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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh & Shri Rajesh Kumar
O R D E R Per Rajesh Kumar, Accountant Member :
The captioned appeals are by the Revenue against two separate orders of the CIT(A), both dated 12.08.2015, which in turn arises out of the assessment orders passed u/s. 143(3) r.w.s. 153 C of the Income tax Act, 1961, for assessment years 2010-11 and 2011-12. The assessee has raised a cross-objection for A.Y. 2011-12. Since identical issue is involved in the appeals and the cross-objection, we shall pass a consolidated order for the sake of convenience and brevity.
The Revenue has raised the following Grounds of appeal”
For A.Y. 2010-11
“1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of bogus purchases amounting to Rs.3,95,10,920/- despite the genuineness of the purchases not being proved and that the party is an acknowledged provider of accommodation entries."
2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the commission at 1% as against 6% estimated. by the AO as per the normal practice of such transaction”
For A.Y. 2011-12
“1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in restricting the disallowance of bogus purchases to the extent of 25% of such purchases despite the genuineness of the purchases not being proved and that the party is an acknowledged provider of accommodation entries.”
The assessee has not filed any appeal/Cross-objections against the order of the CIT(A) for A.Y. 2010-11, however it has filed a ground vide its application, dated 20.07.2018, under Rule 27 of the ITAT Rules, which reads as under:
“On the facts and circumstances of the case as well as in Law, the Learned Assessing Officer has erred in making additions of bogus purchases of ` 3,95,10,920/- in assessment Passed u/s. 143(3) r.w.s. 153C of the Income Tax Act, 1961, without any incriminating documents were found during the course of search.” For A.Y. 2011-12, the assessee has filed cross-objections, with the following grounds of appeal:
“1. On the facts and circumstances of the case as well as in Law, the Learned Assessing Officer has erred in making additions of bogus purchases of Rs 1,00,09,026/- in Assessment order Passed u/s. 143(3) r.w.s. 153C of the Income Tax Act, 1961, without any incriminating documents were found during the course of search.
2. On the facts and circumstances of the case as well as in Law, the Learned Assessing Officer has erred in confirming the disallowance of alleged bogus purchases to the extent of 25% of Rs 1,00,09,026/- without considering the facts and circumstances of the case.” 4. The assessee has challenged the jurisdiction issue by filing application under rule 27 of ITAT Rules for AY 2010-11 whereas cross objections were filed in AY 2011-12 challenging the jurisdiction of the AO to make additions when no incriminating materials were found during search. Now we shall decide the maintainability of the said application and adjudicate if admitted the grounds raised by the assessee vide its application, dated 20.07.2018, under Rule 27 of the ITAT Rules, for A.Y. 2010-11.
In order to understand Rule 27 of the ITAT Rules, the same is reproduced below:
“27. Respondent may support order on grounds decided against him. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”
This rule provides that the respondent who has not filed an appeal against the order of CIT(A) may support the order appealed against on any of the grounds decided against him. In the present case the assessee has challenged the jurisdiction of the AO to make addition on the ground that additions made were without jurisdiction as no incriminating materials was found during the course of search. But in the present case the respondent has not raised this issue before CIT(A) and the first appellate authority has no occasion to decide the issue against the assessee. Therefore, the respondent is not fulfilling the qualifying condition that the issue is proposed to be raised in the said application by the assessee has not been adjudicated by the CIT(A) against the assessee respondent. We are therefore of the considered view that the application moved by the assessee is not maintainable and is accordingly dismissed.
We shall take assessment year 2010-11 as the lead case. The facts in brief are that a search action u/s. 132 of the Act was carried out by the DDIT (Inv), Mumbai, in the case of M/s. Sunteck Realty Limited and its group companies, promoter & executives on 11.01.2012. The assessee, being a group company of M/s. Sunteck Realty Limited, was covered in the search. Consequently, notice u/s. 153C dated 08.02.2013 was issued and served on the assessee. In response to the notice, assessee filed return of income on 14.08.2013 declaring total income of ` 2,84,07,893/- as against ` 2,87,32,235/- filed in the original return of income on 15.10.2010. The assessee is in the business of developers, builders, and contractor.
During the assessment proceedings, the Assessing Officer found that the assessee had debited total purchases of ` 99,77,20,717/- and he was called upon to file details of said purchases, TIN, name and addresses of parties from whom purchases were made, which were duly filed by the assessee before the Assessing Officer. In the mean time the Assessing Officer received information from Sales Tax Department, Government of Maharashtra, regarding some suspicious parties supplying accommodation entries only without supplying actual material. On perusal of details filed by the assessee, the Assessing Officer found M/s.
Mahamantra Metal Alloys Pvt. Ltd., appearing in the list of bogus parties, to be one from whom assessee had made purchases amounting to `3,95,10,920/-. Therefore, the Assessing Officer added the amount of ` 3,95,10,920/ to the income of the assessee upon assessee failing to prove the genuineness. The Assessing Officer also found that the assessee had also entered into certain transactions to increase the turnover and had shown net profit of 0.87% on these transactions. Gross receipts from the said transactions were `56,43,30,406/- and gross payments to M/s. Safeco Projects Pvt. Ltd. was ` 55,93,99,782/-. The Assessing Officer observed that in the normal course assessee has earned commission of 6% but the profit shown on these transactions is 0.87%. Therefore, the Assessing Officer, after allowing set-off of the profit declared @0.87% i.e. ` 49,30,624/-, made a net addition of ` 2,89,29,200/- to the income of the assessee by framing assessment u/s. 143(3) r.w.s. 153C of the Act, vide order dated 28.03.2014.
The ld CIT(A) allowed the appeal of the assessee by deleting the additions of Rs. 3,95,10,920/- as made by the Assessing Officer towards bogus purchases and also reduced the commission on the transactions which were intended for increasing the turnover of the assessee to 1% from 6% made by the Assessing Officer after taking into account the contentions and submissions of the assessee by observing and holding as under:-
“9.14 I have carefully considered the contentions of the appellant. The AO has relied on the sales Tax website. The AO failed to prove that the purchases are bogus nor any cash trail has been established by AO. The AO also failed to make any enquiries. The AO failed to rebut the evidences led by the appellant . Even otherwise, the sales tax intimation is a general intimation. Hence, in view of the above facts of the case and the position of the law including the jurisdictional High Court and Tribunal, which would be binding on the lower authorities, the addition ofRs.3,95,10,920/- made by the AO is hereby deleted.
…. 10.3 I have carefully considered the contention of the appellant. M/s. Safco Projects Pvt. Ltd. was contractor who was doing the work of the appellant. During survey/search, Shri Vikram Chirimar of M/s. Safco P Ltd has admitted that the transaction is done @1% of turnover commission. The AO has made the addition of 6% of commission without making any enquiries or quoting comparable. In view of the statement of Shri Vikram Chirimar, the addition is restricted to 1% of commission.”
We have heard the rival contentions and perused carefully the relevant records as placed before us. We observe that the assessee has made bogus purchases to the tune of Rs. 3,95,10,920/- which were deleted by the CIT(A) on the ground that the evidences furnished by the assessee before the AO were not rebutted by the AO and thus the Assessee has discharged the onus cast upon it.
The CIT(A) further noted that the AO could not establish money trail for the said bogus purchases. We also find here the AO has not disputed the corresponding sales by the assessee meaning thereby that the assessee might have purchased the goods from grey market. We find some merit in the arguments of the ld DR that the party from whom the assessee has made purchases is undoubtedly a hawala entry provider without supplying actual materials and therefore some income has to be brought to tax on the said purchases which the assessee may have earned by way of savings made by purchasing the goods from grey market. Accordingly, we are no in agreement with the conclusion of the first appellate authority of complete deletion of the said amount. In the similar facts and circumstances the coordinate benches have been taking a consistent view of making the additions ranging from 2% to 30%. Having regards to the nature of business of the assessee and GP already returned we are inclined to direct the AO to make additions at 6% of the bogus purchases to bring to tax the profit element embedded in the said purchases.
So ground no.1 is partly allowed.
So far as the restriction of addition to 1% from 6% by the CIT(A) is concerned, the ld CIT(A) has passed a reasoned order by directing the AO to restrict the additions to 1%. The ld CIT(A) while adjudicating the case further relied on the statement of Shri Vikram Chirimar in which he admitted that said transactions for inflating the turnover were made at a commission of 1% of the turnover for which only one party was appointed i.e. Safco projects Pvt Ltd. So we do not see any reason to interfere in the findings of the ld CIT(A) on this issue as the same is based upon the correct reasoning and therefore we affirm the order of CIT(A) on this issue. Accordingly ground no 1 is partly allowed and ground no 2 is dismissed.
ITA No:5231/Mum/2015 & CO:223/Mum/2015
The revenue has filed appeal against the order of CIT(A) challenging the deletion of additions while the assessee has filed CO against the order of CIT(A) deciding the jurisdictional issue against the assessee. We will first decide the issue raised in CO whereby the assessee has challenged the jurisdiction of the AO to make additions during the assessment framed u/s 143(3) r.w.s. 153C of the Act without any incriminating materials as seized during the search. Before us, the assessee vide cross objections has raised the issue that the Assessing Officer has no jurisdiction to make the additions with regard to bogus purchase without any incriminating documents found during the course of search qua the said additions.
The learned counsel pointed out that no incriminating material was found during the course of search and, therefore, the addition made by the Assessing Officer on account of bogus purchases and also estimating the commission @6% on the transactions, which were intended to increase the turnover of the assessee only could not have been made. The assessee relied on the decisions of the Bombay high court in defence of his grounds of appeal namely CIT Vs Continental Warehousing Corporation Ltd (2015)374 ITR 645 (Bom) and CIT Vs Murli Agro Products Ltd. (2014) 49 taxmann.com 172(Bom Nag).
10. After perusal of orders of the authorities below and having heard the rival contentions, we find that the additions as made by the Assessing Officer were all on the basis of examination of records and information flowing/coming to him during the course of assessment proceedings and not based upon any seized incriminating materials as there was no such incriminating material, which was found and seized by the search party. We specifically put the question to the learned DR on this issue, but he could not give any plausible reply and only relied on the order of the Assessing Officer. We, therefore, considering the facts in totality, are of the view that when there is no incriminating material found by the search party qua the assessee and therefore, the Assessing Officer’s jurisdiction to make addition very limited to the extent and on the basis of seized materials while framing assessment u/s 143(3) r.w.s. 153C of the Act as the powers of the AO are not co-extensive as under the normal scrutiny proceedings u/s. 143(3) of the Act. The case of the assessee is squarely covered by the decisions of the jurisdictional high court in CIT Vs Continental Warehousing Corporation Ltd (supra) and CIT Vs Murli Agro Products Ltd. (supra). We, therefore, respectfully following the ratio laid down by the jurisdictional high court in the above cases, reverse the order of CIT(A) on this issue and direct the AO to delete the additions as the same are without lawful jurisdiction.
The CO filed by the assessee is allowed
Since the issues raised by the assessee in Cross Objection have been decided in favour of the assessee, consequently, the appeal by the revenue is dismissed.
As a result, application under rule 27 for AY 2010-11 is dismissed and CO for 2011-12 by the assessee is allowed and the appeal of the Revenue for AY 2010-11 is partly allowed while the appeal of revenue for AY 2011-12 is dismissed.
Order pronounced in the open court on this day of 6th September, 2018.