2017 (5) TMI 1152 - AT - Income Tax

Bogus purchases - A.O. has exclusively relied on the information received from the Sales Tax Department (Investigation Wing), Mumbai - Held that - A.O. has not gone beyond the findings of the Sales Tax Department. In Income-tax proceedings, there is extensive use of oral examination of witness or the assessee to ascertain and establish facts. Oral examination provides information, confirmation or contradiction useful in these 8 proceedings. The statement is recorded in oath. The witness is obliged to state the truth and if he makes a false statement he is punishable for perjury. The assessee or the department, as the case may be, can cross-examine the witness to test the truth of his statement. In State of Kerala vs. K.T. Shaduli Grocery Dealer 1977 (3) TMI 160 - SUPREME COURT recognised the importance of oral evidence by holding that the opportunity to prove the correctness or completeness of the return necessarily carry with it the right to examine the witnesses and that includes equally the right to cross examine witnesses. At least in the cases where details were filed by the assessee (para 5.4 and 5.5 of the assessment order), the A.O. could have examined the witness. The A.O. has failed to do so. Addition of entire amount of purchases to gross profit of the assessee - Held that - We have to ascertain the profit element embedded in such purchases which can be added to the income of the assessee. We find it just and fair to estimate 12.5% of the purchase cost of ₹ 62,40,000/- as the profit element and direct the A.O. to adopt the same and make disallowance. As the enhancement of ₹ 3,12,000/- made by the learned CIT(A) is bereft of any objective yardstick as the same has been estimated @ 5% of the value of bills on the presumption that the assessee might have incurred expenditure in cash to secure bogus bills, the A.O. is directed to delete the same.

Summary

Issues:
1. Enhancement of income without following mandatory provisions.
2. Denial of natural justice in confirming additions without cross-examination.
3. Addition under section 69C for alleged bogus purchases.
4. Enhancement of expenses for securing alleged bogus transactions.

Analysis:
1. The appeal raised concerns regarding the enhancement of income without following mandatory provisions. The appellant argued that the Commissioner erred in enhancing the income without adhering to the provisions of section 251(2) of the Income Tax Act. The appellant sought the setting aside of the Commissioner's order in this regard.

2. The issue of natural justice was highlighted concerning the confirmation of additions without providing an opportunity for cross-examination of the purchase parties' statements made before the Sales Tax Authority. The appellant contended that the addition made of ?62,40,000 should be deleted due to the lack of cross-examination opportunity.

3. The addition under section 69C for alleged bogus purchases was a significant issue in the appeal. The appellant argued that the Commissioner erred in confirming the addition without appreciating the evidence submitted by the Assessee, including bank statements, sale bills, balance sheets, and profit and loss accounts. The appellant emphasized that payments were made through banking channels, and section 69C should not be applied, thus requesting the deletion of the ?62,40,000 addition.

4. Another aspect of the appeal involved the enhancement of expenses for securing alleged bogus transactions. The appellant contested the addition of ?3,12,000 towards expenses, arguing that the enhancement lacked legal basis and was imposed without proper notice or opportunity for the appellant. The appellant also denied the penal interest levied under sections 234B and 234C.

5. The Tribunal reviewed the arguments presented by both parties and examined the evidence submitted by the appellant, including financial documents and correspondence with the authorities. The Tribunal noted discrepancies in the assessment order and the lack of oral examination of witnesses by the Assessing Officer. The Tribunal referenced legal precedents to determine the treatment of alleged bogus purchases and directed a specific percentage of the purchase cost to be added as profit. Additionally, the Tribunal ordered the deletion of the enhancement of expenses and upheld the levy of interest under sections 234B and 234C.

This detailed analysis of the judgment covers the issues raised in the appeal and the Tribunal's decision on each aspect of the case.