DOLCHAND KALLAJI & NARESH TRADERS (JV),MUMBAI vs. ASST CIT CEN CIR 13, MUMBAI

Brief facts of the case are that the assessee engaged in the business of civil construction, filed its return of income for the A.Y. 2009-10 declaring the Assessment Years: 2009-10 & 2010-11 total income of Rs. 1,44,78,064/-. The return was processed u/s 143 (1) of the Act. Subsequently, on the basis of information received from Maharashtra Sales Tax Department through DGIT (Inv.) to the effect that assessee has obtained accommodation/fictitious bill from bogus entities M/s Centurian Sales Corporation and M/s K.K. Trading Company to the extent of Rs. 45,27,177/-, the assessment was re-opened u/s 147 of the Act. In response to notice u/s 148 the assessee asked for reasons for reopening its case. Accordingly, the reasons were provided and notice u/s 143 (2) and 142 (1) along with questionnaire were issued to the assessee. Accordingly, the authorized representative of the assessee attended the proceedings and discussed the case. During the re-assessment proceedings, the assessee furnish, the list of persons from whom purchases were made during the previous year. In the said list name of the suspicious dealers were also there, who had issued bogus bills without delivering any goods or material. After going through the material supplied by the Maharashtra Sales Tax Department and after hearing the assessee, the AO came to the conclusion that the assessee had obtained bogus bills from 7 parties mentioned in the assessment order and the said parties returned the payment in cash to the beneficiaries including the present assessee after deducting their commission. During assessment proceedings no reply was received by AO in response to the notices issued to the parties concerned u/s 133 (6) of the Act. The assessee also failed to produce the parties for verification. The AO supplied all the incriminating documents received from the Sales Tax Department to the assessee and asked to explain as to why Rs. 1,64,69,137/- i.e. the amount of bogus purchases should not be treated as unexplained expenditure. The assessee contended that the entire purchase made from the concerned parties were genuine. However, rejecting the contention of the assessee the AO made addition of Rs. 1,64,69,137/- to the income of the assessee holding the entire purchases as bogus and unexplained expenditure u/s 69C of the Act. Assessment Years: 2009-10 & 2010-11

The assessee has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-

We have heard the rival submissions and also gone through the material on record including the cases relied upon by the authorities below. Basically, the assessee has challenged the impugned order on two grounds that i) the AO had wrongly initiated the reassessment proceedings and the Ld. CIT (A) has wrongly affirmed the action of the Ld. CIT (A) and ii) the Ld. CIT (A) has wrongly held the entire purchases as bogus and wrongly directed the AO to make addition of the entire amount of bogus purchases to the income of the assessee.

So far as the first ground is concerned, we notice that the AO has initiated re-assessment proceedings on the basis of information received from the Maharashtra Sales Tax Department through DGIT (Inv.) to the effect that the assessee had obtained bogus bills/entries from different entities, who were indulged in issuing bogus bills to various parties without delivering any goods. In Income Tax Officer Vs. Purushottam Das Bangur and another 224 ITR 362, the Hon’ble Supreme Court has held that ITO was justified in reopening the assessment u/s 147(b) on the basis of letter written by Dy. Director of Inspection (Investigation) to jurisdictional IAC containing relevant facts and information. In the said case, notice was issued by the ITO on the basis of letter/information received from DDI (Inv.). In the light of the verdict of the Hon’ble Supreme Court, there is no merit in the contention of the Ld. counsel. Hence, we do not find any infirmity in the action of AO in initiating proceedings u/s 147 Assessment Years: 2009-10 & 2010-11 of the Act. We therefore uphold the findings of the Ld. CIT (A) and dismiss this ground of the appeal of the assessee.

Vide Ground No. 2 to 5 the assessee has challenged the action of the Ld. CIT (A) in holding the questioned purchases as bogus and further addition of the entire amount to the income of the assessee. We notice that apart from the other documents, the assessee has submitted the payment certificates and measurement books to establish that the material purchased were used in construction work. However, in our considered view the said fact does not establish that the purchases were made by the assessee from the parties concerned. In fact this is the case of the AO that the questioned purchases were not made from the parties concerned. On the other hand, there is sufficient evidence to conclude that the parties from whom the assessee has alleged to have made purchases had not supplied any goods to the assessee. Under these circumstances, it can be concluded that the assessee had purchased the material from the parties other than mentioned in the assesee’s books of account and in this process the assessee did not pay the VAT and other local taxes applicable during the relevant period. Hence, in view of the facts and circumstances of the case, 100% disallowance is not justified.

We further notice that the AO has not rejected the books of account. Since, the AO has not rejected the consumption of material in the relevant year, the entire amount of purchases cannot be added to the income of the assessee as there cannot be any construction without construction material. If the assessee had not purchased the goods in question from the parties concerned, it implies that purchases were made from some other sources other than those mentioned in the books of account. Hence, there is no justification in making addition of the entire amount of bogus purchases determined by the Assessment Years: 2009-10 & 2010-11 AO. Under these circumstances, the Ld. CIT (A) ought to have made addition keeping in view the profit element embedded in the purchases in question.

The Hon’ble Bombay High Court In CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. 372 ITR 619 (Bom), while upholding the decision of Mumbai Tribunal, has observed that merely because the suppliers had not appeared before the Assessing Officer or the CIT (A) one could not conclude that the purchases were not made by the respondent/assessee. The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, following the principles law laid down by the Hon’ble High Courts of Bombay and Gujarat, discussed above, we modify the order of the Ld. CIT(A) and sustain the addition of 12.5% of the total amount of bogus purchases. We therefore, partly allow this ground of appeal of the assessee and direct the AO to make the addition @ 12.5% of the total amount of bogus purchases. Facts of the present case are similar to the facts of the case of the assessee for the assessment year 2009-10 discussed above except the amount of disallowance made by the authorities below. Similarly, the grounds of appeal in this case are also identical to assessee’s appeal pertaining to the assessment year 2009-10. Hence, we do not consider it necessary to reproduce the facts of this case here. In this case the AO made addition of the entire amount of bogus purchases to the income of the assessee treating the same as unexplained expenditure u/s 69C of the Act. In the first appeal, the Ld. CIT (A) directed the AO to delete the addition u/s 69C and disallow the expenditure. Assessment Years: 2009-10 & 2010-11

The facts and the issues involved in the present case are identical to the facts of the case and issues involved in the assessee’s own case for the A.Y. 2009-10 discussed above and the assessee has raised the identical grounds of appeal in this case. Vide Ground No. 1, the assessee has challenged the jurisdiction of AO u/s 147 of the Act and further contended Assessment Years: 2009-10 & 2010-11 that the Ld. CIT (A) has wrongly upheld the action of AO in re-opening the assessment. Since, we have dismissed this ground of appeal in the assessee’s case for the A.Y. 2009-10, consistent with our findings, we dismiss this ground of appeal in this case for the same reasons.