IN INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER I.T.A. No.4254/M/2015 (Assessment Year: 2008-2009) I.T.A. No.4255/M/2015 (Assessment Year: 2009-2010) Mahavir Construction Co, DCIT-24(3), st 29/B, 1 Floor, Panchratna C-11, Pratyakshakar Bhavan, Vs. Building, S.V. Road, Goregaon BKC, Bandra (E), (W), Mumbai 400 090. Mumbai 400 051. PAN : AAGRM3933Q (Appellant) . ( Respondent) I.T.A. No.4630/M/2015 (Assessment Year: 2008-2009) I.T.A. No.4631/M/2015 (Assessment Year: 2009-2010) ACIT-31(2), Mahavir Construction Co, nd R.NO.207, C-10, 2 Floor, 29/B, 1 s t Floor, Panchratna Vs. BKC, Bandra (E), Building, S.V. Road, Mumbai 400 051. Goregaon (W), Mumbai 400 090. PAN : AAGRM3933Q ( Appellant) ( Respondent) I.T.A. No.4257/M/2015 (Assessment Year: 2008-2009) Shri Kishore G Shah, DCIT-24(3), st 29/B, 1 Floor, Panchratna C-11, Pratyakshakar Bhavan, Vs. Building, S.V. Road, BKC, BKC, Bandra (E), Bandra (E), Mumbai 400 051. Mumbai 400 051. PAN : AMWPS4982R ( Appellant) ( Respondent) I.T.A. No.4629/M/2015 (Assessment Year: 2008-2009) ACIT-31(2), Shri Kishore G Shah, nd R.NO.207, C-10, 2 Floor, 29/B, 1 s t Floor, Panchratna Vs. BKC, Bandra (E), Building, S.V. Road, BKC, Mumbai 400 051. Bandra (E), Mumbai 400 051 PAN : AMWPS4982R ( Appellant) .. ( Respondent) 2 Assessee by : Shri Hitesh Shah Revenue by : Shri Naveen Gupta, DR Date of Hearing : 18.08.2016 /Date of Pronouncement : 07 .10.2016 O R D E R PER D. KARUNAKARA RAO, AM: There are six appeals under consideration involving three sets of cross appeals for assessment years 2008-09 and 2009-2010. Since, issues involved in these appeals are identical / inter-connected, therefore, for sake of convenience, they are clubbed, heard together and disposed off in this consolidated order. Appeal wise adjudication is given in following paras of this order. I. Cross Appeals for AY 2008-2009 (In case of Mahavir Construction Co) Ground raised by assessee in appeal IT No.4254/M/2015 reads as under:- On facts and in circumstances of case and in law, Ld CIT (A) has erred in upholding addition made u/s 69C to extent of Rs. 18,36,435/-, being estimated @ 8% of purchases of Rs. 2,29,55,434/-, alleged bogus purchases from hawala dealers as appearing on website of Sales Tax Department of Government of Maharashtra. Grounds raised by Revenue in appeal ITA No.4630/M/2015 read as under:- 1. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- made on account of bogus purchases made from as many as hawala parties being 8% of total suspected purchases ignoring fact that these parties are included in list of suspicious and / or hawala dealers provided by Sales Tax Department. 2. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 2,29,55,434/- to Rs. 18,36,435/- ignoring fact that during course of survey u/s 133A of Act on 7.12.2011 assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3. On facts and in circumstances of case and in law, Ld CIT (A) erred in not appreciating fact that on similar ground assessee had made disclosure of income in subsequent assessment year on account of unverifiable / bogus purchase expenses and through same concerns assessee had made purchase in current year as well. 4. On facts and in circumstances of case and in law, Ld CIT (A) erred in ignoring fact that hawala parties are non-existent at given address and further they have given affidavits before Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying of any goods. 3 2. Briefly stated relevant facts relevant to assessment year 2008-2009 are that assessee filed return of income declaring total income of Rs. 33,86,880/- and same was revised later to Rs. 63,18,333/-. Assessment was completed u/s 143(3) read with section 147 of Act and assessed income was determined at Rs. 66,42,907/-. Subsequently, Assessing Officer received information from office of DGIT (Inv.), Unit-IV on information relating to survey results connected to bogus purchases. information shows Mr. Mafatlal Shah and other concerns are connected in issuing bill for commission. During year under consideration, AO noticed that assessee made purchases from 13 of parties who supplied material to assessee. Assessee is Government Contractor engaged in business of civil construction activity. extent of such purchases works out to Rs. 2,29,55,434/-. As per information received from DGIT (Inv.), said purchases constitute bogus purchases as suppliers have given affidavits to Sales Tax Authorities revealing their actual transaction of providing accommodation entries and bogus purchase bills. Considering same, Assessing Officer invoked provisions of section 148 of Act and called for return of income. Assessee relied on returns already filed by assessee u/s 139(1) of Act. In response to specific query by Assessing Officer regarding purchases from said 13 parties / suppliers, assessee relied heavily on entries / transactions of books of accounts and submitted that payments to these suppliers are made through banking channels. Regarding goods delivered to assessee, AO noticed that delivery challans were not furnished. Further, assessee submitted that AO is not having any direct evidence to demonstrate that said purchases are bogus. Further also, assessee mentioned that contracts were executed by asesee as per contract documents with Government and quality of such contracts was never compromised. Further, it is case of assessee when books of accounts are proper and same were audited by Statutory Auditors u/s 44AB of Act, in absence of any incriminating evidence, addition on account of bogus purchases is not sustainable in law. However, explanation of assessee was not accepted by AO and AO proceeded to make addition of Rs. 2,29,55,434/- u/s 69C of Act. In assessment order, AO relied on statement made u/s 131 of Act taken on oath 4 on 7.12.2011 ie date of survey. AO cited answer to Q. No.7 wherein assessee replied that site supervisors do purchase of raw material, their certification and cheques were issued to these suppliers. Basing on said reply, AO presumed that above purchases are bogus. AO also mentioned about failure on part of suppliers to receive notice issued u/s 133(6) of Act. fact of said notices being returned unserved was also mentioned. Thus, AO made addition based on (i) statement of assessee on 7.12.2011 and (ii) failure of assessee in producing parties before him. AO also relied on fact that said parties denied that they are engaged in business of supply of raw materials. They are only engaged in business of giving accommodation entries for earning commission. Matter travelled to first appellate authority. 3. During proceedings before first appellate authority, assessee reiterated submissions made before AO and relied on various decisions for proposition that purchases cannot be added while sales are undisturbed by assessee. He also relied on orders of Tribunal, where identical additions were made and said additions were deleted and only sustained GP addition in alternate after studying GP pattern of respective assessees. CIT (A) considered same and accepted arguments of assessee to some extent. CIT (A) relied heavily on judgment of Hon ble Bombay High Court in case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (216 Taxman.com 171) in this regard. As per discussion given in para 5 of his order, CIT (A) is of opinion that there is no direct evidence regarding allegation of bogus purchases of raw materials. assessee s failure to produce parties from one side and affidavits furnished by those parties to Sales Tax Authorities on other are not conclusive to confirm conclusions o0f AO. Therefore, she proceeded to estimate GP to confirm addition to extent of GP @ 8% on alleged suspicious purchases of Rs. 2,29,55,434/-. However, these conclusions are not supported by facts of assessee on GP rates of assessee over years. Aggrieved with confirming of GP addition, assessee is in appeal before us. Further, aggrieved with deletion of bogus purchases of Rs. 2,29,55,434/- u/s 69C of Act, Revenue is in appeal through cross appeal mentioned above. 5 ITA No.4254/M/2015 (By Assessee) 4. This appeal filed by assessee on 09.7.2015 is against said order of CIT (A)-42, Mumbai dated 11.5.2015 for assessment year 2008-2009. 5. only issue raised in this appeal relates to decision of CIT (A) in upholding addition u/s 69C of Act to extent of Rs. 18,36,435/- ie 8% of alleged bogus purchases amounting to Rs. 2,29,55,434/-. It is alleged that CIT (A) erred in resorting to estimation of profits and addition confirmed by CIT (A) should be deleted in toto. 6. Before us, Ld Counsel for assessee submitted that books of accounts are valid, accurate and complete in all respects. There is no problem with method of accounting adopted by assessee over years. In such circumstances, CIT (A) is not correct in rejecting books of account and resorting to estimation of profits @ 8% of alleged purchases. Ld Counsel for assessee is critical in stating that purchases made by assessee from parties are genuine. fact of assessee making payment through cheques involving banking channels was also highlighted. When payments are received by suppliers and when there is no evidence of cash transactions, presumptions drawn by AO and CIT (A) are unsustainable in law. Therefore, it is prayer of assessee that claim made in return of income originally filed by assessee is fair and reasonable and therefore, addition made u/s 69C of Act should not be approved. 7. On other hand, Ld DR for Revenue submitted that said parties have given statement on oath before Sales Tax Authorities and informed about their actual business activities ie engaged in business of giving accommodation entries. They are not genuine sellers of raw materials required for assessee s business of civil construction. Otherwise, he relied on order of AO and submitted that entire addition of Rs. 2,29,55,434/- should be confirmed. 8. We have heard both parties on this issue of bogus purchases. We have also gone through paper book and various decisions placed before us in support of assessee s claim that addition on account of bogus purchases u/s 6 69C is not sustainable in law. judgment of Hon ble jurisdictional High Court in case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (supra) is one of such judgments which is relevant for proposition that addition on account of purchases cannot be sustainable when sales recorded by assessee are undisturbed. There is no dispute on fact that Assessing Officer did not disturb sales account and accepted relevant account in books of account of assessee. We have also noticed fact that there is no direct evidence to implicate assessee regarding bogus purchases. AO s reliance on affidavits of suspected suppliers submitted to Sales Tax Authorities was not accepted by various Courts on account of bogus purchases u/s 69C of Act. In these circumstances, on facts and legal propositions, we have to decide whether additions made u/s 69C are sustainable or otherwise. 9. In this regard, we have come across various decisions and one of such decision is in case of Shri Pratap U Purohit vide ITA No.5296/M/2013 (AY 2010- 2011), dated 10.02.2016, where one of us (AM) is party to said order. In said order, Tribunal held that such additions u/s 69C of entire suspected purchases are unsustainable in law and for that proposition, we relied on judgment of Hon ble Bombay High Court in case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd (supra). For sake of completeness of this order, relevant paras from said Tribunal s order dated 10.2.2016 (supra) are extracted as under:- 10. We have heard both parties on this issue of addition made u/s 69C of Act. We have also examined aforementioned orders of Tribunal. We find, decision, made in those cases adjudicated by Tribunal (supra), is also based on data available on webpage of Sales Tax Department. At least some of parties are found figuring in list supplied by AO and CIT (A). Tribunal decided appeals in above mentioned cases (supra), after analysing contract works executed by assessee for MCGM, accepted fact that contract works were executed and quality was also accepted by concerned authorities of MCGM. In those circumstances, utilization of raw material in correct proportion is beyond doubt. It is logical conclusion that cement, steel, bricks etc purchases by assessee should be real. names of suppliers may or may not be sacrosanct so long as assessee incurred expenditure on said raw materials. It may be case that assessee made payments by cheque to said 56 parties, who may be bill suppliers, cannot be suppliers. But, so far as assessee is concerned, payments are incurred on raw materials purchases by assessee as per requirements of contracts. In these circumstances, as held by Tribunal in many other cases, onus is on Assessing Officer to demonstrate raw materials were not purchased at all from stated / any 7 supplier or AO should demonstrate contract works executed by assessee are of inferior quality and raw materials to tune of Rs. 13.03 Crs was inflated one. Unfortunately, AO failed to discharge onus on above issues. AO mechanically compared list of suppliers to assessee with list available on website of Sales Tax Department ie www.mahavat.gov.in (supra) and all purchases from these parties were rejected as bogus . In process, AO ignored issues about fact of completion of contracts without compromising quality of contract works. For sake of completeness of this order, we extract relevant para 8 from Tribunal s order in case of Ramesh Kumar & Co (supra) and same reads as under: 8. We have carefully perused orders of lower authorities and relevant documentary evidences brought before us. We find that AO has made addition as some of suppliers of assessee were declared Hawala dealers by Sales Tax Department. This may be good reason for making further investigation but AO did not make any further investigation and merely completed assessment on suspicion. Once assessee has brought on record details of payments by account payee cheque, it was incumbent on AO to have verified payment details from bank of assessee and also from bank of suppliers to verify whether there was any immediate cash withdrawal from account. No such exercise has been done. ld CIT (A) has also confirmed addition made by AO by going on suspicion and belief that that suppliers of assessee are Hawala traders. We also find that no effort has been made to verify work done by assessee from Municipal Corporation of Greater Mumbai. We agree with submissions of Ld Counsel that if there were no purchases, assessee would have been in position to complete civil work. 11. Further, regarding GP maintained by assessee, we find that assessee declared GP rates of 10.56% (supra). AO has not examined GP rate of assessee over years on similar contracts. Taking comparable cases, however, it is claim of assessee with addition of Rs. 13.03 Crs, GP rate has resulted to 21.38%, which is abnormally high on fact of it in contract works like one executed by assessee. Unfortunately, there is no reference to these aspects in order of AO and CIT (A), despite reference made by assessee in his submissions (item 12 in page 10 of CIT (A) s order is relevant in this regard). Therefore, CIT (A) may examine this issue afresh in remand proceedings. He is free to call for relevant reports from AO as per procedure. CIT (A) is required to examine sacrosanct nature of GP of 10.56%. 10. Considering above, we are of opinion decision of AO in making entire bogus purchases is not proper and therefore, grounds raised by Revenue are dismissed. 11. Coming to decision of CIT (A) in restricting addition to extent of GP ie 8% of so called bogus purchases, it is case of assessee that addition of 8% in addition to already offered income in return of income is unreasonable and therefore, seeks deletion of same. However, Ld Counsel for assessee submitted that Assessing Officer failed to demonstrate coclusively that entire purchases constitutes bogus purchases. He also submitted that in sworn in statement, assessee never agreed to fact that said purchases are bogus. 11.1. Further, Ld Counsel for assessee furnished chart of GP of assessees for various AYs and summed up by stating that Net Profit (NP) of assessee, not considering profits of main contractors, is around NP rate of 5.93%. 8 As per calculations of NP of Shri Kishore G. Shah, average NP works out to Rs. 5.18% only. According to Ld AR, NP of 8% adopted by CIT (A), which is impliedly in language of provisions of presumptive taxation as mentioned in section 44AE to 44AF of Act, is much higher than that of NP of assessee (5.93%). He prays that taxing profits @ 8% on these suspected purchases amounts to double taxation as they are already accounted and taxed. Therefore, they should be deleted entirely. Further, he also brought to our notice fact of filing application before Income Tax Settlement Commission (ITSC) u/s 245C of Act. However, ld AR fairly submitted, decision of ITSC has no binding on proceedings before ITAT. 12. Per contra, Ld DR argued that this being case of accommodation entries, entire addition is required to be confirmed. Elaborating same, Ld DR submitted that Hon ble Gujarat High Court in case of Simit P Sheth (supra) considered all facts of that case in general and arguments relating to double taxation, suspected purchases, accommodation entries and arrived at conclusion that addition profit on suspected purchases are required to be added as and above recorded profits of that assessee. Regarding rate of profits, Hon ble High Court held that 12.5% of suspected profits, although same is much higher than profit rate of 3.56% as recorded in books, is reasonable. Thus, according to Ld DR for Revenue, CIT (A) erred in restricting profit rate to 8% but also erred in not adopting said rate of 12.50%. He submits that rate of 12.50% is not new in this line of real estate business. Thus, he pleads for confirming entire suspected purchases. Alternatively, he argues for confirming adopting rate of 12.50% in tune with said judgement in case of Simit P Sheth (supra). 13. We have heard both parties and perused orders of Revenue Authorities as well as relevant material placed before us. We have also gone through decisions citations relied on by both parties. After hearing boththe parties and on perusal of orders of Revenue Authorities, we find, similar issue came up before Tribunal for adjudication in case of Kinjal Construction Co. & Chirag Construction Co. (JV) vs. ITO in I.T.A. No.4384/M/2015 (AY: 2010-2011) wherein one us (AM) is party to said order. In said case, 9 Tribunal relied on judgment of Hon ble Gujarat High Court in case of CIT vs. Simit P Sheth in ITA No.553 of 2012, dated 16.1.2013 (356 ITR 451), which is relevant for proposition that only profit element embedded in such purchases can be added to income of assessee when assessee purchased goods in grey market without bills and made up same with accommodation entries / bills. Considering significance of said order of Tribunal (supra) and for sake of completeness of this order, relevant paras 9 and 10 are extracted as under:- 9. We have heard both parties and perused orders of Revenue Authorities as well as relevant material placed before us. On hearing both parties on this issue, we find sales account is undisturbed in this case by AO. Therefore, jurisdictional High Court judgment in case of CIT vs. Nikunj Eximp Enterprises Pvt Ltd reported in 2013-TIOL is applicable in this case. Further, we find, CIT (A) relied on judgment in case of Simit P Sheth (supra). On perusal of cited judgment of Hon ble Gujarat High Court in case of Simit P Sheth (supra), we find, held portion of judgment is relevant in this regard. Considering significance and for sake of completeness of this order same is extracted as under:- We are broadly in agreement with reasoning adopted by Commissioner (Appeals) with respect to nature of disputed purchases of steel. It may be that three suppliers from whom assessee claimed to have purchased steel did not own up to such sales. However, vital question while considering whether entire amount of purchases should be added back to income of assessee or only profit element embedded therein was to ascertain whether purchases themselves were completely bogus and non existent or that purchases were actually made but not from parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In present case, CIT believed that when as trader in steel assessee sold certain quantity of steel, he would have purchased same quantity from some source. When total sale is accepted by Assessing Officer, he could not have questioned very basis of purchases. In essence therefore, Commissioner (Appeals) believed assessee s theory that purchases were not bogus but were made from parties other than those mentioned in books of accounts. That being position, not entire purchase price but only profit element embedded in such purchases can be added to income of assessee. So much is clear by decision of this Court. In particular, Court has also taken similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. view taken by Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved. If entire purchases were wholly bogus and there was finding of fact on record that no purchase were made at all, counsel for revenue would be justified in arguing that entire amount of such bogus purchases should be added back to income of assessee. Such were facts in case of ACIT (OSC) Ward 5(3) Nadiad Vs. Pawanraj B Bokadia (supra). This being position, only question that survives is what should be fair profit rate out of bogus purchases which should be added back to income of assessee. Commissioner adopted ratio of 30% of such total sales. Tribunal, however, scaled down to 12.5%. We may notice that in immediately preceding year to assessment year under consideration assessee had declared gross profit @ 3.56% of total turnover. If yardstick of 30%, as adopted by Commissioner, is accepted GP rate will be much higher. In essence, Tribunal only estimated possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. estimation of rate of profit return must necessarily vary with nature of business and no uniform yardstick can be adopted. 10 10. From above, we find, essential facts are comparable to that of present case. They are: sales account is undisturbed, presumption of purchase of goods outside books and also without bills, procuring purchase bills from hawala bill providers etc. Undoubtedly, assessee is engaged in construction activity and GP rate 12.5% is not uncommon. In cited judgment, addition @ 12.5% of suspected purchases was confirmed by Hon ble High Court when recorded profit of assessee Simit P Sheth (supra) is only @ 3.56%. Considering above, we find, CIT (A) is justified in adopting 12.5% of suspected purchases for addition. Therefore, in our opinion, order of CIT (A) on this issue is fair and reasonable and it does not call for any interference. Thus, Ground no.2 raised by assessee is dismissed. other arguments / issues raised by assessee and Revenue are addressed to in succeeding paragraphs. A. Whether entire suspicious purchases should be added: 14. This issue is answered by Hon'ble Bombay High Court in case of Nikunj Eximp Enterprises Pvt Ltd (supra) and order of Tribunal in case of Kinjal Construction Co. & Chirag Construction Co (supra) against Revenue. Accordingly, it is settled legal proposition in this region that addition of such entire purchases made by AO on account of bogus/suspicious purchases from suppliers, is unsustainable in law. In present case also, suppliers stated in their affidavits before Sales Tax authorities that they were merely engaged in supply of bills for commission and therefore, they never supplied or delivered material to buyers. reason being that, revenue never doubted sales and AO never disturbed sales account of assessee in year under consideration, addition of entire purchases is not valid. Therefore, addition of entire such purchases as done by AO is not correct and thus, decision of CIT(A) in deleting same is upheld. Resultantly, appeals filed by revenue are decided protanto. B. Whether taxing profits of suspected purchases amounts to Double taxation: 15. This issue is answered by Gujarat High Court in case of Simit P Sheth (supra) and it is against assessee. In this case, facts are that assessee claimed bogus purchases exceeding Rs. 41 lakhs (rounded off). AO made addition of entire such purchases and he also added further sum of Rs 5 Lakhs towards profit portion relatable to such sales. Assessee is said to have purchased matching 11 purchases from grey market without bills. FAA deleted such addition of entire suspicious purchases and restricted to only 30% of said purchases. Tribunal scaled down addition to 12.5% of suspected purchases. Otherwise, assessee's recorded GP is 3.56%. Honble Gujarat High Court affirmed conclusion of Tribunal. We find core facts are similar to present case. There is no other case brought to our notice. held portion of said judgment of Gujarath HC reads as under:- Held, dismissing appeal, that Commissioner (Appeals) believed that purchases were not bogus but were made from parties other than those mentioned in books of account. That being position, not entire purchase price but only profit element embedded in such purchases could be added to income of assessee. In essence, Tribunal only estimated possible profit out of purchases made through non-genuine parties. estimation of rate of profit return must necessarily vary with nature of business and no uniform yardstick could be adopted. 16. Therefore, in principle, it is settled law that profit portion of suspected purchases is required to be taxed. We proceed to apply same facts of present case. C. Onus on assessee and enquirers into purchases: 17. In instant case, assessee claims that purchases are genuine. Assessee relies on documentary evidences by way of bills/invoices and transactions involving bank. Per contra, enquirers conducted by AO by invoking provisions of sections 133A, 131 etc gave different results. Further, there is indirect and unconfirmed and unspecific evidence to suggest or cast doubt on genuineness of purchases. Revenue gathered affidavits of these suppliers whereby they affirmed facts about never delivered/supplying materials to Assessee. There are no delivery challans placed before us. What does these facts indicate? 18. One explanation could be that assessee straight away inflated purchases by booking bogus purchases to purchases account by buying accommodation entries / bogus bills to match inflation. Alternatively, assessee actually makes purchases from suppliers in grey market and without bills as they refuse to issue bills for their own reasons and therefore, 12 assessee had to go to raise such bogus bills to match otherwise genuine purchases without bills. There is no clarity in present case to which class he belongs. But it is fact that all is not well with purchases account of assessee. Generally, onus is on AO to discharge as allegation is made by him. Whereas in present case, considering affidavits failed by suppliers before Sales Tax authorities and enquiry results u/s 133A, onus is on assessee to demonstrate facts with evidences. Merely stating that purchases are genuine and quality of contract is undisputed by government is not enough and therefore, same are unacceptable. To that extent, arguments of assessee's AR are dismissed. D. Correctness of adopting 8% of suspected purchases for addition by FAA: 19. Further, in connection with decision of FFA restricting to additional income by way of GP specific to such alleged bogus purchases, we have also examined assessee's routine explanation viz. such purchases are genuine and profit portion is already offered to tax, we find that said explanation constitutes very general and it falls short of requirement of law. It can be sustainable if case of assessee falls in type where assessee makes purchases in grey market without bills and buys only bills to match such purchases for commission. Addition of entire purchases is unsustainable in such cases. In case of other, where assessee straight away inflates purchases by buying accommodation entries, addition of entire purchases is sustainable. But, in this case, AO has not gone into facts before entire such purchases are added. In that sense, we cannot approve conclusions of AO. 20. In preceding paragraphs above, we have held that purchase account of assessee is not free from problems. We have also dismissed AO's manner of making assessment of entire suspicious purchases. Further, we have also concluded in favour of decision of FAA in confirming only profit portion of such purchases. This is in addition to profits recorded in books. Now, issue for discussion relates to if 8% adopted by FAA is sustainable or not. Ld 13 AR argues that recorded profit rate is much lower when compared to said 8% impliedly borrowed from provisions of section 44AD to 44AE of Act. Further, we need to adjudicate on given facts of suspicious purchases, if revenue is bound by recorded profit rate of assessee and if they are free to adopt profit rate of similar businesses in open market. On this issue of internal profit rate vs profit rate of comparable cases, on fact, internal NP rate is 5.93% in case of Mahavir Construction Co and 5.18% in case of Kishor G Shah. It is claim assessee without prejudice that profit rate, if any, should be restricted to said profit internal rates. But, same cannot be accepted considering said Gujarat High Court's judgement in case of Simit P Sheth (supra), wherein 12.5% is confirmed. We also cannot confirm ill conceived profit rate of 8% as same is not in tune with reasoning given by Hon'ble HC/Tribunal in case of Simit P Sheth (supra). As such, AO never applied his mind to this aspect of profit rate on suspected purchases. CIT (A) did not remand this aspect to file of AO before adopting profit rate of 8%. E. What is appropriate profit rate in this case: 21. We find this issue is not addressed to by AO in assessment proceedings as provisions of section 69C of Act were invoked by AO. FFA also failed to call for demand report before adopting 8% of suspected purchases. In all fairness and it is in interest of natural justice that AO and assessee should be given opportunity for arriving at appropriate profit rate of assessee, who is engaged in real estate related business. AO shall note that 12.5% was confirmed in case of Simit P Sheth (supra) when its internal profit is only 3.56%. It is case of Steel Trader and said profit rate may not apply to facts of present who is in business of Civil Contractor / real estate. In remand proceedings, AO shall grant reasonable hearing opportunity to assessee before arriving at reasonable profits on suspected purchases as applicable to facts of this case. Assessee is also allowed to supply AO appropriate documents and data to arrive at appropriate profit rate. With said directions, we allow grounds of both assessees for statistical purposes. Thus, all grounds in both appeals of assessee and revenue are partly allowed for statistical purposes. 14 22. In result, appeal of assessee and Revenue are partly allowed for statistical purposes. II. Cross Appeals for AY 2009-2010 (In case of Mahavir Construction Co) Ground raised by assessee in appeal ITA No.4255/M/2015 reads as under:- On facts and in circumstances of case and in law, Ld CIT (A) has erred in upholding addition made u/s 69C to extent of Rs. 3,78,578/-, being estimated @ 8% of purchases of Rs. 47,32,230/-, alleged bogus purchases from hawala dealers as appearing on website of Sales Tax Department of Government of Maharashtra. Grounds raised by Revenue in appeal ITA No.4631/M/2015 read as under:- 1. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 47,32,230/- to Rs. 3,78,578/- made on account of bogus purchases made from as many as hawala parties being 8% of total suspected purchases ignoring fact that these parties are included in list of suspicious and / or hawala dealers provided by Sales Tax Department. 2. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 47,32,230/- to Rs. 3,78,578/- ignoring fact that during course of survey u/s 133A of Act on 7.12.2011 assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3. On facts and in circumstances of case and in law, Ld CIT (A) erred in not appreciating fact that on similar ground assessee had made disclosure of income in subsequent assessment year on account of unverifiable / bogus purchase expenses and through same concerns assessee had made purchase in current year as well. 4. On facts and in circumstances of case and in law, Ld CIT (A) erred in ignoring fact that hawala parties are non-existent at given address and further they have given affidavits before Sales Tax Authorities about their bogus activities of issuing purchase bills without supplying of any goods. 23. Both above cross appeals are filed against order of CIT (A)-42, Mumbai dated 8.5.2015 for assessment year 2009-2010. All grounds raised in instant cross appeals are identical to that of grounds in cross appeals for AY 2008-2009. Since, issues raised in both AYs are identical, our decision given while adjudicating appeals for AY 2008-2009 squarely applies to present appeals too. Considering same, all grounds in both appeals of assessee and revenue are partly allowed for statistical purposes. 24. In result, appeal of assessee and Revenue are partly allowed for statistical purposes. 15 III. Cross Appeals for AY 2008-2009 (In case of Kishore G Shah) Ground raised by assessee in appeal ITA No.4257/M/2015 reads as under:- On facts and in circumstances of case and in law, Ld CIT (A) has erred in upholding addition made u/s 69C to extent of Rs. 60,10,580/-, being estimated @ 8% of purchases of Rs. 7,51,32,254/-, alleged bogus purchases from hawala dealers as appearing on website of Sales Tax Department of Government of Maharashtra. Grounds raised by Revenue in appeal ITA No.4629/M/2015 read as under:- 1. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 7,51,32,254/- to Rs. 60,10,580/- made on account of bogus purchases made from as many as hawala parties being 8% of total suspected purchases ignoring fact that these parties are included in list of suspicious and / or hawala dealers provided by Sales Tax Department. 2. On facts and in circumstances of case and in law, Ld CIT (A) erred in restricting addition of Rs. 7,51,32,254/- to Rs. 60,10,580/- ignoring fact that during course of survey u/s 133A of Act on 7.12.2011 assessee in his statement under oath admitted that he had made purchases from fictitious concerns controlled by one Mafatlal Shah and other concerns referred to in Q.No. 7 of his statement. 3. On facts and in circumstances of case and in law, Ld CIT (A) erred in not appreciating fact that notices u/s 133(6) sent to different parties returned un- served and even summons u/s 131 remained un-complied with. 4. On facts and in circumstances of case and in law, Ld CIT (A) erred in ignoring fact that assessee could not produce ay delivery challans or transportation bills or evidences of same. 25. Both above cross appeals are filed against order of CIT (A)-42, Mumbai dated 8.5.2015 for assessment year 2008-2009. All grounds raised in instant cross appeals are identical to that of grounds in cross appeals for AY 2008-2009 in case of Mahavir Construction Co, which is adjudicated in above paras of this order. Since, issues raised in both AYs are identical, our decision given while adjudicating appeals for AY 2008-2009 squarely applies to present appeals too. Considering same, all grounds in both appeals of assessee and revenue are partly allowed for statistical purposes. 26. In result, appeal of assessee and Revenue are partly allowed for statistical purposes. 27. Conclusively, all three appeals of assessees and Revenue are partly allowed for statistical purposes. 16 Order pronounced in open court on 07th October, 2016. Sd/- Sd/- (AMARJIT SINGH) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; 07.10.2016 . OKK , Sr. PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Mahavir Construction Co v. DCIT-24(3)