Ensemble Infrastructure [I] Ltd,, ... vs Assessee

ITA No. 1760/PN/2012 and ITA No.1753/PN/2012 are cross appeals. The first one is filed by the assessee and the second one

file by the Revenue and are directed against the order dated 22-02-

2012 of the CIT(A)-I, Pune relating to Assessment Year 2007-08. 2 ITA No. 1114/PN/2013 and ITA No.1201/PN/2013 are also

cross appeals. The first one is filed by the assessee and the second

one file by the Revenue and are directed against the order dated

04-03-2013 of the CIT(A)-I, Pune relating to Assessment Year

2008-09. Since common issues are involved in both the cross

appeals, therefore, for the sake of convenience these were heard

together and are being disposed of by this common order.

2. First we take up the cross appeal for A.Y. 2007-08 as the

lead case. Facts of the case, in brief, are that the assessee is a

Private Limited Company engaged in Furniture Interior works for

leading corporates. The assessee's job contains execution of Civil,

Interior, Gypsum, Flooring, Painting, Carpentry, A/c. Electrical

and other allied works. The assessee filed its return of income on

29-10-2007 declaring total income of Rs.1,48,08,038/-.

Subsequently, the assessee filed a revised return on 06-02-2008

declaring total income of Rs.2,17,73,862/-.

3. During the course of assessment proceedings the Assessing

Officer observed that a survey u/s.133A of the I.T. Act was

conducted in the premises of the assessee at B1, Paragon,

Condomonium, P.B. Marg, Worli, Mumbai on 28-12-2007 by the

DDIT (Investigation) Unit-IV (2), Mumbai. During the said survey it

was found that the assessee company has shown purchases of

material from the below mentioned concerns of Shri Tushar

Ruparel. The Assessing Officer further noted that as per the

details furnished during post survey investigation and the details

produced during the assessment proceedings the purchases made

from various parties are as under :

3

Sr. No. Name of the assessee F.Y. 06-07 F.Y. 07-08

1. M/s. Foram Traders -- 67,59,282

2. M/s. Apple India Marketing Co. 82,98,924 47,46,122

3. M/s. V.S.K. Steels -- 39,63,133

4. V.S.K. Enterprises 71,70,625 39,16,081

5. M/s. Khushi Enterprises 1,92,56,857 --

6. M/s. Samarth Trading Co. 78,15,429 --

7. M/s. Balaji trading -- --

8. M/s. Sun Enterprises 1,00,40,207 --

9. M/s. M.R. Corporation 1,38,49,532 19,95,337

10. M/s. Neelam Enterprises 47,24,390 34,41,811 Total 7,11,55,964 2,48,21,766

4. The Assessing Officer further noted that during the course of

the said survey operation, the assessee company was confronted

with the statement dated 08-12-2007 of Shri Tushar Ruparel.

Subsequently, the assessee was also provided with the copy of the

statement of Shri Tushar Ruparel recorded on 13-05-2008 and the

assessee was asked to produce the above mentioned parties before

the DDIT. In respect of claim of genuineness of purchases in the

light of unequivocal statement of Shri Tushar Ruparel, the

Assessing Officer further noted from the survey report submitted

by the ADIT that the assessee had given the reply with regard to

the compliance and the observations made by the survey party on

the twin points which are reproduced at para 4.2.3 of the order

and which reads as under :

"(i) The assessee could not produce the above mentioned parties in its support on 14.01.2008 as per requirement of summon dated 08.01.2008. On its request seeking further time, the assessee was given another opportunity to produce the concerned parties on 21.01.2008 as per order sheet entry dated 14.01.2008. In fact, the assessee could never produce the above-mentioned parties in its support. The assessee was also provided the copy of statement if Shri. Tushar Ruparel with a view to give the fair opportunity to defend its claim.

(ii) In support of its claim of delivery of goods by parties in question and its consummation at various sites, vide submission dated 03.03.2008, the assessee has stated that

(a) All material is purchased with the responsibility of the delivery up to site with the respective vendor. The Good receipt note is prepared by Assessee Company and it is the basis on which all purchases are booked and subsequent payments are made to vendor. 4

(b) A proper vendor registration procedure is followed before placing any order for purchase. The same procedure was followed in respect of parties in question too.

(c) The material brought from parties in question have been used at six locations and the assessee company has received confirmation letter from four parties stating that materials have been received at respective site locations.

(d) The actual sales have taken place and payments against all sale bills have been received through cheques. Payments to purchase parties have been made through cheques.

(e) The quantitative tally of sales with consumption chart, GRN etc. confirm the purchased quantity with minor wastage."

5. The Assessing Officer thus observed from the report of ADIT

that the assessee not only failed to produce the parties in question

before the survey party but also its contention does not have much

force. He observed that the assessee has not submitted any

quantitative reconciliation between material purchased and its

consumption. He has only submitted confirmations from 4

customers stating that certain amount of goods have been received

at certain work site. The Assessing Officer noted that the assessee

company is executing both kinds of contracts in the field of interior

work, i.e. work contract without supply of material by assessee

company and work contract with responsibility of assessee

company to supply the material. In the contract of second type,

i.e. Contract with material, it is the responsibility of the assessee

company to supply the material in addition to labour work. Thus

in such kind of contracts there is no question of any control by

customers/clients over supply of material at site of the assessee

company or vendors. In such contracts the client has nothing to

do with the quantum of materials consumed because the value of

the contract is fixed after taking into consideration the cost of

material that would be borne by the contractor.

5

6. The Assessing Officer noted that a large part of the total

work contracts executed by the assessee are contracts with

material. Therefore, for such projects, i.e. work contracts with

material the submission of the confirmation from clients would not

serve any purposes as such confirmation cannot be concerned with

consumption of material in such projects. Therefore, the Assessing

Officer was of the opinion that the assessee could not produce the

reconciliation of the purchases and the consumption for the years

for which the purchases have been shown from the parties in

question.

7. As regards the submission of copies of Goods Receipts cum

Inspection Note (GRN) to substantiate its claim of purchases the

Assessing Officer noted that it is basically a document provided by

the assessee company itself. In the present case, it is more in the

nature of self serving documents in place of independent evidence

as assessee had full liberty to prepare it even for bogus purchase

transactions. The GRN has the signature of the store keeper who

is an employee of the assessee itself. Therefore, he held that the

GRN is not an independent piece of evidence. Further, the

Assessing Officer observed that on comparison of GRNs in respect

of goods received in question and GRN for goods from other parties

the following crucial differences are noted between the two.

(i) It is found that the GRNs, prepared in respect of the goods shown to have been received from parties in question, have grossly inadequate details. On such GRNs, there is no signature of project manager where as the GRNs prepared for the goods received from other parties bear the signature of project manager.

(ii) Further, the GRNs in respect of parties in question generally do not have any entry of against the column 'time in' i.e. such GRNs generally do not show when the goods were receive. On several occasions, even inward number, P.O. No. and date are not mentioned on such GRNs. Whereas, the GRNs for the goods received from other parties have such details written on them.

6

He accordingly held that the GRNs submitted by the assessee

cannot be relied upon. The AO further noted that the assessee

could not produce any evidence in the form of delivery challan,

transportation details etc. The assessee also did not produce any

delivery note issued by Shri Tushar Ruparel or his concerns. He

further noted that in the case of the assessee he has followed the

practice which is reverse of the general practice in the trade.

Assessee itself is making Goods Receipt Note and puts its

employee's signature thereon without giving duplicate copy of

such note to seller.

8. As regards the submission of the assessee that it has

followed vendor registration procedure to enquire into the

genuineness of vendor including the parties in question, the AO

noted that the parties in question did not have requisite

infrastructure such as godown to supply the goods as evident from

the statement of Shri Tushar Ruparel. Even the office address

given by various concerns of Shri Tushar Ruparel is same.

Therefore, he also rejected the claim of the assessee.

9. The AO also compared the purchase bills issued by parties in

question and purchase bills issued by other parties and found

some difference between the two. In view of the above the AO came

to the conclusion that the purchase bills issued by various

concerns of Shri Tushar Ruparel are basically bogus. He further

noted that Shri Tushar Ruparel in his statement on oath had

admitted that he is engaged in the activity of providing

accommodation entries only in the name of various entities on the

request of the customers and he has never made actual purchases

or sale. He has further admitted that all concerns actually being 7

run from one office and there is no godown or warehouse etc. In

view of the above, the AO confronted the assessee to prove that

purchases made by it are genuine. Since the assessee failed to

discharge the onus the AO asked the directors of the company,

who were present during the hearing proceedings, to produce the

parties from whom the purchases were made and the person Shri

Tushar Ruparel who has control over the above firms. The AO

issued notice u/s.133(6) to the various parties to produce the

following details.

(i) Extract of Ledger Account maintained from 01-04-2005 to 31-

03-2006 and details of bank accounts.

(ii) Income-tax PAN No. and Ward/Circle where assessable.

(iii) Modes of transactions

(iv) Confirmation of goods supplied with VAT No. and loading, unloading details.

10. However, none of the parties appeared before the AO

voluntarily nor the directors produced any of the parties from

whom the purchases have been made. The AO however noted that

the parties in question submitted the accounts extracts with

covering letter mentioning only the sales reported to the assessee.

The AO, therefore, was of the opinion that the assessee company is

not taking pains to produce the above parties. Since the above

parties neither appeared before the AO nor given the details of

bank accounts indicating details of deposit of cheques and cash

withdrawal from the banks, the AO was of the opinion that

purchases to the tune of Rs.7,11,55,964/- from the following

parties are not genuine and bogus :

8

Sr.No. Name of the assessee F.Y. 06-07 1. M/s. Apple India Marketing 82,98,924 2. V.S.K. Enterprises 71,70,625 3. M/s. Khushi Enterprises 1,92,56,857 4. M/s. Samarth Trading Co. 78,15,429 5. M/s, Sun Enterprises 1,00,40,207 6. M/s. M.R. Corporation 1,38,49,532 7. M/s. Neelam Enterprises 47,24,390 Total 7,11,55,964

11. During the course of assessment proceedings the assessee

submitted that purchases could normally be disallowed if the same

are bogus or shown as paper transaction and in other cases it

cannot be disallowed. It was argued that in the case of the

assessee the purchases effected from various parties referred to in

the statement of Shri Tushar Ruparel cannot be treated as bogus

or paper transaction as the same were supported by proper

invoices and the payment of the same were made by account payee

cheques. Further, the purchase of goods are established with

corresponding sales made to various reputed limited companies

who are regularly assessed to tax and who have also confirmed the

same. It was argued that all the purchases are duly supported by

proper invoice giving particulars such as name, address,

description of material etc. The parties from whom the purchases

are effected have mentioned their telephone numbers and are duly

registered under the State Sales Tax Act and the Central Sales Tax

Act. Day to day quantity account of the stock is maintained and all

the entries in the same have been duly submitted. The payment of

sales are also received by account payee cheques from the limited

companies who are duly registered with various authorities like

VAT, Central Sales Tax Act and are also assessed to income tax.

Further, the assessee is a dealer under the State law and filed the

returns under the said Act in which said purchases are properly 9

disclosed. Further, the customers viz., M/s. Kumar Housing

Corporation Ltd. M/s. Zenith Birla India Ltd., M/s. Birla Power

Solutions Ltd., M/s. Roshan Builders Ltd. and M/s.Birla Cotsyn

Ltd. have confirmed that the goods mentioned in the respective

delivery challans have been received at their premises from time to

time. It was submitted that the assessee maintains quantitative

inward and outward transaction of purchase of material

consumption and sales which is matching with the books of

accounts. It was further submitted that the rate at which the

assessee has purchased the goods are comparable and in line with

the existing rates of similar commodities or products in the

market.

12. However, the AO was not convinced with the above

submissions made by the assessee. He relied heavily on the report

of the ADIT who had stated that the above parties have not

supplied the material to the assessee as accepted by their

controller Shri Tushar Ruparel and the assessee has not disproved

the same. Therefore, mere filing of some documents whose

authenticity is also not proved cannot take away the categorical

findings in the survey in assessee's case and admission of Shri

Tushar Ruparel. The AO further noted that the statement of all

these parties show that the assessee has made purchases

throughout the year but has made payments by cheque only

towards the fag end of the year which has been deposited by these

parties on their respective bank accounts and cash withdrawn

against them. On being asked by the AO to produce the copy of

the bank account of these parties the assessee could not produce

the same. The assessee has also not disproved that cash has

been withdrawn by these parties against the cheques given by 10

assessee and returned the cash to the assessee for a commission

which was stated by Shri Tushar Ruparel. Distinguishing the

various decisions cited before him and rejecting the submissions

the AO made addition of Rs.7,11,55,964/- to the total income of

the assessee being the purchases made from the 7 parties treating

the same as bogus.

13. Before CIT(A) the assessee more or less reiterated the same

arguments as made before the AO. It was submitted that the AO

mainly and largely relied upon the findings of survey tem and the

statement of Mr. Tushar Ruparel. It was stated that Mr. Tushar

Ruparel is proprietor of only one concern, i.e. M/s. VSK

Enterprises whereas other persons are proprietors of other 6

concerns. Although Mr. Tushar Ruparel has stated that he is the

controlling person of all 6 other parties but that does not take

away the fact that he is not the proprietor and therefore their

arrangement has nothing to do with the assessee. The assessee

submitted that the other 6 concerns are owned by 6 different

individuals and therefore merely based on the statement of Mr.

Tushar Ruparel that he is the controlling person cannot be the

basis of the addition in the hands of the assessee.

14. It was submitted that on the basis of the notice sent by the

AO u/s.133(6) of the I.T. Act all the above 7 parties have submitted

the account extracts mentioning the sales reported to the assessee.

Thus there is confirmation of the transactions from all 7 parties

which is subsequent to the date of statement of Mr. Tushar

Ruparel. Thus, it is a case of hostile witness and therefore the

statement of Mr. Tushar Ruparel cannot be the basis of the

addition without going through the process of cross examination

either by the AO or by the assessee.

11

15. As regards the allegation of the AO that the parties were not

produced before him it was submitted that the survey was carried

out on Mr. Tushar Ruparel on 08-12-2007 and on the assessee on

28-12-2007. Thus, there was only a gap of 20 days. The survey

party conducting the survey on both Mr. Tushar Ruparel as well as

the assessee was the same. Although there was hardly a gap of 20

days between the survey conducted in the business of Mr. Tushar

Ruparel as well as the assessee and the statement of Mr. Tushar

Ruparel was shown to the assessee, however, the survey party did

not issue summons to Mr. Tushar Ruparel for examination/cross

examination by the assessee or vice versa. Thus, the opportunity

available with the survey party was not carried out. Even during

survey action at the place of the assessee Shri Nilesh Rathod,

Director of the assessee had categorically refused the charge that

the purchases are bogus and that no cash/money has flown back

to the company.

16. It was submitted that during the course of survey at the

premises of the assessee no incriminating documents were found

nor was there any unaccounted asset like cash. The cash found at

the premises was reconciled with the cash as per books of account

and no difference was found out. It was submitted that the

statement of Mr. Tushar Ruparel relied upon by the AO, is a

statement of third party which cannot be applied without the same

being examined and scrutinized with evidence. Various decisions

were also relied upon to the proposition that statement recorded

u/s.133A cannot be used as evidence without its corroboration by

any other evidence to prove the correctness thereto. 12

17. As regards the contention of the AO that the assessee has

not produced the parties from whom purchases were made it was

submitted that all those suppliers had submitted various details

such as vendor registration form, PAN card copies of the partners/

proprietors, sales tax registration number, Account confirmation

statements etc. to substantiate the sales made by them to the

assessee. Even the survey party had also impounded the invoices

of the above parties. Further, they have responded to the notice

issued to them u/s.133(6). The assessee reiterated the

submissions as made before the AO stating that assessee had

produced documentary evidence about actual supply of material

by the above parties by furnishing the confirmation from the

customers regarding the receipt of goods at the site and

consumption thereof. It was submitted that the contracts with the

5 customers were lumpsum contract including material and the

purchase from the aforesaid parties was all for the above 5

customers. It was submitted that goods costing about

Rs.1,03,50,725/- were purchased and were stored in Vikroli

Godown. The closing stock as on 31-03-2007 as per balance sheet

was Rs.3,76,96,589/- which included the stock at Vikroli Godown

of Rs.92,04,200/-. The said materials were purchased from M/s.

Neelam Enterpise, Apple India Marketing, Sun Enterprise and

Samarth Trading Company. Out of these purchases, an amount of

Rs.92,04,200/- being the basic value of purchases was included in

the closing stock. The balance amount of Rs.11,50,525/-

represent the VAT for which VAT credit was availed. It was argued

that if the above purchases from the aforesaid parties is treated as

bogus, the closing value of Rs.92,04,200/- was also not existent

and therefore the addition should not have been made for

Rs.1,03,54,725/- as there was no purchases and therefore there 13

was no closing stock. The assessee further submitted that the

addition made by the AO amounting to Rs.7,11,55,964/- includes

VAT of Rs.79,06,218/-. As per the accounting policy followed by

the assessee the purchases debited to the profit and loss account

is net of VAT, i.e. exclusive of VAT. Accordingly, out of the above

purchases of Rs.7,11,55,964/- the actual debit to the profit and

loss account is Rs.6,32,49,746/-. Therefore, in an alternate

contention, it was argued that addition, if any, can be made only to

the extent of Rs.6,32,49,746/- and not Rs.7,11,55,964/-.

18. Based on the arguments advanced by the assessee the

Ld.CIT(A) called for a remand report from the AO who reiterated

that the purchases made by the assessee are bogus and the

submission of the assessee are not acceptable. The AO accordingly

requested that the assessment order should be upheld.

19. The Ld.CIT(A) forwarded a copy of the remand report to the

assessee and called for his comments. After considering the

submissions made by the assessee, the comments of the AO in the

remand report and the comments of the assessee to such remand

report the Ld.CIT(A) held 50% of the purchases of

Rs.7,11,55,964/- as bogus and allowed relief of Rs.3,55,77,982/-.

While doing so, he observed that the statements of Mr. Tushar

Ruparel and 3 other persons show that they were issuing bills

without delivery of goods, were depositing cheques and

withdrawing cash and return it to the assessee after deducting

their commission for service, had no regular site for carrying on

the business of genuinely supplying materials, non-maintenance of

books of account, and therefore what was being admitted by him

and others were looking to be correct on the face of it. The

evidence gathered by the investigation unit at the end of the 14

supplier were quite clearly showing that the assessee was engaged

in taking bogus bills from the concerns of Mr. Tushar Ruparel.

20. However, he also observed that when the evidences gathered

at the end of the assessee during the course of follow up survey

conducted subsequently is looked into it is also not difficult to see

that not much of adverse complimentary evidence could be found

when the survey was conducted at the premises of the assessee on

28-12-2007. It is possible that in the intervening period of 20 days

the assessee has taken care of all the adverse evidences but still

the DDIT(Investigation) and the AO had the responsibility to

establish the complexity of the assessee to the affairs accepted by

Mr. Tushar Ruparel to the extent possible. According to Ld.CIT(A)

it should have been demonstrated that all admissions were made

to reach to the bottom and due process was followed. What was

found were only indicating weaknesses in the maintenance of

records in respect of purchases made from the above referred

impugned purchasers. By not taking the investigations to the

logical end at the relevant point of time on the leads found at the

premises of Mr. Tushar Ruparel, for the reasons which is not

expressly mentioned anywhere, a situation has reached wherein it

has become difficult to hold conclusively that the entire purchases

are bogus or are genuine in the facts and circumstances of the

case which is apparent from the rival submissions.

21. He observed from the perusal of the investigations carried

out by the DDIT (Investigation) and the AO and even during

remand proceedings that it is clear that they preferred to follow the

easier path of depending on the legal onus cast on the assessee to

establish the purchases in the light of the evidences gathered

which was clearly indicating that the assessee was involved in 15

purchasing bogus bills. Similarly, the evidentiary value of the oral

evidence gathered in the statement recorded on oath u/s.131 of

the I.T. Act was also compromised by not providing the opportunity

to cross examine Mr. Tushar Ruparel and others from whom

valuable evidences were gathered. It is also not apparent from the

record as to why was this done. If it was for the fear that Mr.

Tushar Ruparel and others may dilute or revert from the earlier

statement given on oath, still it was required because the superior

courts have unequivocally upheld in many cases that cross

examination is a sine qua non of the due process of taking

evidence and no adverse interference can be drawn unless the

party is put on notice of the case made out against him and

opportunity to cross examine is granted. The responsibility of the

AO is to arrive at the correct position of the assessment by

following the proper process of law and the cannot be ignored for

fear of an adverse situation. In view of these deficiencies the oral

evidence which is only partly supported by other circumstantial or

documentary evidence relied by the AO and partly disproved by

circumstantial and other indirect evidences relied upon by the

assessee has lost its true potential to stand up on a stand alone

basis and lead to a particular conclusion. According to the

Ld.CIT(A) the statement on oath u/s.131 given by Mr. Tushar

Ruparel and others in itself were quite strong to substantially nail

the assessee had the opportunity to cross examine was granted to

the assessee. However, since the same was not done the case has

to be decided considering other evidences placed on record by the

rival sides. Relying on various decisions the Ld.CIT(A) observed

that under the income-tax proceedings the strict rules of evidence

are not applicable for arriving at the correct decision (Chuharmal

Vs. CIT reported in 172 ITR 250 (SC).

16

22. Considering the totality of the facts of the case the Ld.CIT(A)

further observed that there are strengths and weaknesses in the

evidences and the arguments of both the sides and it is not

possible to hold either the AO or the assessee as fully correct in

their claims. He observed that although the evidences forwarded

by the AO was overwhelmingly against the assessee but the entire

disallowance cannot be sustained as no answer could be found by

the AO to the arguments made that the contracts cannot be

executed without the purchases which are being disallowed by the

AO. He observed that even if the site wise purchases and

consumption prepared and submitted by the assessee is not

considered to be reliable for determination the allowability of

purchases in view of certain evidences found, making books of the

assessee unreliable but the over all sales and purchases will have

to be considered to determine the reasonable amount of purchases

which must have gone into the execution of the contract of this

assessment year.

23. The Ld.CIT(A) considered the profit disclosed by the assessee

against the sales and observed that under the facts and

circumstances of the case the disallowance of Rs.7,11,55,964/-

cannot be made since the assessee cannot complete the job of

Rs.35 crores with material consumption of only Rs.5.5 crores. He

further observed that statement of Babu Sutar, Prop. of Sun

Enterprises, Mr. Gopal Sutar, Prop. of M.R. Corporation and Smt.

Neelima T. Ruparel, Prop. of Neelam Enterprises were not recorded

even by the Investigation unit or by the AO. The purchases made

from these concerns are of Rs.1,00,40,207/-, Rs.1,38,49,532/-

and Rs.47,24,390/- respectively. Even though other evidences 17

gathered in respect of all these concerns were adverse enough to

cast heavy onus on the assessee but the evidences in respect of

these concerns are definitely on a weaker footing, though the other

concerns whose owners were also examined on oath u/s.133(4).

Considering the totality of the facts of the case, the Ld.CIT(A) was

of view that 50% relief can be granted to the assessee and the

extent of bogus purchases can be restricted to 50% of the

additions. He further noted that after this addition the net profit

comes to the vicinity of approximately 15% to 16% which can be

considered to be fair and reasonable for a case where evidences for

arranging bogus bills were found and the assessee failed to

discharge the heavy onus cast on it to rebut the apparent so found

at the end of the impugned suppliers. He also directed the AO to

examine the book and if the VAT is not debited in the profit and

loss account as part of materials purchased then the disallowance

should be restricted to the purchases (-) VAT. Thus, he directed the

AO to disallow 50% of the purchases shown from the 7 parties

after reducing the VAT as bogus/inflated or unsubstantiated

purchases.

24. Aggrieved with such part relief given by the CIT(A) the

Assessee as well as the Revenue are in appeal before us with the

following grounds :

Grounds by Assessee :

"1. The learned Commissioner of Income Tax (Appeals) - I, Pune [CIT(A)] erred in confirming the disallowance of 50% of the so called bogus purchases of Rs.7,11,55,964 i.e. Rs.3,55,77,982. Your appellant submits that entire purchases of Rs.7,11,55,964 are genuine purchases and the same ought to have been allowed.

2. The learned CIT(A) erred in not excluding the amount of closing stock of material purchased from so called bogus parties while computing the income.

18 Your appellant submits that if the purchases from the parties or part thereof are treated as bogus, the closing stock representing the said so called bogus purchases ought to be reduced from the total purchases and only the net purchases after reducing the closing stock ought to be considered for disallowance.

3. The learned CIT(A) erred in not appreciating the evidences produced by the appellant and making various observations without substantiating the same.

Your appellant submits that the observations of the learned CIT(A) are not supported by any evidences and are made in disregard of the principles of natural justice.

Your appellant submits that the entire addition of Rs.7,11,55,964 ought to be deleted as against 50% thereof as held by CIT(A).

4. Your appellant craves leaves to add to, alter, amend or vary all or any of the aforesaid ground of appeal as they/their representative may deem fit."

Grounds by Revenue :

"1. On the facts and in the circumstances of the case, the Learned CIT(A)-I, Pune has erred in directing to allow 50% of purchases made from seven parties which were treated as bogus parties by the A.O. & DDIT (Inv).

2. On the facts and in the circumstances of the case, the Learned CIT(A)-I, Pune failed to consider that the assessee could not produce the parties in question before the survey party nor before the A.O. during the scrutiny proceedings.

3. On the facts and in the circumstances of the case, the Ld.CIT(A) failed to consider that Shri Tushar Ruparel who was controller of impugned parties has admitted in his statement on oath that he was engaged in the activity of providing accommodation entries/ bogus bills only in the name of 7 parties on the request of customers and had never made actual purchases or sales.

4. For these and such other grounds as may be urged at the time of hearing, the order of the Ld. Commissioner of Income- tax(Appeals) may be vacated and that of the Assessing officer be restored.

5. The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon'ble Tribunal."

25. The Ld. Counsel for the assessee strongly opposed the order

of the CIT(A) sustaining 50% of the disallowance. Referring to page

6 of the order of the CIT(A) the Ld. Counsel for the assessee drew

the attention of the Bench to the details of purchases made from

the 7 parties totaling to Rs.7,11,55,964/- which was disallowed by

the AO. Referring to pages 139 to 222 of the paper book the Ld. 19

Counsel for the assessee drew the attention of the Bench to the

various details furnished by the assessee before the lower

authorities substantiating the genuineness of the purchases.

Referring to page 139 of the paper book he drew the attention of

the Bench to the purchase of goods from M/s. M.R. Corporation

amounting to Rs.4,54,140/-. Referring to page 140 of the paper

book he drew the attention of the Bench to the bill raised by M/s.

M.R. Corporation vide Invoice No.001347 dated 09-10-2006.

Referring to 141 of the paper book he drew the attention of the

Bench to the goods received cum inspection note vide RC No.4

Challan No.1347 dated 09-10-2006. Referring to page 142 of the

paper book he drew the attention of the Bench to the delivery

challan of M/s. M.R. Corporation which has gone to the site of

Birla Cotsyn (India) Ltd. which also contains the stamp of Birla

Cotysn (India) Ltd. Referring to page 143 of the paper book he

drew the attention of the Bench to the purchase order raised on

M/s. M.R. Corporation. Referring to subsequent pages the Ld.

Counsel for the assessee submitted that when the goods have

come to the place of third party such as Birla Cotsyn (India) Ltd.,

Kumar Housing Corporation Ltd., Zenith Birla India Ltd., Birla

Power Solutions Ltd., Rohan Builders Ltd. etc., which have been

authenticated by these companies, therefore, the same should not

have been disbelieved. He filed the following details and explained

the purchases from the 7 parties and their destination.

Customer where goods consumed /delivered.........

Purchase Kumar Zenith Birla (I) Rohan Birla Cotsyn Vikroli Birla Power Summary of from...... Housing Ltd. Limited Builders Limited Godown Solutions Ltd. Firm Wise (Inventory) Purchase ...

Samarth -- 381,294.00 2,651,848.00 545,669.00 2,559,776.00 1,676,842.00 7,815,429.00 Trading Company

MR 2,618,382.00 3,370,051.00 1,545,971.00 3,450,936.00 -- 2,864,192.00 13,849,532.00 Corporation 20

Sun 617,203.00 1,702,508.00 533,871.00 594,011.25 1,252,224.00 5,340,390.00 10,040,207.25 Enterprises Apple India -- -- -- -- 1,818,336.00 6,480,588.00 8,298,924.00 Marketing Neelam -- -- -- -- 4,724,390.00 -- 4,724,390.00 Enterprises VSK -- 6,284,208.00 886,417.00 -- -- -- 7,170,625.00 enterprises Kushi 3,798,716.00 -- 6,436,332.00 1,647,004.00 -- 7,374,805.00 19,256,857.00 Enterprises Customer 7,034,301.00 11,738,061.00 12,054,439.00 6,237,620.25 10,354,726.00 23,736,817.00 71,155,964.25 wise Purchases.

26. As regards the allegation of the Ld.CIT(A) that the Goods

Received Note are made by the assessee he submitted that the

goods are received on my behalf by these concerns. Although it

may not have been signed by the Project Manager, which may be

due to his absence, however, the same cannot be a ground to

reject the claim of the assessee since the security personnel of the

companies where the work was going on have authenticated the

receipts of such goods in their premises. Further, the payments

have been made by account payee cheques. There is no evidence

that the money has come back to the assessee. Referring to pages

17 to 32 of the paper book the Ld. Counsel for the assessee drew

the attention of the Bench to the confirmations given by the

assessee to the various suppliers and those parties have accepted

the same and signed as a token of their acceptance with their PAN

Nos. Referring to pages 107 to 128 of the paper the Ld. Counsel

for the assessee drew the attention of the Bench to the sales tax

registration No. VAT No. PAN No. etc. of the suppliers. He

submitted that the assessee has executed the work for reputed

companies and those parties have certified that the goods have

been received in their premises. Further, all those parties are not

related to the assessee. The Ld. Counsel for the assessee 21

submitted that for the assessment year the assessee has earned

GP of 36.93% and net profit of 17.18%. If the addition as made by

the AO is confirmed, then the gross profit comes to 57.21% and

the net profit comes to 37.41% for A.Y.2007-08. Similarly, as

against GP of 36.87% and net profit of 2.93% for A.Y. 2008-09 the

addition so made by the AO gives the G.P. of 47.81% and net profit

of 13.86%.

27. The Ld. Counsel for the assessee drew the attention of the

Bench to the following chart giving comparable profitability of the

assessee and other persons engaged in similar line of business :

(Rs. In Lacs)

Particulars Archdeep Interior Pvt. Ltd. Cherry Hill Interior Ltd., A.Y.2007-08 A.Y.2008-09 A.Y.2007-08 A.Y.2008-09 Sales & Other 3278.36 2409.69 6530.18 8140.46 Receipt Net Profit 150.34 124.68 479.07 420.99 Before Tax Net Profit % 4.59% 5.17% 7.34% 5.17% Ensemble Net 16.88% 5.49% 16.88% 5.49% profit %

28. Referring to the above chart where two other competitors

engaged in similar line of business, the Ld. Counsel for the

assessee submitted that in the case of Archdeep Interior Pvt. Ltd.

the net profit for A.Y. 2007-08 is shown at 4.59% and for A.Y.

2008-09 at 5.17%. Similarly, in the case of Cherry Hill Interior

Ltd. the net profit is shown at 7.34% for A.Y. 2007-08 and 5.17%

for A.Y. 2008-09. He accordingly submitted that the net profit

shown by the assessee for A.Y.2007-08 at 16.88% and for 2008-09

at 5.49% being higher than that of the net profit declared by his

competitors, the same should not have been doubted.

29. Referring to the chart showing the customer wise work done

where the goods purchased from the 6 parties are utilised, the Ld. 22

Counsel for the assessee submitted that if the additions so made

by the AO is sustained then the project-wise profit will be more

than 90% and in some cases above 99% which is just not possible.

30. He submitted that on the basis of various details furnished

by the assessee the Ld.CIT(A) called for a remand report from the

AO. However, the report of the AO does not say that what the

assessee was saying is wrong. He submitted that the AO has

basically heavily relied on the statement of Mr. Tushar Ruparel

whose statement was recorded during the course of survey. He

submitted that Mr. Tushar Ruparel has evaded sales tax for which

the assessee should not be penalised. He submitted that all

purchases are genuine. The delivery of goods have been accepted

by the third party. Without the material the assessee could not

have executed the work. The assessee is not concerned from where

Mr. Tushar Ruparel has purchased the goods. As long as the

assessee gets the material as per the orders placed, it is immaterial

for the assessee as to from where the supplier has purchased the

goods. Referring to pages 229 to 234 of the paper book which is

the letter addressed to the AO on 30-12-2009 the Ld. Counsel for

the assessee drew the attention of the Bench to the following lines

(page 233 of the paper book) :

"We would also like to request to your goodself that we want to cross examine all the above parties in front of your goodself to further prove our genuineness of the transactions. You are therefore requested to kindly let us know the day & time for cross examination."

31. Referring to the decision of the Pune Bench of the Tribunal

in the case of Gopal Pulse Processors Pvt. Ltd. vide ITA Nos. 708

and 636/PN/2001 order dated 29-09-2006 the Ld. Counsel for the

assessee submitted that under identical circumstances when the 23

assessee could not produce the suppliers for which the AO

disbelieved the purchases as bogus, the Tribunal deleted the

addition/disallowance on the ground that if entire purchases were

treated as bogus and excluded from the manufacturing process,

yields resulting there from would be abnormal as compared to that

of preceding years. Referring to the decision of the Hon'ble High

Court for the same case vide ITA No.26/2007 order dated 17-03-

2009 he submitted that on further appeal filed by the Revenue the

Hon'ble High Court dismissed the appeal filed by the Revenue

holding that no substantial question of law arose. Referring to the

decision of the Chandigarh Bench of the Tribunal (Third Member)

in the case of J.R. Solvent Industries Pvt. Ltd., Vs. ACIT reported in

68 ITD 65 (TM) he submitted that the Tribunal in the said decision

has held that purchase of materials from an unidentified suppliers

cannot be treated as bogus when it is established from day to day

records that the said quantity went into production and the

production and sales have been accepted by the department. Referring to the decision of the Mumbai Bench of the Tribunal in

the case of Balaji Textile Industries Pvt. Ltd. VS. ITO reported in 49

ITD 177 he submitted that the Tribunal in the said decision has

deleted the addition made by the AO and upheld by the CIT(A) on

account of purchases from untraceable parties treating same as

bogus on the ground that when the same are recorded in books of

both the parties, purchases have to be believed. He also relied on

the following decisions :

1. ITO Vs. Chaudhari Iftekhar Ahmad Ramzanali - ITA Nos. 1056 and 1190/PN/2011 order dated 18-09-2013

2. Mrs. Nurma Rukmangad Bawane Vs. ITO - ITA No.637/PN/2010 order dated 20-06-2012

3. CIT Vs. M/s. Nangalia Fabrics Private Ltd. - Tax Appeal No.689 of 2010 order dated 22-04-2013 24

4. ACIT Vs. Shri Ramila Pravin Shah - ITA No.5246/Mum/2013 order dated 05-03-2015

32. The Ld. Departmental Representative on the other hand

heavily relied on the order of the AO. He submitted that it has

been clearly established by the Investigation Wing during the

course of survey that the purchases are mere accommodation

entries. Merely because the payments have been made by account

payee cheques the same cannot be accepted as genuine especially

when heavy cash has been withdrawn subsequently and the cash

might have come back to the assessee. Since the assessee is not in

manufacturing activity and is engaged in the business of Interior

Decoration etc., therefore, the GP ratio is not important. Since the

assessee has never produced the parties and has not conclusively

proved the purchases to be genuine, therefore, the order of the

CIT(A) should be set aside and that of the order of the AO be

restored. He accordingly submitted that the appeal filed by the

assessee should be dismissed and the appeal filed by the Revenue

should be accepted.

33. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. We find the AO in

the instant case made an addition of Rs.7,11,55,964/- being

purchases made from 7 persons, (the details of which are already

given in para 10 of the order) on the ground that during the course

of survey at the premises of Mr.Tushar Ruparel and other concerns

Mr. Tushar Ruparel and other persons have accepted that they

have only issued bills without delivery of materials and the 25

cheques received were deposited in the bank and cash was

withdrawn and returned to the assessee after withholding their

commission for the services. There was no infrastructure at the

end of the suppliers for making supplies like godowns etc. and no

books of accounts were found. Further, there were immediate

cash withdrawals after depositing the cheques in the bank

accounts maintained by Mr. Tushar Ruparel and others found

during the course of survey. Mr. Tushar Ruparel had specifically

taken the name of the assessee and stated that assessee has

availed the benefit for taking bogus bills of Rs.8 to 9 crores. It is

also the case of the AO that the assessee failed to produce the

above named persons at any stage either before the AO or during

the course of survey before the Investigation Wing. It is also the

case of the AO that despite purchases made throughout the year

the payments were made only in the month of February and March

of the Financial Year. Further, there was absence of third party

transport bills either with the assessee or with the supplier and

there were defects in the maintenance of challans.

34. We find when the matter travelled to the CIT(A) he deleted

50% of the addition and sustained 50% for the reasons given by

him in the appellate order and which has been summarised in the

preceding paragraphs. It is the case of the assessee that there was

no adverse finding during survey in the premises of the assessee.

No unaccounted cash or evidence for bogus bills were found. The

assessee was not given any opportunity to cross examine Mr.

Tushar Ruparel. The assessee has produced the details of PAN

Nos. Sales Tax Registration No. VAT etc. of all the suppliers.

Vendor Registration Process maintained at the end of the assessee

and Goods Received Notes were prepared at the site. The assessee 26

has submitted the reconciliation of materials before the AO for

receipt of goods, consumption and closing balance for each site.

The assessee has also produced the certificate from customers that

the work was properly executed. It is also the claim of the assessee

that no work can be executed without consumption of material.

Further, the payments were made by account payee cheques. The

concerned suppliers have responded to the notice issued

u/s.133(6) and have confirmed to have supplied the goods to the

assessee.

35. From the various details furnished by the assessee we find

the payments have been made by account payee cheques. The

suppliers have confirmed to have supplied the goods in response to

the notice issued u/s.133(6). The assessee has produced third

party evidences such as gate receipts of the respective companies

certifying the receipt of goods in their premises. The companies

where the assessee has executed the work are well known reputed

companies and without the work carried out at their site they

would not have made the payment to the assessee. Further,

although it is the allegation of the AO that huge cash was

withdrawn after the cheques were deposited, however, there is no

evidence whatsoever to show that the money has come back to the

assessee in some form or other. Even during the course of survey

at the premises of the assessee, no incriminating materials were

found to show that assessee was involved in accommodation

entries. No excess cash was found. Further, the assessee has

maintained proper books of accounts. The goods purchased have

entered into the books of account and material consumed have

also been entered into the books of account giving the quantitative

details. The Assessing Officer at page 2 of the assessment order 27

has mentioned that "regular books of account are maintained".

The Assessing Officer also mentions in para 4.2.4 page 5 of the

assessment order that a large part of the total works contract

executed by the assessee are contracts with materials. It is also a

fact that none of the parties for whom assessee has carried out the

work are related to the assessee. Nothing has been brought on

record by the Assessing Officer that work has not been carried out

by the assessee for the parties from whom assessee has received

the cheques against contract receipts which has been offered to tax

and accepted by the Assessing Officer. We find the Assessing

Officer apart from relying heavily on the statement of Mr. Tushar

Ruparel has not brought any corroborative evidence to nail the

assessee that it had received only accommodation entries and the

purchases to the tune of Rs.7,11,55,964/- are in fact bogus

especially when the assessee has disputed such allegation by

producing other materials to substantiate the purchases. The

finding given by the Ld.CIT(A) that the statement of the proprietors

of M/s. Sun Enterprise, M/s. M.R. Corporation and M/s. Neelam

Enterprises have not been recorded could not be controverted by

the Ld. Departmental Representative. Under these circumstances

disbelieving the entire purchases merely on the statement of Mr.

Tushar Ruparel and 3 other persons is not justified especially

when the assessee has carried out the contract work for which

assessee has to bear the cost of material and nothing has been

brought on record by the AO that no work was carried out by the

assessee for these parties and they have also made payments to

the assessee for no work done. Further we also find some force in

the argument of the Ld. Counsel for the assessee that when the

contract is with cost of material to be borne by the assessee, 28

carrying out the contract work without purchase of material is just

not possible.

36. Under the aforementioned circumstances disbelieving the

entire purchases merely on the basis of statement recorded from

Mr. Tushar Ruparel and others who have stated to have issued

bogus bills to the assessee for some commission cannot be believed

especially when the assessee has stated that he had received the

goods as per his requisition and no opportunity to cross examine

Mr. Tushar Ruparel was provided by the AO.

37. At the same time when the main supplier Mr. Tushar

Ruparel has denied to have made any supply to the assessee and

was issuing only accommodation entries as stated by him and

various other concerns, it was incumbent upon the assessee to

produce those persons before the AO to substantiate his case. The

assessee in the instant case has failed to do so. Further when

reputed suppliers are available in the market, there was no

necessity of buying goods from dubious suppliers who do not have

proper godown and office. Although the assessee is at liberty to

buy goods from persons/parties according to his choice, at the

same time, it raises a doubt in the mind regarding the authenticity

of the purchases especially when the same is purchased from

parties who do not have their own shops/godowns and only having

table space. Thus, a perusal of the orders of the authorities below

and the rival submissions made by both the sides indicate that

while the entire purchases cannot be treated as bogus, at the same

time the entire purchases also cannot be allowed as genuine. If we

allow such type of transactions as genuine it will be against

assessees who meticulously maintain full records, produce the

parties before the AO on being directed and produce the necessary 29

details to substantiate their transactions. We therefore agree with

the finding given by the Ld.CIT(A) that there are strengths and

weaknesses in the evidences and the arguments of both the sides

and it is not possible to hold either the AO or the assessee as fully

correct in their claims.

38. Having observed as above now we have to see as to what

extent the purchases can be treated as bogus and to what extent

purchases can be treated as genuine. From the various details

furnished by the assessee we find the assessee has given site-wise

profitability statement vis-à-vis the disallowance made by the AO

which is as under :

Birla Cotsyn Birla Power Kumar Housing Rohan Builders Zenith Birla Reliance Industries As Filed As Filed As Filed As Filed As Filed As Filed

Sales 9,581,143.00 33,579,895.00 10,630,648.00 21,214,699.00 20,837,143.00 55,935,793.00

Purchase 5,544,551.00 21,099,394.00 6,252,711.00 10,715,059.00 10,433,837.00 24,821,768.00 material

Direct 69,548.00 2,490,236.00 221,699.00 137,472.00 1,452,143.00 2,745,887.00 Expenses

Gross Profit 3,967,044.00 9,990,265.00 4,156,238.00 10,362,168.00 8,951,163.00 28,368,138.00

Gross Profit 41.40% 29.75% 39.10% 48.84% 42.96% 50.72% %

As determined by Assessing Officer

As per AO As per AO As per AO As per AO As per AO As per AO

Sales 9,581,143.00 33,579,895.00 10,630,648.00 21,214,699.00 20,837,143.00 55,935,793.00

Purchase - -

Direct 69,548.00 2,490,236.00 221,699.00 137,472.00 1,452,143.00 2,745,887.00

Gross Profit 9,511,595.00 31,089,659.00 10,408,949.00 21,077,227.00 19,385,000.00 53,189,906.00

Gross Profit 99.27% 92.58% 97.91% 99.35% 93.03% 95.09% % 30

39. From the above we find if the addition so sustained by the

AO is accepted, then the GP rate in 2 cases is above 99%, in one

case it is about 98%, in 2 cases it is almost 93% and in 1 case it is

95% which appears to be absurd as compared to assessees

engaged in similar line of business.

40. Considering the totality of the facts of the case, we are of the

considered opinion that disallowance of lumpsum amount of Rs.75

Lakhs (Rupees Seventy Five Lakhs only) for A.Y. 2007-08 and

Rs.50 lakhs (Rupees Fifty Lakhs only) for A.Y. 2008-09 as against

disallowance of Rs.7.12 crores in A.Y. 2007-08 and Rs.2.48 crores

in A.Y. 2008-09 by the AO will meet the ends of justice. We hold

and direct accordingly.

41. In the result, the appeals filed by the Revenue are dismissed

and the appeals filed by the assessee for both the assessment years

are partly allowed.

Pronounced in the open court on 26-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 26th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A)-I, Pune 4. CIT-I, Pune 5. The D.R, "A" Pune Bench 6. Guard File

By order

// True Copy // Senior Private Secretary ITAT, Pune Benches, Pune