ADDL CIT 24(3), MUMBAI vs. KISHORE G SHAH, MUMBAI

1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 2,41,03,904/- made by the Assessing officer on account of non-genuine and unproved purchases from the parties listed by the Sales Tax Department as suspicious dealers and further erred by admitting additional evidences in contravention of Rule 46A despite assessee failed to produce purchasers and proof of goods delivered to him despite several opportunities given by the Assessing officer during assessment proceedings. 1.1. 0n the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in not taking cognizance of the statement recorded during survey u/s 133A by Investigation Wing when the assessee himself had categorically admitted of taking bogus bills to inflate purchases.

Brief facts of the case are that the assessee is a Civil Contractor, filed his return of income for Assessment Year 2009-10 on 29.09.2009 declaring total income of Rs. 2,02,73,100/-. The return of income was selected for scrutiny and assessment order was passed on 29.12.2011. The Assessing Officer while passing the assessment order besides the other addition/disallowance of Rs. 2,41,03,904/- on account of non-genuine purchases from hawala dealers, the addition/disallowance on account of cash labour expenses of Rs. 3,00,000/- and Rs. 16,56,000/- and addition on account of investment in insurance policy. On appeal before the ld. CIT(A), the addition of non-genuine purchases of Rs. 2.41 Crore was deleted.

We have heard the ld. Departmental Representative (DR) for the revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. Ground No.1 & 1.1 relates to deleting the Mum 2013-Shri Kishore G Shah addition of Rs. 2.41 Crore on account of non-genuine and unapproved purchases. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR for the Revenue submits that the Sales Tax Department, Government of Maharashtra identified the suspicious dealers who have issued false/bogus bills without delivery of goods. During the assessment, the assessee was asked to furnish the name of parties from whom the assessee had made purchases during the relevant Financial Year. The assessee furnished the list of persons from whom the assessee has shown the purchases. The assessee was asked to produce the parties along with supporting evidence to establish the genuineness of purchases. The assessee failed to bring the parties and to give the delivery challan of the material.

On the other hand, the ld. AR of the assessee submits that the Assessing Officer made the addition in respect of purchases made from 17 parties of Mum 2013-Shri Kishore G Shah aggregate of Rs. 2,41,03,904/-. The Assessing Officer did not verify whether parties made supply or not. No independent verification was conducted by Assessing Officer. The Assessing Officer simply recorded that the 17 purchase parties were listed in the suspicious dealer and the assessee failed to bring those parties during the assessment. Before the ld. CIT(A), the assessee submitted that he is doing the business of road repair and maintenance work. All payments were made through cheques. All work executed by assessee is verifiable. The assessee has to execute numerous small repair works at a very short notice throughout the years. The assessee is a sub-contractor. The assessment proceeding was initiated after 2½ years from the date of purchases. In such circumstances, the suppliers were not available for which the assessee cannot be blamed or penalized. The assessee has consistently shown Net Profit @ 5.9% in Assessment Year 2006-07, 5.55% in Assessment Year 2007-08, 3.41% in Assessment Year 2008-09 and 4.29% in Assessment Year under consideration. In case the additions of bogus purchases are made, the Net Profit would increase to 23.80% which is impossible figure in the business of assessee. The presumptive rate of civil contractor is not more than 8%. The assessee furnished the copy of payment certificate issued by Municipal Corporation of Greater Bombay (MCGM). The payment shows that the assessee carried out the contract which was not possible without purchase of material. Mum 2013-Shri Kishore G Shah

We have considered the rival submission of the parties and have gone through the orders of authorities below, we have also deliberated on the various decisions relied by lower authorities. During the assessment, the Assessing Officer asked the assessee to furnish the name of the parties from whom the assessee has shown purchases during the relevant Financial Year to prove the genuineness of purchases. The assessee furnished the details of parties and the amount of purchases shown to those parties. The Assessing Officer asked the assessee to produce the parties along with the supporting documents vide order-sheet dated 19.12.2011 and fixed the hearing on 23.12.2011. On 23.12.2011 the assessee furnished the details of total purchases and contended that the assessee is carrying business of civil contractor and various kind of material are required for execution of work.

Before the ld. CIT(A), the assessee urged that the assessee executed the work of civil nature and repair of road throughout the year. Some time the material required are purchases from un-recognized sector wherein the supplier approached the assessee on the spot, in many of the cases they do not have any fixed place at the business. The supplies made by such supplier are proved by their consumption and satisfactory execution of job work. The payment received by assessee is invariably elaborate the nature of job executed and quantity of material consumed. Once the execution work, the contract is accepted and payment is received from authorities concerned after satisfaction about the quality and quantity of job, the acquisition and consumption of the material have to be accepted as a necessary collorary. As the Assessing Officer himself has not verified whether the parties have actually made the supply or not. The payments of material purchased were made through banking challan and requisite quantity of material of prescribed specification was delivered to the assessee. The assessee also showed his total turnover and Net Profit for Assessment Year 2006-07 to 2009-10. On the basis of submission, the ld. CIT(A) observed that the assessee mostly carried out road repair and maintenance work. The assessee has furnished the sample purchase bills ITA No. 995 Mum 2013-Shri Kishore G Shah against which the assessee made payment through Account Payee Cheques, which clearly indicate that parties were existing. The ld. CIT(A) further observed that Assessing Officer could have made due verification on the basis of VAT and CST Number in case genuineness were doubted. The Assessing Officer has failed to carry out necessary enquiry. The ld. CIT(A) also observed that payment certificate issued by MCGM indicates that assessee carried out 11 different activities for which payments were received by assessee. The payment certificate issued by MCGM carries unique identification number (ID). The details of breakup of payments are also available along with payment certificate. The ld. CIT(A) concluded that without acquiring the material, it is not possible for the assessee to complete the contract and to hand over the same to main contractor.

On the basis of chart of Net Profit furnished by assessee for Assessment Year 2006-07 to 2009-10 and ultimate Net Profit. The ld. CIT(A) concluded that the assessee had been consistently declared average Net Profit of 4.61%. The margin of main contractor in these respective years is 2.7%, thus, the total Net Profit declared by sub-contractor and the contractor is about 7.31%. The ld. CIT(A) further concluded that the Net Profit declared by assessee have current Assessment Year is 9.7% and main contractor is 2.58% which more than presumptive rate as per provision of section 44AD, which is 8%. The ld. CIT(A) further examined that in case the supplies treated as bogus, the Net Profit would be 23.8% which is impossible in the Mum 2013-Shri Kishore G Shah business of assessee. On the basis of record available with him, the ld. CIT(A) further concluded that Assessing Officer has completed assessment for Assessment Year 2008-09 under section 143(3) resorting the estimate of 8% of profit which includes the profit of main contractor, therefore, the Net Profit declared by assessee at 9.7% was considered which fair and reasonable.

We have further noted that during the assessment proceeding, the Assessing Officer has filed his submissions along with letter dated 10.10.2012 wherein he has mentioned that assessee is also a partner of Mahavir Construction Company, Chirag Construction and Ayush Construction. The Assessing Officer further contended that a survey action under section 133A was carried out on 07.11.2011 by ADIT, Unit-4, Mumbai and that statement of assessee was recorded. We have noted that the ld. CIT(A) considered the submission of Assessing Officer and observed that there is no evidentiary value of statement recorded under section 133A. The statement recorded must be corroborated to some other material evidence and is not a conclusive piece of evidence in itself. On the basis of submission of Assessing Officer, the ld. CIT(A) concluded that no material gathered by survey team/ADIT (Inv.) either during the survey or after survey which may show that material purchased by assessee was bogus and the assessee has inflated the purchases. The ADIT (investigation) had not make any enquiry with anyone of the alleged suspicious supplied nor did the Assessing Officer ITA No. 995 Mum 2013-Shri Kishore G Shah gather any material during the assessment. The Assessing Officer solely relied on the statement recorded during the course of survey which has no evidentiary value in absence of corroborative evidence. No material fact is brought before us nor is any contrary law brought to our notice to take the contrary view. We may further add that assessee has not furnished any additional evidence which may be said in contravention of Rule 46A. The Assessing Officer has not disputed the consumption of material at the various sides. We have also noted that the assessee has placed on record the copy of purchase bills of the parties (page no. 20 to 114 of PB), copy of confirmation of purchase party reflecting the payment made through cheques. Copy of payment certificate issued by MCGM to the main contractor. The ld. AR of the assessee has further certified that all these documentary evidences were furnished before the Assessing Officer as referred above, the Assessing Officer has not given his finding on any of the documentary evidences furnished by Assessing Officer.

We have noted that the ld. CIT(A) deleted the addition after considering the documentary evidences furnished before him and after considering the consistently declared Net Profit by assessee from Assessment Year 2006-07 onward. Considering the above factual discussion, we did not find any merit in the grounds raised by Revenue. Hence, Ground No.1 & 1.1 of the appeal is dismissed. Mum 2013-Shri Kishore G Shah

Ground No.2 relates to restricting the disallowance of Rs. 1.65 Lakhs out of addition of Rs. 3,00,000/- on account of labour expenses. The ld. DR for the Revenue supported the order of Assessing Officer. The ld. DR submits that assessee has debited expenses of Rs. 21.98 lakhs as cash labour expenses. The Assessing Officer considering the personal and none-business expenses disallowed only Rs. 3,00,000/- on reasonable basis. The ld. CIT(A) deleted the entire addition.

On the other hand, the ld. AR of the assessee submits that Assessing Officer made disallowance with observation that expenses were made in cash, therefore, on the personal inflation of expenses and none-genuine element made adhoc disallowance. The ld. CIT(A) restricted to Rs. 1.65 Lakhs holding that Rs. 3,00,000/- is to be excessive. On his observation that Rs. 3,00,000/- is 13.6% which is on higher side. The ld. CIT(A) restricted to 7.5% of the entire labour charges. 12. We have considered the submission of both the parties and have perused the order carefully. The Assessing Officer disallowed Rs. 3,00,000/- out of labour expenses on his observation for none-business expenses and the inflation of expenses cannot be ruled out. The Assessing Officer made his observation without bringing any material on record. The ld. CIT(A) after examining the percentage of disallowance restricted it to 7.5% of the total expenses. The ld. DR for the Revenue failed to bring any fact to our notice as to why 7.5% disallowance is not justified. No contrary law is brought to Mum 2013-Shri Kishore G Shah our notice. Therefore, we do not find any justification to interfere with the finding of ld. CIT(A). 13. Ground No.3 relates to deleting the addition on account of investment in insurance policy. The ld. DR for the Revenue relied on the order of Assessing Officer. On the other hand, the ld. AR of the assessee submits that Assessing Officer made addition of Rs. 12,96,000/- and Rs. 3,60,000/- being investment in insurance policy in Kotak Life Insurance on the ground that such investment were from undisclosed income. The ld. CIT(A) granted benefit of Telescoping of said addition against the addition of Rs. 15,58,690/- made by Assessing Officer in Assessment Year 2008-09. On the basis of Telescoping, the ld. CIT(A) sustained the addition to Rs. 97,310/-. 14. We have considered the rival submission of both the parties and have gone through the orders of authorities below. The Assessing Officer has made the addition on his observation that during the survey action, the assessee admitted that insurance policies were made out of undisclosed income.

In the result, appeal of the Revenue is dismissed.