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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
These two cross appeals are arising out of the common order of Commissioner of Income Tax (Appeals)-17, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-26/118/DCIT 15(3)/12-13, dated 27-03-2015. The Assessments were framed by Dy. Commissioner of Income Tax, Centre Circle-15(3), Mumbai (in short DCIT or AO) for the assessment year 2010-11 vide order dated 14-03- 2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first inter-connected issue in this appeal of the Revenue and cross- objection of the assessee is as regards the order of the CIT(A) restricting the addition @ 2% by estimating the net profit of hawala purchases and also making addition of peak credit at ` 18,26,658/-. The Revenue has challenged the order of the CIT(A) on the following two grounds:
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in considering the quantity wise stock details of raw materials to be tallying based on the architect certificate of consumption of raw materials purchased by the assessee, especially in the light of audit report specifically stating that the assessee is not maintaining stock register".
"2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in estimating the income @ 2% of Net profit on the hawala purchases and directing the AO to calculate peak credit to the assessee's income relying on the theory that without purchases there cannot be sale in cases of the assessee, despite
CO No. 131/Mum/2017 AY 10-11 Gajanan Builders agreeing to the fact that the assessee had indulged in bogus purchases and bogus labour expenses although the AO had only treated purchases of Rs. 1.89 crores from 15 parties and the not the entire purchases as bogus and that too after making various enquiries and relying on the evidences available on record."
The assessee has challenged the addition of peak credit by way of this ground:
“On the facts and circumstances of the law, the Ld. CIT(A) erred in making addition of ` 18,26,658/- on alleged bogus purchases by applying theory of peak credit.”
Briefly stated facts are that the assessee firm is engaged in building and development of real estate projects. During the year under consideration, the assessee has disclosed total purchases of ` 4.62 crores. The Assessing Officer while verifying the purchases by issuing notices u/s. 133(6) of the Act, some of the purchases parties from amongst the list provided by the assessee, it was noticed that following fifteen parties are hawala parties declared by the Sales tax authorities of Maharashtra. The Assessing Officer required information from the sales tax authorities in Maharashtra, who informed that the above parties were found to be hawala parties providing bogus bills to various parties, who are beneficiaries and assessee is one of them. Following are the details of bogus bills obtained by the assessee:
Sr. No Name of the party Amount of VAT TIN Sr No in the purchases Hawala list (Rs) 1 M/s Bhavani Trade Link 10,97,967/- 27520680505V 194 2 M/s. Dhruv Sales Corporation 3,15,002/- 27760622173V 311 3 M/s. Navdeep Trading Corporation 6,26,400/- 27540616280V 786 4 M/s. Pooja Enterprises 12,46,952/- 27260544751V 910
CO No. 131/Mum/2017 AY 10-11 Gajanan Builders 5 M/s. Raj Traders 17,92,772/- 27450262425V 994 6 M/s. Rohit Enterprises 3,17,398/- 27020680974V 1080 7 M/s. Rushabh Enterprises 13,76,893/- 27120669570V 1097 8 M/s. Sejal Enterprises 30,82,826/- 27910671027V 1179 9 M/s. S. K. Impex 24,57,832/- 27550384784V 1902 10 M/s Swastik Enterprises 10,30,649/- 27620686755V 1387 11 M/s. Om Traders 6,73,441/- . 27680623284V 839 12 M/s. Hindustan Corporation 1,30,741/- 27720623650V 438 13 M/s. Riddhi Siddhi Corporation 25,76,882/- 27730718947V 1056 14 M/s. Samarth Enterprises 14,82,507/- 27560694451V 1140 15 M/s. S M.Trading Co. 7,80,462/- 27490547195V 1104 Total 1,89,88,724/- 5. The Assessing Officer disallowed the entire bogus purchases and labour expenses of ` 1,89,88,724/- Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) estimated the net profit qua this purchase @ 2% and also estimated income for obtaining bogus bills @1% and assessed peak credit at ` 18,26,658/- by observing as under:
“1.3.15 Further, it is a matter of fact that the appellant has purchased the items sold by it from the grey market and therefore the payments shown to be made to these Hawala operators have actually not been made for the purposes for which it is stated to be made. Naturally, as discussed above the appellant has introduced unexplained cash in for making the purchases and shown the purchases from these parties as credits. As discussed above the peak added is to be added to the appellant's income for unexplained cash introduced by the appellant affecting the purchases. On the basis of information provided by the appellant, the peak credit is worked out at Rs. 18,26,658/- by calculating the peak after merging the accounts of all the bogus parties from whom the purchases were made during the year u/s. 69C of the Act being
CO No. 131/Mum/2017 AY 10-11 Gajanan Builders unexplained expenditure. The Ld.AO is further directed to verify as to whether there is any outstanding credit as on the day of closure of the accounts of the appellant and if there is any the same need to be treated as bogus and identify what are the corresponding asset created by the appellant to match the balance sheet as on that date. Further, it is a matter of trade practice that one obtaining the bogus bill has to pay the commission to the bogus bill providers; the case of the appellant is no more different than one is prevalent and found operative by the sale tax authorities. Accordingly, an amount of 1% of the bogus bill which was paid by the appellant for obtaining the bogus bill is added to the total income of the appellant under section 69C of the Act, which comes to Rs. 18,988/-, with these substantive finding, this ground of appeal is partly allowed.”
Aggrieved against the deletion of the addition of bogus purchases and estimation of profit rate @2% plus 1%, the revenue is in appeal before us. The assessee has also challenged the peak credit addition worked out at ` 18,26,658/-.
We have heard the rival contentions and have gone through the facts and circumstances of the case. We find that the above stated parties are hawala parties and this has not been disputed by either of the parties before us. We find that normally in the case of bogus purchases inflation of expenses and savings for obtaining bogus bills is to the extent of 4 to 12% of taxes, lower price of material and other benefits. We also find that the assessee has made purchases from grey market by obtaining these bogus bills and hence, the CIT(A) has worked out peak credit at `18,26,658/- Now before us, during the course of hearing, the assessee could not controvert this fact that the CO No. 131/Mum/2017 AY 10-11 Gajanan Builders material purchased from market, the assessee might have made one time investment in the bogus bills, which lead to the conclusion that there is some investment and for that peak credit was worked out by the CIT(A) at ` 18,26,658/-. In view of these facts, we do not find any infirmity in the order of the CIT(A). It is accordingly upheld.
In the result, the appeal of Revenue and the cross-objections 7. of the assessee, both are dismissed.
Order pronounced in the open court on 25-10-2017.