2019 (8) TMI 540 - AT - Income Tax

Bogus purchases - Information from the Jaipur Investigation Wing was received that certain persons were issuing bogus bills and were charging 0.5% commission on the same - HELD THAT - Investigation Wing has provided information to the A.O. that assessee made purchases from above two parties of ₹ 22,00,016/-, however, the actual purchases made by the assessee are of ₹ 17,45,000/- only. This fact is mentioned in the assessment order itself and Ld. CIT(A) also allowed the relief to the assessee to that extent. Therefore, the information provided by the Jaipur Investigation Wing was also doubtful. The right to rebut to such adverse material should have been provided to assessee for explanation of assessee. These facts are sufficient to hold that the material collected by Jaipur Investigation Wing cannot be used in evidence against the assessee. Further the assessee produced copies of the purchase bills, U.P. Trade Tax Department and bank statements to prove that purchases are made from these parties through purchase bills and through banking channel. All items of purchases have been declared to U.P. Trade Tax Department and in the declaration even the weight of the items have been mentioned. The A.O. did not make any investigation on the same and without any investigation disbelieved the documentary evidences produced on record. These facts are sufficient to prove the explanation of assessee that assessee made genuine purchases and such fact of purchase have also been mentioned in the quantitative details of the closing stock. We are of the view that there was no justification to consider the purchases made by the assessee to be bogus purchases. We, accordingly, set aside the Orders of the authorities below and delete the addition - Ground of appeal of assessee allowed. Penalty u/s 271(1)(c) - HELD THAT - Since the addition on account of bogus purchases have been deleted which is the basis for levy of the penalty under section 271(1)(c) of the I.T. Act, we are of the view that no penalty is leviable against the assessee. In view of this, we set aside the Orders of the authorities below and cancel the penalty.

Summary

Issues:
1. Addition of ?17,45,000 on account of bogus purchases for A.Y. 2007-2008.
2. Levy of penalty under section 271(1)(c) of the I.T. Act, 1961.
3. Reopening of assessment and addition of ?29,73,027 on account of bogus purchases for A.Y. 2008-2009.

Issue 1: Addition of ?17,45,000 on account of bogus purchases for A.Y. 2007-2008:
The appellant, a trading company, challenged an addition of ?17,45,000 on account of alleged bogus purchases for the A.Y. 2007-2008. The Assessing Officer (A.O.) relied on information from the Jaipur Investigation Wing, indicating that certain individuals were issuing bogus bills. The appellant contended that the purchases were genuine, supported by documentary evidence, such as bank statements, purchase bills, and declaration forms issued by the UP Trade Tax Department. The A.O., however, treated the purchases as bogus based on the Investigation Wing's report. The CIT(A) partially allowed the appeal, limiting the addition to ?17,45,000. The appellant argued that no adverse material was supplied, and they were not given an opportunity to rebut the evidence. The ITAT Delhi held that without providing the appellant with the material collected by the Investigation Wing or the right to cross-examine witnesses, the evidence could not be used against the appellant. The ITAT emphasized the importance of allowing the appellant to rebut adverse material. Considering the documentary evidence provided by the appellant, the ITAT concluded that there was no justification for treating the purchases as bogus. Consequently, the ITAT set aside the lower authorities' orders and deleted the addition of ?17,45,000.

Issue 2: Levy of penalty under section 271(1)(c) of the I.T. Act, 1961:
The penalty under section 271(1)(c) of the I.T. Act, 1961 was challenged by the appellant for the same A.Y. 2007-2008. Since the addition on account of bogus purchases was deleted in the earlier appeal, the ITAT ruled that no penalty was leviable against the appellant. Therefore, the ITAT canceled the penalty, overturning the decisions of the lower authorities.

Issue 3: Reopening of assessment and addition of ?29,73,027 on account of bogus purchases for A.Y. 2008-2009:
In a separate appeal for A.Y. 2008-2009, the appellant contested the reopening of the assessment and the addition of ?29,73,027 on account of alleged bogus purchases. The A.O. reopened the assessment based on information from the Investigation Wing, Jaipur. Following the decision for A.Y. 2007-2008, the CIT(A) upheld the reopening and addition. The ITAT, consistent with the earlier decision, set aside the lower authorities' orders and deleted the addition on merit. As the appellant succeeded on the merit issue, the discussion on the reopening of the assessment became academic. Consequently, the ITAT allowed the appeal for A.Y. 2008-2009.

In conclusion, all the appeals filed by the Assessee were allowed by the ITAT Delhi, with the additions on account of bogus purchases being deleted for both A.Y. 2007-2008 and A.Y. 2008-2009, and the penalty under section 271(1)(c) for A.Y. 2007-2008 being canceled.