2015 (9) TMI 391 - HC - Income Tax

Rejection to books of accounts - addition to income - AO disallowed the expenses with regard to the purchase of the material by the appellant - assessment also made under Section 68 - Held that - A notice under Section 131 of the Act had been served upon M/s Rama Enterprises. We are informed that PAN numbers were called for and have now been produced. The vendors appear to have paid tax. The effect thereof would have to be considered. It would now be possible to ascertain in a more satisfactory manner the genuineness of the entries in the assessee s books of account as well as the genuineness of the transactions. While setting-aside the disallowance of the deductions on account of the purchases, the CIT (Appeals) undertook a detailed analysis of the production figures for the previous assessment years and for the assessment year in question. Having done so, it arrived at the GP ratio and inferred that the appellant had received the material corresponding to the purchases made from the vendors. It was found for instance that the existence of the vendors stood confirmed by the Excise & Taxation Officer. The assessee would rely upon the PAN numbers which were now produced during the course of these appeals. The excise record was also analysed by the CIT(Appeals). The CIT(Appeals) undertook a detailed analysis in coming to this conclusion. However, some of the crucial aspects have not been considered by the Tribunal. The Tribunal for instance held that the detailed enquiry made by the Assessing Officer by issuing summons under Section 131 of the Act to the vendors and also the enquiry made from the bank authorities establishes that the purchases were not genuine. The order does not indicate any reasons in support of this finding and in any event various aspects which have been dealt with by the CIT(Appeals) have not been taken into consideration while arriving at this finding. Further, the effect of the finding that the payments by the assessee to its vendors and of M/s Maa Durga Trading Company having withdrawn the same is not dealt with satisfactorily. Merely because M/s Maa Durga Trading Company withdrew the amount which was paid by the assessee to its vendors would not lead to the conclusion that the transactions between the assessee and the vendors were fictitious. Similarly, the Tribunal noted that the confirmation receipts of the said supplies were signed by different persons while the bank accounts were operated by other persons. This fact has been held against the assessee. This finding would be perverse. There is nothing unusual in different persons operating the bank accounts of a company and signing the confirmation receipts of the supply of goods. As mentioned earlier, Section 68 of the Act has not been considered at all. Had the only question in this appeal involved the interpretation of section 68, we would have dealt with the issue ourselves. However, that is not the only question in these proceedings. Thus the impugned order is set-aside and the matter is remanded to the Income Tax Appellate Tribunal for fresh decision - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
Appeals against common order and judgment of Income Tax Appellate Tribunal for the assessment year 2008-09. Questions of law regarding the rejection of books of account, disallowance of expenses, and purchases. Consideration of Section 68 of the Income Tax Act not done by the Tribunal.

Analysis:

1. Rejection of Books of Account and Disallowance of Expenses:
The Assessing Officer rejected the books of account and disallowed expenses related to the purchase of material by the appellant, leading to additions to the assessee's income under Section 68 of the Act. The Commissioner of Income Tax (Appeals) upheld the rejection of books but sustained a specific addition. The CIT (Appeals) found that the purchases from the vendors were genuine. Both the Assessee and the Revenue appealed to the Income Tax Appellate Tribunal, which dismissed the assessee's appeal and allowed the Revenue's appeal.

2. Verification of Purchases and Transactions:
The main issues revolved around the correctness of rejecting the books of account, the validity of the additions made, and the consideration of Section 68 of the Act by the Tribunal. The assessee claimed purchases from three entities, and investigations revealed a complex chain of transactions involving multiple parties. Enquiries indicated discrepancies in the transactions, with payments being made to entities that were later found to be non-existent. The Tribunal's decision lacked detailed reasoning and failed to consider crucial aspects analyzed by the CIT (Appeals).

3. Consideration of Section 68 of the Act:
Notably, the Tribunal did not adequately address Section 68 of the Income Tax Act in its decision-making process. The court highlighted the importance of this section and emphasized that a thorough examination of all relevant provisions was necessary for a just decision. The failure to consider Section 68 raised concerns about the completeness and accuracy of the Tribunal's judgment.

4. Remand and Fresh Decision:
Given the inadequacies in the Tribunal's decision, the High Court set aside the impugned order and remanded the matter back to the Income Tax Appellate Tribunal for a fresh decision. The parties were granted an opportunity to present additional evidence, including PAN numbers, for a more comprehensive assessment. The Tribunal was granted the discretion to either decide the matter itself or refer it back to the Assessing Officer or the Commissioner of Income Tax (Appeals) for further review.

This detailed analysis of the judgment highlights the complexities involved in the case, the discrepancies in the transactions, and the importance of a thorough consideration of all relevant legal provisions for a just and accurate decision.