2018 (8) TMI 2019 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - Assessee is engaged in manufacturing and export of diamonds. During the course of assessment, assessee has filed ledger copy of Mayank Impex and Nazar Impex Pvt. Ltd., along with their confirmation which are alleged to be bogus suppliers. Copy of invoice cum delivery challans, copy of bank statements, highlighting payment made to Mayank Impex and Nazar Impex Pvt. Ltd., were also filed. Details of opening stock purchases and sales and closing stock details alongwith quantitative tally in carats. Stock Register for purchase and corresponding sales in the form of export, purchases against H forms and corresponding export sales forms were also filed. Since there was export of the goods alleged to be purchased through bogus suppliers, 1% addition on account of VAT is not warranted. Accordingly, we modify the order of the CIT(A) to restrict the addition to the extent of 2% of the bogus purchases in place of 3% as upheld by him.

Summary

Issues: Cross appeals filed by Revenue and assessee against the order of CIT(A) for assessment years 2008-09 and 2011-12 regarding the disallowance of bogus purchase.

The judgment revolves around cross appeals filed by the Revenue and the assessee against the CIT(A)'s order for assessment years 2008-09 and 2011-12 concerning the disallowance of bogus purchases during the assessment under section 143(3) read with section 147 of the Income Tax Act. The AO initially disallowed 12.5% of the bogus purchase, which was later restricted to 3% by the CIT(A) based on VAT and custom duty rates. Both parties appealed this decision. The Revenue's appeals were dismissed due to the tax effect being less than ?20 lakhs, as per CBDT Circular No. 3/2018. However, the merits of the addition upheld by the CIT(A) were thoroughly analyzed. The assessee provided various documents and information to support their case, including ledger accounts, bank statements, sales details, and export documents. The AR argued that since all purchases were used for export, the addition of 1% for VAT was unjustified. The DR supported the AO's decision.

Upon review, it was noted that the assessee was involved in manufacturing and exporting diamonds. The documents submitted by the assessee, such as ledger copies, bank statements, and export sales forms, indicated a legitimate business operation. Since the goods in question were exported, the 1% addition for VAT was deemed unnecessary. Consequently, the CIT(A)'s order was modified, reducing the addition to 2% of the bogus purchases instead of the initial 3%. As a result, the Revenue's appeals were dismissed due to the tax effect, while the assessee's appeals were partially allowed for the relevant assessment years. The judgment was pronounced in open court on August 13, 2018.