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Income Tax Appellate Tribunal, “G”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R
PER RAM LAL NEGI, JM
The present appeal and Cross Objection have been filed by the Revenue and the Assessee against order dated 21/10/2014 passed by the Ld. CIT (A)- 32, Mumbai whereby the Ld. CIT (A) partly allowed the appeal filed by the assessee against Assessment Order dated 17/02/2014 passed u/s 143(3) of the Income Tax Act, 1961 (the Act for short). Since, the appeal and cross objection arise from a single order which pertain to the assessment year 2009-10, both were clubbed, heard together and are being disposed of for the sake of convenience.
Brief facts of the case are that the assessee filed its return of income for the assessment year 2009-10 declaring total income of Rs. 2,14,58,877/- after scrutiny the assessment order was passed determining the total income at Rs. 2,16,57,246/-. Subsequently, information was received from DIT (Inv.) and Sales Tax Department, Govt. of Maharashtra that assessee has taken bogus purchase entries of Rs. 95,44,936/- from seven parties. Accordingly, the assessee was asked to submit confirmation from the parties however, the assessee expressed its inability to get the confirmation on the ground that the parties are not responding to the request made to them. Since the assessee failed to submit the confirmation the AO made addition of Rs. 95,44,936/- to the income of the assessee treating the same as non genuine transaction.
3. Aggrieved by the assessment order, the assessee carried the matter to the Ld. CIT (A) in first appeal. The Ld. CIT (A) after hearing the assessee confirmed the addition to the extent of Rs. 12,56,405/- by applying the net profit ratio of 8.26 % on total turnover and balance addition of Rs. 82,78,531/- was ordered to be deleted.
CO NO 119/MUM/2016 Assessment Year: 2009-10
Against the said order said order the revenue has preferred the present appeal raising the following grounds:-
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in applying the net profit ratio of 8.26% on total turnover in respect of addition made by the A.O. on the ground of bogus purchases from hawala dealers.”
2. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the addition was made on the basis of information received from the DIT (Inv.) and sales Tax Department, Maharashtra with regard to bogus purchases made by the assessee from dealers without supply of actual goods.”
3. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the hawala dealers have admitted on oath before the Sales Tax Authorities that they have not sold any material whatsoever to anybody.”
4. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not considering that the assessee could not prove the genuineness and creditworthiness of the purchase transactions during the course of assessment proceedings.”
5. “The appellant prays that the order of Ld. CIT (A) on the above grounds be set aside and that of the Assessing Officer be restored.”
6. “The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
5. On the other hand, the assessee has filed the cross objection against the said order on the following effective grounds:
1. “The learned Commissioner of Income-tax (Appeals)- 32, Mumbai [CIT (A)] erred in upholding the validity of Notice issued under CO NO 119/MUM/2016 Assessment Year: 2009-10
section 148 and the assessment framed thereon under section 143 (3) read with section 147 of the Income Tax Act, 1961, without appreciating that the Notice issued was invalid and void ab initio and there was no income chargeable to tax which had escaped assessment.
2. The learned CIT (A) erred in estimating the net profit @ 8.26% and in confirming the addition of Rs. 12,56,405/- only for the reason that some of the suppliers names were appearing in the list of hawala dealers available on the MAHAVAT website.
In view of the above, the Respondent prays that the addition ought to be deleted.
The Respondent craves to add, alter, delete or modify the above ground of cross-objection on or before the time of hearing of the appeal.”
The Ld. Departmental Representative (DR) relying on the findings of assessment officer submitted that the AO has made disallowance of entire amount because the assessee had failed to submit the confirmation from the concerned parties. Since, the findings of the AO is based on the evidence on record, Ld. CIT (A) has wrongly confirmed the addition to the extent of Rs. 12,56,405/- only by applying the net profit ratio of 8% on total turnover. The Ld. CIT(A) ought to have taken into consideration the admission on the part of hawala dealers made before the Sales Tax Authorities to the effect that they did not supply any material whatsoever to anybody. As regards the cross objection filed by the assessee the Ld. DR submitted that since, the department has challenged the impugned order on the ground that the Ld. CIT(A) has wrongly applied the net profit ratio, there is no merit in the assessee’s cross objection. The Ld. DR further submitted that impugned order may be set aside and the assessee’s cross objection may be dismissed.
CO NO 119/MUM/2016 Assessment Year: 2009-10
On the other hand the Ld. Counsel for the assessee submitted that there is no merit in the revenue’s appeal as the Ld. CIT(A) has wrongly confirmed the addition to the extent of Rs. 12,56,405/-by estimating the net profit @ 8.26% only for the reason that names of some of hawala dealers were appearing on MAHAVAT website. Ld. Counsel for the further submitted that the assessee does not want to press ground no. 1 of the cross objection. Accordingly, ground no. 1 of the assessee’s appeal is dismissed as not pressed. The Ld. Counsel against the grounds of revenue’s appeal and in support of assessee’s cross objection submitted that that assessee had carried the matter pertaining to the assessment year 2010-11 and 2011-12 to the Income Tax Settlement Commission by filing application u/s 245C (1) of the Act with the offer of additional income of Rs. 37,12,340/- for A.Y. 2010-11 and Rs. 6,85,505/- for the A.Y. 2011-12 which inter alia included Rs. 2 ,00,000/- for each of the two years as miscellaneous receipts earned by the applicant. The assessee worked out the profit @ 8% on the total contracted amount which resulted in the additional undisclosed income of Rs. 37,12,340/- and Rs. 6,85,505/-. Further, in the spirit of settlement and to buy peace the assessee voluntarily offered further additional undisclosed income of Rs. 10,00,000/- for the A.Y. 2010-11 and Rs. 20,00,000/- for A.Y. 2011-12, to cover up possible inflation and any discrepancy in the cost of raw materials which was accepted by the Settlement Commission. The Ld. Counsel further submitted that in the light of the findings of the settlement commission the profit cannot exceed 8% on the total turnover.
We have heard the rival submissions and also perused the material placed before us. We notice that the Ld. CIT (A) has based his findings on the order dated 03.03.2014 passed by the Settlement Commission u/s 245D (4) of the Act, the relevant portion of the CIT(A) order reads as under:
“The Hon’ble Settlement Commission in the subsequent two years (supra) in assessee’s own case has held that 8% net profit on total turnover is quite CO NO 119/MUM/2016 Assessment Year: 2009-10 fair and reasonable. I also find that Hon’ble Settlement Commission decisions is very much applicable for A.Y. under consideration also as the projects of the applicant are lasting and overlapping into the subsequent years. Further, it is also found that the non genuine purchase of parties of this year are also found to be the parties in the subsequent years for which the applicant has gone to the Settlement Commission. Hence the findings of the Settlement Commission of the subsequent years are very much applicable for the year under consideration also as the non genuine parties are the same for all the years. Therefore, 8% net profit on total turnover would cover up the profit element embedded in the purchases of s. 95,44,936/- . However, I also find that during the course of settlement commission’s proceedings, the appellant had declared additional income of Rs. 10,00,000/- for A.Y. 2010-11. If the average of the total income additional declaration of Rs. 10,00,000/- is taken into consideration then the net profit ratio comes to 8.26% (Rs. 3,12,97,128/Rs. 37,871,4097x100). The total turnover of the appellant is Rs. 27,11,01,357/- By applying the net profit ratio of 8.26%, the net profit of the appellant comes to Rs. 2,23,92,972/-, whereas the appellant has shown net profit of Rs. 2,11,36,972/-. Thus, addition to the extent of Rs. 12,56,405/- (Rs. 2,23,92,972/- - Rs. 2,11,26,567/-) is confirmed and the balance addition of Rs. 82,78,531/ - (Rs. 95,44,936/- - Rs. 12,66,405/-) is directed to be deleted.”
We further notice that the Ld. Settlement Commission has accepted the profit @ 8% worked out by the assessee holding as under:
“We have considered the submissions of the applicant and have perused the material available on record. We have also heard the CIT (DR) and considered the Rule 9 report. It is a fact that the entire purchases from the vendors as per the website cannot be disallowed in toto because the consumption of materials purchased from these parties have been duly verified by the Municipal Corporation of Greater, Mumbai (MCGM)’s Engineers and later on clarified by their Vigilance and Audit Wings. Be that as it may, without actually consuming the raw materials, the work done by the applicant could not have been possible. The non-availability of the sellers/suppliers or there denial regarding these transactions cannot lead to the conclusion that these purchases were not at all required to be made CO NO 119/MUM/2016 Assessment Year: 2009-10 for the purpose of assessee business, as there could not have been the corresponding sales/receipts by way of execution of the contract works by the applicant, without utilization of these materials. The decision of the jurisdictional Bombay High Court in the case of CIT Vs. M/s Nikunj Exim Enterprises Pvt. Ltd. is found to be applicable to the facts of the present case. As regards, the rate of net profit of 8% suggested by the applicant, we are of the considered opinion that it is quite reasonable and fair on the facts and circumstances of the case……..”
We have gone through the order of the Ld. CIT(A) in the light of the findings of the Settlement Commission given in assessee’s own case for the assessment year 2010-11 and 2011-12. We notice that the Settlement Commission has followed the decision of Hon’ble jurisdictional High Court Bombay rendered in Commissioner of Income Tax Vs. Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom) in which the question for consideration before the Hon’ble Court was as under:
“whether on the facts and circumstances of the case and in law the tribunal was right in deleting the edition made by the Assessing Officer of Rs. 1,33,41,917/- towards bogus purchases even though the supplier was not existent and one of the parties had categorically denied having any business dealings with the assessee company”
The Hon’ble Court dismissed the appeal filed by the revenue holding as under:
“We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were CO NO 119/MUM/2016 Assessment Year: 2009-10 confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicated that the purchases were infact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT (A), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as CIT (A) have disallowed the deduction of Rs. 1.33 cores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated 30.04.2010 of the Tribunal.”
In view of the fact that the Settlement Commission has passed the order u/s 245 D (4) of the Act in assessee’s own case for the A.Y. 2010-11 and 2011- 12 following the ratio laid down by the Hon’ble Bombay High Court in M/s Nikunj Exim Enterprises (supra) and allowed 8% profit on the contract amount worked out by the assessee. Hence, in our considered opinion, 8% profit ratio on Rs. 27,11,01,357/- i.e. the total turnover of the assessee which comes to Rs. 2,16,88,108/- is reasonable. Since, the assessee has shown net profit of Rs. 2,11,36,567/- the addition is required to be confirmed to the extent of Rs. 5,51,541/- i.e. ( 2,16,88,108/- (-) 2,11,36,567/-). Hence, the solitary ground of cross objection of the assessee is partly allowed and order passed by the Ld. CIT (A) is modified accordingly. On the other hand, all the grounds of appeal filed by the Department are dismissed as we have reduced the profit ratio to 8% on total turnover as against the ratio of 8.26% estimated by the Ld. CIT(A).
In the result, appeal filed by the revenue for assessment year 2009-2010 is dismissed and the cross objection filed by the assessee is partly allowed.
Order pronounced in the open court on 23rd February, 2017.