PRITHVIRAJ G. CHARAYA,MUMBAI vs. ACIT 31(2), MUMBAI

The present appeal is directed against the order passed by the CIT(A)-42, Mumbai, dated 26.10.2016, which in itself arises from the assessment framed by the A.O u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short „the Act‟), dated 30.01.2015. The assessee assailing

Briefly stated, the facts of the case are that the assessee who is engaged in the business of electrical engineers and contractors as a sole proprietor of a concern M/s Ecom Associates had filed his „return of income‟ for A.Y. 2009-10 on 25.09.2009, declaring an income of Rs. 1,30,49,700/-. The A.O was in receipt of information from the office of the Director General of Income tax (Inv.), Mumbai, [for short „DGIT(Inv.)‟] that the Sales tax department, Government of Maharashtra, had unearthed the names of various suspicious parties which were involved only in providing of accommodation entries without doing any actual business. The A.O was informed by the office of the DGIT(Inv.) that the details so gathered by the Sales tax department, which was also available on the official website of MVAT, therein revealed that the assessee had carried out various purchases from the said hawala parties, as under:-

That during the course of the assessment proceedings the assessee in compliance to the directions of the A.O furnished the details of the purchases, TIN and name of the parties from whom purchases were made by him during the year under consideration. The A.O deliberating on the details of purchases furnished by the assessee, therein observed that the assessee had made purchases aggregating to Rs. 11,93,677/-(supra) from the parties whose name figured in the list of the hawala parties which were found by the Sales tax department to have been providing accommodation entries.

The A.O thus in the backdrop of the aforesaid factual position called upon the assessee to substantiate the genuineness and veracity of the purchases made by him during the year under consideration. The A.O directed the assessee to produce before him the Stock register (day to day basis for all items), day to day consumption and production register (for each of the item), production, dispatch register, transport details, challan etc., as evidence of the purchase transactions. The A.O also called upon the assessee to furnish month- wise details of purchases and sales, both in quantity and value. The A.O in order to verify the veracity of the purchase transactions issued Notices u/s 133(6) to the aforesaid hawala parties, however, the same were returned by the postal authorities with the remarks “not known” and “left address”. The A.O brought the aforesaid facts to the notice of the assessee and directed him to get compliance of the aforesaid notices, as well as prove the genuineness of the purchase transactions. The assessee however did not make necessary compliance to the specific directions of the A.O and failed to place on Prithviraj G. Charaya record the documentary evidences to substantiate the genuineness of the purchases, viz. day to day item wise stock register, stores register, stock-movement register, and the evidence of consumption of material purchased from the abovementioned parties. The assessee during the course of the assessment proceedings took strong support of the fact that the payments of the purchase consideration was made to the aforementioned parties through banking channel, however, the A.O holding a conviction that making of payment through banking channel did not suffice the requirement for proving the genuineness of the purchase transactions. The A.O in the backdrop of the aforesaid factual position thus concluded that in the absence of the corroborative evidence having been placed on record by the assessee, the genuineness of the purchases could not be established. The pertinent observations recorded by the A.O while framing the assessment are briefly culled out as under:-

The assessee being aggrieved with the order of the A.O carried the matter in appeal before the CIT(A). The CIT(A) while disposing of the appeal therein did find favor with the observations of the A.O. The CIT(A) further observed that while for on one hand the assessee was stressing on the genuineness of the purchase transactions, however, contrary to the said claim had itself foregone the set off of the VAT claimed by him to have been paid on the purchases made from the aforesaid parties. The CIT(A) deliberating on the observations of the A.O and the contentions raised by the assessee before him, therein concluded that the assessee had failed to discharge the onus as stood cast upon him in respect of the genuineness of the purchase transactions. The CIT(A) distinguishing the facts involved in the case of the present assessee, as against a case where both the purchase and sales are verifiable and proven, or a case where the purchases are found to bogus but the correlating sales are proved, therein observed that as in the case of the present assessee the assessee had failed to substantiate the genuineness of the purchases as well as the factum of consumption of the material, therefore, the assessee could safely be held to have inflated its expenses by taking bogus bills of purchases from the hawala dealers. The CIT(A) thus in the backdrop of his aforesaid observations confirmed the entire disallowance of Rs. 11,93,677/- made by the A.O. and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Authorized representative (for short „A.R‟) for the assessee submitted that as the goods purchased were consumed by the assessee in the course of his business as that of a contractor, therefore, the A.O had erred in Prithviraj G. Charaya making the disallowance of the entire purchases pertaining to the aforesaid parties. The ld. A.R submitted that the fact that the assessee had substantial turnover of Rs. 8,54,40,406/- and had filed a „return of income‟ declaring an income of Rs. 1,30,49,700/-, in itself sufficiently proved that there was no reason for the assessee to have indulged in making a wrong claim of purchases of a petty amount of Rs. 11,93,677/- (supra). The ld. A.R taking us through Page 72 of the „APB‟, which is a compilation giving the bifurcated details of the purchases made by the assessee from the aforementioned parties, which as per the assessee were consumed in the contract work of a value aggregating to Rs. 3,57,98,117/- of M/s Tata Communication Ltd executed by the assessee. It was thus averred by the ld. A.R that now when the goods purchased by the assessee from the aforementioned parties had been consumed in the business of the assessee, therefore, the CIT(A) had erred in sustaining the disallowance of the entire purchases of Rs. 11,93,677/- wrongly made by the A.O. The ld. A.R thus submitted that the addition of Rs. 11,93,677/- (supra) made by the A.O and thereafter sustained by the CIT(A) may be vacated. Per contra, it was submitted by the ld. Departmental representative (for short „D.R‟) that as the assessee had failed to prove the consumption of the material in the course of his business, therefore, the CIT(A) had rightly upheld the disallowance of the entire purchases of Rs. 11,93,677/-(supra) in the hands of the assessee. It was thus submitted by the ld. D.R that the appeal of the assessee lacked any merit and was thus liable to be dismissed.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We have given a thoughtful consideration to the facts of the case and are of the considered view that a perusal of the facts recorded by the lower authorities and the material available on Prithviraj G. Charaya record, therein reveal beyond any scope of doubt that the assessee had failed to corroborate his claim as regards consumption of the impugned purchases of the goods claimed to have been made from the aforementioned hawala parties. The ld. A.R by drawing our attention to the „Chart‟ placed at Page 72 of the „APB‟, had therein tried to impress upon us that the goods of the value of Rs.11, 93,679/- (supra) purchased by the assessee from the aforesaid parties were thereafter consumed in the course of executing its contract work of a value of Rs. 3,57,98,117/- (supra) for M/s Tata Communications Ltd. We find that the assessee except for raising the aforesaid hollow claim, had however absolutely failed to place on record any concrete material which could go to support his claim that the material purchased from the aforementioned parties had factually been consumed in executing the contract work of M/s Tata Communication Ltd. The aforesaid claim of the assessee, in the absence of any material evidencing the said contention of the assessee, does not inspire any confidence and cannot be accepted. We are unable to comprehend the basis on which the aforesaid claim had been raised by the assessee before us. We find that the contention of the assessee and the „Chart‟ furnished by the assessee to drive home his contention that the material purchased from the abovementioned parties had been consumed in the course of execution of the contract/work of M/s Tata Communication Ltd is nothing better then a self suiting contention raised by the assessee before us, which as observed by us hereinabove, in the absence of any supporting material/evidence cannot be accepted. We thus not being persuaded to accept the aforesaid contention of the assessee are not inclined to accept the same. We being of the considered view that the CIT(A) had passed a well reasoned order, thus finding ourselves to be in agreement with the view taken by him, therefore, find no reason to dislodge the same. We thus in the backdrop of our aforesaid