TaxTMI 
TaxTMI 
2022 (9) TMI 1144
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....ner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/I.T.656 & 657/DCCC-2(1)/2018-19 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s. 153C r.w.s. 143(3) & 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 27/12/2018 by the ld. Dy. Commissioner of Income Tax-CC-2(1), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. 2. The assessee has raised the following grounds before us for A.Y.2015-16 to 2017-18. "2015-16 1. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in directing the Ld AO to treat a sum of Rs. 1,83,380/- being 35% of the site and conveyance as unexplained expenses w/s. 69C of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in directing the Ld AO to treat a sum of Rs. 58,59,297/- being 2% of the purchases ma....
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....ed for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in directing the Ld AO to treat a sum of Rs. 1,39,92.166/- being 2% of the purchases made as unexplained purchases us 69C without appreciating that all the purchases are genuine and have been used for execution of BMC contract of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under 3. On the facts and in the circumstances of the care and in law the Hon'ble CIT(A) erred in upholding the addition made by Ld 40 to treat a sum of Rs. 88,53,162/- being 3% of the labour payments as unexplained expenditure and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under." 2.1. The department has raised the following grounds before us for A.Y.2016-17. "1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in disallowing the site and conveyance expense at 35% Instead of 30% which ....
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....017, partner of the assessee firm at 307, Jalaram Shopping Centre, Ganjawala Lane, Borivali (West), Mumbai. During the course of search, certain documents and loose papers were seized. Further, various statements were recorded during the course of search, inter-alia, of Mr. Pratap Purohit and one Mr. Sandeep Jain who was his accountant. 3.2. Pursuant to this search, the case of the assessee was centralized with the present Assessing Officer by the ld. PCIT-32, Mumbai vide order dated 01/11/2017. Thereafter, the ld. AO recorded satisfaction note in the case of the assessee and issued notice u/s.153C of the Act dated 14/09/2018 for A.Yrs. 2015-16 and 2016-17. On receipt of notice u/s.153C of the Act, the assessee filed return for A.Y.2015-16 and 2016-17 on 04/10/2018. Further, notice u/s.143(2) of the Act dated 27/07/2018 was issued by the ld. AO for A.Y.2017-18 i.e. the year of search. In the search assessment for A.Y.2015-16 and 2016-17 u/s.153C of the Act and in the regular assessment u/s.143(3) of the Act for A.Y.2017-18, the following additions / disallowances were made by the ld. AO which are tabulated hereunder:- Particulars A. Y. 2015-16 Amount (Rs.) A. Y. 2016-17....
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...." vide question No.11 of the statement recorded on 17/02/2017 on oath. Same details that were called for site expenses above were called by the ld. AO and the ld. AO observed that assessee could not produce any such proof for such expenses. In respect of site expenses and conveyance expenses, the ld. AO showcaused the assessee as to why the entire expenses should not be subject matter of disallowance. In response, the assessee submitted that these are regular expenses incurred in cash so as to complete the project awarded to it smoothly because at site they cannot wait for cheques to be cleared which takes normally more than 3-4 days. Moreover, these expenses are miscellaneous in nature and had to be necessarily incurred only in cash. With regard to submission of vouchers / bills, assessee submitted that they being voluminious and were lying in godown and hence, it could not be submitted immediately when the Investigation wing directed the assessee to submit the same. However, the assessee submitted the sample copies of the vouchers and its evidences before the ld. AO during the course of assessment proceedings. It was reiterated that all the expenses incurred in cash towards site ....
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....ecords by the assessee and also by placing reliance on the statement recorded on oath at the time of search from Mr. Pratap Purohit, partner of the assessee. We hold that a fair estimation of disallowance of cash expenses needs to be done in this case. Accordingly, we hold that disallowance of expenses @20% in respect of site and conveyance expenses would meet the ends of justice in the instant case for A.Yrs.2015-16, 2016-17 and 2017-18. Accordingly, the grounds raised by the assessee for A.Yrs.2015-16 to 2017-18 and ground raised by the Revenue for A.Y.2016-17 are disposed of in the aforesaid manner. 4. The next issue to be decided in this appeal is with regard to disallowance made on account of unverifiable purchases. 4.1. We have heard rival submissions and perused the materials available on record. We find that assessee is in the business of executing work contracts for Municipal Corporation of Greater Mumbai (MCGM) for which purpose it had regularly purchased iron, steel pipes, cement, building material supplies etc., from various parties. The ld. AO observed that during the course of search proceedings, the purchase bills from various parties were verified and it was f....
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....T(A) are tabulated hereunder for A.Yrs.2015-16 to 2017-18:- AY Total Purchase Specific Purchase /Disallowance 133(6) not replied Balance Total Purchase As per AO @ 3 % As per CIT(A) Order @2% 2015-16 18,81,77,586.00 2,07,738.00 18,79,69,848.00 56,39,095.44 37,59,396.96 2016-17 67,85,15,762.00 5,05,824.00 67,80,09,938.00 2,03,40,298.14 1,35,60,198.76 2017-18 69,98,62,912.00 2,54,517.00 69,96,08,295.00 2,09,88,248.85 1,39,92,165.90 TOTAL 156,65,56,260.00 9,68,179.00 156,55,88,081.00 4,69,67,642.43 3,13,11,761.62 4.3. Before us, the ld. AR vehemently pleaded that assessee firm is engaged in the business of executing works contracts for MCGM and for the purposes of the same, regularly makes purchase of materials from various parties. The supplies made those parties are proved by their consumption and satisfactory execution of the job work. Only after due satisfaction of execution of the job work, payments were released to the assessee by MCGM. The ld. AR also vehemently argued that none of the parties to whom notice u/s.133(6) of the Act were identified and issued by the ld. AO were reflected t....
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....n this regard, it would be pertinent to mention that the ld. AO had resorted to make verification by way of issue of notices u/s 133(6) of the Act for the three years under consideration as under:- Asst Year 2015-16 - 21.87% of value of total purchases Asst Year 2016-17 - 31.74% of value of total purchases Asst Year 2017-18 - 9.46% of value of total purchases 4.4. We find that the Revenue had vehemently pleaded that in the case of Mr. Pratap Purohit (partner of assessee firm herein) for A.Y.2011-12 in ITA Nos.5193 and 1021/Mum/2014 dated 04/11/2016 had confirmed the disallowance @2% of value of disputed purchases. We have gone through the said order which is enclosed in pages 989 to 994 of the paper book III. In the said order, additions were made with respect to 71 parties for which it was admitted by the assessee that only accommodation entries have been taken for these parties to show inflated purchases and cash was received back to be ploughed back into the business. In the said order, information was received from Sales Tax department that ten parties from whom the assessee had made purchases of Rs.92,40,232/- wherein it was held that those ten pa....
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....of such bills, the assessee was asked during the search proceedings to explain standard operating procedure adopted by it with respect of labour contract which was explained by Shri Sandeep Jain, Accounts Assistant of Shri Pratap Purohit. The assessee was also asked to produce sample labour contract bill raised and explain the same with respect to standard operating procedure mentioned by it. Shri Sandeep Jain presented four bills raised from different sub-contractors and explained them in the context of standard operating procedure mentioned by him. In respect of those four bills, the ld. AO observed that proper procedures were followed by the assessee. However, in respect of certain bills, there were certain discrepancies observed which are detailed in page 13 of the assessment order. During the course of assessment proceedings, in order to verify the transactions of the assessee with the parties to whom the assessee has awarded labour contracts/sub-contracts, notices u/s.133(6) of the Act were issued to 19 parties which were identified by the ld. AO. In respect of 10 parties, notice was returned unserved. The ld. AO show-caused the assessee that only 3 out of 19 parties had repl....
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....r /Contractor. Accordingly, it was pleaded that merely because the Mukadam / Contractors were not available at the address mentioned in their invoices, no adverse inference could be drawn on the assessee. However, the assessee thereafter through its efforts was able to obtain replies from five more parties in response to 133(6) of the Act. Hence, out of 19 parties, 8 parties had responded to the notice u/s.133(6) of the Act. The ld. AO observed that assessee had not made any payment to two parties during the years under consideration towards labour contracts. Hence, those parties were also ignored by the ld. AO. In respect of remaining 9 parties from whom no response were received by the ld. AO in response to notice u/s.133(6) of the Act, and in view of the discrepancies found during the course of search proceedings on certain bills appearing suspicious, the ld. AO proceeded to treat the payments made to these labour contractors as "bogus‟ and made an addition u/s.69C of the Act in the following manner for A.Y.2015-16, 2016-17 and 2017-18:- Particulars A. Y. 2015-16 A. Y. 2016-17 A. Y. 2017-18 R. R. Enterprises 17,91,759/- - - Bajarang Construction ....
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....e fashion and on similar letterheads and hence, could not be relied upon and accordingly, proceeded to treat the said payments made to 14 labour sansthas as bogus and made an addition u/s.69C of the Act in the sum of Rs.10,98,24,837/- for A.Y.2016-17. Hence, in respect of labour contract payments to whom notice u/s.133(6) of the Act were identified and issued by the ld. AO, the ld. AO proceeded to disallow the entire value of labour contract payments made to those parties who did not respond to notice u/s.133(6) of the Act. While doing this, the ld. AO also added 100% of payments made to 14 labour sansthas in the sum of Rs.10,98,24,837/- for A.Y.2016-17, even though 133(6) had been complied by them. These disallowances were reduced by the ld. AO from the total labour charges incurred by the assessee for all the three years under consideration and for the remaining portion, the ld. AO proceeded to make adhoc disallowance @3% of the values thereon to take care of various deficiencies found in the bills. In other words, the disallowance ultimately made by the ld. AO on account of labour contract payments are as under:- A.Y. (A) Total Labour Charges (B) Specific Labour Disallo....
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....hat none of these parties were reflected as tainted dealers in the website of Sales Tax department of Government of Maharashtra. It is a fact that assessee had furnished all the requisite documents that are available with it in respect of these parties. It is also a fact that the details of quantity of materials utilized and consumed in the contract activity carried out by the assessee is not in dispute. Without the assistance of the labour force, the contracts executed by the assessee could not be completed smoothly. The materials consumed in the execution of the contract, labour force deployed thereon and the total cost incurred by the assessee had been duly taken into account by MCGM and other Government organizations while releasing payments to the assessee for execution of the contract. While this so, we are unable to persuade ourselves to accept the action of the lower authorities in disbelieving the labour contract payments incurred by the assessee especially in respect of those contractors, who had duly responded before the ld. AO for notice u/s.133(6) of the Act. In this regard, it would be pertinent to mention that the ld. AO had resorted to make verification by way of is....
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....s. Hence, the details were called for by the ld. AO were before him either directly received from the parties or received from the assessee, as the case may be. Merely because, the summons issued by the ld. AO to 13 parties thereon were returned unserved, no adverse inference could be drawn on the assessee. Obviously, the summons were issued after 2-3 years from the date of payment of labour charges to those labour sansthas and assessee cannot be expected to have control over all those labour sansthas once the contract work is executed at the relevant site. In any case, nothing defective is found in the details submitted by the assessee in response to notice u/s 133(6) of the Act by the revenue. Hence, in our considered opinion, no adverse inference could be drawn on the assessee in respect of payments made to 14 labour sansthas. Accordingly, we specifically direct the ld. AO to delete the addition made u/s.69C of the Act in the sum of Rs.10,98,24,837/- for A.Y.2016-17. 5.10. The decision rendered hereinabove in respect of disallowances of labour contract payments, in the aforesaid manner, in our considered opinion, would meet the ends of justice in the facts and circumstances o....