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2018 (4) TMI 1892 - AT - Income TaxEstimation of income - bogus purchases - HELD THAT - As disclosed by the assessee is at 8.55% which is as per the market rate of similar diamond traders and also similar to as disclosed by the assessee in earlier years - It is also a fact that the assessee has failed to substantiate the purchases by not producing the parties in question and admission of the party that they have indulged in providing bogus accommodation entries. Some cases cited by the Tribunal of Mumbai Tribunal has adopted 2% net profit rate. Considering the net profit of 5% as the average rate of the industry as observed by the Hon ble Jurisdictional High Court and following the judicial pronouncements by the Co-ordinate Bench of Tribunals and the decision in the case of Mayank Diamonds Pvt. Ltd. v. ITO 2014 (11) TMI 812 - GUJARAT HIGH COURT we deem it fit to restrict the addition to 5% of total bogus purchases.
Issues Involved:
1. Addition on account of unverifiable purchases. 2. Addition of ?1,41,28,605 on account of alleged bogus purchases. 3. Levy of interest under sections 234B and 234C of the Income Tax Act. Detailed Analysis: Issue 1: Addition on Account of Unverifiable Purchases The assessee argued that the CIT(A) erred in confirming the addition without supplying the copies of the report/materials relied upon, nor granting the opportunity to cross-examine the concerned persons whose statements were relied upon by the AO. The Tribunal acknowledged this procedural lapse, noting that the copies of statements recorded from the seller were not provided to the assessee, nor was any cross-examination allowed, which violated the principle of natural justice. Issue 2: Addition of ?1,41,28,605 on Account of Alleged Bogus Purchases The Tribunal examined the facts and submissions in detail. The assessee had made purchases from M/s. Mayank Impex, whose proprietor admitted to providing bogus accommodation bills. However, the Tribunal observed that the assessee had provided all necessary documentation such as bills, invoices, and payments made by account payee cheques. The Tribunal noted that there was no evidence of cash being received back by the assessee, and the sales corresponding to these purchases were not doubted by the AO. The Tribunal referred to several judicial precedents, including the decision of the Hon'ble Gujarat High Court in the case of CIT v. M. K. Brothers, which held that in the absence of evidence showing that funds given by the assessee came back in any form, the purchases could not be deemed bogus. The Tribunal also cited the Hon'ble Bombay High Court's decision in CIT v. Ashish International, which supported the assessee's case due to the lack of opportunity for cross-examination. Considering these factors, the Tribunal concluded that it was not reasonable to treat the entire purchases as bogus when the corresponding sales were not questioned. The Tribunal decided to restrict the disallowance to 5% of the total alleged bogus purchases, aligning with industry standards and judicial precedents. Issue 3: Levy of Interest under Sections 234B and 234C The Tribunal upheld the levy of interest under sections 234B and 234C, citing the mandatory nature of these provisions as established by the Hon'ble Supreme Court in the case of Anjum M. H. Ghaswala. However, the Tribunal allowed for consequential relief to the assessee based on the revised addition. Conclusion The appeal of the assessee was partly allowed. The Tribunal restricted the addition on account of alleged bogus purchases to 5% of ?1,41,28,605 and upheld the levy of interest under sections 234B and 234C, allowing for consequential relief. The order was pronounced in the open Court on 11.04.2018.
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