DCIT, MUMBAI vs. A.P.I. CIVILCON PRIVATE LIMITED, MUMBAI

Brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is in the business of constructing roads and buildings and also undertakes BMC and Government Contract. For the year under consideration, the assessee filed its return of income on 08/01/2021 declaring a total income of ₹ 12,50,02,540. During the search and post- search investigation, it was found that the assessee has claimed purchase expenses during the year under consideration. With regard to the claim of purchases, inquiries done by the Department revealed that certain entities are bogus and the claim of purchases made to the tune of ₹ 52,75,234 is infructuous, with an intention to inflate the expenses and to maximise the taxable income. It was further revealed that some entities have dubious financials and some are even non-existent. Accordingly, the assessee was asked to furnish the list of sub-contract expenses, and parties along with the complete address and PAN from whom the assessee has purchased material along with documentary evidence like sub-contract expense orders, ledgers, invoices, e-way bills, delivery challans, lorry receipts, consumption register, sub-contract expenses and consumption reconciliation statement and bank statement, etc. to substantiate the genuineness of the sub-contract expenses claimed by the assessee. In response to the aforesaid query, the assessee produces the list of sub-contract expense parties along with their & 2625/MUM/2023 (A.Y.: 2020-21) A.P.I Civilcon Private Limited PAN in tabular format, ledgers and a few invoices. However, the assessee failed to produce the bogus purchase expense order, complete set of invoices, e-way bills, delivery challans, lorry receipts, consumption register, subcontract expenses consumption reconciliation statement and bank statement, etc. before the Department. Upon examination of documentary evidence, certain lapses were identified, such as purchase bills had been prepared using the same style, format, and font; bills did not contain the type and no. of the expenses used for transportation, delivery address; invoices issued by the parties do not contain mandatory PAN. Accordingly, the statement of the Senior Accountant was recorded on oath, who stated that the purchase expenses claimed were mere book entries made to inflate the deduction and suppress profit to avoid paying taxes and the assessee did not possess any purchase order, delivery address, e-way bills, delivery challan and lorry details, etc. in respect of the bogus entities. During the assessment proceedings, the assessee was also asked to produce the alleged parties to substantiate the claim of purchases, however, the assessee failed to produce the parties and only produced certain documentary evidences which were earlier furnished.

Accordingly, the Assessing Officer (“AO”) vide order passed under section 143(3) of the Act concluded that the assessee has failed to prove the genuineness of the expenses which are claimed as a deduction in computing the taxable income. It was further held that the assessee also failed to prove that the suppliers were genuine suppliers of various raw materials. The AO held that the assessee has failed to produce any of the parties despite the & 2625/MUM/2023 (A.Y.: 2020-21) A.P.I Civilcon Private Limited specific opportunity provided. Further, the parties do not exist at the given addresses and the assessee has not furnished the change of address of these parties. The AO held that just making payment by account pay cheque is not enough evidence to prove the existence of the parties and also the genuineness of the transaction. Accordingly, the AO held that the purchases shown to have been made with these parties are bogus transactions.

It is evident from the record that the learned CIT(A) restricted the addition to 12.5% of bogus purchases of₹ 52,75,234 by following certain judicial pronouncements. Being aggrieved, both the assessee and the Revenue are in appeal before us.

We have considered the submissions of both sides and perused the material available on record. In the present case, based on the information received during the search and post-search investigation it was found that the assessee is the beneficiary of bogus purchases. The assessee claims that it is a private limited company and is engaged in infrastructure development and received contracts from Government organisations and various other private entities. Further, the invoices were raised by parties in respect of materials, which were used by the assessee in the infrastructure development activity undertaken by it. Further, the assessee claims that all the payments were made by account payee cheque. However, we find that before the lower authorities, the assessee was neither able to produce the 5 & 2625/MUM/2023 (A.Y.: 2020-21) A.P.I Civilcon Private Limited parties nor could furnish the documents as directed by the AO. Even before us, no such details are available on record. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. However, at the same time, it is evident from the record that the Revenue has not doubted the usage of materials for infrastructure development undertaken by the assessee. Further, it cannot be doubted that without the purchase of material, the assessee cannot carry out its activity.Therefore, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost.

We find that the Co–ordinate Bench of the Tribunal in ITA no.5156/Mum./2018, vide order dated 19/09/2019, for A.Y. 2010–11, in Shri Narpat H. Mehta v/s ITO, while dealing with a similar issue of bogus purchases observed as under:–

Thus, respectfully following the aforesaid decision of the Co–ordinate Bench of the Tribunal which in turn has followed the decision of the Hon’ble Bombay High Court in PCIT v/s Mohammad Haji Adam, IT no.1004 of 2016, judgment dated 11/02/2019, we set aside the impugned order passed by the learned CIT(A) and restore the matter to the file of the jurisdictional AO with the direction to restrict the addition as regard the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchase. We further direct that if the gross profit rate on bogus purchases is higher than the other genuine purchases and the same has already been offered to tax by the assessee then no further addition be made. No order shall be passed without affording the assessee a reasonable opportunity of hearing. Accordingly, the grounds raised in the assessee’s and Revenue’s appeal are allowed for statistical purposes.

In the result, the cross-appeals by the assessee and the Revenue are allowed for statistical purposes.