Income Tax Appellate Tribunal - Mumbai
Acit 24(1), Mumbai vs Bimal Kumar Agarwal, Mumbai on 10 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "B" MUMBAI
BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND
SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)
ITA No.5220/MUM/2014
Assessment Year: 2010-11
ACIT-24(1) Bimal Kumar Agarwal
R.No. 503, C-13 5th 19/40/C-2 Seksaria Indl.
floor, BKC Bandra Vs. Estate S.V. Road Malad
(E) (W)
Mumbai-400051 Mumbai-400064
PAN No. ADWPA0759M
Appellant Respondent
Revenue by : Ms. Vidisha Kalra, CIT (DR)
Assessee by : Dr. K. Shivaram, Sr. Advocate
& ShriRahul Hakani, Advocate
Date of Hearing : 15/05/2017
Date of pronouncement: 10/08/2017
ORDER
PER N.K. PRADHAN, A.M.
This is an appeal filed by the Revenue. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-39, Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (The 'Act').
ITA No. 5220/Mum/2014 22. The grounds of appeal filed by the Revenue read as under: -
1. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made in respect of bogus purchases to the extent of Rs.12,90,55,849/- without third party confirmation or production of any other clinching evidence regarding material consumption during the course of survey or assessment proceedings.
2. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) erred in negating without sufficient reason the finding that no delivery challan could be produced during survey, leading to the assessee's statement of confirmation regarding absence of records, duly reconfirmed by various party's deposition before Sales Tax Investigation Wing to the effect that sale bills were issued without genuine purchases.
3. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to delete the addition made on account of bogus purchases by accepting additional evidence during the course of Appellate Proceedings without granting any opportunity to the AO for verifying the details submitted by way of remand report which is clearly in violation of Rule 46A(3) of the I.T. Rules, 1962.
4. Whether on the facts and the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made by the AO in respect of penalty of Rs.11,45,254/- without appreciating the fact that the said penalty was paid to MCGM for breach of contract which is infringement of law and therefore, needs to be disallowed.
5. The appellant prays that the order of the ld. CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.ITA No. 5220/Mum/2014 3
3. Briefly stated, the facts of the case are that the Assessing Officer (AO) found during the course of assessment proceedings that the assessee had made substantial amount of purchases from the parties which were identified as suspicious dealers by the Sales Tax Department, Government of Maharashtra. The AO, in order to verify the transactions, issued notices u/s 133(6) to 23 such parties. However, notices issued to 19 parties were returned back by the postal authority. In the case of 4 parties, no reply was received by the AO.
3.1 During the survey action u/s 133A conducted in the business premises of the assessee 07.01.2013, it was noticed that the assessee had made bogus purchases from the parties identified by the Sales Tax Department as non-genuine to the tune of Rs.6,34,56,488/- in the impugned assessment year. The AO noted that no reply was received in respect of the query put by him to the assessee. Thereafter, the AO asked the AR of the assessee vide order sheet entry dated 23.01.2013 to (i) submit the details of 23 parties from whom information as sought u/s 133(6) could not be ascertained, (ii) produce the parties, (iii) submit their income tax particulars and (iv) file copies of their bank accounts.
The AO has mentioned in the assessment order that the only details the assessee provided were the ledger account of the parties in his books and the bills of the parties. The assessee claimed before the AO that the payments were made by cheques.
The AO was not convinced with the explanation of the assessee and made an addition of Rs.6,34,56,488/-.
ITA No. 5220/Mum/2014 43.2 Further the AO found that the assessee had purchased garden materials like soil, manure from non-genuine parties i.e. Pearl International, Ajay Stone, Nisha Enterprises, Aayushi Enterprises who had supplied materials to various sites in Bhandup. The AO asked the assessee to give the specific details of sites. But the assessee failed to provide the same. The AO then issued notices u/s 133(6) to 10 parties who had done labour jobs. However, the said notices were returned back by the postal authorities. The amount involved was Rs.6,75,51,417/-. The AO asked the AR of the assessee vide order sheet entry dated 23.01.2013 (i) to produce the parties and (ii) file copy of ledger account in their books, their income tax particulars, balance sheet, profit & loss accounts and bank accounts reflecting the payments made by the assessee. The AO noted that the assessee was unable to produce a single party. However, the assessee filed confirmation in regular format on 26.03.2013 before the AO. The AO was not convinced with the explanation of the assessee and made an addition of labour charges of Rs.6,75,51,417/-.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) has mentioned at para 5.6 of the appellate order dated 30.05.2014 that the assessee had submitted the following documents:-
a. Ledger Account confirmation of all the parties along with sample copies of invoices issued;
b. Copies of purchase order;ITA No. 5220/Mum/2014 5
c. Proof of payment made by account payee cheque; d. Copies of TDS certificates in respect of all the payments made to sub-contractor;
e. Sample copies of work order issued by MCGM whereby the very same material purchased from these parties are certified to be used for garden maintenance and development.;
f. The sales effected were cross linked with the purchases made.
4.1 The Ld. CIT(A) observed that the AO had not doubted the sales and stock records maintained by the assessee. During the course of appellate proceedings, the assessee had furnished complete quantitative details of the items of goods purchased during the year under consideration and there corresponding consumption for garden maintenance and development work. When the assessee was maintaining the quantitative details item-wise, the fact that he must have purchased the said goods from the parties and used them for the purpose of contract work cannot be denied. However, looking to the facts that the various parties were a listed by the Sales Tax Department as 'suspicious hawala dealers', the Ld. CIT(A) was of the view that the assessee might have earned a gross profit of 10% on sales of trading items and 12% on garden maintenance contract. Accordingly, she computed the profit on the transaction vis-a-vis profit declared by the assessee and worked out the disallowance as under:ITA No. 5220/Mum/2014 6
Particular Sales/contra Estimated Estimated G/P Addition to s ct Amount G/P rate (in G/P (Rs.) declared be (Rs.) %) (Rs.) confirmed (Rs.) Garden 70,00,000/- 10% 7,00,000/- 3,33,342/- 3,66,658/- Items Trading Garden 19,17,67,357/ 12% 2,30,12,083/- 2,14,26,685/- 15,85,398/- Maintenan -
ce contract Total Rs. 2,37,12,083/- 2,17,60,027/- 19,52,056/-
In view of the above, the Ld. CIT(A) restricted the disallowance made by the AO of bogus purchase to Rs.19,52,056/- as against Rs.13,10,07,905/- made by the AO.
5. Before us, the Ld. DR relies on the order dated 16.01.2017 of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd. vs. DCIT [2017- TIOL-23-SC-IT]. The Ld. DR further submits that in the instant case the assessee has made bogus purchases and the order of the CIT(A) is erroneous on facts as well as in law and the principle laid down in N.K. Proteins Ltd. (supra) squarely covers the case of the revenue.
6. On the other hand, the Ld. Counsels of the assessee submit that during the course of assessment proceedings the assessee had submitted complete details of purchases such as ledger account, copy of the concerned parties in books of the assessee along with sample copies of invoices issued by the parties and bank statements in which payments made to the parties are duly reflected. There was no finding of the AO that the assessee had received back the money or money's worth back against the payment made. The sales effected and revenue shown ITA No. 5220/Mum/2014 7 was not doubted. Even the parties enlisted on Sales Tax Website have not named the assessee. The payments were made by account payee cheques.
The Ld. Counsels further submit that similarly the assessee had paid sub-contractor charges to various parties in respect of whom the AO has made an addition of Rs.6,75,51,417/-. It is submitted by them that (i) the assessee had deducted applicable TDS u/s 194C out of the payments made to the sub-contractors, (ii) the assessee had carried out the work relating to garden development and maintenance for Brihan Mumbai Municipal Corporation (BMC) which is a Government Department and hence, the sales effected cannot be questioned.
6.1 The Ld. Counsel of the assessee thus supports the order passed by the Ld. CIT(A). Reliance is also placed by him on the order of the ITAT 'A' Bench, Mumbai in the case of DCIT vrs. Shri Kishore Kumar Agarwal (ITA No. 870 & 871/Mum/2015).
7. We have heard the rival submissions and perused the relevant materials on record. We begin with the 3rd ground of appeal. We find that the AO has mentioned at the beginning of his assessment order dated 28.03.2013 that 'the case was selected for scrutiny in CASS and notices u/s 143(2) and 142(1) were duly issued and served on the assessee. In response to the said notices, Shri Rajesh Agarwal, Chartered Accountant & Shri Kamal Sharma, Chartered Accountant from M/s Sara & Associates, Chartered Accountants attended and filed the details called for'. The AO has also mentioned at page 12 of the assessment ITA No. 5220/Mum/2014 8 order that the assessee filed confirmations in regular format on 26.03.2013. Thus we find that the documents filed before the Ld. CIT(A) were available to the AO. We find that the Ld. CIT(A) has analysed those documents and arrived at a finding. Therefore, there is no violation of Rule 46A (3) of the I.T. Rules 1962 by the Ld. CIT(A). So We dismiss the 3rd ground of appeal.
7.1 Now we turn to the 1st, 2nd, & 5th ground of appeal as the address a common issue. We now discuss the decision in the case of N.K. Proteins Ltd. (supra) relied on by the Ld. DR. During the course of search proceedings at the officer premises of N.K. Proteins Ltd., blanked signed cheque books and vouchers of number of concerns were found. Endorsed blank cheques of N.K. Proteins Ltd. by these concerns were also found from the office premises of N.K. Proteins Ltd. wherein the endorsement was on the back of the cheques. Blank bill books, letter heads and vouchers of these concerns were found and seized from the factory premises of N.K. Proteins Ltd. Purchases made by these concerns have been treated by the AO as bogus purchases.
However, the facts in the instant case are different from the case of N.K. Proteins Ltd. (supra). We have narrated the facts of the present case earlier at length. In the instant appeal, during the course of assessment proceedings before the AO, the assessee had submitted complete details of purchases such as ledger account, copy of the concerned parties in books of the assessee along with sample copies of invoices issued by the parties and bank statements in which payments ITA No. 5220/Mum/2014 9 made to the parties are duly reflected. Thus the decision cited by the Ld. DR is distinguishable.
7.2 In the case of CIT vs. Simit P. Sheth (2013) 38 taxmann.com (Guj), the Hon'ble Gujarat High Court has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee. The Hon'ble High Court referred to a similar view taken in the case of CIT vs. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and CIT vs. Bholanath Poly Fab (P) Ltd. [2013] 355 ITR 290 (Guj). We find that the Ld. CIT(A) has rightly estimated and restricted the disallowance to Rs.19,52,056/- as against Rs.13,10,07,905/- made by the AO. We uphold the order of the Ld. CIT(A). Thus the 1st, 2nd, & 5th ground of appeal are dismissed.
8. Now we turn to the 4th ground of appeal. The issue is penalty in respect of breach of contract. The Hon'ble Delhi High Court in CIT vs. Loke Nath & Co (Construction) (1984) 147 ITR 624 held that the amount paid to Municipality as compensation for condoning deviations of original sanction and accepting revised plan of construction is deductible and it is not a penalty for infraction of law. In CIT vs. Indo Asian Switch-Gears (P.) Ltd. (1996) 222 ITR 772, the Hon'ble Punjab & Haryana High Court held that penalty for late delivery of goods is not on account of infraction of law and thus deductible. We follow the above ITA No. 5220/Mum/2014 10 decisions and uphold the order of the Ld. CIT(A). The 4th ground of appeal is thus dismissed.
9. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 10/08/2017.
Sd/- Sd/-
(MAHAVIR SINGH) (N.K. PRADHAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai;
Dated: 10/08/2017
Rahul Sharma, Sr. P.S.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai