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2017 (10) TMI 1001 - AT - Income TaxReopening of assessment - bogus purchases - Held that - CIT(A) merely accepted the contentions of the assessee without any necessary verifications, enquiry and investigations and estimated income to the tune of 12.5% of bogus purchases based on certain case laws. These purchases to the tune of ₹ 7,47,73,908/- are appearing in books of the assessee and the onus is on the assessee to prove that these are genuine and bonafide expenses claimed by the assessee which were incurred wholly and exclusively for the business of the assessee, including producing the parties before the authorities. This is to be read in the light of provisions of Section 69C read with proviso which was introduced by Finance Act,1998 w.e.f. 1-4-1999 . Under these circumstances we are inclined to set aside and restore the issues covered by this appeal back to the file of the AO who will de-novo decide the issues on merits in accordance with law. The AO shall grant opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law before de-novo adjudicating the issues on merits. The evidences and explanations submitted by the assessee shall be admitted by the AO in the interest of substantial justice. Since, the assessee did not co-operated during assessment proceedings by not participated in the assessment proceedings deliberately, we would like to clarify that this is an open remand.
Issues Involved:
1. Legitimacy of the purchases made by the assessee from alleged hawala operators. 2. Adequacy of the opportunity provided to the assessee to present their case. 3. Validity of the assessment order passed by the AO under section 144 r.w.s. 147 of the Income-tax Act, 1961. 4. Proper consideration and verification of additional evidence submitted by the assessee during appellate proceedings. Detailed Analysis: 1. Legitimacy of the Purchases: The assessee, a company engaged in trading metal, was accused of engaging in bogus purchase activities from five hawala operators, amounting to ?7,47,73,908/-. The AO received information from the DGIT(Inv.), Mumbai, and the Maharashtra Sales Tax Department, which listed these dealers as hawala operators issuing bogus bills without supplying any materials. The dealers admitted through sworn affidavits that they issued bogus bills and returned cash to purchasing parties after deducting their commission. Consequently, the AO added the entire amount of alleged bogus purchases to the assessee's income. 2. Adequacy of Opportunity: The assessee did not file a return of income in response to the notice under section 148 and did not respond to notices issued under sections 143(2) and 142(1). The AO conducted an ex-parte best judgment assessment due to the assessee's non-cooperation. During appellate proceedings, the assessee claimed that no additions could be made based on third-party observations and submitted additional evidence, including confirmation letters and bank statements. The AO, in his remand report, stated that the assessee was given adequate opportunities but failed to cooperate. 3. Validity of the Assessment Order: The AO passed the assessment order under section 144 r.w.s. 147 due to the assessee's non-cooperation. The learned CIT(A) observed that the AO did not doubt the sales disclosed by the assessee and allowed the purchases, suggesting that the assessee might have inflated purchases to suppress profits. The CIT(A) confirmed additions to the tune of 12.5% of the bogus purchases, considering the Maharashtra VAT authorities' findings and the lack of evidence proving that the amounts given to sellers returned to the assessee. 4. Consideration of Additional Evidence: The assessee submitted additional evidence during appellate proceedings, which the CIT(A) forwarded to the AO for a remand report. The AO noted that the assessee did not submit confirmations or bank statements and left the matter to the CIT(A). The CIT(A) accepted the assessee's contentions without further enquiry and estimated profits at 12.5% of the alleged bogus purchases based on case laws. The tribunal observed that the CIT(A) should have conducted necessary verifications or asked the AO to do so, given the incriminating evidence from the Maharashtra VAT authorities. Conclusion: The tribunal set aside and restored the issues to the AO for a de-novo decision on merits, granting the assessee an opportunity to be heard in accordance with the principles of natural justice. The AO is directed to admit the evidence and explanations submitted by the assessee and conduct necessary verifications and investigations. The appeals of both the Revenue and the assessee are allowed for statistical purposes. Order Pronounced: The order was pronounced in the open court on 23.10.2017.
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