IN INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No. 3434/Mum/2014 (Assessment Year: 2010-11) Asstt. Commissioner of Income Tax- Shri Vijay M Vaghani st 25(2),Room No.108, 1 Floor, Bldg. Prop. M/s V-Tech Engineers, No. C-11, Pratyakshakar Bhavan, 202, Narmada Chhaya Apartment Bandra Kurla Complex, Bandra (East), Vs. Carter Road No.05, Radongri, Mumbai-400 051. Borivali (E), Mumbai-400 066.PAN/GIR No. ADEPV 8809P (Appellant) : ( Respondent) C.O. No.13/Mum/2016 (Assessment Year: 2010-11) Shri Vijay M Vaghani Asstt. Commissioner of Income Prop. M/s V-Tech Engineers, Tax-25(2),Room No.108, 1st Floor, 202, Narmada Chhaya Apartment Bldg. No. C-11, Pratyakshakar Carter Road No.05, Radongri, Borivali Vs. Bhavan, Bandra Kurla Complex, (E), Bandra (East), Mumbai-400 066. Mumbai-400 051. PAN/GIR No. ADEPV 8809P (Appellant) : ( Respondent) Appellant by : Shri Anu Krishna Agarwal /Respondent by : Shri Vipul Joshi : 08/08/2016 Date of Hearing : 30/09/2016 Date of Pronouncement 2 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani O R D E R Per Sandeep Gosain, Judicial Member: Present Appeal has been filed by revenue against order of Commissioner of Income Tax (Appeals)- 35, dated 17.02.2014 on grounds of appeal mentioned herein below. 1. "On facts and in circumstances of case and in law, ld.CIT(A) erred in restricting of addition of Rs.46,50,981/- to Rs.6,97,647/- u/s 69C of Act as profit on bogus purchases." 2. "On facts and in circumstances of case and in law, ld.CIT(A) erred in applying ratio of Nikunj Eximp Enterprises Pvt. Ltd. and restricting addition to 15% on such purchases on ground that when sales has been accepted by department, genuineness of purchase cannot be doubted." 3. "On fact and in circumstances of case and in law, Ld CIT (A) erred in relying upon judgments in case of CIT Vs. Nikunj Eximp Enterprises Pvt. Ltd and CIT Vs. Leaders Valves(P) Ltd. without appreciating that facts involved in appellant's case are different from facts of above case law." 4. "On fact and in circumstances of case and in law, Ld CIT(A) has grossly erred in not appreciating fact that notices under section 133(6) issued to parties from whom alleged bills were received were returned undelivered by postal authorities and wand Inspector and assessee has also failed to produce parties before AO:" 5. "On fact and in circumstances of case and in law, Ld CIT (A) has grossly erred in not appreciating fact that assessee failed to avail opportunity to produce parties for disproving statement given by them to Sales Tax Authority. 6. "On fact and in circumstances of case and in law, Ld CIT (A) erred in restricting addition made by AO overlooking explicit finding of investigation carried out by Sales Tax Department and corroborated by enquiries of AO." 7. "The appellant prays that order of Ld. CIT(A) on above grounds be set aside and that of A. be restored." 8. appellant craves leave to amend or alter any ground or add new ground. 3 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani assessee has also prepared C.O. which grounds raised are as under:- 1. On facts and in circumstances of case Hon. CIT(A) erred in treating Rs.6,97,647/- being 15% of purchase amount of Rs.46,50,981/- as profit of appellant. 2. On facts and in circumstances of case Hon.CIT(A) failed to appreciate that total purchases were explained and no addition was required. 3. Without prejudice estimation of income at 15% of said purchases is on higher side. 2. brief facts of case are that assessee is individual and proprietor of registered firm M/s. V-Tech Engineers, engaged in business of Civil Constructions. return of income declaring total income of Rs.24,70,400/- was e-filed on 26.09.2010 thereafter case was selected for scrutiny through CASS and after serving statutory notices and seeking reply of assessee, AO passed order of assessment thereby making additions on account of unexplained expenditure u/s 69c and u/s 40(a)(ia) of I.T. Act,1961 vide order dated 26.02.2013. 3. Aggrieved by order of AO, assessee filed appeal before CIT(A) and CIT(A) after considering case of assessee restricted disallowance u/s 69C of Act and uphold disallowance u/s 40(a)(ia) vide order dated 26.02.2013. 4 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani 4. Aggrieved by order of CIT(A), revenue and assessee filed present appeal and cross objections before us on grounds mentioned herein above. 5. Since all grounds raised by revenue and assessee are inter- connected and inter-related therefore we thought it fit to dispose off same through present common order. Before we decide merits of case it is necessary to analyse order of CIT(A) whereby CIT(A) has dealt with issue of unexplained expenditure u/s 69C of Act and operative para is reproduced below for sake of reference: 5. 'Decision: 5a., Unexplained expenditure u/s 69C Rs.46,50,981/- I have gone through AO's contention and submission of appellant in this regard, main contention of A,O, is that: (i) There is information available from Sales Tax Department, Govt. of Maharashtra (ii) said persons have given deposition before Sales Tax Department, that they have only provided entries and have not actually supplied any material; (iii) said parties could not be produced by appellant;' (iv) notices sent were either returned back with ,comment 'left', 'closed' or 'none appeared.' and " , -- (iv) field visit by the' Inspector also confirmed that no such concern existed at given address. appellant on other hand has submitted that they have audited accounts duly maintained, bills from said parties and bank statement evidencing payments. appellant has also submitted that it is involved in civil construction activity and said material has been utilized at construction site: In its support, appellant has referred to decision of M/s. Nikunj Enterprises wherein Hon'ble Bombay' High Court has held that merely because suppliers have not appeared before the, Assessing Officer or the, CIT(A), one cannot conclude that purchases were not made by respondent-assessee, To this extent I am in agreement' with "appellant that since appellant' has filled its onus of making .payments by cheque and has 5 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani supplied address of sellers, then it cannot be presumed that suppliers were bogus simply because sellers were not found at given addresses. However, it also at same time cannot be said that information provided by mahavat and depositions of sellers before Sales Tax Department of Maharashtra should not be taken cognizance of by A.O. Therefore, following ratio of Nikunj Eximp Enterprises cited supra and also decision in case of CIT vs. Leaders Valves (P) Ltd (also referred supra), profit element on total component in dispute is what needs to be added to income of appellant. total amount which is being treated as bogus by A.O. is Rs.46,50,981/-. 15% of this amount which is Rs.6,97,647/- is taken as profit of appellant on purchases that are not fully and properly explained. 5b. Disallowance under section 40(a)(i)(a) - Rs.27,068/- I have gone through facts of disallowance made u/s 40(a)(ia) and I do not find any merit in argument of appellant. payment is squarely covered and therefore liable for deduction u/s 194A and, therefore, disallowance is upheld. 6. We have heard counsels for both parties on this ground and we have also perused material placed on record as well as orders passed by revenue authorities. After co-joint reading of orders passed by revenue authorities as well as hearing of counsels for both parties, we are of considered view that ld. CIT(A) has taken into consideration facts of entire case and basis of AO for making addition u/s 69C. CIT(A) had duly considered audited accounts maintained by assessee, bills from said parties and bank statement evidencing payments. ld. CIT(A) has also taken into consideration that assessee is involved in Civil Construction activity and had purchased material which has been utilized at construction site. Even during course of arguments ld. AR appearing on behalf of assessee has also drawn our attention to page no. 24 &25 of paper book which is order dated 6 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani 08.04.2001passed by Deputy Commissioner of Sales Tax (Appeal) u/s.23(5) M- VAT Act 2002 and in said order Deputy Commissioner of Sales Tax (Appeal) has also taken into consideration purchases effected by assessee are for his construction activities and in this regard deductions of sales tax have been made by modifying assessment order passed under Sales Tax. This order also goes to show that assessee had made purchases which had already been acknowledge by Sales Tax department as being for their own construction and in addition payments have also been made by cheques. Ld. CIT(A) in present case has also given categorical finding that since assessee had already supplied addresses of sellers and if they are not coming forward or not found at given addresses then it cannot be presumed that suppliers were bogus. In our view, once purchases and sales are accepted as genuine, authorities below cannot reject purchases and make additions thereon merely on basis of information received from Sales Tax Department, without making any corroborative independent enquiry thereon and without allowing cross examination to assessee of party whose statement has been relied on. This proposition has been upheld by co-ordinate benches in cases of Rajeev Kalathil (67 SOT 52) and in case of Hiralal Chunilal Jain ITA No.4547/Mum/2014 and others dated 01.01.2016. ld. CIT(A) has reduced addition to 15% of total amount of purchases, as profits resultant therefrom, but has not justified such 7 ITA No. 3434/Mum/2014(A.Y. 2010-11) ACIT Vs. Shri. Vijay M. Vaghani explanation with any material evidence to establish that such profits were actually earned thereon. In these peculiar facts and circumstances of this case, we reverse impugned order of ld. CIT(A) and direct AO to delete addition of Rs.6,49,647/- sustained by ld. CIT(A) and allow grounds of cross objection filed by assessee. Consequently grounds raised by revenue in this appeal are dismissed. 8. In result, Revenue s appeal is dismissed and assessee s C.O. is allowed. Order pronounced in open court on 30th September, 2016 Sd/- Sd/- (Jason P. Boaz) (Sandeep Gosain) Accountant Member Judicial Member Mumbai; Dated : 30.09.2016 Ps. Ashwini Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Asstt. Commissioner of Income Tax- 25(2), Mumbai v. Vijay M Vaghani