2019 (6) TMI 1430 - AT - Income Tax

Tribunal rules in favor of assessee for AY 2010-11 & 2012-13, dismisses Revenue's appeal. Emphasizes need for substantiated evidence.

M/s Triveni Constructions, M/s Triveni Realties, M/s Triveni Properties, M/s Triveni Spaces, M/s Triveni Homes Versus DCIT-25 (1), Mumbai And Vice-Versa.

M/s Triveni Constructions, M/s Triveni Realties, M/s Triveni Properties, M/s Triveni Spaces, M/s Triveni Homes Versus DCIT-25 (1), Mumbai And Vice-Versa. ... Issues Involved:1. Disallowance and reduction of closing Work-In-Progress (WIP) due to alleged bogus purchases.2. Addition on account of difference in rate per sq. ft. charged to various customers vis-à-vis the market rates.Issue-wise Detailed Analysis:1. Disallowance and Reduction of Closing WIP due to Alleged Bogus Purchases:The assessee, a builder and developer, filed its return of income for AY 2010-11 declaring a total income of Rs. Nil and a carried forward loss of Rs. 17,95,674/-. During the assessment proceedings, the AO issued notices to 25 parties to verify the genuineness of purchases. One party, Shri Chandrakant Jivram Dherai, denied any transactions with the assessee. The AO found that these parties were involved in supplying bogus bills without physical delivery of materials and added Rs. 8,96,98,723/- to the assessee's income.The assessee appealed, and the CIT(A), referring to the case of Simit P. Sheth v. CIT, upheld an addition of 12.5% of the bogus purchases. For the present case, the CIT(A) applied a GP rate of 6.5% on purchases involving 4% VAT and 15% on purchases involving 12.5% VAT, resulting in a reduction of Rs. 75,78,066/- from WIP. The CIT(A) directed the AO to delete the addition of Rs. 8,96,98,723/-.Before the Tribunal, the assessee argued that the parties were suspicious dealers, not bogus, and provided various evidences to support the genuineness of the purchases. The Tribunal referred to the case of Pr. CIT v. M/s Mohommad Haji Adam & Co., where the Bombay High Court held that purchases cannot be rejected without disturbing the sales. The Tribunal directed the AO to restrict the additions to the extent of bringing the GP rate on disputed purchases at the same rate as other genuine purchases, setting aside the CIT(A)'s order.2. Addition on Account of Difference in Rate per Sq. Ft. Charged to Various Customers:For AY 2012-13, the AO found abnormal differences in selling rates of flats/shops in the assessee's project, Bhoomi Towers. The AO concluded that the assessee received on-money in the form of cash against sales and made an addition of Rs. 8,76,70,801/- after allowing a 15% allowance for market conditions.The CIT(A) agreed with the assessee's contention that various factors could lead to rate variations, such as customer perceptions, needs, and market conditions. The CIT(A) considered the stamp duty rate on the date of agreement as a pragmatic rate per sq. ft. on the date of booking, resulting in a confirmed addition of Rs. 84,85,259/-. The CIT(A) rejected the assessee's request for a 15% tolerance band, stating that the matter relates to sale below the stamp duty valuation, not purchase/investment.The Tribunal found that the AO made the addition without any cogent evidence of on-money receipts. The Tribunal referred to various cases, including Neelkamal Realtors & Erectors India (P.) Ltd. v. DCIT and M/s Runwal Projects Pvt. Ltd. v. DCIT, where it was held that additions cannot be made without evidence of on-money received. The Tribunal deleted the addition of Rs. 84,85,259/- made by the CIT(A), stating that section 50C does not apply to stock-in-trade and section 43CA is applicable from AY 2014-15, not AY 2012-13.Summary of Judgments:- The appeal filed by the assessee for AY 2010-11 is allowed for statistical purposes.- The appeal filed by the Revenue for AY 2010-11 is allowed for statistical purposes.- The appeal filed by the assessee for AY 2012-13 is partly allowed (the 1st ground of appeal is allowed, the 2nd ground of appeal is allowed for statistical purposes).- The appeal filed by the Revenue for AY 2012-13 is dismissed.- Similar decisions apply to other related appeals involving the same group of concerns.Conclusion:The Tribunal directed the AO to restrict the additions to the extent of bringing the GP rate on disputed purchases at the same rate as other genuine purchases and deleted the addition made on account of rate differences in the sale of flats/shops, emphasizing the need for cogent evidence to support such additions.