Case Law Details
Ground No.1 is against the addition of Rs.1 ,74,01 ,436/- on account of bogus purchases. Brief facts in this regard are that during the assessment proceedings, inquiries were made u/s 133(6) from various parties from where the assessee has shown purchase of metals. The notice issued to the five parties ie. M/s Montex Industries, M/s Roshan Steel Impex, M/s Mokesh Metal and Tubes, M/s Viraj Steel and Alloys and M/s Shivam Metals Industries returned back by the postal authorities with a remark “not known”. Accordingly, the AO issued show cause notice to the assessee as to why the purchases from these parties should not be treated as non genuine and the same should not be added back. In response to the said notice, the assessee furnished ledger copy of purchases, signed by the respective parties and copies of sample purchase bills along with a few delivery challans and claimed that the purchases are genuine. However, the AO further inquired this matter through on the spot field inquires by the Inspector, who submitted that none of the parties exists at the given address and the inquiries with the nearby shops revealed that nobody is aware about these parties. The report of the Inspector forms part of the assessment order. On the basis of detailed enquiries, the AO came to the conclusion that the assessee has managed to obtain the signatures of these parties, but actually these parties does not exists at the given address. The AO has further observed that
(i) the receiver’s signature are not affixed on the delivery challans of the purchase from these parties.
(ii) the mode of transport for delivery of these goods is not mentioned on the purchase bills of these parties whereas the purchases invoice of other parties contains the lorry number etc.
(iii) Major portion of purchases are still shown outstanding in the list of sundry creditors.
On the basis of all these facts, the AO has held that the assessee has merely obtained accommodation entries for these purchases. If at all such purchases have been made from some other party, to make corresponding sales, the same would obviously be in cash, which would attract the provisions of section 40(A)(3) of the IT Act Accordingly, the AO has disallowed Rs.1 ,74,01 ,436/- on account of such bogus purchases.”
In the appellate proceedings, the assessee submitted additional evidences under Rule 46A of the Income Tax Rules, 1962 in the form of TIN allotment letter, Sales Tax Acknowledgement of E-return, challans, certificates under VAT etc in respect of purchases in question. Hence the ld. CIT(A) called for a remand report from the AO. In the remand report, the AO submitted that, out of five parties referred above, three parties, viz., (a) M/s Roshan Steel Impex (b) M/s Viraj Steel and Alloys and C ) M/s Shivam Metals Industries appear in the list of hawala operators prepared by the Sales Tax Department. The AO further submitted that he has obtained bank statements of all the five parties and the perusal of the same shows that they have withdrawn the amounts in cash as soon as the cheques issued by the assessee were realised. The AO also placed reliance on the decision of the Delhi Bench of the Tribunal in the case of DCIT V/s Phoolwati Devi (2009) 314 ITR AT I (Delhi) and also the decision of Hon’ble Supreme Court in the case of Suman Dayal V/s CIT (1995) 214 ITR 801 (SC). Accordingly, the AO stood by the assessment order. The AO further observed that if at all the purchases were considered to have been made from any other party, the same would have been sourced out of undisclosed income of the assessee, in which case the provisions of sec. 69C of the Act would be attracted. Even though the assessee furnished a detailed reply in response to the remand report and also placed reliance on various case law, yet the ld. CIT(A) concurred with the view taken by the AO. The ld. CIT(A) also concurred with the view of AO that the assessee would have made purchases from the grey market and such purchases would have made in cash resulting in violation of the provisions of section 40(A)(3) of the Act. He also agreed with the view taken by AO that assessee has not explained the sources for making such purchases and hence the aggregate amount of purchases is liable to be assessed as unexplained expenditure under the provisions of section 69C of the Act. Accordingly, the ld. CIT(A) confirmed the addition made by AO on this issue.
A perusal of the orders passed by the tax authorities would show that they have suspected the genuineness of the purchases only for the reason that the above said five parties were not available in the given addresses. It is pertinent to note that the AO himself, during the course of remand proceedings, have obtained the bank statements of the above said five parties. It is in the common knowledge of everybody that the bank account, now a days, could be opened only on submission of proper documents. Further the assessee has furnished the Sales tax documents of the above said five parties and also their income tax details to prove their existence. Thus, it is seen that the assessee has furnished many documents to prove the existence of the parties and they have not been controverted by the assessing officer.
Be that as it may, another important factor the bank account copies collected by the assessing officer shows that the assessee had made the payments to the above said parties by way of account payee cheques. Thus, it is seen that the transactions have been routed through the bank accounts. Further, it is not the case of the assessing officer that the assessee has indulged in accounting of bogus purchases. When the assessee submitted that he could not have effected the sales without making corresponding purchases, the AO has taken the view that the assessee could have effected purchases in the grey market, which conclusion is, in fact, not supported by any material. Under this impression only, the AO has further expressed the view that the assessee would have purchased the materials by paying cash thus violating the provisions of sec. 40A(3) of the Act, which is again based on only surmises. In the absence of any material to support the said view, we are unable to agree with the view taken by the tax authorities that the purchases amount is liable to be disallowed u/s 40A(3) of the Act. On the same impression only, the AO has expressed the view in the remand report that the purchases amount is also liable to assessed u/s 69C of the Act as the source of purchases were not proved. Again the said conclusion is based upon only surmises, which could not be sustained. Thus, it is seen that the assessing officer has accepted the fact that the quantity details of purchases and sales have been reconciled by the assessee. Further, various case law relied upon by the assessee also supports his case. Under these set of facts, we are of the view that the Ld CIT(A) was not justified in confirming the disallowance of purchases. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the disallowance of purchases.
