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Facts
The Revenue appealed against the CIT(A)'s order that partly granted relief to the assessee regarding additions made by the AO for bogus purchases and unsecured loans. The assessee also filed cross-objections.
Held
The Tribunal held that the additions made by the AO for bogus purchases and unsecured loans in unabated assessment years (AY 2013-14 to 2018-19) could not be sustained as there was no incriminating material found during the search. For AY 2019-20 and 2020-21, the addition was restricted to 5% of bogus purchases, following a coordinate bench decision.
Key Issues
Whether additions made for bogus purchases and unsecured loans in unabated assessment years are valid without incriminating material, and whether the addition should be restricted to 5% in other years.
Sections Cited
153A, 143(3), 68, 69C, 271(1)(c), 274
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY&
& ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. O R D E R Per Bench: These appeals by the revenue and the cross objections by the assessee are against the common order of the Commissioner of Income Tax (Appeals)-53, Mumbai [In short 'CIT(A)'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 27.07.2022 for Assessment Years (AY) 2013-14 to 2020-21. The issues contended by the revenue in the appeals and the cross objections of the assessee are common and therefore these appeals & C.O were heard together and disposed of by this common order for brevity. The common issues contended by the revenue in all these appeals & in the C.O. of the assessee pertain to By Revenue (i) CIT(A) deleting / restricting the addition to 5% made towards bogus purchases made at 100% by the AO (ii) CIT(A) deleting the addition made towards unsecured loans treated as non-genuine by AO to make an addition u/s.68 (iii) CIT(A) in deleting the interest disallowed by the AO on the non- genuine loans u/s.69C (iv) CIT(A) deleting the subcontracting charges held as bogus by the AO
C.O. of assessee (i) The notice u/s.153A is barred by limitation (ii) The additions made are not based on any incriminating material found during the course of search (iii) The assessment order does not bear DIN
2. The assessee is a company and engaged in the business of civil contractor. The assessee during the year under consideration executed work contacts and civil contracts for local authorities like Bombay Municipal Corporation (BMC) and Municipal Corporation of Greater Mumbai (MCGM), etc. there was a search and & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. seizure operation u/s 132 of the Act carried out in the group case of assessee on 06.11.2019. The AO also conducted survey operations and recorded statements in the places of suppliers from whom the assessee has made purchases and also in places of loan creditors on 08.11.2019 & 10.11.2019 u/s.133A of the Act. The AO subsequently issued a notice u/s 153A on 02.01.2021.
3. In response to notice u/s.153A the assessee filed the return of income and the assessment u/s 153A r.w.s. 143(3) was completed on 30.09.2021 after making disallowance of alleged bogus purchases and an addition u/s 68 towards unsecured loans. The AO also disallowed the interest on the said unsecured loans. Aggrieved the assessee filed further appeal before the CIT(A) who gave partial relief to the assessee. The revenue filed an appeal against the relief given by the CIT(A) and the assessee filed cross objections. The Co-ordinate Bench of the Tribunal vide order dated 28.02.2023 partly allowed the appeal of the revenue and dismissed the cross objections of the assessee. The assessee filed a writ petition before the Hon'ble Bombay High Court against the order of the Tribunal and the Hon'ble High Court set-aside the order of the Co-ordinate Bench with a direction to consider the appeal afresh. The relevant observations of the Hon'ble High Court are extracted hereunder:
“15. However, without going into the merits of the arguments on both sides, it is clear beyond doubt that the issue of DIN has not been considered or dealt with at all in the Impugned Orders disposing of the appeals. It is expressly clarified that the cause/reason for the same have not been gone into. This is a matter which goes to validity of the assessment order, and the root of the matter, and hence ought to be permitted to be urged. Whatever may be the contentions on both sides, the deficiencies if any, in putting the same forward before the ITAT, and their merits, the contention ought to be considered and dealt with when disposing off the appeal. Further, although all other issues ought to be similarly considered and dealt with, the same may not be necessary depending on the decision on the DIN issue. In view of the above, the common order dated 28th February 2023 and the subsequent order dated & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. 4th April 2024 passed by the Ld. ITAT are quashed and set aside. As mentioned above, both of these orders are common for all A.Ys. It is clarified that nothing herein expresses any view on the merits of the matters.
The Ld. ITAT is directed to decide all the appeals afresh, and considering that the ITAT is the last fact finding authority, parties are at liberty to adduce all and any additional materials, grounds, contentions etc., and produce the same before ITAT in support of their contentions in their respective appeals or cross objections. We request the Ld. ITAT to pass orders on the appeals/cross objections as expeditiously as possible.” AY 2013-14 to AY 2018-19 4. The ld. AR at the outset submitted that the grounds raised in the cross objection with regard to Document Identification Number (DIN) and the objection on notice not served on time are not pressed. Accordingly the objections raised by the assessee in this regard are dismissed. In cross objections, the assessee has also raised a contention that the additions made by the AO are not based on any incriminating material found in assessee's place and therefore in the case of unabated assessments no addition could be made. In this regard the ld AR submitted the following table AY Date of filing Date of order Time limit of issue of Abated / of ROI u/s.143(3) notice u/s.143(2) unabated 2013-14 29.09.2013 29.03.2016 30.09.2014 Unabated 2014-15 30.09.2014 23.11.2016 30.09.2015 Unabated 2015-16 04.11.2015 30.12.2016 30.09.2016 Unabated 2016-17 19.09.2016 30.09.2017 Unabated 2017-18 29.09.2017 22.11.2019 30.09.2018 Unabated 2018-19 19.09.2018 30.09.2019 Unabated
The ld AR submitted that the documents seized were only a data back up from PC and server and one box file containing the purchase bills from certain parties and that these materials seized cannot be considered as incriminating material. The ld AR further submitted that similar search operations were conducted on certain other parties who are engaged in the same business as that of & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. the assessee on the same date i.e.06.11.2019 and similar additions towards bogus purchases, unsecured loans etc are made. The ld AR also submitted that in the case of the other parties, the coordinate bench of the Tribunal has deleted the additions made in the unabated AYs on the ground that there is no incriminating material. The ld AR accordingly submitted that the assessee's case is covered for AY 2013- 14 to 2018-19 since these AYs are unabated and the additions made towards bogus purchases & loan creditors
The ld DR submitted that the materials unearthed during the search proceedings along with the information obtained from the survey operations of the suppliers would constitute incriminating material. The ld DR further submitted that the assessee has not substantiated the purchases made in the form of materials or stock during the course of search and therefore the AO has rightly made the addition based on the same. The ld DR also submitted that the circumstantial evidences such as the supplier / loan creditor not being found in the given address when considered in totality would pass the test of incriminating material. Accordingly the ld DR supported the order of the AO.
We heard the parties and perused the material on record. For the purpose of understanding whether the materials basis which the AO has made the addition u/s.153A in assessee form "incriminating material" it is important to look at the facts emanating from the AO's order. There was search operation in the case of the assessee on 06.11.2019 and the AO's report does not contain any details of materials seized during the course of survey. However ld AR during the course of proceedings submitted a report were it is stated that certain data from PC/server and a box with purchase bills are found and impounded. From the perusal of AO's order we notice that based on the purchases as claimed by the assessee in the & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. books of accounts, the AO called on the assessee to provide supporting evidences such as purchase order, invoices, delivery challan etc. From the details submitted by the assessee the AO short listed 13 parties with regard to whom the AO found certain lapses in the documents submitted. We further notice from the findings of the AO that further enquiries were made with regard to these parties which revealed that these entities have weak / dubious financials and some are even non- existent (refer page 5 of AO's order). We also notice from AO's order that the statements recorded from proprietor / partners of the suppliers as reproduced in AO's order are recorded during the survey operations dated 08.11.2019 to 10.11.2019 as tabulated below –
Name of the person & Name of the entity Date of statement designation Shri Vinod H Shah – Karta of Vimalnath Corporation 08.11.2019 HUF Proprietor Smt Kushboo V Shah – V H Enterprises 08.11.2019 Proprietor Shri Nish M Madhani – Key Vimalnath Associates & 09.11.2019 person Diyan Corporation Kantilal D Jain – Proprietor Navkar Corporation 08.11.2019
From the statement recorded as reproduced in the AO's order it is noticed that the parties have stated that they are not aware of the business run and that they are merely signing authorities compensated by way of commission. We also notice that the AO has issued summons through deputed inspector to verify the addresses as mentioned in the records of the assessee and has reproduced the letters of the inspector stating that either the persons were not present during inspection or the information from the neighbour stating that there is no business being carried. The relevant findings of the AO which have formed the basis for making the addition towards bogus purchases is extracted below – & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. “7.5 Based on above enquiries and findings, and examination of submission, a show- cause notice dated 15/09/2021 for AY's 2013-14 was issued with regard to the claim of purchases made in AY 2013-14. Also, assessee has been asked to produce purchase parties before A.O. The assessee has submitted reply in response to the show cause notice vide dated 18/09/2021. However, assessee failed to produce purchase parties to verify the genuineness of transactions.
7.6 In reply the assessee furnished the details like Name of the supplier, PAN of the supplier and sample invoices. However, assessee fail to provide complete details like delivery challan, e way bills stock material register etc, to substantiate the genuineness of transactions.
7.7 The submission of assessee in response to show cause notice is duly considered, but not found tenable. As stated earlier, assessee was asked to produce the parties along with the documents so as to verify the genuineness of the purchases shown by the assessec. However, assessee fail to produce the parties. As the alleged party has not been produced the genuineness of the transaction can't be ascertained. The onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in computing its taxable income. In this case, the onus lies on the assessee to prove the genuineness of the purchases and the assessee had to prove that the suppliers were genuine suppliers of various types of raw materials. The assessee has not made any effort to discharge the onus. The assessce has failed to produce any of the parties in-spite of specific opportunity provided as discussed above. The parties do not exist at the given addresses and the assessee has not furnished the change of addresses of any of the above mentioned parties. Just making payments by account payee cheques is not enough evidence to prove the existence of the parties and also the genuineness of the transaction. In view of the above facts, it is clear that the purchases shown to have been made with the above mentioned parties are bogus transactions. Sufficient details have not been furnished by the assessee to establish that the said parties are genuine and the transactions shown with these parties are genuine business transactions.
7.8 As already discussed, the claim of the assessee of purchases being made from these parties have been verified and it was found that most of the parties are either untraceable. Even, the assessee failed to produce the parties, which was asked vide the show cause, to substantiate the purchases are either untraceable. Even, the assessee failed to produce the parties, which 7.9 In the instant case, there is specific information as well as independent enquiries. To summarize the above arguments, the assessee fails on the following grounds:- a) The assessee did not produce the parties which was asked specifically vide show cause dated 15.09.2021. The primary onus is on the assessee to establish the genuineness of the purchases claimed by it. As per section 101, 102 and 106 of the Evidence Act the onus lies upon the assessee to prove all the claims including purchases to the satisfaction of the AO, which was not discharged by the assessee as it failed to produce the parties from whom purchases were made. Since the primary facts are in the knowledge of the assessee, it is its duty to provide the correct address or contact modes of the nileged suppliers. This view is supported by the decision of Hon'ble Raj. High Court of India (2002) 178 CTR (Raj) 420 MP High Court in the case of VISP(P) vs.CIT Indore (2004) 186 CTR 218 (MP). b) Mere filing of copies of purchase bills without any documentary evidences in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in question. c) In the case of bogus purchase cases, the ratio laid down by the Apex Court, Jurisdictional High Court and Gujarat High Court in the following cases, need special mention considering the facts of the case. i) M/s. N K Protein Limited (reported at 84 taxmann.com 195 &292 CTR 354 (SC)) ii) NikunjEximp Enterprises (in writ petition no 2860, order dt. 18.6.2014) (Bombay High Court.) iii) CIT V/s N K Industries (in Tax Appeal No.240 of 2009 vide order dated 26.2.2016 (Gujarat High Court) subsequent decision in the case of CIT V/s Simit P. Seth356 ITR 451 (Guj. H.C).
Thus, undisputed fact is that the purchases claimed to have been made from these parties remained unverified.
7.10 After carefully going through the legal instances available on this issue the onus lay upon the assessce to prove the genuineness of the transaction when it claimed that the purchases are genuine. From the above case laws and the discussion on investigation, it is crystal clear that- & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. (i) The primary onus is on the assessee to establish the genuineness of the purchases claimed by it;
(ii) Since the primary facts are in the knowledge of the assessee it is his duty to provide the correct address or contact modes of the alleged suppliers.
(iii) If the investigation done by the Department leads to doubt regarding the genuineness of the purchases it is incumbent on the assessee to produce the parties along with necessary documents to establish the genuineness of the transaction.
(iv) Payment by account payee cheque is not sacrosanct.
(v) No proof by way of challan/documentary evidence for payment of VAT is filed.
(vi) Though it is true that sales cannot be affected without corresponding purchases, in the absence of stock register, books of accounts it is not possible to verify which goods were sold to the parties whose sales confirmation was submitted by the assessee. Assessee is also unable to co-relate the same.
7.11 In view of the above discussion, it is clearly explained that the assessee has claimed bogus purchase to inflate the expenses and to reduce the taxable income. Thus, bogus purchase expenses of Rs.48,04,750/-, claimed as purchases from the bogus parties, as discussed above in FY 2012-13 relevant to AY 2013-14 is hereby disallowed and is added to the total income of the assessee in AY 2013-14 as bogus expense. Penalty U/s 271(1) (c) r.ws 274 of the Act, is initiate for concealment of income.
(Disallowance of Rs. 48,04,750/)”
Similarly for the purpose of making addition towards unsecured loans we notice that the AO has relied on the ledger, documentary evidences submitted by the assessee, information on search operations conducted on certain parties in 03.10.2013, inspectors report on the existence of the parties and statements recorded during survey / search proceedings. The relevant observations of the AO in this regard are extracted below:-
“The assessee did not produce any new evidence to substantiate the identity and credit worthiness of the creditors. From the investigation, the following facts emerge:
The assessee could not produce documentary evidences like confirmation letters obtained before accepting loans, proof of creditworthiness, genuineness, Identity of the loan parties and TDS statement etc..
2. It is observed from the profiling that the entities are not regular tax payers, do not have sufficient credit worthiness to advance the loan and have huge outstanding credits in their books suggesting the characters of a typical dummy company.
3. Not filing RoI regularly.
From field enquiry, it was found that the loan parties are not existing at their reported addresses.
The above mentioned factual findings of the survey operation as discussed in previous paragraphs clearly establish that these twenty nine loan parties do not exist and therefore their identity could not be established. Further, they also do not have sufficient creditworthiness to enter into credit transactions with the assessee company. Thus, it is concluded that the assessee has fraudulently arranged with the proprietors/key persons of the referred entities to receive unsecured loans and paid interest to accommodate cash and inflate the expenditure which could suppress its actual profit.”
From the combined perusal of the above facts it is clear that the evidences / materials basis which the AO has made the addition are that the subsequent enquiry and statement recorded during survey operation, information from earlier investigation, inspectors report during summons, and lacuna in the documentary evidences submitted by the assessee. It is no longer res integra that no addition can be made in case of unabated assessments, unless there is any incriminating material as settled by the Hon'ble Supreme Court in the case of PCIT vs Abhisar Buildwell (P.) Ltd ([2023] 149 taxmann.com 399 (SC)). Given that we have now examine whether the basis on which AO made the addition for AY 2013-14 to & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. 2018-19 can constitute incriminating material. Though the term incriminating material is not defined under the Act, the meaning has evolved over a period of time from the ratio laid down in various judicial forums. The ingredients of incriminating material are that it should be discovered on the premises of the assessee during the course of the search or requisition conducted under Section 132, must expose undisclosed income, off-book transactions, or hidden assets, and must relate to the assessee's own books or financial affairs. The third party documents or third party statements can be treated as "incriminating material" only when it is substantiated by evidences from the items seized from the assessee. The scope of incriminating material for the purpose of section 153A is limited to the item seized and statements recorded u/s.132(4) linked to the items seized and in case of third party statement the same should be supported by what is found during the course of search.
In the light of the above legal position, we look at first the addition made towards bogus purchases. During the appellate proceedings the CIT(A) based on the documents submitted called for a remand report. From the perusal of the same, we notice that the parties have either appeared in person and have been found in the premises. This is in complete contrast to the inspectors report on which reliance is placed by AO. Further, in the remand reported, the AO has stated only the documents not submitted by the parties while no adverse findings are recorded with regard to the details submitted by the parties. With regard to unsecured loans, the AO has begun the examination from the loans as recorded in the books of accounts and verified the genuineness in the light of third party statements. While doing so the AO has not recorded any finding with regard to the various documentary evidences submitted by the loan parties directly to the AO (refer page para 8.3.3 from page 60 to 63 of CIT(A)'s order) and has also not considered the & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. fact that the loans have been subsequently repaid by the assessee which has brought the loan outstanding to Nil as of 31.03.2018. It is not disputed that the documents were submitted during the course of proceedings under section 153A which is substantiated by the observations of the AO as extracted in the earlier part of this order. These factual aspects makes it clear that the statements relied on by the AO are not supported by any material seized during the course of search. In our considered view, the purchase bills and loan entries found in the books that are part of the seized materials, to be treated as non-genuine incriminating material based on third party statements, should be corroborated by any findings during search i.e. either as undisclosed cash or undisclosed / unaccounted stock, mismatch in stock etc. The revenue did not bring on new record during the course of hearing before us in this context. Accordingly from the perusal of the records produced by the parties and the orders of the lower authorities, we are unable to convince ourselves that the additions made by the AO towards bogus purchases and unsecured loans for unabated AYs i.e.2013-14 to 2018-19 could held as based on incriminating material found during the course of search. Therefore respectfully following the various judicial precedence we hold that the addition made by the AO towards alleged bogus purchases and unsecured loans for AY 2013-14 to 2018-19 which are unabated assessments, cannot be sustained. The C.O. of the assessee pertaining to these AYs succeed on this count.
AY 2019-20 & AY 2020-21 Disallowance of bogus purchase.
The additions made by the AO for these AYs are considered on merits. During the course of search the details pertaining to the purchases were thoroughly examined and the key persons of the assessee were asked to substantiate the & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. purchases by filing complete address of the suppliers, PAN of the suppliers, purchase order, ledger a/c of the suppliers, invoice/bills, delivery challans, lorry receipts, consumption register, purchase and consumption reconciliation statements and bank statements etc. After examining the details furnished by the assessee, the AO noticed certain lapses in the claim of purchase expenses by the assessee. The AO identified and short listed the following 13 parties who are having the deficiencies such as (i) the purchase bills were prepared using same style format/font (ii) bills were not containing type and vehicle of the lorry used for transportation, delivery address, signature of the employee or delivery (iii) invoices issued were not containing mandatory PAN (iv) no e-way bill, delivery challan, stock register etc. The list of parties identified by the AO having lapses for the years under consideration are tabulated as under:
During the course of search proceedings simultaneous survey proceedings were also carried out at the premises of the above supplier parties and statements were recorded from the proprietor / partner / director of those entities were recorded on oath. During the course of survey at the premises of M/s Navkar Corporation the survey team found certain Whatsapp messages exchanged between the key persons of the assessee and Shri Kantilal D. Jain. The AO noticed that the individuals whose statements were recorded stated that they have issued bogus bills to the assessee without actual delivery of goods or materials. The AO further recorded a finding that when the Inspector of the Income Tax Department visited the place of business of the parties some of them were closed and in certain cases neighbours denied of any business activity being carried out. Considering the statements recorded and the report of the Inspector the AO called on the assessee to produce the parties in person for verification. Since the assessee submitted only the documentary evidences such as invoices etc. the AO held that the purchases as tabulated hereinabove amounting to Rs. 5,41,81,050/- in respect of the 13 parties as non-genuine for AY 2013-14 to 2020-21. For AY 2013-14 the addition made amounted to Rs. 48,04,750/-.
On further appeal the assessee filed complete details pertaining to the purchases from all the 13 parties. The assessee further submitted before the CIT(A) that all the suppliers have separately filed their ITR, invoices along with delivery challan, ledger a/c, sample copy along with transport bills, bank statement, VAT registration certificate, etc. before the AO on 22.09.2021. The CIT(A) called for a remand report from the AO based on the various documents filed as additional evidences by the assessee. The CIT(A) in the appellate order has & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. reproduced the summary of the remand report filed by the AO which is reproduced below:
Sr.No. Name Remarks 1 Rushabh Trading 1. Party appeared before this office a was recorded, Co. (Proprietor Hitesh Kantilal 2. The assessee has not submitted stock book and Shah) purchase order, and ME TAX replied in his statement that he received order from client through telephonic conversation and place order with the vendors of material and supply the goods to client directly at their sites. As the stock is not stored at any place by the assessee and hence, not maintained any stock.
3. Party provided its contact number & address in statement, which was verified independently by the Skyway Infra Projects Pvt. Ltd. 2669, 2676, 2670, 2677, 2681, 2671, 2682/M/2022 & CO No. 146/M/2022 & Ors 18 bank statement etc before by the assessee before the Ld also separately filed their invoice along with delivery challan, transport bills, bank before the Assessing During the appellate proceedings, the assessee filed various documents as additional evidence which were sent by the Ld. CIT(A) to the Assessing Officer calling for remand report. The Ld. CIT(A) in as reproduced summary of the remand report for ready reference, is and statement inspectors and submitted report. As per the inspector report, party was found at the premise.
4. Copy of the statement enclosed. The Ld. CIT(A) may decide the case on merits based on the above facts. 2 Rushabh 1. Party appeared before this office hand statement Corporation was recorded (Proprietor Reema Hitesh Shah 2. The assessee has not submitted stock book and purchase order, and replied in his statement that he received order from client through telephonic & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. conversation and place order with the vendors material and supply the goods to client directly at their sites. As the stock is not stored at any place by the assessee and hence, not maintained any stock.
3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. Copy of the statement enclosed. The Ld.CIT(A) may decide the case on merits based on the above facts. 3 Hitesh Kantilal 1. Party appeared before this office and statement Shah (HUF) was recorded 2. The assessee has not submitted stock book and purchase order, and replied in his statement that he received order from client through telephonic conversation and place order with the vendors of material and supply the goods to client directly at their sites. As the stock is not stored at any place by the assesse and hence, not maintained any stock.
3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. Copy of the statement enclosed. The Ld.CIT(A) may decide the case on merits based on the above facts 4 Vimalnath 1. Party has not attended the office. Corporation 2. The assessee has not submitted stock book.
3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. The statement of the party was recorded during & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. the search action, the same may be considered for the present proceeding enclosed. The Ld.CIT(A) may decide the case on merits based on the above facts 5 Maharashtra Pile 1. Party has not attended the office. Foundation 2. The assessee has not submitted stock book and purchase order.
3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. The statement of the party was recorded during the search action, the same may be considered for the present proceeding enclosed. The Ld. CIT(A) may decide the case on merits based on the above facts. 6 V.H. Enterprises 1. The assessee failed to produce the party.
2. The party has not submitted stock book, purchase order and purchase bills.
3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise. The Ld.CIT(A) may decide the case on merits based on the above facts 7 Jay Khodiyar 1. Party appeared before this office and statement Enterprises was recorded.
The assessee has not stock book and purchase order and replied in his statement that he received order from client through telephonic conversation and place order with the vendors of material and supply the goods to client directly at their sites. As the stock is not stored at any place by the assessee and hence not maintained any stock book.
5. Party provided its contact number & address in statement, the copy of the statement enclosed. The Ld.CIT(A) may decide the case on merits based on the above facts. 8 Vimalnath 1. Party has not attended the office. Associates 2. The assessee has not submitted stock book. 3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise. 4. The statement of the party was recorded during the search action, the same may be considered for the present proceeding enclosed. The Ld.CIT(A) may decide the case on merits based on the above facts 9 Diyan Corporation 1. Party has not attended the office. 2. The assessee has not submitted stock book. 3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise. 4. The statement of the party was recorded during the search action, the same may be considered for the present proceeding. The Ld.CIT(A) may decide the case on merits based on the above facts 10 Mahavir Enterprise 1. The assessee failed to produce the party. 2. The party has not submitted stock book. 3. Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. inspector report, party was found at the premise.
6. The statement of the par was recorded during the search action, the same may be considered for the present proceeding. The Ld.CIT(A) may decide the case on merits based on the above facts. 11 Navkar Enterprises 1. Party has not attended the office.
2. The assessee has not submitted stock book.
3. Party provided its contact number & address in statement which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. The statement of the party was recorded during the search action, the same may be considered for the present proceeding. The Ld. CIT(A) may decide the case on merits based on the above facts 12 Bhavya Enterprises 1. Party has not attended the office.
2. The assessee has not submitted stock book.
Party provided its contact number & address in statement, which was verified independently by the inspectors and submitted report. As per the inspector report, party was found at the premise.
4. The statement of the party was recorded during the search action, the same may be considered for the present proceeding. The Ld.CIT(A) may decide the case on merits based on the above facts
The assessee further submitted before the CIT(A) that the project work carried out by the assessee are on behalf of Government Agencies including MCGM who would make the payments only after satisfaction and checking of the & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. work. The assessee also submitted that without purchase of materials or payment to labour contractor the projects could not have been completed and that the assessee has recorded / maintained all details pertaining to the purchases which have not been considered by the AO. The assessee also raised the legal contention that during the course of search no incriminating material was found based on which the disallowance of purchase could be made by the AO. The CIT(A) rejected the legal contention of the assessee. On merits the CIT(A) restricted the addition to 5% of the purchases made from 9 parties (after excluding 4 parties who appeared before the AO as per the remand report) stating that the AO has accepted the sales recorded in the books of accounts and therefore only the profit element embedded into purchase could be disallowed. Aggrieved the revenue is in appeal before the Tribunal.
16. The ld. DR submitted that the CIT(A) did not provide any details basis which the gross profit ratio of 5% was added. The ld. DR further submitted that the CIT(A) having accepted that the purchases are not genuine could not have restricted the addition to 5% and should have sustained the 100% addition. The ld. DR also submitted that though the AO in the report has examined the various details furnished by the assessee the AO has not given any finding with regard to the genuineness of the parties and had left the decision to the CIT(A). Accordingly, the ld. DR argued that the CIT(A) is not correct in restricting the addition to 5% of bogus purchases and supported the order of the AO.
The ld. AR submitted that the assessee has furnished all the relevant particulars to prove the genuineness of the suppliers and the AO in the remand report has not recorded any adverse finding with regard to the documentary evidences. The ld. AR argued that the assessee has discharged the onus of proving & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. the genuineness of the transactions. The ld. AR further submitted that it is a settled legal position that when the sales has been accepted by the AO 100% of the purchases cannot be added and that the addition should be restricted to 5%. The ld. AR drew our attention to the decision of the Co-ordinate Bench in the case of DCIT vs. M/s Hi-tech Engineers (ITA No. 2712 & ors / Mum 20222 dated 27.02.2023) which is a group company of the assessee and submitted that the Co- ordinate Bench while considering the issue of bogus purchases from the same set of parties has upheld the decision of the CIT(A) to restrict the addition to the gross profit. The ld. AR submitted the following table to substantiate that the parties are common with that of the assessee and accordingly, the ld. AR argued that the issue stands covered by the decision of the Co-ordinate Bench.
Sr.No. Name of Party Skyway Hi-tech 1 VH Enterprises Yes Yes 2 Vimalnath Corporation Yes Yes 3 Navkar Corporation Yes Yes 4 Mahavir Enterprises Yes Yes 5 Bhavya Enterprises Yes Yes 6 Rushabh Corporation Yes Yes 7 Rushabh Trading Co. Yes Yes 8 Hitesh Kantilal Shah HUF Yes Yes 9 Maharashtra Pile Foundation Yes Yes 10 Jay Khodiyar Enterprises Yes Yes 11 Vimalnath Associates Yes Yes 12 Diyan Corporation Yes Yes
We heard the parties and perused the material on record. The AO based on the documentary evidences submitted by the assessee during the search operation and based on the information collected during survey of various suppliers held the purchases made from 13 parties as non-genuine. The AO made an addition of Rs. 5,41,81,058/- across AY 2013-14 to AY 2020-21 being 100% of the purchases.
& ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. Before the CIT(A) the assessee submitted various documentary evidences and the CIT(A) called for a remand report from the AO based on the evidences submitted by the assessee. Based on the remand report the CIT(A) has recorded a finding that 4 out of the 13 parties have appeared before the AO during remand proceeding and accordingly held that these parties cannot be held as bogus. With regard to the rest of the parties the CIT(A) held that the assessee is engaged in the business of civil contract work for government agencies and therefore the entire purchases cannot be held as bogus since the AO has accepted the sales recorded in the books of accounts. Accordingly, the CIT(A) restricted the addition to 5% of the bogus purchases. In this regard it is relevant to consider the following observations of the Co-ordinate Bench in assessee's group case M/s Hi-tech Engineers (supra) where it is held that “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. 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 & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. 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 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.”
From the perusal of the findings of the Co-ordinate Bench we notice that M/s. Rushabh Corporation, M/s. Rushabh Trading Co., Hitesh Kantilal Shah HUF, M/s V.H. Enterprises, M/s Vimalnath Corporation, M/s Mahavir Enterprises, M/s Bhavya Enterprises are common parties as has been considered by the Co-ordinate Bench in the above case. Accordingly, in our considered view the issue of deleting 100% of addition made towards purchases from M/s. Rushabh Corporation, M/s. Rushabh Trading Co., Hitesh Kantilal Shah HUF and the issue 5% of purchases from M/s V.H. Enterprises, M/s Vimalnath Corporation, M/s Mahavir Enterprises, M/s Bhavya sustained by the CIT(A) are covered by the decision of the Co- ordinate Bench. We further notice that in the remand report, the AO has recorded & ors. and C.O. 143 to 150/Mum/2022 M/s Skyway Infra Projects Pvt. Ltd. finding only with respect to party not submitting the stock book and has not recorded any adverse finding with regard to various documents submitted by the parties before the AO. With regard to the rest of the parties we notice that the though the parties did not appear in person, as per the inspector report the party was found in the premises. It is also relevant to notice that the assessee has submitted various details in support of the transactions entered into with these parties and the AO has recorded any adverse findings with regard to the documentary evidences submitted except that stock book has been furnished. As already mentioned the assessee is undertaking projects for BMC and MCGM and might have procured materials from the grey market and might have obtained accommodation bills from parties by giving commission. Therefore, respectfully following the ratio laid down by the Co-ordinate Bench in the above case, we see no infirmity in the decision of the CIT(A) in restricting the addition to 5% of the purchases on the ground that the sales figure is being accepted by the AO. Accordingly the grounds of the revenue for AY 2019-20 & 2020-21 in this regard are dismissed.
In result, appeals filed by the revenue for AY 2013-14 to AY 2020-21 are dismissed. The C.O. of the assessee for AY 2013-14 to 2018-19 are allowed. The C.O. of the assessee for AY 2019-2020 and AY 2020-2021 have become infructuous.