ACIT 9(3(2), MUMBAI vs. G.L. CONSTRUCTIONS P.LTD, MUMBAI

The present appeal filed by the revenue is directed against the order passed by the CIT(A)-16, Mumbai, dated 24.08.2016, which in itself arises from the order passed by the A.O under Sec.143(3) r.w.s. 147 of the Income tax Act, 1961 (for short ‘Act’), dated 30.03.2015. The revenue had assailed before us the order of the CIT(A) on the following grounds :

Briefly stated, the facts of the case are that the assessee company which is engaged in the business of a civil contractor had had filed its return of income for A.Y. 2009-10 on 29.09.2009, declaring total income of Rs.3,73,64,826/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. The case of the assessee was thereafter taken up for scrutiny assessment and its income was assessed u/s 143(3) on 13.06.2011 at Rs. 3,18,38,780/-. Subsequently, on the basis of information received by the A.O from the Sales Tax Authority that the assessee company was involved in bogus purchase/hawala transactions during the year under consideration, the case of the assessee was reopened under Sec. 147 of the Act. The assessee in compliance to the notice under Sec. 148 requested that its original return of income may be treated as the return of income filed in response to the same.

The A.O while framing the assessment observed that survey proceedings under Sec. 133A of the Act were conducted by the DDIT(Inv.), Unit-IV(4), Mumbai on 07.06.2012 at the office premises of the assessee company at 304, Gokul Arcade-B, Subhash Road, Near Garware, Vile Parle (East), Mumbai. That during the course of the survey proceedings the Managing Director of the assessee company, viz. Sh. Sunil Mathreja in his statement admitted to have generated cash by booking bogus purchases. That Sh. Sunil Mathreja on being called upon to describe the process through with the share capital was raised by the assessee company, admitted that the share capital appearing in the books of account were just entries which the assessee company had procured from the respective parties after providing equivalent amount of cash to them. The A.O observed that the assessee during the course of the survey proceedings had admitted of having booked bogus purchases in order to meet out certain expenditure which were incurred for smooth running of business, but however, the same did not qualify for the claim of deduction as a business expenditure under the provisions of the Income Tax Act. The A.O observed that the assessee on the basis of his aforesaid revelations had came up with an offer of additional income of Rs. 6,50,00,000/- for A.Ys 2010-11, 2011-12 and 2013-14. However, on a subsequent date i.e. 27.12.2012 Sh. Sunil G. Mathreja by way of a sworn affidavit retracted his earlier statement recorded in the course of the survey proceedings on 07th/08th June, 2012.

That during the course of the assessment proceedings the A.O on the basis of the information received from the Sales Tax Department that the assessee had made bogus purchases from the following parties :-

The A.O in the backdrop of the aforesaid facts directed the assessee to prove the authenticity of the purchase transactions under consideration and place on record documents evidencing the transportation of the goods and consumption of the same in the course of its business. The assessee in compliance to the directions of the A.O submitted a certificate of Mumbai Metropolitan Region Development authority (for short ‘MMRDA’) and the Authorized Certified Lab/Agency to show that the materials had been consumed as per the formula specified in the contract document, which would not had been possible had the above purchases been bogus. The assessee in order to drive home the genuineness of the purchase transactions under consideration, submitted that the payments were released to the assessee by the Government and MMRDA etc. after detailed inspections of the roads constructed by it, which thus irrefutably proved that the materials purchased had been consumed P a g e | ACIT Vs. M/S G.L. Constructions Pvt. Ltd. in the execution of the contract works of construction of roads by the assessee. The assessee taking support of the fact that the payment of the purchase consideration to the aforementioned supplier parties was made vide account payee cheques, thus, tried to fortify its claim as regards the veracity of the purchase transactions under consideration. The assessee further in order to dispel the doubts raised by the A.O as regards the genuineness of the aforementioned parties, submitted that all of the said parties were registered under the Sales Tax and VAT, which fact could safely be gathered on a perusal of their respective invoices. However, the A.O was not persuaded to accept the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties, for certain reasons, viz. (i) the assessee had failed to produce stock register or transport details, lorry receipts, delivery challans etc. which would prove that the goods purchased were actually delivered to the assessee; (ii) that Sh. Sunil Mathreja, the Managing Director of the assessee company in his statement recorded during the course of survey proceedings had admitted of having made bogus purchases; (iii) that the supplier parties from whom the assessee had claimed to have made purchases were blacklisted by the Sales Tax (Vat) Department, State government of Maharashtra as hawala dealers who were merely issuing bills/invoices to various parties without any actual supply of goods/material; (iv) that as per the information received from the Sales Tax Department the assessee was one of the beneficiary of the aforesaid hawala transactions; (v) the assessee had failed to bring on record relevant documentary evidence in the form of goods received note (GRN), goods/survey inspection report, installation report, work completion note, lorry receipts and details of transportation of goods and documentary evidence reflecting the relevant entries of having received and consumed such goods in the premises of the assessee; P a g e | ACIT Vs. M/S G.L. Constructions Pvt. Ltd. (vi) the hawala parties had admitted in their statements recorded before the Sales Tax Authorities that they had not done any genuine business and had merely issued bogus sales bills; (vii) that the assessee did not produce any of the abovementioned supplier parties for examination, specifically when it remained as a matter of fact that neither of the said parties were existing at the given addresses. The A.O further observed that though Sh. Sunil Mathreja had in his statement claimed that the delivery challans were destroyed as a matter of routine practice in the last 5-6 years, however, the said claim militated against the fact that the Sales Tax Department in the course of the search conducted at the premises of the assessee company had laid their hands on the copies of the delivery challans which were available with the assessee. The A.O on the basis of his aforesaid observations, holding a conviction that the assessee had failed to establish the genuineness of the purchases which were claimed to have been made from the aforementioned parties, therefore, disallowed the bogus purchases aggregating to Rs. 5,03,85,966/- and added the same to the returned income of the assessee.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). That before the CIT(A) the assessee furnished copy of stock register along with the details of consumption of the material purchased, details of opening work in progress, closing work in progress, stock statement as on 31.03.2008 and 31.03.2009 and the consumption formula required as per the Government books. The CIT(A) after deliberating on the material placed on record by the assessee, observed that the assesses own case for A.Y. 2010-11 involving identical facts was adjudicated by the Tribunal in ITA No. 2269/Mum/2015. The CIT(A) observed that the Tribunal while disposing of the aforesaid appeal of the assessee had after considering P a g e | ACIT Vs. M/S G.L. Constructions Pvt. Ltd. at length the material placed on record concluded that now when the assessee had proved the consumption of the material in the course of the execution of contracts for construction of roads for Government and MMRDA, which were subject to strict inspection on the part of the said authorities, therefore, there remained no occasion for disallowing the entire amount of purchases claimed by the assessee to have been made from the aforementioned parties. The CIT(A) observed that the Tribunal keeping in view the totality of the facts and circumstances of the case vis-a-vis the rate of net profit shown by the assessee, in order to cover up leakage of revenue, if any, had restricted the disallowance to the extent of 2% of the aggregate of the purchases under consideration. The CIT(A) being of the view that as the facts of the case for the year under consideration, viz. A.Y. 2009-10 were pari materia to the facts as were involved in its case for A.Y. 2010-11 which had been decided by the Tribunal, therefore, followed the same and restricted the disallowance of the purchases to the extent of 2% of the alleged bogus purchases.

The revenue being aggrieved with the order passed by the CIT(A) had carried the matter in appeal before us. The Learned Departmental Representative (for short ‘D.R’) relied on the order passed by the A.O and submitted that the CIT(A) had erred in dislodging the same. The Learned Authorized Representative (for short ‘A.R’) for the assessee submitted that as the issue under consideration was squarely covered by the order passed by the Tribunal in the assesse’s own case for A.Y. 2010-11 in therefore, the CIT(A) observing that the facts and the issue involved in the case of the assessee for the year under consideration, viz. A.Y. 2009-10 remained the same, had thus rightly restricted the disallowance to the extent of 2% of the alleged bogus purchases.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that a bare perusal of the facts as had emerged from the records clearly reveals that the assessee had failed to substantiate the genuineness and veracity of the purchases claimed to have been made from the aforementioned parties which had been blacklisted by the Sales Tax Department, Maharashtra as hawala dealers who were involved in providing bogus entries without any genuine sale/supply of goods. We are of the considered view that keeping in view the substantial material which had been placed on record by the assessee before the lower authorities, viz. copy of the stock register and details of consumption and material purchased, details of opening work in progress, closing work in progress, stock statement as on 31.03.2008 and 31.03.2009 and consumption formula required as per Government books, it can safely be concluded that the purchases claimed by the assesses to have been made from the aforementioned parties were utilized by the assessee for the construction of the roads carried out by the assessee in the course of the execution of its contract works. We find that a coordinate bench of the Tribunal while disposing of the appeal in the assesse’s own case for A.Y 2010-11, wherein identical facts and issue were there before the Tribunal, had restricted the disallowance to the extent of 2% of alleged bogus purchases by observing as under :

In view of the above discussion and applying the proposition of law laid down by the coordinate bench of the Tribunal as well as High Courts referred above, we do not find any merit for disallowance of entire amount of purchases. Keeping in view the totality of facts and circumstances of the case vis-a-viz rate of net profit shown by the assessee, to cover up leakage of revenue, if any, we restrict the disallowance of purchases to the extent of 2% of the purchases of Rs. 4,88,22,753/-. We direct accordingly.”

The appeal of the revenue is dismissed.