Case Law Details
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
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