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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY
Captioned appeal has been filed by the assessee challenging the order dated 30th November 2018, passed by the learned Commissioner of Income Tax (Appeals)–22, Mumbai, pertaining to the assessment year 2011–12.
In ground no.1, the assessee has challenged the validity of re– opening of assessment under section 147 of the Income Tax Act, 1961 (for short "the Act"). Whereas, in grounds no.2 and 3, the assessee has challenged the merits of the addition/disallowance made on 2 Patkon Construction India RPvt. Ltd.
account of non–genuine purchases. Since these issues are inter– connected, I propose to deal with them together.
Brief facts are, the assessee, a resident company, is engaged in the business of civil construction. For the assessment year under dispute, the assessee filed its return of income on 30th September 2011, declaring total income of ` 11,97,841. Initially, the return of income was processed under section 143(1) of the Act. Subsequently, on the basis of information received from the external sources that certain purchases made by the assessee are non–genuine as they are in the nature of hawala transaction, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of assessment proceedings, the Assessing Officer informed the assessee that purchases worth ` 27,92,583, claimed to have been made during the year from eight parties are non–genuine as the concerned selling dealers have been identified as hawala operators by the Sales Tax Department, Government of Maharashtra. He, therefore, called upon the assessee to prove the genuineness of such purchases by furnishing various documentary evidences, such as, purchase orders, bills raised, goods received note, goods survey/inspection report, delivery challan, lorry receipt, details of payment, details of transportation of goods, etc. As stated by the Assessing Officer, in response, the assessee furnished ledger details, tax invoice, bank statement showing payment
3 Patkon Construction India RPvt. Ltd. made to the parties. The Assessing Officer, however, was not convinced with the evidences furnished by the assessee. He was of the view that the assessee could not establish the genuineness of the purchases claimed to have been made. However, he observed, since the purchases were recorded in the books of account and corresponding sales have been made, the entire purchases cannot be disallowed. Accordingly, he disallowed an amount of ` 3,49,073, being 12.5% of the alleged non–genuine purchases and added back to the income of the assessee. Though, the assessee challenged the aforesaid addition before learned Commissioner (Appeals), however, the addition was sustained.
The learned Authorised Representative submitted, the assessee undertakes contract work of various Government agencies only, such as, BHEL, BPCL, Tata Power, etc. He submitted, goods were directly supplied to the sites of the contractees. He submitted, the assessee has duly recorded the purchases and sales effected by it in the books of account. The assessee had also submitted purchase bills, ledger account copies, bank statement, etc. to establish the genuineness of purchases. Thus, he submitted, without rejecting the books of account, the Assessing Officer could not have disallowed part of the purchases. Without prejudice, he submitted, since the assessee has offered gross profit @ 9.5%, the addition, if any, be restricted to 3% being the 4 Patkon Construction India RPvt. Ltd.
difference between 12.5% estimated by the Assessing Officer and the rate of gross profit declared by the assessee.
The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, since the assessee failed to prove the genuineness of purchases, the disallowance made should be upheld.
I have considered rival submissions and perused the material on record. Though, it may be a fact that the assessee was unable to prove that purchases indeed were made from the declared sources, however, it is equally true that the Assessing Officer has accepted the fact that all the purchases have been duly reflected in the books of account no sales outside the books of account have been detected by him. Thus, it is a fact on record that the Assessing Officer has not found any discrepancy or inaccuracy in the books of account maintained by the assessee. For this reason alone, the Assessing Officer instead of disallowing the entire purchases has restricted it to 12.05% of the non–genuine purchases. The reason being, what the assessee might have gained by way of income is suppressed profit on the unproved purchases. The claim of the assessee that it has declared gross profit rate of 9.5% has not been disputed by the Revenue. That being the case, the contention of the learned Authorised
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Representative that the addition, if any, should be restricted to the difference between the profit estimated @ 12.5% and the gross profit declared by the assessee is acceptable. Accordingly, I direct the Assessing Officer to restrict the addition to 3% of the non–genuine purchases.
As regards the issue of re–opening of assessment under section 147 of the Act, in my considered opinion, since such re–opening is on the basis of information received from external sources, post processing of return of income under section 143(1) of the Act, it constitutes tangible material. Therefore, re–opening of assessment under section 147 is valid. Grounds are disposed off accordingly.
Ground no.4, having not been pressed is dismissed.
Grounds no.5 and 6, being consequential and pre–mature, are dismissed.
In the result, appeal is partly allowed. Order pronounced in the open court on 24.11.2020