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Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-28, Mumbai [ in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
1st ground of appeal
The 1st ground raised by the assessee in this appeal is against the order of the Ld. CIT(A) confirming the addition of Rs.1,28,500/- being 15% of total expenses amounting to Rs.8,57,182/-. The AO made the above disallowance on the ground that these expenses were incurred in cash and are neither supported by vouchers nor by third party bills. In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance. Before us, the Ld. counsel of the assessee submits that the Ld. CIT(A) overlooked the proof filed by the assesee before the AO. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). We have heard the rival submissions and perused the relevant materials on record. It is found that the ad-hoc disallowance made by the AO @ 15% is based on surmises and conjectures. Therefore, we delete the disallowance of Rs.1,28,500/- made by the AO and allow the 1st ground of appeal.
3. The 2nd ground of appeal The 2nd ground raised in this appeal is against the order of the Ld. CIT(A) confirming the addition of Rs.49,301/- made by the AO in respect of interest paid on car loan. During the course of assessment proceedings, the AO observed that huge withdrawals were made by all the partners running into negative capital balance with the firm. Therefore, he disallowed the entire interest claim of Rs.49,301/-. In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance. Before us, the Ld. counsel of the assessee submits that the Ld. CIT(A) failed to appreciate the fact that interest was paid on car loan and that the said vehicle was a business asset. On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). We have heard the rival submissions and perused the relevant materials on record. We find that the AO has made a disallowance of the entire interest of Rs.49,301/- by making a general observation that the withdrawals were made for personal use of the assessee and not for the business purpose. Such general observation is neither supported by accounts nor by documents. Therefore, we delete the disallowance of Rs.49,301/- and allow the 2nd ground of appeal.
4. The 3rd ground of appeal 4.1. The ground raised by the assessee in this appeal is against the order of the Ld. CIT(A) confirming the disallowance of Rs. 59,42,000/- [25% of the alleged bogus purchases of Rs.2,37,69,470/- ]made by the AO. 4.2. Briefly stated, the facts of the case are that during the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to furnish details of purchases made from various parties. Accordingly, the assessee submitted details relating to purchases of Rs.15.44 crores.
The AO, in order to verify the purchase transactions issued notices u/s 133(6) to following nine parties:
Sr. No. Name of the party Hawala PAN FY Amount (Rs.) 1. Pioneeer Trading Company APAPB1493F 2010-11 1,073,614 2. Kunal Stainless Steel Industries & ALEPB4997Q 2010-11 1,486,879 Kunal Enterprises 3. Revika Trade Impex Private Ltd. AADCR3729H 2010-11 1,648,828 4. Universal Trading Company AJIPJ7859H 2010-11 1,808,793 5. J B Interlink ADVPT2496H 2010-11 2,003,610 6. Yash Enterprise AAMPP5296R 2010-11 720,720 7. Chetan Chemical Corporation AAAPV5986C 2010-11 2,093,595 8. Chandan Chemical Agency Pvt. AAECC0951F 2010-11 5,656,204 Ltd.
Turbo Sales Exim Pvt. Ltd. AADCT5700A 2010-11 7,277,277 Total 23769470 However, notices issued in case of five parties i.e. parties at serial no. 1, 4, 5, 8 and 9 were returned unserved and in the case of balance four parties the AO did not receive the reply till the date of assessment order dated 13.03.2014. Then the AO asked the assessee to produce the said parties for verification and confirmation. However, the assessee failed to produce the above parties before the AO for examination. In reply to a query raised by the AO, the AR of the assessee vide letter dated 03.02.2014 stated that they had indeed made purchases from the above nine parties and filed a copy of the ledger account and delivery challan in this regard. However, the AO was not convinced with the above reply of the assessee as it failed to submit before him the latest address of the above parties or in the alternative produce them before him for verification of the purchase transactions. However, since the assessee had disclosed the sales corresponding to the purchases, the AO observed that the entire amount of bogus purchases cannot be treated as unproved purchases. Thus he relied on the decision in Sanjay Oil Cake v. CIT 316 ITR 274 (Guj) and estimated disallowance @ 25% on the above alleged bogus purchases of Rs.2,37,69,470/- and made an addition of Rs.59,42,000/-. 4.3 Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the addition of Rs.59,42,000/-. 4.4 Before us, the Ld. counsel of the assessee submits that even though the appellant had submitted all the relevant copies of the bills, proof of delivery of materials purchased from the respective vendors, the Ld. CIT(A) confirmed the addition of Rs.59,42,000/- merely relying on third party statement. It is also stated that the appellant had submitted the stock register showing the movement of goods purchased and sold and closing stock was properly derived from the stock register at the end of the year. The Ld. counsel submits that there was no justification for making a disallowance @ 25% on purchases of Rs.2,37,69,470/- just because notices u/s 133(6) were issued but not served on five suppliers and for the balance parties the same were received, however, no reply was received from them. It is stated that the payments for purchases were made from the books and the same cannot be termed as unexplained expenditure. The Ld. counsel further submits that the Ld. CIT(A) should not have confirmed the disallowance made by the AO without allowing the assessee to cross-examine the said parties and without providing the copy of the statement of the suppliers recorded by the Sales Tax Department. Thus it is stated that the disallowance should not have been made only on the basis of information on the website www.mahavat.gov.in about suspicious dealers. The Ld. counsel files before us a Paper Book containing inter alia ledger account of nine suppliers and bank statements highlighting the payments made to them and also confirmation and PAN of suppliers. 4.5 On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A) and submits that the instant case the assessee failed to submit even the latest address of the parties as a consequence of which letters issued by the AO to five parties were returned by the postal authorities as unserved. Also the remaining four parties did not file any reply before the AO till the date of assessment.
We have heard the rival submissions and perused the relevant materials on record. We are of the considered view that the contentious issues in the instant case could be resolved by proper hearing by the AO. A proper hearing must always include a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view. Cross-examination is allowed by procedural rules and evidently also by the rules of natural justice. Any