Here is a reopened case of a diamond merchant reported at [2021] 92 ITR (Trib) 647 (ITAT[Surat]) in which the tax officer disallowed 100% of purchases invoking section 69 provisions from a specific party based on information received from investigation wing alleging that such party provided accommodation entries of sale and purchase and that the assessee was one of the beneficiaries who had shown purchase of Rs. 3,50,000 from such party.
The assessee filed confirmation of account details of supplier and stock register, sale, purchase register, bank statements and has shown one to one co-relation of purchase and sale.
The Assessing Officer did not made any independent enquiry and solely relied upon the report of Investigation Agency thus did not follow the procedure of law and disallowed purchase value of 350000.
The Commissioner of Income-tax (Appeals) upheld the order of the AO by taking a view that circumstantial evidence shows that purchases are not genuine even knowing very well that the AO has not undertaken any independent enquiry and not followed the due procedure of law.
The Tribunal too disallowed a token amount of 20000 citing the possibility of revenue leakage in this case apparently to make up for failure of AO to conduct independent investigation in this case.
Circumstantial evidence may be considered only if the AO would have done his independent investigation and only in a situation he had found any missing links and certainly not in this fact situation.
There is no case for any addition be it any token amount as had been the course adopted by the Tribunal.