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2016 (7) TMI 909 - ITAT MUMBAI

2016 (7) TMI 909 - ITAT MUMBAI - TMI - Reopening of assessment - Additions made on account of bogus purchases - Held that:- AO had specific information that the assessee had obtained accommodation bills from Hawala dealers to the extent of ₹ 10,69,87,060/- for three AYs i.e. AY 2009-10, 2010-11 and 2011-12. A survey was carried out at the premises of the assessee. The AO on the basis of the statement of the Director of the assessee company wherein he had declared additional income for the .....

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r issuing VAT registration like photo, verification of address (residential and office), ration card and proof of residence. However, at the very same time, we cannot ignore the actual purchases made by the assessee, which was utilised for its construction purpose and sales.AO recorded a finding to the effect that the rate of items supplied by hawala dealers was higher as well as lower also but the ultimate effect of the purchases from all such hawalas dealers has resulted in the higher profit m .....

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se of goods, bank statement showing payments made for alleged purchase bills. The purchase so made were consumed by the assessee in the business of its civil and interior work which includes external and internal glazing of glass work and providing & fixing aluminum windows. We had also verified the comparative GP and NP rate shown by the assessee which appears to be reasonable as compared to the other business house engaged in the similar line of civil and interior work. The net profit rate sho .....

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otality of facts and circumstances of the case before us, we direct the AO to restrict the addition to the extent of 2% of alleged bogus purchases so made. - Decided partly in favour of assessee - ITA No. 5450, 5451 & 5452/Mum/2015 - Dated:- 20-7-2016 - Shri R. C. Sharma, AM And Shri Amarjit Singh, JM For the Assessee : Shri Naresh Jain, A.R. For the Revenue : Shri Pavan Kumar Beerla, DR ORDER Per R. C. Sharma (A.M) These are the appeals filed by the assessee against the order of CIT(A)-1, dated .....

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assessment under section 147/148 of Income Tax Act, 1961 for the A.Y.2009-10. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the additions made by the AO of ₹ 3,40,64,343/- on account of purchases to the total income for the Asst. Year2009-10. 3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in ignoring the fact that the statements made by the Directors of the Assessee Company were duly retracted and shoul .....

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by this consolidated order. 3. Facts in brief are that the assessee company is contractor for civil and interior work which includes external and internal glazing of glass work and providing & fixing aluminum windows. Original return of income for A.Y.2009-2010 was filed on 22.09.2009 declaring total income at ₹ 1,33,40,240/-. The case of the assessee gets selected for scrutiny and vide order u/s.143(3) dated 23.12.2011, the assessment gets completed. Later survey u/s. 133A of the act .....

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of survey, wherein surrender of ₹ 10.69 crore had been taken for three years i.e. AY 2009-10, 2010-11 & 2011-12 under pressure which was later retracted in detail. Out of total amount surrendered an Amount of ₹ 3,40,64,343/- was related to AY 2009-10. 4. After survey, assessee s case was reopened. In response to notice u/s.148, assessee had filed the return of income on 14.02.2013, incorporating ₹ 3.40 crore as income. But the assessee had not paid the taxes on it as the re .....

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. 6. Before the learned CIT(A) assessee has challenged reopening as well as merit of the addition. By the impugned order CIT(A) rejected assessee s contention of reopening and also confirmed the addition made on account of alleged bogus purchases. 7. Before us assessee challenged, validity of reopening as well as merit of addition. 8. After going through the order of the lower authorities as well as reasons recorded for reopening, we find that the AO had specific information that the assessee ha .....

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nfirmity in the order of AO for reopening the assessment. 9. With regard to merit of the addition it was contended by learned AR that all the purchases made are genuine and payment has been made by account payee cheques only. The assessee had submitted copy of invoices along with supporting vouchers in the assessment proceedings. Also, there is no dispute regarding the fact that all the payments were made by account payee cheques and the same has been made as per the terms of the payment i.e. 60 .....

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laced on the decision of Hon ble ITAT Jodhpur Bench in the case of ITO Vs Permanand, 107 TTJ 395 wherein it was held that in absence of any other evidence, no addition can be made solely relying on the statement of third parties. The head notes are reproduced herein below: 'Income from undisclosed sources-Addition under section 69- Alleged bogus purchases-AO received information from the Sales- tax Department that the purchases mode by the assessee from two parties were bogus-Solely relying .....

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f goods-AO did not make requisite investigations against the said sellers-Moreover, no opportunity was given to the assessee to confront the sellers-Addition rightly deleted. 10. It was further contended that so far as the site 'mahavat.gov.in' containing list of parties is concerned, the site only contains a list of suspicious parties and not confirmed hawala parties. Further, during F.Y. 2008-09, 2009-10 & 2010-11, when these purchases were made, the site was not containing the nam .....

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registered under Maharashtra VAT. Therefore assessee had no reason to suspect that the invoices which it was getting along with the goods are from hawala operators. 11. As per learned AR at no stage, during the course of surveyor or during the course of assessment proceedings, it was pointed out to assessee by the department that: i. From which date these parties are blacklisted. ii. What kind of information Maharashtra Sales Tax Department has provided to Income Tax Department. iii. What type o .....

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of Mahesh Ohri v. ACIT (Delhi) . 154 TTJ 33 DeI 'E' (UO) ITR tribunal Volume 23 Part 4 page 522 and UNITEX PRODUCTS LTD. vs. ITO (2008) 22 SOT 429 (Mumbai) . He also contended that assessee can retract the admission made during the survey with evidence in view of the decision of Mumbai Tribunal in the case of ACIT Vs. Safe Enterprises 128 ITD 459 (Mumbai). He further contended that no other collaborating evidence was found during survey for addition except only statement of assessee. Amo .....

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i Samiti Ltd. 99 TTJ 549 (Jaip) Ajit Chintaman Karve v/s ITO 311 ITR (AT) 66 (Pune) 12. Learned AR invited our attention to the details of purchases furnished during appellate proceedings which were sent by the CIT(A) to the AO for his comments. Our attention was also invited to the remand report sent by AO dated 19th January, 2015, wherein AO has stated that during remand proceedings, in order to verify whether the assessee has purchased material from hawala dealers at a higher rate, the assess .....

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ices, delivery, challans in respect of purchases of materials both from the hawala dealers as well as other parties. 13. In view of the above remand report, it was contended that entire purchase should not be added and only a percent of purchases wherein price are higher than normal purchases can be added. In view of all these details it was submitted that AO was not justified in making addition for the alleged purchases. Reliance was placed by ld. AR on the following judicial pronouncements :- .....

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DR that the AO had received information that the purchases amounting to ₹ 10,69,87,060/- for the three A Ys i.e. 2009-10, 2010-11 and 2011-12 had been shown by the assessee from the parties who were appearing in the list of hawala dealers as mentioned on the official website of the Sales-tax Department of Maharashtra Government. Thereafter a survey u/s.133A of the IT. Act was carried out at the business premises of the assessee on 22.11.2012. During the course of survey statement of Shri R .....

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The assessment proceedings for A.Y. 2010-11 were going on and the AO through show cause notice dated 22.01.2013 had asked the assessee to explain why the addition in respect of bogus purchases should not be made to its income. Further as per learned DR it is only after a period of nine months from the date of survey that the assessee filed objection to re-opening of the assessment for A.Y. 2009-10 & 2011-12 and made retraction of the statement made during the course of survey. It is at this .....

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. Learned DR further relied upon the finding of lower authorities and contended that additions so made by the AO should be confirmed. 16. We have heard the rival submission and carefully gone through the order of the tax authorities below and also deliberated on judicial pronouncement referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record, we found that assessee company was incorporated on 08.06.1999 .....

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der reference, some of the important and prestigious projects in hand were viz M/s Aditya Birla, M/s BG Shirke Const. Tech., M/s Emirates Technologies, M/s GRAUER & WElL (INDIA) Ltd., M/s Gujarat Adani Port Ltd., M/s Kalpataru Properties (Thane), M/s L&T, M/s Oberoi Construction, M/s Symbiosis, M/s. Tata Institute of Science etc. The assessee company's job is mainly performed at site. However, major portion of fabrication work is done at its plants. Once a project is taken up, it tak .....

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technical people of the assessee. 17. On the information from Sales Tax Department that there are some bogus suppliers issuing bills without physical delivery of goods, a survey was conducted at the premises of the assessee wherein statement of Director was recorded and assessee has also offered income on account of said alleged bogus purchases. Survey was on the basis of information from the sales tax department. Just on the information from Sales Tax Department and on the statement of any part .....

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e from two parties were bogus-Solely relying on the same, Aa made addition under s. 69-Not justified-No addition can be made in the hands of the assessee merely on the basis of observations made by a third party-While making the assessment, it is the satisfaction of the Aa which is of prime importance-It cannot be substituted by the satisfaction of someone else-Assessee has discharged the primary onus cast on him by showing the purchases in the books of accounts, payment by way of account payee .....

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logical end. But, the AO left the job at initial point itself. It was further held that suspicion of highest degree cannot take place of evidence and the Assessing Officer could have called for the details of the bank accounts of the suppliers to find out whether there was anyimmediate cash withdrawal from their account. Transportation of good to the site is one of the deciding factors to be considered for resolving the issue and the CIT (A) had given a finding of fact that part of the goods re .....

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Tribunal observed that there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the parties were bogus- Conclusion arrived at by the Tribunal is not against the weight of evidence- Addition of the amount of purchases as income from undisclosed sources rightly deleted. The Income Tax Officer vs. D.N. Shah & Co. 2 TTJ 1217 [Ahmadabad ITAT] Income from undisclosed sources-Addition under ss. 69 and 69A assessee , a dealer i .....

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Income from undisclosed sources-Addition-Alleged bogus purchases-There is no proof on record that the amount of ₹ 2,20,000 paid by assessee by cheque was deposited in the account of the assessee-Asstt. manager of the bank has categorically confirmed that the recipient of cash was one R and not RP, proprietor of the assessee concern-Except the contra entry on the backside of the said cheque mentioning that amount was deposited in assessee account, there is no evidence to connect the assesse .....

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ot be held to be bogus-Impugned addition deleted. 18. As per verdict of Hon ble Supreme Court in the case of CIT Vs. S. Kahder Khan & sons, 300 ITR 157, Section 133A does not empower any IT Authority to examine any person on oath, hence, mere statement recorded during survey has no evidentiary value and any such addition cannot be made, without bringing on record corroborative materials. The Hon ble Supreme Court further observed that this view is clearly supported by CBDT Circular dated 10t .....

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Delhi. The assessee had indicated some value in the Wealth Tax Return. The WTO referred the matter to a valuer and accepted the value determined by the Valuation Officer. The assessee appealed to the AAC that the Valuation Officer had, inter alia, not deducted 50 percent of the unearned increase to be paid to the Land and Development Officer on transfer, in arriving at the valuation. The AAC rejected the contention but the Tribunal held that after 1951, this payment became obligatory and the sa .....

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ppeal in HC raising the question that lithe Tribunal erred in law in holding that the valuation of the property computed in accordance with the direction of the Tribunal be not less than that returned by the assessee itself. Hon'ble High Court had held that a valuation lower than that returned may be the correct value. An admission is an important piece of evidence, but it is not conclusive and it is open to the assessee to show that it is incorrect. ii. Commissioner Of Income Tax vs. Dhingr .....

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and offered by one of the partners of the assessee as additional income. Subsequently, the assessee vide its letter dt. 29th Nov., 2004, contended that the statement about stock was incorrect and that the impugned discrepancy had been reconciled as it was only a mistake. Consequently, the respondent-assessee withdrew the offer of additional income for taxation on account of excess stock. On 31st Dec., 2007, the AO passed the assessment order wherein he did not accept the plea of the assessee th .....

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rvey, addition could not have been made by the AO solely on the basis of the statement made by the assessee during the course of survey. iii. Paul Mathews & Sons Vs. Commissioner Of Income Tax 263 ITR 101Revision-Erroneous and prejudicial order-Assessment vis-a-vis disclosure during survey-Sec. 133A does not empower any ITO to examine any person on oath-Thus, the statement elicited during the survey operation has no evidentiary value-ITO did not accept the income declared by the assessee aft .....

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the AO cannot be said to be erroneous or prejudicial to the interests of Revenue - ClT not justified in invoking powers under s. 263. iv. Assistant Commissioner Of Income Tax Vs. Smt. Usha Rani Talla 6 ITR (Trib) 37. Assessment - Undisclosed income - Addition - Sustainability- Survey operations in the business premises of partnership firm carrying business in jewellery-discrepancy found in the stock and cash found- Assessee being the wife of the partner summoned and her statement recorded-Based .....

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t given any evidentiary value obviously for the reason that the officer is not authorized to administer oath and to take, any sworn statement which alone lends evidentiary value as contemplated under the law-Basis for addition was the statement of the assessee without any corroborative material or evidence on record no material brought on record by the AO to substantiate that any expenditure on renovation was incurred by the assessee nor the AO made any reference to the DVO to find out the corre .....

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made addition of unaccounted cash found in survey and interest earned on unaccounted investments based on assessee's statement-Tribunal deleted additions made by ClT(A)- Held, assessee, in his explanation, had stated that remaining 2100 gms had been given to 3 Asaris- Officers had not verified whether gold was available with said Asaris nor chose to examine them- Statement recorded during survey operation u/s 133A may be a relevant material, but in absence of further materials to substantia .....

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29.10.2002 and withdrawal of money from Bank was a few days before search-Even though said amount was not disclosed in his books, assessee tried to explain same- So far as addition of interest earned on unaccounted investment in money lending business was concerned, enhancement was based only on statement recorded from assessee-No other material or information was available that assessee invested in money lending business and earned interest- Thus, addition was based on only rough estimate-CIT{A .....

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e produced his updated books of account and other primary records during the assessment proceedings to explain the cash and stock found at the time of survey but the AO rejected the same solely on the ground that the assessee had made confessional statement during the survey proceedings and surrendered income from undisclosed sources in the form of cash and excess stock and such primary evidence was produced after considerable period-On appeal, CIT(A) accepted the explanation offered by the asse .....

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is not conclusive and it is open to the assessee to establish that the same was not true and correct by filing cogent evidence-Additions rightly deleted. vii. ClT vs. Mrs Doris S Luiz 96 ITR 646 [Kerala] The stand taken by the assessee was that the money in question is in the nature of trust money, not impressed with the character of revenue receipt. On a careful analysis of the position, one is satisfied that the money was being held by the assessee in confidence for the benefit of the student .....

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mission of the assessee that ₹ 22,000 was not refunded to the students. It is stated that she agreed to the said amount of ₹ 22,000 being treated as income. It is worthwhile to remember in this connection that during all the relevant years the assessee had taken the consistent stand that the deposits were returnable to the persons concerned after meeting the expenses, and the surplus, therefore, should not be assessed as income. During the year in question she happened to make the ad .....

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old that the income was concealed. Further Hon'ble se in case of Pullangode Rubber Produce Co ltd vs. State of Kerala & ANR 91 ITR 18 had held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. In this case the assessee had incurred an amount of ₹ 79,680/- for the cultivation, upkeep or maintenance of immature plants. The same has been capitalized in .....

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me was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect. " 19. However, even if any addition is made what can be added is some percentage of Gross Profit or net profit as all the purchases are accounted and consumed in business. For this purpose, following the judicial pronouncement supports the view that a reasonable gross profi .....

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s. CIT (A) applied 3% to GP to all the purchases. The payments were made by A/c payee cheque. The ITAT held that addition restricted to 3% on tainted purchases only (i.e. where no confirmation was obtained or doubtful in nature). • ClT vs. Sanjay Oil Cake Industries v. CIT (2009) 316 ITR 274 (Guj.)(HC) Purchase of oil cake. AO had information that these parties are hawala entry givers- Entire purchases were added. Tribunal restricted to 25% of purchases as profit of assessee. Both the asses .....

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s entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, Tribunal held that additions should not be the entire amount, but the profit margin embedded on such purchases would be subjected to tax. On appeal by revenue to High Court, Tribunal's order was upheld. 20. From the record we found that during assessment proceedings, the assessee claimed that the statement was given on the wrong understanding o .....

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ls have been issued by all such parties and the assessee had made payments by cheques against such purchases. It has further submitted that the assessee has undertaken the project of reputed companies such as M/s Ganon Dunkerley & Co. Ltd., M/s GVK Properties. M/s K. Raheja Construction, M/s. L & T, M/s. Shapoorji Pallanji and M/s. Simplex Infrastructure and such projects cannot be completed without the purchase of materials in support of its contention the assessee has submitted details .....

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ee submitted that all such purchases are genuine and not for the purpose of reducing profit margin as evident from the fact tabled below that the net profit of the assessee company has remained almost the same as compared to earlier years as well as subsequent years. From the record we also found that during the course of remand proceedings, in order to verify whether the assessee has purchased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect .....

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the purchases of materials both from hawala dealers as well as other parties. 21. Now, coming to the merits of the addition, we found that parties from whom purchases were made, were found to be registered with Sales Tax Department. Merely because they had not paid the tax on their sales, cannot be held against the assessee so as to conclude that assessee has not purchased the goods. We also found that the income tax survey team has not shared with the assessee, any evidence or statements by the .....

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t it had taken any accommodation bill from any hawala operator. When a query with respect to bogus purchases was raised the director has stated as below: Above expenses have been done as per the business compulsions and the funds generated rave been entirely used for the business purposes only. 22. No incriminating evidence was gathered by the survey team to prove that the assessee has indulged itself into procurement of accommodation bill from alleged hawala operators. Further no evidence was g .....

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d the receipt of material and also made the payment by account payee cheques. It was held that statement recorded behind the back of assessee by sales tax authorities cannot be used against the assessee. The head notes of the decision is reproduced herein below : 'Income from undisclosed sources - Addition under ss. 69 and 69A - Assessee, a dealer in chemicals purchasing goods worth ₹ 1.71 lakhs from one M - Payment for purchase by crossed cheque- Proper entry of goods purchased in the .....

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nses were incurred for business purposes and at the same time agreed to offer a sum of ₹ 10.69 crores as unaccounted income. We had also carefully gone through the remand report dated 19-1-2015, which reads as under :- To, The Hon ble Commissioner of Income Tax (A)-I, Thane. Sir, Sub: Remand Report in the case of M/s. Innovators Facade System Pvt. Ltd. For A.Y. 2010-11-reg. Ref: Letter No.THN/CIT(A)-I/Remand Rep./2014-15/300 dated 02/0112015. Kindly refer to subject above. 2. The assessmen .....

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ear, the assessee has claimed expenses on purchase of materials which were not substantiated either at the time of surveyor subsequently during assessment. During the course of assessment proceedings, the AO had issued a show cause notice on 22/01/2013 to show cause as to why ₹ 6,28,80.474/- should not be disallowed in view of the statement recorded during survey action. The assessee vide his letter dated nil filed in response to the said show cause notice has stated at para no.2 of the se .....

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se two assessment years also. During reassessment proceedings, the assessee claimed that the statement was given on the wrong understanding of facts and accordingly retracted from the earlier statement given during the course of survey action on the ground that the said statement was given under force. The assessee vide letter dated 30/07/2014 has submitted that the statement was given for all the three years, the retraction made also made applicable to all the three years. In support of this co .....

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ture and such projects cannot be completed without the purchase of materials in support of its contention the assessee has submitted details of materials consumed against sales which reflects that the ratio of sales to materials consumed is maintained almost uniformly over the year as per the details enclosed by the assessee. It has further submitted that since those hawala parties had not paid VAT collected from us to the Sales Tax Department, it does not mean that the purchases are not genuine .....

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hased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect of same items purchased from the parties other than the hawala dealers during the same period. It is seen that in respect of some of the items, the rate of the items supplied by the entry providers was higher as well as lower also but the ultimate effect of the purchases from all such hawala dealers has resulted into higher profit margin shown by the assessee. During the remand proceeding .....

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₹ 6,28,80474/- at the time of survey, it is submitted that the assessee's retraction from the surrender made in the statement given at the time of the survey proceedings is without any base and evidences as the assessee also failed to produce lorry receipts, stock register, inward and outward register. consumption register, to substantiate its claim to have received the goods supplied by such parties. Therefore, the appeal of the Assessee deserves to be dismissed. However, the case may .....

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und that the said statement was given under force. Furthermore, during the remand proceedings, in order to verify whether the assessee has purchased materials from hawala dealers at higher rate, the assessee was asked to furnish the details in respect of same items purchased from the parties other than the hawala dealers during the same period. The assessee furnished the bills asked by the AO to verify the correctness and after verification the AO observed in the remand report that in respect of .....

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terials were actually purchased, it may be possible that actual purchases were made from one party whereas bills have been issued by other party. Under these circumstances, entire purchases so made cannot be added, only a percentage of such purchases may be added keeping in view the rate of GP & NP shown by assessee vis-à-vis other assessee engaged in similar work and the facts and circumstances of the case. 26. Now, coming to the disallowance of alleged bogus purchases, we found that .....

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he assessee has filed details of materials consumed against sales which reflected that the ratio of uniformly over the years. This is a finding recorded by AO during remand proceedings which has not been controverted by ld. DR by bringing any positive materials on record. In the remand proceedings the AO after examining all such purchases observed that net profit of the assessee has remained almost the same as compared to the earlier years as well as subsequent years. Meaning thereby there is no .....

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t the ultimate effect of the purchases from all such hawalas dealers has resulted in the higher profit margin shown by the assessee. It means there is no adverse effect of the purchase so made even from the hawala dealers, insofar as purchase so made have actually been consumed and similar profit has been shown by the assessee in respect of these purchases when utilized in construction and/or sold. 27. We had also carefully gone through the particulars of the alleged bogus bills, nature of goods .....

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