2017 (9) TMI 375 - AT - Income Tax

Bogus purchase - hawala transactions - CIT(A) after considering the detailed submissions of the assessee restricted the disallowance to 12.5% of these purchases, from the 100% disallowance made by the A.O - Held that - We have observed from the orders of authorities below that large number of additional evidences were filed by the assessee to support its contentions before learned CIT(A) which were not before the AO as is emanating from the records. We have observed that learned CIT(A) has not specified the reasons/justification for admitting these additional evidences as is contemplated by Rule 46A of the Income-tax Rules, 1962. We have observed that the ld. CIT(A) has not called for any remand report from the A.O. nor additional evidences filed by the assessee before learned CIT(A) for the first time were forwarded by learned CIT(A) to the AO for necessary verification/examination by the AO . Thus, the learned CIT(A) did not follow the mandate of Rule 46A of the Income-tax Rules, 1962 . Rule 46A of the 1962 Rules is not an empty formality as it contemplate the learned CIT(A) to record reasons for admitting additional evidences filed by the assessee and then it also contemplate forwarding of these additional evidences by learned CIT(A) to the AO for his necessary verifications/examination. Thus, we are of the considered view that the appellate order of ld. CIT(A) cannot be sustained, hence, we set aside this matter back to the file of the A.O. for de-novo determination of the issue on merits in accordance with law

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income-tax Act, 1961.
2. Disallowance of purchases as bogus transactions.
3. Admissibility of additional evidence under Rule 46A of the Income-tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The Revenue reopened the assessment for the assessment year 2009-10 based on information that the assessee obtained bogus purchase bills from certain parties identified as hawala dealers by the Sales Tax Department of Maharashtra. The assessee contended that reopening was not justified merely based on the declaration of these parties as hawala dealers without independent verification. The CIT(A) upheld the reopening of the assessment, noting that the information received and the subsequent investigation justified the action under Section 147.

2. Disallowance of Purchases as Bogus Transactions:
The AO disallowed 100% of the purchases amounting to ?4,37,04,949 from five parties, treating them as bogus, as these parties were identified as hawala dealers issuing invoices without supplying any material. The AO's decision was based on the failure of the assessee to produce documentary evidence of the receipt and utilization of goods, and the non-availability of these parties for verification. The CIT(A) reduced the disallowance to 12.5% of the purchases, estimating the profit element embedded in such transactions. The CIT(A) acknowledged that the assessee provided evidence of transportation and consumption of materials during the appellate proceedings but noted that the parties were non-existent and only issued bogus bills.

3. Admissibility of Additional Evidence under Rule 46A:
The CIT(A) admitted additional evidence submitted by the assessee during the appellate proceedings without specifying reasons or forwarding the evidence to the AO for verification, as required under Rule 46A of the Income-tax Rules, 1962. The Tribunal observed that the CIT(A) did not follow the mandate of Rule 46A, which necessitates recording reasons for admitting additional evidence and forwarding it to the AO for examination. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for a de novo determination. The AO was directed to verify the explanations and documentary evidence provided by the assessee, including stock records, stock reconciliation, and proof of the genuineness of purchases.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, directing a fresh examination of the issue by the AO, ensuring compliance with the procedural requirements under Rule 46A and providing the assessee an opportunity to substantiate its claims with appropriate evidence.