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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-44, Mumbai, dated 12.06.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short ‘Act’), dated 26.02.2015 for A.Y. 2009-10. The assessee has assailed the order of the CIT(A) on the following grounds of appeal:
1. The CIT(A) failed to appreciate that all purchase of the appellant were genuine and duly supported by evidence. Therefore the addition sustained @ 12.5% of purchases is bad in law.
P a g e | Mira Construction Vs. ACIT-32(2) 2. The CIT(A) failed to appreciate that the AO did not carryout any independent enquiry himself and did not point out any defect in the evidence furnished by the appellate. Therefore the addition is liable to be deleted.
3. The CIT(A) failed to appreciate that the AO had not provided the appellant any material on which he placed reliance making the impugned addition thereby violating the principles of nature justice. The AO ought to have provided such material to the appellant before making the impugned addition. Therefore the addition is not justified.
The impugned addition is made as unexplained expenditure 69C of the Income Tax Act without any specific evidence, hence to be deleted.” 2. Briefly stated, the assessee firm which is engaged in the business of a civil contractor had e-filed its return of income for A.Y. 2009-10 on 30.09.2009, declaring its total income at Rs.83,78,820/-. Assessment under Sec. 143(3) was framed on 29.12.2011, determining its total income at Rs. 1,90,51,230/-. Subsequently, on the basis of information received by the A.O that the assessee as a beneficiary had obtained bills of bogus purchases aggregating to Rs. 1,68,85,006/- from 19 parties, the case of the assessee was reopened under Sec. 147 of the Act. The assessee in compliance to the notice issued under Sec. 148 filed its return of income.
During the course of the assessment proceedings it was observed by the A.O that the assessee had claimed to have made purchases from the following 19 parties :
TIN NO. NAME OF THE PARTY AMOUNT 27160650342V Vinayak Trading Co 17,479/- 27490615192V Shubhlaxmi Sales Corp. 4,29,945/- 27950562074V S S Enterprises 3,23,596/- 27830560491V Siddhivinayak Trading Company 20,57,816/- 27760622173V Dhruv Sales Corporation 2,50,835/- 27760618778V Shree Enterprises 10,95,313/- 27750595164V Deep Enterprises 77,63,568/-
P a g e | Mira Construction Vs. ACIT-32(2) 27660660931V Shree Sai Trading Co. 10,12,253/- 27540616280V Navdeep Trading Corporation 4,47,482/- 27520270001V Rekha Trading Co. 14,87,640/- 27020257763V Darshana Corporation 7,65,652/- 27400626348V Renuka Sales 14,63,072/- 27390325605V River Gold Elevators 23,76,796/- 27370530092V Kashvi Enterprises 22,726/- 27020044072V Takshil Trading Pvt. Ltd. 31,824/- 27210561220V National Trading Co. 3,01,520/- 27300637267V K R C Trading Co. Pvt. Ltd. 11,10,873/- 27100503032V Deepali Enterprises 19,10,381/- 27450262425V Raj Traders 10,16,235/- Total 1,68,85,006/- As the case of the assessee was reopened on the ground that it had procured bogus purchase bills, therefore, the assessee after perusing the copy of the reasons to believe, therein placed on record certain documentary evidences in its attempt to fortify the authenticity of the purchase transactions under consideration viz. (i) copies of the ledger accounts of the aforementioned nineteen parties; (ii) copies of the purchase bills; (iii) copy of the stock register; and (iv) copy of the bank statements evidencing payment of the purchase consideration to the aforesaid nineteen parties by account payee cheques. Insofar the production of the delivery challans was concerned, it was submitted by the assessee that by way of a consistent practice the same were not retained by it after the account books were audited by the auditor. Accordingly, the assessee submitted that it was not in a position to produce the delivery challans in respect of the goods which were purchased from the aforementioned parties.
4. The A.O in order to verify the authenticity of the purchases claimed by the assessee to have been made from the aforementioned
P a g e | Mira Construction Vs. ACIT-32(2) 19 parties issued notices under Sec. 133(6) to them, which however were returned back unserved by the postal authorities. In the backdrop of the aforesaid facts, the A.O was of the view that the assessee had failed to discharge the onus cast upon it as regards proving the authenticity of the purchases made from the aforementioned parties on the basis of clinching evidence. In fact, the A.O was of the view that mere filing of the copies of ledger accounts, bills, stock register, bank statements and details of consumption of material in no way established the fact that the parties from whom purchases were claimed to have been made actually existed. The A.O was of the view that as the assessee had failed to submit the delivery challans, transportation bills, octroi receipts, proof of receipt of goods and also not produced the parties, therefore, the genuineness of the purchase transactions had remained unproved. At the same time, it was observed by the A.O that the assessee had correlated the corresponding contract receipts from MCGM for the job executed, as against the purchases claimed to have been made from the aforementioned parties. Also, it was observed by the A.O, that the income arising from the aforesaid contract receipts was shown and offered by the assessee in its profit and loss account. On the basis of the aforesaid facts, the A.O was of the view that the assessee had purchased the goods from the open/grey market at a discounted value, and not from the aforesaid 19 parties from whom only accommodation bills were obtained. Accordingly, the A.O holding a conviction that the assessee had inflated its purchases, therefore, on an estimate basis made an addition @ 12.5% of the aggregate value of purchases of Rs. 1,68,85,006/- which were claimed by the assessee to have been made from the aforementioned parties. As a result thereof, the A.O made an addition of Rs. 21,10,626/- [12.5% of Rs. 1,68,85,006/-] as an unexplained expenditure under Sec. 69C.
P a g e | Mira Construction Vs. ACIT-32(2)
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee declined to interfere with the observations, and the view taken by A.O. Accordingly, the appeal filed by the assessee was dismissed.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. Rival contentions have been heard, and the orders of the lower authorities and the judicial pronouncements relied upon by them have been perused. Admittedly, as is discernible from the orders of the lower authorities, the assessee had absolutely failed to substantiate the genuineness and veracity of the purchases aggregating to Rs. 1,68,85,006/- which were claimed to have been made from the aforementioned 19 parties. Insofar the documentary evidence that was produced by the assessee in the course of the assessment proceedings viz. (i) copies of the ledger accounts of nineteen parties; (ii) copies of the purchase bills; (iii) copy of the stock register; and (iv) copy of the bank statements evidencing payment of the purchase consideration to the aforesaid nineteen parties vide account payee cheques is concerned, we are in agreement with the view taken by the lower authorities that the same did not substantiate the authenticity of the purchase transactions under consideration to the hilt. In fact, we are persuaded to subscribe to the view taken by the lower authorities that the assessee had failed to discharge the onus as regards proving the genuineness of the purchase transactions under consideration. We find, that not only the assessee had failed to place on record delivery challans, transportation bills, octroi receipts, proof of receipt of goods etc., but it had also failed to produce the aforesaid parties for examination by the A.O in the course of the assessment proceedings. Apart there from, all the notices
P a g e | Mira Construction Vs. ACIT-32(2) issued under Sec. 133(6) by the A.O to the aforementioned parties are also found to have been returned unserved by the postal authorities. On the basis of the aforesaid facts, we are in agreement with the lower authorities that the assessee had not made any genuine purchases from the aforementioned 19 parties. At the same time, we find no infirmity in the view taken by the A.O that as a correlation between the purchases made from the aforementioned parties and the corresponding contract receipts from MCGM for the jobs executed is discernible from the records, therefore, it can safely be concluded that the goods were actually purchased by the assessee. However, as the assessee had not been able to prove that it had purchased the goods from the aforementioned 19 parties, therefore, the lower authorities had every good reason to conclude that the same were purchased by the assessee from the open/grey market at a discounted value. As regards the estimation of the profit element involved in making of the purchases by the assessee from the open/grey market, we find, that the same had been estimated by the lower authorities @ 12.5% of the aggregate value of purchases of Rs. 1,68,75,006/-which were claimed by the assessee to have been made from the aforementioned 19 parties. In our considered view, the assessee by purchasing the goods from the open/grey market would definitely have saved on the VAT element and also certain other ancillary benefits arising therefrom. However, the variety of goods claimed by the assessee to have been purchased from the aforementioned 19 parties would involve divergent VAT rates below 12.5%. Accordingly, addition at a flat rate of 12.5% of the aggregate value of the purchases made by the assessee from the aforementioned 19 parties is on the higher side. In the totality of the facts involved in the case of the assessee before us, in our considered view, the addition can fairly be restricted to the extent of the VAT rate that was applicable on the goods that were purchased by the assessee
P a g e | Mira Construction Vs. ACIT-32(2) from the aforementioned nineteen parties during the year under consideration. Accordingly, we set aside the matter to the file of the A.O for reworking the addition in the hands of the assessee, in terms of our aforesaid observations. Needless to say, the assessee shall during the course of the set aside proceedings file with the A.O the bifurcated details of purchases which were claimed to have been made from aforesaid 19 parties, along with their respective VAT rates as were applicable during the year under consideration. Accordingly, the A.O shall after necessary verification rework the addition towards the profit element involved in purchases of Rs. 1,68,85,006/- claimed by the assessee to have been made from the aforementioned 19 parties. The order of the CIT(A) is modified in terms of our aforesaid observations.
The appeal of the assessee is allowed for statistical purpose in terms of our aforesaid observations.