DCIT 10(2)(2), MUMBAI vs. MIRAJ ELECTRICAL & MACHANICAL CO. P.LTD, MUMBAI

The above titled appeals by the Revenue and cross appeals by the assessee have been preferred against the order dated 27.02.2017 & 06.03.2017 of the Commissioner of 2 3464, 3472 & 4178/M/2017 & ors. M/s. Miraj Electical & Mechanical Co. Pvt. Ltd. Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2009-10, 2010-11, 2011-12 & 2012-13. First we take up the appeal of the Revenue.

The grounds raised

On the facts and circumstances of case and law the Ld CIT(A) erred in confirming the assessment order under section 143 sub section r w s 147 of income tax Act which is passed against the principal of natural justice. 4. The Ld CIT(A) erred in rejecting the books of accounts under section 145(3) of the Income Tax Act. 5. The Ld CIT(A) erred in treating Rs.9,76, 167/- being 25 percent of the total purchases of Rs.39,04,666/- as bogus non-genuine expenditure and thereby erred in adding the same to the total income of the assessee. 6. The Ld. CIT(A) erred in confirming the disallowing of Rs.4,619/- u/s 14A read with Rule 8D of the I.T. Act and added the same to the total income of the assessee. 7. The Ld. CIT(A) erred in confirming the charging of interest under section 234B, 234C and 234D of the Income Tax Act 1961. 8. The Ld. CIT(A) erred in confirming the initiation of the penalty proceeding under section 271(1)(c) of the Income Tax Act 1961. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.

The Ld. A.R. at the outset submitted before the Bench that the similar issue came up before the co-ordinate bench of the Tribunal in assessee’s own case in & 3612/M/2017 for 2009-10 and 2010-11 which was partly allowed by the co-ordinate bench of the Tribunal in favour of the assessee. The Ld. A.R. submitted that since the facts of the case are identical and therefore the present appeals are also be decided following the same analogy.

The Ld. D.R., on the other hand, relied on the ground of appeal filed by the Revenue.

We have heard the rival submissions of both the parties and perused the material on record. The facts in brief are that the AO during the assessment proceedings found that the assessee has made purchases from 8 parties as mentioned in the para 6 of the assessment order aggregating to Rs.39,04,666/-. The said parties were listed in the hawala racket as brought out by the Sales Tax Department, Government of Maharashtra qua which the assessee could not furnish the necessary details/evidences such as addresses, VAT, TIN copy of bills etc. and the entire purchases of Rs. 39,04,666/- were added to the income of the assessee while framing the assessment beside adding the GP on the said purchases and also the commission paid for arranging such bogus purchases and thus resulted into a total disallowance of 4 3464, 3472 & 4178/M/2017 & ors. M/s. Miraj Electical & Mechanical Co. Pvt. Ltd. Rs.40,99,900/-. Ld. CIT(A), in the appellate proceedings sustained the addition partly equal to 25% of the total bogus purchases of Rs.39,04,666/- which worked out to Rs. 9,76,176/-and now the assessee is in appeal before us. After perusing the decision of the co-ordinate bench of the Tribunal, we find that the identical issue was also involved in ITA No.3611 & 3612/M/2017 for A.Y. 2009-10 & 2010-11 wherein the co-ordinate bench of the Tribunal has partly allowed the appeals by directing the AO to make the addition by applying 11.50% of the bogus purchases minus VAT credit denied to the assessee by the Sales Tax Department. The operative part of the decision is reproduced below: “5.4.We have heard the rival submissions and perused the material on record. We find that in the present case the assessee has availed bogus bills of purchases from 10 parties amounting to Rs.2,72,13,601/-. During the assessment proceedings, the assessee produced before the Assessing Officer the bills, vouchers, delivery challans, bank statements, quantitative detail of purchases, goods manufactured and sold. However, assessee could not produce parties before the Assessing Officer for cross verification. The notice issued to these parties were either not served or were not replied to and hence, the Assessing Officer added 100% of the bogus purchases to the income of the assessee. The Ld.CIT(A) reduced the addition to 25% of the bogus purchases by observing that in case of hawala purchases where bills are obtained from hawala traders and simultaneously the goods are purchased from the grey market thereby saving VAT and other incidental charges. We also observed that the Assessing Officer has not doubted the sales of the assessee. During the course of hearing the ld.AR brought to the notice of the Bench that in the AY 2009-10, the assessee had made payment of Rs.24,61,874/- towards VAT on the purchases from hawala dealers and sales tax department has disallowed VAT credit from the hawala parties to the tune of Rs.24,61,874/-. The ld. Counsel for the assessee also submitted that disallowance made by Assessing Officer is inclusive of VAT and further the credit of VAT was denied by the sales tax department and raised a demand which was recovered from the assessee. We find merit in the submission of the ld.AR that the sustenance of 25% of bogus purchases is excessive and unreasonable particularly when the VAT credit was not allowed to the assessee by the sales tax department and demand of VAT on behalf of hawala suppliers was realized from the assessee. If we look at the gross profit disclosed by the assessee, it is 16.78 % which is much more than the disallowance @ 11.50% which is normally made by the coordinate benches in the case of hawala purchases. But to discourage the practice of bogus trading some deterrent has to be there. In the present

In the present case, we find that the GP declared by the assessee is 19.55% and the VAT credit denied to the assessee is Rs.2,34,075/-. We, therefore, following the order of the co- ordinate bench of the Tribunal direct the AO to restrict the addition equal to 11.50% of the bogus purchases minus VAT credit denied to the assessee. In other words 11.50 % of purchases comes to Rs.4,49,037/- and VAT credit denied to the assessee by VAT department is Rs.2,34,075/- and thus the addition of Rs.2,14,962/- is confirmed thereby deleting the addition of Rs.7,61,205/-. The appeal of the assessee for A.Y. 2012-13 is partly allowed.

The issues involved in these appeal are identical to ones as decided by us in &4178/M/2017 and therefore our findings in the said appeals would ,mutatis mutandis, apply to this appeals as well. Therefore, the appeal

In the result, the addition is sustained to the extent of Rs.1,83,460/- which is calculated by applying 11.5% of the bogus purchases which comes to Rs.23,70,953/- minus VAT credit denied to the assessee of 21,87,493/-. (A.Y. 2009-10) & 3464/M/2017 (A.Y.2010-11)

The appeals filed by the assessee against the order of CIT(A) for the assessment years 2009-10 & 2010-11 in 3612/M/2017 were partly allowed in favour of the assessee vide order dated 27.09.2017 in the assessee’s appeals while the revenue appeals were not adjudicated as these were not clubbed with the assessee’s appeals for these years . The said appeals of the Revenue are dismissed in view of our order passed in the above appeals. In the result, the appeals of the Revenue are dismissed.

In the result, all the appeals of the Revenue are dismissed and the appeals of the assessee are partly allowed.