Mumbai ITAT Deletes Entire Bogus Purchase Addition: General Hawala Statements Cannot Override Site-Level Evidence

DCIT Vs Naozer Bejon Baldawala (ITAT Mumbai)

Mumbai ITAT Deletes Entire Bogus Purchase Addition: General Hawala Statements Cannot Override Site-Level Evidence

The Mumbai ITAT upheld the deletion of an addition of ₹1.07 crore made on account of alleged bogus purchases, holding that generalized statements of alleged hawala dealers cannot outweigh direct documentary evidence establishing actual purchase, delivery, and consumption of materials.

The assessee, engaged in property development, renovation and repair contracts, had been subjected to reassessment based on information from the Maharashtra Sales Tax Department that certain suppliers were listed as suspicious dealers. The Assessing Officer treated the entire purchases as bogus and added the full amount to income. However, in the first appellate round, it was accepted that the assessee had actually executed contract work and necessarily consumed materials, leading only to an estimated addition on the profit element.

Pursuant to a later remand by the Tribunal for the limited purpose of providing statements and cross-examination, the Assessing Officer again added the entire purchase amount. The Tribunal held that the AO exceeded the scope of the remand because earlier findings regarding execution of contracts and consumption of materials had already attained finality and could not be reopened.

The Tribunal further noted that none of the statements relied upon by the Department specifically named the assessee, referred to any particular invoice, quantity, work site or transaction. Moreover, no effective cross-examination of the deponents was provided. On the other hand, the assessee produced purchase invoices, supplier ledgers, bank payment records, delivery challans acknowledged by site engineers, and site-wise material records showing receipt and utilization of construction materials.

Observing that the contract receipts and execution of work were never disputed by the Department and that no defect was found in the assessee’s documentary evidence, the ITAT held that the conclusion that no purchases had been made was commercially implausible. Accordingly, the deletion of the entire addition of ₹1.07 crore was upheld and the Revenue’s appeal was dismissed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI