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Asst Commissioner of Income Tax Circle 25 (2) , Mumbai Versus Shri Hanvantisingh J Ranawat

2016 (1) TMI 893 - ITAT MUMBAI

Addition on account of inflated and bogus purchases - adoption of N.P. rate - CIT(A) deleted the addition - Held that:- It is absolutely clear that, firstly, without purchase of material the execution of work contract given by the MCGM is not possible and even if the supplier is not traceable and not coming forward to confirm the sales, then also the factum of purchase cannot be denied; and secondly, the net profit rate on the entire contract work and of the sub-contractor is not more than 8% an .....

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rightly been deleted. - Decided in favour of assessee. - ITA No. : 3718/Mum/2013 - Dated:- 4-11-2015 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Appellant by : Shri Vijay Shankar For The Respondent by : Shri Vijay C Kothari ORDER PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the revenue against impugned order dated 15.02.2013, passed by CIT(A)-35, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment year 2009-10, on the .....

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in deleting the addition of ₹ 74,01,988/0 without appreciating the facts that the Banker has stated in the letter dated 05.12.2012 that only one cheque bearing No. 420012 was credited in the current account No. 500797 of M/s P K Trading on 28.07.2009 and other cheques details are not found in the same account which proves that the purchases are not genuine . 2. The brief facts qua the issue involved are that, assessee is a civil contractor mainly doing work as a sub-contractor of M/s S V J .....

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ertake purchase of certain fixed materials and employ labours. For the year under appeal, the assessee has debited an amount of ₹ 8,38,25,020/- on account of purchase of materials, in contrast to the receipts from the contract work which was ₹ 9,50,92,857/-, on which net profit of ₹ 53,77,254/- was declared (i.e., @ 5.87%). During the course of the assessment proceedings, information was received to that one, M/s P K Trading Co, who was one of the supplier was engaged in provid .....

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and has made observation in the assessment order that, assessee had not submitted the stock register to prove the genuineness of the expenses and the delivery challans produced does not contain any Truck number or Lorry number or any acknowledgement of receiver, etc. Further, the assessee has failed to produce the party for verification. After referring to various decisions, AO held that purchase amounting to ₹ 74,01,988/- in respect of M/s P K Trading & Co. is bogus and are inflated p .....

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ion and inspection of quality and quantity of material consumed and the work done of each work order. Only when the work has been done satisfactorily, the payment is to be released. Thus, all the purchases including purchase made from M/s P K Trading & Co. was incurred for the Government contract and the materials have actually been consumed / utilized. The payment to M/s P K Trading & Co. is reflected in the books of account and all the payments have been made through account payee cheq .....

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o M/s. P K Trading & Co. were by debiting the account of M/s Jain Contractor, however the Bank were not able to clarify the query satisfactorily with regard to other particulars of P.K. Trading Co. Thus, the assessee s purchases from the said party were not open to verification at all. In response, the assessee has given its rebuttal which has been incorporated and dealt by the CIT(A) from pages 8 to 15 of the appellate order. 4. The Ld. CIT(A) after considering the entire materials placed o .....

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r the period up to 31st March, 2010. The ld. CIT(A) has taken notes of these details in para 8.5 of the appellate order. After examining the nature of work, the ld. CIT(A) observed that, for carrying out the civil work, the assessee had to necessarily purchase materials such as cement, steel, etc., without which it is not possible to complete the subcontract work awarded by the main contractor. The materials have been received at site and issued for work. The payments of the materials have been .....

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actum of the execution of the work and how the payment is released has been discussed by the ld. CIT(A) from pages 16 to 18 of the appellate order. After referring to all these facts, he held that without any material, the assessee cannot complete the civil contract work and therefore, no addition on account of bogus purchases can be made. 5. Before us, the ld. DR, submitted that in this case, specific information was received from the sales tax authorities that the supplier, M/s P.K. Trading &a .....

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ailed to discharge the onus of showing/proving that purchases made from M/s P K Trading & Co. of ₹ 70,41,088/- is genuine. He strongly referred to the remand report of the AO which has been placed in paper book pages 104 to 107, highlighting the points that the supplier as well as payments made could not be proved by the assessee. 6. On the other hand, the Ld. Counsel, pointed out that, the assessee being a civil contractor has to perform its sub-contract work as per the terms and cond .....

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by Ld. Counsel was that, in the case of main contractor, M/s S V Jiwani, the Settlement Commission has held that overall total net profit rate from contract receipts from Mumbai Corporation of Greater Mumbai (MCGM) was at 8% and the contract of MCGM executed by others, that is, was 2.87% and 5%. Thus, when the Settlement Commission has accepted that work through sub-contract has been done on 5% on same project and in the case of the assessee who is sub-contractor of M/s S V Jiwani has shown net .....

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fit ratio. One such reliance was placed on the decision of Ramesh Kumar vs ACIT in ITA No. 2959/Mum/2014 vide order dated 28.11.2014 and on the decision of Shri Ganpatraj A Sanghavi vs ACIT in ITA No. 2863/Mum/2013 vide order dated 05.11.2014. 7. In the rejoinder, the Ld. DR by way of an alternative argument submitted that, in case net profit rate is to be applied then same should be taken at @ 8% as held in various decisions and which is also a presumptive rate of profit in the case of a contra .....

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ribes the quantity and quality of the materials consumed, such as cement, steel, sands, stone grits etc. These materials are essentially required for carrying out the contract work. Not only that, right from the stage of quality testing of materials to actual work performed/executed, every stage is subject to inspection by engineers of MCGM to check the progress and the quality of work and sent a report to its Dy. Chief Engineers. Only after full verification and complete satisfaction of the wor .....

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the assessee and the manner in which payment is released has been discussed in the appellate order from pages 16 to 18. From the said observations and the finding given the ld. CIT(A), it is absolutely clear that for performing the contract work, certain quantity and quality of material has to be utilized and there is little scope of manipulation of inflating the purchases in the books . If the assessee has undertaken the civil contract work of ₹ 9,50,92,857/- then for execution of such wo .....

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ntion of the revenue that the alleged purchases of ₹ 72,01,988/- which has been made through account payee cheques from M/s P K Trading & Co. is bogus or not genuine, that is, assessee has taken accommodation bills for purchases, then there can be no denying fact that, the assessee must have purchased the same quantity and amount of purchase in cash from some other party to perform its contract work. In other words, to regularize the cash payment for purchases from other parties, the a .....

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he facts remains the assessee had made the purchases for completing the contract work which is evident from the nature of contract work itself that the payments has been released only when the quantity and quality of the material utilized has met the standard prescribed by the MCGM, this inter alia proves that, the assessee must have made the purchases and correspondingly must have utilized the same. Further for executing the subcontract work the range of percentage of profit is also predetermin .....

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it. Here in this case one very important fact which has been brought on record by Ld. Counsel is that, in the case of the main contractor i.e. M/s S.V. Jiwani & Co., the Settlement Commission has given a categorical finding of fact that, entire net profit from the contract received from MCGM was @8% and the contract executed by subcontractor the net profit rate approximately ranges between 2.87% to 5%. Another categorical finding of fact which has been given is that there is no material diff .....

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applicant are hawala parties and they have not supplied any genuine material to the applicant. The stand of the applicant is that the payments towards the suppliers have been made by account payee cheques and money has been transferred from the applicants account to the suppliers account. Suppliers are registered not only with the Sales Tax Department but also supplied relevant details to the bank while operating their accounts. In our considered view in these circumstances when the contract wo .....

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