SANJAY TRACON P. LTD,MUMBAI vs. DCIT 13(2)(1), MUMBAI

The appeal relating to AY 2009-10 was originally disposed of by the Tribunal, vide its order dated 06-09-2017. Subsequently the order was recalled by the Tribunal, vide its order dated 05-01-2018 passed in the Miscellaneous application M.A.No.847/Mum/2017.

Since the issue urged in these three appeals is identical in nature and arises out of common set of facts, these three appeals were consolidated and were heard together. Accordingly these appeals are being disposed of by this common order, for the sake of convenience.

In all the three appeals, the assessee is challenging the order passed by Ld CIT(A) in confirming the addition relating to alleged bogus purchases made by the assessing officer.

We heard the parties and perused the record. The assessee is engaged in the business of trading in construction materials and also undertaking sub- contract works from the Contractors registered with BMC. The revenue received information from the Sales tax department of Government of Maharashtra that certain dealers are indulging in providing only accommodation bills without actually supplying materials. Those dealers were loosely classified as “Hawala dealers”. It was noticed that the assessee has purchased goods from some of such dealers. Accordingly a survey operation was conducted at the business premises of the assessee on 07-12-2012. During the course of survey, the Director of the assessee company Shri Manoj Jain declared additional income of Rs.3.00 crores for the following assessment years as detailed below:- Assessment year Additional income 2009-10 1,85,00,000 2010-11 75,00,000 2011-12 40,00,000 Accordingly the assessments of the all the three years under consideration were re-opened by the AO by issuing notices u/s 148 of the Act. In the returns of income filed in response to the notices, the assessee did not offer the additional income offered by it in survey proceedings.

In the assessment proceedings, the AO examined the issue relating to the claim of purchases made from Hawala dealers. The AO asked the assessee to substantiate the claim of purchases made from the hawala dealers. The assessee submitted that it has traded in the goods purchased from the impugned dealers and reconciled the purchases with the corresponding sales. It was submitted that it could not have made the sales without actually purchasing the goods. It was also submitted that the G.P rate declared by the assessee are reasonable and comparable. The assessee also furnished copies of bills, payment detail and reconciliation of purchases with sales. Accordingly it was submitted that it has discharged the initial onus of proving purchases.

The AO expressed the view that the initial onus to prove the purchases will always lie upon the assessee. Since the impugned dealers have been declared as hawala dealers, the AO observed that the assessee has not purchased goods from those dealers but from some other dealers. It is pertinent to note that the assessing officer has accepted the fact that the goods have entered into the hands of the assessee, but not from the impugned dealers. Accordingly he took the view that a portion of purchases should be disallowed as not proved. The AO determined the disallowance @ 25.98% of the value of bogus purchases in AY 2009-10, which worked out to Rs.1,85,00,000/-, being the additional income offered by the assessee in the statement taken during the course of survey operations.

In AY 2010-11, the AO adopted G.P rate of 23.09% on the value of bogus purchases, which worked out to Rs.40,00,000/-, being additional income offered for that year during the course of survey operations. Similarly, in AY 2011-12, the AO adopted G.P rate of 27.87% on the value of bogus purchases, which worked out Rs.75,00,000/-, being the additional income offered by the assessee in the statement taken during the course of survey operations.

The Ld CIT(A) upheld the additions in all the three years, since (a) the assessee had surrendered the additional income during the course of survey operations and the statement has not been retracted.

The Ld A.R submitted that the assessee has demonstrated that the entire purchases made from the impugned parties have been sold, by producing relevant purchase invoices and sales invoices. He further submitted

On the contrary, the ld D.R supported the orders passed by Ld CIT(A).

Having heard rival contentions, we are of the view that there is merit in the contentions of the assessee. We notice that the AO has adopted different rates of rates in the three years under consideration for making disallowance and the objective of the AO appears to be to make addition to the extent of additional income surrendered by the assessee during the course of survey operations. Once it is accepted that the goods have entered the premises of the assessee and once it is shown that the said goods have been sold, then the profit element, if any, involved in such purchases alone can be brought to tax.

We notice that the Ld CIT(A) has sustained the addition, inter alia, for the reason that the assessee has surrendered the income during the course of survey operation. It is an established proposition of law that the statement taken during the course of survey operations does not have evidentiary value, meaning thereby, the income, if any, surrendered in the statement taken during the course of survey operation, has to be corroborated with any other credible evidence. Admittedly, the survey operation has taken place on 5 M/s. Sanjay Tracon Pvt. Ltd.

We notice that the AO has, in effect, estimated the Gross profit on alleged bogus purchases in all the three years under consideration under the garb of disallowing a portion of the alleged bogus purchases. We have noticed that the assessee was declaring G.P in the range of 4.49% to 11.95% over the years. We have noticed that the AO has adopted G.P rate at around 25%. Considering the facts available in record, we are of the view that the G.P rate adopted by the AO is unreasonable.

It is an undisputed fact that the primary responsibility to prove the expenditure is placed upon the shoulders of the assessee. Since the assessee has failed to obtain confirmation letters from the suppliers and since the suppliers also could not be produced before the AO, we are of the view that the assessee cannot be said to have proved the genuineness of purchases from the impugned hawala dealers conclusively. Since the goods have entered the premises of the assessee, the possible view is that the assessee might have procured the materials from some other sources and might have obtained bills from the impugned hawala dealers. In that kind of situation, the assessee might have saved money on account of VAT tax and discount, which constitutes profit element involved in the impugned purchases. In our view, the said profit element involved in the purchases made from alleged bogus purchases is required to be assessed as income of the assessee in all the three

In the result, all the three appeals of the assessee are partly allowed. Order has been pronounced in the Court on 16.05.2018.