G.L. CONSTRUCTIONS P.LTD,MUMBAI vs. DCIT 8(1) OR DCIT CITY 8, MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ ‘जी’, म ुंबई । IN THE INCOME TAX APPELLATE TRIBUNAL “G”, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM आमकय अऩीर सं./ITA No.2269/Mum/2015 (नििाारण वषा / Assessment Year :2010-2011) M/s G.L. Constructions Pvt. Vs. DCIT-8(1), Mumbai Ltd., 304, Gokul Arcade, B Wing, Subhash Road, Near Garware, Vile Parle (East), Mumbai-400057 स्थामी रेखा सं./ जीआइआय सं./ PAN/GIR No. : AAACG 3438 P (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. ननधाारयती की ओर से /Assessee by : Shri N.R.Agrawal & Pavan Ved याजस्व की ओर से /Revenue by : Ms. Anupama Shukla सुनवाई की तायीख / Date of Hearing : 12/04/2016 घोषणा की तायीख/Date of Pronouncement 22/06/2016 आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2010-2011, in the matter of order passed u/s.143(3) of the I.T.Act. 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of construction of road for State Government, MMRDA, BMC, NMMC. In this case a survey u/s.133A of the Act was conducted by the DDIT(Inv.), Unit-IV(4), Mumbai on 7-6-2012 at the office premises of the assessee company at 304, Gokul Arcade-B, Subhash Road, Near Garware, Vile Parle (East), Mumbai-400057. In the survey proceedings u/s.133A of the Act,

2 ITA No.2269/15 statement u/s.131 was recorded on oath of Shri Sunil Mathreja, Managing Director of the assessee company. A disclosure of Rs.650 lakhs was recorded on account of share capital Rs.4,43,30,000/- for A.Y. 2010-2011 and Rs.1,31,28,500/- for A.Y.2011-2012 and on account of discrepancy in purchases in the assessment year 2013-2014 amounting to Rs.75,41,500/-. The assessee retracted on 27-12-2012. However, the AO did not agree with the retraction and made addition on account of discrepancy in purchases and share capital. By the impugned order CIT(A) confirmed the action of AO, against which assessee is in further appeal before us. 3. It was contended by ld. AR that merely on the basis of statement recorded u/s.133A(6), addition cannot be made insofar as other than confession there is no independent or corroborate evidence to support the declaration. Nothing was seized or found during the course of survey, except some purchase bills. Reliance was placed on the decision of Hon’ble Bombay High Court in the case of Uttamchand Jain 320 ITR 554, Mumbai Bench of the Tribunal in the case of Premsons, 130 TTJ 159, ITAT Delhi Bench of the Tribunal in the case of Satish Builders, 23 DTR 171, in support of the proposition that merely on the basis of declaration addition cannot be made. Reliance was also placed on CBDT Instruction for not to force the confession during survey. 4. With regard to share capital, it was contended by ld. AR that book value of share as on 31-3-2009 was Rs.484/-, whereas premium was charged at Rs.300/-. All the companies to whom shares allotted are

3 ITA No.2269/15 continued to be share holders even today. Our attention was invited to documents placed at pages 371 to 397 of Paper Book. It was further submitted that summons were served to three shareholders. Summons could not be served to M/s Nakshtra Business (P) Ltd. and Kush Hindustan, both of which were assessee in the same Ward-8(2). It was further submitted that all the shareholders had replied to the AO as per the documents placed and narrated by the AO at page 16 of the assessment order. Our attention was invited to the documents placed at page 150 of the paper book in support of the contention that two shareholders are listed companies in Bombay Stock Exchange. As per ld. AR merely because shareholders were not produced or attended before the AO in response to summons u/s.131, no addition can be made in view of the decision of Hon’ble Delhi High Court in the case of Orbital Communications Pvt. Ltd., 327 ITR 560 and decision of Hon’ble Supreme Court in the case of Anis Ahmad & Sons, 297 ITR 441. Our attention was also invited to the details of shareholders filed before the AO like confirmation, board resolution, audited accounts, bank statements, share certificate copies. In view of the decision of Hon’ble Bombay High Court in the case of Creative World Tel, 333 ITR 100 and decision of Hon’ble Gujarat High Court in the case of Ujala Dyeing, 328 ITR 437, it was contended that no addition on account of share application should be made where all these documents were filed before the AO. 6. With regard to the purchases so made Ld. AR drew our attention to the monthly & yearly details of quantities of purchase and sale filed before

4 ITA No.2269/15 the AO, summary of monthly purchases. He contended that as per the quantitative details of daily purchases for twelve months as placed at 6 to 38 of the paper book, the assessee has duly explained the quantity of purchases with the quantity used during the construction. He further contended that nowhere the AO has found any discrepancy in the quantity and value of the items so purchased which are used for construction/production/sales. He further invited our attention to the quantity details of daily sales for 12 months as placed at pages 40 to 68 of the paper book. Quantitative details of closing WIP is placed at pages 69 to 70 of the paper book. Further he drew our attention to the details filed before the AO with regard to quantitative details of opening & closing stock, which is placed at pages 71 to 72 of the paper book. He also drew our attention to the Thane District Schedule of Rates for material required as per formula given by it. Our attention was also invited to the details placed at page 94 to 126 with regard to Thane District Schedules of Rates. Details of purchases party-wise was also filed before the AO, which is placed at pages 127 to 137 of the paper book. As per the ld. AR in view of these details the CIT(A) asked the remand report from the AO and the AO has also raised query during remand proceedings, which was replied by the assessee vide letter dated 23-3-2015, 27-2-2015 and 19-2- 2015. As per ld. AR before the AO could furnish the remand report, the CIT(A) has passed the order. Our attention was also invited to the certificate dated 25-5-2008 from the consultant appointed by MMRDA for using DSR formula for quality & consumption of materials were also filed

5 ITA No.2269/15 before the lower authorities. In view of all these details it was submitted that AO was not justified in making addition for the alleged purchases. Reliance was placed by ld. AR on the following judicial pronouncements :- i) ITO vs. Permanand [107 TTJ 395 (Jodh); ii) DCIT vs. Shri Rajeev G. Kalathil, [ITA 6727/M/2012(Mum); (iii) ITO vs. D.N. Shah & Co. [2 TTJ 1217 (Ahd)]; iv) CIT vs. M.K. Brothers [(1987) 163 ITR 249 (Guj)] v) M/s Imperial imp & exp vs ITO(ITA 5427/Mum/2015) vi) Deepak Popat Lal Ghada vs. ITO(ITA 6203/Mum/2013) vii) DCIT vs. Shri Jitendra S. Motani [ITA 6178/M/2007 (Mum)] CIT vs. Sanjay Oil Cake Industries v. CIT [316 ITR 274 (Guj)] viii) 7. With regard to share capital, it was contended by ld. AR that the assessee had already filed with the A.O a letter dated 05/02/2013 & again on 26/312013 inclusive of following papers :- 1) Confirmations along with the PAN, . 2) Acknowledgement of ITRs filed, . 3) Bank statements of share holders & Sources from where share application is paid. 4) Audited Final accounts of the share applicants. 5) All receipts are by account payee cheques. 6) Applicants are all Limited companies having high reserve & surplus. 7) Out of Five share holder companies Two are listed in Mumbai Stock Exchange & regularly traded. 8) All above facts proves that share holders are in existence & all the transactions are genuine. 9) All the shareholders are still holding their investments as on today. 10) There are no cash deposits in the share applicants bank account. 8. Our attention was also invited to details of share applicants as placed in Paper Book narrated below :- The details of share applicant as above, filed with A.O. are enclosed herewith. i). Olive Overseasss (P) Ltd. Page No. 2 to 29 & 29A ii). Nakshatra Business Pvt Ltd. Page No. 30 to 58 & 58A iii). Kush Hindusthan Entertainment Ltd. Page No. 59 to 87 & 87A iv). Prabhav Industries Ltd. (public, Listed Co.) Page No. 88 to 145 & 145A, 145B 145C. v). Empower Industries India Ltd. (public,Listed Co.) Page No. 146 to 214. & 214A vi). Copies of share certificates issue to share holders Page No. 215 to 231. vii). Copy of share holders Register Page No. 232 to 241.

6 ITA No.2269/15 All share holders replied to A.O. in response to summons u/s 131, confirming the transaction with supporting papers such as bank statements, Audited accounts, Acknowledgements for filling returns etc. 9. As per ld. AR in the case of the share application money assessee's onus is just to prove the identity of the share applicants or share holders & nothing further as per the following Supreme Court and High Court judgements which are binding in nature. a) CIT v/s Stallar Investment Ltd. 164 CTR 287( SC) b) CIT v/s Lovely Exports (P) Ltd. 216 CTR 195 (SC), 6 DTR 308 SLP dismissed 319 ITR (St 5) c) CIT v/s Gujrat Heavy Chemicals Ltd. 256 ITR 795 (SC) d) CIT v/s Dwarikadish Investment Ltd. 167 Taxman 321 (Del) S.C dismissed SLP 314 ITR 3 e) CIT v/s Creative World Telefilms Ltd 333 ITR 100 (Bombay.) Page No. 242 to 243 f) CIT v/s Tania Investment 322 ITR 394 (Born) Page No. 244 to 245 g) Recent judgement of Hon'ble Gujrat High Court in CIT v/s Ujala Dying & Printing Mills Pvt. Ltd. Reported in 328 ITR 437 which are on similar facts. Hon'ble Gujrat High Court has dismissed department's appeal on the following points which is similar to the assessee's case as follows. 1. Copy of the bank statements of shareholders are filed. 2. All the applicants companies are 9 to 10 years old. 3. Applicants paid up share capital & Reserve as on balance sheet date are as per chart enclosed. As the assessee has proved the capacity of the shareholders which are not required as per the Hon’ble Supreme court decisions as stated earlier. 4) All the companies have substantial investment in shares. 5) ln the investment schedule of the applicant companies name of the assessee is appearing. 6) All are regularly assessed to tax. 10. In support of contention that if assessee is unable to satisfy the AO as to the source from which depositor has derived the money which he has advanced to assessee, no addition can be made and for this purpose reliance was placed on the following decisions :- Daulatram Rawatmull v/s CIT 87 ITR 349 (S.C.)

7 ITA No.2269/15 Sarogi Credit Corporation v/s CIT 103 ITR 344 (Pat) Tolaram Daga v/s CIT 59 ITR 632 (Assam) ITO v/s. Suresh Kalmadi ITA No.764 (Pune) 1985 - Page 955 BCA January 89 Held the assessee is under no obligation to show source of the source for loans. It is immaterial & even if creditors have shown exact amount of received on the date of advancement of loan & if after repayment exact cash is drawn. No other & no addition can be done. CIT v/s Oasis Hospitalities Pvt. Ltd 333 ITR 119 (Del) Also creditworthiness of applicant not proved balance addition was confirmed based on the fact that some shareholder are agriculturists, Identity & capacity not proved. In other cases addition deleted as Registered office, PAN, Cheque Payment, & Bank statement is sufficient proof. Substantial evidence produced by assessee to prove creditworthiness of creditor and genuineness of share application- Failure to produce creditor not material CIT v. Orbital Communication (P) Ltd. (Delhi) 327 ITR 560 Assessee providing identity and creditworthiness of shareholders and depositors--Amounts could not be added under section 68 CIT v. Ambuja Ginning, Pressing and Oil Co. P. Ltd. 332 ITR 434 (Guj) Identity- PAN & incorporation certificate Genuineness of transactions Bank statement to prove that the money came from applicants coffers Creditworthiness Bank statement to prove the money came from applicants coffers. As per ld. AR if returns are filed by creditor are not rejected by that assessing officer, AO has no power to question return of creditor. For this purpose reliance was placed on CIT Kolkata III v/s Dataware Private ltd. Dated 21/912011 Reported in C.A. Journa April 2012 page III CIT v/s Dwarikadhish Investment LTD. 167 Taxman 321 (Del) S.c. dismissed SLP 314 ITR 3 CIT v/s Ujala Dying & Printing Mill Ltd. 328 ITR 437 (Guj) S.C. dismissed SLP 317 ITR (Sta) 1] 11. As per ld. AR though assessee has confessed in statement recorded u/s 131 in the proceeding u/s 133A, The same has been retracted by assessee as the assessee was forced to sign the same due to threat from officers about CBI action, Converting survey in to Search,

8 ITA No.2269/15 C.A. was not allowed to remain present in Survey, Directors being technical persons not knowing consequences, Copy of statement not given to assessee in spite of visiting DDIT's office several times etc. It was further contended by ld. AR that statement made by assessee during survey operations has no evidentiary value. For this reliance was placed in the case of Mahesh Ohri v. ACIT (Delhi) . 154 TTJ 33 DeI 'E' (UO) ITR tribunal Volume 23 Part 4 page 522 and UNITEX PRODUCTS LTD. vs. ITO (2008) 22 SOT 429 (Mumbai) . He also contended that assessee can retract the admission made during the survey with evidence in view of the decision of Mumbai Tribunal in the case of ACIT Vs. Safe Enterprises 128 ITD 459 (Mumbai). He further contended that no other collaborating evidence was found during survey for addition except only statement of assessee. Amount surrendered in survey under pressure, no material or evidence found in support of amount surrendered under these circumstances, addition is liable to be deleted. For this purpose reliance was placed on the following decisions :- Satish Builders v/s ACIT ITA no. 4095 12005 Bench 'C' dated 13/212009 (Del) reported in Tax review March 2009 page 65 23 DTR 171 (Del); DCIT v/s Premsons 'B' Bench Mumbai BCA April 2009 page 25 130 TTJ 159 (Mum) DCIT v/s Pahar Ganj Grih Nirman Sahakari Samiti Ltd. 99 TTJ 549 (Jaip) Ajit Chintaman Karve v/s ITO 311 ITR (AT) 66 (Pune) 12. On the other hand, ld. DR relied on the detailed finding recorded by the AO & CIT(A) as well as judicial pronouncements referred by lower authorities in their respective orders.

9 ITA No.2269/15 13. We have considered rival contentions, carefully gone through the orders of authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR during the course of hearing before us in the context of factual matrix of the case. From the record we found that assessee is in the business of road construction for State Government, MMRD etc. This sector is highly unorganized sector. The suppliers of materials like sand, stones etc are unorganized & uneducated and they change the premises as per their business requirements in every 3-4 years. There was a survey at assessee’s premises on 7-6-2012, wherein assessee gave disclosure of Rs.650 lacs which consists of share capital of Rs.4,44,33,00,000/- in the assessment year 2010-2011 and Rs.1,31,28,500/- for assessment year 2011-2012. In respect of discrepancy found in the purchase for the financial year 2012-2013 relevant to the assessment year 2013-2014 a disclosure of Rs.75,41,500/- was given to the survey party. On 27-12-2012 assessee retracted from the statement by filing affidavit. It was the contention of ld. AR that assessee has filed all the details of shareholders like confirmation, board resolution, audited accounts, bank statement, share certificate etc. However, the AO made addition simply on the plea that these shareholders did not appear in person before the AO. Reliance was placed on the decision of Hon’ble Supreme Court in the case of S. Kadar Khan & Sons, 210 taxmann 248 in support of the proposition that Section 133A does not empower any ITO to examine to any person on oath, thus,

10 ITA No.2269/15 the statement recorded u/s.133A has no evidentiary value and any admission made during such statement cannot be made the basis of the addition. Reliance was also placed on the decision of Hon’ble Delhi High Court in the case of S. Arjan Singh 175 ITR 91, Dingra Metal Works 328 ITR 384 and Kerala High Court in the case of Paul Mathews & Sons. With respect to addition on account of purchases on the plea that there was information with the sales tax authority regarding supplier being non- genuine. Reliance was placed by ld. AR on the decision of Hon’ble Delhi High Court in the case of Sunrise Tolling Pvt. Ltd., 361 ITR 206, Bombay High Court in the case of Nikunj Exim, 372 ITR 619 and Babulal Borana, 282 ITR 251 (Bom HC), Gujarat High Court in the case of Atma Prakash Batra, 340 ITR 177 and Sumit P Sheth, 356 ITR 451. It was further contended that no material was found during survey with regard to any bogus purchases nor books of account was rejected, therefore, when the AO has accepted the corresponding sales/utilisation of material, the disallowance of entire purchases is not warranted merely on the plea that suppliers were not existed at the addresses given and was found to be bogus by the sales tax department. From the record we found that even though during survey assessee has given a statement on 7-6-2012 with regard to share capital and purchases, however, same were retracted on 27-12-2012. With respect to the shareholder the AO made an enquiry and issued them letters to appear in person. However, the shareholders did not personally appeared before the AO. The AO in his order observed that assessee company vide its order dated 26-3-2013 had furnished part

11 ITA No.2269/15 details with respect to its shareholders, but none attended in response to summons u/s.131(1). The AO also observed that each shareholders company dispatched its reply in response to summons u/s.131(1), however, they did not bother to attend his office. From the record we found that even though assessee has filed the details asked by the AO in support of the share capital being subscribed by respective shareholders, however, they were not produced before the AO even after asking by the AO, in view of the documentary evidence placed on record and considering the fact that shareholders had not appeared before the AO, we restore the matter back to the file of AO for deciding afresh after considering the evidences filed by the assessee in support of the identity, genuineness and creditworthiness of the shareholders. We direct accordingly. 14. Now, coming to the disallowance of purchases of Rs.4,86,22,753/- , we found that these suppliers were found to be non-genuine by the sales tax department, even though it was the contention of ld. AR that suppliers were registered with VAT where stringent process is followed for issuing VAT registration like photo, verification of address (residential and office), ration card and proof of residence. However, we found that not only as per the sales tax department but also as per the enquiry made by the AO these suppliers were not found at the given address. However, at the very same time, we cannot ignore the actual purchases made by the assessee, which was utilised for its construction purpose and sales. Before the AO the assessee has filed detailed statement of consumption

12 ITA No.2269/15 of quantity of material so purchased vis-a-vis requirement as per Government formula as per the Thane District Schedule and rates. The assessee had also filed materials, details giving quantities of purchase and sales, summary of monthly purchases, quantitative details of daily purchases for 12 months. The assessee has filed corresponding monthly consumption and sales and quantitative details of sales for 12 months, details of work-in-progress as at the end of the year and also quantitative details of opening and closing stock. The assessee has also submitted before the AO the detailed statement of material required as per formula laid down by the State Government. We had carefully gone through all these statement placed on record and found that during the year assessee had shown total purchases of Rs.50,95,77,140/-, which was converted into sales amounting to Rs.57,77,31,972/-. Thus, the assessee has earned net profit of Rs.3,87,60,606/-, which works out to be 6.70%. The profit of 6.70% in the nature of work being undertaken by the assessee is quite reasonable looking to the net profit rate shown by other contractor in the similar line of business. Accordingly, merely on the ground that supplier was found to be bogus by the sales tax department or not available at the given address in respect of certain purchases which were actually made from others and also used in construction and sales, the entire purchase so made cannot be disallowed, for this proposition reliance can be placed on the decision of Hon’ble jurisdictional High Court in the case of Nikunj Exim (supra), Atma Prakash Bathra and also Delhi High Court in the case of Sunrise Tolling Pvt. Ltd. (supra). From the

13 ITA No.2269/15 record we also found that the material so purchased for construction was as per the work contract and MMRDA and Consultant certificate was obtained for the utilisation of those materials. We had also compared the rates at which assessee has purchased the goods with the rates prescribed by the Thane District Schedule Rate as contained at page 73 to 126 of the paper book. We had also verified the certificate issued by Mumbai Metropolitan Region Development Authority with regard to awarding of contract work of widening and construction of eastern express highway to the assessee. The certificate so issued by the Mumbai Metropolitan Region Development Authority also certified that they have been supervising the work regularly and taking the samples of material and testing the same at Government and private laboratories as prescribed by MMRDA. The material so purchased and consumed was found to be correct as per the tender specifications and as required by the DSR prescribed by PWD Maharashtra Government. Relevant certificates are placed at page 142&143 of the paper book. Thus, the assessee had proved that roads have been constructed and materials are used by the assessee without which road could not have been constructed. All the above details were filed with the AO along with the letter dated 5-2-2013. The statement of quantitative purchases yearly, monthly and datewise is placed at page 1 to 37 of the paper book. Consumption required details as per formula from State Government is placed at page 38 of the paper book. Yearly and mothwise and billwise sales details with consumption are placed at page 69 of the paper book. Details of closing working in

14 ITA No.2269/15 progress as on 31-3-2009 and 31-3-2010 are placed at page 69 and 70 of the paper book. Item-wise purchase and statement from suppliers are placed at page 134 and 135 of the paper book. From the record we also found that Engineers from Government and MMRDA are checking the road construction at regular intervals while constructions is in progress & samples are sent to laboratories to verify consumption, strength & quality of materials used. The agencies collect samples at random and send it to approved laboratories for checking strength, consumption & quality of materials used & the only realizes payment to the assessee against the sales bill. We also found that purchase and consumption of the material is as per prescribed formula. 15. In view of the above discussion and applying the proposition of law laid down by the coordinate bench of the Tribunal as well as High Courts referred above, we do not find any merit for disallowance of entire amount of purchases. Keeping in view the totality of facts and circumstances of the case vis-a-vis rate of net profit shown by the assessee, to cover up leakage of revenue, if any, we restrict the disallowance of purchases to the extent of 2% of the purchases of Rs.4,88,22,753/-. We direct accordingly. 16. With regard to the claim of depreciation on wind mills, we found that the assessee has claimed depreciation in its return of income only for six months @40%. Subsequently it was found that correct rate of depreciation to be claimed is 80% as wind mill was installed before 30-9- 2009 and had in fact started production on 30-9-2009. During the course

15 ITA No.2269/15 of assessment, the assessee has filed revised computation and documents with regard to full claims of depreciation on wind mills. However, the AO has allowed 40% depreciation. For allowing full depreciation, the assessee is in appeal before us. 17. We have considered rival contentions and found from the record with regard to the claim of depreciation on wind mill the assessee has duly filed certificate from Superintendent of Engineer Jodhpur certifying the date of commencing the wind mill on 30-9-2009. Certificate from Suzlon Engineering being supplier of the plant was also filed for meter reading of September, 2009. As per these certificates wind mill has worked for more than 180 days. Accordingly, there is no justification for allowing claim of depreciation at 40% applicable for half year. In view of the documentary evidence placed on record, we direct the AO to allow depreciation for the full year on wind mill so installed by the assessee. We direct accordingly. 18. In the result, appeal of assessee is allowed in part, in terms indicated hereinabove. Order pronounced in the open court on this / / 2016.

(PAWAN SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated / /2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4.

16 ITA No.2269/15 ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,

उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai

Date Initial 1. Draft dictated on 8,9&22-6-16 Sr.PS 2. Draft placed before author 8,9&22-6-16 Sr.PS (dictation pad has been enclosed along with this original file) 3. Draft proposed & placed before the JM/AM second member 4. Draft discussed/approved by Second JM/AM Member. 5. Approved Draft comes to the Sr.PS/P Sr.PS/PS S 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.