September 2018
20. [2018] 194 TTJ (Mumbai) 225 Fancy Wear vs. ITO ITA No.: 1596 & 1597/Mum/2016 A. Ys.: 2010-11 and 2011-12 Dated: 20th September, 2017 Section 69C – Assessee having not been allowed to cross-examine witnesses whose statements were recorded by AO and accounts of assessee having not been rejected, addition made u/s. 69C by AO was invalid for violation of the principles of natural justice as also on merits.
By JAGDISH T. PUNJABI I DEVENDRA JAIN I TEJASWINI GHAG
Chartered Accountants
Reading Time 3 mins
FACTS
- The assessee filed its
return of income which was initially processed u/s. 143(1). Subsequently, the
AO received information from the Sales Tax Department as well as from DGIT
(Inv.) Mumbai that the assessee had received accommodation entries for
purchases from suspicious parties.
- The AO initiated
proceedings u/s. 147, after recording reasons thereof. He observed that the
assessee had purchased goods from SE and SJE. The sales tax department 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. The AO observed that the notices issued u/s. 133
(6), had been returned with the mark ‘’not known’’ or “not claimed”.
Accordingly, the aggregate of the purchases was treated as unexplained
expenditure u/s. 69C and was added to the returned income of the assessee.
- The AO further observed
that apart from the above purchases, the assessee had purchased goods from two
more entities, namely RE and VE. The names of both the entities were appearing
on the website of the Sales Tax Department in the list of the defaulters. Thus,
he made a further addition to the income of the assessee invoking section 69C.
- Aggrieved by the
assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A)
reduced the addition to 25 per cent of the purchases.
HELD
- The Tribunal noted that
though material for reopening was available to the AO, it was never shared with
the assessee. The assessee had made a request for cross examining the parties
who were treated as hawala-dealers by the Sales Tax Department. The AO did not
provide the copies of statements of suppliers and opportunity of cross
examination to the assessee.
- In case of the other two
entities, the Tribunal held that a default under the Sales Tax Act, in itself,
could not be equated with non-genuineness of the transaction entered by an
entity with other party, unless and until some positive corroborative evidence
was brought on record. It was a fact that all the payments to the suppliers
were made through banking channels. No evidences were brought on record proving
that the suppliers had withdrawn cash immediately after deposit of cheques of the
assessee.
- The assessee had
discharged the onus of proving the genuineness of the transactions by producing
copies of purchase bills, delivery challans, bank statements showing payments
made by the parties, confirmation of ledger accounts of the suppliers, sales
tax returns and sales tax challans of the suppliers, income tax returns. After
the submissions made by the assessee along with the above documents, the ball
was in the court of the AO to discharge his onus-especially when he wanted to
invoke the provisions of section 69C.
- The AO had completed the assessment without marshaling the facts
properly and only on the basis of general information provided by the Sales Tax
Department. The non-filing of appeals against the orders of the CIT(A), wherein
he had deleted 75 per cent of the additions made by the AO, indicated that the
department itself was not convinced about the approach adopted by the AO in
making additions.
- In the end, the Tribunal
held that the orders of the AO and CIT(A) were not valid because of violation
of principles of natural justice. Besides, the addition made u/s. 69C was also
not maintainable.
