Pr.commissioner Of Income Tax-19 v. Tirupati Earth Neerprima Jv

TRUSHATUSHARMOHITEDigitally signed byTRUSHA TUSHARMOHITEDate: 2023.07.1114:25:16 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.331 OF 2018 Pr.Commissioner of Income Tax-19 ….. Appellant Vs. Tirupati Earth Neerprima JV ….. Respondent Mr.Devrat Singh for the AppellantsMr.Jitendra Singh for the Respondent CORAM:K.R. SHRIRAM, J &FIRDOSH P. POONIWALLA, J. DATED :5TH JULY 2023 P.C. 1.This Appeal impugns the order passed by the ITAT on 1[st] May 2017 and the following substantial questions of law are proposed: “6.1“Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is perverse in notconsidering the order of Hon’ble Supreme Court in the caseof N K Protein Ltd. dated 16.01.2017, which is on thesimilar issue of bogus purchases and when the Hon’bleApex Court order was already the law of the land when theHon’ble ITAT has pronounced its order on 01.05.2017?” 6.2“Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT erred in ignoring thedecision in the case of N K Proteins/N K Industries by Hon’ble Ahmedabad High Court, further affirmed byHon’ble Supreme Court, as mentioned at ground No. 1above, wherein Hon’ble High Court, relying on the findingsof the Hon’ble ITAT, Ahmadabad, that the suppliers arebogus, has given a finding that once the suppliers are heldbogus, then it is not correct to tax only 25% of the bogusclaims? This is further supported by the fact that in thiscase also, the AO has categorically and conclusively heldthat the parties from whom the purchases are shown to bemade are bogus purchases as the concerns are providingbogus bills and this finding of the AO has been furtherstrengthened by the findings of the higher appellateauthority which is never controverted by Hon’ble ITAT?” 6.3“Whether on the facts and in the circumstances ofthe case and in Law, the Hon’ble ITAT erred in overlookingthe fact that addition made by AO based on details of scamunearthed by Sales Tax Department wherein it wasestablished that the assessee had taken bills from bogusparties without actually making purchases from them?”6.4 “Whether on the facts and in the circumstancesof the case and in Law, the Hon’ble ITAT erred in ignoringthat the purchases from bogus parties are debited in P & LAccount for which the assessee had not submitted anyevidences, and the same was not allowable?”6.5 “Whether on the facts and in the circumstancesof the case and in Law, the Hon’ble ITAT erred in upholding the order of the Ld.CIT(A) who had limited thedisallowance to the extent of 12.5% of the total allegedpurchase without verification and confirmation ofquantitative data of material sourced and its subsequentmovement during the year?” 2. It is Appellant’s case that Respondent was a Civil Contractorwho, for Assessment Year 2010-11 filed return of income on 22[nd]September 2009 declaring income of Rs.27,99,420/-. 3.According to Appellant, a scam was unearthed by the SalesTax Department in respect of bogus parties who providedaccommodation entries. DGIT (Inv.) Mumbai received informationthat Respondent had taken accommodation entries from bogusparties / hawala dealers to inflate purchases. 4. During the course of assessment proceedings, the AssessingOfficer (AO) issued notices under section 133(6) of the Income TaxAct, 1961 (the Act) to 11 non-genuine parties from the list providedby DGIT (Inv.). The AO issued notice under section 142(1) of theAct, calling upon respondent to submit books of account, stockregister, details of purchase, vis-a-vis sales along with documentaryevidence. After considering the submissions of respondent, theAssessing Officer concluded that the purchases made and claimed asexpenses in the profit and loss account were not genuine and the purchases to that extent were not verifiable and cannot be accepted. 4. During the course of assessment proceedings, the AssessingOfficer (AO) issued notices under section 133(6) of the Income TaxAct, 1961 (the Act) to 11 non-genuine parties from the list providedby DGIT (Inv.). The AO issued notice under section 142(1) of theAct, calling upon respondent to submit books of account, stockregister, details of purchase, vis-a-vis sales along with documentaryevidence. After considering the submissions of respondent, theAssessing Officer concluded that the purchases made and claimed asexpenses in the profit and loss account were not genuine and the purchases to that extent were not verifiable and cannot be accepted. 5.The AO treated purchases of Rs.94,90,188/- as boguspurchases and added the amount to the returned income ofrespondent. The Assessment Order dated 20[th] March 2013 undersection 143(3) of the Act was passed determining the total income ofrespondent at Rs.1,22,89,610/-. 6.Being aggrieved by the Assessment Order, respondentpreferred an Appeal before CIT (A). The Appeal was allowed. CIT(A) relied upon a judgment of the Hon’ble Gujarat High Court in thecase of Commissioner of Income Tax vs. Simit P. Sheth[1] and uponconsidering other facts directed the AO to restrict the addition tothe profit element embedded on such purchases estimating it at12.5% on the purchases of Rs.94,90,188/-. 7. The Revenue impugned the order of CIT (A) before the ITAT.The Appeal of Revenue came to be dismissed by ITAT. The ITATconfirmed the order of CIT(A) restricting the addition to 12.5% ofthe purchases. It is this order of the ITAT passed on 1[st] May 2017which is impugned in this Appeal. 8.We have heard the counsel and also considered the orderpassed by the Assessing Officer as well as the CIT (A) and also theimpugned order. 9. Mr.Singh submitted that the CIT (A) having come to a1(2013) 356 ITR 451 (Guj) conclusion that there was overwhelming evidence to show thatRespondent having engaged in bogus purchases and Respondenthaving not discharged the onus in proving genuineness of thetransactions, the CIT (A) could not have concluded that only profitelement should be taxed. We have to read an order in its entirety.The CIT(A) also has noted that the AO, in effect, has not consideredthe purchases per se but only the genuineness of the suppliers.Therefore, the issue would only boil down to finding out the profitelement embedded in such purchases which respondent made fromsome unknown entities. In paragraph 2.4.32 the CIT(A) holds asunder: “2.4.32 As narrated earlier, the Ld. A.O. in thiscase has himself held that the purchasesthemselves were not bogus from whom thepurchases were made by the appellant were foundto be bogus and that is the reason for which theseparties were not produced during the assessmentproceedings.” Mr.Singh made an attempt to distinguish this case athand on facts with the facts in the other cases particularly inthe case of Simit P. Sheth (Supra). 10. We are unable to accept the submissions of Mr.Singh.Respondent was engaged in the business of Civil Contractor carryingout repairs, construction, laying of drainage pipelines and otherworks awarded by Bombay Municipal Corporation (BMC). The AO has not doubted the genuineness of the contract between BMC andrespondent and that materials were used for executing the contractwith BMC. The AO has also not given any finding as to howrespondent would have concluded the contracts with BMC withoutmaking any purchases. In effect, the purchases by Respondent hasnot been doubted but the genuineness of the suppliers have beendoubted. 11. The AO has also held that the purchases themselves were notbogus though the parties from whom the purchases were made bythe Respondent were found to be bogus. He has treated them asbogus parties because these parties were not produced during theassessment proceedings. has not doubted the genuineness of the contract between BMC andrespondent and that materials were used for executing the contractwith BMC. The AO has also not given any finding as to howrespondent would have concluded the contracts with BMC withoutmaking any purchases. In effect, the purchases by Respondent hasnot been doubted but the genuineness of the suppliers have beendoubted. 11. The AO has also held that the purchases themselves were notbogus though the parties from whom the purchases were made bythe Respondent were found to be bogus. He has treated them asbogus parties because these parties were not produced during theassessment proceedings. 12. The ITAT has come to a factual finding that though thesuppliers were not produced before the AO, Respondent hadmaintained books of account which were audited and Audit Reportwere filed under section 44AB of the Act. Payments have been madeby account payee cheques, tax invoices have been obtained and mostimportantly, Respondent has maintained inventory of stock and alsoconsumed the materials purchased in executing the contract withBMC. 13. Therefore, in our view the CIT(A) and the ITAT were correctin coming to the conclusion that the purchase cannot be rejected and the additions could be restricted to the extent of profit element,which they determined could be 12.5%. This is because when material has been actually purchased and consumed in executing the contract, the costprice is required to be deducted and taxes cannot be levied onthe same. Further, there is nothing to indicate whether the profitelement should be more than 12.5%. 14.In the circumstances in our view, no substantial question oflaw arises. 15. Appeal dismissed. (FIRDOSH P.POONIWALLA, J.) (K.R. SHRIRAM, J.)