ITO 1(1)(2), MUMBAI vs. DOSTI REALTY LTD, MUMBAI

"Whether on the facts and in the circumstances of the case and in Law, the CIT(A) is correct in negating the rejection of books of account by the Assessing Officer in light of the cogent reasons mentioned by the assessing officer."

Briefly stated facts are that the AO received information from DGIT investigation Mumbai, who carried out the survey under section 133A of the Act on 21.11.2012 on the business premises of M/s Deven Ashwin Sangvi, Prop. M/s Devdhar Steel, that the assessee is one of the beneficiaries of bogus bill issued by parties. During the course of survey the statement was recorded under section 133A of the Act, wherein he admitted that he has entered into transaction of sale and purchase i.e. issuing bogus bills with the assessee company. He admitted that he has maintained transportation receipts, weighing slips, loading/ unlading receipts, delivery challans or another document to prove the delivery of goods to the assessee. The assessee has claimed that these purchases from this party is accounted for in the construction costs of the project of the assessee. The assessee disclosed the total purchase from this party at Rs. 1,81,01,412/- in its books of accounts. The AO required the assessee to explain these purchases but he was not able to prove and accordingly, the AO disallowed the same by drawing following conclusion.

The CIT(A) restricted the disallowance of bogus purchases at 4% by observing as under: - “… Respectfully following the Jurisdictional decision of Mumbai Tribunal in the case of ITO vs. Deepak Popatlal Gala 2959/Mum/2014 dated 28.11.2014 and in the case of Ramesh Kumar & Co. Vs. ACIT 21(1) (ITA No. 2959/M/2014 dated 29.11.2014, and also respectfully following the Hon’ble High Court Mumbai decision in the case of R.W. Promotions P. Ltd. Vs. ACIT 1489 of 2013, I find the addition of ₹ 1,81,01,412/- made by the AO is not sustainable and hence deleted. However, in fitness of things, I restrict the addition of ₹ 7,24,056/- being 4% of ₹ 1,81,01,412/- equivalent to MVAT rate which is not paid by the said party being suppressed profits. Accordingly, this ground of appeal is party allowed….”

We have heard the rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee stated that the assessee has made payments by account payee cheques, produced invoices and also shown consumption of the material purchase in the construction project. According to the assessee, the entire payment is made by cheque and accordingly, neither section 69C of the Act nor section 40A (3) of the Act can be invoked. The learned Counsel for the assessee requested that a reasonable estimate can be made. The learned Counsel for the assessee filed written submission and vide Para 9 of the submission he requested as under: - “9. Without prejudice to above, addition cannot exceed to 12% of alleged bogus purchase after giving credit of 4% for AY 2008-09, same AO has filed this appeal restricted addition to 12.5% in case of sale seller.

We have considered the issue and gone through the facts and circumstances of the case. We find from the facts of the case and argument of both the sides, that the AO & CIT(A) has disallowed 100% of unverifiable purchases. We have noticed from the assessment order and the order of CIT(A) that the sales/ consumption of material in construction project of the assessee are not at all doubted. Only purchases are not genuine but in regard to these purchases the assessee has made payment by account payee cheque and also included the goods in the stock register. Only the assessee could not prove the movement of goods that is transportation of goods but the sales are not doubted, in that eventuality, it is presumed that the assessee might have made purchases from grey market and obtained these bogus bills to save on account of VAT and purchases from grey market are made at a lower rate. Hence, we following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Smith P. Seth (2013) 356 ITR 451 (Guj), wherein in similar