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Income Tax Appellate Tribunal, ‘A’ BENCH, AHMEDABAD
Consolidated Appeals (2)
Assessee by : Shri S. N. Soparkar with Smt. Urvashi Sodhan& Shri Parin Shah, AR's Revenue by : Shri Virendra Ojha CIT DR with Shri Dileep Kumar, Sr. DR सुनवाई क� तार�ख/Date of Hearing : 03.09.2020 घोषणा क� तार�ख /Date of Pronouncement: 19.10.2020 आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The crossappeals have been filed by the Revenue and assesseefor A.Y. 2010-11which are arising from the order of the CIT(A)-10, Ahmedabad dated 31.03.2015, in the assessment proceedings under section 143(3)of the Income Tax Act, 1961 (in short “the Act”).
2 AY: 2010-11 ITA No. 1518/Ahd/2015 A.Y. 2010-11(Assessee’s Appeal):- The first issue raised by the assessee is that the Learned CIT(A) erred in 2. confirming the addition made by the AO amounting to Rs.62,51,247/- as bogus purchases.
The facts in brief are that the assessee in the present case is a partnership firm and engaged in the business of building construction and developers. The assessee during the assessment proceedings claimed to have made purchases the steel for Rs.62,51,247/- only. The details of such purchases along with the parties stand as under: i. M/s Bharat trading Co Rs. 3237988.00 ii. Rs. 3014259.00 M/s Laxmi enterprises 4. The AO during the assessment proceedings to verify the veracity of the impugned purchases deputed the inspector of income tax to conduct necessary enquiries. However, the inspector, in his reply submitted that hecould not verify the genuineness of the party as the same were not available at the given address. Furthermore, the inspector of income tax could not know any details about such party on conducting enquiries from the neighbors.
The AO also conducted the enquiries from the VAT Department and found that the registration of both the firms have been cancelled. Furthermore, the AO also found that both the parties have not reported any sales to the assessee in their respective returns filed to the VAT Department for the sales made to the assessee.
3 AY: 2010-11 6. In view of the above the AO treated the purchases as discussed above as bogus and, therefore, he disallowed the same by adding to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Learned CIT(A) who confirmed the order of the AO by observing as under:
“4.1.3 After considering rival submission, I hold that the AO was justified in disallowing Rs. 62,51,247/- on account of purchases made from M/s. Bharti Trading Co. and M/s.Laxmi Enterprise for the reasons discussed as follows. As can be seen, the AO has made detailed investigation regarding purchases from the above two parties. The parties were not available at the given address. The appellant was asked to produce the above parties but the same were not produced. The appellant submitted that at present the above parties were neither available at the given address nor the appellant was in contact with them. The appellant also expressed its inability to provide the latest address of the above two parties. Though the appellant submitted as above yet the appellant produced affidavits from these parties. It is not understood that if the appellant could produce affidavits from these parties, what prevented it from producing the parties or giving their latest address. All this is mentioned in Para 3.3.3 of the assessment order. The appellant was not able to explain this discrepancy even during appeal proceedings. The AO has also mentioned another discrepancy in the submissions of the appellant. Alongwith affidavits of the above parties, confirmations of copy of their account in books of account of the appellant were filed. The AO has observed that the confirmations are dated 1.4.2010 but the same were not produced during assessment proceedings till a long time despite issue of two show-cause notices, Again, the appellant has failed to explain this discrepancy both at the assessment stage and at the appellate stage Further and most importantly the AO wrote to the concerned Asstt. Commissioner of Sales to verify the sales made by these parties to the appellant. In both the cases, the concerned Asst Commissioner sent details of date wise purchase and tale made by the above two parties, in both the cases, the name of the appellant did not appear in the sales made by the above two parties. There cannot be a better proof than the information received from sales department regarding sales/purchase made by a trader. This clearly proves that the appellant did not make any purchases from the above parties. With due regard to ratio of judgments relied by the appellant the same are not applicable in the present case as the facts are different. In GlasslineEquipments vs. CIT 253 ITR 454(Guj) the issue is regarding part acceptance of part of the affidavit by the CIT(A) which is not the issue in the present case. Further in Mehta Parikh & Co vs. CIT 30 ITR 181(SC), the issue was regarding entries in the cash books which is not the issue in the present case. Further, in Krishan Textiles vs. CIT
4 AY: 2010-11 310 ITR 227(Guj), the issue was regarding cross-tallying the accounts of the appellant & that of a third party which is not issue in the present case. In the present case the information has been sent by a government department i.e. Sales Tax Department which is the repository of at) information regarding sales made by any party. In view of above, discussion, I hold that the AO was justified in making addition of Rs.62,51,247/- on account of treating purchases from M/s Bharat Trading Co & M/s. Laxmi Enterprise as bogus. Accordingly, the addition of Rs 62,51,247/- is upheld& the same is confirmed. This ground of appeal is dismissed.”
Being aggrieved by the order of the Learned CIT (A) the assessee is in appeal before us.
The Learned AR before us filed a Paper Book running from pages 1 to 305 and submitted that the assessee is maintaining stock registers wherein the impugned purchases and its consumption has been duly recorded. For this purpose, the Learned AR drew our attention on pages 94 to 97 of the Paper Book. The Learned AR also drew our attention on the invoices issued by the parties as discussed above along with the delivery challans which are placed on pages 3 to 82 of the Paper Book.
Similarly, the Learned AR also claimed that the assessee has made payment for the purchases from the above parties through account payee cheques as evident from the bank statement of the assessee which are placed on pages 83 to 93 of the Paper Book.
The Learned AR further contended that if the impugned purchases are treated as bogus then the assessee should also be allowed to reduce the corresponding amount from the sales and the closing stock respectively.
5 AY: 2010-11 12. The Learned AR also contended that at the most the element of profit at the rate of 5% on such purchases can be added to the total income of the assessee for the simple reason that the assessee has shown the impugned purchases as consumption which has been subsequently sold.
On the other hand, the Learned DR vehemently supported the order of the authorities.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the parties from whom the assessee has shown purchases amounting to Rs.62,51,247/- are not traceable. Likewise, the registration of these parties the VAT Department were also cancelled. Thus, based on these facts, it can be inferred that purchases represents the bogus purchases. But, before we arrive at any conclusion, the fact that needs to be considered is that the assessee has shown such purchases in its stock register which have been consumed in the construction activity. Subsequently, the final product i.e. flats/ shops from such construction activity has been shown either as sales or closing stock. Thus, if we don’t allow the deduction on account of such purchases, treating them as bogus, then will lead to double addition to the income of the assessee. On one side, we are disallowing the purchases but on the other side we are treating the sales of such purchases as genuine. It is because, none of the authorities below has doubted on the sales made by the assessee against such purchases.
In view of the above, we find force in the contention of the Learned AR that an element of profit can be added to the total income of the assessee prevent the loss if any to the revenue on account of such purchases. In the construction activity, it is the prevailing practice that the assessee makes
6 AY: 2010-11 purchases of the raw materials from the grey market and further made bogus purchases to record the same in the books of accounts. Accordingly, we don’t incline to disallow purchases treating them as bogus in the given facts and circumstances.
The next question arises how to determine the element of profit embodied in such purchases as discussed above. To our mind, there is no standard jacket formula to work out the element of income embodied in such purchases. The assessee has already offered gross profit at the rate of 8.16% on the sales in its books of accounts, meaning thereby, profit on such purchases has already disclosed by the assessee in the books of accounts. However, in the interest of justice and fair play and to prevent any leakage to the revenue, we are of the view that the justice will be served the assessee as well as to the revenue if income of the assessee is enhanced by 5% on such purchases. Accordingly, we direct the AO to make the addition @ 5% on such bogus purchases. Hence, the ground of appeal of the assessee is allowed in part.
17. The next issue arises by the assessee is that the Learned CIT(A) erred in confirming the addition made by the AO for Rs.6,01,000/- on account of commission expenses.
The assessee during the year has claimed to have incurred commission expenses amounting to Rs.8,51,000/- only. Out of the said commission, a sum of Rs.6,01,000/- represents commission paid to 4 parties who have arranged the buyers of the flat. The details of the parties and the services rendered by them stand as under:
TDS Net Amount Name and Address and PAN Commission Service Amount paid by of Party Expenses(Rs.) Rendered (Rs.) cheque Smt. Varshaben P. Prajapati For Flat No. PAN: AAYPP4343H 22, M-502, 157000/- 15700 141300 Shrinagar Society, Nava G-103, Vadaj, Ahmedabad F-201 SmtPadmaben M. Prajapati For Flat No. PAN:AASPP2744G B-7/2, 150000 15000 135000 N-401, Swagat Appt. Nava Vadaj, F- 204 Ahmedabad For Flat No. Shri Hardik S. Prajapati A-204 200000 20000 180000 PAN: ANRPP2338Q F-404 N504 Smt. Tarlikaben S. Prajapati For Flat No. PAN: AASPP1874D 94000 9400 84600 D-404 A/2/4, Shradha Appt., Nava H-203 Vadaj, Ahmedabad
However, the AO during the assessment proceedings directed the assessee to produce the commission agents as discussed above but the assessee failed to do so. The AO subsequently deputed inspector of income tax to verify the veracity of the commission expenses incurred by the assessee. The inspector of income tax recorded the statement of two flat owners namely such Smt. AnjanabenHirendra Kumar Patel, Flat No. F 204 and Smt. Amitaben D. Patel Flat No. H-203 who denied the involvement of any commission agent. As such both the flat owners claimed that they have purchased the flats directly from the builders without involving any commission agent or without the involvement of any advertisement. Accordingly, the AO proposed to make the disallowance of the impugned commission on the reasoning that there was no service rendered by the commission agents.
8 AY: 2010-11 20. The assessee in response to such show-cause notice submitted its inability to produce the commission agents but at the same time contended that all the details of the commission agents are available with him (AO) and,therefore, he can call upon them verify the genuineness of the commission expenses.
The assessee also filed the retracted statement of Smt. Anjanaben Hirendra Kumar Patel whereby it was stated that she has purchased the flat through the commission agent.
The assessee also claimed that the amount of commission has been paid after the deduction of TDS under Section 194 H of the Act.
23. However, the AO disagreed with the contention of the assessee and held that there was no services rendered by the commission agents which is necessary to claim the deduction of commission expenses. Thus, the AO disallowed the commission expenses and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Learned CIT(A) who confirmed the addition made by the AO by observing as under:
“4.2.3 The rival submissions have been considered. It is seen that the appellant paid commission to five (5) persons. When asked to produce these persons, the appellant could produce only one (1) person commission in respect of which has been allowed by the AO. The appellant could not produce the rest of the persons. As per the appellant, the commission has been paid to these persons for providing services in respect of booking of flats in their scheme i.e. the above persons helped in finding buyers for the said flats. Though the appellant submitted thus, yet the appellant has not been able to establish the business expediency of the commission payment. The appellant has not been able to establish that expenditure on commission payment has been incurred for purpose of business. Commission has been paid for ten (10) flats. No explanation has been given as to why commission has been paid only for 9 AY: 2010-11 ten (10) flats and not for the rest of the flats sold by the appellant. Further, the appellant has not filed any submissions either during assessment proceedings or appeal proceedings evidencing that the persons whom commission have been paid are into regular business of providing services for facilitating booking of flats No detail has been provided to show what kind of business or services these persons do on regular basis. Also no information has been provided to show whether these persons have earned commission income from other parties also. In view of discussion above, I hold that the AO was justified in disallowing commission payment of Rs.6,01,000/-. Accordingly, the addition of Rs.6,01,000/- is upheld and the same is confirmed. This ground of appeal is dismissed.”
Being aggrieved by the order of the Learned CIT(A) the assessee is in appeal before us.
The Learned AR before us submitted that the disallowance has been made by the AO on the basis of the statement recorded of the flat owners namely Smt. Anjanaben Hirendra Kumar Patel, Flat No. F-204 and Smt. Amitaben D. Patel Flat No. H-203 who denied the involvement of any commission agent which were taken behind the back of the assessee. As such the assessee was not afforded the opportunity of cross verification of the statements of the flat owners, therefore, there cannot be any addition based on such statement.
On the other hand, the Learner DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has claimed to have made payment of the commission to certain parties who have arranged the buyers of the flats. The AO verified the genuineness of the commission by enquiring from the two flat owners as discussed above who denied to have taken any services of the commission
First of all, we note that the AO was aware of all the details of the commission agents such as the addresses, PAN but he has not taken any confirmation from such agents about the genuineness of the commission received by them. The assessee by furnishing the requisite details about the commission agent shifted its onus upon the AO to prove that commission expenses was not incurred in the course of the business.
Furthermore, the AO wasunder the obligation to provide the opportunity for the cross-examination of the statement obtained from the flat owners to the assessee as well as to the commission agents before arriving at the conclusion that there was no involvement of the commission agents in selling the flats to the flat owners. In our considered view, the statement obtained at the back of the assessee of the flat owners cannot be a ground for making the disallowance in the given facts and circumstances. Hence, we are not inclined to uphold the finding of the authorities below. Thus, the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
The only issue raised by the Revenue is that the Learned CIT(A) erred in deleting the addition made by the AO for Rs.12,62,76,167/- on account of on money.
The AO during the assessment proceedings on random enquiries from ten persons who have purchased flats/shops in the projects developed by the 11 AY: 2010-11 assessee, found that the buyers have made the payment for the purchase of the flats/shops through cash and cheques in the ratio of 40% to 50%. Accordingly, he was of the view that the receipt shown by the assessee in the year under consideration amounting to Rs.18,94,14,251/- is equivalent to 60% of the total consideration and the balance amount of Rs.12,62,76,167/- represents 40% of the total consideration which was received in cash and the same was not accounted for in the books of accounts. Accordingly, the AO treated the same as undisclosed income of the assessee and added to the total income.
Aggrieved assessee preferred an appeal to the Learned CIT(A) who has deleted the addition made by the AO by observing as under:
“4.5.4 The rival submissions have been considered. The remand report of the AO dated 16.6.14 has been perused. As mentioned above, during assessment proceedings, the AO, based on statement of ten (10) flat/ shop owners recorded during enquiry by the ITI, had made addition of Rs.12,62,76,167/- on account of "on money" which as per the AO, the appellant had received on sale of flats/shops. The AO's contention was that since ten (10) persons have said that they have paid 40- 50% of cost of flats/shops as "on money" other flat/shop owners too would have paid "on money". So he calculated "on money" as 40% of the sale consideration received by the appellant on all fiats/shops and made addition of Rs.12,62,76,167/- on this account. The appellant's contention was that these statements were recorded on its back, so the same could not be relied on. Further the appellant filed affidavits from these ten (10) persons during assessment where they denied having paid any "on money". The AO rejected the contents of the affidavits. No opportunity was given by the AO to the appellant to produce these persons. During appeal proceedings, keeping the principles of natural justice in view, the AO was asked to summon these ten (10) persons u/s 131 of the Act and to record their statements on oath which was done by the AO. As mentioned in Para 4.3.3 above, the AO vide his remand report dated 16.6.2014 reported that all the ten persons attended in response to summons u/s 131 of the Act and their statements were recorded on oath. Based on these statements the AO as follows:- "Specific questions were asked regarding amount paid for purchase of flat/shops and amount of cash paid other than as maintained in the registered sale deed. The persons who attended confirmed to have signed the affidavit themselves. They denied having paid any amount over and above the sale deed. They also denied to have paid any amount in cash as on money."
Thus. the AO has clearly submitted that on being asked specifically whether any "on money" was paid, the flat owners denied having paid any amount in cash as "on money". Thus ten (10) fiat/shop owners have clearly denied having paid any money in cash to the builder over and above the sale price. During assessment proceedings, the AO based on statement of these ten (10) flat/shop owners had concluded that the appellant must have got "on money" on all flats/shops and accordingly worked out the "on money" component at Rs. 12, 62,76,167/- and added the same to the income of the appellant. Now when the AO has reported that ten (10) flat owners in statement recorded on oath have denied having paid any money in cash, the basis of AO's working the "on money" of Rs. 12,62,76,167/- does not remain. In view of discussion above and based on the AO's remand report dated 16.6.14, I hold that the AO was not justified in making addition of Rs. 12,62,76,167/- on account of "on money" received by the appellant. Accordingly, the addition of Rs. 12,62,76,167/- is deleted. This ground of appeal is allowed.”
Being aggrieved by the order of the Learned CIT(A), the Revenue is in appeal before us.
Both the Learned DR and the AR before us vehemently supported the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the AO in the remand proceedings vde letter dated 16thJune 2014 has verified all the ten owners of the flats/shops in response to the summon issued under Section 131 of the Act and reached to the conclusion that there was no cash involved in the purchase of flats/shops. The relevant extract of the remand report is reproduced as under:
Sir, Sub: Remand Report In the case of M/s. Sukan Builders PAN- ABLFS6018G,A.Y.2QlO-11-Reg. Ref. No.ClT(A)/S.B./Appeal/2014-15, dated 26/05/2014 ******************************** Kindly refer to the above.
In this connection, as directed by your honour summons u/s.131of the Act were issued to following persons, who are flat/shop owners in the residential scheme Shukan City developed by the assessee. The persons total no. 10, who have filed affidavit during the course of assessment proceeding attended in response to summons u/s.131 and their statement under oath was duly recorded.
Sr.No. Name of the Flat/Shop owners Flat/Shop No. 1 ShriDineshbhai L. Prajapati Flat No. N-104 2 Smt. JasibenRohitbhai Patel Flat No. P-104 3 Shri Jignes'nShaileshbhaiRaval Flat No. L-304 4 Smt. MangubenAmratlal Patel Flat No. J-103 5 Smt. MinaxibenMukundraiRaval Flat No. P-302 6 Smt. JasibenVijaybhai Patel Flat No. M-403 7 ShriAshwinbhaiSureshbhai Pandya Flat No. O-502 8 Smt. AnjanabenHirenkumar. Patel Flat No. F-2Q4 9 Shri JitubhaiDashratbhai Patel Shop No. G-5 10 Shri JadishbhaiKalidas Patel Shop No. FF-26
Specific questions were asked regarding amount paid for purchase of flat/shops and amount of cash paid other than as maintained in the registered sale deed. The persons who attended confirmed to have signed the affidavit themselves. They denied having paid any amount over and above the sale deed. They also denied to have paid any amount in cash as on money. The details of the relevant period of bank A/c. including bank statement of all the persons abstained except for two persons namely 1) Smt. MangubenAmrutbhai Patel and 2) Dineshbhai L Prajapati. (part details of Bank statement). Submitted for kind perusal and necessary action Encl. Copy of statement recorded on11/06/2014& 12/06/2014 Copy for kind information: 1. The Jt. CIT, Range-9, Ahmedabad. DCIT(OSD), Cir.9, Ahmedabad
From the above remand report, there remains no ambiguity to the fact that the assessee has not received any cash against the sale of the flats/shops from the buyer. Accordingly, we do not find any infirmity in the order of the Learned CIT(A) and, thus, we decline to interfere in his order. Hence, the ground of appeal of the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed.
In the combined result, the appeal filed by the assessee is allowed whereas the appeal filed by the Revenue is dismissed.
Order pronounced in the Court on the 19th October,2020 at Ahmedabad.