|CORAM:||Ramit Kochar (AM), Saktijit Dey (JM)|
|CATCH WORDS:||Bogus purchases, Bogus Sales|
|DATE:||October 23, 2018 (Date of pronouncement)|
|DATE:||May 15, 2018 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 69C Bogus Purchases (100% disallowance confirmed): The right of cross-examination is not absolute. No prejudice is caused to the assessee by non granting of cross examination if the assessee has not discharged the primary onus. The fact that purchase bills are produced and payment is made through banking channels is not sufficient if the other evidence is lacking|
We have observed that the assessee is in construction business. The assessee has purchased material to the tune of Rs.2.98 crore during the previous year relevant to the impugned assessment year , out of which material of value of Rs. 44.78 lac was allegedly purchased from three parties listed below:-
Name of party TIN No Amount 133(6) sent
Hemal Enterprises 27090261071 Rs 3,51,454/- Unserved,
Navkar Corporation 27810662837 V Rs 25,25 390- Unserved
Om Sai Enterprises 27370739127 V Rs.16,Ol 571/ Unserved
Total amount RS.44 78415/-
The AO issued notices u/s 133(6) to these three parties which returned unserved. The assessee also could not produce these parties before the authorities below. The assessee was directed by the AO to give the latest addresses which assessee could not give. The assessee also could not produce confirmations from these three parties. The assessee, however, produced purchase bills and also evidence of making payment to these three parties by cheque through banking channel. The purchase bills so submitted by the assessee, however , did not contain any details such as lorry number, order date, challan number, date of removal of goods, mode of transport, the signature of the person at site who has received the goods or gate pass entry number.
The two parties namely Navkar Corporation and Om Sai Enterprises are listed as hawala dealers by Maharashtra Sales Tax Department and their sales tax registration was cancelled by Maharashtra Sales Tax authorities. The Maharashtra Sales tax authorities during search operations recorded their statements wherein these parties stated that that they are only issuing bogus purchase bills on papers without supplying any physical material . The said parties have also given affidavits before sales tax authorities confirming that they are merely accommodation entry providers and issues only paper bills without supplying any material.
It was unearthed by Sales Tax authorities during search that said Mr Ashwin P Mehta has floated large number of concerns including Navkar Corporation and Om Sai Enterprises and even cheque books of various concerns were found during search operations conducted by sales tax authorities. It was stated by Mr Ashwin P Mehta that he used to issue paper bills without physically supplying any material and he used to return cash against cheques received from purchasing parties after deducting his commission @5% and cash was handed over to Rajubhai who was paid monthly salary of Rs. 5000/- . It was also revealed from the bank statements of Om Sai Enterprises that person who was operating bank account was one Mr Abhishek Khanna while Mr. Ashwin Mehta was shown as proprietor of the said concern Om Sai Enterprises with Sales Tax Authorities. The said bank account was closed on 31-07-2010.
The perusal of bank statements for 1-4-2010 to 31-03-2011 of Navkar Corporation and Om Sai Enterprises revealed that lot of cheques were cleared in their bank accounts which immediately after clearing , the funds were withdrawn in cash or transferred to other accounts in the same bank which bank accounts were also of hawala dealers declared by sales tax authorities. The assessee did not produce stock register nor the assessee could prove utilisation/consumption of material for construction activities. The assessee also could not prove delivery of material to the assessee site as no delivery challans nor lorry receipt/octroi receipts were produced.
The site stock register/site gate pass where the material was consumed was also not produced. The profitability of the assessee has also significantly fallen to GP ratio of 6.33% during previous year relevant to the impugned assessment year from 9.12% in AY 2010-11 and 18.2% in AY 2009-10 .
Under these circumstances , additions have been made of 100% of bogus purchases by the A.O which stood confirmed by learned CIT(A). The assessee is aggrieved that the statements/affidavits of these alleged hawala dealers which were recorded at the back of the assessee were utilised by Revenue to cause prejudice to the assessee without confronting the assessee with the copies of the said statements/affidavits , and also cross examination of these alleged bogus dealers were not allowed to the assessee by Revenue. The right of cross examination is not absolute. If we eschew the statement/affidavit of hawala dealers from record, the primary onus which lay on the assessee to prove the genuineness of the purchases and also to prove consumption/utilization of the material was not discharged by the assessee.
The purchases of the material are in the books of the assessee wherein the assessee is claiming the same as deduction from the income and assessee has to discharge onus of proving that the purchases are genuine and the material was infact utilised/consumed for construction business of the assessee which assessee failed to do so in the instant case keeping in view factual matrix of the case as is emerging from records.
The assessee could not produce the parties before the A.O nor were the notices issued by the AO u/s. 133(6) were served on the these three purchasing parties. The assessee could not produce latest addresses of these three purchasing parties to enable AO to make necessary enquiry, investigation and verifications with respect to the alleged purchases made from these parties. The assessee did not maintain stock register/site stock records nor was movement of stock proved by the assessee as no delivery challans, lorry receipts nor octroi receipts , site stock register/gate passes were produced.
The assessee has not proved utilization / consumption of material for its construction business. The assessee also could not produce movement of material to its place from supplier as no delivery challans/ lorry receipt /octroi receipts could be produced. The profitability of the assessee has also significantly fallen in the impugned year vis-a-vis preceding years which the assessee could not explain/justify reasons for such significant fall.
Thus, even if statements/affidavits of the these alleged hawala dealers are discarded/eschewed from records, the assessee could not prove genuineness of the purchases and its utilisation/consumption for the assessee’s construction business and there is a sufficient material on record to fasten tax liability on the assessee.
Under these circumstances , we have observed that the authorities below have taken a plausible view of disallowing 100% of bogus purchases as genuineness of the purchases as also consumption/utilization of material is not proved.
The view of the authorities below is supported by decision of Hon’ble Supreme Court in the case of N.K Protein Ltd. (supra). In these circumstances , we are of the considered view that no prejudice is caused to the assessee by non granting of opportunity of cross examination by the authorities below as right of cross examination is not absolute as in the instant case even primary onus that fell on the assessee did not stood discharged. Had assessee discharged its primary onus, but still the authorities proceed to prejudice assessee based solely on the incriminating statements/affidavits of third parties recorded at the back of the assessee, the right of the assessee to cross examine these third parties will become absolute.
It is not a case that the authorities below have merely/solely relied on the statement/affidavit of third parties namely hawala dealers recorded at the back of the assessee to cause prejudice to the assessee rather primary onus that lay on the assessee was not discharged by the assessee . Thus we uphold/sustain the orders of learned CIT(A) in which we donot find any infirmity , which we confirm/sustain . The assessee fails in this ground. We order accordingly.
Note By M/s KSA Legal
S. 69C – Tribunal confirms addition u/s 69C in respect of the bogus purchases.
In the case of Soman Sun Citi v. JCIT, I.T.A. No. 2960/Mum/2016, 100% addition in the case bogus purchases has been made after placing heavy reliance on N.K. Proteins Ltd v DCIT SLP (CC) No 769/2016 dated 16/1/2017.
Editorial Note: The judgment of the Tribunal is based on the peculiar facts that that the assessee did not maintain stock register/site stock records nor was movement of stock proved by the assessee as no delivery challans, lorry receipts nor octroi receipts , site stock register/gate passes were produced. The assessee has not proved utilization / consumption of material for its construction business.
The assessee also could not produce movement of material to its place from supplier as no delivery challans/ lorry receipt /octroi receipts could be produced. The profitability of the assessee has also significantly fallen in the impugned year vis-a-vis preceding years which the assessee could not explain/justify reasons for such significant fall.
The assessee could not produce the parties before the A.O nor were the notices issued by the AO u/s. 133(6) were served on the purchasing parties. The two parties listed as hawala dealers by Maharashtra Sales Tax Department, their sales tax registration was cancelled by Maharashtra Sales Tax authorities.
The Tribunal also failed to consider the ratio laid down by the jurisdictional High Court in Babulal C. Borana (2008) 282 ITR 251 (Bom.)(HC), CIT vs. Ashish International ITA NO 4299 OF 2009dtd 22/2/2011 (Bom)(HC) and in the case of CIT v. NikunjEximp Enterprises (P.) Ltd. (2015) 372 ITR 619 (Bom.)(HC).
The decision of N. K. Protiens relied upon by the Tribunal cannot be applied universally due to the following reasons:
1. The following facts in the case of N.K. Proteins as culled out in the order of ITAT reported in (2004) 4 SOT 479(Ahd)(Trib) do not exist in the case of the assessee:
a. Certain blank bill books, blank signed cheque books, letter heads and vouchers of suppliers were found from the business premises of the assessee during the course of search conducted on 24th Feb., 1999.[Para 63(A)].
b. Whenever any cheque given by the assessee towards payment of purchase price to supplier was credited in their bank account. On that very day, on most of the occasions, an equivalent amount had been withdrawn by a self cheque.[Para 63(B)]
c. Bank account of one supplier was introduced by the Director of assesseee and other suppliers were connected with this supplier.
d. Most vital and significant evidence brought on records by the IT authorities is clear and categorical admission by all these parties in the form of affidavits/statements. Copies of affidavits/statements given by all these supplier concerns referred to in the assessment orders clearly indicate that all of them have clearly denied having supplied any material to the assessee. They also stated that they were being paid petty monthly amounts by Shri Nilesh K. Patel for signing cheques, bills and other documents in the names of these bogus concerns.[Para 63(E)]
2. Thus from the above it is clear that facts of both the case are different. Infact, in the facts of the present case it is proved in the remand report that all suppliers have separate bank accounts and there are no immediate withdrawals and thus there is no accommodation entry obtained by the assesse. The Supreme Court in CIT v. Sun Engg. Works (P.) Ltd.  198 ITR 297(SC) has held that “It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and read it to be the complete “law” declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.”
3. Mere dismissal of SLP in limine by a non-speaking order in the case of N.K.Proteins will not result in declaration of law under Article 141 and consequently there is no merger of the high court decision with the Supreme Court Decision. For this proposition reliance is placed on the Decision of Supreme Court in Kunhayammed v. State of Kerala  245 ITR 360(SC).