ACIT Vs Rajesh Manuprasad Trivedi (ITAT Mumbai)
Accepted Contract Receipts, Accepted Purchases: ITAT Deletes Entire Bogus Purchase Addition
In a significant relief to a civil contractor, the Mumbai ITAT deleted the entire addition made on account of alleged bogus purchases, holding that once contract receipts are accepted and execution of work is undisputed, the corresponding purchases cannot be treated as income merely on suspicion or third-party statements.
The assessee, engaged in civil construction work for Government and Semi-Government authorities, had purchased materials from concerns allegedly linked to accommodation entry provider Naresh A. Hirani. Based on investigation reports and statements recorded from Hirani, the Assessing Officer treated purchases aggregating to ₹6.86 crore as non-genuine. Though the CIT(A) granted partial relief and restricted the addition to 15% of the disputed purchases, both the assessee and Revenue carried the matter in appeal.
The Tribunal noted that the assessee had furnished purchase invoices, confirmations, PAN details, income-tax acknowledgements, ledger accounts and bank statements evidencing payments through banking channels. More importantly, the Department had accepted the contract receipts and had not disputed execution of the works. There was also no evidence of any cash being received back by the assessee against payments made to suppliers.
The ITAT observed that while the circumstances relied upon by the AO justified scrutiny, they could not justify treating the entire purchases as income when the materials were admittedly consumed in execution of contracts. The assessee had already disclosed a healthy gross profit rate of 24.70%, and any further estimated addition would result in unrealistic profitability. Holding that the disclosed profits adequately covered any possible inflation in purchases, the Tribunal deleted even the 15% addition sustained by the CIT(A).
The Tribunal also upheld deletion of the ₹3.75 crore addition under Section 68 on account of sundry creditors, observing that trade creditors arising from purchases cannot automatically be treated as unexplained cash credits. Further, it restricted the Section 14A disallowance to the actual exempt dividend income of ₹58,229, instead of the disallowance of ₹9.88 lakh computed under Rule 8D.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
