2018 (10) TMI 1741 - AT - Income Tax

Bogus purchases - addition u/s 69C - additional profit in excess of 5% - HELD THAT - It is not disputed that assessees had produced invoices from the concerned vendors and said invoices carried TIN as well as GST details of the vendors - the receipt of the material were properly recorded by the assessees in their stock registers. The sales effected by the assessees was never disbelieved. When the sales are accepted we cannot say that there were no corresponding purchases. Nevertheless it is true that assessee despite claiming the purchases to have been effected through some intermediaries were unable to produce the intermediaries or file confirmations from them. Hence we cannot say that assessee had made all necessary efforts for proving the purchases claimed to have been made from the parties mentioned in the table above beyond preponderance of probability Assessees have also submitted that its gross profit including that of purchases considered by the lower authorities as bogus came to 8.91% to 20.88% for the impugned assessment years. Even if we accept the contention of the Revenue that 25% mark up was justified based on the judgment of Gujarat High Court in the case of Sanjay Oil Cake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT what could at the best be added is only the shortfall between declared gross profit and the estimated gross profit of 25% and such shortfall fell within the range of 5 to 6%. In such circumstances in order to give a quietus to the matter we are inclined to follow the decision of M/s. Ralf Jems Pvt. Ltd 2017 (12) TMI 746 - ITAT MUMBAI Addition that are to be made is fixed at 6% of what is considered as value of the alleged bogus purchases and nothing more. We direct the ld. Assessing Officer to recalculate the addition accordingly. Alleged commission in the first place assessees had not claimed any commission payment. Estimate of 5, 000/- per bill was based on pure surmises. Such additions are therefore deleted.

Summary

Issues Involved:
1. Bogus Purchases
2. Commission Payment

Issue-wise Detailed Analysis:

1. Bogus Purchases:

The appeals involve the assessee, M/s. VBC Jewellery and M/s. VBC Jewellers, challenging the orders of the Commissioner of Income Tax (Appeals)-2, Chennai, which confirmed additions made by the Assessing Officer (AO) based on alleged bogus purchases. The case arose from a search conducted on M/s. Bhanwarlal Jain Group, revealing that they were running dummy concerns providing accommodation entries in the nature of loans, advances, and sales against commission. The AO, relying on the investigation, considered the purchases from entities like M/s. Rajan Diamonds, M/s. Mohit Enterprises, M/s. Maan Diamonds, and M/s. Marvin Enterprises as bogus and made an addition of 25% of these purchases as unexplained income. The assessees argued that the purchases were genuine, supported by proper invoices, recorded in stock registers, and paid through banks. However, they could not produce the intermediaries through whom the purchases were made. The AO issued show cause notices and, unsatisfied with the responses, confirmed the additions. The Commissioner of Income Tax (Appeals) upheld these additions, citing material evidence and a judgment from the Gujarat High Court in Sanjay Oil Cake Industries vs. CIT, supporting the AO's decision.

The assessees contended that their gross profit rates ranged between 8.91% to 20.88%, and even if a 25% markup was presumed, the addition should be limited to the difference between the declared gross profit rate and the 25% markup. They relied on a decision by the Mumbai Bench of the Tribunal in M/s. Ralf Jems Pvt. Ltd vs. ITO, which dealt with a similar case involving the same Bhanwarlal Jain Group and concluded that a 6% disallowance of alleged bogus purchases was appropriate. The Tribunal noted that the AO had not provided the assessees with the investigation reports or statements relied upon and had not entertained requests for cross-examination. The Tribunal concluded that while the sales were not doubted, the purchases should be considered with a 6% disallowance, aligning with the Mumbai Bench's decision in M/s. Ralf Jems Pvt. Ltd, and directed the AO to recalculate the addition accordingly.

2. Commission Payment:

The AO also made an addition under Section 69C of the Income Tax Act, 1961, estimating a commission of ?5,000 per accommodation bill. The assessees argued that no commission payment was claimed and that the addition was based on pure presumption. The Tribunal agreed with the assessees, finding the commission addition to be speculative and unsupported by evidence, and thus deleted this addition.

Conclusion:

The Tribunal partly allowed the appeals, directing the AO to restrict the addition to 6% of the alleged bogus purchases and deleting the commission payment addition. The judgment emphasized the need for evidence and proper examination in confirming such additions, aligning with precedents set by other Tribunal decisions.

Order Pronounced:

The judgment was pronounced on Wednesday, the 24th day of October, 2018, at Chennai.