ADDL CIT 24(3), MUMBAI vs. INDERVADAN H JAIN, MUMBAI

O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the revenue against the order of CIT(A)- Mumbai, dated 22-10-2012, for the assessment year 2009-10, in the matter of order passed u/s.143(3) of the I.T.Act.

is allowed”

10. We have considered rival contentions and found that the assessee has not given any advertisement in souvenir of the political party therefore not hit by the provisions of section 37(28). Since the expenditure was incurred wholly and exclusively for the purpose of business and was not in personal nature, there was no justification for disallowing the same. Accordingly, we confirm the order of CIT(A) on this issue.

11. The revenue is also aggrieved for deleting disallowance of interest of Rs.4,61 ,376/-. The Assessing Officer had discussed this issue in para 8 of the assessment order, wherein he observed that the assessee had made advances to some parties from whom no interest has been 4 charged. The assessee has been paying interest on the loans taken and hence Assessing Officer was of the view that interest attributable to interest free advances has to be disallowed at 12% per annum and accordingly Rs.4,61,376/- was disallowed.

12. By the impugned order the CIT(A) deleted disallowance of interest after observing as under :- 6.3. I have carefully considered the above submissions. The opening capital as per the balance sheet as on 31 3.2008 was Rs.8.4 cr and the closing balance Rs.5.37 crores. which shows that the appellant had got huge surplus funds available in the form of capital. Hence the contention of the appellant that the loans are advanced out of personal capital is found to be acceptable Since the borrowed money have not been used for the purpose of advancing interest free loans, no disallowance of interest can be made. I would like rely on the decision of Jurisdictional High Court in the case of Reliance Utilities Ltd. reported in 313 ITR 34 in this regard. The head note is as under:- Interest on borrowed capital--Investments by assessee--Finding that investments were from interest-free funds available with assessee-- Borrowed capital used for purposes of business-- Interest deductible-- Income-tax Act, 1961, s. 36(1 )(iii). The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of Rs. 213 crores was invested out of its own funds and Rs. 147 crores was investment out Of borrowed funds. Accordingly he disallowed interest amounting to Rs.4.40 crores calculated at 12 per cent. per annum for three months from January, 2000 to March, 2000. The Commissioner (Appeals) found that the assessee had enough interest-free funds at its disposal for investment and accordingly deleted the addition of Rs. 4.40 cores made by the Assessing Officer and directed him to allow the deduction under section 36(1 )(iii). The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court: Held, dismissing the appeal, that if there were funds available both interest- free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible."

5 In view of the above discussion, the disallowance of interest Rs.4,61 ,376/- is hereby deleted. This ground of appeal is allowed.”

13. We have considered rival contentions and carefully gone through the documents placed on record and found that none of the borrowed funds have been utilized for giving interest free loans to either blood relative or friends. Whatever advances have been given were out of own capital. This fact is verifiable from the enclosed balance sheet of the assessee. The finding of fact recorded by CIT(A) are as per material on record, therefore, does not require any interference on our part. Accordingly, we confirm the action of the CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd., 313 ITR 34.

14. The revenue is also aggrieved for deleting adhoc disallowance of Rs.1,00,000/- on telephone expenses, vehicle expenses etc. The AO was of the view that the element of personal in nature in respect of the above expenditure cannot be ruled out and hence made an adhoc disallowance of Rs.1,00,000/-.

15. By the impugned order, CIT(A) deleted the same after observing as under :- 7.3. I have considered the above submissions of the appellant. During the course of assessment proceedings itself the appellant had furnished evidences in the form of vouchers pertained to each and every heads of expenditure. The Assessing Officer had not found out any discrepancy. The Assessing Officer had no material in his possession to show that personal element is involved in respect of the above expenditure. In view of the above, the adhoc addition made by the Assessing Officer is hereby deleted.

16. We have considered rival contentions and found that personal element in such expenses cannot be ruled out. Therefore, keeping in view the totality of facts and circumstances of the case, we restrict the 6 disallowance to the extent of 10% of such expenses. This ground of the revenue is allowed in part.

17. The last grievance of the revenue relates to deleting addition of Rs.3,50,19,655/- on account of alleged non-genuine purchases of the assessee. From the record we found that the Assessing Officer had obtained the information about the list of suspicious dealers alleged to have been issued false bills without delivery of the goods from the internet on the website of Sales Tax Department, mahavat.org. The Assessing Officer had identified about 12 parties who are appearing in the above list of Sales Tax Department and asked the appellant to establish the genuineness of the purchases by producing the parties along with supporting documents. Out of 12 parties, the Assessing Officer issued notices u/s.133(6) of the Income tax Act only to M/s. Deep Enterprises and M/s Forum Traders. No reply was received from M/s.Forum Traders and the notice issued to M/s. Deep Enterprises returned unserved. Since the appellant was not able to produce the parties, the Assessing Officer had added the entire purchases made from the above 12 parties as non genuine one.

18. By the impugned order, the CIT(A) deleted the addition after observing as under :- 8.3. I have carefully considered the above submissions made by the appellant Land the impugned assessment order on this issue. The appellant as a Civil Contractor had carried out 14 contracts to MCGM during the assessment year. The appellant was asked to file the details connected to the contract such as the nature and scope of work, date of commencement and date of completion of the contract etc,. during the course of hearing. The details furnished indicates that most of the work is related to Nallahs, Drains, 7 miscellaneous repair work etc.. The Authorized Representative of the appellant was asked to produce one sample tender documents and the same was filed in respect of Storm Water Drain Works , Chembur S.W.D. Work. and the appellant had commenced the work on 15.4.2009. The entire contracts spread over 2009-10 to 2011-12. The appellant received 55% of the contract receipts during the assessment year. 8.3.1. The appellant was also directed to furnish the scope of work in respect of the entire 14 contracts. One such scope of work with regard to Akhil Nalla is reproduced below to understand the nature of construction carried out by the appellant'- Scope of work:-

1. 1. Construction of box type drain from Charkop Road Akhil Hotel to Kadsiddeshwar Roadto Manori Creek RIC Ward, Kandivali(W).

2. M25 RCC wall with M 25 RCC slab at top to cover the same 3. Construction of S.W Drain at other side in C.C. at 28 THD 4. Raising and construction of road from starting point to end. The scope of work in respect of all the contracts are almost identical which involves construction of the drain and slab to cover the top along with raising and construction of road from the starting point to end. This scope also gives the construction programme. The appellant was given the time to complete the work within 12 months. Hence to carry out the above civil construction work the appellant had to necessarily purchase the building materials such as cement, steel etc. without which it is not possible to complete he contract awarded. 8.3.2 During the course of assessment proceedings itself it is the contention of the appellant that materials have been received at site and issued for the work. The payments were made only by way of account payee cheques and hence the purchases are genuine. It is to be pointed out here that out of 12 parties, notices u/s.133(6) was issued only in respect of 2 parties. In the assessment order itself the Assessing Officer had mentioned that no notice was issued to the remaining 10 parties. 8.3.3. The Sales Tax Department had only put up a list of suspicious dealers which does not mean that the supply of materials by the parties are bogus. The Assessing Officer had not brought any material on record to show that no material has been supplied by the above 12 parties. The mere non production of the parties should not lead to the conclusion that the purchase are not genuine when there are supporting evidences in the form of invoices, account payee cheques etc. 8.3.4. When the work was being executed, the site has been visited by the Engineers of BMC to check the progress and the quality of the work. MCGM is also having its own in house Vigilance 8 Department to check the quality and quantity of the work carried out. Regular reports are being sent to the Dy.Chief Engineers. 8.3.5. The appellant appoints Project Manager for each site. Similarly MCGM also deputes one Sub-Engineer on the site for each work who is responsible for execution of the work at site. As per the terms of the contract, the contractor has to erect a site laboratory for testing materials on site for which a quality control Engineer has to be appointed. The contractor has also to send samples of all the materials received on site to Municipal Testing Laboratory under the Sub Engineer's signature. The testing charge are paid by the contractor. As mentioned already, the appellant had filed one full set of tender documents in respect of Storn Water Drain works carried out at Chedda Nagar. Chembur, Phase-I!. Section 2 of the tender documents deals with the scope of work. Section 3 deals with Instructions to tenders. As per clause 3.8, the contractor has to errect a readymade site office for MCGM staff before commencing of the work. Clause 3.9 talks about the site laboratory. The contractor shall set up a laboratory before commencement of the work and maintain all the tests records at the site office. Failure to establish the laboratory within 15 days from the receipt of the work order would result in levy of penalty of Rs.500/- per day. Similarly a penalty of Rs.500/- per day will be imposed if Quality Control Engineers is not found appointed/deployed on the work. Section 6 talks about technical specifications. Clause 6.2.2 & 6.2.3. deals with the material used in the contract and samples and test of materials. As per sub clause 6 of 6.2.3, the Contract shall not use any material without prior testing and clearance by Engineer in charge. In cases where the material is use without testing is liable for rejection either partly or fully. Similar clause is appearing in General Specifications in clause 6.4.3. All the above clauses clearly indicates that the material used at site undergoes a stringent quality control and the entire work is being monitored by the Site Engineer appointed by the MCGM. 8.3.6. As and when the work is going on the appellant raises a running bill which would be then checked and verified by the Sub- Engineer which is then checked and verified by the Assistant Engineer before the same got forwarded to the Executive Engineer. After final checking by the Executive Engineer, the bills are furnished to the Accounts Department. Thus depends upon the stage of contract, running bills are raised and after duly certified by the MCGM Authorities, payments are sanctioned to the appellant. 8.3.7. The contract work carried out is subjected to checking by the Vigilance Department of MCGM for the quality and quantity of the work carried out. Further MCGM also appoints third party quality auditors who routinely checks the quality and quantity of the work carried out. The Authorized Representative of the appellant had also field the quantitative material used in the form of cement, sand, steel etc. in respect of Anna Indira Nagar Nalla along with the work- wise summary. Details of payment certificate by the MCGM was 9 also furnished for this work. The scrutiny of the above payment certificate indicates that payments are made at each stage of the contract. For each work the payment certificate has got a unique ID and for this particular work, the payment Certificate ID is 1000146827. For example, Sr.No.8 of the Payment Certificate, art payment made is as under:- 1 Description Leaving shoring in trenches new or old including dog spikes 2 Activity No. FMSWD 45 3 Rate 264.00 4 Curr. INR 5 Unit SQM 6 Est. Qty. 3,320.000 7 Est. Amount 876,480.00 8 Executed Qty 1,160.00 9 Upto last bill Qty 0.000 10 Upto last Bill Amount 0.00 11 Current Bill Qty 1,160.000 12 Current bill Amount 306.2490.00 The entire bunch of Payment Certificate shows that there were about 81 Activity Nos. for which the total payment made was Rs.4525575/-. The above clearly shows that the MCGM makes payment for each activity of the contract and after properly certified by the Sub-Engineers. Similar details were also furnished in respect of Project by name I.B.Patel i.e. details of material used and Payment certificate issued by MCGM. 8.3.8 The appellant had also filed the evidence in respect of testing the materials used in the contract. Few such copies issued by Material Testing Laboratory, MCGM are available in the submissions made. The perusal in reference NO.AESM/BRK/2009- 09-31 and AESM/BRKl2009-09-32 both dated 24.2.2008 indicates that the quality of the brick used by the appellant had been tested by the Asstt.Engineer(Soil Mech.) of MCGM. Similarly certificate issued by the MCGM for testing the cement by Material Testing Laboratory for the period October, 2006 to Jan. 2009 for the work carried out in the case of I.B.Patel was also furnished. 8.3.9. All the above clearly indicates that material for the above contracts reached the respective site which got tested for its quality. Depending upon the stage of work, running bills were prepared and payments received after certification by the Site Engineers. All these clearly prove that the contract work has been executed to the satisfaction of the MCGM Authorities and due payments were received against the executed contracts. The Assessing Officer without examining the facts discussed above had come to the conclusion based only on the presumption that because the names of e suppliers were put in the internet as "suspicious dealers", the purchases were bogus without purchase of material such as cement, steel, brick etc, the appellant could not have completed the 10 contract assigned to it. The Assessing Officer had no material on record to show that how the contracts have been completed by the appellant without purchase of material from the above suppliers. The books of accounts of the appellant had been duly audited by the C.A and no discrepancy what so ever has been brought out in the Audit Report. In view of the above, the presumption of the Assessing Officer that the above 12 suppliers had issued only bogus bills without supplying the materials and hence they are non genuine purchases cannot be accepted. As already mentioned, payments to the above suppliers were made by way of account payee cheques. 8.3.10. Once the work is completed measurements are taken into measurement book and payments are made according to the work completed. The contention of the, Assessing Officer that if the entire materials purchased is bogus. then how the appellant is able to complete the work and receive the payment from BMC. 8.3.11 The AO vide his letter dated 10.10.2012 filed a submission mentioning that there was a survey u/s.133A carried out in this case on 4.01.2012 by the ADIT(lnv.) Unit 4(2), Mumbai. He had enclosed the copy of sworn statement recorded during the course of survey along with the copy of another statement recorded by the ADIT(lnv.) Unit 4(2) on 2.5.2012 from Shri Arvind Jain, Proprietor of M/s. lndra Construction Co. which was confirmed by the appellant Shri Indervadan H Jain. The AO was of the opinion that the statements recorded during the course of survey and post survey had relevance to the addition made for AY.2009-1 O. The copies of the statement recorded were handed over to the AR of the appellant and he was directed to file the submissions. The submissions made by the A R. of the appellant on 19.10.2012 is reproduced as under:- "In continuation to submission already made and as asked for about the confession/surrender made during the course of survey action u/s. 133A We have been provided the copy of statement record on 04/01/2012 and 02/05/2012 by your honour. In this respect we have been instructed to submit as under: 1. As regards Statement recorded on 04101/2012 We are not discussing all the questions and Answers of the statement recorded on 04/01/2012. Rather the relevant question and answer relating to disclosure made thereto are discussed hereunder: a. In reply to question no 11 the appellant submitted as under which is reproduced hereunder: "As far as I am concerned, we have actually purchased the material and all these purchases are bonafide purchases used for execution of our contracts. I agree that I am not in a position to give the supporting documents to some of these bills such as the delivery 11 challans, lorry receipts, octroi receipts etc to you right now in all the cases. I will be in a position to get them from the sites and submit to you in due course." A perusal of the above Answer it is crystal clear that the assessee actually purchased the material and all these purchases are bonafide purchases. He further stated that he is not in position to give some of the supporting of some of the bills right now. However the same can be produced and for which we gave the details in tabular form. This fact is mentioned in answer to question 8 of statement dated 02/05/2012. b. In reply to question no 15 the appellant has clearly stated that there may be some inflation of bills and if it is there money has been ploughed back into the business of the company in one way or other way. Thereby it has not suffered income tax It is pertinent to mention that the assessee has merely stated that there may be some inflation but not with 100% certainty. Hence the disclosure made without any corroborative evidence being found during the survey action cannot be made basis for addition.

2. Statement dated 02/05/2012 a) In reply to question no 7 the appellant herein stated that the records are being maintained by them which gives details of the material likely to be used and actual usage. b) In reply to question no 8 the appellant herein submitted all the necessary details A perusal of the chart your honour will appreciate and admit that when all the details like order copy/requisition slip/Delivery challan/Entry of material received and payment made has been given by assessee there does not remain an iota of doubt about genuineness of purchases made. These details itself are sufficient that goods have been delivered and utilized in the execution of project and against purchases payment has been made by a/c payee cheque. Therefore the question of doubting these genuine purchases as non-genuine does not arise. Here it is pertinent to mention that we have provided the details pertaining to FY 2008-09, FY 2009-10, FY 2010-11 and FY 2011-12. c) In reply to question no 10 the appellant submitted as under which is reproduced as under: "As far as I am concerned we have actually purchased material and all these purchases are bonafide purchases used for execution of our contracts. I agree that I am not in a position to give the supporting documents to some of these bills such as the delivery challans, lorry receipts octroi receipts etc to you right now in all the case."

12 A perusal of the above reply your honour will appreciate that the appellant has stated that they have made bonafide purchases and the supporting of which has been submitted in Tabular form while replying to question no 8. A perusal of the chart your honour will appreciate and admit that all the details like order copy/requisition slip/Delivery challan/Entry of material record and payment has been given by assessee there does not remain an iota of doubt about purchase and utilization thereof. d) In reply to question no 11 the assessee has re-iterated that we have actually purchased the material and all these purchases are bonafide. He further stated that he is not in position to give supporting of some of the bills and not all the bills right now. However we gave all the details vide replying to question no 8. Therefore the question of treating genuine purchases as bogus does not arise. After consideration of the question raised and replies given by the appellant the following facts emerges. i) Firstly the appellant gave the disclosure for AY 2010-11! 2011-12 and AY 2012-13 which has no relevance with the impugned assessment year for which we are in appeal before your honour. ii) Secondly the department did not find any evidences of inflation of expenses or having found in possession of cash being received back or any undisclosed investment during the course of survey action to prove that appellants purchases for the impugned AY i.e. AY 2009-10 are bogus. iii) Thirdly the statement given pursuant to survey action on 04/01/2012 and 02/05/2012 have no relevance with the affairs of the AY 2009-10. iv) Fourthly the statement recorded u/s. 133A is not a sworn statement as the officer is not empowered to examine any person on oath u/s. 133A. Hence statement recorded u/s. 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition unless supported by any evidence as held by the Hon'ble Apex court in the following decision: CIT vs Khader Kahn Sons (2012) 25 Taxrnan. Corn 413 (SC) The copy of the Hon'ble Apex Court enclosed hereto for your honour's perusal and consideration. v) Lastly we would like to bring to your honours notice Hon'ble CBDT's instruction F No 286/2/200311TC (Inv) and further the decision of Hon'ble Murnbai Tribunal in the case of ACIT Circle 5 (7) v LA Pandya in ITA No.4417 to 4420/M/97 where in it has been held that the basis for making assessment should be solely on the 13 basis of the corroborative material found at the time of survey and not on the basis of the statement recorded u/s.131. Considering the above cited decision your honour will appreciate and admit that this cannot be the basis for treating genuine purchases as bogus. Moreover in the statement disclosure is given for AY 2010-11 onwards and not for the impugned assessment year. Hence by any imagination the contents of the statements are not applicable to the impugned assessment year. In view of the above your honour will find the above in order and shall delete the unwarranted addition made and oblige." 8.3.12 Further the AO had also forwarded a copy of the Survey report prepared by the DDIT(lnv.) Unit 4(4) dated ?6.2012 in the case of Chirag Infra Project Pvt.Ltd. (BMC contractor) along with the covering letter which was received by this office on 18.10.2012 and it was conveyed that the addition in this case was correctly made. The above survey report indicates that Shri Kishore G Shah who manages the affairs of M/s.Chirag Infra Project P.Ltd. had admitted that there is some element of Inflation of bills by site in charge pertaining to the purchase of materials particularly sand, tiles and other materials, (answer to question No.19). The ADIT had questioned Mr.Kishore G Shah specifically about the purchase of materials from the concerns operated by one Shri Mafatlal V Shah (question No.?). Mr.Kishore G Shah was categorical that the payments relates to the controversial parties mentioned in question No.? are genuine. However I find that this survey report has no direct bearing to the facts of this case. Again the AO had forwarded copy of the survey report of DDIT(lnv.) Unit 4(2) dated 14.5.2012 which was received in this office on 19.10.2012. I have perused the survey report which contains only the relevant portions of the statement recorded from Shri Arvind Jainjn para 6 and the suggestions given to the AO by the ADIT is available in para 8 which is reproduced as under, for the sake of convenience:- "Suggestions to Assessing Officer This report is only indicative and not exhaustive or all inclusive in nature. The Assessing Officer is requested to carry out in depth investigation and examine the impounded books of accounts/computed hard disks, statements recorded etc. to arrive at his/her own conclusion. The Trial balance and Profit & Loss Account of the above Survey Folders' of the respective entities. Nevertheless, while framing the assessment orders, due consideration may be given to the points discussed in this respect.” The final finding of the ADIT is available in para 6.4 of the survey report which is reproduced as under:-

14 "6.4. From the evidences gathered and the statements made by the assessee thereafter, it is evident that the assessee has indulged in bogus inflation of purchases. The survey has resulted a declaration of Rs.22 crores as additional income whose break up is as under:- In the hands of API Indra Construction Co. Construction (Prop. (Prop.Arvind Jain(ind.Rs.) Financial Inervadan Jain) (in.Rs) Year 2009-10 3,00,00,000/- 1,00,00,000/- 2010-11 1,30,00,000/- 70,00,000/- 4 (which has already been (which has already been declared during the declared during the course of course of survey u/s.133A survey u/s.133A on 1.3.2011) on 1.3.2011) 2011-12 12,00,00,000 4,00,00,000/- Total 16,30,00,000 5,70,00,000/- 8.3.13. The Assessing Officer for reasons best known to him had kept the survey report and statements recorded for more than 5 months without forwarding the same me. Though it is within his knowledge that appeal had been field for F.Y.2009-10. He is now sending submissions and copy of survey report, statements recorded after the case was heard. This attitude of the Assessing Officer is not appreciated. Further the submissions and other materials were sent mechanically, without application of mind and without analyzing the statements. 8.3.14. I have considered the submissions made by the AO as well as by the A.R. of the appellant in this regard. In answer to Question No.?, during the course of survey, before it was temporarily concluded at 10.30 p.m. on 14.1.2012, Shri Arvind Jain had stated that materials are purchased not only from entities run by Shri Mafatlal V Shah but also from other concerns. He had also mentioned that the purchase orders are placed by the staff who are in charge of various sites directly and he has no direct contact with Mr. Mafatlal Shah. The sworn statement was resumed next day morning i.e. 15.1.2012 at 7.00 a.m. In respect of answer to question No.11, Shri Arvind Joshi had categoricaily stated that all the materials purchased for execution of the contracts are bona fide. However, he was not in a position to give supporting documents such as delivery challan. lorry no date of receipt etc. He had also mentioned that the details would be submitted in due course. Finally in answer to question NO.16 he had agreed that there is some element of inflation of expenditure on purchase of materials on account of which Rs.5.7 crores was admitted as additional income in the hands of M/s.lndra Construction Co. and Rs. 16.3 crores in the case of M/s.API construction Co., Prop. Shri Indervadan Jain for F.Ys.2009-10 to 2011-12. 8.3.15. It is worth mentioning here that in the post survey statement recorded by the DDlT on 2.5.2012 Shri Arvind Jain had given an evasive answers in respect of bogus purchase of materials by 15 taking accommodation bills. The answers to question No.6 & 9 are reproduced as under:- "Q.6. Your statement was recorded during the course of survey proceedings under section 133A of the Act on 4th/5th January, 2012 vide answers to Question NO.6 & 7 you had stated that you know Mr.Mafatlal Shah and you had also stated that you might have taken accommodation entries from the concerns of Mr.Mafatlal Shah and also from the some other concerns in our statement. Please comment. Ans. again reiterate that Indra Construction Company and API Construction might have taken accommodation entries from the concerns of Mr.Mafatlal Shah and also from some other concerns for generation of cash for business needs. Q.9. . Do you know 21 about these fictitious concerns, some of which are being run by Mr.Mafatlal Shah(Serial No.1 to 19). S. Name of the concern Sl.No. Name of the concern No 1 Ajay Stone 20 Simplex Enterprise 2 AtmassEnterprises 21 Carbon Enterprises 3 Bharat Traders 22 Sandeep Steels 4 Geeta Enterprises 23 Sam Enterprises 5 Jai Trading Co. 24 VSK Enterprises 6 Jinal Enterprises 25 Shree Enterprises 7 KK Enterprises 26 Makwell Traders 8 Krish Enterprises 27 Foram Traders 9 Neelam Enterprises 28 Jain Trading Corporation 10 Nidhi Impea india 29 Geeta Sales Corporation 11 Raj Guru Corporation 30 Deep Enterprises 12 Rima Enterprises 31 K.K.TradersKaran Enterprises 13 Saj Enterprises 32 Karan Enterprises 14 Sambhav Traders 33 Proman Agencies Pvt. Ltd. 15 Shree Sai Enterprises 34 Shree Enterprises 16 Sundesha Enterprise 35 Simplex Corporation 17 Vardhman Traders 36 Padmavati Enterprises 18 Vatsa Enterprises 37 Modern Spun Pipe 19 Vruksha Enterprises 38 SAPNA Traders 39 Hermitage Trading Company Private Limited. You have now also submitted to me the name of the parties from whom you have made purchases during the F.Y.2008-09, 2009-10, 2010-11 & the current year in the format stated in Q.8 above. From the same, it is again seen that you are not in. a position to explain and give required supporting of some of the bills, in spite of the fact that considerable time has already lapsed. Please justify your action of releasing the payments based on oral confirmations without having any supporting. Please comment.

16 Ans. I again state that Indra Construction Company and API Construction might have taken accommodation entries from the concerns of Mr.Mafatlal Shah and also from some other concerns for generation of cash for business needs." The above clearly shows that the appellant had stated that accommodation entries might have been taken from concerns of Shri Mafatlal V Shah. To a specific question with regard to the loose papers found and impounded in Annexure A-1 to A-5 and B-1 & B- 2, he has mentioned that all the purchases of materials are bonafide but he is not in a position to file the supporting documents like lorry receipts, delivery challans etc. only to some of the bills. In the concluding part of the statement again evasive answers have been given by stating that it is possible that there may be some discrepancy and there is inflation of bills pertaining to purchase of bills. However it is mentioned that it is very difficult to quantify the amount of actual expenditure incurred and finally he admitted undisclosed income of RS.22 crores in both the hands. 8.3.16. There were 39 fictitious concerns as per the Sales Tax Department out of which Mr.Mafatlal V Shah was running about 19 fictitious concerns( the names of which were enumerated in question No.9). As mentioned already the AO had issued notice u/s.133(6) to only two parties by name M/s.Deep Enterprises and M/s.Forum Traders out of 12 parties. For the reasons best known to the AO. no notice was sent to the remaining 10 parties. It is not clear as to why the AO who is at the rank of Addl. Commissioner of Income tax chose not to issue notice to the remaining parties to ascertain as to whether such parties are in existence or not. Without even doing the basic enquiries, he had jumped into the conclusion that the entire purchases are bogus. 8.3.17. The analysis done by me shows that Out of 12 parties alleged to have issued bogus bills,' only 4 concerns are figuring in the list of above 39 alleged fictitious concerns which are as under:- i) M/s.Sam Enterprises ii) M/s. Forum Traders lii) M/s.Shree Sai Enterprises iv) M/s.Shree Enterprises The claim of the appellant even at the assessment stage was that the payments to all the 12 parties were made by way of account payee cheques which the AO was very much aware. However I am unable to understand why the AO ( Addl.Commissioner) failed to trace how the cheques have been cleared. He did not obtain the copies of the bank accounts where the cheques got cleared and try to analyse whether immediately after clearing, cash was withdrawn only to pay it back to the appellant. I wonder what prevented the AO to carry out such enquiries. Thus the Addl.Commissioner had miserably failed to carry out the basic ,necessary investigations before coming to such a conclusion.

8.3.18 I also failed to understand why the AO was keeping the Survey Report which was sent by the DClT on 14.5.2012 i.e for almost 5 months with him when he knew that appellant had filed an appeal before the CIT(A) and the case was posted for hearing. Copies of sworn statement .survey report etc were received by me after the case was heard and the materials were forwarded to me in bits and pieces on 3 occasions. The whole lot could have been filed at once. The AO did not even apply his mind before giving a submission. He did not verify whether the 12 parties on whom the addition was made were out of 39 parties supposed to have issued bogus bills. The AO had conveniently omitted the portion of the statement where the appellant admitted that the material purchases were genuine and highlighted only the portion of the statement wherein which the appellant admitted that there is some amount of inflation in purchase of materials. 8.3.19. Now I deal with the issue of validity of the statement recorded during the course of survey u/s.133A. The appellant had questioned the validity of the statement recorded during the course of survey. Various courts have consistently held that statement recorded u/s.133A during the course of survey do not have evidentiary value which is being discussed by me in the following para.

(xi) 134 TT J 167 Delhi CTR Volume 50 Part VI page 39 I have gone through the above decision which supports the case of the appellant. In view of the above, the addition made by the Assessing officer is hereby deleted. This ground of appeal is allowed.”

19. Against the above order of CIT(A), revenue is in appeal before us.

20. We have considered rival contentions and found that assessee is engaged in the execution of contracts awarded by the government department for which he use to purchase material from the market. Proper records were maintained for such purchases and same were placed in the regular books of accounts. Utilisation of the goods were duly supported by records and respective certification by BMC authorized personal. A clear finding has been recorded by the CIT(A) with respect to these purchases and utilization with corroborative evidence and certification by the government authorities. Quantitative materials data were filed with workwise summary. The CIT(A) also observed that no adverse material was brought on record to the effect that assessee has received cash back against payment so made. All the materials were supplied at the site of the execution of work, payment of which were made by account payee cheque. We also found that when the work was being executed the site has been visited by the engineers of BMC to check the progress and validity of the work. The MCGM is also having its own inhouse vigilance department to check the quantity and quality of the work done. Only after satisfying with the quantity and quality of work done, the payment was made by the assessee, therefore, it cannot be said that assessee has not