Banking Channel Sales Can’t be Considered Bogus Without Allowing Cross-examination of the Purchaser’s Statement | ITAT

Case Details: Ganesh Rice Mills v. Deputy Commissioner of Income-tax - [2023] 152 taxmann.com 492 (Amritsar-Trib.)

Judiciary and Counsel Details

• • Dr M.L. Meena, Accountant Member & Anikesh Banerjee, Judicial Member
  • Sudhir Sehgal, A.R. for the Appellant.
  • Rohit Mehra, CIT DR for the Respondent.

Facts of the Case

The assessee was engaged in the business of rice selling. During the year under consideration, it made rice sales to a party. A survey was conducted under section 133A upon the aforesaid party, and his statement was recorded.

In the statement, he stated that two accountants of the assessee came to him and offered money in lieu of opening a bank account and issuing signed blank cheques. Due to financial crises, he accepted the offer, opened an account in a bank, and handed over the chequebook to the said persons. The assessee operated the bank account, and he had not made any purchases from the assessee during the year.

Based on the statement, the Assessing Officer (AO) rejected the books of accounts maintained by the assessee and made additions under section 68, contending that the assessee made bogus sales of rice.

On appeal, the CIT(A) upheld the additions made by AO, and the matter reached the Amritsar Tribunal.

ITAT Held

The Tribunal held that the entire amount received from the party was through the banking channel. In the assessment and in appeal proceedings, no discrepancies were found in the assessee’s stock, including the closing and opening stock. Despite this, the books of account were rejected by AO without finding any lacuna in the books.

AO made the entire addition based on a statement recorded from the party but said statement was not served to the assessee. The reasonable opportunity to the assessee was denied without allowing cross-verification of the party. AO had assumed that the cash deposited in the party’s bank account belonged to the assessee.

Thus, said additions were based on surmises and conjectures. The assessee cannot be taxed doubly on the same amount which was already declared in the return of income. Accordingly, additions based on doubts or conjecture were liable to be quashed.

List of Cases Reviewed

• • CIT v. Om Overseas [2008] 173 Taxman 185/[2009] 315 ITR 185 (Punj. & Har.) (para 6.1)
  • Asstt. CIT v. Roopchand Tharani [2012] 20 taxmann.com 204/208 Taxman 223 (Mag.)/249 CTR 326 (Chhatisgarh) (para 6.1)
  • Sona Builders v. UOI [2001] 119 Taxman 430/251 ITR 197 (SC) (para 6.2)
  • Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355/127 DTR 241 (SC) (para 6.2)
  • Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) (para 6.2)
  • CIT v. President Industries [2002] 124 Taxman 654/258 ITR 654 (Guj.) (para 6.2)
  • CIT v. SMC Share Brokers Ltd. [2007] 159 Taxman 306/288 ITR 345 (Delhi) (para 6.3) followed.

List of Cases Referred to

• • Sona Builders v. Union Of India [2001] 119 Taxman 430/251 ITR 197 (SC) (para 3.3)
  • Fortune Metaliks Ltd. v. Pr. CIT [IT Appeal No. 82 (Chd.) of 2021, dated 9-3-2022] (para 3.3)
  • Asstt. CIT v. Roopchand Tharani [2012] 20 taxmann.com 204/208 Taxman 223 (Mag.)/249 CTR 326 (Chhattisgarh) (para 3.4)
  • Nyasa v. Asstt. CIT [2012] 33 CCH 579 (Delhi – Trib.) (para 3.4)
  • CIT v. Om Overseas [2008] 173 Taxman 185/[2009] 315 ITR 185 (Punj. & Har.) (para 3.4)
  • Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355/127 DTR 241 (SC) (para 4.2)
  • Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) (para 4.2)
  • CIT v. K.C. Malhotra [2007] 164 Taxman 101/[2008] 304 ITR 149 (Punj. & har.) (para 4.2)
  • Bansal Rice Mills v. ITO [2001] 78 ITD 326 (Chd. – Trib.) (TM) (para 4.4)
  • Asstt. CIT v. Hirapanna Jewellers [2021] 128 taxmann.com 291/189 ITD 608 (Visakhapatnam – Trib.) (para 4.4)
  • Pr. CIT v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256/286 Taxman 519/441 ITR 550 (Delhi) (para 4.4)
  • Kalaneedhi Jewellers LLP v. Dy. CIT [2022] 140 taxmann.com 588 (Chd. – Trib.) (para 4.4)
  • Sanjay Singal v. Dy. CIT [IT Appeal No. 708 (Chd.) of 2018, dated 20-9-2021] (para 4.6)
  • Prakash Chand Kothari v. Dy. CIT [2022] 94 ITR (Trib.) 49 (Jp. – Trib.) (para 4.6)
  • Great India Steel Fabricators v. ACIT [IT Appeal No. 746 (chd.) of 2014, dated 3-3-2017] (para 4.6)
  • CIT v. SMC Share Brokers Ltd. [2007] 159 Taxman 306/288 ITR 345 (Delhi) (para 4.6)
  • Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) (para 4.7)
  • Asstt. CIT v. Claridges Investments & Finances (P.) Ltd. [2007] 18 SOT 390 (Mum.) (para 4.7)
  • CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (para 4.7)
  • Self Knitting Works v. CIT [2014] 51 taxmann.com 137/227 Taxman 253 (Mag.) (Punj. & Har.) (para 4.8)
  • CIT v. Sanjay Chhabra [2012] 21 taxmann.com 221/208 Taxman 49/[2011] 336 ITR 71 (Punj. & Har.) (para 4.8)
  • CIT v. President Industries [2002] 124 Taxman 654/258 ITR 654 (Guj.) (para 6.2).