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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: S/SHRI PRAMOD M. JAGTAP & T.R. SENTHIL KUMAR
O R D E R
PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:
These cross appeals filed by the assessee and the Revenue are against order dated 22.5.2017 passed by Ld.Commissioner of Income-tax (Appeals)-3, Ahmedabad [for short “Ld.CIT(A)] in appeal No.CIT(A)-3/Wd.3(2)/195/15-16 relating to the assessment year 2012-13.
2 2. Brief facts of the case is that, the assessee is a partnership firm engaged in the business of construction of residential and commercial apartments. For the Asst.Year 2012-13, the assessee filed its return of income declaring total income at Rs.16,33,610/- on 28.3.2013. The return of income was processed under section 143(1) of the Act on 6.5.2013. Thereafter, the case of the assessee was selected for scrutiny assessment and requisite notices were issued from time to time. The AO made addition of Rs.3,56,15,282/- on account of purchases made by the assessee from nine parties treating the purchases as bogus, non-genuine and unverifiable expenses. The AO also made another disallowance of Rs.25,000/- under section 40A(3) of the Act. Thus, the AO determined total income at Rs.3,72,73,892/- and computed tax thereon.
Against this assessment, the assessee preferred an appeal before the CIT(A). The ld.CIT(A) during the appellate proceedings admitted new documents, viz. bills, vouchers, confirmation statements filed by the assessee relating to the purchases made by the assessee with nine parties, and also called for a remand report from the AO. The ld.CIT(A) held that it was seen from the remand report that only seven summons were issued and two parties have confirmed about the sale of material totaling to Rs.1,07,24,726/-. Therefore, the addition made to this extent was untenable. As far as remaining seven parties are concerned, they have not replied to the summons issued by the department, and also following Gujarat High Court judgment in the case of CIT Vs. American Steel P.Ltd., in Appeal No.504 & 508 of 2013 dated 27.6.2013 and two more other judgments, confined the disallowance to 15% on the remaining amount of Rs.2,48,90,556/- which was worked out to 3 Rs.37,33,583/- and deemed to be disallowance in the above cases. On the second issue viz. disallowance of Rs.25,000/-, the ld. CIT(A) allowed the same as it is well covered under Rule 6DDj of IT Rules, and thereby relief has been given to the assessee.
Aggrieved against this order of the ld.CIT(A) both the assessee and the Revenue are in appeal before the Tribunal. In other words, the assessee is aggrieved by the restriction of addition to extent of 15% of disallowance, whereas the Revenue is aggrieved by deletion of addition to the extent 85% of the disallowance.
The ld.counsel for the assessee, Shri Dipak R. Shah, has filed before us a paper book running into 157 pages wherein confirmation of accounts, payments made by cheques and sales bills of nine parties were being enclosed from page nos.1 to 127. The assessee has also placed on record some information obtained under Right to Information Act viz. Building Use Permission (BU permission) issued by the Ahmedabad Municipal Corporation. The details of which are given at page no.135 of the paper book. The ld.counsel for the assessee pleaded that the flooring in the certain flats, and the installation tiles in rooms, bathrooms and kitchen were pending because they are to be installed as per the choice of the members or purchaser of the flats. With this request, BU permission has been sought from the local authorities, and the local authorities have also sanctioned the plan vide order dated 12.5.2011. The ld.counsel for the assessee has also taken us through various invoices which are imported Itallian marbles purchased from Hariom Sales, which has GST number, invoice number, delivery challan, quantity details and rate details. He also took us through the details/bills of purchases made from various parties viz. Kamdenu Marketing and Bhavi
4 Enterprise and details of purchases from Mahvir Trades, Riya Enterprise, for the items viz. treadmill, cycles, four pieces of abdominal equipments, heavy exercise equipments, cardio equipments totaling into five in numbers costing Rs.4,12,650/- which are necessary for the gymnasium facilities at the proposed construction site. However, the ld.AO has not appreciated the above purchases and concluded without making any verification, treated the same as bogus purchases, which is not in accordance with law. The ld.counsel for the assessee further submitted that evidences produced before the lower authorities are enough to prove genuineness of the purchase transaction of the assessee, and the assessee could not be held responsible for non-appearance of five parties to whom summons were issued by the AO. For the non- appearance of those entities no adverse inference should be drawn about the genuineness of the transactions. The transactions are almost seven years old, and few parties have shifted their premises to some other areas, and whereabouts of the parties are not known to the assessee. In this context, the assessee has also relied upon judgment of Hon’ble Supreme Court in the case of Anis Ahmad & Sons Vs. CIT, 297 ITR 441 (SC). The assessee has also relied upon Hon’ble Gujarat High Court judgment in the case of ACIT Vs. Vardhman Exports, in Tax Appeal No.265 of 2008 wherein the Hon’ble Court held that source of the fund was duly explained since payment was made through banking channel, thus provisions of section 69C would not be applicable in such cases. Further, from the discussion on the remand report, it was clear that there is no clear cut finding by the AO against the assessee during the remand proceedings, and the ld.AO requested the ld.CIT(A) to decide the appeal on merit as there is no adverse inference given by the AO
5 during the remand proceedings. Accordingly, the ld.AR pleaded that confirmation of addition of Rs.37,33,583/- at the rate of 15% of the purchase amount made by the Ltd. CIT(A) is to be deleted, and appeal to be allowed in their favour.
6. Per contra, the ld.DR appearing for the Revenue has supported the order of the AO and also pleaded that the ld.CIT(A) is not correct in reducing the disallowance to Rs.37,33,583/- and the entire addition ought to be sustained by the Tribunal. The ld.R, however, could not controvert the various details in the form of invoices, confirmation letters and other details filed by the assessee before the Tribunal, to support its claim. The ld.DR has not raised serious objection against the remand report filed by the AO to sustain the disallowance made by the AO.
We have given our thoughtful consideration of the material placed before us and also gone through the paper book filed by the assessee. We find that the assessee has furnished supporting bills, vouchers, challans in respect of building materials purchased from various suppliers viz. Hariom Sales, Khamdenu marketing and Bhavi Enterprises wherein different qualities of tiles, marbles, imported Itallian tiles, which demonstrated that these items were purchased for construction of flats/residential houses as per the requirement of the purchasers of the flats. The ld.AO in his remand report has not brought any adverse inference relting to the purchases made by the assessee and left it open to the ld.CIT(A) to pass order in accordance with law. Similar issue has been considered by the Co-ordinate Bench of this Tribunal in the case of ITO Vs. Balaji Builders, in with CO No.57/Ahd/2016 order dated 18.6.2018. The relevant observations of the Tribunal in this case are given in para-5 to 6, which reads as under:
“5. We have heard the Representatives of the respective parties. We have perused the relevant materials available on record. So far as the genuineness of the transaction is concerned, we are satisfied upon the method and manner applied by the Ld.CIT(A) in coming to the conclusion on the basis of the content of the remand report, other evidences and specially on the bank statement of the suppliers which was, in fact, obtained by the AO himself and we thus declined to interfere with the same. The appeal preferred by the Revenue on this ground is dismissed.
5.1. In respect of the cross objection of the assessee, we have also gone through the order passed by the Ld.Tribunal in the matter of Gujarat Ambuja Exports Ltd.(supra) as relied upon by the Ld.AR. The reason for disallowance of only 5% out of total purchase has been justified in the following manner by the Co-ordinate Bench of this Tribunal.
"Having considered all the judgments cited by both sides, we feel that in the facts of the present case, some token disallowance is to be made to take care of some possible inflation in the purchase price in respect of purchases from Vishal Traders. We hold for only a token disallowance only because of these reasons that the yield reported by the assessee is better in the present year as compared to the preceding year. It is also noted by us that as noted by learned CIT(A), the prices charged by Vishal Traders are at par with other parties and the GP/NP is better in the present year as compared to the preceding year. Hence, we fell that only a token disallowance will meet the ends of justice in the facts of the present case as noted above. Here, this question may be relevant as to when all the above factors are supporting the case of the assessee then why even a token disallowance is called for? On this aspect, we feel that there is inconsistency in the statements of three persons related with Vishal Traders and it is quite possible that some extra price is paid by the assessee to this party to obtain material and bills and hence, we feel that in totality of the facts of this case, some disallowance is justified. Now, the next question is then how much token disallowance is justified in the facts of the present case. Learned AR of the assessee has indicated for 2 - 3 % disallowance but we feel that 5% disallowance out of purchase from Vishal Traders will meet the ends of justice in the facts of the present case. We direct the assessing officer accordingly. The balance disallowance is deleted. The relevant ground of the revenue is rejected and that of the assessee is partly allowed." 5.1 We find that the facts of the case in hand is identical to that of the assessee dealt in the aforesaid judgement and therefore, the case of the assessee is squarely covered by the aforesaid decision. Taking into consideration the entire aspects of the matter and the ratio of the judgement, we think it fit to modify the order passed by the Ld.CIT(A) by disallowing 5% from 12.5% as made by him in effect Rs.8,16,362/- out of the total purchase.
In the result, the appeal of the Revenue is dismissed and Cross Objection filed by the assessee is partly allowed.”
Following the ratio laid down in the above case, we find that estimation of disallowance on purchase of materials of Rs.2,48,90,556/- at the rate of 15% is on higher side. Therefore, we restrict estimation at 5% instead of 15% as done by the CIT(A). Thus, to this extent the assessee gets the relief.
For the reasons stated (supra) the Revenue’s grounds of sustaining the entire disallowance made by the AO, cannot be accepted. Therefore, Revenue’s grounds are hereby rejected and Revenue’s appeal is dismissed.
In the result, appeal of the assessee is partly allowed, while that of the Revenue is dismissed.