2022 (10) TMI 1132 - AT - Income Tax

Tribunal overturns tax assessment, citing lack of evidence and violation of natural justice.

The tribunal allowed the appeal of the assessee, setting aside the addition of Rs. 9,92,656/- made by the Assessing Officer. The tribunal found that the ... Reopening of assessment u/s 147 - Bogus purchases - HELD THAT:- Without finding any defect or inaccuracies in the documentation so submitted by the assessee during the course of assessment proceedings and relying solely on the statement, the assessment proceedings have been initiated and completed by the AO. Even where the AO is of the belief that contents of the statement are clear and specific and goes against the assessee, the question is whether the statement has been supplied to the assessee and whether the assessee has been allowed an opportunity to cross-examine Shri Rajesh Mittal especially where the assessee has requested for the same as evident from the submissions made before the lower authorities. Answer to the same is in negative and the assessee has thus been charged with an offence without even confronting the statement so used as an solitary evidence against it by the Revenue which is clearly in violation of the settled legal principle of natural justice as held in case of Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] - It is thus a case where the disallowance by way of bogus purchases has been made by AO solely based on statement of Shri Rajesh Mittal which was not subjected to further examination and cross-examination during the course of assessment proceedings and the facts of the case are thus at par with the facts in case of Odeon Builders Ltd [2019 (8) TMI 1072 - SUPREME COURT] where the SLP filed by the Revenue has been dismissed by the Hon’ble Supreme Court. The addition so made by the AO and sustained by the ld CIT(A) is hereby set-aside and the same is hereby directed to be deleted. - Decided in favour of assessee. Issues Involved:1. Jurisdiction and validity of the notice under Section 148 of the Income Tax Act.2. Violation of principles of natural justice due to lack of opportunity for cross-examination.3. Legitimacy of the addition of Rs. 9,92,656/- on account of alleged bogus purchases.4. Assessment of the entire amount of alleged bogus purchases versus only the profit embedded in such purchases.Issue-wise Detailed Analysis:1. Jurisdiction and Validity of Notice under Section 148:The assessee contended that the notice under Section 148 was issued without independent application of mind by the Assessing Officer (AO) and was based solely on generalized borrowed information from the DDIT (Investigation) Karnal. The AO, however, argued that credible information was received indicating the assessee had obtained accommodation entries via bogus bills from M/s Kamna Overseas. The AO conducted further inquiries and issued the notice based on these findings.2. Violation of Principles of Natural Justice:The assessee argued that the assessment order was passed without giving an opportunity for cross-examination, violating the principles of natural justice. The AO relied on the statement of the proprietor of M/s Kamna Overseas, recorded under Section 131(1A), which was not confronted to the assessee. The tribunal emphasized that the assessee should have been allowed to cross-examine the supplier, as per the principles laid out in the case of Andaman Timber Industries vs. CIT.3. Legitimacy of the Addition of Rs. 9,92,656/-:The AO deemed the purchases from M/s Kamna Overseas as bogus based on the statement of the supplier and the lack of toll records for the vehicles purportedly transporting the goods. The assessee provided extensive documentation, including purchase bills, goods receipt notes, weighing slips, bank statements, and sales tax returns, to substantiate the genuineness of the purchases. The tribunal found that the AO did not conduct further necessary inquiries to verify the authenticity of these documents and relied solely on the statement of the supplier, which was not sufficient to discredit the assessee's evidence.4. Assessment of the Entire Amount of Alleged Bogus Purchases:The assessee argued that even if the purchases were deemed bogus, only the profit embedded in such purchases should be taxed, not the entire amount. However, since the tribunal found that the purchases were genuine based on the documentation provided, this issue became moot.Conclusion:The tribunal concluded that the AO did not provide sufficient evidence to prove that the purchases were bogus and failed to allow the assessee an opportunity for cross-examination. The addition of Rs. 9,92,656/- was set aside, and the appeal of the assessee was allowed. The tribunal emphasized that suspicion, however strong, cannot replace credible evidence, and the principles of natural justice must be upheld. The other contentions regarding the legality of the proceedings under Section 147 were dismissed as academic.Final Order:The appeal of the assessee was allowed, and the addition made by the AO was directed to be deleted. The order was pronounced in the open court on 26/10/2022.