AO Cannot Rely Solely On Sales Tax Dept Data To Add Bogus Purchases Without Granting Cross-Examination: Bombay High Court

The Bombay High Court has held that the Assessing Officer (AO) cannot rely solely on Sales Tax Department Data for an income tax addition without granting cross-examination.Justices G.S. Kulkarni and Aarti Sathe stated that, "when the VAT assessment was pending adjudication, merely relying on the information of the Sales Tax Department without granting an opportunity to the Assessee to even cross-examine the hawala purchasers to confirm the purchases from them violated the basic facts of law amenating to unfairness and breach of the principles of natural justice in making the addition of Rs.2,05,74,750/- as bogus purchases in hands of the Assessee." In this case, the assessee/respondent is a Company engaged in the business of the power sector in the transmission and distribution sector. The Assessee filed its Return of Income (ROI), declaring total income at Rs.7,65,59,790/- for the assessment year 2009-2010. The said ROI was processed under Section 143(1) of the Income Tax Act. The assessment was reopened by issuance of notice under Section 148 of the Act. The Assessing Officer passed the Assessment Order primarily relying on the information received from the DG investigation, Pune, alleging Hawala transactions amounting to Rs.2,05,74,750/- in respect of the Assessee. The Assessing Officer, however, rejected the contentions of the Assessee and made an addition of Rs. 2,05,74,750/- on account of bogus purchase and added back the same to the Assessee's total income. The Assessee, being aggrieved by the aforesaid Assessment Order, filed an Appeal before the CIT(A). The CIT(A) granted partial relief to the Assessee and restricted the addition to Rs.15,12,713/- instead of Rs. 2,05,74,750/-. The revenue aggrieved by the said order passed by the CIT(A) filed an appeal before the ITAT, which has been dismissed by the impugned order. The revenue submitted that the Assessee failed to prove the genuineness of the purchases and therefore, the additions made in the assessment order were justified. The revenue argued that mere payment through the banking channel is not enough. If the seller is found to be non-existent, then the alleged purchase transactions can be treated and added. Once the entire purchases are bogus, the additions made on the entire purchases are bogus, additions made on the entire purchases are to be added and not only the profit embedded in such purchases. The bench observed that the only ground on which the addition of Rs.2,05,74,750/- was made as bogus purchases in the hands of the Assessee, was on the basis of information received by the Assessing Officer from the Sales Tax Department. The assessment of the Assessee was primarily re-opened on the basis of the aforesaid information. The bench further noted that this information on the basis of which the addition of bogus purchases was to be made in the hands of the Assessee was never furnished by the Assessing Officer to the Assessee and further, there is nothing on record to indicate that the Assessee had accepted such material or the investigation as undertaken by the Assessing Officer accepting their purchases to be bogus, added the bench. The bench agreed with the findings given by CIT(A) and ITAT in respect of the bogus purchases and restricting the additions @ 15% of Hawala purchases. In view of the above, the bench dismissed the revenue's appeal. Case Title: Pr. Commissioner Of Income Tax v. Ramelex Private Ltd. Case Number: INCOME TAX APPEAL NO. 14 OF 2022 Counsel for Appellant/Department: Vikas T. Khanchandani Counsel for Respondent/Assessee: None Click Here To Read/Download The Order

AO Cannot Rely Solely On Sales Tax Dept Data To Add Bogus Purchases Without Granting Cross-Examination: Bombay High Court

Mehak Dhiman

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