2024 (5) TMI 340 - AT - Income Tax

Validity of reassessment proceedings - Reason to believe - sworn statement recorded from the partner in view of the bogus purchase as later retracted - as per assessee statement recorded u/s 132(4) of the Act which was retracted cannot be relied upon to reopen the assessment u/s 148 of the Act when the department has accepted the retraction - HELD THAT - As in the present case, the department never accepted the retraction statement filed by the assessee. Being so, at the stage of reopening of assessment by the AO, it is not necessary to have conclusive opinion of escapement of income. On the other hand, he must have prima facie of the opinion that income has escaped from the assessment in these assessment years. To that extent, in our opinion, at the time of reopening of assessment, the AO has reason to believe that income has escaped from assessment on the basis of the sworn statement recorded from the partner in view of the bogus purchase said to be recorded by the assessee in its books of accounts. Being so, we do not find any merit in this ground of the assessee raised before us. This ground of assessee is rejected. Addition towards bogus purchase - sworn statement recorded in survey proceedings from the partner as later retracted - HELD THAT - Once a statement is retracted, the contents stated in the retracted statement must be substantially corroborated by other independent and cogent evidence. It has been consistently held by various courts that a sworn statement cannot be relied upon for making any addition and must be corroborated by independent evidence for the purposes of making assessments. In view of the above, in our opinion, the lower authority erred in holding that the assessee has inserted bogus purchase into his accounts without bringing on any evidence to hold that entire transactions are not genuine and they relied upon only the statement of one of the partner Shri Uday Kumar Salian recorded on 8.2.2018, which was later retracted by all partners vide letter dated 14.2.2018 within short date of 6 days. This has been filed by assessee with department on 15.2.2018, which is not at all considered by the AO. It is noted that the ld. AO/CIT(A), never mentioned about this retraction statement in their order and this action of lower authorities cannot be appreciated. It is the duty of ld. AO to consider the letter in true perspective and to comment on it which he failed to do so. For statement recorded from employee of the assessee, who has confirmed bogus purchase from 1.4.2017 to 31.1.2018 for the financial year 2017-18 relevant to assessment year 2018-19 and not for the all-assessment years involved herein - Being so, it cannot be considered that Ms. Amitha given any statement related to bogus purchases relating to all assessment years. This being the position, framing assessment by AO without considering the retraction of statement filed by the assessee, in our opinion, the addition cannot be sustained. Only argument of D.R. is that assessee has accepted the bogus purchase in the assessment year 2018-19 and settled the issue by VSV Scheme 2020 and also accepted the bogus purchase in the assessment year 2016-17, the addition to be sustained - In our opinion, the acceptance by assessee in one assessment year cannot lead to conclusion that in all these assessment years, the assessee has inserted bogus purchases in a similar way. It cannot be said that the principle of estoppel to be applied. In our opinion, the case of assessee is to be examined in the light of evidence brought on record and in the present case, there was no evidence brought on record with regard to bogus purchase or creation of any undisclosed assets by the assessee in all these assessment years. Addition could be made only when it is shown by the evidence brought on record that the books of accounts are not reliable as there are material errors and omissions existed therein. In order to support this proposition, we place reliance on the judgment of Umacharan Shaw and Brothers 1959 (5) TMI 11 - SUPREME COURT wherein it was held that there was no material on which the ITO could come to the conclusion that the firm was not genuine. There were many surmise and conjectures and if the conclusion is the result of suspicion, which cannot take place of proof in this matter. Thus there should be concrete evidence for considering the purchase entries in the books of accounts as bogus. In the present case, sales and purchase shown by the assessee leading to profit and that the profit declared by assessee is progressively increasing from year to year and it cannot be said that purchases were bogus without having any material to suggest that it is a bogus. Thus once the statement recorded u/s 131 or 131(1A) or 133A of the Act or 133A of the Act is retracted by assessee, AO without rejecting the books of accounts cannot make any additions towards bogus purchases. Accordingly, the addition made on the premise of bogus purchase in all these assessment years is deleted and we allow the ground taken by the assessee in all these appeals. Addition of personal expenses of partners - Since we have already held that there was no corroborative material to support this addition and the statement has already been retracted, this addition based on no supporting evidence cannot be made.

Summary

Issues Involved:
1. Validity of Re-assessment Orders
2. Addition towards Bogus Purchases
3. Personal Expenses of Partners

Summary:

1. Validity of Re-assessment Orders:
The first common ground in all these appeals is that the re-assessment order is bad in law and void-ab-initio for want of requisite jurisdiction, especially, the mandatory requirement to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with. The Tribunal noted that the notice u/s 148 of the Act was issued based on material collected during the course of survey proceedings u/s 133A of the Act conducted on 8.2.2018. The Tribunal emphasized that at the time of issuing of notice, there is no necessity of conclusive proof to suggest the escapement of income, but the AO must have prima facie material to hold that income has escaped from the assessment. The Tribunal concluded that the AO had reason to believe that income had escaped assessment based on the sworn statement recorded from the partner and other documents. Therefore, the re-assessment proceedings were initiated correctly.

2. Addition towards Bogus Purchases:
The next common ground in these appeals is with regard to addition towards bogus purchase on the basis of sworn statement recorded from Mr. Uday Kumar Salian. The Tribunal observed that the AO made additions based on the statement recorded during the survey proceedings, which was later retracted by the assessee. The Tribunal emphasized that the AO had not rejected the books of accounts and had not brought any concrete evidence to support the addition. The Tribunal noted that the assessee had been declaring substantial income and net profit over the years, and the sales were found to be genuine by the Revenue. The Tribunal concluded that the addition towards bogus purchases could not be sustained without rejecting the books of accounts and without any corroborative evidence. Therefore, the addition towards bogus purchases was deleted.

3. Personal Expenses of Partners:
Regarding the addition of Rs. 1.5 Crores on account of personal expenses of partners in the AY 2017-18, the Tribunal noted that the AO relied on the statement recorded during the survey proceedings, which was retracted. The Tribunal observed that there was no corroborative material to support this addition and concluded that the addition based on no supporting evidence could not be made. Therefore, the addition on account of personal expenses of partners was deleted.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the re-assessment orders were valid but the additions towards bogus purchases and personal expenses of partners were not sustainable without rejecting the books of accounts and without any corroborative evidence.