Marvell Nutex Pvt. Ltd. Vs ITO (ITAT Mumbai)
The assessee, engaged in the business of manufacturing and trading in yarn and grey fabric, filed its return of income for Assessment Year 2011-12. Subsequently, reassessment proceedings were initiated based on information received from the Directorate General of Income Tax (Investigation), Mumbai, which relied upon findings of the Maharashtra Sales Tax Department. According to the information, the assessee had allegedly obtained accommodation purchase bills from three entities identified as hawala dealers, involving purchases aggregating to ₹44.40 lakh.
During the assessment proceedings, the Assessing Officer (AO) sought various details, including delivery challans, transport receipts, stock registers, purchase invoices, bank statements, quantitative details of raw materials and finished goods, and corresponding sales records. The assessee furnished the requested documents, including invoices, receipts, ledger accounts, bank statements, sales invoices, stock registers, and delivery challans relating to the disputed purchases.
The AO issued notices under Section 133(6) to the suppliers, but the notices were returned unserved. The assessee was unable to produce the suppliers for verification. Although the assessee contended that the purchased material had been consumed in manufacturing activities and that the resulting sales had been duly recorded, the AO concluded that the purchases were non-genuine. Relying on information from the Sales Tax Department and other enquiries, the AO disallowed the entire purchase amount of ₹44.40 lakh.
The Commissioner of Income Tax (Appeals) upheld the disallowance. The appellate authority observed that there was no sufficient evidence of transportation, delivery, or actual physical movement of goods beyond the assessee’s internal records and relied upon the findings of the Maharashtra VAT authorities.
Before the Tribunal, the assessee argued that all documentary evidence sought by the AO had been furnished and that no defects had been pointed out in any of the records. It was also highlighted that the AO himself had acknowledged receipt of delivery challans and other supporting documents. The assessee further emphasized that its sales had never been questioned and that the books of account had not been rejected. It furnished details of gross profit (GP) and net profit (NP) ratios for preceding and succeeding years to demonstrate consistency in business operations. The assessee relied upon judicial precedents supporting the proposition that only the profit element embedded in alleged non-genuine purchases should be brought to tax.
The Revenue argued that the suppliers could not be produced and that notices issued under Section 133(6) remained uncomplied with. It relied on judicial precedents where additions had been sustained when assessees failed to establish the genuineness of purchases.
After considering the material on record, the Tribunal observed that the assessee had furnished all documents called for during the assessment proceedings and that this fact had been acknowledged by the AO. The Tribunal noted that delivery challans had been submitted and that neither the books of account nor the sales recorded by the assessee had been rejected. It also found that no discrepancies had been identified in the documentary evidence produced by the assessee.
The Tribunal further observed that the AO’s conclusions were primarily based on general information received from the Maharashtra Sales Tax Department. There was no material on record showing the nature of enquiries conducted by the Sales Tax Department or providing the assessee an opportunity to cross-examine or verify such findings. The Tribunal distinguished the decisions relied upon by the Revenue on the ground that those cases involved non-participation by the assessee or failure to furnish supporting evidence, whereas in the present case the assessee had actively participated and submitted all required documents.
The Tribunal referred to various Bombay High Court decisions which held that documentary evidence cannot be discarded solely on the basis of general information from the Sales Tax Department unless specific material establishes that the transactions in question were bogus. It noted that a supplier may have engaged in non-genuine transactions with some parties but not necessarily with all parties, making transaction-specific verification necessary.
Considering the overall facts and judicial precedents, the Tribunal held that complete disallowance of the purchases was not justified. It followed the principle laid down by the Bombay High Court that only the profit element embedded in alleged non-genuine purchases can be brought to tax. Accordingly, the Tribunal directed the AO to compute the difference, if any, between the gross profit rate relating to genuine purchases and that relating to the disputed purchases and restrict the addition to such profit element. The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
