THE DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-5(1), MUMBAI vs. M/S HI-TECH ENGINEERS , MUMBAI

Assessee by: Shri Bhupendra Shah a/w Ms. Aarti Shah Revenue by: Shri Nimesh Yadav (DR) सुनवाई की तारीख / Date of Hearing: 08/02/2023 घोषणा की तारीख /Date of Pronouncement: 27/02/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the revenue for AY. 2018-19 and AY. 2019-20 respectively; and Cross-objection /(CO) 09/Mum/2023 & CO. No. 08/Mum/2023 filed by the assessee for AY. 2018-19 & AY. 2019-20 respectively.

in the cross objection preferred by it.

3. First of all, we will deal with the appeal preferred by the revenue for AY. 2019-20. Ground no. 1 is against the action of the Ld. CIT(A) deleting the addition of Rs.68,94,145/- on account of bogus purchase expenses. & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers

4. Brief facts are that the assessee had filed the original return of income on 19.11.2018 u/s 139(1) of the Income Tax Act, 1961 (hereinafter “the Act”) declaring total income of Rs.4,36,19,460/-. And the AO noticed that search and seizure operation u/s 132 of the Act was carried out in the Group case of M/s. Skyway Infra projects Pvt. Ltd. (hereinafter “M/s. Skyway”) on 06.11.2019 (AY. 2020-21). The AO notes that the M/s Skyway Group is a civil contractor which undertakes contracts from Government authorities like BMC, MMRDA etc. And the key persons of Skyway group are Shri Ramesh Kumar L. Madhani, Shri Khelan R. Madhani, Shri Mohan Singh B. Deora & Shri Tamar Singh Deora. According to the AO, investigation revealed that the assesse and the group companies have been involved in bogus billing and beneficiaries of accommodation entry in the form of unsecured loans from various entities. Thereafter, the AO asked the assessee company regarding its claim of purchase/expenses during the period AY. 2019-20 to the tune of Rs.33,84,07,390/- and directed the assessee to furnish the list of purchase parties along with their address and PAN etc. In other words, the assessee was directed to produce the list of parties, from whom the assessee has been procuring materials along with documentary evidences like purchase order, ledgers, invoice, e-way bills, delivery challans, lorry receipts, consumption register, purchase and consumption reconciliation statement and bank statement etc to substantiate the genuineness of the purchase expenses claimed during various years. The AO acknowledges that in response the assessee produced a list of purchase parties along with their PAN & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers in a tabular format, ledgers and few invoices. But the AO noticed some deficiencies in it, and was of the opinion that the assessee failed to produce the purchase order, complete set of invoices, delivery challans etc. According to the AO, the inquiries revealed that certain entities from whom the assessee has purchased material are bogus/entry operators and some are even non-existent. Thereafter, the AO selected thirteen (13) parties, who were shortlisted from the list of purchase parties and made inquiries; and thereafter he was of the opinion that evidence produced could not completely prove the purchase. The AO for coming to such a conclusion, referred to the statement of twelve (12) parties who had supplied material to the assessee especially to the statements given by the relevant persons of various concerns who had issued bogus bills to the assessee company (without actual delivering the material) and their statement have been reproduced in assessment order from para no. 6.4 to 6.5. Thereafter, the AO confronted the assessee with the aforesaid statements and show-caused the assessee to prove the genuineness of the supplier. Thereafter, the AO discussed about few case laws and was of the view that the assessee failed to establish the genuineness of the purchases and he disallowed purchases claimed to the tune of Rs.70,93,473/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who had discussed about it i.e, facts of AY 2019-20 at page no. 62 of his order ; and the Ld. CIT(A) has followed his own reason given while dealing with the assessee’s appeal for AY. 2014-15. The Ld. CIT(A) for AY. 2019-20, held as under: - & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers

54. Ground No. 3 is regarding disallowance of Rs.70,93,473/- made by the AO on account of bogus purchase expenses. 54.1 For the AY. 2019-20, the appellant has made purchases of Rs.9,11,140/- from Hitesh kantilal Shah HUF, Rs.10,82,928/- from Rushabh Corporation, Rs.11,12,818/- from Rushabh Trading Co. Rs.12,45,495/- from V. H. Enterprises, Rs.12,34,457/- from Vimalnath Associates, Rs.12,20,035/- from Vimalnath Corporation totalling to Rs.70,93,473/-. The issue regarding disallowance of purchases from the said 07 parties have been discussed in para 7 of this appellate order for AY. 2014-15. With respect to these parties, the facts of the case, findings of the AO in the assessment order and the submission made by the appellant are similar to that for AY. 2014-15. As discussed in para 7.3.4. of this appellate order for A.Y.2014- 15, purchases made from Rushabh Trading, Rushabh Corporation and Hitesh Kantilal Shah HUF have been justified by the appellant during the assessment as well as remand proceedings. Therefore, purchases of Rs.31,06,886/made from (i) Rushabh Trading, (ii) Rushabh Corporation and (iii) Hitesh Kantilal Shah HUF is deleted. As discussed in para 7.3.5 of this appellate order for A.Y.2014- 15, disallowance of purchases of Rs.39,86,587/made by the AO in respect of purchases made from (i) V.H. Enterprises (ii) Mahavir Enterprises (iii) Vimalnath Corporation (iv) Vimalnath A sociates is restricted to 5% of total purchases i.e. Rs.1,99,328/-. Accordingly, ground of appeal No.3 is Partly Allowed.” & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers

5. Since the Ld. CIT(A) has followed his own order for AY. 2014- 15 (which is emanating from the same search) and discussed in common order, it would be gainful to consider his decision for AY. 2014-15 which is given at page no. 22 of his order, wherein the Ld. CIT(A) took note of the remand report of the AO (which has been reproduced at page no. 16 to 21 of impugned order). The Ld. CIT(A) has noted as under: - “A copy of the remand report was sent to the appellant for rejoinder/comments. The appellant has filed a rejoinder to the remand report vide submission dated 30.06.2022. In the rejoinder, the appellant has submitted that all the necessary evidences to prove the genuineness of purchases were furnished before the AO. Out of the 11 parties, 4 parties viz. Rushabh Corporation, Rushabh Trading Co., Hitesh Shah, HUF and Vimalnath Traders have appeared before the AO in response to the summons issued by the AO and their statements were recorded. In respect of R.K..Madhani & Co., Vimalnath Associates, Vimalnath Enterprises, Vimanath Corporation, Mahavir Enterprises and Bhavya Enterprises, the parties did not attend before the AO during the remand report proceedings. However, the contact details and the address were provided by the parties to the AO. The AO deputed the Inspector who after visiting the premises reported that the parties were found existing at the given address. In the case of V.H. Enterprises, neither the party attended before the AO nor submitted any details or correct address. Therefore, the AO could not carry out further verification with respect to V.H. Enterprises. & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers 7.3.3 During the appellate proceedings the appellant has submitted that the appellant firm was engaged in the business of execution of project work of behalf of government agency ag well as MCGM and the project has been completed by the appellant firm. It is further submitted that all the necessary records regarding purchases were maintained and the purchases were duly recorded in the books of account. The payment for purchase of material was made by account payee cheque. Further, there is no evidence regarding receiving back the cash against the payment made to the purchase parties. For execution of project work, the appellant has to purchase the material from the parties and without purchase of material and payment to labour contractor, the project could not have been completed. Further, the project work was monitored and checked by MCGM and only after being satisfied, MCGM has made payment to the appellant. The disallowance of purchases has been made by the AO on the basis of information received from DGIT(Inv.). It was further submitted by the appellant that the disallowance/addition cannot be made on third party information without further scrutiny made by the AO. For this proposition, the appellant as relied upon the decisions in the case of (i) CIT vs. Odeon Builders Pvt. Ltd. (ii)PCIT vs. Pnaki J. Panani Mumbai High Court 18/1/2020 (iii) Pcit-15, Mumbai vs. Jnakaria Fabric Pvt. Ltd.2020(3) Tmi 474-Bombay High Court (iv) Pcit-13, Mumbai Vss. Rishabhdev Tachnocable Ltd. 2020 (2) Tmi 662 ~ Bombay High Court (iv) Bholanath Polyfab Limited [2013 (10) TMI 933 ~ Gujarat High court and others. The appellant has further submitted that the AO has relied upon the statement of various persons recorded by the department. & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers However, the opportunity of cross examination was not provided to the appellant by the AO without providing opportunity to the appellant and cross examination of the parties should be deleted. For this proposition, the appellant has relied upon the decisions in the case of (i) Kanwar Natwar Singh vs. Directorate of Enforcement (Supreme Court (October 8!", 2010) (ii) Kishinchand Chellaram vs. Commissioner of Income-tax (iii) High Court of Gujarat — Heirs And Lrs of late Laxmanbhai S. Patel vs. Commissioner of Income-tax 174 Taxman 206 and others. The appellant has further submitted that it has proved that the purchases are genuine by bringing all the necessary evidences on record during the assessment proceedings as well as the remand report proceedings. Thus, the purchases made by the appellant from these parties should be considered as genuine. For this proposition, the appellant has relied upon the decisions in the case of (i) Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) (ii) Nikunk Eximp Enterprises, ITXAL No.5604 of 2010 (iii) U.M. Shah, Proprietor, Shrenik Trading co. 90 ITR 396 (Bom.) (iii) Brij Pal Sharma, 333 ITR 229 (P&H) (iv) Hi Lux Automotive (P) Ltd., 183, Taxman 260 (Del) (v) Rajesh P. Soni 100 TTJ 892 (Ahd.) (vi) Babulal C. Borana vs. ITO ) 282 ITR 251 (Bom.) and ITO vs. Kanchwala Gems 122 TTJ 854. 7.3.4 In the case of Rushabh Trading Co., Rushabh Corporation, Hitesh Kantilal Shah HUF and Vimainath Traders, during the assessment proceedings, the appellant as well as the purchase parties had submitted necessary supporting documents related to purchases before the AO. Further, during the remand report proceedings also, the parties attended before the AO and & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers provided necessary documents with respect to the purchases made by the appellant from them. The statement of keypersons were recorded. In the remand report, the AO has not made any adverse remark with respect to these 4 parties. Therefore, the disallowance of purchases made by the AO in respect of 4 parties i.e. Rushabh Corporation, Rushabh Trading Co., Hitesh Kantilal Shah HUF and Vimalnath Traders ‘cannot be sustained. 7.3.5 In the case of R.K.Madhani & Co., Vimalnath Associates, Vimalnath Enterprises, Vimalnath Corporation, Mahavir Enterprises and Bhavya Enterprises, the Inspector deputed by the AO had visited the premises and the parties were found existing at the given addresses. Therefore, the identity of the parties was established by the appellant in the case of V.H. Enterprises Ltd., the party did not attend before the AO or submitted the necessary evidence -r present address as a result, the AO could not verify the identity and genuineness of purchase from this party. The statements of Vinod Shah (Proprietor of Vimalnath Corporation), Smt. Khushboo V.Shah (Proprietor of V.H.Enterprises), Kantilal D. Jain (Proprietor of M/s.Navkar Corporation and Bhavya Enterprises) and Shri Nishil M. Madhani (key person of Vimalnath Associates & Divya Corporation) were recorded. in their statements, they had admitted that they had provided accommodation entries of purchases to the appellant firm. These persons have not retracted from their statements. Therefore, the averment made by them in their statements cannot simply be brushed aside. However, it is a fact that the appellant firm was engaged in the business of execution of project work on behalf of government & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers agency as well as MCGM and the project has been completed by the appellant firm. The appellant firm has received payment from the government agency on execution of project work assigned to it. The sale proceeds have been realized by the appellant firm from the government agencies. The AO has not doubted and disturbed the sales shown by the appellant as bogus or inflated. It is a settled principle of law that the AO cannot disallow 100% of purchases when the sales are not disturbed by the AO. Even the statements of Vinod Shah (Proprietor of Vimalnath Corporation), Smt. Khushboo V. Shah (Proprietor of V.H.Enterprises), Kantilal D. Jain (Proprietor of M/s.Navkar Corporation and Bhavya Enterprises) and Shri Nishil M. Madhani (key person of Vimalnath Associates & Divya Corporation) are taken into consideration wherein they have admitted of having provided bogus accommodation entries, there is no evidence that the cash was received back by these parties from the appellant. Thus, the 100% disallowance of purchases made by the AO in respect of these 07 parties cannot be sustained. In this regard, the following case laws are relevant. i. Vs Rishabhdev Tachnocable Ltd. 2020 (2) Tmi 662 - Bombay High Court ii. BholanathPolyfab Limited [2013 (10) TMI 933 - GUJARAT HIGH COURT] iii. The Cit-1 Vs M/S NikunjEximp Enterprises Pvt Ltd In view of the above discussion, 5% of the total purchases made from these 07 parties are disallowed. 7.3.6 During the A.Y.2014-15, the appellant has made purchases from Hitesh Kantilal Shah HUF (ii) R.K-Madhani (iil) Rushabh Corporation (iv) Rushabh Trading Co. and (v) V.H. Enterprises. & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers As discussed in para 7.3.4, purchases made from Rushabh Corporation, Rushabh Trading Co., and Hitesh Kantilal Shah HUF have been justified by the appellant during the assessment as well as remand proceedings. Therefore, purchases of Rs.65,15,361/made from Rushabh Corporation Rushabh Trading Co, and Hitesh Kantilal Shah HUF is deleted. As discussed in para 7.3.5 above, disallowance of purchases of Rs. 22,73,056/- made by the AO in respect of purchases made from R.K. Madhani and V.H. Enterprises is restricted to 5% of total purchases i.e. 1,13,652/- Accordingly, Ground of appeal No.4 is Partly Allowed.”

6. Aggrieved by the aforesaid action of the Ld. CIT(A), the revenue is before us.

7. After hearing both the parties, we note that out of eleven (11) parties out of whom assessee had made purchases, four (4) parties namely i.e. M/s. Rushabh Corporation, M/s. Rushabh Trading Co., Hitesh Kantilal Shah HUF and M/s. Vimalnath Traders appeared before the AO during the remand report proceedings and their statements were recorded and the AO in the remand report did not point out any adverse observation against those by parties; and coming to other six (6) parties namely M/s. R. K. Madhani & Co., M/s. Vimalnath Associates, M/s. Vimalnath Enterprises, M/s. Vimalnath Corporation, M/s. Mahavir Enterprises and M/s. Bhavya Enterprises, undisputedly they did not appear before the AO, but the inspector of the department visited the premises of the six parties and found all of them existing at addresses except the party M/s. V. H. Enterprises Ltd. which neither attended nor submitted any details or correct address.

ITA Nos. 2712 & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers Therefore, the AO could not further verify with respect to M/s. V.H. Enterprises. Thus, it is noted that out of eleven (11) parties, ten (10) parties identity/address were correct and transaction with them had been through banking channel. The Ld CIT(A), in the light of the statement recorded of four (4) parties who had appeared before AO as well as taking note of the aforesaid facts that six (6) parties address was correct (Inspector Report); and the important fact that the assessee had executed the Contract work on behalf of Government agencies like BMC & MCGM etc; and the project undertaken by assessee have been completed as certified by the Competent Engineers; and the fact that the assessee firm has received the payment from the Government agencies; and that the AO has not disturbed the sales (work executed & payment thereto), therefore, the Ld. CIT(A) directed the AO to restrict disallowance of purchases to 5% of the total purchases made from seven (7) parties namely R. K. Madhani & Co., Vimalnath Associates, Vimalnath Enterprises, Vimalnath Corporation, Mahavir Enterprises and Bhavya Enterprises and V. H. Enterprises. And the Ld. CIT(A) was pleased to delete the disallowance of 100% purchase made from M/s. Hitesh Kantilal Shah HUF, M/s Rushabh Corporation, M/s. Rushabh Trading Co., and M/s. Vimalnath Traders (since they had appeared and the statement was given before the AO during the remand proceedings which have been recorded and no adverse view has been given by AO in the remand report). The Ld DR, could not point out any infirmity in the action of Ld CIT(A) which is based on material and cannot be termed as perverse, so we uphold the impugned & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers order. Even though, we uphold the action of the Ld. CIT(A), it is not on the reason given by the Ld. CIT(A) but on the ground that since the sale figure have not been disturbed by the AO, and the Ld. CIT(A) has given a finding of the fact that the assessee was Government contractor and has completed the projects namely undertaken by it for BMC & MCGM and on successful completion of work/contract has received the payments from them, the presumption drawn is that the assessee might have procured the material [for execution of work] from the grey market and have approached these accommodation entry providers-(seven parties) for accommodation bills by giving commission to them, for saving some money. Therefore, the gross profit (GP) only need to be added (profit embedded in the bills procured from entry providers which is prevalent in the line of business). Therefore, we uphold the action of the Ld. CIT(A) and dismiss the appeal of the revenue.

No.4 is Allowed.”

10. Since the Ld. CIT(A) have followed the ratio of his decision for AY. 2014-15, we have gone through the decision of the Ld. CIT(A) for AY 2014-15 on this issue. His discussion on this issue starts from page no. 24 of his order; and the Ld. CIT(A) notes that the assessee has maintained the details of unsecured loans during last six assessment years and filed documentary evidences like ledger copies and payment proof. The Ld. CIT(A) noted that from FY. 2012-13 to FY. 2018-19, the assessee company had received loan from seven (7) parties namely, Rajendra L. Mahani HUF, Khelan Madhani, Neelima Madhani, Shah Lavji, Hitesh Kantilal Shah HUF, Rushabh Corporation and Rushabh Trading Co. And the Ld. CIT(A) took note of the fact that the assessee company has also provided before the AO the following relevant documents for proving about the creditors/lenders by producing their respective income tax returns and proof of repayment of loans [to whom so the same was re-paid]; and moreover, Shri Rajendra Madhani (Karta of Rajendra Madhani HUF), Shri Ketan Madhani and Ms. Neelima Madhani had attended before the AO and their statements were recorded u/s 131 of the Act. And thus the Ld. CIT(A) noted that the parties/creditors were identifiable and the amounts were received & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers through banking channels. And they had creditworthiness to give loan/ investment in the assessee firm. And the Ld. CIT(A) noted that the AO has drawn adverse inference against unsecured loans given to the assessee since the lenders failed to prove source of the loan given to assessee. The Ld. CIT(A) noted that during the appellate proceedings, the assessee had submitted the loans confirmation along with ITR, copies of invoices of the lenders; and that additional evidences were forwarded to the AO for remand report; and the remand report given by AO has been reproduced from page no. 28 to 31 in the impugned order, wherein the AO clarified that all the parties appeared before him except Shri Lavji because he expired. And therefore, his son Shri Rajendra Madhani has submitted ITR, loan payment, bank statement highlighted with the transaction. And all other creditors statements were recorded by AO on oath and they had produced their respective balance-sheet, profit and loss account, ITR, bank statement and provided their PAN no. and address which were verified independently by the inspector. Therefore, the Ld. CIT(A) held that the assessee had proved the identity and creditworthiness of lenders and the genuineness of the loan transaction albeit during the remand proceedings before the AO. On the aforesaid facts and circumstances, the Ld. CIT(A) relied on several decision of the Hon’ble High Court and was pleased to delete the addition of unsecured loan payment from the six (6) parties (other than Lavji Madhani). Thereafter, he took note of the transaction with Late Lavji Madhani at para no. 8.3.5 (refer page no. 32 to 34). And the Ld. CIT(A) gave finding of fact that after ITA Nos. 2712 & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers perusal of the bank statement of Late Lavji, that there was sufficient balances in his bank accounts before giving loan to the assessee firm. The Ld. CIT(A) also found that there was no cash deposit in the bank account before advancing the loan to the assessee firm. And that the loan transaction was through the regular banking channel. Thus, the Ld. CIT(A) was of the view that the creditworthiness of the Late Shri Lavji N. Shah also stands proved. And therefore according to him section 68 of the Act cannot be invoked against the assesse and was pleased to hold that the assessee has brought on record necessary evidences to prove genuineness of the unsecured loan payment from Late Shri Lavji N. Shah and therefore deleted the addition made u/s 68 of the Act, which action of the Ld. CIT(A) is sustained because the Ld. CIT(A) has taken the decision on the basis of facts which could not be assailed before us. Since no perversity can be attributed to the action of Ld. CIT(A), we uphold the action of Ld. CIT(A) deleting the addition. And therefore, we dismiss this ground of appeal of the revenue.

11. Since the revenue appeal has been dismissed, the CO preferred by the assessee has not been pressed and therefore CO has become academic. Therefore, we are not inclined to adjudicate it. And therefore, the revenue appeal for AY. 2019-20 stands dismissed and the CO of the assessee also stands dismissed.

12. Since the facts and the law in respect of both the issues raised by the revenue in its appeal for AY 2018-19 are identical for AY. 2019- 20, we adopt the same reasoning given for AY. 2019-20, to decide the & 2713/Mum/2022 C.O. 8 & 9 /Mum/2023 A.Ys. 2018-19 & 2019-20 M/s. Hi-Tech Engineers revenue appeal for AY. 2018-19 and dismiss the appeal of the revenue and the CO of assessee also stands dismissed.

13. In the result, both revenue’s appeal and CO of the assessee are dismissed. Order pronounced in the open court on this 27/02/2023.