2024 (2) TMI 983 - AT - Income Tax

ITAT upholds disallowance of bogus purchase bills from hawala dealers lacking stock records

Bharat Devshi Dagha Versus ITO, Ward 3 (1), Rani Mansion, Thane

The ITAT Mumbai upheld the disallowance of bogus purchase bills from hawala dealers based on Sales Tax Department information. The assessee failed to ... Bogus purchase bills from certain ‘hawala’ dealers - reliance on information provided by Sales Tax Department, Maharashtra - HELD THAT:- Assessee has to demonstrate that the alleged bogus purchases have been entered into the stock register and the corresponding sales bills through which those goods have been delivered to the subsequent buyers. In the case the AO has not doubted the sales of the assessee but the assessee has failed to demonstrate whether the goods purchased through those bogus bills have been actually transmitted further to the subsequent buyers. Since, the assessee has not succeeded in either producing the stock register and or to link the quantity corresponding to the bogus purchases with the quantity sold in the sales bills. In such a situation, it cannot be presumed that assessee had made purchases from grey market and only bogus bills were received from those ‘hawala’ dealers. Wherever, goods sold are tallied or linked with the goods recorded in the stock register as purchased, in those cases , it could be presumed that an assessee might have purchased goods in cash from grey market, but in the case of the assessee in absence of stock register this could not be verified and therefore, we justify the action of the CIT(A) and uphold disallowance of the entire bogus purchases. Decided against assessee. Issues Involved:1. Reopening of assessment under Section 147 of the Income-tax Act.2. Disallowance of bogus purchases.3. Opportunity for cross-examination.4. Quantum of disallowance in case of bogus purchases.Summary:1. Reopening of Assessment under Section 147 of the Income-tax Act:The Tribunal upheld the reopening of assessment under Section 147 of the Act. The Assessing Officer received fresh and credible information from the Investigation Wing indicating that the assessee had obtained bogus purchase bills from 'hawala' dealers. The Tribunal referenced the Supreme Court's ruling in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd., emphasizing that the 'reason to believe' for income escapement need not be conclusively proven at the notice stage but must be based on relevant material.2. Disallowance of Bogus Purchases:The Assessing Officer disallowed the entire amount of bogus purchases for the assessment years 2009-10 and 2010-11, totaling Rs. 12,89,039/- and Rs. 9,87,466/-, respectively. The Ld. CIT(A) upheld this disallowance. The Tribunal noted that the assessee failed to provide sufficient documentary evidence to substantiate the purchases, such as delivery challans, lorry receipts, and stock registers. The Tribunal agreed with the Ld. CIT(A) that mere filing of purchase bills was insufficient to prove the genuineness of the purchases.3. Opportunity for Cross-examination:The Tribunal dismissed the assessee's argument that the disallowance was made without providing an opportunity for cross-examination. It was held that cross-examination is not an automatic right but depends on the facts of each case. The Tribunal cited various judicial pronouncements, including the case of GTC Industries Ltd. v. ACIT, which clarified that formal cross-examination is not a part of natural justice but of procedural justice. In this case, the Tribunal found that the Assessing Officer had conducted independent investigations and provided the assessee with adequate opportunities to rebut the findings.4. Quantum of Disallowance in Case of Bogus Purchases:The Tribunal upheld the disallowance of the entire amount of bogus purchases. It rejected the assessee's contention that only a certain percentage of gross profit should be disallowed. The Tribunal emphasized that the assessee failed to maintain a stock register or provide any quantitative details to substantiate the actual receipt and subsequent sale of the goods. In the absence of such evidence, the Tribunal followed the principle that the entire amount corresponding to bogus purchases should be disallowed, as laid down in previous judicial decisions, including the case of ACIT vs. Shri Pritam S Mahale.Conclusion:The Tribunal dismissed the appeals of the assessee, upholding the reopening of assessment, disallowance of the entire amount of bogus purchases, and rejecting the need for cross-examination based on the specific facts and circumstances of the case. The judgment reinforced the principle that substantial evidence is required to substantiate the genuineness of purchases and that procedural justice does not always mandate formal cross-examination.