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2017 (12) TMI 52 - AT - Income TaxBogus purchases - CIT(A) restricted the additions to the tune of 3% of alleged bogus purchases - Held that - The purchases are appearing in the books of the assessee and the assessee is seeking benefit of deduction of these purchases against its income, hence primary onus is on the assessee to prove that purchases are genuine and that too in the midst of incriminating statements of Sh Bhanwarlal Jain as well investigations conducted by DGIT(Inv.). We have also gone through the replies dated 25-03-2015 submitted by the assessee before the AO (page 29-303/pb) wherein the assessee has claimed to have submitted affidavits, tax returns including audited accounts , confirmations etc of these parties and these documents need verification and examination by the AO. Thus we are inclined to set aside the matter back to the file of the A.O for denovo determination of the issue on merits in accordance with law after conducting such enquiries and verifications as are necessary for completing the assessment in de-novo proceedings . If the department wants to rely on statement of Sh. Bhanwarlal Jain or of any other party which is recorded at the back of the assessee incriminating assessee or any other incriminating material to prejudice assessee, the copies of such statements and /or material shall be made available by the AO to the assessee before prejudicing assessee and an opportunity of rebuttal shall by provided by Revenue to the assessee including cross examination in accordance with principles of natural justice. The matter is set aside and restored to the file of the A.O for denovo determination of the issue on merits in accordance with law.
Issues Involved:
1. Addition of 3% of alleged bogus purchases. 2. Non-consideration of explanations, affidavits, and relevant documents by the CIT(A). 3. Justification of CIT(A) in sustaining the addition to the extent of only 3% instead of 8%. 4. Reliance on statements and evidence from third parties. 5. Rejection of books of accounts by the AO. Detailed Analysis: 1. Addition of 3% of Alleged Bogus Purchases: The assessee contested the addition of ?53,54,962/- at 3% of alleged bogus purchases amounting to ?17,84,98,737/-, arguing that the CIT(A) erred in confirming this addition without considering the facts and merits of the case. The Revenue, on the other hand, appealed against the CIT(A) for reducing the addition from 8% to 3%. 2. Non-Consideration of Explanations, Affidavits, and Relevant Documents: The assessee argued that the CIT(A) did not consider the explanations, affidavits, confirmations, and other relevant documents submitted during the assessment and appeal proceedings. These documents were intended to support the genuineness of the alleged bogus purchases. The CIT(A) was criticized for not understanding the merits and value of these documents. 3. Justification of CIT(A) in Sustaining the Addition to the Extent of Only 3% Instead of 8%: The CIT(A) restricted the addition to 3% of the total alleged bogus purchases, considering the lesser profit margin in the diamond trade sector. The CIT(A) referred to the task force group for the diamond industry, which recommended a presumptive tax for net profit calculated at 2% for trading activity and 3% for manufacturing activity. The CIT(A) also noted that the AO's estimation of an 8% profit margin was not based on a correct footing. 4. Reliance on Statements and Evidence from Third Parties: The AO relied on statements given during the search and survey operations on the Bhanwarlal Jain group, which indicated that the suppliers were merely name lenders and the actual management was by Bhanwarlal Jain and his family. The AO concluded that the purchases were made from the grey market, and the assessee benefited from the additional GP margin. The CIT(A) concurred with this view, stating that the onus was on the assessee to prove the genuineness of the transactions. 5. Rejection of Books of Accounts by the AO: The AO rejected the assessee's books of accounts under Section 145(3) of the Income-tax Act, 1961, concluding that the purchases were not genuine. The AO estimated the profit margin embedded in the alleged bogus purchases at 8%, which was later reduced to 3% by the CIT(A). The CIT(A) noted that the AO did not make independent verifications or issue notices under Sections 133(6)/131 of the Act. Tribunal's Decision: The tribunal noted that the assessee submitted affidavits, confirmations, tax returns, and audited financial statements of the suppliers only at the fag-end of the assessment proceedings. The AO did not have sufficient time to verify these documents. The tribunal observed that the AO did not make any independent enquiries and relied solely on the investigation conducted by DGIT(Inv), Mumbai. The tribunal set aside the matter to the AO for de novo determination, directing the AO to conduct necessary enquiries and provide the assessee with an opportunity for rebuttal, including cross-examination of Bhanwarlal Jain if required. Conclusion: The tribunal allowed both the appeals of the assessee and the Revenue for statistical purposes, directing a fresh assessment by the AO with proper enquiries and adherence to the principles of natural justice.
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