Income Tax Appellate Tribunal - Pune
Ensemble Infrastructure [I] Ltd,, ... vs Assessee on 26 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri R.K. Panda, Accountant Member
and Shri Vikas Awasthy, Judicial Member
ITA Nos.1760/PN/2012 & 1114/PN/2013
(Assessment Years : 2007-08 & 2008-09)
M/s. Ensemble Infrastructure
India Ltd., B-1/2, Paragon Center,
P.B. Marg, Worli,
Mumbai - 400 013
PAN No.AABCE2587L .. Appellant
Vs.
DCIT, Circle-1(2), Pune .. Respondent
ITA Nos.1753/PN/2012 & 1201/PN/2013
(Assessment Years : 2007-08 & 2008-09)
DCIT, Circle-1(2), Pune .. Appellant
Vs.
M/s. Ensemble Infrastructure
India Ltd., B-1/2, Paragon Center,
P.B. Marg, Worli,
Mumbai - 400 013
PAN No.AABCE2587L .. Respondent
Appellant by : Shri Sunil Pathak &
Shri Sharad Shah
Department by : Shri P.S. Naik
Date of Hearing : 27-05-2015
Date of Pronouncement : 26-06-2015
ORDER
PER R.K. PANDA, AM :
ITA No. 1760/PN/2012 and ITA No.1753/PN/2012 are cross
appeals. The first one is filed by the assessee and the second one file by the Revenue and are directed against the order dated 22-02- 2012 of the CIT(A)-I, Pune relating to Assessment Year 2007-08. 2 ITA No. 1114/PN/2013 and ITA No.1201/PN/2013 are also cross appeals. The first one is filed by the assessee and the second one file by the Revenue and are directed against the order dated 04-03-2013 of the CIT(A)-I, Pune relating to Assessment Year 2008-09. Since common issues are involved in both the cross appeals, therefore, for the sake of convenience these were heard together and are being disposed of by this common order.
2. First we take up the cross appeal for A.Y. 2007-08 as the lead case. Facts of the case, in brief, are that the assessee is a Private Limited Company engaged in Furniture Interior works for leading corporates. The assessee's job contains execution of Civil, Interior, Gypsum, Flooring, Painting, Carpentry, A/c. Electrical and other allied works. The assessee filed its return of income on 29-10-2007 declaring total income of Rs.1,48,08,038/-. Subsequently, the assessee filed a revised return on 06-02-2008 declaring total income of Rs.2,17,73,862/-.
3. During the course of assessment proceedings the Assessing Officer observed that a survey u/s.133A of the I.T. Act was conducted in the premises of the assessee at B1, Paragon, Condomonium, P.B. Marg, Worli, Mumbai on 28-12-2007 by the DDIT (Investigation) Unit-IV (2), Mumbai. During the said survey it was found that the assessee company has shown purchases of material from the below mentioned concerns of Shri Tushar Ruparel. The Assessing Officer further noted that as per the details furnished during post survey investigation and the details produced during the assessment proceedings the purchases made from various parties are as under :
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Sr. No. Name of the assessee F.Y. 06-07 F.Y. 07-08
1. M/s. Foram Traders -- 67,59,282
2. M/s. Apple India Marketing Co. 82,98,924 47,46,122
3. M/s. V.S.K. Steels -- 39,63,133
4. V.S.K. Enterprises 71,70,625 39,16,081
5. M/s. Khushi Enterprises 1,92,56,857 --
6. M/s. Samarth Trading Co. 78,15,429 --
7. M/s. Balaji trading -- --
8. M/s. Sun Enterprises 1,00,40,207 --
9. M/s. M.R. Corporation 1,38,49,532 19,95,337
10. M/s. Neelam Enterprises 47,24,390 34,41,811 Total 7,11,55,964 2,48,21,766
4. The Assessing Officer further noted that during the course of the said survey operation, the assessee company was confronted with the statement dated 08-12-2007 of Shri Tushar Ruparel. Subsequently, the assessee was also provided with the copy of the statement of Shri Tushar Ruparel recorded on 13-05-2008 and the assessee was asked to produce the above mentioned parties before the DDIT. In respect of claim of genuineness of purchases in the light of unequivocal statement of Shri Tushar Ruparel, the Assessing Officer further noted from the survey report submitted by the ADIT that the assessee had given the reply with regard to the compliance and the observations made by the survey party on the twin points which are reproduced at para 4.2.3 of the order and which reads as under :
"(i) The assessee could not produce the above mentioned parties in its support on 14.01.2008 as per requirement of summon dated 08.01.2008. On its request seeking further time, the assessee was given another opportunity to produce the concerned parties on 21.01.2008 as per order sheet entry dated 14.01.2008. In fact, the assessee could never produce the above-mentioned parties in its support. The assessee was also provided the copy of statement if Shri. Tushar Ruparel with a view to give the fair opportunity to defend its claim.
(ii) In support of its claim of delivery of goods by parties in question and its consummation at various sites, vide submission dated 03.03.2008, the assessee has stated that
(a) All material is purchased with the responsibility of the delivery up to site with the respective vendor. The Good receipt note is prepared by Assessee Company and it is the basis on which all purchases are booked and subsequent payments are made to vendor. 4
(b) A proper vendor registration procedure is followed before placing any order for purchase. The same procedure was followed in respect of parties in question too.
(c) The material brought from parties in question have been used at six locations and the assessee company has received confirmation letter from four parties stating that materials have been received at respective site locations.
(d) The actual sales have taken place and payments against all sale bills have been received through cheques. Payments to purchase parties have been made through cheques.
(e) The quantitative tally of sales with consumption chart, GRN etc. confirm the purchased quantity with minor wastage."
5. The Assessing Officer thus observed from the report of ADIT that the assessee not only failed to produce the parties in question before the survey party but also its contention does not have much force. He observed that the assessee has not submitted any quantitative reconciliation between material purchased and its consumption. He has only submitted confirmations from 4 customers stating that certain amount of goods have been received at certain work site. The Assessing Officer noted that the assessee company is executing both kinds of contracts in the field of interior work, i.e. work contract without supply of material by assessee company and work contract with responsibility of assessee company to supply the material. In the contract of second type, i.e. Contract with material, it is the responsibility of the assessee company to supply the material in addition to labour work. Thus in such kind of contracts there is no question of any control by customers/clients over supply of material at site of the assessee company or vendors. In such contracts the client has nothing to do with the quantum of materials consumed because the value of the contract is fixed after taking into consideration the cost of material that would be borne by the contractor.
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6. The Assessing Officer noted that a large part of the total work contracts executed by the assessee are contracts with material. Therefore, for such projects, i.e. work contracts with material the submission of the confirmation from clients would not serve any purposes as such confirmation cannot be concerned with consumption of material in such projects. Therefore, the Assessing Officer was of the opinion that the assessee could not produce the reconciliation of the purchases and the consumption for the years for which the purchases have been shown from the parties in question.
7. As regards the submission of copies of Goods Receipts cum Inspection Note (GRN) to substantiate its claim of purchases the Assessing Officer noted that it is basically a document provided by the assessee company itself. In the present case, it is more in the nature of self serving documents in place of independent evidence as assessee had full liberty to prepare it even for bogus purchase transactions. The GRN has the signature of the store keeper who is an employee of the assessee itself. Therefore, he held that the GRN is not an independent piece of evidence. Further, the Assessing Officer observed that on comparison of GRNs in respect of goods received in question and GRN for goods from other parties the following crucial differences are noted between the two.
(i) It is found that the GRNs, prepared in respect of the goods shown to have been received from parties in question, have grossly inadequate details. On such GRNs, there is no signature of project manager where as the GRNs prepared for the goods received from other parties bear the signature of project manager.
(ii) Further, the GRNs in respect of parties in question generally do not have any entry of against the column 'time in' i.e. such GRNs generally do not show when the goods were receive. On several occasions, even inward number, P.O. No. and date are not mentioned on such GRNs. Whereas, the GRNs for the goods received from other parties have such details written on them.6
He accordingly held that the GRNs submitted by the assessee cannot be relied upon. The AO further noted that the assessee could not produce any evidence in the form of delivery challan, transportation details etc. The assessee also did not produce any delivery note issued by Shri Tushar Ruparel or his concerns. He further noted that in the case of the assessee he has followed the practice which is reverse of the general practice in the trade. Assessee itself is making Goods Receipt Note and puts its employee's signature thereon without giving duplicate copy of such note to seller.
8. As regards the submission of the assessee that it has followed vendor registration procedure to enquire into the genuineness of vendor including the parties in question, the AO noted that the parties in question did not have requisite infrastructure such as godown to supply the goods as evident from the statement of Shri Tushar Ruparel. Even the office address given by various concerns of Shri Tushar Ruparel is same. Therefore, he also rejected the claim of the assessee.
9. The AO also compared the purchase bills issued by parties in question and purchase bills issued by other parties and found some difference between the two. In view of the above the AO came to the conclusion that the purchase bills issued by various concerns of Shri Tushar Ruparel are basically bogus. He further noted that Shri Tushar Ruparel in his statement on oath had admitted that he is engaged in the activity of providing accommodation entries only in the name of various entities on the request of the customers and he has never made actual purchases or sale. He has further admitted that all concerns actually being 7 run from one office and there is no godown or warehouse etc. In view of the above, the AO confronted the assessee to prove that purchases made by it are genuine. Since the assessee failed to discharge the onus the AO asked the directors of the company, who were present during the hearing proceedings, to produce the parties from whom the purchases were made and the person Shri Tushar Ruparel who has control over the above firms. The AO issued notice u/s.133(6) to the various parties to produce the following details.
(i) Extract of Ledger Account maintained from 01-04-2005 to 31-
03-2006 and details of bank accounts.
(ii) Income-tax PAN No. and Ward/Circle where assessable.
(iii) Modes of transactions
(iv) Confirmation of goods supplied with VAT No. and loading, unloading details.
10. However, none of the parties appeared before the AO voluntarily nor the directors produced any of the parties from whom the purchases have been made. The AO however noted that the parties in question submitted the accounts extracts with covering letter mentioning only the sales reported to the assessee. The AO, therefore, was of the opinion that the assessee company is not taking pains to produce the above parties. Since the above parties neither appeared before the AO nor given the details of bank accounts indicating details of deposit of cheques and cash withdrawal from the banks, the AO was of the opinion that purchases to the tune of Rs.7,11,55,964/- from the following parties are not genuine and bogus :
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Sr.No. Name of the assessee F.Y. 06-07
1. M/s. Apple India Marketing 82,98,924
2. V.S.K. Enterprises 71,70,625
3. M/s. Khushi Enterprises 1,92,56,857
4. M/s. Samarth Trading Co. 78,15,429
5. M/s, Sun Enterprises 1,00,40,207
6. M/s. M.R. Corporation 1,38,49,532
7. M/s. Neelam Enterprises 47,24,390
Total 7,11,55,964
11. During the course of assessment proceedings the assessee submitted that purchases could normally be disallowed if the same are bogus or shown as paper transaction and in other cases it cannot be disallowed. It was argued that in the case of the assessee the purchases effected from various parties referred to in the statement of Shri Tushar Ruparel cannot be treated as bogus or paper transaction as the same were supported by proper invoices and the payment of the same were made by account payee cheques. Further, the purchase of goods are established with corresponding sales made to various reputed limited companies who are regularly assessed to tax and who have also confirmed the same. It was argued that all the purchases are duly supported by proper invoice giving particulars such as name, address, description of material etc. The parties from whom the purchases are effected have mentioned their telephone numbers and are duly registered under the State Sales Tax Act and the Central Sales Tax Act. Day to day quantity account of the stock is maintained and all the entries in the same have been duly submitted. The payment of sales are also received by account payee cheques from the limited companies who are duly registered with various authorities like VAT, Central Sales Tax Act and are also assessed to income tax. Further, the assessee is a dealer under the State law and filed the returns under the said Act in which said purchases are properly 9 disclosed. Further, the customers viz., M/s. Kumar Housing Corporation Ltd. M/s. Zenith Birla India Ltd., M/s. Birla Power Solutions Ltd., M/s. Roshan Builders Ltd. and M/s.Birla Cotsyn Ltd. have confirmed that the goods mentioned in the respective delivery challans have been received at their premises from time to time. It was submitted that the assessee maintains quantitative inward and outward transaction of purchase of material consumption and sales which is matching with the books of accounts. It was further submitted that the rate at which the assessee has purchased the goods are comparable and in line with the existing rates of similar commodities or products in the market.
12. However, the AO was not convinced with the above submissions made by the assessee. He relied heavily on the report of the ADIT who had stated that the above parties have not supplied the material to the assessee as accepted by their controller Shri Tushar Ruparel and the assessee has not disproved the same. Therefore, mere filing of some documents whose authenticity is also not proved cannot take away the categorical findings in the survey in assessee's case and admission of Shri Tushar Ruparel. The AO further noted that the statement of all these parties show that the assessee has made purchases throughout the year but has made payments by cheque only towards the fag end of the year which has been deposited by these parties on their respective bank accounts and cash withdrawn against them. On being asked by the AO to produce the copy of the bank account of these parties the assessee could not produce the same. The assessee has also not disproved that cash has been withdrawn by these parties against the cheques given by 10 assessee and returned the cash to the assessee for a commission which was stated by Shri Tushar Ruparel. Distinguishing the various decisions cited before him and rejecting the submissions the AO made addition of Rs.7,11,55,964/- to the total income of the assessee being the purchases made from the 7 parties treating the same as bogus.
13. Before CIT(A) the assessee more or less reiterated the same arguments as made before the AO. It was submitted that the AO mainly and largely relied upon the findings of survey tem and the statement of Mr. Tushar Ruparel. It was stated that Mr. Tushar Ruparel is proprietor of only one concern, i.e. M/s. VSK Enterprises whereas other persons are proprietors of other 6 concerns. Although Mr. Tushar Ruparel has stated that he is the controlling person of all 6 other parties but that does not take away the fact that he is not the proprietor and therefore their arrangement has nothing to do with the assessee. The assessee submitted that the other 6 concerns are owned by 6 different individuals and therefore merely based on the statement of Mr. Tushar Ruparel that he is the controlling person cannot be the basis of the addition in the hands of the assessee.
14. It was submitted that on the basis of the notice sent by the AO u/s.133(6) of the I.T. Act all the above 7 parties have submitted the account extracts mentioning the sales reported to the assessee. Thus there is confirmation of the transactions from all 7 parties which is subsequent to the date of statement of Mr. Tushar Ruparel. Thus, it is a case of hostile witness and therefore the statement of Mr. Tushar Ruparel cannot be the basis of the addition without going through the process of cross examination either by the AO or by the assessee.
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15. As regards the allegation of the AO that the parties were not produced before him it was submitted that the survey was carried out on Mr. Tushar Ruparel on 08-12-2007 and on the assessee on 28-12-2007. Thus, there was only a gap of 20 days. The survey party conducting the survey on both Mr. Tushar Ruparel as well as the assessee was the same. Although there was hardly a gap of 20 days between the survey conducted in the business of Mr. Tushar Ruparel as well as the assessee and the statement of Mr. Tushar Ruparel was shown to the assessee, however, the survey party did not issue summons to Mr. Tushar Ruparel for examination/cross examination by the assessee or vice versa. Thus, the opportunity available with the survey party was not carried out. Even during survey action at the place of the assessee Shri Nilesh Rathod, Director of the assessee had categorically refused the charge that the purchases are bogus and that no cash/money has flown back to the company.
16. It was submitted that during the course of survey at the premises of the assessee no incriminating documents were found nor was there any unaccounted asset like cash. The cash found at the premises was reconciled with the cash as per books of account and no difference was found out. It was submitted that the statement of Mr. Tushar Ruparel relied upon by the AO, is a statement of third party which cannot be applied without the same being examined and scrutinized with evidence. Various decisions were also relied upon to the proposition that statement recorded u/s.133A cannot be used as evidence without its corroboration by any other evidence to prove the correctness thereto. 12
17. As regards the contention of the AO that the assessee has not produced the parties from whom purchases were made it was submitted that all those suppliers had submitted various details such as vendor registration form, PAN card copies of the partners/ proprietors, sales tax registration number, Account confirmation statements etc. to substantiate the sales made by them to the assessee. Even the survey party had also impounded the invoices of the above parties. Further, they have responded to the notice issued to them u/s.133(6). The assessee reiterated the submissions as made before the AO stating that assessee had produced documentary evidence about actual supply of material by the above parties by furnishing the confirmation from the customers regarding the receipt of goods at the site and consumption thereof. It was submitted that the contracts with the 5 customers were lumpsum contract including material and the purchase from the aforesaid parties was all for the above 5 customers. It was submitted that goods costing about Rs.1,03,50,725/- were purchased and were stored in Vikroli Godown. The closing stock as on 31-03-2007 as per balance sheet was Rs.3,76,96,589/- which included the stock at Vikroli Godown of Rs.92,04,200/-. The said materials were purchased from M/s. Neelam Enterpise, Apple India Marketing, Sun Enterprise and Samarth Trading Company. Out of these purchases, an amount of Rs.92,04,200/- being the basic value of purchases was included in the closing stock. The balance amount of Rs.11,50,525/- represent the VAT for which VAT credit was availed. It was argued that if the above purchases from the aforesaid parties is treated as bogus, the closing value of Rs.92,04,200/- was also not existent and therefore the addition should not have been made for Rs.1,03,54,725/- as there was no purchases and therefore there 13 was no closing stock. The assessee further submitted that the addition made by the AO amounting to Rs.7,11,55,964/- includes VAT of Rs.79,06,218/-. As per the accounting policy followed by the assessee the purchases debited to the profit and loss account is net of VAT, i.e. exclusive of VAT. Accordingly, out of the above purchases of Rs.7,11,55,964/- the actual debit to the profit and loss account is Rs.6,32,49,746/-. Therefore, in an alternate contention, it was argued that addition, if any, can be made only to the extent of Rs.6,32,49,746/- and not Rs.7,11,55,964/-.
18. Based on the arguments advanced by the assessee the Ld.CIT(A) called for a remand report from the AO who reiterated that the purchases made by the assessee are bogus and the submission of the assessee are not acceptable. The AO accordingly requested that the assessment order should be upheld.
19. The Ld.CIT(A) forwarded a copy of the remand report to the assessee and called for his comments. After considering the submissions made by the assessee, the comments of the AO in the remand report and the comments of the assessee to such remand report the Ld.CIT(A) held 50% of the purchases of Rs.7,11,55,964/- as bogus and allowed relief of Rs.3,55,77,982/-. While doing so, he observed that the statements of Mr. Tushar Ruparel and 3 other persons show that they were issuing bills without delivery of goods, were depositing cheques and withdrawing cash and return it to the assessee after deducting their commission for service, had no regular site for carrying on the business of genuinely supplying materials, non-maintenance of books of account, and therefore what was being admitted by him and others were looking to be correct on the face of it. The evidence gathered by the investigation unit at the end of the 14 supplier were quite clearly showing that the assessee was engaged in taking bogus bills from the concerns of Mr. Tushar Ruparel.
20. However, he also observed that when the evidences gathered at the end of the assessee during the course of follow up survey conducted subsequently is looked into it is also not difficult to see that not much of adverse complimentary evidence could be found when the survey was conducted at the premises of the assessee on 28-12-2007. It is possible that in the intervening period of 20 days the assessee has taken care of all the adverse evidences but still the DDIT(Investigation) and the AO had the responsibility to establish the complexity of the assessee to the affairs accepted by Mr. Tushar Ruparel to the extent possible. According to Ld.CIT(A) it should have been demonstrated that all admissions were made to reach to the bottom and due process was followed. What was found were only indicating weaknesses in the maintenance of records in respect of purchases made from the above referred impugned purchasers. By not taking the investigations to the logical end at the relevant point of time on the leads found at the premises of Mr. Tushar Ruparel, for the reasons which is not expressly mentioned anywhere, a situation has reached wherein it has become difficult to hold conclusively that the entire purchases are bogus or are genuine in the facts and circumstances of the case which is apparent from the rival submissions.
21. He observed from the perusal of the investigations carried out by the DDIT (Investigation) and the AO and even during remand proceedings that it is clear that they preferred to follow the easier path of depending on the legal onus cast on the assessee to establish the purchases in the light of the evidences gathered which was clearly indicating that the assessee was involved in 15 purchasing bogus bills. Similarly, the evidentiary value of the oral evidence gathered in the statement recorded on oath u/s.131 of the I.T. Act was also compromised by not providing the opportunity to cross examine Mr. Tushar Ruparel and others from whom valuable evidences were gathered. It is also not apparent from the record as to why was this done. If it was for the fear that Mr. Tushar Ruparel and others may dilute or revert from the earlier statement given on oath, still it was required because the superior courts have unequivocally upheld in many cases that cross examination is a sine qua non of the due process of taking evidence and no adverse interference can be drawn unless the party is put on notice of the case made out against him and opportunity to cross examine is granted. The responsibility of the AO is to arrive at the correct position of the assessment by following the proper process of law and the cannot be ignored for fear of an adverse situation. In view of these deficiencies the oral evidence which is only partly supported by other circumstantial or documentary evidence relied by the AO and partly disproved by circumstantial and other indirect evidences relied upon by the assessee has lost its true potential to stand up on a stand alone basis and lead to a particular conclusion. According to the Ld.CIT(A) the statement on oath u/s.131 given by Mr. Tushar Ruparel and others in itself were quite strong to substantially nail the assessee had the opportunity to cross examine was granted to the assessee. However, since the same was not done the case has to be decided considering other evidences placed on record by the rival sides. Relying on various decisions the Ld.CIT(A) observed that under the income-tax proceedings the strict rules of evidence are not applicable for arriving at the correct decision (Chuharmal Vs. CIT reported in 172 ITR 250 (SC).
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22. Considering the totality of the facts of the case the Ld.CIT(A) further observed that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims. He observed that although the evidences forwarded by the AO was overwhelmingly against the assessee but the entire disallowance cannot be sustained as no answer could be found by the AO to the arguments made that the contracts cannot be executed without the purchases which are being disallowed by the AO. He observed that even if the site wise purchases and consumption prepared and submitted by the assessee is not considered to be reliable for determination the allowability of purchases in view of certain evidences found, making books of the assessee unreliable but the over all sales and purchases will have to be considered to determine the reasonable amount of purchases which must have gone into the execution of the contract of this assessment year.
23. The Ld.CIT(A) considered the profit disclosed by the assessee against the sales and observed that under the facts and circumstances of the case the disallowance of Rs.7,11,55,964/- cannot be made since the assessee cannot complete the job of Rs.35 crores with material consumption of only Rs.5.5 crores. He further observed that statement of Babu Sutar, Prop. of Sun Enterprises, Mr. Gopal Sutar, Prop. of M.R. Corporation and Smt. Neelima T. Ruparel, Prop. of Neelam Enterprises were not recorded even by the Investigation unit or by the AO. The purchases made from these concerns are of Rs.1,00,40,207/-, Rs.1,38,49,532/- and Rs.47,24,390/- respectively. Even though other evidences 17 gathered in respect of all these concerns were adverse enough to cast heavy onus on the assessee but the evidences in respect of these concerns are definitely on a weaker footing, though the other concerns whose owners were also examined on oath u/s.133(4). Considering the totality of the facts of the case, the Ld.CIT(A) was of view that 50% relief can be granted to the assessee and the extent of bogus purchases can be restricted to 50% of the additions. He further noted that after this addition the net profit comes to the vicinity of approximately 15% to 16% which can be considered to be fair and reasonable for a case where evidences for arranging bogus bills were found and the assessee failed to discharge the heavy onus cast on it to rebut the apparent so found at the end of the impugned suppliers. He also directed the AO to examine the book and if the VAT is not debited in the profit and loss account as part of materials purchased then the disallowance should be restricted to the purchases (-) VAT. Thus, he directed the AO to disallow 50% of the purchases shown from the 7 parties after reducing the VAT as bogus/inflated or unsubstantiated purchases.
24. Aggrieved with such part relief given by the CIT(A) the Assessee as well as the Revenue are in appeal before us with the following grounds :
Grounds by Assessee :
"1. The learned Commissioner of Income Tax (Appeals) - I, Pune [CIT(A)] erred in confirming the disallowance of 50% of the so called bogus purchases of Rs.7,11,55,964 i.e. Rs.3,55,77,982. Your appellant submits that entire purchases of Rs.7,11,55,964 are genuine purchases and the same ought to have been allowed.
2. The learned CIT(A) erred in not excluding the amount of closing stock of material purchased from so called bogus parties while computing the income.18
Your appellant submits that if the purchases from the parties or part thereof are treated as bogus, the closing stock representing the said so called bogus purchases ought to be reduced from the total purchases and only the net purchases after reducing the closing stock ought to be considered for disallowance.
3. The learned CIT(A) erred in not appreciating the evidences produced by the appellant and making various observations without substantiating the same.
Your appellant submits that the observations of the learned CIT(A) are not supported by any evidences and are made in disregard of the principles of natural justice.
Your appellant submits that the entire addition of Rs.7,11,55,964 ought to be deleted as against 50% thereof as held by CIT(A).
4. Your appellant craves leaves to add to, alter, amend or vary all or any of the aforesaid ground of appeal as they/their representative may deem fit."
Grounds by Revenue :
"1. On the facts and in the circumstances of the case, the Learned CIT(A)-I, Pune has erred in directing to allow 50% of purchases made from seven parties which were treated as bogus parties by the A.O. & DDIT (Inv).
2. On the facts and in the circumstances of the case, the Learned CIT(A)-I, Pune failed to consider that the assessee could not produce the parties in question before the survey party nor before the A.O. during the scrutiny proceedings.
3. On the facts and in the circumstances of the case, the Ld.CIT(A) failed to consider that Shri Tushar Ruparel who was controller of impugned parties has admitted in his statement on oath that he was engaged in the activity of providing accommodation entries/ bogus bills only in the name of 7 parties on the request of customers and had never made actual purchases or sales.
4. For these and such other grounds as may be urged at the time of hearing, the order of the Ld. Commissioner of Income- tax(Appeals) may be vacated and that of the Assessing officer be restored.
5. The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon'ble Tribunal."
25. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A) sustaining 50% of the disallowance. Referring to page 6 of the order of the CIT(A) the Ld. Counsel for the assessee drew the attention of the Bench to the details of purchases made from the 7 parties totaling to Rs.7,11,55,964/- which was disallowed by the AO. Referring to pages 139 to 222 of the paper book the Ld. 19 Counsel for the assessee drew the attention of the Bench to the various details furnished by the assessee before the lower authorities substantiating the genuineness of the purchases. Referring to page 139 of the paper book he drew the attention of the Bench to the purchase of goods from M/s. M.R. Corporation amounting to Rs.4,54,140/-. Referring to page 140 of the paper book he drew the attention of the Bench to the bill raised by M/s. M.R. Corporation vide Invoice No.001347 dated 09-10-2006. Referring to 141 of the paper book he drew the attention of the Bench to the goods received cum inspection note vide RC No.4 Challan No.1347 dated 09-10-2006. Referring to page 142 of the paper book he drew the attention of the Bench to the delivery challan of M/s. M.R. Corporation which has gone to the site of Birla Cotsyn (India) Ltd. which also contains the stamp of Birla Cotysn (India) Ltd. Referring to page 143 of the paper book he drew the attention of the Bench to the purchase order raised on M/s. M.R. Corporation. Referring to subsequent pages the Ld. Counsel for the assessee submitted that when the goods have come to the place of third party such as Birla Cotsyn (India) Ltd., Kumar Housing Corporation Ltd., Zenith Birla India Ltd., Birla Power Solutions Ltd., Rohan Builders Ltd. etc., which have been authenticated by these companies, therefore, the same should not have been disbelieved. He filed the following details and explained the purchases from the 7 parties and their destination. Customer where goods consumed /delivered.........
Purchase Kumar Zenith Birla (I) Rohan Birla Cotsyn Vikroli Birla Power Summary of
from...... Housing Ltd. Limited Builders Limited Godown Solutions Ltd. Firm Wise
(Inventory) Purchase ...
Samarth -- 381,294.00 2,651,848.00 545,669.00 2,559,776.00 1,676,842.00 7,815,429.00
Trading
Company
MR 2,618,382.00 3,370,051.00 1,545,971.00 3,450,936.00 -- 2,864,192.00 13,849,532.00
Corporation
20
Sun 617,203.00 1,702,508.00 533,871.00 594,011.25 1,252,224.00 5,340,390.00 10,040,207.25
Enterprises
Apple India -- -- -- -- 1,818,336.00 6,480,588.00 8,298,924.00
Marketing
Neelam -- -- -- -- 4,724,390.00 -- 4,724,390.00
Enterprises
VSK -- 6,284,208.00 886,417.00 -- -- -- 7,170,625.00
enterprises
Kushi 3,798,716.00 -- 6,436,332.00 1,647,004.00 -- 7,374,805.00 19,256,857.00
Enterprises
Customer 7,034,301.00 11,738,061.00 12,054,439.00 6,237,620.25 10,354,726.00 23,736,817.00 71,155,964.25
wise
Purchases.
26. As regards the allegation of the Ld.CIT(A) that the Goods Received Note are made by the assessee he submitted that the goods are received on my behalf by these concerns. Although it may not have been signed by the Project Manager, which may be due to his absence, however, the same cannot be a ground to reject the claim of the assessee since the security personnel of the companies where the work was going on have authenticated the receipts of such goods in their premises. Further, the payments have been made by account payee cheques. There is no evidence that the money has come back to the assessee. Referring to pages 17 to 32 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the confirmations given by the assessee to the various suppliers and those parties have accepted the same and signed as a token of their acceptance with their PAN Nos. Referring to pages 107 to 128 of the paper the Ld. Counsel for the assessee drew the attention of the Bench to the sales tax registration No. VAT No. PAN No. etc. of the suppliers. He submitted that the assessee has executed the work for reputed companies and those parties have certified that the goods have been received in their premises. Further, all those parties are not related to the assessee. The Ld. Counsel for the assessee 21 submitted that for the assessment year the assessee has earned GP of 36.93% and net profit of 17.18%. If the addition as made by the AO is confirmed, then the gross profit comes to 57.21% and the net profit comes to 37.41% for A.Y.2007-08. Similarly, as against GP of 36.87% and net profit of 2.93% for A.Y. 2008-09 the addition so made by the AO gives the G.P. of 47.81% and net profit of 13.86%.
27. The Ld. Counsel for the assessee drew the attention of the Bench to the following chart giving comparable profitability of the assessee and other persons engaged in similar line of business :
(Rs. In Lacs) Particulars Archdeep Interior Pvt. Ltd. Cherry Hill Interior Ltd., A.Y.2007-08 A.Y.2008-09 A.Y.2007-08 A.Y.2008-09 Sales & Other 3278.36 2409.69 6530.18 8140.46 Receipt Net Profit 150.34 124.68 479.07 420.99 Before Tax Net Profit % 4.59% 5.17% 7.34% 5.17% Ensemble Net 16.88% 5.49% 16.88% 5.49% profit %
28. Referring to the above chart where two other competitors engaged in similar line of business, the Ld. Counsel for the assessee submitted that in the case of Archdeep Interior Pvt. Ltd. the net profit for A.Y. 2007-08 is shown at 4.59% and for A.Y. 2008-09 at 5.17%. Similarly, in the case of Cherry Hill Interior Ltd. the net profit is shown at 7.34% for A.Y. 2007-08 and 5.17% for A.Y. 2008-09. He accordingly submitted that the net profit shown by the assessee for A.Y.2007-08 at 16.88% and for 2008-09 at 5.49% being higher than that of the net profit declared by his competitors, the same should not have been doubted.
29. Referring to the chart showing the customer wise work done where the goods purchased from the 6 parties are utilised, the Ld. 22 Counsel for the assessee submitted that if the additions so made by the AO is sustained then the project-wise profit will be more than 90% and in some cases above 99% which is just not possible.
30. He submitted that on the basis of various details furnished by the assessee the Ld.CIT(A) called for a remand report from the AO. However, the report of the AO does not say that what the assessee was saying is wrong. He submitted that the AO has basically heavily relied on the statement of Mr. Tushar Ruparel whose statement was recorded during the course of survey. He submitted that Mr. Tushar Ruparel has evaded sales tax for which the assessee should not be penalised. He submitted that all purchases are genuine. The delivery of goods have been accepted by the third party. Without the material the assessee could not have executed the work. The assessee is not concerned from where Mr. Tushar Ruparel has purchased the goods. As long as the assessee gets the material as per the orders placed, it is immaterial for the assessee as to from where the supplier has purchased the goods. Referring to pages 229 to 234 of the paper book which is the letter addressed to the AO on 30-12-2009 the Ld. Counsel for the assessee drew the attention of the Bench to the following lines (page 233 of the paper book) :
"We would also like to request to your goodself that we want to cross examine all the above parties in front of your goodself to further prove our genuineness of the transactions. You are therefore requested to kindly let us know the day & time for cross examination."
31. Referring to the decision of the Pune Bench of the Tribunal in the case of Gopal Pulse Processors Pvt. Ltd. vide ITA Nos. 708 and 636/PN/2001 order dated 29-09-2006 the Ld. Counsel for the assessee submitted that under identical circumstances when the 23 assessee could not produce the suppliers for which the AO disbelieved the purchases as bogus, the Tribunal deleted the addition/disallowance on the ground that if entire purchases were treated as bogus and excluded from the manufacturing process, yields resulting there from would be abnormal as compared to that of preceding years. Referring to the decision of the Hon'ble High Court for the same case vide ITA No.26/2007 order dated 17-03- 2009 he submitted that on further appeal filed by the Revenue the Hon'ble High Court dismissed the appeal filed by the Revenue holding that no substantial question of law arose. Referring to the decision of the Chandigarh Bench of the Tribunal (Third Member) in the case of J.R. Solvent Industries Pvt. Ltd., Vs. ACIT reported in 68 ITD 65 (TM) he submitted that the Tribunal in the said decision has held that purchase of materials from an unidentified suppliers cannot be treated as bogus when it is established from day to day records that the said quantity went into production and the production and sales have been accepted by the department. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Balaji Textile Industries Pvt. Ltd. VS. ITO reported in 49 ITD 177 he submitted that the Tribunal in the said decision has deleted the addition made by the AO and upheld by the CIT(A) on account of purchases from untraceable parties treating same as bogus on the ground that when the same are recorded in books of both the parties, purchases have to be believed. He also relied on the following decisions :
1. ITO Vs. Chaudhari Iftekhar Ahmad Ramzanali - ITA Nos. 1056 and 1190/PN/2011 order dated 18-09-2013
2. Mrs. Nurma Rukmangad Bawane Vs. ITO - ITA No.637/PN/2010 order dated 20-06-2012
3. CIT Vs. M/s. Nangalia Fabrics Private Ltd. - Tax Appeal No.689 of 2010 order dated 22-04-2013 24
4. ACIT Vs. Shri Ramila Pravin Shah - ITA No.5246/Mum/2013 order dated 05-03-2015
32. The Ld. Departmental Representative on the other hand heavily relied on the order of the AO. He submitted that it has been clearly established by the Investigation Wing during the course of survey that the purchases are mere accommodation entries. Merely because the payments have been made by account payee cheques the same cannot be accepted as genuine especially when heavy cash has been withdrawn subsequently and the cash might have come back to the assessee. Since the assessee is not in manufacturing activity and is engaged in the business of Interior Decoration etc., therefore, the GP ratio is not important. Since the assessee has never produced the parties and has not conclusively proved the purchases to be genuine, therefore, the order of the CIT(A) should be set aside and that of the order of the AO be restored. He accordingly submitted that the appeal filed by the assessee should be dismissed and the appeal filed by the Revenue should be accepted.
33. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case made an addition of Rs.7,11,55,964/- being purchases made from 7 persons, (the details of which are already given in para 10 of the order) on the ground that during the course of survey at the premises of Mr.Tushar Ruparel and other concerns Mr. Tushar Ruparel and other persons have accepted that they have only issued bills without delivery of materials and the 25 cheques received were deposited in the bank and cash was withdrawn and returned to the assessee after withholding their commission for the services. There was no infrastructure at the end of the suppliers for making supplies like godowns etc. and no books of accounts were found. Further, there were immediate cash withdrawals after depositing the cheques in the bank accounts maintained by Mr. Tushar Ruparel and others found during the course of survey. Mr. Tushar Ruparel had specifically taken the name of the assessee and stated that assessee has availed the benefit for taking bogus bills of Rs.8 to 9 crores. It is also the case of the AO that the assessee failed to produce the above named persons at any stage either before the AO or during the course of survey before the Investigation Wing. It is also the case of the AO that despite purchases made throughout the year the payments were made only in the month of February and March of the Financial Year. Further, there was absence of third party transport bills either with the assessee or with the supplier and there were defects in the maintenance of challans.
34. We find when the matter travelled to the CIT(A) he deleted 50% of the addition and sustained 50% for the reasons given by him in the appellate order and which has been summarised in the preceding paragraphs. It is the case of the assessee that there was no adverse finding during survey in the premises of the assessee.
No unaccounted cash or evidence for bogus bills were found. The assessee was not given any opportunity to cross examine Mr. Tushar Ruparel. The assessee has produced the details of PAN Nos. Sales Tax Registration No. VAT etc. of all the suppliers. Vendor Registration Process maintained at the end of the assessee and Goods Received Notes were prepared at the site. The assessee 26 has submitted the reconciliation of materials before the AO for receipt of goods, consumption and closing balance for each site. The assessee has also produced the certificate from customers that the work was properly executed. It is also the claim of the assessee that no work can be executed without consumption of material. Further, the payments were made by account payee cheques. The concerned suppliers have responded to the notice issued u/s.133(6) and have confirmed to have supplied the goods to the assessee.
35. From the various details furnished by the assessee we find the payments have been made by account payee cheques. The suppliers have confirmed to have supplied the goods in response to the notice issued u/s.133(6). The assessee has produced third party evidences such as gate receipts of the respective companies certifying the receipt of goods in their premises. The companies where the assessee has executed the work are well known reputed companies and without the work carried out at their site they would not have made the payment to the assessee. Further, although it is the allegation of the AO that huge cash was withdrawn after the cheques were deposited, however, there is no evidence whatsoever to show that the money has come back to the assessee in some form or other. Even during the course of survey at the premises of the assessee, no incriminating materials were found to show that assessee was involved in accommodation entries. No excess cash was found. Further, the assessee has maintained proper books of accounts. The goods purchased have entered into the books of account and material consumed have also been entered into the books of account giving the quantitative details. The Assessing Officer at page 2 of the assessment order 27 has mentioned that "regular books of account are maintained". The Assessing Officer also mentions in para 4.2.4 page 5 of the assessment order that a large part of the total works contract executed by the assessee are contracts with materials. It is also a fact that none of the parties for whom assessee has carried out the work are related to the assessee. Nothing has been brought on record by the Assessing Officer that work has not been carried out by the assessee for the parties from whom assessee has received the cheques against contract receipts which has been offered to tax and accepted by the Assessing Officer. We find the Assessing Officer apart from relying heavily on the statement of Mr. Tushar Ruparel has not brought any corroborative evidence to nail the assessee that it had received only accommodation entries and the purchases to the tune of Rs.7,11,55,964/- are in fact bogus especially when the assessee has disputed such allegation by producing other materials to substantiate the purchases. The finding given by the Ld.CIT(A) that the statement of the proprietors of M/s. Sun Enterprise, M/s. M.R. Corporation and M/s. Neelam Enterprises have not been recorded could not be controverted by the Ld. Departmental Representative. Under these circumstances disbelieving the entire purchases merely on the statement of Mr. Tushar Ruparel and 3 other persons is not justified especially when the assessee has carried out the contract work for which assessee has to bear the cost of material and nothing has been brought on record by the AO that no work was carried out by the assessee for these parties and they have also made payments to the assessee for no work done. Further we also find some force in the argument of the Ld. Counsel for the assessee that when the contract is with cost of material to be borne by the assessee, 28 carrying out the contract work without purchase of material is just not possible.
36. Under the aforementioned circumstances disbelieving the entire purchases merely on the basis of statement recorded from Mr. Tushar Ruparel and others who have stated to have issued bogus bills to the assessee for some commission cannot be believed especially when the assessee has stated that he had received the goods as per his requisition and no opportunity to cross examine Mr. Tushar Ruparel was provided by the AO.
37. At the same time when the main supplier Mr. Tushar Ruparel has denied to have made any supply to the assessee and was issuing only accommodation entries as stated by him and various other concerns, it was incumbent upon the assessee to produce those persons before the AO to substantiate his case. The assessee in the instant case has failed to do so. Further when reputed suppliers are available in the market, there was no necessity of buying goods from dubious suppliers who do not have proper godown and office. Although the assessee is at liberty to buy goods from persons/parties according to his choice, at the same time, it raises a doubt in the mind regarding the authenticity of the purchases especially when the same is purchased from parties who do not have their own shops/godowns and only having table space. Thus, a perusal of the orders of the authorities below and the rival submissions made by both the sides indicate that while the entire purchases cannot be treated as bogus, at the same time the entire purchases also cannot be allowed as genuine. If we allow such type of transactions as genuine it will be against assessees who meticulously maintain full records, produce the parties before the AO on being directed and produce the necessary 29 details to substantiate their transactions. We therefore agree with the finding given by the Ld.CIT(A) that there are strengths and weaknesses in the evidences and the arguments of both the sides and it is not possible to hold either the AO or the assessee as fully correct in their claims.
38. Having observed as above now we have to see as to what extent the purchases can be treated as bogus and to what extent purchases can be treated as genuine. From the various details furnished by the assessee we find the assessee has given site-wise profitability statement vis-à-vis the disallowance made by the AO which is as under :
Birla Cotsyn Birla Power Kumar Housing Rohan Builders Zenith Birla Reliance Industries As Filed As Filed As Filed As Filed As Filed As Filed Sales 9,581,143.00 33,579,895.00 10,630,648.00 21,214,699.00 20,837,143.00 55,935,793.00 Purchase 5,544,551.00 21,099,394.00 6,252,711.00 10,715,059.00 10,433,837.00 24,821,768.00 material Direct 69,548.00 2,490,236.00 221,699.00 137,472.00 1,452,143.00 2,745,887.00 Expenses Gross Profit 3,967,044.00 9,990,265.00 4,156,238.00 10,362,168.00 8,951,163.00 28,368,138.00 Gross Profit 41.40% 29.75% 39.10% 48.84% 42.96% 50.72% % As determined by Assessing Officer As per AO As per AO As per AO As per AO As per AO As per AO Sales 9,581,143.00 33,579,895.00 10,630,648.00 21,214,699.00 20,837,143.00 55,935,793.00 Purchase - -
Direct 69,548.00 2,490,236.00 221,699.00 137,472.00 1,452,143.00 2,745,887.00 Gross Profit 9,511,595.00 31,089,659.00 10,408,949.00 21,077,227.00 19,385,000.00 53,189,906.00 Gross Profit 99.27% 92.58% 97.91% 99.35% 93.03% 95.09% % 30
39. From the above we find if the addition so sustained by the AO is accepted, then the GP rate in 2 cases is above 99%, in one case it is about 98%, in 2 cases it is almost 93% and in 1 case it is 95% which appears to be absurd as compared to assessees engaged in similar line of business.
40. Considering the totality of the facts of the case, we are of the considered opinion that disallowance of lumpsum amount of Rs.75 Lakhs (Rupees Seventy Five Lakhs only) for A.Y. 2007-08 and Rs.50 lakhs (Rupees Fifty Lakhs only) for A.Y. 2008-09 as against disallowance of Rs.7.12 crores in A.Y. 2007-08 and Rs.2.48 crores in A.Y. 2008-09 by the AO will meet the ends of justice. We hold and direct accordingly.
41. In the result, the appeals filed by the Revenue are dismissed and the appeals filed by the assessee for both the assessment years are partly allowed.
Pronounced in the open court on 26-06-2015.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
satish
Pune Dated: 26th June, 2015
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-I, Pune
4. CIT-I, Pune
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune