M/s Oriental Logistics Company , Hospet V. Deputy Commissioner of Income Tax Central Circle--1(1), Bangalore

ITA 468/BANG/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7479 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 18-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Question of law; Accommodation entries; Retraction; Revised return; Set aside
• Section: 131; 263; 132; 139; 143(3); 153A; 143(2); 13; 158BD; 153C

Judgement Text

ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet IN THE INCOME TAX APPELLATE TRIBUNAL “C’’BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos.466 to 468/Bang/2018 Assessment Years: 2008-09 to 2010-11 M/s. Oriental Logistics Company #113 & 113a, Manikanta Complex Near Sai Baba Circle Bhagat Singh Nagar, Dam Road Hospet 583 203 PAN NO :AABFO6765H Vs. Deputy Commissioner of Income-tax Central Circle-1(1) Bengaluru APPELLANT RESPONDENT Appellant by : Shri V. Srinivasan, A.R. Respondent by : Shri Pradeep Kumar, D.R. Date of Hearing : 02.11.2021 Date of Pronouncement : 29.11.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: All the three appeals filed by the assessee relate to the assessment years 2008-09 to 2010-11 and they are directed against the common order dated 23.01.2018 passed by Ld. CIT(A)-11, Bengaluru. All these three appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The assessee is contesting decision of Ld. CIT(A) in confirming the following additions made during the years under consideration. ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 2 of 18 Nature of addition Assessment years 2008-09 2009-10 2010-11 Undisclosed transport income 1,51,44,860 -- -- Payments made to Shri Basavaraj Banni 5,98,65,880 5,53,18,500 -- Payments made to Sri Jagdish N. Devadiya -- 2,51,00,000 65,00,000 3. Besides the above, the assessee has raised two legal issues. The first legal issue relates to the validity of search proceedings and this ground has been urged in all the three years. At the time of hearing, the Ld. A.R. did not press this legal ground in all the 3 years. Accordingly, the grounds relating to this issue are dismissed as not pressed. 4. In assessment year 2008-09 & 2009-10, the assessee has raised another legal issue by way of an additional ground. The legal issue urged in the additional ground is that the additions made during assessment years 2008-09 and 2009-10 are not valid, since assessments of these two years did not abate as per provisions of sec.153A and further no incriminating material relating to the additions made in these two years were found during the course of search. 4. The facts relating to the case are discussed in brief. The assessee is a partnership firm and is engaged in the business of trading and transportation of iron ore. The assessee was subjected to search operation u/s 132 of the Income-tax Act,1961 ['the Act' for short] on 15.2.2011. Consequently, the present assessments were completed u/s 153A r.w.s. 143(3) of the Act. Under the provisions of sec.153A of the Act, the AO shall issue notice for six assessment years immediately preceding the assessment year ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 3 of 18 relevant to the previous year in which search is conducted. In the instant case, the search was conducted on 15.02.2011 falling in AY 2012-13. Accordingly, the AO has reopened the assessment of immediately preceding six assessment years viz., 2005-06 to 2011- 12. 5. As per the second proviso to sec.153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of search u/s 132 shall abate. In the case on hand, the date of search is 15.02.2011. The Ld A.R submitted that the assessment of AY 2010-11 was pending on the date of initiation of search and the same shall abate. However, the assessments of AY 2008-09 and 2009-10 were not pending on the date of initiation of search and hence assessment of both these years shall not abate. 6. It is the contention of the Ld A.R that the additions could be made in unabated assessment years only on the basis of incriminating materials found during the course of search. In support of this proposition, the Ld A.R placed his reliance on the following decisions:- (a) Yunus Zia vs. DCIT (ITA Nos. 126 to 130/Bang/2013 dated 20-03-2020) (b) Anurag Dalmia vs. DCIT (ITA No.5395 & 5396/Del/2017 dated 15.02.2018) The Ld A.R submitted that the Delhi bench of Tribunal in the case of Anurag Dalmia (supra) has followed the decision rendered by Hon'ble Delhi High Court in the case of Kabul Chawala (2016)(380 ITR 570)(Del), wherein it was held that any addition could be made in any unabated assessment year only on the basis of incriminating material found during the course of search. In the case of ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 4 of 18 YunusZia (supra), the co-ordinate bench of Bangalore ITAT has also taken identical view. 7. The Ld A.R submitted that the search officials did not unearth any incriminating material relating to AY 2008-09 and 2009-10. Hence the AO could not have made any addition in these two years. However, the AO has made additions in AY 2008-09 and 2009-10 on the basis of post search enquiries, i.e., the AO has disbelieved the purchases of minerals and payment of transportation charges on the basis of post search enquiries and made impugned additions. Hence the additions made by the AO are liable to be deleted on the basis of above said legal ground. He submitted that, even on merits these additions are liable to be deleted. 8. The Ld D.R, however, submitted that the AO is entitled to make any addition in the case of unabated assessment years also as per the decision rendered by jurisdictional Hon'ble Karnataka High Court in the case of Canara Housing Development Company vs. DCIT (274 CTR 122)(Kar). He submitted that the parties to whom the payments were made for purchase of minerals and transportation charges have disowned the transactions. Accordingly, he submitted that the AO was justified in making the impugned additions. 9. In the rejoinder, the Ld A.R submitted that the parties had initially denied transactions. However, they have filed letters subsequently, accepting the transactions and they have explained as to why they denied the transactions earlier. In respect of purchase of minerals, the assessee has produced the income tax returns of the supplier, wherein he had duly disclosed the sales ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 5 of 18 made to the assessee. The Ld A.R submitted that the AO did not consider these documents. 10. We heard rival contentions and perused the record. The present appeals pertain to AY 2008-09 to 2010-11. We shall examine whether they fall in the category of abated or unabated assessment. We have earlier noticed that the date of initiation of search is 15-02-2011. The details of earlier assessment proceedings for the above said three years are given below:- (a) For AY 2008-09, the original assessment has been completed u/s 143(3) on 14-12-2010, i.e., prior to the date of search. Hence the assessment of AY 2008-09 shall not abate. (b) For AY 2009-10, the assessee has filed return of income on 31.3.2010. The time period for issuing notice u/s 143(2) has expired on 30-09-2010 and no notice u/s 143(2) has been issued for this assessment year prior to 30-09-2010. Hence the assessment is considered as completed accepting the return of income prior to the date of initiation of search. Hence the assessment of AY 2009-10 shall not abate. (c) For AY 2010-11, the return of income itself was filed on 07-03-2012, i.e., after the date of initiation of search. Hence the question of abatement of assessment does not arise for this year. 11. We shall first deal with the legal issue urged by the assessee, i.e., whether, in an unabated assessment year, the AO could make any addition in the absence of any incriminating material found during the course of search. This legal issue is relevant for AY 2008-09 and 2009-10 only. In these two assessment years, it is an admitted fact that the additions made by the AO do not relate to any incriminating material found during the course of search. In ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 6 of 18 respect of additions relating to payments made to Basavaraj Banni, the AO has made the addition on the basis of results of post search enquiries only. Before us, the Ld D.R placed reliance on the decision rendered by Hon'ble jurisdictional High Court in the case of Canara Housing Development Company (supra). On the contrary, the Ld A.R has placed his reliance on the case laws in favour his contentions. 12. The above question has been recently answered by the jurisdictional Hon'ble Karnataka High Court in the case of PCIT vs. M/s Delhi International Airport (P) Ltd & others (ITA No.322/2018 & others dated 29-09-2021) and it has been held that the AO, while passing order u/s 153A r.w.s 143(3) of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of search. We notice that the Hon'ble Karnataka High Court also considered the decision rendered by it in the case of Canara Housing Development Company (supra) and also the decision rendered in the case of IBC Knowledge Park (P) Ltd (385 ITR 346)(Kar) while rendering its decision as stated above. The relevant observations made by Hon'ble jurisdictional High Court in the case of Delhi International Airport (P) Ltd (supra) are extracted below:- “26. In the light of these judgments, we have analyzed Section 153A of the Act vis-à-vis the material on record. Strong reliance was placed by the Revenue on the Canara Housing Development Company supra, in support of the contention that search under Section 132 of the Act is sine qua non for initiation of proceedings under Section 153A of the Act but it is not dependent on any undisclosed income being unearthed during search. There is no cavil on this proposition that search under Section 132 or requisition under 132A is a condition precedent for invoking Section 153A of the Act, the assessing ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 7 of 18 officer can assess or re-assess the total income with respect to six assessment years separately immediately preceding the assessment year relevant to the previous years in which the search was conducted or requisition was made but the controversy rests on whether the incriminating material is a condition precedent for invoking section 153A? 27. It is discernable from the memorandum explaining the provisions in the Finance Bill 2003 [260 ITR [ST] 14 at page 219] than it is tc overcome the difficulty leading to prolonged litigation inasmuch as "undisclosed income", the legislature by Finance Act, 2003, decided to discard Chapter XIV-B provisions and introduced Sections 153A, 153B and 153C in the Act. Section 153k would contemplate that on initiation of proceedings under said Section 153A, the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessment/reassessment already finalized. The CBDT Circular No.8/2003 dated 18.09.2003 clarifies that on initiation of proceedings under Section 153A of the Act, the proceedings pending in appeal, revision/application against finalized assessment shall not abate. It is clarified in the said CBDT Circular that the then existing provisions of Chapter XIV-B provided for a single assessment of the undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and laid down the manner in which such income is to be computed. The new Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of account or other documents or any assets are requisitioned under Section 132A, after May 31st 2003. In such cases, the assessing officer shall issue notice to such person requiring him to furnish within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A. Thus, it is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under Section 132 shall not abate. 28. Section 153B provides for the time limit for completion of search assessments. 29. Section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account documents seized or requisitioned belong or belongs to a person other than the person referred to in Section 153A, then the books of account, or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 8 of 18 Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. 30. Thus, it is clear that the Assessing Officer while passing the order under Section 153A read with Section 143[3] of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Co- ordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd., supra. A concluded assessment could not be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good. As observed in Canara Housing Development Company supra, t he Assessing Officer is empowered to assess or reassess the total income of six assessment years i.e., the income which was returned in the earlier return, the income which was unearthed during search and also any income which was not disclosed in the earlier return or which was not unearthed during the search by separate assessment orders but in our considered view the completed assessments should be subject to thc safeguards provided in IBC Knowledge Park (P) Ltd. supra. "54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of the Act deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when the reassessment is initiated, the second, at the stage during the course of reassessment and third, at a stage where the reassessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/ 2015.The relevant extract of the circular for ready reference can be extracted as under: ........... ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 9 of 18 As regards the pending assessments are concerned only one assessment shall be made separately for each assessment year on the basis of the income unearthed during search and any other material existing or brought on the record of the Assessing Officer. Even in the absence of any incriminating material abated assessment or reassessment could be done. The returns filed under Section 139 of the Act gets replaced by the returns filed under Section 153A[1] of the Act. Pending proceedings in appeal, revision/application shall not abate subsequent to initiation of Section 153A proceedings. Further, recording of satisfaction under Section 153A may not be necessary unlike Section 153C of the Act which mandates recording of satisfaction. For the reasons aforesaid, substantial question of law in ITA Nos.322/2018 to 324/2018, 354/2018 and 355/2018, substantial question of law No.1 in ITA Nos.380/2018, 382/2018 to 385/2018 and 197/2021 to 199/2021 and substantial question of law Nos.1 and 2 in ITA No.381/2018 are answered in favour of the assessee and against the revenue. Substantial question of Law No.2 in ITA Nos.380/2018, 383/2018 to 385/2018 is squarely covered by the ruling of the coordinate Bench of this Court in ITA No.352/2018 and connecter! matters (DD 25.05.2021) wherein the said substantial question of law has been answered in favour of the assessee and against the Revenue. Substantial question of law No.2 in ITA No.382/2018 and substantial question of law No.3 in ITA Nos.380/2018, 383/2018 to 385/2018 does not arise for our consideration since the same are not pressed by the Revenue. Appeals stand disposed of accordingly.” In view of the binding decision rendered by the jurisdictional Hon'ble Karnataka High Court in the case of Delhi International Airport (P) Ltd (supra), the additions made by the AO in AY 2008-09 and 2009-10 are liable to be deleted, as both the assessment years fall under the category of unabated assessments and further no incriminating material supporting the additions were found during the course of search. Accordingly, we set aside the order passed by Ld CIT(A) for these two assessment years and direct the AO to delete all the additions. ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 10 of 18 13. Before us, both the parties have placed their contentions on merits of additions also. He we proceed to examine the additions on merits also. The first addition relates to the addition of undisclosed transport receipt of Rs.1,51,44,860/- made in AY 2008-09. Th A.O. noticed that the assessee has provided transportation services to a company named M/s. Dream Logistics Company Pvt. Ltd (DLC). The assessee has shown DLC as debtor as on 31.3.2008 for an amount of Rs.2,95,58,453/-. The A.O. noticed from the Balance sheet of M/s. DLC that it has shown the assessee firm as creditor for an amount of Rs.4,47,03,313/-. Thus, there was a difference of Rs.1,51,44,860/- between the ledger account of the assessee and DLC. The A.O. asked the assessee to explain the above said difference. It was explained that the difference amount of Rs.1,51,44,860/- has been offered as income by the assessee in the succeeding year relevant to the assessment year 2009-10. The AO noticed that M/s DLC, which availed transport services from the assessee, has shown the above said amount as payable to the assessee. Since the assessee was following mercantile system of accounting, the A.O. took the view that the assessee should have offered the above said amount of RS.1,51,44,860/- during the assessment year 2008-09 itself. Accordingly, the AO assessed the above said difference amount as income for the assessment year 2008-09 and also reduced the same from the total income of assessment year 2009-10 in order to avoid double taxation. It is also pertinent to note that Shri Prakash G. Hegde, partner of the assessee firm also agreed for inclusion of the difference amount of Rs.1,51,44,860/- in the total income for assessment year 2008-09. 14. Before Ld. CIT(A), the assessee challenged the above said addition contending that the right to receive the above said payment accrued to the assessee only in the succeeding year and ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 11 of 18 accordingly, it has been offered correctly as income of assessment year 2009-10. The said contention was not accepted by Ld. CIT(A) and accordingly he confirmed the addition. 15. We have held that the assessing officer could not have made any addition in AY 2008-09 since no incriminating material relating to this addition was unearthed during the course of search. A perusal of the assessment order of AY 2008-09 would show that the assessing officer has found out this discrepancy only during the course of assessment proceedings upon comparing the Balance Sheets of the assessee and M/s DLC. We have held earlier that this addition could not be sustained, since it is not based upon any incriminating material. Accordingly, this addition was deleted on legal ground discussed above. We noticed earlier that the AO was fair enough to exclude this amount of Rs.1,51,44,860/- in AY 2009- 10. Since this addition has been deleted in AY 2008-09, the corresponding reduction of income made by AO in AY 2009-10 is liable to removed. The assessing officer is directed accordingly. 16. The next addition made by the A.O. relates to the addition of payments made to Shri Basavaraj Banni. This addition has been made in assessment years 2008-09 and 2009-10to the extent of Rs.5,98,65,880/- and Rs.5,53,18,500/- respectively. 17. The facts relating to this addition are stated in brief. During the financial year relevant to the assessment year 2008-09, the assessee has transferred a sum of Rs.5.98 crores to M/s. Banni Mines & Mineral Traders. During the post search proceedings, the A.O. made local enquiries and could not trace the proprietor of the above said concern named Shri Basavaraj Banni. The assessee also expressed its inability to produce the above said person. The A.O. ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 12 of 18 noticed that Shri Basavaraj Banni is assessed to tax and accordingly conducted enquiries through the jurisdictional assessing officer of Shri Basavaraj Banni. The jurisdictional A.O. issued summons to Shri Basavaraj Banni and also recorded a statement from him u/s 131 of the Act. In the sworn statement Shri Basavaraj Banni stated that he is not carrying on any business in the name of M/s. Banni Mines & Mineral Traders. He also stated that all the transactions have been carried on by the assessee herein. On the basis of the above statement, the A.O of the assessee came to the conclusion that M/s. Basavaraj Banni is only a name lender. The A.O. also made enquiries with the banks and noticed that M/s. Banni Mines & Mineral Traders has received cheques from assessee only and the amount deposited was withdrawn immediately by self-withdrawal cheques. The A.O. noticed that common persons have been used to withdraw money by self-cheques from the account of M/s. Banni Mines & Mineral Traders and from the bank account of the assessee in most cases. Accordingly, the A.O. came to the conclusion that M/s. Banni Mines & Mineral Traders has not done any kind of business activity and it has provided only accommodation entries to the assessee. 18. When these findings were confronted to the assessee, it was submitted that the assessee has purchased iron ore from Banni Minerals to the tune of Rs.6.83 crores and the payment of Rs.5.98 crores was made towards the above said purchases. It was also submitted that he has filed VAT returns before the sales tax authorities declaring the above said turnover. The assessee also submitted that Shri Basavaraj Banni has filed return of income. Accordingly, it was submitted that Shri Basavaraj Banni is not giving true picture. The AO did not accept the explanations of the assessee and accordingly treated the payment of Rs.5.98 crores ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 13 of 18 made to Shri Basavaraj Banni as bogus expenditure and added the same to the total income of the assessee in AY 2008-09. Similarly, the AO added Rs.5,53,18,500/- in AY 2009-10. The Ld. CIT(A) also confirmed the same. 19. The Ld. A.R. submitted that during the financial year 2007- 08, the assessee has purchased iron ore to the tune ofRs.36.65 crores, which included iron ore purchased from Shri Basavaraj Banni to the tune of Rs.6.83 crores. The assessee has made payment of Rs.5.98 crores to Shri Basavaraj Banni towards the above said purchases. The Ld. A.R. further submitted that the assessee has reported gross sales of iron ore to the tune of Rs.57.32 crores, which also included materials purchases made from M/s Banni Mines and Minerals. He submitted that the assessee could not have sold the iron ore without purchasing it. The Ld. A.R. further submitted that Shri Basavaraj Banni has given wrong statements in the sworn statement taken from him u/s 131 of the Act. In fact, Shri Basavaraj Banni has filed a letter on 21.3.2013 before ITO Bagalkot who recorded sworn statement and explained the reason for giving wrong statement, i.e., he has stated that he has given wrong statement on fear of facing interrogation by CBI officials and to avoid confrontation with investigation agencies. Further, an affidavit and copy of his revised return of income was also given by him. The Ld. A.R. also submitted that the return of income filed by the assessee has been assessed by his A.O. u/s 143(3) r.w.s. 147 of the Act and in the said return of income, Shri Basavaraj Banni has disclosed turnover of Rs.6.83 crores and the same has been accepted. When these facts were submitted before Ld CIT(A), he called for a remand report from the AO. However, the AO has reported that the assessment order passed in the hands of Shri Basavaraj Banni has been revised u/s 263 of the Act. ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 14 of 18 However, the assessee has noticed that Shri Basavaraj Banni has not co-operated in the set aside proceedings and hence the entire sales has been assessed in his hands. The ld A.R submitted that Shri Basavaraj Banni is non-co-operative to the department and hence the same cannot be a reason to disbelieve the purchases made from his firm. The Ld. A.R. further submitted that the addition of Rs.5.98 crores made by the AO represents the amount paid to Shri Basavaraj Banni towards purchases, while the total purchases made from his concern was Rs.6.83 crores. Thus, the A.O. has accepted genuineness of the remaining amount. In that case, the A.O. could not have disbelieved the payment of Rs.5.98 crores made by the assessee towards purchases of iron ore from concerned belonging to Basavaraj Banni. Accordingly, the Ld. A.R. contended that the impugned addition is liable to be deleted. 20. On the contrary, the Ld. D.R. supported the order passed by Ld. CIT(A). 21. We heard the parties on this issue. It is an admitted fact that the assessing officer has disbelieved the payments made to M/s Banni Mines and Minerals Ltd. The fact remains that the purchases from the above said concern has been duly recorded and further the assessee has also sold them. The sale transactions have been accepted by the AO. It is also a fact that M/s Banni Mines and Minerals have filed VAT returns under Sales tax Act and it has reported the sales made by it to the assessee. Further Shri Basavaraj Banni has filed revised return of income disclosing the sales made to the assessee. His return of income has been accepted by the department in an order passed subsequent to the date of search. Shri Basavaraj Banni has later accepted that he has given wrong statement earlier and has given reasons for doing ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 15 of 18 so. We notice that Shri Basavaraj Banni is changing his stands and is non-co-operative with the department. Hence we are of the view that his statements could not be relied upon. The fact remains that the materials available on record disproves his earlier statement. Under these set of facts, we do not find any reason to disbelieve the purchases as well as payments made to M/s Banni Mines and Minerals. Accordingly, we are of the view that the addition of Rs.5,98,65,880/- made in AY 2008-09 cannot be sustained. 22. In AY 2009-10, the AO has assessed payment of Rs.5,53,10,000/- made to M/s Banni Mines and Minerals. The Ld A.R submitted that during the year relevant to AY 2009-10, the assessee did not purchase any mineral from the above said concern. The above said payment was shown as advance only in the Balance Sheet. Since the assessee did not claim the above said payment as expenditure, the question of disallowing the expenditure does not arise. 23. We heard Ld D.R and perused the record. Since the assessee did not claim payment of Rs.5,53,10,000/- as expenditure, there is no question of disallowing any expenditure. Accordingly, the addition of Rs.5,53,10,000/- cannot be sustained. 24. The next addition made by the AO relates to the transaction made with Shri Jagadish Devadiga. The AO has added the transportation payments made to the above said person amounting to Rs.2,51,00,000/- and Rs.65,00,000/- respectively in AY 2009-10 and 2010-11. 25. The assessee has paid transportation charges to a person named Shri Jagadish Devadiga to the tune of Rs.2,51,00,000/- and ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 16 of 18 Rs.65,00,000/- respectively in the years relevant to AY 2009-10 and 2010-11. It was noticed that he was an ex-employee of the assessee firm. Since he was present at the time of search, a statement was taken from. In the sworn statement, he pleaded ignorance of all business transactions entered with the assessee. One more statement was taken from him and in that statement also, he pleaded ignorance and submitted all the transactions have been carried on by one of the partners of the assessee firm. When these statements were confronted with the partner of the assessee firm, he submitted that Shri Jagadish Devadiga has not given true statement. He also denied that the bank account of Shri Jagadish Devadigawas operated by him. Subsequently, the assessee produced return of income filed by Shri Jagadish Devadiga. During the course of assessment proceedings, an affidavit given by Shri Jagadish Devadiga retracting his earlier statement was filed before the AO. Since the retraction was made almost after two years, the AO did not accept the same. The assessee asked the AO to provide opportunity of cross examination, but the AO rejected the same also. Accordingly, he disallowed the transport payments of Rs.2,51,00,000/- in AY 2009-10 and Rs.65,00,000/- in Asst. Year 2010-11.The Ld CIT(A) also confirmed the addition made in both the years. 26. The Ld A.R submitted that Shri Jagadish Devadiga has provided transportation services to the assessee. He submitted that before the AO, the assessee has furnished copies of invoices given by Shri Jagadish Devadiga, which included working sheets relating to the transportation services. He submitted that the assessee has also furnished copies of income tax returns, tax audit report of Shri Jagadish Devadiga. He submitted that the AO has not considered material evidences, but relied upon the statement given by Shri ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 17 of 18 Jagadish Devadiga at the time of search, even though the said statement is contrary to the materials available and further the said statement has been retracted. He submitted that Shri Jagadish Devadiga is not the person, who has been subjected to search. He is only a witness. He hails from a small village which did not have proper postal facilities. He has given statement before the search officials out of fear and hence he has retracted the same later. Hence the time period taken by him in order to give true picture of transactions is not relevant. He submitted that the AO has disregarded the material evidences and instead relied upon wrong statement given by Shri Jagadish Devadiga. The Ld A.R further submitted that the AO has not provided cross examination to the assessee. He also submitted that the AO did not bring any material to prove that the transportation services were not provided to the assessee. Accordingly, the Ld A.R submitted that the AO was not justified in disallowing the transport charges paid to Shri Jagadish Devadiga both in AY 2009-10 and 2010-11. 27. We have heard Ld D.R and perused the record. We notice that the AO has placed full reliance on the statement given by Shri Jagadish Devadiga at the time of search, where as the assessee has provided evidences in the form of invoices raised by the above said person along with the trip details, income tax returns filed by above said person along with tax audit report. Shri Jagadish Devadiga has also subsequently furnished affidavit to the AO retracting from the statement given earlier. Thus, it is the witness who has retracted his statement. Since the AO did not accept the retraction statement, the assessee has asked for an opportunity to cross examine Shri Jagadish Devadiga, but the said opportunity was not given to the assessee by the AO, which has resulted in violation of Principles of natural justice. In any case, there was no material ITA Nos.466 to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet Page 18 of 18 available with the AO to show that the transportation services were not provided to the assessee. On the contrary, various materials furnished by the assessee support the case of the assessee. Under these set of facts, we are of the view that the AO has made the disallowance on surmises and conjectures. Hence it cannot be sustained. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in AY 2009-10 and 2010-11 on merits and direct the AO to delete the disallowance of Rs.2,51,00,000/- and Rs.65,00,000/- made by the AO respectively in AY 2009-10 and 2010-11. 28. In the result, all the three appeals of the assessee are allowed. Order pronounced in the open court on 29 th Nov, 2021 Sd/- (Beena Pillai) Judicial Member Sd/- (B.R. Baskaran) Accountant Member Bangalore, Dated 29 th Nov, 2021. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.