Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This is an appeal by the Revenue wherein the Revenue is aggrieved that the learned CIT-A has reduced the addition for bogus purchase of Rs. 39,31,384/- done @ 100% by the Assessing Officer by sustaining only 15% for the A.Y. 2010-11 vide order dated 7.11.2.2019.
2. The assessee in this case is engaged into the business of civil contractor. The assessment was reopened upon information from sales tax department that assessee has made purchases from bogus dealers, the AO made 100% addition of the bogus purchase.
Upon assessee's appeal learned CIT-A has noted that the sale or other aspects of the working has not been doubted. Accordingly placing reliance upon several case laws and up on the facts of the case he sustained 15 % disallowance out of the bogus purchases. Learned CIT(A) concluded as under :- 4.3 I have carefully gone through the assessment order as well as the details filed by the appellant. Some 5-6 years ago the Sales Tax Department of the Government of Maharashtra had conducted extensive enquiries against such dealers who used to provide bills facilitating bogus
2 M/s. M.M. Construction purchases/sales. As a result of this inquiry, information about many assessees were forwarded to the Income Tax Department. The A.O. has stated in the assessment order that the appellant is one such person who has inflated his purchases by showing bogus purchases from such persons who appear in the list of bogus entries providers as prepared by the Sales Tax Department. During the course of assessment proceedings, the A.O. also found that the assessee had not been able to establish the genuineness of purchases in dispute. The main arguments of the AO on the basis of which he had formed his opinion were -
The assessee was not able to submit any lorry receipts or any details regarding transportation of goods
The suppliers from whom the disputed purchases have been made are included in the list of hawala operators prepared by the Sales Tax Department.
4.4 The appellant is a contractor. The AO in his order has dealt exclusively with the purchases of the appellant. However, in the case of a contractor, if there are no purchases of materials there cannot be any contract activity also. The AO had disallowed part of purchases without at the same time questioning the receipt figure of the assessee. The AO has not brought any material on record to show that there is suppression of receipt also by the appellant. In fact, the AO has not conducted any inquiry on his own. Further, the AO has not rebutted the arguments of the appellant that the payments have been made through banking channels. The fact remains that the appellant has taken care to make its purchases through banking channel and since the banks are required to follow KYC norms the identity of the supplier cannot be doubted.
4.5 In a judgment given by the Allahabad High Court in the case of CIT Vs. Jagdish Prasad Tewari 220 Taxmann 0141 (2014), it has been held that if the payments have been made by cheques and are reflected in the books of account of the assesses, no adverse Inference can be drawn.
4.6 Further it has been held in the case of Saraswathi Oil Traders vs. CIT 254 ITR 259 (Supreme Court) that when the sales have not been doubted then there was no question to doubt the purchases and the addition should have been made only to the extent of gross profit. To this extent I am in agreement with the appellant that if the appellant has fulfilled his onus of making the payments by banking channels and has supplied the address of the sellers, then it cannot be presumed that the sellers were bogus. However, at the same time it cannot be said that the information provided by the sales tax department should not be taken cognizance of by the A. O. Therefore, after considering the totality of facts and after following the ratio of Saraswathi Oil Traders vs. CIT(SC) cited supra, I am of an opinion that it is the profit element on the total component in dispute which needs to be added to the income of the appellant. Since the appellant has not made any written submission on the basis of which the GP rate of the assessee can be determined the GP rate of the appellant is estimated to be 15%. The total
3 M/s. M.M. Construction amount which is being treated as bogus by the AO is Rs 10,01,441/-. Thus 15% of Rs. 10,01,441/- which is Rs. 1,50,216/- is taken as profit of the appellant on purchases that are not fully and properly explained. Addition of Rs.1,50,216/- is accordingly confirmed out of an "addition of Rs. 10,01,441/- and the balance is deleted. Grounds of appeal Nos. 2, 3 & 4 are therefore partly allowed." The facts and circumstances of the case in the present assessment year on issue under consideration remain same, as that of the facts adjudicated by my Ld. Predecessor in the above referred decision in appellant's own case for AY 2011-12. Further, the appellant has accepted the said decision of my Ld. Predecessor. Hence, respectfully following the same, the Ld. AO is directed to restrict the disallowance/addition made on account of bogus purchases @ 15% of total of such bogus/suspicious purchases and re-compute the disallowance/addition accordingly. The Ground No. 1 raised in appeal is PARTLY ALLOWED.”
Against above order Revenue is in appeal before the ITAT.
I have heard Id Learned Departmental Representative and perused the record. I find that in this case the sales or other aspects of the working have not been doubted. The Assessing Officer has not also issued any notice to the concerned parties. 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 18.6.2014). 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 the 15% disallowance out of the bogus purchases done by the learned CIT-A meets the end of justice. Accordingly I uphold the order of learned CIT- A. The decsion of N.K. Proteins Ltd. (250 ITR 22) relied by the Revenue was a dismissal of SLP by Hon'ble Supreme Court and has already been explained
4 M/s. M.M. Construction and distinguished by Hon'ble Bombay High Court in the case of M. Hazi Adam & Co. (ITA No. 1004 of 2006 dated 11.2.2019).
In the result, appeal filed by the Revenue stands dismissed.
Before parting I may add that if the assessee has filed a cross appeal or cross objection and the same has remained unheard, either party may apply for recall of this order so that the appeals can be heard together.
Pronounced in the open court on 13.10.2021.