2013 (4) TMI 465 - AT - Income Tax

Addition on account of bogus purchases - Held that - The assessment order passed by the AO is vitiated on account of violation of principles of natural justice. Once Shri Rohit Panwala has stated through an affidavit that he is running 12 concerns and operating 12 bank accounts issuing bogus bills to various parties and returning cash to them and on that basis assessment of the assessee is reopened under section 147 then it was necessary for the AO to offer Shri Rohit Panwala for cross-examination by the assessee. Since Rohit Panwala is the witness of the Revenue the onus lies on the Revenue to enforce his attendance and allow the assessee to cross-examine him. Merely issuing summons by the AO to Rohit Panwala is not enough to discharge the onus which has to be ensured that Rohit Panwala attends his office and assessee attends his office and he is offered for crossexamination by the assessee. The entire case of the Revenue revolves around the statement of Rohit Panwala. Since no cross examination of Rohit Panwala is allowed to the assessee then his statement recorded at the back of the assessee cannot be read in evidence against him. As decided in Kishinchand Chelaram vs. CIT (1980 (9) TMI 3 - SUPREME Court) that opportunity to controvert should be given to the assessee. Merely on the strength of statement of Rohit Panwala it cannot be held that purchases are bogus.

Summary

Issues Involved:
1. Addition of Rs. 83,78,699/- on account of bogus purchases of color and chemicals.
2. Partial confirmation of the addition of Rs. 20,94,675/- out of the total addition of Rs. 83,78,699/- by CIT(A).

Issue-wise Detailed Analysis:

1. Addition of Rs. 83,78,699/- on account of bogus purchases:

Background and Findings:
- The Revenue's appeal challenged the restriction of the addition from Rs. 83,78,699/- to Rs. 20,94,675/- by CIT(A), based on the assessment that the purchases from certain parties were bogus.
- The AO observed that the purchases shown by the assessee from five parties linked to Shri Rohit Panwala were bogus. Shri Panwala admitted through an affidavit that he operated 12 bank accounts and issued bogus bills.
- The assessee denied knowledge of Shri Panwala and claimed genuine purchases, providing bills and payment proofs via account payee cheques.

CIT(A)'s Decision:
- CIT(A) observed that although Shri Panwala was only issuing bills and earning commission, the goods were actually received and used by the assessee, evidenced by inward entry stamps at the factory gate.
- CIT(A) applied the decision in M/s Vijay Proteins [55 TTJ 76], disallowing 25% of the purchase price to account for discrepancies, resulting in an addition of Rs. 20,94,675/-.

Assessee's Arguments:
- The statement of Shri Panwala was recorded without allowing cross-examination.
- Goods were received and consumed in the business.
- Payments were made by account payee cheques, and there was no evidence of cash being returned to the assessee.
- Similar additions based on Shri Panwala's statement were deleted by the Tribunal in other cases.

Revenue's Arguments:
- No evidence of actual transportation and consumption of goods by the assessee.
- The onus was on the assessee to prove the genuineness of purchases by producing the parties before the AO.
- High consumption of chemicals (5-6%) was suspicious given the turnover.

Tribunal's Decision:
- The Tribunal found the assessment order vitiated due to the violation of natural justice, as the assessee was not allowed to cross-examine Shri Panwala.
- The Tribunal emphasized that the onus was on the Revenue to enforce Shri Panwala's attendance for cross-examination.
- The Tribunal noted that similar cases had been decided in favor of the assessee, where statements recorded without cross-examination were not relied upon.
- The Tribunal held that without proper investigation and evidence, the statement of Shri Panwala alone could not justify the addition.

2. Partial confirmation of the addition of Rs. 20,94,675/- by CIT(A):

Assessee's Appeal:
- The assessee contested the partial confirmation of the addition, arguing that the purchases were genuine and supported by bills and payment proofs.

Tribunal's Analysis:
- The Tribunal found that the CIT(A) was not justified in applying the principles of Vijay Proteins' case, as the facts differed significantly.
- The Tribunal observed that payments were made by account payee cheques, and the parties were identifiable, unlike in Vijay Proteins' case where purchases were made in cash.
- The Tribunal noted that the assessee had shown a higher GP rate in the current year compared to the previous year, indicating no reason to disturb the state of affairs.

Conclusion:
- The Tribunal concluded that no addition was legally sustainable based on the statement of Shri Panwala alone.
- The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed, resulting in the deletion of the entire addition of Rs. 83,78,699/-.

Final Order:
- The appeal filed by the Revenue is dismissed.
- The appeal filed by the assessee is allowed.