2020 (12) TMI 1153 - AT - Income Tax

Bogus purchases - Estimation of income - search and seizure operation u/s. 132 - HELD THAT - Just because the assessee had made payments through banking channels to the vendors and recorded the diamonds purchased in its stock book does not make the transactions to be genuine with conclusive evidence. Further there is no materials on record to justify that the stock is reconciled with respect to purchases, sales and closing stock item wise. There is every possibility for the assessee to make payment through banking channel and receive the same back by way of cash and obtain bogus purchase bills. It is also obvious that in the nature of business carried out by the assessee, 0.33% net profit declared by the assessee is too low and cannot be accepted. Further even if 24% of the turnover is estimated as the income of the assessee, the assessee should have earned net income of approx. ₹ 98,00,000/-. In the case of the assessee it has only declared net profit of ₹ 1,33,921/-. Considering these facts and circumstances of the case and the report of the Investigation Department of the Revenue, we are of the considered view that the addition made by the Ld. AO for ₹ 98,69,702/- is justifiable when there is a corroborative evidence from the records maintained by the vendors of the assessee that the purchases made by the assessee is bogus. - Decided against assessee.

Issues Involved:
- Disallowance of purchases as 'bogus purchases' by the Assessing Officer
- Confirmation of addition by the Commissioner of Income Tax (Appeals)
- Argument for genuineness of purchases by the appellant
- Lack of opportunity for cross-examination of vendors
- Low net profit declared by the appellant

Issue 1: Disallowance of purchases as 'bogus purchases' by the Assessing Officer:
The case involved the disallowance of purchases amounting to ?98,69,910 by the Assessing Officer, treating them as 'bogus purchases'. This decision was based on the revelation that the vendor concerns had issued bogus bills without actually delivering the diamonds, and that the vendor concerns were found to exist only on paper without any actual trading activities. The Assessing Officer also considered the excess stock of diamonds found during a survey as unaccounted for, leading to the addition of the disputed amount in the hands of the assessee.

Issue 2: Confirmation of addition by the Commissioner of Income Tax (Appeals):
The Commissioner of Income Tax (Appeals) upheld the decision of the Assessing Officer, citing various reasons. The Commissioner disagreed with the appellant's contentions, stating that the payment for diamonds made after their sale was not plausible, and the vendor's location in Surat made it difficult to track the diamonds post-sale. Additionally, the Commissioner highlighted the lack of confirmation regarding the purchases in Surat, the absence of documents proving the genuineness of the vendor, and the modus operandi of conducting transactions through bank entries while returning cash. The Commissioner found the appellant's explanations insufficient and confirmed the addition of ?98,69,902 as bogus purchases.

Issue 3: Argument for genuineness of purchases by the appellant:
The appellant argued for the genuineness of the purchases, emphasizing that the payments were made through banking channels and recorded in the stock register. The appellant also contended that they were not given the opportunity to cross-examine the vendors who admitted to issuing bogus bills. The appellant requested the deletion of the addition or a remittance back to the Assessing Officer for proper cross-examination of the vendor.

Issue 4: Lack of opportunity for cross-examination of vendors:
The appellant raised concerns about the lack of opportunity for cross-examining the vendors who confessed to issuing bogus bills. This lack of opportunity was considered a significant factor in the appellant's argument for the genuineness of the purchases. The appellant believed that proper cross-examination could have provided clarity and potentially altered the decision regarding the addition of the disputed amount.

Issue 5: Low net profit declared by the appellant:
The Tribunal noted the abnormally low net profit declared by the appellant, which was only 0.33% of the turnover. This low profit percentage raised suspicions of account manipulation, especially considering the previous declaration of unaccounted income towards excess stock of diamonds. The Tribunal found the appellant's accounts unreliable, given the findings of the Investigation Department regarding the issuance of bogus bills and the lack of reconciliation of stock with respect to purchases and sales. Ultimately, the Tribunal upheld the addition of ?98,69,702 as justifiable based on corroborative evidence and the overall circumstances of the case.

In conclusion, the Tribunal dismissed the appellant's appeal and confirmed the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of purchases as 'bogus purchases'. The decision was based on the lack of conclusive evidence supporting the genuineness of the transactions, the low net profit declared by the appellant, and the corroborative evidence from the Investigation Department.

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