DCIT CENT. CIR. -5(3) (ERSTWHILE DCIT CENT. CIR. -36), MUMBAI vs. MODERN ROAD MAKERS PVT. LTD., MUMBAI

Assessee by : Shri Mitesh N. Shah (AR) Revenue by : Shri H.N. Singh (CIT- DR) Date of hearing : 29.08.2017 Date of Pronouncement : 24.10.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This group of eight appeals, five by assessee i.e. ITA 4734 to 4738/M/2016 for Assessment Year (AY) 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 and three by revenue for AY 2010-11, 2011-12 & 2012-13 are directed against the different orders of ld. CIT(A)-53, Mumbai dated 31.03.2016.

Since the common issues are involve in these appeals, so all the appeals were clubbed together and are decided by a consolidated order. 3 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

1.a) on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not appreciating that:- (i) the initiation of the assessment proceedings and completion of the assessment u/s. 143(3) r.w.s. 153A by the AO is without jurisdiction and bad in law as the jurisdiction u/s. 153A is vitiated; and (ii) the additions made by the AO are beyond the scope of provisions of section 153A. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 1,27,63,427/- made by the AO to the income of the Appellant on account of unexplained expenditure u/s.69C treating the purchases of steel from M/ s. Karma Industries Ltd. and its associate concerns as bogus. b) The Id. CIT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iv) the Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; v) the gross/net profit ratio shown by the Appellant is quite reasonable; to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. vi) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and vii) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. vii) The AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 3.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 2,55,269/ - made by the AO to the income of the Appellant on account of alleged commission charges on the alleged accommodation entries. b) The ld. CIT(A) failed to appreciate that your Appellant has not paid any commission to M/s. Karma Industries Ltd. and its associate concerns nor any evidence was found in the course of the search. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors.

4. The Id. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is mandatory. The Appellant denies its liability for such interest. 5) The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty.

A survey seizure and search action was also conducted on 21 July 2011 at the residence and office of Mr. Rajesh Mehta, Managing Director of M/s Karma industries Ltd (KIL). KIL is engaged in trading of steel and equipment of construction. During this course of search action, the statement of Shri Rajesh Mehta was recorded, wherein he had stated that KIL had not supplied any material to the assessee and only provided accommodation entries in the nature of bogus bills. The assessing officer passed the assessment order under section 143(3) rws 153A on 28 March 2014 determining the total income of assessee at Rs.81,93,44,962/-. The assessing officer while framing assessment made the addition of to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. Rs.1,27,63,427/- under section 69C on account of bogus purchases and addition of Rs.2,55,269/-on account of commission expenses on the said bogus purchases. On appeal before Commissioner (Appeals) the validity of the assessment order under section 143(3) read with section 153A as well as additions under section 69C and commission thereon was upheld. Thus, further aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before raising the grounds of appeal as stated above.

4. We have heard ld. AR of the assessee and ld DR for the revenue and perused the material available on record. The learned AR of the assessee argued that the assessment order under section 143(3) read with section 153A is invalid as no incriminating material related for the assessment year under consideration or other years was found and seized during the search conducted at the premises of assessee on 21 July 2011. The assessment order for the assessment year 2008-09 was completed under section 143(3) on 20 December 2010. Thus, in absence of any incriminating material during the search action no addition can be made in the unabated assessment. It was further argued that the completed assessment (unabated) can only be disturbed, on the basis of incriminating evidence regarding undisclosed income is seized in the search. The assessing officer has no power to re- examine the issue which have already been examined in the regular assessment completed under section 143(3). In alternative it was argued that ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. a search action was also carried at the residence and office premises of Shri Rajesh Mehta, Director of KIL, and further no assessment can be made against the assessee under section 153A and if it is to be under section 153C, it cannot be without recording satisfaction against the assessee. In support of his submission learned AR of the assessee relied upon the decision of Hon’ble Bombay High Court in case of CIT Vs Continental Warehousing Ltd.[2015] 58 taxman.com 78 (Bombay) and in All Cargo Global Logistic Ltd Vs DCIT 23 taxman.com 103(Mumbai)(SB). On the other hand the learned and AR for the revenue supported the order of authorities below. It was argued that during the course of such action it was revealed that the assessee had availed accommodation entries in the nature of bogus bill from KIL and its associate concern. There was simultaneous search action on 21 July 2011 at the residence of Mr. Rajesh Mehta MD of KIL. Mr. Rajesh Mehta in his statement on oath admitted that they had provided accommodation entries in the nature of bogus bills.

5. We have considered the rival submission of the parties, the material on record and the various decisions cited by learned AR of the assessee and the decision relied by ld CIT(A). The assessment under section 143(3) for the year under consideration was completed on 20 December 2010 determining total income of assessee at Rs. 80,63,26,270/-. A search action was conducted on 21 July 2011. Thus, the assessment for the relevant assessment to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. year remains unabated. It is settled law that the assessing officer has power to make the addition in the unabated assessment only on the basis of incriminating material found and seized during the search action carried under section 132. The assessing officer nowhere has the specified in the assessment order that any incriminating material was found at the premises of assessee during the search on 21 July 2011, for the relevant assessment year under consideration. The assessing officer relied upon the statement of Mr Rajesh Mehta, MD of KIL. Admittedly, the assessing officer proceeded to make the assessment under section 153A read with section 143(3). No notice under section 153C was issued to the assessee. The assessing officer was relying upon the statement of third-party recorded during the search action on the third-party. In our view while making the assessment on the basis of a statement of third-party the assessing officer should have recorded the satisfaction before issuance of notice under section 153C covering the case of assessee. The assessing officer has no where recorded such satisfaction under section 153C.The Hon’ble Bombay High Court in CIT Vs Continental Warehousing Corporation (supra) has held that no addition can be made in respect of assessments which have become final, if no incriminating material is found during search. The ld. CIT(A) tried to differentiate the facts for AY under consideration with the help of decision of Hon’ble Bombay High Court in case of M/s Murali Agro Products Ltd. ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. (ITA No. 36 of 2009) that a finalized assessment can be disturb, if in the course of proceeding u/s 153A of the Act, it is discovered that the relief earlier granted are contrary to the facts. The ld. CIT(A) has gone on the wrong premises. In Murali Agro Product Pvt Ltd (supra) the assessment order under section 143(3) for AY 1998-99 was passed on 29.12.2000.

Thereafter, on 3.12.2003, there was a search action under section 132 wherein incriminating documents/ articles were seized. Pursuant to the search, the AO passed an order u/s 153A determining the concealed income at Rs.89 lakhs. The assessee filed an appeal before the CIT(A), who deleted the additions of concealed income computed by the AO. The AO gave effect to the said order of the CIT(A) and recomputed the income at the same figure as it was in the assessment order under section 143(3). The CIT passed an order u/s 263 stating that as the income computed by the AO in the effect order was less than 30% of the book profit, the AO ought to have computed the total income by invoking section 115JA. The ld CIT held that in the said order, the AO had incorrectly computed section 80HHC deduction. The assessee filed an appeal before the Tribunal claiming that as the computation of section 115JA book profit and section 80HHC deduction were not the subject matter of the section 153A proceedings, the CIT could not have invoked jurisdiction under section 263. The Tribunal accepted the assessee’s plea. On appeal by the revenue to the Bombay High Court the to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. order of Tribunal was confirmed. Hence, the ration of decision in Murali Agro (supra) is not applicable on the facts of the present case.

became academic.

8. In the result, appeal of the assessee is allowed.

ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. for AY 2009-10 by assessee

1.a) on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not appreciating that:- (i) the initiation of the assessment proceedings and completion of the assessment u/s. 143(3) r.w.s. 153A by the AO is without jurisdiction and bad in law as the jurisdiction u/s. 153A is vitiated; and (ii) the additions made by the AO are beyond the scope of provisions of section 153A. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 29,84,867/- made by the AO to the income of the Appellant on account of unexplained expenditure u/s.69C treating the purchases of steel from M/ s. Karma Industries Ltd. and its associate concerns as bogus. b) The Id. CIT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding use of it in the fixed assets; iv) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and v) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

3.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 9,24,152/ - made by the AO to the income of the Appellant on account of alleged commission charges on the alleged accommodation entries. b) The ld. CIT(A) failed to appreciate that your Appellant has not paid any commission to M/s. Karma Industries Ltd. and its associate concerns nor any evidence was found in the course of the search. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors.

1.a) on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition to the extent of Rs. 6,03,42,549/- made by the AO to the income of the Appellant on account of unexplained expenditure u/s. 69C treating the purchases of steel from M/s. Karma Industries Ltd. and its associate concerns as bogus in respect of (i) Surat-Dahisar and Kolhapur Projects being profit element embedded in such purchases of Rs. 25,22,08,974/- and Rs. 6,02,61,740/- respectively @ 12.5% of the purchase value of Rs. 31,24,70,714/- Rs. 3,90,58,839/- (ii) Mumbai-Pune Expressway and Nagpur-Hydrabad Projects of Rs. 2,01,85,145/- and Rs.10,98,565 respectively. Rs. 2,12,83,710/- Total Rs. 6,03,42,549/- b) The ld. CIT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iv) the Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; v) the gross/net profit ratio shown by the Appellant is quite reasonable; vi) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and vii) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. c) In reaching to the conclusion and confirming such addition made by the AO, the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 64,83,2406/ - made by the AO to the income of the Appellant by way of disallowing depreciation on certain materials (steel) used in fixed assets on the plea that the purchases from M/s Karma Industries Ltd. and its associate concerns are bogus. b) The ld. CIT(A) failed to appreciate that:- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of the records, documents, etc.; ii) all the purchases from M/s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding use in the fixed assets; iv) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and v) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. d) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 3.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 7,62,206/ - made by the AO to the income of the Appellant on account of bogus purchases in respect of purchases from M/s. Asian Steel who in turn purchased these goods from M/s. Karma Industries Ltd. and its associate concerns. b) The ld. CIT(A) failed to appreciate that :- i) all the purchases from M/ s. Asian Steel are genuine beyond doubt and supported by sufficient materials; to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. ii) the purchases of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iii) your Appellant has successfully demonstrated that the impugned was used in the projects undertaken by the Appellant; iv) the gross/nets profit ratio shown by the Appellant is quite reasonable; and v) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques. c) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 4.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs.19,20,799/- made by the AO to the income of the Appellant on account of bogus purchases in respect of purchases from the parties the name of whom appears in the list of suspicious dealers on the website of Sales Tax Department, Government of Maharashtra. b) The ld. CIT(A) failed to appreciate that :- i) all these purchases are genuine beyond doubt and supported by sufficient materials; ii) the purchases of steel IS backed by corresponding consumption in the projects undertaken by the Appellant; iii) your Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; iv) the gross/net profit ratio shown by the Appellant is quite reasonable; and v) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques. c) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

5.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition to the extent of Rs. 13,88,698/- made by the AO to the income of the Appellant on account of alleged commission charges on alleged accommodation entries. b) The ld. AO failed to appreciate that your Appellant has not paid any commission to M/s. Karma Industries Ltd. and its associate concerns nor any evidence was found in the course of the search. c) In reaching to the conclusion and confirming such addition made by the AO the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 6) The Id. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is mandatory. The Appellant denies its liability for such interest. 7) The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty.

return of income on 10.01.2012 declaring total income of Rs.91,75,60,390/-. During the financial year related to the assessment under consideration the assessee has shown the purchases of Rs.33,37,54,424/- from Karma Industries Ltd (KIL). The assessing officer to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. during the assessment noticed that a search and search action was also carried out at the premises of M/s Karma Industries Ltd on 21.07.2011.

During the search Rajesh Mehta Managing Director (‘MD’) of Karma

Industries Ltd allegedly admitted that they have not supplied any material to the assessee and only provided the accommodation entry. The assessing officer also noted that the name of Karma Industries Ltd are also appearing in the list of Hawala dealers published on the official website of Sale Tax

Department of Maharashtra. The assessing officer also noticed that this fact was admitted by Virendra D Mhaiskar MD of IRB Group in his statement recorded in search that purchases from Karma Industries ltd are not verifiable. It was further observed that Investigation Wing of the Department conducted inquiries against the said parties that the said parties. The assessing officer has recorded that the assessee has claimed purchases from Karma Industries Ltd and its group concern namely Shivan

Giri Steel Ltd and Elpro Ind Ltd. The assessing officer further notices that during the search action on 21.07.2011, the assessee was asked to establish the genuineness of the transaction of purchases from Karma Industries Ltd. and its associate firms. The assessee during the course of search action showed their inability to provide proof for genuineness of purchase. 13. The assessing officer issued show cause notice dated 10.02.2012 to the assessee as to why the purchases from KIL and its associate should not be to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. treated as bogus. The assessee filed its reply dated 18.02.2014 and contended that the material purchased during the relevant period had been consumed in different project executed by assessee namely Mumbai- Pune,

Nagpur- Hyderabad, Kolhapur and Surat- Dahisar Project. The assessee further submitted reconciliation along with chart with ratio of material. The assessee also furnished the working of the estimated cost for bidding purpose, certificate form lender’s Bank, i.e STUP Consultant, certificate from independent Engineer appointed by National High Way Authority

(NHAI) i.e. Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The contention of the assessee was not accepted by the assessing officer on the grounds that the assessee claimed that the transporting charges were born by dealers.

The submission of the assessee is contrary with the facts gathered during the assessment preceding that majority of delivery challans shows that lorry number mentioned thereon belongs to the assessee. Further enquiries from the RTO office reveals that the majority of vehicles allegedly used for transportation are owned by the assessee itself. If the assessee was using its own vehicle while it was claiming that transport charges born by the dealer. Moreover, no delivery challans were found during a search and seizure proceeding. Further the vehicle other than the vehicle owned by the assessee were not utilized for transportation of material, reason being some to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. vehicles number belongs to the Government authorities and some to the private parties who have denied to have rendered any services to the assessee or to the dealer. One of the vehicles was tanker and one tipper.

Further, it is general practice in the trading business that goods to be traded are weighted twice, first at the place of origin and second at the time of delivery. The assessee could not provide the slip of weight at the time of delivery. On the basis of above observation the assessing officer concluded that assessee failed to prove the delivery of material beyond doubt. The assessing officer disallowed the entire purchases of Rs.33,37,54,424/- from Karma Industries Ltd. 14. The assessing officer also disallowed purchased of Rs. 7,62,206/-, from Asian Steel. While disallowing the assessing officer concluded that Asian

Steel Traders shown purchase from Karma Industries ltd for onward transfer to the assessee. Hence, the purchases from Asian Traders Steel were also treated as bogus purchases. 15. The assessing officer further noticed that during the previous year the purchases of Rs. 64,83,406/- was utilized for Capital Asset on which assessee had claimed depreciation. As the assessing officer treated the purchases as non-genuine therefore the amount shown in the capital asset was also reduced to the extent of Rs. 64,83,406/-. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

The assessing officer concluded that assessee could not produce the delivery challans, lorry receipts, mode of transportation and evidence of octroi. The assessing officer on the basis of his observation and on the basis of report of Sale tax Department disallowed the aggregate of the total purchases of Rs.19,20,799/- under section 69C.

as refereed above.

19. We have heard the learned AR for the assessee and the ld. CIT-DR for revenue and carefully gone through the record of the case. The learned AR of the assessee argued that the learned Commissioner (Appeals) erred in ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. sustaining the addition at the rate of 12.5% of purchases for Surat- Dahisar and Kolhapur project despite the fact that assessee has fully prove the genuineness of the purchases and its consumption. The addition at the rate of 12.5% was sustained the observing that addition of entire amount of purchases shown to have been made from Karma industries Ltd and its associates is not justified. It was further observed that the assessee had merely indulged in inflating the expenses by introducing the bogus purchases and it would be a fair enough to estimate the profit element embedded in such purchases. However, the learned Commissioner (Appeals) confirmed the action of assessing officer in sustaining 100% addition for the purchases of material consumed in Mumbai-Pune Expressway and Nagpur- Hyderabad Project. The ld. Commissioner (Appeals) despite sustaining the addition at the rate of 12.5% of purchases for Rs. 31,24,70,714/-, from Karma industries Ltd, for the project of Surat-Dahisar and Kolhapur project, still confirmed the addition on account of commission payment for Rs.66,75,088/-. It was further argued that no disallowance on account of depreciation was warranted as the assessee has fully proved the genuineness of purchases the assets by documentary evidences. The assessing officer has not brought any material on record. The assessing officer merely relied upon the third-party information without giving any opportunity for cross- examining those parties, on the basis of those statements the additions on to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. account of bogus purchases was made. During the search action when the statement of VD Mhaisker Managing Director of assessee was recorded, it was categorically stated the statement was subject to verification of record.

The Managing Director never admitted about the availing of accommodation entry from Karma Industries Ltd. Even otherwise the statement was retracted vide letter dated 16 December 2011. The assessing officer was duly informed that the business of Assessee Company is spread over three States that are Gujarat, Maharashtra and Andhra Pradesh. The assessee furnished all the necessary evidences after collecting them from their site offices, to prove the genuinenity of purchases. The entire record could not be filed during search due to the shortage of the time. The statement of Managing Director of Karma industries Ltd has no relevance as the assessment in case of the assessee is completed under section 153A read with section 143(3). The assessing officer made the addition even in the unabated assessment for assessment year 2008-09 and in 2009-10 despite the fact that no incriminating material was found or seized during the search action. Even no incriminating material was seized by the revenue for the assessment year under consideration in the search action by the investigating team. It was further argued that the assessee is engaged in the execution of project awarded by various Government agencies. Before awarding the contract the competent authorities prepares the estimated cost, consumption to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. of the material and measured the consumption of the material time to time consumed in execution of work. The assessee has already furnished necessary certificate from the agencies, which awarded the work to the assessee. Besides that the assessee furnished the certificates of technically qualified Engineers about the consumption of steel in various projects. The assessing officer instead of making any independent enquiry brushed aside the documentary evidences and made the additions. The Gross profit/ Net profit ratio shown by assessee is quite reasonable. Nothing has been brought on record by the assessing officer that money has been exchanged in the hands of the assessee for the payment made for these purchases. The purchases made from Asian Steel are also genuine beyond doubt which is supported by sufficient documentary evidence with corresponding consumption in the project of the assessee. Similarly, the addition on account of purchases from Darshna Corporation and Tulsiani Trading Private Limited was made on the basis of information of website of Sale tax Department government of Maharashtra. The learned AR of the assessee vehemently argued that in all purchases the assessee has paid VAT on purchase of steel at special rate is applicable as the assessee purchased the Steel for Infrastructure project. The assessee had paid the VAT the rate of 4% on all purchases. The lower authorities have not disputed this fact throughout in their proceedings. There was no element of revenue leakage in ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. the purchase of assessee. The learned AR of the assessee prayed for deleting the entire additions on account of bogus purchases, disallowance of depreciation as well as addition on account of alleged commission payment. In support of his submission the learned AR of the assessee relied upon various following decision of Mumbai Tribunal; (i) Manibandra Metals and Tubes Vs ITO (ITA 4359/M/2016), (ii) ITO Vs Mithailal D Mutha ( ITA 558/M/2016) (iii) ITO Vs Takhtmal Bhuralal (ITA 4526 to 4528/M/2014) (iv) ITO Vs Hiren Shantilal (ITA 715 to717/M/2015) (v) ACIT Vs Vishal P Mehta ( ITA 5313/M/2013) (vi) ITO Vs Ashok Talreja (HUF) ( ITA 4629/M/2014,3393,6663 to 6664,/M/2013), (vii) Kamal P Aggarwal Vs ITO ( ITA 3537, 3538& 3540/M/2016) (viii) Telco Marketing Vs ITO ( ITA 3394, 3395/M/2014) (ix) DCIT Vs Rajiv Kalathil ( (x) ITO Vs Paresh Arvind Gandhi( ITA 5706/M/2013) and (xi) ITO Vs Sajay V Dhruv (ITA 5089/M/2014) 20. On the other hand the ld DR for the revenue supported the order of the authorities below. It was argued that the bills without delivery of receipt of material to the assessee were found at the premises of Karma Industries Ltd in the search. The consumptions certificate claimed by the assessee were not issued by the National Highway Authority of India ( NHAI). The certificate relied by the assessee were issued at the instance of the assessee. The ld. DR for the Revenue further argued that the Investigation Wing of the Income-tax Department made full-fledged enquiry. The parties from whom the assessee has shown the purchases are bogus Hawala dealers. The hawala 26 ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. dealers are indulged in issuing bogus bills without delivery of any material or goods. The assessee obtained accommodation bills only in order to inflate the expenses and to bring down the profitability in order to avoid the tax. In support of his submissions ld. DR for the revenue relied on the decision of Hon’ble Gujarat High in N. K. Protein Vs DCIT (2004 83 TTJ Ahd 904).

The ld. DR for the Revenue prayed for dismissal of the appeal filed by the assessee and to sustain the additions and the disallowance made by assessee officer. 21. We have considered the rival submissions of the parties and have gone through the order of authorities below and the various decisions relied by the ld representatives of the parties. Ground No. 1 relates to the confirming the addition of Rs.6,03,42,549/- on account of unexplained expenditure under section 69C of the Act (being 12.5% of Surat-Dahisar and Kolhapur

Project i.e. Rs. 3,90,58,839/-, 100% of Mumbai- Pune Expressway i.e Rs.

2,01,85,145/- and Nagpur –Hyderabad Project i.e. Rs.10,98,565/-). We have seen that while farming the assessment the assessing officer observed that during the financial year related to the assessment under consideration the assessee has shown the purchases of Rs.33,37,54,424/- from Karma

Industries Ltd (KIL). The assessing officer issued show cause dated

10.02.2012 to the assessee as to why the purchases from KIL and its associate should not be treated as bogus. The assessee filed its reply dated to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

18.02.2014. In reply the assessee contended that the material purchased during the relevant period had been consumed in different project executed by assessee namely Mumbai- Pune, Nagpur- Hyderabad, Kolhapur and Surat- Dahisar Project. The assessee also filed reconciliation of material consumed along with chart with ratio of material. The assessee also filed the working of the estimated cost for bidding purpose, certificate from his

Banker/ lender’s Bank, i.e STUP Consultant. Certificate from independent

Engineer appointed by National High Way Authority (NHAI) i.e.

Intercontinental Consultant and Technocrats Pvt Ltd. All the purchases were made through account payee Cheques. The assessing officer was not accepted by the contention and the evidences of assessee, on the grounds that the assessee claimed that the transporting charges were born by dealers. The assessing officer recorded that from the enquiries from the RTO office, it was revealed that the majority of vehicles allegedly used for transportation are owned by the assessee itself. If the assessee was using its own vehicle while it was claiming that transport charges born by the dealer. The assessing officer further concluded that no delivery challans were found during a search and seizure proceeding. Further the vehicles other than the vehicle owned by the assessee were not utilized for transportation of material or that some vehicles number provided by assessee belongs to the Government authorities and some to the private to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. parties. The private parties have denied to have rendered any services to the assessee or to the dealer. One of the vehicles was tanker and one tipper.

The assessee could not provide the slip of weight at the time of delivery.

The assessing officer disallowed the entire purchases of Rs.33,37,54,424/- from Karma Industries Ltd. The assessing officer rejected the documentary evidences furnished by the assessee. The assessing officer disbelieved the certificate of consumption issued by Engineer appointed by NHAI. The assessing officer has not brought any material on recorder to discard the evidences furnished by the assessee. The assessing officer examined two

Engineers with regard to the certificate issued by them. The assessing officer has not given any adverse finding nor pointed out any infirmity in their report about the consumption of the material. No other verification of site or the projects were carried by the assessing officer. The estimated consumption of the material in the project being executed by assessee was not examined. Rather concluded that the estimated cost of such projects are always on higher side. We have seen the statement of MD of the assessee company, there is no such admission about the bogus transactions. Rather, in his statement categorically stated that the purchases are not verifiable in absence of record at that time. The statement was retracted vide letter dated

16.2.2011. The assessing officer relied on the statement of Rajesh Mehta.

However, Rajesh Mehta in his statement disclosed that he never meet the to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

MD of the assessee company. The transactions were made through Nitin and Sunil Mehta. The assessing officer not examined Nitin and Sunil

Mehta. The assessing officer gave his finding the consumption of steel in the project was not proved beyond doubt and disallowed the entire purchases from KIL. 22. However, the ld Commissioner (Appeals) restricted the disallowance of cost of purchases of Steel for Surat-Dahisar and Kolhapur Project at 12.5%

(i.e at Rs. 3,90,58,839/-), 100% of Mumbai- Pune Expressway (i.e. Rs.2,01,85,145/-) and Nagpur–Hyderabad Project (i.e. for Rs.10,98,565/-). Before ld Commissioner (Appeals) the assessee filed written submission. In the written submission the assessee explained that the name of Karma Industries Ltd (KIL) is not listed in the website of Sales Tax Department

Government of Maharashtra. The assessee also explained the typographical mistake in the Registration number of vehicles used in transportation of the Steel, details of which are available in the paper book filed in appeal for AY 2008-09. The perusal of the details of Registration number of vehicles reveals that the mistake in writing is very minor which may occur due to human error. The assessee furnished the certified copies of the Registration

Certificate (RC) and photographs of the vehicles and the evidence how the Tipper was used for transportation. The assessee also furnished explanation of the discrepancies recorded by assessing officer. On the to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. written submission of assessee, the ld. Commissioner (Appeals) sought the comments of assessing officer. The assessing officer filed his comment / remand report dated 25.10.2016. In the remand report the assessing officer disputed the contention of the assessee and relied on his findings. After considering the submission of the assessee and the material on record the ld. Commissioner (Appeals) concluded that there are good and sufficient reasons to hold that so far as project of Surat- Dahisar and Kolhapur are concerned, the purchase of steel cannot be treated as bogus. (para 6.3.8of ld CIT(A) order) However, the ld Commissioner (Appeals) concluded that such purchases are made from the parties other than those mentioned in the books of accounts and the profit element embedded therein needs to be brought to tax. The ld. Commissioner (Appeals) further concluded that such purchases are made only to save 10% Excise duty and cess levied thereon at 2% and sustained the disallowance at 12.5% of the purchases shown for Surat- Dahisar and Kolhapur. The ld AR for the assessee while making his submission before argued that the assessee is engaged in execution of Infrastructure project and the rate of VAT for steel applicable for such purchased is 4% and that the assessee has already paid the same on all purchases. This fact was not disputed by ld. DR for the revenue. In our view, the disallowance of purchases of steel at 12.5% is on higher side, when the ld. Commissioner (Appeals) has concluded that the purchases of to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. steel for Surat- Dahisar and Kolhapur cannot be treated bogus. Further, when the ld. Commissioner (Appeals) also noted that the consumption certificate of Engineer is marginal and within reasonable limit the disallowance at 12.5% is on higher side. In our view even in case the transactions are not verifiable due to certain reasons, the disallowance must be made on reasonable side, keeping in view the facts of each cases. Under Income-tax the revenue is not entitled only the income/ profit component and not the entire transaction. We have noted that the ld CIT(A) has observed that such purchases are made to avoid 10% of the payments of Excise duty. The ld CIT(A) has not examined if , the purchases were shown to avoid the excise duty. The Assessee throughout the proceedings claimed that they have paid VAT at the rate of 4%, which is nowhere disputed by lower authority. If we consider the observation of ld CIT(A) that the purchaser and seller have shared excise duty by showing the sale and purchase of steel, even than the addition in excess of such share to the income is unreasonable. Thus, keeping in view the assessee has paid the VAT at the applicable rate on all the purchases. Hence, keeping in view of any possibility of the revenue leakage which is very thin in the present case, the disallowance of purchases of steel for Surat- Dahisar and Kolhapur project at 5% of the impugned (disputed) purchases would meet the end of justice. Similar view was taken by Hon’ble Gujarat High Court to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. in CIT Vs Simit P Seth [2013(356 ITR 451)] and by Hon’ble Bombay

High Court in Hariram Bhambani of 2013. The facts of the decision in N. K. Proteins (supra) relied by ld. DR for the revenue are at variance. In the said case the assessee was trader. During the search action in that case blank signed cheques books and numbers of vouchers were found on the basis of which the transaction was treated bogus. However, in the present case the assessee has given sufficient evidences to substantiate its purchases. Moreover, no incriminating material was found during the search at the premises of the assessee. The addition of alleged bogus purchased are based on third party information. No yardstick formula can be applied while assessing the amount of revenue leakage. Moreover, the revenue has not disputed the consumption of steel. Thus, respectfully following the decision of Hon’ble Gujarat High Court in CIT Vs Simit P

Seth supra and by Hon’ble Bombay High Court in Hariram Bhambani supra, the disallowance of cost of purchases of steel is restricted to 5% of the impugned purchases only. The assessing officer is directed accordingly. In the result the ground no.1 of the appeal is partly allowed. 23. Ground No. 2 relates to the disallowance of depreciation of Rs.64,83,406/- on certain steel material. The assessing officer disallowed the depreciation of Rs.64,83,406/- holding that the purchases of steel for earlier assessment year i.e 2009-10 was not genuine, thus, the corresponding deprecation was to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. disallowed. The ld. Commissioner (Appeals) confirmed the disallowance on the basis of disallowance sustained in earlier assessment year. We have noted that we have already held that the assessment order for AY 2008-09 and 2009-10 passed under section 143(3) read with section 153A as invalid, thus any consequence arise thereon has also become invalid. Even otherwise there is no material on record that the information on record that said machine or equipment for which depreciation was claimed is not put to use. The disallowance of depreciation on steel material under consideration is based on the addition on account of said alleged bogus purchase, which we have already deleted. Hence, the disallowance of depreciation amounting to Rs.64,83,406/- is also deleted. In the result this ground of appeal is allowed. 24. Ground No.3 relates to the addition of Rs. 7,62,206/-. During the year under consideration the assessee has shown purchases of Rs. 4,88,72,638/- from Asian Steel Traders. Further, on search action on Asian Steel Traders, the assessing officer was asked to Asian Steel Traders to submit year wise details with its major suppliers. In response to the said notice Asian Steel

Traders submitted that they have made the purchases of Rs. 7,62,206/- from Karma Industries ltd. The assessing officer disallowed purchases of Rs. 7,62,206/-, from Asian Steel Traders holding that Asian Steel Traders shown purchase from Karma Industries ltd for onward transfer to the to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. assessee. The assessing officer disallowed 100% of the purchases. The ld.

Commissioner (Appeals) confirmed the entire disallowance holding that the assessee has not furnished any supporting evidence to establish the purchases. We have noted that the assessing officer recorded that Asian

Steel Traders stated the purchases are genuine. We have noted that despite confirmation of Asian Steel Traders the assessing officer disallowed

Rs.7,26,206/-, without bringing any adverse material against the assessee.

The ld. Commissioner (Appeals) has not appreciated the fact that Asian

Steel Traders has confirmed the transaction. Hence, keeping in view the facts that we have already sustained the disallowance of purchases from Karma Industries Ltd Steel at 5% of the purchases. Thus, further keeping in view the similar material was shown to have purchases from Asian Steel

Traders, hence, the disallowance on steel from Asian Steel Traders is also restricted at 5% of the purchases (of Rs.7,62,206). In the result the ground of appeal is partly allowed. 25. Ground No. 4 relates to the sustaining the addition of Rs.19,20,799/-.

During the assessment the assessing officer noticed that the assessee has shown the purchases from Darshna Corporation for Rs.2,449/- and the Tulsiani Trading Private Limited for Rs. 19,18,350/-. The assessee was asked to show cause as to why the purchases from these parties should not be treated as unexplained expenditure as, the names of these two parties are to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. appearing in the list of suspicion dealers in the website of Sale Tax Department Government of Maharashtra, who are indulged in issuing bogus bill without delivery of any goods and material. The assessee filed its reply.

In the reply the assessee contended that purchases made from these parties are genuine. The assessee submitted the copies of bills, vouchers for these parties and stated that all payments were made to these parties by cheques.

The contention of the assessee was not accepted by the assessing officer holding that payment by account payee cheques is not a full-fledged proof for the claim of purchases. The assessing officer concluded that assessee could not produce the delivery challans, lorry receipts, mode of transportation and evidence of octroi. The assessing officer on the basis of his observation and on the basis of report of Sale tax Department disallowed the aggregate of the total purchases of both the parties for Rs.19,20,799/- under section 69C. The ld. Commissioner (Appeals) confirmed the disallowance almost on the similar lines. We have seen that the action of the lower authority is based on the third party information. The assessing officer has not brought any independent material on record before making disallowance. As we have already noticed that the assessee has brought sufficient material to show the consumption. The assessee was executing major infrastructure project in three States and shown the consumption and utilization of the material in such project. The report of independent to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. Engineers for the consumption furnished by the assessee was not discarded by the lower authority. Thus, considering the facts that the purchases form Darshna Corporation for Rs.2,449 is very small in nature comparative to the overall purchases which is negligible and the same is deleted. So far as purchases from Tulsiani Trading Private Limited are concerned, considering our finding on the ground no.1 of the present appeal the disallowance of is also restricted at 5 % of the impugned purchases ( Rs. 19,18,350/-). In the result this ground of appeal is partly allowed.

26. Ground no.5 relates to confirming the addition of commission to the extent of Rs.13,88,698/-. During the assessment as the assessing officer treated the purchases from Karma industries Ltd as accommodation entry by rejecting the contention of assessee. The assessing officer was of the view that the assessee has paid the commission for obtaining such accommodation entry and estimated 2% of the commission charges paid to Karma Industries Ltd. on purchases of Rs 33,37,54,424/- and worked out disallowance of Rs.66,75,088/-. However, the ld Commissioner ( Appeals) restricted the addition to Rs. 13,88,698/- holding that the disallowance has already been restricted to 12.5% of purchase value hence, the commission payment was restricted accordingly. We may note that we have already restricted the disallowance on the alleged bogus purchases at 5% of the impugned purchases. The disallowance is restricted only to avoid the possibility of the ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. revenue leakage. As we have already concluded that the lower authority failed to bring any adverse, cogent incriminating material to show the facts that the assessee indulged in availing accommodation entry by making payment of commission. There is no material on record to substantiate the finding of the assessing officer. Hence, the order of ld Commissioner (Appeals) for partial sustenance of the addition on account of alleged commission of Rs.13,88,698/- is also deleted. In the result this ground of appeal is allowed.

27. Ground No. 6 relates to interest under section 234B and 234C and ground No.7 relates to initiation of penalty under section 271(1) (c). The ground no. 6 is consequential and thus needs no specific adjudication. However, ground no.7 is premature and thus dismissed. 28. In the result the appeal of the assessee is partly allowed.

ITA No.5126/M/2016 by revenue for AY 2010-11 29. Further the revenue in its cross appeal in for AY

2010-11 has raised following grounds of appeal;

1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in estimating the profit element embedded in the amount represented by bogus purchases recorded in the books of accounts of Rs.31,24,70,714/- in the name of M/s KIL and associate concerns at 12.5 % of the total bogus purchases without appreciating the fact that any expenditure not found to be incurred at all, least of all that the same is also not laid out or expended wholly and exclusively for the purposes of business is not admissible in terms of the provisions of section 37 of the Act?"

to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

2. "Without prejudice to ground no. 1 above, whether the Ld. CIT(A) was justified in taking only 12.5% of the total amount of bogus purchases as income and thus allowing 87.5% of such total amount of purchases as expenditure in contravention of the provisions of section 37 of the Act?"

3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in reducing the proportionate amount of addition whereas, the AO had added the amount attributable to payment of commission without which the assessee could not have managed accommodation entries represented by bogus purchases?"

restricting the disallowance of purchases of steel from Karma Industries Ld to 12.5%. We have seen all the ground of appeal raised by revenue is against partial sustaining of the disallowance for purchases of steel material. Considering the facts that we have already partly allowed the appeal grounds of appeal and restricted the disallowance at 5% of the alleged bogus/ disputed purchases. Hence, the grounds of appeal raised by revenue in its cross appeal are dismissed. 31. In the result the appeal of the revenue for AY 2010-11 is dismissed.

ITA No. 4737/Mum/2016 for AY2011-12 by the assessee 32. In for AY2011-12, the assessee has raised the following grounds of appeal:

1.a) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition to the extent of Rs. 3,63,32,119/ - made the AO to the income of the Appellant on account of unexplained expenditure u/s.69C treating 39 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. the purchases of steel from M/ s. Karma Industries Ltd. and its associate concerns as bogus in respect of Surat-Dahisar Project being profit element embedded in such purchases of Rs. 29,06,56,949/- @ 12.5% of the purchase value. b) The ld. CIT(A) failed to appreciate that :- i) the answers given by Shri V.D. Mhaiskar in recording his statement u/s.132(4) were subject to verification of records, documents, etc.; ii) all the purchases from M/ s. Karma Industries Ltd. and its associate concerns are genuine beyond doubt and supported by sufficient materials; iii) the purchase of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iv) your Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; v) the gross/net profit ratio shown by the Appellant is quite reasonable; vi) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques; and vii) the AO did not provide copy of materials and statements relied upon by him nor allowed any opportunity to the Appellant to cross examine those parties who have been believed to have provided the alleged accommodation bills. C0 In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 55,10,896/ - made by the AO to the income of the Appellant by way of disallowing depreciation on certain materials (steel) used in fixed assets on the plea that the purchases from M/s. Karma Industries Ltd. and its associate concerns are bogus. 3.a) On the facts and in the circumstances of the case and in law, the ld. CIT A) erred in confirming the addition of Rs.1,31,57,347/- made by the AO to the income of the Appellant on account of bogus purchases in respect of purchases from M/s. Asian Steel who in turn purchased these goods from M/s. Karma Industries Ltd. and its associate concerns. b) The Id. CIT(A) failed to appreciate that :- to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. i) all the purchases from M/s. Asian Steel are genuine beyond doubt and supported by sufficient materials; ii) the purchases of steel is backed by corresponding consumption in the projects undertaken by the Appellant; iii) your Appellant has successfully demonstrated that the impugned steel was used in the projects undertaken by the Appellant; iv) the gross/net profit ratio shown by the Appellant is quite reasonable; and v) nothing has been brought on record by the ld. AO that money has exchanged the hands in lieu of payment made for these purchases by account payee cheques. c) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 4) The ld. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is mandatory. The Appellant denies its liability for such interest. 5) The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty.

33. Ground No. 1 of the appeal relates to restricting the disallowance of purchases at 12.5%. We have seen that ground No.1 of the appeal is similar as raised in appeal for AY 2010-11. Considering the facts that we have already restricted the disallowance on account of alleged bogus purchases at 5% of such purchases. Considering the similarity of the facts for the under consideration the disallowance for this year is also restricted at 5% of the impugned purchases (i.e. 5% of Rs.29,06,56,049/-) with similar observation.

In the result this ground of appeal is partly allowed. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

is identical to the ground No. 2 of appeal for AY 2010-11. Considering the facts that we have already allowed the similar ground of appeal in favour of assessee holding that all addition on account of bogus purchases were deleted as the assessment order for AY 2009-10 was held invalid. For the appeal under consideration we may also not that the assessing officer has not brought any evidence that the material (steel) was not put to use in the earlier year related to this assessment year. Even otherwise the purchase of steel for earlier financial has been restricted at 5 % of the purchases only to avoid the suspected revenue leakage. As we have already noted that there is no spot verification that the steel (material) on which the depreciation is claimed in not available at site. Hence, this ground of appeal is allowed in favour of assessee.

35. Ground No. 3 relates to confirming the addition of Rs.1,31,57,347/-. This ground of appeal is identical to the ground No. 3 of appeal for AY 2010-11.

Considering the facts that we have already restricted the disallowance on account of alleged bogus purchases from Asian Steel at 5%. Considering the similarity of the facts for the under consideration the disallowance for this year is also restricted at 5% of the impugned purchases (i.e. 5% of to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. Rs.1,31,57,347/-) with similar observation. In the result this ground of appeal is partly allowed.

36. Ground No.4 relates to levy of interest under section 234B &234C and ground No.5 relates to initiation of penalty under section 271(1) (c). The ground no. 4 is consequential and thus needs no specific adjudication.

However, ground no.5 is premature and thus dismissed.

1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in estimating the profit element embedded in the amount represented by bogus purchases recorded in the books of accounts of Rs. 31,24,70,714/- in the name of M/s KIL and associate concerns at 12.5 % of the total bogus purchases without appreciating the fact that any expenditure not found to be incurred at all, least of all that the same is also not laid out or expended wholly and exclusively for the purposes of business is not admissible in terms of the provisions of section 37 of the Act?" 2. "Without prejudice to ground no. 1 above, whether the Ld. CIT(A) was justified in taking only 12.5% of the total amount of bogus purchases as income and thus allowing 87.5% of such total amount of purchases as expenditure in contravention of the provisions of section 37 of the Act?" 3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in reducing the proportionate amount of addition whereas, the AO had added the amount attributable to payment of commission without which the assessee could not have managed accommodation entries represented by bogus purchases?"

to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

restricting the disallowance of purchases of steel from Karma Industries Ld and its alleged associate concerns to 12.5%. We have seen all the ground of appeal raised by revenue is against partial sustaining of the disallowance for purchases of steel material. Considering the facts that we have already partly allowed the appeal grounds of appeal and restricted the disallowance at 5% of the alleged bogus/ disputed purchases. Hence, the grounds of appeal raised by revenue in its cross appeal are dismissed. 40. In the result the appeal filed by the revenue is dismissed. for AY 2012-13 by assessee 41. The assessee in it appeal for AY 2012-13 has raised following grounds of appeals;

(1). On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in confirming the addition of Rs. 46,84,261/ - made by the AO to the income of the Appellant by way of disallowing depreciation on certain materials (steel) used in fixed assets on the plea that the purchases from M/s. Karma Industries Ltd. and its associate concerns are bogus. (2) The ld. CIT(A) erred in holding that levy of interest u/s.234B and 234C of the Income Tax Act, 1961 is mandatory. The Appellant denies its liability for such interest. (3) The ld. CIT(A) erred in holding that the ground raised disputing initiation of penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961 is premature. The Appellant denies its liability for such penalty. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

is identical to the ground No. 2 of appeal for AY 2010-11 and 11-12. Considering the facts that we have already allowed the similar ground of appeal in favour of assessee holding that all addition on account of bogus purchases were deleted as the assessment order for AY 2009-10 was held invalid. For the appeal under consideration we may also not that the assessing officer has not brought any evidence that the material (steel) was not put to use in the earlier year related to this assessment year. Even otherwise the purchase of steel for earlier financial has been restricted at 5 % of the purchases only to avoid the suspected revenue leakage. As we have already noted that there is no spot verification that the steel (material) on which the depreciation is claimed in not available put to use at site. Hence, this ground of appeal is allowed in favour of assessee. The assessing officer is directed to allow depreciation as per law.

43. Ground No.2 relates to levy of interest under section 234B &234C and ground No.3 relates to initiation of penalty under section 271(1) (c). The ground no. 2 is consequential and thus needs no specific adjudication.

However, ground no.3 is premature and thus dismissed 44. In the result, appeal filed by the assessee is allowed. for AY 2012-13 by revenue. to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.

46. The brief facts related to the grounds of appeal raised by the venue are that while framing assessment the assessing officer noticed that during the course of such action in the group of assessee, Mr Madhav Hari Kale in a statement recorded under section 132(4) admitted that apart from the regular Selby he had received Aspasia of Rs. 32 lakhs in cash. The assessee was asked to show cause as to why the payment made in cash should not be treated as unexplained expenditure. The assessee furnished its explanation, which was not accepted by the assessing officer. The assessing officer concluded that assessee failed to offer any valid explanation regarding the source of payment and its effect in the regular books of account, the payment of such ex- gratia payment was added back to the total income of to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. the assessee. On appeal before Commissioner (Appeals) the addition was deleted. Hence, aggrieved by the order of Commissioner (Appeals) the revenue has filed present appeal before us.

47. We have heard learned DR for the revenue and ld. AR for the assessee and perused the material available on record. The learned DR for the revenue supported the order of assessing officer and argued that assessee has not substantiated about the payments of such huge amount to employee Mr Madhav Hari Kale. On the other hand the learned AR of the assessee supported the order of Commissioner (Appeals) and argued that Mr Madhav Hari Kale was not an employee of assessee and as such there was no occasion for ex-gratia payment to him in cash. It was argued that before making disallowance under section 69C the condition precedent attached to the section should be proved. The assessing officer made the addition merely on the basis of his assumption and presumption.

48. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment proceeding the assessing officer relied on part of the statement of Mr Madhav Hari Kale, which is referred by assessing officer para 5 of his order. The assessee was asked the assessee to explain the expenditure made in cash. The assessing officer further observed that the assessee made its submission. However, the contents of submission are not recorded by the assessing officer. The to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. assessing officer concluded that assessee failed to offer any valid explanation regarding the source of such payment and its effect in regular books of account and added back the same in the income of assessee as unexplained expenditure. Before learned Commissioner (Appeals) the assessee contended that Madhav Hari Kale is not their employee and as such there was no occasion for making ex-gratia payment to him. There was no material before the assessing officer for making the addition of such income.

The assessee explained that Madhav Hari Kale was corporate head of IRB Group. The learned Commissioner (Appeals) examined the statement of Madhav Hari Kale recorded during the search action. The learned Commissioner (Appeals) observed that Madhav Hari Kale did not name the assessee as his employer but only disclosed the amount of Rs.32 lakhs as per e-mail Annexed at page 34 of Annexure -1 for taxation. The learned Commissioner (Appeals) further observed that assessing officer has not brought anything on record to shows that he was in the employment of assessee and was paid such amount by way of ex- gratia payment in cash during the relevant period. The learned Commissioner(Appeals) also recorded in his observation that assessing officer has not discussed the explanation furnished by the assessee before him, whether the assessee in its submission made before assessing officer during assessment has admitted or denied the fact of employment of Madhav Hari Kale. And in case Madhav to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd. Hari Kale is not in the employment of the assessee, the question of making payment of ex-gratia by Cheques or cash would not arise at all. On the basis of his observation the learned Commissioner (Appeals) concluded that there was no valid reason for making aforesaid addition of Rs. 32 lakhs in the hands of assessee and deleted the addition. We have seen that despite explaining the fact that Mr. Madhav H Kale was not in their employment, the assessing officer has not bring any material on record the facts to prove it otherwise. Even before us no contrary material is placed before us or any contrary law is brought in our notice. We have seen that the learned Commissioner (Appeals) granted relief to the assessee after considering the contention of the assessee and the material placed before him. In our view the finding of learned Commissioner (Appeals) is based on record, reasoned one and does not require any further interference at our end. In the result the ground of appeal raised by revenue is dismissed

49. In the result appeal filed by the revenue is dismissed. Order pronounced in the open court on 24th day of October 2017. Sd/- Sd/- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER Mumbai; Dated 24/10/2017 S.K.PS Copy of the Order forwarded to :

1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT

5. DR, ITAT, Mumbai 49 ITA No.4734 to 4738 & 5126 to 5128/M/2016 M/s Modern Road Makers Pvt. Ltd.