ACIT Vs. M/s GTM Builders & Promoters Pvt. Ltd. (ITAT Delhi)
As per accounting standards AS-7, the purchases and working progress have to be reconciled along with architect report. The AO has not rejected the books of accounts and accepted the book profits while making the addition. The Assessing Officer’s observation that none of the architects can find out the actual material, steel bars used construction of any building of 2 to 3 years cannot be accepted as the consumption of the material can be well estimated from the drawings and the site books. In the case of M/s Suman Enterprises, the statement of Amit Vashisht indicates that the firm has been registered and run by Shri Deepak, no further enquiries have been conducted. In the case of M/s Meet Enterprises, the statement of Shri Sunil Kumar was recorded but nowhere it reveals or confirms that the purchases were bogus or inflated. There was no doubt about the payments made by the assessee to these parties and no evidence of cash withdrawals have been brought on record. The Assessing Officer contentions that non-production of parties can give credence to the bogus nature of the purchases cannot be accepted. In this regard, reliance is placed on the decision of Hon’ble High Court of Bombay in the case of B.C. Borana Vs ITO 282 ITR 252. In the case of M/s Suman Enterprises, the Inspector report cannot be given credence as the party was found to be genuine on enquiry. The better way for the AO could be to enquire about the amounts received from the assessee and from such amounts, if any, purchases of material have been made which in turn supplied to the assessee. The non-purchase of material/non-utilization of the amounts for purchase of material by the suppliers would be an appropriate evidence to disallow this purchases but the same has been wanting. Reliance is placed on the judgment of Hon’ble jurisdictional High Court in the case of CIT Vs Rajesh Kumar 172 taxmann.com 74 wherein it was held that failure to follow principles of natural justice vitiate the proceedings. Reliance is placed on the order of Hon’ble High Court of Bombay in the case of CIT Vs Nikunj Eximp Pvt. Ltd. 2013 TIOL 04 wherein it was held that no addition is warranted based on the fact that the suppliers have not appeared before the AO.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been fi led by the revenue against the order of ld. CIT(A)-41, New Delhi dated 25.03.2015.
2. Following grounds have been raised by the revenue:
“1. Whether on the facts and circumstances of the case & in law, the ld. CIT (A) erred in deleting the addition of Rs.3,35,87,118/- made on account of bogus purchases.
2. Whether on the facts and circumstances of the case & in law, the ld. CIT (A) erred in ignoring the fact that even after providing sufficient opportunities the assessee failed to produce even a single party from whom purchases has been made.”
3. For the sake of ready reference and convenience, the relevant portion of the order of the ld. CIT (A) with regard to the al leged bogus purchases is reproduced as under:
“4. The only issue involved in this appeal relates to addition of Rs.3,35,87,118/- made by the AO by holding the purchases made by the appel lant as bogus. The facts leading to the addition are that the A.O. required the appel lant to furnish the detai ls of purchases made during the year. After scrutinizing these detai ls, the A.O. required the appel lant to produce the parties from whom purchases exceeding Rs. 10 lacs were made. As the appel lant fai led to produce the parties, the A.O. selected on random basis, certain parties and the Inspector was deputed to make spot inquiry and give a factual report. On the basis of the report of the Inspector and other facts, in respect of the following parties, the purchases made by the appellant were not found genuine by the AO. The relevant extract from the assessment order is as follows:
“I. M/s Meet Enterprises
1.1 Information received from Investigation Wing Dehradun in respect of M/s Meet Enterprises:
i. The Investigation Wing, Dehradun has informed that the assessee. M/s GTM Bui lders & Promoters Pvt. Ltd received accommodation entries of Rs.98,56,480/- in F.Y. 2008-09 in the form of purchases claimed to be made from M/s Meet Enterprises. After examination of this party and detai ls obtained by the Investigation Wing, it has been establ ished that the payments made of Rs. 98,56,480/- in F.Y. 2008-09 for purchases is nothing but accommodation entries. Bank account in the Punjab National Bank, Nehru Nagar. Ghaziabad in the name of M/s Meet Enterprises A/c No. 116002100028811 was also scrutinized by the Investigation Wing, Dehradun. It has been informed that the account opening form obtain from the PNB reveals that proprietor of M/s Meet Enterprises is Sh. Sunil Kumar s/o Sh. Lata Ram r/o 621/11 Mimlana Road, Muzaffar Nagar with business address at Meerut Road. Surju Chungi, Muzaffar Nagar. The statement of Sh. Suni l Kurnar was also recorded by the investigation Wing wherein be stated that he is a driver and that earl ier he used to be a driver of Sh. Pushkar Tyagi r/o Shaibabad, Ghaziabad. It was stated by Sh. Sunil Kumar that on being asked by Sh. Pushkar Tyagi, he opened an account in the name of M/s Meet Enterprises signed bank cheque book at the behest of Tyagi . Further, Sh. Suni l Kumar submitted that apart from this he has no knowledge of M/s Meet Enterprises and its transaction.
ii. Further, the trade tax registration No. given at the time of opening of bank account was also got verified from tax department, Muzaffar Nagar and it was found that the registration No. mentioned in the registration certificate submitted to the bank at the time of opening of account is related lo M/s Kumar Traders, Meerut Road. Muzaf far Nagar and it was found that M/s Meet Enterprises is non-existent firm as per the record of trade tax registration department, Muzaffar Nagar.
iii. Information was also obtained from the PNB, Nehru Nagar, Ghaziabad regarding detai ls and address of the banks/bank accounts from where amount has been credited/transferred to this account as wel l as detai ls of withdrawals from this account. The parties including the assessee being assessed with this circle namely, M/s GTM Bui lders & Promoters Pvt. Ltd. from whom cheques were deposited in this account were also examined by cal l ing for their accounts and other detai ls. Other Account of M/s Meet Enterprises with Axis Bank Ltd., Plot No. 3 Ambedkar Road. Nehru Nagar, Ghaziabad, A/c No. 095010200013086 was also examined. In this account of M/s Meet Enterprises address has been given at B-262, Nand Gram, ADA Colony, Ghaziabad. As per account opening form Sh. Suni l Kumar s/o Sh. Lala Ram is a Proprietor of M/s Meet Enterprises, B-262, Nand Gram. ADA Colony, Ghaziabad. As per these bank accounts, the assessee made payments amounting to Rs. 98,56,480/- to M/s Meet Enterprises during the year under consideration. The cheques received from the assessee as wel l as other parties were\deposited in two bank accounts and after a few days or on the same day cash of almost the same amount was wi thdrawn or cheques were issued to different parties. The assessee, M/s GTM Bui lder and Promoters Pvt. Ltd. also examined in respect of transaction made with M/s Meet Enterprises by investigation wing, the assessee has submitted that it was contacted by Sh. Vikas Kumar, Prop. M/s Meet Enterprises, Ramdhan, Colony, Shival ik Nagar, Haridwar, TIN No. 05006640257 and purchases of Rs. 9856480/- of steel were made from M/s Meet Enterprises. Inquiries from trade tax department revealed that proprietor of this firm is Sh. Vikas Kumar s/o Sh. Vi jay Pal Singh r/o 464/A, Keshwavpuri , Muzf far Nagar. Mr. Vikas was also examined and he stated that he used to run the business of M/s Meet Enterprises and that he only had one transaction in which he sold goods of M/s National Trading Company, Roorkee and that he had no other business transaction he also decl ined to have any bank accounts with Axis Bank or PNB at Ghaziabad. These facts prove that the assessee has not substantiated the veracity of their claim of purchases made from M/s Meet Enterprises. From the facts discussed above, it is prima facie proved that the name of M/s Meet enterprises and the two bank accounts opened in its name have been used to faci l itate / route accommodation entries to the assessee in lieu of cash. The cheques received from the assessee as well as from other parties have been deposited in accounts of M/s Meet Enterprises and further M/s Meet Enterprises have issued cheques to other parties. These cheques have been deposited in the respective bank accounts of the other parties / entities (20 parties), which are detai led in the information received from Investigation Win,. Dehradun. Al l these transactions in the banks reveal that before the issuance of cheque to these parties, dif ferent larger amount of cheques have been deposited in the respective bank accounts and substantial cash has also been withdrawn from this account which prima facie proved that these are also accommodation entries arranged through inter party transfer. In the bank accounts of these entities, a lot of cash have been deposited and corresponding cheques have been issued. On enquiry made by Investigation Wing, Dehradun, theses parties were not in existence at their respective given address.
iv. Having, regard to above facts on record it has been concluded by the Investigation Wing that in actual ity no real purchases have been made by this party as M/s Meet Enterprises exists only on paper without any real business existence.
1.2. Facts gathered during the assessment proceedings in respect of M/s Meet Enterprises:
i. During assessment proceedings, the assessee was asked to explain the detai ls of transactions made with M/s Meet Enterprises. Further the assessee was asked to produce the persons / party from whom purchases exceeding Rs. 10 lakhs was made along with confirmed copy of account from each party /person, copy of transportation of bi ll alongwith copy of chal lans for each del ivery of purchases, their complete books of account and income tax records, bi l ls of purchases and sales etc.
ii. In response, the assessee has fai led to produce any of party including M/s Meet enterprises. However, the assessee has furnished copy of cheques issued to M/s Meet Enterprises, copy of purchase bi l ls and weightage of M/s Meet Enterprises.
iii. To verify the claim of assessee in respect of purchases made from M/s Meet Enterprises, the Inspector was deputed to make spot enquiry and give his report in respect of this party. After making spot enquiry, the Inspector has reported that any entity in the name of M/s Meet Enterprises is not avai lable in the entire Ramdham Colony, Shival ik Nagar, Haridwar. He also enquired from various persons to know whereabouts of M/s Meet Enterprises in the colony but no one was known of the entity in the name of M/s Meet Enterprises. The Inspector has further reported that the party M/s Meet Enterprises could not be located in the entire Ramdham, Colony, Shival ik Nagar, Haridwar.
iv. In this regard, letter dated 29.11.2011 was sent to the assessee in which factual position reported by the Inspector in reaped of M/s Meet Enterprises was informed. It was also informed that in view of the facts as narrated above, it is crystal clear dial the claim of purchases made from this party is not proven to be genuine. Further, the assessee was asked to produce this party along with complete books of accounts, income tax records, bi l ls of purchases and sales, bi l ls of transportation of goods and chal lans.
v. in response, again the assessee has fai led to produce any of party including M/s Meet enterprise. However, the assessee has again furnished copy of cheques issued to M/s Meet Enterprises, copy of purchase bi l ls and weightage of M/s Meet Enterprises. I have examined the bi l ls given by the assessee, on these bills address “Ramdham Colony, Shival ik Nagar, Haridwar”n is mentioned. As reported by the Inspector and intensive enquiry made by the Investigation Wing Dehradun, the purchases claimed to be made from M/s Meet Enterprises appears to be bogus claim of the assessee as no entity in this name is found to be in existence at this address. In view of the above facts and circumstances, it is crystal clear that the claim of the assessee in respect of purchases from this party is not genuine, hence held as bogus expenditure claimed by the assessee.
II. M/s Suman Enterprises, BH-80, Poorvi Shalimar Bagh,New Delhi:
i. During the year, the assessee has claimed to have made purchases from M/s Suman Enterprises amounting to Rs, 1,50,26,303A. The assessee was asked to produce this party with the complete books of accounts and bi l ls of transportationetc., which it has failed to do so.
ii. The Inspector was also deputed to make spot enquiry in respect of purchases made from M/ Suman Enterprises. The Inspector has reported that the aforesaid premises is situated in residential colony. At that premises, he met Smt. Rama age about 60 years. When he asked her about existence of M/s Suman Enterprises at that address, she told him that no business unit in the name of M/s Suman Enterprises exists in that premise. She further told that she residing with her family at that address for the last 15 years and no such unit was existed at that address any time. He further asked about knowledge of such business unit either run by her family members which she replied that no business activities are being run by his fami ly members.
iv. In this regard, letter dated 29/11/2011 was sent to the assessee which factual position reported by the inspector in respect of M/s Suman Enterprises was informed. It was also informed that in view of the facts as narrated above, it is crystal clear that the claim of purchases mode from this party is not proven to be genuine. Further, the assessee was asked to produce this party alongwith complete books of accounts, income tax records, bi l ls of purchases and sales, bi lls of transportation of goods and chal lans.
v. In response, the assessee has furnished copy of ledger of accounts of this party from its own books showing payment of Rs. 43 lakhs to this party during the year and closing balance of Rs. 1,07,26,303/- and bi l ls of purchases having the name of M/s Suman Enterprises and the same address which was givenearlier (as above). Upon perusal of these bi l ls, it appears that each bi l l is for the purchases of “Steel” from M/s Suman Enterprises, for more than Rs. 1 lakh amount.
vi. Thereafter, enquiry in respect of cheques issued to M/s Suman Enterprises from the bank of assessee (GTM) was made, requesting to provide the details of transferee and account in which the cheques got credited in the account of M/s Suman Enterprises. On the basis of information provided by the banks of assessee. Information in respect of bank account number, bank statement for the period under consideration alongwith account opening form of M/s Suman Enterprise were cal led for and obtained by issuing summons/notice u/s 133(6) of the Act to Kotak Mahindra Bank, Old Rajendra Nagar, Delhi . Upon perusal of the account opening form it was noticed that proprietor of M/s Suman Enterprises is Shri Amit Vashisht Son of Sh. Ravindra Kumar Vashisht residence of 1BH-80, Poorvi Shal imar Bagh, Delhi 110088. Summon u/s 131 of the Act. dated 29/11/2011 was issued to Sh. Amit Vashisht. In response, Shri Amit Vashisht attended the office on 21/12/201 land his Statement on oath was recorded. In his statement he has stated that he is only 5th class passed and residing with his father Sh. Ravindra Kumar Vashisht, mother Smt. Kama Vashisht and his elder brother Sh. Yogesh Vashisht and his wife Smt. Sapna Vashisht at the aforesaid address. Further he stated that he is employed with Sh. M.A. Khan (property dealer) for a monthly salary of Rs. 5,000/- for the last three months. Further he stated that earl ier, he was not used to do any work and al l expenses were born by his father who is retired from St. Stephens Col lege. When he was asked about M/s Suman Enterprises and the business run in the name of M/s Suman Enterprises, he repl ied that a concern namely, M/s Suman Enterprises was registered at his residential address which was being run by a person namely, Sh. Deepak who is residing at somewhere in Shahdara, Delhi . Further, he stated that on being asked by Sh. Deepak, he signed some documents, because Sh. Deepak assured me to give some good job for good salary. Further /stated that sometime he signed some cheques on instruction of Sh. Deepak. Further he stated that apart from this he has no knowledge of M/s Suman Enterprises or its transactions. In his statement he has categorically denial to have done any kind of business either in the name of M/s Suman Enterprises or any other business entity else. On being asked by Sh- Deepak, blank cheque book was signed by him. He further stated that he never heard the name of M/s GTM Builders & Promoters Pvt. Ltd. earl ier.
vii. Bank Statement of M/s Suman Enterprise has also been obtained by issuing summons/notice u/s 133(6) of the Act. Upon perusal of the bank statement, it received that cheques issued by the assessee (GTM) have been deposited/credited in this Account and after few days or on the same day cash are withdrawn or funds have been transferred to other accounts. Total transaction in the hank appears to be around of Rs. 60 to 70 Crores during the year under consideration alone.
viii. As reported by the Inspector after making intensive enquiry, Statement of the so called prop, Sh. Amit Vashisht and other corroborative evidences as discussed above, the purchases claimed to be made from M/s. Suman Enterprises appears to be bogus claim of the assessee as no such entity is found to be in existence for actual business and name of Sh. Amit Vashisht is being used for providing accommodation entries only. In view of the above facts and circumstances, it is crystal clear that the claim of the assessee in respect of purchases from this party is not genuine/hence held as bogus expenditure claimed by the assessee.
III. M/s Durga Enterprises, near Bus; Stand Daultabad, Gurgaon
i. The assessee has shown to have purchased of steel bar of Rs. 49,12,514/- from M/s Durga Enterprises during the year under consideration, the assesses was asked to produce this party with the complete books of accounts and bills of transportation etc. which it has failed to do so.
ii. The Inspector was also deputed to make enquiry in respect of claim of purchases of the assessee. The Inspector has reported that no entity in the name of M/s Durga Enterprises exists at entire village Daultabad, Gurgaon. He also enquired from the persons established for many years around in locality of this village who also confirmed that such entity under the name and style was not around any time, neither at present nor in the past.
iii. In this regard, letter dated 29/1 1/2011 was sent to the assessee which factual position reported by the Inspector in respect of M/s Durga Enterprises was informed. It was also informed that in view of the facts as discussed in the report of Inspector; the claim of purchases made from this party is not proven to be genuine. Further, the assessee was asked to produce this party alongwith complete books of accounts, income tax records, bills of purchases and sales, bills of transportation of goods and challans.
iv. In response, the assessee furnished only confirmed copy of account from someone Sh. Yoginder, showing the person as proprietor of M/s Durga Enterprises.
v. I have examined the confirmation furnished by the assessee in this regard. No other requisite details have been furnished by the assessee. The assesses has failed to produce the party concerned with the requisite complete books of accounts, income tax records, bills of purchases and sales, bills of transportation of goods and challans. Therefore, the genuineness of claim of the assessee in respect of purchase from this party could not be verified. As reported by the Inspector after making intensive enquiry and other corroborative evidences as discussed above, the purchases claimed to be made from M/s Durga Enterprises appears to be bogus claim of the assessee as no entity in this name is found to be in existence ast this address. In view of the above facts and circumstances, it is crystal dear that the claim of the assessee in respect of purchases from this party is not genuine, hence held as bogus expenditure claimed by the assessee.
iv. M/s Bharat Trading Company, 338, West Amber Talab, Roorkee:
i. The assessee has shown to have purchase steel bar of Rs. 37,91,821/- from M/s Bharat Trading Company. The assessee was asked to produce this party with complete books of accounts and bills of transportation etc., which it has failed to do so.
ii. The Inspector was also deputed to make spot enquiry in rasped of M/s Bharat Trading Company, 338, West Amber Talab, Roorkee. The Inspector has reported that this premises belongs to Sh. Devender Sharma who is working on the post of TGI in Hydel Department, Uttranchal and he is residing at the said premises since 1983 and since then they have not given the premises on rent to anybody. He further stated that he is working in government department and has not done any business activity in the name of either M/s Bharat Trading Company or anybody else. The inspector has also made local enquiry/ and it came to notice that information given by the land lord, Sh. Devender Sharma is correct.
iii. In this regard, letter dated 29/11/2011 was sent to the assessee in which factual position reported by the Inspector in respect of M/s Bharat Trading Company, 338, West Amber Talab, Roorkee was informed. It was also informed that in view of the facts as discussed in the report of Inspector, the claim of purchases made from this party is not proven to be genuine. Further, the assessee was asked to produce this party alongwith complete books of accounts and income tax records, bills of purchases and sales, bills of transportation of goods and challans.
iv. In response, bills of purchases having the name of M/s Bharat Trading Company, some weighing bills and copy of cheque issued to M/s Bharat Trading Company have been filed. Upon perusal of these bills, it appears that each hill is for the purchases of “Steel” from M/s Bharat Trading Company. The address of this party on these bills is “338, West Amber Talab, Roorkee”. One thing is necessary to point out here that the address of this party is the some for which Inspector has reported that no such party was in existence at this given address. Further, the assessee has failed to produce the party concerned with requisite complete books of accounts, income tax records, bills of purchases and sales, bills of transportation of goods and challans. Therefore, the genuineness of claim of the assessee in respect of purchases from this party could not be verified as no entity in this name is found to be in existence at this address.
v. In view of the above facts and circumstance, it is crystal clear that the claim of the assessee in respect of purchases from this party is not genuine, hence held as bogus expenditure claimed by the assessee.
4. Further, vide letter dated 26.12.2.011. the assessee has also furnished a certificate dated 22.12.2011 from Architect confirming the use of iron/ steel for construction of the building at project site at GTM Forest & Hills Dehradun and copy of receipt issued by the contractors about construction material taken towards construction at project site at Mokhampur, opp. IIP Dehradun in the year under reference. Confirmation from various contractors of Assessee Company in respect of supply of steel bars from the above parties has also been furnished.
5. In this regard, it is very necessary to mention here that the assessee was asked to furnish the followings, vide order sheet entry dated 11.10.2011:
a. The copy of project report with respect of the total cost of the project and the anticipated realization in respect of each project, separately.
b. The details of closing stock for each project and furnish the certificate of approved Engineer/architect in respect of work in progress for each project.
c. Stage wise cost for each project.
6. The assessee has failed to furnish the above requisite details during the assessment proceedings despite it was asked again to furnish the same, vide this office letter dated 16.11.2011. Since, the assessee has not provided the overall information in respect of each project, the certificate of approved Engineer/architect and stage wise cost of each project, the certificate from Architect obtained as on date has no relevancy and appears to be a afterhough step. It is considerable fact that non of Architects can find out/estimate the actual material/steel bar used in construction of any building after 2-3 years back. Further, the confirmations of the contractors has not been supported by any supporting evidence which could prove that they got received the material from the aforesaid parties. Therefore, the same cannot be considered to be genuine one as the purchases from all four parties, M/s Meet Enterprises, Suman Enterprises, Durga Enterprises and Bharat Trading Company have not been proven to be genuine one, as discussed above.
7. In view of the above facts, all above entities, from whom the assessee claimed to be purchased the steel bar, are nothing but on paper entities only which are providing accommodation entries by issuing bogus sales bills on account of which the assessee as well as other parties (buyers) could inflate its expenditure and reduce profits. Having regard to the above discussion, the entities namely, M/s Meet enterprises, Suman Enterprises, Durga Enterprises and Bharat Trading Company are proven as bogus entities and accordingly, purchases from these parties arc held as bogus claim of purchases for which the assessee company has no justification and explanation. Therefore, the amount of purchases claimed to made from these parties is disallowed and added back by applying the provisions of Section 69C of the Act, out of total purchases claimed to be made by the assessee company, and considered as undisclosed income in the hands of the assessee company for the year under consideration.
5. During the course of appellate proceedings, the appellant gave detailed arguments vide written submissions dated 30.01.2013. The same is reproduced hereunder:
“BACKGROUND
The appellant company is engaged in the business of building construction and real estate development. It filed its return of income on 30.09.2009 declaring income of Rs. 30,81,872./-.
The Assessing Officer has completed the assessment u/s 143(3) of the IT Act on a total income of Rs. 3,66,68,990/-. In this assessment order the Ld. Assessing Officer has made an addition of Rs. 3,35,87,118/- by alleging the purchase of building material made from various parties as bogus.
SUBMISSIONS
The only ground of appeal taken by the appellant in this appeal relates to the action of the Assessing Officer in treating the purchases of building material made from the following parties as bogus and making addition of the same in the assessment order:
