MOHANLAL CHUNILAL MUTTA,MUMBAI vs. INCOME TAX OFFICE-19(2)(2), MUMBAI

The Ld. Commissioner of Income Tax (Appeals) has erred in law and in facts in confirming the disallowance of 12.5% of purchase amounting to Rs. 23,06,220/-. 4. Your Petitioner humbly submits that all the documents and evidences such as copies of purchase bill, copies of ledger accounts of various parties in the books of your petitioner, copy of bank statements confirming the payment made, the quantitative statement in respect of purchase and corresponding sales were furnished to the learned Income Tax Officer during the assessment proceeding and to the Learned CIT (Appeal) during hearing. 5. Your Petitioner prays that the disallowance of Rs 23,06,220/- made by the Learned Income Tax Officer and Confirmed by CIT (Appeals) be deleted. 6. Your Petitioner humbly submits that the case laws cities by the Learned Income Tax Officer and the Learned CIT (Appeals) are distinguishable on facts. 7. The Appellant craves leave of Your Honour to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal. 2. The brief facts of the case are that Assessee is an individual and having business income from proprietorship firm Mahima Steels carrying business of trading in Ferrous and Non Ferrous Metal. The case was reopened on the basis of information received from DGIT (Inv.) Wing of Sales Tax Department that there is issue of hawala bills / accommodation entries by several parties, which was availed by several assessee. Therefore the assessment u/s.143(3) r.w.s. 147 dated 27-01-2016, was passed by the AO, thereby making additions of Rs 23,06,220/- to the total income of the Assessee on 12.5% of the Total Non Genuine Purchase by invoking the provisions of section 145 (3) of the Act. 4. Aggrieved by the said order, the assessee preferred appeal and filed submissions, but the same was dismissed by Ld. CIT(A).

Aggrieved by the said order the assessee preferred present appeal before us, on the grounds mentioned herein above. 6. First of all assessee contested the additions on merits by pressing ground No. 3 to 5. All these grounds are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in upholding the additions therefore I have decided to adjudicate the same through the present consolidated order. 7. I have heard the counsels for both the parties, perused the material placed on record, judgments cited before me and also the orders passed by the revenue authorities. From the records, I noticed that during the year under consideration, the Assessee made purchases worth Rs. 1,84,49,761/-, the party- wise details of which are reproduced in para 2 of the assessment order. In the assessment order, the AO had observed that the names of these parties appeared in some list published by the Sales Tax Department and that this party has issued fictitious bills to the Assessee without actually supplying goods. 8. In order to support its contentions, the assessee had produced the following evidence to substantiate the genuineness of its purchases: a. Copies of purchase bills; b. Copies of sale bills evidencing sale of goods regarded by AO as fictitious; c. Stock register i. e inward and outward of material; d. Bank statement evidencing payment by account payee cheques; and 4 Mohanlal Chunilal Mutta., Mumbai.

The Bank statement evidencing payment by account payee cheques, proves that the payment to the suppliers for purchases made from them also demonstrate that the purchases had in fact been actually made. Thus no prudent businessman would pay for purchases unless the same have actually been made and goods received. 14. The Ledgers of purchase parties in Assessee's books – shows a corollary to business expenditure (i.e. purchases) is that the same is recorded in the books of accounts in the ledger of the party from whom purchases have been made. These ledger accounts demonstrate that all purchases from suppliers and payments made to them are recorded properly and shown in their respective accounts. 15. After having considered the aforementioned evidence, the Assessee had demonstrated the complete cycle of the transaction and led the evidence to its logical end. In so far as the AO is concerned, he had found no defect/ discrepancy in the above details/ evidence furnished by the Assessee. Even the gross profit rate on sales from these alleged bogus purchases is comparable to the gross profit on other sales. Thus, there were no reasons to doubt the genuineness of the transactions more so when sales out of these very purchases have not been doubted and taxed as income. 16. Thus, it can be seen that the Assessee had adduced all evidence before the AO as called for by him to substantiate the genuineness of its purchases.

On the contrary, the AO had summarily rejected the submissions and did not even conducted any enquiry of his own and merely relied on the purported findings of the Sales Tax Department. The AO did not even confront the Assessee with such findings during the course of assessment proceedings and directly referred to the same in the assessment order thereby even violating the principles of natural justice. Moreover the AO did not find any discrepancy in the evidence furnished by the Assessee and directly made the impugned addition without giving any reasons. In this regard reliance is being placed upon the decision in the following case laws: 1. CIT v. Nikunj Eximp Enterprises (P.) Ltd. [2013] 216 Taxman 171 (Bom.) (HC) Where sales were supported by purchase and payment was made through banks, merely because suppliers had not appeared before Assessing Officer purchase could not be rejected as bogus. 2. CIT v. Nangalia Fabrics (P) Ltd. [2014] 220 Taxman 17 (Guj.) (HC) (MAG.) Where purchases were supported by bills, entries were made in books of account and payment was made by cheque, said purchases could not be held as bogus purchases. 3. DCIT v. Shri Rajeev G. Kalathil, ITA No. 6727/M/2012 dated 20/8/2014 ITAT, Addition on the ground that one of the suppliers was declared a hawala dealer by the VAT Department was not justified. It was a good starting point for making further investigation and take it to logical end. But, the AO left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. When the assessee filed all evidence purchases bills, payment details, evidence of purchase being recorded no addition can be made only because notices u/s 133(6) could not be served. 4. Ramesh Kumar and Co v. ACIT, ITA No. 2959/M/2014 dated 28/11/2014 Mumbai ITAT, In a case where the assessee has discharged the primary onus of showing books of account, payment by way of account payee cheque and producing vouchers for sale of good, addition on the allegation of bogus purchases cannot be made.

Shri Ganpatraj A. Sanghavi v. ACIT, ITA No. 2826/M/2013 dated 5/11/2014 Mumbai ITAT, It was not the case of the AO that purchases were bogus. AO's contention that assessee would have purchased material from grey market is based on surmises. Payments were made by account payee cheques and identity of parties was not in doubt. No addition can be made. 6. ITO v. Shri Deepak Popatlal Gala, ITA No. 5920/M/2013 dated 27/3/2015 Mumbai ITAT, No sales can be effected without purchases and merely because purchases were made from parties whose names are listed in the list of alleged hawala entry providers of the Sales Tax Department, purchases cannot be added once sales are accepted. 7. ITO ν. Nikhil A Jhaveri, ITA No. 2457/M/2014 dated 14/10/2015 Mumbai, The AO had ignored the documentary and corroborative evidences produced by the assessee in form of bank statements, declaration made under MVAT Act, TIN No., stock register containing quantitative details. Except for referring to the information received from the sales tax department the AO had not carried out any independent inquiry. If the evidences produced by the assessee are weighed against the information of the Sales tax department, it becomes clear that piece of the information was too light. Maximum it was a starting point for further investigation. But, the AO stopped at the beginning and made an addition though the assessee had produced reliable evidence in his favour. Secondly, in our opinion the CIT (A) had rightly opined that without purchases there cannot be any sale. Considering the facts and circumstances of the case, we are of the opinion that the order of the CIT (A) does not suffer from any legal or factual infirmity. So, confirming his order, we decide the effective ground of appeal against the AO. 8. ITO v. Premanand [2007] 107 TTJ 395 (Jd.), Since the AO had made addition merely on the basis of observations made by Sales-tax Department and had not conducted any independent enquiries, addition was to be deleted when the assessee had discharged primary onus cast on him by showing purchase in books of account, payment by way of account payee cheque, and producing vouchers of sales of goods 9. Cannon Industries (P) Ltd. v. DCIT [2015] 59 taxmann.com 65 (Mum.), When sales and all other quantitative details and figure regarding stock were accepted by the AO then in absence of any direct evidence showing non- genuineness of purchases, addition would not be sustainable on basis of assumption and conjectures