CA Suraj R. Agrawal
Brief of the Case- ITAT Mumbai held in the case of Hiralal Chunilal Jain vs. ITO that addition for alleged Bogus Purchase not sustainable as AO had made the addition solely on the basis of information received from the Sales tax department without making any independent inquiry or following the principles of natural justice before making the addition.
Suspicion of the highest degree cannot take the place of evidence.
Facts of the case:
- Assessee, an individual is proprietor of M/s. Divya Alloys and is engaged in business of resellers of ferrous and non ferrous metals.
- AO found that the assessee had purchased goods worth Rs. 7.21 lakhs from Shiv Sagar Steel (India). The name of Shiv Sagar was appearing in the list of bogus parties forwarded by the sales tax authorities and the name of the assessee was appearing as beneficiaries in the list.
- The AO directed the assessee to produce the party from whom he had claimed to have purchased goods. However, the supplier was not produced by the assessee. Summons issued to Shiv Sagar could not be served on the given address.
- The AO held the purchase transaction bogus and treated the entire purchase (Rs.7.21 lakhs) as unexplained expenditure u/s.69C of the Act.
- First Appellate Authority (FAA) held that an addition of 20% of the purchase would be justified in order to fulfill the gap difference of GP for the alleged purchase as well to plug any leakage of revenue.
Issue put before ITAT/Court:
Partial addition confirmed by the FAA was not justifiable, the AO had not granted cross examination of the party, even a copy of the statement was not provided wherein the allegation against the assessee were made by the alleged suppliers, all the purchases and sales were recorded in the books of accounts, the assessee was a reseller, the NP was 1.7%, the GP was about 7%, the FAA had ignored those vital facts while upholding the partial addition.
Observations of Honorable ITAT/Court:
- the AO had received information from the investigation wing of STD, Maharashtra that the assessee was one of the beneficiaries of accommodation entries. Shiv Sagar the supplier of the goods was one of the entities who had admitted to have bogus bills. The assessee had asked for cross examination of the supplier but same was not given. The AO had not supplied the copy of the statements of Shiv Sagar to the assessee. In the books of accounts of the assessee all the purchases and sales were recorded, payments were made through banking channels, the AO had made addition of entire purchases u/s.69 of the Act, the FAA had reduced it to 20%.
- The AO had not rejected the sales of the assessee and the assessee was maintaining the quantative details and stock register.
- Once the sales are accepted as genuine or not doubted the AO cannot reject the entire purchase.
- AO had made the addition on the basis of information received from the Sales tax department, but he did not make any independent inquiry.
- He did not follow the principles of natural justice before making the addition.
- Considering the peculiar facts and circumstances of the case, ITAT has reversed the order of the FAA.
- Effective ground of appeal is decided in favor of the assessee.
(Author can be reached at CASurajRA@icai.org)