TaxTMI 
TaxTMI 
2015 (7) TMI 160
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....we take up the cross appeal for A.Y. 2007-08 as the lead case. Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in Furniture Interior works for leading corporates. The assessee's job contains execution of Civil, Interior, Gypsum, Flooring, Painting, Carpentry, A/c. Electrical and other allied works. The assessee filed its return of income on 29-10-2007 declaring total income of Rs. 1,48,08,038/-. Subsequently, the assessee filed a revised return on 06-02-2008 declaring total income of Rs. 2,17,73,862/-. 3. During the course of assessment proceedings the Assessing Officer observed that a survey u/s.133A of the I.T. Act was conducted in the premises of the assessee at B1, Paragon, Condomonium, P.B. Marg, Worli, Mumbai on 28-12-2007 by the DDIT (Investigation) Unit-IV (2), Mumbai. During the said survey it was found that the assessee company has shown purchases of material from the below mentioned concerns of Shri Tushar Ruparel. The Assessing Officer further noted that as per the details furnished during post survey investigation and the details produced during the assessment proceedings the purchases made from various parties are as under : ....
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....d it is the basis on which all purchases are booked and subsequent payments are made to vendor. (b) A proper vendor registration procedure is followed before placing any order for purchase. The same procedure was followed in respect of parties in question too. (c) The material brought from parties in question have been used at six locations and the assessee company has received confirmation letter from four parties stating that materials have been received at respective site locations. (d) The actual sales have taken place and payments against all sale bills have been received through cheques. Payments to purchase parties have been made through cheques. (e) The quantitative tally of sales with consumption chart, GRN etc. confirm the purchased quantity with minor wastage." 5. The Assessing Officer thus observed from the report of ADIT that the assessee not only failed to produce the parties in question before the survey party but also its contention does not have much force. He observed that the assessee has not submitted any quantitative reconciliation between material purchased and its consumption. He has only submitted confirmations from 4 customers stating ....
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....s. On such GRNs, there is no signature of project manager where as the GRNs prepared for the goods received from other parties bear the signature of project manager. (ii) Further, the GRNs in respect of parties in question generally do not have any entry of against the column 'time in' i.e. such GRNs generally do not show when the goods were receive. On several occasions, even inward number, P.O. No. and date are not mentioned on such GRNs. Whereas, the GRNs for the goods received from other parties have such details written on them. He accordingly held that the GRNs submitted by the assessee cannot be relied upon. The AO further noted that the assessee could not produce any evidence in the form of delivery challan, transportation details etc. The assessee also did not produce any delivery note issued by Shri Tushar Ruparel or his concerns. He further noted that in the case of the assessee he has followed the practice which is reverse of the general practice in the trade. Assessee itself is making Goods Receipt Note and puts its employee's signature thereon without giving duplicate copy of such note to seller. 8. As regards the submission of the assessee that it ha....
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....deposit of cheques and cash withdrawal from the banks, the AO was of the opinion that purchases to the tune of Rs. 7,11,55,964/- from the following parties are not genuine and bogus : Sr.No. Name of the assessee F.Y. 06-07 1. M/s. Apple India Marketing 82,98,924 2. V.S.K. Enterprises 71,70,625 3. M/s. Khushi Enterprises 1,92,56,857 4. M/s. Samarth Trading Co. 78,15,429 5. M/s, Sun Enterprises 1,00,40,207 6. M/s. M.R. Corporation 1,38,49,532 7. M/s. Neelam Enterprises 47,24,390 Total 7,11,55,964 11. During the course of assessment proceedings the assessee submitted that purchases could normally be disallowed if the same are bogus or shown as paper transaction and in other cases it cannot be disallowed. It was argued that in the case of the assessee the purchases effected from various parties referred to in the statement of Shri Tushar Ruparel cannot be treated as bogus or paper transaction as the same were supported by proper invoices and the payment of the same were made by account payee cheques. Further, the purchase of goods are established with correspon....
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....eing asked by the AO to produce the copy of the bank account of these parties the assessee could not produce the same. The assessee has also not disproved that cash has been withdrawn by these parties against the cheques given by assessee and returned the cash to the assessee for a commission which was stated by Shri Tushar Ruparel. Distinguishing the various decisions cited before him and rejecting the submissions the AO made addition of Rs. 7,11,55,964/- to the total income of the assessee being the purchases made from the 7 parties treating the same as bogus. 13. Before CIT(A) the assessee more or less reiterated the same arguments as made before the AO. It was submitted that the AO mainly and largely relied upon the findings of survey tem and the statement of Mr. Tushar Ruparel. It was stated that Mr. Tushar Ruparel is proprietor of only one concern, i.e. M/s. VSK Enterprises whereas other persons are proprietors of other 6 concerns. Although Mr. Tushar Ruparel has stated that he is the controlling person of all 6 other parties but that does not take away the fact that he is not the proprietor and therefore their arrangement has nothing to do with the assessee. The assessee ....
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....roboration by any other evidence to prove the correctness thereto. 17. As regards the contention of the AO that the assessee has not produced the parties from whom purchases were made it was submitted that all those suppliers had submitted various details such as vendor registration form, PAN card copies of the partners/ proprietors, sales tax registration number, Account confirmation statements etc. to substantiate the sales made by them to the assessee. Even the survey party had also impounded the invoices of the above parties. Further, they have responded to the notice issued to them u/s.133(6). The assessee reiterated the submissions as made before the AO stating that assessee had produced documentary evidence about actual supply of material by the above parties by furnishing the confirmation from the customers regarding the receipt of goods at the site and consumption thereof. It was submitted that the contracts with the 5 customers were lumpsum contract including material and the purchase from the aforesaid parties was all for the above 5 customers. It was submitted that goods costing about Rs. 1,03,50,725/- were purchased and were stored in Vikroli Godown. The closing sto....
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.... was being admitted by him and others were looking to be correct on the face of it. The evidence gathered by the investigation unit at the end of the supplier were quite clearly showing that the assessee was engaged in taking bogus bills from the concerns of Mr. Tushar Ruparel. 20. However, he also observed that when the evidences gathered at the end of the assessee during the course of follow up survey conducted subsequently is looked into it is also not difficult to see that not much of adverse complimentary evidence could be found when the survey was conducted at the premises of the assessee on 28-12-2007. It is possible that in the intervening period of 20 days the assessee has taken care of all the adverse evidences but still the DDIT(Investigation) and the AO had the responsibility to establish the complexity of the assessee to the affairs accepted by Mr. Tushar Ruparel to the extent possible. According to Ld.CIT(A) it should have been demonstrated that all admissions were made to reach to the bottom and due process was followed. What was found were only indicating weaknesses in the maintenance of records in respect of purchases made from the above referred impugned purcha....
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....e has to be decided considering other evidences placed on record by the rival sides. Relying on various decisions the Ld.CIT(A) observed that under the income-tax proceedings the strict rules of evidence are not applicable for arriving at the correct decision (Chuharmal Vs. CIT reported in 172 ITR 250 (SC). 22. Considering the totality of the facts of the case the Ld.CIT(A) further observed that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims. He observed that although the evidences forwarded by the AO was overwhelmingly against the assessee but the entire disallowance cannot be sustained as no answer could be found by the AO to the arguments made that the contracts cannot be executed without the purchases which are being disallowed by the AO. He observed that even if the site wise purchases and consumption prepared and submitted by the assessee is not considered to be reliable for determination the allowability of purchases in view of certain evidences found, making books of the assessee unreliable but the over all sales and purchases will have t....
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....bmits that entire purchases of Rs. 7,11,55,964 are genuine purchases and the same ought to have been allowed. 2. The learned CIT(A) erred in not excluding the amount of closing stock of material purchased from so called bogus parties while computing the income. Your appellant submits that if the purchases from the parties or part thereof are treated as bogus, the closing stock representing the said so called bogus purchases ought to be reduced from the total purchases and only the net purchases after reducing the closing stock ought to be considered for disallowance. 3. The learned CIT(A) erred in not appreciating the evidences produced by the appellant and making various observations without substantiating the same. Your appellant submits that the observations of the learned CIT(A) are not supported by any evidences and are made in disregard of the principles of natural justice. Your appellant submits that the entire addition of Rs. 7,11,55,964 ought to be deleted as against 50% thereof as held by CIT(A). 4. Your appellant craves leaves to add to, alter, amend or vary all or any of the aforesaid ground of appeal as they/their representative may deem fit." Grou....
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....ation which has gone to the site of Birla Cotsyn (India) Ltd. which also contains the stamp of Birla Cotysn (India) Ltd. Referring to page 143 of the paper book he drew the attention of the Bench to the purchase order raised on M/s. M.R. Corporation. Referring to subsequent pages the Ld. Counsel for the assessee submitted that when the goods have come to the place of third party such as Birla Cotsyn (India) Ltd., Kumar Housing Corporation Ltd., Zenith Birla India Ltd., Birla Power Solutions Ltd., Rohan Builders Ltd. etc., which have been authenticated by these companies, therefore, the same should not have been disbelieved. He filed the following details and explained the purchases from the 7 parties and their destination. Customer where goods consumed /delivered......... Purchase from...... Kumar Housing Ltd. Zenith Birla (I) Limited Rohan Builders Birla Cotsyn Limited Vikroli Godown (Inventory) Birla Power Solutions Ltd. Summary of Firm Wise Purchase ... Samarth Trading Company -- 381,294.00 2,651,848.00 545,669.00 2,559,776.00 1,676,842.00 7,815,429.00 MR Corporation 2,618,382.00 3,370,051.00 1,54....
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....and net profit of 2.93% for A.Y. 2008-09 the addition so made by the AO gives the G.P. of 47.81% and net profit of 13.86%. 27. The Ld. Counsel for the assessee drew the attention of the Bench to the following chart giving comparable profitability of the assessee and other persons engaged in similar line of business : (Rs. In Lacs) Particulars Archdeep Interior Pvt. Ltd. Cherry Hill Interior Ltd., A.Y.2007-08 A.Y.2008-09 A.Y.2007-08 A.Y.2008-09 Sales & Other Receipt 3278.36 2409.69 6530.18 8140.46 Net Profit Before Tax 150.34 124.68 479.07 420.99 Net Profit % 4.59% 5.17% 7.34% 5.17% Ensemble Net profit % 16.88% 5.49% 16.88% 5.49% 28. Referring to the above chart where two other competitors engaged in similar line of business, the Ld. Counsel for the assessee submitted that in the case of Archdeep Interior Pvt. Ltd. the net profit for A.Y. 2007-08 is shown at 4.59% and for A.Y. 2008-09 at 5.17%. Similarly, in the case of Cherry Hill Interior Ltd. the net profit is shown at 7.34% for A.Y. 2007-08 and 5.17% for A.Y. 2008-09. He accordingly submitted that the ne....
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....uring process, yields resulting there from would be abnormal as compared to that of preceding years. Referring to the decision of the Hon'ble High Court for the same case vide ITA No.26/2007 order dated 17-03- 2009 he submitted that on further appeal filed by the Revenue the Hon'ble High Court dismissed the appeal filed by the Revenue holding that no substantial question of law arose. Referring to the decision of the Chandigarh Bench of the Tribunal (Third Member) in the case of J.R. Solvent Industries Pvt. Ltd., Vs. ACIT reported in 68 ITD 65 (TM) he submitted that the Tribunal in the said decision has held that purchase of materials from an unidentified suppliers cannot be treated as bogus when it is established from day to day records that the said quantity went into production and the production and sales have been accepted by the department. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Balaji Textile Industries Pvt. Ltd. VS. ITO reported in 49 ITD 177 he submitted that the Tribunal in the said decision has deleted the addition made by the AO and upheld by the CIT(A) on account of purchases from untraceable parties treating same as bogus on the g....
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....counts were found. Further, there were immediate cash withdrawals after depositing the cheques in the bank accounts maintained by Mr. Tushar Ruparel and others found during the course of survey. Mr. Tushar Ruparel had specifically taken the name of the assessee and stated that assessee has availed the benefit for taking bogus bills of Rs. 8 to 9 crores. It is also the case of the AO that the assessee failed to produce the above named persons at any stage either before the AO or during the course of survey before the Investigation Wing. It is also the case of the AO that despite purchases made throughout the year the payments were made only in the month of February and March of the Financial Year. Further, there was absence of third party transport bills either with the assessee or with the supplier and there were defects in the maintenance of challans. 34. We find when the matter travelled to the CIT(A) he deleted 50% of the addition and sustained 50% for the reasons given by him in the appellate order and which has been summarised in the preceding paragraphs. It is the case of the assessee that there was no adverse finding during survey in the premises of the assessee. No unacc....
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.... also a fact that none of the parties for whom assessee has carried out the work are related to the assessee. Nothing has been brought on record by the Assessing Officer that work has not been carried out by the assessee for the parties from whom assessee has received the cheques against contract receipts which has been offered to tax and accepted by the Assessing Officer. We find the Assessing Officer apart from relying heavily on the statement of Mr. Tushar Ruparel has not brought any corroborative evidence to nail the assessee that it had received only accommodation entries and the purchases to the tune of Rs. 7,11,55,964/- are in fact bogus especially when the assessee has disputed such allegation by producing other materials to substantiate the purchases. The finding given by the Ld.CIT(A) that the statement of the proprietors of M/s. Sun Enterprise, M/s. M.R. Corporation and M/s. Neelam Enterprises have not been recorded could not be controverted by the Ld. Departmental Representative. Under these circumstances disbelieving the entire purchases merely on the statement of Mr. Tushar Ruparel and 3 other persons is not justified especially when the assessee has carried out the c....
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....sible to hold either the AO or the assessee as fully correct in their claims. 38. Having observed as above now we have to see as to what extent the purchases can be treated as bogus and to what extent purchases can be treated as genuine. From the various details furnished by the assessee we find the assessee has given site-wise profitability statement vis-à-vis the disallowance made by the AO which is as under : Birla Cotsyn Birla Power Kumar Housin Rohan Buil Zenith Birla Reliance Industries As Filed As Filed As Filed As Filed As Filed As Filed Sales 9,581,143.00 33,579,895.00 10,630,648.00 21,214,699.00 20,837,143.00 55,935,793.00 Purchase material 5....