Vildirect: IncomeTax-caselaws-2017-VIL-1516-ITAT-MUM

2017-VIL-1516-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA NO.3537, 3538 & 3540/MUM/2016 ,ITA NO.6371 /MUM/2016, ITA NO.6130/MUM/2016 ,ITA NO.1887 & 1888/MUM/2017 , ITA NO.2553/MUM/2017 ,ITA NO.1470 & 1471 /MUM/2017, ITA NO.1736 & 1737/MUM/2017

Date: 31.07.2017

KAMAL P. AGARWAL

INCOME TAX OFFICER AND SHRENIK JAIN

BENCH

C.N. PRASAD AND SHRI M.K. AGGARWAL

JUDGMENT

PER C.N. PRASAD (JM)

1. All these appeals are filed by different assessees and by revenue against various orders of the Commissioner of Income Tax (Appeals) for assessment years 2009-10, 2010-11 and 2011-12 in partly sustaining the addition/disallowance made by the Assessing Officer towards alleged bogus purchases.

2. Since in all these appeals the issue is common we have heard the matters together and for the sake of the convenience we are disposing all these appeals by this common order.

3. The Learned Counsel for the assessee submits that the Assessing Officer while completing the assessments in all these cases based on the information received from Sale Tax Department that certain dealers are providing only accommodation bills required the assessee to prove the genuineness of the purchases made from those parties. The Learned Counsel for the assessee submits that assessee has furnished all the requisite details in the form of invoices, bank statements etc., and disbelieving the evidences furnished by the assessee the Assessing Officer concluded that the purchases made by the assessee are not genuine. He submits that this conclusion was arrived only based on the information obtained from the Sales Tax Department. He submits that the said to have been received from the Sales Tax Department is not given to the assessee. The Learned Counsel for the assessee submits that the assessee has produced ledger copies of the concerned parties, all other necessary evidences like purchase bills, bank statement proving the payments made through cheques etc., to prove the genuineness of the transactions and whereas the Assessing Officer has not brought any evidences against the assessee except relying on the information obtained from the Sales Tax Department to prove that the purchases are not genuine. The Learned Counsel for the assessee submits that since the department has made allegations that the purchases are bogus the onus is on the department to prove such fact through cogent evidences.

4. The Learned Counsel for the assessee further submits that it is not put to the assessee what kind of the information is gathered by the Sales Tax Department and further no cross examination of those persons said to have been deposed before the Sales Tax Authorities is not provided to the assessee. The Learned Counsel for the assessee submits that in the absence of any opportunity given to the assessee for cross examination of those persons who have deposed that they have provided only entries and no goods were sold, such statements have no relevance and cannot be relied upon.

5. The Learned Counsel for the assessee further submits that the Assessing Officer has not rejected the books of accounts in any of these cases except in the case of the assessee Alpesh Devichand Mehta. Therefore, the Learned Counsel for the assessee submits that since books of accounts were not rejected no addition/disallowance can be made towards alleged bogus purchases.

6. The Learned Counsel for the assessee submits that in the case of Kamal P. Agarwal the Assessing Officer disallowed 100% of the purchases whereas the Ld.CIT(A) restricted the same to 25%. Learned Counsel for the assessee submits in the case of Shrenik Jain Assessing Officer disallowed 25% of the purchase treating them as bogus purchases whereas the Ld.CIT(A) restricted the disallowances to 12.5% of the purchases. The Learned Counsel for the assessee submits that in the case of Alpesh Devichand Mehta Assessing Officer disallowed 12.5% of the purchases and whereas the Ld.CIT(A) confirmed the said disallowance in so far as the Assessment Years 2009-10 and 2010-11 are concerned and in the Assessment Year 2011-12 the Ld.CIT(A) reduced the gross profit declared by the assessee. The Learned Counsel for the assessee submits that in the case of the Rajul Doshi Assessing Officer considered peak of the supplies and made disallowances whereas the Ld.CIT(A) restricted the disallowance to 15% of the purchases.

7. The Learned Counsel for the assessee further submits that on identical circumstances the Jurisdictional High Court as well as the Coordinate Bench of this Tribunal deleted the additions in the following cases:-

Sl.No.	Particulars	Citation / ITA Nos
1.	ITO Vs Takhtmal Bhuralal Pichholiya	4526 to 4528/M/2014
2.	ITO Vs.Hiren Shantilal Doshi	715/M/2015
3.	ACIT vs.Vishal P.Mehta	5313/M/2013
4.	ITO Vs. Ashok Talreja (HuF)	4629/M/2014 and others
5.	Talco Marketing vs ITO	3394 and 3395/M/2014
6.	DCIT vs Rajeev G.Kalthil	6727/M/2012
7.	ITO Vs. Paresh Arvind Gandhi	5706/M/2013
8.	ITO vs. Sanjay V Dhruv	5089/M/2014
9.	CIT vs Nikunj Eximp Enterprises (P) Ltd.	372 ITR 619 (BOM)
10.	Diagnostics Vs CIT	334 ITR 111 (Cal)
11.	CIT Vs. M.K.Bothers	163 ITR 249 (Guj)
12.	CIT vs. Nangalia Fabrics (P) Ltd.	(2013) 40 Taxmann.com 206(Guj)

8. Learned Counsel for the assessee submits that in view of these above decisions the addition/disallowance made by the Assessing Officer towards alleged bogus purchases be deleted. Ld.DR vehemently supported the orders of lower authorities.

9. We have heard the rival submissions perused the orders of the authorities below. It is very much apparent from the Assessment Orders that the basis for treating the purchases made by the assessee from certain parties as mentioned in the Assessment Orders is only the information obtained by the Assessing Officer from Sales Tax Department. We find that this information was not parted to the assessee by the Assessing Officer. It is also not known as to what kind of information Assessing Officer has got from the Sales Tax Department relating to the present assessees before us. We also find that the deposition said to have given by certain dealers in the course of investigation by the Sales Tax Department which were extracted in Assessment Order were also not given to the assessee nor any cross examination was provided to the assessee. Thus it is apparent from the assessment records that sole basis of addition is only the information obtained from the Sales Tax Department by the Assessing Officer. The A.O. also observed that the notices sent to the parties u/s 133(6) have been returned unserved and the assessee also did not produce the parties before him. The assessee for whatever reason might not have produced the parties for verification, may be due to lapse of time or may be due to the dealers shifting from their business premises etc., but assessee has produced the copies of bank statement where payments were made through cheques and the ledger copies of the books of the assessee of the parties etc., to prove the genuineness of the purchases. The Assessing Officer never doubted the sales made by the assessee from such purchases in fact he has accepted the sales, without there being any purchases there could not be any sales. It is also not proved by the Assessing Officer that the amount paid by the assessee to the dealers were returned back to the assessee and the purchase bills issued are only accommodation entries. Simply because the assessee could not produce the dealers the entire purchases cannot be treated as the bogus purchases.

10. We find that on identical situation and facts, the Coordinate Bench of the Tribunal in the case of ITO v. Sanjay V Dhruv in ITA No. 5089/2014, dated 29.02.2016 held that the purchases cannot be treated as bogus purchases and addition cannot be sustained under Section 69C observing as under:

"We have considered the submissions of the parties and perused the material available on record. It is evident from the assessment order that on the basis of information obtained from the Sales Tax Department, Assessing Officer issued notices under section 133(6) to three parties out of which two notices were returned unserved by the postal authorities and in case of one of the parties through notice was served, there was no response. Therefore, he called upon the assessee to produce the concerned parties. As the assessee failed to produce the concerned parties, the Assessing Officer, therefore, primarily relying upon the information obtained from the Sales Tax Department, held the purchases to be bogus and made addition under section 69C of the Act. Though, it may be a fact that assessee was not able to produce the concerned parties before the Assessing Officer, for whatever may be the reason, fact remains during assessment proceedings itself the assessee had produced confirmed ledger copies of concerned parties, bank account statement, purchase bills, delivery challans, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing Officer has not doubted the sales effected by the assessee. Thus, it is logical to conclude that without corresponding purchases being effected the assessee could not have made the sales. Moreover, the Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that parties were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. As the Assessing Officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non-genuine, the action of the Assessing Officer in ignoring them cannot be accepted. Moreover, as rightly observed by the learned Commissioner (Appeals), when the payment to the concerned parties are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made under section 69C cannot be sustained. Moreover, the decisions relied upon by the learned A.R. on careful analysis were found to be squarely applicable to the facts of the present appeal. Therefore, finding no infirmity in the order of the first appellate authority, we uphold the same by dismissing the grounds raised by the Department.

11. Similarly, in the case of Sharad Construction Pvt. Ltd., v. ACIT, ITA Nos. 2812-14/2015 dated 30.09.2016, the Coordinate Bench held as under: -

“11. Thus, as could be seen from the aforesaid fact, the assessee not only denied the allegation of bogus purchases but also specifically requested the Assessing Officer to allow him an opportunity to verify the adverse material and also requested for cross-examination of the dealers who allegedly stated of having provided accommodation bills. As against the aforesaid facts, the Assessing Officer has simply relied upon the information received from DGIT (Inv.), to infer that purchases made from certain parties as referred to in the assessment order and reproduced in earlier part of our order are bogus. In fact, in the assessment order, nowhere the Assessing Officer has discussed in detail the nature of information obtained from DGIT (Inv.) nor the specific adverse material on the basis of which the allegation of bogus purchases were made. Undisputedly, before the Assessing Officer, the assessee had produced its books of account, purchase bills, bank statements, etc. It is also not disputed that the payment made towards purchases are through account payee cheques and reflected not only in the books of account but in the bank account copies. It is settled position of law, entries made in the books of account in regular course ordinarily, shall be presumed to be correct unless there is strong evidence to prove the contrary. It is an admitted position that the Assessing Officer has not rejected the books of account of the assessee. This pre-supposes that there is no discrepancy in the books of account of the assessee. That being the case, the purchases having been reflected in the books of account cannot be treated as bogus without any corroborative evidence to establish such fact. Moreover, the allegation of the assessee that the Assessing Officer had not confronted him the adverse materials nor provided an opportunity to cross-examine the dealers, who admitted of having provided accommodation bills is well founded. As we have noted earlier, in the course of assessment proceedings, the assessee had not only requested the Assessing Officer to allow him to verify the adverse material in his possession but has also requested for cross-examination of the dealers whose affidavit statements were relied upon to infer bogus purchase. However, it is apparent on record, the Assessing Officer has not confronted the adverse materials, if any, in his possession to the assessee nor has allowed him to cross-examine the dealers who allegedly admitted of having provided accommodation bills without actual delivery of goods. That being the case, the inference drawn on the basis of adverse materials without confronting them to the assessee is in gross violation of rules of natural justice. Furthermore, not granting opportunity to the assessee to cross-examine the dealers who allegedly admitted of having provided accommodation bills also vitiates the proceedings, therefore, the addition made on account of bogus purchases is legally unsustainable. In this context, we may refer to the decision of the Hon'ble Supreme Court in Andaman Timber (supra). The observation of the learned Commissioner (Appeals) in this context, in our view, is totally irrelevant. Only because the assessee offered to pay the sales tax / VAT, it will not take away his right to be confronted with adverse materials or opportunity of cross-examination. If the Assessing Officer intends to utilise any adverse material in detriment to the interest of the assessee, he is bound to confront them to assessee with opportunity to rebut them. Further, the allegation of the learned Commissioner (Appeals) that the assessee had never asked for cross-examination of the sellers / suppliers before the Sales Tax authorities is factually incorrect as perusal of the letters filed by the assessee before the sales tax authorities on different dates clearly reveals that the assessee had repeatedly requested the sales tax officer not only to provide him with the adverse material but also allow him opportunity to cross-examine the so called bogus dealers. As noted by us and it is also a fact on record, before the Assessing Officer assessee had submitted purchase invoices, books of account, etc., to prove the genuineness of purchases. In addition, it is not disputed that the entire payments towards purchases have been made through account payee cheque. Before the first appellate authority, the assessee had produced copies of delivery challans and also confirmations from the concerned dealers to prove the purchases. Thus, these documentary evidences produced by the assessee demonstrate that to some extent the assessee did discharge its onus to prove the genuineness of the purchases. As opposed to this, the Assessing Officer except the report of the DGIT (Inv.) had not brought on record any other cogent / corroborating evidence to prove the purchases as bogus. Admittedly, the Assessing Officer has not made any independent enquiry by even issuing notices under section 133(6) to the so called bogus suppliers. That being the case, if the A.O. or the learned CIT(A) were not satisfied with the evidences produced by the assessee and still had doubt with regard to the genuineness of purchases it should have triggered a proper enquiry / investigation at their end to ascertain the genuineness of assessee's claim. Without making any enquiry / investigation and by merely relying upon the information supplied by the DGIT (Inv.), who in turn had obtained such information from sales tax authorities, in our view, is not enough to prove the purchases as bogus. Without bringing sufficient evidence on record to falsify assessee's claim of purchases from the concerned dealers, the conclusion drawn on the issue of bogus purchases, in our view, is more on conjecture and suspicion rather than on strong evidence.”

12. Further the Hon’ble Jurisdictional High Court in the case of CIT v. Nikunj Eximp Enterprises (P) Limited [372 ITR 619] held that where sales are supported by purchases and payments were made through banks, merely because suppliers had not appeared before the Assessing Officer purchases could not be rejected as bogus purchases. While holding so, the Hon’ble High Court observed as under: -

“7. We have considered the submission on behalf of the revenue. However, from the order of the Tribunal dated 30.04.2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement i.e. reconciliation statement, but also in view of the other facts. The Tribunal records that the Books of Accounts of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department i.e. Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as CIT(A) have disallowed the deduction of Rs..1.33 Crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs..1.33 Crores was not bogus. No fault can be found with the order dated 30.04.2010 of the Tribunal.”

13. In view of the above discussion we hold that there is no material on record to conclusively prove that the purchases made by the assessee are bogus purchases and nothing has been brought on record by the revenue to suggest that the information gathered by the Sales Tax Department conclusively prove that the said dealers are providing only the accommodation entries to the assessee’s before us. Thus we hold that addition made u/s 69 cannot be sustained.

14. However, at the same time keeping in view the nature of the business of the assessee and the fact that the assessee is making local purchases the possibility of assessee making purchases without any transportation bills, delivery challans etc., in gray market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case and the Gross Profit declared by the assessee during the current assessment year as well as in the earlier assessment years, we direct the Assessing Officer to restrict the disallowance of purchases to meet the anomalies and to cover up the leakage of revenue as under: -

Sl.No.	Name of the Assessee	% of disallowance of purchases
1.	Kamal P. Agarwal	4.00
2.	Shrenik Jain	4.00
3.	Alpesh Devichand Mehta	3.50
4.	Rajul Doshi	3.50

15. Therefore, we direct the Assessing Officer to restrict the disallowance of purchases as indicated above in the above cases of assessee’s and compute the income accordingly.

16. In the result the appeals of the assessee’s are partly allowed and the revenue appeals are dismissed.

Order pronounced in the open court on the 31st July, 2017.

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