Income Tax Appellate Tribunal - Mumbai
Jt. Cit -(Osd),Cc- 6(3), Mumbai vs Krosslink Infrastructure Ltd., Mumbai on 5 December, 2019
IN THE INCOME-TAX APPELLATE TRIBUNAL "H" BENCH MUMBAI
BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND
SHRI PAWAN SINGH JUDICIAL MEMBER
ITA No. 3122/Mum/2018 (Assessment Year 2005-06)
JCIT (OSD), Central Circle-6(3) M/s Krosslink Infrastructure
Room No. 1926, 19th Floor, Ltd., 507/511, Vypar Bhavan,
Air India Building, Vs. 49, P.D. Mellor Road,
Nariman Point, Carnac Bunder,
Mumbai-400021 Mumbai-400009
PAN: AABCK2801R
Appellant Respondent
Cross Objection No. 134/Mum/2019 (Assessment Year 2005-06)
M/s Krosslink Infrastructure JCIT (OSD),Central Circle-6(3)
Ltd., 507/511, Vypar Bhavan, Room No. 1926, 19th Floor,
49, P.D. Mellor Road, Vs. Air India Building,
Carnac Bunder, Nariman Point, Mumbai-
Mumbai-400009 400021
PAN: AABCK2801R
Appellant Respondent
ITA No. 3863/Mum/2018 (Assessment Year 2005-06)
M/s Krosslink Infrastructure ACIT, Central Circle-6(3)
Ltd., 507/511, Vypar Bhavan, 19th Floor, Air India Building,
49, P.D. Mellor Road, Vs. Nariman Point,
Carnac Bunder, Mumbai-400021
Mumbai-400009
PAN: AABCK2801R
Appellant Respondent
Revenue by : Shri B. Srinivas (CIT-DR)
Assessee by : Shri J.P. Bairagra with
Shri S.K. Mutsaddi (AR)
Date of Hearing : 17.09.2019
Date of Pronouncement : 05.12.2019
ORDERUNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
1. These cross appeals by revenue as well as by assessee and one cross objection by assessee is directed against the order of ld. CIT(A)-54, Mumbai dated 21.02.2018 for Assessment Year 2005-06. In all cases common grounds of appeal are raised by the parties, facts are common, therefore, all the appeal were heard together and are decided by common order. We will discuss and adjudicate all the grounds of appeal together. The revenue in its appeal in ITA No. 3122/Mum/2018, has raised the following grounds of appeal:
1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 75,29,00,000/-, made on account of bogus purchases.
2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that the decision laid down by the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. is squarely applicable to the present case.
2. The assessee in its cross objections has raised the following grounds of appeal:
On facts & circumstances of the case and in law, the learned CIT(A) has erred in sustaining a disallowance of Rs. 22,60,00,000/- on account of alleged bogus purchases. This disallowance of Rs. 22.60 Crores may please be deleted.
3. The assessee in its appeal in ITA No. 3863/Mum/2018, has raised the following grounds of appeal:
On facts & circumstances of the case and in law, the learned CIT(A) has erred in sustaining a disallowance of Rs. 22,60,00,000/- on account of alleged bogus purchases. This disallowance of Rs. 22.60 Crores may please be deleted.2
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4. The assessee vide its application dated 03.10.2016 has raised following additional grounds of appeals;
(i) Reopening the case under section 148 of the Income tax Act. The reopening being bad in law, the same should be annulled.
(ii) Assessing the appellant's income at Rs. 94.34 Crore as against Rs. 19.04 Crore declared by the assessee in the return filed by it.
(iii) Rejecting the assessee's books of accounts.
(iv) Making additions of Rs. 75.29 Crore as bogus purchases.
(v) Without prejudice to the above , the additions made of Rs. 75.29 Crore is at the best a receipt without consideration therefore, the same is not covered within the ambit and scopes of receipt of income u/s 2(24) of the Income tax Act, it being a non-taxable Capital receipt. In other words, it being a gratuitous payment, the same is not liable to be income tax, both under the normal provisions as well as provisions of section 115JB of the Income tax Act.
5. Brief facts of the case are that the assessee is a company engaged in construction and development, filed its original return of income on 31-10-2005 declaring total income at Nil. The assessment on this return of income was completed under section (u/s) 143(3) on 28-12- 2007 determining total income at Rs.19,04,92,024/- . Subsequently on the basis of information from ADIT(Inv), Unit-VII (1) & (2), Mumbai that during the course of search and seizure action u/s 132 of the Income-tax Act, 1961 carried out in the case of Pipav Shipyard group on 12-10-2011 and that the business premises of Krosslink Infrastructure Ltd (assessee) was also covered u/s 133A of the Act. It was informed that during the course of search / survey proceedings 3 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
and post search enquiries it was revealed from the ledger accounts that sub-contract work to the tune of Rs.76,36,75,929/- was claimed to have been undertaken by a concern in the name & style of M/s Khodiyar Industries Ltd. However, from local enquiries and statement of Shri Somil Mukesh Parikh, the Finance in charge of M/s Khodiyar Industries Ltd, it was prove that M/s Khodiyar Industries Ltd was involved in issuing bogus bills and accommodation entries and that no activity like earth filling etc, was done by assessee as admitted by Shri Somil Mukesh Parikh. The Modus operandi was also explained by S. Parikh that cheques were taken from assessee and thereafter money was routed back to it. On this basis, the assessing officer invoked provisions of section 147 and a notice u/s 148 dated 15-03-2012 was issued.
6. In response to the notice under section 148, the assessee filed return of income on 09-05-2012 declaring total income of Rs.19,04,92,024/- . In response to statutory notices u/s 143(2) and 142(1), the assessee, vide letter dated 10-05-2012 sought for reasons recorded for reopening of the case. The assessing officer vide letter dated 28-05- 2012 has intimated the reasons to the assessee, which are as under:-
"In this case information has been received from ADJT(INV), Unit-VII (]) & (2), Mumbai that during the course of search and seizure action u/s.132 of the Income tax Act, 1961 carried out in the case of Pipavav Shipyard group on 12/10/2011, the business premises of M/s. Krosslink Infrastructure Ltd., 4 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
was also covered U/S.133A of the Act. During the course of search survey proceeding and post search enquiries it was seen from the ledger that sub- contract work to the tune ofRs.76,36,75,929/- was claimed to have been undertaken by a concern in the name &; style of M/s. Khodiyar industries Ltd. However, from local enquiries and statement of Shri Somil Mukesh Parikh, the Finance in charge of M/s. Khodiyar Industries Ltd. it was proven that M/s. Khodiyar Industries Ltd. was involved in issuing bogus bills and accommodation entries and that no activity like earth filling etc. was done for assessee as admitted by Shri Somil Mukesh Parikh.
The modus operandi was also explained by Mr. Parikh that cheques were taken from assessee and, thereafter money was routed back to it. Therefore, I have reasons to believe that income amounting to Rs.76,36,75,929/- has escaped assessment for A.Y. 2005-06." Therefore, I have reasons to believe that income amounting to Rs.76,36,75,,929/- has escaped assessment for A, Y. 2005-06."
7. On receipt of the reasons recorded, the assessee filed application before assessing officer dated 19-06-2012 seeking statement of Shri Somil Mukesh Parekh, which was provided by the assessing officer, vide letter dated 21-06-2012. In response to providing of reasons for reopening as given to the assessee and a show cause notice dated 27- 11-2012 as to why the income should not be enhanced as per reasons recorded for issue of re-opening notice, the assessee vide letter dated 22-01-2013 objected the reopening by raising the objection as follows:-
" In the intimation regarding reasons for re-opening of assessment for A.Y. 2005-06, a copy of a statement on oath, of one Mr. Saumil Mukesh Parikh was given to us & accordingly the answers to the Question 5, 6 & 7, the said Mr. Saumil Parikh has contended that Khodiyar Industries Ltd was involved 5 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
in issuing bogus bills & accommodation entries; from whom Koatex Industries Ltd (KIL) has taken bogus bills to the tune of Rs.70 to Rs.80 Crores & factually no such activity was ever undertaken or done by Khodiyar Industries Ltd. This statement has been fully relied upon by the Revenue Authorities & the case has been reopened. Without admitting the contents of the statement, the factual basis in this regard, as far as, taxable income of KIL is concerned, is as follows.
Pipavav Defense Off Shore & Engineering Co. Ltd. (PDOBCL), formerly known as Pipavav Shipyard Ltd. was developing a modem shipyard at Port Pipavav in; Gujarat. Port' Pipavav was developed by SKIL Infrastructure Lt. which has also been the promoter company of PDOECL. After successful construction of a massive port at Pipavav the group started developing the shipyard. The location of Pipavav is oddly located & earlier commuting to the place was also a cumbersome process. After the Port was started, the place became the prominent & amongst others, it caught attention of local leaders & other pressure groups. The massive contracts in the development of a shipyard were given to the assesses company, considering its track record & experience in development of Pipavav Port.
In the above circumstances, it was inevitable & almost mandatory, taking into account the compulsive, commercial & practical considerations that certain part of the contracts is given to the recommends of local leaders & pressure groups. One has to appreciate that without considering such a request, it is practically impossible to carry out the project work smoothly. Under these circumstances, who have been the recommendees of local leaders & pressure groups. The company could not have made payments to such contractors, due to the obvious constraints on cash payments, which left the company no other alternative but to comply with their requirements with some commercial arrangement. In this process, KIL routed the payments to these contractors through Khodiyar Industries Ltd., as a matter of sheer convenience. However, at a later date, while scrutinizing the accounts, it was noticed by KIL that the various supporting that would be required to prove 6 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
these transactions to the hilt are not likely to be available due to obvious non co-operation of these parties, considering the peculiar nature. The company took a holistic view of the entire situation and came to the conclusion that it s better & prudent to remove the total expenditure of this- nature, as also the corresponding turnover, while considering the audit & income computation of the company i.e. KIL. The scrutiny of the available record was carried out fully & amount of Rs. 75,29,60, 000/- was reduced from the expenditure on the contractors, as also the corresponding turnover (at cost only), relatable to such expenses. The profit element of the said quantum turnover, however, was retained in the P & L account to avoid any controversy & or dispute &/or any litigation."
8. The Assessing Officer not accepted the contention of assessee holding as under:-
(a) The assessee claims that actually some work was done for which some money was transferred to M/s. Khodiyar Industries Limited. The assessee has not brought on record anything to prove this fact that actually any work has been done at all in lieu of Rs.76,36,75,930/- been given by it to M/s.
Khodiyar industries Ltd, On the contrary, the above statement of Shri Somil Mukesh Parikh in Q-7 and it reply clearly states that factually no such activity was ever undertaken or done at all. Thus, assessee's claim without any supporting facts .in, his case is proved wrong.
(b) The assessee claims that amount of Rs.76,36,75,930/- was paid to recommences of local leaders and pressure groups. On the contrary, Shri Mukesh Parikh in reply to Q.6 in above statement has clearly stated that chec1ues we're- taken by M/s. Khodivar Industries Ltd and money was given back to the assessee (and not passed on to any recommences of local leaders & pressure groups). Thus, assessee's claim on this ground is also held to be false.
(c) The assessee has not given any details of contracts given by it to such recommences nor any proof at all was submitted in support of its claim. Only a self-serving story was submitted by it which has no reasons to be believed. 7
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9. The assessee further submitted certain bills raised by assessee on M/s. Pipavav Defense & Offshore Engineering Co. Ltd. (PDOECL), totaling Rs.143.18 Crores. (whereas assessee in its P & L A/c. submitted to the department at the time of scrutiny proceedings u/s.143(3) showed sales to PDOECL of only Rs.67.89 Crores). The assessee further explained that at the time of survey action u/s.133A of the Act conducted on the assessee on 12/10/2011 by ADIT(Inv)-Unit VlI(l), Mumbai at its premises at Mumbai, trail balance of the assessee as on 21/03/2005 during the year was Rs. 143,18,94,129/- and the cost of construction was Rs.75,29,59,383/-. However, on perusal of audited Balance Sheet & Profit and Loss account of the assessee as submitted by the assessee during scrutiny assessment proceedings u/s. 143(3) it was noticed that the assessee has shown sales of Rs.67,89,34,000/- only. Thus, there was a clear cut discrepancy. Along with letter dated 22/01/2013, the assessee itself submitted a copy of actual Balance Sheet & Profit and Loss account in which the actua1 transaction was recorded on the basis of acceptable and legal accounting principles. To explain the above discrepancy in actual Balance Sheet as per acceptable and gal accounting principles and the Balance Sheet as submitted by assessee during assessment proceedings, the assessee vide letter dated 22/01/2013 stated as under:-
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"The company took a holistic view of the entire situation came to the conclusion that it s better & prudent to remove the total expenditure of this nature, a also the corresponding turnover, while considering the audit & income computation of the company i.e. KIL. The scrutiny of the available record was carried out fully & amount of Rs. 75,29,60,000/- was reduced from the expenditure on the contractors, as also the corresponding turnover (at cost only), relatable to such expenses. The profit element of the said quantum turnover, however, was retained in the P & L account to avoid any controversy &/or dispute &/or any litigation."
10. The assessee again vide its letter dated 05/02/2013 stated as under :-
"Further to letter of assessee dtd.22.01.2013 filed with your goodselves, we have been directed by the assessee company to forward the following for your kind perusal:
We now submit the analysis of purchase for both from Khodiyar, which are reversed & corresponding sales bills to Pipavav Shipyard Ltd. The total purchases so reversed are Rs. 75.29 Crores. As agai.st the same the sale bills were of Rs. 83.42 Crores, leaving the margin of Rs. 8.13 Crores. (relevant statements & copies of bills are enclosed). However, as a matter of abundant precaution & to avoid any litigation or adverse inference / penal action, the assessee company has reduced only Rs.75.29 Crores from sales as well leaving margin of Rs.8. 13 Crores undisturbed."
11. Thereafter, in response to show cause notice to disallow its bogus purchases to M/s. Khodiyar Industries Ltd., the assessee vide letter dated 22/03/2013 stated as under:-
1."We refer to the submissions made by the assessee company vide letters dtd. 22.01.2013 & 05.02.20913. We request your goodself to kindly refer to para 2 & 3, wherein, the commercial circumstances & compulsions in giving contracts to person from whom bills, receipts & other supporting could not have been obtained, has been fully explained. The assessee company has 9 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
never ever accepted these transactions as bogus, as alleged in this case by the Department.
2. Since the transactions were business transactions duly entered for the contracts given & corresponding sales bills raised to the principal; these are duly recorded in the books of accounts. However, the internal scrutiny by the auditors as well as management revealed that the adequate & appropriate supporting for these transactions are difficult to obtain under the circumstances & therefore, as elaborated in Para 4 of letter dtd. 22.01.2013, a voluntary decision was taken to reduce the claim of expenses by the amount of Rs.75,29,60,000/-, as a prudent policy to avoid any procrastinating controversy, litigation, conflict with the Department. Further even the corresponding sales to the principal amounting to Rs.83.42 crores, (as per submission dated 05.02.2013 & its enclosures) were written back. While writing back corresponding sales, only the cost has been reduced leaving the gross margin of Rs.8.13 crores unaffected & thereby have duly been considered in the total income. It was also demonstrated by submitting the copies of audited accounts & the copies of earlier unaudited accounts that against original turnover of Rs. 143.18 crores, only expenditure on sub contract was only Rs. 75.29 crores. Therefore, against the turnover, as per audited balance sheet of Rs. 67.89 crores (before stock variation of Rs.38.46 crores) only debit is for purchases of Rs. 1 7 Lacs. As such, your proposal of recasting accounts by considering the sates as genuine & purchases of bogus to the tune of Rs. 75.296 crores, is completely out of place, not supported by facts & legally untenable. The proposed recasting, if done, will show he turnover of Rs. 143.18 crores & expenses of only Rs. 17 lacs, which is completely ridiculous &.has no substance it is impossible to have turnover of that quantum without any inputs on the debit side.
3. The action of the Investigation Wing of the Department has got certain things on record with respect to the transactions with Khodiyar Industries Ltd. However, the business compulsions on these transactions were explained. The assessee company has never accepted that the work reflected in the bills on Khodiyar was not carried out. The only genuine, circumstantial difficulty was of getting work supporting documents from the sub- 10
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contractors, who had carried work. But since this particular reality is difficult to prove the voluntary reduction of expenses & corresponding cost of the sales was made. Once there is no scope of whatsoever for forcibly bringing in the expenditure, not claimed by the assessee company & treating the corresponding sale as genuine but direct expenses thereon in the form of sub- contract charges as bogus, especially when there are no other charges debited to P & L Account from where the turnover could have been made, then such action is absolutely baseless, illogical, irrational, which cannot have any support on facts or in law. Therefore, the proposal is strongly opposed by the assessee company by sheer facts of the case, which are on record. The proposed adverse inference by your good self if drawn, will be completely pervert, which will ignore both the ground realities of accounting principles & facts as well as fundamental norms of taxation under the Income tax Act, 1961 & violate real income theory as well.
4. It is also pertinent to note that under the aforesaid peculiar circumstances; even the contract expenses corresponding to sales of the assessee company have been written off & not claimed by the principal company. Thus, the entire chain of the transactions has been voluntarily not claimed by all the parties. Under the circumstances, there is no scope whatsoever for forcibly introducing in the books the chain against & contrary to the action of the assessee & thrusting on it the disallowance, by first recasting the accounts to introduce the debit for expenses not claimed and again disallowing the as "
not claimable".
12. The contention of the assessee was not accepted by the assessing officer holding that the assessee has not submitted correct books of account as per acceptable accounting principle and has considered the particulars of one sales transaction and also one payment made to Khodiyar Industries Ltd. claiming it as a purchase transaction. No accounting principle followed mandates a journal entry in the books to offset such transaction with each other and that such transaction 11 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
being not to be reflected in the profit and loss account. The assessing officer rejected the books of account of the assessee by invoking the provision of section 145(3) of the Income tax Act. The assessing officer also recorded the following reasons for not accepting the submission of assessee;
The assessee has not brought on record any proof that the purchased expenses claimed by the assessee were paid to KIL of ₹ 75.29 Crore is genuine.
The assessee claimed that even the principal company has not claimed such an amount paid to the assessee as expenses is legally false. The assessee has done work for PDOECL worth more than Rs. 143.18 crore as claimed during the year. In AY 2005-06, PDOECL has not written off or squared off any expenses in its books pertaining to the assessee and this is a finding of fact. Even in the later years, PDOECL has write off/ squared off any expenses pertaining to the assessee then it is not proved that it is this Rs.75.20 Crore /- (or even Rs.143.18 Crore) which is treated as bogus by PDOECL. No such document is brought on record by the assessee.
In view of the above, it is an undisputed fact that assessee has received money equivalent to the sales to PDOECL shown at ₹143.18 crore and not just ₹ 67.89 crore and that it is genuine receipt from PDOECL by the assessee. On the other hand, it is proved that assessee has not incurred expenses of ₹ 75.29 crore alleged to be paid to KIL. Thus, the assessee's contention that they are recasting books to reflect the above transaction has no substance is wrong and baseless.
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The assessee's contention with respect to certain business compulsions is already rejected since assessee does not have any supporting document in this regard.
The assessee is only trying to say that recasting of profit and loss account cannot be done. This contention already stands rejected. Once the profit and loss account is recast as per rules of accounting and generally accepted accounting principle in India, the claim of expenditure as per this profit and loss account has to be made as per provision of law and facts of the case.
The assessee has not proved genuineness of purchases of ₹ 75.29 crore and the purchaser KIL has already stated that the sales is completely bogus, the amount of Rs.75.29 crore as appearing the recast profit and loss account is disallowed and the total income is computed accordingly.
13. On the basis of above observation and on the basis of statement recorded by investigation wing the expenses of ₹ 75.29 crore was treated by assessing officer as bogus and disallowed as known allowable expenditure in the assessment order passed under section 143(3) rws 147 of the Act dated 30.03.2013.
14. Aggrieved by the additions in the re-assessment order, the assessee filed appeal before the CIT(A), challenging the validity of reopening as well as additions on account of alleged unexplained expenditure /bogus expenditure. Before the learned CIT(A), the assessee filed details written submission which has been recorded by learned 13 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
CIT(A) in the impugned order. After considering the submission of assessee, the learned CIT(A) upheld the reopening by making reliance on the decision of Hon'ble Supreme Court in case of ACIT V/s Rajesh Jhaveri Stock Brokers Private Limited (291 ITR 500) wherein it was held that if the assessing officer for whatever reasons, has reasons to believe that income has escaped assessment, it confers the jurisdiction to reopen the assessment, where the case is not covered by the proviso to section 147, intimation under section 143 (1) cannot be treated to be in order of assessment, as there been no assessment order section 143(1) the question of change of open does not arise. However, on quantum addition the learned CIT(A) restricted the addition to the extent of 30% of the total purchases of ₹ 75.29 crores. The learned CIT(A) is while restricting the addition to the extent of 30% followed the decision of Hon'ble Gujarat High Court in case of Vijay Proteins Ltd. V/s CIT (2015) 58 Taxmann.com 44 Gujarat and CIT V/s Simith P. Sheth (2013) 356 ITR 451 (Guj). Therefore, aggrieved by the decision of ld. CIT(A) both the parties have filed their respective appeals raising the grounds of appeal as we have recorded above. In addition to filing appeal, the assessee has also filed Cross Objections in the appeal filed by the revenue.
15. Perusal of record reveals that there is delay of 10 days in filing appeal by assessee before the Tribunal. In support of condonation of delay 14 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
the assessee has filed application for condoning the delay. The application for condonation of delay is supported by the affidavit of Director of assessee, Shri Madan Lal. In the affidavit, the director of assessee has pleaded that the accountant of Assessee Company was not regularly attending the office work and as such there is a delay of 10 days in handing over the complete papers to Chartered Accountant for preparing and filing the appeal before Tribunal. The learned AR of the assessee submits that there was no intentional or deliberate delay in filing the appeal before the Tribunal. The delay occurred due to the reasons beyond the control of Directors of the assessee. The assessee has good case on merit and is likely to succeed. The learned AR further submits that the assessee in addition to the appeal, the assessee has also filed Cross Objection, raising the identical grounds of appeal in its Cross Objections. The learned AR for assessee prayed for taking lenient view and to condone the delay.
16. On the other hand the learned DR for the revenue not seriously objected the contention of the learned AR of the assessee. The ld. DR fairly contended that on the issue of condonation of delay, the Bench may take decision as per its discretion. Considering the contention of learned AR of the assessee that there is only 10 days delay in filing appeal and that the delay is not deliberate or intentional. Moreover, the assessee has also filed Cross Objections on identical grounds of 15 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
appeal, for assailing the impugned order. Therefore, keeping in view the principle that the party should not be condemned without giving opportunity of hearing on merit, instead of declining opportunity on technical issues, the delay in filing the present appeal is condoned and the appeal of the assessee is admitted for hearing on merit.
17. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue on merit and perused the material available on record. The learned AR of the assessee submits that initially the assessment was completed under section 143(3) on 28th December 2007. Subsequently, there was a search and seizure action under section 132 in case of Pipavav Defence Offshore & Engineering Co. Ltd. (PDOECL) on 12 October 2011. Simultaneously, survey action under section 133A was also taken on assessee-company on the same day. No incriminating material was found and no statement on behalf of assessee-company was recorded during the course of survey proceedings at the assessee company. The statement of Saumil Mukesh Parikh of Khodiyar Industries Ltd was recorded under section 131 on 15th November 2011, to whom sub-contract was given by the assessee company. On the basis of statement of S. Mukesh Parikh, the assessment of assessee was reopened under section 147 on 15 March 2012. While supplying the reasons recorded, the copy of 16 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
statement of S Mukesh Parikh was provided to the assessee along with the answer to the question No. 5, 6 and 7, wherein S. Mukesh Parikh contended that Khodiyar Industries Ltd. was involved in issuing bogus bills and commission entry, from whom Koatex Industry Ltd. has taken a bogus bills to the tune of ₹ 70 to Rs. 80 crore and factually no such activity was ever undertaken or done by Khodiyar Industry Ltd. On the basis of this statement, the case of assessee was reopened.
18. The learned AR of the assessee explained that PDOEL was developing a modern shipyard at Port Pipavav at Gujarat. Port Pipavava was developed by SKIL Infrastructure Ltd, which is the promoter company of PDOECL. After successful construction of the port, the group started developing the shipyard. The location of shipyard is oddly located and commuting to the place was also a cumbersome process. After the port was started, the place becomes the prominent and amongst others it caught attention of the local leaders and other pressure groups. The massive contracts involved in the development of shipyard were given to the assessee company, considering its track record and experience in the development of port. In the above circumstances, it was invited well and almost mandatory, taking into account the compulsive, commercial and practical considerations that certain part of contract is given to the 17 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
recommendation of local leaders and pressure groups. One has to appreciate that without considering such a request, it is practically impossible to carry out the project were smoothly. Under these circumstances, certain contracts were given by the company to such contractors, who have been on the recommendation of local leaders and pressure groups. The assessee company could not have made the payment to such contractor, due to the obvious constraints on cash payments, coupled with refusal of these contractors to take cheque payments, which left the company no other alternative but to comply with their requirement with some commercial arrangement. In this process Koatex Industries Ltd. (Koatex) routed the payment to these contractors through Khodiyar Industries Ltd. as a matter of sheer convenience.
19. The ld AR for the assessee submits that all these submissions were made by assessee vide its letter dated 22 January 2013 and the assessee furnished copy of bills dated July 2004 for ₹ 110.59 crore, copy of bills dated November 2004 for Rs.32.59 crore, making total of ₹ 143.18 crore, copy of draft balance sheet (before finalisation), a set of which is also available in seized record in which the turnover recorded is ₹ 143.18 crore and expenditure on sub-contract in Schedule 14 recorded at Rs. 75.29 crores. Before learned CIT (A), the 18 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
assessee vide its submission dated 29th May 2017 furnish the following documents:
survey report of total area of paper above shipyard Ltd, valuation report of land, civil work, plant and machinery at post Ucchaiya via Rajula, District Amreli Gujrat, completion certificate for the shipbreaking project under the contract agreement dated 12 June 1997, certificate by Mazoomdar associates private limited, valuer's and lenders, independent engineers appointed by the consortium of lenders for the ship-breaking facilities of the company, certifying the valuation report and survey report.
20. The learned AR further submit that assessee executed the work as per contract taken from Gujarat Pipava Port Ltd of ₹ 143.19 crore and booked the sales on account of contact receipt of ₹ 143.19 crore. Against the said sales, assessee company has booked the total expenses of ₹ 114.18 crore in its profit and loss account which includes ₹ 75.29 crore paid to Khodiyar Industry Ltd as sub-contract charges in respect of work taken by them of Earth filling, Land levelling and on account of development of land. There is no other receipt or expenses incurred during the year. Against the said receipt of ₹ 143.19 crore, the assessee company has incurred total expenses 19 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
of ₹ 114.18 crore and declared the gross profit of ₹ 29.01 crore. The gross profit ratio on total receipts comes to 20.26%.
21. The revenue in its grounds of appeal has relied on the decision of Hon'ble Supreme Court in case of N.K. Proteins Ltd. The learned AR for assessee submits that ratio of decision and said case is not applicable to the present case even on after far-fetched imagination. As the facts of that case are entirely on different facts. In the said case during the search the blank cheques and the bills were found at the premises of the assessee. However, in the present case per se it is not establish that purchases are bogus. In the present case the additions are based on third party statement.
22. The ld. AR for the assessee further submits that it is completely incorrect notion on the facts that customer of the assessee has treated the sale of assessee as non-est. The party to whom sales were made has still in its books of account, these assets reflect as a part of total asset. The only conceded by Pipava Shipyard Limited (PSL) that during search operation to avoid prolonged litigation PLS will not claimed deprecation thereon. This is clear from the statement of Bhavesh Gandhi, Managing Director of PDOEL (now PSL) as recorded in para-7.3 of ld. CIT(A)'s order. No stretch of imagination it cannot be claimed that the sale of assessee and purchase by PSL as non-est. Once, sale is established the purchases cannot be taken as 20 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
nil. The allegation which is based on the statement of S. Parikh of Khodiyar Industries Ltd. that cash of Rs. 70 to 80 crore against the sub-contract bills, has per se not been contested by the assessee. The assessee has clearly proved with the impeachable evidence that entire work was executed as per running bills. However, considering the commercial circumstances and local compulsions, the work had to be got done from local parties, from whom bills, receipt and other supporting documents could not have been obtained. All running bills containing full details of items and their measurement of work were finished to the lower authorities. The certificate issued by Site Engineers, Ledger Accounts, Independent third party survey report, valuation report and certificate from Government approved Registered Valuer, which was third party expert appointed by lenders consortium for the valuation of work carried out at the site, which proved actual work done at site. The assessee declared gross profit for year 2005-06 of Rs. 29.01 crore, which is 20.26%.
23. There is no evidence on record brought by revenue, which can lead to an inference that GP declared by assessee is understated. The additional disallowance of 30% of the total purchases of Rs. 75.29 crore added/ restricted by ld. CIT(A) would make the GP at 36.04%, which is completely unrealistic and as also unsubstantiated. The 21 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
average GP of preceding four year is 13.01%. The ld. AR also furnished the details of GP working for four preceding years.
24. The ld. AR of the assessee submits that the disallowance restricted to 30% by ld. CIT(A) is on a very higher side. The assessee has already declared GP at 20.26%. The GP for preceding year were ranging from 11.08% to 15.30%, if disallowance if restricted to 30%, the GP of assessee would be unrealistic, which is not possible in the business of assessee.
25. The ld. AR further submits that, though the assessee has challenged the validity of reopening in additional ground of appeal. The assessee has also raised the ground of appeal in its Cross Objection for deleting the entire addition. The ld. AR for assessee in his without prejudice submission, submits that in case disallowance on account of bogus purchases is restricted on reasonable basis, the assessee would not press additional grounds with regard to re-opening and the grounds of appeal raised in Cross Objection.
26. To strengthen his submissions, on reasonable disallowances, the ld. AR for assessee relied upon the decision in the following case laws. PCIT vs. M/s Mohomamad Haji Adam & Co. (ITA No. 1004 of 2016 (Bom HC) dt. 11.02.2019.
CIT vs. Ratansingh M. Rathod (371 ITR 135 (Bom).
ACIT vs. Shri Hanvantsingh J. Ranawat (ITA No. 3718/Mum/13), ITO Vs M/s Shree Gajananda Industries India Pvt Ltd (ITA No. 22 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
6242/Mum/2017), ACIT Vs Sanvik Engineers India Pvt Ltd ( ITA No.3201/Del/15) Smt. Sudha Loyalka vs. ITO (97 taxmann.com 303.
27. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer. The ld. DR further submits that during the survey action on Khodiyar Industries Ltd. Shri S. Mukesh Parikh has admitted in the statement recorded under section 131 that Khodiyar Industries Ltd. was involved in issuing bogus bills. The ld. DR for revenue submits that the entire purchase was liable to be disallowed. The contention of assessee about recasting to show the actual transaction is totally baseless and without any support of law. In support of his submissions the ld. DR for the revenue relied on the decision of Hon'ble Bombay High Court in Shoreline Hotel Pvt Ltd. Vs CIT (ITA (IT) 332 of 2016 dated 10.09.2018).
28. We have considered the submission of both the parties and perused the order of lower authorities. We have noted that initially assessment was completed under section 143(3) on 28.12.2007. The case was re- opened on the basis of information received from ADIT (Investigation), Unit-VII (1) & (2) that during the course of search and seizure action on Pipavav Shipyard Group on 12.10.2011 and simultaneously survey under section 133A on assessee. During the course of survey enquiry was also made against Khodiyar Industries 23 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
Ltd. On the basis of enquiries on Khodiyar Industries Ltd. statement of Somail Mukesh Parikh, it was revealed that assessee-company availed accommodation entries from Khodiyar Industries Ltd. which were routed through Koatex Industries Ltd. On the basis of such information, which were sent to the Assessing Officer, the assessment/case of assessee for the year under consideration was re- opened. We may note here that, we are not discussing the merit/validity of re-opening at this stage.
29. During the re-assessment proceeding, the assessee filed detailed reply, explaining the circumstances that due to commercial expediency and compulsive circumstances certain part of contracts was given to the recommendees of local leaders and pressure group for smooth completion of project. In such circumstances, certain contracts were given to the local person, the payments could not have made directly to such contractors in cash, coupled with the refusal by those contractor to take cheque payments. The assessee-company made payment through Koatex Industries Ltd. The assessee also furnished the copy of various bills substantiating the contention that work was completed at the site as per contract from Gujarat Pipava Port Ltd. The assessee also explained that against the said execution of work (sales), the assessee company booked total expenses of Rs. 114.18 crore, which includes Rs. 75.29 crore paid to Khodiyar 24 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
Industries Ltd., who undertook of earth filling, land levelling and development of said land. The assessee declared Gross Profit of Rs. 29.01 crore and the Gross Profit at 20.26%. The explanation furnished by assessee was not accepted by Assessing Officer. The Assessing Officer discarded the explanation of assessee by taking view, which we have mentioned in para-12 (supra). The Assessing Officer disallowed the entire payment/expenses of Rs. 75.29 crore paid to Khodiyar Industries Ltd. by treating it as non-genuine.
30. We have noted that the Assessing Officer has not rejected the books of account. The assessee claimed that the work was executed at site as per contract. The assessee furnished the copy of valuation report of independent valuer. No investigation or inquiry about the scope of work was conducted by Assessing Officer. The assessee also furnished the certificate of Mazoodmdar Associates Pvt. Ltd., independent engineers appointed by consortium of lenders for ship breaking facility of the assessee-company certifying the valuation report of survey report. No enquiry from Mazoodmdar Associates Pvt. Ltd. was conducted by Assessing Officer. We have noted that valuation report of land, civil work, plant & machinery at Post Ucchaya Via Rajula, District-Amreli, Gujarat is on record at page no. 215 to 267. The completion certificate for ship breaking project under the contract agreement is available at page no. 268 of Paper Book. 25
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Further, the certificate of Mazoomdar Associates Pvt. Ltd., independent engineers appointed by consortium of lenders for ship breaking facility, certifying the valuation report is also placed on record. No comments of any kind on the aforesaid reports were made by Assessing Officer while disallowing the expenses paid to Khodiyar Industries Ltd.
31. Before the ld. CIT(A), the assessee challenged the validity of re- opening as well as disallowance of expenses. The assessee filed detailed written submission/explanation repeating the same submission, which is duly recorded by ld. CIT(A) from para-5.1 to 7.1 of the impugned order. Besides the factual submission, the assessee contended that the Assessing Officer has added the entire expenses without considering the fact that work was executed on site. The work executed at site is not disputed by the Assessing Officer. The assessee also explained that since the assessee could not substantiate the expenses by documentary evidences, the assessee reduced the sub-contract amount of Rs. 7.29 crore from both income and expenditure side. During the survey at the assessee, no incriminating material was found only unaudited trial balance for the A.Y. 2005-06 was found, wherein the sales proceeds were shown at Rs. 143 crore. The trial balance has a debit of Rs. 75.29 crore which were supposed to have been paid to Khodiyar Industries Ltd. The 26 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
Assessing Officer relied upon the statement of Somail Mukesh Parikh and treated the trial balance of Rs. 75.29 crore as bogus. It was also explained that in the recast Profit & Loss A/c, the assessee has taken a receipt at Rs. 143.18 crore and had disallowed 75.29 crore which were supposed to have been paid to Khodiyar Industries Ltd. The ld. CIT(A) after considering the submission and facts of the case, and by referring the decision of Hon'ble Gujarat High Court in Vijay Proteins vs. CIT (58 taxmann.com 44 (Guj.), CIT vs. Simith P. Sheth [356 ITR 451 (Gaj.)] took his view that when purchases cannot be established but the sails have not been doubted, the entire purchases cannot be added as income and only the percentage of the profit involved on these purchases can be brought to tax. The ld. CIT(A) considered that receipt of sales from PDOECL is not disputed. No evidence is come on record that amount has been returned back to PDOECL in cash. The assessee has brought evidence on record to show that work has been executed. The ld. CIT(A) observed that it is a simple case of purchases made from unverifiable parties. The present case is not a case of simple trading but it is a case of contract wherein the purchases were supposed to be consumed. On the basis of above observation, the books of account of assessee was rejected. The ld. CIT(A) after rejecting the books of account estimated the profit at 30% of the impugned expenses/purchases of Rs. 75.29 crore. 27
ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
32. The ld. AR of the assessee vehemently argued that the assessee has already shown Gross Profit of 20.26% for the year under consideration, the average Gross Profit for four preceding year were 13.01% and in case the disallowance restricted by ld. CIT(A) is upheld, the Gross Profit rate would increase to 36.04%, which is unrealistic in the business undertaken by assessee during the relevant period. The Hon'ble Bombay High Court in Mohammad Haji Adam & Co. (supra) held that purchase cannot be rejected without disturbing the sale and the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases. It was further held that decision of Gujarat High Court in case of N.K. Industries Ltd. (supra) cannot be applied without reference of fact.
33. Further, the Hon'ble Bombay High Court in CIT vs Ratansingh M. Rathod (supra) held that when Assessing Officer after making the enquiries of purchases made, genuineness of some sub-contractor and treated the sum as income of assessee. The ld. CIT(A) took cognizance of several irregularities in accounts of assessee and estimated income of assessee at 8% of turnover on the basis of comparable cases that net rate varied from 2.93% to 9.96%, but these were big concern, which maintain proper accounts and also maintain 28 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
quality standard, when accounts were not reliable, the estimation of net profit at 8% was justified.
34. We are of the considered opinion that under Income Tax Act only real income can be taxed by the Revenue. We may further note that even if the transaction is not fully verifiable, due to any circumstances beyond the control of the assessee, the only taxable is the taxable income component. And in order to fulfill the gap of revenue leakage the disallowance of reasonable percentage of such purchases can meet the end of justice. Similar view was taken by Hon'ble Bombay High Court in CIT Vs Hariram Bhambhani in ITA No. 313 of 2013 decided on 04.2.2015, that revenue is not entitled to brought the entire sales consideration to tax, but only the profit attributable on the total unrecorded sales consideration alone can be subject to income tax.
35. Considering the aforesaid factual and legal discussion and the submission of ld. AR of the assessee that average Gross Profit for four preceding year declared by assessee were 13.01%. For the year under consideration, the assessee has declared Gross Profit at 20.26%, if the further disallowance @ 30% of the total purchases/expenses is upheld, the Gross Profit of assessee would be increased drastically i.e. more than 36%, which is unrealistic. Therefore, considering the totality of the facts and to avoid to 29 ITA No. 3122/ M/20 18, C.O. 134/ M /2019 & ITA 3863/ M/2018 M/s Krosslink Infrastructure Ltd.
possibility of revenue leakage, we are of the view that if the disallowance of alleged purchases/expenditure is restricted to 10%, that would meet the end of justice.
36. The ratio of decision relied by ld. DR for the revenue relied on the decision of Hon'ble Bombay High Court in Shoreline Hotel Pvt Ltd. Vs CIT (supra) is not applicable on the facts of the present case, as the facts of this case is at variation. In the said case information was received from Sales Tax Department in relation to certain parties who were engaged in providing bogus purchase bills and that assessee was also one of beneficiaries of hawala bills given by such parties. The issued show cause why this entire amount/bogus purchases should not be assessed as non-genuine purchases. The assessee with a view to buy peace and to avoid unending litigation, assessee offered that gross profit rate of said purchases might be assessed as income - Accordingly, Assessing Officer held 15 per cent of said purchases to be assessed as income of assessee. However, in the present case the assessee has categorically submitted the work executed through the assessee is in accordance with the scope of work awarded and the same is duly approved by the independent Valuer, which is not examined by the assessing officer.
37. In the result, the appeal of assessee is partly allowed and the appeal of revenue is dismissed.
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38. As we have noted above that the ld. AR of the assessee while making his submission, submitted at bar that in case disallowance is restricted to a reasonable basis, he would not press the validity of re- opening as well as other grounds and the cross objections. Taking the fact in consideration, that we have restricted the disallowance on reasonable basis, therefore, the other grounds of appeal and cross objection filed by assessee are treated as not pressed. In the result, cross objection filed by assessee is also dismissed as not pressed.
39. In the result, appeal of the assessee is partly allowed, appeal of revenue and cross objection of assessee are dismissed.
Order pronounced in the open court on 05/12/2019.
Sd/- Sd/-
SHAMIM YAHYA PAWAN SINGH
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 05.12.2019
SK
Copy of the Order forwarded to :
1. Assessee 2. Respondent
3. The concerned CIT(A) 4.The concerned CIT
5. DR "H" Bench, ITAT, Mumbai
6. Guard File
BY ORDER,
Dy./Asst. Registrar
ITAT, Mumbai
31