The present appeal was filed by the Revenue against the order dated 07.08.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Assessment Centre, Delhi, arising out of reassessment proceedings under Sections 147 read with Sections 144 and 144B of the Income Tax Act, 1961 for Assessment Year 2013-14.

The assessee had originally filed its return of income declaring a total income of ₹34.91 crore. Based on information received from the Investigation Wing alleging that the assessee had entered into transactions with non-existent entities involving purported bogus purchases aggregating to ₹4.64 crore, reassessment proceedings were initiated. The Assessing Officer relied primarily on third-party statements and investigation reports and made additions under the premise that the purchases were fictitious.

During reassessment, the assessee furnished purchase invoices and contended that the transactions were genuine, that the corresponding sales had been duly recorded, and that profits arising therefrom were offered to tax and accepted. The assessee also specifically requested cross-examination of the third parties whose statements formed the basis of reopening and additions. However, such opportunity was denied by the Assessing Officer.

The Commissioner (Appeals) examined the matter in detail and held that the reassessment suffered from legal infirmities. It was observed that the Assessing Officer had acted solely on investigation wing information without conducting any independent inquiry, thereby rendering the proceedings as based on borrowed satisfaction. Further, denial of cross-examination amounted to a clear violation of the principles of natural justice.

It was further noted that while the Assessing Officer alleged bogus purchases, no adverse finding was recorded in respect of sales. There was no stock analysis, no rejection of books of account, and no material brought on record to demonstrate that the purchases were sham. In such circumstances, when sales were accepted and profits taxed, the purchases could not be treated as bogus.

The Commissioner (Appeals) relied upon judicial precedents, including the decision of the Bombay High Court in Principal Commissioner of Income Tax vs Nitin Ramdeoji Lohia, wherein it was held that where sales are undisputed, purchases cannot be treated as bogus, and disallowance would otherwise result in double taxation.

The Income Tax Appellate Tribunal, after careful consideration of the factual matrix and legal position, concurred with the findings of the Commissioner (Appeals). The Tribunal held that the Assessing Officer failed to discharge the burden of disproving the evidences furnished by the assessee and violated settled principles of natural justice.
Consequently, the additions made on account of alleged bogus purchases were rightly deleted, and the Revenue’s appeal was dismissed.

Source link- https://itat.gov.in/public/files/upload/1767172240-2Hr8Tj-1-TO.pdf

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