2022 (10) TMI 1132 - AT - Income Tax

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

M/s Kuber Roller Flour Mills Versus The ITO Ward-2 (1) Chandigarh

M/s Kuber Roller Flour Mills Versus The ITO Ward-2 (1) Chandigarh - TMI 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.