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2017 (10) TMI 591 - ITAT MUMBAIBogus purchases - addition upheld by CIT(A) by observing that the provisions of section 69C treating the purchases as unexplained expenditure was rightly applied - Held that:- AO doubted the entire purchases and added the same to the income of the assessee which was upheld by the ld. CIT(A) by observing that the provisions of section 69C of the Act treating the purchases as unexplained expenditure was rightly applied. In the case of bogus purchases, the practice followed by the beneficiaries are that the bills are prepared from the hawala dealers while purchases the goods from the grey market thereby making the saving of non-payment of VAT and other incidental charges. We are not in agreement with the conclusion drawn by the CIT(A) specifically when the assessee has filed the statement of receipt of materials and consumption thereof at the various sites and hence at the most a reasonable disallowance to cover the leakages of revenue and various types of savings made by the assessee by purchasing goods from the grey market could be made. In the similar cases, the Co-ordinate Benches of the Tribunal have taken a consistent view of directing addition ranging from 5% to 12.5% depending upon the facts of the case. In the present case, we are of the view that it would be fair and reasonable to make the addition towards gross profit at the rate of 12.5% of the said purchases. Accordingly, we set aside the order of CIT(A) on this issue and direct the AO to make addition at 12.5% of the bogus purchases. Addition in respect of retention money - Held that:- In the case of the assessee, most of the customers are government agencies where the exacts details of retention money are not even available with the assessee. We find merit in the contention of the assessee that the assessee has not received money retained by the contractees and also that some retention could not be accounted due to non availability of details and information with the assessee. It is only when these details were available with the assessee the necessary entries were made in the books of accounts. Therefore, though the mercantile system of accounting provides for accounting and taxing of income on accrual basis but in the instant case the assessee has no control over the retention money deducted by the contractees. Therefore, the assessee should be allowed deduction in the year of retention or in that year in which it comes to know about the said deductions nevertheless it is pertinent to say that retention has to be taxed as and when received by the assessee. Accordingly, we are not agreement with the conclusion of CIT(A) that the deduction of retention money which pertained to earlier years is not allowable and accordingly direct the AO to allow claim of retention money Disallowance of interest u/s 40(a)(ia) - Held that:- In our opinion the disallowance u/s 40(a)(ia) on account of interest can be made only if the payee has not offered the receipts in his return of income. We, therefore, feel that the issue has to be sent back to the file of the AO to verify the same in terms of second proviso to section 40(a)(ia) of the Act and accordingly the AO is directed to decide the same as per facts and law after giving reasonable hearing to the assessee. This ground is allowed for statistical purposes. Addition on TDS on VAT - Held that:- The customers normally intimate the assessee about the TDS on VAT vide certificate as per VAT rules but in many cases the contractors come to know when the payments are received from the customers after reducing the amount of TDS. Thus, the short recovery of bill amount due to deduction of TDS under VAT Act is accounted for in the books of account as and when it comes to the notice of the assessee and accordingly claimed as expenditure. Even otherwise the deduction of such type of taxes is available upon its payment as per the provisions of section 43B of the Act. If we consider the claim from another angle that the said claim crystallized during the year as the assessee came to know about the said deduction only during the year under consideration as the customer failed to issue any deduction certificate and as a result was not claimed by the assessee in those years. In our considered view the assessee should be allowed the claim in the year in which it first comes to know about the said deductions. In view of these facts, we are inclined to direct the AO to allow ₹ 39,87,561/- as admissible deduction while assessing the income. The ground raised by the assessee is allowed.
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