2021 (3) TMI 1388 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, citing lack of evidence, flawed reliance, and importance of due process.

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The AO's addition of bogus purchases lacked substantial evidence, and reliance ... Bogus purchase - addition made through accommodation entries received - HELD THAT:- Neither the copy of statement, nor any evidence proving the allegation was provided to the assessee to defend his case. No opportunity of cross-examination was allowed to the assessee though specifically asked for by the assessee. Hon`ble Supreme Court in the case of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] held that not allowing the assessee company to cross examine the witness by the adjudicating authority though the statements of those witness were made the basis of impugned order is a serious flaw which makes the order nullity. We note that statement of Shri Gautam Jain has not been provided to the assessee. The opportunity of cross examination has not been provided to the assessee, therefore statement of Shri Gautam Jain does not apply to the assessee. That being so we decline to interfere in the order of the CIT(A), his order on this issue is hereby accepted and grounds of appeal raised by the Revenue is dismissed. Issues Involved:1. Deletion of additions on account of bogus purchases.2. Estimation of income from bogus purchases.3. Validity of retraction of entry operator's statement.4. Acceptance of assessee's plea for profit estimation without proper rebuttal.Detailed Analysis:1. Deletion of Additions on Account of Bogus PurchasesThe Revenue contended that the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the additions of Rs. 4,05,66,100/- on account of bogus purchases. The Assessing Officer (AO) had added this amount to the assessee's income, alleging that the purchases were bogus based on information from the Director of Income Tax (Investigation), Mumbai, and statements made by Shri Gautam Jain during a search and seizure operation. The AO believed the assessee used these bogus purchases to reduce taxable income.The CIT(A), however, found that the AO's addition was based on mere allegations and lacked independent evidence. The assessee had provided purchase bills, stock registers, and payment details through banking channels, which appeared genuine. The CIT(A) noted that the AO had not issued summons or notices to verify the genuineness of the transactions independently. Consequently, the CIT(A) deleted the addition, concluding that the AO's findings were based on guesswork and lacked substantial evidence.2. Estimation of Income from Bogus PurchasesThe Revenue also argued that the CIT(A) erred in estimating the income at 5% of the bogus purchases. The AO had treated the entire amount of Rs. 4,07,69,950/- as bogus purchases and added it to the assessee's income. However, the CIT(A) observed that the assessee was a commission agent, not a trader, and had not claimed the purchases as expenses in the books of accounts. The CIT(A) noted that the assessee earned a commission on these transactions and maintained proper books of accounts, which were audited without any qualifications.The CIT(A) estimated the suppressed commission income at Rs. 2,03,850/- (0.50% of Rs. 4,07,69,950/-), based on the market rate of commission for similar transactions. This estimation was based on the commission rates admitted by other similar groups during searches. Thus, the CIT(A) confirmed the addition of Rs. 2,03,850/- and deleted the remaining amount.3. Validity of Retraction of Entry Operator's StatementThe Revenue contended that the CIT(A) erred in accepting the retraction of Shri Gautam Jain's statement, which was made eight months after the original statement. The AO had relied heavily on Jain's initial statement, which admitted to operating bogus concerns. However, the CIT(A) found that neither the statement nor any corroborative evidence was provided to the assessee, nor was the assessee allowed to cross-examine Jain. The CIT(A) concluded that the AO's reliance on the retracted statement without providing an opportunity for cross-examination was a serious flaw, rendering the addition unsustainable.4. Acceptance of Assessee's Plea for Profit Estimation Without Proper RebuttalThe Revenue argued that the CIT(A) accepted the assessee's plea to estimate profit at 0.5% of the bogus purchases without giving the AO an opportunity to rebut the contention. The CIT(A) noted that the assessee had maintained proper books of accounts, which were audited, and provided detailed evidence of transactions. The CIT(A) found that the AO had not conducted any independent verification and had merely relied on the investigation wing's report. The CIT(A) concluded that the AO's addition was based on routine and stereotyped findings without proper application of mind.ConclusionThe Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. It was noted that the AO had failed to provide substantial evidence to support the addition of bogus purchases and had not allowed the assessee to cross-examine Shri Gautam Jain. The CIT(A)'s estimation of suppressed commission income was found to be reasonable, and the deletion of the remaining addition was justified. The Tribunal emphasized that due process, including the opportunity for cross-examination, is essential in tax proceedings.