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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI SANJAY GARG
PER: SHAMIM YAHYA This appeal by the assessee is directed against order of learned CIT-A dated 16/1/2015, and pertains to assessment year 2010– 11. 2. The grounds of appeal read as under; Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 Being aggrieved by the order dated 16/01/2015, passed by the learned Commissioner of Income Tax (Appeals)-2, Thane ["CIT (A)"] u/s 250 of the Income-tax Act, 1961(“Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other:
1. On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in upholding the disallowance of Rs.73,84,489/- made by the learned Assessing Officer out of the purchases, holding the same to be bogus. Your appellant, therefore, prays that the said disallowance be deleted.
2. Without prejudice to Ground No.1 above, the Ld. CIT-A also erred in not appreciating the appellant’s contention that since the aforesaid purchases were debited to the profit & loss account net of MVAT of Rs.2,84,019/- the disallowance should have been reduced to that extent. Your appellant, therefore, prays in the alternative, and without prejudice, to the prayer made in Ground No.1 above that if the disallowance contested in Ground No.1 above is to be sustained, then the same be reduced by Rs.2,84,019/-.
Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal
, or to add one or more new ground(s), at or before the hearing of this appeal, as may be necessary.
3. Brief facts of the case as under; In the assessment order the assessing officer noted that information was received from the Sales Tax Department, Maharashtra, which gave names and addresses and other relevant details of certain persons who had provided entries for bogus purchase bills to a large number of tax payers. This information also contained the details of the beneficiaries of such bogus bills. The persons who had provided entries to the various beneficiaries had also filed affidavits before the Sales Tax Department, stating therein that they have merely provided entries to these beneficiaries and that no goods as mentioned in the purchase bills issued by them were in fact delivered by them to these beneficiaries. The name of the assessee also appeared in the list of the persons who had obtained such purchase bills from these entry providers. The entry providers in the case of the assessee were M/s. Smartlink Tradex Pvt. Ltd., Ramdev Trading, Prathamesh Impex P. Ltd., Ambika trade Impex and Magnum Enterprises, and the amounts involved were Rs.11,02,501/-, Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 Rs.10,47,506/-, Rs.30,46,745/-, Rs.15,81,209/- and Rs.6,07,528/- respectively, together totaling to Rs.73,84,489/-.
4. The assessing officer further observed that: In order to verify these purchases and to confirm movement of goods or receipt of goods, summons u/s. 131 of the Act, was issued to the Managing Director of the assessee Company. The assessee company was asked to substantiate purchases from these five parties by producing transportation bills, delivery challans, stock register, inward register, goods receiving notes etc. Shri Nitin S. Shembekar, Managing Director of the Company attended in response to the summons. Statement of Shri Nitin S. Shembekar was recorded u/s. 131(1) of the Act on 17.12.13. Shri Nitin S.Shembekar could not lead to any evidence or material such as transportation bills, delivery challans, stock register, inwards register, goods receving notes etc., which would prove the genuineness of the transaction. Shri Nitin S. Shembekar thus failed to substantiate the purchases claimed from these three parties and consequently, squarely admitted for re-computation of the assessee company’s income for the year under consideration by including the amount of bogus purchases reflected from these three parties.
Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 5. Up on assessee’s appeal Ld. CIT-A considered the submissions but did not agree with the same. He concluded as under: “The information received from the sales tax department cannot be taken as without any evidentiary values. The Sales Tax Department has taken action against the Hawala dealers as per Sales Tax Act, therefore, the plea taken by the appellant that these hawala dealers were branded as bogus only because they have evaded sales tax/VAT is also not acceptable. The reasons being that i) The Sales Tax Department had identified some hawala dealers and action was taken against these hawala dealers. Before the Sales Tax Authority, these hawala dealers have given their affidavits by stating that goods were not supplied but only the accommodation bills were issued to the beneficiaries. ii) On the basis of this information, the AO reopened the assessment u/s.147 and called for details to verify the genuineness of the purchases, however, the appellant failed to do so as already discussed in above paras iii) The Managing Director of the Appellant company agreed for addition u/s.131 of the J.T. Act, 1961 after confronting for failure to produce the relevant documents to support the genuineness of the purchases. Therefore, the MD confession is not a General Confession as it supported by information and evidence received from Sales Tax Department and after giving adequate opportunity to the appellant at the time assessment Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 proceedings. Even in the assessment proceedings, no relevant documents were filed to prove the genuineness of purchases. Finally, the MD had to admit for agreed addition u/s.131 of the I.Tax Act. The reasons given by the appellant at Sl. Nos. 1.5, 1.6 and 1.7 cannot be accepted. Therefore, in the instance case, the agreed addition is based on certain commitments of being received accommodation bids, and therefore, the Managing Director agreed for addition to buy peace of mind and to co-operate with Department. In view of the aforesaid facts, I confirmed the addition made by the AO and dismissed the appeal of the appellant.”
Against above order assessee is in appeal before us. We have heard both the counsel and perused the records. Ld. Counsel of the assessee submitted that, although it is true that assessee could not satisfy the assessing officer regarding evidences of the receipt of goods, it cannot be presumed that the assessee could execute the order or carry on the works without actually purchasing the necessary materials. He submitted that it is settled law that when sales are not disputed the corresponding purchases for the same cannot be treated as bogus. Ld. Counsel submitted that the addition by the AO would result in a gross profit of 56%, which would be totally unrealistic. He submitted that in any contracting business such a high gross margin Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 is simply not possible. For this he referred to the past performance of the assessee and pleaded that this doesn't support such a high gross margin. Further more learned counsel submitted that as regards the directors admission before the assessing officer is concerned the same was duly retracted during the assessment proceedings. Further more learned counsel submitted that except for relying upon the sales tax Department investigation assessing officer has not made any examination of his own. He further submitted that no opportunity has been granted to the assessee to cross examine the said suppliers. Per Contra learned departmental representative supported order's of the authorities below.
Up on careful consideration we note that the purchases to the tune of Rs.73,84,489/- have been treated as bogus, however the sales contract receipts have not been disputed. The disallowance has resulted in a gross profit margin of 56%, which is unrealistic and not supported by the industry average or the past performance of the assessee. Further more it is also settled law that when sales are not doubted the entire corresponding purchases cannot be treated as bogus or having been not incurred. In these circumstances in our considered opinion there is considerable cogency in the assessee counsel submission that total disallowance of impugned purchases is not justified as it will result in impossible gross margin. However, we Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 find that at the same time it is also necessary for the assessee to maintain proper supporting documents to satisfy the assessing officer regarding the veracity of the purchases. In these circumstances in our considered opinion a 15% disallowance out of the impugned purchases would serve the interest of justice. The Ld. Counsel of the assessee fairly agreed to this proposition. 8. Accordingly, in the background of aforesaid discussion we direct the Assessing Officer to disallow of 15% out of the purchase of Rs.73,84,489/- 9. The ld. Counsel of the assessee did not press for the ground number two. Accordingly, the same is dismissed as not pressed.
In the result this appeal by the revenue stands allowed for statistical purposes.
Order pronounced in the Open Court on 15.03.2017 Sd/- Sd/- SANJAY GARG SHAMIM YAHIYA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 15.03.2017 Prasad Electrical Engineering P.Ltd. ITA No. 1851/Mum./2015 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Nishant Verma Sr. Private Secretary