Only Profit Element On Non-Genuine Purchases Merits To Be Disallowed And Not Entire Purchases: Mumbai ITAT

Referring to the decision of Bombay High Court in case of PCIT vs. Ram Builders (454 ITR 444), the Mumbai ITAT reiterated where assessee was involved in execution of civil works and it had shown purchases from twelve parties even if assessee failed to produce said parties for verification, then AO could not have treated entire purchases as non-genuine purchases but only profit element on such purchases.The Bench of Amit Shukla (Judicial Member) and Amarjit Singh (Accountant Member) observed that “If the payments have been made though cheques and there is corresponding sales affected on the contract work carried out and TDS has been deducted, it cannot be said that the entire payment is to be disallowed”. (Para 5) As per the brief facts of the case, the assessee company, engaged as a civil contractor and providing end to end construction services for residential buildings, filed its return u/s 139(1) declaring total income of Rs. 80,59,47,060/- and deemed total income of Rs. 120,70,26,217/- u/s. 115JB. After search and seizure action was conducted on Capacite E Group, assessment was completed u/s. 153A on total income of Rs. 92,93,16,940/-. Subsequently, on basis of information received during the investigation wing by the CGST Commissionerate, it was found that M/s. A.A. Enterprises, proprietor of Gagandeep Nanda is an entry provider and was involved in issuing invoices and passing of input credit without supply of goods. The assessee also had made purchases from this party. Accordingly, notice u/s. 148A(d) was issued and solely relying upon the information received from the anti-evasion wing of CGST Commissionerate, the purchase transaction amounting to Rs. 30,92,800/- has been added. The Bench found that the assessee had shown all the payments of Rs. 30,92,800/- paid to the said party through banking channel and also produced along the copy of banking statements highlighting the payment made to the said party, ledger account, copy of invoices and details of GST of the said persons. Further, the GST return of the said party for the financial year 2017-18 was also filed, and this transaction was much before the CGST Investigation Wing carried out inquiry, added the Bench. The Bench also found from the perusal of the order that nowhere AO and CIT (A) have doubted the corresponding sales or the contract work executed by the said party on behalf of the assessee. Hence, the ITAT partly allowed the assessee's appeal and concluded that 12.5% of GP rate on amount of Rs. 30,92,800/- may be added.Counsel for Appellant/ Assessee: Viraj Mehta Counsel for Respondent/ Revenue: H.M BhattCase Title: Capacite Infra Projects Verses DCIT Case Number: ITA No.3495/Mum/2023Click here to read/ download the Order

Only Profit Element On Non-Genuine Purchases Merits To Be Disallowed And Not Entire Purchases: Mumbai ITAT

Pankaj Bajpai

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