2019 (6) TMI 1590 - AT - Income Tax

Assessment u/s 153A - Bogus purchases - HELD THAT - In the absence of any incriminating materials found during the course of search and seizure operations, no addition can be made u/s.153A of the Act. Reliance can be placed on the decision of Hon ble Delhi High Court in the case of PCIT vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT affirmed by the Hon ble Supreme Court by dismissal of the Special Leave petition in the case of PCIT vs. Meeta Gutputia, 2018 (7) TMI 569 - SC ORDER . There is a long line of authorities in support of the proposition of law that in the absence of incriminating material found as a result of search no addition can be made in the assessment made pursuant to notice u/s.153A of the Act. No purchases can be disallowed by alleging that purchases made are bogus. CIT(Appeals) also considered the statement given by the director of M/s. Bhanwarlal M.Jain Group and come to conclusion that the statement does not reveal that the purchases are bogus, it is only stated that the actual supplies are made by some other person on whose behalf the invoices are issued by this group. The statement only reinforces the contention of the respondent assessee that actual purchases are made. CIT(Appeals) also considered the prevailing business practices in the same line of business and come to conclusion that the actual suppliers are made by one party and the invoices are issued by another party, which does not mean the purchases are bogus. Thus, the order of the ld. CIT(A) is based on due appreciation of materials on record and the law governing the issue of the bogus purchases. Therefore we do not find any reason to interfere with the order of the ld. CIT(A) on the issue of bogus purchases. Thus, viewed from any angle the impugned assessment order cannot be sustained in the eyes of law. The order of the ld. CIT(Appeals) is based on the due appreciation of material on record and in consonance with the settled principle of law and therefore we do not find any reason to interfere with the order of the ld. CIT(A). Accordingly, the appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Jurisdiction under Section 153A of the Income Tax Act.
2. Alleged bogus purchases of diamonds.
3. Disallowance of deduction claimed under Section 80-IA of the Income Tax Act.
4. Disallowance of expenses under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction under Section 153A:
The primary issue was the validity of the jurisdiction under Section 153A of the Income Tax Act in the absence of any incriminating materials found during the search and seizure operations. The respondent-assessee argued that no incriminating materials were found during the search, and hence, the assumption of jurisdiction under Section 153A was invalid. The Tribunal referenced the decision of the Hon’ble Delhi High Court in the case of PCIT vs. Meeta Gutgutia, which was affirmed by the Hon’ble Supreme Court, stating that in the absence of incriminating material, no addition can be made under Section 153A.

2. Alleged Bogus Purchases of Diamonds:
The Revenue contended that the purchases of diamonds from certain parties were bogus, as these parties were found to be providing accommodation entries without actual physical sales. The Assessing Officer disallowed the purchases based on statements recorded from the directors of the said group, which indicated that the group was engaged in issuing fake invoices.

The respondent-assessee countered by providing evidence such as invoices, payment details, and PAN numbers of the suppliers. The CIT(A) examined the quantitative details of purchases, sales, and closing stock, and found that the transactions were genuine. The Tribunal noted that the Assessing Officer did not provide an opportunity for cross-examination of the third parties whose statements were used against the assessee, which is a violation of principles of natural justice as held by the Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE.

The Tribunal also referenced several judicial precedents, including the Hon’ble Bombay High Court in the case of Babulal C. Borana vs. ITO, which held that when the identity of suppliers is established, and payments are made through banking channels, the purchases cannot be doubted. Consequently, the Tribunal upheld the CIT(A)’s decision to delete the addition made on account of alleged bogus purchases.

3. Disallowance of Deduction under Section 80-IA:
The Assessing Officer had disallowed the deduction claimed under Section 80-IA of the Act. The CIT(A) directed the Assessing Officer to allow the deduction without setting off the losses of earlier years, following the decision of the Hon’ble Jurisdictional High Court in the cases of Velayudhaswamy Spinning Mills vs. ACIT and PCIT vs. GRT Hotels & Resorts P Ltd. The Tribunal upheld the CIT(A)’s decision on this issue as well.

4. Disallowance of Expenses under Section 14A:
The Assessing Officer had made disallowances under Section 14A of the Act. However, the Tribunal did not delve into detailed discussions on this issue, as the primary focus was on the validity of the jurisdiction under Section 153A and the alleged bogus purchases.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, upholding the CIT(A)’s orders. The Tribunal found that the Assessing Officer lacked jurisdiction to make additions under Section 153A in the absence of incriminating material. Additionally, the Tribunal upheld the CIT(A)’s findings that the purchases were genuine, the deduction under Section 80-IA was allowable, and no disallowance under Section 14A was warranted. The Tribunal's decision was based on a thorough appreciation of the records and the settled legal principles governing the issues.