RAJESH SHIVJI SHAH,MUMBAI vs. 20(3)(1), MUMBAI

It is an undisputed fact that the Ld.AO throughout had never provided any documents, statements, affidavit which he had in his possession for cross examination of the alleged hawala suppliers. In this regard assessee had 3 Rajesh Shivji Shah, Mumbai made request to the AO and also before the Ld. CIT(A), but the revenue authorities ignored this violation of natural justice. It is also an admitted fact that the sales corresponding to the purchases were accepted by the AO but the purchases were disallowed which is contrary to the proposition of law.

Before proceeding further it is necessary to evaluate the provisions of Sec. 69C of the Act under which the present additions have been made and the extract of the provisions of Sec. 69C is reproduced herein below:

Section 69C deals with unexplained expenditure. It says that where an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or if the explanation offered by him is in the opinion of the AO not satisfactory, then the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the 4 Rajesh Shivji Shah, Mumbai assessee for the financial year under consideration. As per the proviso, once such expenditure is treated as unexplained expenditure which is deemed to be the income of the assessee, then the same shall not be allowed as a deduction under any head of income.

The Hon’ble Gujarat High Court in the case of Krishna Textiles Vs. CIT, 310 ITR 227 has categorically held that under Sec. 69C of the Act, the onus is on the revenue to prove that the income really belongs to the assessee. However in the present case the assessee has already submitted all the required supportive documents in the shape of ledger, statement of account, copies of purchase bills, bank statements and proof regarding making of payment through banking channel and even the AO did not doubted the sales made by the assessee. On the contrary the AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from Sales Tax Department, without affording the assessee any opportunity to cross examine the witnesses in this regard or the fact that these parties did not respond to notice u/s 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition. In my view if the AO doubted the genuineness of the said purchases, then in that eventuality it was incumbent upon him to cause further enquiries in the matter to ascertain the 5 Rajesh Shivji Shah, Mumbai genuineness or otherwise of the transactions. Without causing any further enquiry in respect of the said purchases, the AO cannot make additions u/s 69C of the Act by merely relying upon the information obtained from the Sales Tax Department without providing assessee any opportunity of cross examination and for non response to notice u/s 133(6) of the Act.

In this case all the payments for the said purchases to the concern parties were through proper banking channel and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the additions made by the AO u/s 69C of the Act are thus unsustainable, in this regard I am fortified by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Nikunj Eximp Enterprises [2015] 372 ITR 619 (Bom HC).

From the facts I also found that there is no direct finding of bogus purchases in Sales Tax proceedings and mere VAT assessment does not established that the asessee’s transactions with the purchases parties were fictitious. In the present case the assessee has placed on record the decision of VAT Appellate Authority, wherein the said authority has verified the transactions and accepted Form No. 704, audit report which confirms compliance with tax laws and the input tax credit (ITC) was granted 6 Rajesh Shivji Shah, Mumbai which also goes to show that purchases were treated as genuine by the VAT authority. Thus while relying upon the decision of Hon’ble Bombay High Court in the case of Ashok Kumar Rungta Vs. ITO, 1759/2018, 2780/2018, wherein it was held that disallowance of purchases cannot be sustained when the VAT authorities have accepted the transactions.

Since the facts of the present case are identical with the facts in the case of Ashok Kumar Rungta (supra), therefore I am of the view that disallowance of purchases in the present case cannot be sustained when the VAT authorities itself have accepted the transactions. Although revenue has relied upon the decision of Hon’ble Bombay High Court in the case of PCIT Vs. Kanak Impex (Ind) Ltd Vs. of 2021, but the facts contained in the said decisions are different from the facts of the present case as in the case of PCIT Vs. Kanak Impex (Ind) Ltd (supra), the assessee had not cooperated and has not submitted the entire records and the books of accounts in the said case were also rejected. Whereas as per the facts of the present case the assessee had made full compliance before the AO by submitting all the relevant documents and the books of accounts have not been rejected by the AO. All the payments made in the present case were through banking channel and the same have been proved on record but the facts of the cited case i.e PCIT Vs. 7 Rajesh Shivji Shah, Mumbai Kanak Impex (Ind) Ltd (supra), is based on materially different facts. Therefore cannot be applied upon the present case. Considering the totality of the facts and circumstances independently as discussed by me above I allow the grounds raised by the assessee and direct the AO to delete additions made u/s 69C of the Act.

Since the Bench has deleted the additions made u/s 69C of the Act therefore other grounds need no adjudication as the same are academic in nature.

In the result the appeal filed by the assessee stands partly allowed.