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Assessee by : Shri Rushabh Mehta (AR) Revenue by : Shri T. A. Khan (DR) Date of hearing : 21.09.2017 Date of Pronouncement : 21.09.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal under section 253 of the Income-tax Act (the Act) by assessee is directed against the order of Commissioner of Income –Tax (Appeals) -1 [ld. CIT(A)], Aurangabad dated 01.03.2017 for the Assessment Year (AY)
2011-12. The assessee has raised the following grounds of appeal.
1. The Ld. CIT(A) erred in facts and law in disallowing and reducing a sum of Rs. 39,518/- from the closing WIP in respect of certain purchases alleged as bogus by the Id. Assessing Officer without appreciating the evidences placed on record.
2. The learned Commissioner of Income Tax (Appeals) and Assessing Officer erred in facts and law in not appreciating that the appellant had duly discharged its onus of establishing the genuineness of purchases and utilisation thereof in the business of the appellant and accordingly no disallowance was warranted.
ITA No.3784/M/2017- M/s Triveni Spaces
3. The learned Commissioner of Income Tax (Appeals) and Assessing Officer erred in facts and law in relying upon the statement of certain persons without providing the same and without affording the appellant any opportunity of cross- examination of these parties.
4. The appellant prays that - (a) WIP as shown in return of income be restored and disallowance of Rs. 39,518/- be deleted; (b) Any other relief, as may be deemed fit. 5. All the above grounds are independent and without prejudice to each other. 2. Brief facts of the case are that the assessee is a Partnership firm engaged in the business of construction and development of commercial and residential sites. The assessee filed his return of income for relevant AY on 15.09.2011 declaring total income of Rs. 1,22,600/-. The assessment was completed on 20.03.2014 under section 143(3) of the Act. During the assessment proceeding, the Assessing Officer observed that assessee has made purchases from various parties including from M/s Mahavir Steel Corporation of Rs. 39,518/-. The Assessing Officer noted that M/s Mahavir Steel Corporation was declared as hawala dealer by Sales Tax Department, who were providing accommodation bill without delivery of goods. The assessee was asked to explained and substantiate the purchases. The assessee was also asked to place on record the purchase invoices and the receipt of delivery of materials. The assessee furnished the copy of invoices, however, no documentary proof like related with dispatch, freight receipts and delivery challan was filed. From the evidences furnished by assessee, the Assessing Officer was not satisfied. The Assessing Officer was of the view that the purchase of the assessee was not genuine and added the cost of M/s Triveni Spaces purchase of Rs. 39,518/- to the income of the assessee. On appeal before the ld. CIT(A), the addition was confirmed. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee argued that the Assessing Officer made the 100% of addition to the total income of the assessee on account of bogus purchases. The assessee has substantiated his claim before the Assessing Officer. The ld. CIT(A) also confirmed the addition of 100%. The ld AR prayed that he has no objection if the reasonable percentage of the alleged bogus purchase is sutained. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue argued that during the assessment proceeding, the assessee could not substantiate and prove the genuineness of purchases. No evidence regarding the delivery of material was filed. The assessee was given adequate and sufficient opportunity by the lower authorities.
We have considered the rival submission of the parties and have seen that during the assessment proceeding, the Assessing Officer noted that the assessee had made the purchases from M/s Mahavir Steel Corporation which was declared as hawala dealers by the Sales Tax Department, Government ITA No.3784/M/2017- M/s Triveni Spaces of Maharashtra. The Assessing Officer has not made any independent enquiry, no notice u/s 133(6) or summons u/s 131of the Act, was sent to the said bogus parties. The Assessing Officer has not brought any material on record except relying upon the information of Sales Tax Department.
However, the ld. CIT(A) while considering this ground of appeal passed the following order:
“The appellant is engaged in the business of builder & developer and during the year under reference, it has not shown any turnover/sale of WIP. The total cost of finished stock or WIP was shown at Rs.17,51,54,720/- at the end of the year. Therefore if entire purchases of Rs.39,518/- are disallowed then it would imply that about 0.22% of WIP was bogus which does not appear to be illogical. It would also not lead to abnormal profits in the year of sale. In view of above facts, this is a case where the entire cash has been siphoned off by debiting the bogus purchases. Therefore, following the principle laid down in the decision of Hon'ble Allahabad High Court in the case of Sri Ganesh Rice Mills (294 ITR 316), the purchases are held to be non-genuine. Therefore the work-in-progress shown in the current year is reduced by an amount of Rs.39,518/- on account of inflation of purchases, It is further noticed that the appellant firm had claimed deduction on account of work-in-progress in AY 2012-13 and appeal for the same was also pending with the undersigned. Since the effect of adjustment in WIP has to be made in that year, therefore the undersigned has issued notice for enhancement of income in AY 2012-13 to the appellant firm on such adjustment in WIP. In view of above facts, the AO is directed to delete the addition of Rs.39,518/- made by him in the current year. These grounds of appeal are accordingly allowed.”
5. From the above observations we have note that the ld. CIT(A) has indirectly approved the entire the disallowance. In our view, the ld. CIT(A) has not given any relief to the assessee by reducing an equal amount on 4 M/s Triveni Spaces account of purchases. In our view, no relief is granted to the assessee.
In our view, under the provisions of Income-Tax Act, the Revenue is entitled only taxable income component and not to tax the entire transaction.