2018 (7) TMI 873 - AT - Income Tax

Bogus purchases of diamonds - Addition based on the information from Investigation Wing - Held that - AO has disallowed the purchases merely based on the information from Investigation Wing without making further enquiry. Even assessee was not given opportunity to cross examine the entry provider. There is no material brought by the AO on record to show that the assessee has made bogus purchases. AO failed to establish that the assessee has made bogus purchases by bringing documentary evidence on record and, also, assessee was not given opportunity to cross-examine the entry provider. Therefore, we set aside the order of the CIT(A) and direct the AO to delete the addition made on account of purchases. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
- Addition of alleged bogus purchases made by the assessee.
- Confirmation of addition by CIT(A).
- Appeal against CIT(A) order before ITAT Hyderabad.

Analysis:
1. The appeal was against the order of the CIT(A) confirming the addition of alleged bogus purchases made by the assessee for the AY 2012-13. The AO treated the purchases as bogus, leading to an addition of ?16,90,160. The assessee contended that the purchases were genuine and supported this claim with various documents, including financial statements, tax audit reports, and bank statements. The CIT(A) upheld the AO's decision, prompting the assessee to appeal before ITAT Hyderabad.

2. The assessee argued before ITAT that the AO disallowed the purchases based on information from the Investigation Wing without proper verification. The assessee maintained that all purchases were genuine and properly recorded in financial statements. The assessee also highlighted that there was no opportunity provided for cross-examining the entry provider. Citing relevant case laws, the assessee emphasized the consistency in financial results over the years and the lack of concrete evidence to prove bogus purchases.

3. The ITAT observed that the AO failed to establish the alleged bogus purchases with documentary evidence and did not allow the assessee to cross-examine the entry provider. Referring to precedents, including judgments from the High Courts, the ITAT concluded that the purchases were not proven to be bogus. Therefore, the ITAT set aside the CIT(A) order and directed the AO to delete the addition of ?16,90,160 made on account of purchases. Consequently, the grounds raised by the assessee were accepted, and the appeal was allowed.

In conclusion, the ITAT Hyderabad ruled in favor of the assessee, overturning the CIT(A)'s decision regarding the addition of alleged bogus purchases. The judgment emphasized the importance of providing opportunities for cross-examination and establishing claims with concrete documentary evidence in such cases.