The only thing against my supplier is that the indirect-tax authorities have put him on a list. Is that enough to make my purchase bogus?
No, not by itself. A supplier being declared a hawala dealer by the sales tax department is a good starting point for further investigation, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The listing shifts the officer's attention; it does not discharge his burden. Two limits sit on the face of the order. Only one of the two suppliers in issue was on the listing - for the other the number on the bills returned no result at all - and the holding is conditional on what the officer failed to do: he had not called for the suppliers' bank accounts to look for an immediate cash withdrawal, movement of the goods to site was not in doubt, and part of the goods was in closing stock.
Decided by the ITAT (Income Tax Appellate Tribunal, Mumbai 'D' Bench — Rajendra (Accountant Member) and Dr. S.T.M. Pavalan (Judicial Member)) on 2014-08-20, reported as [2014] 51 taxmann.com 514 (Mum.)(Trib.); (2015) 67 SOT 52 (Mum.)(URO); ITA No. 6727 (Mum.) of 2012 and C.O. No. 6 (Mum.) of 2014; AY 2009-10. It bears on section 69C, section 198, section 143(3) of the Income Tax Act 1961, in Evidence & Burden of Proof, Cash Credits & Unexplained Money and Assessment & Scrutiny matters.
Almost every accommodation-entry notice starts life as a name on another department's list, and the show-cause treats the listing as the finding. This is the decision that separates the two: the list is a reason to enquire, and the enquiry still has to produce evidence about this assessee's transactions. It is also the answer to the officer who says the assessee must disprove the other department's conclusion. But it is conditional, and the conditions are worth knowing because the order itself supplies the case on the other side of the line: it distinguishes Western Extrusion Industries, where the supplier immediately withdrew the cash and there was no evidence of the goods moving. Here there was no cash trail in the officer's order, delivery to site was documented by government-approved transport contractors, and part of the material was in closing stock. If the officer has traced the cash back, or the movement of goods is genuinely in doubt, this decision does not help.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2009-10 the assessment was completed on 17 December 2011 on income of Rs. 2.37 crores against a return of Rs. 34.02 lakhs. Notices under s.133(6) were sent to sundry creditors on a random basis and two came back marked 'Not Known': M/s N.B. Enterprises, Rs. 5,05,259, and M/s D.K. Enterprises, Rs. 8,64,158, together Rs. 13,69,417. The tax identification numbers on the sample bills were checked on the Maharashtra sales tax department's website. Only N.B. Enterprises was listed there as a hawala dealer who issued bills without delivery of goods; for D.K. Enterprises the search returned no result at all for the number shown on the bills, from which the Assessing Officer concluded that the number was itself bogus. So the listing covered one of the two suppliers, not both. Holding that payment through banking channels alone did not prove genuineness, he added Rs. 13.69 lakhs. The first appellate authority deleted it on findings that the bills, ledger accounts, cheque payments and a banker's certificate were on record, that consignment copies from government-approved transport contractors showed the material was delivered at site, that part of it was lying in closing stock at the year end, that a supplier's default under the state value added tax law was not sufficient evidence to hold the purchases non-genuine, and that there was no evidence of cash coming back to the assessee. The department appealed; the assessee's cross objection was stated at the hearing to be infructuous and was dismissed.
The department's appeal failed on both grounds and nothing was restored to the Assessing Officer. On the purchases, a declaration by the sales tax department that a supplier is a hawala dealer is a good starting point for further investigation which must be taken to its logical end, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The holding is conditional, and the order says what was missing: the Assessing Officer could have called for the suppliers' bank account details to see whether there was any immediate cash withdrawal and did not; transportation of the goods to site is one of the deciding factors; and the finding that part of the goods formed closing stock stands. On that footing there was not sufficient evidence on file to endorse his view. The order also decides a second and wholly separate issue: an addition of Rs. 1,53,22,875 as suppressed sales, made because the assessee claimed credit for the whole tax deducted at source by a customer while carrying part of the receipts as advance, was rejected on the footing that a mobilisation advance received during the year cannot be treated as income, that deduction of tax and completion of assessment are two different things, and that the officer must look at all the facts and not only at the certificate of deduction. The first appellate order, which had directed the tax deducted on the carried-forward amount to be included in turnover under s.198, was upheld.
The Tribunal treated the sales tax department's classification as the beginning of an enquiry that the Assessing Officer was obliged to take to its logical end, and held that however strong the suspicion the listing generates, suspicion is not evidence. It then named the enquiry that was missing: the suppliers' bank account details, which would have shown whether there was any immediate cash withdrawal. It weighed the transportation of the goods to site as one of the deciding factors and let stand the finding that part of the goods formed closing stock. That is why the decision is conditional rather than general, and the order shows the other side of the line: it distinguishes Western Extrusion Industries v. Addl. CIT, where the supplier immediately withdrew cash and there was no evidence of movement of goods, on the ground that here there is nothing in the Assessing Officer's order about a cash trail and proof of movement of goods is not in doubt. On the second issue it applied the revenue recognition standard, holding that a mobilisation advance received during the year is not income and that deduction of tax at source is one deciding fact in recognising revenue but not the whole of it, and recorded that a similar view had been taken in Hans Road Carriers.
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.
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Handle my notice → Ask a CA on WhatsAppNo, not by itself. A supplier being declared a hawala dealer by the sales tax department is a good starting point for further investigation, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The listing shifts the officer's attention; it does not discharge his burden. Two limits sit on the face of the order. Only one of the two suppliers in issue was on the listing - for the other the number on the bills returned no result at all - and the holding is conditional on what the officer failed to do: he had not called for the suppliers' bank accounts to look for an immediate cash withdrawal, movement of the goods to site was not in doubt, and part of the goods was in closing stock. This was decided by the ITAT (Income Tax Appellate Tribunal, Mumbai 'D' Bench — Rajendra (Accountant Member) and Dr. S.T.M. Pavalan (Judicial Member)) and bears on section 69C, section 198, section 143(3) of the Income Tax Act 1961. It is reported as [2014] 51 taxmann.com 514 (Mum.)(Trib.); (2015) 67 SOT 52 (Mum.)(URO); ITA No. 6727 (Mum.) of 2012 and C.O. No. 6 (Mum.) of 2014; AY 2009-10. Almost every accommodation-entry notice starts life as a name on another department's list, and the show-cause treats the listing as the finding. This is the decision that separates the two: the list is a reason to enquire, and the enquiry still has to produce evidence about this assessee's transactions. It is also the answer to the officer who says the assessee must disprove the other department's conclusion. But it is conditional, and the conditions are worth knowing because the order itself supplies the case on the other side of the line: it distinguishes Western Extrusion Industries, where the supplier immediately withdrew the cash and there was no evidence of the goods moving. Here there was no cash trail in the officer's order, delivery to site was documented by government-approved transport contractors, and part of the material was in closing stock. If the officer has traced the cash back, or the movement of goods is genuinely in doubt, this decision does not help. If it applies to you, the first step is this: Ask the officer, in writing, what he has beyond the listing - the enquiry, the response to the notice, the material behind the name.
For AY 2009-10 the assessment was completed on 17 December 2011 on income of Rs. 2.37 crores against a return of Rs. 34.02 lakhs. Notices under s.133(6) were sent to sundry creditors on a random basis and two came back marked 'Not Known': M/s N.B. Enterprises, Rs. 5,05,259, and M/s D.K. Enterprises, Rs. 8,64,158, together Rs. 13,69,417. The tax identification numbers on the sample bills were checked on the Maharashtra sales tax department's website. Only N.B. Enterprises was listed there as a hawala dealer who issued bills without delivery of goods; for D.K. Enterprises the search returned no result at all for the number shown on the bills, from which the Assessing Officer concluded that the number was itself bogus. So the listing covered one of the two suppliers, not both. Holding that payment through banking channels alone did not prove genuineness, he added Rs. 13.69 lakhs. The first appellate authority deleted it on findings that the bills, ledger accounts, cheque payments and a banker's certificate were on record, that consignment copies from government-approved transport contractors showed the material was delivered at site, that part of it was lying in closing stock at the year end, that a supplier's default under the state value added tax law was not sufficient evidence to hold the purchases non-genuine, and that there was no evidence of cash coming back to the assessee. The department appealed; the assessee's cross objection was stated at the hearing to be infructuous and was dismissed. The matter was decided on 2014-08-20 by the ITAT (Income Tax Appellate Tribunal, Mumbai 'D' Bench — Rajendra (Accountant Member) and Dr. S.T.M. Pavalan (Judicial Member)). On those facts the ITAT held as follows. The department's appeal failed on both grounds and nothing was restored to the Assessing Officer. On the purchases, a declaration by the sales tax department that a supplier is a hawala dealer is a good starting point for further investigation which must be taken to its logical end, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The holding is conditional, and the order says what was missing: the Assessing Officer could have called for the suppliers' bank account details to see whether there was any immediate cash withdrawal and did not; transportation of the goods to site is one of the deciding factors; and the finding that part of the goods formed closing stock stands. On that footing there was not sufficient evidence on file to endorse his view. The order also decides a second and wholly separate issue: an addition of Rs. 1,53,22,875 as suppressed sales, made because the assessee claimed credit for the whole tax deducted at source by a customer while carrying part of the receipts as advance, was rejected on the footing that a mobilisation advance received during the year cannot be treated as income, that deduction of tax and completion of assessment are two different things, and that the officer must look at all the facts and not only at the certificate of deduction. The first appellate order, which had directed the tax deducted on the carried-forward amount to be included in turnover under s.198, was upheld.
The Tribunal treated the sales tax department's classification as the beginning of an enquiry that the Assessing Officer was obliged to take to its logical end, and held that however strong the suspicion the listing generates, suspicion is not evidence. It then named the enquiry that was missing: the suppliers' bank account details, which would have shown whether there was any immediate cash withdrawal. It weighed the transportation of the goods to site as one of the deciding factors and let stand the finding that part of the goods formed closing stock. That is why the decision is conditional rather than general, and the order shows the other side of the line: it distinguishes Western Extrusion Industries v. Addl. CIT, where the supplier immediately withdrew cash and there was no evidence of movement of goods, on the ground that here there is nothing in the Assessing Officer's order about a cash trail and proof of movement of goods is not in doubt. On the second issue it applied the revenue recognition standard, holding that a mobilisation advance received during the year is not income and that deduction of tax at source is one deciding fact in recognising revenue but not the whole of it, and recorded that a similar view had been taken in Hans Road Carriers. In the words reproduced by the source cited on this page: "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."
It was decided by the ITAT on 2014-08-20 and is reported as [2014] 51 taxmann.com 514 (Mum.)(Trib.); (2015) 67 SOT 52 (Mum.)(URO); ITA No. 6727 (Mum.) of 2012 and C.O. No. 6 (Mum.) of 2014; AY 2009-10. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 69C, section 198, section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The department's appeal failed on both grounds and nothing was restored to the Assessing Officer. On the purchases, a declaration by the sales tax department that a supplier is a hawala dealer is a good starting point for further investigation which must be taken to its logical end, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The holding is conditional, and the order says what was missing: the Assessing Officer could have called for the suppliers' bank account details to see whether there was any immediate cash withdrawal and did not; transportation of the goods to site is one of the deciding factors; and the finding that part of the goods formed closing stock stands. On that footing there was not sufficient evidence on file to endorse his view. The order also decides a second and wholly separate issue: an addition of Rs. 1,53,22,875 as suppressed sales, made because the assessee claimed credit for the whole tax deducted at source by a customer while carrying part of the receipts as advance, was rejected on the footing that a mobilisation advance received during the year cannot be treated as income, that deduction of tax and completion of assessment are two different things, and that the officer must look at all the facts and not only at the certificate of deduction. The first appellate order, which had directed the tax deducted on the carried-forward amount to be included in turnover under s.198, was upheld. It arises in Evidence & Burden of Proof, Cash Credits & Unexplained Money and Assessment & Scrutiny matters, on section 69C, section 198, section 143(3) of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Mumbai 'D' Bench — Rajendra (Accountant Member) and Dr. S.T.M. Pavalan (Judicial Member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask specifically whether he has called for the supplier's bank account details to see if there was an immediate cash withdrawal; that is the enquiry this order says was missing, and its absence is what decided the case. Put the payment trail, the delivery evidence and the stock movement on the record, so that the listing stands alone against documents rather than against silence - transport documentation and part of the goods being in closing stock were what carried this case. Say in terms that a finding by another taxing authority is information, not a finding in this proceeding, and that it has to be proved here. Keep this separate from the percentage argument - it goes to whether there is a case at all, and this order sustains no percentage. Check whether the officer has traced the cash back or put the movement of goods in issue; on those facts the order distinguishes the case the other way.
Still good law. Good law, upgraded from unverified on a named and cited later decision that follows it. Navin Shantilal Mehta v. ITO [2018] 90 taxmann.com 16 (Mum.)(Trib.), IT Appeal Nos. 4185 and 4186 (Mum.) of 2017 for AYs 2010-11 and 2011-12, decided 19 December 2017 by Joginder Singh (Judicial Member), sets this decision out at length at its para 2.9 and its case review records it, among others, as followed, citing it as Dy. CIT v. Rajeev G. Kalathil (2015) 67 SOT 52 (URO) (Mum.)(Trib.). The qualification must be published with the upgrade: Mehta was decided in favour of the Revenue. The later Bench used this decision at its para 2.10 as part of a line supporting the conclusion in the order under appeal, that conclusion being the first appellate authority's restriction of the addition to 12.5 per cent rather than 100 per cent, and it then upheld the 12.5 per cent. So this decision survives as authority on what a hawala listing proves, and has been followed as such, but a later Mumbai Bench applied it consistently with sustaining a profit-element addition rather than a deletion. The same decision records the contrary line, N.K. Industries Ltd. v. Dy. CIT [2016] 72 taxmann.com 289 (Guj.), where the entire bogus purchase was added and the Supreme Court dismissed the special leave petition by order of 16 January 2017 in SLP (C) No. 769 of 2017; that is the strongest authority the other way. Nothing overruling, reversing or doubting this decision was found, and no appeal against it is disclosed on its record. That finding was checked against a published source, which is linked on this page, on 2026-08-24. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order has been read in full. It is reported at [2014] 51 taxmann.com 514 (Mum.)(Trib.) and (2015) 67 SOT 52 (Mum.)(URO), which removes the reason previously given for leaving the validity check incomplete. The matter is ITA No. 6727 (Mum.) of 2012 together with C.O. No. 6 (Mum.) of 2014, the cross objection having been dismissed as infructuous on the assessee's own statement at the hearing; the earlier record did not mention it. The date is 20 August 2014, which resolves the divergence the earlier note disclosed. The section is s.69C, and s.68 - listed first in the earlier record - has nothing to do with this case; that label came from a headline. Three things change what the entry conveys. There were two suppliers, N.B. Enterprises at Rs. 5,05,259 and D.K. Enterprises at Rs. 8,64,158, and only the first was on the hawala listing; for the second the number on the bills returned no result at all. The ratio is conditional: the listing is insufficient where the Assessing Officer has not examined the suppliers' bank accounts for an immediate cash withdrawal, movement of the goods is not in doubt and part of them is in closing stock, and the order distinguishes Western Extrusion Industries on precisely those facts being present. And the order decides a second, wholly separate issue worth Rs. 1,53,22,875 on whether a mobilisation advance on which tax was deducted must be taxed in the year of deduction, which the earlier record omitted entirely. The sentence previously quoted came from a digest and has been replaced with para 2.4. The members and their roles in the earlier record are correct. It does not tell you how much independent enquiry is enough in general, although para 2.4 names the enquiry that was missing here - the suppliers' bank accounts, to see whether there was an immediate cash withdrawal - so that gap is partly closed. It says nothing about the position where the assessee has also claimed input credit on the same invoices and that credit has been reversed. It sustains no percentage and never discusses a profit element or a gross-profit differential, so it cannot be cited for the profit-element rule; and cross-examination is nowhere raised or decided in it. It predates s.271AAD. Being a Tribunal order it binds nobody outside the case, and the later Mumbai decision that follows it did so while sustaining a 12.5 per cent addition. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The department's appeal failed on both grounds and nothing was restored to the Assessing Officer. On the purchases, a declaration by the sales tax department that a supplier is a hawala dealer is a good starting point for further investigation which must be taken to its logical end, but the Assessing Officer left the job at the initial point, and suspicion of the highest degree cannot take the place of evidence. The holding is conditional, and the order says what was missing: the Assessing Officer could have called for the suppliers' bank account details to see whether there was any immediate cash withdrawal and did not; transportation of the goods to site is one of the deciding factors; and the finding that part of the goods formed closing stock stands. On that footing there was not sufficient evidence on file to endorse his view. The order also decides a second and wholly separate issue: an addition of Rs. 1,53,22,875 as suppressed sales, made because the assessee claimed credit for the whole tax deducted at source by a customer while carrying part of the receipts as advance, was rejected on the footing that a mobilisation advance received during the year cannot be treated as income, that deduction of tax and completion of assessment are two different things, and that the officer must look at all the facts and not only at the certificate of deduction. The first appellate order, which had directed the tax deducted on the carried-forward amount to be included in turnover under s.198, was upheld.
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