2018 (4) TMI 1623 - AT - Income Tax

Addition made under the head peak credit of transactions related to bogus purchases - Held that - As decided in bogus purchase of diamonds from BJ group has been already been deliberated upon by the Tribunal and it stands decided. Facts of the case under consideration are almost identical to the facts of Vama International 2018 (2) TMI 1760 - ITAT MUMBAI . In that case also the AO had added the entire purchases to the income of the assessee and the FAA had given part relief to the assessee.In the instant case,the assessee was denied the opportunity of cross examination though it had made a request to the AO during the assessment proceedings.By not allowing cross examination of the third party,whose statement was being used against the assessee,the AO had violated the basic principles of natural justice.Only on that count the order can be quashed.But, we are considering other factors.BJ has retracted his statement.So,the authenticity of the material relied upon by the AO reduces to a great extent.The supplier has admitted the transaction and the AO has not doubted the sales.It is also found that DD had filed VAT returns. Addition u/s 68 - Held that - In the case of Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries.

Summary

Issues Involved:
1. Addition of ?3.65 crores under the head peak credit of transactions related to bogus purchases.
2. Direction to estimate the profit of 12.5% of the purchases.
3. Addition of ?79.80 lakhs as unexplained cash credit under section 68 of the Act.

Issue-wise Detailed Analysis:

1. Addition of ?3.65 crores under the head peak credit of transactions related to bogus purchases:

The AO received information from the DGIT(Inv.), Mumbai, regarding search actions in the Bhanwarlal Jain Group and Rajendra Jain Group, where it was admitted that they provided accommodation entries for bogus purchases through various benami concerns. The AO held that the assessee had obtained non-genuine bills from five entities and made an addition of ?3,65,08,250/- under section 69 C of the Act. The FAA, after considering the material, held that mere payment by account-payee-cheques would not be sacrosanct and that the AO had not justified the entire purchase price disallowance. The FAA directed the AO to estimate the gross profit (GP) at 12.5% and reduce the GP already shown by the assessee from this estimate.

2. Direction to estimate the profit of 12.5% of the purchases:

During the hearing, the DR argued that the assessee did not produce the stock register and that the transactions routed through banking channels did not prove the genuineness of the transactions. The AR argued that the AO had not provided an opportunity for cross-examination and had rejected the books of account without finding any defects. The Tribunal noted that identical issues were decided in the case of Vama International, where it was held that the purchases were not beyond doubt, but what could be taxed was the differential gross profit. The Tribunal upheld the FAA's direction to estimate the profit at 12.5% of the purchases.

3. Addition of ?79.80 lakhs as unexplained cash credit under section 68 of the Act:

The AO treated the unsecured loans of ?79.80 lakhs as unexplained cash credit. The FAA upheld the AO's order, observing that the assessee had changed its stand during the appellate proceedings. The AR argued that the assessee had provided sufficient evidence to prove the genuineness of the loan, including ledger accounts, bank statements, confirmation letters, and affidavits from the lender. The Tribunal referred to the case of Jitendra M Kitawat (HUF), where it was held that the assessee had discharged its burden of proving the genuineness of the transactions. The Tribunal decided the issue in favor of the assessee, directing the deletion of the addition made under section 68.

Conclusion:

The Tribunal dismissed the appeals filed by the AO and partly allowed the appeals of the assessee. The Tribunal upheld the FAA's direction to estimate the profit at 12.5% of the purchases and decided in favor of the assessee regarding the addition of ?79.80 lakhs as unexplained cash credit. The Tribunal emphasized the importance of providing an opportunity for cross-examination and the need for the AO to conduct a thorough investigation before making additions.