Section 28, 37 – Purchases cannot be disallowed, merely because the supplier is treated as a havala dealer by VAT authorities, if receipt of material is substantiated by delivery challan and other evidences and payment is by account payee cheque.
Facts:
In the course of assessment proceedings, the AO sent notices u/s. 133(6) to various parties at random. Of these, notices sent to two parties were returned unserved with the remarks not known. The AO asked the assessee to furnish correct address or explain why purchases of Rs. 13,69,417 (Rs. 5,05,259 from NBE and Rs. 8,64,158 from DKE) should not be treated as bogus purchases.
The assessee furnished its reply expressing inability to establish contact with the parties but furnished letter from its banker stating that the payment has been made to the two parties in subsequent year. Sample bills were also filed which had TIN Numbers.
The AO verified the TIN numbers from the official website and found that NBE was specifically mentioned as `Hawala Dealer’ and the search for DKE did not show any result. He, accordingly, added Rs. 13.69 lakh to total income of the assessee on account of bogus purchases.
Aggrieved, the assessee preferred an appeal to CIT(A) and contended that suppliers were registered dealers and were carrying proper VAT registration; bills were accounted and payments were made by cheque; certificate from banker giving details of payments made to said parties were furnished; copies of consignment note received from government approved transport contractor showing material was delivered at site were furnished to the AO; some of the items purchased from these parties were reflected in closing stock. The CIT(A) allowed the appeal.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The AO made addition because one of the supplier was declared a havala dealer by VAT Department. According to the Tribunal, this could be a good starting point for making further investigation and to take it to logical end. Suspicion of highest degree cannot take place of evidence. According to the Tribunal, the AO could have called for details of bank accounts of suppliers to find out whether there was any immediate cash withdrawl from their account. It observed that transportation of goods to the site is one of the deciding factors to be considered for resolving the issue. It noted the finding of fact given by CIT(A) that some of the goods received were forming part of closing stock.
The Tribunal held that the decision of the Mumbai Tribunal in the case of Western Extrusion Industries (ITA /6579/ Mum/2010 dated 13-11-2013) was distinguishable since in that case there was no evidence of movement of goods and also cash was withdrawn by the supplier immediately from the bank.
This ground of appeal filed by the revenue was dismissed.
