2014 (11) TMI 138 - AT - Income Tax

Income from undisclosed sources Genuineness of expenses incurred for purchases Held that - The notice for re-opening dated 29/03/2007 was served upon the assessee - the finding of the CIT(A) that the assessee was not given proper opportunity to rebut the reasons recorded for reopening the assessment is justified - the AO has made addition on the basis of the information received from the Central Excise Department in respect of the supplier of the assessee; namely M/s.Ashok Synthetics as per the reference received from the Central Excise Department, it is stated that the Proprietor of M/s.Ashok Synthetics had died in 1999 - plant & machinery belonging to M/s. Ashok Synthetics was being used in one form or another from the same premises - AO has not recorded in the assessment order as to how the Power of Attorney given by Smt. Veena Tuteja and claiming as Proprietor of Ashok Synthetics is not correct without examining her and how the statement of Shri Satishkumar Tuteja in the form of letter duly notarised is not correct - the plant & machinery are belonging to M/s.Ashok Synthetics was in use - The AO has not given any finding in respect of the nature of activity carried out by the assessee by such plant & machinery - the AO has failed to give a finding on material aspect and ignored the fact that right from the year 1999 the plant & machineries belonging to M/s.Ashok Synthetics was in use. The purchases made by the assessees from the relevant four parties, quantity-wise as well as value-wise have been found to have been recorded in the books of account, the payment for such purchases has been found to have been made by crossed cheques and duly recorded in the books of account, the sales corresponding to such purchase have been found recorded in the books of account and it is so because Revenue has not doubted the genuineness of the sales, rather has accepted the same, there is no allegation of suppression of value of closing stock or of the sales quantity-wise or value-wise and there is no allegation of inflation of purchases also - there could not be any addition on any account - even the addition sustained by the CIT(A) on the basis of peak of purchases is not sustainable Decided against revenue.

Summary

Issues Involved:
1. Legality of the reopening of the assessment.
2. Deletion of the addition of Rs. 3,14,37,602/- made by the Assessing Officer (AO) on account of income from undisclosed sources due to non-genuine purchase expenses.

Issue-wise Detailed Analysis:

1. Legality of the Reopening of the Assessment:

The Revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] on the grounds that the reopening of the assessment was illegal and unlawful. The CIT(A) had found that the reasons for reopening were supplied to the assessee only on 27/12/2007, and the reassessment was completed on the next day, 28/12/2007. The Revenue did not provide any material to counter this finding, leading to the conclusion that the assessee was not given a proper opportunity to rebut the reasons for reopening the assessment. The reopening was based on information received from the Central Excise Department, which suggested that the supplier, M/s. Ashok Synthetics, was not in existence during the relevant period. However, the CIT(A) found that the AO had not given any finding in respect of the justifiability of the reopening in the assessment order. The Tribunal upheld the CIT(A)'s view that the reopening was not justified, as the assessee was not given a proper opportunity to respond.

2. Deletion of the Addition of Rs. 3,14,37,602/-:

The AO had made an addition of Rs. 3,14,37,602/- on the basis that the purchases from M/s. Ashok Synthetics were bogus and treated the amount as income from undisclosed sources. The CIT(A) deleted this addition, and the Revenue appealed against this decision. The AO's reasoning was based on the fact that the supplier, M/s. Ashok Synthetics, was not in existence and that the transactions were not genuine. The AO found that the supplier's bank account was suspicious and that the money had been routed back to the assessee.

The assessee argued that all details regarding the transactions were provided, including confirmations from the supplier's representatives and evidence of material transportation and payments made by account payee cheques. The Tribunal found that the AO had not given any finding on the material aspects, such as the use of the plant and machinery belonging to M/s. Ashok Synthetics, which were in use since 1999. The Tribunal also noted that the AO had not doubted the sales made by the assessee-firm, only the purchases.

The Tribunal referred to the decision in the case of Totaram B. Sharma, where it was held that if purchases are recorded in the books and payments are made through proper channels, there cannot be an addition on the grounds of undisclosed investment unless it is proven that the sales or closing stock are not accounted for. The Tribunal found that the AO failed to establish that the purchase price had come back to the assessee and that the purchases were not genuine. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no infirmity in the order.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the reopening of the assessment was not justified and that the addition of Rs. 3,14,37,602/- on account of non-genuine purchases was correctly deleted. The Tribunal emphasized the need for the AO to provide a proper opportunity to the assessee to rebut the reasons for reopening and to substantiate claims of non-genuine transactions with cogent evidence.