DCIT 15(2)(1), MUMBAI vs. MAGOXY INFRASTRUCTURE P. LTD, MUMBAI

This is an appeal filed by the revenue against the order of CIT(A)- 24, Mumbai dated 24/03/2016 for the A.Y.2009-10 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act.

The following grounds have been taken by the Revenue:- 1. "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to estimate profit of 15% on the total alleged purchase without appreciation the facts that the said seller parties were found to be Hawala operators / Bogus billers". 2. "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition made by the AO on account of diesel expenses amounting to Rs. 76,04,403/- without appreciating the facts that it was the .onus of the assessee to prove that the diesel expenses were incurred for business purpose which the assessee failed to prove".

The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored.

The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary. 2. Rival contentions have been heard and record perused. 3. In Ground No.1, Revenue is aggrieved for upholding addition of only 15% of the bogus purchases. We have heard rival contentions. The AO has discussed the issue in part.13 to 8.3 of the assessment order and observed that information was received from sales tax department that 2 concerns viz. M/s. Chemi Age Enterprise and Bio Age Enterprises had issued bogus bills as they were found to be hawala operators issuing bills without supply of goods. In fact this is the reason why the case was reopened. The AR filed various details with documentary evidences to prove that the supplies made by the above two parties are genuine. The AO did not accept the submissions made by the assessee. Therefore, the entire amount of purchases of Rs.16,90,367/- was added. 4. By the impugned order CIT(A) restricted the addition to the extent of 15% of such purchases after having the following observation:- On careful analysis of the finding of Hon'ble High Court of Gujarat in the above cases, I am of the firm view that without purchase of materials it was not possible for the appellant to either sell the items or complete, the ' contract. As mentioned above the AO had never disputed or examined the aspect of sales, Hence I am of the firm belief that the appellant had made cash purchases from other parties, which were not recorded in the books. The appellant took only bills from these 2 parties as accommodation to explain the purchases. Therefore-the entire purchase from these 2 parties cannot be added as bogus and Magoxy Infrastructure Pvt. Ltd., what needs to be taxed is the profit element embedded in such transaction. Profit estimates ranging from 12.5% to 25% has been upheld by the Hon'ble Gujarat High Court depending upon the nature of the business. As held in the case of Simit P. Sheth (supra) no uniform yardsticks could be applied to estimate the rate of profit and it vary with the nature of business, Taking all the facts into consideration and the findings of the Hon'ble Courts on this issue, I am of the view that estimation of 15% of profit woul9 meet the ends of justice. In view of the detailed discussion above, I direct the AO to estimate profit of 15% on the total alleged bogus purchase made Rs.16,90,367/· which works out to Rs.2,53,555/-. Therefore addition made by the AO is sustained to the extent of Rs.2,53,555/- and the appellant gets, relief of the balance Rs.14,36,812/-, This ground of appeal is partly allowed.

AO has also disallowed the diesel expenses amounting to Rs.76,04,403/- which was deleted by CIT(A) after having the following observation:- 5.4 I have carefully considered the submission of the appellant and the impugned order. From the submission made by the appellant it could be ascertained that M/s. S.K. enterprises on a total sale of Rs'.4.96 crores (Rs.1.57+Rs.3.39) had debited RS.71.26 lacs on account of diesel expenditure that works out to 14.34%. The details of month wise breakup with regard to the sales was furnished aIongwith the submission which revealed that the material sold was Rs.1,57,32,482/- and the income on account of excavation/ hiring/ transportation was RS.3,39,57,946/- and this concern has taken up the project exclusively for Godrej & Boyce, Vikhroli. The detail filed is enclosed as Annexure - 1 to the order. 5.5 Similar details furnished in respect of the appellant indicated that on a total sale of 15.66 crores an amount of ~s.1.27 crores was claimed towards diesel regard to the Sales was furnished along with the submission which revealed that the flooring / mise. work carried out was Rs.1,73,48,182/-, receipt on account of project work in respect of concerns such as Godrej B0yce, L& T, BG Shirke was in the order of Rs.8,48,00,114/- and the income on account of excavation/hiring/transportation was Rs.5,45,34,774/- and this concern has taken up this work not only for Godrej & Soyce, Vikhroli but also Magoxy Infrastructure Pvt. Ltd., to Ahura Construction':'CO:, SG Shirke etc. The detail filed is enclosed as Annexure -2 to the order. 5,6 The AR of the appellant had also filed the P&L account and ledger extract of M/s. S.K. Enterprises. The perusal revealed, that diesel expense of RS.71.26 lacs was claimed. The ledger extract revealed that- out of total diesel expense incurred Rs.1,47,04,471/-, the appellant was allocated Rs.75,77,694/- by passing a journal entry on 31.3.,3009. This clearly shows that th.e appellant did not claim any expense that belonged to the sister concern. Considering the quantum of sales turnover of both the appellant and it's sister concern, I find the claim of diesel expense at 8.16% by the appellant appears to be reasonable as;against14.34% claimed in the case of S.K Enterprise. When both the concerns are liable for tax at maximum marginal rate there is no need for the appellant to shift the expenditure as concluded by the A.O. Therefore, the addition made by the AO only on the basis of presumption is hereby deleted. This ground of appeal is Allowed.