERIAL. THE PAYMENT S WERE MADE TO THE ASSESSEE BY THE CONCERNED AUTHORITY/MCGM ONLY AFTER BEING SATISFIED THAT THE JOB WORK HAS BEEN COMPLETED IN A REQUIRED MANNER. THE LD. ASSESSING OFFICERS MAIN REASON FOR REJECTING THE P URCHASE IS BECAUSE CERTAIN NAMES OF PURCHASE PARTIES ON THE WEBSITE OF SALES TAX DEPARTMENT UNDER THE CATEGORY OF SUSPICIOUS DEALERS . THE ASSESSEE EXPLAINED THAT IT HAS RECEIVED PAYMENT FOR EXECUTIO N OF CONTRACTS FOR WHICH IT HAS OBTAINED, SUPPLIED AND CONSUMED MATERI ALS UNDER THE QUANTITY AND QUALITY SUPERVISION OF THE REPRESENTAT IVE ENGINEER. THE PAYMENTS FOR PURCHASES HAVE BEEN DONE BY BANKING CH ANNELS. IN THE FACE OF SUCH MATERIAL EVEN IF THE PURCHASE PARTIES ARE A LLEGED TO BE SUSPICIOUS BY THE SALES TAX DEPARTMENT OF MAHARASHTRA STATE GO VERNMENT THE PURCHASES CANNOT BE DISBELIEVED BECAUSE WITHOUT SUC H PURCHASES THERE CANNOT BE ANY SUPPLY/CONSUMPTION AND EXECUTION OF C ONTRACTS BY UTILIZING THESE MATERIAL AND CONSEQUENTIAL RECEIPT FROM THE CONTRACTEE DEPARTMENT. IN VIEW OF THE ABOVE IT IS APPARENT THA T THE MERE APPEARANCE OF THE NAME OF THE PARTIES ON THE WEBSIT E OF SALES TAX DEPARTMENT CANNOT JUSTIFY THE CONCLUSION THAT THE P URCHASES MADE BY THE ASSESSEE WERE NOT GENUINE. 2.11. EVEN OTHERWISE, THE CONTRACTS EXECUTED BY VA RIOUS CONTRACTORS ARE SUBJECTED TO CHECK AS REGARDS THEIR SPECIFICATION, WORKMANSHIP, QUALITY AND QUANTITY OF MATERIAL UTILI ZED BY THE AUDIT/VIGILANCE TEAM OF THE MCGM. THE ASSESSEE, BEF ORE US AS WELL AS BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL) CLAIMED THAT THE JOB WAS ALSO SUBJECTED TO SUCH CHECK AND THE CHECK DID NOT LEAD TO DISCOVERY OF ANY DEFECT OR DEFICIENCY IN THE QUANTI TY AND QUALITY OF MATERIAL SUPPLIED AND THE WORKMANSHIP OF THE JOB PE RFORMED (PAGE NO 151 TO 165 OF PAPER BOOK). 2.12. IT IS NOTEWORTHY THAT THE LD. CIT(A), DURIN G FIRST APPELLATE STAGE, REMANDED THE SAID DOCUMENTS TO THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE IN RESPECT OF T HE PURCHASES OF MATERIAL MADE BY CORRELATING THE STOCK REGISTER OF THE APPEL LANT WITH THE TENDER DOCUMENT AND THE CERTIFICATE BY MCGM AUTHORITIES. T HE A.0 WAS ALSO ASKED VERIFY THE GENUINENESS OF THE TENDER DOCUMENT S AND CERTIFICATE PRODUCED BY THE ASSESSEE. IN TURN, THE AO SUBMITTED A REMAND REPORT ON ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 37 07.12.2012 TO THE LD. COMMISSIONER OF INCOME TAX (A PPEAL), OUT OF WHICH, FOLLOWING MAIN POINTS EMERGES:- I. THE A.O. ACCEPTED THAT THE CONCERNED PROJECTS FOR W HICH PAYMENTS HAVE BEEN SHOWN HAVE BEEN EXECUTED BY THE ASSESSEE. II. THE VERIFICATION DONE FROM THE MCGM CONFIRMED THE C LAIM OF THE ASSESSEE AS REGARDS THE PROJECT DETAILS PERTAINING TO THE EXECUTION AND CONSUMPTION OF MATERIAL. III. THE DY. CHIEF ENGINEER (SWD), MCGM, GHATKOPAR HOWEV ER CONFIRMED QUANTITATIVE USAGE OF RMC AND STEEL ONLY AND CONSUMPTION OF RUBBLE, METAL POWDER AND SAND IS NOT SEPARATELY RECORDED BY THEM. THE MCGM AUTHORITIES DID NOT CERT IFY THE PRICE AT WHICH THE RAW - MATERIAL PURCHASED / CONSUMED WA S ACQUIRED. IV. THE A.O. OBSERVED THAT HE HAD CALLED FOR DETAILS OF ALL THE RAW MATERIAL ACQUIRED FOR ALL THE PROJECTS EXECUTED DUR ING THE YEAR. THE ASSESSEE HOWEVER, GAVE SUCH DETAILS WITH REGARD TO 'PREMIER NALLA PROJECT' ON THE GROUND THAT THE ADDITION UNDE R CONTEST IN APPEAL RELATED TO THIS PROJECT ALONE. THE A.O. SUGG ESTED THAT THERE IS A POSSIBILITY OF RAW MATERIAL PURCHASED HAVING B EEN USED IN THE REMAINING 15 PROJECTS. V. SINCE THE ASSESSEE HAS NOT PROVED THE GENUINENESS O F PURCHASES HAVING BEEN MADE FROM THE PARTIES MENTIONED IN THE BOOKS OF ACCOUNTS IT IS POSSIBLE THAT THE PURCHASES MAY HAVE BEEN MADE IN CASH AND REFLECTED IN THE NAME OF BOGUS ENTRY PROVI DERS. IN THAT SITUATION THE A.O. HAD RECOMMENDED THAT THE LD. C1T (A) SHOULD CONFIRM THE ADDITION BY APPLICATION OF SECTION 40A( 3) FOR MAKING THE DISALLOWANCE. VI. CO-RELATION OF THE STOCK REGISTER WITH THE TENDER D OCUMENT AND CERTIFICATE ISSUED BY MCGM IS NOT POSSIBLE BECAUSE STOCK REGISTER CONSISTS MAINLY OF DETAILS LIKE PURCHASE PARTY NAME S, MATERIAL PURCHASED, BILL NO ETC. THE CONTENTS OF STOCK REGIS TER ARE DOUBTFUL SINCE THE PURCHASES ITSELF ARE DOUBTFUL. FURTHER TH E QUANTITY ANALYSIS DOES NOT PROVIDE THE RATE AT WHICH MATERIA L IS PURCHASED AS THE SAME IS NOT CERTIFIED BY MCGM. VII. THE A.O. HAD REQUIRED THE ASSESSEE FOR FURNISHING O F EXTENSIVE DETAILS IN RESPECT OF ALL THE PURCHASE PARTIES FOR THE MATERIALS UTILIZED IN ALL THE CONTRACTS EXECUTED. HE HAD ALSO ASKED FOR ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 38 PRODUCTION OF THE SUSPICIOUS PARTIES. THE ASSESSEE HOWEVER, DID NOT FURNISH ALL THE NECESSARY DETAILS ON THE PLEA T HAT THE SUBJECT MATTER OF APPEAL DOES NOT RELATE TO ALL THE PROJECT S AND FURTHER, THE PROJECTS DETAILS WERE NOT READILY AVAILABLE. VIII. THE ASSESSEE FAILED TO PROVIDE THE CORRECT ADDRESS OF TWO PARTIES NAMELY MAHADESHPURA ENTERPRISES & URN CORPORATION. THE ADDITION OF UNPROVED PURCHASES HAS BEEN MADE IN REG ARD TO ITEMS ACQUIRED FROM 20 PARTIES APPEARING ON MAHARASHTRA G OVERNMENT WEBSITE. THE A.O. HAD ISSUED 133(6) NOTICES TO 18 P ARTIES AS CURRENT ADDRESSES OF THE TWO PARTIES NAMELY MAHADES HPURA ENTERPRISES & OM CORPORATION WERE NOT PROVIDED BY T HE ASSESSEE. OUT OF THE NOTICES ISSUED TO 18 PARTIES HOWEVER, TH ERE WAS SERVICE ON 6 PARTIES AND THE REMAINING NOTICES WERE RETURNE D UNSERVED. AS PER INSPECTORS REPORT SERVICE COULD NOT BE AFFEC TED ON OTHER PARTIES AS EITHER THEY WERE NOT AVAILABLE OR THEY H AD SHIFTED TO OTHER PLACE ADDRESS OF WHICH WAS NOT AVAILABLE. IX. THE A.O. HAS ISSUED A LETTER TO MCGM FOR OBTAINING INFORMATION ABOUT THE RAW MATERIAL USED IN THE OTHER 15 PROJECT S. THERE HAD BEEN HOWEVER, NO PROGRESS IN THE MATTER. X. THE ENQUIRIES MADE BY THE SALES TAX DEPARTMENT REVE ALED THAT THE 20 PARTIES APPEARING ON THEIR WEBSITE WERE ONLY ISSUING BILLS WITHOUT ACTUALLY SUPPLYING THE MATERIAL. THE AO HAS ENCLOSED WITH THE REPORT STATEMENTS OF THE PARTIES AND OTHER DOCUMENTS LIFTED FROM THE WEBSITE OF THE SALES TAX DEPARTMENT TO SUPPORT THE CLAIM THAT THESE PARTIES WERE NOT GENUINE TRADE RS. 2.13. THE LD. COMMISSIONER OF INCOME TAX (APPEAL) CONFRONTED THE ASSESSEE WITH THE AFOREMENTIONED POI NTS TO WHICH THE ASSESSEE RESPONDED TO THE REPORT OF THE ASSESSI NG OFFICER BY SUBMITTING AS UNDER:- I IN POINTS (A) AND (B) THE A.O. HAS ACCEPTED THE APPELLANT'S CLAIM RELATING TO THE EXECUTION OF THE PROJECT AND THE SAME STANDS ENDORSED BY THE MCGM AUTHORITIES. II. AS REGARDS POINT (C) WHEREIN THE AO HAS MENTIO NED THAT THE MCGM AUTHORITIES HAVE NOT CERTIFIED THE QUANTIT Y OF ITEMS LIKE RUBBLE, METAL POWDER, SAND ETC. UTILIZED IN TH E EXECUTION OF THE CONTRACT AND ALSO THAT THEY HAVE ALSO NOT CERTI FIED THE PURCHASE RATES OF RAW MATERIALS THE ASSESSEE HAD SU BMITTED ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 39 THAT THE MCGM RECORDS DO NOT INCORPORATE DETAILS AB OUT THE ITEMS WHICH VARY DEPENDING UPON THE PROJECT AND WHI CH DO NOT COMMAND LOT OF VALUE. THE MCGM AUTHORITIES ALSO DO NOT MAINTAIN THE RATES OF MATERIAL WHICH KEEP ON FLUCTU ATING BY DAY. THIS HOWEVER, DOES NOT IN ANY MANNER RAISE ANY QUESTION MARK ABOUT THE CLAIM OF THE ASSESSEE IN REGARDS TO GENUINENESS OF THE PURCHASE OF MATERIAL FOR THE COM PLETION OF 'PREMIER NALLA PROJECT'. III. AS REGARDS POINT (D) THE ASSESSEE SUBMITTED TH AT THE EXERCISE UNDERTAKEN BY THE A.O. FOR VERIFICATION OF OTHER PROJECTS IN THE COURSE OF REMAND PROCEEDINGS WAS BEYOND THE MANDATE OF REMAND ORDER. HIS VIEW THAT THE PURCHASE ITEMS M AY HAVE BEEN USED IN OTHER CONTRACTS WOULD CONTRADICT THE C ERTIFICATE OF THE MCGM AUTHORITIES RELATING TO CONSUMPTION OF MAT ERIAL RELATING TO 'PREMIER NALLA PROJECT'. THE REMAND PRO CEEDINGS ARE INTENDED FOR DOING FACT VERIFICATION AND NOT FOR MA KING WILD GUESSES WHICH HAVE NO FACTUAL BASIS. MOREOVER THIS SUBSTANTIATE THE FACT THAT THE MATERIALS WERE INDEE D PURCHASED IV. AS REGARDS POINT (E) THE ASSESSEE HAS MADE CLAI M FOR PURCHASES FOR WHICH PAYMENTS HAVE BEEN MADE BY CROS S- CHEQUE. IT IS NOBODY'S CASE THAT PAYMENTS MADE TO P URCHASE PARTIES WERE RECEIVED BACK IN CASH BY THE ASSESSEE. WHERE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUES NOBODY C AN DENY THE EXISTENCE OF THE PARTIES. ONCE THE ASSESSE E ESTABLISHES CONSUMPTION OF ITEMS PURCHASED AS WELL NOTHING MORE REMAINS TO BE PROVED BY THE ASSESSEE. AS FAR A S THE PRAYER FOR APPLICATION OF PROVISION OF SECTION 40A( 3) IS CONCERNED IT CANNOT BE INVOKED ON THE BASIS OF SURM ISES AND CONJECTURES. THE ASSESSEE HAD CLAIMED PAYMENT FOR P URCHASES BY ACCOUNT PAYEE CHEQUES. THE A.O. HAD NOT SHOWN AN YWHERE THAT THE PAYMENT FOR EXPENDITURE WAS MADE IN CASH I N EXCESS OF THE PRESCRIBED LIMIT. THE DISALLOWANCE OF EXPENS ES IS THEREFORE, TOTALLY UNWARRANTED. IN SUPPORT OF ITS C ONTENTION THE ASSESSEE RELIED ON THE FOLLOWING JUDGMENTS: 2.14. NOW, WE SHALL DEAL WITH THE CASE LAWS RELIED UPON BY THE ASSESSEE AND ALSO CONSIDERED BY THE LD. COMMISS IONER OF INCOME TAX (APPEAL). THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V M.K.BROTHERS REPORTED AT 163 ITR 249 HAS HELD AS UN DER ' DURING THE ACCOUNTING YEAR RELATING TO ASSESSMENT Y EAR 1971-72, THE ASSESSEE HAD MADE PURCHASES OF THE TOT AL VALUE OF RS. 52,254/- FROM CERTAIN PARTIES. THE INC OME- TAX OFFICER REQUIRED THE ASSESSEE TO PRODUCE EVIDEN CE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 40 REGARDING THE PURCHASES. IN THE MEANTIME, THE SAID PARTIES HAD ADMITTED TO THE SALES TAX AUTHORITIES T HAT THEY HAD ISSUED BOGUS VOUCHERS. THE INCOME-TAX OFFI CER HELD THAT THE PURCHASES WERE NOT GENUINE AND ASSESS ED THE AMOUNT OF RS. 52,254/- AS INCOME OF THE ASSESSE E FROM UNDISCLOSED SOURCES. THE TRIBUNAL .FOUND THAT THERE WAS NO EVIDENCE TO SHOW THAT BOGUS VOUCHERS HAD BEE N ISSUED TO THE ASSESSEE, THAT NOTHING HAD BEEN SHOWN TO INDICATE THAT ANY PART OF THE FUNDS GIVEN BY THE AS SESSEE TO THESE PARTIES CAME BACK TO THE ASSESSEE IN ANY F ORM, AND THAT THE ASSESSEE HAD MADE ITS PAYMENTS BY CHEQUE. THE TRIBUNAL DELETED THE ADDITION. ON A REFERENCE: HELD, THAT THE CONCLUSION ARRIVED AT BY THE TRIBUNA L WAS SUPPORTED BY THE EVIDENCE ON RECORD. THE AMOUNT OF RS. 52,254/- WAS NOT ASSESSABLE AS INCOME FROM UNDISCLOSED SOURCES AND THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION '. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F ITO V PERMANAND REPORTED AT 107 TTJ 395 HAS HELD AS UNDER :- ' NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSE E ON THE BASIS OF OBSERVATIONS MADE BY A THIRD PARTY. TH E ADDITION RESTS MAINLY ONLY ON THE OBSERVATIONS OF T HE SALES- TAX DEPARTMENT. THE ASSESSEE WAS NEVER ASSOCIATED W ITH THE ENQUIRIES MADE BY THE SALES-TAX DEPARTMENT TO T HAT EXTENT. THE SATISFACTION OF THE AO HIMSELF IS OF TH E PRIME IMPORTANCE WHILE MAKING ASSESSMENT OF AN INCOME AND THESE DUTIES CANNOT HE PERFORMED BY SUBSTITUTING TH E SATISFACTION OF SOMEONE ELSE. THE ASSESSEE DID PAY FOR THE PURCHASES, HE MADE FROM THE TWO PARTIES, THROUGH CH EQUE. THE STATEMENTS OR EVEN THE AFFIDAVITS OF THE SELLER S CANNOT BE UTILIZED AGAINST THE ASSESSEE. ADMITTEDLY, NO OP PORTUNITY WAS GIVEN TO THE ASSESSEE TO CONFRONT THE SELLERS. THE ASSESSEE HAS DISCHARGED THE PRIMARY ONUS CAST ON HI M BY S. 69 BY SHOWING THE PURCHASES, THEIR ENTRIES IN TH E BOOKS OF ACCOUNTS, PAYMENTS BY WAY OF ACCOUNT PAYEE CHEQU ES: PRODUCING THE VOUCHERS OF SALES OF THE GOODS. THE A O HAS MISERABLY FAILED TO BRING ON RECORD ANY CLINCHING E VIDENCE TO PROVE THAT THESE ALLEGED PURCHASES WERE VERILY B OGUS AND NOT GENUINE. THE AO HAS NOT ARRIVED AT A JUDICI OUS CONCLUSION UFTER APPLYING HIS OWN MIND. STRANGELY E NOUGH, THE AO HAS HALFHEARTEDLY ACCEPTED CERTAIN QUANTUM O F ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 41 PURCHASES BECAUSE OUT OF TOTAL PURCHASES AGGREGATIN G RS. 9,93,442, HE HAS DISALLOWED ONLY A PEAK OF RS. 3,36 ,852. THIS .FINDING OF THE AO IS PARADOXICAL. THE AO DID NOT MAKE REQUISITE INVESTIGATION AGAINST THE TWO SELLERS. TH E IMPUGNED DELETION IS CONFIRMED '. LIKEWISE, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FREE INDIA ASSURANCE SERVICES LTD V DCIT REPORTED AT 62 DTR 349 HAS HELD AS :- ' THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE PAYM ENTS OF RS. 30,80,730 BY CHEQUES TO HC AND SS. DURING TH E COURSE OF SEARCH, THE STATEMENT WAS ALSO RECORDED O F AM ON 20TH JUNE, 2003 WHEREIN HE HAS STATED THAT AGAINST THE CHEQUE TRANSACTIONS, CASH HAS BEEN RECEIVED. DURING THE COURSE OF ASSESSMENT PROCEEDING, IT WAS STATED BY T HE ASSESSEE THAT THE SAID CASH, AGAINST CHEQUE PAYMENT S WAS UTILISED TO PURCHASE CLOTH FROM THE GREY MARKET AND IN SUPPORT, THE ASSESSEE HAS ALSO .FILED DETAILS OF CL OSING STOCK AS ON 31ST MARCH, 2003 WHEREIN FABRIC CLOTH TOTALLI NG TO RS. 30,80,730 IS APPEARING AS CLOSING STOCK. IN THE ABS ENCE OF ANY MATERIAL TO SHOW THAT NO SUCH CHEQUE PAYMENTS W ERE MADE BY THE ASSESSEE OR CASH AMOUNT RECEIVED BY THE ASSESSEE AGAINST THE CHEQUE PAYMENTS WAS UTILISED B Y THE ASSESSEE OTHER THAN PURCHASES OR THE ENTRY RECORDED IN THE CLOSING STOCK AMOUNTING TO R.C. 30,20,730 IS .FOUND TO HE FICTITIOUS OR .FALSE OR NO SUCH CLOSING STOCK WAS F OUND DURING THE COURSE OF SEARCH, THE ASSESSEE HAS MADE CASH PURCHASES OF RS. 30,80,730 WHICH UNDISPUTEDLY WAS F OUND RECORDED IN THE INVENTORY OF CLOSING STOCK, THEREFO RE, THE AO WAS NOT JUSTIFIED IN TREATING THE SAID PURCHASES OF RS. 30,80,730 AS BOGUS PURCHASES. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE ASS ESSEE HAS MADE CASH PAYMENTS IN VIOLATION OF PROVISIONS O F S. 40A(3), DISALLOWANCE COULD NOT BE MADE MERELY ON PRESUMPTION THAT THE ASSESSEE HAS MADE PURCHASES BY WAY OF CASH PAYMENTS FROM THE GREY MARKET; DISALLOW ANCE DELETED '. 2.15. DURING HEARING, THE LD. COUNSEL FOR THE ASSE SSEE ALSO PLACED RELIANCE UPON THE FOLLOWING JUDICIAL PRONOUN CEMENTS:- ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 42 I. JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF SHANTI KUMAR CHORDIA V ACIT REPORTED AT 128 TTJ 708 (PAGE NOS. 0 8 TO 15 OF PAPERBOOK) II. HON'BLE CALCUTTA HIGH COURT IN THE CASE OF DIAGNOST ICS V CIT REPORTED AT 334 ITR 111 (PAGE NOS. 16 TO 20 OF PAPE R BOOK) III. DELHI BENCH OF THE TRIBUNAL IN THE CASE OF YFC PROJ ECT PVT LTD VS DEPUTY COMMISSIONER OF INCOME TAX REPORTED IN 46 DTR 496(PAGE NOS. 56 TO 64 OF PAPER BOOK) IV. PUNE BENCH OF THE TRIBUNAL IN THE CASE OF RAJMAL LA KHICHAND V ACIT REPORTED AT 79 1TD 84 (PAGE NOS. 41 TO 55 OF PAPER- BOOK) 2.16. THE LD. COUNSEL FOR THE ASSESSEE WAS ASKED T O CLARIFY VARIOUS POINTS, WHICH WERE CLARIFIED AS UNDER:- (A) SO FAR AS POINT (VI) REGARDING THE FUTILITY AND FEASIBILITY OF VERIFICATION OF STOCK REGISTER, IS CONCERNED, THE L D. COUNSEL FOR THE ASSESSEE EXPLAINED THAT A STOCK REGISTER INCORPORAT ES THE MOVEMENT OF GOODS AND ITS CONSUMPTION. IN ADDITION TO THESE DET AILS THE STOCK REGISTER SUBMITTED BY THE APPELLANT ALSO INCORPORAT ES THE NAME OF THE PARTY AND BILL NO. THE ASSESSING OFFICER WAS, IN T HE REMAND PROCEEDINGS, ASKED TO VERIFY WHETHER THE STOCK ACQU IRED BY INCURRING PURCHASE EXPENSE WAS REFLECTED IN THE CONSUMPTION A ND CLOSING STOCK. THERE IS NOTHING WRONG IN THE STOCK REGISTER DOES N OT INCORPORATE PURCHASE RATES. MOREOVER THE DISALLOWANCE HAS BEEN MADE BY DOUBTING THE PURCHASE AND NOT THE PURCHASE RATE. THEREFORE T HE ENTRIES RECORDED IN THE STOCK REGISTER COMPREHENSIVELY ESTABLISH BEY OND ANY DOUBT THAT THE ITEMS PURCHASED WERE WHOLLY UTILIZED IN THE CON TRACT UNDERTAKEN AND THERE WAS NO MISMATCH BETWEEN THE MATERIALS ACQ UIRED AND MATERIALS UTILIZED. THE OBSERVATIONS OF THE AO ARE THUS DEVOID OF MERIT. (B) SO FAR AS, THE OBSERVATION OF THE ASSESSING OFFICER NARRATED FOR POINT NUMBER (VII) (SUPRA), IT WAS SUB MITTED THAT THE ISSUE CONTESTED IN APPEAL IS DISALLOWANCE OF PURCHASE EXP ENSES IN RESPECT OF 'PREMIER NALLA PROJECT'. THE SCOPE OF REMAND PROCEE DINGS WAS THEREFORE LIMITED TO THE EXPENSES INCURRED IN THIS PROJECT AND THE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 43 ASSESSING OFFICER WAS NEITHER REQUIRED NOR JUSTIFIE D IN ATTEMPTING TO REVIEW THAT PART OF ASSESSMENT ORDER WHICH WAS NOT SUBJECT MATTER OF THE APPELLATE PROCEEDINGS. (C) AS REGARDS POINT (VIII) THE ASSESSING OFFICER H AD MADE ADDITION AS UNPROVED PURCHASES IN RESPECT OF 20 PARTIES. THE ADDITION WAS MADE ON THE BASIS OF TEST CHECK CARRIED OUT BY THE AD OF THE GENUINENESS OF PURCHASE PARTIES WHICH FIGURED ON THE WEBSITE OF MA HARASHTRA STATE SALES TAX DEPARTMENT. THE ADVERSE VIEW WAS TAKEN AS THE NOTICES ISSUED FOR VERIFICATION WERE EITHER UNSERVED OR UNR ESPONDED. MANY OF THESE NOTICES WERE NOT SERVED BECAUSE THE SUPPLIERS KEEP ON CHANGING THEIR PLACE OF BUSINESS AND THE NOTICE SENT AT THE OLD ADDRESS CAME HACK UNSERVED. IN THE COURSE OF REMAND PROCEEDINGS THE A SSESSEE HAD PROVIDED THE CHANGED ADDRESSES OF THE PARTIES WHICH WERE AVAILABLE WITH IT. THE ASSESSING OFFICER ISSUED NOTICES TO T HEM AND THERE WAS SERVICE ON 6 PARTIES. THE OTHER NOTICES COULD NOT B E SERVED FOR WANT OF AVAILABILITY OF CURRENT ADDRESSES. THE ASSESSEE SUB MITTED THAT THESE SUPPLIERS KEEP ON CHANGING SITE OF THEIR BUSINESS D EPENDING ON THE BUSINESS PROSPECTS. THE ASSESSEE HAS ALREADY EFFECT ED PURCHASES AND MADE PAYMENT TO THEM BY ACCOUNT PAYEE CHEQUES. IT I S NEITHER FEASIBLE NOR POSSIBLE FOR THE APPELLANT TO KEEP TRACK OF ALL THE PURCHASE PARTIES WITH WHOM BUSINESS WAS DONE IN PAST. (D) AS REGARDS POINT (IX) REGARDING THE INFORMATION WHICH WAS PENDING FROM MCGM IT WAS SUBMITTED THAT IF THE MCGM IS SLOW IN RESPONDING TO THE REQUEST OF THE ASSESSING OFFICER IT CANNOT BE HELD AGAINST THE ASSESSEE. (E) AS FAR AS POINT (X) IS CONCERNED THE LD. COUNSE L FOR THE ASSESSEE CLAIMED THAT THE CONCLUSIONS REACHED BY THE SALES T AX OFFICERS ARE VALID FOR THE AFFAIRS OF THE SALES TAX DEPARTMENT. AS REG ARDS THE ASSESSMENT UNDER INCOME TAX THE ASSESSING OFFICER SHOULD HAVE DONE ITS OWN ENQUIRY AND SHOULD HAVE CONFRONTED THE ASSESSEE WIT H THE MATERIAL THUS GATHERED. IF THE ASSESSING OFFICER REALLY WANT ED TO APPLY THE TENTATIVE INFERENCES OF THE SALES TAX DEPARTMENT TO THE ASSESSMENT PROCEEDINGS OF THE ASSESSEE HE WAS DUTY BOUND TO CA LL THE DEPONENTS AND MAKE THEM CONFIRM THE NATURE OF DEALINGS WITH T HE ASSESSEE. IF THEY DEPOSE THAT THE DEALINGS WITH THE ASSESSEE ARE NOT GENUINE THE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 44 ASSESSEE WOULD HAVE RIGHT TO CROSS EXAMINE THEM TO BRING THE TRUTH OF THE DEPOSITION ON THE SURFACE. THIS HAS NOT BEEN DO NE BY THE ASSESSING OFFICER. THUS THE CONCLUSION REACHED BY THE ASSESSI NG OFFICER IS DEVOID OF MERIT. THE ASSESSEE HAD PLACED RELIANCE ON THE J UDGMENT OF THE HON'BLE SUPREME COURT IN THE EASE KISHINCHAND CHELL ARARN VS CIT REPORTED IN 125 ITR 713 (PAGE NO. 77 TO 87 OF THE P APER BOOK). 2.17. CONSIDERING THE EXPLANATION OF THE ASSESSEE BY KEEPING IT IN JUXTAPOSITION WITH THE OBSERVATION MADE IN TH E ASSESSMENT ORDER AND CONCLUSION DRAWN IN THE IMPUGNED ORDER, WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) JUSTIFIABLY REA CHED TO A CONCLUSION IN DELETING THE ADDITION, BECAUSE, THERE IS NO DISPUTE TO THE FACT THAT THE JOB WORK OF THE CONTRACTEE PARTY WAS COMPLETED BY THE ASSESSEE, WHICH WAS ONLY POSSIBLE WITH THE CONSUMPT ION OF MATERIAL. NO ADDITION CAN BE SUSTAINED MERELY ON THE BASIS OF DOUBT BECAUSE SUSPICION CANNOT BE THE BASIS OF DOUBT, HOWEVER, ST RONG IT MAY BE, UNLESS AND UNTIL IT IS CORROBORATED WITH MATERIAL/E VIDENCE. EVEN OTHERWISE, THE DEPARTMENT HAS NOT PROVED THAT THE C ONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IS E RRONEOUS OR FACTUALLY INCORRECT. EVEN OTHERWISE, NON SERVICE OF SUPPLIER PARTIES CANNOT BE SAID TO BE A VALID REASON TO THE DEPARTME NT TO DISBELIEVE THE PURCHASES. THE ASSESSEE IS A CIVIL CONTRACTOR AND H ENCE ITS SUPPLIES ARE RECEIVED ON SITE. MANY OF THE ITEMS PURCHASED ARE S UPPLIED BY ENTITIES OF UNORGANIZED SECTOR. THEY KEEP ON CHANGING THEIR PLACE OF BUSINESS AND THEREFORE NON SERVICE OF NOTICE AT THE ADDRESSE S GIVEN BY THE SUPPLIERS AFTER A LAPSE OF MANY YEARS DOES NOT JUST IFY ADVERSE VIEW AS TO THE GENUINENESS OF PURCHASES. IT WOULD BE SEEN THAT THE ADDITION WAS MADE ON THE BASIS OF TEST CHECK CARRIED OUT BY THE ASSESSING OFFICER OF THE GENUINENESS OF PURCHASE PARTIES WHICH FIGURED O N THE WEBSITE OF MAHARASHTRA STATE SALES TAX DEPARTMENT. THE ADVERSE VIEW WAS TAKEN AS THE NOTICES ISSUED FOR VERIFICATION WERE EITHER UNSERVED OR UNRESPONDED. MANY OF THESE NOTICES WERE NOT SERVED BECAUSE THE SUPPLIERS KEEP ON CHANGING THEIR PLACE OF BUSINESS AND THE NOTICES SENT AT THE OLD ADDRESS CAME BACK UNSERVED. IN THE COURS E OF REMAND PROCEEDINGS THE ASSESSEE HAD PROVIDED CHANGED ADDRE SSES OF THE PARTIES WHICH WERE AVAILABLE WITH IT. THE ASSESSING OFFICER ISSUED NOTICES TO THEM AND THERE WAS SERVICE ON 6 PARTIES. THE OTHER NOTICES COULD NOT BE SERVED FOR WANT OF AVAILABILITY OF CUR RENT ADDRESSES. IT IS A ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 45 GENERAL POSITION IN SUCH TYPE OF BUSINESS THAT THE SUPPLIERS KEEP ON CHANGING THEIR SITE OF BUSINESS DEPENDING ON THE BU SINESS PROSPECTS. THE ASSESSEE HAS ALREADY EFFECTED PURCHASES AND MAD E PAYMENT TO THEM BY ACCOUNT PAYEE CHEQUES. IT IS NEITHER FEASIB LE NOR POSSIBLE FOR THE APPELLANT TO KEEP TRACK OF ALL THE PURCHASE PAR TIES WITH WHOM BUSINESS WAS DONE IN PAST. BUT FACT REMAINS THAT T HE ASSESSEE HAD CONSUMED THE MATERIALS PURCHASED FROM THE SAID PART IES AND THE CONSUMPTION OF THE PURCHASES HAVE BEEN CONFIRMED BY THE MCGM AUTHORITIES. JUST BECAUSE THE PARTIES DID NOT APPEA R BEFORE THE AO IT CANNOT BE HELD AGAINST THE ASSESSEE. OUR VIEW FIND SUPPORTS FROM THE RATIO LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COUR T IN CASE OF CIT-1 V/S M/S NIKUNJ EXIMP ENTERPRISES PVT. LTD (372 ITR 619)(BOM.), WHEREIN IT WAS HELD THAT MERELY BECAUSE THE SUPPLIE RS COULD NOT BE PRODUCED BEFORE THE AUTHORITIES BUT OTHER RELEVANT DETAILS HAVE BEEN FILED TO SHOW THAT THE TRANSACTION WAS GENUINE THE PURCHASES CANNOT BE DISALLOWED. THE RELEVANT EXTRACT OF THE JUDGMENT IS AS UNDER: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN DELETING THE A DDITION MADE BY THE ASSESSING OFFICER OF RS. I,33,41,917/- TOWARDS BOGUS PURCHASES EVEN THOUGH THE SUPPLIERS WERE NON- EXISTENT AND ONE OF THE PARTIES HAD CATEGORICALLY D ENIED HAVING ANY BUSINESS DEALINGS WITH THE APPELLANT COMPANY'. ............. WE HAVE CONSIDERED THE SUBMISSIONS ON BEHALF OF THE REVENUE. HOWEVER, FROM THE ORDER OF THE TRIBUNAL DATED 30.04 .2010, WE, FIND THAT THE TRIBUNAL HAS DELETED THE ADDITION S ON ACCOUNT OF BOGUS PURCHASES NOT ONLY ON THE BASIS OF STOCK STATEMENT I.E. RECONCILIATION STATEMENT, BUT ALSO I N VIEW OF THE OTHER FACTS. THE TRIBUNAL RECORDS THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE APPELLANT HAVE NOT BEEN REJECTED. SIMI LARLY, THE SALES HAVE NOT BEEN DOUBTED AND IT IS AN ADMITTED P OSITION THAT SUBSTANTIAL AMOUNT OF SALES HAVE BEEN MADE TO THE GOVERNMENT DEPARTMENT I.E. DEFENCE RESEARCH AND DEVELOPMENT LABORATORY, HYDERABAD. FURTHER, THERE W ERE CONFIRMATION LETTERS FILED BY THE SUPPLIERS, COPIES OF INVOICES FOR PURCHASES AS WELL AS COPIES OF BANK STATEMENT ALL O F WHICH WOULD INDICATE THAT THE PURCHASES WERE INFLICT MADE . IN OUR VIEW, MERELY BECAUSE THE SUPPLIERS HAVE NOT APPEARE D BEFORE THE ASSESSING OFFICER OR THE CIT(A), ONE CANNOT CON CLUDE THAT THE PURCHASES WERE NOT MADE BY THE ASSESSEE- APPELL ANT. THE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 46 ASSESSING OFFICER AS WELL AS CIT(A) HAVE DISALLOWED THE DEDUCTION OF RS. 1.33 CRORES ON ACCOUNT OF PURCHASES MERELY ON THE BASIS OF SUSPICION BECAUSE THE SELLERS AND THE CANVASSING AGENTS HAVE NOT BEEN PRODUCED BEFORE THEM. WE FIND THAT THE ORDER OF THE TRIBUNAL IS WELL A REASONED ORDER TAKI NG INTO ACCOUNT ALL THE FACTS BEFORE CONCLUDING THAT THE PU RCHASES OF RS. 1.33 ERORES WAS NOT BOGUS. NO FAULT CAN HE .FOU ND WITH THE ORDER DATED 30.04.2010 OF THE TRIBUNAL'. 2.18. SO FAR AS, THE CONTENTION OF THE LD. DR, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN ACCEPTING GENUINENESS OF PURCHASES WHEN THE NAME OF SUPPLIER PARTIES APPEARED ON THE LIST OF SUSPICIOUS DEALERS ON THE WEBSITE OF THE SALES TAX DEPARTMENT, IN CONCERNED, WE ARE OF THE VIEW THAT THE ASSESSMENT UNDER INCOME TAX ACT BY THE ASSESSING OFFICER, SHO ULD HAVE BEEN DONE ON ITS OWN ENQUIRY AND SHOULD HAVE CONFRONTED THE A SSESSEE WITH THE MATERIAL THUS GATHERED. IF THE ASSESSING OFFICER RE ALLY WANTED TO APPLY THE TENTATIVE INFERENCES OF THE SALES TAX DEPARTMEN T TO THE ASSESSMENT PROCEEDINGS OF THE ASSESSEE, HE WAS DUTY BOUND TO C ALL THE DEPONENTS AND MAKE THEM CONFIRM THE NATURE OF DEALINGS WITH T HE ASSESSEE. IF THEY DEPOSE THAT THE DEALINGS WITH THE ASSESSEE ARE NOT GENUINE THE ASSESSEE WOULD HAVE RIGHT TO CROSS EXAMINE THEM TO BRING THE TRUTH OF THE DEPOSITION ON THE SURFACE. THIS HAS NOT BEEN DONE B Y THE ASSESSING OFFICER. THUS THE CONCLUSION REACHED BY THE ASSESSI NG OFFICER IS DEVOID OF MERIT. 2.19. EVEN OTHERWISE, FACT REMAINS THAT THE ASSESS EE MADE PURCHASES, FOR WHICH PAYMENTS HAVE BEEN MADE BY CRO SS-CHEQUE. IT IS NOBODY'S CASE THAT PAYMENTS MADE TO PURCHASE PARTIE S WERE RECEIVED BACK IN CASH BY THE ASSESSEE OR THE CHEQUES ISSUED TO THEM WERE NOT IN CASHED, MEANING THEREBY, THE PURCHASES FROM THE CON CERNED PARTIES CANNOT BE DISPUTED. WHERE PAYMENTS ARE MADE BY ACCO UNT PAYEE CHEQUES, NOBODY CAN DENY THE EXISTENCE OF THE PARTI ES. ONCE THE ASSESSEE ESTABLISHES CONSUMPTION OF ITEMS PURCHASED NOTHING MORE REMAINS TO BE PROVED BY THE ASSESSEE. THE FACT THAT THE ASSESSEE HAS MADE THE PURCHASES BY PAYMENT THROUGH ACCOUNT PAYEE CHEQUES AND ITS CONSUMPTION HAS BEEN BROADLY EXPLAINED WHICH CLEARL Y ESTABLISHES THE ASSESSEE'S CASE THAT THE PURCHASES AS RECORDED BY T HE ASSESSEE IN THE BOOKS OF ACCOUNTS ARE GENUINE. THE RATIO LAID DOWN BY HON'BLE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD. V S COMMISSIONER OF ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 47 INCOME TAX, WEST BENGAL REPORTED AT 26 ITR 775 (SC) THE RELEVANT PARA OF THE ORDER IS REPRODUCED HEREUNDER:- ' WE ARE IN ENTIRE AGREENEI1 WITH THE LEARNED SOLICIT OR- GENERAL WHEN HE SAYS THAT THE INCOME-TAX OFFICER IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADIN GS, AND THAT HE IS ENTITLED TO ACT ON MATERIAL WHICH MAY NO T BE ACCEPTED AS EVIDENCE IN A COON OF LAW, HUT THERE TH E AGREEMENT ENDS , BECAUSE IT IS EQUALLY CLEAR THAT I N MAKING THE ASSESSMENT TINDER SITH-SECTION ('3) OF S ECTIOII 23 OF THE ACT, THE INCOME-TAX OFFICER IS NOT ENTITL ED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. T HERE MUST HE SOMETHING MORE THAN HARE SUSPICION TO SUPPO RT THE ASSESSMENT UNDER SECTION 23(3).' LIKEWISE, THE MUMBAI BENCH OF THE TRIBUNAL IN THE C ASE OF HIRALAL CHUNILAL JAIN & OTHERS VS. ITO & OTHERS (20 16) 46 CCH 0020 (MUM) WHEREIN THE TRIBUNAL HELD AS UNDER: ' 2. ASSESSEE,AN INDIVIDUAL IS PROPRIETOR OF M/S.DIVY A ALLOYS AND IS ENGAGED IN BUSINESS OF RESELLERS OF FERROUS AND NON FERROUS METALS. EFFECTIVE GROUND OF APPEAL IS ABOUT AN ADDITION OF RS. 1,44,348/- DURING THE ASSESSMENT PROCEEDINGS, THE A0 FOUND THAT THE ASSESSEE HAD PUR CHASED GOODS WORTH RS. 7.21 LAKSH SHIV SAGAR STEEL(INDIA), THAT THE NAME OF SHIV SAGAR WAS APPEARING IN THE LIST OF BOG US PARTIES FORWARDED BY THE SALES TAX AUTHORITIES, THA T THE NAME OF THE ASSESSEE WAS APPEARING AS A BENEFICIARI ES IN THE LIST. THE AO DIRECTED THE ASSESSEE TO PRODUCE T HE PARTY FROM WHOM HE HAD CLAIMED TO HAVE PURCHASED GOODS. HOWEVER, THE SUPPLIER WAS NOT PRODUCED BY THE ASSES SEE. SUMMONS ISSUED TO SHIV SAGAR COULD NOT HE SERVED ON THE GIVEN ADDRESS. THE AO HELD THE PURCHASE TRANSACTION BOGUS AND TREATED THE ENTIRE PURCHASE (RS. 7.21 LAKHS)AS UNEXPLAINED EXPENDITURE U/S.69C OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE AO HAD RECEIVE D INFORMATION FROM THE INVESTIGATION WING OF STD, ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 48 MAHARASHTRA THAT THE ASSESSEE WAS ONE OF THE BENEFI CIARIES OF ACCOMMODATION ENTRIES, THAT SHIV SAGAR THE SUPPL IER OF THE GOODS WAS ONE OF THE ENTITIES WHO HAD ADMITTED TO HAVE BOGUS BILLS, THAT THE ASSESSEE HAD ASKED FOR CROSS EXAMINATION OF THE SUPPLIER BUT SAME WAS NOT GIVEN, THAT THE AO HAD NOT SUPPLIED THE COPY OF THE STATEMENTS OF SHIV SAGAR TO THE ASSESSEE,THAT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ALL THE PURCHASES AND SALES WERE RECORDED, THAT PAYMENTS WERE MADE THROUGH BANKING CHANNELS, THAT T HE AO HAD MADE ADDITION OF ENTIRE PURCHASES U/S.69 OF THE ACT, THAT THE FAA HAD REDUCED IT TO 20%. IT IS A FA CT THAT THE AO HAD NOT REJECTED THE SALES OF THE ASSESSEE AND T HE ASSESSEE WAS MAINTAINING THE QUANTATIVE DERAILS AND STOCK REGISTER. IN OUR OPINION, ONCE THE SALES ARE ACCEPT ED AS J'ENUIIZE OR NOT DOUBTED THE AO CANNOT REJECT THE E NTIRE PURCHASE. IN THE CASE OF NIKUNJ EXIMP(SUPRA)THE HON 'BLE BOMBAY HIGH COURT HAS HELD IF SALES WERE NOT DOUBTE D BY THE AO AND COPIES OF BANK STATEMENT SHOWING ENTRIES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES TO THE SUPPLI ERS, COPIES OF INVOICES FOR PURCHASES AND A STOCK STATEM ENT, I.E. STOCK RECONCILIATION STATEMENT ARE FILED PURCHASED COULD NOT BE REJECTED. IN THE CASE OF RAJEEV KALATHIL('SUPRA) THE TRIBUNAL HAS HELD AS UNDER: '2.4. WE FIND THAT AG HAD MADE THE ADDITION AS ONE OF THE SUPPLIER WAS DECLARED A HAWALA DEALER BY THE VAT DEPARTMENT. WE AGREE THAT IT WAS A GOOD STARTING PO INT FOR MAKING FURTHER INVESTIGATION AND TAKE IT TO LOGICAL END. BUT, HE LEFT THE JOB AT INITIAL POINT ITSELF SUSPICION O F HIGHEST DEGREE CANNOT TAKE PLACE OF EVIDENCE. HE COULD HAVE CALLED FOR THE DETAILS OF THE BANK ACCOUNTS OF THE SUPPLIE RS TO FIND OUT AS WHETHER THERE WAS ANY IMMEDIATE CASH WITHDRA WAL FROM THEIR ACCOUNT. WE FIND THAT NO SUCH EXERCISE W AS DONE.' IN THE PRESENT CASE ALSO THE AG HAD MADE THE ADDITI ON ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TA X DEPARTMENT, BUT, HE DID NOT MAKE ANY INDEPENDENT IN QUIRY. HE DID NOT FOLLOW THE PRINCIPLES OF NATURAL JUSTICE BEFORE MAKING THE ADDITION. THE FAA HAD REDUCED THE ADDITI ON TO 20%, BUT HE HAS NOT GIVEN ANY JUSTIFICATION EXCEPT STATING ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 49 THAT SAME WAS DONE TO PLUG THE PROBABLE LEAKAGE REV ENUE. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE REVERSING THE ORDER OF THE FAA EFFECTI VE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE.' IN ANOTHER CASE, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DGIT VS. RAJEEV G. KALATHIL REPORTED AT (2014) 41 C CH 0552 (MUM), WHEREIN IT WAS HELD AS UNDER: '2.3 BEFORE US, DEPARTMENTAL REPRESENTATIVE ARGUED THAT BOTH THE SUPPLIERS WERE NOT PRODUCED BEFORE THE AO BY TH E ASSESSEE, THAT ONE OF THEM WAS DECLARED HAWALA DEAL ER BY VAT DEPARTMENT, THAT BECAUSE OF CHEQUE PAYMENT MADE TO THE SUPPLIER TRANSACTION CANNOT BE TAKEN AS GENUINE. HE RELIED UPON THE ORDER OF THE G BENCH OF MUMBAI TRIBUNAL DE LIVERED IN THE CASE OF WESTERN EXTRUSION INDUSTRIES. (ITA/6579/MUM/2010-DATED 13.11.2013). AUTHORISED REPRESENTATIVE (AR) CONTENDED THAT PAYMENTS MADE BY THE ASSESSEE WERE SUPPORTED BY THE BANKER'S STATEMENT, THAT GOODS RECEIVED BY THE ASSESSEE FROM THE SUPPLIER WA S PART OF CLOSING STOCK, THAT THE TRANSPORTER HAD ADMITTED TH E TRANSPORTATION OF GOODS TO THE SITE. HE RELIED UPON THE CASE OF BABULA BORANA (282 ITR251), NIKUNJ EXIMP ENTERPRISE S (P) LTD. (216TAXMAN 1 71) DELIVERED BY THE HON'BLE BOMB AY HIGH COURT. 2.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT AO HAD MADE THE AD DITION AS ONE OF THE SUPPLIER WAS DECLARED A HAWALA DEALER BY THE VAT DEPARTMENT. WE AGREE THAT IT WAS A GOOD STARTING PO INT FOR MAKING FURTHER INVESTIGATION AND TAKE IT TO LOGICAL END. BUT, HE LEFT THE JOB AT INITIAL POINT ITSELF SUSPICION OF H IGHEST DEGREE CANNOT TAKE PLACE OF EVIDENCE. HE COULD HAVE CALLED FOR THE DETAILS OF THE BANK ACCOUNTS OF THE SUPPLIERS TO FI ND OUT AS WHETHER THERE WAS ANY IMMEDIATE CASH WITHDRAWAL FRO M THEIR ACCOUNT. WE FIND THAT NO SUCH EXERCISE WAS DONE. TRANSPORTATION OF GOOD TO THE SITE IS ONE OF THE DE CIDING FACTOR TO BE CONSIDERED FOR RESOLVING THE ISSUE. THE FAA H AS GIVEN A FINDING OF FACT THAT PART OF THE GOODS RECEIVED BY THE ASSESSEE WAS FORMING PART OF CLOSING STOCK. AS FAR AS THE CA SE OF WESTERN EXTRUSION INDUSTRIES. (SUPRA)IS CONCERNED, WE FIND THAT IN THAT MATTER CASH WAS IMMEDIATELY WITHDRAWN BY THE SUPPLIER AND THERE WAS NO EVIDENCE OF MOVEMENT OF G OODS. BUT, IN THE CASE BEFORE US, THERE IS NOTHING, IN TH E ORDER OF THE AO, ABOUT THE CASH TRIAL. ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 50 SECONDLY, PROOF OF MOVEMENT OF GOODS IS NOT IN DOUB T. THEREFORE, CONSIDERING THE PECULIAR FACTS AND CIRCU MSTANCES OF THE CASE UNDER APPEAL, WE ARE OF THE OPINION THAT T HE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY AN D THERE ARE NOT SUFFICIENT EVIDENCE ON .FILE TO ENDORSE THE VIE W TAKEN BY THE AO. SO, CONFIRMING THE ORDER OF THE FAA, WE DEC IDE GROUND NO.1 AGAINST THE AO.' CONSIDERING THE TOTALITY OF FACTS AND THE FOREGOING DISCUSSION INCLUDING VARIOUS JUDICIAL PRONOUNCEMENTS, WE FIND THAT THE ASSESSEE DULY MAINTAINED TAX AUDIT BOOKS OF ACCOUNT, WHICH I NCLUDES STOCK REGISTER INCORPORATING QUANTITY OF ITEM-WISE PURCHA SED, CONSUMED AND LYING IN THE STOCK. THE CONTRACT RECEIPTS ARE COMPLETELY VERIFIABLE AS THEY ARE PAID/RECEIVED THROUGH ACCOUNTS PAYEE CH EQUE AND SUBJECTED TO TDS. THIS FACTUAL MATRIX WAS NOT EVEN CONTROVERTED BY THE REVENUE. IT IS ALSO NOTED, AS DISCUSSED EARLIER , THE NET PROFIT RATE OF 8.5%, WHICH IS BETTER THAN THE RATES, ACCEPTED BY T HE DEPARTMENT IS QUITE REASONABLE IN THE PRECEDING THREE ASSESSMENT YEARS, MORE SPECIFICALLY WHEN THE ASSESSMENT WAS FRAMED UNDER S CRUTINY ASSESSMENT U/S 143(3) OF THE ACT, THUS, MERE APPEAR ANCE OF THE PURCHASE PARTIES ON THE WEBSITE OF THE SALES TAX DE PARTMENT DOES NOT FALSIFY THE PURCHASES, CLAIMED TO BE MADE BY THE AS SESSEE. THERE IS A POSSIBILITY THAT SOME OTHER PARTIES MIGHT HAVE ENGA GED WITH SUCH PARTIES IN A SUSPICIOUS MANNER BUT IN THE PRESENT C ASE, NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO FORTIFY THE SUSPICION RAISED BY THE ASSESSING OFFICER, MORE SPECIFICALLY WHEN THE PURCH ASE WAS MADE THROUGH ACCOUNT PAYEE CHEQUE AND THE PAYMENT OF REC EIPT FROM THE CONTRACTEE PARTY/MCGM IS ALSO THROUGH BANKING CHANN EL. THERE IS NO EVIDENCE THAT ANY PAYMENT WAS PAID BACK IN CASH. I N THE LIGHT OF THE FOREGOING DISCUSSION, WE FIND NO INFIRMITY IN THE C ONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL), IT IS AFFIRMED , RESULTING INTO DISMISSAL OF APPEAL OF THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. IN THE LIGHT OF THE FOREGOING DECISION AND BEFORE C OMING TO ANY CONCLUSION, WE ARE EXPECTED TO ANALYZE THE F ACTS OF THE CASE IN THE LIGHT OF SECTION 69C OF THE ACT, TH EREFORE, WE ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 51 ARE REPRODUCING HEREUNDER THE RELEVANT PROVISIONS O F FOR READY REFERENCE AND ANALYSIS:- 69C. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRED AN Y EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SO URCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSI NG OFFICER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR : PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTH ER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE W HICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT B E ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME. 2.5. THE AFORESAID SECTION DEALS WITH UNEXPLAINED EXPENDITURE, INCURRED BY THE ASSESSEE, FOR WHICH, N O EXPLANATION ABOUT THE SOURCE OF EXPENDITURE OR, PAR T THEREOF, IS NOT EXPLAINED SATISFACTORILY BY THE ASSESSEE. T HUS, UNDER THE AFOREMENTIONED FACTS, THIS SECTION IS NOT APPLI CABLE IN THE PRESENT CASE, BECAUSE, THE ASSESSING OFFICER HI MSELF HAS ONLY DOUBTED THE PURCHASES MADE FROM CERTAIN PARTIE S AND HAS NOT DISCUSSED ANYTHING WITH RESPECT TO THE PAYM ENTS AND ISSUANCE OF CHEQUE TO THE RESPECTIVE PARTIES. T HE LD. ASSESSING OFFICER HAS ALSO NOT DOUBTED THE AVAILABI LITY OF FUNDS OR SOURCE THEREOF WITH THE ASSESSEE. ON THE O THER HAND, THE ASSESSEE DULY FILED THE NECESSARY DETAILS OF SUCH PURCHASES, NAME OF THE PARTIES, PLACE OF THEIR BUSI NESS, ETC AND THE AMOUNT WAS PAID THROUGH ACCOUNT PAYEE CHEQU E AS WAS DULY EXPLAINED BEFORE US. THESE CHEQUES WERE EN CASHED IN THE ACCOUNTS OF THE RESPECTIVE PARTY, MEANING TH EREBY, THE PAYMENT MADE FOR SUCH PURCHASES/TRANSACTION IS NOT IN ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 52 DOUBT. WHEN THE CHEQUES WERE ENCASHED IN THE ACCOUN TS OF THE RESPECTIVE PARTY, THEREFORE, THEIR EXISTENCE AL SO CANNOT BE DOUBTED. THE LD. ASSESSING OFFICER MADE THE ADDI TION MERELY ON THE BASIS THAT THE PARTICULAR PARTIES FRO M WHOM PURCHASES WERE CLAIMED TO HAVE BEEN MADE WERE IN TH E SUSPICIOUS LIST OF THE SALES TAX DEPARTMENT AND WER E NOT TRACEABLE. THE LD. ASSESSING OFFICER IS HAVING ALL THE POWERS TO SECURE THE ATTENDANCE OF THE PARTIES BY ISSUING THEM NOTICES WITH THE HELP OF LAW ENFORCING AGENCIES LIK E POLICE, IF SO DESIRED/REQUIRED. HOWEVER, SINCE, THE ASSESSEE D ULY PRODUCED THE RELEVANT DETAILS, BOOKS ARE AUDITED TH EN THE WHOLE ADDITION SEEMS TO BE MADE ON SUSPICION ONLY. OUR VIEW IS SUPPORTED BY THE DECISION FROM HON'BLE JURI SDICTIONAL HIGH COURT IN THE CASE OF NIKUNJ EXIMP ENTERPRISES LTD. (ITA NO. 5604 OF 2010) ORDER DATED 17/12/2012, WHER EIN, HON'BLE BOMBAY HIGH COURT HELD THAT WHERE, IF THE S ALES HAVE BEEN ACCEPTED THE PURCHASES COULD NOT BE TREAT ED AS NON-GENUINE IN THOSE CASES, WHERE THE ASSESSEE SUBM ITTED ALL THE DETAILS OF PURCHASES/SALES AND PAYMENT FOR SUCH PURCHASE WERE MADE THROUGH CHEQUE. IDENTICAL IS TH E SITUATION IN THE APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE FROM THE BANK STATEMENT AVAILABLE AT PAGE- 67 OF THE PAPER BOOK DEMONSTRATED WITH RESPECT TO GENUINE NESS OF THE PAYMENT. WE HAVE ALSO GONE THROUGH PAGES 202 AN D 203, WHICH ARE PHOTOCOPY OF THE CHEQUE/CHEQUES, PAI D TO THE PARTIES AND THE SAME WERE ENCASHED IN THE RESPE CTIVE ACCOUNTS OF SUCH PARTIES. THUS, CONSIDERING THE TOT ALITY OF ITA NO.7220/MUM/2014 MRS. MANJULA S. SHAH 53 FACTS AND THE JUDICIAL PRONOUNCEMENTS DISCUSSED HEREINABOVE, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). IT IS AFFI RMED. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 01/02/2017. SD/- SD/- ( MANOJ KUMAR AGGARWAL ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER MUMBAI; ) DATED : 02/02/2017 F{X~{T? P.S/. .. %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE RESPONDENT. 3. 1$ ( + ) / THE CIT, MUMBAI. 4. 1$ / CIT(A)- , MUMBAI, 5. 34.$! , +'! 5 , / DR, ITAT, MUMBAI 6. 6'7 / GUARD FILE. / BY ORDER, /3+$.$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI