ITO 10(2)(4), MUMBAI V. MOONLIGHT ELECTRICAL CONTRACTORS AND ENGINEERS P.LTD, MUMBAI

ITA 7343/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9330 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 13-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Bogus purchase
• Section: 143(3); 133(6); 147; 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH, MUMBAI , , , BEFORE SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM ./ ITA NO. 7343 / MUM/ 201 6 ( / ASSESSMENT YEAR: 2009 - 10 ) THE ITO - 10(2)(4), R. NO. 213, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S MOONLIGHT ELECTRICAL CONTRACTORS AND ENGINEERING PVT. LTD., B/3, SONA UDYOG, PARSI PANCHAYAT R OAD, OLD NAGARDAS ROAD, ANDHERI (EAST), MUMBAI - 400069 ./ ./ PAN/GIR NO. : AADCM 7048 L ( / APPELLANT ) .. ( / RESPONDENT ) & ./ ITA NO. 7344 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 10 - 11 ) THE DCIT - 10(2)(2), R. NO. 209, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S MOONLIGHT ELECTRICAL CONTRACTORS AND ENGINEERING PVT. LTD., B/3, SONA UDYOG, PARSI PANCHAYAT ROAD, OLD NAGARDAS ROAD, ANDHERI (EAST), MUMBAI - 400069 ./ ./ PAN/GIR NO. : AADCM 7048 L ( / APPELLANT ) .. ( / R ESPONDENT ) / REVENUE BY : SHRI V. JENARDHANAN (DR) /ASSESSEE BY : SHRI SUBHASH S. SHETTY (AR ) / DATE OF HEARING : 17 /08 /2017 / DATE OF PRONOUNCEMENT : 27 /09 /2017 / O R D E R PER RAM LAL NEGI, JM THESE APPEALS HAVE BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER S DATED 29/09/2016 AND 30/09 /2016 PASSED BY THE LD. C OMMISSIONER OF 2 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 INCOME TAX (A PPEALS) - 17 , MUMBAI PERTAI NING TO THE ASSESSMENT YEAR S 2009 - 10 & 2010 - 11 RESPECTIVELY , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL S FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDERS PASSED U /S 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) ITA NO. 7343 / MUM/2016 ( ASSESSMENT YEA R: 2009 - 10 ) BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF ELECTRICAL CONTRACT S , FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 18,39,642/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS REOPENED UNDER SECTION 147 OF THE ACT ON THE BASIS OF INFORMATION RECEIVED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT REGARDING ASSESSEES INVOLVEMENT IN HAWALA TRANSACTION S DURING THE RELEVANT YEA R . AS PER THE INFORMATION THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR THE ASSESSEE OBTAINED BOGUS RECEIPTS SHOWING PURCHASE OF RS. 2,03,98,557/ - FROM THE 8 BOGUS ENTITIES MENTIONED IN THE ASSESSMENT ORDER. DURING THE COURSE OF RE - ASSESSMEN T PROCEEDINGS, NOTICE U/S 142 (1) WAS ISSUED AND THE ASSESSEE WAS ASKED TO SUBMIT INTER ALIA DE TAILS OF LEDGER ACCOUNTS OF THE AB OVE PARTIES ALONG WITH COPIES OF BILLS / INVOICES RAISED , PRO O F OF DELIVERY OF GOODS WITH COMPLETE TRANSPORTATION DETAILS/ REND ERING OF SERVICES, COMPLETE BANK STATEMENTS AND OTHER DOCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION WITH THE AFORESAID PARTIES. THE ASSESSEE WAS FURTHER ASKED TO PRODUCE THE PARTIES FOR VERIFICATION. IN RESPONSE THEREOF THE ASSESSEE SUBM ITTED WRITTEN REPLY AND CLAIMED THAT ALL PURCHASES WERE GENUINELY MADE AND THE PAYMENTS WERE MADE BY BANKING CHANNELS . IN SUPP O R T OF I TS CONTENTION THE ASSESSEE FURNISHED JOB WISE UTILIZATION OF MATERIAL PURCHASED FROM THE SAID PARTIES. THE ASSESSE E FURTHE R SUBMITTED THAT IT WAS NOT AWARE OF THE FACT THAT THESE PARTIES HAVE NOT PAID VAT, THE ASSESSEE FURTHER CONTENDED THAT JUST BECAUSE THE PARTIES FROM 3 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 WHOM THE PURCHASES WERE MADE ARE LISTED AS BOGUS/HAWALA PARTIES IN THE OFFICIAL WEBSITE OF THE SALES TAX D EPARTMENT. THE PURCHASES MADE BY THE ASSESSEE CANNOT BE TREATED AS BOGUS. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CASES RELIED UPON BY THE ASSESSEE , DETERMINED THE AMOUNT OF BOGUS PURCHASE U/S 69 OF THE ACT AT RS 1,85,10,239/ - AND ADDE D BACK THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. 2. IN THE FIRST APPEAL, THE LD. CIT (A ) AFTER HEARING THE ASSESSEE MODIFIED THE ASSESSMENT ORDER BY DIRECTING THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE SAID FINDINGS OF THE LD. CIT (A). 3. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUND S OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN DELETING THE ADDITION OF RS. 1,85,10,239/ - MADE ON ACCOUNT OF DISALLOWANCE OF NON - GENUINE PURCHASE AND RESTRICTING THE DISALLOWANCE TO 2% OF THE ALLEGED PURCHASES WITHOUT APPRE CIATING THE FACT THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM OF ALLEGED PURCHASES AND ALSO THE FACT THAT ALLEGED SUPPLIERS WERE NON - EXISTENT AND WERE IDENTIFIED AS HAWALA DEALERS BY THE OFFICIAL WEBSITE OF THE SA LE TAX DEPARTMENT, GOVERNMENT O F MAHARASHTRA, WWW.MAHAVAT.GOV.IN . 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN COMING TO A CONCLUSION THAT THE GOODS ALLEGEDLY PURCHASED FROM THE HAWALA DEALERS WERE EITHER U TILIZED IN THE PROCESS OF MANUFACTURING OR ARE LYING IN STOCK - IN - TRADE ON THE BASIS OF INSPECTION & TESTING REPORT OF MATERIAL PURCHASED AND STOCK FLOW STATEMENTS SUBMITTED DURING THE APPELLATE PROCEEDINGS WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSING OFF ICER TO EXAMINE THE SAME IN VIOLATION OF RULE 46A OF THE INCOME - TAX RULES, 1962. 4 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A), MUMBAI ON THE ABOVE DIRECTIONS BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. BEFORE US, THE LD. DEPARTMEN TAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. CIT (A) HAS WRONGLY DELETED THE ADDITION OF RS. 1,85,10,239/ - BY RESTRICTING THE DISALLOWANCE TO 2% OF THE ALLEGED BOGUS PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE I TS CLAIM BY WRONGLY CONCLUDING THAT THE GOODS PURCHASED FROM THE HAWALA DEALER WERE EITHER UTILIZED IN THE PROCESS OF MANUFACTURING OR ARE LYING IN STOCK - IN - TRADE ON THE BASIS OF INSPECTION AND TESTING REPORT OF MATERIAL PURCHASED AND STOCK FLOW STATEMENTS SUBMITTED DURING THE APPELLATE PROCEEDINGS WITHOUT AN OPPORTUNITY TO THE AO TO EXAMINE THE SAME IN VIOLATION OF RULE 46A OF THE INCOME TAX RULE, 1962. THE LD. DR FURTHER SUBMITTED THAT SINCE THE IMPUGNED ORDER IS NOT BASED ON THE EVIDENCE THE SAME IS LIA BLE TO BE SET ASIDE. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE FINDINGS OF THE LD. CIT(A) SUBMITTED THAT THE LD. CIT(A) HAS DECIDE THE ISSUE IN QUESTION BY FOLLOWING THE DECISION DATED 20.07.2016 RENDERED BY THE ITAT BENCH MUMBAI IN INNOVATORS FA C ADE VS. ACIT (CIR - 2), THANE, ITA NO. 5450,5451 AND 5452/MUM/2012 . HENCE, THERE IS NO MERIT IN THE RENENUES APPEAL . 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO CAREFULLY PERUSED THE MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE REVEN UE IS THAT THE LD. CIT(A) HAS WRONGLY RESTRICTED THE ADDITION TO 2% ON THE TOTAL AMOUNT OF BOGUS PURCHASES DETERMINED BY THE AO AS AGAINST 100% MADE BY THE AO . THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 2% OF THE TOTAL ALLEGED BOGUS P URCHASES HOLDING AS UNDER : 5 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 14. I HAVE CAREFULLY CONSIDERED THE A.O.S CONTENTION AND APPELLANTS SUBMISSIONS AND ARGUMENTS. THE A.O.S MAIN GRIEVANCE WAS THAT THE ALLEGED PARTIES FROM WHOM THE APPELLANT PURCHASED THE MATERIALS ARE HAWALA PARTIES AND BOGU S AS PER THE INVESTIGATION CARRIED ON BY THE SALES TAX DEPARTMENT AND ALSO THEIR NAME APPEARED ON THE WEBSITE OF SALES TAX DEPARTMENT OF MAHARASHTRA. FURTHER, THESE ALLEGED PARTIES DID NOT RESPOND TO THE NOTICE ISSUED UNDER SECTION 133(6) OF THE ACT FOR VE RIFICATION AND CROSS EXAMINATION. THEREFORE, THE PURCHASES MADE FROM THEM ARE BOGUS. ON THE OTHER HAND A.R. OF THE APPELLANT ARGUED THAT THE MATERIALS PURCHASED FROM THESE ALLEGED PARTIES HAVE BEEN UTILIZED IN THE VARIOUS PROJECTS UNDERTAKEN BY THEM. THOUG H THE APPELLANT COMPANY HAD BEEN DEALING WITH OLD SUPPLIERS BUT DUE T O SHORTAGE OF MATERIAL FROM THEIR END AND ALSO NON AVAILABILITY OF MATERIAL ON TIMELY BASIS, THE COMPANY STARTED SEARCHING NEW VENDORS THROUGH NETWORKING SITES WHERE THE APPELLANT COMPANY COULD GET THE ELECTRICAL GOODS, AS PER PROJECT REQUIREMENT AND HENCE PURCHASES WERE MADE FROM NEW VENDORS. THE A.R. OF THE APPELLANT ALSO SUBMITTED THE STATEMENT OF NET PROFIT IN SUPPORT OF THEIR CLAIM THAT IF THE ALLEGED BOGUS PURCHASES ARE ADDED TO THE NET PROFIT IT WORKS OUT TO 29.97%, WHICH IS UN IMAGINARY. 15. AFTER CAREFULLY CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE AR OF THE APPELLANT THAT SALES CANNOT BE MADE WITHOUT PURCHASES AND AO HAS NOT DISPUTED THE SALES MADE BY THE AP PELLANT AND THEREFORE DIRECTED THE AO TO DELETE THE ABOVE ADDITION OF RS. 1,85,10,239/ - . HOWEVER, HAVING MADE THE TRANSACTION OF THE HAWALA SUPPLIERS AS PER THE SALES DEPARTMENT INFORMATION, I AM OF THE CONSIDERED OPINION THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES OF RS. 1,85,10,239/ - COULD BE ADDED TO THE APPELLANT COMPANY. HENCE, THE PARTY TOTALLY CANNOT BE TREATED AS BOGUS ONE AS LONG AS THE SALES WERE NOT UNDER DISPUTE AND THEREFORE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES OF RS. 1,85,10 ,239/ - IS TO BE DELETED. 16. HOWEVER, RESPE CTFULLY FOLLOWING THE RECENT JUR ISDICTIONAL HONBLE ITAT DECISION IN THE CASE OF INNOVATORS FAADE VS. ACIT (CIR - 2), THANE, ITA NO. 5450,5451 AND 5452/MUM/2012 DTD. 20.07.2016 WHEREIN THE ISSUE HAS BEEN DECIDED B Y FIXING THE ADDITION AT 2% OF THE BOGUS PURCHASES WHICH IS AS UNDER: - 6 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 FROM THE RECORD WE FOUND THAT ASSESSEE HAD SHOWN GP RATE OF 16.39% AND 23.49 IN THE ASSESSMENT YEAR 2009 - 10 AND 2010 - 11, WHICH IS MUCH BETTER THAN THE GROSS PROFIT RATE SHOWN IN THE A SSESSMENT YEAR 2008 - 09 AT 11.41%. MOREOVER THE GP RATE SHOWN BY THE ASSESSEE IS COMPARABLE TO THE GP RATE SHOWN BY OTHER ASSESSEE ENGAGED IN SIMILAR TRADE. HOWEVER, TO SAFEGUARD THE INTEREST OF REVENUE AND TO COVER THE LEAKAGE OF REVENUE, IF ANYONE, AND AL SO TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US, WE DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES MADE. WE DIRECT ACCORDINGLY. FACTS AND CIRCUMSTANCES IN THE YEAR 2010 - 11 AND 2011 - 12 ARE PARI MATERIAL, FOLLOWING THE REASONING GIVEN HEREINABOVE, WE RESTRICT THE ITA NO. 5450 TO 5452/MUM/2015 ASSESSMENT YEAR 2009 - 10 TO 2011 - 12 ADDITIONS IN THESE YEARS ALSO TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES SO MADE. WE DIRECT ACCORDINGLY. IN VIEW OF THE ABOVE C ITED RECENT ITAT DECISION DATED 20.07.2016, I AM OF THE CONSIDERED OPINION THAT FIXING THE GP AT 2% OF BOGUS PURCHASES WILL BE FAIR AND MEET THE ENDS OF THE JUSTICE WHICH WORKS OUT TO RS. 3,70,205/ - (2% OF RS. 1,85,10,239/ - ). 7. WE NOTICE THAT THE LD. CI T(A) HAS DECIDED TH E ISSUE IN VOLVED IN THIS CASE BY FOLLOWING THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL RENDERED IN INNOVATORS FA C ADE VS. ACIT (CIR - 2), THANE, ITA NO. 5450,5451 AND 5452/MUM/2012 DTD. 20.07.2016 , VIDE WHICH THE COORDINATE BENCH HAS R ESTRICTED THE ADDITION TO 2% OF THE ALLEGED BOGUS PURCHASES MADE BY THE ASSESSEE TAKING INTO CONSIDERATION THE FACTS OF THE CASE AND THE GP RATE SHOWN BY THE ASSESSEE IN THE RELEVANT YEAR . THE LD. CIT(A) HAS FURTHER POINTED OUT THAT AO HAS NOT DISPUTED THE SALES MADE BY THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. NIKUNJ EXIMP ENTERPRISES PVT. LTD. 372 ITR 619 (BOM) HAS HELD THAT MERELY BECAUSE THE SUPPLIERS HAD NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE CIT (A) ONE COULD NOT CONCLUDE THAT T HE PURCHASES WERE NOT MADE BY THE RESPONDENT/ASSESSEE. IN VIEW OF 7 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 THE LAW LAID DOWN BY THE HONBLE HIGH COURT 100% ADDITION IS BAD IN LAW. UNDER THESE CIRCUMSTANCES ONLY PROFIT ELEMENT IS TO BE TAKEN INTO CONSIDERATION WHILE MAKING ADDITION ON ACCOUNT OF B OGUS PURCHASES. IN OUR CONSIDERED OPINION THE LD. CIT(A) HAS RESTRICTED THE ADDITION AFTER DUE APPLICATION OF MIND HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). WE, THEREFORE, UPHOLD THE FINDINGS OF THE LD. CIT(A) AND D ISMISS THIS GROUND OF APPEAL OF THE REVENUE. 8. GROUND NO 2 OF THE APPEAL DOES NOT ARISE OUT OF THE CIT(A) ORDER HENCE NOT ADJUDICATED. ITA NO. 7344 / MUM/2016 (ASSESSMENT YEAR: 2010 - 11 ) BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE BUSI NESS OF ELECTRICAL CONTRACTS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 34,45,916/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS REOPENED UNDER SECTION 147 OF THE ACT ON THE BASIS OF INFORMATION RECEIVED BY THE INVESTIGATION WING OF THE INCOME TAX DEPARTMENT REGARDING ASSESSEES INVOLVEMENT IN HAWALA TRANSACTIONS DURING THE RELEVANT YEAR. AS PER THE INFORMATION THE ASSESSEE DURING THE YEAR RELEVANT TO THE ASSESSMEN T YEAR THE ASSESSEE OBTAINED BOGUS RECEIPTS SHOWING PURCHASE OF RS. 2, 96,63,889 / - FROM THE SIX BOGUS ENTITIES MENTIONED IN THE ASSESSMENT ORDER. DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS, NOTICE U/S 142 (1) WAS ISSUED AND THE ASSESSEE WAS ASKED TO SUB MIT INTER ALIA DETAILS OF LEDGER ACCOUNTS OF THE ABOVE PARTIES ALONG WITH COPIES OF BILLS / INVOICES RAISED PROFFER OF DELIVERY OF GOODS WITH COMPLETE TRANSPORTATION DETAILS/ RENDERING OF SERVICES, COMPLETE BANK STATEMENTS AND OTHER DOCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTION WITH THE AFORESAID PARTIES. THE ASSESSEE WAS FURTHER ASKED TO PRODUCE THE PARTIES FOR VERIFICATION. IN RESPONSE THEREOF THE ASSESSEE SUBMITTED WRITTEN REPLY AND 8 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 CLAIMED THAT ALL PURCHASES WERE GENUINELY MADE AND TH E PAYMENTS WERE MADE BY BANKING CHANNELS. 2. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CASES RELIED UPON BY THE ASSESSEE, DETERMINED THE AMOUNT OF BOGUS PURCHASE U/S 69 OF THE ACT AT RS 2,96,63,889/ - AND ADDED BACK THE SAID AMOUNT TO TH E INCOME OF THE ASSESSEE. SIMILARLY, THE AO ALSO MADE GP ADDITION OF RS.11,8 6,555/ - ON BOGUS PURCHASES @ 4% AND ADDITION OF RS. 2,96,638/ - ON ACCOUNT OF COMMISSION PAID TO THE PARTIES AT 1% ON ESTIMATION BASIS. 3. IN THE FIRST APPEAL, THE LD. CIT (A) AFTER HEARING THE ASSESSEE MODIFIED THE ASSESSMENT ORDER BY DIRECTING THE AO TO MAKE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE LD. CIT(A) FURTHER RESTRICTED THE ADDITION MADE ON ACCOUNT OF COMMISS ION MADE TO THE PARTIES TO 0.25% OF THE BOGUS PURCHASES IN QUESTION THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE SAID FINDINGS OF THE LD. CIT (A). 4 . THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUND OF APPEAL AGAINST THE IMPUGNED ORDER P ASSED BY THE LD. CIT (A): - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN DELETING THE ADDITION OF RS. 2,69,63,889/ - MADE ON ACCOUNT OF DISALLOWANCE OF NON - GENUINE PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSES SEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM OF ALLEGED PURCHASES AND ALSO THE FACT THAT ALLEGED SUPPLIERS WERE NON - EXISTENT AND WERE IDENTIFIED AS HAWALA DEALERS BY THE OFFICIAL WEBSITE OF THE SALE TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, WWW.MAHAVAT.GOV.IN . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF GROSS PROFIT FROM 4% TO 2% OF THE ALLEGED PURCHASES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM OF ALLEGED 9 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 PURCHASES AND ALSO THE FACT THAT ALLEGED SUPPLIERS WERE NON - EXISTENT AND WERE IDENTIFIED AS HAWALA DEALERS BY THE OFFICIAL WEBSITE OF THE SALE TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA, WWW.MAHAVAT.GOV.IN . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN COMING TO A CONCLUSION THAT THE GOODS ALLEGEDLY PURCHASED FROM THE HAWALA DEALERS WERE NEITHER UTILIZED IN THE PROCESS OF MANUFACTURING OR ARE LYING IN STOCK - IN - TRADE ON THE BASIS OF INSPECTION & TESTING REPORT OF MATERIAL PURCHASED AND STOCK FLOW STATEMENTS SUBMITTED DURING THE APPELLATE PROCEEDINGS WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE SAME IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS ERRED IN RESTRICTING THE COMMISSION ON BOGUS PURCHASES TO 0.25% AS AGAINST 1% MADE IN THE ASSESSMENT ORDER WITHOUT BRINGING ANYTHING ON RECORD TO SHOW THAT THE SAME IS FIXED AT THE PREVAILING MARKET RATE WHEREAS IN THE ASSESSMENT ORDER IT WAS MENTIONED THAT THE PERCENTAGE OF COMMISSION APPLIED IS BASED ON THE STATEMENT OF SOME HAWALA DEALERS BEFORE THE SALES - TAX AUTHOR ITIES. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A), MUMBAI ON THE ABOVE DIRECTIONS BE SET - ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 19. I HAVE CAREFULLY CONSIDERED THE A.O.S CONTENTION AND APPELLANTS SUBMISSION AND ARGUMENTS. THE A.OS MAIN GRIEVANCE WAS THE ALLEGED SIX PARTIES FROM WHOM THE APPELLANT PURCHASED THE MATERIALS ARE HAWALA PARTIES AND BOGUS AS PER THE INVESTIGATION CARRIED ON BY THE SALES TAX DEPARTMENT AND ALSO THEIR NAME APPEARED ON THE WEBSITE OF SALES TAX DEPARTMEN T OF MAHARASHTRA. FURTHER THESE SIX PARTIES DID NOT RESPOND TO THE NOTICE ISSUED UNDER SECTION 133(6) OF THE ACT FOR VERIFICATION AND CROSS EXAMINATION. THEREFORE, THE PURCHASES MADE FROM THEN ARE BOGUS. ON THE OTHER HAND A.R. OF THE APPELLANT ARGUED THAT THE MATERIALS PURCHASED FROM 10 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 THESE SIX PARTIES HAVE BEEN UTILIZED IN THE VARIOUS PROJECTS UNDERTAKEN BY THEM. IN SUPPORT OF THEIR CLAIM THEY SUBMITTED THE ITEM WISE UTILIZATION OF THE MATERIALS PURCHASES IN THE VARIOUS CONTRACT JOB WITH THE JOB ORDER NO., NAME OF THE CLIENT, MATERIAL UTILIZED, SALES BILLED ETC. THE A.R. OF THE APPELLANT ALSO SUBMITTED THE STATEMENT OF NET PROFIT AND GROSS PROFIT IN SUPPORT OF THEIR CLAIM THAT IF THE ALLEGED BOGUS PURCHASES ARE ADDED TO THE NET PROFIT IT WORKS OUT TO 35.89%, WHICH IS UNIMAGINARY. THE A.R. ALSO ARGUED THAT THE MATERIAL PURCHASED IS INCLUDED IN THE CLOSING STOCK OF THE COMPANY AND THEREFORE IF PURCHASES ARE CONSIDERED AS BOGUS TO THAT EXTENT THE CLOSING STOCK SHOULD BE REDUCED. HE FURTHER ARGUED THAT THE ALLEGE D PURCHASED MATERIAL IS USED IN THE JOB WORK CARRIED ON BY THE COMPANY AND SALES/ CONTRACT BILLS WERE RAISED AGAINST THEM, THEREFORE IF PURCHASES ARE CONSIDERED AS BOGUS TO THAT EXTENT SALES AMOUNT/CONTRACT AMOUNT IS ALSO REDUCED TO THAT EXTENT. 20. AFTE R CAREFULLY CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE AR OF THE APPELLANT THAT SALES CANNOT BE MADE WITHOUT PURCHASES AND AO HAS NOT DISPUTED THE SALES MADE BY THE APPELLANT AND THEREFORE DIRECTED THE AO TO DELETE THE ABOVE ADDITIO N OF RS. 2,96,63,889/ - . HOWEVER, HAVING MADE THE TRANSACTION OF THE HAWALA SUPPLIERS AS PER THE SALES DEPARTMENT INFORMATION, I AM OF THE CONSIDERED OPINION THAT ONLY PROFIT ELEMENT EMBEDDED IN SUCH PURCHASES OF RS. 2,96,63,889/ - COULD BE ADDED TO THE APPE LLANT COMPANY. HENCE, THE PARTY TOTALLY CANNOT BE TREATED AS BOGUS ONE AS LONG AS THE SALES WERE NOT UNDER DISPUTE AND THEREFORE THE ADDITION MADE ON ACCOUNT OF BOGUS PURCHASES OF RS. 2,96,63,889/ - IS TO BE DELETED. HENCE, GROUND NO. 1 IS ALLOWED. 21. WIT H REGARD TO GP ADDITION MADE OF RS. 11,86,555/ - , THE A.R. OF THE APPELLANT PLEADS THAT RECENTLY ITAT, MUMBAI HAS DECIDED THE ISSUE BY FIXING THE ADDITION AT 2% OF THE BOGUS PURCHASES IN THE CASE OF INNOVATORS FAADE VS. ACIT (CIR - 2), THANE, ITA NO. 5450, 5451 AND 5452/MUM/2012 DTD. 20.07.2016 WHEREIN IT IS HELD THAT - FROM THE RECORD WE FOUND THAT ASSESSEE HAD SHOWN GP RATE OF 16.39% AND 23.49 IN THE ASSESSMENT YEAR 2009 - 10 AND 2010 - 11, WHICH IS MUCH BETTER THAN THE GROSS PROFIT RATE SHOWN IN THE ASSESSM ENT YEAR 2008 - 09 AT 11.41%. MOREOVER THE GP RATE SHOWN BY THE ASSESSEE IS COMPARABLE TO THE GP RATE SHOWN BY OTHER ASSESSEE ENGAGED IN SIMILAR 11 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 TRADE. HOWEVER, TO SAFEGUARD THE INTEREST OF REVENUE AND TO COVER THE LEAKAGE OF REVENUE, IF ANYONE, AND ALSO TOT ALITY OF FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US, WE DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES MADE. WE DIRECT ACCORDINGLY. FACTS AND CIRCUMSTANCES IN THE YEAR 2010 - 11 AND 2011 - 12 ARE PARI MATERIAL, FOLLOW ING THE REASONING GIVEN HEREINABOVE, WE RESTRICT THE ITA NO. 5450 TO 5452/MUM/2015 ASSESSMENT YEAR 2009 - 10 TO 2011 - 12 ADDITIONS IN THESE YEARS ALSO TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASES SO MADE. WE DIRECT ACCORDINGLY. HOWEVER, TO SAFEGUARD THE IN TEREST OF REVENUE AND TO COVER THE LEAKAGE OF REVENUE, IF ANYONE, AND ALSO TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE BEFORE ME, I DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2% OF ALLEGED BOGUS PURCHASED SO MADE. I DIRECT THE AO TO RESTRI CT THE ADDITION OF BOGUS PURCHASE TO THE EXTENT OF 2% WHICH WORKS OUT TO RS. 5,93,278/ - (2% OF RS. 2,96,63,889/ - ) AND DELETE THE BALANCE ADDITION OF RS. 5,93,277/ - . ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 22. FURTHER, THE A.O. HAS MADE AN ADD ITION ON ALLEGED COMMISSION PAID FOR ARRANGING BOGUS BILLS AMOUNTING TO RS. 2,96,638/ - . THE A.R. FOR THE APPELLANT CONTESTED THAT THEY HAVE NOT PAID ANY SUCH COMMISSION OF RS. 2,96,638/ - NOR DEBITED SUCH EXPENSES IN THE PROFIT & LOSS ACCOUNT. HOWEVER, I AM IN AGREEMENT WITH THE AO THAT THE BENEFICIARIES ARE LIABLE FOR PAYMENT OF COMMISSION AND I AM OF THE CONSIDERED OPINION THAT FIXING THE COMMISSION AT THE PREVAILING MARKET RATE I.E. @ 0.25% OF BOGUS PURCHASES WILL BE FAIR AND MEET THE END OF THE JUSTICE O F THE APPELLANT COMPANY WHICH WORKS OUT TO RS. 74,160/ - AND ACCORDINGLY THE ADDITION MADE BY THE AO IS RESTRICTED TO RS. 74,160/ - AND THE BALANCE APPELLANT GETS RELIEF OF RS. 2,22,478/ - . HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. BEFORE US, THE L D. DR RELYING ON THE FINDINGS ASSESSMENT ORDER PASSED BY THE AO REITERATED THE ARGUMENTS ADVANCED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 AFORESAID AND FURTHER SUBMITTED THAT THE IMPUGNED ORDER IS ERRONEOUS AND LIABLE TO BE SET ASIDE. 12 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 6. ON THE OTHER HAND, THE LD. COUNSEL ALSO REITERATED ITS ARGUMENTS ADVANCED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 AFORESAID AND FURTHER SUBMITTED THAT THERE IS NO MERIT IN THE APPEAL OF THE REVENUE. 7. HAVING HEARD THE RIVAL SUBMISSIONS, W E NOTICE THAT THE LD. CIT(A) HAS DECIDED GROUND NO 1& 2 BY FOLLOWING THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL RENDERED IN INNOVATORS FA C ADE VS. ACIT (CIR - 2), THANE, ITA NO. 5450,5451 AND 5452/MUM/2012 DTD. 20.07.2016 REFERRED ABOVE . SINCE, WE HAVE U PHELD THE ADDITION OF 2% OF THE TOTAL B OGUS PURCHASES MADE BY THE LD CLT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 AFORESAID, WE UPHELD THE FINDINGS OF THE LD. CIT(A) IN THIS APPEAL AND DISMISS GROUND NO 1 & 2 OF THE APPEAL OF THE REVENUE . WE THEREFORE, DIRECT THE AO TO COMPUTE THE ADDITION IN TERMS OF THE ORDER PASSED BY THE LD. CIT(A). 8. GROUND NO 3 OF THE APPEAL DOES NOT ARISE OUT OF THE CIT(A) ORDER HENCE NOT ADJUDICATED. 9. GROUND NO 4 PERTAINS TO ADDITION MADE ON ACCOUNT OF COMMISS ION PAID TO THE PARTIES FOR OBTAINING BOGUS BILLS FROM THE PARTIES. THE LD. CIT(A) HAS RESTRICTED THE ADDITION FROM 2% OF THE BOGUS PURCHASES MADE BY THE AO TO 0.25% OF THE SAID AMOUNT. WE NOTICE THAT THE AO AS WELL AS THE LD CIT(A) HAVE MADE THE ADDITION ON ESTIMATION BASIS. HOWEVER, IN OUR CONSIDERED OPINION, THE VIEW TAKEN BY THE LD. CIT(A) IS MORE RATIONAL IN THE LIGHT OF THE FACT THAT SOME OF THE HAWALA OPERATORS HAVE STATED BEFORE THE SALES TAX AUTHORITIES THAT THEY USED TO OBTAIN COMMISSION @ 0.5% TO 2% FROM THE SO CALLED BUYERS. AO HAS NOT CARRIED OUT ANY FURTHER VERIFICATION OR COLLECTED ANY EVIDENCE ASCERTAINS THE VERACITY OF THE STATEMENTS MADE BEFORE THE SALES TAX AUTHORITIES AND TO DETERMINE THE ACTUAL AMOUNT PAID BY THE ASSESSEE 13 ITA NO S . 7343 & 7344 /MUM/2016 ASSESSMENT YEAR S : 2009 - 10 & 2010 - 2011 TOWARDS COMMISSION. HENCE, WE UPHOLD THE FINDINGS OF THE LD CIT(A) AND DISMISS GROUND NO 4 OF THE REVENUES APPEAL. IN THE RESULT, APPEAL S FILED BY THE REVENUE FOR ASSESSMENT YEAR S 2009 - 10 & 2010 - 11 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH . SEPT. , 2017 . SD/ - SD/ - ( RAJENDRA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 27 / 9 / 2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI