TaxTMI 
TaxTMI 
2017 (9) TMI 1404
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....es and making an addition of Rs. 1. 37 crores to the total income of the assessee. The return, filed by the assessee, was initially processed u/s. 143(1) of the Act. Subsequently, the AO received information from the Sales Tax Department (STD) as well as from DGIT (Inv. ), Mumbai that the assessee had received accommodation en tries purchases from suspicious parties. The AO initiated proceed -ings u/s. 147 of the Act, after recording regions thereof. On request of the assessee the AO provided the reasons recorded for issuing the notice u/s. 148. He called for various details during the assessment proceedings. He observed that during the year under consideration the assessee had debited purchases totalling to Rs. 16. 22 crores, that perusal of the details submitted by the assessee about the purchases revealed that it had purchased goods from Shree enterprises(SE) and Shreeji Enterprises (SJE) amounting to Rs. 1. 63 crores and Rs. 2. 28 crores, that the STD had conducted independent enquiries in each of the hawala parties and conclusively proved that those parties were engaged in the business of providing accommodation entries only, that the STD had provided many documents which rela....
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....and in the year under consideration it had started its business, that it had claimed only 6 major suppliers selling goods worth more than Rs. 50, 000/- to it, that similarly only 3 major buyers of the assessee had bought goods from it worth more than Rs. 1 lakh from it, that the accommodation entry business normally would help buyer to not only get a bill of purchase to inflate its expenses but would also help it to avoid payment of VAT, that the tax evaded would ostensibly pay VAT to the entry providers and would get it back in cash and when the tax evader would collect VAT on its own sale it could claim a set off with the VAT paid on purchases, that in effect of VAT collected would become tax-free receipt in the hands of the assessee, that it had claimed to have purchased goods worth Rs. 10. 51 crores, The assessee had filed certain details to relate its purchases with sales. In that regard the FAA observed that it had not declared any opening stock or closing stock of goods, that it had basically handled the purchases of Clothes Rack Private Ltd. , that the purchase bills had no indication of the size or design or colour of the T-shirts, ladies denim, ladies shirts etc. About t....
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....t had produced all the necessary documents before the AO/FAA, that suppliers had filed their sales tax and income tax returns, that it had filed the confirmation of the suppliers, that the assessee had asked for crossexamination, that the F AA was informed about not providing the chance of cross examination, that there was a clear violation of principles of natural justice, that material received from the STD was never revealed to the assessee in spite of the fact that request was made in that regard, that payments were made through banking channels, that provisions of section 69C were not applicable to the facts of the case, that the source of investment were never in doubt. He relied upon the cases of on Andaman Timber Industries (Civil Appeal No. 42 to 8 of 2006, dated 02/09/2015), Nikunj Eximp Enterprises Private Limited (supra), Parekh Corporation UI Building(32 CCH 129), Glorious Club Pvt. Ltd. (39CCH248), Shri Deepak Popatlal Gala(ITA/5920/Mum/2013 &6203/Mum/2013, dated 27/03/2015). The Departmental Representative (DR)supported the order of FAA and stateddthat profit embedded in the alleged bogus transactions had been rightly upheld by the FAA. On a query by the Bench, about....
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....ld be added to the total income of the assessee. In the appellate proceedings, the assessee referred to the copies of the Sales tax returns of the suppliers as well as the copies of their income tax returns. It was emphasised that the sales made by the assessee were accepted by the AO. The FAA was specifically informed about non-furnishing of material for treating the suppliers bogus. He reduced the addition to 25% of the purchases. 5. 2. We are of the opinion, that principles of natural justice should always be observed while fastening tax liability upon an assessee. There is no doubt that reopening was based on valid reasons. The AO had necessary prima facie material justifying issue of notice u/. 148 of the Act. But, it is also noteworthy that material was available to the AO only and it was never shared with the assessee. When it came to know about the information provided by the STD and returning of notices u/s. 133(6), it made a request for cross examining the parties who were treated as hawala-dealers by the STD. The AO was relying upon the inquiries made by the STD about two of the suppliers i. e. SE and SJE. If he was relying upon the statements of those parties, it was h....
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....s of rupees was made, without referring to any incriminating and basic material. 5. 4. It is a fact that all the payments to the suppliers have been made through banking channels. No evidences has been brought on record proving that the suppliers had withdrawn cash immediately after deposits of cheques of the assessees. Otherwise a probable presump - tion could have been reached that the money trail proved returning of money to the assessee from the suppliers. We are aware that payment by cheques in itself is not conclusive. But, the surrounding circumstances are such that prove that the AO/FAA had made/ upheld the addition not on evidence but on surmises and suspicion. It is said that suspicion of highest degree cannot take place evidence and in the case under consideration the AO/FAA have not brought sufficient material that could justify huge addition made to the income of the assessee. 5. 5. The assessee had specifically, in the written submissions, made before the FAA, had stated that the AO had provided it the material that led to addition, that cross examination was also not allowed. The FAA. s have all the power of the AO. He could have called for a remand report from the....
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....69C of the Act. 5. 6. In our opinioin, the information received by the AO was a very good starting point for further investigation. But, he did not taken it to the logical end. It can be said that he left the starting point as and where it was. Without rebutting the evidences produced by the assessee, the AO made the addition and the FAA partly upheld it. The FAA mentioned that copies of sales tax returns and income tax returns of the suppliers were made available to the AO. If the sales tax returns were there then AO/FAA should have made further inquiry to prove that transactions were not genuine. Non-payment of full sales tax by the supplier, as alleged by the FAA, cannot lead the conclusion that the goods purchased by the assessee were not genuine. No inquiry was made with the AO. s of the suppliers though the copies of their returns of income were filed during the assessment proceedings. Whether the AO. s of the suppliers had accepted their returns or had they rejected their books of accounts and held that sales made by them were not genuine, is not known. Thus, the AO and the FAA have not made any further investigation to prove the alleged non genuineness of the transactions.....
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.... The AO or the FAA have not rejected the books of accounts of the assessee nor have doubted the purchases made by it. The recognised principles of accountancy and tax jurisprudence hold that no sales can take place without purchases. Thus, the case under appeal is not about non genuineness of purchases itself, but it is about non genuineness of suppliers. Whether provisions of section 69C of the Act can be applied in the matters where all the purchase and sales transactions part of regular books of accounts. Basic precondition for invoking the section 69C is that the expenditure incurred by the assessee should be out of books of accounts. Here, the payments to the suppliers, as stated earlier, have been made by cheques. So, it cannot be held that expenses were incurred by the assessee outside the books of accounts. Section 69C was introduced in to the statute with a specific purpose. A bare reading of the section makes it clear that if the assessee incurred any expenditure, but offered no explanation about the source of such expenditure or part thereof, or the explanation so offered is not satisfactory, such expenditure may be deemed to be the income of the assessee. The assessee h....