DCIT vs. Rajeev G. Kalathil (ITAT Mumbai)

S. 68: Fact that alleged supplier is not traceable and has been termed a “hawala dealer” by the VAT authorities is not sufficient to treat the purchases as “bogus”

The assessee claimed to have made purchases from certain parties. In support of the genuineness of the purchases, he produced bills from the parties and proof of payment by cheque. However, the AO treated the purchases as “bogus” purchases u/s 68 on the ground that the notices u/s 133(6) sent to the alleged suppliers at the address stated in their bills were returned un-served. Further, the said suppliers were termed as ‘Hawala Dealers’ (i.e. person who issued a bill for purchase of goods without delivery) by the Maharashtra VAT department. On appeal, the CIT(A) deleted the addition. On appeal by the department to the Tribunal HELD dismissing the appeal:

The fact that the supplier is declared as a “Hawala dealer” by the VAT department is a good starting point for making further investigation and taking it to its logical end. However, suspicion of highest degree cannot take place of evidence. The AO ought to have called for details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. No such exercise was done. There is nothing in the order of the AO about the cash trail. Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. Proof of movement of goods is not in doubt. In the absence of sufficient evidence, the purchases cannot be treated as bogus.