2019 (3) TMI 1958 - AT - Income Tax

Estimation of income - Bogus purchases - CIT(A) for restricting the disallowance to 3% of the total value of the purchases - HELD THAT - This Tribunal passed in assessee s own case for the A.Y.2009-10 2010-11 2012-13 2013-14 2019 (1) TMI 1961 - MADRAS HIGH COURT wherein the aspect of purchases made from suppliers belonging to Rajendra Jain Group have been the subject matter of adjudication as held assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods etc. Notably no independent enquiries have been conducted by the AO. AO was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals) one of the points raised by the assessee was with respect to an opportunity to cross examine the four parties but we find that no such opportunity have been allowed. Assessing Officer in the instant case has stated that Mr. Rajendra Jain Mr. Dharmichand Jain and Mr. Anoop Jain have appeared before him. However it is not made clear as to whether the above said three persons were partners/directors all the suppliers belonging to Rajendra Jain. The purchases made from companies where these three persons are either partner/director shall be aware by the above said decision rendered by Coordinate Bench. The purchases made from other companies however requires fresh examination. The aforesaid decisions rendered would apply mutatis mutandis to the case before us. Accordingly we restore the issue relating to addition on account of bogus purchases made during the year under consideration to the file of the Ld. AO with a direction to delete the addition relating to purchases made from companies in which above said three persons are partners / Directors. Appeals of the assessee as well as the revenue are allowed for statistical purposes

Summary

Issues Involved:
1. Legitimacy of the addition towards bogus purchases.
2. Justification for the adhoc disallowance rate applied by the CIT(A).

Detailed Analysis:

1. Legitimacy of the Addition Towards Bogus Purchases:

The primary issue in the assessee’s appeal was whether the CIT(A) was justified in confirming the addition towards bogus purchases amounting to ?31,09,487/-. The revenue was aggrieved by the CIT(A)'s decision to restrict the disallowance to 3% of the total value of the purchases. The case involved the assessee, a public limited company engaged in the diamond trade and manufacturing, which had its assessment reopened based on information from the DGIT Investigation, Mumbai, regarding accommodation entries for diamond purchases from the Rajendra Jain Group and associated bogus companies.

The assessee had initially declared an income of ?1,77,93,630/- for A.Y. 2008-09. The assessment was reopened with a notice under Section 148 of the Income Tax Act, 1961, due to alleged bogus purchases from specified parties. Despite providing relevant purchase documents, the Assessing Officer (AO) deemed the purchases bogus and made an addition of 12.5% of the total purchase value, amounting to ?1,29,56,195/-. The CIT(A) later reduced this addition to 3%.

2. Justification for the Adhoc Disallowance Rate Applied by the CIT(A):

The Tribunal considered the assessee's past cases for A.Y. 2009-10, 2010-11, 2012-13, and 2013-14, where similar issues regarding purchases from the Rajendra Jain Group were adjudicated. The Tribunal noted that in those cases, the suppliers had appeared before the AO, admitted to selling goods, and filed affidavits. The Tribunal emphasized the difference between issuing bogus bills generally and issuing accommodation bills to a specific party, especially when suppliers admitted to supplying goods and paying VAT.

The Tribunal referred to multiple precedents where similar additions were deleted due to lack of independent verification by the AO and reliance solely on information from the Sales Tax Department. The Tribunal underscored the necessity for the AO to conduct independent inquiries and provide opportunities for cross-examination.

Conclusion:

The Tribunal restored the issue of bogus purchases to the AO with directions to delete additions related to companies where Mr. Rajendra Jain and others were partners/directors. For other concerns linked to Mr. Rajendra Jain, the AO was instructed to re-examine the matter afresh. Consequently, the appeals of both the assessee and the revenue were allowed for statistical purposes, subject to the specified directions.

Order Pronouncement:

The order was pronounced in the open court on 08/03/2019.