2016 (3) TMI 1088 - AT - Income Tax

Addition u/s 69 - unexplained/unproved purchase/investment in purchase - Held that - There is no doubt that the AO had accepted the genuineness of sales made by the assessee. He had not made any effort to make further investigation to substantiate his allegations with regard to non genuineness of the purchases.Considering the facts and circumstances of the case, we are of the opinion that the FAA was not justified in partly upholding the additions. Reversing the order of the FAA, we decide the effective Ground of appeal in favour of the assessee.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition under Section 69 for unexplained/unproved purchase/investment.
3. Opportunity to cross-examine witnesses.
4. Genuineness of purchases and corresponding sales.
5. Partially sustaining additions by the First Appellate Authority (FAA).

Issue-wise Detailed Analysis:

1. Reopening of assessment under Section 147 of the Income Tax Act:
The Assessing Officer (AO) reopened the assessment for AY 2007-08 under Section 147, citing reasons identical to those for subsequent assessment years (AYs). The Tribunal decided to adjudicate the appeals for AY 2008-09 and AY 2009-10 before addressing AY 2007-08, given the common issues involved.

2. Addition under Section 69 for unexplained/unproved purchase/investment:
The AO made an addition of Rs. 84.79 lakhs under Section 69, labeling it as unexplained/unproved purchase/investment. The AO based his decision on a survey conducted under Section 133-A on Rakesh Kumar Gupta (RKG), a supplier, who admitted to providing accommodation sales bills. Despite the assessee's submission of purchase bills, bank statements, and quantitative details of stock, the AO was not satisfied and considered the purchases as inflated.

3. Opportunity to cross-examine witnesses:
The assessee contended before the First Appellate Authority (FAA) that the AO did not provide an opportunity to cross-examine RKG. The FAA noted that the AO relied on RKG's statements without allowing cross-examination, which was requested by the assessee. The FAA emphasized the importance of cross-examination in ensuring a fair assessment.

4. Genuineness of purchases and corresponding sales:
The FAA observed that the AO did not find discrepancies in the quantitative statements or the books of accounts. The FAA concluded that if sales were accepted as genuine, the corresponding purchases could not be entirely bogus. The FAA decided to make an addition of 10% of the disputed purchases to account for any potential revenue leakage, thereby reducing the addition from Rs. 84.79 lakhs to Rs. 9.42 lakhs.

5. Partially sustaining additions by the First Appellate Authority (FAA):
The Tribunal referred to similar cases, including Goolamally Hasanjee and Jeetendra Harshadkumar Textiles, where additions based on statements without further investigation were not upheld. The Tribunal noted that the AO accepted the genuineness of sales and did not conduct further inquiries to substantiate the allegations of bogus purchases. Consequently, the Tribunal found the FAA's partial sustenance of additions unjustified and reversed the FAA's order, favoring the assessee.

Conclusion:
The Tribunal dismissed the appeals filed by the AO for all three assessment years and allowed the appeals filed by the assessee. The Tribunal emphasized the necessity of cross-examination, the lack of discrepancies in the assessee's records, and the AO's acceptance of sales to conclude that the purchases could not be entirely bogus. The Tribunal's decision was pronounced in the open court on 17th March 2016.

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