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Facts
The assessee, engaged in manufacturing hose pipes, had assessments reopened for AY 2013-14 and 2014-15 based on information regarding bogus purchases from M/s Apex Associates, an alleged accommodation entry provider. The Assessing Officer disallowed Rs. 8,79,843/- for AY 2013-14 as bogus purchases and Rs. 4,85,000/- for AY 2014-15, treating payments as non-genuine purchases. The CIT(A) confirmed the additions, partly due to the assessee's non-compliance and denial of cross-examination requests.
Held
For AY 2013-14, the Tribunal held that since sales were accepted, a 100% disallowance of purchases in isolation was inappropriate and directed a 12.5% disallowance. For AY 2014-15, the Tribunal found that the payment of Rs. 4,85,000/- was for previous year's outstanding balance, not current year purchases, and therefore deleted the addition.
Key Issues
The key issues were the validity of assessment reopening and procedure under Sections 147/148, the legitimacy and extent of disallowance for bogus purchases under Section 37(1) based on third-party statements without cross-examination, and the addition for alleged purchases when payments relate to prior year's outstanding balances.
Sections Cited
148, 143(2), 142(1), 147, 144B, 151A, 37(1), 142(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’: NEW DELHI
ORDER
PER S.RIFAUR RAHMAN,AM:
The both appeals have been filed by the Assessee against the orders of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”, for short], dated 21/11/2023 for Assessment Years 2013-14 & 2014-15 respectively.
These two appeals are interconnected having common issues.
Both these appeals are heard together and disposed off by this common order. We are taking as a lead case.
Brief facts of the case are, the assessee filed its return of income for Assessment Year 2013-14 on 12th September, 2013 declaring total income of Rs.2,96,45/-. The case of the assessee was reopened by issue of notice u/s 148 of the Income Tax Act, 1961 (‘the Act’ for short). On the basis of information and belief that assessee had failed to disclose the full and true material facts in respect of purchase from M/s Apex Associates through fake purchase bills issued by Shri Pritam Singh and Sh. Ajay Kumar, were engaged in providing accommodation entries.
In response to notice issued u/s 148, the assessee had filed the return of income. Subsequently, statutory notices u/s 143(2) and 142(1) were issued and served on the assessee, reasons of reopening the assessment also shared with the assessee.
The assessee is engaged in the business of manufacture of hose pipes, a proprietorship concern named and style of M/s Pankaj Flexibles. Based on the information received from Investigation Wing, Faridabad, the assessee is one of the beneficiaries of receiving accommodation entries from various concerns and operated by Sh. Pritam Singh and Sh. Ajay Kumar.
The Assessing Officer observed that assessee has taken purchase bills from Apex Associates, which is one of the concern controlled by Sh. Subhash Gupta and Sh. Manish Agarwal . Based on the statement recorded from Sh. Shubhash Gupta and Sh. Manish Agarwal, he treated the purchase made by the assessee from Apex Associates as bogus and proceeded to disallow the purchases and made the addition of Rs.8,79,843/-.
6. Aggrieved with the above order, the assessee preferred an appeal before the Ld. CIT(A) and filed the detailed submissions before him with grounds of appeal. In the appellate proceedings, the assessee has not complied to the various notices for hearing issued by the Ld. CIT(A), since, no representation was forthcoming from the assessee side, the Ld. CIT(A) decided the issue based on the information available on record. Accordingly, he sustained the addition made by the Assessing Officer.
Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal:-
“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)]. Income Tax Department (ITD), National Faceless Appeal Centre is bad, both in the eyes of law and on facts.
2 On the facts and circumstances of the case, learned CIT(A), ITD has erred both on facts and in law in confirming the order of the AO, without providing the assessee reasonable opportunity of being heard in clear violation of the principle of natural justice.
3 On the facts and circumstances of the case, learned CIT(A), ITD has erred both on facts and in law in confirming the order of the AO despite the fact that reopening the assessment under Section 147 of the Act and consequent reassessment order passed under Section 147 of the Act are illegal, invalid and without complying with the statutory conditions and the procedure prescribed under the law.
4 (i) On the facts and circumstances of the case, learned CIT(A), ITD has erred both on facts and in law in confirming the order of the AO despite that the reasons recorded for reopening the assessment does not meet the requirements under section 147 of the Act, bad in law and are contrary to the facts.
(ii) That the learned CIT(A), ITD has erred both on facts and in law in confirming the reopening ignoring the fact that there is no live nexus between the reasons recorded and the belief formed by the assessing officer.
5. On the facts and circumstances of the case, learned CIT(A), ITD has erred both on facts and in law in confirming the reopening despite the fact that the same has been made by the AO on the basis of borrowed satisfaction without independent application of mind.
On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law, in confirming the action of the AO despite that the reassessment proceedings initiated by the learned AO without obtaining valid prior approval of the prescribed authority under the Act is bad in law and liable to be quashed.
7. (i) On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the action of the AO despite the fact that the assessment order is invalid and liable to be quashed as the same has been passed by the AO without issue of valid notice under section 143(2) of the Income Tax Act.
(ii) That the abovesaid notice issued under section 143(2) of the Act by the AO is illegal and non-est as the same has been issued in violation of section1448 r.w.s. section 151A of the Act along with e-Assessment of Income Escaping Assessment Scheme, 2022.
6. (i) On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the disallowance of Rs. 8,79,843/- made by the AO on account of purchases made by the assessee holding the same to be not genuine invoking section 37(1) of the Act
(ii) That the abovesaid disallowance has been confirmed despite the fact that these purchases have been made wholly and exclusively for the purpose of business activities and hence disallowance under section 37(1) is uncalled for.
(iii) That the above disallowance has been confirmed rejecting the detailed explanation and evidences brought on records by the assessee during the course of assessment proceedings.
9. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law in confirming the inference drawn by the AO merely on the basis of a statement of third person at the back of the assessee without providing the opportunity to the assesse to cross examine the statements.
10. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law, in confirming the action of the AO despite the fact that the assessment order having been framed on the basis of material collected at the back of the assessee, without providing adequate opportunity to the assessee to rebut the same in violation of statutory provision of section 142(3) of the Act.
11. On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the above disallowance despite the fact that the same has been made by the AO by indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumptions and assumptions.
12. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law in confirming the above disallowance rejecting the contention of the assessee that said disallowance has been made merely relying on the information received from the investigation wing without independent application of his own mind.
13. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law in confirming the above disallowance in drawing adverse inference, by misinterpreting the statement recorded during the course of search on oath.
14. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law, in confirming the above said disallowance despite the fact assessee is maintaining proper books of accounts and audited as per law and nothing adverse in the books was pointed out by the AO during the course of assessment proceedings.
15. On the facts and circumstances of the case, the learned CIT(A), ITD has erred, both on facts and in law, in confirming the abovesaid disallowance despite the fact that the quantity purchased and sold being completely tallying, the disallowance made by the AO cannot be sustained.
The appellant craves the leave to add, amend or alter any of the grounds of appeal.”
8. At the time of hearing, the Ld. AR of the assessee brought to our notice page 10 of the PB and submitted that the Assessing Officer proceeded to make the addition only based on statement recorded from the alleged accommodation entry providers.
Further, he brought to our notice page 67 of the PB and submitted that even though representation was made before the Ld.CIT(A) for request for cross examination, however, no opportunities was granted to the assessee. He prayed that the Assessing Officer cannot proceed to make the addition 100% of alleged purchases and prayed that certain percent of above purchases may be disallowed by following ratio of several decisions of this Court.
With regard to appeal filed by the assessee for Assessment Year 2014-15, he submitted that the additions made by the Assessing Officer which is exactly similar reasons and AO has disallowed the purchases made by the assessee from Apex Associates without properly making enquiry. He submitted that AO has made the addition of Rs.4,85,000/- as non genuine purchase, however, he brought to our notice ledger copy of the Apex Associates which is placed at page 46 of the PB wherein assessee has not purchased any material from Apex Associates during this assessment year, however, assessee had only made payment towards the outstanding balance towards the purchase of earlier years, therefore, AO cannot disallow the same during this year. He submitted that the Assessing Officer noticed the above payments from the bank account statement of Apex Associates with Canara Bank wherein they have received Rs.4,85,000/- during the year from the assessee. Based on the above bank statement, he proceeded to make the addition without properly verifying whether the assessee had actual purchased the goods from Apex Associates.
On the other hand, the Ld. DR relied on the orders of lower authorities.
Considered the rival submissions and material placed on record, we observed that the Assessing Officer had reopened the assessment based on the information received from Investigation Wing wherein the assessee has purchased material from Apex Associates which is controlled by the accommodation entry providers and based on the statement recorded from the entry providers, he came to the conclusion that the assessee has received accommodation entries from Apex Associates.
Accordingly, he proceeded to make the addition of Rs.8,79,843/-.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) and however, the assessee had not complied with the various notices issued by the Ld. CIT(A) and filed the relevant information as called for. Based on that the Ld. CIT(A) has dismissed the appeal filed by the assessee on the basis of non compliance.
After considering the facts on record, in our considered view, no doubt assessee had purchased material from Apex Associates which was treated by the Assessing Officer as non genuine. In our view, the Assessing Officer has accepted the sales declared by the assessee and only proceeded to disallow purchases from Apex Associates, therefore, it was held in the decision of various High Courts, the Assessing Officer cannot proceed to disallow only the purchases in isolation, therefore, in our considered view disallowance of 12.5% will serve the purpose of justice to both parties. Accordingly, we direct the Assessing Officer to disallow the purchases @ 12.5%. Accordingly, the appeal filed by the assessee is partly allowed.
With regard to appeal filed by the assessee for Assessment Year 2014-15, we observed from the record submitted by the assessee that assessee had made only payment towards the purchases of previous year. The Assessing Officer has only observed that assessee has paid 4,85,000/- to the Apex Associates from the bank statement and he presumed that assessee has purchased the material. Since, there is no purchases recorded nor claimed by the assessee during this year from Apex Associates, the addition made by the Assessing Officer is unjustified and accordingly deleted.
In the result, the appeal filed by the assessee for Assessment Year 2013-14 is partly allowed and Assessment Year 2014-15 is allowed.
Order pronounced on 14th June, 2024.