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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMARJIT SINGH
सुनवाई की तायीख / Date of Hearing : 18.08.2016 घोषणा की तायीख /Date of Pronouncement : 07.10.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM: There are six appeals under consideration involving three sets of cross appeals for the assessment years 2008-09 and 2009-2010. Since, the issues involved in these appeals are identical / inter-connected, therefore, for the sake of convenience, they are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in the following paras of this order. I. Cross Appeals for the AY 2008-2009 (In the case of Mahavir Construction Co) Ground raised by the assessee in appeal IT No.4254/M/2015 reads as under:- “On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the addition made u/s 69C to the extent of Rs. 18,36,435/-, being estimated @ 8% of the purchases of Rs. 2,29,55,434/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra.” Grounds raised by the Revenue in appeal read as under:-
1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement.
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating the fact that on the similar ground the assessee had made disclosure of income in subsequent assessment year on account of unverifiable / bogus purchase expenses and through the same concerns the assessee had made purchase in the current year as well.
4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in ignoring the fact that the hawala parties are non-existent at the given address and further they have given affidavits before the Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying of any goods.”
Briefly stated relevant facts relevant to the assessment year 2008-2009 are that the assessee filed the return of income declaring the total income of Rs. 33,86,880/- and the same was revised later to Rs. 63,18,333/-. Assessment was completed u/s 143(3) read with section 147 of the Act and the assessed income was determined at Rs. 66,42,907/-. Subsequently, Assessing Officer received information from the office of the DGIT (Inv.), Unit-IV on the information relating to the survey results connected to the bogus purchases. The information shows Mr. Mafatlal Shah and other concerns are connected in issuing the bill for commission. During the year under consideration, AO noticed that assessee made purchases from 13 of the parties who supplied the material to the assessee. Assessee is a Government Contractor engaged in the business of „civil construction‟ activity. The extent of such purchases works out to Rs. 2,29,55,434/-. As per the information received from the DGIT (Inv.), the said purchases constitute „bogus purchases‟ as the suppliers have given the affidavits to the Sales Tax Authorities revealing their actual transaction of providing accommodation entries and bogus purchase bills. Considering the same, Assessing Officer invoked the provisions of section 148 of the Act and called for the return of income. Assessee relied on the returns already filed by the assessee u/s 139(1) of the Act. In response to the specific query by the Assessing Officer regarding the purchases from the said 13 parties / suppliers, assessee relied heavily on the entries / transactions of the books of accounts and submitted that the payments to these suppliers are made through the banking channels. Regarding the goods delivered to the assessee, AO noticed that the delivery challans were not furnished. Further, assessee submitted that the AO is not having any direct evidence to demonstrate that the said purchases are bogus. Further also, assessee mentioned that the contracts were executed by the asesee as per the contract documents with the Government and the quality of such contracts was never compromised. Further, it is the case of the assessee when the books of accounts are proper and the same were audited by the Statutory Auditors u/s 44AB of the Act, in the absence of any incriminating evidence, addition on account of bogus purchases is not sustainable in law. However, the explanation of the assessee was not accepted by the AO and the AO proceeded to make addition of Rs. 2,29,55,434/- u/s 69C of the Act. In the assessment order, AO relied on the statement made u/s 131 of the Act taken on oath on 7.12.2011 ie the date of survey. AO cited the answer to the Q. No.7 wherein the assessee replied that the site supervisors do the purchase of raw material, their certification and the cheques were issued to these suppliers. Basing on the said reply, AO presumed that the above purchases are bogus. AO also mentioned about the failure on part of the suppliers to receive the notice issued u/s 133(6) of the Act. The fact of the said notices being returned unserved was also mentioned. Thus, the AO made addition based on (i) the statement of the assessee on 7.12.2011 and (ii) the failure of the assessee in producing the parties before him. AO also relied on the fact that the said parties denied that they are engaged in the business of supply of raw materials. They are only engaged in the business of giving accommodation entries for earning commission. Matter travelled to the first appellate authority.
During the proceedings before the first appellate authority, assessee reiterated the submissions made before the AO and relied on various decisions for the proposition that the purchases cannot be added while the sales are undisturbed by the assessee. He also relied on the orders of the Tribunal, where an identical additions were made and the said additions were deleted and only sustained the GP addition in alternate after studying GP pattern of the respective assessees. CIT (A) considered the same and accepted the arguments of the assessee to some extent. CIT (A) relied heavily on the judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (216 Taxman.com 171) in this regard. As per the discussion given in para 5 of his order, CIT (A) is of the opinion that there is no direct evidence regarding the allegation of bogus purchases of raw materials. The assessee‟s failure to produce the parties from one side and the affidavits furnished by those parties to the Sales Tax Authorities on the other are not conclusive to confirm the conclusions o0f the AO. Therefore, she proceeded to estimate the GP to confirm the addition to the extent of GP @ 8% on the alleged suspicious purchases of Rs. 2,29,55,434/-. However, these conclusions are not supported by the facts of the assessee on the GP rates of the assessee over the years. Aggrieved with the confirming of the GP addition, assessee is in appeal before us. Further, aggrieved with the deletion of bogus purchases of Rs. 2,29,55,434/- u/s 69C of the Act, Revenue is in appeal through the cross appeal mentioned above.
5 4. This appeal filed by the assessee on 09.7.2015 is against the said order of the CIT (A)-42, Mumbai dated 11.5.2015 for the assessment year 2008-2009.
The only issue raised in this appeal relates to the decision of the CIT (A) in upholding the addition u/s 69C of the Act to the extent of Rs. 18,36,435/- ie 8% of the alleged bogus purchases amounting to Rs. 2,29,55,434/-. It is alleged that the CIT (A) erred in resorting to estimation of profits and the addition confirmed by the CIT (A) should be deleted in toto.
Before us, Ld Counsel for the assessee submitted that the books of accounts are valid, accurate and complete in all respects. There is no problem with the method of accounting adopted by the assessee over the years. In such circumstances, the CIT (A) is not correct in rejecting the books of account and resorting to estimation of profits @ 8% of the alleged purchases. Ld Counsel for the assessee is critical in stating that the purchases made by the assessee from the parties are genuine. The fact of assessee making the payment through cheques involving the banking channels was also highlighted. When the payments are received by the suppliers and when there is no evidence of cash transactions, the presumptions drawn by the AO and the CIT (A) are unsustainable in law. Therefore, it is the prayer of the assessee that the claim made in the return of income originally filed by the assessee is fair and reasonable and therefore, the addition made u/s 69C of the Act should not be approved.
On the other hand, Ld DR for the Revenue submitted that the said parties have given statement on oath before the Sales Tax Authorities and informed about their actual business activities ie engaged in the business of giving accommodation entries. They are not genuine sellers of the raw materials required for the assessee‟s business of civil construction. Otherwise, he relied on the order of the AO and submitted that the entire addition of Rs. 2,29,55,434/- should be confirmed.
We have heard both the parties on this issue of bogus purchases. We have also gone through the paper book and the various decisions placed before us in support of the assessee‟s claim that the addition on account of bogus purchases u/s 69C is not sustainable in law. The judgment of the Hon‟ble jurisdictional High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (supra) is one of such judgments which is relevant for the proposition that addition on account of purchases cannot be sustainable when the sales recorded by the assessee are undisturbed. There is no dispute on the fact that the Assessing Officer did not disturb the sales account and accepted the relevant account in the books of account of the assessee. We have also noticed the fact that there is no direct evidence to implicate the assessee regarding the bogus purchases. AO‟s reliance on the affidavits of the suspected suppliers submitted to the Sales Tax Authorities was not accepted by the various Courts on account of bogus purchases u/s 69C of the Act. In these circumstances, on facts and legal propositions, we have to decide whether the additions made u/s 69C are sustainable or otherwise.
In this regard, we have come across various decisions and one of such decision is in the case of Shri Pratap U Purohit vide (AY 2010- 2011), dated 10.02.2016, where one of us (AM) is a party to the said order. In the said order, the Tribunal held that such additions u/s 69C of entire suspected purchases are unsustainable in law and for that proposition, we relied on the judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (supra). For the sake of completeness of this order, relevant paras from the said Tribunal‟s order dated 10.2.2016 (supra) are extracted as under:-
10. We have heard both the parties on this issue of addition made u/s 69C of the Act. We have also examined the aforementioned orders of Tribunal. We find, the decision, made in those cases adjudicated by the Tribunal (supra), is also based on the data available on the webpage of the Sales Tax Department. At least some of the parties are found figuring in the list supplied by the AO and the CIT (A). The Tribunal decided the appeals in the above mentioned cases (supra), after analysing the contract works executed by the assessee for MCGM, accepted the fact that the contract works were executed and the quality was also accepted by concerned authorities of the MCGM. In those circumstances, the utilization of the raw material in correct proportion is beyond doubt. It is a logical conclusion that cement, steel, bricks etc purchases by the assessee should be real. The names of the suppliers may or may not be sacrosanct so long as assessee incurred expenditure on the said raw materials. It may be a case that the assessee made the payments by the cheque to the said 56 parties, who may be bill suppliers, cannot be the suppliers. But, so far as the assessee is concerned, payments are incurred on the raw materials purchases by the assessee as per the requirements of the contracts. In these circumstances, as held by the Tribunal in many other cases, the onus is on the Assessing Officer to demonstrate the raw materials were not purchased at all from the stated / any supplier or AO should demonstrate the contract works executed by the assessee are of inferior quality and the raw materials to the tune of Rs. 13.03 Crs was an inflated one. Unfortunately, AO failed to discharge the onus on the above issues. The AO mechanically compared the list of suppliers to the assessee with the list available on the website of the Sales Tax Department ie www.mahavat.gov.in (supra) and all the purchases from these parties were rejected as „bogus‟. In the process, the AO ignored the issues about the fact of completion of contracts without compromising the quality of the contract works. For the sake of completeness of this order, we extract the relevant para 8 from the Tribunal‟s order in the case of Ramesh Kumar & Co (supra) and the same reads as under: “8. We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealers by the Sales Tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion. Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from the account. No such exercise has been done. The ld CIT (A) has also confirmed the addition made by the AO by going on the suspicion and the belief that that suppliers of the assessee are Hawala traders. We also find that no effort has been made to verify the work done by the assessee from the Municipal Corporation of Greater Mumbai. We agree with the submissions of the Ld Counsel that if there were no purchases, the assessee would have been in a position to complete the civil work.
Further, regarding the GP maintained by the assessee, we find that the assessee declared GP rates of 10.56% (supra). AO has not examined the GP rate of the assessee over the years on similar contracts. Taking comparable cases, however, it is the claim of the assessee with the addition of Rs. 13.03 Crs, the GP rate has resulted to 21.38%, which is abnormally high on the fact of it in the contract works like the one executed by the assessee. Unfortunately, there is no reference to these aspects in the order of the AO and the CIT (A), despite the reference made by the assessee in his submissions (item 12 in page 10 of the CIT (A)‟s order is relevant in this regard). Therefore, CIT (A) may examine this issue afresh in the remand proceedings. He is free to call for relevant reports from the AO as per the procedure. CIT (A) is required to examine the sacrosanct nature of the GP of 10.56%.”
Considering the above, we are of the opinion the decision of the AO in making entire bogus purchases is not proper and therefore, the grounds raised
by the Revenue are dismissed.
11. Coming to the decision of the CIT (A) in restricting the addition to the extent of GP ie 8% of the so called bogus purchases, it is the case of the assessee that addition of 8% in addition to the already offered income in the return of income is unreasonable and therefore, seeks deletion of the same. However, Ld Counsel for the assessee submitted that the Assessing Officer failed to demonstrate coclusively that the entire purchases constitutes bogus purchases. He also submitted that in the sworn in statement, assessee never agreed to the fact that the said purchases are bogus. 11.1. Further, Ld Counsel for the assessee furnished a chart of GP of the assessees for various AYs and summed up by stating that the Net Profit (NP) of the assessee, not considering the profits of the main contractors, is around the NP rate of 5.93%.
As per the calculations of NP of Shri Kishore G. Shah, the average NP works out to Rs. 5.18% only. According to the Ld AR, the NP of 8% adopted by the CIT (A), which is impliedly in the language of provisions of presumptive taxation as mentioned in section 44AE to 44AF of the Act, is much higher than that of the NP of the assessee (5.93%). He prays that taxing the profits @ 8% on these suspected purchases amounts to double taxation as they are already accounted and taxed. Therefore, they should be deleted entirely. Further, he also brought to our notice the fact of filing application before the Income Tax Settlement Commission (ITSC) u/s 245C of the Act. However, ld AR fairly submitted, the decision of the ITSC has no binding on the proceedings before the ITAT.
Per contra, Ld DR argued that this being the case of accommodation entries, entire addition is required to be confirmed. Elaborating the same, Ld DR submitted that the Hon‟ble Gujarat High Court in the case of Simit P Sheth (supra) considered all the facts of that case in general and the arguments relating to double taxation, suspected purchases, accommodation entries and arrived at the conclusion that the addition profit on suspected purchases are required to be added as and above the recorded profits of that assessee. Regarding the rate of profits, Hon‟ble High Court held that the 12.5% of the suspected profits, although the same is much higher than the profit rate of 3.56% as recorded in the books, is reasonable. Thus, according to the Ld DR for the Revenue, the CIT (A) erred in restricting the profit rate to 8% but also erred in not adopting the said rate of 12.50%. He submits that the rate of 12.50% is not new in this line of real estate business. Thus, he pleads for confirming the entire suspected purchases. Alternatively, he argues for confirming the adopting the rate of 12.50% in tune with the said judgement in the case of Simit P Sheth (supra).
We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. We have also gone through the decisions citations relied on by both the parties. After hearing boththe parties and on perusal of the orders of the Revenue Authorities, we find, similar issue came up before the Tribunal for adjudication in the case of Kinjal Construction Co. & Chirag Construction Co. (JV) vs. ITO in (AY: 2010-2011) wherein one us (AM) is a party to the said order. In the said case, the Tribunal relied on the judgment of the Hon‟ble Gujarat High Court in the case of CIT vs. Simit P Sheth in ITA No.553 of 2012, dated 16.1.2013 (356 ITR 451), which is relevant for the proposition that the only profit element embedded in such purchases can be added to the income of the assessee when the assessee purchased goods in grey market without bills and made up the same with the accommodation entries / bills. Considering the significance of the said order of the Tribunal (supra) and for the sake of completeness of this order, relevant paras 9 and 10 are extracted as under:- “9. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties on this issue, we find the sales account is undisturbed in this case by the AO. Therefore, the jurisdictional High Court judgment in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd reported in 2013-TIOL is applicable in this case. Further, we find, the CIT (A) relied on the judgment in the case of Simit P Sheth (supra). On perusal of the cited judgment of the Hon‟ble Gujarat High Court in the case of Simit P Sheth (supra), we find, the held portion of the judgment is relevant in this regard. Considering the significance and for the sake of completeness of this order the same is extracted as under:- “We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee s theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. If the entire purchases were wholly bogus and there was finding of fact on record that no purchase were made at all, counsel for the revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30% of such total sales. The Tribunal, however, scaled down to 12.5%. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit @ 3.56% of the total turnover. If the yardstick of 30%, as adopted by the Commissioner, is accepted GP rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.”
10. From the above, we find, the essential facts are comparable to that of the present case. They are: sales account is undisturbed, presumption of purchase of goods outside the books and also without bills, procuring the purchase bills from the hawala bill providers etc. Undoubtedly, the assessee is engaged in the construction activity and GP rate 12.5% is not uncommon. In the cited judgment, the addition @ 12.5% of the suspected purchases was confirmed by the Hon‟ble High Court when the recorded profit of the assessee – Simit P Sheth (supra) is only @ 3.56%. Considering the above, we find, the CIT (A) is justified in adopting 12.5% of the suspected purchases for addition. Therefore, in our opinion, the order of the CIT
(A) on this issue is fair and reasonable and it does not call for any interference. Thus, Ground no.2 raised by the assessee is dismissed.” The other arguments / issues raised by the assessee and Revenue are addressed to in the succeeding paragraphs. A. Whether the entire suspicious purchases should be added: 14. This issue is answered by Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises Pvt Ltd (supra) and the order of the Tribunal in the case of Kinjal Construction Co. & Chirag Construction Co (supra) against the Revenue. Accordingly, it is a settled legal proposition in this region that the addition of such entire purchases made by the AO on account of bogus/suspicious purchases from the suppliers, is unsustainable in law. In the present case also, the suppliers stated in their affidavits before the Sales Tax authorities that they were merely engaged in supply of bills for commission and therefore, they never supplied or delivered the material to the buyers. The reason being that, the revenue never doubted the sales and AO never disturbed the sales account of the assessee in the year under consideration, addition of entire purchases is not valid. Therefore, the addition of entire such purchases as done by the AO is not correct and thus, the decision of the CIT(A) in deleting the same is upheld. Resultantly, the appeals filed by the revenue are decided protanto.
B. Whether taxing profits of the suspected purchases amounts to Double taxation: 15. This issue is answered by the Gujarat High Court in the case of Simit P Sheth (supra) and it is against the assessee. In this case, the facts are that assessee claimed bogus purchases exceeding Rs. 41 lakhs (rounded off). AO made addition of entire such purchases and he also added further sum of Rs 5 Lakhs towards profit portion relatable to such sales. Assessee is said to have purchased the matching purchases from the grey market without bills. The FAA deleted such addition of entire suspicious purchases and restricted to only 30% of said purchases. The Tribunal scaled down the addition to 12.5% of the suspected purchases. Otherwise, assessee's recorded GP is 3.56%. Honble Gujarat High Court affirmed the conclusion of the Tribunal. We find the core facts are similar to the present case. There is no other case brought to our notice. The held portion of the said judgment of Gujarath HC reads as under:-
Held, dismissing the appeal, that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the income of the assessee. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick could be adopted.
Therefore, in principle, it is settled law that the profit portion of the suspected purchases is required to be taxed. We proceed to apply the same the facts of the present case.
C. Onus on assessee and enquirers into purchases: 17. In the instant case, assessee claims that the purchases are genuine. Assessee relies on documentary evidences by way of bills/invoices and the transactions involving the bank. Per contra, the enquirers conducted by the AO by invoking the provisions of sections 133A, 131 etc gave different results. Further, there is an indirect and unconfirmed and unspecific evidence to suggest or cast doubt on the genuineness of the purchases. Revenue gathered the affidavits of these suppliers whereby they affirmed the facts about never delivered/supplying the materials to the Assessee. There are no delivery challans placed before us. What does these facts indicate? 18. One explanation could be that the assessee straight away inflated the purchases by booking bogus purchases to the purchases account by buying the accommodation entries / bogus bills to match the inflation. Alternatively, the assessee actually makes the purchases from the suppliers in grey market and without bills as they refuse to issue the bills for their own reasons and therefore, the assessee had to go to raise such bogus bills to match the otherwise genuine purchases without bills. There is no clarity in the present case to which class he belongs. But it is a fact that all is not well with the purchases account of the assessee. Generally, onus is on the AO to discharge as the allegation is made by him. Whereas in the present case, considering the affidavits failed by the suppliers before the Sales Tax authorities and the enquiry results u/s 133A, the onus is on the assessee to demonstrate the facts with the evidences. Merely stating that the purchases are genuine and quality of the contract is undisputed by the government is not enough and therefore, the same are unacceptable. To that extent, the arguments of the assessee's AR are dismissed.
D. Correctness of adopting 8% of suspected purchases for addition by FAA:
Further, in connection with the decision of the FFA restricting to additional income by way of the GP specific to such alleged bogus purchases, we have also examined the assessee's routine explanation viz. the such purchases are genuine and profit portion is already offered to tax, we find that the said explanation constitutes very general and it falls short of the requirement of the law. It can be a sustainable if the case of the assessee falls in the type where the assessee makes the purchases in grey market without bills and buys only bills to match such purchases for commission. Addition of entire purchases is unsustainable in such cases. In case of the other, where assessee straight away inflates the purchases by buying the accommodation entries, the addition of entire purchases is sustainable. But, in this case, AO has not gone into the facts before entire such purchases are added. In that sense, we cannot approve the conclusions of the AO.
In the preceding paragraphs above, we have held that the purchase account of the assessee is not free from problems. We have also dismissed the AO's manner of making assessment of entire suspicious purchases. Further, we have also concluded in favour of the decision of FAA in confirming only the profit portion of such purchases. This is in addition to the profits recorded in the books. Now, the issue for discussion relates to if the 8% adopted by the FAA is sustainable or not. Ld AR argues that recorded profit rate is much lower when compared to the said 8% impliedly borrowed from the provisions of section 44AD to 44AE of the Act. Further, we need to adjudicate on given facts of suspicious purchases, if the revenue is bound by the recorded profit rate of the assessee and if they are free to adopt the profit rate of the similar businesses in open market. On this issue of internal profit rate vs profit rate of comparable cases, on fact, the internal NP rate is 5.93% in case of Mahavir Construction Co and 5.18% in case of Kishor G Shah. It is the claim the assessee without prejudice that the profit rate, if any, should be restricted to the said profit internal rates. But, the same cannot be accepted considering the said Gujarat High Court's judgement in the case of Simit P Sheth (supra), wherein 12.5% is confirmed. We also cannot confirm the ill conceived profit rate of 8% as the same is not in tune with the reasoning given by the Hon'ble HC/Tribunal in the case of Simit P Sheth (supra). As such, AO never applied his mind to this aspect of the profit rate on the suspected purchases. CIT (A) did not remand this aspect to the file of the AO before adopting the profit rate of 8%. E. What is the appropriate profit rate in this case: 21. We find this issue is not addressed to by the AO in the assessment proceedings as the provisions of section 69C of the Act were invoked by the AO. FFA also failed to call for a demand report before adopting 8% of the suspected purchases. In all fairness and it is in the interest of the natural justice that AO and the assessee should be given an opportunity for arriving at the appropriate profit rate of the assessee, who is engaged in the real estate related business. AO shall note that the 12.5% was confirmed in the case of Simit P Sheth (supra) when its internal profit is only 3.56%. It is a case of Steel Trader and the said profit rate may not apply to the facts of the present who is in the business of Civil Contractor / real estate. In the remand proceedings, AO shall grant reasonable hearing opportunity to the assessee before arriving at the reasonable profits on the suspected purchases as applicable to the facts of this case. Assessee is also allowed to supply the AO appropriate documents and data to arrive at appropriate profit rate. With the said directions, we allow the grounds of both the assessees for statistical purposes. Thus, all the grounds in both the appeals of assessee and revenue are partly allowed for statistical purposes.
In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes. II. Cross Appeals for the AY 2009-2010 (In the case of Mahavir Construction Co) Ground raised
by the assessee in appeal reads as under:- “On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the addition made u/s 69C to the extent of Rs. 3,78,578/-, being estimated @ 8% of the purchases of Rs. 47,32,230/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra.” Grounds raised by the Revenue in appeal ITA No.4631/M/2015 read as under:-
1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 47,32,230/- to Rs. 3,78,578/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 47,32,230/- to Rs. 3,78,578/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement.
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating the fact that on the similar ground the assessee had made disclosure of income in subsequent assessment year on account of unverifiable / bogus purchase expenses and through the same concerns the assessee had made purchase in the current year as well.
4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in ignoring the fact that the hawala parties are non-existent at the given address and further they have given affidavits before the Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying of any goods.”
23. Both the above cross appeals are filed against the order of the CIT (A)-42, Mumbai dated 8.5.2015 for the assessment year 2009-2010. All the grounds raised in the instant cross appeals are identical to that of the grounds in the cross appeals for the AY 2008-2009. Since, the issues raised in both the AYs are identical, our decision given while adjudicating the appeals for the AY 2008-2009 squarely applies to the present appeals too. Considering the same, all the grounds in both the appeals of assessee and revenue are partly allowed for statistical purposes.
24. In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes.
III. Cross Appeals for the AY 2008-2009 (In the case of Kishore G Shah) Ground raised by the assessee in appeal reads as under:- “On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the addition made u/s 69C to the extent of Rs. 60,10,580/-, being estimated @ 8% of the purchases of Rs. 7,51,32,254/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra.” Grounds raised by the Revenue in appeal ITA No.4629/M/2015 read as under:-
1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 7,51,32,254/- to Rs. 60,10,580/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 7,51,32,254/- to Rs. 60,10,580/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement.
3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating the fact that notices u/s 133(6) sent to different parties returned un- served and even summons u/s 131 remained un-complied with.
4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in ignoring the fact that the assessee could not produce ay delivery challans or transportation bills or evidences of the same.”
25. Both the above cross appeals are filed against the order of the CIT (A)-42, Mumbai dated 8.5.2015 for the assessment year 2008-2009. All the grounds raised in the instant cross appeals are identical to that of the grounds in the cross appeals for the AY 2008-2009 in the case of Mahavir Construction Co, which is adjudicated in the above paras of this order. Since, the issues raised in both the AYs are identical, our decision given while adjudicating the appeals for the AY 2008-2009 squarely applies to the present appeals too. Considering the same, all the grounds in both the appeals of assessee and revenue are partly allowed for statistical purposes.
In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes.
Conclusively, all the three appeals of the assessees and the Revenue are partly allowed for statistical purposes.