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Case Law Details

Case Name : DCIT Vs M/s. Allied Blenders and Distillers Pvt. Ltd. (ITAT Mumbai)
Appeal Number : I.T.A. Nos. 2447 & 2446/2015
Date of Judgement/Order : 21/02/2017
Related Assessment Year : 2010-11 & 2011-12

ITAT held that purchases cannot be treated as bogus merely on the basis of assessee’s dealing with parties who were found out to be hawala dealers by the sales tax department.

Detailed Discussion on the issue

The assessee was engaged in the business of manufacturing of Indian made foreign liquor primarily Officers Choice Whisky. During the year the assessee purchased various gift items such as OCW glasses,OCW Steel jar,OCW T-5hirts,OCW Key chain,Ice Box with Company Logo,Crystal glass & bowls,Plastic jars with Company logo, Wall Clock, Wrist Watches, Pen sets,Key chains and OCW plates which used in the promotional scheme offered by the assessee such as on purchase ot750 ml bottle get 3 crystal Glasses Free,on purchase of375 ml bottle get 2 Glasses Free and on purchase of 180 ml bottle get 1 Glass Free etc. The materials were purchased from three suppliers to the tune of Rs.4,92,43,370/- as per the details given above. The AO, on the basis of information from DGIT (Inv), Mumbai and on the basis of notification issued by the sales tax department GOM declaring that these suppliers as hawala operators, made the addition of the total purchases from these parties by treating the same as bogus for the reasons that notices sent under section 133(6) to these hawala parties were returned un-served. The assessee filed before the AO complete books of accounts, items wise stock register evidencing the receipts of gift materials and issue thereof as attached in the paper book page 56 to 78. In order to prove the use of gift items in the promotional activities, photographs of the functions and promotional activities and also confirmations from the shop keepers were also produced before the AO which were disbelieved by the AO on the ground that the confirmations were not bearing the PAN of the persons confirming the consumptions of gift materials. The assessee has also produced copies of bank statements of Punjab National Bank and Axis Bank evidencing the payments through banking channels by account payee cheques to the suppliers filed at pages no. 32 to 51 of the paper book. Having considered all these facts which were before the AO as well as FAA, we find that the assessee has discharged its onus by producing the books of accounts, stock register, stock tally and also filing various documentary evidences such as statements of banks etc, confirmations and photographs of the promotional events before us. In our opinion the assessee has discharged the onus cast upon it. Once the assessee filed all the documents and evidences corroborating the purchases and consumption thereof, the onus of further verification shifts to the AO who has not conducted any independent inquiry or further verification of the records produced before him and proceeded to disallow the purchases merely on the basis of information DG(IT), Mumbai and information published on the website of the Sales Tax Department of Maharashtra Government. In our opinion, the purchase made by the assessee could not be disbelieved merely on the basis of information received from the third party without carrying out any meaningful enquiry and further verification on the various records and information filed during the course of assessment proceedings. We are not in agreement with conclusion drawn by the FAA upholding the action of the AO. The case of the assessee is also supported by M/s MPIL Steel Structures Ltd (supra), wherein the AO on the basis of information received from the Sales Tax Department on the website disallowed the purchases made from eight parties and the co-ordinate bench of the tribunal deleted the addition reversing the order of FAA by holding as under :

“7. We have carefully considered the rival submissions and perused the record placed before us including the orders of authorities below and case law relied upon by the parties. We find that the AO made the addition of Rs.7,48,31,548/- which was reduced to Rs.63,29,735/- by the Id. CIT(A) on the basis of remand report called for during the appellate proceedings which was furnished by the AO vide letter dated 31.7.2014. We find that the assessee submitted the copies of ledger account, copies of bank statements, copies of purchase bills, material delivery challans in order to substantiate the purchases made from those parties. Besides the assessee also produced stock register in which the entries of material received and consumed for production in order to prove the case of assessee and ultimately sold all the finished goods for which no doubts were raised by the tax authority. We also note that the books of account were not rejected by the AO and only the purchases were doubted which were reduced by the Id. CIT(A) substantially. Now, the question before us is whether the purchases as made by the assessee were bogus despite the facts that the material was received with supporting bills and vouchers and payments were made through banking channels and all the material received was also consumed as shown in the stock register and ultimately sold by the assessee which were not doubted at all. The remand report reveals that the purchases were doubted primarily for the reasons such as non services of notices u/s 133(6), non production of supplies before the tax authorities, non-filing of the confirmation letters from the suppliers, non furnishing of bank statements, return of income, financial statements in support of claim of the assessee and lastly in respect of four parties, it was alleged that the parties were put on the website of Maharashtra Sales Tax department declaring them as suspicious hawala dealer. Looking to the facts and circumstances of case in totality, we are of the considered opinion that when material were purchased and payment were made through banking channel and the material consumed in the manufacturing process which was not at all in doubt then the tax authorities are not justified in treating the purchase as bogus. The books of accounts were rejected by the AO. The case of the assessee also finds supports from the following decisions:

In the case of YFC Projects (P) Ltd (supra), it has been held as under

“The assessee had achieved a turnover of Rs. 884.81 lakhs. It had shown net profit of Rs. 79.11 lakhs. Its net profit in terms of percentage was almost double than the previous year. The Assessing Officer was unable to point out a single defect in its books of account. Merely due to non-filing of confirmation from the supplier, it could not be held that the assessee had not received the goods from ‘5’ and that the credit balance in the shape of sundry credit appearing in the books of account was unaccounted money of the assessee. The assessee had filed a certificate from the bank indicating the fact that cheque issued by it were cleared. The Assessing Officer was harping upon only one aspect that the notice issued to S’ had returned back with a remark ‘not known; thereafter, he did not take any steps to procure the presence of this person. According to the assessee, notice did not contain the father’s name of ‘S that might have been the reason for the return of the notice, otherwise on the bills raised by S’ his mobile number was available. He could have been contacted on this mobile number. [Para 10J

In view of the above, it was to be held that the Assessing Officer was not justified in making the disallowance of purchases made by the assessee. [Para 11]

In the result, the appeal filed by the assessee was to be allowed. [Para 12]”

In the case of Rajeev G Kalathial (supra), it has been held as under

“The Assessing Officer had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. It was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. There is no such exercise was done. Transportation of goods to the site is one of the deciding factor to be considered for resolving the issue. The First Appellate Authority has given a finding of fact that part of the goods received by the assessee was forming part of dosing stock. There is nothing, in the order of the Assessing Officer, about the cash withdrawal. Secondly, proof of movement of goods is not in doubt. Therefore, considering the peculiar facts and circumstances of the case under appeal, that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse the view taken by the Assessing Officer. So, confirming the order of the FAA, the issue is decided against the Assessing Officer. [Para 2.4]”

In the case of JAGDISHCHANDRA VISHWAKARMA 59 DTR 415 (Indore Bench, the Bench held as under

“Income from undisclosed sources-Addition-Alleged bogus purchases(CIT)(A) and the “Tribunal have recorded categorical findings of fact that the satisfactorily explained the details and modes of payments for purchased from two concerns and that the AO is not correct in doubting the purchases made from the said concerns”

8. In our opinion, the assessee has discharged the onus cast upon it in proving these purchases. We, respectfully following the ratio laid down in the above decisions, delete the addition sustained by the Id.CIT(A) and direct AO accordingly.

In the case of Tarla R Shah (supra), the co-ordinate bench has held that the addition made merely on the basis of observations by Sales Tax Department and without conducting any independent inquiry specially when the assessee has discharged his primary onus by showing the books of account and payment by way of account payee cheques and producing bills and vouchers for sales of goods, the addition could not be sustained. The assessee was also not given a copy of the statements recorded from the hawala operators and therefore no cross-examination could be asked by the assessee which is also against the equity and the principle of natural justice as has been held by the Hon’ble Apex Court in the case of M/s Andman Timber Industries (supra). Moreover, the assessee was not named principle beneficiary by any of the suppliers of goods to be purchased from hawala entries and therefore it would be unreasonable to infer that the assessee might have availed the benefit of hawala transactions.

In the case of Lakhmani Mewal Das (supra), the honble Apex Court has observed and held (para 10):

“10. We may now deal with the first ground mentioned in the report of the Income-tax Officer to the Commissioner of Income-tax. This ground relates to Mohansingh Kanayalal, against whose name there was an entry about the payment of Rs.74, arenas 3 as interest in the books of the assessee, having made a confession that he was doing only name-lending. There is nothing to show that the above confession related to a loan to the asses-see and not to someone else, much less to the loan of Rs. 2,500 which was shown to have been advanced by that person to the assessee-respondent. There is also no indication as to when that confession was made and whether it relates to the period from April 1, 1957, to March 31,1958, which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it relates to the period from April 1, 1957, to March 31, 1958, and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather farfetched.”

After going through the facts in the assessee’s case in the light of ratio laid down by the Honble Apex Court and the decisions of the Tribunal, we are of the considered opinion that the order passed by the FAA is not correct and cannot be sustained. We, therefore, following the ratio laid down in the decisions referred to above are inclined to set aside the order of Id.CIT(A) and direct the AO to delete the addition.

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