ACIT 14(1), MUMBAI vs. BHAIRAV METALS, MUMBAI

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ITA 4680/MUM/2014Status: DisposedITAT Mumbai06 January 2017AY 2010-113 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the AO violated principles of natural justice by not providing the assessee with copies of supplier statements and an opportunity for cross-examination. Furthermore, the Tribunal found Section 69C inapplicable as the assessee had accounted for all expenditures and had not doubted the sales, including exports.

What were the facts?

The Assessing Officer (AO) made an addition of Rs. 1.31 crores for unsubstantiated purchases from three parties, who were allegedly bogus hawala dealers. The assessee had declared income of Rs. 57.90 lakhs, and the AO determined it at Rs. 1.90 crores.

What were the issues?

Whether the addition for bogus purchases was justified without providing an opportunity for cross-examination and if Section 69C was applicable when expenditures were accounted for.

Which sections of the Income-tax Act were involved?

Section 69C,Section 143(3)

AI-generated summary — verify with the full judgment below

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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य, राजे�� राजे�� केकेकेके अनुसार अनुसार/ PER Rajendra A.M.- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 30.4.14,of CIT(A)-Mumbai, the Assessing Officer(AO) has filed the present appeal. Assessee-firm,engaged in the business of importing and supply of ferrous and non ferrous metals,filed its return of income on 13.10.2010,declaring income of Rs.57.90 lakhs.The AO completed the assessment on 28.02.2013,u/s. 143(3) of the Act,determining the income at Rs.1.90 crores.

2.Effective Ground of appeal is about deleting the addition made by the AO on account of unsubstantiated purchase from Umiya Sales Agency Pvt. Ltd. (USAPL),Chirag Steel Centre (CSC)and Atlas Jinkushal Metal Corporation(AJMC).During the assessment proceedings,the AO received information from the investigation wing of the department that the sales tax authorities have identified bogus bill providers, that the name of the suppliers of goods to the assessee i.e.USAPL, CSC and AJMC were appearing in the list of the sales tax department. Accordingly,he issued a show cause notice to the assessee asking it to explain as to why the aforesaid transactions should not be treated as bogus.After considering submission of the assessee dt.23.1.2013, 20.2.2013 and 26.2.2013,the AO held that purchases were not support -ed by challans, that there was no direct evidence of receipt of goods, that the suppliers were bogus hawala dealers,that the onus was on the assessee to prove the genuineness of the transaction,that the accommodation bills were procured by assessee to inflate purchase and to reduce gross profit. Invoking the provisions of section 69C of the Act. He made an addition

4680/M/14-Bhairav.M of Rs.1.31(Rs.1.12 crores +13.10 lakhs+6.53 lakhs) crores under the head bogus purchases for the purchases made from the above referred three parties.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it made elaborate submissions. After considering the available material,the FAA held that addition was made on the basis of information received from investigation wing, that the sales tax authorities had passed on information about bogus bill providers to the department, that in case of USAPL no enquiry was made in the corporate sales office at Borivali,that the AO had made no attempt to find out about the purchase of goods from the said party,that the AO had not provided opportunity of cross examination of suppliers to the assessee.He referred to the case of Parmit Textiles (ITA.s./4012-4015& 4020- 21/Mum/2012.,Dt.1.10.2013 ),Kashiram Textiles Mills (P) Ltd. (284 ITR 61) and held that AO had made addition just on presumption and suspicion,that there was no justification for addition of entire transaction, that the cause of justice would be met by making addition of a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage. Finally,he held that addition should be restricted to 10% of purchases made from CSC and AJMC.With regard to USAPL,he held that the assessee had exported the goods purchased from USAPL,that without purchases there could not be any sale, that the AO had not found any fault with the quantitative information of purchases and sales, that the AO could not accept one limb of the transaction and reject the other.He referred to the case of Nikunj Eximp Enterprises (216 taxman 171).

4.Before us,the Departmental Representative(DR)supported the order of the AO and stated that reliable evidence was not produced before AO about purchase of goods, that sales tax authorities had recorded statements of suppliers, that supplier of goods to the assessee was issuing bogus bills without delivering the goods.The Authorised Representative (AR)relied upon the order of the FAA and contended that the AO had accepted the sales of goods,that it should have accepted the purchases also,that all the documents were produced before him, that payments were made through banking channels, that the assessee was not provided a chance of cross examination of the alleged bogus hawala dealers.

5.We have perused the material on record.We find that the AO had made the addition of Rs. 1.31 crores to the income of the assessee u/s. 69C of the Act,that he had received information from sales tax authorities via the office of DGIT(Inv.) Mumbai, that three of the suppliers of 2

4680/M/14-Bhairav.M goods to the assessee were in the list of hawala dealers, that the FAA had partly allowed the appeal of the assessee, that he had deleted the entire addition made with regard to the purchases made from USAPL,that the assessee had exported goods purchased from USAPL, that the AO did not doubt the genuineness of exports made by the assessee, that the copies of the statements of the suppliers of goods to the assessee were not given to it,that the assessee was not allowed to cross examine the suppliers, that the assessee had filed ledger account, copies of confirmations,bank statements, inward-outward registers etc. before the revenue authorities. In our opinion, the appeal could be dismissed only on account of violation of principles of natural justice by AO. He should have supplied copy of statement of the alleged hawala dealers to the assessee and should have allowed the cross examination.

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