ACIT 8(1)(1), MUMBAI vs. ROHINI INDUSTRIAL ELECTRICALS LTD, MUMBAI

The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in restricting the disallowance made on account of bogus purchases to 12.5% as against 100% made by the ld. AO in the facts and circumstances of the case.

We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the business of undertaking electrical contracts, instrumentation contracts for power, process, industrial and commercial projects and rendering engineering services. The assessee is a subsidiary of M/s. Voltas Ltd. The ld. AO observed that assessee had made purchases from M/s. Om Traders for Rs.10,40,156/- and the name of such supplier has been listed as a hawala accommodation entry provider as per the information given by Maharashtra Sales Tax Department. The ld. AO disregarded the entire documentary evidences submitted by the assessee to support the genuineness of the purchases and proceeded to make 100% disallowance of the same treating the same as bogus purchases in the assessment. The ld. CIT(A) appreciated the fact that assessee had provided copies of purchase orders, invoices of M/s. Om Traders giving details of materials supplied and receipt of materials at the job sites. The ld. CIT(A) observed that mere provision of purchase bills, delivery challans and the evidence of payment made by cheque will not be sufficient to prove the genuineness of the transactions with the said party. The assessee submitted before the ld. CIT(A) that the goods were directly delivered by the seller to the contract site and invoices have a stamp of “Site Register Sheet Number” which shows that the invoice was entered into the register maintained at the work site. The ld. CIT(A) gave a categorical finding that there is evidence of consumption of goods mentioned in the purchase bills of M/s. Om Traders and the consumption of the M/s. Rohini Industrial Electricals corresponding material had also been accepted by the ld. AO. Accordingly, the ld. CIT(A) concluded that the goods were purchased by the assessee from the grey market and for which bills were obtained from M/s. Om Traders, thereby leading to assessee deriving benefit in the form of non-payment of VAT etc., Hence, he held that only the profit element embedded in the value of such purchases should be brought to tax and accordingly, directed the ld. AO to add only 12.5% of the value of such purchases being the profit element thereon. Against this action of the ld. CIT(A), the assessee had not preferred any appeal before this Tribunal.

3.1. We find that in the instant case, there is no dispute with regard to consumption of goods by the assessee out of purchases made from M/s. Om Traders. Since the material purchased from alleged supplier has been actually consumed by the assessee in the business of the assessee which fact is not disputed by the revenue, we hold that the ld. CIT(A) was justified in adding 12.5% being the profit element embedded in such purchases, which in our considered opinion, does not warrant any interference. Accordingly, the ground raised by the revenue in this regard is dismissed.

The next issue to be decided in this appeal of the revenue is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of advances given to employees written off in the sum of Rs.9.67 lakhs in the facts and circumstances of the case.