2018 (2) TMI 1955 - AT - Income Tax

Bogus purchases u/s 69C - closing WIP in respect of certain purchases alleged as bogus - HELD THAT - Average cost per sq.ft. of assessee ₹ 2,812.87/- per sq.ft. is equivalent to its associate concern M/s. Triveni Properties with project in the same vicinity having average cost as ₹ 2,907/-per sq. ft. Since, no allegation on purchases of said associate concern was made by the department, the average cost per sq. ft. of the assessee is to be accepted. Therefore, there is no question of any inflation of cost or deflation of profit. The assessee had been following Project Completion method since its inception. Though the AO had adopted percentage completion ( method for A.Y. 2008-09 to AY 2011-12, the Id. CIT(A) had deleted the addition in this respect for A.Y. 2008-09 to A.Y. 2010-11. The revenue's appeal for A.Y. 2008-09 and A.Y. 2009-10 was dismissed being below the prescribed tax limit. The revenue is not in appeal against the said deletion for current A.Y. i.e. 2010-11. Thus, project completion method followed by the assessee has been accepted by the revenue. It was submitted by the assessee that since no expenditure/deduction was claimed by the assessee for the year under consideration, no disallowance should be made for the year under consideration based on the decision of the on ble Mumbai ITAT in the case of M/s. Maruti Impex v. JCIT 2016 (5) TMI 104 - ITAT MUMBAI Savala Associates v. ITO 2009 (10) TMI 640 - ITAT MUMBAI We uphold addition to the extent of 2% of such bogus purchases during the A.Y.2012-13.

Summary

Issues:
Cross appeals by assessee and revenue against CIT(A)'s order for A.Y. 2010-11 under IT Act regarding disallowance of certain purchases as bogus.

Assessee's Grounds:
1. Disallowance of sum from closing WIP for alleged bogus purchases without appreciating evidence.
2. Failure to recognize genuineness of purchases and lack of cross-examination opportunity.
3. Request for restoration of WIP as shown in return of income and deletion of disallowance.
4. Grounds independent and without prejudice.

Revenue's Grounds:
1. CIT(A) erred in restricting addition of bogus purchases.
2. Basis of addition from Sales Tax Department not considered.
3. Admission by hawala dealers not taken into account.
4. Failure to prove genuineness of purchase transactions.
5. Failure to follow precedent set by N.K. Proteins Ltd. case.
6. Purchases made from unrecorded parties attracting section 10A(3).
7. Applicability of 40A(3) for 100% bogus purchases to be held as profit.
8. Praying for setting aside CIT(A)'s order and restoring AO's decision.
9. Request for leave to amend or add new grounds if necessary.

Detailed Analysis:
The case involved cross appeals by the assessee and revenue against the CIT(A)'s order for A.Y. 2010-11 under the IT Act regarding the disallowance of certain purchases as bogus. The assessee contested the disallowance of a sum from the closing work in progress (WIP) due to alleged bogus purchases, citing lack of appreciation of evidence and denial of cross-examination opportunity. The revenue, on the other hand, raised multiple grounds including the restriction of the addition of bogus purchases, failure to prove genuineness of transactions, and non-compliance with legal precedents.

The CIT(A) reduced the disallowance based on the rationale that disallowing entire purchases would imply a significant portion of WIP as bogus, which seemed illogical. The CIT(A) considered various factors including the average cost of construction and the similarity of projects in the same vicinity. The CIT(A) upheld a partial disallowance based on VAT rates and previous legal interpretations, reducing the disallowance amount. The decision also highlighted the acceptance of the project completion method by the revenue in previous years.

During the assessment and appellate proceedings, the assessee provided various evidences such as ledger copies, tax invoices, delivery challans, confirmations from dealers, bank statements, architect's certificates, and quantitative details of materials purchased. The absence of adverse findings regarding these evidences indicated their relevance in establishing the genuineness of transactions. The argument against the non-service of notices under section 133(6) was supported by legal precedents, emphasizing the burden of proof on the seller in certain circumstances.

In conclusion, the appellate tribunal upheld a partial addition to the extent of 2% of the bogus purchases for A.Y. 2012-13. The appeal of the revenue was dismissed, while the appeal of the assessee was allowed in part. The decision considered the totality of facts and circumstances, emphasizing the importance of evidence and legal precedents in determining the genuineness of transactions and the appropriate disallowances.