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Facts
The Revenue appealed against the order of the CIT(A) which sustained a part of the addition made by the AO regarding bogus purchases from two parties, Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. The AO had treated the entire purchases as bogus, but the CIT(A) restricted the disallowance to 12% of the total bogus purchases.
Held
The Tribunal held that the purchases made through account payee cheques, which were accepted as genuine sales by the Revenue and supported by documentary evidence and stock tallies, could not be treated as bogus. The Tribunal relied on previous judgments where similar transactions were considered genuine. The addition of 12% was directed to be deleted.
Key Issues
Whether purchases made from identified parties, supported by documentary evidence and banking transactions, can be treated as bogus solely on the basis of investigation reports suggesting accommodation entries, especially when sales are accepted as genuine?
Sections Cited
143, 143(3), 148, 133(6), 142(1), 69C, 115BBE
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
The appeal of the Revenue and CO of the Assessee are arising out against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 18.06.2024 for the AY 2018-19.
The facts in brief are that the assessee filed the return of income on 30.10.2008, declaring total income at ₹29,74,75,300/-. The case of the assessee was selected for scrutiny u/s 143 of the Act and accordingly, the assessment was framed by assessing the total income at ₹29,76,02,380/- u/s 143(3) of the Act. Thereafter, the ld. AO received information form Director of Income Tax (Systems), CBDT in accordance with the risk management strategy formulated by the Board as per the provisions of clause (1) of Explanation 1 to Section 148 of the Income-tax Act, 1961 (the Act), which revealed that the assessee had entered into transactions with two parties namely Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. ltd. of ₹1,09,32,273/- and ₹1,10,73,291/- respectively, aggregating to ₹2,20,05,564/-. Accordingly, the case of the assessee was reopened and notice u/s 148 o the Act was issued on 31.03.2022, which were complied with by the assessee by filing the return of income on 28.04.2022, declaring the same income as declared in the original return of income. Thereafter, the ld. AO after referring to the investigation wing search/ investigation, on the suspicious transactions between Bhanwar L. Gurjar, Prop of M/s Kakoda International and M/s Tanman Jewels Pvt. ltd. treated the purchases as bogus. The ld. AO noted that the investigation wing observed during the course of investigation that these transactions made for the purpose of layering of funds. It was further revealed that office of the said concern was closed and no
In the appellate proceedings, the ld. CIT (A) while partly sustaining the addition directed the ld. AO to assess the income at the rate of 12% of the total bogus purchases by observing and holding as under:-
“4.1 Appeal Notices were issued to the assessee on 28.02.2024, 12.04.2024, 15.05.2024 fixing the case for 06.03.2024, 29.04.2024, 30.05.2024 respectively. The assessee has filed written submission and relevant documents on 06.03.2024, 14.05.2024 and 29.05.2024. 4.2 I have gone through the assessment the assessment of assessment order and record available. The assessee filed its income tax return for A.Y, 2018-19 on 30.10.2018, declaring a total income of Rs 29,74,75,300/-, The assessment order under section 143(3) was passed, assessing the total income at Rs 29,76,02,380/-. Based on information flagged by the Directorate of Income Tax (Systems) and the risk management strategy of the CBDT, a notice under section 148 was issued on 31.03.2022. It was revealed that the assessee engaged in purchase transactions with two parties, Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd., totaling Rs 2,20,05,564/-. These transactions were flagged as potentially non-genuine. The assessee complied with the notice under section 148 by filing the return of income. Subsequent notices under sections 143(2) and 142(1) were issued, and the assessee responded accordingly. Investigation by the Income Tax Department, Surat, revealed that Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. were shell companies engaged in bogus transactions. The physical verification of their premises indicated no business activities conducted for several years. Financial analysis further supported the suspicion of bogus transactions. The assessee provided details of purchases, copies of returns of income of seller parties, bank statements, and stock registers. However, the investigating authority deemed these submissions insufficient to prove the genuineness of the transactions. Considering the investigation findings and the inadequacy of the assessee's submissions, the assessing officer treated the purchases from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. as bogus purchases. These were added as unexplained expenditure under section 69C read with section 115BBE. The total income was computed at Rs 31,96,08,034/-, includingthe income as per the original assessment order and the addition of unexplained expenditure. The assessment 4.3 I have gone through the assessment order and record available. In the instant case, the assessments was reopened under Section 147 of the Income Tax Act, 1961, because the assessee was alleged to have received accommodation entries from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. These dealers were purportedly providing accommodation entries without the actual business of goods. During the reassessment process, the assessee was required to validate the purchases made from these vendors. The AO classified the purchases as non-genuine because the business premises of the above mentioned sellers were found closed by department with no business activity, and the parties remained untraceable for service of notice u/s 133(6). The AO added Rs 2,20,05,564/- as unexplained expenditure under section 69C read with section 115BBE on the non-genuine nature of the purchases. In my view, given that sales were accepted as genuine by AO, it could be concluded that the above purchases could not be treated as non-genuine. Hence, there should be a reasonable estimation of the profit element from these purchases. Although, the appellant has given the copies of bank accounts showing payment and receipts but has failed to prove that the above said entities from where the purchases have been made actually did not physically existed. No document with relation to them has been submitted. Since the assessee could not conclusively prove that the purchases were actually made from the genuine parties, a profit element at 12% may be charged by AO from these purchases. The disallowance of purchases is to be restricted to 12%, and the income to be computed accordingly. The assessee failed to present the vendors for verification. A reasonable estimation of the profit element due to the inability to conclusively prove the parties as genuine is seemed appropriate on the facts of the case.
As a result, the appeal of the assessee is partly allowed.”
5. After hearing the rival contentions and perusing the materials available on record, we find that in this case, the assessee has furnished all the information/ details along with the supplies received, evidencing the receipt of materials from the said suppliers for which the assessee has filed the copies of bills, vouchers, bank statements, confirmations from the parties and stock register etc. The assessee has also produced stock tally evidencing the movement of stocks, the books of accounts were duly audited by tax auditor with no adverse inference was drawn. We even note that in the original assessment proceedings which culminated u/s 143(3) of the Act, these purchases
We note that in this case, the assessee is a very big jeweler, who has declared income of ₹29,76,02,380/- during the year and each and every item of purchases were meticulously recorded in the book of accounts as well as in stock register. Thereafter, the movement of stocks were also recorded minutely with all details and descriptions and finally, recording the sales made against the said purchases. In other words, the direct stock tally is available in the stock register of the assessee. Besides the payments were made through banking channels and it was not the allegation that the cash was introduced before the payments made for the purchases. Therefore we are in a position to subscribe to the conclusion drawn by the ld. CIT (A) of partly sustaining the addition to the extent of 12% of the so-called “It appears from record that a Division Bench of this Court, at the time of admission of the appeal, formulated the following substantial question of law: "i) Whether on the facts and in the circumstances of the case the Learned Tribunal was right in law in holding that genuine purchasefrom M/a. SelvasPhotographics, M/s. Soma Enterprises and M/s Imprint's-N-Trade were bogus when on the contrary the relevant documents and/or evidence in support of the said transactions and the existence of the parties were made available before the same and whether the said arbitrary confirmation and/or addition of amounts of Rs. 3,12,302/-, Rs. 50,675/- and Rs. 1,00,737/- respectively is perverse? ii) "Whether on the facts and in the circumstances of the case the learned Tribunal could ignore the order of the Commissioner of Income Tax (Appeals) which was order impugned before the Learned Tribunal and which contained the necessary details about the genuineness of the transaction of the petitioner and whether such total go-by of the order of the Commissioner of Income Tax (Appeals) and on the contrary confirmation of the order of the Assessing Officer was perverse?" After hearing Mr. Sen, the learned advocate appearing on behalf of the appellant, and Mr. Agarwal, the learned advocate appearing on behalf of the Revenue and after going through the materials on record, we agree with the Tribunal below that so far as the purchases from M/s. Soma Enterprises and M/s. Imprint's-N-Trade were concerned, the alleged payments being made in cash and the amount involved being
In the result, CO of the assessee is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 17.03.2025.