2022 (11) TMI 520 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - The purchase price mentioned in the alleged sales bills cannot be accepted. The obvious reason is that the assessee did make purchases but at a lower price so as to increase its overall profits. In these circumstances, the entire amount of alleged bogus purchases cannot be disallowed / added, but only profit element embedded therein needs to taxed. As the books of account of the assessee was not rejected by the AO and had accepted the sales of the assessee. The assessee maintained proper books of accounts including purchase register, sales register, stock register, etc. and not specific defect or irregularity observed by the AO. But on the other hand, assessee dealt with an entity of entry provider Mr. Bhanwarlal Jain, this is also not in dispute. In similar facts of the case, the Hon'ble ITAT, Mumbai in the case of Amy Diam Vega Jewellery P Ltd 2017 (10) TMI 236 - ITAT MUMBAI has upheld the order of the CITIA), who in view of report of the Task Group for Diamond sector submitted to Department of Commerce, had reduced the profit margin in such suspicious purchases to 4% as against estimation of 8% made by the AO. Thus we are of the considered view that addition made by AO should be restricted upto 4% of the total addition made. We delete the addition made by the AO and restrict the same upto 4%. Appeal filed by the assessee partly allowed.

Summary

Issues:
1. Jurisdiction of Assessing Officer for initiating reassessment proceedings.
2. Addition of entire purchases amounting to Rs. 5,30,530 as accommodation entries.
3. Violation of principles of natural justice in confirming the addition without providing opportunity for cross-examination and corroborative evidence.

Jurisdiction of Assessing Officer:
The appeal was directed against the order of National Faceless Appeal Centre, Delhi, for the Assessment Year 2012-13. The case was selected for reassessment under section 147 of the Income Tax Act based on information suggesting income escapement. The appellant challenged the jurisdiction of the Assessing Officer, arguing that the conditions for initiating reassessment proceedings were not fulfilled. The case was reopened, and the appellant failed to file a return of income initially, leading to the issuance of notices and questionnaires. The appellant contended that the Assessing Officer lacked jurisdiction due to non-fulfillment of conditions under the Act.

Addition of Accommodation Entries:
The appellant's purchases amounting to Rs. 5,30,530 were treated as accommodation entries during the search and survey action conducted in connection with a group providing such entries. The appellant failed to substantiate the purchases with the impugned entities and was asked to justify the transactions. The Assessing Officer made the addition as the appellant did not comply with the show-cause notice. The appellant argued that the purchases were genuine and matched the sales details provided in the tax audit report. However, the Tribunal found that the appellant failed to prove the purchases from the referred parties, leading to the rejection of the appellant's contentions.

Violation of Natural Justice:
The appellant contended that the addition made without providing an opportunity for cross-examination, lack of corroborative evidence, and failure to provide copies of relied-upon statements violated the principles of natural justice. The Tribunal considered the submissions and materials on record, noting that the appellant could not prove the purchases from the referred parties. The Tribunal held that while the purchases were not doubted, the appellant had purchased from the grey market without proper bills. The addition made by the Assessing Officer was restricted to 4% of the total amount, following similar findings in previous cases. The Tribunal partly allowed the appeal, deleting the addition made by the Assessing Officer and restricting it to 4% of the total amount.

This detailed analysis of the judgment addresses the issues of jurisdiction, addition of accommodation entries, and violation of natural justice, providing insights into the legal reasoning and decision-making process involved in the case.