2017 (2) TMI 561 - AT - Income Tax

Addition of bogus purchases - addition u/s 69C - Held that - We find that the assessee had purchased goods from three parties that the sales tax authorities had made a reference to the Investigating Wing of the department, the AO had invoked the provisions of section 69C of the Act and had made an addition of ₹ 39.17 lakhs to the total income of the assessee. We find that the assessee had made a request to the AO to afford an opportunity to cross examine the persons whose statements had been relied upon to make the addition. Not giving a chance of cross examining the witnesses was violation of principles of natural justice. Addition made by the AO could be deleted only on that account. However even on merits, additions made is not sustainable. He had invoked the provisions of section 69C and the said section deals with unexplained expenditure. In our opinion, the FAA had rightly held that section 69C could not be used for making additions for unaccounted purchases as alleged by the AO - Decided in favour of assessee

Summary

Issues:
1. Assessment of bogus purchases and application of section 69C of the Income Tax Act.
2. Admission of additional evidence during appellate proceedings.

Analysis:
1. Assessment of Bogus Purchases and Application of Section 69C:
- The case involved appeals by the Assessing Officer (AO) and the Assessee challenging the orders of the CIT(A-21, Mumbai for the assessment years 2010-11 and 2011-12. The AO had added an amount of ?39.17 lakhs to the total income of the assessee, citing bogus purchases from specific parties based on information received from the Investigation Wing.
- The assessee contended that the purchases were genuine, providing details of the goods purchased and the necessity for their business operations. The assessee requested the opportunity to cross-examine the parties involved and access to relevant bank statements, which were not provided by the AO.
- The First Appellate Authority (FAA) partially allowed relief to the assessee, citing previous court cases and directed the AO to restrict the disallowance to 12% of the non-genuine purchases.
- The ITAT Mumbai, after hearing both parties, found that the AO's addition was not sustainable. The ITAT noted that the assessee's request for cross-examination was denied, violating principles of natural justice. Additionally, the ITAT opined that section 69C of the Act, dealing with unexplained expenditure, could not be used for unaccounted purchases. The ITAT upheld the FAA's decision, finding no legal or factual infirmity in the order.

2. Admission of Additional Evidence:
- Grounds 2 and 3 of the appeal dealt with the admission of additional evidence by the FAA during the appellate proceedings. The ITAT observed that the DR could not establish how these grounds related to the FAA's order, as no additional evidence was admitted. As a result, Grounds 2 and 3 were dismissed.

Conclusion:
The ITAT Mumbai dismissed the AO's appeal and allowed the appeals of the assessee for the assessment years in question. The ITAT reversed the FAA's decision regarding the application of section 69C, finding it inapplicable to the case. The judgment emphasized the importance of adhering to principles of natural justice and highlighted the necessity for proper legal grounds when making additions to an assessee's income.