Loading judgment…
Facts
The Revenue filed an appeal against the order of CIT(A) which restricted an addition made by the Assessing Officer (AO) from 8% to 2% on account of alleged bogus purchases. The assessee, a diamond trading firm, had claimed purchases from entities linked to certain groups, which the AO deemed bogus based on information from an investigation wing. The AO added 8% profit margin on these alleged bogus purchases.
Held
The Tribunal held that the additions should be limited to bringing the Gross Profit (GP) rate on purchases to the same level as other genuine purchases, citing the jurisdictional High Court's decision. In this case, the GP rate on alleged bogus purchases was already higher than other genuine purchases. The Tribunal also referred to the assessee's own case for a prior assessment year where a similar addition was restricted to 2%.
Key Issues
Whether the CIT(A) erred in restricting the addition on account of alleged bogus purchases from 2% instead of the 8% proposed by the AO, considering the facts and relevant judicial precedents.
Sections Cited
143(3)(ii), 147, 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of Ld. CIT(A)-49, Mumbai, vide order No. ITBA/APL/S/250/2024- 25/1066131642(1), dated 27.06.2024 passed against the assessment order by Assistant Commissioner of Income Tax-19(1), Mumbai, u/s. 143(3)(ii) r.w.s. 147 of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.03.2016 for Assessment Year 2008-09.
Grounds taken by the Revenue are reproduced as under:
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases from 5 bogus entities?"
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases from 5 bogus entities, by ignoring the fact that O/o. DGIT(Inv.), Mumbai had proved beyond doubt that Mr. Bhanwarlal Jain and Rajendra Jain concerns were involved in providing accommodation entries of Sales & Purchases, without actual delivery of goods and as the information has revealed that the assessee was found to be one of the beneficiary who has accepting accommodation entries for the alleged bogus purchases?"
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 2% instead of 8% of Rs. 28,12,12,205/ made by the Assessing officer on account of alleged bogus purchases without appreciating the fact that during the search Operation Mr. Bhanwarlal Jain and Rajendra Jain have admitted in statement on oath, which recorded u/s 132(4) of the Act, that all these 5 entities from whom the assessee has claimed to have made purchases, were operated, managed and controlled by their groups only ?"
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases without appreciating the fact that, during the search operations, no stock of diamond was found in the premises of the group entities of Mr. Bhawarlal Jain and Mr. Rajendra Jain, from whom the assessee claimed to have made alleged bogus purchases?
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @ 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases, without considering the fact that, the action of the assessing office was based on credible information received from the O/o. DGIT( Inv.), Mumbai and that during re-assessment proceedings, the assessee has failed to prove the genuineness and creditworthiness of the transactions as well as alleged parties ?"
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition @ 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases from 5 bogus entities are in the nature of unexplained and without giving any satisfactory grounds on which Ld. CIT(A) is defended ?"
"Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the addition 2% instead of 8% of Rs.
Chhaya Gems, AY 2008-09 28,12,12,205/ made by the Assessing officer on account of alleged bogus purchases, without appreciating the decision of the Hon'ble Supreme Court in the case of N.K. Proteins Ltd Vs Dy. CIT (2016)292 CTR (GUJ.) 354, wherein the court has held that when the purchases are from bogus suppliers/parties, the entire purchases are liable to be disallowed ?" 8. "Whether on the fact and in the circumstances of the case and in law, the order of the Ld. CIT (A) is perverse in not considering the order of Hon'ble Supreme Court in the case of N.K. Proteins Ltd, Dated. 16.01.2017, which is on the similar issue of bogus purchases and when the Hon'ble Apex Court order was already the law of the land, when the Ld. CIT(A) has pronounce its order on 27.06.2024 ? 9. "Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting addition @ 2% instead of 8% of Rs. 28,12,12,205/- made by the Assessing officer on account of alleged bogus purchases, without appreciating the fact that in the case of Swetamber Steels Ltd (Supra), the Hon'ble ITAT, Ahmedabad, has confirmed the disallowance of the bogus purchase in entirely stating that the purchases shown from respective parties were found non-genuine and the decision of the ITAT was upheld by the Hon'ble Gujarat High Court and Hon'ble Supreme Court ? .
In the instant case, the appeal is being filed before Hon'ble ITAT. The tax effect involved in the instant case is Rs. 43,23,572/-, which is below the prescribed limit as per CBDT's revised Circular No. 5/2024 dated 15.03.2024, however, this case falls under one of the exceptions specified in paragraph 3.1 (h) of the above stated Circular, wherein it is stated that in cases involving Organized Tax Evasion, including cases of bogus Capital gain/loss through penny stocks, the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit.”
Brief facts of the case are that assesse is a firm engaged in the business of manufacturing and trading of cut and polished diamonds. It filed its return of income on 29/09/2008, reporting total income at Rs.4,01,23,880/-. Subsequently, ld. Assessing Officer issued a notice u/s. 148 of the Act on 26/03/2015, reopening the case u/s. 147 of the Act. Thereafter, the ld. AO completed the assessment u/s. 143(3) r.w.s. 147 of the Act vide order dated 30/03/2016, assessing the total income at Rs.6,26,20,860/-. While doing so, ld. AO treated purchases claimed by the assesse to the tune of Rs.28,12,12,205/- to be bogus and non-genuine and added an amount of Rs.2,24,96,976/-, being profit margin @ 8% embedded in the said alleged non-genuine purchase transactions, to the total income of the assessee.
3.1. Case of the assesse was reopened on the basis of certain information received from the Investigation Wing. The information was based on the search/survey action carried out by the Investigation Wing in the cases of Shri Rajendra Jain Group and Shri Bhanwarlal Jain Group. During the course of the search/survey, it was found that Shri Rajendra Jain was operating dummy concerns for the sole purpose of facilitation of fraudulent financial transactions including providing accommodation entries in the form of unsecured loans and bogus sale bills to interested parties. According to the ld. Assessing Officer, assessee is one of the beneficiaries by way of arranging bogus purchase transactions.
3.2 Ld. AO claimed that that during the year under consideration, assesse has claimed to have made following purchases from the concerns operated by Shri Rajendra Jain :
Name of the concern Amount (Rs.) Avi Exports 12,68,18,173 Sun Diam 1,18,56,398 Sparsh Exports Pvt. Ltd. 5,53,62,024 Vitrag Jewels 97,45,802 Total 20,37,82,397 3.3. Further, ld. AO found that during the year under consideration, assessee had also claimed to have made purchases of Rs.82,19,765/- from M/s. Rajan Diamonds, which is one of the concerns operated by Shri Bhanwarlal Jain and family. Thus, the total alleged bogus purchases comes to Rs.21,20,02,162/-. However, ld. Assessing Officer Chhaya Gems, AY 2008-09 has taken the figure of Rs.28,12,12,205/-, fact of which ld. CIT(A) has noted and directed the ld. Assessing Officer to verify and ascertain the right figure before making the addition.
3.4. In view of the findings of the search carried out by the Investigation Wing in the cases of Shri Rajendra Jain and Shri Bhanwarlal Jain discussed in the foregoing paragraphs, ld. AO required the appellant to show cause as to why the above purchases should not be treated as bogus. In reply, assessee contended that the purchases were genuine with actual delivery of goods. It also contended that the payments had been made through banking channels and that the rough diamonds purchased from these parties had been manufactured into polished diamonds and sold and both the purchases and sales were recorded in the stock register. Assessee also contended that during the course of search, nothing was found to show that there was transfer of cash in lieu of accommodation entries provided. After considering the contentions of the assesse and the findings of the search in the cases of Shri Rajesh Jain and Shri Bhanwarlal Jain, ld. AO held that profit margin @ 8% of the total value of the above transactions be added to the total income of the assessee for the year under consideration. Ld. AO made an addition of Rs.2,24,96,976/- on this account. Aggrieved, assessee went in appeal before the ld. CIT(A), who directed the ld. AO to restrict the addition to 2% of the purchases allegedly treated as bogus. Aggrieved, Revenue is in appeal before the Tribunal.
3.5. Assessee submitted that in its case, sales made are not in dispute, the same have been accepted by the Department while making the impugned assessment. Accordingly, the case of the assessee is squarely covered by the decision of Hon'ble Jurisdictional Chhaya Gems, AY 2008-09 High Court of Bombay in the case of PCIT vs. Mohammed Haji Adam and Co. [2019] 103 taxmann.com 459 (Bom) wherein in para-8, it was held as- “The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases.”
Per contra, ld. CIT DR placed reliance on the order of ld. Assessing Officer and asserted that ld. Assessing Officer is justified in making addition @8% over and above what has already been reported by the assessee, since it is a case of bogus purchase transactions by way of accommodation entry.
We have heard both the parties and perused the material on record. Ld. CIT DR has also not brought on record any cogent material to controvert the said facts. Ld. Assessing Officer has made an addition by taking an estimated rate of 8% which according to us cannot be justified in the light of findings given by the Hon'ble Jurisdictional High Court of Bombay in the case of Mohammed Haji Adam and Co. (supra), according to which the additions should be limited to the extent of bringing GP rate of the purchases at the same rate of other genuine purchases. In the present case, GP rate on the alleged bogus purchases reported by the assessee is higher than the GP rate of the other genuine purchases. Further, GP Rate for the year in question is reported @ 8.25% of the turnover. Ld. Assessing Officer made the addition @8%. Also, ld. CIT(A) noted that for Assessment Year 2007-08, similar addition was made by the ld. Assessing Officer which was restricted to 2% when the matter went upto the Tribunal stage. He thus, relied on the findings for Assessment Year 2007-08 to Chhaya Gems, AY 2008-09 restrict the addition at 2% in the year under consideration. Ld. Assessing Officer is directed to recompute the addition based on above finding by taking into account the correct figure of alleged bogus purchases, as pointed out by ld. CIT(A). Thus, in the given set of facts and considering aforesaid judicial precedents as well as findings in assessee’s own case for Assessment Year 2007-08, grounds taken by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order is pronounced in the open court on 26 November, 2024 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member
Dated: 26 November, 2024 MP, Sr.P.S. Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT
BY ORDER,
(Dy./Asstt.Registrar) ITAT, Mumbai