ADESHWER ENTERPRISES,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, THANE, MUMBAI

The only issue raised in all these appeal is against the confirmation of disallowance of approximately 15% of bogus purchases as against 100% disallowed by the AO.

The brief facts of the case for A.Y. 2008-09 are that a search action was carried out on 18.10.2010 on Chhajer Group and its associate concerns which are engaged in the business of development of commercial and residential projects. The case of the assessee was also covered under Section 132 of the Income Tax Act, 1961 (hereinafter “the Act”). The assessee had filed the original return of income on 27.06.2008 declaring an income of `53,07,105/-. Notice under Section 153A of the Act was 2 to 4338/Mum/2017 M/s. Adeshwer Enterpris issued on 12.08.2011 and it was complied with by filing return of income on 26.09.2011 declaring the same income as in the original return. In para 8.1 of the assessment order the AO observed that the Sales Tax Department had busted a racket of bogus dealers who were engaged in providing accommodation bills/invoices to various traders/beneficiaries the details whereof were uploaded on the official website. He also mentioned that information was received from DGIT (Inv) Wing, Mumbai & Pune regarding these dealers. When the assessee filed copies of extracts of purchases it was noticed by the AO that the assessee too had made purchases from several of these bogus dealers as listed by the Sales Tax Department during the year under consideration and accordingly the assessee was issued show cause notice on 19th March, 2013 as to why the same should not be disallowed which was replied by the assessee vide letter dated 20.03.2012. The assessee submitted that it has made purchases from three parties aggregating to `31,03,479/- and submitted the details of purchases, bills, vouchers, vehicle numbers and delivery challans, etc beside the details of payments. The assessee submitted that these purchases were made for the construction of various projects and the materials were duly consumed and the sales were also reflected in the books of account of the assessee. It was also stated that mere non payment of VAT/Sales Tax by the vendor do not mean that the assessee has not incurred any cost on the construction as the assessee has issued account payee cheques to various vendors who supplied material to the assessee which were also cleared. The reply of the assessee did not find favour with the AO and he finally treated the entire purchase as bogus and non-genuine and added the same to the income the assessee by framing assessment under Section 143(3) r.w.s. 153A of the Act assessing the income at `84,10,580/- vide order dated 22.03.2013. Aggrieved the assessee went in appeal before the CIT(A).

In the appellate proceedings the learned CIT(A) partly allowed the pleas of the assessee by observing and holding as under: -

The learned A.R. vehemently submitted before us that the order of the CIT(A) sustaining the addition to the extent of 15% of the bogus purchase is contrary to the facts of the case. The learned A.R. submitted that the assessee has in fact purchased goods from the market and made the payments by account payee cheques and produced before the AO the proofs of purchases of material such as delivery challans, etc. and the corresponding sales were also shown in the books of account of the assessee. The learned A.R. submitted that the assessee is following project completion method wherein profits are offered to tax only after completion of the project whereas the AO had added 100% of the bogus purchase to the income of the assessee disregarding the said system of accounting followed by the assessee. The learned A.R. further submitted that despite producing all the evidences, the AO has not done any verification and merely added the entire purchase from three parties aggregating to `31,03,479/- to the income of the assessee. The learned A.R. also submitted that the case of the assessee was covered under search action and the year under consideration has been attained finality on the date of search and the addition was not based on evidences/material seized during the search action. Therefore the assessment order passed by the AO is contrary to law.

The learned D.R., on the other hand, heavily relied on the orders of the Authorities below and submitted that the assessee was clearly found a beneficiary of bogus purchase bills and, therefore, the action of the CIT(A) confirming 15% of the said purchase is reasonable and correct and be confirmed.

We heard the rival submissions and perused the material on record. We find that the assessee is undisputedly found to be beneficiary of bogus purchase bills which during the year were to the tune of `31,03,479/- from 4 to 4338/Mum/2017 M/s. Adeshwer Enterpris three parties as published by the Sales Tax Department of Maharashtra on its official website. Moreover the AO received information from DGIT (Inv) Wing, Mumbai and Pune of the fact that the assessee is beneficiary of bogus purchase bills and is only receiving accommodation entries without receiving material physically. The assessee during the course of assessment proceedings has filed necessary details before the AO and is only after examination of the said bills the AO found that the assessee is beneficiary of bogus transactions. The learned CIT(A) sustained the addition partially at 15% of the total purchases by observing that the assessee has estimated the profit on WIP @5% which is low and thus justified sustaining of disallowance at 15%. However, in similar type of cases the Coordinate Benches have taken a view that the percentage addition should be made ranging from 2 to 12.5% depending upon the facts and circumstances of the case in order to bring to tax the savings which the assessee has made by the reason of purchase of goods from grey market when the sales/consumption is undisputed. In the present case the sales were not disputed and the method of accounting followed by the assessee is project completion, therefore, we are inclined to estimate the profit on the above purchases at 3%. Accordingly appeal of the assessee is partly allowed without deciding the issue technically and legally.

In the result, appeal of the assessee is partly allowed.

In all the other assessment years, i.e. 2009-10 to 2011-12 the assessee has raised identical issues as raised A.Y. 2008-09 except variation in amounts. Therefore our observations and decision given in the above mentioned appeal is mutatis mutandis applicable to all these appeals.

In the result, all the appeals filed by the assessee are partly allowed.