2025 (7) TMI 1735 - AT - Income Tax

ITAT upholds deletion of bogus expense disallowances, rejects Revenue's protective additions under Supreme Court precedent

DCIT, CC-28, New Delhi Versus M/s. Era Infra Engineering Ltd.

The ITAT Delhi upheld the deletion of disallowances related to alleged bogus expenses and purchases. The tribunal rejected the Revenue's attempt to revive ... Disallowance of bogus expenses and bogus purchase - addition on protective and on substantive basis - HELD THAT:- We hereby quote Lalji Haridas [1961 (7) TMI 8 - SUPREME COURT] settling the law long-back that such a protective addition comes into play when there arises a doubt in the AO’s mind as to in whose hands a particular receipt of income is taxable and not otherwise. We thus see no merit in the Revenue’s instant former grievance seeking to be revive the above protective disallowance/addition of contract expenses on standalone basis. Rejected accordingly. The outcome would be hardly different on the latter issue of the assessee’s disallowance on purchase which had been simply reiterated by the learned assessing authority after making reference to some accommodation entries which have nowhere been proved till date nor their details are forthcoming in the case records. We thus affirm CIT(A)’s action deleting the impugned bogus purchase disallowances as well in very terms. Decided against revenue. ISSUES: Whether the right to cross-examination is a natural right of the assessee in proceedings under the Income-tax Act, 1961.Whether the assessee is entitled to an opportunity for cross-examination as a matter of law or if it depends on the facts of each case.Whether the assessee discharged the onus to prove the genuineness of alleged bogus expenses and bogus purchases.Whether protective additions/disallowances under section 153A/143(3) of the Income-tax Act can be sustained when no substantive addition is made in any other assessee's hands.Whether the disallowance of alleged bogus purchases based on accommodation entries is justified without proof or details in the record. RULINGS / HOLDINGS: The court held that 'a right of hearing does not include a right to cross-examine and the right to cross-examine must depend upon the circumstances of each case,' rejecting the claim that cross-examination is a natural right of the assessee.The court found that the assessee failed to discharge its onus to prove the genuineness of alleged bogus expenses of Rs. 4,39,90,559/- and bogus purchases of Rs. 22,28,600/-.Regarding protective additions, the court relied on the principle that such additions 'come into play when there arises a doubt in the Assessing Officer's mind as to in whose hands a particular receipt of income is taxable and not otherwise,' and thus rejected the Revenue's attempt to revive protective disallowance on standalone basis.The court affirmed the deletion of bogus purchase disallowances as the assessing authority's reference to accommodation entries was unsubstantiated by proof or details in the record.The appeal by the Revenue was dismissed on these grounds. RATIONALE: The court applied established legal principles including the precedent set in Lalji Haridas Vs. ITO, which clarified the limited scope and purpose of protective additions under the Income-tax Act.The court emphasized that the right to cross-examination is not absolute but 'must depend upon the circumstances of each case,' consistent with prior Supreme Court and High Court rulings.The decision reflects a strict evidentiary standard requiring the assessee to prove the genuineness of expenses and purchases to avoid disallowance.No doctrinal shift was noted; the judgment reaffirmed settled law on protective additions and procedural rights in tax assessments.