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Income Tax Appellate Tribunal, “H” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :-
These appeals by the assessee wherein the assessee is aggrieved that the learned CIT(A) has erred in sustaining 25% disallowance on account of bogus purchases by his common order dated 28.11.2018 as under :-
A.Y. 2008-09 Rs. 72,11,374/- A.Y. 2010-11 Rs. 48,51,140/- 2. Brief facts of the case are that assessee is engaged in the business of construction. Information was received from the sales tax Department that assessee has made bogus purchases. The assessment was accordingly reopened. The assessing officer in this case has made 100% addition on account of bogus purchases as under :-
A.Y. 2008-09 Rs. 2,88,45,497/- A.Y. 2010-11 Rs. 19,40,455/-
2 M/s. Arihant Universal Realty Pvt. Ltd. & others 3. Upon assessees appeal Id CIT A reduced the same to 25% of bogus purchase following Hon'ble Gujarat High court decision in N.K. Proteins Ltd. (250 ITR 22). Learned CIT(A) has held as under :-
“A perusal of the investigation report of the DDIT(Inv) 1(4) Mumbai shows that an Financial Investigation Unit- Suspicious Transaction Report (FIU-STR) was received in respect of one Shri Krishna Kumar Gupta. The investigation showed that Shri Gupta was operating and managing various entities through which accommodation entries were being provided. M/s Hicon Constructions, the appellant in this appeal, was one such beneficiary. Shri Gupta admitted to providing bogus bills in his statement recorded u/s 131 and listed the entities involved. To specific questions, Shri Gupta confirmed that credit of cheques from M/s Hicon Constructions reflected in bank statement of Muni Trade Ltd and Yashobhumi Traders P. Ltd. inJanakalyan Sahakari Bank Ltd, were in respect of bogus bills and that no material was actually supplied and that cash was returned to M/s Hicon Constructions. An open enquiry was thereafter conducted. Statement of Mohd. Rafique Nazir Shaikh was recorded u/s 131. The bills which had either no delivery challans or there is no mention of truck/vehicle/lorry no. or stamping of receipt of material were identified as bogus bills. 10 such parties from whom such purchases were claimed were identified. Shri Shaikh was confronted with the discrepancies and also shown the statement recorded of Shri Gupta. Shri Shaikh in his statement that was recorded, admitted to the discrepancies pointed out by the DDIT(Inv) in respect of various bills by comparing bills of Ashoka Buildcon Ltd, Mahavir Industries with the bills issued by Elecon Impex P Ltd., Muni Trade P Ltd. Shri Shaikh admitted to the fact that there was no stamp of delivery, truck nos, in the bills which were suspect. Based on this exercise, the purchases claimed from the 10 parties were identified including Muni Trade P. Ltd and Yashobhumi Traders P. Ltd. from whom purchases of Rs 4,93,70,825/- was claimed by the appellant over AY 2007-08, 2008-09 and AY 2010-11. Shri Shaikh admitted also that these 10 parties were also listed by the Maharashtra Sales Tax Authorities as Hawala dealers. Shri Shaikh was evasive in his replies in as much as he stated that material was actually purchased though the documentation was incomplete. He also stated that he was unable to comment on the statement of Shri Gupta. However, finally he did state that purchases of Rs 11,20,777/- in FY 2006-07, Rs 2,88,45,497/- in FY 2007-08 is offered as income in AY 2009- 10 when project was completed and Rsl,94,04,551/- in AY 2010-11.
6.2. Thus it is observed that the contention that opportunity was not given to rebut the findings in respect of impugned purchases is not factually correct. The appellant has also contended that without prejudice to its contention that there are no bogus purchases, the purchases from other parties may have been made and the disallowance be restricted to profit element and further that the profits actually declared is quite high and further disallowance by assessing officer has resulted in profits that are unrealistic and improbable. The appellant has filed a working as per which it is claimed that the net profit offered on its construction project is Rs 10.72 crores which is 31.66% of the project sales.
3 M/s. Arihant Universal Realty Pvt. Ltd. & others 6.3. On merits it is noted that the Tax Audit Report states that quantitative accounts are not maintained. The income and profits reflected in audited accounts and returns of income filed are as tabulated below.
A.Y.2007-08 A.Y. 2008-09 A.Y. 2009-10 A.Y.2010-11 Project Income 17,96,996 25,44,757 33,86,92,450 -
Other Income 51,049 - - 20,45,457
Total Income 18,48,045 25,44,757 33,86,92,450 20,45,457
Profit before 12,65,618 19,44,836 9,95,41,860 152,170 appropriation Salary to partners 5,58,748 8,00,000 10,00,000 1,13,368
Net Profit 7,06,870 11,44,836 9,85,41,860 38,802
NP as % of Income 38.20% 44.96% 29.09% 1.89%
Addition to 4,49,48,79T 636,18,918 6,32,12,585 3,21,82,195 construction cost (including purchases) (2,83,61,309) (3,86,00,898) (57,29,669) during the year Disallowance 11,20,777 2,88,45,497 - 1,94,04,551 6.4. Perusal of details called also shows that in AY 2009-10, the audited accounts showed on money received as Rs.4.86 crores against which expenditure as per seized documents was claimed as Rs. 4.87 crores. If the on-money is included in project sales, the profit disclosed on the project comes down to 25.6%. However, the disallowance made by the assessing officer results in net profit on project at 38.22%. This certainly is quite high and out of industry norms. This, in my view, suggests that the purchases are made, but from elsewhere. 6.5. Even if materials have been purchased, they are not purchased form these parties and may be in cash from un-disclosed parties. By purchasing from the grey market, the appellant would have benefitted by the savings of taxes. Direct statement of Shri Gupta applies to purchases from only two entities viz. Muni Trade P. Ltd and Yashobhumi Traders P. Ltd. from whom purchases claimed are Rs 2.88 crores. The balance purchases of Rs 1.94 crores are disallowed based on pattern noted on bills and receipt. I am guided by the ratio of decision of the Hon'ble Gujarat High Court in the case of CIT Vs Simit P. Sheth pronounced on 16.1.2013 in tax appeal No.5531 of 2012 wherein the Hon'ble Court have held that when the total sale is accepted by the AO, then the entire purchases cannot be added to the 4 M/s. Arihant Universal Realty Pvt. Ltd. & others income of the appellant. The Hon'ble Court have, therefore, held that fair profit ratio would be needed to be added back to the income of the assessee. 6.6. Thus in the facts of the case, considering the high level of net profit disclosed, it is deemed proper to restrict the disallowances at 25%. The disallowances are therefore restricted to Rs.2,80,195/- in AY 2007-08, Rs.72,11,374/- in AY 2008-09 and Rs.48,51,140/- in AY 2010-l1.”
Against above order assessee is in appeal before the ITAT. We have heard both the counsel and perused the records. Upon careful consideration we find that assessee has provided the documentary evidence for the purchase. Adverse inferences have been drawn due to the inability of the assessee to produce the suppliers and also the statement of the partner of the assessee firm. We find that in this case the sales or any other aspect of assessee's workings 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 18.6.2014). 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 in that case all the supplies were to government agency. In the present case the facts of the case indicate that assessee has made purchase from the grey market. This is also the finding of learned CIT(A). Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice.
In this regard we also note that Id counsel of the assessee has submitted that in assessee's own case for A.Y. 2007-08, ITAT in similar facts has restricted the disallowance to 12.5%. A.Y. 2007-08 is also a port of common order of learned CIT(A) and it is not the case of the Revenue the ITAT order has been reversed by Hon'ble High Court. Hence, in the background of the 5 M/s. Arihant Universal Realty Pvt. Ltd. & others aforesaid discussion and precedent we modify the order of learned CIT(A) and direct that disallowance be restricted to 12.5% of the bogus purchases.
In the result, these appeals filed by the assessee are partly allowed. 6.
Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 10.2.2021.