DCIT Vs DBM Geotechnics and Constructions Pvt. Ltd. (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai, in DCIT Vs DBM Geotechnics and Constructions (P.) Ltd., dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) dated 31 August 2018 for Assessment Year 2012-13. The dispute principally concerned the deletion of a disallowance of ₹49,68,40,000 relating to subcontract charges paid to M/s Naftogaz (India) Pvt. Ltd. and the restriction of an addition of ₹8,505 on account of alleged bogus purchases to 12%. The Assessing Officer contended that the assessee had failed to discharge the burden of proving the genuineness of the subcontract expenditure, both during the original assessment and remand proceedings. The Revenue also challenged the CIT(A)’s interpretation of the remand report and argued that the absence of a response from the subcontractor justified the disallowance. Regarding bogus purchases, the Revenue relied upon the Supreme Court proceedings in N.K. Proteins Ltd. Vs DCIT to support the addition of the entire disputed amount.
The Tribunal considered the decision of its coordinate bench in Rollon Hardware India Pvt. Ltd., ITA No. 1621/Mum/2018, dated 5 November 2018, which had addressed the treatment of alleged bogus purchases in comparable circumstances. That decision referred to Pr. CIT Vs T.R. Kapadia, Tax Appeal No. 691 of 2017, wherein the Gujarat High Court had confirmed the deletion of a purchase disallowance because supporting documentary evidence was available. The Supreme Court had dismissed the special leave petition against that judgment on 4 May 2018. The coordinate bench had also considered Nikunj Eximp Enterprises and observed that where sales were accepted, the entire corresponding purchases could not ordinarily be disallowed merely because suppliers were not produced. However, purchases through the grey market could justify estimating the profit or tax-saving element. On those facts, the coordinate bench considered a 12.5% disallowance appropriate, while noting the assessee’s contention regarding adjustment for gross profit already disclosed.
Following the coordinate bench’s reasoning, the ITAT found no justification to depart from the view already taken and declined to interfere with the CIT(A)’s order. Consequently, the Revenue’s challenge concerning the substantial subcontract expenditure and the restricted addition relating to alleged bogus purchases failed. The Tribunal confirmed the appellate order without separately undertaking an extended factual analysis of the subcontract payment issue in its brief decision. The Revenue’s appeal was dismissed, and the order was pronounced in open court on 25 March 2022. The decision illustrates the Tribunal’s reliance on an existing coordinate bench ruling when deciding disputes involving alleged bogus purchases and the extent of permissible disallowance.
Cases Discussed
- Rollon Hardware India Pvt. Ltd. — ITA No. 1621/Mum/2018, order dated 05.11.2018 (ITAT Mumbai). Coordinate bench decision followed by the Tribunal.
- Pr. CIT Vs T.R. Kapadia — Tax Appeal No. 691 of 2017 (Gujarat High Court). Deletion of alleged bogus purchase disallowance upheld where documentary evidence was available; SLP dismissed on 04.05.2018, Diary No. 12670/2018.
- Nikunj Eximp Enterprises — Writ Petition No. 2860, order dated 18.06.2014, as cited in the supplied order. Relied upon in the coordinate bench decision regarding purchases where corresponding sales were not disputed.
- N.K. Proteins Ltd. Vs DCIT — SLP No. 769 of 2017, dated 16.01.2017, as cited in the Revenue’s grounds. Relied upon by the Revenue to support full disallowance of bogus purchases.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. By way of this appeal, the Assessing Officer has challenged the correctness of the order dated 31st August 2018, passed by the learned CIT(A) in the matter of assessment u/s. 143(3) of the Income Tax Act, 1961 for the assessment year 2012-13.
2. Grievances raised by the Assessing Officer are as follows:
(1) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the sub contract charges of Rs. 49,68,40,000/- paid to M/s Naftogaz (India) P Ltd without appreciating the fact that the onus cast upon the assessee was not proved either during the assessment proceedings or remand proceedings”.
(2) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that no deserve material has been placed by the Assessing Officer to hold that the sub contract charges are bogus, without appreciating the fact that the Assessing Officer in the remand proceedings has merely submitted factual report”.
(3) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the Assessing Officer has given a clean chit to the assessee in this issue during the remand report without appreciating the fact that the Assessing Officer has brought out facts in his remand report regarding service of notice on the part and no response from it”.
(4) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to restrict the addition of Rs. 8,505/- to the extent of 12% only made on account of bogus purchase despite of the facts that the assessee has failed to substantiate his claim of purchase”.
(5) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in appreciating the decision of Hon’ble Supreme Court in the case of M/s. N.K Proteins Ltd. vs DCIT-TIOL-23-SC-IT dated 16th January, 2017 vide SLP No. 769 of 2017 wherein the decision of High Court for addition of entire income on account of bogus purchases had been confirmed.”
3. We find that a coordinate bench of this tribunal, in the case of Rollon Hardware India Pvt. Ltd., in ITA No. 1621/Mum/2018 order dated 05.11.2018, has in similar facts and circumstances inter alia, observed as follows:
4. In support of his case Ld. counsel of the assessee has placed reliance upon the decision of Hon’ble Gujarat High Court in the case of Pr. CIT Vs. T.R. Kapadia in Tax Appeal No.691 of 2017.
5. In this case the Hon’ble High Court has confirmed the deletion of disallowance on account of alleged bogus purchase as necessary documentary evidence for the purchase were on record.
6. The special leave petition against this order has been dismissed by the Hon’ble Supreme Court in its decision dated. 04.05.2018 S.L.P. Civil Diary No.12670/2018.
7. Up on careful consideration, I find that assessee has provided the documentary evidence for the purchase. Adverse inference have been drawn due to the inability of the assessee to produce the suppliers. I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rational being no sales is possible without actual purchases. This proposition is supported from Hon’ble Jurisdictional High Court decision in the case of Nikunj eximp enterprises (in writ petition no. 2860, order dt. 18.06.2014. In this case the Hon’ble High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the suppliers were government agency. In the present case the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expenses of the exchequer. In such situation in my considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases meets the end of justice. However, in this regard Ld. counsel of the assesse has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced from the standard 12.5% being directed to be disallowed on account of bogus purchase.
4. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the coordinate bench order, We confirm action of the CIT(A) and decline to interfere in the matter.th
5. In the result, this appeal is dismissed. Pronounced in the open court today on the 25 day of March 2022.
