2022 (6) TMI 967 - AT - Income Tax

Bogus purchases - estimated additions on the basis of GP rate in the past years of the assessee-company - HELD THAT - The assessee, in the instant case, has declared a whopping turnover of Rs.1155.79 crore and also declared an income pegged in the vicinity of Rs.9.98 crore. The assessee therefore cannot be reckoned as anybody from the street. The amount of bogus purchases alleged is minuscule in the context of the voluminous business of the assessee. The documentation showing movement of goods towards impugned purchases also involves state government machinery as well as Central Excise Department. The purchases are carried out through banking channel and backed by documents showing movement and delivery thereof. Revenue has miserably failed to dislodge the sanctity of such formidable evidences in any manner except a statement of third person whose connection with the supplier has not been established. This apart, Shri Bhatia, i.e., witness has not been confronted to the assessee to unearth the truth. The assessee is entitled to cross-examine Shri Bhatia for a just and fair decision making. The Revenue has denied this valuable right and thus infringed the salutary principles despite request from the assessee before the lower authorities. Thus, the statement of Shri Bhatia is to be regarded as an extraneous to the determination of the issue. Once the statement of Shri Bhatia has excluded, the conclusion is obvious in the light of the documentary evidences towards its bona fides as claimed. Therefore, we find merit in the plea of the assessee for reversal of unjustified additions. Consequently, the order of the CIT(A) is set aside and the additions made towards bogus purchases are reversed. Appeal of assessee allowed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Alleged bogus purchases and additions made by the Assessing Officer

Issue 1: Disallowance under section 14A of the Income Tax Act

The appellant challenged the disallowance of Rs. 88,670 made under section 14A of the Act by the CIT(A). The appellant argued that the disallowance was confirmed without considering the principles established by the Hon'ble Supreme Court in a specific case. However, Ground No.1 was dismissed as not pressed, indicating that the appellant did not pursue this issue further.

Issue 2: Alleged bogus purchases and additions made by the Assessing Officer

The Assessing Officer alleged that purchases of Rs. 39,98,522 from a specific supplier were bogus, based on information from the Investigation Wing and a statement from an individual associated with the supplier. The AO made an addition of Rs. 7,99,704, estimating profit at 20%. The CIT(A) upheld the AO's decision but reduced the disallowance to Rs. 6,50,160, applying an average GP rate of 16.26%.

The appellant contended that the purchases were genuine, supported by various documents such as ledger accounts, invoices, VAT documents, excise records, and bank statements. The appellant argued that the AO did not provide an opportunity for cross-examination of the individual whose statement was used against them. The Tribunal found merit in the appellant's plea, noting the substantial turnover and income declared by the appellant. The Tribunal emphasized the importance of cross-examination and the lack of evidence to discredit the appellant's documentation. Consequently, the additions towards bogus purchases were reversed, and the appeal of the assessee was allowed.

In conclusion, the Tribunal reversed the additions made by the Assessing Officer regarding alleged bogus purchases, emphasizing the importance of fair procedures and substantial evidence in such cases. The judgment highlights the significance of providing opportunities for cross-examination and the need for concrete evidence to support allegations of tax evasion.