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2017 (3) TMI 386 - AT - Income TaxAddition of bogus purchases - denial of natural justice - Held that - We find that in this case additions have been made on the basis of a statement of suppliers that they were only providing accommodation bills. Despite request assessee has not been granted an opportunity to cross examine the suppliers. Moreover, no adverse inference has been drawn as regards the sales made by the assessee. In several cases higher courts have held that in such cases in absence of any infirmity found in the sales made purchase cannot be disallowed. As regards violation of the principles of natural justice by denying the opportunity to the assessee to cross examine the person on whose basis/statement additions was made Hon ble jurisdictional High Court in the case of H R Mehta (2016 (7) TMI 273 - BOMBAY HIGH COURT ) has expounded that revenue was not justified in making additions at the time of reassessment without having first giving the assessee an opportunity to cross examine the Deponent understatement relied upon by the assessing officer. Further the decision from the Hon ble Apex Court in the case of Kishanchand Chillaram (1980 (9) TMI 3 - SUPREME Court ) relied upon by Ld. CIT-A is also germane here. In the background of aforesaid discussion and precedent we find that the additions in this case are not justified. Hence we set aside the order s of authorities below and delete the addition. - Decided in favour of assessee
Issues Involved:
1. Sustaining addition under Section 69 of the Income Tax Act. 2. Treatment of purchases from undisclosed/unverifiable/unidentifiable parties as bogus. 3. Opportunity for cross-examination of parties providing accommodation bills. 4. Ad hoc addition representing a percentage of alleged bogus purchases. Detailed Analysis: 1. Sustaining Addition under Section 69: The Revenue argued that the Ld. CIT-A erred by not sustaining the addition under Section 69 after accepting that the purchases were made from undisclosed/unverifiable/unidentifiable parties in the grey market. The AO had treated the entire amount of ?36,00,649/- as bogus purchases and added it back to the total income of the assessee as unexplained investment under Section 69. The Ld. CIT-A, however, did not fully agree with this conclusion and allowed partial relief to the assessee by confirming only 10% of the disputed purchases as an addition. 2. Treatment of Purchases from Undisclosed/Unverifiable/Unidentifiable Parties as Bogus: The AO based the addition on the statements recorded during a survey action, which indicated that the group concerns were issuing accommodation bills without actual trading activities. The AO found that the purchases made from these parties were not reflected in the stock register, and there were no documents to substantiate the transport and delivery of goods. The Ld. CIT-A noted that the AO did not provide the opportunity for cross-examination of the parties, which is a requirement as per the Supreme Court's decision in Kishanchand Chellaram vs. CIT. The Ld. CIT-A also observed that the assessee had submitted day-to-day movement of materials and quantitative reconciliation, which were not disputed by the AO. 3. Opportunity for Cross-Examination of Parties Providing Accommodation Bills: The Ld. CIT-A highlighted that the AO did not allow the assessee to cross-examine the parties who provided the accommodation bills, despite specific requests. This was considered a violation of the principles of natural justice, as established by the Supreme Court in Kishanchand Chellaram vs. CIT and reiterated by the jurisdictional High Court in H R Mehta. Consequently, the statements of those parties could not be solely relied upon for making additions. 4. Ad Hoc Addition Representing a Percentage of Alleged Bogus Purchases: The Ld. CIT-A concluded that even if the purchases from said parties were treated as bogus, the assessee had shown day-to-day movement of materials purchased, which could not be overlooked. The Ld. CIT-A reasoned that the purchases might have been made from the grey market without bills and regularized through accommodation bills. Therefore, instead of disallowing the entire amount, an ad hoc addition of 10% of the disputed purchases was deemed fair and reasonable to cover any revenue leakage. This resulted in an addition of ?3,60,065/- and partial relief of ?32,40,584/- to the assessee. Conclusion: The ITAT upheld the order of the Ld. CIT-A, emphasizing that the addition made by the AO was not justified due to the lack of opportunity for cross-examination and the acceptance of the sales by the Revenue. The ITAT also noted that similar issues had been decided in favor of the assessee in previous cases, following the doctrine of stare decisis. Hence, the ITAT dismissed the Revenue's appeal and allowed the assessee's appeal, deleting the addition made by the AO. Order Pronouncement: The order was pronounced in the Open Court on 07.03.2017.
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