2015 (9) TMI 1628 - AT - Income Tax

Inadequate verification by Assessing Officer leads to unsustainable addition of credit amount

Sh. Rakesh Kumar Bhargava Versus ITO, Ward 19 (2), New Delhi

The Tribunal found that the Assessing Officer did not adequately verify the confirmations and based the decision on assumptions rather than facts. The ... Addition u/s 68 - bogus credit - Denial of natural justice by providing no opportunity of being heard to the assessee - Held that:- Both the A.O. as well as CIT(A) being judicial authorities, were under obligation to adhere to the rule of natural justice by providing opportunity of being heard to the assessee to produce nine sundry creditors whose confirmations have been duly placed on record during assessment / remand proceedings. When the assessee has discharged its onus u/s 68 of the Act by providing confirmation letter from the sundry creditors, the onus stands shifted to the A.O. to controvert the same by bringing cogent evidence on record, that the said parties are not existing and their creditworthiness and genuineness is highly doubtful.A.O. has rather summarily dismissed the confirmation letters on the sole ground that the same are stereotyped and has never given findings that the confirmation filed by the assessee in respect of the nine sundry creditors are fake one and of non existing entities; No doubt Inspector, income tax deputed by the A.O. reported that M/s. R. K. Enterprises, Natraj Sanitary and Verma Engineering works are non-existing, but the assessee has never been provided opportunity to produce them, or to fill their latest addresses but outrightly, ignored the confirmations and business transactions submitted by the assessee; Notices sent to nine parties shown to have been received back unserved but thereafter, no opportunity has been provided to the assessee to provide their latest address or to produce the parties before the A.O. nor any effort has been made to serve them through substitute service; Confirmation filed by assessee pertaining to nine parties/sundry creditors ought not to have been rejected merely on the ground that the letters sent to them by the A.O. have been received back unserved except with thorough probe; Thus A.O. has failed to verify confirmations filed by the assessee rather rejected the same on the basis of conjectures and surmises. - Decided in favour of assessee. Issues:Validity of the addition made by the Assessing Officer based on the alleged bogus credit of sundry creditors.Analysis:The appellant assessee appealed against the order passed by Ld. CIT(A) upholding the addition of a credit amount from 11 sundry creditors as bogus. The case was scrutinized after the income tax return was filed for the Assessment Year 2006-07, and the appellant's claim of sundry creditors was under question. The appellant failed to provide complete information about the creditors despite multiple requests. Some creditors denied having any business transactions with the appellant during the relevant period. The Assessing Officer concluded that the claimed creditors were non-existent and that the liability of the appellant towards them was bogus. The Ld. CIT(A) upheld this decision. The appellant argued that they were not given sufficient time to respond and were not confronted with the confirmations filed by the creditors. The Department contended that most creditors were found to be non-existent or provided stereotyped confirmations, supporting the addition made by the Assessing Officer.The Tribunal noted that out of the 11 creditors, two denied transactions with the appellant, while the remaining parties did not respond to notices sent during assessment proceedings. The Tribunal observed that the Assessing Officer and the Ld. CIT(A) failed to follow the principles of natural justice by not providing the appellant with an opportunity to produce the creditors for verification. The onus was on the Assessing Officer to disprove the confirmations provided by the appellant, which was not done satisfactorily. The Tribunal criticized the summary dismissal of confirmations as stereotyped without concrete evidence of the creditors' non-existence. It was noted that no efforts were made to serve the notices to the creditors through alternative means. The Tribunal found that the Assessing Officer did not adequately verify the confirmations and based the decision on assumptions rather than facts.Consequently, the Tribunal held that the order upholding the addition of the credit amount was not legally sustainable. The case was remanded to the Assessing Officer for proper verification of the confirmations filed by the appellant, with a directive to provide the appellant with an opportunity to be heard. The appeal by the assessee was allowed for statistical purposes.