2019 (2) TMI 1690 - AT - Income Tax

Bogus purchases - GP estimation - HELD THAT - AO has gone routine exercise by issuing 133(6) notices to ascertain without carrying out further investigation to know exact nature of the transaction between the assessee and said firms when the assessee has filed sufficient materials including purchase bills. Therefore, it is difficult to accept the version of the AO that purchases from above parties are bogus in nature which are not supported by valid evidence. The only option left for the authorities is to settle the controversy by estimating income of the assessee from these kind of transactions. As in assessee s own case 2017 (4) TMI 1465 - ITAT MUMBAI has considered identical facts in the light of DGIT(Inv.) report and also the statement of Shri Rajendra Jain given during course of search, to arrive at a conclusion that 12.5% profit on alleged bogus purchases is reasonable and would meet ends of justice. For the year under consideration, the facts are identical and even parties from whom purchases were made by the assessee for AY 2007-08 and for the present assessment year are one and the same. Under these facts, it is difficult to take different view from the view already taken by the Co-ordinate Bench. Further, Tribunal had taken a consistent view in case of alleged bogus purchases and depending upon the facts of each case has directed the AO to estimate profit percentage of 5 to 12.5% on alleged bogus purchases - profit percentage applied by the Ld. CIT(A) on alleged bogus purchases appears to be less and hence direct the AO to consistent with view taken by the Co-ordinate Bench, we adopt 12.5% net profit on alleged bogus purchases.- Appeal filed by the Revenue is partly allowed.

Summary

Issues:
1. Deletion of addition on account of bogus purchases
2. Failure to prove genuineness of parties during assessment proceedings
3. Estimation of profit on alleged bogus purchases

Issue 1: Deletion of addition on account of bogus purchases
The Revenue appealed against the deletion of an addition of ?84,19,646 on account of bogus purchases in the assessment year 2008-09. The case involved information received from the DGIT(Inv.) regarding accommodation entries of bogus purchases made by the assessee from concerns controlled by Rajendra Jain Group. Despite the assessee's claims of genuine purchases supported by evidence, the AO treated the purchases as unexplained expenditure under section 69C of the Income Tax Act. The CIT(A) directed the AO to sustain 3% profit on the alleged bogus purchases, considering industry practices and VAT rates applicable to diamond trading.

Issue 2: Failure to prove genuineness of parties during assessment proceedings
The Revenue contended that the CIT(A) erred in scaling down the addition without acknowledging that the parties involved admitted to providing accommodation entries without actual delivery of goods. The Revenue argued that the CIT(A) should have considered the findings of the DGIT(Inv.) report and the statements made by Rajendra Jain during search proceedings. The CIT(A) had based the profit estimation on industry norms and VAT rates, which the Revenue deemed irrelevant in the context of the bogus transactions.

Issue 3: Estimation of profit on alleged bogus purchases
The Tribunal noted that the assessee failed to rebut the findings of the AO based on the DGIT(Inv.) report and Rajendra Jain's statement. While the CIT(A) estimated a 3% profit on the purchases, the Tribunal referred to a previous decision in the assessee's case where a 12.5% profit was deemed reasonable. Considering the consistency of the Tribunal's decisions in similar cases, the Tribunal directed the AO to apply a 12.5% net profit on the alleged bogus purchases, aligning with the previous ruling.

In conclusion, the appeal filed by the Revenue was partly allowed, emphasizing the need for a higher profit estimation on the alleged bogus purchases based on the established precedents in similar cases.