BHAVESHWAR TRADERS,MUMBAI vs. ASST CIT 31(1), MUMBAI

The issue raised is that the ld. CIT(A) erred in sustaining disallowance of 100% of bogus purchase, amounting to Rs.22,39,511/-. The assessee has also raised ground challenging the reopening of this case.

(A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT 3. In this case, the assessee is a Partnership Firm engaged in the business of manufacturing of ready-made garments. The assessee had filed its return of income for AY 2009-10 on 27/09/2009 declaring a total income of Rs.21,17,592/-. The same was assessed under section 143(3) of the Act on 31/10/2011 at an income of Rs.23,11,990/-. Subsequently, the Assessing Officer received information from the office of the DGIT(Inv) to the effect that the assessee has made bogus purchases and had taken accommodation bills of entry. The Assessing Officer reopened the assessment of the assessee after recording reasons. The assessee was found to have taken bills of purchase from the following hawala dealers: SL No. Name of Hawala Dealer Amount

In the assessment proceedings, the Assessing Officer sought to verify the purchases of Rs. 22,39,511/- claimed to have been made from the above four hawala dealers and issued notices u/s 133(6) of the Act, but these were returned by the postal authorities with the remarks 'not known' and 'unclaimed' etc. The Assessing Officer also directed the assessee to prove the genuineness of purchases from the above party with the documentary evidence or to produce the party along with necessary evidences like octroi receipts, L/R receipts etc. The Assessing Officer had also sought detailed information concerning the purchases, stocks, production details etc. as mentioned on pages 4-5 of the assessment order.

Before the AO the assessee claimed that on 10/10/2014 a fire had broken out in the registered factory premises of the assessee at B-2, A-101-108, RS Indl. Estate

Against the above order, the assessee appealed before the learned CIT(A) who confirmed the action of the assessing officer. The ld. CIT(A) concluded as under: 7.2 The assessee has also claimed the impugned dealers was its genuine suppliers. The point to be noted is that the assessee declared to the Income Tax Department that its suppliers are genuine despite the assessee foregoing the set off of the VAT paid by it on the alleged purchases and despite the 'dealer' giving statements to the Sales Tax Authorities that they are not doing any genuine sales. The 'dealer’ is the witnesses of the assessee through whom the assessee seeks to justify its books of account. When the assessee's witness does not seem to back the assessee's claims, it cannot even be said that the AO has entertained the witness of an outside third party. The A.O. had merely informed the assessee that its claim of making purchases from the alleged hawala_dealer is not borne out. The onus was on the assessee to substantiate his return of income. A similar issue has been considered and rejected by the ITAT in the case of Sukh Ram v. ACIT (2007) 99ITP 417(Pen and by the Delhi High Court in 285 ITR 256 (Del) in the same case. In the Sukh Ram case the appellant had claimed that the cash found at his residence during the course of the search belonged to a political party. The AO recorded a statement of the party treasurer of the political party who refuted this claim. Before the ITAT and the High Court the assessee claimed that no addition can be made in his case unless he gets to cross-examine the party treasurer. This argument of the appellant in this case was rejected and it was held that when the AO merely seeks to verify the claim of the assessee, it is not akin to taking evidence behind the back of the assessee. In the present case also, the assessee was allowed full opportunity in the re-assessment as well as the appeal proceedings to justify and prove its purchases but it has failed to do so. The assessee could not substantiate its own sellers. The onus never left the assessee. The assessee has not been able to file any confirmation of account from the party. 7.3 The assessee had also claimed that the AO has only relied upon the enquiries conducted by the Sales Tax Department. It is it is seen that the AO has given the details of the enquiries conducted by the Sales Tax Department at (A.Y.2009-10) Bhaveshwar Traders vs. Astt. CIT para-4.l(iii) of the reassessment order and the inquiries as well as the documents submitted by the hawala dealers establish that the transactions of the assessee with the hawala dealers were not genuine.

Against the above order of learned CIT(A), the assessee is in appeal before the ITAT.

I have heard ld. Departmental Representative and perused the records. An adjournment letter has been filed by the assessee. Assessee had earlier also sought adjudication. This adjournment petition has been rejected. I find that credible and cogent information was received in this case by the assessing officer that certain accommodation entry provider/bogus suppliers were being used by certain parties to obtain bogus bills. Assessee was found to have taken accommodation entry/bogus purchase bills during the concerned assessment year from different parties. Based upon this information, the assessment was reopened. The credibility of information relating to reopening remains un-assailed. In such factual scenario, the assessing officer has made the necessary enquiry. Assessee has not been able to provide any confirmation from any of the party. Assessee has also not been able to produce any of the parties. Necessary evidence relating to transportation of the goods was also not on record. In this factual scenario, it is amply clear that assessee has obtained bogus

The Sales Tax Department in its enquiry has found the parties to be providing bogus accommodation entries. Assessee has not been able to produce any of the parties. Neither the assessee has been able to produce any confirmation from these parties. In such circumstances, there is no doubt that these parties are non-existent. I find it further strange that assessee wants the Revenue to produce assessee's own vendors, whom the assessee could not produce. The purchase bills from these non- existent /bogus parties cannot be taken as cogent evidence of purchases. In light of the overwhelming evidence, the Revenue authorities cannot put upon blinkers and accept these purchases as genuine. This proposition is duly supported by Hon’ble Apex Court decision in the case of Sumati Dayal 214 ITR 801 and Durga Prasad More 82 ITR 540.

In the present case, the assessee wants that the unassailable fact that the suppliers are non-existent and thus bogus should be ignored and only the documents being produced should be considered. This proposition is totally unsustainable in light of above apex court decisions. However, I find that in this case, the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt 18.6.2014). In this case, the Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, the facts of the present case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non- payment of tax and others at the expense of the exchequer. In such situation, in our

As regards the reopening of the assessee, on a careful consideration, I note that in this case information was received by the Assessing Officer from DGIT Investigation (Mumbai) there are some parties who are engaged in the hawala transactions and are also involved in issuing bogus purchase bills for sale of material without delivery of goods, which information was based on information received by Revenue from Maharashtra Sales Tax Authority. Information was received that the assessee was beneficiary of hawala accommodation entries from entry providers by way of bogus purchase. The accommodation entry provider has deposed and admitted before the Maharashtra Sales Tax Authority vide statement/ affidavit that they were engaged in providing bogus accommodation entries wherein bogus sale bills were issued without delivery of goods, in consideration for commission. These, accommodation entry providers, on receipt of cheques from parties against bogus bills for sale of material, later on withdrew cash from their bank accounts which was returned to beneficiaries of bogus bills after deduction of their agreed commission. The Assessee was stated to be one of the beneficiaries of these bogus entries of sale of material from hawala entry operators in favour of the assessee wherein the assessee made alleged bogus purchases through these bogus bills issued by hawala entry providers in favour of the assessee. These dealers were surveyed by the Sales Tax Investigation Department whereby the directors of these dealers have admitted in a deposition vide statements/affidavit made before the Sales Tax Department that they were involved in. issuing bogus purchase bills without delivery of any material. There is a list of such parties wherein the assesses is stated to be beneficiary of bogus purchase bills.

The above discussion and precedent from Apex Court fully justify the validity of reopening in this case.