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TMI Blog2022 (7) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... future. Accordingly, we modify the order of the CIT(A) on this disputed issue and restrict the disallowance to the extent @ 3% instead of @10% and partly allow this ground of appeal of the assessee. Unexplained purchases - addition of 30% alleged bogus purchases sustained by the CIT(A) - HELD THAT:- We are of the opinion if any addition has to be made it should be based on the profit element and it was rightly pointed out by the Ld. AR that the GP worked out by the assessee is around 7.22%. Considering the factual aspects, nature of the business and the assessee could not produce the proper evidence with the records are of the considered view that the assessee has to be taxed on the profit element if the purchases are treated as a alleged bogus purchases as the assessee could not completely produce evidences of the genuineness of the transactions. We are of the view that the addition made by the CIT(A) @ 30% is on the higher side considering the GP rate @ 7.22% offered by the assessee. Accordingly, we restrict the addition of the CIT(A) to the extent @ 4%, and partly allow the ground of appeal of the assessee. Addition of outstanding current liabilities being labour charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the extent of Rs. 1,02,23,000/- being alleged bogus purchases as unexplained purchases u/s 69C without appreciating that all the purchases are genuine and have been used for execution of contract of BMC a semi Govt organization and the reason assigned for doing so are wrong and contrary to the provisions of Income Tax Act and rules made there under: 3. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on or before the date of hearing. 2. The Brief facts of the case are that the assessee is a civil contractor and Labour contractor. The assessee has filed the return of income for the A.Y 2008-09 on 10.03.2014 with a total income of Rs. 38,30,087/-.There was a search and seizure u/sec132 of the Act carried out on SMC group on 23.05.2012 and the assessee s father Shri Manu Prasad Trivedi (Prop. Of M/s Mukesh Brothers) is one of the major sub contractors of SMC group. Whereas, the assessee as a Labour contractor connected to the main assessee and was covered by the Search operations. The SMC Group is primarily engaged in the business of construction as civil contractors for infrastructure projects of Thane Municipal Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) Please furnish loan confirmation of unsecured loan from various parties amounting to Rs. 40,00,0001- and Rs. 21,51,1201- along with proof of credit worthiness of donor as well as evidence of payment in the form of bank statement.. 8) Please furnish the details of deposit made amounting to Rs. 1,00,00,000/-. 9) Please furnish detail of sundry creditors of Rs. 1,57,78,772/- alongwith confirmation and copy of ledger extract party wise. 10) Please furnish details with Name, amount and PAN of sundry debtors of Rs. 1,03,26,215/- 3. The assessee has filed the details on 23.02.2015 and 27.02.2015 referred at page 4 and 5 of the order: Reply dated: 23.02.2015 1. The assessee is a proprietor of M/ s. Mukesh Trading Co. and doing the labour charges work. 2. Copies of Audited Balance Sheet, Audited Profit 85 Loss Account along with all the schedules, Tax Audit report, Computation of total income, have already been submitted. 3. Details of Bank account along with statements has already been filed 4. Details of sales along with names and addresses of the parties. Since the assessee is doing the labour/ job work, therefore there is no cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of sundry creditors of Rs. 1,57,78,792/- along with the confirmation and ledger account of the parties. In response to the requisite information, the assessee has filed the details containing the list of parties. The A.O based on the books of accounts seized on 23.05.2012 from the office premises of M/s Mukesh Brothers,(Proprietary concern of the Assessees father) found the name and address of some parties. Whereas, the A.O. has issued notice u/s 133(6) of the Act on 18.02.2015 to do independent verification on the 14 parties and there was no response. Therefore the A.O has issued a show cause notice on 04.03.2015 on the assessee and was not satisfied with the clarifications, details and treated the purchases and sundry creditors aggregating to Rs 4,98,55,465/- as unexplained purchases and made the disallowance. 4. (iii) The A.O has received information that the assessee has purchased immovable property on 15-12-2007 valued at Rs.30.60 Lakhs and on 28.01.2008 valued at Rs.50Lakhs. The assessee was asked to produce the documentary evidence and sources of funds. Whereas the assessee holding 50% share has furnished the copy of agreement for purchase of the property of Rs. 50,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement commission. Further, the CIT(A) has considered the facts, nature of business, and time of purchase, statement U/sec132(4) of the Act and the history of the transactions and finally has restricted the bogus purchases u/sec69C of the Act to the extent of 30% as against 100% by the A.O. In respect of outstanding sundry creditors balance as on 31.03.2008 of Rs.1,57,78,772/-, the assessee has submitted the details of sundry creditors and the CIT(A) has observed that the total purchases made during the year are more than the respective vendors and once the total purchases have been considered for the disallowance on estimated basis and again adding the sundry creditors outstanding balances will be double tax effect and is not a prudent act of the A.O. Accordingly, the CIT(A) directed the Assessing officer to delete the addition. 5.(iii) On the third disputed issue, with respect of unexplained investments, the CIT(A) find that the A.O has made an addition of Rs.55,60,000/-.The CIT(A) has dealt on the explanations and the information of purchase of properties referred at Para 28 of the order. Finally the CIT(A) was satisfied with the explanations of the sources / information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers and signed by the labourer on revenue stamp affixed on cash vouchers and the cheque payments are identified in the bank account statements. The A.O has made 10% adhoc disallowance without considering the facts and not appreciating the nature of execution of contract works with daily labourers who are in the unorganized sector and not educated and does not have bank account and payments are made on daily basis/ weekly and was incurred in the normal course of business operations. The Ld. DR submitted that the assessee should have maintained proper records in respect of the labour charges and has not provided complete details. We find that the nature of works under taken by the assessee as a road contractor and construction of small bridges and various other projects awarded by the BMC to the main project/contractor and intern it was given to the assessee as a sub contractor. The fact remains that the assessee is working in unorganized sector and engages the labour on daily basis which cannot be ruled out. The only dispute is that the assessee was making the most of the payments in cash and the valid reasons were also submitted before the A.O and the CIT(A). Whereas, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cannot be sustained but the fact remains that the assessee should fallow the minimum necessary norms and maintain such records necessary for authentication of the claims before the appropriate authorities and the assessee shall be bound to maintain the records at least in future. Accordingly, we modify the order of the CIT(A) on this disputed issue and restrict the disallowance to the extent @ 3% instead of @10% and partly allow this ground of appeal of the assessee. 8. On the second disputed issue with respect to addition of 30% alleged bogus purchases sustained by the CIT(A). The assessee is in a business of contract works and has made various purchases of goods for execution of works directly/indirectly on subcontract works. The A.O has made a 100% addition of purchases as no proper details are furnished in the assessment proceedings. The A.O. has issued the notice u/s 133(6) of the Act on the parties and no reply was received, hence the A.O was under the presumption that it is an alleged bogus purchase and 100% disallowance was considered. Whereas the CIT(A) in the course of the appellate proceedings observed that the assessee has submitted the additional evidences in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the CIT(A). We find the coordinate Bench of the Honble Tribunal on similar isssues in the case of M/s. Ramesh Kumar and Co. Vs ACIT in ITA No. 2959/Mum/2014 dated 28.11.2014 has dealt and observed at page 5 Para 8 to 9 read as under: 8. We have carefully perused the orders of the lower authorities and the relevant documentary evidences brought before us. We find that the AO has made the addition as some of the suppliers of the assessee were declared Hawala dealer by the Sales tax Department. This may be a good reason for making further investigation but the AO did not make any further investigation and merely completed the assessment on suspicion . Once the assessee has brought on record the details of payments by account payee cheque, it was incumbent on the AO to have verified the payment details from the bank of the assessee and also from the bank of the suppliers to verify whether there was any immediate cash withdrawal from their account. No such exercise has been done. The Ld. CIT(A) has also confirmed the addition made by the AO by going on the suspicion and the belief that the suppliers of the assessee are Hawala traders. We also find that no effort has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-2010 and 2010-2011, the gross profit rate so declared by assessee was 8.60% and 10.64% respectfully. Thus, it is very much clear that during the year consideration, assessee has declared much better gross profit rate of 17.46% as compared to the earlier years, therefore, making further addition of 15% on such purchase appear to be very unreasonable. Thus, keeping in view the gross profit rate so declared by the assessee during the year under consideration, we upheld the addition of 2% on such purchases in place of 15% as upheld by CIT(A). We direct accordingly. 9. In the result, appeal of the revenue is dismissed, whereas the appeal of the assessee is allowed in part. 10. We considering the facts and circumstances and the ratio of the judicial decisions are of the opinion if any addition has to be made it should be based on the profit element and it was rightly pointed out by the Ld. AR that the GP worked out by the assessee is around 7.22%. We Considering the factual aspects, nature of the business and the assessee could not produce the proper evidence with the records are of the considered view that the assessee has to be taxed on the profit element if the purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the partial adhoc addition sustained by the CIT(A) and supported the order of the CIT(A) on this disputed issue of ground of appeal. 14. We heard the rival submissions and perused the material available on record. Prima-facie the Ld. DR contended that the CIT(A) has erred in granting the relief by sustaining only partial percentage to adhoc addition as bogus purchases instead of total addition. The Ld.DR emphasized that the genuineness has been not verified and the action of the CIT(A) is not tenable.At this juncture we considered it appropriate to refer to the observations of the CIT(A) at page 20 Para 22 read as under: 22. From the facts of the case and the remand report of the AO dated 10/10/2019; it is evident that on the basis of the evidence collected during the course of search in SMC Group, both the father of the appellant and the brother had admitted booking bogus purchases through various vendors. These parties are also enlisted under the list of suspicious vendors by Maharashtra Sales Tax and are also part of the list of purchases by the appellant. As a result of the group search, the fact is that both the father of the appellant and the brother of the appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year and the same are added to the total income of the assessee. The addition made by the AO on account of bogus purchases for A.Y. 2008-09, is therefore restricted to Rs. 1,02,23,002/-. We on perusal of the facts find that the CIT(A) was methodical in making the observations and relied on elaborate material information. The Ld. DR could not controvert the findings of the CIT(A) with any cogent evidence or information and relied only on the assessment order. Accordingly, we do not find any infirmity in the decision of the CIT(A) on this particular disputed issue and upheld the same and dismiss the grounds of appeal of the revenue. In the result, the appeal filed by the revenue is dismissed. ITA 225/Mum/2020, A.Y 2009-10. 15. The assessee has raised the following grounds of appeal: 1. On the facts and in the circumstance of the case and in law the Hon ble CIT(A) erred in upholding the addition of Rs. 12,36,550/- made by the Ld. AO on account of genuine labour charges paid and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and Rules made there under. 2. Your appellant craves leave to add to, amend alter or delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... except the variance in figures. Therefore, the decision rendered in paragraph no 7 would apply mutatis mutandis for this issue also. Accordingly, this ground of appeal of the assessee is partly allowed. 21. As far as ground of appeal No.2, we find in assessment proceedings A.O has called for the details in respect of the outstanding current liabilities being labour charges payable in respect of two parties and the assessee has complied with the directions but the AO was not satisfied with the documentary evidences and made addition of Rs 15,25,000/- treating as a bogus liability. On appeal, the CIT(A) has called for the remand report on the additional evidences filed. Whereas the CIT(A) has overlooked the fact in respect of the subcontract payments and confirmed the addition of the A.O. In the appeal before the Honble ITAT, the Ld. AR submitted that the assessee has carried out subcontract works with the two parties M/s. Poonam Enterprises of Rs. 7.5 lakhs and Maitree constructions of Rs. 7.75 lakhs and the payment was remained outstanding payable as on 31.03.2011. Whereas in the assessment proceedings, the assessee was made to prove the identity, genuineness of the party with t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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