2018 (2) TMI 1760 - AT - Income Tax

Reassessment u/s 147 - Disallowance of purchases at 12.5% - beneficiaries of bogus purchases made by certain entities - bogus bills - Assessing Officer concluded that the material was debited against various suppliers have entered into stock register and the assessee has shown corresponding sales against the said purchases debited and this could only mean that the diamonds were brought by the assessee from the gray market without bill and to adjust these transactions into the Books of Accounts, assessee has obtained bills from Shri Bhanwarlal Jain group concerns. Held that - the assessee has duly discharged its burden of proving the genuineness of the purchases and the Assessing Officer without making proper investigation, simple relied on the statements of third party to treat the purchases as bogus. Assessing Officer could not prove that the information furnished by the suppliers are not genuine so as to treat the sales made by them are only bogus. In the circumstances, we set aside the orders of the lower authorities and delete the disallowance made towards bogus purchases for all these Assessment Years i.e. 2011-12 to 2013-14 which are under appeal before us. Decided in favor of assessee.

Issues Involved:
1. Reopening of assessments under Section 147 of the Income Tax Act.
2. Disallowance of purchases as non-genuine/bogus.
3. Estimation of profit element in disallowed purchases.
4. Reliance on statements from third parties (Bhanwarlal Jain group).
5. Verification and genuineness of purchase transactions.
6. Treatment of purchases in the absence of delivery challans.
7. Application of judicial precedents and case laws.

Issue-wise Detailed Analysis:

1. Reopening of Assessments under Section 147:
The assessments for the Assessment Years 2011-12 to 2013-14 were reopened based on information from the DGIT (Investigation), Mumbai, indicating that the assessee was a beneficiary of bogus purchases from entities managed by the Bhanwarlal Jain group. The reopening was predicated on the group's admission of providing accommodation entries without real business transactions.

2. Disallowance of Purchases as Non-genuine/Bogus:
The Assessing Officer (AO) disallowed 12.5% of the purchases for Assessment Years 2012-13 and 2013-14 and 100% for Assessment Year 2011-12, asserting that the purchases were bogus. This conclusion was based on the lack of delivery challans and statements from the Bhanwarlal Jain group, which admitted to providing only accommodation entries.

3. Estimation of Profit Element in Disallowed Purchases:
The Ld. CIT(A) upheld the AO's action but modified the disallowance to 12.5% for all the assessment years, citing judicial precedents from the Hon'ble Gujarat High Court in CIT v. Bholanath Polyfab Pvt. Ltd. and CIT v. Simit P. Seth. The CIT(A) reasoned that the purchases were unverifiable due to the parties not being found at their given addresses, suggesting over-invoicing or purchases from the grey market.

4. Reliance on Statements from Third Parties (Bhanwarlal Jain Group):
The AO's reliance on the statements from the Bhanwarlal Jain group was a significant factor in treating the purchases as bogus. However, the assessee argued that these statements had been retracted and that the purchases were genuine, supported by various documents, including purchase invoices, ledger confirmations, and bank statements.

5. Verification and Genuineness of Purchase Transactions:
The assessee provided substantial documentation to prove the genuineness of the purchases, including confirmations from the suppliers in response to notices issued under Section 133(6). The suppliers provided ledger accounts, sales invoices, bank statements, and income tax returns, all supporting the transactions' authenticity.

6. Treatment of Purchases in the Absence of Delivery Challans:
The AO's conclusion that the purchases were bogus was partly due to the absence of delivery challans. The assessee contended that in the diamond industry, hand delivery is common, and the absence of delivery challans should not lead to adverse conclusions.

7. Application of Judicial Precedents and Case Laws:
The Ld. CIT(A) and the Tribunal referenced several judicial precedents, including the Bombay High Court's decision in CIT v. NikunjEximp Enterprises (P.) Ltd., which held that purchases could not be disallowed merely because suppliers did not appear before the AO. The Tribunal also noted the consistent gross profit margin shown by the assessee, which aligned with the CBDT's profit margin guidelines for the diamond trade.

Conclusion:
The Tribunal concluded that the assessee had adequately discharged the burden of proving the genuineness of the purchases. The AO's reliance on third-party statements without proper investigation was insufficient to treat the purchases as bogus. Consequently, the Tribunal set aside the lower authorities' orders and deleted the disallowance of bogus purchases for all the assessment years under appeal.

Result:
The appeals of the assessee were allowed, and the disallowance made towards bogus purchases was deleted for the Assessment Years 2011-12 to 2013-14.

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