TMI Blog2020 (1) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission of ld. AR of the assessee that average Gross Profit for four preceding year declared by assessee were 13.01%. For the year under consideration, the assessee has declared Gross Profit at 20.26%, if the further disallowance @ 30% of the total purchases/expenses is upheld, the Gross Profit of assessee would be increased drastically i.e. more than 36%, which is unrealistic. Therefore, considering the totality of the facts and to avoid to possibility of revenue leakage, we are of the view that if the disallowance of alleged purchases/expenditure is restricted to 10%, that would meet the end of justice. - Decided partly in favour of assessee. - Cross Objection No. 134/Mum/2019, ITA No. 3122/Mum/2018, 3863/Mum/2018 (Assessment Year 2005-06) - - - Dated:- 5-12-2019 - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER Revenue by: Shri B. Srinivas (CIT-DR) Assessee by: Shri J.P. Bairagra with Shri S.K. Mutsaddi (AR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These cross appeals by revenue as well as by assessee and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit and scopes of receipt of income u/s 2(24) of the Income tax Act, it being a non-taxable Capital receipt. In other words, it being a gratuitous payment, the same is not liable to be income tax, both under the normal provisions as well as provisions of section 115JB of the Income tax Act. 5. Brief facts of the case are that the assessee is a company engaged in construction and development, filed its original return of income on 31-10-2005 declaring total income at Nil. The assessment on this return of income was completed under section (u/s) 143(3) on 28-12- 2007 determining total income at ₹ 19,04,92,024/- . Subsequently on the basis of information from ADIT(Inv), Unit-VII (1) (2), Mumbai that during the course of search and seizure action u/s 132 of the Income-tax Act, 1961 carried out in the case of Pipav Shipyard group on 12-10-2011 and that the business premises of Krosslink Infrastructure Ltd (assessee) was also covered u/s 133A of the Act. It was informed that during the course of search / survey proceedings and post search enquiries it was revealed from the ledger accounts that sub-contract work to the tune of ₹ 76,36,75,929/- was claimed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, I have reasons to believe that income amounting to ₹ 76,36,75,,929/- has escaped assessment for A, Y. 2005-06. 7. On receipt of the reasons recorded, the assessee filed application before assessing officer dated 19-06-2012 seeking statement of Shri Somil Mukesh Parekh, which was provided by the assessing officer, vide letter dated 21-06-2012. In response to providing of reasons for reopening as given to the assessee and a show cause notice dated 27- 11-2012 as to why the income should not be enhanced as per reasons recorded for issue of re-opening notice, the assessee vide letter dated 22-01-2013 objected the reopening by raising the objection as follows:- In the intimation regarding reasons for re-opening of assessment for A.Y. 2005-06, a copy of a statement on oath, of one Mr. Saumil Mukesh Parikh was given to us accordingly the answers to the Question 5, 6 7, the said Mr. Saumil Parikh has contended that Khodiyar Industries Ltd was involved in issuing bogus bills accommodation entries; from whom Koatex Industries Ltd (KIL) has taken bogus bills to the tune of ₹ 70 to ₹ 80 Crores factually no such activity was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the corresponding turnover, while considering the audit income computation of the company i.e. KIL. The scrutiny of the available record was carried out fully amount of ₹ 75,29,60, 000/- was reduced from the expenditure on the contractors, as also the corresponding turnover (at cost only), relatable to such expenses. The profit element of the said quantum turnover, however, was retained in the P L account to avoid any controversy or dispute /or any litigation. 8. The Assessing Officer not accepted the contention of assessee holding as under:- (a) The assessee claims that actually some work was done for which some money was transferred to M/s. Khodiyar Industries Limited. The assessee has not brought on record anything to prove this fact that actually any work has been done at all in lieu of ₹ 76,36,75,930/- been given by it to M/s. Khodiyar industries Ltd, On the contrary, the above statement of Shri Somil Mukesh Parikh in Q-7 and it reply clearly states that factually no such activity was ever undertaken or done at all. Thus, assessee's claim without any supporting facts .in, his case is proved wrong. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the company i.e. KIL. The scrutiny of the available record was carried out fully amount of ₹ 75,29,60,000/- was reduced from the expenditure on the contractors, as also the corresponding turnover (at cost only), relatable to such expenses. The profit element of the said quantum turnover, however, was retained in the P L account to avoid any controversy /or dispute /or any litigation. 10. The assessee again vide its letter dated 05/02/2013 stated as under :- Further to letter of assessee dtd.22.01.2013 filed with your goodselves, we have been directed by the assessee company to forward the following for your kind perusal: We now submit the analysis of purchase for both from Khodiyar, which are reversed corresponding sales bills to Pipavav Shipyard Ltd. The total purchases so reversed are ₹ 75.29 Crores. As agai.st the same the sale bills were of ₹ 83.42 Crores, leaving the margin of ₹ 8.13 Crores. (relevant statements copies of bills are enclosed). However, as a matter of abundant precaution to avoid any litigation or adverse inference / penal action, the assessee company has reduced only & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... untenable. The proposed recasting, if done, will show he turnover of ₹ 143.18 crores expenses of only ₹ 17 lacs, which is completely ridiculous .has no substance it is impossible to have turnover of that quantum without any inputs on the debit side. 3. The action of the Investigation Wing of the Department has got certain things on record with respect to the transactions with Khodiyar Industries Ltd. However, the business compulsions on these transactions were explained. The assessee company has never accepted that the work reflected in the bills on Khodiyar was not carried out. The only genuine, circumstantial difficulty was of getting work supporting documents from the sub- contractors, who had carried work. But since this particular reality is difficult to prove the voluntary reduction of expenses corresponding cost of the sales was made. Once there is no scope of whatsoever for forcibly bringing in the expenditure, not claimed by the assessee company treating the corresponding sale as genuine but direct expenses thereon in the form of subcontract charges as bogus, especially when there are no other charges debited to P L Account from where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n AY 2005-06, PDOECL has not written off or squared off any expenses in its books pertaining to the assessee and this is a finding of fact. Even in the later years, PDOECL has write off/ squared off any expenses pertaining to the assessee then it is not proved that it is this ₹ 75.20 Crore /- (or even ₹ 143.18 Crore) which is treated as bogus by PDOECL. No such document is brought on record by the assessee. In view of the above, it is an undisputed fact that assessee has received money equivalent to the sales to PDOECL shown at ₹143.18 crore and not just ₹ 67.89 crore and that it is genuine receipt from PDOECL by the assessee. On the other hand, it is proved that assessee has not incurred expenses of ₹ 75.29 crore alleged to be paid to KIL. Thus, the assessee s contention that they are recasting books to reflect the above transaction has no substance is wrong and baseless. The assessee s contention with respect to certain business compulsions is already rejected since assessee does not have any supporting document in this regard. The assessee is only trying to say that recasting of profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of ld. CIT(A) both the parties have filed their respective appeals raising the grounds of appeal as we have recorded above. In addition to filing appeal, the assessee has also filed Cross Objections in the appeal filed by the revenue. 15. Perusal of record reveals that there is delay of 10 days in filing appeal by assessee before the Tribunal. In support of condonation of delay the assessee has filed application for condoning the delay. The application for condonation of delay is supported by the affidavit of Director of assessee, Shri Madan Lal. In the affidavit, the director of assessee has pleaded that the accountant of Assessee Company was not regularly attending the office work and as such there is a delay of 10 days in handing over the complete papers to Chartered Accountant for preparing and filing the appeal before Tribunal. The learned AR of the assessee submits that there was no intentional or deliberate delay in filing the appeal before the Tribunal. The delay occurred due to the reasons beyond the control of Directors of the assessee. The assessee has good case on merit and is likely to succeed. The learned AR further submits that the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry, from whom Koatex Industry Ltd. has taken a bogus bills to the tune of ₹ 70 to ₹ 80 crore and factually no such activity was ever undertaken or done by Khodiyar Industry Ltd. On the basis of this statement, the case of assessee was reopened. 18. The learned AR of the assessee explained that PDOEL was developing a modern shipyard at Port Pipavav at Gujarat. Port Pipavava was developed by SKIL Infrastructure Ltd, which is the promoter company of PDOECL. After successful construction of the port, the group started developing the shipyard. The location of shipyard is oddly located and commuting to the place was also a cumbersome process. After the port was started, the place becomes the prominent and amongst others it caught attention of the local leaders and other pressure groups. The massive contracts involved in the development of shipyard were given to the assessee company, considering its track record and experience in the development of port. In the above circumstances, it was invited well and almost mandatory, taking into account the compulsive, commercial and practical considerations that certain part of contract is given to the recommendation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch includes ₹ 75.29 crore paid to Khodiyar Industry Ltd as sub-contract charges in respect of work taken by them of Earth filling, Land levelling and on account of development of land. There is no other receipt or expenses incurred during the year. Against the said receipt of ₹ 143.19 crore, the assessee company has incurred total expenses of ₹ 114.18 crore and declared the gross profit of ₹ 29.01 crore. The gross profit ratio on total receipts comes to 20.26%. 21. The revenue in its grounds of appeal has relied on the decision of Hon ble Supreme Court in case of N.K. Proteins Ltd. The learned AR for assessee submits that ratio of decision and said case is not applicable to the present case even on after far-fetched imagination. As the facts of that case are entirely on different facts. In the said case during the search the blank cheques and the bills were found at the premises of the assessee. However, in the present case per se it is not establish that purchases are bogus. In the present case the additions are based on third party statement. 22. The ld. AR for the assessee further submits that it is completely incorrect not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding year were ranging from 11.08% to 15.30%, if disallowance if restricted to 30%, the GP of assessee would be unrealistic, which is not possible in the business of assessee. 25. The ld. AR further submits that, though the assessee has challenged the validity of reopening in additional ground of appeal. The assessee has also raised the ground of appeal in its Cross Objection for deleting the entire addition. The ld. AR for assessee in his without prejudice submission, submits that in case disallowance on account of bogus purchases is restricted on reasonable basis, the assessee would not press additional grounds with regard to re-opening and the grounds of appeal raised in Cross Objection. 26. To strengthen his submissions, on reasonable disallowances, the ld. AR for assessee relied upon the decision in the following case laws. PCIT vs. M/s Mohomamad Haji Adam Co. (ITA No. 1004 of 2016 (Bom HC) dt. 11.02.2019. CIT vs. Ratansingh M. Rathod (371 ITR 135 (Bom). ACIT vs. Shri Hanvantsingh J. Ranawat (ITA No. 3718/Mum/13), ITO Vs M/s Shree Gajananda Industries India Pvt Ltd (ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usal by those contractor to take cheque payments. The assessee-company made payment through Koatex Industries Ltd. The assessee also furnished the copy of various bills substantiating the contention that work was completed at the site as per contract from Gujarat Pipava Port Ltd. The assessee also explained that against the said execution of work (sales), the assessee company booked total expenses of ₹ 114.18 crore, which includes ₹ 75.29 crore paid to Khodiyar Industries Ltd., who undertook of earth filling, land levelling and development of said land. The assessee declared Gross Profit of ₹ 29.01 crore and the Gross Profit at 20.26%. The explanation furnished by assessee was not accepted by Assessing Officer. The Assessing Officer discarded the explanation of assessee by taking view, which we have mentioned in para-12 (supra). The Assessing Officer disallowed the entire payment/expenses of ₹ 75.29 crore paid to Khodiyar Industries Ltd. by treating it as non-genuine. 30. We have noted that the Assessing Officer has not rejected the books of account. The assessee claimed that the work was executed at site as per contract. The assessee furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt at ₹ 143.18 crore and had disallowed 75.29 crore which were supposed to have been paid to Khodiyar Industries Ltd. The ld. CIT(A) after considering the submission and facts of the case, and by referring the decision of Hon ble Gujarat High Court in Vijay Proteins vs. CIT (58 taxmann.com 44 (Guj.), CIT vs. Simith P. Sheth [356 ITR 451 (Gaj.)] took his view that when purchases cannot be established but the sails have not been doubted, the entire purchases cannot be added as income and only the percentage of the profit involved on these purchases can be brought to tax. The ld. CIT(A) considered that receipt of sales from PDOECL is not disputed. No evidence is come on record that amount has been returned back to PDOECL in cash. The assessee has brought evidence on record to show that work has been executed. The ld. CIT(A) observed that it is a simple case of purchases made from unverifiable parties. The present case is not a case of simple trading but it is a case of contract wherein the purchases were supposed to be consumed. On the basis of above observation, the books of account of assessee was rejected. The ld. CIT(A) after rejecting the books of account estimated the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and legal discussion and the submission of ld. AR of the assessee that average Gross Profit for four preceding year declared by assessee were 13.01%. For the year under consideration, the assessee has declared Gross Profit at 20.26%, if the further disallowance @ 30% of the total purchases/expenses is upheld, the Gross Profit of assessee would be increased drastically i.e. more than 36%, which is unrealistic. Therefore, considering the totality of the facts and to avoid to possibility of revenue leakage, we are of the view that if the disallowance of alleged purchases/expenditure is restricted to 10%, that would meet the end of justice. 36. The ratio of decision relied by ld. DR for the revenue relied on the decision of Hon ble Bombay High Court in Shoreline Hotel Pvt Ltd. Vs CIT (supra) is not applicable on the facts of the present case, as the facts of this case is at variation. In the said case information was received from Sales Tax Department in relation to certain parties who were engaged in providing bogus purchase bills and that assessee was also one of beneficiaries of hawala bills given by such parties. The issued show cause why this entire amount/bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
