2013 (4) TMI 466 - AT - Income Tax

Bogus purchases of colour & chemicals - Shri Rohit Panwala stoutly stated that he never supplied chemicals/colour & neither knew any of the director nor any employees of the assessee company - CIT(A) restricted the addition of Rs.44,56,916/- to Rs.11,24,250/- made by AO - Held that - There is violation of natural justice as assessee was not offered for cross-examination to Rohit panwala and, therefore, addition cannot be made on the basis of such statement of Rohit Panwala alone. Accepting the arguments of assessee that all the concerns from whom assessee has shown to have made purchases of colour and chemicals are owned by different persons. It was incumbent on the AO to call these persons or prove that they were nonexistent. If there are some existing owners of these concerns then their statements should have been recorded and these persons should have also been offered for cross-examination. The statement of any other person claiming to be the owner of these concerns applying to the facts of assessee s case cannot be blindly relied upon without confronting the ostensible owner. Since no enquiry/investigation has been carried out into the existence of ostensible owner the reliance of the AO merely on the statement of Rohit Panwala is vitiated. As relying on Suman Silk Mills Pvt . Ltd. (2013 (4) TMI 465 - ITAT AHMEDABAD) 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. In this regard as decided in Kishinchand Chelaram vs. CIT (1980 (9) TMI 3 - SUPREME Court)wherein it is held that opportunity to controvert should be given to the assessee. Then there is no reason to make any addition in the case of the present assessee solely on the ground of statement of Rohit Panwala - appeal of the assessee is allowed. Commission paid on bogus purchase - CIT(A) deleted the addition made by AO - Held that - DR did not place any material in support of their ground - Against revenue.

Summary

Issues Involved:
1. Restriction of addition on account of bogus purchases.
2. Deletion of addition on account of commission paid on bogus purchases.
3. Upholding the order of the Assessing Officer (AO).
4. Prayer to set aside the order of the CIT(A) and restore that of the AO.

Issue-Wise Detailed Analysis:

1. Restriction of Addition on Account of Bogus Purchases:
The primary issue was whether the CIT(A) was correct in restricting the addition of Rs.44,56,916/- to Rs.11,24,250/- made by the AO on account of bogus purchases. The AO disallowed the entire amount based on the statement of Shri Rohit Panwala, who admitted issuing bogus bills without supplying any material. However, the CIT(A) found that the goods were actually received by the assessee, as evidenced by inward stamps and security officer signatures. The CIT(A) concluded that while the purchases were genuine, they were made to save on costs and taxes, thus disallowing 25% of the purchase price, amounting to Rs.11,14,250/-. The Tribunal upheld the CIT(A)'s decision, referencing similar cases where such additions were deleted, emphasizing the need for cross-examination and the lack of evidence showing the assessee received cash back.

2. Deletion of Addition on Account of Commission Paid on Bogus Purchases:
The AO also disallowed Rs.11,142/- as commission paid to Shri Panwala for issuing bogus bills. The CIT(A) deleted this addition, noting that there was no evidence of such payment. The Tribunal agreed, stating that the Revenue did not provide any material to support this claim, thus dismissing the Revenue's ground.

3. Upholding the Order of the Assessing Officer:
The Revenue argued that the CIT(A) should have upheld the AO's order in its entirety. The Tribunal, however, found that the CIT(A) had correctly evaluated the evidence and circumstances, including the cross-examination of Shri Panwala, and had reasonably restricted the disallowance to 25% of the purchase price. The Tribunal noted that similar cases had resulted in deletions of such additions, and there was no contrary evidence presented by the Revenue.

4. Prayer to Set Aside the Order of the CIT(A) and Restore that of the AO:
The Revenue's prayer to set aside the CIT(A)'s order and restore the AO's order was dismissed by the Tribunal. The Tribunal found that the CIT(A)'s decision was well-founded on the evidence and consistent with judicial precedents. The Tribunal emphasized the importance of cross-examination and the need for concrete evidence, which was lacking in this case.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, concluding that the CIT(A) had correctly restricted the addition on account of bogus purchases and deleted the addition on account of commission. The Tribunal's decision was based on the lack of evidence from the Revenue and the consistent judicial approach in similar cases.