BADAL KRISHNA SAHA,KOLKATA vs. I.T.O WD - 53(4),KOLKATA, KOLKATA

ORDER Per Shri M. Balaganesh, AM:

This appeal by assessee is arising out of order of CIT(A)-XXXIII, Kolkata vide appeal No. 142/CIT(A)-XXXIII/ITO.Wd-53(4),Kolkata/11-12 dated 04.03.2013. Assessment was framed by ITO, Ward-53(4), Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2009-10 vide his order dated 27.12.2011.

2.1. We find that this issue goes to the root of the matter and accordingly deem it fit for adjudication of this appeal and accordingly we admit this additional ground. The ld AR argued that from the first paragraph of the assessment order , it could be seen that pursuant to the return of income filed by the assessee, notice u/s 143(2) was issued by the ld AO. It is mentioned in the said order that thereafter the case was selected for scrutiny through computer assisted scrutiny system (CASS). Based on these lines, the ld AR raised a preliminary objection that the notice u/s 143(2) has to be issued only when the ld AO is satisfied that it is necessary and expedient for selecting the case for scrutiny. After issuing the notice u/s 143(2) , the satisfaction should not be recorded by the ld AO.

Badal Krishna Saha, AY 2009-10 2.2. We find that the objection raised by the ld AR is only technical and academic in nature. We had called for the assessment records and had verified that the notice u/s 143(2) was issued and served well within time on the assessee. It is well settled that the return may be selected for scrutiny either manually or by computer assisted selection of cases for scrutiny (CASS). Either way the law mandates the issuance of notice u/s 143(2) within the specified time limit which in the instant case had been duly complied with. Hence we do not find any merit in the additional ground raised by the assessee and accordingly dismiss the same.

3.1. The brief facts of this issue is that the assessee is a civil contractor carrying on proprietary concern business under the name and style of M/s Constructive Construction. The ld AO observed that the assessee had disclosed his purchase Rs.1227744/- (sundry creditors balance Rs.1162276/-). A letter calling for information u/s. 133(6) of the Act was issued to Moumita Builders, 2/238, Sree Colony, Kol-700092. In response, Moumita Builders replied that during the FY 2008-09 relevant to AY 2009-10 no sales were made to the assessee but their sundry debtors balance was Rs.6,65,582/- at the end of the year. This discrepancy was intimated to the assessee. But the assessee could not offer any explanation in regard to that. As such the entire purchase of Rs.12,27,744/- was treated as “Bogus Purchase” of the assessee and added to the total income of the assessee. The assessee had disclosed his purchase Rs.5,63,721/- and sundry creditors balance Rs.10,58,619/- in respect of M/s. Subhangi Builders. A letter calling for information u/s. 133(6) was issued to M/s. Subhangi Builders, A/24, Baghajatin, Kol-700 092. In response to the said letter, M/s. Subhangi Builders replied that there was no sale to Sri Badal Krishna Saha during the year of question. But their sundry debtors balance was Rs.4,16,342/- at the end of the year. This discrepancy was intimated to the assessee and he was asked to explain in regard to that. But the assessee could not offer any such explanation regarding this issue. Hence, Sundry creditors balance of Rs.(1058619/- - 4,16,342) i.e. Rs.6,42,277/- was treated as “Bogus Creditors” and added to the total income of the assessee.

Badal Krishna Saha, AY 2009-10 3.2. The assessee argued before the ld CITA that the entire additions were made based on the information provided by the third parties who have not been subjected to cross examination and thereby the authenticity of the third party statements have not been tested in the eyes of law. The payments were made by the assessee to those parties for all the purchases made by account payee cheques and there is no need to treat the purchases as bogus. The ld CITA observed that the assessee despite being given adequate opportunity did not bother to reconcile the differences in the creditors account before the ld AO and before him. He also found that no request for cross examination was made by the assessee and hence the argument of the assessee that the parties replies not subjected to cross examination is not tenable. The ld CITA observed that the assessee apart from referring to the payment made through account payee cheques, had not given any evidence to establish genuineness of the concerned purchases either during the assessment proceedings or during appellate proceedings. The ld CITA however, felt that the disallowance in respect of Subhangi Builders has to be restricted to the extent of purchases made by the assessee during the year under appeal and accordingly directed the ld AO to restrict the disallowance in respect of Subhangi Builders to the tune of Rs. 5,63,721/- as against Rs. 6,42,277/-. Aggrieved, the assessee is in appeal before us on the following grounds :- “

1. That the CIT(A) has erred in facts and law in sustaining the disallowance of Rs.12,27,744/- towards bogus purchase from Moumita Builder without allowing any opportunity for cross examination and ignoring the fact that payment was made through regular banking channel.

2. That the CIT(A) has erred in facts and law in confirming the disallowance of Rs.5,63,721/- towards bogus purchase from Subhangi Builders without affording any opportunity for cross examination and ignoring the fact that payment was made through regular banking channel.”

3.3. The ld AR reiterated the submissions made before the lower authorities and argued that the existence of the transactions and relationship of the assessee with the concerned creditors i.e Moumita Builders and Subhangi Builders are not disputed as they themselves had confirmed the same before the ld AO. The only basis on which addition was made is that they had replied in response to notices issued u/s 133(6) of the Act that no sales were made by them to the assessee during the year under appeal. In this regard, he submitted that the Government of West Bengal allots contract to certain sick companies who inturn outsource the said construction works to various people including the assessee on a revenue sharing arrangement basis. The said sick company would get satisfied with 8% of the total

Badal Krishna Saha, AY 2009-10 contract value as its share out of this project and allow the remaining 92% to be used by the contractor (i.e the person who is actually executing the work such as assessee). The supplies of various items for the purpose of construction would be made only by the Government through various syndicate parties which is the general business practice followed for construction industry for all government contracts in the State of West Bengal. These syndicate parties though had transactions with assessee would not come forward to present the true facts before the revenue authorities and they don’t maintain the books also properly. However, the payments for purchases were made only to them through account payee cheques which is cross verifiable from the bank records. He argued that in respect of addition made towards Subhangi Builders, the ld AO had made an addition towards unexplained creditors balance but whereas the ld CITA had sustained the addition after giving partial relief by treating the same as bogus purchases which was never the case of the ld AO. He argued that in any case, only the profit element on the bogus purchases could be added in the hands of the assessee as corresponding sales and profit were not disputed by the revenue. He stated that the total turnover of the assessee is only Rs. 66,13,000/- which is received from two Government undertakings. The ld AO determined the taxable income at Rs. 30,69,732/- as against the returned income of the assessee at Rs. 4,52,173/-. The profit percentage determined by the ld AO works out to 46.42% of the turnover. Pursuant to the ld CITA order, the income was determined at Rs. 23,05,800/- which works out to 34.87% of turnover. He argued that this much percentage of profit is not at all possible in any business much less in a business of construction when the entire turnover is received only from Government. Accordingly, he prayed for fair estimation of the profits to resolve the controversy. In support of his argument, he placed reliance on the decision of the Co- ordinate bench of this tribunal in assessee’s own case in dated 8.10.2015 for the Asst Year 2008-09 wherein the ld AO had determined the profit at 8% of turnover which was reduced to 4% by ld CITA and on further appeal by the revenue before this tribunal, the revenue’s appeal was dismissed. In response to this, the ld DR vehemently relied on the orders of the lower authorities.

3.4. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the ld AR had tried to explain the difficult circumstances in which the construction business activities of the assessee are conducted by the assessee. We

Badal Krishna Saha, AY 2009-10 also find that the determination of income pursuant to the order of the ld CITA works out to 34.87% of turnover of the assessee. It is not in dispute that the entire turnover is received by the assessee from the Government undertakings. We find lot of force in the arguments of the ld AR that the ld AO had also not brought any record with material evidences to prove that the assessee has got some other source of income other than the said business receipts from its construction business. We find that the reliance placed by the ld AR on the decision of this tribunal in assessee’s own case for the Asst year 2008-09 supra cannot be fully applied to the facts of the case for the year under appeal. In that case, the books of accounts were rejected by the ld AO u/s 145(3) of the Act and resorted to estimate the business profits @ 8% of the turnover which was further reduced to 4% on appeal. Whereas in the year under appeal, the assessee had produced proper books of accounts and records for which a clear finding is also recorded by the ld AO in his order. However, we find that there is no possibility of earning 34.87% of profit in the business carried on by the assessee that too when the entire contract receipts are derived from Government. In these circumstances, it would be just and fair to estimate the profits of the assessee at 8% of the turnover to meet the ends of justice which would work out to Rs. 5,29,040/- (66,13,000*8%) . Since the assessee had already disclosed certain business profits in his return, the same has to be reduced while estimating the profits at 8% as stated above. We direct the ld AO accordingly. Hence the grounds raised by the assessee are partly allowed for statistical purposes.

Order pronounced in the open court on 10.08.2016