Bogus Transaction Addition: ITAT Says Duty Lies on Revenue to Ascertain Whether Bogus Deals Are Genuine Tax Planning or Evasion [Read Order]

The Raipur Bench of Income Tax Appellate Tribunal ( ITAT ) dealt with additions made on account of alleged bogus transactions, observing that it is the responsibility of the tax authorities to examine whether such transactions constitute genuine tax planning or tax evasion.

Hanumant Ingots Pvt. Ltd., appellant-assessee, had filed its return for Assessment Year (AY) 2013-14 on 30.03.2022, declaring income of ₹3.4 lakh. A survey was conducted under Section 133A in January 2019, during which it was found that the assessee received ₹1.21 crore from M/s Surakshit Real Estate Ltd., a Kolkata-based shell company involved in bogus transactions.

Despite multiple notices, the assessee did not respond or provide any explanation. The Assessing Officer (AO), therefore, completed the assessment under Section 144 and treated the amount as unexplained cash credit under Section 68. An additional ₹59.44 lakh was added as unaccounted cash receipts based on seized data showing cash returned after RTGS transactions.

The total assessed income was determined at ₹1.84 crore, and penalty proceedings were also initiated. The Commissioner of Income Tax(Appeals)[CIT(A)] dismissed the appeal as the assessee failed to appear or submit any response during the proceedings.

The assessee, not satisfied with the CIT(A)’s order, filed an appeal before the tribunal. During the proceedings before the CIT(A), the assessee was given multiple opportunities to appear and present its case, but failed to respond or seek adjournment. As a result, the CIT(A) dismissed the appeal ex-parte based on the available records.

When the matter came up before the tribunal, the assessee initially sought adjournment, but later failed to appear or make any submission. Given the non-compliance and lack of representation, the ITAT proceeded with the matter.

The two member bench comprising Parthasarathi Chaudhury ( Judicial Member) and Arun Khodpia (Accountant Member) observed that the CIT(A)’s order was passed without hearing the assessee and referred to earlier rulings which stressed the importance of giving a fair opportunity before deciding an appeal.

Citing the principle of natural justice, the tribunal set aside the ex-parte order and restored the matter to the CIT(A) for fresh adjudication, granting one final chance to the assessee to present its case.

The appellate tribunal noted that the case involved alleged bogus transactions between the assessee and M/s Surakshit Real Estate Ltd., and the assessee had failed to explain or prove the genuineness of these transactions. Since no supporting evidence was provided, the ITAT held that it was the responsibility of the tax authorities to examine in detail whether the transactions amounted to genuine tax planning or tax evasion.

The bench observed that if the transactions were found to be sham and intended to evade tax, the additions made by the AO could be upheld. It referred to earlier decisions, including Subedar Pathak vs. ACIT, and Supreme Court rulings, to emphasize that fraud nullifies even the right to be heard under natural justice.

Accordingly, the appellate tribunal set aside the CIT(A)’s ex-parte order and restored the matter for fresh adjudication. The CIT(A) was directed to give the assessee a final opportunity to submit evidence and prove the genuineness of the transactions. If the assessee failed to cooperate, the CIT(A) was free to decide the matter as per law within three months.

In short,the appeal filed by the assessee was allowed with statistical purposes.

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