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Hiralal Chunilal Jain vs. ITO (ITAT Mumbai)
January, 27th 2016

Bogus Sales/ Purchases: Addition solely on the basis of information received from the sales-tax department is not sustainable. Suspicion of the highest degree cannot take the place of evidence

The AO received information from the investigation wing of STD, Maharashtra that the assessee was one of the beneficiaries of accommodation entries, that Shiv Sagar the supplier of the goods was one of the entities who had admitted to have bogus bills, that the assessee had asked for cross examination of the supplier but same was not given, that the AO had not supplied the copy of the statements of Shiv Sagar to the assessee, that in the books of accounts of the assessee all the purchases and sales were recorded, that payments were made through banking channels, that the AO had made addition of entire purchases u/s.69 of the Act, that the FAA had reduced it to 20%. It is a fact that the AO had not rejected the sales of the assessee and the assessee was maintaining the quantative details and stock register. In our opinion, once the sales are accepted as genuine or not doubted the AO cannot reject the entire purchase. In the case of Nikunj Eximp Enterprises 372 ITR 619 the Hon’ble Bombay High Court has held if sales were not doubted by the AO and copies of bank statement showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and a stock statement, i.e. stock reconciliation statement are filed purchased could not be rejected. In the case of Rajeev Kalathil (67 SOT 52) the Tribunal has held as under:

“2.4. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done.”

In the present case also the AO had made the addition on the basis of information received from the Sales tax department, but, he did not make any independent inquiry. He did not follow the principles of natural justice before making the addition. The FAA had reduced the addition to 20%, but he has not given any justification except stating that same was done to plug the probable leakage revenue. Considering the peculiar facts and circumstances of the case, we are reversing the order of the FAA.

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