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2018 (12) TMI 1050 - AT - Income TaxReopening of assessment - addition under the head peak credit of transaction of bogus purchases - Held that - The issue of bogus purchase of diamonds from BJ group has been already been deliberated upon by the Tribunal and it stands decided. Facts of the case under consideration are almost identical to the facts of Vama International 2018 (2) TMI 1760 - ITAT MUMBAI . In that case also the AO had added the entire purchases to the income of the assessee and the FAA had given part relief to the assessee. In the instant case, the assessee was denied the opportunity of cross examination though it had made a request to the AO during the assessment proceedings. By not allowing cross examination of the third party, whose statement was being used against the assessee, the AO had violated the basic principles of natural justice. Only on that count the order can be quashed. But, we are considering other factors. BJ has retracted his statement. So, the authenticity of the material relied upon by the AO reduces to a great extent. The supplier has admitted the transaction and the AO has not doubted the sales. It is also found that DD had filed VAT returns. Estimate the profit of 12.5% of the purchase from DD - addition invoking section 69C - Held that - While deciding the appeal filed by the AO,we have decided the issue against the AO. Following the same, we decide ground no.6 in favour of the assessee. We are also of the opinion that provisions of section 69C are not applicable in case of alleged bogus purchases. Addition u/s 69C - Held that - Since we have decided the issue of addition u/s 68 in favour of the assessee, the addition as sustained by the CIT(A) u/s 69C of ₹ 3,45,000/- is also ordered to be deleted.
Issues Involved:
1. Addition of ?2.04 crores under the head peak credit of transaction of bogus purchases. 2. Addition of ?1.63 crores as unexplained cash credit under section 68 of the Income-tax Act. Detailed Analysis: 1. Addition of ?2.04 crores under the head peak credit of transaction of bogus purchases: The Assessing Officer (AO) received information from the DGIT (Investigation), Mumbai, regarding a search action on the Bhanwarlal Jain Group, which indicated that the group provided accommodation entries for bogus purchases. Based on this information, the AO held that the assessee had obtained non-genuine bills from M/s. Daksh Diamonds worth ?2.04 crores and made an addition of ?2,04,30,250/- to the total income of the assessee under section 69C of the Income-tax Act. The First Appellate Authority (FAA) observed that mere payment by account-payee cheques would not be sacrosanct and held that only the profit element embedded in such purchases could be added to the income of the assessee. The FAA estimated the Gross Profit (GP) at 12.5% and directed the AO to reduce the GP already shown by the assessee from the estimate. During the hearing, the Departmental Representative (DR) argued that the assessee did not produce the stock register during the assessment proceedings, and the transactions routed through banking channels did not prove the genuineness of the transactions. The Authorised Representative (AR) contended that the AO had not provided the opportunity for cross-examining Bhanwarlal Jain and that the books of accounts should not have been rejected based on uncorroborated statements of third parties. The Tribunal referred to the case of Vama International, where it was held that the purchases could not be doubted but the transactions were unverifiable due to the non-availability of the parties at the given address. The Tribunal concluded that the assessee had discharged its burden of proving the genuineness of the purchases and that the AO had failed to make proper investigations. The Tribunal set aside the orders of the lower authorities and deleted the disallowance made towards bogus purchases for the assessment years under appeal. 2. Addition of ?1.63 crores as unexplained cash credit under section 68 of the Income-tax Act: During the assessment proceedings, the AO found that the assessee had taken unsecured loans of ?1,63,26,190/- and treated the amount as unexplained cash credit under section 68 of the Act. The FAA upheld the AO's order, stating that the assessee had changed its stand during the appellate proceedings and did not furnish details of the business deals which did not materialize. Before the Tribunal, the AR argued that supporting evidences such as ledger account, bank statement, confirmation letter, purchase bill, and copy of return of income filed by the lender were submitted to prove the genuineness of the loan. The AR referred to various cases where similar issues were dealt with, and the transactions were held to be genuine. The Tribunal referred to the case of Reliance Corporation, where similar additions under section 68 based on search and seizure operations were deleted. The Tribunal found that the assessee had provided sufficient evidence to prove the genuineness of the transactions and that the AO had failed to disprove the information furnished by the suppliers. The Tribunal set aside the orders of the lower authorities and deleted the addition of ?1.63 crores made under section 68 of the Act. Conclusion: The Tribunal deleted the additions made by the AO under sections 69C and 68 of the Income-tax Act, holding that the assessee had discharged its burden of proving the genuineness of the transactions and that the AO had failed to make proper investigations and provide the opportunity for cross-examination. The Tribunal's decision was based on the principles of natural justice and the precedents set by similar cases.
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