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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 28.04.2022 for the assessment year 2010-11.
The grounds of appeal
raised by the assessee are as under: - “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.11,47,516/- by estimating GP @ 25% of Rs.45,90,063/- considered as alleged bogus purchase.
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred while confirming the addition of Rs.11,47,516/- by not considering the fact that the appellant had produced the evidence in respect of the consumption of purchases from M/s. Jainam Trade Corporation, M/s. Chirag Corporation, M/s. Universal Trading Co., Jindal Steel Corporation, Revika Trade Impex Pvt. Ltd, Bhumi 2 A.Y. 2010-11 Rekha R. Kulkarni Sales Corporation and Kailash Trading Co. The said purchases are utilized for executing the Civil Works undertaken for Municipal Corporation of Greater Mumbai (MCGM), CIDCO etc. from whom Tender is awarded to the appellant.”
Brief facts of the case is that the AO reopened the assessment for AY. 2010-11 of the assessee u/s 147 of the Income Tax Act, 1961 (hereinafter “the Act”) on the ground that there was specific information that purchases of Rs.45,90,063/- from seven (7) parties are not genuine by relying on the information from the Sales Tax Department that M/s. Jainam Trade Corporation, M/s. Chirag Corporation, M/s. Universal Trading Co., Jindal Steel Corporation, Revika Trade Impex Pvt. Ltd, Bhumi Sales Corporation and Kailash Trading Co. have accepted by filing affidavits that each of them were carrying on Hawala Business of issuing Bogus Bills of Sales/Purchases. Based on the aforesaid information the AO reopened the assessment of assessee and he finally formed an opinion that the assessee had suppressed the income by way of obtaining hawala purchases to the tune of Rs.45,90,063/- from the aforesaid seven parties and made an addition of suppressed profit at Rs.11,47,516/- being 25% of the Rs.45,90,063/. Aggrieved by the action of AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the action of the AO. Aggrieved, the assessee is before us.
We have heard both the parties and perused the records. We note that the assessee is an individual carrying on business as 3 A.Y. 2010-11 Rekha R. Kulkarni Government Contractor. We note that the business in the name of M/s. Kulkarni & Co. was originally carried on by her late husband Shri R. G. Kulkarni. On death of Shri R. G. Kulkarni on 11.07.2000, the assessee became the proprietor of business in the name of M/s. Kulkarni & Co. It was brought to our notice that the assessee’s Late husband Shri R. G. Kulkarni was having many projects on behalf of the MCGM, PWD, MIDC and BARC (Government Contractor). And the AO based on the information from the DGIT, Mumbai received in- turn from the Sales Tax Department of Maharashtra that purchases from the aforesaid seven (7) parties are not genuine, which adverse fact they had confirmed before the Sales Tax Authorities that they were issuing hawala bills to beneficiaries, after confronting this adverse information with the assessee, the AO had estimated the addition of 25% of the purchases (Rs.45,90,063/-) made from the seven (7) parties to the tune of Rs.11,47,516/-. Before us, only prayer of the assessee’s Ld. AR is regarding the addition/the quantum of addition (profit embedded in the purported hawala bills) which AO/Ld. CIT(A) estimated at 25% of the hawala transaction, whereas according to Ld. AR, in such kind of transaction, the estimated profit should be reasonable and the action of Ld. CIT(A) confirming the estimated profit at 25% is un-reasonable and should be reduced as done by the Tribunal in such/similar transaction at 12.5%. It was brought to our notice that the Tribunal in these cases (infra) wherein such transaction were involved and where assessee was a civil contractor has held that estimated addition of suppressed profit be 12.5% i.e. (i) ACIT, Circle- 4 A.Y. 2010-11 Rekha R. Kulkarni 6(3)(2), Mumbai Vs. M/s. Kargwal Construction Pvt. Ltd. (ITA. No.2902/Mum/2019) (AY. 2009-10) (ii) ACIT-11(1)(1), Mumbai Vs. M/s. Racheta Interiors Pvt. Ltd. (ITA. No.4541/Mum/2019) (AY. 2011-12) (iii) Shri Mukesh Manu Prasad Trivedi Vs. DCIT-CC-2 (ITA. No.224/Mum/2020) (AY. 2008-09) and after noticing that the assessee is a civil contractor is as under: - “2. The assessee in this case is engaged in the business of job work and civil contractor. The assessment was reopened upon information from Sales Tax Department that assessee has made purchases from bogus dealers. The Assessing Officer in this case has made hundred percent addition on account of bogus purchase amounting to 21,41,657/-. Except for reproducing assessee’s reply in the assessment order the AO did not do anything. He simply wrote that the assessee’s replies are not acceptable.
3. Up on assessee’s appeal learned CIT(A) has noted that the sales has not been doubted. He also noted that the assessee has furnished all the important documents in support of purchase. Accordingly, placing reliance upon several case laws and up on the facts of the case he sustained 12.5% disallowance out of the bogus purchases. Against above order Revenue is in appeal before the ITAT.
We have heard both the counsels and perused the records. We find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done; the rationale being no sales is possible without actual purchases. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in Writ Petition No 2860, order dated 18.06.2014). In this case the honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case 12.5% disallowance out of the bogus purchases done by the learned CIT(A) meets the end of justice. Accordingly, we uphold the order of learned CIT(A).
The decision of the Hon'ble Supreme Court in the case N.K. Proteins Ltd. dated 16.01.2017 referred by Revenue in grounds of appeal has already been distinguished by Hon'ble Bombay High Court in the case of M. Haji Adam & Co. in of 20016 dated 11.02.2019.”
5 A.Y. 2010-11 Rekha R. Kulkarni 8. Respectfully following the ratio of the Tribunals in the aforesaid cases (supra), we are inclined to restrict the addition at 12.5% of Rs. 45,90,063/- and AO is directed to give consequential relief to assessee.