2017 (7) TMI 1083 - AT - Income Tax

Tribunal rules in favor of assessees, criticizes AO for lack of evidence sharing and directs limited purchase disallowance

Kamal P. Agarwal Versus Income Tax Officer And Shrenik Jain Versus Income Tax Officer And Shri Alpesh Devichand Mehta Versus Income Tax Officer And Shri Alpesh Devichand Mehta Versus ACIT – 19 (1) And ACIT – 19 (1) Versus Shri Alpesh Devichand Mehta And Rajul Doshi Versus Income Tax Officer And Income Tax Officer Versus Rajul Doshi

The Tribunal partly allowed the appeals of different assessees and dismissed the revenue appeals. It found that the Assessing Officer (AO) solely relied ... Addition of bogus purchases - Held that:- There is no material on record to conclusively prove that the purchases made by the assessee are bogus purchases and nothing has been brought on record by the revenue to suggest that the information gathered by the Sales Tax Department conclusively prove that the said dealers are providing only the accommodation entries to the assessee’s before us. Thus we hold that addition made u/s 69 cannot be sustained. At the same time keeping in view the nature of the business of the assessee and the fact that the assessee is making local purchases the possibility of assessee making purchases without any transportation bills, delivery challans etc., in gray market on cash cannot be ruled out. Therefore, keeping in view the facts and circumstances of the case and the Gross Profit declared by the assessee during the current assessment year as well as in the earlier assessment years, we direct the Assessing Officer to restrict the disallowance of purchases to meet the anomalies and to cover up the leakage of revenue on defined percentage. Issues Involved:1. Alleged bogus purchases.2. Genuineness of purchases based on information from the Sales Tax Department.3. Rejection of books of accounts.4. Disallowance percentages for different assessees.5. Opportunity for cross-examination.6. Documentary evidence provided by the assessee.7. Precedents from jurisdictional High Court and Tribunal decisions.Detailed Analysis:1. Alleged bogus purchases:The appeals involve different assessees and the revenue disputing the orders of the Commissioner of Income Tax (Appeals) regarding the addition/disallowance made by the Assessing Officer (AO) towards alleged bogus purchases for assessment years 2009-10, 2010-11, and 2011-12.2. Genuineness of purchases based on information from the Sales Tax Department:The AO's conclusion that the purchases were not genuine was based solely on information from the Sales Tax Department, which alleged that certain dealers provided only accommodation bills. The information was not shared with the assessees, and no cross-examination of the dealers was allowed.3. Rejection of books of accounts:The AO did not reject the books of accounts in most cases, except for one assessee, Alpesh Devichand Mehta. The assessees argued that without rejecting the books of accounts, no addition/disallowance could be made.4. Disallowance percentages for different assessees:The AO disallowed varying percentages of purchases for different assessees, which were modified by the Commissioner of Income Tax (Appeals). For instance, in Kamal P. Agarwal's case, the AO disallowed 100% of purchases, which was reduced to 25% by the Commissioner. Similar adjustments were made for other assessees.5. Opportunity for cross-examination:The assessees were not given the opportunity to cross-examine the dealers who allegedly provided only accommodation bills. The Tribunal emphasized that without such an opportunity, the statements of the dealers could not be relied upon.6. Documentary evidence provided by the assessee:The assessees produced various documents, including invoices, bank statements, and ledger copies, to prove the genuineness of the purchases. The AO did not bring any evidence against the assessees apart from the information from the Sales Tax Department.7. Precedents from jurisdictional High Court and Tribunal decisions:The Tribunal referred to several precedents where similar additions were deleted. For instance, in the case of ITO v. Sanjay V Dhruv, the Tribunal held that purchases could not be treated as bogus merely based on information from the Sales Tax Department without further investigation. The Tribunal also cited the Hon’ble Jurisdictional High Court's decision in CIT v. Nikunj Eximp Enterprises (P) Limited, which held that purchases could not be rejected as bogus if they were supported by sales and payments made through banks.Conclusion:The Tribunal found that the AO relied solely on information from the Sales Tax Department without providing it to the assessees or allowing cross-examination. The documentary evidence provided by the assessees was not disproved by the AO. The Tribunal directed the AO to restrict the disallowance of purchases to a certain percentage to cover potential revenue leakage, considering the nature of the business and gross profit declared. The appeals of the assessees were partly allowed, and the revenue appeals were dismissed.