DCIT CEN CIR - 1(4), MUMBAI vs. NITIN RAJMAL SHAH, MUMBAI

Aforesaid appeal by revenue for Assessment Year [AY] 2008-09 contest the order of Ld. Commissioner of Income-Tax (Appeals)-47, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-47/AP.68/15- 16 dated 26/09/2017 on following grounds of appeal:-

1 Facts on record would reveal that the assessee being resident individual stated to be engaged as contractor under proprietorship concern namely M/s Speco Infrastructure, was assessed for impugned AY u/s. 143(3) r.w.s. 147 on 31/03/2015 wherein the income of the assessee was 3 M/s. Nitin Rajmal Shah Assessment Year-2008-09 determined at Rs.255.43 Lacs after certain additions as against income of Rs.223.80 Lacs assessed u/s 143(3) r.w.s. 153A on 28/09/2011. The case was reopened by issuance of notice u/s 148 dated 17/01/2014 followed by statutory notices u/s 143(2) & 142(1). A survey action was conducted u/s 133A on 26/11/2012 in the case of M/s RPS Infraprojects Private Limited and its group concerns. The assessee’s proprietorship concern namely M/s Speco Infrastructure, being part of the group, was also covered under survey operations. It transpired that the group obtained accommodation purchase bills from various entities listed as Hawala dealers on Sales Tax website with a view to inflate the expenses and suppress the profits. The statement u/s 131 was recorded from the key persons including the assessee, the relevant extracts of which have already been reproduced in the quantum assessment order. However, the assessee subsequently retracted the answer given in question no. 5-9 of the statement.

2 The learned AO, in the light of findings in survey proceedings, show- caused assessee to justify the genuineness of purchases made from tainted / suspicious parties. The assessee, in defense, submitted that purchases were genuine since material was utilized in contract work and the payment to suppliers was through banking channels. In the alternative, it was submitted that Gross profit on tainted purchase of Rs.17.83 Lacs @8.69% amounting to Rs.1.54 Lacs may be added to the income along with additional disallowance of 4% for VAT element. Concurring with alternative submissions, Ld. AO added an amount of Rs.1.54 Lacs on 4 M/s. Nitin Rajmal Shah Assessment Year-2008-09 account of Gross profit and another amount of Rs.0.71 Lacs being 4% VAT on tainted purchases.

3 The assessee was saddled with another addition of Rs.29.37 Lacs on account of defect liability provisions. It was explained that the assessee was carrying out contract for Municipal Corporation. The contractee would retain certain percentage (usually 5%) towards defect liability on account of defect in contract work. Therefore, the gross amount was credited to Profit & Loss Account and amount retained by contractee on account of defect liability was debited to Profit & Loss Account and reflected as defect liability payable Account in the Balance Sheet. The actual expenses incurred, from time to time, on account of defect, was directly debited to the Payable Account instead of debiting the same to Profit & Loss Account. However, disregarding the explanation, the said amount was added to the income of the assessee.

The Learned CIT(A), after due consideration of factual matrix as well as assessee’s submissions reached a conclusion that only the profit element embedded in the bogus purchases was to be taxed. However, the estimation of 8.69% as made by learned AO was reduced to 7%, being rate uniformly applied by revenue to the group entities. The said working reduced the addition of Rs.1.54 Lacs to Rs.1.24 Lacs. Consequently, additional disallowance on account of VAT element as made by Ld. AO was deleted. The addition of Rs.29.37 Lacs on account of defect liability was deleted in view of the fact that no adverse view was taken in assessee’s own case for AY 2007-08 and secondly, the defect liability was neither

After careful consideration of facts and circumstances, we find that first appellate authority has clinched all the issues in the right perspective. The estimated addition of 7% was uniform rate applied to the group concerns. The addition on account of defect liability was deleted keeping in view the fact that no such additions were made in earlier years. Nothing on record would suggest that the accounting methodology being followed by the assessee, in this regard, was not consistent method of accounting. Therefore, we do not find any infirmity in the impugned order.

The appeal stands dismissed. Order pronounced in the open court on 04th October, 2019. (Saktijit Dey) (Manoj Kumar Aggarwal) "ाियक सद" / Judicial Member लेखा सद" / Accountant Member