2016 (4) TMI 347 - AT - Income Tax

Bogus purchases - addition made on the basis of Maharastra VAT authorities to the effect that assessee s suppliers have issued bogus invoices without involving any actual delivery of goods - hawala dealers - Held that - It emerges that he is mainly a suppliers of finished goods from purchasers to sellers without involving any stock being maintained at his behest. There is further no dispute that assessee s sales in question corresponding to the impugned purchases already stand accepted. There is no issue that he has already placed on record all the relevant bills/vouchers, gate passes, delivery challans, proof of mode of payments and relevant confirmations on record in support of the purchases. Both the lower authorities doubt creditworthiness thereof without there being any rebut in all evidence except Maharastra VAT authorities information. The alleged hawala dealers have nowhere been allowed to be cross examined at any staged of the proceedings. Thus to conclude in these facts and circumstances that the CIT(A) has erred in confirming the impugned addition of bogus purchases, See Hiralal Chunilal Jain vs. ITO 2016 (1) TMI 1089 - ITAT MUMBAI , ACIT vs. Ramila P. Shah 2015 (3) TMI 1116 - ITAT MUMBAI and DCIT vs. Rajiv Jee Kalathil (2014 (8) TMI 807 - ITAT MUMBAI) - Decided in favour of assessee

Summary

Issues involved:
Appeals against additions made by Assessing Officer based on alleged bogus purchases for A.Y. 2009-10 to 2011-12 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Reopening of Assessment based on Alleged Bogus Purchases
The Assessing Officer reopened the assessment based on information from Maharashtra VAT department regarding hawala dealers providing accommodation entries, indicating bogus billing. The purchases by the assessee were treated as non-genuine, leading to additions in reassessment. The assessee contested by providing evidence of genuine sales, books of accounts, and payments made. The CIT(A) upheld the AO's findings, citing statements from hawala dealers and lack of evidence from the assessee to substantiate the purchases.

Issue 2: Assessee's Defense and Evidence
The assessee contended that they did not require raw materials as they dealt in finished goods, purchased goods at market rates from legitimate dealers, and maintained detailed records of transactions. The assessee provided ledger accounts, bank statements, bills, vouchers, and other documents to support their claim. However, the CIT(A) noted the inability of the assessee to produce all requested evidence and rejected their claims based on lack of substantiation.

Issue 3: Tribunal's Decision
The Tribunal found that the lower authorities doubted the creditworthiness of the purchases based solely on information from Maharashtra VAT authorities without allowing cross-examination of the hawala dealers. Citing precedent cases where similar additions were deleted, the Tribunal concluded that the CIT(A) erred in confirming the additions. The impugned additions for bogus purchases were deleted, and the appeals were allowed for all three assessment years.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the lack of substantiation by the revenue authorities and the failure to allow cross-examination of key witnesses. The additions based on alleged bogus purchases were deemed unjustified, and the appeals were allowed for all three assessment years.