2019 (1) TMI 1970 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We find that under the identical facts and in the case of assessee s group concern, the coordinate bench of the Tribunal in the case of M/s Mahaavir Universal Homes Pvt. Ltd. 2018 (11) TMI 1898 - ITAT MUMBAI has directed the AO to apply a GP rate of 3% to assess the bogus purchase under similar facts. We, therefore, respectfully following the same, direct the AO to apply the GP rate of 3% of the bogus purchase.

Summary

Issues Involved:
1. Legality of additions not based on materials seized during action under Section 132.
2. Disallowance of purchases without opportunity for cross-examination of alleged suspicious dealers.
3. Disallowance of expenses on account of alleged bogus purchases.
4. Disallowance of expenses by invoking Section 40(a)(ia) for non-deduction of TDS.

Detailed Analysis:

1. Legality of Additions Not Based on Seized Materials:
The assessee argued that the additions made by the Assessing Officer (AO) were not based on any incriminating materials seized during the search under Section 132 of the Income Tax Act. The Tribunal observed that the search did not yield any incriminating material and thus, additions made by the AO on account of bogus purchases and disallowance of expenses under Section 40(a)(ia) were without jurisdiction. The Tribunal relied on the decision of the Bombay High Court in the case of CIT vs. Continental Warehousing Corporation Ltd, which held that no additions can be made in the case of unabated assessments unless based on incriminating material found during the search. Accordingly, the Tribunal directed the AO to delete the additions made.

2. Disallowance of Purchases Without Opportunity for Cross-Examination:
The assessee contended that the AO disallowed purchases from various parties listed as hawala dealers by the sales tax department without providing an opportunity for cross-examination. The Tribunal noted that the AO relied on statements and affidavits obtained by the sales tax department, indicating that these parties were merely providing accommodation entries and not engaged in genuine business. However, since no incriminating material was found during the search, the Tribunal held that the disallowance was not justified and directed the AO to delete the addition.

3. Disallowance of Expenses on Account of Alleged Bogus Purchases:
For the assessment years 2007-2008 to 2009-2010, the Tribunal observed that the additions made by the AO on account of bogus purchases were not based on any incriminating materials. Therefore, these additions were deleted. For the assessment year 2010-2011, which was an abated assessment, the Tribunal followed the precedent set in the case of the assessee’s sister concern, M/s Mahaavir Universal Homes Pvt. Ltd., and directed the AO to apply a Gross Profit (GP) rate of 3% on the bogus purchases. This approach was consistently applied to other group entities for different assessment years, resulting in partial allowance of the appeals.

4. Disallowance of Expenses by Invoking Section 40(a)(ia):
The AO disallowed expenses under Section 40(a)(ia) for non-deduction of TDS. The Tribunal noted that such disallowances were made without any incriminating material found during the search. Citing the decision of the Bombay High Court in CIT vs. Continental Warehousing Corporation Ltd., the Tribunal held that in the absence of incriminating material, such disallowances could not be sustained. Consequently, the Tribunal directed the AO to delete these disallowances.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2007-2008 to 2009-2010, directing the AO to delete the additions made. For the assessment year 2010-2011, the Tribunal directed the AO to apply a GP rate of 3% on the bogus purchases, partly allowing the appeals of the assessee and dismissing the appeals of the Revenue. This approach was consistently applied to other group entities for different assessment years, resulting in partial allowance of the appeals.

Order Pronounced:
The Tribunal pronounced the order in the open court on 08/01/2019, allowing the appeals of the assessee in ITA Nos. 4350 to 4352/Mum/2017, partly allowing ITA Nos. 4343, 4353, 4334 & 4345 to 4347/Mum/2017, and dismissing all the appeals of the Revenue.