2014 (11) TMI 1016 - AT - Income Tax

Tribunal overturns CIT(A) decision, directs deletion of addition under Income Tax Act

Ramesh Kumar & Co., Versus The ACIT 21 (1), Mumbai

The Tribunal overturned the decision of the Ld. CIT(A) and directed the Assessing Officer to delete the addition of &8377; 4,98,80,892/- under section ... Addition u/s. 69C - in-genuine purchases - addition made on the report of the Sales tax Department - Held that:- We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealer 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 their 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 the 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 not have been in a position to complete the civil work. On civil contract receipts of ₹ 32.05 crores, the assessee has shown gross profit at 14.2% and net profit at 9.72%.Even if for the sake of argument, the books of accounts are rejected, the profit has to be computed on the sales made by the assessee U/s. 44AD of the Act, the presumptive profit in case of civil contractors is 8% and in case of a partnership firm, a further deduction is allowed in respect of salary and interest paid to the partners. The ratio analysis of the profitability is also in favour of the assessee. In our considered opinion, the purchases are supported by proper invoices duly reflected in the books of account. The payments have been made by account payee cheque which are duly reflected in the bank statement of the assessee. There is no evidence to show that the assessee has received cash book from the suppliers. The additions have been made merely on the report of the Sales tax Department but at the same time it cannot be said that purchases are bogus. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition - Decided in favour of assessee Issues involved:1. Addition of &8377; 4,98,80,892/- under section 69C of the Income Tax Act.2. Genuineness of purchases made by the assessee from certain parties.3. Disallowance of claimed purchases by the Assessing Officer.4. Rejection of appeal by the Ld. CIT(A) and confirmation of addition.5. Lack of verification by the authorities regarding payments and work done.6. Justification of purchases by the assessee.Analysis:1. The appeal was against the addition of &8377; 4,98,80,892/- under section 69C of the Income Tax Act, where the assessee contended that the purchases were genuine, but the Assessing Officer treated them as not genuine due to suppliers being blacklisted by the Sales tax department.2. The assessee, a partnership firm engaged in civil contracts, faced scrutiny as the AO observed discrepancies in purchases. The AO found many suppliers blacklisted and canceled by the Sales tax department, leading to suspicion of genuineness. The assessee failed to produce suppliers but claimed purchases were made through account payee cheques.3. The AO, after receiving no satisfactory response, treated the purchases as bogus, adding the amount to the total income. The Ld. CIT(A) upheld this decision, stating the assessee failed to substantiate purchases without delivery challans and rejected financial ratio analysis.4. The Ld. CIT(A) dismissed the appeal, emphasizing the lack of evidence correlating purchases with project use. The assessee's argument of work completion and payment receipt from the Municipal Corporation was not accepted, leading to the confirmation of the addition.5. The Tribunal noted the AO's lack of further investigation despite payment proofs. It criticized the reliance on suspicion and failure to verify work with the Municipal Corporation. The Tribunal disagreed with the CIT(A)'s approach and emphasized the importance of verifying payments and work done.6. The Tribunal found the purchases supported by proper invoices and payment evidence, refuting the Hawala trader suspicion. It highlighted the lack of cash receipts from suppliers and directed the AO to delete the addition, noting the profitability ratio analysis and legitimate nature of purchases.This detailed analysis covers the issues raised in the legal judgment comprehensively, outlining the arguments presented by the parties involved and the reasoning behind the final decision.