ITO Vs N.G. Group (ITAT Mumbai)
ITAT observed that that AO has invoked the provision of section 41(1) without bringing on record any cogent material. For how long the account is outstanding and on what basis of his enquiry, AO has come to the conclusion that these accounts are not payable. Devoid of these details, the assessment is simply based upon conjecture & surmise not sustainable in law.
When sales are not doubted, 100% disallowance for bogus purchase cannot be done
it is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale 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 dated 18.06.2014). In this case, the Hon’ble High Court has upheld 100% disallowance for the purchases said to be bogus, when sales are not doubted. However, the facts of the present 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 expense of the exchequer. In such situation, in our considered opinion on the facts and circumstances of the case the 12.5% disallowance out of the bogus purchases done by the Ld.CIT(A) meets the end of justice. Accordingly, we uphold the order of Ld.CIT(A).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the revenue is directed against the order of learned Commissioner of Income Tax (Appeals)-26, dated 23.09.2019 and pertains to assessment year 2012-13.
2. Grounds of appeal read as under:-
(1) “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.12,19,969/- on account of assessing the profits of the project ‘Ellora Castle’ without appreciating the fact that the said project has been completed on 26.10.2010 i.e during the F.Y.2010-H relevant to A.Y.2011-12” and during the year under consideration, the assessee has not declared any profit on one unit sold for total consideration of Rs.3,01,00,000/-?.
(2) “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s. 41(1) of the Act amounting to Rs.16,79,981/- by holding that no event had taken place in the year under consideration to indicate remission or cessation of liabilities, without appreciating the fact that sundry creditors reflected in the Balance sheet of the assessee reveals certain amounts outstanding were not even paid back partly to the creditors”?
(3) “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O, to restrict the addition of bogus purchases to 12.5% as against 100% addition made by the Assessing Officer on account bogus purchases without appreciating the fact that parties from whom these purchases were made proven accommodation entry providers, as concluded by Sales Tax Authorities pursuant to the investigation carried out by them”?
(4) “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not considering the latest Apex Court decision in the case of N.K. Proteins Ltd Vs DCIT (769 OF 2017) , wherein the Hon’ble Supreme Court has confirmed 100% addition made on account of bogus purchases ?
(5) The appellant prays that the order of Ld. CIT (A) on the above grounds be reversed and that of the Assessing officer be restored.
3. Breif facts of the case are that the appellant firm is a builder and developer.
During the year, the appellant firm was engaged in the construction of residential complex namely “Ellora Castle” in sector-15, Belapur Navi Mumbai and a project on Plot No. 786 MIDC, TTC Industrial Area, Khairane Navi Mumbai namely “Ellora Olearise” under Bhoomi Net City. Separate Profit & Loss accounts are maintained for both the projects. The Appellant e-filed its return of income for AY 2012-13 on 30/9/2011 declaring Nil income. The case was selected for scrutiny and notice u/s 143(2) was issued. The assessment was completed u/s. 143(3) of the Act wherein the AO assessed the total income of Rs.39,58,530/- by making the following additions:-
a. Addition on account of cessation of liability u/s 41 (1) amounting to Rs.16,79,981/-.
b. The disallowance on account of bogus / unverifiable purchases amounting to Rs.10,58,583/- in respect of the 4 parties.
c. Estimation of profit from the project ‘Ellora Castle” in N.G.Group to the tune of Rs. 12,19,969/-
4. Apropos ground No.1
Brief facts of the issue is as under:-
The AO made the impugned addition by observing as under:-
“The Appellant has completed the project “Ellora Castle” in FY 2010-11 relevant to AY 2011-12 in which an order u/s. 143(3} of the Act was passed on 14/03/2014. In the said assessment order, as per the Appellant’s submission, the value of closing stock was at Rs.31,76,55,022/-. during the current assessment year, the Appellant has submitted the WIP of project. The relevant part is reproduced :
