M/S MAX REALTIES (FORMERLY M/S MAX REALTIES PVT LTD),MUMBAI vs. DCIT CC-2, , THANE

आदेश / O R D E R PER M. BALAGANESH (A.M):

161/Mum/2020 M/s. Max Realities LLP (Formerly Max Realities Pvt. Ltd., AO. The ld. AO observed that assessee had made certain purchases from certain dealers whose names appear to be tainted dealers in the website of sales tax department, Government of Maharashtra and accordingly, the said information was passed on by the Sales Tax department to DGIT (Investigation), Mumbai and Pune , which eventually was passed on to the Assessing Officer assessing the assessee. The ld. AO observed that assessee had made purchases from the tainted dealers as under:-

Sr. No. Name of the parties Amount 1 M/s. R.K.Enterprises Rs.73,27,463/- 2 M/s. Bajarangi Steel Rs.84,21,794/- and Metal Pvt. Ltd., 3 M/s. Balaji Trading Rs.38,88,708/- Total Rs.1,98,37,965/- 3.1. The ld. AO issued notice u/s.133(6) of the Act on the address produced by the assessee to verify genuineness of the purchases made by the assessee. These notices were returned unserved. The ld. AO accordingly, concluded that these parties are non-existent and also based on the information received from the Sales Tax department that these parties are tainted dealers and are engaged in providing only accommodation bills to various authorities, he proceeded to disallow the entire purchases of Rs.1,98,37,965/- made from the aforesaid three parties, as non-genuine. However, the assessee claimed before the appellate proceedings that it had filed the copies of ledger accounts of the suppliers for the relevant period, copies of tax invoice which bear TIN of the dealers / suppliers, copies of delivery challans, copies of confirmation received from the dealers / suppliers and copies of bank statement evidencing the payments made to those suppliers by account payee

161/Mum/2020 M/s. Max Realities LLP (Formerly Max Realities Pvt. Ltd., cheques before the ld. AO. It was also claimed that due to lack of sufficient opportunities to prove the genuineness of purchases, the quantitative details could not be furnished before the ld. AO. Accordingly, the quantitative details were furnished before the ld. CIT(A) by the assessee proving the fact that the materials purchased from the aforesaid suppliers were actually consumed by the assessee in various projects. Accordingly, it was claimed that the purchases made by the assessee were genuine. The assessee also pleaded that the suppliers are VAT defaulters and it is beyond the control of the assessee to produce them before the ld. AO. The assessee also submitted by furnishing the statement / affidavit received from Sales Tax department of Mr. Hanuman H Bishnoi, Director of Bajarangi Steel and Metal Pvt. Ltd., and affidavit of Mr. Mehul Darjee Proprietor of Balaji Trading to claim that they had obtained Sales Tax registration and carrying out business of trading of construction material. It was also claimed that affidavit / statement on oath of M/s. R.K. Enterprises was not provided to it. It was submitted that assessee had also offered total gross profit of 31.59% and net profit of 15.07% in the project and if the entire purchases amounting to Rs.1,98,37,965/- is disallowed, then the gross profit would raise to 71.1% and net profit would raise to 54.62% which is practically not possible to earn in the line of business operated by the assessee. The assessee requested the ld. CIT(A) that the profit element embedded in the value of such purchases may be brought to tax on reasonable basis. Accordingly, the ld. CIT(A) observed that if the value of bogus purchases of Rs.1,98,37,965/- is reduced from the cost of construction, then the gross profit rate of the assessee of the business becomes 94.69% which when compared with the GP percentage for F.Y.2011-12 to 2014-15 would be 55.13% thereby resulting in difference in GP rate of 39.56%. Accordingly, the ld. CIT(A) proceeded to make addition @39.56% of value of disputed

161/Mum/2020 M/s. Max Realities LLP (Formerly Max Realities Pvt. Ltd., purchases of Rs.1,98,37,965/- and restricted the addition amount to 78,47,900/-. Against this order of the ld CIT(A), both revenue as well as assessee are in appeal before us.

3.2. We find that there is no dispute that the assessee had made purchases from tainted suppliers. We find that though these parties had filed an affidavit before the Sales Tax department that they are genuinely engaged in the business, the assessee herein could not prove the genuineness of purchases made from those parties with conclusive evidences. Hence, it could be safely concluded that assessee could have made purchases only from grey market in order to have savings from VAT and incidental profit element thereon. It would be just and fair to bring to tax only the profit element embedded in the value of such disputed purchases in as much as the ld. CIT(A) accepted the fact that the goods made by the assessee from the aforesaid suppliers had been actually consumed by it in the projects. For the purpose of determination of profit element embedded in the value of such disputed purchases, since the assessee had made purchases from the grey market, we hold that it could have saved in VAT portion and incidental profit element thereon making cash purchases. Hence, we direct the ld. AO to determine the profit element as under:-

Sr. No. Name of the Amount of VAT Incidental Total Amount to supplier Purchase Rate as Profit Profit be added stated Element Percentage by the ld AR 1 M/s. R.K.Enterprises Rs.73,27,463/- 12.5% 1% 13.5% 9,89,207/- 2 M/s. Bajarangi Steel Rs.84,21,794/- 4% 1% 5% 4,21,089/-

161/Mum/2020 M/s. Max Realities LLP (Formerly Max Realities Pvt. Ltd., and Metal Pvt. Ltd., 3 M/s. Balaji Trading Rs.38,88,708/- 4% 1% 5% 1,94,435/- 3.3. The ld. AO is directed to determine the profit element embedded in the value of disputed purchases in the aforesaid manner in the total sum of Rs 16,04,733/-. Accordingly, the grounds raised by the assessee as well as by the Revenue are partly allowed.

Order pronounced on 16/08/2021 by way of proper mentioning in the notice board.