2016 (12) TMI 1667 - AT - Income Tax

Bogus purchases from the Hawala dealers - Held that - The assessee duly maintained books of account. The contract receipts are completely verifiable as they are paid/received through accounts payee cheque and subjected to TDS. This factual matrix was not even controverted by the Revenue. Thus, mere appearance of the purchase parties on the website of the Sales Tax Department does not falsify the purchases, claimed to be made by the assessee. There is a possibility that some other parties might have engaged with such parties in a suspicious manner but in the present case, no evidence has been brought on record to fortify the suspicion raised by the Assessing Officer, more specifically when the purchase was made through account payee cheque and the payment of receipt from the contractee party/MCGM is also through banking channel. There is no evidence that any payment was paid back in cash. In the light of the foregoing discussion, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), it is affirmed, resulting into dismissal of appeal of the Revenue.

Summary

Issues Involved:
1. Legitimacy of additions made by the Assessing Officer based on alleged bogus purchases from hawala dealers.
2. Justification of the estimation of net profit at the rate of 5.76%.

Detailed Analysis:

1. Legitimacy of Additions Based on Alleged Bogus Purchases:

The Revenue challenged the decision of the Commissioner of Income Tax (Appeal) [CIT(A)] who granted relief to the assessee regarding additions made by the Assessing Officer (AO) based on information from the Sales Tax Department of Maharashtra and DIT(Invest.) about bogus purchases from hawala dealers. The AO argued that the purchases were not genuine as the suppliers did not actually supply any goods and merely issued bills.

The assessee defended the CIT(A)'s order, arguing that the material was supplied at the work site, inspected, and approved by engineers from the Municipal Corporation of Greater Mumbai (MCGM). Payments were made through banking channels and were subject to tax deduction at source. The CIT(A) considered the factual matrix, including various case laws such as CIT vs M/s Nikunj Exim Enterprises Pvt. Ltd., which held that purchases cannot be disallowed merely because suppliers were not produced before authorities if other relevant details showed the transaction was genuine.

The Tribunal noted that the AO had not conducted an independent inquiry or confronted the assessee with the material gathered. The AO was also criticized for not allowing the assessee to cross-examine the deponents who claimed the dealings were not genuine. The Tribunal emphasized that suspicion alone cannot replace evidence, and the AO should have verified the bank accounts of the suppliers to check for immediate cash withdrawals. The Tribunal concluded that the purchases were genuine as payments were made through account payee cheques, and there was no evidence of cash being returned to the assessee.

2. Justification of Estimation of Net Profit at the Rate of 5.76%:

The assessee challenged the estimation of net profit at 5.76%, resulting in an addition of ?50,44,947/-, arguing that it was unjustified to confirm this addition solely because some suppliers appeared on the list of hawala dealers. During the hearing, the assessee's counsel agreed that if the CIT(A)'s order was confirmed, the cross-objection would have no merit.

Given the Tribunal's detailed discussion and dismissal of the Revenue's appeal, confirming the CIT(A)'s stand, the cross-objection by the assessee was deemed in-fructuous and consequently dismissed.

Conclusion:

The Tribunal dismissed both the appeal of the Revenue and the cross-objection of the assessee. The Tribunal upheld the CIT(A)'s decision, affirming that the purchases were genuine and that the AO's conclusions were devoid of merit due to a lack of independent inquiry and evidence. The estimation of net profit at 5.76% was also dismissed as the cross-objection became in-fructuous following the dismissal of the Revenue's appeal.