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TMI Blog2017 (9) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... FAA, we decide the effective ground of appeal in favour of the assessee. - ITA No. 1596/Mum/2016, ITA No. 1597/Mum/2016 - - - Dated:- 20-9-2017 - Shri Rajendra, A. M. and Sandeep Gosain, J. M. Revenue by : Shri M. C. Omi Ningshen-CIT-DR Assessee by : Shri Sanjay R. Parikh ORDER Per Rajendra, AM Challenging the order dated 21/01/2016 of CIT(A)-42, Mumbai the Assessee is in appeal for the above mentioned two assessment years (AY. s). The assessee is engaged in the business of trading of readymade-garments. As the issues involved in both the years are, so, we are adjudicating both the appeals together. The details of date of filing of return, income declared, assessed income, dates of assessment orders etc. can tabulated as under :- A. Y. ROI filed on Income declared Assessment dt. Assessed Income 2010-11 14. 10. 2011 ₹ 2, 15, 171/- 26/03/2014 ₹ 5. 51croress 2011-12 29. 09. 2011 ₹ 1, 05, 187/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate of the purchases, totalling to ₹ 3. 9 crores was treated unexplained expenditure u/s. 69C of the Act and was added to the returned income of the assessee. He further observed that apart from the above purchases from all parties the assessee had purchased goods from two more entities namely Ridhi Enterprises (RE) and Vardhman Enterprises(VE) of ₹ 1. 01 crores and ₹ 55. 50 lakhs, that names of both the entities were appearing on the website of the STD in the list of the defaulters. He asked the assessee to explain as to why the purchases from the above-mentioned two parties should not be treated as non-genuine. In its reply, the assessee stated that it had made the payment to RE and VE through banking channels, that the parties appearing in the website of STD per defaulters on account of violation of the provisions of the Act, that they were not hawala operators. However, the AO observed that the assessee had not produced those parties before him though the copy of the Ledger was produced. He held that purchases made, amounting ₹ 1. 57 crores, from RE in VE, were not genuine. Invoking the provisions of section 69C of the Act, he made a further addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further analysed the cases decided by the tribunal. With regard to the claim of the assessee regarding the right to cross-examine the hawala dealers, he held that request was not reasonable, that the assessee had filed its return and claimed the impugned dealers as its suppliers, that the dealers were the witness of the assessee to home the assessee sought to justify its books of accounts, that the AO had merely verified the claim of the assessee and found it to be untrue, that the onus was again on the assessee to substantiate the return of income, that the AO had not rejected the books of accounts of the assessee and had also not be disbelieved the sales, that the purchases were not proved though the assessee had co-related the purchases and sales, that suppliers were suspect hawala dealers, that the alleged dealers claimed that they had only issued accommodation entries, that the assessee had not provided the new addresses of the suppliers, that the sales of the assessee were verified as same were to existing assessees. Referring to the decisions of the honorable High Courts of Gujarat and Allahabad, he held that an addition of 25% of the purchase price involved was justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of that matter. In short, no case can be treated as a precedent of binding nature, as far as alleged bogus purchases are concerned. 5. 1. We find that in the case under consideration, the AO had issued notice u/s. 147 of the Act from the STD and the investigation wing of the department, that the assessee had purchased goods from two of the entities who were considered hawala-dealers by the STD, that the names of two more entities were appearing in the list of the STD under the head defaulters. Considering the above pieces of information, the AO initiated re- assessment proceedings and called for various details about the purchases made by the assessee. In response, the assessee had furnished copies of purchase bills, delivery challans, bank statements showing payments made by the parties, confirmation of ledger accounts of the suppliers, sales tax returns and sales tax challans of the suppliers and their returns of income. The AO had issued notices u/s. 133(6)of the Act to the suppliers that were returned by the postal authorities with remark not known or not claimed. The assessee had asked for cross examination of the suppliers vide letter, dated 24/03/2014. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given a fair chance to defend itself. e. they should be supplied the material that is proposed to be used against them. Thus, there is a clear cut violation of basics of tax jurisprudence as far as purchases made for SE and SJE is concerned. 5. 3. Now, we would like to consider the facts of two other suppliers. As per the AO their names were appearing in the list of defaulters on the website of the STD. He had no other information other than the website. Default of the STD can be on several counts. How does it prove that goods purchased from those two parties were not genuine. A default under the sales tax Act, in itself, cannot be equated with non genuineness of the transaction entered by an entity with other party unless and until some positive corroborative evidence are brought on record. Collecting VAT from the buyer and not depositing it in government treasury at all or not depositing it on due dates, non filing of returns, non payment of taxes or non paying penalty/interest can be some of the defaults. What was the exact nature of default and how it resulted in arriving at the conclusion that the sales made by RE and VE (1. 56 croress)to the assessee were non genuine is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing bogus bills. If it was so, then at least, a chance of cross examining them should have been given to the assessee. The FAA had mentioned that the suppliers had not fully paid the sales tax. It means that they had paid some taxes. If it is so, how they can be labeled as hawala dealers. Even if it is presumed that sales tax paid by them did not relate to the purchases made by the assessee, the said fact should have been brought on record. The FAA or the AO have not made any inquiry about the payment of sales tax vis-a-vis purchases made by the assessee. Providing cross examination is one aspect of the issue, the other aspect is non furnishing of material received from the STD. Once the AO decided to use the material against the assessee, it was his duty to supply the copy of same to the assessee so that it could file explanation. The FAA has not at all dealt with the issue of non supply of statements of the suppliers to the assessee. So, it can be safely said that the assessee had discharged the onus of proving the genuineness of the transactions by producing copies of purchase bills, delivery challans, bank statements showing payments made by the parties, confirmation of ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 75% of the additions made by the AO, indicate that the department itself was not convinced about the approach adopted by the AO in making additions. Even the order of the FAA is not in accordance with the principles of natural justice, as stated earlier. 5. 8. For violation of principles of natural justice alone, the order can be held to be invalid. Here, we would like to rely upon the cases referred to by the AR before us-especially the case of Andaman Timbers(supra) and it reads as under: According to us, not allowing the assessee to cross examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed. If our such expenditure is recorded in the books of accounts, there cannot be any reason to invoke the provisions of section 69C of the Act. In that view of the matter is it is held that provisions of section 69C were strongly restore by the AO for making this addition. In light of the above, we find that no addition could have been made u/s. 69 C of the Act. 7. Considering the peculiar facts and circumstances of the case under appeal, we hold that the FAA was not justified in confirming the order of the AO partly and retaining the addition to the extent of 25% of the sales. The orders of the AO and FAA are not valid because of violation of principles of natural justice. Besides, the addition made u/s. 69C is also not maintainable. So, reversing the order of the FAA, we decide the effective ground of appeal in favour of the assessee. We would like to emphasise that our order is limited to the facts of the present case and it should not be treated as a precedent. ITA/1597/Mum/2016-AY. 2011-12: 8. Facts and circumstances of the case under consideration are identical to the facts of earlier AY. -except for the amount of addition. During the year, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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