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Income Tax Appellate Tribunal, BENCH “D”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI PAWAN SINGH
Revenue by : Shri Nitin Waghmode ( Sr. DR) Assessee by : Shri Satish R. Mody (AR) Date of hearing : 12.07.2016 Date of Pronouncement : 07.10.2016 O R D E R
PER PAWAN SINGH, JM:
The present appeal u/s. 253 of the Income-tax Act is directed by the Revenue against the order of CIT(A)-34,Mumbai, dated 29.09.2014 for AY-2010-11.
The brief facts of the case are that the assessee is engaged in the business of marine contract, filed return of income for relevant AY on 15.10.2010 declaring total income of Rs. 57,11,308/-. The return of income was selected for scrutiny. The Assessing Officer (AO) while framing the assessment observed that assessee has made certain purchases from the persons who were identified as Hawala Traders by Sales Tax Department, state of Maharashtra. Those Hawala Trader used to issue bogus bills without delivery of goods. Thus the AO made the addition of Rs. 72,60,177/- u/s 69C of the Act on account of unexplained expenditure u/s. 69C of the Act. The assessee filed appeal before the CIT(A) wherein the entire addition was deleted. Thus, aggrieved by the order of CIT(A), the Revenue has filed the present appeal before us.
We have heard ld. the Departmental Representative (DR) for the Revenue and the ld. Authorised Representative (AR) of assessee and perused the material available on record. The ld DR for the Revenue argued that during the assessment proceeding the AO issued notice u/s 133(6) of the Act to the parties to ascertain the genuineness of the parties the from whom the assessee has purchased the material. The notice sent to such parties either not served or returned un-served. Out of which notice was not served on two parties, two notices return back unserved and on remaining two on which the notice was served no reply received. The AO further gave the opportunity to the assessee to produce the parties for verification and genuineness of the expenses. The assessee failed to produce the parties from whom the purchases were made, thus the genuineness of the expenses incurred on purchase were treated as unexplained expenditure u/s 69C of the Act. The Ld. CIT(A) deleted the entire addition despite the fact that genuineness of the parties was not proved. Ld. DR prayed for setting aside the order of the CIT(A) and to restore the order of AO. On the other hand the Ld. AR of the assessee argued that full details of purchases were submitted during the course of assessment. The assessee made the payment of Rs. 27,71,059/- through banking transaction. And the balance was shown as outstanding payable the assessee has explained the source of expenditure for the entire amount. The assessee is engaged in the business of repairing and maintenance of Naval and other Ships. The assessee is required to raw-material like Steel, aluminium pipes Cuni Pipes, S.S. Pipes, Brass Rods, M. S. Steel Sheets, etc. to execute these contract. As assessee deals with the Government Department like Naval Dockyard who is scrutinized in all the payments and expenses before settling the bills as per the terms and condition of the contract. The assessee has given all documentary proof to the AO which includes the purchase order, invoices, challan, copy of goods, Inward Receipts. Despite the above evidence, the AO made the addition of entire purchase treating as bogus purchases. Out of the purchased material of Rs. 25,62,560/- from Colourshop Trading Co. was on the basis of credit letter of Bank and payments were routed through Banks, hence, the Bank L.C., the copy of affidavit and the statement on which the AO relied were not supplied to the assessee. The AO relied upon the statement of third party without supplying it to the assessee. It was further argued that the unused material was included in the closing stock. The AO did not consider this aspect and added the expenditure, the assessee was having a closing stock of Rs. 1,00,88,102/- which includes the material unused. The AO not considered the stock available with the assessee nor rejected the stock register. Ld. AR of the assessee further submitted that he has placed on record the complete details of stock register, details of purchase order, invoices, challan and goods Inward Receipt as per Paperbook page no. 17 to 128.
We have considered the rival contentions of the parties and perused the material available on record. The AO while making the assessment observed that assessee had affected the purchases from following parties which were identified by the Sales Tax Department as under: Sr. Name of the party Amount so called No. purchases made (Rs.) 1 V3 Enterprises 9,48,886 2 Shri Sai Trading Co. 9,33,814 3 Rohit Enterprises (Material) 9,36,287 4 Niddhish Impex Pvt. Ltd. 9,42,568 5 Deep Enterprises 9,36,062 6 Colourshop Trading Co. Pvt. 25,62,560 Total- 72,60,177
The AO issued notice to all the parties out of which the notices were served upon two parties, two notice returned back un-served and the remaining two on which notice were served, no reply was received. The AO further observed that assessee failed to produce the parties for verification, the genuineness of the expenses were not proved and treated the entire expenditure as unexplained expenditure from these six parties. The AO not discussed in its order the contention of the assessee, the evidence of purchases, delivery of goods and the payment made through Banking transaction as well as the stock register. Before the CIT(A), the similar contention was raised by the assessee. Ld. CIT(A) reproduced the submission of assessee in its order. After considering the contentions of the assessee, the AO concluded that assessee gave valid explanation with substantiating evidence in respect of cost incurred towards the purchases during the course of business. It was further concluded that the assessee furnished Bank statement, challan and copy of Inward receipt and deleted the entire addition. The coordinate bench of this Tribunal Hiralal Chunnilal Jain vs. ITO-ITA No. 4547/Mum/2014 dt. 01.01.206 relying upon the decision of Hon’ble jurisdictional High Court in Nikunj Eximp Enterprises (P) Ltd. (supra), Kalathil, Tristar Jewellery held as under: “In the case of Nikunj Eximp(supra) the Hon'ble Bombay High Court has held if sales were not doubted by the AO and copies of bank statement showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and a stock statement, i.e. stock reconciliation statement are filed purchased could not be rejected”
Further the Co-ordinate Bench of ITAT, Mumbai in case of ACIT vs. Tarla R. Shah- dt. 02.02.2016, relying upon the decision of Shri Ramesh Kumar & Co.(supra) vs. ACIT in ITA No. 2959/M/2014 and Rajeev G. Kalathin in ITA No. 6727/M/2013 held as under: “5.1 Now the issue before us is whether the aforesaid case of the assessee is covered in favour of the assessee by the various decisions cited by the ld. Counsel. In the case of ITA No.6727/Mum/2012 (AY-2009-10) dated 20.08.2014 we find that the similar addition was made on the basis of information available on website of Sales Tax Department, Government of Maharashtra, which was deleted by the Tribunal. The relevant para 2.4 is extracted as below.
2.4. "We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. www.taxguru.in ITA/6727/Mum/2012/RGK 4(supra) is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash trail. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO."