2021 (2) TMI 606 - AT - Income Tax

Bogus purchases - AO has relied on the information collected by the Investigation Wing and no opportunity to cross examine the parties has been afforded - CIT(A) deleted the additions - HELD THAT - AO has relied on the information collected by the Investigation Wing and no opportunity to cross examine the parties has been afforded which is a violation of principles of natural justice. The assessee has provided copies of purchase bills, weightage bills and architect certificates. The AO has not reasoned that the bills or the certificate of the architects are bogus and wrong on facts. As per accounting standards AS-7, the purchases and working progress have to be reconciled along with architect report. The AO has not rejected the books of accounts and accepted the book profits while making the addition. Assessing Officer s observation that none of the architects can find out the actual material, steel bars used construction of any building of 2 to 3 years cannot be accepted as the consumption of the material can be well estimated from the drawings and the site books. In the case of M/s Suman Enterprises, the statement of Amit Vashisht indicates that the firm has been registered and run by Shri Deepak, no further enquiries have been conducted. Inspector report cannot be given credence as the party was found to be genuine on enquiry. The better way for the AO could be to enquire about the amounts received from the assessee and from such amounts, if any, purchases of material have been made which in turn supplied to the assessee. The non- purchase of material/ non- utilization of the amounts for purchase of material by the suppliers would be an appropriate evidence to disallow this purchases but the same has been wanting. Reliance is placed on the order of Hon ble High Court of Bombay in the case of CIT Vs Nikunj Eximp Pvt. Ltd. 2013 (1) TMI 88 - BOMBAY HIGH COURT wherein it was held that no addition is warranted based on the fact that the suppliers have not appeared before the AO - we decline to interfere with the order of the ld. CIT (A) in deleting the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Failure to produce parties from whom purchases were made.

Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:

The primary issue in this appeal pertains to the deletion of an addition of ?3,35,87,118/- made by the Assessing Officer (AO) on the grounds of bogus purchases. The AO had required the appellant to furnish details of purchases and produce the parties from whom purchases exceeding ?10 lakhs were made. The appellant failed to produce these parties, leading the AO to conduct spot inquiries through an Inspector. The AO concluded that purchases from M/s Meet Enterprises, M/s Suman Enterprises, M/s Durga Enterprises, and M/s Bharat Trading Company were not genuine based on the Inspector’s report and other facts. The Inspector's findings revealed that these entities either did not exist at the given addresses or were involved in accommodation entries.

2. Failure to Produce Parties from Whom Purchases Were Made:

The AO's disallowance was based on the appellant's failure to produce the parties for verification. Despite the appellant furnishing copies of cheques, purchase bills, and weightage bills, the AO emphasized the non-production of parties and the Inspector’s adverse reports. The AO also relied on the Investigation Wing's findings, which indicated that the appellant received accommodation entries in the form of purchases from these entities. Statements from individuals associated with these entities suggested that they were either unaware of the transactions or involved in providing accommodation entries.

Appellant's Submissions:

The appellant argued that the AO's reliance on the Investigation Wing's report without providing an opportunity for cross-examination violated principles of natural justice. The appellant cited various judicial precedents emphasizing the necessity of cross-examination and the inadmissibility of statements made behind the appellant's back. The appellant also highlighted inconsistencies in the AO’s findings and provided supporting documents, including architect certificates and confirmations from contractors, to substantiate the genuineness of the purchases.

Tribunal's Findings:

The Tribunal observed that the AO had not provided an opportunity for cross-examination, which is a violation of natural justice principles. The appellant had produced relevant documents, and the AO did not reject the books of accounts. The Tribunal noted that the AO's reliance on the Inspector’s report and the non-production of parties was insufficient to disallow the purchases. The Tribunal cited judicial precedents, including CIT Vs. Nikunj Eximp Pvt. Ltd. and CIT Vs. Rajesh Kumar, to support its decision that the AO's approach was flawed.

Conclusion:

The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], who had deleted the addition made by the AO. The Tribunal emphasized that the AO's findings were not substantiated by concrete evidence and failed to follow principles of natural justice. Consequently, the appeal of the revenue was dismissed.