2019 (7) TMI 1951 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - In the present case it is undisputed that no notices were issued u/s 133(6) to the two parties from whom the alleged bogus purchases were made and thus the Assessing Officer failed to take the enquiry further. Once the purchases are held to be genuine no additions can be made. We note that the Ld. CIT (A) has not given any cogent reason for sustaining the disallowance to the tune of 2% except for an observation that it was a possible situation that the assessee could have purchased rough diamonds from a third party in the grey market and had ended up getting bills for purchase from M/s Dharam Impex and M/s Maniprabha Impex Pvt. Ltd. Thus this sustenance of 2% is based only on assumptions and surmises by the Ld. CIT (A) and there is nothing on record to establish the said observation of the Ld. CIT (A). Therefore in view of the facts of the case we are unable to concur with the findings of the lower authorities and we deem it fit to set aside the order of the Ld. CIT (A) and direct the deletion of the sustenance of 2% of the alleged bogus purchases. Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of reopening under Section 147 of the Income Tax Act.
2. Rejection of books of accounts.
3. Addition on account of alleged bogus purchases.

Detailed Analysis:

1. Validity of Reopening under Section 147:
The assessee initially challenged the initiation of proceedings under Section 147 of the Income Tax Act. However, during the proceedings before the ITAT, the assessee's representative submitted that this ground was not being pressed, leading to its dismissal as not pressed.

2. Rejection of Books of Accounts:
The Assessing Officer (AO) rejected the books of accounts of the assessee based on information received from the DIT (Inv.), Mumbai, regarding accommodation entries related to Shri Rajendra Jain/Dharmichand Jain Group. The AO claimed that the books could not be relied upon due to the alleged involvement in bogus purchase transactions. However, the CIT (A) found that the rejection of books of accounts was not proper given the facts of the case, a stance that was supported by the ITAT, which noted the voluminous evidence provided by the assessee substantiating the genuineness of the purchases.

3. Addition on Account of Alleged Bogus Purchases:
The AO made additions for bogus purchases at 100% of the purchase value, which were later restricted to 2% by the CIT (A). The ITAT, after considering the evidence and the retraction of the statement by Shri Dharmichand Jain, concluded that the purchases were genuine. The ITAT noted that the sales were accepted by the department, and there was no evidence that payments made for the purchases were recycled back to the assessee. The ITAT also highlighted the failure of the AO to issue notices under Section 133(6) or summon the parties involved. Consequently, the ITAT directed the deletion of the 2% addition sustained by the CIT (A), emphasizing that the disallowance was based on assumptions and lacked concrete evidence.

Conclusion:
The ITAT concluded that the reopening under Section 147 was valid but not pressed by the assessee. The rejection of the books of accounts was deemed improper, and the additions on account of alleged bogus purchases were deleted, leading to the dismissal of the department's appeals and the partial allowance of the assessee's cross objections. The final result was the dismissal of the department's appeals and the partial allowance of the assessee's cross objections, with the additions being deleted. The judgment was pronounced in the open court on 31st July 2019.