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TMI Blog2017 (6) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... strate the facts with the evidences. Merely stating that the purchases are genuine and quality of the contract is undisputed by the government is not enough and therefore, the same are unacceptable. To that extent, the arguments of the assessee's AR are dismissed. Correctness of adopting 8% of suspected purchases for addition by FAA - Held that:- It is the claim the assessee without prejudice that the profit rate, if any, should be restricted to the said profit internal rates. But the same cannot be accepted considering the said Gujarat High Court's judgement in the case of Simit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT) wherein 12.5% is confirmed. We also cannot confirm the ill conceived profit rate of 8% as the same is not in tune with the reasoning given by the Hon'ble HC/Tribunal in the case of Simit P Sheth (supra). As such, AO never applied his mind to this aspect of the profit rate on the suspected purchases. CIT (A) did not remand this aspect to the file of the AO before adopting the profit rate of 8%. AO shall note that the 12.5% was confirmed in the case of Simit P Sheth (2013 (10) TMI 1028 - GUJARAT HIGH COURT ) when its internal profit is only 3.56%. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of ₹ 2,29,55,434/- to ₹ 18,36,435/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating the fact that on the similar ground the assessee had made disclosure of income in subsequent assessment year on account of unverifiable / bogus purchase expenses and through the same concerns the assessee had made purchase in the current year as well. 4. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in ignoring the fact that the hawala parties are non-existent at the given address and further they have given affidavits before the Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying of any goods. 2. Briefly stated relevant facts relevant to the assessment year 2008-2009 are that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AO proceeded to make addition of ₹ 2,29,55,434/- u/s 69C of the Act. In the assessment order, AO relied on the statement made u/s 131 of the Act taken on oath on 7.12.2011 ie the date of survey. AO cited the answer to the Q. No.7 wherein the assessee replied that the site supervisors do the purchase of raw material, their certification and the cheques were issued to these suppliers. Basing on the said reply, AO presumed that the above purchases are bogus. AO also mentioned about the failure on part of the suppliers to receive the notice issued u/s 133(6) of the Act. The fact of the said notices being returned unserved was also mentioned. Thus, the AO made addition based on (i) the statement of the assessee on 7.12.2011 and (ii) the failure of the assessee in producing the parties before him. AO also relied on the fact that the said parties denied that they are engaged in the business of supply of raw materials. They are only engaged in the business of giving accommodation entries for earning commission. Matter travelled to the first appellate authority. 3. During the proceedings before the first appellate authority, assessee reiterated the submissions made before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account and resorting to estimation of profits @ 8% of the alleged purchases. Ld Counsel for the assessee is critical in stating that the purchases made by the assessee from the parties are genuine. The fact of assessee making the payment through cheques involving the banking channels was also highlighted. When the payments are received by the suppliers and when there is no evidence of cash transactions, the presumptions drawn by the AO and the CIT (A) are unsustainable in law. Therefore, it is the prayer of the assessee that the claim made in the return of income originally filed by the assessee is fair and reasonable and therefore, the addition made u/s 69C of the Act should not be approved. 7. On the other hand, Ld DR for the Revenue submitted that the said parties have given statement on oath before the Sales Tax Authorities and informed about their actual business activities ie engaged in the business of giving accommodation entries. They are not genuine sellers of the raw materials required for the assessee‟s business of civil construction. Otherwise, he relied on the order of the AO and submitted that the entire addition of ₹ 2,29,55,434/- should be conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for MCGM, accepted the fact that the contract works were executed and the quality was also accepted by concerned authorities of the MCGM. In those circumstances, the utilization of the raw material in correct proportion is beyond doubt. It is a logical conclusion that cement, steel, bricks etc purchases by the assessee should be real. The names of the suppliers may or may not be sacrosanct so long as assessee incurred expenditure on the said raw materials. It may be a case that the assessee made the payments by the cheque to the said 56 parties, who may be bill suppliers, cannot be the suppliers. But, so far as the assessee is concerned, payments are incurred on the raw materials purchases by the assessee as per the requirements of the contracts. In these circumstances, as held by the Tribunal in many other cases, the onus is on the Assessing Officer to demonstrate the raw materials were not purchased at all from the stated / any supplier or AO should demonstrate the contract works executed by the assessee are of inferior quality and the raw materials to the tune of ₹ 13.03 Crs was an inflated one. Unfortunately, AO failed to discharge the onus on the above issues. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ‟s order is relevant in this regard). Therefore, CIT (A) may examine this issue afresh in the remand proceedings. He is free to call for relevant reports from the AO as per the procedure. CIT (A) is required to examine the sacrosanct nature of the GP of 10.56%. 10. Considering the above, we are of the opinion the decision of the AO in making entire bogus purchases is not proper and therefore, the grounds raised by the Revenue are dismissed. 11. Coming to the decision of the CIT (A) in restricting the addition to the extent of GP ie 8% of the so called bogus purchases, it is the case of the assessee that addition of 8% in addition to the already offered income in the return of income is unreasonable and therefore, seeks deletion of the same. However, Ld Counsel for the assessee submitted that the Assessing Officer failed to demonstrate coclusively that the entire purchases constitutes bogus purchases. He also submitted that in the sworn in statement, assessee never agreed to the fact that the said purchases are bogus. 11.1. Further, Ld Counsel for the assessee furnished a chart of GP of the assessees for various AYs and summed up by stating that the Net Profit (NP) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me up before the Tribunal for adjudication in the case of Kinjal Construction Co. Chirag Construction Co. (JV) vs. ITO in I.T.A. No.4384/M/2015 (AY: 2010-2011 ) wherein one us (AM) is a party to the said order. In the said case, the Tribunal relied on the judgment of the Hon‟ble Gujarat High Court in the case of CIT vs. Simit P Sheth in ITA No.553 of 2012, dated 16.1.2013 (356 ITR 451), which is relevant for the proposition that the only profit element embedded in such purchases can be added to the income of the assessee when the assessee purchased goods in grey market without bills and made up the same with the accommodation entries / bills. Considering the significance of the said order of the Tribunal (supra) and for the sake of completeness of this order, relevant paras 9 and 10 are extracted as under:- 9. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing both the parties on this issue, we find the sales account is undisturbed in this case by the AO. Therefore, the jurisdictional High Court judgment in the case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd reported in 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase were made at all, counsel for the revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted ratio of 30% of such total sales. The Tribunal, however, scaled down to 12.5%. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared gross profit @ 3.56% of the total turnover. If the yardstick of 30%, as adopted by the Commissioner, is accepted GP rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. 10. From the above, we find, the essential facts are comparable to that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO made addition of entire such purchases and he also added further sum of ₹ 5 Lakhs towards profit portion relatable to such sales. Assessee is said to have purchased the matching purchases from the grey market without bills. The FAA deleted such addition of entire suspicious purchases and restricted to only 30% of said purchases. The Tribunal scaled down the addition to 12.5% of the suspected purchases. Otherwise, assessee's recorded GP is 3.56%. Honble Gujarat High Court affirmed the conclusion of the Tribunal. We find the core facts are similar to the present case. There is no other case brought to our notice. The held portion of the said judgment of Gujarath HC reads as under:- Held, dismissing the appeal, that the Commissioner (Appeals) believed that the purchases were not bogus but were made from the parties other than those mentioned in the books of account. That being the position, not the entire purchase price but only the profit element embedded in such purchases could be added to the income of the assessee. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. The estimation of rate of profit re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases, we have also examined the assessee's routine explanation viz. the such purchases are genuine and profit portion is already offered to tax, we find that the said explanation constitutes very general and it falls short of the requirement of the law. It can be a sustainable if the case of the assessee falls in the type where the assessee makes the purchases in grey market without bills and buys only bills to match such purchases for commission. Addition of entire purchases is unsustainable in such cases. In case of the other, where assessee straight away inflates the purchases by buying the accommodation entries, the addition of entire purchases is sustainable. But, in this case, AO has not gone into the facts before entire such purchases are added. In that sense, we cannot approve the conclusions of the AO. 20. In the preceding paragraphs above, we have held that the purchase account of the assessee is not free from problems. We have also dismissed the AO's manner of making assessment of entire suspicious purchases. Further, we have also concluded in favour of the decision of FAA in confirming only the profit portion of such purchases. This is in addition to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO appropriate documents and data to arrive at appropriate profit rate. With the said directions, we allow the grounds of both the assessees for statistical purposes. Thus, all the grounds in both the appeals of assessee and revenue are partly allowed for statistical purposes. 22. In the result, the appeal of the assessee and the Revenue are partly allowed for statistical purposes. II. Cross Appeals for the AY 2009-2010 ( In the case of Mahavir Construction Co) Ground raised by the assessee in appeal ITA No.4255/M/2015 reads as under:- On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in upholding the addition made u/s 69C to the extent of ₹ 3,78,578/-, being estimated @ 8% of the purchases of ₹ 47,32,230/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra. Grounds raised by the Revenue in appeal ITA No.4631/M/2015 read as under:- 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of ₹ 47,32,230/- to ₹ 3,78,578/- made on account of bogus pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases of ₹ 7,51,32,254/-, the alleged bogus purchases from hawala dealers as appearing on the website of Sales Tax Department of Government of Maharashtra. Grounds raised by the Revenue in appeal ITA No.4629/M/2015 read as under:- 1. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of ₹ 7,51,32,254/- to ₹ 60,10,580/- made on account of bogus purchases made from as many as hawala parties being 8% of the total suspected purchases ignoring the fact that these parties are included in the list of suspicious and / or hawala dealers provided by the Sales Tax Department. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition of ₹ 7,51,32,254/- to ₹ 60,10,580/- ignoring the fact that during the course of survey u/s 133A of the Act on 7.12.2011 the assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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