2017 (11) TMI 1349 - AT - Income Tax

Addition on account of bogus purchases - concerned parties have admitted before the Sales Tax authorities that they were providing accommodation bills only without actual delivery of goods - Held that - Assessing Officer has not made such addition while completing assessment. It is the first appellate authority who in the course of appellate proceeding has made the addition on account of alleged expenditure to have been incurred by the assessee towards commission for availing accommodation bills. Undisputedly, before making the disputed addition, learned Commissioner (Appeals) has not issued any show cause notice to the assessee. Since, the addition made by the learned Commissioner (Appeals) results in enhancement of income determined by the Assessing Officer, as per the mandate of section 251(2), the learned Commissioner (Appeals) should have given a show cause notice to the assessee before enhancing the income. The learned Commissioner (Appeals) having not followed the statutory mandate the addition cannot be sustained. Therefore, on over all consideration of facts and material on record, we are of the considered view that all the issues raised by the assessee in the present appeal requires to be restored back to the Assessing Officer for denovo adjudication after providing reasonable opportunity of being heard to the assessee. We order accordingly. Grounds raised are allowed for statistical purposes.

Summary

Issues:
Challenging the addition of bogus purchases, unverifiable purchases, and commission expenses.

Analysis:
The appeal was against an order dated 12th February 2015 for the assessment year 2010-11. The assessee, a partnership firm engaged in real estate business, filed its return declaring income of ?4,42,39,520. The Assessing Officer raised concerns about purchases totaling ?15.97 crore, issuing notices under section 133(6) to verify genuineness. Many notices returned unserved, some parties were identified as hawala dealers, and lack of responses led to additions of ?95,69,047 and ?14,96,899 to the assessee's income. The Commissioner (Appeals) upheld these additions and added ?95,690 as commission expenses, leading to the appeal.

The grounds for appeal challenged the additions made by the Assessing Officer and the Commissioner (Appeals) regarding bogus purchases, unverifiable purchases, and commission expenses. The Authorized Representative argued that due process wasn't followed, adverse materials weren't provided for cross-examination, and the Commissioner (Appeals) enhanced income without proper notice. The Departmental Representative supported the Assessing Officer's order.

The Tribunal considered the contentions and evidence. Regarding bogus purchases, the Tribunal noted the lack of opportunity for the assessee to rebut adverse materials and the need to examine if sales turnover was possible without the purchases. The issue of unverifiable purchases was raised due to a party confirming sales post-assessment, indicating oversight by the Commissioner (Appeals). The addition of commission expenses by the Commissioner (Appeals) without issuing a show cause notice was deemed improper under section 251(2). Consequently, the Tribunal ordered a denovo adjudication by the Assessing Officer after providing a fair hearing to the assessee. All issues were remanded back for proper consideration, and the appeal was allowed for statistical purposes.

In conclusion, the Tribunal found procedural lapses in the assessment leading to unjust additions to the assessee's income. The need for fair hearings, proper confrontation of adverse materials, and adherence to statutory requirements were emphasized, warranting a fresh assessment to ensure justice and proper adjudication of the issues raised in the appeal.