2017 (8) TMI 643 - AT - Income Tax

Bogus purchases - Disallowance of purchases to the tune of 12.5%. - AO received information from the DGIT (Inv.), Mumbai that the Sales tax Department had carried out extensive investigation on various VAT dodgers (hawala operators) who were known to be issuing accommodation bills to various parties by issuing bogus bills without supplying actual material - Notices sent to parties u/s 133(6) retuned back by the postal authority with the remarks not known , no such address , left etc.. Held that - The assessee has claimed that the material purchased from these parties was used/consumed for its printing and publishing business but consumption/utilization of the said material for printing/publishing business of the assessee was not proved. The onus is on the assessee to prove consumption/utilization of the said material for assessee printing/publishing business of the assessee with material evidences, which the assessee failed to prove. As the assessee has claimed that the said material so allegedly purchased from six hawala entry operators was consumed/utilized for its printing/publishing business, there is always possibility of deflating/suppressing profits by obtaining bogus bills unless utilization/consumption is proved. Under these circumstances keeping in view factual matrix of the case, both the parties fairly agreed that the matter needs to be set aside and restored to the file of the A.O. for de novo determination of the issue on merits in accordance with law - Matter remanded back.

Summary

Issues Involved:
1. Bogus purchases from hawala parties.
2. Onus on the assessee to explain and substantiate the genuineness and true nature of the purchase transactions.
3. Admission by hawala dealers before Sales Tax Authorities.
4. CIT(A)'s finding on corresponding sales and lack of remand to AO for examination.
5. Request for reversal of CIT(A)'s order and restoration of AO's order.

Detailed Analysis:

1. Bogus Purchases from Hawala Parties:
The Revenue's appeal contended that the CIT(A) erred in granting relief by deleting the addition made on account of bogus purchases from hawala parties. The assessee, involved in printing and publishing, was found to have taken accommodation bills from six concerns without actual delivery of goods. The AO had reason to believe that income had escaped assessment based on information from the DGIT (Inv.), Mumbai, leading to the reopening of the case under Section 147 of the Income-tax Act, 1961. Notices were issued, but the assessee failed to produce the parties or provide sufficient evidence of genuine transactions.

2. Onus on the Assessee:
The AO observed that the assessee did not produce delivery challans, transport receipts, stock registers, or any other evidence to substantiate the movement of goods. The onus was on the assessee to prove the genuineness of the purchase transactions and the consumption of the materials for its business. The AO concluded that the purchases were bogus, leading to an addition of ?67,34,035.

3. Admission by Hawala Dealers:
The AO noted that the hawala dealers had admitted before the Sales Tax Authorities that they had not sold any material to anyone. This admission further supported the AO's conclusion that the purchases were bogus.

4. CIT(A)'s Finding on Corresponding Sales:
The CIT(A) restricted the addition to 12.5% of the alleged bogus purchases, reasoning that the entire purchase amount could not be added as bogus. The CIT(A) believed that the assessee had made cash purchases from other parties and only took bills from the six hawala parties to explain the purchases. However, the Revenue argued that the CIT(A) failed to mention how this finding was arrived at and that such evidence should have been remanded to the AO for examination.

5. Request for Reversal of CIT(A)'s Order:
The Revenue prayed for the reversal of the CIT(A)'s order and the restoration of the AO's order. The Tribunal considered the rival contentions and observed that the matter needed to be set aside and restored to the AO for de novo determination. The assessee was directed to produce all relevant evidence to prove the utilization and genuineness of the purchase transactions. The AO was instructed to provide proper and adequate opportunity to the assessee and admit all necessary evidence.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the CIT(A)'s order and directing the AO to re-examine the issue on merits. The assessee was given an opportunity to substantiate the genuineness and utilization of the purchases in its business. The AO was also directed to follow principles of natural justice and admit all relevant evidence during the reassessment proceedings.

Order Pronounced:
The order was pronounced in the open court on 16.08.2017.