ACIT-19(1), MUMBAI vs. PERRY IMPEX, MUMBAI

Facts

The assessee, Perry Impex, a diamond manufacturer and trader, was found to have made purchases from entities that provided accommodation entries for bogus sales. The Assessing Officer (AO) estimated income by adding 5% of these purchases, which the CIT(A) reduced to 3%. The assessee contended that the reassessment notice was issued to a non-existent entity and that cross-examination was not provided.

Held

The Tribunal held that the purchases were indeed non-genuine accommodation entries. While the reassessment notice was initially issued to a firm that had merged, the Tribunal found that the assessee had not informed the AO and had participated in the proceedings. The Tribunal reduced the addition from 5% to 2.5% of the bogus purchases, considering the nature of the diamond business and profit margins.

Key Issues

Whether reassessment proceedings initiated on a non-existent entity are valid, and whether a 2.5% profit addition is justified on bogus purchases in the diamond trading business, considering the lack of cross-examination.