SUKHESHAN EQUIPMENTS P. LTD,MUMBAI vs. ITO WD 1(4), KALYAN

The sole issue raised in the grounds of appeal by the assessee is against the upholding the addition of Rs.6,12,261/- by the ld.CIT(A) as made by the AO on account of bogus purchase.

Facts relating to the issue are that the assessee filed return of income on 24.9.2009 declaring total income of Rs.9,33,990/-. The return of the assessee was processed under section 143(1) of the Act on 3.3.2011. The AO received information from the Sales Tax Department, Government of Maharashtra that during the year that the assessee obtained bogus bills from the entry providers/hawala traders. Therefore, on the basis of this information, the AO came to the conclusion that the assessee received accommodation purchases bills from the following four parties: S.No. Name of the entry Maharashtra VAT AY Amount of bills provider No. taken by the assessee 1 M/s Swastik Enterprises 27610669252V 2009-10 Rs.2,15,373 2 M/s Deep Enterprises 277505955164V 2009-10 Rs.85,936/- 3 M/s Amar Enterprises 27770524440V 2009-10 Rs.1,16,448 4 M/s Leo Impex 27230614753V 2009-10 Rs.1,94,504 Thereafter, the AO issued notice under section 148 on 20.3.2013 which was served upon the assessee and was compiled with by the assessee by filing reply dated 29.3.2013, requesting the AO that the return of income filed on 24.9.2009 be treated as return of income filed in response to notice u/s 148 of the Act. Thereafter, the case was transferred from ACIT Circle-1, Kalyan vide transfer order dated 9.1.2014 to the ITO Ward 1(4), Kalyan.

The assessee is engaged in the business of manufacturing and sale of pharmaceutical Machineries At Badlapur. During the year, the assessee showed gross profit of Rs.58,66,010/- and net profit of Rs.641,307/- which is Rs.34.66% and 3.84 % respectively on the turnover of Rs.1,69,22,696/-. During the course of assessment proceedings, the AO issued summon u/s 131 of the Act to one of the Director Shri Shantanu Somesh Sathe and his statement was recorded on oath raising various queries. The AO came to the conclusion that the assessee made bogus purchases to the tune of Rs.6,12,261/- from the four parties and added the same to the total income of the assessee by framing the assessment under section 143(3) read with section 147 of the Act vide order dated 21.1.2014 by assessing the total income at Rs.15,46,250/-.

The First Appellate Authority after considering the contentions of the assessee as has been incorporated in para 5 of the appellate orders dismissed the appeal of the assessee. During the course of appellate proceedings, the ld.CIT(A) called upon the assessee to produce comparative details of GP/NP for preceding two and subsequent two years which has been incorporated by the ld.CIT(A) at para 6.11 of the appellate orders which is as under :

The ld. AR vehemently submitted before us that the FAA has grossly erred by acting on the information received from the Sales Tax Department, Government of Maharashtra in which the above four parties were declared to be Hawala dealers. The ld. AR argued that the assessee in fact received materials from the above mentioned four parties which were consumed in the production of pharmaceutical instruments and machinery. The ld. AR corroborated his averments by drawing our attention to copies of purchase bills as filed in the paper book from pages 2 to 7, 9 to 16, 18 to 31 and 33 to 44 of the paper book. The ld. AR also submitted that the payments to all these parties were made through banking channels and that the stocks were actually consumed in the manufacturing of pharmaceutical instruments and machinery by filing stock tally of the stores and tools at pages 50 to 54 of the paper book. The assessee also tried to explain the genuineness of the purchases by filing the comparative chart of NP/GP from the assessment years 2008-09 to 2012-13 i.e. for five assessment years which ranged from 5 29.65 % to 42.56%. The ld. AR submitted that the AO has not carried out an independent and extensive inquiry to find out the truth and went ahead by disbelieving the purchases by ignoring the relevant facts as the payments of purchases were made through banking channel and purchased material were consumed for manufacturing of pharmaceutical instruments and which were eventually sold. The act of the FAA in upholding the order of the AO was nothing but based on conjecture, surmises and presumptions which was not permissible in law. The ld. AR argued that the purchases made by the assessee which went into manufacturing process could not be treated as bogus only on the basis of fact that the purchases made from the parties were listed on the website of Sales Tax Department, GOM as hawala dealers. Moreover, the assessee was confronted with the statements which were used by the revenue to make the additions. The ld. AR in support of his contention relied on the decision of the jurisdictional High Court in the case of CIT V/s M/s Ashish International in Income Tax Appeal No.4299 of 2009 dated 22nd February, 2011 and the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Imperial Imp & Exp V/s ITO in ITA No. ITA No. 5427/MUM/2015(AY-2009-10) dated 18.3.2016.

On the other hand, the ld. DR, relied heavily on the orders of authorities below by submitting that the assessee was one of the beneficiary of the entries provided by the hawala dealers who also affirmed on oath in 6 the affidavit made before the Sales Tax Authorities, GOM that were engaged in the supply of bills without actually doing any business and therefore the AO has rightly made the addition and upheld by the FAA which deserved to be sustained.

We have carefully considered the rival contentions, perused the material placed before us including the orders of authorities below and case law relied upon by the assessee. We find that the AO on the basis of information received from the Sales Tax Department, GOM reopened the assessment of the assessee on the ground that the assessee was beneficiary of hawala entries provided by the hawala dealers amounting to Rs.6,12,162/-. On perusal of the record available before us we observe that the sole basis of issue of notice under section 148 was that the information received from the Sales Tax Department that the assessee was one of the beneficiary of these entries. We find that during the course of assessment proceedings, the assessee filed a copy of ledger account, purchase bills, delivery challans, proof of payments through banking channels and stock tally which proved beyond doubt that the assessee has received materials which were consumed in manufacturing process of pharmaceuticals and the AO did not point out any defects or deficiency in the books of account except basing his conclusion qua bogus purchase on the basis of information received from the Sales Tax Department, GOM. In our opinion the assessee 7 has discharged the onus cast upon it and now the burden shifts to the revenue to disprove the contentions of the assessee by carrying out further inquiries which was not done in the present case. Moreover, the assessee was not confronted with the statements recorded by the VAT department of GOM from the hawala dealers which itself is in violation of principle of natural justice. In the case of M/s Ashish International (supra), the Hon’ble High Court has held that where cross-examination of third party whose statement was relied by the revenue is not allowed to confront with the assessee, then the Tribunal was right in deleting the addition made on the basis of third party information and no substantial question of law arose from the order of the Tribunal and accordingly dismissed the appeal of the revenue. We also find from the comparative chart placed at page 55 of the paper book that GP rate during the year 2009-10 was 34.66% vis-à-vis the GP rate in the assessment year 2011-12 of 35.76% assessment year 2012-13 of 29.65% which is satisfactory . In the case of M/s Imperial Imp and Exp, the co- ordinate Bench of the Tribunal has held as under : “6. We have carefully considered the rival submissions. The entire discussion in the assessment order reveals that purchases from four parties namely Dhruv sales Corporation - Rs.13,67,640/-; Subhlaxmi Sales Corp. - Rs.20,20,800/-; Dharshan Sales Corporation - Rs.9,64,656/-; and Paras (India)- Rs.33,98,400, totaling to Rs.77,51,496/- have been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax 8 Department of the Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT(Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case, assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the cases of Deepak Popatwala Gal (supra), Shri Rajeev G. Kalathil(supra)and Ramesh Kumar and Co.(supra) have held that the Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with respect to an opportunity to cross examine the fourparties, but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents, which have been rendered under identical circumstances, in our view, the CIT(Appeals) erred in sustaining the addition to the extent of Rs.4,19,356/- instead of deleting the entire addition of Rs.9,68,937/- made by the Assessing Officer. We direct accordingly.”

On perusal of the facts of the present case as compared with the case law relied upon by the assessee, we are of the opinion that the AO has wrongly made addition on account of bogus purchase from the hawala parties. We are therefore not in agreement with the conclusion drawn by the FAA that the suppressed GP/NP being more than the hawala purchases for sustaining the additions. Accordingly we set aside the order of CIT(A) and direct the AO to delete the additions of Rs. 6,12,162/-.