By TIOL News Service

MUMBAI, JAN 31, 2018: THE issue before the Bench is - Whether purchases made from grey market can be added to assessee's income, if assessee fails to establish necessary evidence for transportation of goods. And the ITAT verdict is YES.

Facts of the case

During the relevant year, on receipt of information from the DGIT (Investigation), Mumbai, it came to light of AO that the assessee had made purchases from the suspicious parties/hawala parties during the relevant AY. Subsequently, by virtue of notice u/s. 142(1), the assessee was asked to prove the genuineness of purchases by producing relevant documentary evidences. The assessee was also asked to produce purchase parties to prove the genuineness of purchases. Further, notices u/s 133(6) were issued to the hawala parties but all the notices received back with the remark 'left/not known'. The AO finally noted that till date the assessee had neither submitted the confirmation of purchases from respective purchase parties nor produced the broker/agents or the suppliers before the undersigned. Hence, he proceeded to make a disallowance of 12.5% of the purchase.

After hearing the parties, the Tribunal held that,

++ it is seen that tangible and cogent incriminating material were received by the AO which clearly showed that the assessee was beneficiary of bogus purchase entries from bogus entry providers which formed the reason to believe by the AO that income had escaped assessment. The information so received by the AO has live link with reason to believe that income had escaped assessment. On these incriminating tangible material information, assessment was reopened. Hence order of the CIT(A) on the issue of reopening was upheld;

++ furthermore it is noted that in such factual scenario, AO had made the necessary enquiry. The issue of notice to all the parties have returned unserved. Assessee had not been able to provide any confirmation from any of the party. Assessee had also not been able to produce any of the parties. The necessary evidence for transportation of goods have not been provided by the assessee. In this factual scenario it was amply that assessee had obtained bogus purchase bills. Mere preparation of documents for purchases cannot controvert overwhelming evidence that the provider of these bills were bogus and nonexistent and there was no cogent evidence of transportation of goods;

++ the sales tax Department in its enquiry have found the parties to be providing bogus accommodation entries. The AO also issued notices to these parties at the addresses provided by the assessee. All these notices have returned unserved. Assessee had not been able to produce any of the parties. The AO has noted that there was no cogent evidence of the provision of goods. Neither the assessee had been able to produce any confirmation from these parties. In such circumstances, there was no doubt that these parties are non-existent.

(See 2018-TIOL-177-ITAT-MUM)