1999 (5) TMI 63 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 45,29,060 to the assessee's income.
2. Genuineness of transactions with four suppliers.
3. Violation of principles of natural justice.
4. Application of Section 68 of the Income Tax Act.
5. Consistency in assessment approach.
6. Rejection of accounts without evidence.
7. Remand order by CIT(A).

Issue-wise Detailed Analysis:

1. Addition of Rs. 45,29,060 to the assessee's income:
The AO noted that out of the total purchases of Rs. 4,70,37,704, only Rs. 4,25,08,644 were allowed, leaving a balance of Rs. 45,29,060. This balance pertained to transactions with M/s D.N. Carrier, M/s A.S. Yadav, M/s Balwan Singh, and M/s R.C. Bhatta & Co. The AO disallowed these amounts, questioning the genuineness of the transactions and the identity of the creditors, as the suppliers could not be traced or confirmed.

2. Genuineness of transactions with four suppliers:
The AO summoned the suppliers but could not locate them. The assessee provided bills and bank certificates showing payments through account payee cheques. However, the AO found no evidence of the suppliers' existence or their capacity to supply materials on credit. The CIT(A) noted that the genuineness of the transactions was questionable but did not conclusively address the issue, instead remanding it back to the AO.

3. Violation of principles of natural justice:
The assessee argued that the AO collected evidence at the back of the assessee without providing an opportunity to rebut it, violating the principles of natural justice and mandatory provisions of Sections 142(3) and 131 of the IT Act. The CIT(A) acknowledged this but did not decide on the merits, choosing to remand the matter.

4. Application of Section 68 of the Income Tax Act:
The AO invoked Section 68, treating the outstanding amounts as unexplained credits. The assessee contended that Section 68 was wrongly applied as the liabilities were for purchases, not loans or deposits. The CIT(A) found the plea that Section 68 did not apply to be unacceptable but did not provide a detailed analysis.

5. Consistency in assessment approach:
The assessee argued that in previous years, similar transactions with two of the four suppliers were accepted as genuine by the Department, and the same should apply for the current year. The CIT(A) did not address this issue directly and remanded the matter instead.

6. Rejection of accounts without evidence:
The assessee claimed that the AO made the addition without rejecting the accounts, which were maintained in the regular course of business and supported by bills and transportation details. The CIT(A) did not address this issue in detail and remanded the matter.

7. Remand order by CIT(A):
The CIT(A) remanded the issue to the AO, directing a de novo assessment after considering the entire material and evidence. The Tribunal found this remand to be superfluous, stating that the CIT(A) should have decided the appeal on merits. The Tribunal set aside the CIT(A)'s order and provided guidelines for a fresh examination, emphasizing the need to consider the material filed by the assessee and the principles of natural justice.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and restoring the matter to the CIT(A) for a fresh decision. The CIT(A) was directed to examine the case of each supplier, consider the material filed by the assessee, and follow the principles of natural justice, including providing the assessee an opportunity to rebut the evidence collected by the AO.