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Income Tax Appellate Tribunal, “ I ” BENCH, MUMBAI
O R D E R PER MAHAVIR SINGH, JM:
These cross appeals, one by Revenue and one by assessee are arising out of the orders of CIT(A)-34, Mumbai, in appeal No. CIT(A)-34/ACIT-19(2)/IT- 103/13-14 dated 16-01-2015. The Assessment was framed by ACIT Circle 19(1), Mumbai for the A.Ys. 2010-11 vide order dated 25-03-2013 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). & 1912/Mum/2015 Shri Amit Bholanath Mishra; AY:10-11
The only common issue in these cross appeals is as regards to the order of CIT(A) restricting the disallowance of bogus purchases at the rate of 8% by estimating the profit rate. The Revenue has raised following ground No.1: - “Revenue’s Ground (1) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.1,87,31,0861- out of total addition of Rs.2,04,99,1361. being estimated Gross Profit, on rejection of the books of accounts of the assessee, even though he upheld that the books of accounts were rightly rejected by the Assessing Officer."
The assessee has challenged the reduction of books of accounts and also application of profit rate at 8%: - Assessee’s Ground
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in upholding the rejection of books of accounts U/S.145 of the IT. Act on the basis of information received from Sales Tax department which is contrary to the facts and evidences of the case and against the principle of natural justice.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in estimating the Gross Profit at the rate of 8% without any basis.”
Briefly stated facts are that the assessee is engaged in the business of civil construction and also derived income from other sources. During the course of assessment proceedings, the AO received information from DGIT(Inv), Mumbai, who in turn received information from Sales Tax Department of Maharashtra Government that the assessee has obtained bogus bills of purchase during the Page 2 of 7 & 1912/Mum/2015 Shri Amit Bholanath Mishra; AY:10-11 financial year 2009-10 amounting to Rs. 4,96,47,028/-. According to AO the assessee has not disclosed correct figures of purchases made, correct sales consideration and correct opening and closing balance in debtors account and hence he issued show cause notice as to why the books of account should not be rejected. The assessee stated that these purchases are genuine and inward and outward consumption of raw material is also there in the form of stock register which resulted into sales ultimately. It was argued that complete sales are booked in the books of account. He also argued that all the purchases are made through account payee cheque and bills and vouchers are also available. It was also stated that materials were received and consumed, hence, no disallowance on account of purchase being made. Alternatively, the learned Counsel also stated that in case the books are rejected profit rate at the rate of 3.55, which varies from last 5 years be applied. The AO applied 8% of the gross profit of the gross contract receipts of Rs. 25,62,39,198/- and estimated the income by applying the GP at Rs. 2,04,99,136/-. Aggrieved, assessee preferred the appeal before CIT(A), who upheld the rejection of books of accounts but allowed the credit for GP declared by assessee as 7.3% and sustained the addition at 0.69% by observing in Para 4.3 to 4.5 as under: -: - “4.3 The second ground of appeal is against estimation of gross profit @ 8% for calculation of income, without any basis and the third ground of appeal is against action of the AO in not calculating the net profit based on the estimated gross profit. As these two grounds of appeal are inter-related, they are clubbed together for discussion and disposal.
4.4 In the show cause noticed did. 8.3.13, the AO caused the appellant to explain as to why Gross Profit (after consideration of all expenses debited to P&L Account) should not be estimated and, after considering and rejecting the appellant's submission, he has held that 8% of gross turnover/gross receipts is proper for the year under consideration. In the written submissions, the Page 3 of 7 & 1912/Mum/2015 Shri Amit Bholanath Mishra; AY:10-11 appellant has stated that it is engaged in executing the contracts for Indian Railways and release of the payment by the Railways is only on certification of the receipt of material of the goods and quality thereof, and to presume Indian Railways would have made the payment towards the appellant's bills without actual receipt of material is incorrect and such assumption that purchases are not genuine, is without any evidence or basis and, further, the computation chart of gross profit for the last three years produced before the AO show that the G.P. for the year under construction is 7.32%, as against GP of 7% and 6.07% respectively in the previous two years. It has also been stated that net profit has increased from 3.85% to 4.5%. Further, it is also seen that in his reply dtd. 15.3.13 filed before the AO, the appellant took an alternative argument that as a civil contractor, his net profit margin is between 3% to 5% for the last five years, which is reflected in his P&L account for the last 5 years, hence, reasonable amount of net profit should be estimated for the civil construction. The rejection of books of accounts of the appellant is in connection with the fact that reconciliation of purchase parties, along with relevant evidence, has not been made by the appellant. Hence, the genuineness of purchases, has not been established as well. Thus, any addition which can be justified, is to the gross profit and not the net profit. I, therefore, hold that the G.P. rate of 8% is to be taken for computing the gross profit during the year 4.5 In his written submissions, the appellant has stated that the difference between G.P. declared @ 7.31% and rate of 8% is 0.69%, which comes to Rs. 17,68,050. I, therefore, confirm the addition to the income of the appellant to the extent of Rs.17,68,050 to the G.P. declared by him. Addition of the said amount of Rs. Page 4 of 7 & 1912/Mum/2015 Shri Amit Bholanath Mishra; AY:10-11 17,68,050 is to be made to the income of Rs. 1,03,86,702 declared by the appellant in the return of income. The above grounds of appeal are therefore partly allowed.”
Aggrieved, now both came in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee is engaged in the business of civil construction and provide construction services to Indian Railways. Admittedly, contract receipts are from Indian railways, wherein, materials purchased from the above parties have been consumed. The assessee admittedly maintained proper stock register and purchase are evidenced from the invoices received from the above parties. Even payments are through account payee cheques, but admittedly, the fact is that the assessee has allegedly made purchase from hawala parties. As per information of Sales Tax Department Govt. of Maharashtra, admittedly, the assessee might have made these purchases but from grey market and taken bill from the above all parties. Now, the assessee has also challenged rejection of books of account before us. We find that the AO has applied profit rate at the rate of 8% and it seems that the AO has applied practically net profit and not gross profit by recording as, “ in light of the above facts and law positions the books of accounts of the assessee is rejected and the income is estimated on the basis of gross profit (after consideration of all the expenses debited to P & L A/c) as per the provisions of the Income-tax Act, 1961 is as under :-
Gross Turnover/ gross receipts Rs. 25,62,39,198/- 8& of the above i.e. 8% of Rs. 25,62,39,198/- Rs. 2,04,99,136/” From the order of the AO and the order of CIT(A), it can be inferred that the CIT(A) has not understood the issue and he just restricted the net profit at 0.69% without any reason whereas he only assumed that the AO has applied Gross Profit rate whereas the AO has clearly applied Net Profit rate. In such circumstances and in the interest of justice, we are of the view that let this issue be re-examined by the CIT(A) afresh, as to what Net Profit rate is to be applied. The CIT(A) will first Page 5 of 7 & 1912/Mum/2015 Shri Amit Bholanath Mishra; AY:10-11 examine the rejection of books of accounts and in case rejection is upheld, he will apply Net Profit rate as per law. The order of CIT(A) is set aside and the matter is remanded back to him.
In the result, both the appeals of Revenue as well as that of assessee are allowed for statistical purposes. Order pronounced in the open court on 03-05-2017.