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The present appeal filed by the revenue is directed against the order passed by the CIT(A)-16, Mumbai, dated 24.08.2016, which in itself arises from the order passed by the A.O under Sec.143(3) r.w.s. 147 of the Income tax Act, 1961 (for short ‘Act’), dated 30.03.2015. The revenue had assailed before us the order of the CIT(A) on the following grounds :
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of bogus purchases ignoring the fact that during the course of survey proceedings, the Managing Director of the company admitted that purchase made from the parties were non-genuine?
2. Whether on the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in deleting the addition made by the AO on account bogus purchases when the assessee has failed to give any quantity wise tally of purchases and its consumption in manufacturing process to establish the genuineness of the purchases made from various hawala parties?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the suppressed profit on account of bogus transaction was to estimated at 12.5% of the net purchases ignoring the fact that the assessee was a contractor who consumes the purchases made by it in the course of its business; that one to one co-relation between item of purchase and sale cannot be established in such case; and therefore, the total income arrived on the basis of estimation of profit attributable to such bogus purchase is not valid in such cases?
The appellant craves leave t amend or alter any grounds or add a new ground which may be necessary.”
2. Briefly stated, the facts of the case are that the assessee company which is engaged in the business of a civil contractor had had filed its return of income for A.Y. 2009-10 on 29.09.2009, declaring total income of Rs.3,73,64,826/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act.
The case of the assessee was thereafter taken up for scrutiny assessment and its income was assessed u/s 143(3) on 13.06.2011 at Rs. 3,18,38,780/-. Subsequently, on the basis of information received by the A.O from the Sales Tax Authority that the assessee company was involved in bogus purchase/hawala transactions during the year under consideration, the case of the assessee was reopened under Sec. 147 of the Act. The assessee in compliance to the notice under Sec. 148 requested that its original return of income may be treated as the return of income filed in response to the same.
3. The A.O while framing the assessment observed that survey proceedings under Sec. 133A of the Act were conducted by the DDIT(Inv.), Unit-IV(4), Mumbai on 07.06.2012 at the office premises of the assessee company at 304, Gokul Arcade-B, Subhash Road, Near Garware, Vile Parle (East), Mumbai. That during the course of the survey proceedings the Managing Director of the assessee company, viz. Sh. Sunil Mathreja in his statement admitted to have generated
cash by booking bogus purchases. That Sh. Sunil Mathreja on being called upon to describe the process through with the share capital was raised by the assessee company, admitted that the share capital appearing in the books of account were just entries which the assessee company had procured from the respective parties after providing equivalent amount of cash to them. The A.O observed that the assessee during the course of the survey proceedings had admitted of having booked bogus purchases in order to meet out certain expenditure which were incurred for smooth running of business, but however, the same did not qualify for the claim of deduction as a business expenditure under the provisions of the Income Tax Act. The A.O observed that the assessee on the basis of his aforesaid revelations had came up with an offer of additional income of Rs. 6,50,00,000/- for A.Ys 2010-11, 2011-12 and 2013-14. However, on a subsequent date i.e. 27.12.2012 Sh. Sunil G. Mathreja by way of a sworn affidavit retracted his earlier statement recorded in the course of the survey proceedings on 07th/08th June, 2012.
4. That during the course of the assessment proceedings the A.O on the basis of the information received from the Sales Tax Department that the assessee had made bogus purchases from the following parties :-