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Facts
The assessee, a partnership firm engaged in manufacturing automobile components, filed its return for A.Y. 2020-21. Information received from a search in another company's case indicated that the assessee made inflated purchases. The Assessing Officer (AO) made an addition based on this information.
Held
The Tribunal held that the proceedings were initiated solely on the basis of third-party information without independent inquiry or corroboration, which is not sustainable. The AO failed to provide substantiating documents, and the addition was based on conjectures and surmises.
Key Issues
Whether the addition made by the AO based solely on third-party information without independent corroboration is sustainable? Whether the assessee was provided with adequate opportunity and evidence by the AO?
Sections Cited
148, 69A, 132
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Income Tax Appellate Tribunal, DELHI BENCH “SMC’’ : NEW DELHI
Before: SHRI MAHAVIR SINGH, HON’BLE
This appeal by the assessee is emanating from the order of the NFAC, Delhi in Appeal No. ITBA/NFAC/S/250/2025-26/1079549570(1) dated 12.08.2025 relating to assessment year 2020-21.
Heard both the sides and perused the records.
Brief facts of the case are that the assessee is a partnership Firm engaged in the business of manufacturing of Automobiles Components. The assessee had filed its return of income for A.Y. 2020-21 on 31/01/2021, declaring total income at Rs. 15,34,910/-. In this case the information was received that during the search conducted u/s 132 in the case of M/s. Bharat Seats Ltd., M/s. Sharda Motor Industries Ltd. & Other on 19/05/2023. During the search operation, on the basis of material impounded it was seen that the above company is engaged in profit suppression through inflation of purchases wherein inflated invoices were raised and difference between the actual value and invoice value was returned in cash in BSL. The assessee was one who made inflated purchases amounting to Rs.31,35,185/- out of total purchases of Rs.10,45,06,180/-. Therefore, the notice u/s 148 of the Act dated 28/03/2024 was issued and served upon the assessee. In response to that the assessee filed its return of income for A.Y. 2020-21 on 07/06/2024. Further, multiple notices were issued and served upon the appellant for furnished various details. In response to that the assessee its submission. During the course of assessment proceedings, the appellant was asked to explain the transaction with M/s. Bharat Seats Ltd., but the assessee failed to explain. On perusal of the information received, it was seen that the appellant had involved in inflation of purchase of Rs. 31,35,185/- (3% of total invoices of Rs. 10,45,06,180/-) on cash and the assessee had failed to furnish. In view of the above, the AO passed an order by making addition of Rs. 31,35,185/- on account of unexplained money u/s 69A of the Act and the same is added back to the total income of the assessee. Against the same, assessee preferred the appeal before the Ld. CIT(A) who dismissed the appeal of the assessee. Being aggrieved the order of the Ld.CIT(A)/ NFAC the assessee is in appeal before the Tribunal.
Ld. AR for the assessee has submitted that CIT(A) erred in holding that the principle of natural justice were not violated by denial of access of the records and information received by the AO form the JCIT(OSD), Central Circle, New Delhi and relied upon him during assessment proceedings. It was further submitted that Ld. CIT(A) erred in holding that the assessee had made inflated purchases based on third party nothings in the premises of searched party without there being any acknowledgement of the same by the assessee. It was further submitted that the transactions were duly recorded in the books of accounts and that no independent enquiry was conducted by the AO and the addition was based on presumptions and conjectures, which needs to be deleted.
Ld. DR relied upon the orders of the authorities below.
After hearing rival contentions and perusing the records. I find that AO noted that a search and seizure was conducted on 19.05.2023 at M/s Bharat Seats Ltd. (BSL), M/s Sharda Motor Industries Ltd. (SMIL), and others, resulting in the seizure of incriminating documents, including two diaries. Subsequent investigations revealed that BSL suppressed profits by inflating purchase, raising inflated invoices, and receiving the difference in cash. As per the information received from JCIT(OSD), Central Circle, New Delhi, M/s Indo Plastic Co. was found to be involved in profit suppression through the inflation of purchases, wherein inflated invoices were raised, and the difference between the actual value and the invoice value was returned in cash to BSL, amounting to Rs. 31,35,185/-, which was unexplained. AO observed that on the basis of above, the assessee, being one of the parties, made inflated purchase amounting to Rs. 31,35,185/- out of total purchases of Rs. 10,45,06,180/-. However, it was undisputed which the AO has admitted that the entire proceedings were initiated solely on the basis of information received from the High Risk CRIU/VRU data and communication from the JCIT (OSD), Central Circle, New Delhi and no independent enquiry or verification has been conducted regarding the alleged suppression of profits by the assessee. It is settled law that proceedings based on third party information, without any independent examination or corroboration, are not sustainable.
However, AO failed to provide the documents purportedly relied upon to substantiate the allegations of profit suppression. No enquiry has been conducted regarding the assessee’s purchases from its own vendors, thus the basis for linking the alleged cash generation to the assessee remains unclear. Assessee time and again asked the AO to provide the evidence of incriminating material on the basis of inflated purchases, but nothing has been provided to the assessee. In appeal, CIT(A) rejected the submissions of the Assessee and upheld the action of the AO. In view of the aforesaid discussions, I am of the considered view that addition was based on conjectures and surmises, as the department has failed to establish that any incriminating material is related to the assessee for the inflated purchases. Therefore, the addition in dispute is hereby deleted.