MOHD. ASLAM KHAN,MUMBAI vs. ACIT 19(2), MUMBAI

The only issue in this appeal of the assessee is against the order of CIT(A) confirming the action of the AO in make addition of entire bogus purchases of Rs.2,28,28,460/- from 9 parties on the ground that the name of suppliers figured in the list of suspicious dealers on the web-site of Sale Tax Department of Maharashtra. For this assessee has raised following 7 grounds: - “(1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the re-opening the assessment by issuing notice u/s 148 without indicating any reliable material and information establishing that assessable income had escaped assessment. (2) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the income of the appellant at Rs. 3,13,85,060/- in the assessment framed u/s 143(3) r. w. s 147 as against the returned income of Rs. 85,56,600/-. (3) On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the action of the A.O. of disallowance of purchases aggregating to Rs. 2,28,28,460/- from 9 parties on the ground that the name of suppliers figured in the list of suspicious dealers on the web site of Sales Tax Department, Maharashtra and the appellant failed to produce the purchase parties and had accepted these purchases as bogus in the statement recorded during the course of survey. (4) In doing so, the Ld. CIT(A) failed to appreciate the fact that the purchases of the appellant were proved by the purchase bills, stock register, material consumption chart, running account bills and that the payments for purchases were made through banking channels. (5) In doing so, the Ld. CIT(A) failed to appreciate the fact that the purchased material with reference to these purchase bills was fully consumed in the execution of contracts the payments for which was received and dully recorded in the books of accounts. 6) In confirming the action of the A.O. the Ld. CIT(A) failed to appreciate the fact that the genuineness of the purchases cannot be held against the assessee merely on the ground that the names of the suppliers were included in the list of suspicious dealers of State Government when the A.O. himself had not carried out any independent verification and the appellant was not confronted with the material gathered and relied upon by the Sales Tax Department for concluding that the suppliers were bogus.” (7) In confirming the action of the A.O. the Ld. CIT(A) erred in placing reliance on statement recorded u/s 131k during the survey when the contents of the statement had lost its evidentiary value because the same was retracted by the appellant vide affidavit dated 17.04.2013.

At the outset, the learned Counsel for the assessee stated that he has not interested in prosecuting the ground regarding jurisdiction of re-opening u/s 147 r. w. s. 148 of the Act. Accordingly, the same is dismissed.

As regards bogus purchase, the brief facts are that the AO has made disallowance of bogus purchases aggregating to Rs.2,28,28,460/- from the following 9 parties: - Sr. No Name of the party Amount 1. Real Traders 10,00,000/- 2. Bhavesh Metal (P) Ltd. 18,28,736/- 3. Option Mercantile (P) Ltd. 23,88,402/- 4. Status Mercantile (P) Ltd. 31,99,819/- 5. Aman Enterprise 18,04,899/- 6. Jupiter Multitrade (P) Ltd. 59,91,617/- 7. Prakash Enterprises 40,89,723/- /Bhavani Corporation 8. Uday Enterprises 15,25,250/- 9. Siddhivinaak Corporation 10,00,000/- Total 2,28,28,460/- During the course of survey on the business premises of assessee on 04-01-2013, it was found by the department that the assessee has claimed bogus purchase as par data available on the website of Maharashtra Sales Tax Department and the same was admitted by the assessee Mr. Mohd. Aslam Khan, proprietor of M/s Raymts Construction, in his statement recorded during the course of survey u/s 133A of the Act. The AO noted that the assessee has recorded total bogus purchases in its books of account rather procure only bogus bills to the extent of purchase of Rs. 2,28,28,460/- in F.Y. 2008-09 relevant to A.Y. 2009-10. The assessee admitted that he has taken accommodation bill on account of bogus purchase but actually the purchases were made from grey market. The AO analyzed the statement of assessee and added entire bogus purchases in 3 financial years vide Para 7.2.1 of the AO’s Order which reads as under: -

We have heard rival contentions and gone through facts and circumstances of the case. The facts are that the assessee is the proprietor of M/s Ramayts Construction which is engaged in the business of Civil Contractor. A survey u/s 133A of the Act was conducted on the business premises of the assessee 04.01.2013. The statement of the assessee was recorded, in which declaration of undisclosed income amounting to Rs 2,28,28,460/- in respect of purchases from 9 parties was made. The copy of statement is enclosed at Pages 319 to 323 of assessee’s Paper Book. A similar statement u/s 131of the Act was recorded by A.O. on 07.01.2013 wherein the assessee again re-iterated the surrender. Copy of statement is enclosed at Pages 324 to 326 of assessee’s Paper Book. The survey on the business premises and the deposition of the assessee was in the context of the list displayed by Maharashtra Sales Tax department on its Website wherein certain parties were termed as suspicious dealers. The names of the nine supplier parties in the case of the assessee for which surrender was obtained figured in this list. The assessee during the course of assessment proceedings, vide submissions dated 14.05.2013 had asserted that the purchases were genuine and the deposition made in the statement did not depict the correct state of affairs as it was obtained after the assessee was subjected to lot of mental tension and pressure during the course of the day on 04.01.2013 and again when his second statement was taken on 07.01.2013. The assessee couldn’t consult the tax professionals before that. The assessee retracted the surrender in as much as no revised return was filed endorsing the surrender and subsequently an affidavit was filed before the Department in April 2013 retracting the surrender made in the course of survey. The A.O. has however, made the addition entirely relying on the statement which was never acted upon by the assessee and the display of certain names in the list of suspicious dealers by the Maharashtra Sales Tax Department. The assessee before us contented that the addition made is wholly unsustainable on facts and unjustified as per the provisions of the law. The assessee narrate that he maintains stock register which incorporates details of all the items purchased and consumed in the execution of contracts. The A.O. has found no flaw in the stock register, Page 4 of 9 A.O. during the assessment proceedings. The assessee also furnished master chart showing the summary of the items purchased and consumed project wise. These details were furnished along with the response dated 14.05.2013, copy of which is filed at Pages 35 to 351 of assessee’s Paper Book. The assessment order makes no reference and observations about these documents. To prove its point to the hilt that the purchases were genuine the assessee furnished copies of running account bills project wise along with a chart reflecting the quantities of job work performed and the material consumed. The assessee also furnished ledger account of the parties which had been termed as suspicious by the Sales Tax Department and copy of bank statement evidencing payment by cheque to these parties. The assessee also furnished computation of material required for the contract jobs executed. On the face of these details and documents, there remains absolutely no basis for coming to the conclusion that the purchases shown by the assessee were not genuine.

We also find that the A.O. in the assessment order noted at Para 7.1 that the assessee has disclosed the sum of Rs. 2,28,28,4601- in the light of the various documents found and impounded by the department found at the time of survey, but no reference to any of the impounded material has been given in the assessment order. Even in the statement recorded by the assessee on 04-01-13 and again on 07.01.13, no reference of the impounded material is given. The very fact that the assessee had in the statement made during the survey proceedings on 05.01.2013on being questioned about the bogus purchases, had mentioned that all the payments to these parties had been made through account payee cheque only and in the very next question admitted to the bogus purchases. We also find from the records that the assessee is in the similar business since he started the business in A. Y. 2006-07 and the book results of the assessee are comparable to past years when the declared income was accepted. Comparable data of the book results is as under: -

We find from the above facts of the case that in the preceding 3 years the net profit rate of the assessee varied between 5.17% and 6.03%. In A.Y. 2009-10 the turnover of the assessee as also the net profit rate of 6.21% was the highest among all the years. In A.Y. 2009-10 the A.O. has made an addition of Rs. 2,28,28,4601- and determined the total income at Rs. 3,13,85,056/-. The computed total income at Rs. 3,13,85,056/- gives a rate of 22.55% (3,13,85,056 113,91,78,907*100) which is unreasonably high looking to the past results of the assessee. The assessee is engaged in construction activity and such activity does not yield such high rate of return. We also find that the addition proposed on the basis of the statement recorded in the course of survey was not corroborated by any material found in the course of survey. The underlying principle for making addition is that the purchases are bogus as the suppliers are not genuine. But the assessee maintains proper stock register and has reflected the incoming stock in the consumption of jobs executed. We find that during the year the total contract receipts of Rs. 13,91,78,907/- from contract jobs executed from the following 10 parties are given below:

We find that the above chart would clearly reveal the assessee started construction of project and after a certain progress is made the assessee submits running account, bills and the payments are granted after the job performed. The Running Account bill gives a complete description of the qualities of work performed and raw material consumed. The material acquired and consumed is also comprehensively reflected in the stock register maintained by the assessee. This register incorporates details of raw material purchased in terms of quantity in respect of the items namely cement, sand, metal, steel, rubble etc. For the other miscellaneous items, the stock register maintains records in terms of material cost. We also find that the assessee has made purchases from 9 parties which relate to acquisition of items like Sand, Metal, Bricks, etc. and also submitted a master chart representing summary of the items purchased and consumed project wise in the assessment year under consideration. This chart will prove that all the items purchased including the items purchased from the above 3 parties has been consumed for executing the contract jobs. To provide complete corroboration the assessee submitted the entire set of running account bills project wise for all the contracts executed during the year. A Chart is prepared project-wise on the basis of the running account bills which reflect the quantities of work performed by the assessee. This chart also shows the item of materials as well as the quantities of material required for executing the required jobs. The quantities of various items of material consumed worked on basis of the individual project chart is then taken to the master chart to give complete co-relation between the items of material purchased and consumed. The running account bills here the comprehensive description of the material consumed and the summary of material consumed as reflected in the master chart would completely explain the case. Even the revenue has accepted the sales made by the assessee, which have neither doubted nor disturbed.

As per our considered view, an affidavit by itself constitutes 'valid evidence and cannot be rejected without cogent reasons. It cannot be rejected merely on the ground that it is not supported by documentary evidence unless there is material to suggest that some documentary evidence exists and has not been produced by the assessee despite being required to do so. In this connection, reliance can be placed on the judgment of the Hon'ble Allahabad High Court in the case of L. Sohan Lal Gupta v CIT, 33 ITR 786, wherein it was held that: " The Tribunal was not entitled to reject the affidavit filed by the assessee on the mere ground that he had produced no documentary evidence; if it was not accepted as sufficient proof the assessee should have been called upon. to produce documentary evidence or he should have been cross- examined to find out how far his assertions in. the affidavit were correct". Reliance can also be placed on the decision of Supreme Court in the case of Mehta Parikh & Co. v CIT, 30 1'FR 181 (SC). Further reliance can also be placed on the decision of Hon'ble Jabalpur ITAT in the case of ACIT v Satyapal Wass, 295 ITR (AT) 352 held that: “Affidavit even if regarded as self-serving did not lose their evidentiary value as there was no material to the averments made in the affidavit"

From the record we also found that the assessee maintains proper accounts including cash book, ledger and stock register. All these account books were produced before the AO and the assessment order does not reveal that any discrepancy or anomaly was noticed in them. The assessee is engaged in civil contract work for BMC as well as private parties. The entire receipts of the assessee are by cheque. The AO has not found any material to question the correctness of the receipts. The bills submitted by the assessee and the payment orders testify the consumption of material for which deduction has been claimed. The department as built up its entire case on the foundation of Sales Tax departments findings that certain dealers were actually indulging in accommodation entries and not making actual sales. Their names were displayed on the website and three suppliers of the assessee found mention in the list. It is well settled proposition of law that this information alone is not enough to disallow purchases from them. The assessee was subjected to survey and no material whatsoever was found during survey to suggest that the purchases from these suspicious dealers was not genuine. It is by now widely accepted legal proposition that statement recorded during survey on standalone basis in absence of corroborating material have no evidentiary value for making additions. 11. Keeping in view the totality of facts and circumstances of the case and to cover any leakage of revenue, we direct the AO to restrict the addition to the extent of 5% of the purchases which amounts to 1.66 lakhs. Accordingly, AO is directed to restrict the addition to the extent of Rs. 1.66 Lakhs.” 10. In view o the facts and circumstance explained above, we are of the view that the assessee is able to explain that there is no bogus purchases but as admitted by the learned Counsel for the assessee that for the sake of consistency, a profit rate of 5% to the quantum of bogus purchases is Rs.2,28,28,460/- is to be taken as profit and can be added to the return income of the assessee. Accordingly, we direct the AO to compute the profit at the rate of 5% and assessed the income on these bogus purchases. The appeal of the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 22-12-2016.