2025 (7) TMI 1052 - AT - Income Tax

Addition u/s 68 - bogus accommodation entries said to have been availed of by the assessee under the guise of certain purchase/sales - HELD THAT - DR has also submitted that this is a case where purchases were made by the assessee out of books of accounts and in this way the assessee routed unaccounted income on the basis of accommodation entries regarding purchases and sales and further that there is no merit in the contentions raised on behalf of the appellant. It is correct that sales having been reflected by the assessee in the books of accounts maintained by the assessee the amount of sales already disclosed cannot be part of such an addition. In case sales reflected in the books of accounts are also made part of the addition u/s 68 of the Act it would amount to double taxation as rightly submitted on behalf of the appellant. However it is significant to observe here that when as per material available with the department the goods are found to have not been received from the parties from whom same are shown to have been purchased it can safely be said that such material was received by the assessee from a different source exclusively within the knowledge of the assessee and none else. Therefore it stands established that the assessee inflated the figure by showing higher amount of purchases in the form of fictitious invoices and by way of accommodation entries. Considering the overall factual scenario it would be just and proper to disallow certain percentage of the purchases found to be bogus transactions. As appellant submitted that in the given facts and circumstances having regard to the sales by the assessee which were not doubted by the department addition to the tune of about Rs. 12, 50, 000/-shall meet the ends of justice as against addition of Rs. 4, 05, 71, 650/- Ld. DR for the department took time to ponder over this submission made on behalf of the appellant and ultimately submitted that in the given facts and circumstances when as per material available with the department the goods are found to have not been received by the party to whom same are shown to have been sold it can safely be said that such material was never delivered by the assessee or received by the person shown as the seller and rather to a person a different from the said person exclusively within the knowledge of the assessee and none else. At the same time DR for the department did not raise any objection to restricting the addition only to the tune of Rs. 12, 50, 000/- in total as against addition of Rs. 4, 05, 71, 650/-. Thus as per incriminating material collected during survey proceeding we deem it a fit case to confirm the addition only to the extent of Rs. 12, 50, 000/- as regards the accommodation entries relating to bogus purchases. AO directed to make recalculations.

Summary

The core legal issues considered by the Tribunal in this appeal pertain to the validity and scope of additions made on account of alleged bogus accommodation entries in the assessee's books of accounts, the applicability of provisions under sections 68, 144, 148, 143(2), 142(1), 251(1) and related procedural safeguards under the Income Tax Act, 1961, and the correctness of the order passed by the Commissioner of Income Tax (Appeals) setting aside the original assessment for fresh adjudication.

Firstly, the Tribunal examined whether the assessment order passed under section 144 of the Act could be considered ex-parte, given the assessee's submissions in response to notices under sections 148 and 142(1). This involved scrutiny of the procedural compliance by the assessee and the Assessing Officer. Secondly, the Tribunal considered the substantive issue of whether the additions on account of accommodation entries, purportedly facilitated by entities controlled by a third party, were justified. This involved analysis of the genuineness of purchases and sales, the evidentiary value of statements recorded during survey proceedings under section 133A, and the applicability of section 68 of the Act on credit purchases and sales transactions. Thirdly, the Tribunal addressed the question of whether the Commissioner of Income Tax (Appeals) was justified in remanding the matter for fresh assessment, particularly in light of additional evidence submitted for the first time at the appellate stage. Lastly, procedural objections regarding the jurisdiction for issuance of notice under section 148 and the authority granting approval for reopening were raised but ultimately not pressed before the Tribunal.

On the issue of procedural propriety of the assessment order under section 144, the Tribunal noted that the Assessing Officer had issued notices under sections 148, 143(2), and 142(1) of the Act, but the assessee failed to respond to the notice under section 143(2) and also to the show cause notice issued under the first proviso to section 144. The Tribunal relied on the statutory provisions, particularly clause (c) of sub-section (1) of section 144, which mandates best judgment assessment where the assessee fails to comply with notices under section 143(2). It was held that the Commissioner of Income Tax (Appeals) was empowered under section 251(1) to set aside the assessment and direct fresh assessment, given that the original assessment was made under section 144. The Tribunal rejected the assessee's contention that the order could not be termed ex-parte, emphasizing the absence of response to critical notices and the consequent statutory sanction for best judgment assessment.

Regarding the substantive issue of bogus accommodation entries, the Tribunal examined the factual matrix arising from a survey conducted under section 133A at premises linked to a third party controlling the entities allegedly providing accommodation entries. The survey revealed that the said persons admitted to issuing bogus bills in lieu of commission, and digital evidence was seized corroborating these statements. The Assessing Officer relied heavily on these findings to make additions amounting to over Rs. 4 crore, disallowing purchases and sales recorded through these entities as non-genuine.

The assessee's defense centered on the submission that payments were made through banking channels, and the books of accounts were not rejected. The assessee furnished documents such as purchase ledgers, bank statements, audit reports, and vehicle challans, which were not produced before the Assessing Officer but submitted before the Commissioner of Income Tax (Appeals). The Tribunal noted that the Commissioner of Income Tax (Appeals) found these documents to have prima facie material bearing on the true income and thus remitted the matter for fresh assessment to allow thorough verification.

The Tribunal then engaged with the legal framework concerning section 68 of the Act, which deals with unexplained cash credits. It was emphasized that section 68 applies only to sums credited in the books of accounts, typically loans or deposits, and not to purchase transactions which appear as debits. The Tribunal relied on authoritative precedents from various High Courts and the Income Tax Appellate Tribunal which held that additions under section 68 are not sustainable where purchases are made on credit and payments are verifiable through banking channels. It was further noted that sales already reflected in the Profit & Loss account cannot be subjected to addition under section 68, as that would amount to double taxation of the same income.

The Tribunal carefully distinguished the facts of the present case from other precedents relied upon by the Revenue, particularly where confirmations from creditors were inconsistent or where books of accounts were rejected. Here, the books were not rejected, and payments were demonstrably made through banking channels. The Tribunal concurred with the view that the Assessing Officer's invocation of section 68 was not justified in the circumstances.

However, the Tribunal acknowledged the incriminating material from the survey and the admission of the third party controlling the entities providing accommodation entries. It was observed that the assessee inflated purchases through fictitious invoices and accommodation entries, thereby distorting the true income. The Tribunal, balancing the facts and submissions, held that a certain addition was warranted but significantly reduced the addition from over Rs. 4 crore to Rs. 12,50,000/-, which was accepted by the Revenue's representative as adequate to meet the ends of justice.

On the procedural objections concerning the jurisdiction for issuance of notice under section 148 and the authority granting approval for reopening, the Tribunal noted that these grounds were raised before the Commissioner of Income Tax (Appeals) but were not pressed before the Tribunal and were accordingly dismissed.

In conclusion, the Tribunal confirmed the power of the Commissioner of Income Tax (Appeals) to set aside an assessment order passed under section 144 and remit the matter for fresh assessment when additional material is produced at the appellate stage. It held that while the assessee's books and banking evidence negated the applicability of section 68 additions on purchases and sales, the overall factual matrix established the existence of bogus accommodation entries necessitating a limited addition. The Tribunal's final order restricted the addition to Rs. 12,50,000/- and directed the Assessing Officer to recompute the assessment accordingly.

Key legal principles established include the limited applicability of section 68 to credit purchases and sales, the legitimacy of remanding an assessment for fresh inquiry where new material is produced before the appellate authority, and the procedural correctness of best judgment assessment under section 144 where the assessee fails to comply with statutory notices. The Tribunal's reasoning underscores the necessity of balancing procedural fairness with substantive verification of facts in tax assessments involving allegations of bogus accommodation entries.