Section 69C – The fact that suppliers name appears in the list of havala dealers of sales tax departments and assessee is unable to produce them does not mean that purchases are bogus if the payment is through banking channels and the GP ratio becomes abnormally high. Statement by third parties cannot be concluded adversely in isolation without corroborating evidences against appellant specially when AO had not offered cross examination to the appellant.
Facts:
In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has made purchases from certain parties whose names appeared in the list of parties provided by the sales-tax department who allegedly provide accommodation entries. The AO considered statements taken by the sales-tax department from some of the parties. The Inspector deputed to serve notices to these parties reported that these parties were not available at the given address.
The AO asked the assessee to submit delivery challans and stock register to prove the movement of stock and also to produce these parties. The assessee failed to furnish the details called for. Placing reliance on the statements given by these parties before the sales-tax authorities the AO took the view that purchases to the tune of Rs. 28.08 lakh have to be treated as unexplained expenditure. He added this amount to the total income of the assessee u/s. 69C of the Act.
Aggrieved, the assessee preferred an appeal to CIT(A). The CIT(A) in his order noted that the jurisdictional High Court in the case of Nikunj Exim Enterprise Pvt. Ltd (ITA No. 5604 of 2010) has held that once sales are accepted, the purchases cannot be treated as ingenuine in those cases where the appellant had submitted all details of purchases and payments were made by cheques, merely because the sellers/suppliers could not be produced before the AO by the assessee.
He mentioned that he has also gone through the judgment in the case of Balaji Textile Industries (P) Ltd. vs. ITO 49 ITD 177 (Bom) which was made as long back as 1994 and which still holds good.
He took into consideration the G.P. Ratio/G.P. Margin of the assessee in the previous assessment year as well as subsequent assessment year and observed that if the addition made by the AO is accepted, then the GP ratio of the assessee during the previous year will become abnormally high and therefore, that is not acceptable because the onus is on the AO by bringing adequate material on record to prove that such a high GP ratio exists in the nature of business carried on by the assessee.
He further observed that it has to be appreciated that (i) payments were made through banking channel and by cheque; (ii) notices coming back does not mean those parties are bogus, they are just denying their business to avoid sales tax/VAT , etc, (iii) statement by third parties cannot be concluded adversely in isolation and without corroborating evidences against appellant; (iv) no cross examination has been offered by AO to the appellant to cross examine the relevant parties (who are deemed to be witness or approver being used by AO against the appellant) whose name appear in the website ww.mahavat. gov.in and (v) failure to produce parties cannot be treated adversely against the appellant.
He held that considering the facts and the binding judicial pronouncements of the jurisdictional ITAT Mumbai Bench as well as Mumbai High Court and other legal precedents the addition made by the AO cannot be sustained.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the CIT(A) had properly analysed the facts prevailing in the instant case. It extracted the relevant portion of the order of the CIT(A) and held that it did not find any infirmity in the same.
The appeal filed by the revenue was dismissed.
