TMI Blog2021 (11) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is simply based upon conjecture surmise not sustainable in law. Hence, we do not find any infirmity with the order of Ld.CIT(A). Estimation of income - bogus purchases - CIT(A) directing the A.O, to restrict the addition of bogus purchases to 12.5% as against 100% addition made by the AO - HELD THAT:- Sales have not been doubted it is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises [ 2014 (7) TMI 559 - BOMBAY HIGH COURT] In this case, the Hon ble High Court has upheld 100% disallowance for the purchases said to be bogus, when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Ld. CIT (A) on the above grounds be reversed and that of the Assessing officer be restored. 3. Breif facts of the case are that the appellant firm is a builder and developer. During the year, the appellant firm was engaged in the construction of residential complex namely Ellora Castle in sector-15, Belapur Navi Mumbai and a project on Plot No. 786 MIDC, TTC Industrial Area, Khairane Navi Mumbai namely Ellora Olearise under Bhoomi Net City. Separate Profit Loss accounts are maintained for both the projects. The Appellant e-filed its return of income for AY 2012-13 on 30/9/2011 declaring Nil income. The case was selected for scrutiny and notice u/s 143(2) was issued. The assessment was completed u/s. 143(3) of the Act wherein the AO assessed the total income of ₹ 39,58,530/- by making the following additions:- a. Addition on account of cessation of liability u/s 41 (1) amounting to ₹ 16,79,981/-. b. The disallowance on account of bogus / unverifiable purchases amounting to ₹ 10,58,583/- in respect of the 4 parties. c. Estimation of profit from the project Ellora Castle in N.G.Group to the tune of ₹ 12,19,969/- 4. Apropos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognition of revenue by real estate developers. The builders risk is over when project is complete and payment is received. 5. Upon assessee s appeal Ld.CIT(A) deleted i. The actual profit has been arrived in respect of the said project in AY 2013-14 which is ₹ 2,58,52,940, The same is on record of the AO. Thus, calculation of profit on presumption is erroneous. ii. The AO has not rejected the books of account. When the books of accounts are found to be properly maintained, the figure of profit cannot be varied on basis of bold estimates. iii. Further, the AO has accepted the actual profit of ₹ 2,58,52,940/- in assessment order for AY (iv) The AO has failed to consider that the OC has not yet been received in respect of the said project thus, significant risk and rewards are not yet transferred to the customer. Thus, the conditions for calculation of profit as per Guidance note on revenue recognition by Real estate developers are not fulfilled. (v) The AO has calculated profit on presumption basis, he has neither followed project completion method nor percentage completion method. He has followed his own method of accounting which is not ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains outstanding, it appears that there is absolutely no liability on part of the appellant to pay back the said amount. The amount is just lying idle in the books of accounts as liability. The amount of ₹ 16,79,981/- was disallowed u/s. 41(1) of the Act treating the same as cessation of liability. 9. Upon assessee s appeal Ld.CIT(A) deleted No event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) could not have been invoked. The Appellant has been recognising the said amount in its books of accounts till date. The same has also been observed by the AO in his assessment order as mentioned above. In view of above facts of the case and respectfully following the decisions relied upon by the Appellant the disallowance made by AO u/s 41(1) of the Act is deleted and the ground of appeal is 'Allowed'. 10. Against the above order assessee is in appeal before us. 11. I have heard both the parties and perused the record. I find that AO has invoked the provision of section 41(1) without bringing on record any cogent material. For how long the account is out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rebutted by the AO. The items of purchase are such that are used in appellant's regular course of business. On the other hand, the AO has not brought on record any documents / statement / information / report of the Sales Tax Department which categorically states that these parties have provided bogus bills to the Appellant. As per the investigations carried out by the Sales Tax Authorities, the aforementioned parties were found to be involved in giving accommodation entries only without actually supplying the goods. The logical inference is that the purchases made by the appellant would also be in the nature of accommodation entries only. To verify the same, the AO had made enquiries by issuing notices u/s 133(6) which were returned unserved by the postal authorities. This party was found to be non existent at the address given by the appellant. The appellant also failed to provide the latest address of the party. During the scrutiny assessment the appellant furnished details of purchases and corresponding sales. However, the appellant could not produce the party before the AO in spite of opportunity being given. The appellant also failed to produce delivery challans or t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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