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2019 (6) TMI 1430 - AT - Income TaxBogus purchases u/s 69C - HELD THAT - We set aside the order of the Ld. CIT(A) and direct the AO to restrict the additions limited to the extent of bringing the G.P. rate on disputed purchases at the same rate of other genuine purchases. Rate difference in sale of flats/shops - Addition on account of difference in rate per sq. ft. charged to various customers vis- -vis the market rates per sq. ft. on the date of booking by these customers - HELD THAT - In M/s John Fowler (India) Pvt. Ltd. 2017 (1) TMI 1682 - ITAT MUMBAI since the value of sale consideration reported by the assessee was less than the value as per the stamp duty authority, the difference between the two amounting to ₹ 33,48,684/- was proposed to be added back to the income of the assessee. In the above case, as the difference between the valuation adopted by the stamp valuation authority and the one declared by the assessee was less than 10%, therefore, the Tribunal directed the AO to adopt the value as declared by the assessee. In the instant case, the assessee is a developer and builder engaged in construction and developing commercial and residential complexes including malls. Section 43CA is applicable to the case of a developer or builder and thus applicable to the instant case. We are concerned herewith AY 2012-13. As mentioned earlier section 43CA is effective from AY 2014-15 and thus not applicable to the impugned assessment year. In view of the above facts and position of law, we delete the addition made by the Ld. CIT(A). Consequently, the appeal filed by the assessee is allowed and the appeal filed by the revenue is dismissed.
Issues Involved:
1. Disallowance and reduction of closing Work-In-Progress (WIP) due to alleged bogus purchases. 2. Addition on account of difference in rate per sq. ft. charged to various customers vis-à-vis the market rates. Issue-wise Detailed Analysis: 1. Disallowance and Reduction of Closing WIP due to Alleged Bogus Purchases: The assessee, a builder and developer, filed its return of income for AY 2010-11 declaring a total income of Rs. Nil and a carried forward loss of ?17,95,674/-. During the assessment proceedings, the AO issued notices to 25 parties to verify the genuineness of purchases. One party, Shri Chandrakant Jivram Dherai, denied any transactions with the assessee. The AO found that these parties were involved in supplying bogus bills without physical delivery of materials and added ?8,96,98,723/- to the assessee's income. The assessee appealed, and the CIT(A), referring to the case of Simit P. Sheth v. CIT, upheld an addition of 12.5% of the bogus purchases. For the present case, the CIT(A) applied a GP rate of 6.5% on purchases involving 4% VAT and 15% on purchases involving 12.5% VAT, resulting in a reduction of ?75,78,066/- from WIP. The CIT(A) directed the AO to delete the addition of ?8,96,98,723/-. Before the Tribunal, the assessee argued that the parties were suspicious dealers, not bogus, and provided various evidences to support the genuineness of the purchases. The Tribunal referred to the case of Pr. CIT v. M/s Mohommad Haji Adam & Co., where the Bombay High Court held that purchases cannot be rejected without disturbing the sales. The Tribunal directed the AO to restrict the additions to the extent of bringing the GP rate on disputed purchases at the same rate as other genuine purchases, setting aside the CIT(A)'s order. 2. Addition on Account of Difference in Rate per Sq. Ft. Charged to Various Customers: For AY 2012-13, the AO found abnormal differences in selling rates of flats/shops in the assessee's project, Bhoomi Towers. The AO concluded that the assessee received on-money in the form of cash against sales and made an addition of ?8,76,70,801/- after allowing a 15% allowance for market conditions. The CIT(A) agreed with the assessee's contention that various factors could lead to rate variations, such as customer perceptions, needs, and market conditions. The CIT(A) considered the stamp duty rate on the date of agreement as a pragmatic rate per sq. ft. on the date of booking, resulting in a confirmed addition of ?84,85,259/-. The CIT(A) rejected the assessee's request for a 15% tolerance band, stating that the matter relates to sale below the stamp duty valuation, not purchase/investment. The Tribunal found that the AO made the addition without any cogent evidence of on-money receipts. The Tribunal referred to various cases, including Neelkamal Realtors & Erectors India (P.) Ltd. v. DCIT and M/s Runwal Projects Pvt. Ltd. v. DCIT, where it was held that additions cannot be made without evidence of on-money received. The Tribunal deleted the addition of ?84,85,259/- made by the CIT(A), stating that section 50C does not apply to stock-in-trade and section 43CA is applicable from AY 2014-15, not AY 2012-13. Summary of Judgments: - The appeal filed by the assessee for AY 2010-11 is allowed for statistical purposes. - The appeal filed by the Revenue for AY 2010-11 is allowed for statistical purposes. - The appeal filed by the assessee for AY 2012-13 is partly allowed (the 1st ground of appeal is allowed, the 2nd ground of appeal is allowed for statistical purposes). - The appeal filed by the Revenue for AY 2012-13 is dismissed. - Similar decisions apply to other related appeals involving the same group of concerns. Conclusion: The Tribunal directed the AO to restrict the additions to the extent of bringing the GP rate on disputed purchases at the same rate as other genuine purchases and deleted the addition made on account of rate differences in the sale of flats/shops, emphasizing the need for cogent evidence to support such additions.
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