ASST CIT 19(3), MUMBAI vs. S.V. JIWANI, MUMBAI

Briefly, the facts are assessee - a partnership firm, is engaged in the business of civil construction. For the assessment year under consideration, the assessee filed its return of income on 30.12.2011, declaring total income of `.92,36,071/-. The assessment in the case of the assessee was originally completed u/s. 143(3) of the Act on 30.12.2011, determining total income at `.93,73,219/-. Subsequently, on the basis of the information available with the AO that assessee has inflated its purchases through accommodation entries reopened the assessment u/s. 147 of the Act. During the reassessment proceedings, on the basis of information obtained from the Sales Tax Department of the Government Of Maharashtra, the AO found that purchases made by the assessee to the tune of `.4,50,08,383/- from twenty three parties are bogus purchases, since such parties, as per the investigation carried out by the Sales Tax Department were found to be hawala dealers providing accommodation entries. Accordingly, the AO completed assessment by adding back the alleged bogus purchases of `.4,50,08,383/-. Assessee challenged the addition in appeal preferred before the CIT(A). The learned CIT(A), after considering the submissions of the assessee in context of facts and materials on record, directed the AO to restrict the addition to 12.5% being profit on bogus purchases alleged to have been made by the assessee. Being aggrieved department is before us.

We have heard the learned counsels appearing for both the parties and perused the material on record. Undisputedly, the assessee is executing civil contract work awarded mostly by MCGM. The CIT(A) has noted that without purchasing materials/goods it would not have been possible on the part of the assessee to execute the contract work with the MCGM. Moreover, the assessee is executing work of a government authority. Therefore, there cannot be any manner of doubt with regard to the nature of work or the quantum of work carried out by the assessee. It is evident from record that the AO is not disputing the turnover of contract work executed by the assessee. Therefore, unless the assessee procured the materials/goods, though may not be from the declared sources but from some other sources, it would not have been possible on the part of the assessee to execute work awarded by MCGM. That being the case, the entire purchases made by the assessee cannot be added back as income but only profit element embedded therein can be treated as income of the assessee. In aforesaid view of the matter, we do not find any infirmity in the order of the CIT(A) in estimating profit at 12.5%. Accordingly, we confirm the order of the CIT(A). In the result, departmental appeal is dismissed.

CO No. 29/Mum/2017 Assessment Year 2009-10

In the result, the departmental appeal and the assessee’s cross- objections are dismissed.