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Facts
The Revenue's appeal arises from an order restricting an addition for bogus purchases to 3% of the total amount. The Assessing Officer had added the entire amount of Rs. 12,52,880/- based on information from the DGIT (Investigation Wing) that the sellers were paper companies providing accommodation entries. The assessee is a partnership firm dealing in diamonds.
Held
The Tribunal held that in similar cases and for previous assessment years, additions for bogus purchases were restricted to the profit element, typically 3%. Following the consistent view of the ITAT and the CIT(A)'s order, the Tribunal concurred that only the profit element embedded in the bogus purchases should be brought to tax, not the entire amount.
Key Issues
Whether the addition for bogus purchases should be the entire amount claimed or only the profit element, considering past precedents and the CIT(A)'s findings.
Sections Cited
143(1), 148, 143(2), 142(1), 132(4), 68, 69C, 250
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The present appeal filed by the revenue arises out of order dated 16/12/2024 passed by Commissioner of Income Tax, Appeal, CIT(A)-51, Mumbai for assessment year 2010-11 on following grounds of appeal :
Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 35 as against the total addition of Rs. 12,52,880/-made by the AO, on account of bogus purchases of diamonds from M/s Audi & Kulash Enterprises, both are paper/dummy tompanies of Mr. Rajendra Jain/Sanjay Choudhary Dharmichand Jain Group ?
2 ITA 6580/Mum/2024 A.Y. 2010-11
2. Whether on the facts and Circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 31% as against the total addition of Rs. 12,52,880/- made by the AO, on account of bogus purchases from M/s. Andi & Kalash Enterprises, by ignoring the fact that action of the Assessing officer was based on the information of the DGIT (Investigation Wing) Mumbai, proved beyond doubt with the evidences/documents that M/s Andi & Kalash Enterprises, both are paper/dummy companies, managed and controlled by Mr. Rajendra Jain Sanjay Choudhary Dharmichand Jain Group and were involved in providing only accommodation entries of bogus purchases & Sales to beneficiaries and the assessee was found to be one of such beneficiary who has obtained accommodation entries of bogus purchases of diamonds without actual delivery?"
3. Whether on the facts and Circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 3% as against the total addition of Rs. 12,52,880/- made by the AO, on account of bogus purchases from M/s. Aadi & Kalash Enterprises, without appreciating the fact that Mr. Rajendra Jain, Sanjay Choudhary, Dharmichand Jain, in their statements on oath recorded u/s. 132(4) of the 1. T. Act, have admitted that they were involved in providing accommodation entries which purportedly shows transaction of purchases & sales of materials to assessee through M/s Aadi & Kalash Enterprises, without actual supply of diamonds/materials and this transaction were undertaken to generate paper tail only ?"
Whether on the Jaute and Creumanances of the case and in law, L. CITIA) has erred in restricting the addition to 26 as aptinat the total edition of Rs. 12,52,380/de by the AC, an account of bogus purchases of diamonds from M/s Aadi & Kalash Enterprises, without upprechating the fact that during the Bearch Action cumulucted on partious group of companies of Mr. Rajendra Jain Saryny Chemdinary Dharmichand Jain Chrongs, no stock of diamonds or related materials was found and durmy the re-assessment proceedings, the assessse has failed to prove that alleged purchases Irunsactions are penuine one, by net producing the documents/esidences/delivery challans, stook rapaters etc before Assessing officer 5. Whether on the facts and Creumatonces of the case and in law, L4. CITIA) has erred in restricting the addition to 316 as egoinat the total addition of Rs. 12,53,880/- made by the AG, on account of bogus purchases of diamonds from M/s Aodi & Kalush Enterprises, by estimating the income of Bogus Purchases on the basis of comparing of hogus purchases with the purchases in the regular books of accounts ignoring the fact that procuring bogus invoices leads to the un-perified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of Accounts P 3 ITA 6580/Mum/2024 A.Y. 2010-11 6. Whether an the facts and Circumstances of the case and in law, Ld. CIA) has erred in restricting the addition to 3% as against the total addition of Rs. 12,52,880/-made by the AO on acmount of bogus purchases of diamonds from M/s Aadi & Kalash Enterprises, by ignoring the element of reasons for procuring of bogus invoices, when it was observed that GP on these bogus tuolces were almost matching with the GP, as per genuine invoices and therefore, such estimation of income out of bogus purchases with GP, as per regular books of accounts is not justified?"
Whether on the facts and Circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to 30% as against the total addition of Rs. 12,52,880/-usthout appreciating the decision of the Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Gul) 354, Dated. 16.01.2017, wherein the Hon'ble Court has held that Once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P AL account ure established as bogus, then restricting the addition to a curtained percentage goes against the principles of section 68 and 69C of the Income-Tax Act, 1961 ? 9. Whether on the facts and arcumstances of the ouse and in low, the order of the Ld. CIT(A), perverse in not considering that the order of Hon'ble Supreme Court in the case of M/s. N. K.Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases, was already the law of the land when the Ld. CIT(A) has pronounced it's order on 16.10.2024 ?"” Brief facts of the case are as under:
The assessee is partnership firm engaged in trading and exporting in the business of diamonds. It filed its return of income for year under consideration declaring total income of Rs. 63,206/-. The return was processed under section 143(1) of the Act. Subsequently, during the course of search proceedings conducted in the case of Rajendra Jain/Sanjay chaudhary/Dharmichand Jain/and their group on 03/010/2013, it revealed that, the said group concerns were engaged in providing accommodation entry of bogus purchases and sales/bogus unsecured loan are advanced to various beneficiaries. The investigation wing found that the assessee has 4 ITA 6580/Mum/2024 A.Y. 2010-11 obtained accommodation entry in the form of bogus purchases during the financial year relevant to assessment year under consideration to the tune of Rs. 9,46,407/- and 3,06,473/-, form two paper companies in the name of AADI and Kalash respectively, that was managed by Rajendra Jain and group. 2.1 Accordingly notice under section 148 was issued to the assessee. Subsequently notice 143(2) and 142(1) was issued calling upon assessee to furnished various details. The Ld.AO after considering the details relied on the decision of Hon’ble supreme court in case N.K. Proteins Ltd. Vs. DCIT reported in 2017 84 taxmann.com 195 made addition in the hands of the assessee amounting to Rs. 12,52,880/- being bogus purchases.
Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) after considering the fact observed that identical issue arose during assessment year 2012-13 and this Tribunal restricted the addition at 3% of the alleged bogus purchases. The Ld.CIT(A) thus and held as under: “6.3.1 The findings of the AO and the order of the ITAT for AY 2012- 13 & order u/s 250 of my predecessor for A.Yrs. 2011-12 & 2012-13 have been perused. The sole issue in this ground of appeal
pertains to the addition of Rs. 12,52,880/- being the amount of bogus purchases made from M/s Aadi & M/s Kalash Enterprises. The appellant in the submission has argued that the AO has erred in making this addition as all the bills and documents relating to the purchases were submitted with the AO and that these payments were made through account payee cheques. The contention of the appellant is devoid of merit since it is a normal practice in the case of accommodation entries that bills and vouchers and ledger accounts are up to date. Its also a matter of fact that the accommodation entry providers have duly accepted during the course of search & seizure on their premises that they are only providing accommodation entries. In view of the above
5. ITA 6580/Mum/2024 A.Y. 2010-11 and also in view of the detailed findings given by the AO in his assessment order, I hold that there is no infirmity in the action of the AO in treating these purchases as bogus. 6.3.2 As regards the quantum of addition to be made, I am in agreement with the submission of the appellant that the AO has not disputed the sales made by it and since there can be no sales without purchase only the profit element embedded in the purchases may be added back. The AO has however added back the entire amount. It is also seen that the ITAT, Mumbai in appellants own case for A.Y. 2012- 13 in ITA No: 430/mum/2012-13 has already held that addition @ 3% of the alleged bogus purchase can only be made. Respectively following the decision of ITAT, it is held that the GP addition @ 3% of the bogus purchase made from M/s Aadi &Kalash Enterprises can only be upheld. Accordingly, the addition of the AO is restricted to Rs.37,586/-, being3% of the bogus purchase and the balance amount of Rs.12,15,294/- is deleted. These grounds of appeal are therefore allowed.” Aggrieved by the order of the Ld.CIT(A) the revenue is in appeal before this Tribunal
4. Admittedly, the facts pertaining to bogus purchases and the parties form whom assessee sought to have obtain the alleged bogus purchases are identical and similar with that of assessment year 2012-13. The coordinate bench of this Tribunal while considering the similar issue in for assessment year 2012-13 in assessee’s own case vide order dated 22/05/2024 observed and held as under : “7. We find that the CIT(A) has granted relief to the Assessee observing as under: "8.1 The AO found that the assessee had made purchases amounting to Rs. 3,19,29,587/- from four parties which were concerns belonging to the Rajendra Jain group. Since it was established that the concerns belonging to the Rajendra Jain group were only providing accommodation entries of unsecured loans and purchases, the AO concluded that the assessee had only obtained bills from these parties without actually getting any material. These bills were thus held to be nothing but accommodation 6 ITA 6580/Mum/2024 A.Y. 2010-11 entries and the AO added the entire amount of such bogus purchases amounting to Rs. 3,19,29,587/- to the total income of the assessee. 8.2 The appellant on the other hand has argued that the impugned purchases were genuine and payments were made through banking channels. The appellant, besides relying on certain other case laws, has also relied on the order dated 31.01.2017 of my Ld predecessor CIT(A) for AY 2007-08 wherein on similar facts of alleged bogus purchases, the AO had added the entire amount of bogus purchases from the same group to the total income of the assessee but the Ld CIT(A) had restricted the addition to 3% of the bogus purchases, being the profit element embedded in such bogus purchases. 8.3 The appellant has also relied on the order dated 15.03.2016 of the Assessing Officer i.e. ITO-19(3)(2) Mumbai for AY 2008-09 wherein on similar facts of bogus purchases, the AO has added 3% of the bogus purchases from the same group to the total income of the assessee. 8.4 The appellant has also relied on the latest order dated 23.05.2023 of the Assessing Officer, the National Faceless Assessment Centre for AY 2013-14 wherein on similar facts of bogus purchases, the AO has added 3% of the bogus purchases from the same group to the total income of the assessee, being the profit element embedded in such purchases. 8.5 The settled position of the law is that the onus lies on the appellant to prove the genuineness of the purchase transactions claimed as genuine. However, as seen from the records, this onus has not been discharged. The Courts have time and again held that if the investigation done by the department leads to a doubt in respect of the genuineness of the transactions/purchases, it is Incumbent on the assessee to produce the parties along with the necessary documents to establish the genuineness. In the instant case, there is uncontroverted evidence regarding the bogus nature of the purchases from an impeccable source l.e the Investigation Wing of the Income Tax Department and the evidences include admission from the so called sellers that they have been issuing bogus bills. It is also seen that not only my predecessor CIT(A) but also the AO in other assessment years made an addition of only the profit element embedded in the bogus purchases @3% of such bogus purchases. Since the facts are identical, I have no reason to deviate from the stand taken by my Ld Predecessor and also the AO for the other years. Therefore, the addition on 7 ITA 6580/Mum/2024 A.Y. 2010-11 account of the non-genuine purchases is restricted to the profit element embedded in such non-genuine purchases which is 3% of Rs. 3,19,29,587/- which amounts to Rs. 9,57,888/-. The remaining addition of Rs. 3,09,71,699/- [Rs. 3,19,29,587/-minus Rs. 9,57,888/-] is accordingly deleted. These grounds of appeal are, therefore, partly allowed."
8. On perusal of above, it emerges that the CIT(A) restricted the amount of disallowance to 3% of the alleged bogus purchases after taking into consideration the fact for the Assessment Year 2008-09, vide order dated 15/03/2016, the Assessing Officer had made addition of 3% of the bogus purchases made from the same group. Similarly, for the Assessment Year 2013-14, vide assessment order dated 23/05/2023, the disallowance, computed at the rate of 3% of the bogus purchases, was made by the Assessing Officer. Further, for Assessment Year 2007-08, the predecessor of the CIT(A) had, vide order dated 31/01/2017, restricted the addition to 3% of the bogus purchases. Therefore, as a result of the aforesaid assessment and appellate proceedings before the CIT(A), only the profit element embedded in bogus purchases (and not the entire amount of bogus purchases) were brought to tax in the hands of the Assessee. There is no change in the fact and circumstances in the previous year relevant to the assessment year before us. On perusal of assessment order, we find that the addition has been made under Section 69C of the Act. We note that in paragraph 12 of the Assessment Order, the Assessing Officer has noted that the Assessee has produced books of accounts, sale/purchase registered along with sale and purchase/sale transactions and had submitted that the aforesaid transactions were undertaken through banking channel. Further, while recording the submissions of the Assessee in relation to Ground No. 2 and 3 raised in appeal before CIT(A) (starting from page 10 of 32 of the order impugned), the CIT(A) has listed the documents which were furnished by the Assessee to support the transactions. The aforesaid documents included bank statements of the Assessee reflecting payments made to various 8 ITA 6580/Mum/2024 A.Y. 2010-11 suppliers. We find that the sales reflected in the books of accounts have been accepted by the Assessing Officer. Therefore, we concur with the CIT(A) that in the aforesaid facts and circumstances only profit element embedded in the alleged bogus purchases can be brought to tax in the hands of the Assessee, and that the judicial precedents relied upon by the Revenue in grounds of appeal are distinguishable in view of the aforesaid facts. In the present case the rate of profit embedded in the alleged bogus purchases has been accepted to be 3% by the Assessing Officer and the CIT(A) in the aforesaid assessment/appellate proceedings. There is nothing on record to show that the aforesaid decision of the Assessing Officer/CIT(A) have been challenged by the Revenue and/or have been overturned in the revision/appellate proceedings. Accordingly, we do not find any infirmity in the order dated 01/12/2023, passed by the CIT(A) restricting the addition on account of alleged bogus purchases to the profit element of 3% embedded therein. We note that the decision of the CIT(A) is also in line with the decision in the case of the Mumbai Bench of the Tribunal in the case of Oopal Diamond Vs. Assistant Commissioner of Income Tax 19(2), Mumbai:[ITANo.1499/Mum/2020, & dated 26/10/2022] cited by the Assessee before the CIT(A). There is nothing on record to persuade us to take a view different from the view taken by the CIT(A). Accordingly, we do not find any infirmity in the order passed by the CIT(A). All the grounds raised by the Revenue are dismissed as being without merit.”
5. Nothing contrary to the above has been filed by the revenue before this Tribunal, in order to distinguish the observation made by the coordinate Bench. Respectfully following the same, I do not find any reason to deviate from the view taken by the Ld.CIT(A) and the same is upheld. Accordingly grounds raised by the revenue stands dismissed.
9 ITA 6580/Mum/2024 A.Y. 2010-11 In the result the appeal filed by the revenue stands dismissed. Order pronounced in the open court on 17/02/2025