AJAYAN GANGADHARAN,NASHIK vs. INCOME-TAX OFFICER, NASHIK

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ITA 1994/PUN/2016Status: DisposedITAT Pune22 October 2018AY 2009-109 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the addition to the extent of 10% of the alleged bogus purchases, considering that the assessee had established the receipt and onward transmission of goods but had purchased from the grey market. The Tribunal relied on a previous co-ordinate bench decision.

What were the facts?

The assessee, a proprietor of an engineering works, was found to have engaged in hawala transactions for purchases amounting to Rs. 66,88,471. The Assessing Officer treated these purchases as bogus and made an addition to the income.

What were the issues?

The primary issue was the genuineness of purchases made from alleged hawala parties and the extent of disallowance warranted when goods were received but sourced from dubious suppliers.

Which sections of the Income-tax Act were involved?

Section 148,Section 143(2),Section 142(1),Section 143(3),Section 147,Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

For Appellant: Shri Sanket Joshi
For Respondent: Shri Rajesh Gawli
Hearing: 04.10.2018Pronounced: 22.10.2018

PER ANIL CHATURVEDI, AM : 1. These cross-appeals filed by assessee and Revenue emanate out of consolidated order of the Commissioner of Income-Tax (A) – 1, Nashik dt.13.07.2016 for the assessment years 2009-10 to 2011-12.

2.

Before us, both the parties submitted that the grounds raised in

the appeals of assessee and Revenue are inter-connected and identical

except for the year, the amounts involved and therefore they have

common submissions to make. In view of the aforesaid submissions, we

for the purpose of convenience, proceed to dispose of the appeals by a

consolidated order but however proceed with narrating the facts in ITA No.1994/PUN/2016 for A.Y. 2009-10.

3.

The relevant facts as culled out from the material on record are as

under :-

Assessee is an individual and Proprietor of M/s Aathira

Engineering Works, Nashik. Assessee electronically filed his return of

income for A.Y. 2009-10 on 19.09.2009 declaring total income of

Rs.5,06,370/-. On receipt of certain information from Maharashtra

Sales Tax Department regarding assessee’s entering into hawala

transactions aggregating to Rs.66,88,471/- with various parties listed

at page 2 of the assessment order, notice u/s 148 of the Act was

issued. Subsequently, notice u/s 143(2) and 142(1) of the Act

dt.29.04.2014 along with questionnaire were issued. Thereafter,

assessment was framed u/s 143(3) r.w.s. 147 of the Act vide order

dt.24.03.2015 and the total income was determined at Rs.71,94,840/-

inter-alia by making addition of Rs.66,88,471/- being bogus purchases.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A)-1, Nashik, who vide order dt.13.07.2016 (in appeal

No.Nsk/CIT(A)-1/221 to 223/2015-16) granted partial relief to the

assessee. Aggrieved by the order of Ld.CIT(A) and Revenue are now in

appeal before us. The assessee has raised the following grounds :

“1. The learned CIT(A) erred in confirming the disallowance of Rs.16,72,118/- out of the total disallowance of Rs.66,88,471/- made by the A.O. in respect of purchases made from alleged hawala parties on the basis of information obtained from Maharashtra Sales Tax Dept.

2.

The learned CIT(A) erred in holding that the 25% of the amount of purchases made from the alleged hawala parties was to be disallowed without appreciating that no such disallowance was warranted on facts of the case.

3.

The learned CIT(A) failed to appreciate that- a. The entire purchases made by the assessee from the above parties were supported by tax invoices and other documentary evidences and hence, there was no reason to doubt the genuineness of the said purchases. b. The payments to the said parties were made through bank cheques and the A.O. had not brought any evidence on record to show that the payments made by the assessee to these parties were withdrawn by it and returned to the assessee in cash and hence, in the absence of any contrary evidence, there was no reason to doubt the genuineness of the payments made by the assessee to these parties.

4.

The learned CIT(A) ought to have appreciated that- a. The above suppliers had not paid VAT and hence, they had left their registered premises and hence, the addition made by ignoring the various documentary evidences furnished by the assessee was not justified merely because the assessee was not able to produce these parties. b. The A.O. had himself admitted in the asst. order that he was not able to locate the above alleged hawala parties and thus, the A.O. was in no position to grant the opportunity of cross examination of these parties to the assessee and hence, in view of the ratio laid down by Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [Civil Appeal No.4228/2006 dated02.09.2015], the addition made solely on the basis of statement of such suppliers recorded at the back of the assessee was not justified at all.

5.

Without prejudice, the assessee submits that the disallowance made @ 25% of the amount of purchases is very high and the same may be restricted to a reasonable level considering the facts of the case.”

4.

Similar grounds have been raised by the assessee in ITA

Nos.1995 and 1996/PUN/2016 for A.Y. 2010-11 and 2011-12,

respectively.

5.

On the other hand, the grounds raised by the Revenue in ITA

No.2202/PUN/2016 for A.Y. 2009-10 reads as under :

“i. Whether on the facts and in the circumstances of the case, the Ld. CIT(A)-1, Nashik was justified in deleting the addition of Rs.50,16,353/- for A.Y. 2009-10 Rs. 81,75,202/- for A.Y. 2010-11 and Rs. 29,37,904/- for A.Y. 2011-12 on account of alleged bogus purchases from Hawala dealers / parties?

ii) Whether on the facts and circumstances of the case the CIT(A) was justified in deleting the purchases treated as bogus when the appellant had not been able to produce the certain parties from whom purchases were made when letters sent to the parties were returned undelivered or the parties did not respond?

iii) Whether the Ld. CIT(A) should have considered the fact that the onus was on the assessee to get the purchases verified when required to do so especially when such purchases were very substantial in amount, in some years roughly about 50% of the total purchases?

iv) Whether the Ld CIT(A) erred in assuming that the purchases were only inflated when it was clear from the conduct of the assessee, the parties found missing and results of the investigation of another Govt, Department (Sales Tax), that the purchases could not be proved as genuine and therefore the disallowance by the AO was justified?

v) Whether the Ld CIT(A) erred in presuming that simply because no addition was made in case of Sales, it was accepted as genuine and further assuming that thereby purchases should be genuine?

vi) Whether the Ld. CIT(A) erred in accepting the affidavits from suppliers without any explanation from the assessee why the suppliers could not appear before the AO when they were called for examination, subsequently and details such as copies of accounts, bank transactions were not produced?

vii) The appellant prays that the order of the Ld. CIT(A)-1, Nashik may please be cancelled and the order of Assessing office may please be restored.”

6.

Similar grounds have been raised by the Revenue in ITA Nos.2203

& 2204/PUN/2016 for A.Y. 2010-11 and 2011-12, respectively.

7.

Though, assessee and Revenue raised various grounds but the

sole controversy is with respect to the relief granted by Ld.CIT(A) on the

addition made by AO on account of bogus purchases.

8.

AO noted that assessee had made purchases aggregating to

Rs.66,88,471/- from various parties (listed at page 2 of the assessment

order). AO noted that Sales Tax Department on the basis on enquiries

made at their end had concluded the aforesaid suppliers to be bogus.

AO noted that to verify the genuineness of purchases made by assessee

from the aforesaid parties, notices issued u/s 133(6) of the Act to the

parties for furnishing certain details was sent but were returned by the

Postal Authorities. AO noted that though assessee was given an

opportunity and asked to produce the relevant parties but assessee

failed to produce the parties before him. The submission of the assessee

that the purchases were genuine was not found acceptable to AO. He

held the aggregate purchases of Rs.66,88,471/- to be bogus and made

its addition. Aggrieved by the order of AO, assessee carried the matter

before Ld.CIT(A), who granted partial relief to the assessee by upholding

the disallowance to the extent of 25% of bogus purchases. Aggrieved by

the order of Ld.CIT(A), assessee and Revenue are now in appeal before

us. Assessee is aggrieved for upholding the disallowance to the extent of

25% and Revenue is aggrieved for the relief granted by Ld.CIT(A).

9.

Before us, Ld.A.R. reiterated the submissions made before AO and

Ld.CIT(A) and further submitted that assessee had asked the AO to

grant cross-examination of the persons which was the basis for

proposed addition. He submitted that AO did not grant cross-

examination of the alleged bogus suppliers. He further submitted that

the entire sales arising out of bogus purchases were accepted by

Revenue and the sales are supported by evidence of challans etc. He

further submitted that the payment for purchases have been made by

banking channels. He therefore submitted that Ld.CIT(A) has erred in

upholding disallowance to the extent of 25%. He further submitted that

on identical facts in the case of Mr. Vishnu Vitthaldas Gujarathi in ITA

No.533/PUN/2015 dt.18.08.2017, the family members of assessee, the

Co-ordinate Bench of the Tribunal has upheld the addition to the extent

of 10% of the total bogus purchases. He submitted that as the facts of

the present case are identical to the case of Vishnu Vitthaldas

Gujarathi, the matter in the case of assessee be decided similarly by

making addition of 10% of bogus purchases. Ld.D.R. on the other

hand, supported the order of lower authorities.

10.

We have heard the rival submissions and perused the material on

record. The issue in the present case is with respect to making of

addition of Rs.66,88,471/- to the total income of the assessee on

account of bogus purchases. We find that AO in the order has noted

that assessee had failed to establish the genuineness of the purchases

amounting to Rs.66,88,471/- and therefore AO treated the entire

purchases as bogus purchases and disallowed the entire purchases of

Rs.66,88,471/- by treating it as bogus. When the matter was carried

before Ld.CIT(A), Ld.CIT(A) upheld the disallowance to the extent of 25%

of bogus purchases. We find that on identical facts, in the case of Mr.

Vishnu Vitthaldas Gujarathi in ITA No.533/PUN/2015 for A.Y. 2010-

11, the Co-ordinate Bench of the Tribunal has upheld the addition to

the extent of 10% of purchases by observing as under :

6.

We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The only issue raised by the assessee in appeal is against confirming of addition of Rs.7,54,883/- i.e. to the extent of 30% of alleged bogus purchases. The Assessing Officer had made addition of Rs.25,49,609/- on account of bogus purchases. The assessee had allegedly purchased goods from Shri Jayesh M. Mashru, Proprietor M/s. Pioneer Trading Company to be supplied to MSETCL. Shri Jayesh M. Mashru in his statement recorded u/s. 14 of the Maharashtra Value Added Tax Act, 2002 during investigation conducted by Sales Tax Department admitted that he has not done any business of sales and purchase of goods in the said firm and had issued bogus sales bills on commission basis. As per the

contentions of assessee, the goods were transported by M/s. Swastik Transport Co. The assessee was asked to furnish proof of transportation of goods. The assessee filed copies of lorry receipts issued by the transporter. However, to further substantiate his claim and to rebut the allegations leveled by the Department no confirmation letters either from Shri Jayesh M. Mashru or M/s. Swastik Transport Co. were filed by the assessee.

7.

It is an undisputed fact that M/s. Pioneer Trading Company is a notified Hawala dealer. A perusal of the impugned order shows that supply of goods to MSETCL has not been disputed. At the same time the assessee has not furnished cogent evidence to show trail of goods purchased from M/s. Pioneer Trading Company. The Commissioner of Income Tax (Appeals) has opined that assessee might have purchased goods from grey market and thereafter supplied the same to MSETCL. We find merit in the reasoning given by Commissioner of Income Tax (Appeals).

So far as the objection raised by the assessee that addition has been made on the basis of statement of Shri Jayesh M. Mashru recorded at the back of assessee and no opportunity to cross-examine was afforded, we find that copy of statement of Shri Jayesh M. Mashru was provided to the assessee on 13-03-2013. To rebut the said statement, assessee has failed to file any confirmation letter from Shri Jayesh M. Mashru.

8.

The Pune Bench of Tribunal in the case of M/s. Chhabi Electricals Pvt. Ltd. Vs. Deputy Commissioner of Income Tax (supra) had occasion to deal with various set of Hawala purchase cases. The Tribunal while dealing with the cases where statements recorded by the Sales Tax Department were provided to the assessee and the assessee has been able to establish that the goods were supplied, the addition was made by estimating GP @ 10% of the alleged Hawala purchases. The relevant extract of the findings of Tribunal on this issue are as under :

“V. Another set of cases where the statements recorded by the Sales Tax Department have been handed over to the assessee and the copies of same have been supplied to the assessee, then where the assessee established the case of receipt of goods and its onward transmission, then the factum of purchases by the assessee stands established in such circumstances. However, estimation is to be made in the hands of assessee because of purchases from the grey market and following the above said ratio, addition is to be made by estimating the same @ 7 10% of the alleged hawala purchases, over and above the net profit shown by the assessee.”

Taking into consideration the totality of facts, we are of considered opinion that disallowance @ 10% of the total bogus purchases would meet the ends of justice. We direct and hold, accordingly.”

Before us, Revenue has not pointed out any distinguishing feature in

the facts of the present case of assessee and that of Vishnu Vitthaldas

Gujarathi (supra). We therefore relying on the decision of Co-ordinate

Bench of the Tribunal in the case of Vishnu Vitthaldas Gujarathi

(supra), and for similar reasons uphold the addition to the extent of

10% of such bogus purchases. We thus direct accordingly. Thus, the

ground of the assessee is partly allowed and the appeal of Revenue

is dismissed.

11.

In the result, the appeal of the assessee in ITA

No.1994/PUN/2016 for A.Y. 2009-10 is partly allowed and the

appeal of Revenue in ITA No.2202/PUN/2016 is dismissed.

12.

Now we take up assessee’s appeals in ITA Nos.1995 &

1996/PUN/2016 and Revenue’s appeals in ITA Nos.2203 &

2204/PUN/2016 for A.Ys. 2010-11 and 2011-12.

13.

As far as the grounds raised in appeals of assessee and Revenue

are concerned, in view of the submissions of both the parties that the

facts of the case in the year being identical to the facts and issue of the

case in ITA No.1994/PUN/2016 and ITA No.2202/PUN/2016 for A.Y.

2009-10, we therefore for the reasons stated herein while disposing of

the appeal in ITA No.1994/PUN/2016 and ITA No.2202/PUN/2016 for

A.Y. 2009-10 and for similar reasons, partly allow the grounds of

assessee and dismiss the grounds of Revenue. Thus, the grounds of

the assessee are partly allowed and the grounds of Revenue are

dismissed.

14.

In the result, the appeals of assessee in ITA No.1995 &

1996/PUN/2016 and the appeals of Revenue in ITA Nos.2203 &

2204/PUN/2016 for A.Ys. 2010-11 & 2011-12 are dismissed.

15.

To sum up, all the appeals of assessee are partly allowed and the appeals of Revenue are dismissed.

Order pronounced on 22nd day of October, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 22nd October, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent 3. The CIT(Appeal)-1, Nashik. 4 The CIT, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” / DR, 5. ITAT, “A” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.

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