DEPUTY COMMISSIONER OF INCOME-TAX,, NASHIK vs. M/S. ASHOKA BUILDCON LTD,, NASHIK

These cross-appeals preferred by the assessee and Revenue emanates from the common order of the Ld. CIT(Appeals)-12, Pune dated 02.02.2017 for the assessment year 2011-12 as per the grounds of appeal on record.

The assessee in has raised following grounds of appeal:

The Revenue in has raised following grounds of appeal:

This is a case of contractor where he had engaged in hawala purchases from reported hawala dealers. During assessment proceedings, the Assessing Officer added 100% of such hawala purchases to the total income of the assessee and this was reduced by the Ld. CIT(Appeals) to 25%. The Revenue wants in their appeal that 25% as restricted by the Ld. CIT(Appeals) should be reversed and that the addition of 100% made by the Assessing Officer should be upheld, whereas, the assessee submitted that whatever were these hawala purchases made, they were consumed and this fact is not disputed even in the order of the Ld. CIT(Appeals) and hence, suitable relief may be provided.

Since facts and circumstances involved in these appeals are similar and grounds of appeal are common in respect of the issues involved for both the appeals before us, these appeals were heard together and disposed of vide this consolidated order.

The facts in brief are that search action u/s.132 of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) was conducted in the case of the assessee on 20.04.2010 and in response of u/s.153A of the Act, the assessee disclosed income of Rs.93,28,87,430/-. During the course of search assessment proceedings, the assessee approached the Hon‟ble Settlement Commission offering additional income of Rs.2,01,31,625/- resulting in determination of total income after giving effect to the order u/s.245D(4) at Rs.95,30,19,055/-. Subsequently, Maharashtra Sales Tax Department conducted investigation on various parties who had not remitted VAT to the Department. Office of the DGIT (Inv.) informed the Assessing Officer that the assessee was one of the beneficiary availing bogus purchase bills of Rs.2,07,40,342/- from four different hawala dealers namely M/s. National Trading Company (Rs.1,25,08,910/-), M/s. Rumeet Enterprises ( Rs.30,16,000/-), M/s. Millenium Enterprises ( Rs.36,162/-) and M/s. Shah Enterprieses (Rs.56,79,270/-). In view of this information, the Assessing Officer recorded the reasons to believe that income to the extent of Rs.2,07,40,342/- had escaped assessment and issued notice u/s.148 of the Act.

During the course of assessment proceedings, the Assessing Officer asked the assessee to furnish copies of purchase bills, octroi receipts, transportation receipts, weighing slips related to purchases made from the impugned dealers. Before the Assessing Officer, the assessee submitted that the material purchased from alleged hawala dealers was used either in power project sites not falling within any area attracting octroi levy or used in manufacturing of RMC within city of Mumbai and no ontroi was required to be paid on the same. That as regards, transportation details, it was submitted that transport charges were borne and paid by the supplier, hence no transport receipts could be available. Thereafter, the Assessing Officer issued notice u/s.133(6) of the Act on 03.08.2015 to all the four parties and all the notices were returned back by the postal authorities with the remark „NOT KNOWN‟. Similarly, the summons issued u/s/131 of the Act were also returned back with same remark.

The Assessing Officer, thereafter, asked the assessee to produce above parties along with relevant documents. The assessee again failed to produce supplier and contended that all the evidences to support genuineness of purchases have already been submitted and purchase prices were paid through banking channels. The Assessing Officer, however, enquired with the banks of these suppliers and noted that immediately after the deposit of cheques issued by the assessee, the cash was either withdrawn immediately or amount was transferred to similar paper entities engaged in paper transactions and entire purchase of Rs.2,07,40,342/- was held as bogus and was disallowed.

That before the Ld. CIT(Appeals), the assessee had made detailed written submissions which are on record. That on consideration of such written submissions and the assessment order, the Ld. CIT(Appeals) has held and observed as follows :

The Ld. CIT(Appeals) in his order observed that the assessee‟s claim that MS channels, GI nuts, cables etc. totaling to Rs.2,07,04,180/- purchased ( except sand of Rs.36,162/- from M/s. Millenium Minerals) from three suppliers were used at power project sites for which contracts were awarded to its by MSEDCL and its project consultant vouched physical receipt of each material at the site which cannot be doubted. The Ld. CIT(Appeals) further observed that the Assessing Officer did not controvert the claim that material received at power project site was verified and for each instances there were material receipt cum handling voucher singed by the agent of the electricity company. In this circumstances , it could be concluded that material was purchased and used by the assessee at the power project site but same was not supplied by the impugned hawala dealers who had merely issued accommodation bills. Therefore, the Ld. CIT(Appeals) has given finding that materials were purchased and it was also consumed by the assessee at power project sites but for the fact that those materials purchased were not supplied by the impugned hawala dealers who had merely issued accommodation bills and therefore, to meet ends of justice, 25% purchases made from hawala suppliers were held to be bogus and the assessee was given partial relief.

We have heard both sides and gone through the relevant material available on record. It is observed that the assessee allegedly purchased raw materials through the Hawala purchase bills and thereafter consumed the same in the power project sites. In such a situation, it cannot be said that the entire amount of hawala purchase bills requires addition. The Hon‟ble jurisdictional High Court in Pr.CIT Vs. Paramshakti Distributors Pvt. Ltd., vide its judgment dated 15.07.2019 in has sustained the addition @ 10% of the amount of purchases, being, the profit element involved therein. The relevant extracts of the Hon‟ble High Court‟s decision reads as follows: “2. The first question pertains to restricting the addition of Rs.23.16 Lakhs to Rs.2,21,600/- by the Tribunal. The Assessing Officer had made the said addition on the ground that the assessee’s purchases were found to be bogus. The entire purchase amount was therefore, added to the assessee’s income. The Tribunal, however, restricted to the said sum of Rs.2,21,600/-. The Tribunal recorded that the Assessing Officer has not rejected either the purchases or the sales made out of the said purchases. The Tribunal therefore, was of the opinion that the addition should be restricted to 10% of the total purchases. The Revenue strongly disputes this proposition. 3. Without elaboration, what the Tribunal by the impugned Judgment held is that the Department had not rejected the instance of the purchases since the sales out of purchase of such raw material was accounted for and accepted. With above position, the Tribunal applied the principle of taxing the profit embedded in such purchases covered by the bogus bills, instead of disallowing the entire expenditure. We do not find any error in the view of the Tribunal. No question of law arises.”

In the result, appeal of the assessee in is partly allowed and appeal of the Revenue in is dismissed.