TaxTMI 
TaxTMI 
2016 (1) TMI 893
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....ing the addition of Rs. 74,01,988/0 without appreciating the facts that the Banker has stated in the letter dated 05.12.2012 that only one cheque bearing No. 420012 was credited in the current account No. 500797 of M/s P K Trading on 28.07.2009 and other cheques details are not found in the same account which proves that the purchases are not genuine". 2. The brief facts qua the issue involved are that, assessee is a civil contractor mainly doing work as a sub-contractor of M/s S V Jiwani & Co., who are mainly engaged in civil repair work allotted by Bombay Municipal Corporation or Municipal Corporation of Greater Mumbai (MCGM). The original contract / work order here in this case was allotted by MCGM to the main contractor, a part of which was given as a sub-contract to the assessee. For carrying out the sub-contract work, the assessee had to perform the civil work as per the tender document and specifications. To fulfill the criteria/specification, assessee had to undertake purchase of certain fixed materials and employ labours. For the year under appeal, the assessee has debited an amount of Rs. 8,38,25,020/- on account of purchase of materials, in contrast to the receipts fr....
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....emand report' have been incorporated by the CIT(A) from pages 6 to 7 of the appellate order. In the remand report, the AO had contended that, summons was issued to M/s P K Trading & Co. u/s 131 and ITI was also deputed to make enquiry, however, the said firm was not traceable. Enquiry was also made from the bank which informed that cheques paid to M/s. P K Trading & Co. were by debiting the account of M/s Jain Contractor, however the Bank were not able to clarify the query satisfactorily with regard to other particulars of P.K. Trading Co. Thus, the assessee's purchases from the said party were not open to verification at all. In response, the assessee has given its rebuttal which has been incorporated and dealt by the CIT(A) from pages 8 to 15 of the appellate order. 4. The Ld. CIT(A) after considering the entire materials placed on record and the submissions and counter submissions of the assessee as well as the AO noted that, assessee is a sub-contractor and during the course of the appellate proceedings was required to file the details connected to the contract such as nature and scope of the work, date of commencement and the date of completion of the work contract etc. In ....
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.... that the supplier as well as payments made could not be proved by the assessee. 6. On the other hand, the Ld. Counsel, pointed out that, the assessee being a civil contractor has to perform its sub-contract work as per the terms and conditions of tender document and specifications, whereby the assessee was required to utilize certain amount of quantity and quality of materials and only when such standards are met, the payment is made by the Government Department (MCGM). All these facts have been duly noted by the CIT(A) in detail. Not only that, the assessee's net profit for the present assessment year was also very high which was commensurate with the total work/contract performed. One very important fact as brought on record by Ld. Counsel was that, in the case of main contractor, M/s S V Jiwani, the Settlement Commission has held that overall total net profit rate from contract receipts from Mumbai Corporation of Greater Mumbai (MCGM) was at 8% and the contract of MCGM executed by others, that is, was 2.87% and 5%. Thus, when the Settlement Commission has accepted that work through sub-contract has been done on 5% on same project and in the case of the assessee who is sub-co....
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....he range of profit percentage is also agreed upon. The entire conditions under which the civil contract work is carried out in the case of the assessee and the manner in which payment is released has been discussed in the appellate order from pages 16 to 18. From the said observations and the finding given the ld. CIT(A), it is absolutely clear that for performing the contract work, certain quantity and quality of material has to be utilized and there is little scope of manipulation of inflating the purchases in the books . If the assessee has undertaken the civil contract work of Rs. 9,50,92,857/- then for execution of such work, certain quality and quantity of material as specified has to be purchased and utilized. From the sub-contract work, the assessee had shown a net profit of 5.87% (net profit of Rs. 53,77,254/-) and if such an amount of purchase which has been added by the AO is included in the profit, then the profit rate will shoot very high, which is neither in consonance with the assessee's past history nor is comparable with the other contractors or sub-contractors. Now even if we agree with the contention of the revenue that the alleged purchases of Rs. 72,01,988/- wh....
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....o material difference in quantity data as per the records of the MCGM and as per the books of account of the main contractor. In this case also exactly similar addition of purchases were made on the basis of same information and the finding given by Settlement Commission clearly clinches the issue before hand. The relevant observation and finding of the Settlement Commission is as under:- "8.1 We have considered the arguments put forth by both the parties. The Department claims that some of the suppliers to the applicant are hawala parties and they have not supplied any genuine material to the applicant. The stand of the applicant is that the payments towards the suppliers have been made by account payee cheques and money has been transferred from the applicants account to the suppliers account. Suppliers are registered not only with the Sales Tax Department but also supplied relevant details to the bank while operating their accounts. In our considered view in these circumstances when the contract work is executed, because the payment of the contract work has been released by MCGM, it cannot be said that the purchases are bogus. Without purchases of the material, executio....