2016 (8) TMI 1203 - AT - Income Tax

Disallowance of purchases made from six alleged hawala parties - information received from Maharashtra Sales Tax Department - Held that - The assessee claims that it had made available the evidence proving the genuineness of purchases made by it by way of copies of transportation receipts, weighbridge receipts and also the bills of transportation. Another aspect which is at variance from the other cases is that the payment in the case has been made by cheque. In view of the above said circumstances, where the assessee can establish its case of delivery of goods and its onward transmission by way of sale bills of nearly the same quantity, the entire purchases cannot be disregarded. In the paras hereinabove, the addition to the extent of 10% of the quantum of hawala purchases has been added in the hands of assessee and the said addition would meet the ends of justice, as the purchases are admittedly made from hawala parties. The Assessing Officer is directed to compute the quantum in respect of evidences furnished by him to the assessee in the form of statements recorded of the other persons. Where no such statements or any other evidence in respect of any person is made available to the assessee, then such quantum is not to be included in the hands of assessee for computing addition on this count. The grounds of appeal raised by the assessee in both the appeals are allowed as indicated above.

Issues Involved:
1. Disallowance of purchases made from alleged hawala parties.
2. Non-provision of statements recorded by Sales Tax Authorities.
3. Opportunity for cross-examination of the parties.
4. Estimation of purchases from the grey market.

Issue-Wise Detailed Analysis:

1. Disallowance of Purchases Made from Alleged Hawala Parties:
The primary issue in these appeals was the disallowance of ?3,19,867/- out of the total disallowance of ?31,98,665/- made by the Assessing Officer (AO) concerning purchases from six alleged hawala parties. The AO had received information from the Maharashtra Sales Tax Department indicating that these parties had issued bills without making actual sales. The AO reopened the assessment and disallowed the purchases due to the inability to trace these parties. The assessee provided various documents, including purchase invoices, delivery challans, and bank statements, to substantiate the genuineness of the purchases. However, the AO disallowed the entire amount due to the non-availability of the parties for confirmation.

2. Non-provision of Statements Recorded by Sales Tax Authorities:
The CIT(A) noted that the AO had not supplied the copies of statements recorded by the Sales Tax Department concerning three out of the six parties. The assessee argued that the reliance on such statements without confronting them to the assessee was unjustified. The CIT(A) held that no addition could be made without allowing cross-examination of the parties, relying on the Supreme Court's decision in Andaman Timber Industries v. CCE.

3. Opportunity for Cross-examination of the Parties:
The assessee contended that the AO had not provided the opportunity for cross-examination of the parties despite specific requests. The Tribunal emphasized that the basic principle of natural justice demands that any document used against the assessee should be confronted to them before reliance. The Tribunal directed the AO to verify the availability of statements and supply them to the assessee. If the statements were not available, no addition should be made based on the alleged hawala purchases.

4. Estimation of Purchases from the Grey Market:
The CIT(A) had estimated a 10% disallowance of the alleged hawala purchases, considering the possibility of purchases from the grey market. The Tribunal upheld this estimation, noting that the assessee had provided substantial evidence, including transportation receipts and sales invoices, to support the genuineness of the purchases. The Tribunal directed the AO to compute the quantum of hawala purchases after verifying the statements provided to the assessee. If no statements or evidence were available, the quantum should not be included in the addition.

Conclusion:
The Tribunal allowed the appeals by directing the AO to verify the availability of statements and supply them to the assessee. If the statements were not available, no addition should be made. The Tribunal upheld the CIT(A)'s estimation of a 10% disallowance for probable purchases from the grey market. The appeals were allowed as indicated, providing the assessee an opportunity to substantiate their claims and ensuring adherence to the principles of natural justice.

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