2016 (7) TMI 200 - AT - Income Tax

Addition in respect of purchases - Held that - On submitting documentary evidence of purchase, consumption and sale of computer components the assessee had discharged its burden of proof. The AO had not produced any evidence that could prove the non genuineness of the transaction. - Decided in favour of assessee

Summary

Issues:
1. Addition of &8377; 11,57,884 made by AO in respect of purchases.
2. Failure to provide cross-examination opportunity and copy of statement of supplier.
3. Non-genuineness of purchases made by the assessee.
4. Rejection of documentary evidence by AO and FAA without proper verification.

Analysis:

Issue 1: Addition of &8377; 11,57 Revenue:
The assessee challenged the addition of &8377; 11,57,884 made by the AO in respect of purchases. The AO disallowed the purchases made from a supplier based on information from the Sales tax Department, stating the supplier issued false bills without delivering goods. The assessee provided evidence of purchases, but the AO concluded the purchases were not genuine. The FAA upheld the AO's decision, emphasizing the lack of convincing evidence of actual delivery of goods. However, during the hearing, the AR argued that the addition was based on statements recorded by the sales tax authorities, and cited relevant case laws supporting the genuineness of the purchases. The ITAT found that the AO's failure to provide the copy of the supplier's statement and the opportunity for cross-examination were fundamental defects. The ITAT also noted the lack of further verifications by the AO, concluding that the assessee had discharged its burden of proof regarding the genuineness of the purchases.

Issue 2: Failure to provide cross-examination opportunity and copy of statement:
The ITAT highlighted the serious procedural lapses by the AO in not providing the copy of the supplier's statement and the opportunity for cross-examination. These omissions were deemed as violations of natural justice principles, impacting the fairness of the assessment process. The ITAT stressed the importance of allowing the assessee to confront and verify the evidence against them, indicating a significant flaw in the AO's approach.

Issue 3: Non-genuineness of purchases:
The AO and FAA concluded that the purchases made by the assessee were not genuine based on the supplier's admission of providing accommodation entries and lack of concrete evidence of trading activities by the supplier. However, the ITAT overturned this decision, emphasizing that the assessee had provided documentary evidence of purchases, consumption, and sales of computer components, which remained unchallenged by the authorities. The ITAT found no evidence to support the non-genuineness of the transactions, ultimately ruling in favor of the assessee.

Issue 4: Rejection of documentary evidence without proper verification:
The ITAT criticized the AO and FAA for rejecting the documentary evidence presented by the assessee without conducting thorough verifications. Despite the information received from the Sales tax Department, the authorities failed to rebut the evidence provided by the assessee, leading to an unjustified conclusion regarding the genuineness of the purchases. The ITAT highlighted the importance of proper verification procedures in assessing the validity of transactions, indicating a lack of diligence on the part of the tax authorities in this case.

In conclusion, the ITAT allowed the appeal filed by the assessee, emphasizing the importance of procedural fairness, burden of proof discharge, and thorough verification of evidence in tax assessments.