S. 69C Bogus Purchases: Right of cross-examination is not absolute

Soman Sun Citi Vs. JCIT (ITAT Mumbai)

The assessee is aggrieved that the statements/affidavits of these alleged hawala dealers which were recorded at the back of the assessee were utilised by Revenue to cause prejudice to the assessee without confronting the assessee with the copies of the said statements/affidavits , and also cross examination of these alleged bogus dealers were not allowed to the assessee by Revenue. The right of cross examination is not absolute. If we eschew the statement/affidavit of hawala dealers from record, the primary onus which lay on the assessee to prove the genuineness of the purchases and also to prove consumption/utilization of the material was not discharged by the assessee.

The purchases of the material are in the books of the assessee wherein the assessee is claiming the same as deduction from the income and assessee has to discharge onus of proving that the purchases are genuine and the material was infact utilised/consumed for construction business of the assessee which assessee failed to do so in the instant case keeping in view factual matrix of the case as is emerging from records. The assessee could not produce the parties before the A.O nor were the notices issued by the AO u/s. 133(6) were served on the these three purchasing parties. The assessee could not produce latest addresses of these three purchasing parties to enable AO to make necessary enquiry, investigation and verifications with respect to the alleged purchases made from these parties.

The assessee did not maintain stock register/site stock records nor was movement of stock proved by the assessee as no delivery challans, lorry receipts nor octroi receipts , site stock register/gate passes were produced. The assessee has not proved utilization / consumption of material for its construction business. The assessee also could not produce movement of material to its place from supplier as no delivery challans/ lorry receipt /octroi receipts could be produced. The profitability of the assessee has also significantly fallen in the impugned year vis-a-vis preceding years which the assessee could not explain/justify reasons for such significant fall.

Thus, even if statements/affidavits of the these alleged hawala dealers are discarded/eschewed from records, the assessee could not prove genuineness of the purchases and its utilisation/consumption for the assessee’s construction business and there is a sufficient material on record to fasten tax liability on the assessee. Under these circumstances , we have observed that the authorities below have taken a plausible view of disallowing 100% of bogus purchases as genuineness of the purchases as also consumption/utilization of material is not proved.

The view of the authorities below is supported by decision of Hon’ble Supreme Court in the case of N.K Protein Ltd. (supra). In these circumstances , we are of the considered view that no prejudice is caused to the assessee by non granting of opportunity of cross examination by the authorities below as right of cross examination is not absolute as in the instant case even primary onus that fell on the assessee did not stood discharged. Had assessee discharged its primary onus, but still the authorities proceed to prejudice assessee based solely on the incriminating statements/affidavits of third parties recorded at the back of the assessee, the right of the assessee to cross examine these third parties will become absolute. It is not a case that the authorities below have merely/solely relied on the statement/affidavit of third parties namely hawala dealers recorded at the back of the assessee to cause prejudice to the assessee rather primary onus that lay on the assessee was not discharged by the assessee . Thus we uphold/sustain the orders of learned CIT(A) in which we do not find any infirmity , which we confirm/sustain . The assessee fails in this ground. We order accordingly.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal, filed by the assesseee, being ITA No. 2960/Mum/2016, is directed against the appellate order dated 16.02.2016 passed by learned Commissioner of Income Tax (Appeals)-3, Thane (hereinafter called “the CIT(A)”), for assessment year 2011-12, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 25.03.2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).

2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

1. The Ld. CIT (A) and the Ld. AO have completed the assessment without considering the facts & circumstances of the case, which is contrary to law and is against the principles of natural justice.

2. Additions u/s. 69C for disallowing alleged bogus purchases aggregating Rs. 44,78,415/- :

a. The Ld. CIT (A) and the Ld. AO have erred in facts and in law while disallowing alleged bogus purchases aggregating to Rs. 44,78,415/- u/s. 69C.

b. The Ld. CIT(A) and the Ld. AO have erred in invoking the provisions of sec. 69C which is triggered only in the case where the source of expenditure is not explained and not in respect of authenticity of such expenditure.

c. The Ld. CIT (A) and the Ld. AO ought to have taken cognizance of the fact that source of such expenditure is duly reflected in the books of accounts and accordingly there is no case of unaccounted expenditure envisaged u/s. 69C.

d. The Ld. CIT (A) and the Ld. AO have erred in facts and in law by ignoring various documentary evidences provided by the appellant firm in support of the genuineness of the said purchases.

e. The Ld. CIT (A) and the Ld. AO have erred in making the addition merely on the basis of third party statement without even affording any opportunity to cross verify.

f. The Ld.CIT (A) and the Ld. AO have erred in making assumptions and treating the affidavit filed by the suppliers with the Sales Tax Department, stating that they provide accommodations bills, to be a conclusive one.

g. The Ld. CIT (A) and the Ld. AO have erred in relying upon certain judicial pronouncements which are inapplicable, not relevant or clearly distinguishable.

ALTERNATE GROUND

3. Alleged violation of provisions of Sec. 40A(3):

a. The Ld. CIT (A) and the Ld. AO have also erred in law and in facts in alleging that there is contravention of the provisions of section 40A(3) of the Act, completely ignoring the fact that all the payments to the subject party were made by crossed account payee cheques through regular bank account of the appellant firm.

b. The Ld. CIT (A) and the Ld. AO have also erred in law and in facts in alleging that the appellant firm has received back cash from the subject party without bringing on record any independent evidence in support of the same.

4. Additions u/s. 40(ba) for Interest of Rs. 83,97,919/- paid to partners:

a. The Ld. CIT (A) and the Ld. AO has erred in law and in facts by disallowing a sum of Rs. 83,97,919/-, u/s. 40(ba) as Interest on capital paid to the partners of the Appellant Firm, ignoring the fact that the appellant firm is, in fact, a Partnership Firm registered with the Registrar of Firms, in terms of provisions of the Partnership Act, 1932.

b. The Ld. CIT (A) and Ld. AO ought to have appreciated that the appellant partnership firm is inadvertently allotted PAN as an AOP.

c. The Ld. CIT (A) and the Ld. AO ought to have considered that the said interest on capital, used exclusively for the appellant partnership firm’s business, is otherwise also deductible u/s. 37.

RELIEF CLAIMED

1. The appellant firm be allowed to claim purchases aggregating to Rs.44,78,415/-.

2. The appellant firm be allowed to claim Interest paid to partners aggregating to Rs. 83,97,919/-.”

3. The assessee is an AOP carrying on business of construction of residential flats/commercial units. The assessee has shown purchases of Rs.2,98,75,700/- during the year and on perusal of purchases it was observed by the A.O that the assessee had,inter-alia, made purchases from following parties:-