2022 (3) TMI 293 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We find that the ld. CIT(A) had categorically observed that the ld. AO had not doubted the sales as disclosed by the assessee out of the purchases made from the aforesaid disputed parties. He also held that without the purchases there could not be any sales. Ultimately going by the VAT rate prevailing at the relevant point in time for diamonds, and incidental profit element thereon, the ld. CIT(A) estimated the profit percentage @3% on the entire value of disputed purchases as detailed hereinabove. The very same issue was subject matter of adjudication by this Tribunal in assessee's own case 2019 (3) TMI 1958 - ITAT MUMBAI wherein the purchases made from the similar parties were restored back to the file of the ld. AO for denovo adjudication. Both the parties before us fairly agreed that let this entire appeal to be restored to the file of the ld. AO for denovo adjudication. In view of the aforesaid facts and in light of the Tribunal decision in A.Y. 2008-09 and in view of the fact that both the parties had consented to the decision, we deem it fit and appropriate to restore this entire appeal to the file of ld. AO for denovo adjudication in accordance with law. Grounds raised by the assessee as well as by the Revenue are allowed for statistical purposes.

Summary

Issues:
1. Disallowance on account of bogus purchases.

Analysis:
The judgment involves cross appeals arising from the order of the Commissioner of Income Tax (Appeals) against the assessment passed under the Income Tax Act, 1961. The main issue for consideration is the disallowance made on account of bogus purchases. The Assessing Officer (AO) had initially made a 100% addition on the value of purchases, while the Commissioner had restricted it to 3% of profit. The Revenue contested this limitation, while the assessee sought complete relief. The Tribunal consolidated both appeals for convenience.

The assessee, a public limited company dealing in diamonds and jewelry, filed its return for Assessment Year 2007-08, later revised. The assessment was completed, but subsequent information revealed accommodation entries from certain entities controlled by specific individuals. The AO reopened the case, leading to disputes over purchases from various parties. The assessee provided affidavits and documents to prove the purchases' genuineness, but the AO disregarded these and made significant disallowances.

The AO also questioned purchases from other parties, leading to discrepancies and additions in the assessment. Several parties were not available for verification, prompting the AO to conclude that purchases from these entities were bogus. The Commissioner estimated a profit percentage of 3% on disputed purchases. Notably, a previous Tribunal decision on similar issues in the assessee's case led to the current appeal being remanded back to the AO for fresh adjudication.

Considering the previous Tribunal decision and the parties' agreement, the Tribunal decided to remand the case back to the AO for denovo adjudication. The assessee was given the opportunity to provide additional evidence, and the AO was directed to decide the matter independently. Ultimately, both appeals were allowed for statistical purposes.

In conclusion, the judgment addresses the complex issue of disallowance on account of bogus purchases, highlighting discrepancies in purchases from various entities and the need for thorough verification and independent assessment by the tax authorities.