2015 (12) TMI 1702 - AT - Income Tax

Validity of the reassessment - Held that - We found the issue regarding the validity of the reassessment is duly covered in Shree Radheshyam & Company (2015 (11) TMI 1537 - ITAT DELHI) in which this Tribunal respectively has quashed the reassessment proceedings. We also note that in these cases the ld. Assessing Officer had recorded similar reasons and the party from which the assessee therein had made purchases were also same as in the case of the present assessee. Therefore respectfully following the decisions above we quashed the reassessment proceedings.

Summary

Issues Involved:
1. Validity of the reassessment proceedings.
2. Rejection of books of accounts by the Assessing Officer.
3. Addition on account of bogus purchases.
4. Confirmation of the addition to the extent of 20% of purchases.
5. Engagement in actual business by firms M/s Vishnu Trading Company and M/s Shree Shyam Trading Company.
6. Allegation that the assessee has not made purchases.
7. Addition made on the basis of material collected without providing an opportunity for cross-examination.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The Tribunal examined the validity of the reassessment proceedings initiated by the Assessing Officer. The reassessment was based on information received from higher tax authorities indicating that the assessee had made bogus purchases. The Tribunal referenced its previous decisions in similar cases (Unique Metal Industries vs. ITO and Radheshyam & Company vs. ITO) where it had quashed the reassessment proceedings due to similar reasons recorded by the Assessing Officer. The Tribunal concluded that the reassessment proceedings were invalid and quashed them, following the precedent set by the earlier cases.

2. Rejection of Books of Accounts by the Assessing Officer:
The Assessing Officer had rejected the books of accounts maintained by the assessee, alleging that they were not in proper order. The Tribunal did not provide a separate analysis on this issue, as it was intertwined with the reassessment proceedings and the findings related to bogus purchases.

3. Addition on Account of Bogus Purchases:
The Assessing Officer had made an addition of Rs. 7,58,321/- treating the purchases from M/s Shree Shyam Trading Company and M/s Vishnu Trading Company as accommodation entries. The Tribunal, referencing its earlier decisions, found that the purchases were not bogus and that the addition could not be sustained. The Tribunal emphasized that the addition based on vague and unsubstantiated reasons was not justified.

4. Confirmation of the Addition to the Extent of 20% of Purchases:
The CIT(A) had confirmed the addition to the extent of 20% of the purchases. The Tribunal, following its earlier decisions, found that such an addition was too high and not justified. It noted that the CIT(A) should have applied a reasonable profit rate instead of an arbitrary 20% addition. The Tribunal deleted the addition, emphasizing that the correct approach would be to estimate profit by applying a comparative profit rate in the same trade.

5. Engagement in Actual Business by Firms:
The CIT(A) had confirmed that the firms M/s Vishnu Trading Company and M/s Shree Shyam Trading Company were not engaged in actual business. The Tribunal, however, found that there was substantial inventory and evidence indicating that these firms were engaged in actual business. It rejected the inference drawn by the Assessing Officer based on a statement, finding it baseless and contrary to the facts on record.

6. Allegation that the Assessee has not Made Purchases:
The CIT(A) had ignored the complete tally of the quantity purchased and sold by the assessee, alleging that the purchases were not made. The Tribunal found that the evidence on record supported the assessee's claim that the purchases were made in the regular course of business and that the material purchased was sold accordingly. The Tribunal rejected the allegation and deleted the addition.

7. Addition Made on the Basis of Material Collected without Providing Opportunity for Cross-Examination:
The assessee contended that the addition was made based on material collected at the back of the assessee without providing an opportunity for cross-examination. The Tribunal found that the Assessing Officer had not followed the principle of natural justice by denying the assessee the opportunity to cross-examine the person whose statement was used against them. The Tribunal held that such an addition was untenable in law and liable to be deleted.

Conclusion:
The Tribunal quashed the reassessment proceedings and deleted the addition sustained by the CIT(A), amounting to Rs. 1,61,664/-. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 02/12/2015.