2024 (5) TMI 1539 - AT - Income Tax

Ex-parte order passed by CIT(A) - Addition on bogus purchase of goods (i.e. copper scrap) - books of account not been rejected as per sec 145(3) - HELD THAT - On perusal of the order of CIT(A) it is clearly apparent that the order passed by CIT(A)was an ex- parte order deliberating upon the appeal of the assessee against the order of AO u/s 143(3) dated 16.12.2022. Under the settled position of law as also held by us in various other cases we are of the considered view that the Ld. CIT(A) was under abundant duty to dispose of the appeal of the assessee before him with adequate deliberations on the merits of the issues therein after thoughtfully considering the material available on record instead of disposing of the same on account of non-prosecution on the part of the assessee. We therefore set aside the appeal to the files of Ld. CIT(A) to decide the issues therein on their merits considering the material available on record after affording reasonable opportunity to being heard to the assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the addition of Rs. 9,22,71,995 on account of bogus purchases of goods (copper scrap) was justified when the corresponding sales were accepted and the books of account were not rejected.

2. Whether the disallowance under Section 69C of the Income Tax Act, 1961, based on presumptions and surmises, was justified when the assessee claimed to be a trader with a resultant Gross Profit (GP) that would be unreasonably high.

3. Whether the CIT(A) erred in sustaining the addition without considering the merits of the case due to non-prosecution by the assessee.

4. Whether the application of Section 115BBE, which imposes a higher rate of tax, was justified when the nature and source of purchases were explained through corresponding sales recorded in the books.

ISSUE-WISE DETAILED ANALYSIS

1. Justification of Addition for Bogus Purchases

- Relevant Legal Framework and Precedents: The addition was made under Section 69C, which pertains to unexplained expenditure. The assessee contested this, citing precedents like Smt Sudha Loyalka and Tejua Rohitkumar Kapadia, arguing that without evidence of cash flow back to the assessee, the addition was not justified.

- Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) dismissed the appeal due to non-prosecution without examining the merits. The Tribunal emphasized the necessity of evaluating the merits, referencing the principle that justice requires a thorough examination of the facts and evidence.

- Key Evidence and Findings: The Tribunal observed that the assessee failed to provide complete documentary evidence during the assessment proceedings, and the sellers did not respond to notices. However, the Tribunal found that the CIT(A) did not deliberate on these issues substantively.

- Application of Law to Facts: The Tribunal determined that the CIT(A) should have examined the material evidence and the merits of the case rather than dismissing it solely on procedural grounds.

- Treatment of Competing Arguments: The Tribunal considered the arguments from both the assessee and the revenue, ultimately deciding that the matter should be remanded for a fresh adjudication to ensure a fair assessment based on the merits.

- Conclusions: The Tribunal concluded that the CIT(A) should reconsider the case on its merits, taking into account all available evidence and providing the assessee with an opportunity to be heard.

2. Application of Section 115BBE

- Relevant Legal Framework and Precedents: Section 115BBE imposes a higher tax rate on unexplained income. The assessee argued that the purchases were business transactions duly recorded, thus not warranting the higher tax rate.

- Court's Interpretation and Reasoning: The Tribunal did not specifically address the application of Section 115BBE in detail, as the primary focus was on the procedural fairness and merits of the case.

- Key Evidence and Findings: The Tribunal noted the lack of deliberation on the merits by the CIT(A) and highlighted the need for a comprehensive review.

- Application of Law to Facts: The Tribunal implied that without a substantive review of the merits, the application of Section 115BBE could not be justified.

- Treatment of Competing Arguments: The Tribunal acknowledged the arguments regarding the nature of the transactions but emphasized the need for a merit-based examination.

- Conclusions: The Tribunal remanded the case for reconsideration, implicitly suggesting that the application of Section 115BBE should be evaluated in light of the merits.

SIGNIFICANT HOLDINGS

- "The law aids those who are vigilant, not those who sleep upon their rights." This principle was reiterated by the Tribunal, emphasizing the importance of due diligence and active participation in legal proceedings.

- The Tribunal underscored the obligation of the CIT(A) to dispose of appeals on their merits, referencing the judgment of the Hon'ble Bombay High Court in CIT vs. Premkumar Arjundas Luthra (HUF), which mandates a thorough examination of the issues presented.

- The Tribunal held that the CIT(A) must provide a reasoned decision based on the merits of the case, ensuring that all relevant material is considered and the assessee is given a fair opportunity to present their case.

- The final determination was to set aside the appeal and remand it to the CIT(A) for fresh adjudication, ensuring a fair and just resolution based on the merits of the case.