2020 (4) TMI 256 - AT - Income Tax

Reopening of assessment - bogus purchases - Denial of opportunity to cross examine a person whose statement is being relied upon to make the addition - HELD THAT - It is settled position of the principles of natural justice that the assessee should not be deprived of an opportunity to cross examine a person whose statement is being relied upon to make the addition in the hands of the assessee. When the assessee has subsequently requested the AO to provide an opportunity to cross examine the person, whose statement is being relied upon, he ought to have been provided the same or at least he could have been provided with the statement of the said person to enable the assessee to rebut such statement with necessary evidence. Thus deem it fit and proper to remand the issue to the file of the AO with a direction to provide a copy of the statement (wherein the assessee s name is mentioned as beneficiary) to the assessee and provide it with an opportunity to cross examine such person, if necessary. For the AY 2009-10, the assessee had also filed a copy of the affidavit of Mr. Rajender Jain retracting the statement made by him during the course of search. In such a situation, it is even more important that the assessee should be given an opportunity to cross examine the party particularly when he has confirmed the transaction made by the assessee. Another factor which could go in favour of the assessee is that the assessee has also shown the sale of such diamonds subsequently to one of the parties in Hyderabad who have been confirmed the transaction and the assessee has also received the consideration through banking channels. There cannot be any sale of stock if there were no purchases. Therefore, this factor also needs to be considered - assessments for both the years are set aside and are remanded to the file of the AO for reconsideration and for re-adjudication as directed above.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148 of the Income Tax Act.
2. Addition made on account of bogus purchases.
3. Opportunity to cross-examine the witnesses.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:

The assessee firm engaged in the business of diamonds and jewellery filed its returns for AY 2008-09 and AY 2009-10. The returns were processed under Section 143(1) of the Income Tax Act. Subsequently, the Assessing Officer (AO) received information from DGIT (Inv.), Mumbai, indicating that the assessee firm was a beneficiary of accommodation entries from non-genuine diamond concerns. Based on this information, the AO issued a notice under Section 148 to reopen the assessment. The CIT (A) upheld the validity of the reopening, stating that the issuance of intimation under Section 143(1) does not constitute an assessment, and the receipt of information from DGIT (Inv.) Mumbai was a valid reason for reopening the assessment. The Tribunal agreed with this view, rejecting the grounds against the validity of the reassessment proceedings.

2. Addition Made on Account of Bogus Purchases:

The AO disbelieved the purchase bills issued by M/s Krishna Diam and added the entire sum of ?14,06,860/- to the assessee's income, citing that the parties involved admitted to issuing accommodation entries without real business activities. The CIT (A) upheld this addition, noting that the assessee failed to prove the physical receipt of goods or any travel to Surat for taking delivery. Payments through banking channels were also deemed insufficient to prove the genuineness of the transactions. The assessee argued that it provided all necessary evidence, including purchase bills, sales bills, VAT returns, and bank statements, to substantiate the genuineness of the purchases. However, the Tribunal found that the assessee was not given an opportunity to cross-examine the suppliers, whose statements were relied upon to make the addition.

3. Opportunity to Cross-Examine the Witnesses:

The assessee requested an opportunity to cross-examine the parties who allegedly provided accommodation entries. The CIT (A) denied this request, stating that the burden of proof lies on the assessee. The Tribunal disagreed with this finding, emphasizing the principles of natural justice, which require that the assessee should be given an opportunity to cross-examine a person whose statement is relied upon for making additions. The Tribunal noted that the statements recorded during the search were the basis for the additions and that the assessee should be provided with these statements or allowed to cross-examine the parties. The Tribunal remanded the issue to the AO with directions to provide the assessee with the statements and an opportunity to cross-examine the parties. If the AO fails to provide this opportunity, the additions cannot be sustained.

Conclusion:

The Tribunal set aside the assessments for both AY 2008-09 and AY 2009-10 and remanded the cases to the AO for reconsideration and re-adjudication, emphasizing the need to provide the assessee with an opportunity to cross-examine the parties involved. The appeals were treated as allowed for statistical purposes.