TaxTMI 
TaxTMI 
2016 (11) TMI 888
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....e following additions/disallowances: - (i) 20% disallowance out of motor car expenses Rs. 79,063/- (ii) Disallowance out of telephone expenses (15%) Rs. 36,663/- (iii) Disallowance out of labour charges Rs. 1,05,58,905/- (iv) Bogus purchase under section 69C Rs. 33,09,526/- 2.2 Aggrieved by the order of assessment for A.Y. 2010-11 dated 25.03.2013, the assessee preferred an appeal before the CIT(A)-29, Mumbai. The appeal was disposed off by the learned CIT(A) vide order dated 22.08.2014 allowing the assessee partial relief. The learned CIT(A): (i) sustained the disallowance out of motor car expenses and telephone expenses to the extent of 5% thereof; (ii) sustained 25% disallowance under section 40A(2)(b) out of total labour charges paid to three sister concerns; i.e. disallowance to the extent of Rs. 26,39,726/- was sustained. (iii) Profit @12.64% on bogus purchases. 3. Both Revenue and the assessee, being aggrieved by the impugned order of the learned CIT(A)-29, Mumbai dated 22.08.2014 for A.Y. 2010- 11, have preferred cross appeals in respect of issues held against them. 3.1 The grounds raised by the assessee in i....
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....es concerned did not have any source to justify the expenditure made as shown in Return Of Income. Further, on the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate that the assessee was not able to place any evidence to prove that the subcontract were carried out by the sister concerns with their own funds. 4. On the fact and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate that the peak method of disallowance as held in the case of M/s Vijay Proteins Ltd. (1996 58 lTD 428 Ahd) was correct method from making disallowance out of purchases treated as bogus purchases and has erred in directing the AO to treat the GP of 12.64% as disallowance out of bogus purchases." 4. Ground No. 1 of assessee's appeal & Ground No. 3 of Revenue's appeal - Disallowance of Labour Charges 4.1 The facts of the matter on this issue as per the records are that in the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had debited an amount of Rs. 2,44,32,298/- in the Profit & Loss account on account of labour charges paid to different subcontractors on the civil contracts undertak....
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....e being brought on record to substantiate/prove the same, the payments to these parties can't be termed as bogus and the disallowance of the entire payment of entire labour expenditure, since they were incurred through related parties, was held to be unjustified by the learned CIT(A). 4.2.2 The learned CIT(A) observed from the details on record that though the three related parties had not been paid entire amounts due during the period under consideration, substantial payments have been made in the subsequent year and since the labour jobs to complete the contract have been carried out, the expenditure incurred through the three related parties cannot be doubted. After thus concluding, the learned CIT(A) observing that since the assessee has not placed on record comparative evidence to show that payments to the related parties were at par with labour payments to other concerns performing similar jobs, the provisions of section 40A(2) of the Act are attracted and consequently sustained the addition to the extent of 20% of labour charges paid to selected parties, i.e. Rs. 26,39,726/-. 4.3.1 The learned A.R. of the assessee reiterated the submissions/ arguments put forth before ....
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....the impugned order of the learned CIT(A) that after due consideration of the material on record he negated the AO's view that the said transactions with the three related parties involving the incurring of expenditure for labour charges were bogus after observing that the said expenditure was in respect of civil contract works carried out for RBI, Reliance Infrastructure Ltd., who would certainly have not paid the assessee unless the civil contract involved was carried out; a view with which we concur. We also observe that the AO has not caused any enquiry to establish that either no contract work was carried out by the three related parties or that the expenditure booked on account of labour charges was bogus. In this view of the matter, we concur with and uphold the finding of the learned CIT(A) that in the absence of any material evidence being brought on record by the AO to prove that the payments made to these three related parties as bogus, the said payment of labour charges to him cannot be termed as bogus and the action of the so to discover the entire payment of labour expenditure, since they were incurred through related parties, is unjustified and unsustainable in the fa....
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....uineness of these purchases (supra) the AO called upon the assessee to furnish details to establish the same. The assessee furnished copies of purchase bills, delivery challens, proof payment through banking channels, etc. The AO further required the assessee to produce the said parties to give evidence in respect of the genuineness of these purchases, which he failed to do. The assessee's failure to do so, and relying on the information of the Sales Tax Authorities that these parties admitted to have given bogus bills, the AO proceeded to conclude that the assessee had made the aforesaid purchases (supra) from the above parties out of his undisclosed income and later on obtained the bogus bills to that extent from these parties. In that view of the matter, the AO proceeded to disallow the peak of the above purchases at Rs. 33,09,526/- and brought it to tax in the assessee's hands under section 69C of the Act. 5.1.3 On appeal, the learned CIT(A) was of the view that what is to be disallowed in the case of alleged bogus purchases is only the profit element embedded in such purchases shown to have been made from non-existent parties and not the peak amount of alleged bogus purchas....
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.... basis of information from the Sales Tax Department that the assessee issued notice to the assessee calling upon him to explain the genuineness of the aforesaid purchases from the said parties (supra). As the assessee was unable to produce the said parties, the AO primarily relying on the information obtained from the Sales Tax Department held the said purchases to be bogus. While it may be true that the said parties from whom the said purchases were made did not appear before the AO; however, Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises P. Ltd. (2005) 372 ITR 619 (Bom) has held that this by itself cannot be a ground to hold the purchases as bogus. Apart from this, the fact also remains that the assessee itself had filed copies of purchase bills, proof that payment for the same were through banking channels, delivery challans, etc. in order to establish the genuineness of the said purchases. It is a fact on record that the AO has not doubted the corresponding sales effected by the assessee and therefore it is in order to conclude that without corresponding purchases being affected, the assessee could not have made the sales. 5.4.2 We find that the AO has....