ACIT 33(3), MUMBAI vs. SETH CONSTRUCTION CO., MUMBAI

order of the CIT (A)-45,Mumbai, dated 28/04/2015,the Assessing Officer (AO) has filed the present appeal. Assessee-firm,a contractor of civil works, filed its return of income on 24/09/2009,declaring total income at Rs.97.68 lakhs. The AO completed the assessment u/s.143(3) r.w.s. 147 of the Act, on 29/03/2015,determining its income at Rs. 2.42 crores. 2.Effective ground of appeal is about restricting/upholding the addition at the rate of 8% of purchase i.e. 8% of Rs.1.44 crore which worked out to Rs.11.55 lakhs as against Rs.1, 44, 40, 398/-.During the assessment proceedings, the AO found that as per the information of the Sales Tax Department (STD) Government of Maharashtra, the assessee had made purchases from five entities who were indulging in issuance of goods without delivery. He observed that the assessee had purchased goods from Devdhar Steel(Rs.78.54 lakhs),Vruksha Enter - prises(Rs.5.52 lakhs), Chaitanya Enterprises(Rs.16.74 lakhs),Unique Enterprises (Rs. 21.5 lakhs)and Oriental Trading Corporation (Rs. 22.04 lakhs), that the STD had taken statements/ depositions and affidavits of hundreds of persons who were behind running the racket of issuing bills for a commission. The AO issued notice under section 133(6) to all the above referred five parties. However, the notices were returned with remark left/not known from the postal authorities. The assessee failed to produce the suppliers before the AO. He deputed the inspector to serve notices under section 133 (6) of the Act, who confirmed that no such parties were in existence at the addresses mentioned or that no business activities were carried out from the addresses.The AO directed the assessee to file explanation in that regard. After considering the same, he held that payment by account payee cheques was not

4280/M/15(09-10) M/s. Seth Construction sufficient to substantiate the claim made about purchases, that the assessee had not produced delivery challan/Lorry receipts, mode of transport of goods and stock register, that it had not rebutted the evidences, depositions and statements of all operators. Accordingly he made an addition of Rs.1.44 crores to the total income the assessee, invoking the provisions of section 69C of the Act. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA). Before her, it made elaborate submissions and relied upon certain case laws.After considering the submission of the assessee and the assessment order, the FAA held that the assessee was engaged in the business of civil contractors for Municipal Corporation and Government Agency, that the AO had issued notices under section 133 (6) of the Act and had made field enquiries, that he had not found any concrete evidence to doubt the genuineness of the payments made by the assessee through the banking channels, that he had not been able to question the availability of the inventory that had been subsequently used, that the assessee had filed his books, Ledger accounts and the bank statements, that the STD had proved that the suppliers were engaged in false billing for a fee/commission, that the onus of proving the genuineness of the transaction was on the assessee, that filing copies of Ledger account and bank accounts would not establish that parties actually existed, that the books of accounts were not disputed, that the sales were not questioned by the AO, that there was no evidence to show that money was received by the assessee, that the AO had not doubted the quantity of purchase per se, that is objection was about the genuineness of the suppliers. The FAA further observed that the cause of justice would be served by looking at the gross profit margins being declared by the assessee. Referring to the judgment of Hon’ble Gujarat High Court in the case of Simit P Sheth (Tax Appeal Number 5531 of 2012, dated 16/01/2013), she observed that when total sales were accepted by the AO the entire purchases could not be added. Accordingly, the FAA added 8% of the total purchases made by the assessee during the year and restricted the addition to Rs.11,55, 232/-. 4.During the course of hearing before us, the Departmental Representative (DR) relied upon the order of the AO.The Authorised Representative (AR) supported the order of the FAA.

5.We find that the AO had made the addition on the basis of the information received from the STD,that he had invoked the provisions of section 69C of the Act, that he had made addition of entire purchases made from five entities on the basis of the report of the STD, that he had issued notices under section 133(6) of the Act, that he had deputed an inspector to