DCIT 19 1 MUMBAI, MUMBAI vs. NAOZER BEJON BALDAWALA, MUMBAI

The Revenue is mainly aggrieved by deletion of addition of Rs. 68,97,619/- made by the Ld. AO on account of purchases treated as non-genuine. On the other hand, the assessee has raised the following grounds of cross objection:

The facts leading to the present proceedings have traversed more than one round of assessment and appellate proceedings and, therefore, need to be briefly recapitulated. The assessee is an individual engaged in the business of development of properties and other civil contract work such as painting and repair. The assessment was originally reopened under section 147 on the basis of information received from the DGIT (Investigation), Mumbai, emanating from data received from the Sales Tax Department that the assessee was one of the beneficiaries of accommodation entries in the nature of purchases from certain dealers who had allegedly indulged in issuing bogus purchase and sale bills. In the assessment order, the learned AO identified purchases aggregating to Rs.68,97,619/- from ten such parties. The assessee furnished, inter alia, ledger accounts, bank statements and other details in support of the purchases. The learned AO, however, noted that the concerned parties were not produced for examination and, according to him, adequate supporting evidence regarding transportation, delivery and consumption of goods had not been furnished. Relying principally upon the information and statements gathered by the Sales Tax Department, wherein the concerned dealers were alleged to have admitted to issuing bills without actual supply of goods, the learned AO rejected the assessee's explanation and disallowed the entire purchases.

Thereafter, the matter travelled to the Tribunal. Before the Tribunal, the assessee specifically contended that the addition was principally founded upon statements and material collected from the alleged hawala dealers behind its back, copies whereof had not been supplied and no opportunity to cross-examine such persons had been afforded. The Tribunal initially dismissed the appeals. However, upon a Miscellaneous Application filed by the assessee pointing out non-adjudication of the grounds relating to the statements relied upon by the Department and denial of cross- examination, the earlier order was recalled to that extent. Thereafter, vide order dated 02.06.2019, the Tribunal observed that the assessee had been denied an opportunity of cross- examination of the dealers on whose statements the addition was founded and that, despite requests, copies of the relevant statements/material had not been furnished. The matter was accordingly restored to the file of the learned AO with a direction to provide copies of the statements relied upon, afford an opportunity of cross-examination of the concerned dealers and thereafter pass a fresh assessment order in accordance with law. In the consequential proceedings, the learned AO furnished copies of the statements/depositions obtained from the Sales Tax Department. These statements, in substance, contained admissions by various dealers that they were engaged in issuing invoices without actual purchase or delivery of goods. Some of the statements also indicated that the concerns were being operated by other persons or that the deponents had merely lent their names for issuance of bills. The learned AO issued summons to the concerned dealers for facilitating cross-examination; however, none of them appeared. The assessee was thereafter required to produce the parties, which it could not do. The learned AO once again relied upon the Sales Tax investigation and statements of the dealers and held that the assessee had obtained accommodation entries in the guise of purchases. According to him, payments through banking channels, VAT particulars and invoices were not sufficient to establish genuineness where the suppliers themselves had been identified as bill providers. He accordingly disallowed the entire purchases under section 37(1).

Before the learned CIT(A), the assessee assailed the aforesaid conclusion both with reference to the scope of the remand and on merits. It was submitted that the earlier appellate findings in the first round, that the assessee had actually executed the contract work and had necessarily purchased and consumed material, had not been disturbed and, therefore, the learned AO could not once again proceed on the premise that there were no purchases at all. It was further contended that the statements recorded by the Sales Tax Department were general in character and none of the deponents had named the assessee as a beneficiary of accommodation entries or referred to any transaction entered into with it. There were no particulars of the assessee's invoices, dates, quantities, description of goods or sites of delivery in such statements. It was thus submitted that statements without any transaction-specific linkage could not constitute substantive evidence against the assessee. The assessee further pointed out that despite the specific direction of the Tribunal, none of the concerned dealers had been made available for cross-examination. According to the assessee, once the Department sought to use third-party statements against it, the burden of securing the attendance of such persons could not be shifted upon the assessee. Apart from this, the assessee relied upon the primary evidence furnished during the original as well as set-aside proceedings, comprising purchase invoices, delivery challans, ledger accounts of the suppliers, bank statements evidencing payments through banking channels and site-wise records correlating the purchases with consumption of material in execution of the contracts. It was specifically pointed out that the delivery challans mentioned the respective work sites and bore dated acknowledgements, signatures and stamps of the site engineers who had received the material.

The learned CIT(A), after examining the entire material, accepted the assessee's contentions and observed that the earlier appellate findings regarding execution of contract work and purchase and consumption of material had not been disturbed. He thereafter examined the evidentiary worth of the statements relied upon by the learned AO and found that they were general in nature, without any specific reference to the assessee or to any transaction undertaken with it. According to him, such statements could provide a starting point for inquiry, but without independent corroborative material they could not displace direct evidence pertaining to the assessee's transactions. More importantly, the learned CIT(A) examined the invoices and delivery challans and recorded a categorical finding that the materials comprised items such as G.I. pipes, M.S. pipes, marble and other construction material, entirely consistent with the assessee's renovation and repair business. The delivery challans identified the sites where the goods were delivered and bore dated acknowledgements, signatures and stamps of the site engineers evidencing receipt of the material. No specific defect, inconsistency or falsity in these documents was demonstrated by the learned AO. The learned CIT(A), therefore, held that the assessee had discharged the initial burden of establishing the purchases as well as actual delivery and utilization of material and accordingly deleted the entire addition of Rs.68,97,619/-.

Before us, the learned DR strongly relied upon the assessment order and submitted that the parties concerned had been identified by the Sales Tax Department as hawala/bill providers and their statements indicated that they had not carried out genuine purchase and sale transactions. According to him, payments through banking channels and existence of invoices, by themselves, would not establish actual supply of goods and, therefore, the learned CIT(A) was not justified in deleting the addition. On the other hand, the learned counsel for the assessee strongly relied upon the findings recorded by the learned CIT(A). He further pointed out that an identical issue in the assessee's own case for A.Y. 2010-11, arising from the same nature of information and substantially similar proceedings, had already come up before the Tribunal in the second round and the Tribunal had confirmed the deletion of the addition made on account of alleged bogus purchases.

We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material available on record. As noted above, in the first round, the conclusion of the learned AO that no purchases whatsoever had been made was specifically not accepted. The execution of the contract work and corresponding contract receipts were never disputed and it was recognised that such work could not have been executed without purchase and consumption of material. The subsequent restoration by the Tribunal was occasioned essentially because the statements forming the basis of the adverse inference had neither been furnished to the assessee nor had the persons concerned been made available for cross-examination. Though the merits were left to be examined afresh after curing this infirmity, the remand cannot be understood as effacing the factual substratum already emerging from the record, namely, execution of the contracts and consequential requirement and consumption of material.

On the other hand, the assessee has furnished a complete documentary trail comprising purchase invoices, supplier ledger accounts, bank statements evidencing payments through banking channels, delivery challans and site-wise material records. The learned CIT(A) has specifically examined these documents and recorded that the delivery challans identify the respective work sites and bear acknowledgements of the site engineers evidencing receipt of the material. The materials purchased are also consistent with the nature of the contract work carried on by the assessee. No particular invoice or delivery challan has been shown to be fabricated or false, nor has any discrepancy in the site-wise consumption of material been brought on record. Thus, when the execution of the contract work and the corresponding receipts stand accepted and contemporaneous evidence demonstrates purchase, delivery and utilization of material, the entire purchases cannot be discarded merely on the basis of generalized third-party statements without establishing their nexus with the assessee's specific transactions.

This precise issue had also come up for consideration before the Tribunal in the assessee's own case for A.Y. 2010-11, wherein, on substantially identical facts and arising from the same nature of Sales Tax information, the Tribunal had confirmed the deletion of the addition made by the learned CIT(A). The material reasoning of the Tribunal may be briefly noticed. In that year also, the Assessing Officer had initially treated the entire purchases as bogus on the basis of statements recorded from alleged accommodation-entry providers. In the first round, however, the learned CIT(A) had accepted the factual position that the assessee was engaged in execution of renovation and repair contracts, the corresponding contract receipts had been accepted and such work necessarily involved purchase and consumption of material. When the matter was subsequently restored by the Tribunal for furnishing the statements relied upon and affording an opportunity of cross-examination, no effective cross-examination could ultimately take place and the Assessing Officer again treated the purchases as non-genuine.

The factual and evidentiary position for the year under consideration is materially identical. Independently also, as discussed hereinabove, the learned CIT(A) has examined the invoices, delivery challans and other contemporaneous records for this year and has recorded categorical findings regarding actual delivery and utilization of material, which have not been rebutted before us. Thus, on an independent appreciation of the material for the year under consideration, which also stands fortified by the decision of the Tribunal in the assessee's own case for A.Y. 2010- 11 on materially identical facts, we find no reason to interfere with the order of the learned CIT(A) deleting the addition of Rs.68,97,619/-. Accordingly, the grounds raised by the Revenue are dismissed.

Similarly, the Cross Objection filed by the assessee does not require separate adjudication, as the Revenue's appeal has already been dismissed on merits. The same is accordingly dismissed.

In the result, the appeal filed by the Revenue as well as the Cross Objection filed by the assessee are dismissed.