2016 (1) TMI 1113 - AT - Income Tax

Bogus sales transactions - accommodation bills - denial of natural justice - Held that - We find that the AO received certain pieces of information from the STD,that as per the information JE was supplying bogus bills,that the AO did not supply the copy of the statement of JE to the assessee and neither made him available for cross examination,that the assessee had filed all the details from placing of order to the receipt of final bills before the AO during the assessment proceedings, that the assessee had discharged the onus cast upon it,that after that the AO did not make any inquiries,that the assessee had not rejected the books of accounts of the assessee ,that he had accepted the sale made by the assessee.In our opinion the AO had violated the basic principles of natural justice and the FAA had rightly held that addition made by the AO would fall in the category of addition made behind the back of the assessee. The Hon ble Bombay High Court in the case of Nikunj Eximp Enterprises Ltd.(2013 (1) TMI 88 - BOMBAY HIGH COURT ) has held that if the AO accepts the sales as genuine,there cannot be any justification in rejecting the purchases.Information received from STD was a good starting point for further investigation.But,the AO stopped at that point itself and did not bring on record anything that could rebut the documentary evidence produced by the assessee.In our opinion,addition made by the AO was justifiably deleted by the FAA - Decided in favour of assessee

Summary

Issues:
1. Addition of alleged bogus purchases made by the assessee from Jay Enterprise.
2. Violation of natural justice principles by the Assessing Officer (AO) in not providing relevant information to the assessee.

Analysis:
1. The AO had added an amount to the income of the assessee, alleging that purchases made from Jay Enterprise were bogus. The AO based this decision on information received from the Sales Tax Department (STD) that Jay Enterprise was providing accommodation bills without supplying goods. The assessee argued that it had provided extensive documentary evidence to support the genuineness of the transactions, including delivery challans, invoices, and bank statements. The First Appellate Authority (FAA) found that the assessee had established a clear audit trail for the transactions and that the AO had not confronted the assessee with the information received from STD. The FAA, referring to legal precedent, held that the information received was of a general nature and allowed the appeal filed by the assessee.

2. The Tribunal noted that the AO failed to provide the assessee with a copy of the statement from Jay Enterprise or allow for cross-examination. The Tribunal found that the AO did not conduct further inquiries after the assessee had provided all necessary details during the assessment proceedings. It was observed that the AO accepted the sales made by the assessee but made the addition without sufficient justification. Citing a relevant High Court case, the Tribunal held that the addition made by the AO was unjustified and violated principles of natural justice. Consequently, the Tribunal confirmed the FAA's decision to delete the addition made by the AO, dismissing the appeal filed by the AO.

In conclusion, the Tribunal upheld the FAA's decision, emphasizing the importance of following natural justice principles and conducting thorough investigations before making additions to an assessee's income based on external information. The judgment highlights the significance of providing adequate opportunity to the assessee to respond to allegations and present evidence in their defense.