2016 (10) TMI 1025 - AT - Income Tax

Addition of bogus purchases - lack of independent inquiry by AO - Held that - The perusal of assessment order reveals that AO has not made any independent enquiry except issuing notice to the dealer/ supplier under section 133(6) of the Act. In absence of reply from the alleged supplier the AO presumed that assessee has not purchased anything from the said supplier. The entire addition made by assessing officer is based on the assumption and presumption. The order of AO does not reveal that copies of statement recorded by Sale Tax Department of State Government was called by AO for his perusal or the same was provided to the assessee. The action of AO is based on the information of third-party. During the appellate proceeding the Learned CIT(A) observed that assessee did not produced the hawala dealers before Assessing Officer for cross verification. The observation of Learned CIT(A) is contrary to the finding of assessing officer. The AO had not asked the assessee to produce the said hawala dealer during the reassessment proceeding. The ld CIT (A) further observed that statement and affidavit filed by hawala dealer before Sales Tax Department have evidentiary value. In fact such evidence was not available before Assessing Officer or before ld CIT (A). The copies of such statements or affidavits were never confronted with the assessee either by Assessing Officer or by ld CIT(A). Even otherwise if it is considered for the sake of consideration for a moment that the statement or the affidavit filed before the sale tax Department has any relevance the assessing officer should have carried out independent enquiry and to provide opportunity to the assessee to counter the same. - Decided in favour of assessee

Issues Involved:
1. Reopening of assessment under section 148.
2. Disallowance of ?37,59,256/- as alleged bogus purchases.
3. Charging of interest under section 234 and initiation of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The assessee contested the reopening of the assessment under section 148, arguing it was based on "borrowed satisfaction," which is legally invalid. However, since the assessee succeeded on the merits of the addition, the ground challenging the reopening became academic. The appellant did not present further arguments on this issue, and it was not adjudicated separately.

2. Disallowance of ?37,59,256/- as Alleged Bogus Purchases:
The primary issue was the disallowance of ?37,59,256/- by the Assessing Officer (AO) based on information from the Sales Tax Department of Maharashtra, which indicated that certain vendors provided accommodation entries without actual delivery of goods. The AO issued notices under section 133(6) to these vendors, but none responded, leading the AO to presume the purchases were bogus and add the entire amount to the assessee's income.

The assessee argued that the AO did not reject the books of account and that purchases were made by account payee cheques, which should not be considered bogus. The AO's reliance on third-party information without independent verification was also challenged. The assessee cited various judicial precedents, including the jurisdictional High Court's decision in Nikunj Eximp Enterprises Private Limited, to support their case.

The Tribunal observed that the AO's addition was based on assumptions and lacked independent enquiry. The AO did not review statements recorded by the Sales Tax Department or provide these to the assessee. The CIT(A)'s observation that the assessee did not produce the hawala dealers was found contrary to the AO's findings, as the AO had not requested such production.

The Tribunal referenced several similar cases where additions based on Sales Tax Department information were deleted due to lack of independent verification by the AO. These cases included:
- DCIT Vs Rajeev M. Kalathil
- Ganpatra A Sanghavi vs ACIT
- ACIT Vs. Talra R Shah
- ACIT Vs Deepak Popat Lal Gala
- Ramila R Shah
- Paresh Gandhi

In these cases, the Tribunal emphasized that suspicion cannot replace evidence, and the AO must conduct thorough investigations, including verifying bank transactions and the movement of goods. The Tribunal concluded that the addition made by the AO and sustained by the CIT(A) was not justified and should be deleted.

3. Charging of Interest under Section 234 and Initiation of Penalty under Section 271(1)(c):
The ground related to charging interest under section 234 was deemed consequential and required no separate adjudication since the assessee succeeded on the merits. The ground related to the initiation of penalty under section 271(1)(c) was considered premature and dismissed.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the addition of ?37,59,256/- and dismissing the grounds related to interest and penalty as either academic or premature. The Tribunal emphasized the need for independent verification by the AO and ruled that the addition was based on insufficient evidence. The judgment was announced in open court on October 14, 2016.

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