TaxTMI 
TaxTMI 
2025 (5) TMI 1720
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....-XV, New Delhi [CIT(A)], whereby the respondent's [Assessee] appeal against the assessment order dated 31.03.2014 passed by the Assessing Officer [AO] under Section 143 (3) of the Act, was allowed. And, the additions made by the AO - Rs. 20,17,00,000/- under Section 68 of the Act and Rs. 20,24,39,341/- on account of income from undisclosed sources - were deleted. 4. As stated above, the Revenue appealed the said decision of the CIT(A), which was rejected by the impugned order. QUESTION OF LAW 5. The present appeal was admitted on 15.02.2024 in respect of following questions of law:- "A. Whether on the facts and circumstances of the case and in law, the ITAT has erred in deleting the addition of Rs. 20,24,39,341/- made on account of bogus purchases and sales? B. Whether on the facts and in the circumstances of the case and in law, the ITAT has erred in holding that the provisions of Section 145 (3) of the Income Tax Act, 1961 ["Act"] were not applied despite the fact that the purchases and sales were found bogus and the same has elaborately been discussed in the assessment order and that tantamount to rejection of books of accounts under Section 145 (3) of the Act?" FACTU....
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....y, the AO made an addition of Rs. 20,17,00,000/- under Section 68 of the Act to the Assessee's income. 8. The Assessee appealed the said decision before the CIT(A). The CIT(A) found that the Assessee had disclosed full details of the investors company, including the name, addresses and PAN and also furnished the copies of their income tax returns along with the letters of confirmation. The CIT(A) noted that the AO had also issued notices under Section 133(6) of the Act, and faulted the AO for not giving any finding with regard to the proceedings under Section 133(6) of the Act. More importantly, the CIT(A) also noted that that the findings of the AO were inconsistent. The AO had observed that none of the investors were known to the employees/managing director of the Assessee. However, while contrary to this observation, the AO had also recorded that the promoters of the investor companies were related to the promoters of the Assessee company. On examination of the facts, the CIT(A) concluded that identity of six investor companies was duly established. The CIT(A) thereafter proceeded to examine the financial statements of the investor company and found that the shareholders' funds....
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....sed were delivered at the supplier's establishment; the goods were then transported by the Assessee's owned trucks/commercial vehicles; and were stored at the Assessee's godown. In some cases, the goods were transported from the supplier directly to the Assessee's customers. The Assessee explained that the said goods were not processed and did not undergo any value addition. The same were sold as received without any processing. The Assessee explained that the goods never entered their factory premises and were kept in separate godowns located at Kanganwal Road, Ludhiana. Therefore, there is no entry (inward / outward) of the goods in the factory inward gate register. 14. The statement of Mr Sanjiv Garg, managing director of the Assessee, to the aforesaid effect, was recorded during the survey conducted under Section 133A of the Act. 15. The AO concluded that the Assessee had made payments of Rs. 1,10,89,61,370/- on account of the purchases that were bogus. The Assessee had also received Rs. 1,31,14,00,711/- on account of sales. According to the AO, the same were bogus as well. The AO found that by virtue of the said bogus transactions of sales or purchases, the Assessee had intr....
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....ion. It would be relevant to refer to the assessment order in some detail to ascertain the AO's reasoning for making the addition regarding the undisclosed income and to determine whether the AO had, in fact, made assessment under Section 145 (3) of the Act. 22. We consider it apposite to refer to Section 145 (3) of the Act, which reads as under: - "145. Method of accounting. (1) *** *** *** (2) *** *** *** (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144." 23. In the event, the AO is not satisfied about the correctness and completeness of the accounts, the AO is empowered to make the best judgment assessment under Section 144 of the Act. We also consider it relevant to refer to Section 144(1) of the Act, which reads as under:- "144. Best judgment assessment. (1) If any person- (a) fails to make the retur....
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....to Rs. 44.65 Crores. Similarly, it was also reported that SEL also made bogus sales amounting to Rs. 29.16 Crores to the Assessee. A survey under Section 133A of the Act was carried out at the premises of the Assessee on 29.09.2013 and the Assessee was called upon to furnish the details of (i) purchases made from SEL group; (ii) the proof where the goods were stored; (iii) the details of unloading expenses; and (iv) how the said expense appear in the books of account. 26. The Assessee's response to the said queries, as noted in the assessment order, reads as under: - "The purchase from SEL Manufacturing Co. Ltd has been made with an intent to resale it without doing any further processing or value addition. The purchase goods are delivered at the assessee company's godown site by the supplier. Sometimes the goods are directly sent to the customers and often the goods are unloaded into the godown and from there the goods are loaded into the assessee company's owned trucks / commercial vehicles and further sent to the intended customers since the movement of traded goods are through suppliers' trucks and through the assessee company's owned vehicles, so the bilty/ G.R have not bee....
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.... purchases are proved bogus during the course of search and survey, therefore, no real expenses are incurred by the assessee on these bogus sales and purchase, accordingly, the whole difference of Rs. 20,24,39,341/- is being treated as undisclosed income of the assessee and the same is hereby added back in the income of the assessee. Since, I am satisfied that the assessee has concealed its income by furnishing inaccurate particulars of its income, therefore, penalty proceedings u/s 271 (1) (c) is initiated separately." 29. It is apparent from the above that the addition of Rs. 20,24,39,341/- was premised essentially on two findings. First, that the payment of Rs. 1,10,89,61,370/- for purchases were bogus and the total receipts of Rs. 1,31,14,00,711/- on account of sales of the goods purchased were also bogus. The AO has accordingly calculated the difference between the payments for purchases and receipts from sales as ascertained from the records, and treated the difference as undisclosed income introduced by the Assessee in its books. Thus, in effect, whilst the AO rejected the accounts, it accepted the payments and receipts as recorded in the books. The AO has not recorded any....