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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the cross appeals filed by assessee and revenue against the order of CIT(A)-20, Mumbai dated 27/03/2017 for A.Y. 2011-12. 2. The grievance of both assessee and revenue relates to addition made on account of bogus purchases. 3. Rival contentions have been heard and record perused.
3970/Mum/2017 M/s. Hans Chemicals Pvt. Ltd., 4. Facts in brief are that during the course of scrutiny proceedings it was found that the assessee had entered into transactions with certain parties whose names were appearing in the list of Hawala Entry Providers published in the official website of Maharashtra Sales Tax Department. The transaction of the assessee with these parties pertains to purchases which were claimed as expenditure in the P & L account. Accordingly AO added entire amount of Rs.2,26,33,661/- u/s.69C.
By the impugned order, CIT(A) restricted addition to the extent of 5% after observing as under:- 6.4 I have gone through the assessment order and submissions made in this regard. It is noted that the A.O. had made addition out of purchase made by the assessee to the tune of Rs.2,26,33,661/-. The A/R of the assessee has opposed the additions and submitted that the purchases were at was also submitted that payment was all made through banking channel and the delivery of materials was supported by delivery challans. It is stated that the A.O. had made addition on the basis of information received from VAT authorities without affording opportunity of cross examination to the assessee. It is noted that the entire matter pertains to hawala purchases from so called suspicious dealers as per the information of VAT authorities. The A.O. has disallowed these purchases as the assessee could not produce these parties for verification. It is noted that primary onus to establish that the purchases were genuine was on the assessee. The assessee is only partly able to discharge the complete onus. It is also noted that A.O. has simply made addition on the basis of statement without much enquiry into the facts of the case. On the other hand assessee has filed copies of bills, bank statement etc. to establish that purchases were genuine. On the face of these evidences the entire purchases cannot be held to be bogus merely on the basis of a statement of seller who was never cross examined by the assessee. It is also noted that the items purchased were used as input into assessee's product for sales which have been accepted by the department. 6.5 It is noted that only profit element is liable to tax in such cases as was held in the case of : 1. CIT vs. Bholanath Poly Fab Ltd. (2013) 355 ITR 290 (Guj). (HC) 2. CIT v Simit P. Sheth (2013) 356 ITR 451 (Guj) (HC) 3. CIT vs. Sanjay Oil Cake Industries (2009) 316 ITR 274 (Guj) (HC) 4. ITO vs. Permanand (2007) 107 TTJ 395 (Jd)(Trib.) 5. Shri Madhukant B. Gandhi vs. ITO Bench 'B' dt. 23-02-2010 (AY 2005-06) (Mum.)(Trib.) 5. Sanjeev Woolen Millls Vs. CIT (2005) 279 ITR 434 (SC) 6.6 In view of the above discussion, it is seen that the addition made by the AO on account of alleged bogus purchase cannot be sustained fully in appeal. Having regard to facts of the case and submissions made, it would be fair and reasonable if the addition made by the A.O. is restricted to 5% on the alleged 3970/Mum/2017 M/s. Hans Chemicals Pvt. Ltd., bogus purchases of 2,26,33,661/- which comes to Rs, 11,31,683/-. Accordingly, the ground of appeal is partly allowed.
6. We have considered rival contentions and gone through the orders of the authorities below and found from record that addition was made by AO in respect of purchases, supplier of which could not be verified.
7. It was contended by learned AR that the addition made is based on the information received from the Sales Tax Department and the statement of the suppliers. It was further submitted that although, the addition is made on the basis of the statements recorded of the third parties as well as affidavits filed by them before the state authorities, but the same were never provided with to the assessee for cross examination. Hence, the Learned A.O. erred in completing the assessment by passing the order u/s 143(3) of the Income Tax Act, 1961 using the statements recorded from third party at the back of assessee. Therefore, the assessment order passed is nothing but the breach of principle of natural justice and equity done to assessee. He further contended that assessee has shown GP of 40.38%. Under these circumstances, there is no justification for making further addition of 5%; keeping in view the nature of trade assessee was engaged in. 8. On the other hand, learned DR relied on the order of the AO and contended that AO disallowed these purchasers because assessee could not produce these parties for verification. As per learned DR, primary onus with the purchases were genuine, was on the assessee. Accordingly, contended for confirmation action of the AO.