NAGIN G. SUTHAR,MUMBAI vs. ITO 22 (2)(4), MUMBAI

It is observed that the assessee has filed these appeals belatedly after a delay of 136 days which the assessee prays to be condoned as there was ‘sufficient cause’ for the deem it fit to condone the delay of 136 days in filing this present appeal.

The assessee has challenged the reopening of the assessment and the addition made on alleged bogus purchase after recalling the ex parte order passed by the Tribunal vide its order dated 01.03.2021.

The brief facts are that the assessee is an individual engaged in the business of making furniture on contract basis. The assessee filed his return of income on 29.09.2009, declaring total income at Rs.9,28,480/- The assessee’s case was selected for scrutiny and the A.O. u/s.143(3) was passed declaring total income at Rs.9,83,130/-. The assessee’s case was subsequently reopened based on the information received from the Sales Tax Authorities that the assessee had made purchase of Rs.74,33,239/- from alleged 18 hawala suppliers.

The assessee aggrieved by this was in appeal before the ld. CIT(A) who passed a consolidated order for A.Ys. 2009-10 to 2012-13 by restricting the addition to 12.5% by Sheth (2013) 356 ITR 451(Guj) which was on identical facts.

Further aggrieved, the assessee was in appeal before the Tribunal which had passed an ex parte order, confirming the said addition.

The assessee then recalled the matter and has challenged the order of the ld. CIT(A) in confirming 12.5% on the impugned bogus purchases.

The ld. Authorized Representative (AR for short) for the assessee contended that the alleged parties are not bogus suppliers and that the assessee is still dealing with the said parties regularly for supply of materials. The ld. AR further contended that the allegation of the A.O. that the alleged bogus parties have not responded to the notice are denied by the ld. AR by contending that some of these parties are still verifiable and are very much available in their respective addresses. The ld. AR stated that the addition was merely made on the information from the Sales Tax Authority and contended that these were genuine purchase.

The ld. Departmental Representative (ld. DR for short), on the other hand, controverted the same and submitted that the alleged parties have not responded to the notice which confirms that they are bogus suppliers. The ld. DR relied on the order of the lower authorities.

We have heard the rival submissions and perused the materials on record. Ground Nos. 1 & 2 pertaining to reopening of assessment has not been pressed by the ld. AR and, hence, this ground does not require adjudication and is, therefore, dismissed. being 25% of the total purchases amounting to Rs.74,33,329/-, which was restricted by the ld. CIT(A) to 12.5%, amounting to Rs.9,29,154/-. It is observed that based on the search and seizure operation conducted by the Sales Tax Department, details of many companies, firms and partnership concerns were found to be engaged in accommodation entries without actual supply of goods. The assessee is one of the beneficiary who has received such accommodation bills from some of the hawala operators, amounting to Rs.48,51,531/- for the impugned year.

It is observed that the A.O. has issued notice to these parties for an enquiry u/s. 133(6) of the Act and that the said notices returned back as unserved. When confronted with the assessee, the assessee filed details such as purchase bills, ledger account, bank statement, etc, which according to the A.O. was not to his satisfaction. The A.O. contends that the evidence of the transport of the goods, entry of goods in the stock register, confirmation from the parties, etc. were neither produced before the A.O. nor before the ld. CIT(A) as per the records. It is also evident from the order of the ld. CIT(A) that the A.O. has not enquired the total sales pertaining to the impugned purchases. It is also observed that the A.O. has disallowed 100% in case of two parties namely Chirag Corporation and Shree Yamuna Impex on the ground that the said parties having replied to the notice u/s. 133(6) and that they have denied any such transaction with the assessee.

From the above facts of the case, we can infer that the A.O. has not looked into the sales component of the impugned purchases. It is pertinent to rely on the decisions cited by the assessee which are as below: • Pr. CIT vs. M/s. Mohammad Haji Adam & Co. (in of 2016 and others dated 11.02.2019) • Shri Rameshkumar Daulatraj Mehta vs. ITO (in ITA No. 4192/Mum/2018 vide order dated 07.05.2019) • Asst. CIT vs. M/s. Steel Line (India) (in ITA No. 1321/Mum/2016 and others vide order dated 29.08.2017) • Pr. CIT vs. Tejua Rohitkumar Kapadia [2018] 94 taxmann.com 325 (SC)

On perusal of the decision of the Hon'ble Bombay High Court in the case of M/s. Mohammad Haji Adam & Co (supra), it was held that the addition is restricted to the GP rate on purchases which has to be at par with that of other genuine purchases. Further to this, it is also held that the purchases cannot be rejected without considering the corresponding sales. It is observed in assessee’s case neither the A.O. nor the ld. CIT(A) has denied the sales made by the assessee out of the impugned purchases. We would like to place our reliance on the decision of the co-ordinate bench in case of Shri restricted only to the extent of differential percentage declared on the bogus purchase and on their regular purchase. The other decisions cited by the assessee have also reiterated this proposition laid down by various courts.

From the above observation, and by respectfully following the above decision, we uphold the estimation of 12.5% for the nature of business carried out by the assessee and direct the A.O. to estimate profit of 12.5% on the total alleged bogus purchases made from the alleged bogus parties. It is also directed that the percentage of GP already offered by the assessee in his books of accounts on the corresponding sales made out of the purchases is to be reduced from such estimated profit. The A.O. is also directed to verify the correctness of the average GP percentage stated by the assessee for all the impugned years and to reduce the same from the estimated net profit of 12.5% on the purchases made from the alleged parties. Hence, ground no. 3 is partly allowed.

Ground nos. 1 & 2 in 3186 & 3187/Mum/2019 and ground no. 1 in ITA No. 3188/Mum/2019 are not pressed by the ld. AR.

Ground no. 3 in ground nos. 3, 4 & 5 in ITA No. 3187/Mum/2019, ground nos. 2 in ITA No. 3188/Mum/2019 are on identical facts and the above observation applies mutatis mutandis to these grounds. Hence, all the above grounds filed by the assessee are partly allowed.

Ground no. 3 in pertains to the disallowance of TDS claimed of Rs.64,816/-. It is observed that the assessee has not offered some of the receipts as income but the same has been shown as advances received. The assessee has claimed TDS deducted on these advances as is evident from his return of income. The assessee contended that the assessee has not received the amount from debtors, as work was not finalized and the work was in progress. The assessee has claimed TDS deducted on advance received from the debtors in the year mentioned on TDS certificate. The assessee contends that if the TDS is not claimed in that year, then the assessee would not be allowed to claim the same in the subsequent year due to variation in the period mentioned on the TDS certificate. The assessee relied on the decision of the Dy. CIT vs. Rajeev M. Kalathil (in ITA No. 6727/Mum/2012) which held that it will be incorrect to disallow TDS claimed on mobilization advances. It is observed that the ld. CIT(A) has already directed the A.O. to allow the claim of the TDS after due verification and grant credit as per the provisions of law. The ld. AR stated that income has offered by assessee on receipt basis in subsequent year and pleaded for giving credit of TDS in that year. We direct the ld. A.O. accordingly.

Ground no. 4 pertains to the addition on retention money amounting to Rs.6,21,180/- which according to the assessee is chargeable only in the year of receipt Rs.6,21,180/- which was part of 26AS and was also shown in the ledger account of Welspun Infratech Ltd. as part of the work contract completed by the assessee. The ld. A.O. has made addition on the ground that the assessee is following mercantile system of accounting for which the assessee should have offered the revenue on accrual basis. The impugned amount has been accrued to the assessee during the impugned year and, thus, the A.O. made an addition on the said amount.

Aggrieved by this, the assessee was in appeal before the ld. CIT(A) who confirmed the addition made by the A.O.

The assessee has relied on the decision of the Associated Cables 286 ITR 0596 (Bom) which held that “The payment of retention money in the case of contract is deferred and is contingent on satisfactory completion of contract work. The right to receive the retention money is accrued only after the obligations under the contract are fulfilled, therefore, it would not amount to an income of the assessee in the year in which the amount is retained. Therefore, the assessee would not be liable as the amount retained did not accrue to the assessee.”

Having heard the rival submissions and perused the material on record, we are of the considered view that the retention money is taxable in the year of receiving and the assessee is liable to the said amount only when it is accrued to the assessee. The A.O. is hereby directed to consider the same in light of the above observation and as per the the assessee is allowed.

Ground no. 5 pertains to the addition of Rs.15,78,149/- in respect of sundry creditors M/s. Rahul Steel made by the A.O. on account of cessation of liability u/s. 41(1) of the Act.

Briefly stated M/s. Rahul Steel was alleged to be one of the bogus parties of earlier year to whom the assessee had a balance payment of Rs.15,78,149/-. The assessee contends that the assessee has not claimed any expenses in earlier years and that the impugned addition is not warranted as section 41(1) was not applicable. The assessee claims that no benefit was received in respect of the trading liabilities by way of remission or cession of liability and that the assessee has neither written back the same in the books, nor raised any dispute about the same. The assessee contends that the obligation continues even after the recovery of debt has become time barred. The assessee relied on the plethora of cases on this proposition. The lower authorities, on the other hand, contended that the assessee has failed to discharge the onus casted upon him to prove the genuineness of the transaction with the alleged concern.

Further, the assessee has failed to prove that whether the said liability is capital or revenue in nature, the assessee has failed to furnish any documentary evidence to establish that the assessee has not claimed the same as expense. That being so, we remit this issue back to the file of the A.O. for providing one more opportunity to the assessee to furnish details pertaining to the transaction with M/s. Rahul Steel to buttress the to furnish the relevant documentary evidence to prove the genuinity of the transaction with M/s. Rahul Steel. For this limited purpose, we remand this issue back to the file of the A.O. for considering the same in light of the above observation. This ground of appeal is thus allowed for statistical purpose.

In the result, these appeals filed by the assessee are partly allowed.