MITAL POLYPLAST PVT LTD,MUMBAI vs. ITO WARD 2(2)(3), MUMBAI

The brief facts of the case are that the assessee-company is engaged in the business of trading of polyplast, computer materials and other commercial products. The return of income was filed on 30.09.2009, declaring total income of Rs.2,82,300/-. The said return was accepted and processed under section 143(1). Thereafter, the assessee's case was reopened on the basis of information received from DGIT (Inv.) that the assessee is involved in bogus purchases and AO formed an opinion that the income of Rs.1,69,02,364/- has escaped assessment. In the reasons recorded, the AO noted that there is a list of Hawala Operators, identified by the Sales Tax Department and information has been shared with the office of DGIT (Inv.), Mumbai and it was intimated that assessee has taken bogus purchases from 7 parties for sums aggregating to Rs.1,69,02,364/-. In response, the assessee submitted the brief note of business / trading activities, copy of profit and loss account, balance-sheet with annexure of Audit Report, details of bank account and statement reflecting the payments, ledger account of the purchaser parties with bank statements, copies of purchase bills, etc. The learned AO held that invoices furnished by the assessee cannot be treated as genuine as these concerned parties have been found to be issuing bills without actually selling any material by the Sales Tax Authorities. Apart from that he has stated that no transport receipts or lorry receipts have been submitted. Further, he has noted that payments made through banking channel have not been provided and suppliers were not present at the addresses furnished by the assessee and further these parties have admitted before the Sales Tax Authority that they have only provided accommodation bills and assessee has failed to produce the suppliers. Thus, burden of proof has not been established by the assessee. Thereafter, he has made an addition by applying a peak, after observing and holding as under: “4.9: I am therefore of the considered opinion that the transactions in respect of the material shown as purchases by the assessee from the above mentioned parties are not genuine transactions. It is reasonably clear and glaringly obvious that the sales invoices claimed to have been issued by them are fictitious ones. Therefore applying the ratio of decision in the case of M/s. Vijay Proteins Ltd. (1996 58 ITD 428 Ahd) peak of such purchases or 25% of such purchases whoever is higher is required to be disallowed. During the course of assessment proceedings, on the basis of information given, the peak has been calculated @ Rs.72,35,329/-The working has been enclosed as per annex "A" which is part of assessment. For the year under consideration 25% of the purchases comes at Rs.42,25,591/-applying the ratio of Vijay Proteins Ltd. The higher amount comes Rs. 72,35,329/- as Peak and same is added to the total income u/s.69C of the I.T. Act.”

The learned CIT(A) has confirmed the action of the AO after observing as under: “4.2 The appellant was asked to deposit evidence in respect of delivery of goods i.e., delivery challan, transport receipts/lorry receipts, relevant entries in the stock register etc. The Ld. AO has specifically noted in the order that the appellant failed to produce the suppliers before the Ld. AO, also failed to produce brokers/third party evidence in spite of opportunities granted. Also, no transport receipts or lorry receipts or octroi receipts were submitted.

3 Under the appeal, the appellant has, inter alia, produced bankstatements, copy of ledger account, in the books of the appellant; copies of tax invoices with delivery chalans; however, no reason has been given as to why the same was not produced before the Id. AO. The stock register was said to be unavailable.

4 The test of evidence in income tax proceedings is that of preponderance of probability. The legal principles laid down in a number of cases are squarely applicable to the facts and circumstances of the present case. It is obvious from these judicial decisions that - • Mere documentary evidences are not sufficient to establish the genuineness of transactions in all situations. • Documents must also stand the tests of human conduct, surrounding circumstances and preponderance of probability. • When surrounding circumstances and attending facts predicate a cover-up, the taxing authorities cannot put on blinkers while looking at documents but are required to go beyond documents to look into surrounding circumstances to segregate the real from apparent.

5 In the light of aforementioned discussion and in the light of the fact that suppliers themselves have admitted having made bogus entries, I am of the view that there is a strong burden on the appellant to prove that entries related to them were not bogus. The appellant has failed to discharge that burden. In today's time hawala operators work in a very sophisticated manner and create documentary evidence to make it look genuine. In such circumstances, tax authorities need to look deeper. In the present case, the Id. AO had asked for the stock register which the appellant failed to produce. Most of the documents submitted with appeal were not produced before the Id. AO and no reason has been assigned as to why the same could not be produced before the Id. AO. In such circumstances, I am not inclined to interfere with the order of the Ld. AO. All the grounds are dismissed as devoid of merit.”

Before us, the learned counsel submitted that the assessee during the course of the assessment proceedings have produced copy of ledger account, tax invoices, it contained the details of materials purchased from the parties along with entire description with VAT and GST numbers, photocopy of cheques issued for the purchase of materials, copy of bank statement for which payments were made, confirmation from the parties from whom assessee had made purchases. The list of these documents have been furnished from pages 59 to 282 of the paper book. It was further submitted total purchase were of Rs.6,20,78,257/- and the purchases from alleged suspicious suppliers were of Rs.1,69,02,364/-. The entire purchases were reflected in the books of account and the payments have been made from the account payee cheques and the corresponding sale of the same quantity has been accepted by the AO. Thus, the trading account including sales, gross profit and net profit have not been disputed. Apart from that every invoice describes the delivery and details of delivery challan and this fact has been stated clearly before CIT(A).

On the other hand, learned DR strongly relied upon the order of the CIT(A) and submitted that once it has been found that assessee made purchases from bogus Hawala Operators and assessee could not produce the suppliers nor they were found to be existing in the given address as mentioned by the AO, the purchases cannot be held to be genuine.

In a short rejoinder, the learned counsel submitted that no such notices have been issued under section 133(6) and this fact has never been communicated by the AO that these suppliers were never found in the given address as per the invoices.

We have heard the rival submissions and also perused the relevant material placed on record. It is seen that assessee for proving genuineness of the purchases have filed following documents with regard to all these parties which has been incorporated in the order of the CIT(A) which for the sake of ready reference is reproduced under:

All these documents have also been furnished before us. From the aforesaid documents, it is seen that apart from the ledger account of the parties, assessee has also filed tax invoice, which includes delivery challan to prove that these purchases were delivered to the assessee. Secondly, the payments have been made through account payee cheques from the bank account of the assessee which has been cleared and the corresponding quantity and value of the purchases have been duly incorporated in the books of account. Another important fact is that corresponding quantity of sales and value have been duly disclosed and the corresponding sales and the gross profit has been accepted by the AO. The party has also filed confirmed ledger account of the assessee along with tax invoices and delivery challan. The entire premise of the AO is simply based on the report of the Investigation Wing that these parties were listed as Hawala Operators. Nowhere only material has been brought on record that these parties were actually examined and they have stated that they have provided only hawala bills to the assesseee without making any actual sales and have simply issued the sale bills. If AO is relying on such information, then at least he should have in his possession as to, whether these parties have categorically stated that the assessee was provided accommodation bill or they were not doing any genuine business. In case of purchase, the assessee can only establish the documents like bills / tax invoices, delivery challan, payment made through cheques, the source of which are duly incorporated in the books of account, copy of bank statements and most importantly the quantity of purchases have been duly debited to the books of account and there is a corresponding sales. Without the purchase of same quantity, the sales cannot be affected. AO has disturbed the trading results nor rejected the books of account. In this case, AO has not treated the entire purchases as bogus, albeit has applied peak of purchases or applied G.P. of 25% on ad-hoc basis on the said purchases. Thus, he himself is not treating the entire purchases as bogus. The manner in which the addition has been made by the AO cannot be sustained simply relying on the information received from Sales Tax Authorities and without examining the documents and evidences filed before him. Accordingly, we hold that the entire addition made by the AO on account of purchases are deleted.

Since similar facts are permeating in A.Y. 2010-11 wherein addition has been made by the AO by applying peak of Rs.1,08,51,009/- aggregate purchase of Rs.2,06,05,871/- from same very parties. Our finding given in the appeal in ITA No.108/Mum/2025 will apply mutatis mutandis in this appeal also. Accordingly, the addition made by the AO is deleted.

In the result, both the appeals filed by the assessee are allowed. Orders pronounced in the open court on 29th April, 2025. (Amit Shukla) Judicial Member मुंबई Mumbai; दिनांक Dated : 29.04.2025 Prabhat आदेशकीप्रतिलिपिअग्रेषित/