2017 (8) TMI 1623 - AT - Income Tax

Denial of natural justice - violation of Rule 46A(3) of the I.T. Rules, 1962 - CIT-A accepting additional evidence during the course of Appellate Proceedings and directing the AO to delete the addition made on account of bogus purchases - HELD THAT - Case was selected for scrutiny in CASS and notices u/s 143(2) and 142(1) were duly issued and served on the assessee. In response to the said notices, Shri Rajesh Agarwal, Chartered Accountant Shri Kamal Sharma, Chartered Accountant from M/s Sara Associates, Chartered Accountants attended and filed the details called for . AO has also mentioned at page 12 of the assessment order that the assessee filed confirmations in regular format on 26.03.2013. Thus we find that the documents filed before the Ld. CIT(A) were available to the AO. We find that the Ld. CIT(A) has analysed those documents and arrived at a finding. Therefore, there is no violation of Rule 46A (3) of the I.T. Rules 1962 by the Ld. CIT(A). So We dismiss the 3rd ground of appeal. Bogus purchases - survey action u/s 133A - AO issued notices u/s 133(6) to 23 parties AND notices issued to 19 parties were returned back by the postal authority and 4 parties, no reply was received by the AO - HELD THAT - Assessee had submitted complete details of purchases such as ledger account, copy of the concerned parties in books of the assessee along with sample copies of invoices issued by the parties and bank statements in which payments made to the parties are duly reflected - In the case of CIT vs. Simit P. Sheth 2013 (10) TMI 1028 - GUJARAT HIGH COURT has held that where purchases were not bogus but were made from parties other than those mentioned in the books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of the assessee - We find that the Ld. CIT(A) has rightly estimated and restricted the disallowance. Allowable expenditure - Penalty as paid to MCGM for breach of contract which is infringement of law - HELD THAT - The Hon ble Delhi High Court in CIT vs. Loke Nath Co (Construction) 1984 (1) TMI 53 - DELHI HIGH COURT held that the amount paid to Municipality as compensation for condoning deviations of original sanction and accepting revised plan of construction is deductible and it is not a penalty for infraction of law. In CIT vs. Indo Asian Switch-Gears (P.) Ltd. 1996 (8) TMI 104 - PUNJAB AND HARYANA HIGH COURT held that penalty for late delivery of goods is not on account of infraction of law and thus deductible. Appeal filed by the Revenue is dismissed.

Summary

Issues:
- Addition of bogus purchases without third-party confirmation or clinching evidence
- Negating finding of absence of delivery challan and genuine purchases
- Allowing additional evidence without verifying by AO
- Deletion of penalty without considering breach of contract
- Disallowance of addition made by AO

Analysis:
1. Bogus Purchases: The AO found substantial suspicious purchases by the assessee from dealers identified by Sales Tax Department. Despite notices to parties and lack of replies, the AO made additions totaling ?6,34,56,488. The assessee's explanation of payments by cheques was not accepted. The CIT(A) considered various documents submitted by the assessee, maintaining that sales and stock records were reliable. The CIT(A) estimated a profit margin and restricted the disallowance to ?19,52,056, differing from the AO's original addition.

2. Additional Evidence: The AO issued notices and sought details from the assessee regarding specific purchases, but the responses were deemed inadequate. The CIT(A) reviewed the documents submitted during assessment proceedings and concluded that there was no violation of Rule 46A(3) of the IT Rules, 1962. The Tribunal dismissed the ground related to the additional evidence.

3. Penalty for Breach of Contract: The AO imposed a penalty related to breach of contract, which the CIT(A) deleted. Citing precedents, the Tribunal upheld the CIT(A)'s decision, stating that such payments were not penalties for infringing the law. The ground related to the penalty was dismissed.

4. Overall Disallowance: The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order regarding the various issues raised. The decision was based on a detailed analysis of the facts, submissions, and legal principles cited by both parties. The Tribunal's judgment was pronounced on 10/08/2017, confirming the dismissal of the Revenue's appeal.