2016 (7) TMI 607 - AT - Income Tax

Addition under section 69C - addition on the basis of the report provided by the State Sales Department and the statements of the parties, as recorded by the Sales Tax Department - Held that - As find from the record that though the assessee has provided documentary evidences, these documents have not been considered by the authorities below and they made the addition only on the basis of statement of a third person, without giving any opportunity to the assessee. Therefore, in view of this legal and factual aspect, feel that if the assessee be given opportunity before the AO to substantiate its case, it will meet the ends of justice and no prejudice would be caused to the revenue - Decided in favour of assessee by way of remand.

Summary

Issues:
1. Maintainability of the appeal by the revenue due to tax effect below the prescribed limit.
2. Disallowance of purchases as unexplained expenditure under section 69C of the Income Tax Act, 1961.

Issue 1: Maintainability of the appeal by the revenue
The appeal filed by the revenue for assessment year 2009-10 was challenged, and the tax effect involved was found to be below the monetary limit set by the Central Board of Director Taxes. The Departmental Representative acknowledged that the tax effect was less than the prescribed limit, leading to the dismissal of the appeal under section 268A of the Act.

Issue 2: Disallowance of purchases as unexplained expenditure
The case involved the assessee being accused of engaging in accommodation entries for bogus purchases, leading to the reopening of assessment under sections 147 and 148 of the Income Tax Act, 1961. The Assessing Officer disallowed purchases amounting to ?21,97,000 and added it to the total income of the assessee under section 69 of the Act. The Commissioner of Income Tax (Appeals) partly allowed the appeal, restricting the disallowance to ?5,49,250, being 25% of the purchases. The assessee contested this decision, arguing that no opportunity was given to cross-examine the third parties whose statements were relied upon. The Tribunal noted that the authorities made the addition solely based on third-party statements without considering documentary evidence provided by the assessee. Citing precedents, the Tribunal emphasized the importance of providing the assessee an opportunity to substantiate their case. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and returned the issue to the Assessing Officer for a fresh consideration, ensuring the assessee is given a fair opportunity to present their case.

In conclusion, the appeal by the revenue was dismissed, and the cross-objection filed by the assessee was allowed, emphasizing the importance of providing the assessee with a fair opportunity to present their case in tax matters.