ASST CIT 25(2), MUMBAI vs. MAHIPL M JAIN, MUMBAI

Assessee by : Shri V. C. Shah Revenue by : Shri Kailash Kanojiya (DR) Date of hearing : 02.05.2017 Date of Pronouncement : 17.05.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. These cross appeal under section 253 of Income Tax Act, are directed against the order of Commissioner (Appeals) -35 Mumbai, dated 20th May 2013 for Assessment Year 2010-11. In both the appeals, the facts are common, grounds of appeal s are connected thus, both the appeals were heard together and are being decided by the common order to avoid the conflicting decision.

2. Brief facts of the case are that assessee is an individual and engaged in the business of Civil Contractor, Sub-contractor for Civil and for Labour Contract and sub-Contract. The assessee is proprietor of M/s Moksha Construction. The & 5290/M/2013- Mahipal Babulal Jain assessee filed his return of income for relevant Assessment Year on 20th September 2010 declaring total income of Rs.26,20,326/-. The assessment was completed on 8th March 2013 under section 143(3) of the Act. The assessing officer while framing the assessment order made the additions of Rs. Rs.2,21,63,862/- under section 69C on account of bogus expenditure. The Assessing Officer made the addition under section 69C of the Act. On appeal before Commissioner (Appeals) the disallowance was restricted to Rs. 41,32,070/-, thereby deleting the balance of Rs. 1,80,31,792/-. Thereafter, aggrieved by the order of Commissioner (Appeals) both the parties have filed their cross appeals. The assessee has challenged the order of Commissioner (Appeals) against sustaining the addition of Rs.41,32,070/-, similarly the Revenue has challenged the deletion of Rs. 1,80,31,792 /-.

1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the addition to total income of Rs.41 ,32,070/- by illogically coming to the conclusion that the gross profit earned by your appellant was lower than the same in preceding years.

2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in rejecting the book results merely by coming to the conclusion that the gross profit earned was less compared to earlier years for which your appellant could have furnished the explanation and book results were rejected merely on conjectures and surmises.

3. On the facts and in the circumstances of the case and in law the CIT (A) erred in not considering the fact that about 67% of your appellants turnover in this year was from sub-contracts accepted as compared to 8% in preceding year and NIL in A.Y.2008-09 and the margin of profit in sub-contract receipts is always substantially less as compared to the work contractor.

4. The Revenue has raised the following grounds of appeal: (1) “The ld. CIT(A) erred in deleting the addition of Rs. 2,21,63,862/- which was made by invoking the provision of section 69C of the I.T. Act by treating the purchases as genuine”. (2) The ld. CIT(A) erred in relying upon the judgments of CIT Vs Nikunj Eximp Pvt Ltd. without appreciating that the facts involved in the appellant’s case are different from the facts of the above case laws.” (3) The ld. CIT(A) has grossly erred in not appreciating the facts that notice under section 133(6) issued to the parties from whhome unless bills were received were returned undelivered by the postal authorities and inspector of the circle.” (4) The ld. CIT(A) has grossly erred in not appreciating the fact that assessee was not able to produce the parties, from whom alleged bills were received before the AO despite many opportunities were accorded to him.” (5) The ld. CIT(A) has grossly erred in not appreciating the fact that assessee failed to rebut the findings of Sales Tax Department vis-à-vis bogus purchases despite & 5290/M/2013- Mahipal Babulal Jain reasonable opportunity was accorded and the assessee asked to allow cross examination of the alleged seller before the A.O.” (6) The ld. CIT(A) has grossly erred in accepting the misleading submission made by assessee that the Department didn’t make available the information provided by Sales Tax Department. (7) The ld. CIT(A) on the above grounds be set aside and that of the AO be restored.

in both the cross appeals are “whether the Commissioner (Appeals) erred in sustaining the partial disallowance.” The learned AR for the assessee argued that the lower authority has not considered the fact properly and the addition was made without appreciating the facts and submissions made before them. The Assessing Officer merely relied upon the information of Sale Tax Department of Government of Maharashtra without making any independent enquiry. The names of the dealer/suspicious dealer which was appeared on website of Sale Tax Department of Government of Maharashtra was suspicious as they have not disclosed certain transaction or may not have discharged their VAT liability. The Assessing Officer and ld. Commissioner (Appeals) have not appreciated the fact that the assessee was a sub-contractor. The ld. Commissioner (Appeals) made the additions on the basis of average Gross Profit Ratio for AY 2008-09 & 2009-10, without giving opportunity to explain the facts by assessee. On the other hand, the ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue further argued that the assessee failed to substantiate the genuinity of expenditure. No delivery challan, lorry receipt and mode of transportation of goods were filed before the Assessing Officer. The notices sent by the Assessing Officer to those parties were not served, the postal authorities gave their report either “left” or “Not available” at the addresses.

6. We have considered the rival submissions of the parties and gone through the orders of the authorities below. The Assessing Officer while framing assessment order asked the assessee to furnish the list of person from the assessee purchased the material. The assessee furnished the list of such parties.

& 5290/M/2013- Mahipal Babulal Jain

The Assessing Officer noticed that out of such parties, the name of some of such parties is appearing in the list of suspicion dealers on website of Maharashtra Government Sales Tax Department. Those dealers were issuing bogus bills without delivery of any goods or material. The parties were issuing only bills for a commission. The Assessing Officer collected the statement of the parties whose names appeared in the list Maharashtra Government Sales Tax Department. Copies of all the information, statement, and deposition, affidavit etc. were provided to the assessee. The Assessing Officer also issued notice under section 133(6) of the Act to all such parties. The notices sent to those parties were return back by the postal authorities with the remark both ‘left’ or ‘not known’ and one of such parties namely ‘M/s. Yash Corporation’ was not available at its address, when the Inspector deputed to serve the notice. The Assessing Officer asked the assessee to explain as to why the purchases of aggregating of Rs.2,21,63,862/- should not be treated as unexplained expenditure. The assessee filed his reply on 2nd March 2013 and claimed that purchases made from these parties are genuine. The assessee in his reply further contended that the assessee used to purchase material like Sand, Cement as the same easily available in the market, the assessee used to place the order verbally based on the requirement on site. All the sites were under the control of supervisor and proprietor, there was no possibility of any leakage in use of material, all the payments were made through account payee cheque and copies of bank statement along with copies of cheques number were provided to the Assessing Officer. The contention of assessee was not accepted by Assessing Officer and the Assessing Officer disallowed the aggregate of entire purchases of Rs.2,21,63,862/- holding that the assessee failed to produce the delivery challans, payments of octroi receipt, stock register to substantiate the genuinity of the purchases from these parties. The assessee failed to produce the evidence as to how the material comes to the possession of the assessee and thus the Assessing Officer disallowed the cost of entire expenditure incurred on account of purchases. The ld. Commissioner (Appeals) thoroughly examined the facts of the case and the submission made before him. The ld. 4 & 5290/M/2013- Mahipal Babulal Jain

Commissioner (Appeals) also referred a number of decisions of Co-ordinate Bench, different High Courts and Hon’ble Apex Court. The ld. Commissioner (Appeals) examined the Gross Profit ratio, wherein the G.P. Ratio in AY 2008- 09 is 13.71% and G.P. Ratio in AY 2009-10 is 13.03%. The G.P. Ratio in the year under consideration was recorded as fallen to 7.88%. The ld. Commissioner (Appeals) concluded that the assessee has not been able to substantiate as to why the G.P. Ratio has not fallen down to 7.88%, which was overall more than 13% in past except AY 2006-07 & 2007-08, where the G.P. was above 17%. On the basis of average G.P. Ratio for AY 2008-09 & 2009- 10, the ld. Commissioner (Appeals) arrived at average G.P. of 13.37% for the year under consideration. By applying the G.P. ratio on Gross Receipt of Rs.7,53,23,888/-, the Gross Profit of Rs. 1,00,70,803/- was worked out. The ld. Commissioner (Appeals) further observed that the assessee has already declared Rs. 59,38,733/- as Gross Profit for the year. The learned Commissioner (Appeals) reduced the amount of Gross Profit from the profit worked out by him. (Rs. 1,00,70,803 - Rs. 59,38,733 = Rs. 4132070). Thus, the ld. Commissioner (Appeals) sustained the disallowance of Rs. 41,32,070/-. We have noticed that the disallowance sustained by ld. Commissioner (Appeals) is 18.64% (19% approx ) of the impugned purchases/expenditure. We have further seen that the ld. Commissioner (Appeals) has not given opportunity to the assessee while working out the disallowance on the basis of G.P. Ratio. We have noticed that the AO nor the ld. CIT(A) rejected the sales of the assessee. The AO disallowed the entire amount of purchases/ expenditure. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further note that even in cases where the whole transaction is not verifiable due to various reasons, the only taxable is the taxable income component and not the entire transaction. The similar view was taken by Hon’ble Bombay High Court in the case of “CIT vs. Hariram Bhambani” in of 2013 decided on 04.02.15. The Hon’ble High Court further held only the profit attributable on the total unrecorded sale consideration alone can be subject to income tax. We have further noticed that 5 & 5290/M/2013- Mahipal Babulal Jain