TaxTMI 
TaxTMI 
2017 (6) TMI 1145
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....A) has erred in upholding the addition made u/s 69C to the extent of Rs. 18,36,435/-, being estimated @ 8% of the purchases of Rs. 2,29,55,434/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra." Grounds raised by the Revenue in appeal ITA No.4630/M/2015 read as under:- 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3.....
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.... banking channels. Regarding the goods delivered to the assessee, AO noticed that the delivery challans were not furnished. Further, assessee submitted that the AO is not having any direct evidence to demonstrate that the said purchases are bogus. Further also, assessee mentioned that the contracts were executed by the asesee as per the contract documents with the Government and the quality of such contracts was never compromised. Further, it is the case of the assessee when the books of accounts are proper and the same were audited by the Statutory Auditors u/s 44AB of the Act, in the absence of any incriminating evidence, addition on account of bogus purchases is not sustainable in law. However, the explanation of the assessee was not accepted by the AO and the AO proceeded to make addition of Rs. 2,29,55,434/- u/s 69C of the Act. In the assessment order, AO relied on the statement made u/s 131 of the Act taken on oath on 7.12.2011 ie the date of survey. AO cited the answer to the Q. No.7 wherein the assessee replied that the site supervisors do the purchase of raw material, their certification and the cheques were issued to these suppliers. Basing on the said reply, AO presumed ....
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....he CIT (A)-42, Mumbai dated 11.5.2015 for the assessment year 2008-2009. 5. The only issue raised in this appeal relates to the decision of the CIT (A) in upholding the addition u/s 69C of the Act to the extent of Rs. 18,36,435/- ie 8% of the alleged bogus purchases amounting to Rs. 2,29,55,434/-. It is alleged that the CIT (A) erred in resorting to estimation of profits and the addition confirmed by the CIT (A) should be deleted in toto. 6. Before us, Ld Counsel for the assessee submitted that the books of accounts are valid, accurate and complete in all respects. There is no problem with the method of accounting adopted by the assessee over the years. In such circumstances, the CIT (A) is not correct in rejecting the books of account and resorting to estimation of profits @ 8% of the alleged purchases. Ld Counsel for the assessee is critical in stating that the purchases made by the assessee from the parties are genuine. The fact of assessee making the payment through cheques involving the banking channels was also highlighted. When the payments are received by the suppliers and when there is no evidence of cash transactions, the presumptions drawn by the AO and the CIT (A) are....
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....vs. Nikunj Eximp Enterprises Pvt Ltd (supra). For the sake of completeness of this order, relevant paras from the said Tribunal‟s order dated 10.2.2016 (supra) are extracted as under:- "10. We have heard both the parties on this issue of addition made u/s 69C of the Act. We have also examined the aforementioned orders of Tribunal. We find, the decision, made in those cases adjudicated by the Tribunal (supra), is also based on the data available on the webpage of the Sales Tax Department. At least some of the parties are found figuring in the list supplied by the AO and the CIT (A). The Tribunal decided the appeals in the above mentioned cases (supra), after analysing the contract works executed by the assessee for MCGM, accepted the fact that the contract works were executed and the quality was also accepted by concerned authorities of the MCGM. In those circumstances, the utilization of the raw material in correct proportion is beyond doubt. It is a logical conclusion that cement, steel, bricks etc purchases by the assessee should be real. The names of the suppliers may or may not be sacrosanct so long as assessee incurred expenditure on the said raw materials. It may be a....
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....s, the assessee would have been in a position to complete the civil work." 11. Further, regarding the GP maintained by the assessee, we find that the assessee declared GP rates of 10.56% (supra). AO has not examined the GP rate of the assessee over the years on similar contracts. Taking comparable cases, however, it is the claim of the assessee with the addition of Rs. 13.03 Crs, the GP rate has resulted to 21.38%, which is abnormally high on the fact of it in the contract works like the one executed by the assessee. Unfortunately, there is no reference to these aspects in the order of the AO and the CIT (A), despite the reference made by the assessee in his submissions (item 12 in page 10 of the CIT (A)‟s order is relevant in this regard). Therefore, CIT (A) may examine this issue afresh in the remand proceedings. He is free to call for relevant reports from the AO as per the procedure. CIT (A) is required to examine the sacrosanct nature of the GP of 10.56%." 10. Considering the above, we are of the opinion the decision of the AO in making entire bogus purchases is not proper and therefore, the grounds raised by the Revenue are dismissed. 11. Coming to the decision of t....
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....ing the profit rate to 8% but also erred in not adopting the said rate of 12.50%. He submits that the rate of 12.50% is not new in this line of real estate business. Thus, he pleads for confirming the entire suspected purchases. Alternatively, he argues for confirming the adopting the rate of 12.50% in tune with the said judgement in the case of Simit P Sheth (supra). 13. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. We have also gone through the decisions citations relied on by both the parties. After hearing boththe parties and on perusal of the orders of the Revenue Authorities, we find, similar issue came up before the Tribunal for adjudication in the case of Kinjal Construction Co. & Chirag Construction Co. (JV) vs. ITO in I.T.A. No.4384/M/2015 (AY: 2010-2011) wherein one us (AM) is a party to the said order. In the said case, the Tribunal relied on the judgment of the Hon‟ble Gujarat High Court in the case of CIT vs. Simit P Sheth in ITA No.553 of 2012, dated 16.1.2013 (356 ITR 451), which is relevant for the proposition that the only profit element embedded in such purchases can be a....
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.... profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. If the entire purchases were wholly bogus and there was finding of fact on record that no purchase were made at all, counsel for the revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30% of such total sales. The Trib....
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....never disturbed the sales account of the assessee in the year under consideration, addition of entire purchases is not valid. Therefore, the addition of entire such purchases as done by the AO is not correct and thus, the decision of the CIT(A) in deleting the same is upheld. Resultantly, the appeals filed by the revenue are decided protanto. B. Whether taxing profits of the suspected purchases amounts to Double taxation: 15. This issue is answered by the Gujarat High Court in the case of Simit P Sheth (supra) and it is against the assessee. In this case, the facts are that assessee claimed bogus purchases exceeding Rs. 41 lakhs (rounded off). AO made addition of entire such purchases and he also added further sum of Rs. 5 Lakhs towards profit portion relatable to such sales. Assessee is said to have purchased the matching purchases from the grey market without bills. The FAA deleted such addition of entire suspicious purchases and restricted to only 30% of said purchases. The Tribunal scaled down the addition to 12.5% of the suspected purchases. Otherwise, assessee's recorded GP is 3.56%. Honble Gujarat High Court affirmed the conclusion of the Tribunal. We find the core fac....
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....ing the affidavits failed by the suppliers before the Sales Tax authorities and the enquiry results u/s 133A, the onus is on the assessee to demonstrate the facts with the evidences. Merely stating that the purchases are genuine and quality of the contract is undisputed by the government is not enough and therefore, the same are unacceptable. To that extent, the arguments of the assessee's AR are dismissed. D. Correctness of adopting 8% of suspected purchases for addition by FAA: 19. Further, in connection with the decision of the FFA restricting to additional income by way of the GP specific to such alleged bogus purchases, we have also examined the assessee's routine explanation viz. the such purchases are genuine and profit portion is already offered to tax, we find that the said explanation constitutes very general and it falls short of the requirement of the law. It can be a sustainable if the case of the assessee falls in the type where the assessee makes the purchases in grey market without bills and buys only bills to match such purchases for commission. Addition of entire purchases is unsustainable in such cases. In case of the other, where assessee straight away....
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....r arriving at the appropriate profit rate of the assessee, who is engaged in the real estate related business. AO shall note that the 12.5% was confirmed in the case of Simit P Sheth (supra) when its internal profit is only 3.56%. It is a case of Steel Trader and the said profit rate may not apply to the facts of the present who is in the business of Civil Contractor / real estate. In the remand proceedings, AO shall grant reasonable hearing opportunity to the assessee before arriving at the reasonable profits on the suspected purchases as applicable to the facts of this case. Assessee is also allowed to supply the AO appropriate documents and data to arrive at appropriate profit rate. With the said directions, we allow the grounds of both the assessees for statistical purposes. Thus, all the grounds in both the appeals of assessee and revenue are partly allowed for statistical purposes. 22. In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes. II. Cross Appeals for the AY 2009-2010 (In the case of Mahavir Construction Co) Ground raised by the assessee in appeal ITA No.4255/M/2015 reads as under:- "On the facts and in the circu....
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....ds in both the appeals of assessee and revenue are partly allowed for statistical purposes. 24. In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes. III. Cross Appeals for the AY 2008-2009 (In the case of Kishore G Shah) Ground raised by the assessee in appeal ITA No.4257/M/2015 reads as under:- "On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the addition made u/s 69C to the extent of Rs. 60,10,580/-, being estimated @ 8% of the purchases of Rs. 7,51,32,254/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra." Grounds raised by the Revenue in appeal ITA No.4629/M/2015 read as under:- 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of Rs. 7,51,32,254/- to Rs. 60,10,580/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department. 2. On th....