TMI Blog2016 (7) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 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 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. As carefully gone through the particulars of the alleged bogus bills, nature of goods supplied, products supplied and payments details. We had also verified the confirmation of accounts for purchase 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit margin, at best can be added to the income of the assessee and not the entire purchases. Since common grounds are involved in all the three years and the CIT(A) has disposed of all the three years by consolidated order dated 18.09.2015, we therefore heard all three files together and now disposing of the same 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 was conducted at the business premises of the assessee on 22.11.2012. As per the information made available to assessee by the survey team, the Department of sales Tax Maharashtra has placed names of certain parties as bogus hawala operators on their website mahavat.gov.in. The survey team alleged that some of the purchases made by the Company were from hawala operators which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 days 120 days [apx]. Account confirmation of the parties from whom the transaction were made were also field before the AO. It was further contended that no incriminating material was shared with the assessee to prove the alleged bogus purchases. However no opportunity to cross-examine was provided to the assessee with regard to the statement given by those alleged hawala operators. As per the learned AR addition was made merely by relying on the statement given by third party. Reliance was placed 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 tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. It was further contended by ld. AR that statement made by assessee during survey operations has no evidentiary value. For this reliance was placed in the case 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. Amount surrendered in survey under pressure, no material or evidence found in support of amount surrendered under these circumstances, addition is liable to be deleted. For this purpose reliance was placed on the following decisions :- Satish Builders v/s ACIT ITA no. 4095 12005 Bench 'C' dated 13/212009 (Del) reported in Tax review March 2009 page 65 23 DTR 171 (Del); DCIT v/s Premsons 'B' Bench Mumbai BCA April 2009 page 25 130 TTJ 159 (Mum) DCIT v/s Pahar Ganj Grih Nirman Sahakari Samiti Ltd. 99 TTJ 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was carried out at the business premises of the assessee on 22.11.2012. During the course of survey statement of Shri Radheshyam Shivchand Sharma, Director of the assessee company was recorded in which he was confronted with this information. 15. As per learned DR, the assessee company had filed its revised Returns for all the three years after a period of about three months from the date of survey, incorporating the additional income surrendered during the course of survey. Therefore, it cannot be said that the statement of the Director recorded during the course of survey was taken under any kind of pressure. 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 stage when the assessee submitted that the retraction of the statement also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior and 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 party and without actually verification and putting on record and without giving an opportunity of cross examination, the purchases from such suspected parties should not be disallowed. For this purpose reliance can be placed on the following judicial pronouncements: Income Tax Officer vs. Permanand 107 TTJ 395 [Jodhpur ITAT) Income from undisclosed sources-Addition under s. 69-Alleged bogus purchases-AO received information from the Sales-tax Department that the purchases made by the assessee 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 observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment for purchase by crossed cheque- Proper entry of goods purchased in the stock- book- Evidence of M before sales-tax authorities to the effect that after 1970 they entered only hawala transactions- Opportunity for cross examination of M not made available to assessee either by sales-tax or by Income-tax authorities-Additions under s. 69 and 69A not justified. Jagdamba Trading Company vs. ITO 107 TTJ 398 [Jodhpur ITAT] 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 assessee with the withdrawal of said money-As regards the averment of the seller in his affidavit submitted in sales-tax proceedings that he has not made any sales during the relevant year, same cannot be relied upon, particularly when no opportunity of cross-examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Dhingra Metal Works 328 ITR 384 [Delhi] On 14th Sept., 2004, a survey under s. 133A of the Act was conducted on the assessee's business premises. During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the said survey, assessee surrendered an amount of ₹ 99,50,000/- and offered the same for the purposes of taxation. The additional income offered included a sum of ₹ 45,00,000 on account of excess stock found during the course of survey 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 addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there being no evidence regarding undisclosed income, addition made only on the basis of statement given in a state of confusion and later retracted, could not be sustained either in part or as a whole-On further appeal held that a statement is recorded under s. 133A is not 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 correct state of affairs-No addition warranted in the hands of the assessee merely because she signed the statement accepting the same. v. ClT vs. P Balasubramanian 354 ITR 116 [Madras] Survey-Statement recorded u/s 133A-No corroboration-Addition- Deletion thereof-Survey was conducted at assessee's premises- 900 gms of gold was found during survey-Assessee's statement that it had 2100 gms of gold which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 assessee and the books of account produced by him as the entries in the books were supported by primary evidence-CIT(A) also accepted the explanation that the statements were made by the assessee without understanding the import of the same as he was under stress due to the death of his daughter-Order passed by CIT(A) has been confirmed by the Tribunal- Findings recorded by both the authorities cannot be termed perverse or contrary to record- Confession made by the assessee during survey proceedings 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income 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 profit rate or net profit rate can be added as undisclosed income of the assessee. For this purpose, reliance can be place Shri Madhukant B. Gandhi vs. ITO [ITA 1950/Mum/2009] (Mum ITAT) The A.O. treated parties as bogus and made total disallowances. ITAT restricted the disallowance to 5% only in respect of the disputed purchase. DClT vs. Shri Jitendra S. Motani [ITA 3024 to 3028, 6178/Mum/2007] (Mum ITAT) The AO made disallowance of entire purchases. Only few parties filed confirmations. CIT (A) applied 3% to GP to all the purchases. The payments were made by A/c p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was 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 and therefore those parties are defaulters only in terms of non-payment of VAT to the Sale Tax Department, Maharasbtra. Further, the assessee 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 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count 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 stock- book - Evidence of M before sales-tax authorities to the effect that after 1970 they entered only hawala transactions - Opportunity for cross examination of M not made available to assessee either by sales-tax or by Income- tax authorities - Additions under s. 69 and 69A not justified' 24. We had also carefully gone through the statement so recorded during the survey and found that there is a contradiction in the statement, insofar as on the one side the director has stated that expenses 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of the fact that proper bills 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 for 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 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 and therefore those parties are defaulters only in terms of non-payment of VAT to the Sale Tax Department, Maharasbtra. Further, the assessee 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 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. In the remand report the AO also observed that during the remand proceedings, the assessee had produced purchase orders, invoices, delivery challans in respect of the purchases of materials both from hawala dealers as well as other parties. It means that the materials 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- -vis other assessee engaged in similar work and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 shown by the assessee ranged between 3.04% to 3.61%. 28. From the record we found that assessee had shown GP rate of 16.39% and 23.49% in the assessment year 2009-10 and 2010-11, which is much better than the gross profit rate shown in the assessment year 2008-09 at 11.41%. Moreover the GP rate shown by the assessee is comparable to the GP rate shown by other assessee engaged in similar trade. However, to safeguard the interest of revenue and to cover the leakage of revenue, if anyone, and also totality 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. We direct accordingly. 29. Facts and circumstances in the year 2010-11 2011-2012 are pari materia, following the reasoning given hereinabove, we restrict the additions in these years also to the extent of 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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