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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated
12/02/2016 of the Ld. First Appellate Authority, Mumbai.
The first ground raised pertains to confirming the addition made by the Assessing Officer with respect to deduction of Rs.3,52,82,753/- u/s 80IB(10) of the Income Tax Act, 1961
(hereinafter the Act) .
During hearing, the ld. counsel for the assessee,
Shri Mani Jain along with Shri Prateek Jain, contended that the impugned issue is covered by the decision of the Tribunal for Assessment Year 2009-10 (ITA
No.3498/Mum/2013), order dated 29/04/2016. It was contended that the assessee applied for occupation certificate within time but the same was issued late by the Municipal authorities. On the other hand, the Ld. DR, Shri
Rajat Mittal, contended that the assessee sold more than one flat to the same members in violation of section 80IB(10)(f) of the Act and further the assessee combined two flats to make it habitable for the joint family.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that assessee claimed deduction of Rs.3,52,82,753/- u/s 80IB(10) of the Act. The assessee was asked to furnish the project details, time of completion, number of flats built, etc. The stand of the Revenue is that the assessee sold more than one flat to the same members in violation of section 80IB(10)(f) of the Act and further the assessee did not furnish the completion certificate from the local authorities as required u/s 80IB(10)(a) Explanation-(ii) of the Act. The assessee claimed that the completion certificate was applied within time but the same was not issued by the Thane Municipal Corporation, however, the assessee furnish the certificate from the architect, claiming that the project was complete. The assessee also furnished a certificate issued by the Water Supply Department. The Ld. Assessing Officer was of the view that the certificate from the architect and Water Supply Department cannot substitute completion certificate, therefore, the claimed deduction u/s 80IB(10) of the Act was disallowed.
2.2. Before the First Appellate Authority, the assessee furnished the sanction of development permission, commencement certificate, dated 14/12/2004 and another commencement certificate dated 13/08/2003. The certificate of the architect, letter dated 14/04/2007 requesting the town development department of the corporation to issue occupation certificate in case of VP
No.2002/123/TMC/TDD4170. It was claimed that the construction was done in accordance with the specification and M/s Archetype Consultants vide separate certificate dated 24/02/2007, 23/06/2007 and 27/10/2009 certified that 100% work on ‘Vijay Vatika’, approved by TMC vide VP
No.229/89/TMC/TDD/2005 dated 18/08/2003, is completed. The Ld. Commissioner of Income Tax (Appeal) affirmed the stand taken by the Ld. Assessing Officer.
While passing the appellate order, learned CIT(A) has observed that the assessee has not furnished the occupancy certificate/completion certificates, details of flat sold to person and also the details of commercial area built by the assessee in accordance with law.
2.3. The assessee is aggrieved and is in appeal before this Tribunal. Before adverting further, we are reproducing hereunder the relevant provision of section 80IB(10) of the Act for ready reference and analysis:-
“80IB(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2008 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,— (a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,— (i) in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; (ii) in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority; (iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority. Explanation.—For the purposes of this clause,— (i) in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; (ii) the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority; (b) the project is on the size of a plot of land which has a minimum area of one acre: Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; (c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; (d) the built-up area of the shops and other commercial establishments included in the housing project does not exceed threeper cent of the aggregate built-up area of the housing project or five thousand square feet, whichever is higher; (e) not more than one residential unit in the housing project is allotted to any person not being an individual; and (f) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:— (i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta,
(iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta. Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).”
2.4. If the aforesaid provision of the Act is analyzed, sub-clause (f) says that in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely
(i) the individual or the spouse or the minor children of such individual, (ii) the Hindu undivided family in which such individual is the karta, (iii) any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.
In the present appeal, it is claimed by the assessee that two flats have been sold to Shri Ketan, therefore, full deduction u/s 80IB(10) will not be allowable but details were not submitted of the flats sold by the assessee. However, pro- rata deduction cannot be denied to the assessee and the assessee is directed to file complete details of the flats sold to various flat buyer to compute proportionate disallowance by the Assessing Officer for which necessary verifications are to be conducted by the AO. Our view find supports from the decision from Hon'ble Madras High Court in Viswas Promoters Pvt. Ltd. vs ACIT (2013) 29 taxman.com 19 (Madras), vide order dated 02/11/2012, the Hon'ble High Court held as under:-
“The assessee is on appeal as against the order of the Tribunal relating to the assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 in T.C. No. 1014 of 2009, T.C. No. 857 of 2010 and T.C. Nos. 190, 191 and 192 of 2012 respectively. Although a composite question of law is raised in these Tax Cases, since the issues relate to the same transaction, the substantial questions of law framed in respect of the assessment year 2004-05 in T.C. No. 1014 of 2009 extracted herein, fit in with the questions raised in the other cases too and hence, is apposite to other Tax Cases. The substantial questions of law raised in respect of assessment year 2004-05 read as under: (i) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in denying under Section 80IB(10) in respect of project Agrini and Vajra for flats less than 1500 sq.ft. on proportionate basis? (ii) Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that in a consolidated residential units having more than 1500 sq.ft. And less than 1500 sq.ft., proportionate deduction under Section 80IB(1)(c) cannot be allowed for flats less than 1500 sq.ft.? 2. The assessee herein is engaged in the business of development and construction of flats. There were four projects to its credit by name Agrini, Vajra, Porkudam Phase I and Porkudam Phase II. Of these four projects, in Agrini and Vajra, the assessee had constructed and sold flats measuring less than 1500 sq.ft as well as more than 1500 sq.ft. The assessee claimed deduction under Section 80IB(10) of the Income
Tax Act (hereinafter referred to as "the Act") in respect of flats measuring less than 1500 sq.ft. of built up area and did not claim deduction in respect of flats exceeding an extent of 1500 sq.ft., i.e., for 32 flats in Agrini and one flat in Vajra exceeding 1500 sq.ft.
On a notice issued by the Officer as to why the claim of the assessee under Section 80IB of the Act on a proportionate basis should not be disallowed on account of the violation of the conditions laid down under Section 80IB(10)(c) of the Act, the assessee pointed out that it had claimed deduction only on a proportionate basis in respect of flats less than 1500 sq.ft. of built-up area; that they were marking separate records for different units and that they had not violated the conditions. The Assessing Officer viewed that the deduction under the Section being for the project as a whole and all the residential units in the project must satisfy the conditions therein, namely, built up area to be less than 1500 sq.ft., on the admitted facts as to the units having built-up area more than 1500 sq.ft., the assessee was not eligible for deduction for the entire projects Agrini and Vajra, but was only eligible for deduction in respect of the other two projects namely, Porkudam Phase I and Porkudam Phase II, where there was no violation.
Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), wherein it was specifically pointed out by the assessee that all these four independent projects were commenced at different points of time; each project was an identifiable independent project having separate plan. The assessee had not claimed any deduction in respect of the residential units having plinth area of more than 1500 sq.ft. The assessee claimed that there was no violation to reject the claim of the assessee with reference to the Units satisfying the conditions under Section 80IB of the Act in respect of each block. The Commissioner of Income Tax (Appeals) pointed out that in respect of each of the projects, separate blocks are identifiable; out of the total built-up area of 2,81,900 sq.ft. in the two housing projects, only an area of 50,610 sq.ft related to units in excess of 1500 sq.ft., which come to 19.36%. Referring to Section 80IB(10)(c) of the Act, he held that within the composite building project, if there were both eligible and ineligible Units, the assessee would be eligible to claim deduction in respect of eligible Units. Relying on the decision of the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. v. CIT [ITA No.1595/Kol/2005, dated 24.03.2006], the Commissioner of Income Tax (Appeals) pointed out that the assessee was entitled to succeed in respect of Units which satisfied the conditions of 1500 sq.ft as given under Section 80IB(10)(c) of the Act, that proportionate deduction was available to the eligible units.
Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal, which pointed out that the assessee had formulated four schemes, namely, Agrini, Vajra, Porkudam Phase II and Porkudam Phase II. These four schemes were approved by the local authorities. The Tribunal viewed that a project could not be approved in piecemeal; that the approval was for the entire project; and blocks of residential units were parts of a project and not project by itself. Since in respect of a block, the assessee did not comply with the conditions stipulated under Section 80IB(10) of the Act, all the 10 Vijay Grihanirman Pvt. Ltd.
blocks comprising in that particular project would lose the relief. Aggrieved by this, the assessee is on appeal before this Court.
6. Learned counsel appearing for the assessee placed before us the sanction given by the competent authority in respect of each of the blocks in each project and submitted that the consistent case of the assessee had been that each block is a project by itself and that the claim itself was restricted only to those Units which are less than 1500 sq.ft. Thus the view of the Tribunal that each block of residential units could not be considered as a separate project, is erroneous in law. He further pointed out that a similar relief, as had been claimed by the assessee, was granted by the Income Tax Appellate Tribunal, Calcutta Bench, in the case of Bengal Ambuja Housing Developments Ltd. (supra), which was confirmed by the Calcutta High Court in by order dated 05.01.2007. In the light of the decision of the Calcutta High Court, the Tribunal's order is wrong. Learned counsel pointed out that having regard to the decision of this Court in T.C. Nos. 1348 and 1349 of 2007 dated 10.10.2012, the assessee has to succeed on the principle of proportionality to the extent of the units satisfying Section 80IB(10)(c) of the Act in the matter of granting deduction.
7. Per contra, learned Standing Counsel appearing for the Revenue countered the claim of the assessee and placed reliance on the decision of the Tribunal.
8. Heard learned counsel appearing on either side and perused the material placed on record.
9. It is seen from the narration of facts before the Commissioner of Income Tax (Appeals) as well as before the other authorities, that in the project under the name "Agrini", separate blocks were there, the details of which read as follows:
Plinth area No. of Land area Sector Name (in sft) Units allocated Sector-I SREENIDHI 2140 48 04.65 acres Sector- SREENIDHI 1690 4 - 1A Sector-II VIMAL1 1265 40 01.04 acres
11 Vijay Grihanirman Pvt. Ltd.
Sector- MITHRA 1050 160 03.08 acres IIIA Sector- MITHRA DELUXE & 1095 36 - IIIB NIRMAL DELUXE Sector-IV NIRMAL 875 240 03.53 acres Sector-V VAANYA 650 150 01.41 acres
It is not denied by the Revenue that as far as the project "Vajra" is concerned, as in the case of Agrini, there are six blocks consisting of 24 flats. The dispute in these cases herein is on an issue as to whether the assessee has to lose the deduction in respect the entirety of the projects "Vajra" and "Agrini", solely by reason of the fact that one of the blocks developed by the appellant in this project, had flats exceeding 1500 sq.ft.
It is an admitted fact that each one of blocks had separate sanction from the competent authority. Even though the larger area comprised in the name and style of "Agrini" and "Vajra" is stated to be the master plan of the project, it is not denied by the Revenue that each block in each of the projects has its own specification; hence, had gone for planning approval by the competent planning authority. In the background of this, the question that arises for consideration is as to whether the assessee would lose its claim for deduction in respect of those blocks which satisfied the conditions under Section 80IB(10) of the Act by reason of some of the stocks not satisfying the condition under Section 80IB(10) of the Act.
12. It is not denied by the Revenue that there is no definition of the expression "Housing project" under Section 80IB of the Act. The said expression is defined under Explanation to Section 80HHBA of the Income Tax Act, which reads as under:
"Section 80HHBA. Deduction in respect of profits and gains from housing projects in certain cases.
Explanation : For the purposes of this section, (a) "Housing project" means a project for (i) The construction of any building, road, bridge or other structure in any part of India "
12 Vijay Grihanirman Pvt. Ltd.
13. Section 80IA of the Act is a specific provision which deals with deduction in respect of profits and gains from industrial undertakings or enterprises engaged in the development of infrastructural facilities such as roads, bridges and other structure as regards the grant of deduction in respect of development and construction of a housing project. Section 80IB is a specific provision in respect of profits and gains from undertakings engaged in developing and constructing housing projects other than infrastructure development undertakings. Thus, housing projects considered herein under Section 80IB refers to any building other than road, bridge or other structure. Thus, going by the definition of "housing project" to mean the construction of "any building" and the deduction under Section 80IB of the Act is hundred per cent of the profits derived in the previous year relevant to the assessment year from such housing project complying with the condition, each block in the larger project by name "Agrini" and "Vajra", has to be taken as an independent building and hence a housing project, for the purpose of considering a claim of deduction. Section 80IB(10) begins by stating:
"(10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, 2007 by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,
(a) such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,
** ** **"
Thus the undertaking qualifying for deduction under Section 80IB of the Act is an "undertaking developing and building housing projects" and the deduction is in respect of "profits and gains derived from" such housing project, satisfying the conditions stipulated in the clause therein. Thus, within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built- up area.
On the facts admitted by the Revenue, in the projects "Agrini" and "Vajra", there are number of flats which are below 1500 sq.ft., and the relevant built-up area requirement is specified under Section 80IB(10)(c) of the Income Tax Act. Thus, the built-up area in some of the flats in both these projects are in excess of 1500 sq.ft., i.e., 32 flats in Agrini and only one flat in Vajra and that the assessee had not claimed any deduction on this. We hold that the Tribunal is not correct in its view, that by reason of these Units being in excess of 1500 sq.ft., the entire claim of the assessee in respect of these two projects would stand rejected under Section 80IB(10) of the Income Tax Act. Thus, going by the definition of "housing project" under Explanation to Section 80HHBA of the Act as referred to above as the construction of "any
13 Vijay Grihanirman Pvt. Ltd. building" and the wordings in Section 80IB(10) of the Act, the question of rejection in entirety of the project on account of any one of the blocks not complying with the conditions, does not arise. Even in the case of each one of the blocks, wherever there are flats which satisfied the conditions particularly of the nature stated under Section 80IB(10)(c) of the Act, we have already upheld the case of the assessee in T.C. Nos.1348 and 1349 of 2007 dated 10.10.2012 for grant of relief under Section 80IB(10) of the Act on a proportionate basis, by following the decision of the Bombay High Court in CIT v. Brahma Associates [2011] 333 ITR 289/ 197 Taxman 459 / 9 taxmann.com 289. Thus applying the decision of this Court in T.C. Nos. 1348 and 1349 of 2007 dated 10.10.2012, we hold that the assessee is entitled to succeed both on the principle of proportionality as well as by reason of the construction on the meaning of the expression "housing project" as referring to construction of any building and the wordings in Section 80IB(10) of the Act. In the circumstances, we hold that the mere fact that one of the blocks have units exceeding built-up area of 1500 sq.ft, per se, would not result in nullifying the claim of the assessee for the entire projects. Consequently, in respect of each of the blocks, the assessee is entitled to have the benefit of deduction in respect of residential units satisfying the requirement under Section 80IB(10)(c) of the Act. In so holding, we also agree with the decision of the Bombay High Court in CIT v. Vandana Properties [2012] 206 Taxman 584/ 19 taxmann.com 316, which was decided by the Bombay High Court on similar lines as in the assessee's case before us.
In the light of the above reasoning, we have no hesitation in allowing the cases filed by the assessee in respect of assessment years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09, thereby answering the substantial questions of law in favour of the assessee, that the assessee is entitled to the claim of deduction in respect of all the blocks forming part of the projects called Agrini and Vajra, but to the extent of each of the blocks satisfying the conditions under Section 80IB(10) of the Act, the assessee would be entitled to the relief on a proportionate basis.
In the light of this Court allowing the Tax Case Appeals, nothing survives in the writ appeal filed by the assessee, viz., W.A.No.471 of 2010 as against the dismissal of the writ petition filed for rectification of the error in the order passed by the Tribunal. In the result, the Tax Case Appeals stand allowed and the Writ Appeal stands closed. Connected M.P. Nos. 1, 1, 1, 2 and 2 of 2012 stand closed. No costs.”
2.5. In the aforesaid case, the Hon'ble High Court with respect to deduction u/s 80IB(10), wherein, the assessee claimed proportionate deduction for those blocks which were less than 1500 sq. ft. area and the Ld. Assessing Officer denied deduction on the ground that each block
14 Vijay Grihanirman Pvt. Ltd. could not be considered as a separate housing project decided in favour of the assessee. The Hon'ble High Court also considered the definition of ‘housing project’ as given in section 80HHBA of the Act. It is noteworthy that while coming to a particular conclusion, the Hon'ble High Court duly considered following decisions:-
(i) Bengal Ambhuja Housing Developments Ltd. (IT Appeal No.1595 (kol.) of 2005, dated 24/03/2006 (para-4), (ii) CIT vs Brahma Associates (2011) 33 ITR 289 (Bom.)
(iii) CIT vs Vandana Properties (2012) 206 taxman 584 (Bom.)
2.6. The Hon'ble Madras High Court in CIT vs Arun Excello Foundations Pvt. Ltd. (2013) 29 taxman.com 149 (Madras), order dated 08/10/2012 on the issue whether the housing project u/s 80IB(10) includes commercial units, held ‘Yes’ and on the issue where both commercial and residential units are build held that proportionate deduction to the extent of compliance would be allowed and decided the issue in favour of the assessee. Thus, the aforesaid
15 Vijay Grihanirman Pvt. Ltd. decision from Hon'ble Madras High Court clearly comes to the rescue of the assessee, where the decision from Hon'ble Bombay High Court in the case of CIT vs Brahma Associates (2011) 333 ITR 289 (Bom.), along with other decisions, were considered, therefore, the Ld. Assessing Officer is directed to grant pro-rata deduction to the assessee, in the light of aforesaid decision in the case of Arun Excello Foundations Pvt. Ltd.(spura). The assessee is also directed to submit details of the commercial area constructed in these projects and to satisfy the Assessing Officer that it complied with approval granted in accordance with DC Regulation which shall be verified by the AO. The assessee is also directed to file copy of the application made by it with competent authority for grant of Occupancy certificate / completion certificate to be within the frame work of the outer limit provided by provisions of Section 80IB(10) which shall be verified by the AO. This ground of the assessee is partly allowed subject to verifications as directed by us.
16 Vijay Grihanirman Pvt. Ltd.
3. The next ground raised by the assessee pertains to disallowing a sum of Rs.1,21,01,531/- on account of bogus purchases.
3.1. We have considered the rival submissions and perused the material available on record. Before adverting further, if the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we deem it appropriate to consider various decisions from Hon'ble High Courts/Hon'ble Apex Court, so that I can reach to a proper conclusion. The Hon'ble Gujarat High Court in Sanjay Oilcakes Industries vs CIT (2009) 316 ITR 274 (Guj.) held as under:-
“11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings : "8.3. We have considered the rival submissions and perused the facts on record.
17 Vijay Grihanirman Pvt. Ltd.
In our opinion, the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commis sioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the con clusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank accounts in which the cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee-firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. Accordingly, an addition at the rate of 25 per cent. for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and we accordingly confirm the finding of the Commis sioner of Income-tax (Appeals)."
12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have 18 Vijay Grihanirman Pvt. Ltd.
been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law.” In the aforesaid case, the Hon'ble High Court accepted that the apparent sellers, who issued the said bills were not traceable and the goods received from parties other than the persons, who had issued the bills for such goods. The purchases were shown to have been made by making
19 Vijay Grihanirman Pvt. Ltd. payments, through banking channel and thus the apparent sellers were not genuine or were acting as conduit between the assessee and the actual seller. In such a situation, the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) as well as by the Tribunal was affirmed. Hon'ble Apex Court in Kachwala Gems vs JCIT (2007) 158 taxman 71 observed that an element of guesswork is inevitable in cases, where estimation of income is warranted.
3.2. The Hon'ble Gujarat High Court in CIT vs Bholanath Poly Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.) held/observed as under:-
“5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 metres of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter,
20 Vijay Grihanirman Pvt. Ltd. the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd).
We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed.” 3.3. Likewise, the Hon'ble Gujarat High Court in CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.) held/observed as under:-
“6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing
21 Vijay Grihanirman Pvt. Ltd. the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a particular sum or at a different sum can never be a question of law.
The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment.
Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference.
In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stated hereinabove, the said grounds of appeal
do not give rise to any question of law.
10. As regards the proposed question (B) which pertains to the deletion of addition of Rs. 7,88,590
22 Vijay Grihanirman Pvt. Ltd. made on account of inflation of expenses paid to Metal and Machine Trading Co. (MMTC), the Assessing Officer has found that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC.
11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of rates which were being charged from the assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee-company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition.
23 Vijay Grihanirman Pvt. Ltd.
The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act.
Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal
is concerned.
14. In relation to the proposed question (F) which relates to the deletion of addition of Rs. 44,54,426 made on account of purchase of crane and allowing depreciation on the same, the Assessing Officer observed that the assessee had purchased a crawler crane for an amount of Rs. 24,61,000 excluding the cost of spare parts of Rs. 14,98,490. The Assessing Officer after examining the evidence on record and considering the explanation given by the assessee, made addition of Rs. 44,54,426, Rs. 39,59,490 being the purchase price of the crane along with its spare parts and Rs. 4,94,936 being depreciation claimed by the assessee. The Commissioner (Appeals), upon appreciation of evidence on record, was of the view that the 24 Vijay Grihanirman Pvt. Ltd.
Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Income-tax Act. It was held that disallowance could only have been made in respect of expenses debited to the profit and loss account whereas in the present case the purchase of crane and spare parts of the crane and other machineries were in the nature of acquisition of capital asset. According to the Commissioner (Appeals), the disallowance could have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee.
15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon.
16. From the facts emerging from the record, it is apparent that the assessee had never claimed the 25 Vijay Grihanirman Pvt. Ltd.
cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation.
In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed.” 3.4. The Hon'ble jurisdictional High Court in the case of CIT vs Ashish International Ltd. (ITA No.4299/2009) order dated 22/02/2011, observed/held as under:-
“The question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee
26 Vijay Grihanirman Pvt. Ltd. had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs.” 3.5. The Hon'ble jurisdictional High Court in CIT vs Nikunj Eximp Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.) held/observed as under:-
“7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the 27 Vijay Grihanirman Pvt. Ltd.
Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal.” 3.6. The Hon'ble Gujarat High Court in CIT vs M.K.
Brothers (163 ITR 249) held/observed as under:-
“Being aggrieved by the aforesaid order, the assessee went in second appeal before the Tribunal. It was urged on behalf of the assessee that the transactions in question were normal business transactions and the assessee had made payments by cheques. The parties did not come forward and if they did not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion. On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has 28 Vijay Grihanirman Pvt. Ltd. also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs.”
3.7. The Mumbai Bench of the Tribunal in the case of DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum.
Trib.)(URO), identically, held as under:-
“2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the 29 Vijay Grihanirman Pvt. Ltd. parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies of the consignment, received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. After considering the assessment order and the submissions made by the assessee, FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the assessee were in confirmation with bank certificate, that the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non- genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO . “2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010- dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock,that
30 Vijay Grihanirman Pvt. Ltd. the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon’ble Bombay High Court. 2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in doubt. Thererfore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO.”
31 Vijay Grihanirman Pvt. Ltd.
3.8. The ratio laid down in the case of M/s Neeta Textiles vs Income Tax Officer 6138/Mum/2013, order dated 27/05/2013, Shri Jigar V. Shah vs Income Tax Officer (ITA No.1223/M/2014) order dated 22/01/2016, M/s Imperial Imp. & Exp. vs Income Tax Officer order dated 18/03/2016 supports the case of the assessee and the conclusion drawn in the impugned order. However, as relied by the Ld. DR, the Hon'ble Gujarat High Court in the case of N.K. Industries Ltd., etc vs DCIT (supra) considering various decisions decided the issue in favour of the Revenue and the Hon'ble Apex Court dismissed the SLP vide order dated 16/01/2017 (SLP No.(c) 769 of 2017). I find that in that case, during search proceedings, certain blank signed cheque books and vouchers were found and thus the purchases made from these concerns, were treated as bogus by the Assessing Officer.
3.9. The Hon'ble Gujarat High Court in N.K. Industries Ltd. vs DCIT (IT Appeal No.240, 261, 242, 260 and 241 of 2003), vide order dated 20/06/2016 considered the decision of the Tribunal and various judicial decisions including the 32 Vijay Grihanirman Pvt. Ltd. case of Vijay Proteins and Sanjay Oilcakes Industries ltd., M/s Woolen Carpet Factory vs ITAT (2002) 178 CTR 420 (Raj.), the Tribunal was held to be justified in deciding the case against the assessee. The Hon'ble Apex Court confirmed the decision of the High Court for adding the entire income on account of bogus purchases (SLP (C) No.s 769 of 2017, order dated 16/01/2017.
3.10. In such type of cases, broadly, the Ld. Commissioner of Income Tax (Appeal) as well as this Tribunal has followed the decisions from Hon'ble Gujarat High Court in the case of Simit P. Seth (2013) 356 ITR 451 (Guj.), CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.), CIT vs Bhola Nath Poly Fab. (P.) Ltd. (2013)
355 ITR 290 (Guj.) and various other decisions of the Tribunal and the decision of M/s Nikunj Eximp(supra) from Hon'ble jurisdictional High Court, wherein, the aggregate disallowance was restricted to 12.5%. Admittedly, there cannot be sale without purchases. The case of the Revenue is that there is bogus nature of purchases made from 33 Vijay Grihanirman Pvt. Ltd. suppliers and the parties were not found existing at the given addresses.
3.11. Admittedly, in such type of cases, there is no option but to estimate the profit which depends upon the subjective approach of an individual and the material facts available on record. During assessment proceedings, the assessee was asked to produce bills/vouchers pertaining to purchases made from Swastik Enterprises, Mukta Steels and Impex Sales Corporation. The assessee produced the bills before the Ld. Assessing Officer but no confirmation was filed. As per the Revenue, the concerned parties were not found existing at the given addresses. The Ld. Assessing Officer disallowed the purchases amounting to Rs.1,21,01,531/-. On appeal before the Ld. Commissioner of Income Tax (Appeal), the stand taken in the assessment order was affirmed. The assessee, before us, claimed that necessary bills and vouchers were duly furnished by the assessee and possibly the parties might have change their addresses, thus, confirmation could not be furnished.
Considering the totality of facts and the judicial pronouncements, discussed hereinabove, we are of the view
34 Vijay Grihanirman Pvt. Ltd. that the interest of Revenue will be safeguarded if the addition is sustained @ 12.5% of the bogus purchases. The construction could not have been completed without purchases, there is no dispute to the fact that the construction was completed by the assessee, thus, the Ld. Assessing Officer is directed to adopt the profit @ 12.5% of such bogus purchases, consequently, this ground of the assessee is partly allowed.
Finally, the appeal of the assessee is partly allowed.
This Order was pronounced in the open court in the presence of ld. representative of both sides at the conclusion of the hearing on 21/12/2017.