2017 (11) TMI 1348 - AT - Income Tax

Bogus purchase - addition u/s 69C - rate of profit at which the income of the assessee is to be assessed - Held that - Both the authorities have relied upon the BAP report. In CBDT circular no.2/2008, dated 22nd February 2008, the rate of profit in case of diamond manufacturing and trading has been fixed at 6%. However, the percentage referred to in BAP reports or CBDT circular are for transaction under normal circumstances, hence, cannot apply to unproved purchases. Thus, in our view, since, the assessee has failed to prove the genuineness of purchases from concerned parties disallowance on the alleged bogus purchases should be made at 6%. As far as the decision relied upon by the learned Authorised Representative we are of the view that since, what should be the profit rate in a particular case is a purely factual issue, the decision having been rendered in its own factual context will not apply. Accordingly, we direct the Assessing Officer to disallow 6% of the alleged bogus purchase. Ground is partly allowed.

Issues Involved:
Common issue in dispute: Addition sustained/deleted by Commissioner (Appeals) on account of bogus purchase.

Detailed Analysis:
1. Facts and Background: The case involves a partnership firm engaged in manufacturing and trading of gold and diamond jewellery for the assessment year 2012-13. During assessment proceedings, it was found that the assessee had taken accommodation entries from certain parties, leading to suspicion regarding the genuineness of purchases.

2. Assessing Officer's Findings: The Assessing Officer concluded that the purchases were made from the grey market and not from declared sources. He applied a profit rate of 8% on the alleged bogus purchases, resulting in an addition of a specific amount to the assessee's income.

3. Commissioner (Appeals) Decision: The Commissioner (Appeals) acknowledged the lack of proof regarding purchases from declared sources but referred to industry recommendations for calculating profit in the diamond industry. He directed the Assessing Officer to limit the addition to 3% of the alleged bogus purchases, reducing the disallowance amount.

4. Arguments Presented: The authorized representative of the assessee contended that the Assessing Officer did not conduct an independent inquiry and relied solely on information from the Investigation Wing. The representative argued that the assessee maintained proper books of account and had shown reasonable profit margins, citing CBDT instructions and previous assessment years as precedents.

5. Tribunal's Decision: The Tribunal observed that the Assessing Officer did not independently verify the genuineness of purchases and noted that the goods corresponding to the purchases were accounted for in the assessee's stock. However, the Tribunal found the lack of conclusive evidence to prove purchases from declared sources. Considering the circumstances, the Tribunal decided to disallow 6% of the alleged bogus purchases, aligning with industry norms and rejecting the 3% limit set by the Commissioner (Appeals).

6. Conclusion: The Tribunal partially allowed the Revenue's appeal and dismissed the assessee's appeal, emphasizing the importance of proving the genuineness of purchases and determining the appropriate profit rate for assessment. The decision highlighted the need for concrete evidence in such cases and the application of industry standards for profit estimation in the diamond industry.

This detailed analysis encapsulates the key aspects of the legal judgment, outlining the progression of the case, the findings of the authorities involved, the arguments presented, and the final decision rendered by the Tribunal.

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