ASST CIT 32(2), MUMBAI V. M/S MM CONSTRUCTION , MUMBAI

ITA 877/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3259 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Keywords: Bogus purchase

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) I.T.A. NO. 877/MUM/2020 (ASSESSMENT YEAR 2010-11) ACIT-32(2) 720, 7 TH FLOOR KAUTILYA BHAVAN C-41 TO C-43 G. BLOCK, BKC BANDRA EAST MUMBAI - 400 051. VS. M/S. M.M. CONSTRUCTION A-403, 404, JEEVAN PRABHA, CHANDAVARKAR ROAD, BORIVALI-WEST MUMBAI-400 092. PAN : AAGFM5456L (APPELLANT) (RESPONDENT) ASSESSEE BY NONE DEPARTMENT BY MS. SMITA VERMA DATE OF HEARING 13.1 0 .2021 DATE OF PRONOUNCEMENT 13.10.2021 O R D E R THIS IS AN APPEAL BY THE REVENUE WHEREIN THE REVENU E IS AGGRIEVED THAT THE LEARNED CIT-A HAS REDUCED THE ADDITION FOR BOGU S PURCHASE OF RS. 39,31,384/- DONE @ 100% BY THE ASSESSING OFFICER BY SUSTAINING ONLY 15% FOR THE A.Y. 2010-11 VIDE ORDER DATED 7.11.2.2019. 2. THE ASSESSEE IN THIS CASE IS ENGAGED INTO THE BU SINESS OF CIVIL CONTRACTOR. THE ASSESSMENT WAS REOPENED UPON INFORMATION FROM S ALES TAX DEPARTMENT THAT ASSESSEE HAS MADE PURCHASES FROM BOGUS DEALERS , THE AO MADE 100% ADDITION OF THE BOGUS PURCHASE. 3. UPON ASSESSEE'S APPEAL LEARNED CIT-A HAS NOTED T HAT THE SALE OR OTHER ASPECTS OF THE WORKING HAS NOT BEEN DOUBTED. ACCORD INGLY PLACING RELIANCE UPON SEVERAL CASE LAWS AND UP ON THE FACTS OF THE C ASE HE SUSTAINED 15 % DISALLOWANCE OUT OF THE BOGUS PURCHASES. LEARNED CI T(A) CONCLUDED AS UNDER :- 4.3 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORD ER AS WELL AS THE DETAILS FILED BY THE APPELLANT. SOME 5-6 YEARS AGO TH E SALES TAX DEPARTMENT OF THE GOVERNMENT OF MAHARASHTRA HAD CONDUCTED EXTENS IVE ENQUIRIES AGAINST SUCH DEALERS WHO USED TO PROVIDE BILLS FACILI TATING BOGUS M/S. M.M. CONSTRUCTION 2 PURCHASES/SALES. AS A RESULT OF THIS INQUIRY, INFORM ATION ABOUT MANY ASSESSEES WERE FORWARDED TO THE INCOME TAX DEPARTMEN T. THE A.O. HAS STATED IN THE ASSESSMENT ORDER THAT THE APPELLANT IS ONE SUCH PERSON WHO HAS INFLATED HIS PURCHASES BY SHOWING BOGUS PURCHAS ES FROM SUCH PERSONS WHO APPEAR IN THE LIST OF BOGUS ENTRIES PROVIDERS AS P REPARED BY THE SALES TAX DEPARTMENT. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE A.O. ALSO FOUND THAT THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH THE GENUINENESS OF PURCHASES IN DISPUTE. THE MAIN ARGUMENTS OF THE AO ON THE BASIS OF WHICH HE HAD FORMED HIS OPINION WERE - 1. THE ASSESSEE WAS NOT ABLE TO SUBMIT ANY LORRY RECEI PTS OR ANY DETAILS REGARDING TRANSPORTATION OF GOODS 2. THE SUPPLIERS FROM WHOM THE DISPUTED PURCHASES H AVE BEEN MADE ARE INCLUDED IN THE LIST OF HAWALA OPERATORS PREPARED BY THE SALES TAX DEPARTMENT. 4.4 THE APPELLANT IS A CONTRACTOR. THE AO IN HIS ORDER HAS DEALT EXCLUSIVELY WITH THE PURCHASES OF THE APPELLANT. HOWEVER, IN THE CASE OF A CONTRACTOR, IF THERE ARE NO PURCHASES OF MATERIALS THERE CANNOT BE AN Y CONTRACT ACTIVITY ALSO. THE AO HAD DISALLOWED PART OF PURCHASES WITHO UT AT THE SAME TIME QUESTIONING THE RECEIPT FIGURE OF THE ASSESSEE. THE A O HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THERE IS SUPPRESSION OF RECEIPT ALSO BY THE APPELLANT. IN FACT, THE AO HAS NOT CONDUCTED ANY IN QUIRY ON HIS OWN. FURTHER, THE AO HAS NOT REBUTTED THE ARGUMENTS OF THE AP PELLANT THAT THE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS. TH E FACT REMAINS THAT THE APPELLANT HAS TAKEN CARE TO MAKE ITS PURCHASES THROU GH BANKING CHANNEL AND SINCE THE BANKS ARE REQUIRED TO FOLLOW KYC NORMS THE IDENTITY OF THE SUPPLIER CANNOT BE DOUBTED. 4.5 IN A JUDGMENT GIVEN BY THE ALLAHABAD HIGH CO URT IN THE CASE OF CIT VS. JAGDISH PRASAD TEWARI 220 TAXMANN 0141 (2014), IT HA S BEEN HELD THAT IF THE PAYMENTS HAVE BEEN MADE BY CHEQUES AND ARE REFLECTE D IN THE BOOKS OF ACCOUNT OF THE ASSESSES, NO ADVERSE INFERENCE CAN B E DRAWN. 4.6 FURTHER IT HAS BEEN HELD IN THE CASE OF SARASWATHI OIL TRADERS VS. CIT 254 ITR 259 (SUPREME COURT) THAT WHEN THE SALES HAVE NOT BEEN DOUBTED THEN THERE WAS NO QUESTION TO DOUBT THE PURCHASES AND T HE ADDITION SHOULD HAVE BEEN MADE ONLY TO THE EXTENT OF GROSS PROFIT. TO T HIS EXTENT I AM IN AGREEMENT WITH THE APPELLANT THAT IF THE APPELLANT HAS FUL FILLED HIS ONUS OF MAKING THE PAYMENTS BY BANKING CHANNELS AND HAS SUPPL IED THE ADDRESS OF THE SELLERS, THEN IT CANNOT BE PRESUMED THAT THE SELLERS WERE BOGUS. HOWEVER, AT THE SAME TIME IT CANNOT BE SAID THAT THE INFORMATION PRO VIDED BY THE SALES TAX DEPARTMENT SHOULD NOT BE TAKEN COGNIZANCE OF BY THE A. O. THEREFORE, AFTER CONSIDERING THE TOTALITY OF FACTS AND AFTER FOL LOWING THE RATIO OF SARASWATHI OIL TRADERS VS. CIT(SC) CITED SUPRA, I AM OF AN OPINION THAT IT IS THE PROFIT ELEMENT ON THE TOTAL COMPONENT IN DISPUTE WHIC H NEEDS TO BE ADDED TO THE INCOME OF THE APPELLANT. SINCE THE APPELLAN T HAS NOT MADE ANY WRITTEN SUBMISSION ON THE BASIS OF WHICH THE GP RATE OF THE ASSESSEE CAN BE DETERMINED THE GP RATE OF THE APPELLANT IS ESTIMATED TO BE 15%. THE TOTAL M/S. M.M. CONSTRUCTION 3 AMOUNT WHICH IS BEING TREATED AS BOGUS BY THE AO IS RS 10,01,441/-. THUS 15% OF RS. 10,01,441/- WHICH IS RS. 1,50,216/- IS T AKEN AS PROFIT OF THE APPELLANT ON PURCHASES THAT ARE NOT FULLY AND PROPERLY EXPLAINED. ADDITION OF RS.1,50,216/- IS ACCORDINGLY CONFIRMED OUT OF AN 'ADDITION OF RS. 10,01,441/- AND THE BALANCE IS DELETED. GROUNDS OF APPEAL NOS. 2 , 3 & 4 ARE THEREFORE PARTLY ALLOWED.' THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE PRESENT A SSESSMENT YEAR ON ISSUE UNDER CONSIDERATION REMAIN SAME, AS THAT OF THE F ACTS ADJUDICATED BY MY LD. PREDECESSOR IN THE ABOVE REFERRED DECISION IN APPELLANT'S OWN CASE FOR AY 2011-12. FURTHER, THE APPELLANT HAS ACCEPTED THE SA ID DECISION OF MY LD. PREDECESSOR. HENCE, RESPECTFULLY FOLLOWING THE SAME, THE LD. AO IS DIRECTED TO RESTRICT THE DISALLOWANCE/ADDITION MADE ON ACCOUNT O F BOGUS PURCHASES @ 15% OF TOTAL OF SUCH BOGUS/SUSPICIOUS PURCHASES AND R E-COMPUTE THE DISALLOWANCE/ADDITION ACCORDINGLY. THE GROUND NO. 1 RAISED IN APPEAL IS PARTLY ALLOWED. 4. AGAINST ABOVE ORDER REVENUE IS IN APPEAL BEFORE THE ITAT. 5. I HAVE HEARD ID LEARNED DEPARTMENTAL REPRESENTAT IVE AND PERUSED THE RECORD. I FIND THAT IN THIS CASE THE SALES OR OTHER ASPECTS OF THE WORKING HAVE NOT BEEN DOUBTED. THE ASSESSING OFFICER HAS NOT ALS O ISSUED ANY NOTICE TO THE CONCERNED PARTIES. IT IS SETTLED LAW THAT WHEN SAL ES ARE NOT DOUBTED, HUNDRED PERCENT DISALLOWANCE FOR BOGUS PURCHASE CANNOT BE D ONE. THE RATIONALE BEING NO SALES IS POSSIBLE WITHOUT ACTUAL PURCHASES. THIS PROPOSITION IS SUPPORTED FROM HONOURABLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF NIKUNJ EXIMP ENTERPRISES (IN WRIT PETITION NO 2860, ORDER DATED 18.6.2014). IN THIS CASE THE HONOURABLE HIGH COURT HAS UPHELD HUNDRED P ERCENT ALLOWANCE FOR THE PURCHASES SAID TO BE BOGUS WHEN SALES ARE NOT DOUBT ED. HOWEVER THE FACTS OF THE PRESENT CASE INDICATE THAT ASSESSEE HAS MADE PU RCHASE FROM THE GREY MARKET. MAKING PURCHASES THROUGH THE GREY MARKET GI VES THE ASSESSEE SAVINGS ON ACCOUNT OF NON-PAYMENT OF TAX AND OTHERS AT THE EXPENSE OF THE EXCHEQUER. IN SUCH SITUATION IN OUR CONSIDERED OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE 15% DISALLOWANCE OUT OF THE BOGUS PURC HASES DONE BY THE LEARNED CIT-A MEETS THE END OF JUSTICE. ACCORDINGLY I UPHOL D THE ORDER OF LEARNED CIT- A. THE DECSION OF N.K. PROTEINS LTD. (250 ITR 22) R ELIED BY THE REVENUE WAS A DISMISSAL OF SLP BY HON'BLE SUPREME COURT AND HAS A LREADY BEEN EXPLAINED M/S. M.M. CONSTRUCTION 4 AND DISTINGUISHED BY HON'BLE BOMBAY HIGH COURT IN T HE CASE OF M. HAZI ADAM & CO. (ITA NO. 1004 OF 2006 DATED 11.2.2019). 6. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S DISMISSED. 7. BEFORE PARTING I MAY ADD THAT IF THE ASSESSEE HA S FILED A CROSS APPEAL OR CROSS OBJECTION AND THE SAME HAS REMAINED UNHEARD, EITHER PARTY MAY APPLY FOR RECALL OF THIS ORDER SO THAT THE APPEALS CAN BE HEARD TOGETHER. PRONOUNCED IN THE OPEN COURT ON 13.10.2021. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBE R MUMBAI; DATED : 13/10/2021 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// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI