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2017 (11) TMI 1816 - AT - Income TaxBogus purchases - purchases from the open/grey market - estimation of profit margin - HELD THAT - CIT(A) had rightly appreciated that the addition in the hands of the assessee was liable to be restricted only to the extent of the profit element which was embedded in making of purchases from the open/grey market. CIT(A) though was not oblivious of the fact that in respect of bogus purchases made in a normal business, the courts had consistently estimated the profit margin involved in making of purchases from the open/grey market @ 12.5% of the value of the bogus purchases, but then, not loosing sight of the fact that unlike those cases, in the trade line of diamond business the profit margin did not exceed 3%, had thus in all fairness restricted the addition in the hands of the assessee to 3% of the aggregate value of the bogus purchases which were claimed to have been made from the aforesaid parties. As agreement with the view taken by the CIT(A). We thus being of the considered view that the CIT(A) had fairly concluded that the addition in respect of the purchases which were claimed by the assessee to have been made from the aforementioned bogus concerns, viz. (i) Mohit Enterprise; (ii) Mayur Exports; and (iii) Prime Star, were liable to be restricted to 3% of the aggregate value of the purchases, therefore, find no reason to dislodge his well reasoned order. We thus, in the backdrop of our aforesaid observations, finding ourselves as being in agreement with the view taken by the CIT(A), dismiss the appeal of the assessee.
Issues Involved:
1. Confirmation of additions on purchases from alleged dummy concerns. 2. Dismissal of ground of appeal related to initial penalty proceedings. 3. Quantification of profit element embedded in purchases from the open/grey market. Detailed Analysis: Issue 1: Confirmation of Additions on Purchases from Alleged Dummy Concerns The assessee firm, engaged in diamond trading, declared a total income of ?3,34,38,570 for A.Y. 2012-13. The A.O received information from DGIT (Inv.), Mumbai, revealing that the assessee took accommodation entries for purchases from dummy concerns managed by the Bhanwarlal Jain Group. The A.O concluded that the assessee made purchases from the open/grey market and procured bogus bills from the dummy concerns. Consequently, the A.O added ?1,28,85,566, estimating an 8% profit on the aggregate value of these purchases. The CIT(A) agreed that the purchases were from the open/grey market but reduced the addition to 3%, citing the lower profit margin in the diamond trading business. The ITAT upheld the CIT(A)'s decision, noting the lack of irrefutable documentary evidence from the assessee to substantiate the genuineness of the purchases. Issue 2: Dismissal of Ground of Appeal Related to Initial Penalty Proceedings The CIT(A) dismissed the ground of appeal related to the initial penalty proceedings, but the detailed judgment did not delve into the specifics of this issue. The primary focus remained on the genuineness of the purchases and the appropriate profit margin to be applied. Issue 3: Quantification of Profit Element Embedded in Purchases from the Open/Grey Market The CIT(A) reduced the A.O's 8% profit estimation to 3%, referencing the BAP scheme and industry norms. The CIT(A) noted that the profit margin in diamond trading typically ranges between 1.75% to 3%, and VAT savings were around 1%. The decision was influenced by the consistent estimation of profit by A.O's in similar cases involving bogus purchases from Bhanwarlal Group concerns at 3%. The ITAT agreed with the CIT(A)'s well-reasoned order, emphasizing that the profit element in the diamond trading business did not exceed 3%. Conclusion: The ITAT dismissed both the assessee's and the revenue's appeals, upholding the CIT(A)'s decision to restrict the addition to 3% of the aggregate value of the purchases from the dummy concerns. The judgment highlighted the importance of substantiating the genuineness of transactions with irrefutable evidence and acknowledged the lower profit margins in the diamond trading industry. The ITAT's decision was pronounced in the open court on 08.11.2017.
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