2025 (7) TMI 1158 - AT - Income Tax

Bogus purchases - reliance on statement of witness/third party - HELD THAT - If the deponent was not put to cross-examination then statement of such a witness cannot be used against the interest of any other person. In the present case this statement was recorded from the back of the assessee and the assessee was not given an opportunity to cross-examine the deponent. Therefore the statement is to be excluded from the evidence used against the assessee. If the statement is excluded then nothing remains with the AO for making the addition. We find that CIT (A) has appreciated all these aspects in the above finding in both the years and thereafter deleted the addition. After analyzing the well reasoned order of the CIT (A) in the light of the submissions made by the ld. counsel for the assessee extracted supra and the quality of evidence possessed by the AO we are of the view that no interference is called for in the orders of the CIT (Appeals) in both the years. Accordingly appeals of the Revenue are dismissed. Re-opening of the assessment - We find that a credible information is being transmitted by ADIT (Investigation) which raised a suspicion about nature of expenditure debited by the assessee in the books qua purchases made by it. There is a slight variation in the quantum of purchases referred by the AO in assessment year 2017-18 but in substance Department was able to lay its hands on some information indicating the fact that some of the expenses debited by the assessee could be of doubtful nature. At the stage of forming the belief that income has escaped assessment for re-opening of the assessment it is only a prima-facie opinion required to be formed by the AO. He is not required to record a categorical finding about the escapement of income. He has to only form a belief. Therefore AO has rightly formed the opinion on the basis of information supplied by ADIT (Investigation) that a re-opening is required to be made. Accordingly we do not find any error in the re-opening of assessment hence Cross Objections of the assessee in both the years are rejected.

Summary

ISSUES:

Whether delay in filing cross-objections can be condoned under Section 253(5) of the Income Tax Act.Validity of reopening assessments based on statements recorded during survey under Section 133A of the Income Tax Act.Whether addition on account of alleged bogus purchases can be sustained solely on third-party statements recorded behind the back of the assessee without corroborative evidence.Whether purchases supported by bills and payments through account payee cheques/RTGS, with accepted corresponding sales, can be treated as bogus under Section 69C.Admissibility and evidentiary value of statements recorded during survey under Section 133A and the requirement of opportunity for cross-examination.Validity of reopening notices issued beyond four years based on information with incorrect or non-verifiable facts.Whether books of account not rejected under Section 145(3) preclude making additions on estimation or disallowance of purchases.Whether the Assessing Officer's reliance on statements without independent verification or corroboration satisfies the requirement of forming a belief for reopening assessment under Section 148.

RULINGS / HOLDINGS:

Delay in filing cross-objections was condoned under Section 253(5) as there was a "sufficient cause" explained, applying the liberal interpretation endorsed by the Supreme Court to advance substantial justice.Reopening of assessments based solely on statements recorded during survey under Section 133A, without corroborative evidence or opportunity for cross-examination, is not sustainable and such statements have no independent evidentiary value.Additions for bogus purchases cannot be sustained solely on third-party statements recorded behind the back of the assessee without corroboration or further inquiry, especially when the assessee has produced documentary evidence supporting genuineness.The basic conditions under which purchases cannot be treated as non-genuine are: (a) purchases are duly supported by bills; (b) payments are made by account payee cheques or RTGS/NEFT; (c) no evidence of purchase consideration being recycled back in cash; and (d) corresponding sales have been accepted by the Revenue.Statements recorded under Section 133A during survey do not have conclusive evidentiary value and cannot be used against the assessee unless the assessee is given an opportunity to cross-examine the deponent; failure to provide such opportunity violates principles of natural justice and renders the assessment order nullity.Reopening notices issued beyond four years based on incorrect or unverified information, or wrong reasons to believe, are liable to be quashed as invalid.Where books of account are not rejected under Section 145(3), and no specific defects are pointed out, additions based on estimation or disallowance of purchases are not sustainable.For reopening under Section 148, the Assessing Officer must form a prima-facie belief based on credible information; mere reliance on third-party statements without independent satisfaction or verification is inadequate.

RATIONALE:

The Court applied a liberal construction of the phrase "sufficient cause" under Section 253(5) and related provisions, referencing authoritative Supreme Court decisions emphasizing substantial justice over technicalities.Reliance was placed on statutory provisions and judicial precedents clarifying that statements recorded during survey under Section 133A lack evidentiary value unless corroborated and subject to cross-examination, distinguishing them from statements under Section 132(4) which are taken on oath.Precedents from various High Courts and the Supreme Court were cited to establish that additions for bogus purchases require more than uncorroborated third-party statements; documentary evidence such as bills, ledger accounts, payment proofs, and accepted sales rebut such additions.The Court referred to multiple judgments holding that books of account not rejected under Section 145(3) cannot be disregarded to make additions on estimation basis.The principle of natural justice was underscored, emphasizing that denial of opportunity to cross-examine witnesses whose statements form the basis of additions violates fundamental rights and invalidates the assessment.The Court distinguished between the requirement of forming a belief for reopening assessment and proving escapement of income, holding that a prima-facie belief based on credible information suffices, but such belief must be independently formed and not merely based on unverified third-party statements.The Court noted a doctrinal shift in the approach towards reopening assessments and additions based on survey statements, aligning with recent authoritative pronouncements advocating for corroborative evidence and procedural fairness.