SATNAM STEEL TRADERS,THANE vs. DCIT CIR 1, MUMBAI

Both the assessee and the Revenue are aggrieved for addition made on account of bogus purchases.

Rival contentions have been heard and record perused.

During the course of assessment u/s 143(3) read with section 147 of the Act, AO observed that assessee has made purchases from two parties namely (i) Amar Enterprises and (ii) Sunrise Enterpirses totalling to Rs. 50,56,480/-, as per the information available from Sales Tax Department of Maharashtra the said two parties are the hawala dealers and no actual sales has been effected. Accordingly, AO added the entire amount of purchases in the income of the assessee. By the impugned order, CIT (A) gave relief of 60% and upheld 40% of such bogus purchases. Against this order of the CIT (A), both the assessee and the Revenue are in appeal before us.

We have heard the rival contentions carefully and gone through the orders of the authorities below. From the record, we find that on the basis of information from the Sales Tax Department, AO treated the purchases as bogus. We found that before the lower authorities, assessee has produced the following documents:- “2.0. Copy of ledger account of M/s. Sunrise Enterprises and M/s. Amar Enterprises along with copy of their purchase invoices and delivery challans are enclosed. 3.0. Copy of bank statements highlighting the payments made to the above suppliers is enclosed. 4.0. Copy of stock register showing the inwards entry for the purchases from the above mentioned parties are enclosed. The summary of stock register was also enclosed along with the Tax Audit Report which was submitted during the assessment u/s 143(3). The assessee is a reseller of iron and steel and hence to make sales, purchases will be required to be made. The books of accounts have not been rejected by the AO and hence, the AO agrees to the fact that the stock, sales amounts are accepted and no deviations are noticed. The assessee has also produced quantitative details of stock movement. In such a case, it is impossible for the assessee to sell something which has not been purchases.”

It was contended by the Ld AR the Maharashtra Sales Tax Department has treated these parties as bogus based on written statements and affidavits taken by them. However, Statements and Affidavits of vendors filed before the sales tax authorities cannot be used as evidence against the assessee unless opportunity for cross examination was given to the assessee. This view has been taken in the following judicial pronouncements: