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2025 (5) TMI 345 - AT - Income TaxAddition u/s 68 and u/s 69C - sales receipts credited in the bank account treating the same as bogus HELD THAT - In the instance case originally the assessment was completed u/s 143(3) of the Act wherein all the details with respect to purchase and sales were filed by the Assessee and the same were examined by the then AO. Stock records maintained by the Assessee Company on day to day basis were also examined by the AO and after such examination the AO accepted the books of accounts. However in reassessment proceedings despite of all the material available on record the A.O. alleged that very same sale made by the Assessee to these two parties as bogus which is solely on the basis of their statements wherein they stated that they are providing accommodation entries for bogus bills of sales. No opportunity of cross-examination has been given to the Assessee. Assessee has demonstrated that goods were actually delivered to the parties. It is also seen that the goods so sold were out of the regular stock maintained for which necessary entries are also found recorded in the records. Thus merely on the fact that the other party had refused and denied the transaction without providing the opportunity to the Assessee to cross-examination of those persons no addition could be made holding that the sales are not genuine. Appeal of the Assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of Addition of Rs. 40,00,000/- under Section 68 Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits, and the burden lies on the Assessee to satisfactorily explain the nature and source of such credits. The principle established by judicial precedents mandates that the Assessing Officer must not make additions merely on suspicion or surmise but must have cogent evidence disproving the Assessee's claims. The Hon'ble Jurisdictional High Court's ruling in the case of J. M. Wire Industries (2010 (7) EMI 778) was relied upon, which held that additions under section 68 cannot be made merely on suspicion without disproving stock or purchase data. Court's Interpretation and Reasoning: The Tribunal noted that the original assessment under section 143(3) was completed after thorough scrutiny of the Assessee's books of accounts, including purchase and sales registers, ledgers, and day-to-day stock registers. The Assessing Officer at that stage accepted the books and did not find discrepancies. The reopening of the case under section 148 was based on information from the Investigation wing alleging accommodation entries through bogus sales from two parties. The Tribunal observed that the reassessment addition was solely based on the statements of these third parties, who claimed to provide bogus bills, without providing the Assessee an opportunity to cross-examine them. The Tribunal emphasized that such unilateral reliance on statements without cross-examination violates principles of natural justice. Key Evidence and Findings: The Assessee produced copies of invoices detailing the description, quantity of goods sold, and vehicle numbers used for transportation, contradicting the claim that goods were never physically sold or transported. Payments were made through banking channels and recorded in stock registers. The Tribunal found that the goods were actually delivered from regular stock, supported by documentary evidence. Application of Law to Facts: Applying the legal standards, the Tribunal held that the Assessing Officer failed to rebut the Assessee's explanation with independent evidence. The mere denial of transactions by third parties, without opportunity for cross-examination and in the face of credible documentary proof, was insufficient to treat the receipts as unexplained cash credits under section 68. Treatment of Competing Arguments: The Revenue's contention that the Investigation wing's information and third-party statements justified the addition was rejected on grounds of procedural infirmity and lack of corroborative evidence. The Tribunal accorded greater weight to the Assessee's detailed books of accounts and documentary evidence. Conclusion: The addition of Rs. 40,00,000/- under section 68 was deleted as the Assessing Officer failed to prove that the sales receipts were bogus or unexplained cash credits. Issue 2: Addition of Rs. 60,000/- under Section 69C on Account of Commission Paid for Accommodation Entry Relevant Legal Framework: Section 69C deals with unexplained expenditure incurred in relation to unexplained investments or credits. The Assessing Officer added Rs. 60,000/- representing 1.5% commission paid in cash for obtaining accommodation entries. Court's Interpretation and Reasoning: Since the primary addition under section 68 was deleted, the foundation for the addition under section 69C also fell away. The Tribunal considered the Assessee's explanations and evidence negating the existence of accommodation entries and bogus sales, thereby undermining the basis for treating the commission as unexplained expenditure. Application of Law to Facts: The Tribunal found that the commission addition was linked to the disallowed sales receipts and, therefore, could not sustain independently once the primary addition was deleted. Conclusion: The addition of Rs. 60,000/- under section 69C was also deleted. 3. SIGNIFICANT HOLDINGS The Tribunal held that:
Core principles established include:
Final determinations on the issues were that the additions of Rs. 40,00,000/- under section 68 and Rs. 60,000/- under section 69C were not sustainable and were accordingly deleted, allowing the Assessee's appeal.
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