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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY, JM & SHRI S. RIFAUR RAHMAN, AM
ITO – 23(3)(3) Mr. Staney Silvester C-10, Pratyakshkar Menezes, Bhavan, Bandra(E), A-201, Saidham Loyala बिधम/ Mumbai-400 051 C.H.S. Ltd. Vs. Nahur Village Road, Mulund (W), Mumbai-400 080 स्थायीलेखासं./जीआइआरसं./ PAN No. AAWPM9376R (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant Shri Rahul Hakani, AR : by प्रत्यथीकीओरसे/Respondentby : Shri Sanjay J. Sethi, DR सुनवाईकीतारीख/ : 13.01.2021 Date of Hearing घोषणाकीतारीख / : 18.01.2021 Date of Pronouncement आदेश / O R D E R
Per S. Rifaur Rahman, Accountant Member:
The present two appeals have been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)- 40 in short referred as ‘Ld. CIT(A)’, Mumbai, dated 23.01.2019
Since the issues raised in both the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. Firstly, we are taking appeal in AY 2010-11.
The brief facts of the case are, the assessee is a manufacturer and supplier of Iron gates, grills, shutters and various fabrication works like Gantry, Pile cap shuttering, Liners etc. in Bridge construction. The assessee has declared Income under the head Profits and Gains from business or profession. Assessee filed its return of income on 26.09.2010 declaring total income of Rs. 5,11,360/-/-. The return was processed u/s 143(1) of the Act. Further the case was selected for scrutiny and statutory notices were issued and served on the assessee. In response, AR of the assessee filed the relevant information as called for.
After verification of details filed by the assessee, AO disallowed the following expenses and added to the total income.
3 & 2365/Mum/2019 Mr. Staney Silvester Menezes i. Rs. 20277/- i.e. 10% of Rs. 202771/- on account of depreciation on car for want of verification as the element of personal use in respect of car cannot be ruled out. ii. The information has been received from DGIT (Investigation)/ Sales Tax Department regarding Hawala Billers who had given accommodation entries to assessee in the following cases. S.NO NAME OF THE PARTY PROPRIETORY CONCERN TIN F.Y. AMOUNT 1. SHEETAL TRADING CO . 27250554020V 2009-10 . 218453/- NIRAJ DINESH LIMBACHIYA 2. AMBIKA TRADE IMPEX 27350705382V 2009-10 54501/- KAMLESH KISHORBHAI SHETH 3. 27470616755V 2009-10 96468/- VINIT VINAYAK SOMNATH GAWADE INTERNATIONAL 4. 27470704928V 2009-10 341437/- CHANDRAKANT J. BHUMI SALES DHERAI CORPORATION 5. GOPAL SINGH RAWAT G R TRADE LINK 27710642619V 2009-10 176790/- 6. PAYAL ENTERPRISE 27870658730V 2009-10 140216/- BHARAT P MAKHWANA HUF 7. 27930682074V 2009-10 205452/- RAMESH JOTIRAM ADINATH TRADING PANCHAL COMPANY
In order to verify the genuineness of the transactions, AO issued notice u/s 133(6) to all the parties and most of the show cause notices were returned unserved except M/s Bhumi Sales Corporation and M/s G. R. Trade Link who had filed a letter before AO that they have not made any sales to the assessee.
Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, sustained the addition @ 100% to M/s Bhumi Sales Corporation and M/s G. R. Trade Link by considering that they have not made any sales to the assessee and restricted the addition @ 6% to the other 5 parties.
Now before us, the assessee has preferred appeal by raising the grounds of appeal as under:-
1. The learned CIT(A) erred in confirming addition u/s. 69C of alleged bogus purchases of Rs. 3,41,437/- made from M/s. Bhumi Sales Corporation without appreciating that section 69C is not applicable as payments for purchases were made through banking channels and further Assessee had filed purchase bills, delivery challan and weigh bridge receipts and bills to prove that purchases were genuine and hence addition of Rs. 3,41,437/- may be deleted.
1.1 The learned CIT(A) erred in confirming addition u/s. 69C of alleged bogus purchase of Rs.
5 & 2365/Mum/2019 Mr. Staney Silvester Menezes 3,41,437/- made from M/s. Bhumi Sales Corporation without appreciating that said addition was made by Assessing officer in gross violation of principles of natural justice as no opportunity of cross-examination of Shri Chandrakant J. Dherai proprietor of M/s. Bhumi Sales Corporation was provided to the Assessee and hence addition of Rs. 3,41,437- may be deleted.
2. The learned CIT(A) erred in confirming addition u/s. 69C of alleged bogus purchases of Rs. 1,76,790/- made from M/s. G.R. Trade Link without appreciating that section 69C is not applicable as payments for purchases were made through banking channels and further Assessee had filed purchases bills, delivery challan and weigh bridge receipts and bills to prove that purchase were genuine and hence addition of Rs. 1,76,790/- is may be deleted.
2.1 The learned CIT(A) erred in confirming addition u/s. 69C of alleged bogus purchases of Rs. 1,76,790/- made from M/s. G.R. Trade Link without appreciating that said addition was made by Assessing officer in gross violation of principles of natural justice as no opportunity of cross-examination of Shri Gopal Singh Rawat, proprietor of M/s. G.R. Trade Link was provided to the Assessee and hence addition of Rs. 1,76,790/- may be deleted.
6 & 2365/Mum/2019 Mr. Staney Silvester Menezes 3. Without prejudice to above, the learned CIT(A) erred in sustaining addition of entire amount of alleged bogus purchases from M/s. Bhumi Sales Corporation and M/s. G.R. Trade Link.
4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.
8. Before us, Ld. AR brought to our notice page 4 of the statement of facts filed before Ld. CIT(A), in which assessee has objected for 100% addition of alleged purchases by the AO relying on the statement of M/s Bhumi Sales Corporation and M/s G. R. Trade Link without giving them opportunity to cross examine to the above said parties. He submitted that Ld. CIT(A) has not adjudicated the above plea raised by the assessee raised before him. On the alternative plea, he submitted that the purchases made from these parties may be treated similar to the other parties on which Ld. CIT(A) made addition @ 6% and prayed that either delete the addition sustained by Ld. CIT(A) on relying on various judicial pronouncements in case of violation of natural justice i.e. sustaining the addition without giving opportunity for cross examination to the other parties or to restrict the disallowance @ 6%.
7 & 2365/Mum/2019 Mr. Staney Silvester Menezes 9. On the other hand, Ld. DR objected to the submission of the Ld. AR and submitted that assessee has claimed the above said purchases in their P & L account and it is the duty of assessee to bring the parties before the AO to prove the genuineness of the transaction. Since, assessee has failed to comply the same, AO has issued show cause notice u/s 133(6) to all the parties and those parties have confirmed that they have not made sales with the assessee. He further submitted that AO is not bound to give one more opportunity to cross examine by the assessee. He relied and supported the findings of AO and Ld. CIT(A).
Considered the rival submissions of both the parties and material placed on record. We notice that 2 of the alleged parties i.e. M/s Bhumi Sales Corporation and M/s G. R. Trade Link have confirmed before the AO that they have not supplied any material to the assessee and assessee has claimed the alleged purchases as their expenses in their financial statement. It is fact that assessee is indulged in submitting bogus purchases in order to reduce the profit margin against the sales made by them. It is fact on record that AO has not doubted the sales transactions and AO has 8 & 2365/Mum/2019 Mr. Staney Silvester Menezes disallowed the purchase from the above said 2 parties. Considering the facts that they have not made any sales to the assessee, however assessee has filed copy of the purchases, which are placed on record, AO should have given opportunity to the assessee to cross examine those parties. Since assessee has made a plea before Ld. CIT(A) and Ld. CIT(A) should have given an opportunity or adjudicate on this issue. Therefore, for the sake of natural justice, we are inclined to sustain the addition @ 6% similar to the other alleged purchases. Accordingly, addition is sustained @ 6% to the alleged purchases. Therefore, the grounds raised by the assessee are partly allowed.
Consequently, the appeal filed by the assessee is partly allowed.
Now coming to for Assessment Year 2011-12 filed by the assessee.
The brief facts of the case are, during this assessment year, AO received information from the sales tax Department that assessee has indulged in bogus purchases. On verification, AO observed that assessee has made purchases from M/s Payal
9 & 2365/Mum/2019 Mr. Staney Silvester Menezes Enterprises of Rs. 3,17,872/- and M/s Payal Enterprises is a hawala dealer, issuing bills without actual sales of goods. Accordingly, AO made 100% disallowance to the alleged purchases.
AO further observed that assessee has claimed labour charges of Rs. 11,24,133/- and this labour charges were paid to various labourers on day to day work and payments were made in cash and all the vouchers were self made which were not independently verifiable. Accordingly, he disallowed an amount of Rs. 75,000/-
AO further observed that assessee has claimed depreciation on motor car expenses to the extent of Rs. 2,89,594/- and assessee was asked to prove the log book for running the motor car. Since assessee could not submit any log book for use of motor car for personal or official use, AO made disallowance @ 20% of the said expenses.
Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee, Ld. CIT(A) sustained the additions made
Aggrieved with the above, assessee is in appeal before us raising the following grounds of appeal:-
1. The learned CIT(A) erred in confirming addition u/s. 69C of alleged bogus purchases of Rs. 3,17,872/- from M/s. Payal Enterprises without appreciating that section 69C is not applicable as payment is made through banking channels and further assessee had produced purchase bills, bank statements, delivery challans, weigh bridge bills to prove the genuineness of the purchases and hence the addition of Rs. 3,17,872/- maybe deleted.
1.1 Without prejudice to above, the learned CIT(A) erred in confirming addition of entire alleged bogus purchase of Rs. 3,17,872/- from M/s. Payal Enterprises.
2. The learned CIT(A) erred in confirming ad hoc addition of Rs. 75,000/- pertaining to labour charges without appreciating that assessee had given all details to prove the genuineness of labour charges and further Assessing officer did not find any defect in the books of 2.1 Without prejudice to above, the learned CIT(A) failed to appreciate that ad-hoc disallowance of labour charges of Rs. 75,000 is on a very higher side and hence same may be reduced.
3. The learned CIT(A) erred in restricting disallowance of motor car expenses and motor car deprecation to 10% on ad-hoc basis without appreciating that the motor car was used wholly and exclusively for business purpose and same is allowable u/s. 37 and hence, the ad-hoc disallowance of Rs.28,959 may be deleted.
3.1 Without prejudice to above, the learned CIT(A) failed to appreciate that ad-hoc disallowance of motor car expenses and depreciation of Rs. 28,959 is on a very higher side and hence same may be reduced.
4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.
Before us, Ld. AR submitted that assessee has purchased material from M/s Payal Enterprises during this year, AO treated the purchases as bogus purchases. He brought to our notice that assessee has purchased from the same supplier in earlier
12 & 2365/Mum/2019 Mr. Staney Silvester Menezes assessment year also and in that assessment year, Ld. CIT(A) has sustained the addition @ 6%. In this year, Ld. CIT(A) again treated the above said purchases from the same parties as bogus but sustained addition 100% of the purchases as bogus. With regard to other disallowance, he submitted that AO cannot disallow the adhoc disallowance without there being any reason. It is a normal business expenditure incurred for the purpose of business. With regard to motor car expenses, he prayed that further relief may be granted to the assessee.
On the other hand, Ld. DR submitted that all the disallowances were made based on the report of Sales Tax Department and it is fact that all these parties were hawala operators supplied bills without making any sales. He relied on the orders passed by the revenue authorities.
Considered the rival submission and material placed on record. With regard to bogus purchase, we notice that M/s Payal Enterprises no doubt alleged as bogus purchase in the earlier year also and the disallowances were restricted to 6% of the alleged purchases by the then Ld. CIT(A). This year also, the assessee
13 & 2365/Mum/2019 Mr. Staney Silvester Menezes has purchased from the same party and this year, Ld. CIT(A) disallowed 100% of alleged purchases. In our view, there cannot be different treatment for the similar transaction. Therefore, we direct the AO to restrict the disallowance @ 6% of the purchases similar to the earlier assessment year. Accordingly, ground no. 1 raised by the assessee is allowed.
With regard to labour charges disallowed by the AO on adhoc basis, we notice that AO has made a general comment on this expenditure that these were not verifiable independently and made disallowance on adhoc basic with observation that assessee has self made vouchers and incurred expenditure in cash. It is the duty of the AO to verify the vouchers and check that whether this expenditure was actually incurred for the purpose of business or not. If it is not, he cannot proceed to disallow on adhoc basis without there being any reason. Therefore, we are inclined to treat the whole expenditure as incurred for the purpose of business. Accordingly, ground no. 2 raised by the assessee is allowed.
14 & 2365/Mum/2019 Mr. Staney Silvester Menezes 22. With regard to ground no. 3, we notice that Ld. CIT(A) has sustained the addition to the extent of 10% of the motor car expenses since there is no record on utilization of the vehicle. In our view, Ld. CIT(A) has already given substantial relief and reasonable. Therefore, we see no reason to grant any further relief to the assessee. Accordingly, ground no. 3 raised by assessee is dismissed.
Consequently, the appeal filed by the assessee is partly allowed.
In the net result, both the appeals filed by the assessee are partly allowed. Order pronounced in the open court on 18.01. 2021. Sd/- Sd/- (Vikas Awasthy) (S. Rifaur Rahman) न्याययकसदस्य / Judicial Member लेखासदस्य / Accountant Member मुंबई Mumbai;यदनांकDated : 18.01.2021 Sr.PS. Dhananjay आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. 2. प्रत्यथी/ The Respondent 3. आयकरआयुक्त(अपील) / The CIT(A) आयकरआयुक्त/ CIT- concerned 4. 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai