DCIT 25(1), MUMBAI vs. AMRITLAL P. SHAH, MUMBAI

आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being 2009-10, is directed against the appellate order dated 01- 11-2013 passed by learned Commissioner of Income Tax (Appeals)-35, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2009-10, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 29.12.2011 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).

2. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) erred in relying upon judgements in the case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd. without appreciating that the facts involved in the appellant's case are different from the facts of the above case law.

3. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) has grossly erred in accepting the assessee's claim though the parties have already accepted in their statement on oath that they have not entered into any business with the assessee before the Sales- Tax Authorities.

5. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) has grossly erred in not appreciating the fact that the assessee failed to produce the parties from whom the alleged bills were received despite many opportunities accorded him and even in remand proceedings.

6. On the facts and in the circumstances of the case, and in law, the Ld.CIT(A) erred in deleting the disallowance made by the AO overlooking the explicit finding of the investigation carried out by the Sales-Tax Department and corroborated by the enquiries of the AO.

7. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.

S.No. Name of the creditor Purchases Creditors 1 M/s Shah Industries -- RS.20,12,218 2 M/s Om Enterprises Rs. 53,21,087 RS.23,62,960 3 M/s Daksh Enterprises Rs. 43,63,275 RS.21,39,483 4 M/s Sidhivinayak Corporation Rs. 56,71,666 RS.29,50,460 5 M/s Om Corporation Rs. 49,71,658 RS.25,14,564 - Total RS.2,03,27,686 ~ The assessee was directed by the AO to produce these five parties and furnish details and documents regarding goods and services supplied by these parties to the assessee. However, the assessee did not furnish confirmations/ details of goods and services supplied by these five parties and had also failed to furnish any corroborative evidence regarding receipt of goods and services from theses parties. The AO thus concluded that the assessee has not purchased any goods and services from these five parties and the assessee is not in a position to prove the genuineness of these purchases and sundry creditors. The A.O thus made additions to the tune of Rs.2,03,27,686/- w.r.t. purchases from these parties treating the same as bogus and non-genuine purchases and also sundry creditors to the tune of Rs.20,12,218/- on account of amount payable to Shah Industries on the ground that the liabilities has ceased to exist , which was added back to the income of the assessee by the AO , vide assessment order dated 29-12-2011 passed by the AO u/s 143(3) .

Further , the assessee was asked to prove genuineness of the purchase transactions in respect of following seven parties and was asked to submit supporting bills/invoices, proof of supply of goods/services , transportation receipts, delivery challans, proof of payment and bank statements of these seven parties.

SI. No. Name of the Party Amount (In Rs.) 1 Tara Enterprise 15,48,287.00 2 Deep Enterprises 42,16,943.00 3 V. K. Enterprise 2,85,002.45 4 Balaji Traders 1,46,880.00 3

5 Viiay Enterprise 87,16,468.00 6 Harsh Corporation 35,51,103.00 7 Vaishali Enterprise 3,93,770.00 Total 1,88,58,453.45 The assessee only submitted confirmation and other documents w.r.t. Vijay Enterprise but could not submit any documents w.r.t. other six suppliers including corroborative evidences to prove genuineness of the purchases. The AO held that the purchases made from these six suppliers were not genuine as the assessee has not purchased any goods and services from these six parties , which led to the addition to the income of the assessee of Rs. 1,01,41,985/- w.r.t. purchases from these six parties , vide assessment order dated 29-12-2011 passed by the AO u/s 143(3) .

4. Aggrieved by the assessment order dated 29-12-2011 passed by the AO u/s 143(3), the assessee carried the matter in appeal before the learned CIT(A) . The learned CIT(A) deleted the additions by holding that assessee has discharged its onus . The learned CIT(A) deleted the addition of Rs. 20,12,218/- being payable to Shah Industries as the liability has not ceased to exist as submitted by the AO in his remand report to the learned CIT(A). With respect to the additions to the income made by the AO on account of purchases which were held to be non genuine, the assessee during the course of appellate proceedings before learned CIT(A) submitted following documents “ i Paper Book I containing the work order form MCGM, certified payment order, details of contract receipts with bank statement evidencing the receipt of remittances from MCGM ii. Paper Book II containing purchase invoices, ledger a/c confirmation and bank statements evidencing the payments to each of the parties involved in disallowance. iii. Paper Book III containing purchase and consumption records (party wide, item wise, month wise) in quantitative and value wise extracted from invoices entered in books of accounts and from stock records maintained by the assesses and its comparative analysis of cross tally between accounted invoices with physical stock records of particularly parties involved in disallowance. All statements are certified by chartered accountant for its accuracy and extraction. Also it contains GP ratio with and without purchases in question & statement containing effect on consumption if purchases from parties in question is removed. iv. Paper Book IV containing stock inward/outward register evidencing the physical movement of purchased materials. v. Paper Book V containing copy of job cards maintained at various evidencing the physical receipts of materials.”

The above details were sent by learned CIT(A) to the A.O for verification and submission of remand report . The AO issued fresh notices u/s 133(6) to these selling parties during remand proceedings but notices to all these ten selling parties again returned un-served even during remand proceedings. The A.O submitted in remand report that notices u/s 133(6) sent to the abovesaid ten selling parties had been received back un-served and the names of all these parties appear in the list of Hawala Dealers maintained by the Maharashtra VAT Department and purchases cannot be termed as genuine. The A.O , however, did not commented anything with respect to the stock registers, inward movement , various delivery challans available and that the payments made by account payee cheques to these parties by the assessee.

The learned CIT(A) observed that the assessee has submitted stock registers including confirmations from these parties . The learned CIT(A) observed that the assessee has submitted inward register of stock and consumption of material has been explained. The learned CIT(A) studied and analysed the profitability ratios of the assessee as also month wise consumption of various input for the period for construction activities . The learned CIT(A) observed that merely because notices u/s 133(6) were returned unserved is not sufficient to fasten the liability to tax on the assessee. He relied upon decision of Hon’ble Bombay High Court in the case of CIT v. Nikunj Exim Enterprises (2013) 216 taxman 171(Bom.) . The learned CIT(A) analysed profit ratios for last four years and observed that break up ratio is 8.51% as against 6.06% in F.Y 2006-07, 8.87% in FY 2007-08 and 7.80% in F.Y 2009- 10 . It was observed by learned CIT(A) that if highest of GP ratio which is 8.87% is taken then it would warrant additions to the tune of Rs. 4,62,663/- being differential between the declared GP and the highest GP ratio of 8.87%. It was observed by learned CIT(A) that if these additions as made by the AO are added to the income , the GP ratio would go up to 26.80% which led learned CIT(A) to conclude that the assessee has discharged its onus of maintaining and submitting various evidences to substantiate the genuineness of the purchases and the additions as were made by the AO stood deleted , vide appellate order dated 01-11-2013 passed by learned CIT(A).

The Ld. DR submitted that an assessee is civil contractor and is proprietor of M/s. Narendra Construction Company . It was submitted that during the course of assessment proceedings u/s 143(3) r.w.s. 143(2), the AO had issued notices u/s. 133(6) to the suppliers to verify the purchases and large sundry creditors as are appearing in books of accounts . It was submitted that the notices issued u/s 133(6) were returned un-served. It was submitted that even fresh notices u/s 133(6) were issued by the AO during remand proceedings which also returned unserved. It was also submitted that the assessee did not produced these parties despite being called to produce these parties by the authorities below. The learned DR submitted that the A.O had added 100% of purchases as income by treating the same as bogus purchases as genuineness of the purchases could not be proved by the assessee and the names of these parties are appearing in the list of hawala dealers as maintained by Maharashtra VAT Department , while learned CIT(A) deleted the same despite the fact that the assessee failed to prove that these are genuine purchases . The learned DR relied upon the decision of Hon’ble Punjab and Haryana High Court in the case of CIT v. Narender Kumar Gupta (2015) 55 taxmann.com 371 (P&H High Court) and prayed that the additions as were made by the AO be confirmed.

Ld. Counsel for the assessee submitted that additional evidences were given before the learned CIT(A) and remand report was called by learned CIT(A) from the A.O. after verification of the additional evidences which were forwarded by learned CIT(A) to the AO for necessary verification and remand report. The learned counsel for the assessee drew our attention to the remand report issued by the AO which is placed at paper book/page 325-

The Ld. DR submitted in rejoinder that the A.O has not commented on the submissions of the assessee during the remand report proceedings .It was submitted that it was incumbent on the learned CIT(A) in such situation to have done detailed analysis of the utilisation of material to substantiate consumption of material for civil contracts under taken by the assessee as assessee is civil contractor . The learned DR relied upon the assessment order of the A.O. .

Purchases S.No. Name of the creditor In Rs. RsRs.) 1. M/s Om Enterprises 53,21,087 2. M/s Daksh Enterprises 43,63,275 3. M/s Sidhivinayak Corporation 56,71,666 4. M/s Om Corporation 49,71,658 5. Tara Enterprise 15,48,287 6. Deep Enterprises 42,16,943 7. V. K. Enterprise 2,85,002 8. Balaji Traders 1,46,880 9. Harsh Corporation 35,51,103 10. Vaishali Enterprise 3,93,770 Total RS. 30469671 ~ The assessee did not produce documents before the A.O to prove genuineness of the purchase transactions from these ten selling parties from whom the assessee had allegedly purchased material for its construction business. The assessee could not produce evidences w.r.t. movement of material before the A.O. . The assessee also could not produce the parties before the A.O . The AO made additions to the tune of 100% of alleged bogus purchases to the tune of Rs. 3,04,69,671/- vide assessment order passed u/s 143(3). The assessee during appellate proceedings before learned CIT(A) submitted details such as stock details , quantitative details as well utilisation/consumption details w.r.t. material so purchased by the assessee from these ten selling parties . The details of evidences submitted by the assessee before learned CIT(A) are as under: i Paper Book I containing the work order form MCGM, certified payment order, details of contract receipts with bank statement evidencing the receipt of remittances from MCGM ii. Paper Book II containing purchase invoices, ledger a/c confirmation and bank statements evidencing the payments to each of the parties involved in disallowance. iii. Paper Book III containing purchase and consumption records (party wide, item wise, month wise) in quantitative and value wise extracted from invoices entered in books of accounts and from stock records maintained by the assesses and its comparative analysis of cross tally between accounted invoices with physical stock records of particularly parties involved in disallowance. All statements are certified by chartered accountant for its accuracy and extraction. Also it contains GP ratio with and without purchases in question & statement containing effect on consumption if purchases from parties in question is removed. iv. Paper Book IV containing stock inward/outward register evidencing the physical movement of purchased materials. v. Paper Book V containing copy of job cards maintained at various evidencing the physical receipts of materials.

The Ld. CIT(A) forwarded these aforesaid evidences to the A.O for verification and remand report . The AO again issued fresh notices u/s 133(6) to these parties during remand proceedings which also returned unserved . The assessee could not produced these parties before the AO during remand proceedings as well before learned CIT(A) during appellate proceedings . The learned CIT(A) observed from the material/documents submitted by the assessee during appellate proceedings that the assessee has proved the genuineness of the purchases and utilisation/ consumption stood proved. The learned CIT(A) observed that it is not essential to produce these parties and even if notices u/s. 133(6) returned unserved it is not relevant as it is not sufficient to fasten liability to tax on the assessee. it was also observed by learned CIT(A) that despite these selling parties are being listed as bogus dealers by Maharashtra VAT authorities it is not relevant and the additions to the income as made by the AO towards bogus purchases was ordered to be deleted by learned CIT(A). The assessee is a civil contractor and has stated to have procured material from these ten selling parties to the tune of Rs. 3.05 crores for consumption/utilisation for executing civil contracts awarded by authorities. The fact remains that proper enquiry could not be conducted by the AO due to non availability of these parties as notices u/s 133(6) sent by the AO twice to these ten parties returned unserved . The assessee could not produce these parties before the authorities below. The names of these ten parties appear in the list of hawala dealers prepared by Maharashtra VAT authorities . The said purchases claimed by the assessee are appearing in the books of accounts of the assessee and the onus is on the assessee to prove genuineness of the purchases. The learned AO did not commented on the documents/evidences produced by the assessee in remand report proceedings and has commented that notices u/s 133(6) sent afresh has also come back unserved and that these parties are listed as hawala dealers by Maharashtra VAT Authorities. The learned CIT(A) has accepted assessee’s claim by holding that purchases are proved to be genuine and that consumption/utilisation of material for construction contracts stood proved. The learned CIT(A) did not undertook any verification himself of the documents/evidences filed by the assessee which he ought to have done as the AO could not do any verification due to non availability of these parties. The learned CIT(A) merely compared the preceding years GP ratio to accept the contentions of the assessee and directed to delete the additions made by the AO. The learned CIT(A) did not considered it relevant that notices u/s 133(6) sent twice by the AO returned unserved as also the assessee did not produced these parties. The learned CIT(A) also did not considered it relevant that these selling parties are listed as hawala dealers by Maharashtra VAT authorities and they are engaged in issuing merely bogus bills without supplying any material . The learned CIT(A) also did not considered it relevant that onus is on the assessee to prove genuineness of these purchases as these purchases appeared in books of accounts of the assessee. At the same time , the assessee did came forward and gave document to prove utilisation/consumption of material which was commented by learned CIT(A) to have proved utilisation/consumption of material for construction contracts executed by the assessee. Under these circumstances, the fair conclusion that can be drawn is that the assessee did purchased these material but from grey market at lower price and obtained bills from these ten parties at higher rates to justify utilisation/consumption for construction contracts and to suppress profits. The end of justice in this case will be met if the profit embedded in such alleged purchases is estimated being savings made by the assessee by obtaining material from grey market at lower price and brought to tax . In our view, the estimated profit in this case need to be estimated @12.5% of these alleged bogus purchases which need to be brought to tax. Thus, an additional income of Rs. 38,08,709/- is brought to tax and if the said income is added to the declared income of the assessee in return of income,the total income stood at approx 8% of the gross contract value which in the case of the tax-payers engaged in civil contracts is considered as bench mark under presumptive tax scheme for small contractors u/s 44AD . We order accordingly.

Order pronounced in the open court on 14.11.2017 आदेश की घोषणा खुऱे न्यायाऱय में ददनांकः 14.11.2017 को की गई ।