ACIT vs. Mahesh K. Shah (ITAT Mumbai)

(i) On an appreciation of the material on record, it is evident from the order of assessment that it is primarily on the basis of information/details obtained from the Sales Tax Department, Government of Maharashtra that the AO issued the show cause notice to the assessee to explain the said purchases and issued notices under section 133(6) of the Act to the said 12 parties from whom the said purchases were made, to which there was no response. We find that the AO primarily relying on the information obtained from Sales Tax Department, i.e. statements/affidavits given before them by these parties, held the said purchases amounting to Rs. 96,45,645/- to be bogus. While it may be true that the said parties did not appear before the AO, for whatever reason, the fact remains that the assessee had filed copies of purchase invoices; extracts of stock ledger showing entry/exit of materials, copies of bank statements to evidence that payments for these purchases were made through normal banking channels, etc. to establish genuineness of the aforesaid purchases. From the record it is evident that the AO has not doubted the sales affected by the assessee and therefore it would be logical to conclude that without corresponding purchases being made, the assessee could not have effected sales.

(ii) In our considered view, the AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from the Sales Department or on statements/affidavits of the 12 parties before the Sales Tax Department or that these parties did not respond to notices issued under section 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition under section 69C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further inquiries in the matter in order to ascertain the genuineness or otherwise of these transactions. Without causing any further enquiries to be made in respect of the said purchases, the AO cannot make the addition under section 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statements/ affidavits of third parties, without the assessee being afforded any opportunity of cross examination of those persons for non-response to information called for under section 133(6) of the Act.

(iii) In the factual matrix of the case on hand, where the AO failed to cause any enquiry to be made to establish his suspicions that the said purchases are bogus, the assessee has brought on record documentary evidences to establish the genuineness of the said purchase transactions, the action of the AO in brushing aside these evidences cannot be accepted. Further the Hon’ble Bombay High Court in the case of CIT vs. Ashish International (ITA No. 4299 of 2009) (Bom) has held that the genuineness of the statements relied upon by Revenue is not established when the assessee disputes the correctness thereof and has not been afforded opportunity to cross examine these parties. Moreover, when the payments for the said purchases to the said 12 persons is through proper banking channels and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the addition made by the AO is unsustainable. We are fortified in this view of ours by the decisions, inter alia, the Hon’ble Bombay High Court in the cases of Nikunj Eximp Enterprises Pvt. Ltd. (supra) and Ashish International (supra) and the decision of the Coordinate Bench in the case of M/s. Vaman International Pvt. Ltd. (ITA No. 794/Mum/2015 dated 16.11.2016). In this factual and legal matrix of the case on this issue, as discussed above, we find no reason for interference in the order of the learned CIT(A) and consequently uphold her order deleting the addition of `96,45,645/- made under section 69C of the Act as unexplained expenditure in respect of the aforesaid purchases.