2017 (3) TMI 133 - AT - Income Tax

Addition on bogus purchase - information received from the Sales Tax Department that the assessee was one of the beneficiary of the hawala entries - Held that - The assessee filed a copy of ledger account, purchase bills, delivery challans, proof of payments through banking channels and stock tally which proved beyond doubt that the assessee has received materials which were consumed in manufacturing process of pharmaceuticals and the AO did not point out any defects or deficiency in the books of account except basing his conclusion qua bogus purchase on the basis of information received from the Sales Tax Department, GOM. In our opinion the assessee has discharged the onus cast upon it and now the burden shifts to the revenue to disprove the contentions of the assessee by carrying out further inquiries which was not done in the present case. Moreover, the assessee was not confronted with the statements recorded by the VAT department of GOM from the hawala dealers which itself is in violation of principle of natural justice. AO has wrongly made addition on account of bogus purchase from the hawala parties. We are therefore not in agreement with the conclusion drawn by the FAA that the suppressed GP/NP being more than the hawala purchases for sustaining the additions. Accordingly we set aside the order of CIT(A) and direct the AO to delete the additions - Decided in favour of assessee

Summary

Issues:
- Addition of ?6,12,261 on account of bogus purchase upheld by CIT(A)
- Dismissal of appeal by First Appellate Authority
- Allegation of being a beneficiary of hawala entries
- Burden of proof on the revenue to disprove the contentions of the assessee
- Violation of principle of natural justice in not confronting the assessee with statements
- Comparison of GP rates and reliance on case laws

Analysis:
1. Bogus Purchase Addition: The AO added ?6,12,261 to the total income of the assessee based on information from the Sales Tax Department, alleging accommodation purchases from four parties. The CIT(A) upheld this addition, leading to the appeal by the assessee.

2. Dismissal by First Appellate Authority: The First Appellate Authority dismissed the appeal after considering the contentions of the assessee, which included comparative details of GP/NP for previous and subsequent years. The authority sustained the addition based on suppressed NP/GP being more than the hawala purchases.

3. Beneficiary of Hawala Entries: The assessee argued against being labeled a beneficiary of hawala entries, providing evidence of genuine purchases, payments through banking channels, and material consumption in manufacturing. The AO's conclusion was solely based on information from the Sales Tax Department, without further independent inquiry.

4. Burden of Proof and Violation of Natural Justice: The burden of proof shifted to the revenue to disprove the assessee's contentions, which was not fulfilled. The assessee was not confronted with statements from hawala dealers, violating the principle of natural justice.

5. Comparison and Case Laws: The assessee presented a comparative chart of GP rates, demonstrating satisfactory rates over the years. Case laws were cited to support the argument that additions based solely on third-party information without independent inquiries are unjustified.

6. Judgment: The Tribunal found the AO's addition on account of bogus purchases to be erroneous. The Tribunal disagreed with the conclusion drawn by the CIT(A) regarding suppressed GP/NP, directing the AO to delete the addition of ?6,12,162. The appeal of the assessee was allowed, emphasizing the need for proper investigation and evidence before making such additions.