2015 (12) TMI 1366 - AT - Income Tax

Disallowance of purchases made - bogus purchases - CIT(A) restricted the disallowance to 7% as against 25% made by AO - Held that - The assessee being in an export promotion zone, the movement of its goods is controlled and customs approved; that the purchases being approved purchases, there was no question of their being bogus purchases. The assessee enclosed the custom approved invoices in respect of purchases from Zalak Impex. These invoices have been produced before us also, in the paper book filed by the assessee. As per these invoices, the goods purchased had been verified and approved by the Customs Authority. This clearly shows that the goods had actually been purchased and received by the assessee. As such, these purchases could not have, by any stretch of imagination, been treated as bogus purchases. It is also noteworthy that the payments made by the assessee to Zalak Impex were through account payee cheques only. Neither of the Taxing Authorities, however, took these invoices into consideration and wrongly held the assessee s purchases from Zalak Impex to be bogus purchases. Nothing has been brought on record to show that these invoices were self made or fabricated. Moreover, the comparative chart of purchases made during the year and the selling price (page 141-144), as filed before the ld. CIT(A) has not been refuted and this also goes to prove the theory of bogus bills and accommodation entries to be wrong. Therefore, the order under appeal is a result of complete misreading and non-reading of cogent documentary evidence brought on record by the assessee. For this reason also, along with the reason that the sales made by the assessee were never questioned, the addition is deleted in toto. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of purchases by the Department.
2. Delay in filing the appeal by the assessee.
3. Deletion of concealment penalty by the ld. CIT(A).
4. Reopening of assessment based on information received.
5. Lack of opportunity for cross-examination.
6. Violation of natural justice principles.
7. Misreading of documentary evidence.
8. Penalty imposition and subsequent deletion.

Analysis:

1. The Department filed an appeal against the action of the ld. CIT(A) in restricting the disallowance of purchases made by the assessee. The Department sought confirmation of the disallowance in full, while the assessee argued for the deletion of the disallowance. The Tribunal found that the completed assessment was reopened based on information received regarding alleged bogus purchases. The A.O. had added 25% of the alleged bogus purchases to the income of the assessee, which the ld. CIT(A) reduced to 7%. The Tribunal held that the reassessment order was unsustainable due to the lack of opportunity for cross-examination, violating the natural principle of audi alteram partem. Consequently, the reassessment order and the ld. CIT(A)'s order were both cancelled in full.

2. The assessee's appeal faced a delay of 10 days in filing, which was attributed to the Director's unavailability in India during the filing period. The Tribunal, considering the affidavit as a sufficient cause preventing timely filing, condoned the delay in filing the appeal.

3. The Department's appeal was against the deletion of a concealment penalty imposed on the assessee. The penalty was levied based on the addition made, which was subsequently cancelled by the Tribunal. The ld. CIT(A) had deleted the penalty, stating it was not leviable on an estimation basis and that willful submission of inaccurate particulars to conceal income was not established. The Tribunal upheld the ld. CIT(A)'s decision to delete the penalty, as the basis for the penalty no longer existed post the cancellation of the addition.

4. The Tribunal highlighted the importance of providing an opportunity for cross-examination and adhering to natural justice principles in assessment proceedings. It emphasized the need for Taxing Authorities to consider all relevant documentary evidence presented by the assessee before making additions to the income.

5. Ultimately, the Tribunal dismissed the Department's appeals and allowed the assessee's appeal, concluding the judgment in favor of the assessee.