ACIT Vs Neena Hardeep Singh (ITAT Delhi)
ITAT Delhi held that addition towards alleged bogus purchases unsustainable as cross examination of person based on which AO was drawing inferences was not allowed and payments were made through banking transactions.
Facts- The assessee had claimed to be engaged in the business of fabrication and trading of readymade garments. AO found that the assessee has shown purchases amounting to Rs. 76,88,380 /- from M/s. Thakur Associates but on investigation made at the premises it was found that it was a residential house of the brother of Sanjiv Thakur, the proprietor of M/s. Thakur Associates.
The assessee was directed to ensure the presence of the party himself for verification of genuineness of transactions. However, as assessee failed to produce anyone, Ld. AO considered M/s. Thakur Associates to be an entity created to provide accommodation entries. Ld. AO observed that the confirmation filed by the assessee from M/s. Thakur Associates was not reliable and thus in the absence of any other details like purchase bills, challans, details of material purchase and their utilization for making sales, Ld. AO treated the purchase made from M/s. Thakur Associates as bogus purchases.
CIT(A) deleted addition on account of alleged bogus purchases from Ms/. Thakur Associates. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that when the Ld. AO was not believing the confirmation submitted by the assessee from M/s. Thakur Associates then it was necessary to give an opportunity to rebut the same to the assessee. Ld. AO was drawing inferences from the statement of Rahul, and Ld. CIT(A) has rightly observed that no reason have been given in the assessment order in not allowing cross examination of Rahul which is a violation of principle of natural justice. Ld. CIT(A) has taken into consideration the assessment record and observed that assessee was never asked by Ld. AO to produce Sanjeev Thakur for verification. The Revenue in this appeal does not dispute that this was an incorrect factual aspect of the assessment proceedings as recorded by Ld. CIT(A) on the basis of records before it. Further what transpires is that the payments were made through banking transactions and without any factual evidences, Ld. AO concluded that the amount deposited in the account of Thakur Associates was withdrawn as cash by the assessee. The findings of Ld. CIT(A) require no interference. Thus this Ground has no substance. Same is decided against the Revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal has been filed by the Revenue against order dated 23.01.2008 passed in appeal no. 295/06-07 for assessment year 2004-05, by the Commissioner of Income Tax (Appeals)-III, New Delhi (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it u/s 250 of Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of assessment order dated 27.12.2006 u/s 143(3) of passed by ACIT, Circle-18, New Delhi (hereinafter referred as Ld. Assessing officer or in short Ld. AO) and Cross objection have been raised by assessee.
2. The facts in brief are that assessee had claimed to be engaged in the business of fabrication and trading of readymade garments. Return declaring income of Rs. 1,56,891/-was filed and statutory notice u/s 143(2) of the Act was issued. Ld. AO had found that assessee has shown purchases amounting to Rs. 76,88,380 /- from M/s. Thakur Associates but on investigation made at the premises it was found that it was a residential house of brother of Sanjiv Thakur, the proprietor of M/s. Thakur Associates, who lived in Joint family. Sanjiv Thakur was not available and inquiries were made from Rahul who was nephew of Sanjiv Thakur. Based on the statement of Rahul that the premises is of his deceased father, N.K.Thakur and that his uncle Sanjiv Thakur resided in the premises till April, 2013 and that he is not aware of the existence of the firm M/s. Thakur Associates, the assessee was directed to ensure the presence of the party himself for verification of genuineness of transactions. However, as assessee failed to produce anyone, Ld. AO considered M/s. Thakur Associates to be an entity created to provide accommodation entries. Ld. AO observed that the confirmation filed by the assessee from M/s. Thakur Associates was not reliable and thus in the absence of any other details like purchase bills, challans, details of material purchase and their utilization for making sales, Ld. AO treated the purchase made from M/s. Thakur Associates as bogus purchases. Ld. AO also made an observation that the payments made against these purchases have been withdrawn from the bank in cash on the same day. He thus concluded that it appears that this cash was used to be sent to a foreign country by Hawala channels to be received as sale proceeds in convertible foreign exchange.
2.1 Further with regard to other six parties, the Ld. AO was not satisfied of the purchases made as no confirmation was provided, accordingly, addition of Rs. 28,43,799/- was made.
2.2 Ld. AO also observed that there was an advance appearing in the books of Rs. 16,09,094/- from M/s. Wexco Trading Company with which there is no transaction during the year. Accordingly considering it to be unexplained credits appearing in the books of accounts, addition was made.
2.3 Ld. AO further observed that expenses of Rs. 5,65,490/- has been shown as payments made for fabrication expenses but there was no corresponding TDS. As assessee did not provide confirmations of these parties, Ld. AO considered these as non-genuine expenditure, not incurred for purpose of business and addition of this amount was made.
2.4 Further, AO observed that as purchases and fabrication expenses are not genuine the local sale of garments of Rs. 2,02,56,951/- is also not genuine. Ld. AO considered the fact that sales tax returns has not been filed so the local sales of Rs. 74,96,688/- to M/s. Golden Harvest, a related party of the assessee, were alleged to be bogus sales and addition was made.
3. Ld. AO concluded and re-calculated taxable income as follows;
“I hold that assessee has made bogus export by exporting/booking some other type of goods of no commercial value in the name of some of genuine existing parties/ improter situated in foreign countries,, but those parties are in no way involved in actual export/import with assessee’s concern. The goods exported by assessee were of no commercial value or are of meager value. Hence, assessee has booked export invoice at the exorbitant high amount in the name of non-genuine importer existing in Hungary/Netherlands, however, the sales invoices and shipment of goods were received by assessee’s own persons in Hungary/Netherlands. In its investigation conducted by the Investigation Wing, Delhi it was revealed that Neena Hardeep Singh and Shri hardeep Nihal Singh visit frequently abroad and own M/s. Trans Europe (Textiles) BV, 124, M.J. Street, the Netherlands. This concern appears to be special purpose company. The assessee has made total export sales to this one company i.e. M/s. Trans Europe(Textiles) BV which is owned by the assessee alongwith Shri Hardeep Nihal Singh. The assessee executes bogus exports in names of these concerns and bring equivalent sale proceeds to invoice value in convertible foreign exchange in India through banking channels in the name of the assessee. Against these fictitious exports, assessee has also claimed export benefits i.e. duty drawback of Rs. 9,34,254/- and DEPB of Rs. 4,92,174/-.
Considering the above, it is crystal clear that assessee-concern has not made any actual sale whether local or export but the money received against export sale received in convertible foreign exchange is only the Hawala amount brought into India through the garb of export followed by the assessee. Further, the assessee has not proved genuineness of purchases and fabrication and making charges against local sales made by the assessee. Therefore, the sales made by the assessee is not genuine and income received on account of the same is assessed as income from undisclosed sources.
With these remarks, the total income of the assessee is computed as under :
