Case Law Details

Case Name : Shri Rajeev G. Kalathil Vs DCIT (ITAT Mumbai)
Appeal Number : ITA No.6727/Mum/2012
Date of Judgement/Order : 20/08/2014
Related Assessment Year :
Courts : All ITAT (4212) ITAT Mumbai (1409)

CA Sandeep Kanoi

ITAT Mumbai has in the case of Shri Rajeev G. Kalathil Vs. DCIT held that Purchases can not be termed as bogus by the AO merely because the supplier was listed as a hawala dealer by the Vat authorities.

First ground of appeal is about deleting an addition of Rs.13,69,417/- on account of non-genuine purchases.During the course of assessment proceedings,notices u/s. 133(6)of the Act were sent to some of the sundry creditors on random basis.However,notice in the cases of M/s D K Enterprises (DKE)and N B Enterprises(NBE)were returned back by the postal authorities with the “Not Known” remarks.Therefore,he was asked give correct addresses or in the alternative to explain as to why the purchases of Rs.5,05,259 from NBE and Rs. 8,64,158/- from DKE totaling to Rs. 13,69,417 should not be treated as bogus purchase. He was also asked to submit sample bills of those parties.The assessee submitted a letter dated 05-12- 2011 as under:

“……. we tried to communicate them but there is no response at all from parties. Further our person visited at parties’ places as per address on our record, but parties are not available on respective places. Please find enclosed herewith letters from our banker stating the payment details to respective parties in subsequent year …”

The sample bills submitted contained TIN numbers of the vendors.The same were verified in the Maharashtra sales tax department official website www.mahavat.gov.in.The website had specifically put up the name of NBE with TIN number as ‘Hawala Dealer’ who issued bill without delivery of goods.As regards DKE,the website search did not yield any results for the TIN numbers shown in the bills.The AO concluded that the TIN number shown in DKE bill itself was bogus.After considering the submissions of the assessee,the AO held that same was not acceptable ,that merely payment to parties through banking channel did not prove the genuineness of purchase or genuineness of expenses made by the assessee.He made an addition of Rs. 13.69 lakhs (Rs.5.05 lakhs +Rs.8.65 lakhs)to the total income of the assessee.

Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that assessee had filed copies of bills of purchase from DKE and NBE,that both the suppliers were registered dealers and were carrying proper VAT and registration No.s,that ledger accounts of the parties in assessee’s books showed bills accounted for,that payment was made by cheques,that a certificate from the banker giving details of cheque payment to the said parties was also furnished.Copies of the consignment,received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record.After considering the assessment order and the submissions made by the assessee,FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the assessee were in confirmation with bank certificate,that the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non-genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non-genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers.Finally,he deleted the addition made by the AO .

Before us,Departmental Representative argued that both the suppliers were not produced before the AO by the assessee,that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine.He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries.(ITA/6579/Mum/2010-dated 13.11.2013).Authrorised representative (AR) contended that payments made by the assessee were supported by the banker’s statement, that goods received by the assessee from the supplie was part of closing stock,that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251),Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon’ble Bombay High Court.

Wehave heard the rival submissions and perused the material before us.We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end.But,he left the job at initial point itself.Suspicion of highest degree cannot take place of evidence.He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account.We find that no such exercise was done.Transportation of good to the site is one of the deciding factor to be considered for resolving the issue.The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock.As far as the case of Western Extrusion Industries. (supra)is concerned,we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods.But,in the case before us,there is nothing,in the order of the AO,about the cash traial.Secondly,proof of movement of goods is not in doubt. Thererfore,considering the peculiar facts and circumstances of the case under appeal,we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the AO.So,confirming the order of the FAA,we decide ground no.1 against the AO.

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Tags : Bogus purchases (60) CA Sandeep Kanoi (240) ITAT Judgments (4391) MVAT (624)

0 responses to “Purchases cannot be bogus for mere listing of supplier as hawala dealer”

  1. Nitin Lohia says:

    Dear; I agree with above written it seems very easy to fool any business man as the tax evaders know nothing is going to happen the no action nothing just give one simple affidavit &then the purchaser will have to suffer very great system I request u to new government to look into this matter as income nt purchaser have to suffer a lot & then they will loose faith in government. Thank.

  2. S.N.Khandelwal FCA says:

    Similar Type of cases in Pune ITO has been there only to prove Movement of the goods and give proofs of such documents or to produce the concern dealers but such dealers are either closed the business due to inability of payment of VAT or the hashments of deptt. The can give documents and help department some times but problems arises to dealers who are innocent and doing business regularly along with 10-15 % irregular business mans Vat Authorities avoid to collect from HAWALA dealers and issue notices and disallow setoffs ans make payments of VAT or Go in appeal instead of following them. The laws are agianst the humanity and they can used to harash regular businessmans. They send list of such dealers and their suppliers as Hawala But such hawala dealers were unknown to the concern purchasers at the time of transactions and they have cllected VAT from regular Bills. The Vat authorities said you pay as you had taken the set off. It will become wrong and double taxation in some cases it is not a margin of businesman also.

  3. H.Khan says:

    It is now being heared that after sales tax department income tax authorities are going to harres the innocent business men. Any body now about it please post a reply.

  4. see you says:

    Very true many had sleepless night, mere fact this is terror or can be called as TAX TERRORISM and the common man is killed not by terrorrist bullet but by Government tax bullet

  5. mahendra SDoshi says:

    It Is ridiculous on part of Govt Machinery , Honest tax payer are being harassed unwanted. All profession forum is strongly object such,harsh & unconstitutional provisions .

    Mahendra Doshi

  6. Rajesh, Mumbai says:

    In Mumbai and Maharashtra, Sales Tax Department has found that around 2000 suspicious suppliers have sold goods and issued sales Invoice without paying taxes. Purchasers, on the basis of said sales Invoices, claimed set off of taxes as legitimately permitted by law. But since, seller had not paid taxes, Sales tax department, instead of being harsh and coercive with sellers who was guilty and had made mockery of system fooling department, invoked section 48(5) of Mvat act and started to recover said evaded taxes from purchaser of goods. This has become burning issue and trading community is being harassed in such a way.

    All these suppliers/sellers held valid registration numbers at the time of transactions. But department cancelled their 4-5 years old number with retrospective effects.

    Department had a long sleep of so many years and woken up after computers (Electronic system) found an abnormal mismatch in tax payments v/s set off claimed.

    Department contacted those sellers and took (forced them) their statement in writing that they had issued fake invoices without delivery of goods. Such statement saved those defaulting suppliers from paying huge tax liability and helped department to catch genuine purchasers in view of section 48(5). See smartness of Department that after taking (desired) statement, those sellers are free and genuine existing purchasers are being harassed with coercive recovery action with penalty and interest.

    Further with above ongoing episode which caught eye of and was wrongly interpreted in media also, Income tax department sprang into action seeing opportunity to do something to fill their coffers to meet target. They had got an easy pray in above episode without doing anything. They got easily available list of those beneficiary buyers from sales tax department and started sending scrutiny notices opening old cases of such buyers. The highest income tax authority gave standing instructions to officers to open cases and make 100% additions of such purchases and tax them with interest and 100% penalty without considering any facts. It is ridiculous that department believes statements of such sellers who fooled, cheated and made mockery of system but does not rely on valid documents and evidences. Department believes that seller did not deliver goods and only issued fake sales invoices but at the same time accepts subsequent sales of goods by purchasers. It tantamount to say that goods were manufactured out of said Fake Bills issued by seller and further sold by purchaser. Even a layman will understand the intention behind it, is to show up inflated income tax arrears and at the same time to show that they are also doing their part of work. It is a pity that law makers go to the extent of making any law giving retrospective effects. For 5% or 12.5% evasion of taxes by said unscrupulous sellers, Existing purchasers are being harassed for recovery of 100 to 120% (Including interest and penalty) by sales and income tax department.

    Business community humbly request Platform like Tax Guru to raise this issue with the new government and highlight it as the issue has shaken the confidence of business community. Highhandedness by tax officers making retrospective laws and punishing each and every purchaser without considering facts of the case is uncalled for.

    The ITAT Mumbai order in the matter is welcome and highly appreciable and will extend much needed relief to Victimized assesses. Only ITAT and Higher courts can teach them a lesson but need of the hour is that even Assessing officers must be well educated of law and there should rest accountability on them.

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