2006 (12) TMI 184 - AT - Income Tax

Addition u/s 69 - Income From Undisclosed Sources - bogus purchase - income from purchase and sale of agricultural produce and also from Arhat - HELD THAT - It is hardly a case of unexplained investment. The assessee has clearly shown and explained the alleged investment. In case the seller did not pay sales-tax and Mandi tax. the purchase in question cannot be taken as bogus. There are hundred and one reasons for the seller to tell untrue facts and unless the seller is confronted with by the assessee the alleged statements do not have any useful meaning. The AO took the purchases made by the assessee from these parties as fictitious and bogus mainly on. the strength of the affidavits of these parties tendered before sales-tax authorities. These affidavits and even statement of the asstt. manager of the bank were never the subject-matter of cross-examination by the assessee. In these circumstances the decisions of Hon ble Supreme Court in the case of Kishinchand Chellaram vs. CIT 1980 (9) TMI 3 - SUPREME COURT and in the case of Tin Box Co. vs. CIT 2001 (2) TMI 13 - SUPREME COURT come to the rescue of the assessee. The Hon ble apex Court in these decisions have categorically held that unless the contents of the affidavits etc. are confronted with the assessee by giving opportunity at cross-examination the same cannot be read in evidence against the assessee. Thus it is clear that the purchase in question cannot be held to be bogus. As a result the impugned addition stands deleted. In the result the appeal is partly allowed.

Summary

Issues:
1. Addition of unproved purchases amounting to Rs. 2,20,000 allegedly made from a specific party.
2. Disallowances of shop expenses and telephone expenses.
3. Challenge to the initiation of reassessment proceedings under sections 147/148 of the Act.

Analysis:

Issue 1: Addition of unproved purchases
The case involved the assessment year 1999-2000 where the AO reopened the assessment due to information received regarding alleged bogus purchases made by the assessee. The main contention was the sustained addition of Rs. 2,20,000 made on account of unproved purchases from a specific party. The AO relied on contra entries on cheques and affidavits from the sellers to support the claim of bogus purchases. However, the CIT(A) deleted the addition related to one party but upheld the addition concerning purchases from the other party. The tribunal analyzed the evidence, including banking transactions and cheque details. It was noted that the AO's conclusions were based solely on the contra entry on the cheque, without concrete proof of deposit in the assessee's account. The tribunal emphasized the lack of evidence connecting the assessee to the alleged transactions, highlighting discrepancies in names and transactions. The tribunal also criticized the reliance on affidavits without cross-examination and concluded that the purchases could not be deemed bogus, leading to the deletion of the impugned addition.

Issue 2: Disallowances of expenses
The appeal also addressed disallowances of shop and telephone expenses, which were briefly discussed. The tribunal noted that this issue was not extensively argued and subsequently dismissed without further elaboration.

Issue 3: Challenge to reassessment proceedings
The appellant raised a legal ground challenging the initiation of reassessment proceedings under sections 147/148 of the Act. The tribunal examined the validity of the reasons recorded by the AO for reopening the assessment. It was highlighted that the power to reopen assessments had been widened post an amendment to the Act. The tribunal acknowledged the AO's investigation into the books of accounts and found the reasons for reopening to be valid in this case, leading to the dismissal of this ground of appeal.

In conclusion, the tribunal partly allowed the appeal by deleting the addition related to unproved purchases while dismissing the challenge to reassessment proceedings and other minor issues.