SHREE SAI KRUPA ISPAT P.LTD,MUMBAI vs. ITO 7(2)(3) (OLD WD) & ITO 8(2)(1) ( NEW WD), MUMBAI

Facts qua the dispute are that the assessee was engaged in the business of Steel Re- rolling Mills and filed its return of income declaring total taxable income of Rs.17,73,556/-. The same was selected for scrutiny assessment u/s 143(3) of the Income Tax Act, 1961 [the Act] wherein total income was determined at Rs.50,59,681/- after making certain disallowances and adjustments vide Assessing Officer [AO] order dated 27/02/2014. The assessee suffered addition of Rs.28,57,500/- against purchase of one wire drawing Machinery along with all its accessories including Electric Motor & Switches from ‘M/s Jai Krishna Enterprises’ whose name appeared in the list of Hawala entry providers published in the official website of Maharashtra Sales Tax Department. In support, the assessee produced copy of relevant bill, confirmation of account, details of bank payment, financial statement of the supplier and their Income Tax Return etc. The AO concluded that assessee failed to conclusively establish the physical delivery of Machinery and hence added the same to the income of the assessee u/s 69 as unproved purchases. Consequently, depreciation on Machinery amounting to Rs.4,28,625/- as claimed by the assessee was also disallowed. Aggrieved, the assessee preferred appeal before First Appellate Authority but was unsuccessful vide CIT(A) order dated 26/11/2014. The assessee contended that initial onus was duly discharged by him by supply of relevant documents but AO failed to make independent inquiries to find out genuineness of the transaction and merely relied upon website information of Sales Tax Department. The addition has been made merely on the basis of doubt. The assessee purchased machinery as part of its expansion programmes and various other machineries were purchased by him during the year which has been accepted by AO. Further, impugned additions cannot be made u/s 69 as Machinery has duly been recorded in the books of account. Reliance was placed on various judicial pronouncements. Per contra CIT(A) observed that the assessee failed to provide transport details of the Machinery and also could not procure confirmation letters from the supplier. VAT on purchase of Machinery was duly deposited by the assessee and assessee did not seek cross examination of the supplier Shree Sai Krupa Ispat Pvt. Ltd. Assessment Year 2011-12 before Sales Tax Authorities. Finally, CIT(A) sustained the impugned additions albeit observing that Section 69 do not apply to such case but nevertheless, the purchase, being bogus, rightly been added to the income of the assessee. Aggrieved, the assessee is in appeal before us.

The Ld. Counsel for assessee [AR] has contended that Section 69 has no applicability as Machinery has duly been recorded in the books of accounts and nowhere debited to Profit & Loss Account. CIT(A) also observed the same but still affirmed the additions. The initial onus to prove the purchase of Machinery was on the assessee which he has duly fulfilled by supplying requisite documents. The VAT payment has been made by the assessee under threat by Sales Tax Department. The addition was made merely on the basis of website information without confirming the same from the supplier. The Ld. DR, on the other hand, contended that assessee being corporate assessee was required to maintain Fixed Asset Register as per the provisions of The Companies Act but failed to produce the same before any lower authorities. Mere payment by banking channel does not validate the purchases.

We have heard the rival contentions and perused the material placed before us including the paper book. We notice that AO has proceeded to make the additions on the basis of suspicion that the purchases have been made from Hawala entry operators listed on the website of Sales Tax Department but strangely, no independent inquiry to corroborate the transaction has been made by the AO. The full information in the shape of invoice copy, confirmation etc. was available before AO yet no notice u/s 133(6) was issued to the supplier. The assessee also placed the photographs of Machinery in support of physical delivery and installation at the premises of the assessee, but the same were not verified by the lower authorities. On these facts, the assessee had duly discharged its initial onus to prove the purchases and onus was on revenue to confront the same. CIT(A) affirmed the same by noticing that the Sales Tax payment has been discharged by the assessee without seeking cross examination of the supplier before Sales Tax Department. But the proceedings before Sales Tax Department alone could not be the sole basis of addition in the hands of assessee before Income Tax Authorities. Further, as rightly observed by Ld. CIT(A), Section 69 had no