TaxTMI 
TaxTMI 
2018 (2) TMI 2121
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....ts of the alleged suppliers given to the Sales Tax Department that too, without providing the relevant material and without giving any opportunity to confront the alleged hawala dealers. (3) On the facts and circumstances your Appellant prays that the alleged addition may be deleted. (4) Your Appellant craves leave to add, amend, alter and/or delete any of the above grounds of appeal. 2. As per the facts of the present case, the assessee filed its return of income for the year under consideration on 15.10.10 declaring total income at Rs. 45,26,910/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Subsequently, information was received by the AO from DGIT(Inv.), Mumbai related to bogus purchase entries received from the Sales Tax Department, Maharashtra. The AO had information that some of the parties from whom the assessee had made purchases were bogus and they are engaged in the business of providing bills without actual delivery of goods. The AO carried out investigations and after seeking reply from the assessee, disallowed the claim of purchase as bogus purchases and added the same to the total income of the assessee. Aggrieved by the order o....
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....rat High Court in the case of CIT Vrs. M. K. Brothers (163 ITR 249), whereinthe Hon'ble Gujrat High Court stated that the purchases could not be disallowed if the payments were made through cheques even when the sellers were held to be bogus by the Sales Tax Authorities. Ld. AR further submitted that merely because of parties from whom the material was purchased was not available, did not warrant additions. In this respect, Ld. AR relied upon the case of Deepak Popatlal Gala (TS 168 ITAT 2015) wherein the Hon'ble ITAT Mumbai bench had upheld the order of Ld. CIT(A) and deleted the addition u/s 69C for unexplained purchases. It was submitted that merely the AO had relied on inquiries conducted by Sales Tax Department without conducting any further investigation, therefore in such circumstances, no additions were warranted. Ld. AR further submitted that the information from the Sales Tax Department might be a good reason for making further investigation, but the AO in the present case did not make any further investigation and merely completed the assessment on suspicion, therefore it could be said from the above that just on the basis of information from the Sales Tax Department and....
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....wala transactions. The said suppliers had also filed affidavits wherein they also admitted that no realbusiness was conducted by them and no physical delivery of goods was ever given. After receipts of cheques, equivalent cash was given back after deducting commissieAO then directed the assessee company to substantiate these purchases but in vain. The AO also directed the assessee company to substantiate the alleged purchases with documentary evidences such as the confirmatory letter, lorry receipts, octroi receipts, toll tax receipts etc. but the assessee failed to produce these details/documents. The AO accordingly held that the purchases of Rs.84,18,995/- from the alleged three suppliers were not verifiable and therefore he disallowed the entire unverifiable purchases and made the impugned addition. Even during the present appellate proceedings, the appellant company has failed to submit the confirmatory letters from the alleged suppliers namely M/s. Shreeji Commercial Corporation, Dev Enterprises &Shreekrupa Enterprises. It was held by Honourable Delhi High Court in the case of CIT Vs Motor General Finance Ltd (254 ITR 449) that since the assessee, despite several opportunities....
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....r of facts, the cumulative effect whereof may be considered to judge the soundness of the conclusion. It was conceivable that a mere denial by the assessee was not sufficient to rebut the circumstantial evidence which considered alongwith the conduct of the assessee had led to the inescapable conclusion that the assessee company had taken accommodation entries and alleged purchases were not genuine. 5.1 it is a settled law that Income Tax authorities are entitled to look into the surrounding circumstances to find out the reality of the recitals made in documents. It is the duty of the court to go behind the smoke-screen and discover the true state of affairs. The court is not to be satisfied with the form but with the substance of the transactions. Though the transactions in the present case were through banking channel but these were ultimately settled in cash. Merely because a paper trail had been created, that would not by itself make the transaction genuine. It was held by Honourable Punjab & Haryana High Court in the case of Mittal Belting and Machinery Stores Vs. CIT (253 ITR 341) that if on the examination of the evidence, it is found that there was no genuine trans....
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....ent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favourably as compared to the earlier years is wholly irrelevant. To neutralize the effect of inflation in purchases, the only course open to the Income-tax Officer is to add back that amount to the income irrespective of the fact whether the rate of gross profit goes up and whether the resultant gross profit is higher than the gross profit normally shown in the earlier years." After having gone through the facts of the present case, submissions of both the parties as well as judgment cited by both the parties and the orders passed by revenue authorities, we find that in the present case, the assessee alleges to have made purchases from the above three parties i.e. M/s. Shreeji Commercial Corporation, Dev Enterprises & Shreekrupa Enterprises. However the Sales Tax Department on inquiry, found that the purchases made by the assessee from the above three parties were found to be in the nature of accommodation bills /Hawala transactions. Therefore, after getting all the information from the Sales Tax Department, the AO had directed the assessee to substantiate ....
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....td. Vs. DCIT (183 Taxman 260) (Delhi HC), the assessee had produced sufficient material, furnished bank statement, payment was made by account payee cheque, confirmations and quantitative tally had been filed. Merely because parties were not available when notices were sent to them did not warrant addition. In the case of Deepak Popatlal Gala (TS 168 ITAT 2015) the Mumbai ITAT upheld CIT(A)'s order and deleted addition U/s 69C for unexplained purchases. It was observed that the AO merely relied on inquiries conducted by Sales Tax Department without conducting any other investigation. It also upheld CIT(A)'s reliance on Gujarat High Court ruling in the case of M. K. Brothers and Jodhpur ITAT ruling in Premanand. Besides above reliance was also placed on Coordinate Bench ruling in the cases of Ramesh Kumar and Co., Rajeev G. Kalathil and Ganpatraj A. Sanghavi to hold that AO was not justified in making addition merely on the basis of statements given by the third parties before the Sales Tax Department. It was held that information from Sales Tax Department might be a good reason for making further investigation but the AO did not make any further investigation and merely ....