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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP GOSAIN
The captioned cross-appeals relate to two Assessment Years of 2009-10 & 2010-11 and involve common issues, therefore, they have been clubbed and heard together and a consolidated order is being
2 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015 passed for the sake of convenience and brevity. Cross-appeals for Assessment Year 2009-10 are being taken up as the lead case in order to appreciate the controversy. & 1164/MUM/2015 (A.Y : 2009-10) :-
These are cross-appeals filed by the assessee and the Revenue respectively against the order of CIT(A)-30, Mumbai dated 23.12.2014, which in turn has arisen from the order passed by the Assessing Officer dated 10.03.2014 under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’).
The Grounds of appeal raised by the assessee and Revenue in their respective cross-appeals for the Assessment Year 2009-10 are as under :-
ITA NO. 1328/MUM/2015 (Assessee’s appeal)
“I. Addition of Rs.11,06,632/- (i.e. 12.5% of Rs.88,53,059/-) on account of GP rate in respect of purchases
The learned CIT(A) failed to appreciate that all purchases of the Appellant were genuine, and hence, addition at GP rate of 12.5% is not justified.
2. The learned CIT(A) failed to appreciate that non-service of notice u/s 133(6) was irrelevant as the Appellant had furnished all documentary evidence in support of proving its purchases.
3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal.”
3 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015 ITA NO. 1164/MUM/2015 (Revenue’s appeal)
Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in partly allowing the appeal of the assessee and by sustaining the addition only to the extent of 12.5% of addition made by the A.O. despite of concluding that the parties from whom the assessee had shown purchases were bogus parties and the motive behind obtaining bogus bills appears to be inflation of purchase price so as to suppress true profits.?
2. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in merely relying on the submission of the assessee that the material alleged to be procured from the tainted parties was used for BMC Construction work without understanding the need and usage of these material in the actual contract work carried out by the assessee for BMC.?"
3. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in limiting the disallowance to the extent of 12.5% of the total alleged purchases without verifying and confirming the quantitative data of the material sourced and its subsequent movement during the year.?"
4. "Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in limiting the disallowance to the extent of 12.5% of the total alleged purchases without analyzing the input-output ratio for these purchases, particularly when these purchases were not traded but used in contract work for BMC.?"
"Whether on the facts and circumstances of the case and in law, the CIT(A) erred in holding that the profit element embedded and suppressed in the alleged purchase were to the extent of 12.5% relying on decision in the case of CIT vs.Simit P.Sheth (2013) 38 Taxmann 385(Guj) without appreciating that, unlike in the case of Simit Sheth (Supra), there was no finding in the instant case of the assessee that the assessee had indeed purchased though not from the named parties but other parties from grey market.?”
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
4 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015
In the cross-appeals, the substantive dispute arises from the action of Assessing Officer in holding that purchases of Rs.88,53,059/- effected by the assessee-firm from 10 parties are bogus. The Assessing Officer treated the entire amount of purchases of Rs.88,53,059/- as unexplained expenditure and added it to the total income. The CIT(A) concurred with the Assessing Officer that the purchases from the 10 parties in question were bogus, but held that the entire amount of purchases could not be added to the total income. The CIT(A) concluded that only the profit element embedded and suppressed in the disputed purchases be assessed to income, which he estimated at 12.5%. Accordingly, he retained the addition to the extent of 12.5% and deleted the balance.
5. In this background, assessee is in further appeal contesting that the CIT(A) ought to have held that the entire amount of purchases were genuine and that the part relief allowed was not justified; and, on the contrary, Revenue is in appeal contesting that the CIT(A) ought to have affirmed the stand of Assessing Officer that the entire amount of purchases was liable to be added to the total income as the same were held to be bogus.
6. Rival counsels have made their submissions and the relevant record perused. Quite clearly, the discussion in the assessment order reveals that the findings of Assessing Officer treating the purchases from 10 parties as bogus are based on a sound footing. The Assessing Officer has based his assessment on the information received from the 5 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015 Sales Tax Department, Government of Maharashtra whereby the 10 parties from whom assessee had effected purchases of Rs.88,53,059/- were found to be indulging in providing accommodation bills. In the course of assessment proceedings, the Assessing Officer also conducted a verification exercise by issuing notices u/s 133(6) of the Act to the various parties and also deputed his Inspector. It is noted in the assessment order that the notices sent to the parties were returned back by the Postal authorities with remark ‘left’ and the Inspector also reported that the parties did not exist at the addresses provided by the assessee. Under these circumstances, the CIT(A) has also found it fit to treat the purchases from the 10 parties as bogus. Though the learned representative for the assessee has reiterated the submissions made before the lower authorities, which has been reproduced by the CIT(A) in his order in para 2.4.1, yet we find that the same are merely generalised submissions and do not address the specific verification exercise carried out by the Assessing Officer. Therefore, insofar as the stand of CIT(A) to treat the purchases from the 10 parties as bogus is concerned, the same is hereby affirmed.
Now, we may come to the stand of CIT(A) in sustaining the addition to the extent of 12.5% and not the entire amount of purchases. In this context, we find that the CIT(A) has referred to the judgments of Hon'ble Gujarat High Court in the case of Simit P. Sheth, 356 ITR 451 and Bholanath Poly Fab Pvt. Ltd., 355 ITR 290. In this context, the plea of assessee is that it is engaged in the business of municipal contracting carrying out work of road repairs, municipal building repairs, etc. for the Municipal Corporation of Greater Mumbai. It is pointed out that the 6 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015 Municipal Corporation awarded a contract to one, M/s. T.R. Trehan Construction Pvt. Ltd., which was sub-contracted to the assessee to carry out the civil works of petty road repairs, building repairs, etc. In order to execute such contract, assessee purchased materials like cement, sand, metal mix, bricks, pipes, etc. from several suppliers including the 10 suppliers in question. It is pointed out that the contract has been executed and the contract receipts have also been offered to tax and the same has not been disputed by the Assessing Officer. In this background it was pointed out that assessee had indeed effected the purchases otherwise the corresponding contract receipts would not have arisen.
We find that the aforesaid submission has prevailed with the CIT(A) who followed the judgments of Hon'ble Gujarat High Court in the case of Bholanath Poly Fab Pvt. Ltd. (supra) and Simit P. Sheth (supra) to hold that assessee had indeed made purchases though not from the named parties but from other parties in grey market. For this reason, the addition has been partly sustained to the extent of probable profit on the amount of such purchases. In our considered opinion, the approach adopted by the CIT(A) is expressly supported by the judgments of Hon'ble Gujarat High Court having regard to the factual situation in the instant case. Therefore, we affirm the ultimate decision of CIT(A) to sustain the addition to the extent of 12.5% of the amount of disputed purchases.
Resultantly, the cross-appeals of assessee as well as the Revenue are dismissed.
7 M/s. Vishwashakti Construction 1329, 1164 & 1165/Mum/2015
It was a common point between the parties that the facts and circumstances in the other cross-appeals pertaining to Assessment Year 2010-11 are pari materia to those considered by us in the cross-appeals for Assessment Year 2009-10. Therefore, following our decision in the cross-appeals for Assessment Year 2009-10, the cross-appeals for Assessment Year 2010-11 are also dismissed.
Resultantly, the captioned appeals are dismissed.
Order pronounced in the open court on 20th January, 2017.