2018 (3) TMI 1839 - AT - Income Tax

Bogus purchases u/s 69C - cost of construction has been shown by the assessee at a higher figure - HELD THAT - We found that cost of construction shown by the assessee was ₹ 2,958/- as against the cost of construction shown by the sister concern M/s. Triveni Properties with the project in the same vicinity having average cost at 2907/- per sq.ft. wherein there is not allegation of purchases from bogus suppliers. Even though learned AR relied on the order of the Co-ordinate Bench in case of Triveni Homes 2018 (2) TMI 1955 - ITAT MUMBAI wherein addition was restricted to 2% of the alleged bogus purchases, but we found that in that case, the cost of construction shown by the assessee worked out to ₹ 2812.70, however, in the instant case the cost of construction has been shown by the assessee at a higher figure of ₹ 2958/- therefore, it appears that assessee had shown higher cost of construction. We direct the AO to restrict the addition to the extent of 3% of the alleged bogus purchases. Appeal of the Revenue is dismissed whereas appeal of assessee is allowed in part.

Summary

Issues:
Cross appeals by assessee and Revenue against CIT(A)'s order for A.Y. 2010-11 regarding addition of bogus purchases.

Analysis:
The assessee, engaged in the business of builder and developer, faced an addition to income by the Assessing Officer due to purchases from dealers included in work-in-progress account. The Sales Tax Department labeled these dealers as suspicious, not bogus, raising doubts on the investigation's conclusiveness. The assessee provided various evidences during proceedings, including ledger copies, tax invoices, and bank statements, to support genuine purchases. The absence of negative findings on these evidences was highlighted by the assessee's representative.

The non-service of notice u/s. 133(6) was argued to be non-prejudicial to the assessee, citing legal precedents. Concerns were raised about relying on statements of VAT defaulters and the lack of transport documents due to direct delivery at the construction site. The assessee compared its average construction cost per sq. ft. with an associate concern to justify the claimed costs. Additionally, the assessee sought a restriction on any addition to 2% of alleged bogus purchases, citing a case involving a group concern.

The Revenue supported the AO's decision, emphasizing the thorough enquiry into alleged bogus suppliers. The tribunal reviewed the authorities' orders and noted the AO's claim of bogus purchases based on information from the sales tax department. Despite the issuance of notices u/s. 133(6) and submission of additional evidences by the assessee, no remand report was received. The CIT(A) restricted the addition for bogus purchases, considering the assessee's accounting treatment of purchases in work in progress.

The tribunal found no invocation of Section 40A(3) by the AO or CIT(A), deeming the department's grounds unjustified. The reliance on a Supreme Court decision by the Revenue was deemed distinguishable. After comparing construction costs and considering precedents, the tribunal directed the AO to limit the addition to 3% of alleged bogus purchases. Consequently, the Revenue's appeal was dismissed, while the assessee's appeal was partially allowed.