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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-41, Pune [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
Though the case was fixed for hearing on 14.11.2019 and 19.02.2020, neither the assessee nor its authorized representative appeared before the Tribunal on the above dates. Because of non-compliance by the assessee, we are proceeding to dispose off this appeal after examining the materials
M/s G.K. Constructions Ld. Departmental Representative (DR).
The grounds of appeal filed by the Revenue read as under : i. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting addition made on disallowance of Wages aggregating a sum of Rs.10,04,90,615/-. ii. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in directing the Assessing Officer to delete the addition made on account of bogus purchase and directing that only 25% of bogus purchase of Rs.9,09,704/- may be taxed and balance of bogus purchase of Rs.27,29,110/- is deleted without any scientific basis ignoring the fact that it is a settled provision of Law that the onus is upon the Assessee to prove the genuineness of the whole of the alleged purchases.
Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2010-11 on 11.10.2010 declaring total income of Rs.35,47,539/-. During the course of assessment proceedings, the assessee filed purchase bills in respect of centering materials amounting to Rs.73,23,215/-. In order to verify these purchases, the AO issued notice u/s 133(6) to some of these parties. However, notices issued to the following parties were returned un-served by the postal authorities with the remark ‘not known’ :
Sr. Name of the Party Amount VAT TIN Sr No in the No. purchases (Rs) hawala list 1. M/s Sunrise Enterprises 8,34,800/- 27370565400V 365 2. M/s Ronak Enterprises 6,59,585/- 27790681763V 1083 3. M/s Om Corporation 6,24,000/- 27310540795V 833 Total 21,18,385/-
M/s G.K. Constructions During the course of assessment proceedings, the AO issued notice u/s 142(1) to the assessee asking to prove the genuineness of the purchases. However, the assessee failed to file any explanation. The AO considering the facts of the case made an addition of Rs.21,18,385/-.
Further, the AO issued notice u/s 133(6) to M/s Dipen Trading Company, from whom the assessee had claimed to have purchased centering materials of Rs.15,20,429/-. However, this notice was returned back by the postal authorities with the remark ‘not known’. Thereafter, the AO issued notice u/s 142(1) to the assessee to prove the genuineness of the above purchases. However, there was no compliance by the assessee. Therefore, the AO made a further addition of Rs.15,20,429/-.
The AO further noticed that the assessee had debited wages of Rs.1,56,00,500/- to the P&L account. During the course of assessment proceedings, the assessee produced wage registers for the month of April 2009 to August 2009 before the AO on16.10.2012. As far as the wage registers pertaining to the remaining period of the financial year are concerned, the assessee produced ten, which are markedly different in contents and appearance from the 3 registers produced during the course of earlier hearing pertaining to the period April 2009 to August 2009. The AO observed that those 10 registers appear to have been prepared on the same date and in the same handwriting. For these reasons, vide show cause notice dated 21.02.2013, he asked the assessee to explain as to why its books of account should not be rejected and disallowance be not made of its claim of wages. The assessee filed a reply before the AO. However, the AO was not convinced with the said reply and made a disallowance of Rs.1,20,50,615/- on M/s G.K. Constructions M/s Riddhi Siddhi Constructions engaged in similar line of business.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) by following the order of the Tribunal in the case of Vijay Protein Ltd. v. CIT (2015) 58 taxmann.com 44 (Guj) estimated the profit @ 25% on such alleged bogus purchases of Rs.36,38,814/- (Rs.21,18,385/- + Rs.15,20,429/-) which comes to Rs.9,90,704/-. Thus he deleted the balance addition of Rs.27,29,110/-.
In respect of the disallowance of Rs.1,20,50,615/- made by the AO of labour charges and wages, the Ld. CIT(A) sustained Rs.15,60,000/- with the following reasons :
“34. In the light of the above discussion, in my considered opinion, any disallowance with respect to labour charges of Rs.2,48,62,043/- as debited in the books of accounts of the appellant is not justified in the absence of any defect being highlighted in the assessment order.
As far as payments of wages of Rs.1,56,00,500/- is concerned, in my opinion some disallowance is warranted in the light of certain defects and deficiencies being highlighted by the AO in the Wages registers being maintained for different months. But certainly not to the extent as attempted by the AO. From the submission of the appellant, it is observed that during A.Y. 2013-14, in the scrutiny assessment the AO has disallowed 5% of the Wages due to various lacunas and deficiencies observed in the vouchers prepared for wages. Accordingly, the appellant has requested for disallowance to the extent of 5% of wages during the instant year too. However, it is observed from the para 24 of the assessment order that while verifying the three wages registers for the period April, 2009 to August, 2009, violation of the provisions of section 40(a)(ia) of Rs.9,62,000/- has been observed. No separate
M/s G.K. Constructions Rs.1,20,50,615/- under the head labour charges and Wages. Similar violation of TDS provisions in the subsequent months of F.Y. 2009-10 cannot be ruled out. Moreover, I find that the appellant has not made any serious attempt in explaining the defects highlighted by the AO in the assessment order pertaining to Wages Registers. Looking to the overall facts and circumstances of the issue involved and careful consideration of discrepancies highlighted in the Wages registers, a disallowance of 10% of the Wages i.e., Rs. 15,60,000/- (10% of 1,56,00,500/-) is sustained while the balance addition of Rs.1,04,90,615/- is deleted. This will take into, consideration violation of TDS provisions with respect to wages payment.”
Before us, the Ld. DR relies on the order of the AO and submits that the same may be restored.
We have heard the Ld. DR and perused the relevant materials on record. In respect of the addition towards disputed purchases, the Ld. CIT(A) has rightly followed the decision of the Hon’ble Gujarat High Court in Vijay Protein Ltd. (supra) and estimated the profit @ 25% of the purchases of Rs.36,38,814/- which comes to Rs.9,09,704/-. We are of the considered view that the Ld. CIT(A) has rightly brought to tax the profit embedded in such purchases by applying a reasonable and just estimate. We confirm the above order of the Ld. CIT(A).
In respect of the disallowance of labour charges and wages, the Ld. CIT(A) has rightly brought to tax an amount of Rs.15,60,000/- by estimating it @ 10% of the wages of Rs.1,56,00,500/-. We have extracted the reasons given by the Ld. CIT(A) at para 4 hereinabove. As the reasons given by him is based on the facts and circumstances of the case, we uphold the above order of the Ld. CIT(A).
M/s G.K. Constructions
In the result, the appeal filed by the Revenue is dismissed.