ITA Nos. 2121 to 2125/Mum/2016; Asst. yrs. 2007-08 to 2011-12

P.K. Bansal, Vice President & Pawan Singh, J.M.

Y.P. Trivedi with Ms. Usha Dalal, for the Assessee :
V. Justin, for the Revenue :

ORDER

PAWAN SINGH, J.M. :- This bunch of five appeals by assessee under s. 253 of the IT Act (the Act) are directed against the order of learned CIT(A)-53, Mumbai, dt. 21st Oct., 2015 for asst. yrs. 2007-08 to 2011-12. In all appeals, the assessee has raised the identical grounds of appeal. The facts for all assessment years are almost similar except the variation of figures of addition. Considering the common grounds of appeal, similar facts in appeal all were heard together and are decided by common order to avoid to the conflicting decision. For appreciation of facts, we are referring the facts for asst. yr. 2007-08 in ITA No. 2121/Mum/2016. The assessee has raised the following grounds of appeal :

1. The learned CIT(A) erred in upholding the disallowance of Rs. 43,84,084 on account of unexplained expenditure paid by the appellant without appreciating the facts and circumstances of the Appellant’s case.

2. The learned CIT(A) further erred in alleging that the appellant was siphoning of profit by debiting bogus expenses without bringing any evidence on record.

3. While upholding the aforesaid disallowance, the learned CIT(A) further erred in relying on evidences collected during search proceedings, which are having little evidentiary value and hence, not admissible in law as per various judicial pronouncement.

4. The learned CIT(A) failed to appreciate the intricacies of the Appellant’s business and hence, erred in upholding the order of the AO, which was based on presumptions, conjectures and surmises.

5. The learned CIT(A) failed to appreciate that the appellant had retrieve income offered during the search on account of discrepancies in record of purchase of Rs. 7,03,09,621 and hence a disallowance was unwarranted and illegal and/or excessive.

2. Though, the assessee has raised as many as six grounds of appeal, however, as per our considered view the sole and substantial ground of appeal is "If the learned CIT(A) erred in upholding the disallowance of Rs. 43,84,084 on account of unexplained expenditure.

3. The brief facts of the case are that the assessee-company is engaged in the business of construction of roads, laying of Paver Blocks and execution of various other infrastructure projects across the country. The assessee filed its return of income for relevant assessment year on 31st Oct., 2007 declaring total income of Rs. 1,20,67,47,682. The assessment was completed under s. 143(3) of the Act on 31st Dec., 2009 after making a certain additions and disallowances assessing the total income at Rs. 13,55,16,460. Subsequently, the assessment was opened under s. 147 of the Act. The notice under s. 148 dt. 31st March, 2013 was served upon the assessee. The assessment was reopened as a survey action was carried on the premises of the assessee on 14th Feb., 2013 and during the survey Sh. Balkrishna Wardhawan to admit certain purchase as non-genuine. During the survey statement Balkrishna Wardhawan was recorded under s. 132(4) of the Act, wherein he has offered (declared) income of Rs. 7.03 crores. In response the notice under s. 148, the assessee filed its return of income on 9th Oct., 2013 declaring total income of Rs. 13,02,49,682. The AO completed the re-assessment proceeding on 26th March, 2014 under s. 143(3) r/w s. 147 of the Act. While framing re-assessment order, the AO (AO) made the addition on account of unexplained expenditure of Rs. 43,84,084. On appeal before the learned CIT(A), the order of AO was confirmed. Further, aggrieved by the order of learned CIT(A), the assessee has filed the present appeal before us.

4. We have heard the learned Authorized Representative (AR) of the assessee and learned Departmental Representative (DR) for the Revenue and perused the material available on record. The learned Authorized Representative of the assessee argued that the major addition to the income during the re-assessment proceeding is on account of alleged unexplained expenditure under s. 69C of the Act. The AO disallowed the genuine and explained expenditure of Rs. 43,84,084. The material was purchased from the dealers after availing proper bills. The payments were made through cheques and all details regarding the consumption of material were shown. The assessee-company is engaged in the business of infrastructure project at various sites, all the material purchased from all the so-called hawala dealers were consumed. The work of the assessee is certified by independent agency. During the survey, the official of IT Department pressurized Shri Balkrishna Wardhawan to admit certain purchase as non-genuine. The assessee filed affidavit dt. 28th Feb., 2013 retracted from the statement recorded during the survey. The retraction of the assessee was not considered by the lower authorities. The AO as well as learned CIT(A) disallowed the purchases without appreciating the fact that assessee has consumed the material in execution of project. The learned Authorized Representative of the assessee specifically relied upon the sub-para (vi) of para-5 of order of AO. The learned Authorized Representative of the assessee in support of his submission further filed a written synopsis and relied upon certain decisions of Tribunal, as referred in his written submission. The written submissions of the assessee are also taken on record. On the other hand, the learned Departmental Representative for the Revenue supported the order of authorities below. It was argued that during the survey action under s. 133(A) statement of Shri Balkrishna Wardhawan was recorded. In his statement Shri Balkrishna Wardhawan admitted that they have made purchases from hawala parties consisting of Kapasi Family and M/s Shivani Hot Rolled Steels (P) Ltd. and offered the additional income. During the reassessment, the AO asked the assessee to furnish the list of parties from whom the assessee made purchases. From the list supplied by assessee, the AO noted that six of the parties from the assessee made purchases were listed in the list of hawala traders in the website of Sales Tax Department, State of Maharashtra. The assessee was given sufficient opportunity to prove the genuineness of purchases. The assessee failed to prove the genuineness of the transaction from six parties. The names of all the parties have been mentioned by AO in para-4 of his order. As the assessee failed to prove the genuineness of the purchases, the AO was justified in disallowing the aggregate of purchases from these six parties.

5. We have considered the rival submission of representative of the parties and have gone through the orders of authorities below. The AO during the re-assessment proceedings asked the assessee to furnish the list of person from whom the purchases has made during the relevant period. The assessee furnished the detailed of the parties from the purchases were made. The AO from the list of such person noticed that the names of six parties were listed in the official website of Sales Tax Department, Government of Maharashtra. The assessee made the following purchased from those six parties.

The AO issued notice under s. 133(6) to all the parties. However, no reply was received; the assessee was asked to produce the parties for verification. The assessee failed to produce the parties for verification. On show-cause notice as to why the aggregate of purchases be not treated as unexplained expenditure, the assessee furnished its reply dt. 10th Feb., 2014. In the reply the assessee contended that all the purchases were made through cheques. It was further contended on behalf of assessee that the admission/disclosure of additional income made during the survey has already been retracted. The contention of assessee was not accepted by AO. The AO made the disallowance of aggregate of purchases from six parties for Rs. 43,84,084. During the first appellate stage, the learned CIT(A) also observed that the assessee has not produced the parties for verification despite the opportunity given to the assessee. The notice under s. 133(6) of the Act sent to all the parties were returned back. The assessee has not given any confirmation from the said parties either before the AO or during first appellate stage. The AO has no occasion to verify the books of account and the Bank account of the supplier. The document furnished by the assessee i.e., ledger account of aforesaid parties is itself not sufficient to establish the genuineness of the purchases. The assessee has not furnished the copy of relevant invoices, proof of transportation, bill, consumption of goods etc. The assessee could not produce any delivery challans or Lorry receipt in respect of goods which have been purchases from the aforesaid parties. For the retraction affidavit of Balkrishna Wadhawan, the learned CIT(A) observed that it is unworthy of credit. On the basis of above observation the learned CIT(A) confirmed the action of AO.

6. We have seen that the order in Point No. (vi) of sub-para (vi) of para-4. The AO observed that "the purchases of the assessee, per-se is not the issue and these alleged purchases are not being treated as bogus." The Sales Tax Department has come down hard on the pernicious practices indulged in by these unscrupulous traders figuring in the list of suspicious dealers and it is evident that the assessee has not purchased the goods from these alleged suppliers. It is equally true that the goods have somehow entered in the assessee’s regular business. The assessee has been unable to give any convincing or cogent explanation as to how these goods happened to come in his possession. The assessee has, thus, incurred expenditure on such purchases which is not explained. The purchases are not treated as bogus or sham rather the expenditure incurred on such purchases is treated as unexplained. We have noted that the AO have disallowed the entire purchases from six parties. The books of accounts of assessee were not rejected by AO. The AO has not made any independent enquiry for bringing co-gent evidence on record. The AO has not made any inquiry about the purchases from Kapasi Family and M/s Shivani Hot Rolled Steels (P) Ltd., in respect of which the additional income of allegedly offered during the survey. The AO has not examined the ratio of impugned purchases qua the entire purchases made by assessee during the year under consideration. The AO relied upon the report of Sales-tax Department. The report of Sales Tax Department was not shared with the assessee. We are of the view that under IT Act, the only real income can be taxed by the Revenue, even if the transaction is not verifiable due to any reason, the only taxable is the taxable income component and not aggregate of the transaction. After considering the fact and nature of business of assessee, we are of the opinion that in order to fulfil the gap of revenue leakage, the disallowance of reasonable percentage of impugned purchases would meet the end of justice. The Hon’ble Bombay High Court in CIT vs. Hariram Bhambhani in IT Appeal No. 313 of 2013 decided on 4th Feb., 2015 held that revenue is not entitled to bring the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to IT.

7. We have noted that neither the AO nor the learned CIT(A) examined the gross profit or net profit ratio of assessee for previous or subsequent years. Considering the facts and the circumstances of the case, we are of the opinion that a reasonable disallowance of impugned purchases/ unexplained expenditure @ 12.5 per cent would meet the end of justice. Hence, the AO is directed to restrict the disallowance on account of unexplained expenditure under s. 69C of the Act @ 12.5 per cent of aggregate purchases (Rs. 43,84,048) of impugned purchases. With the directions the appeal of the assessee is partly allowed.

ITA Nos. 2122 to 2125/Mum/2016

8. In all appeals the facts of all assessment years are almost similar, except in variance of figure in additions/disallowances, the assessee has raised identical grounds of appeal. As we have partly allowed the appeal for asst. yr. 2007-08. Considering the principle of consistency, all these appeals are allowed with similar directions.

9. In the result, all the appeals filed by assessee are partly allowed.