9911796707
TMI Blog2022 (9) TMI 1144X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-17 and 2017-18. Accordingly, the grounds raised by the assessee for A.Yrs.2015-16 to 2017-18 and ground raised by the Revenue for A.Y.2016-17 are disposed of in the aforesaid manner. Disallowance made on account of unverifiable purchases - HELD THAT:- Information was received from Sales Tax department that ten parties from whom the assessee had made purchases wherein it was held that those ten parties had indulged in providing accommodation entries and moreover notices u/s.133(6) of the Act could not be served on those parties. In these facts and circumstances, the ld. CIT(A) upheld the addition of profit element of 15% on the value of such disputed purchases which was brought down to 2% by this Tribunal. As said earlier, the assessee had not made any purchases from the suppliers whose names were reflected as tainted dealers in the website of Sales Tax department, Government of Maharashtra during the years under consideration. Hence, in our considered opinion, the decision rendered by this Tribunal for A.Y.2011-12 is factually distinguishable and need not be relied upon for the years under consideration - As during the course of search, certain deficiencies were indeed foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment Year :2016-17) This appeal in ITA No.664/Mum/2020 for A.Y. 2016-17 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/I.T.656 657/DCCC-2(1)/2018-19 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.153C r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 27/12/2018 by the ld. Dy. Commissioner of Income Tax-CC-2(1), Mumbai (hereinafter referred to as ld. AO). ITA No.506/Mum/2020 to 508/Mum/2020 (Assessment Year :2015-16 to 2017-18 These appeal in ITA No. 506/Mum/2020 to 508/Mum/2020 for A.Ys.2015-2016 to 2017-18 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-48, Mumbai in appeal No.CIT(A)-48/I.T.656 657/DCCC-2(1)/2018-19 dated 31/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s. 153C r.w.s. 143(3) 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 27/12/2018 by the ld. Dy. Commissioner of Income Tax-CC-2(1), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 4. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the penalty wx. 271(1)(c) levied by the Ld AO and the reasons assigned for doing so are wrong and contrary to the provision of the Income Tax Act and rudes made there under. 2017-18 1. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in directing the Ed AO to treat Rs. 1,79,673/- being 35% of the site and conveyance as unexplained expenses us. 69C of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in directing the Ld AO to treat a sum of Rs. 1,39,92.166/- being 2% of the purchases made as unexplained purchases us 69C without appreciating that all the purchases are genuine and have been used for execution of BMC contract of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuted on 20/12/2014. It is a fact on record that prior to 20/12/2014, it was a proprietorship concern of Shri Pratap Purohit in the name and style of M/s. Dev Engineers. The said name continued even after becoming a partnership firm. The firm is a civil engineering and construction contractor and engaged in the business of carrying out work for Government and semi-Government organizations. The firm also engages sub-contractor for completion of certain contracts. 3.1. A search and seizure action was conducted u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') on Mr. Pratap Uttam Purohit on 16.02.2017, partner of the assessee firm at 307, Jalaram Shopping Centre, Ganjawala Lane, Borivali (West), Mumbai. During the course of search, certain documents and loose papers were seized. Further, various statements were recorded during the course of search, inter-alia, of Mr. Pratap Purohit and one Mr. Sandeep Jain who was his accountant. 3.2. Pursuant to this search, the case of the assessee was centralized with the present Assessing Officer by the ld. PCIT-32, Mumbai vide order dated 01/11/2017. Thereafter, the ld. AO recorded satisfaction note in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and post search verification, the books of Shri Pratap Purohit and M/s. Dev Engineers (firm) were examined wherein it was found that assessee was incurring cash expenses on certain heads which had typically amount ranging from Rs.10,000 to less than Rs.20,000 in a single day to a particular party. Such expenses were debited as site expenses and conveyance expenses. Shri Sandeep Jain who works as an Accounts Assistant with Shri Pratap Purohit was confronted with the above cash expenses in his statement recorded on 17/02/2017 on oath vide question Nos. 9-13 thereon. Shri Sandeep Jain stated that the head site expenses are for miscellaneous expenses incurred at the various sites where contracts works were executed. The ld. AO observed that assessee was asked to produce all the supporting documents such as bill, invoice, cash memo, details of personnel, who incurred such expenses alongwith details of the site. The ld. AO observed that assessee could not produce any supporting proof for such expenses. Similarly, Shri Sandeep Jain was asked to verify the head conveyance expenses vide question No.11 of the statement recorded on 17/02/2017 on oath. Same details that were called for sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of business of the assessee are not doubted by the Revenue before us. The assessee furnished the following documents before the lower authorities for the A.Y.2015-16 to 2017-18. (i) Site expense bills vide page No.25-42 of the paper book-I (ii) Site expense ledger vide page Nos.43-53 of the paper book-I (iii) Conveyance expense bills vide pages 54-61 of the paper book-I (iv) Conveyance expense ledger vide pages 62-69 of the paper book-I 3.6. The only grievance of the Revenue is that they are not backed by supporting documentary evidences. It is a fact on record that assessee firm is maintaining vouchers which are lying in godown which are voluminous in nature. However, considering the deficiencies in the said vouchers not being backed with supporting documents thereon for all the cases, the ld. AO had proceeded to estimate the disallowance of expenses thereon @50% which was reduced to 35% by the ld. CIT(A). We find that ultimately entire disallowance of expenses were made only to offset the deficiencies in maintaining of records by the assessee and also by placing reliance on the statement recorded on oath at the time of search from Mr. Pratap Purohit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replies were not received from 6 parties. It was also pointed out by the assessee before the ld. AO that out of 19 parties selected by the ld. AO, there were no transactions carried out by the assessee with 2 parties. 4.2. In respect of replies not received from six parties, the ld. AO proceeded to make addition u/s.69C in respect of purchases made from those parties totaling to Rs.2,07,738/- for A.Y.2015-16 Rs.5,05,824/- for A.Y.2016-17 and Rs.2,54,617/- for A.Y.2017-18. This addition for each year is categorized as Specific Purchase disallowance. However, in respect of remaining total purchases which also includes 13 parties who had responded to notice u/s.133(6) of the Act, the ld. AO proceeded to make adhoc disallowances of 3% of the value thereon which was reduced to 2% by the ld. CIT(A) in first appeal. In respect of specific purchase disallowances made from six parties where 133(6) notice were not complied by them, the ld. CIT(A) upheld the action of the ld. AO. The various additions made by the ld. AO which were further reduced by the ld. CIT(A) are tabulated hereunder for A.Yrs.2015-16 to 2017-18:- AY Total Purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee have been duly consumed and utilized by the assessee in the execution of the project. There is no dispute that these parties have been made payments by the assessee by account payee cheques. In this regard, the contention of the ld. AR requires to be accepted that MCGM payment certificates provided complete details of the payments made and also the jobs for which the payments have been made together with the details of quantity of materials utilized in terms of meters or sq. meters and the consumption details thereon. While this is so, we are unable to persuade ourselves to accept the action of the lower authorities in disbelieving the purchases made by the assessee especially in respect of those suppliers, who had duly responded before the ld AO. Hence, we categorically hold that in respect of 13 parties who had been identified by the ld. AO on his own volition to whom 133(6) notice had been issued and served, those parties had duly responded before the ld. AO by furnishing requisite details. Hence, we categorically hold that there cannot be any disallowance of purchases in respect of those suppliers. However, in respect of parties wherein notice u/s.133(6) had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases made from those six parties alone is required to be disallowed. This in our considered opinion, would meet the ends of justice. In other words, the disallowances to be confirmed on account of unverifiable purchases are as under:- A.Y. Specific Disallowance purchases where 133(6) not responded Disallowance confirmed by ITAT @2% 2015-16 2,07,738 4,155 2016-17 5,05,824 10,116 2017-18 2,54,617 5,092 4.5. The other disallowances made by the ld. AO on account of bogus purchases are hereby directed to be deleted for all the three years. The disallowance of unverifiable purchases in the aforesaid manner, in our considered opinion, would meet the ends of justice in the facts and circumstances of the instant case, as against the various disallowances made by the ld. AO in this regard. Accordingly, the grounds raised by the assessee for A.Yrs 2015-16 to 2017-18 and grounds raised by the Revenue for A.Y.2016-17 are disposed of in the aforesaid manner. 5. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that it is very difficult to maintain entire records of such labourers. Sometimes, the payment is made to contractor or Mukadam appointed at the site who inturn disburses the wages to these labourers. Since, it is difficult to get large number of workers at a time, the assessee had appointed contractor / Mukadam who brings the required number of migrant workers. The said contractor prepares the bill and places before the assessee for payment. The payments were made by cheque after due deduction of tax at source to the contractor or sub-contractor. Thereafter, these contractors or sub-contractors make the payments to the labourers. It was submitted that the Mukadam / Manager / Contractor are all uneducated belonging to unorganized sector and accordingly, some of the contractors or Managers who had issued the bills to the assessee could not be found at the available address when notices u/s.133(6) of the Act were sent by the ld. AO. The assessee pleaded that the purpose of smooth completion of the project, it had to necessarily take the help of these Mukadams/ Contractors / Sub-contractors irrespective of the fact whether those parties are regular income tax payers and filing their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah Khan - 8,51,500/- 1,49,250/- Total disallowance u/s. 69C Rs. 1,26,36,860/- 8,51,500/- 1,49,250/- 5.3. The ld. AO observed that assessee had incurred total labour charges of Rs.14,91,51,621/- for A.Y.2015-16; Rs.34,07,05,568/- for A.Y.2016-17 and Rs.28,99,81,146/- for A.Y.2017-18. Out of the above, for A.Y.2016-17, the ld. AO observed that during the post search proceedings, enquiries were conducted by DDIT (Investigation) Unit 3(2), Mumbai to verify the genuineness of certain labour contracts. He stated that these were labour contractors to whom payments were largely delayed. The ld. AO observed that assessee could not identify for which project was the labour deployed and accordingly, the labour charges are not justified. The ld. AO further observed that the labour contractors had not filed any return of income or even in the cases where returns were filed, income declared thereon were not commensurate with the labour contracts bagged by them. Accordingly, the ld. AO identified 14 labour sansthas falling in this category to whom payments were made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (D) Total Disallowance of AO (F) F=C+E 2015-16 149151621 12636860 136514761 4095443 16732303 2016-17 340705568 110676337 (851500+ 109824837) 230029231 6900877 117577214 2017-18 289981146 149250 289831896 8694957 8844207 5.4. The ld. CIT(A) gave a categorical finding stating that there is reasonable force in the argument of the assessee that labour remains mobile and it is likely that the notices of ld. AO or Investig ation Wing could not reach the respective labour parties. Having appreciated the entire contentions of the assessee, in order to plug the Revenue leakage, the ld. CIT(A) restricted the disallowance to 50% of the value in respect of parties who did not respond to the notices u/s.133(6) of the Act i.e.50% of specific labour charges disallowance made mentioned in the aforesaid table and upheld the action of the ld. AO in disallowing 3% of the remaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responded before the ld. AO for notice u/s.133(6) of the Act. In this regard, it would be pertinent to mention that the ld. AO had resorted to make verification by way of issue of notices u/s 133(6) of the Act for the three years under consideration as under:- Asst Year 2015-16 47.45% of value of total labour contract charges Asst Year 2016-17 63.59% of value of total labour contract charges Including labour sansthas payments Asst Year 2017-18 36.17% of value of total labour contract charges 5.7. Hence, we categorically hold that in respect of parties who had been identified by the ld. AO on his own volition to whom 133(6) notice had been issued and served and those parties had duly responded before the ld. AO by furnishing the requisite details, we categorically hold that there cannot be any disallowance of labour contract charges in respect of those parties. However, in respect of parties where notice u/s.133(6) of the Act had not been complied with, we find that assessee had furnished all the requisite documents before the ld. AO. Considering the fact that the labour contractors / Mukadam / labourers would be mobile and would be migrating from one location to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made to 14 labour sansthas. Accordingly, we specifically direct the ld. AO to delete the addition made u/s.69C of the Act in the sum of Rs.10,98,24,837/- for A.Y.2016-17. 5.10. The decision rendered hereinabove in respect of disallowances of labour contract payments, in the aforesaid manner, in our considered opinion, would meet the ends of justice in the facts and circumstances of the instant case, as against the various disallowance made by the ld. AO in this regard. Accordingly, the grounds raised by the assessee for A.Yrs.2015-16 to 2017-18 and grounds raised by the Revenue for A.Y.2016-17 are disposed of in the aforesaid manner. 6. We find that assessed had raised an additional ground challenging the validity of assessment framed u/s.153C of the Act for A.Yrs.2015-16 and 2016-17. The ld. AR before us made elaborate arguments on the invalid assumption of jurisdiction of the ld. AO u/s.153C of the Act by raising various legal issues and by placing reliance on various case laws both orally as well as in the form of written submissions. This was also defended by the ld. DR during the course of arguments and also by way of filing separate written submissions. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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