The Income Tax Appellate Tribunal, Mumbai in the cases of ITA No.4547/Mum/2014,ITA No.2545/Mum/2014 and ITA No.1275/Mum/2014 has held that addition cannot be allowed solely based on information received from the sales tax department.
The judgment was passed by the bench comprising of Shri Rajendra, Accountant Member and Sandeep Gosain, Judicial Member.
Date of Hearing:
The hearing was concluded on 23.11. 2015.
Date of Pronouncement:
The order was pronounced on 01.01.2016.
Pleaders engaged in the case:
The Assessee was represented by Shri Satish Mody, AR and the Revenue was represented by Ms. Kusum Bansal, DR.
Facts of the case:
The assessee filed the appeal challenging the order 23.05.2014 of CIT(A)-25,Mumbai in connection with the Assessment Year 2009 -10. The assessee and the Assessing Officer filed cross appeals for the following Assessment Year i.e. 2010 -11.
The Assessee being an individual was the proprietor of M/s. Divya Alloys and was engaged in the business of selling metals.
The ground of appeal was connected with an addition of Rs. 1, 44,348/-. During the assessment proceedings, the Assessing Officer observed that the assessee had purchased goods amounting to Rs.7.21 laks from Shiv Sagar Steel (India) and the name of such company was appearing in the list of bogus parties forwarded by the sales tax department.
The assessee appeared as a beneficiary in the list. The Assessing Officer directed the assessee to produce the party from whom he had claimed to have purchased products.
The assessee failed to produce the supplier. Summons issued to Shiv Sagar could not be served on the address furnished by the assessee.
Thereafter the Assessing Officer held that the purchase was a bogus one and treated the total purchase value of Rs.7.21 lakhs as unexplained expenses under section 69C of the Income Tax Act.
Aggrieved by the said order, of the assessee filed an appeal before the First Appellate Authority. It was argued that the Assessing Officer relied upon the information supplied by the Sales Tax Department and that the Assessing Officer failed to supply the copy of the statement of Shiv Sagar. It was also contended that the assessee was not allowed to cross examine the said company.
It was argued that the assessee had discharged his initial obligation by furnishing details of purchases, sales, bank statements and that he also produced stock register before the Assessing Officer.
It was contended that there was no proof that payments for the so-called bogus purchase returned to the assessee and that all purchases were reflected in the books of accounts.
After hearing the submissions of the assessee and after perusing the assessment order, it was held that the Sales Tax Department had treated the suppliers of goods as a suspicious act and that they had paid VAT.
During investigation the suppliers had admitted that they had issued bills to the assessee and that addition could be made at on an ad hoc amount.
Finally it was held that an addition of 20% of the purchase would be justified to fulfill the difference of GP for the said purchase to check any loss of revenue.
The Representative for the assessee contended that partial addition confirmed by the First Appellate Authority was not justified and that the Assessing Officer did not allow cross examination of the party.
The Departmental Representative supported the order of the First Appellate Authority.
Upon hearing the rival submissions and after perusing the materials it was found that the Assessing Officer had received information from the investigation wing of the Sales Tax Department of Maharashtra that the assessee was a beneficiary of accommodation entries.
It was pointed out that the assessee had sought for cross examination of the supplier but such prayer was not allowed by the Assessing Officer and the Assessing Officer had not supplied the copy of the statements of Shiv Sagar to the assessee.
It was agreed that assessee was maintaining the details and stock register. It was held that once the sales are accepted as genuine, the Assessing Officer cannot subsequently reject the entire purchase.
In Nikunj Eximp(supra)the Hon’ble Bombay High Court held if sales were not doubted and copies of bank statement showing payment through account payee cheques are filed, the purchase cannot be rejected.
In the case of Rajeev Kalathil (supra) the Tribunal has held that a mere suspicion of highest degree cannot replace evidence.
It was also held that the Assessing Officer did not make any inquiry. He failed to follow the principles of natural justice while making the addition. The First Appellate Authority had not given any justification of such addition.
Considering the facts and circumstances of the case, the order of the First Appellate Authority was reversed. The first ground of appeal was decided in favour of the assessee.
However it was pointed out that in the case of Ramanand Sagar (256 ITR 134) the Hon’ble Bombay High Court has held that the burden of proof is upon the assessee to prove that the expenses are solely for the business purposes.
In the case the expenditure which was disallowed by the Assessing Officer and upheld by the First Appellate Authority was not proved. Thus, the other grounds of appeal were decided against the assessee.
As a result, the appeal preferred by the assessee for the Assessment Year 2009-10 was allowed and appeal for the Assessment Year 2010-11 was partly allowed. The Appeal filed by the Assessing Officer was however dismissed.