Metal India vs ITO: Bogus Purchase Dispute Remand Back for Merit Review – ITA 6591/DEL/2019

Metal India vs ITO: Bogus Purchase Dispute Remand Back for Merit Review – ITA 6591/DEL/2019

The case of Metal India vs Income Tax Officer (ITO), Ward-63(2), New Delhi pertains to the assessment year 2007-08. Metal India, a firm based in Delhi, filed an appeal before the Income Tax Appellate Tribunal (ITAT) challenging the order passed by the Commissioner of Income Tax (Appeals)-36, New Delhi, dated 22nd July 2019. The final order in this case was pronounced on 4th January 2023 by the Delhi Bench ‘E’ of the ITAT, presided over by Shri Anil Chaturvedi, Accountant Member, and Shri N.K. Choudhry, Judicial Member.

Background of the Case

Metal India filed its income tax return on 28th October 2007, declaring an income of Rs. 19,69,883/-, which was processed under section 143(1) of the Income Tax Act, 1961. However, based on information received from the Commissioner of Income Tax, Central Circle-II, New Delhi, it was alleged that Metal India had received accommodation entries amounting to Rs. 2,57,52,421/- from certain entry providers. Consequently, the Assessing Officer (AO) reopened the case under section 147 of the Income Tax Act, issuing a notice under section 148 to assess the income once more.

During the reassessment, the Assessee claimed that the amount in question represented purchases made from four parties, for which purchase invoices were provided. However, the AO found these invoices to be bogus, relying on statements made under oath by some of the alleged entry providers during a search operation. As a result, the AO added the sum of Rs. 2,57,52,421/- to the Assessee’s income as bogus purchases.

Proceedings Before CIT(A)

Metal India appealed against the AO’s decision to the Commissioner of Income Tax (Appeals)-36, New Delhi. However, the appeal was dismissed in limine by the CIT(A) due to the Assessee’s repeated non-appearance and failure to prosecute the case effectively. The CIT(A) sustained the AO’s addition, emphasizing that the Assessee had not availed of the multiple opportunities given to present their case. The decision to dismiss the appeal without considering its merits was based on precedents set by the Supreme Court and the Bombay High Court, which support dismissing appeals for want of prosecution.

Appeal Before the ITAT

Aggrieved by the dismissal, Metal India brought the matter before the ITAT. The primary contention was that the CIT(A) had erred in dismissing the appeal without examining the merits of the case, particularly the validity of the bogus purchase addition. The Assessee argued that despite their lapses, the case warranted a merit-based review given the serious nature of the allegations.

The ITAT, after reviewing the circumstances, noted that while the CIT(A)’s dismissal was procedurally justified due to the Assessee’s non-cooperation, the principles of natural justice required that the Assessee be given a fair opportunity to present their case. The ITAT emphasized that the judiciary’s role is not merely to penalize procedural lapses but to ensure that justice is served by considering the substantive issues at hand.

ITAT’s Decision

The ITAT decided to remand the case back to the CIT(A) for a fresh hearing on the merits. The Tribunal underscored that the Assessee must fully cooperate in the appellate proceedings, warning that any further lapses could result in a less lenient approach. The ITAT’s order to remand the case reflects the Tribunal’s commitment to ensuring that cases are decided on their substantive merits rather than being dismissed purely on procedural grounds.

In conclusion, the ITAT allowed the appeal for statistical purposes, providing Metal India another opportunity to contest the bogus purchase addition before the CIT(A) with the instruction that the case be decided on its merits.

Conclusion

The case of Metal India vs ITO highlights the balance that courts must maintain between procedural rigor and substantive justice. While procedural rules are essential for maintaining order in legal proceedings, the ultimate goal of the judiciary is to ensure that justice is served. By remanding the case back to the CIT(A) for a merit-based review, the ITAT reinforced the principle that every party deserves a fair chance to present their case, even if they have previously faltered in procedural compliance.

Metal India vs ITO: Bogus Purchase Dispute Remand Back for Merit Review – ITA 6591/DEL/2019