2019 (8) TMI 1769 - AT - Income Tax

Bogus purchases - AO rejected the books of account u/s 145(3) - AO relied upon the material collected during the course of search in the case of Shri Bhanwarlal Jain Group of cases for providing bogus entries to different persons/concerns including the assessee - HELD THAT - Material found during the course of search in the entities of Shri Bhanwarlal Jain Group of cases cannot be used in evidence against the assessee. The reliance of the authorities below of such material is of no use and basis. The other material available on record are the documentary evidences filed by assessee which are copies of the purchase invoices, stock register reflecting purchase and sales, bank statements highlighting payments made by assessee to these parties through banking channel, copy of bank statements of both seller parties along with their balance-sheet confirmations and copy of acknowledgment of filing of the income tax returns. A.O. did not make any inquiry on the documentary evidences filed by assessee and did not doubt the explanations. Since the documentary evidences filed on record have not been doubted by A.O. and no adverse finding have been given and no inquiry have been made into the claim of assessee, therefore, there was no basis to treat such purchases as bogus - Entire addition is wholly unjustified and even it is not a fit case where Gross Profit rate of 5% be applied for sustaining the part addition - Decided in favour of assessee.

Issues Involved:
1. Addition of ?8,01,93,887/- for bogus purchases.
2. Rejection of books of account under section 145(3) of the I.T. Act, 1961.
3. Use of evidence collected during the search on Bhanwarlal Jain Group against the assessee.
4. Denial of the opportunity for cross-examination of statements made by third parties.
5. Reliance on documentary evidence provided by the assessee.

Issue-wise Detailed Analysis:

1. Addition of ?8,01,93,887/- for bogus purchases:
The core issue in this appeal was the addition of ?8,01,93,887/- for alleged bogus purchases made by the assessee from entities associated with Bhanwarlal Jain Group. The Assessing Officer (A.O.) based this addition on information from a search and seizure operation on the Bhanwarlal Jain Group, which was suspected of providing accommodation entries in the form of bogus purchases and unsecured loans. The assessee argued that all purchases were genuine, supported by purchase invoices, stock registers, bank statements, and confirmations from the concerned parties. The A.O., however, concluded that the purchases were unverifiable and bogus, leading to the addition.

2. Rejection of books of account under section 145(3) of the I.T. Act, 1961:
The A.O. rejected the assessee's books of account under section 145(3) of the I.T. Act, 1961, citing that the purchases shown were unverifiable and bogus. This rejection was based on the modus operandi of the Bhanwarlal Jain Group, which allegedly issued bills without delivering goods. The A.O. noted that the burden of proving genuine purchases was on the assessee, which he failed to discharge.

3. Use of evidence collected during the search on Bhanwarlal Jain Group against the assessee:
The A.O. relied heavily on the evidence and statements collected during the search on the Bhanwarlal Jain Group. However, these materials were not provided to the assessee for rebuttal, and no opportunity for cross-examination was given. The Tribunal highlighted that such evidence could not be used against the assessee unless it was shared with them and the right to cross-examine was granted, citing judgments from the Hon’ble Supreme Court in the cases of Kishanchand Chellaram vs. CIT and Andaman Timber Industries vs. CCE.

4. Denial of the opportunity for cross-examination of statements made by third parties:
The assessee contended that the statements of third parties, such as Shri Gautam Jain and Shri Rajendra Jain, were used against him without providing copies or allowing cross-examination. These individuals had retracted their statements, which further weakened the case against the assessee. The Tribunal agreed that without the opportunity for cross-examination, such statements could not be used as evidence against the assessee.

5. Reliance on documentary evidence provided by the assessee:
The assessee provided substantial documentary evidence, including purchase invoices, stock registers, bank statements, confirmations from the seller parties, and their balance sheets. These documents were not disputed by the A.O., and no adverse findings were made. The Tribunal emphasized that since these documentary evidences were not doubted and no inquiry was made into them, there was no basis to treat the purchases as bogus. The Tribunal also referred to similar cases where additions were deleted based on similar circumstances and documentary evidence.

Conclusion:
The Tribunal concluded that the entire addition of ?8,01,93,887/- was unjustified. It was not a fit case to apply even a Gross Profit rate of 5% as suggested by the Revenue. The Tribunal set aside the orders of the authorities below and deleted the entire addition, allowing the appeal of the assessee.

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