ASST CIT 25(2), MUMBAI vs. PRATAP U POROHIT, MUMBAI

This appeal filed by the Revenue on 31.7.2013 is against the order of the CIT (A)-35, Mumbai for the assessment year 2010-2011. In this appeal, Revenue raised the following grounds which read as under:- “1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the addition of Rs. 13,02,78,336/- which was made by invoking the provisions of section 69C of the IT Act by treating the purchases are genuine.

There was a survey action on this assessee on 27.2.2012. A statement was recorded on 28.2.2012. During the survey action, assessee admitted that the purchases from several parties are bogus, therefore, the whole of such purchases was offered in the return of income in the AY 2012-2013. AO listed out 5 of such parties, whose sales were considered „bogus‟ and such 5 bogus parties also sold raw material during the year under consideration and the names of such 5 parties are (i) Atmass Enterprises; (ii) Om Corporation; (iii) shree Sai Enterprises; (iv) V.K. Enterprise and (v) Virat Enerprises [para 9 of the AO‟s order is relevant in this regard]. The total purchases from these 5 parties worked out to Rs. 1,00,86,929/-. Thus, the gross addition works out to Rs. 13.03 Crs (rounded off) (ie Rs. 12,01,91,407/- + Rs. 1,00,86,929/-) .

During the first appellate proceedings, apart from the submissions made before the AO, assessee gave further submissions and most of the submissions are repeat in nature and they revolve around the following arguments namely (i) the raw material was supplied directly to the site for inspect and used by the engineers of the assessee; (ii) the payments were made by way of cheque involving the banking channels; (iii) no delivery bills and delivery challans were made available because of direct supply to the site. The website based list of the Sales Tax Department is no ground for treating them as „bogus suppliers‟ when contract works were completed to the satisfaction of the MCGM. Assessee cannot be held responsible for disappearance of the parties and absence of reply from the sellers to the notices issued u/s 133(6) of the Act. It is a fact that when the contract works were completed, it is logical to infer that the said works / projects could not have been completed without purchase of the raw materials ie cement; steel; bricks etc. CIT (A) relied on various decision and finally decided the issue in favour of the assessee and deleted the whole of the addition of Rs. 13.03 Crs (rounded of). However, in the orders of the CIT (A) there is no independent discussion with reference to the statement u/s 133A of the Act with regard to the 5 bogus persons mentioned above that led to the addition of Rs. 1,00,86,929/-. The contents of paras 8.10; 8.11 and 8.12 of the CIT (A)‟s order are relevant in this regard. For the sake of completeness of this order, the same are reproduced as under:- “8.10. 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 the presumption that because the names of the suppliers were put in the internet as “suspicious dealers” the purchases were „bogus‟. Without purchase of material such as cement, steel, bricks etc, the appellant could not have completed the 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 materials from the above suppliers. The books of accounts of the appellant had been duly audited by the C.A., and no discrepancy whatsoever has been brought out in the Audit Report. 8.11. In view of the above, the presumption of the Assessing Officer that the above 56 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. 8.22. I have also gone through the judicial pronouncements relied upon by the Ld AR and find that the facts of the above referred judicial pronouncements are similar to the present facts of the case and, therefore, the ratio of judgments of the above referred two cases are fully applicable in the present case. In view of the facts discussed above, as well as binding judicial pronouncements of the jurisdictional ITAT, Mumbai Bench as well as Hon‟ble Mumbai High Court and other legal precedents, the addition made by the AO amounting to Rs. 13,02,78,336/- cannot be sustained. Accordingly, the addition of Rs. 13,02,78,336/- is deleted. In the result, this ground of appeal

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%.

Coming to the addition of Rs. 1,00,86,929/-, the background facts go the survey action on 27.2.2012. The relevant facts are not available that relates to the statement given by the assessee involving the said 5 supplies suppliers viz (i) Atmass Enterprises; (ii) Om Corporation; (iii) Shree Sai Enterprises; (iv) V.K. Enterprise and (v) Virat Enerprises; the nature of disclosure by the assessee that involves the declaration of Rs. 1,00,86,929/- for the AY 2009-2010 as well or otherwise. In our opinion, the said 5 parties should be treated differently as these parties are undisputedly the non-suppliers of the raw materials needed for the contracts. It is evident from the fact that assessee itself offered such claims as unaccounted ones in the past. We cannot appreciate as to how these 5 parties, who do not have the capacity to supply the raw material, have got capacity to supply the same in the year under consideration. considering the background of the purchases from these parties, the onus is on the assessee to demonstrate that the purchases amounting to Rs Rs. 12,01,91,407/- are genuine and not the unexplained ones. CIT (A) is directed to adjudicate this issue of addition of Rs. 1,00,86,929/- made u/s 69C of the Act afresh. It was separately made by the AO by giving reasoning and by passing a speaking order on this issue, whereas the CIT (A) treated the same on par with other suppliers 13. In summary, we are of the opinion, considering the orders of the Tribunal in many cases of additions involving the Sales Tax Department, the disclosure of black- listed suppliers and when the Assessing Officer failed to discharge the onus as discussed above, the additions made u/s 69C amounting to Rs. 12,01,91,407/- out of total addition of Rs. 13.03 Crs is required to be deleted. CIT (A) is directed to examine this issue and pass a speaking order on the issues relating to the aspects of GP and the other independent addition of Rs. 1,00,86,929/- after gathering relevant