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2022 (11) TMI 620 - AT - Income TaxEstimation of income - Bogus purchases - disallowance made on account of non-genuine purchases by estimating the profit element at 3% thereon as against 5% estimated by the ld. AO.- HELD THAT - As per the report of the Task Force for Diamond Sector constituted by the Ministry of Commerce and Industry after considering the BAP (Benign Assessment Procedure) scheme, the Task Force recommended that the net profit prevailing in the Diamond Industry engaged in the business of trading would be in the range of 1% - 3% and those engaged in the business of manufacturing would be in the range of 1.5% - 4.5%. We find that the Tribunal has been consistently taking the stand by estimating the profit element on the basis of reliance placed on the aforesaid report of the Task Force. In the instant case, the assessee is engaged in the business of both trading as well as manufacturing of diamonds. We find that the ld. CIT(A) was duly justified in estimating the profit percentage at 3% on which we do not deem it fit to interfere. In other words, the estimation of profit percentage at 3% by the ld. CIT(A) is just and fair and does not require any interference. Accordingly, the ground raised by the assessee is dismissed.
Issues:
1. Reopening of assessment 2. Disallowance of non-genuine purchases 3. Estimation of profit element Issue 1: Reopening of assessment In the judgment, it was noted that the ground challenging the reopening of assessment was not pressed by the Assessee's representative during the hearing, leading to its dismissal as not pressed. Additionally, an additional ground challenging the validity of reassessment was also not pressed and dismissed accordingly. Issue 2: Disallowance of non-genuine purchases The primary issue for adjudication in the appeals was whether the Commissioner of Income Tax (Appeals) was justified in confirming the disallowance made on account of non-genuine purchases by estimating the profit element at 3% instead of the 5% estimated by the Assessing Officer. The Assessee, engaged in the trading and manufacturing of diamonds, had made purchases from parties identified as tainted dealers. While the Revenue did not question the sales made from these purchases, the Assessing Officer concluded that the Assessee might have obtained these purchases from the grey market to save on indirect taxes and earn a profit. Consequently, the Assessing Officer estimated the profit element at 5%, which was later reduced to 3% by the Commissioner of Income Tax (Appeals). Issue 3: Estimation of profit element The Tribunal considered whether the estimation of the profit element at 3% by the Commissioner of Income Tax (Appeals) was just and fair. It was highlighted that the Revenue did not appeal against the Commissioner's order. Referring to a report by the Task Force for the Diamond Sector, which recommended profit margins ranging from 1% to 3% for trading and 1.5% to 4.5% for manufacturing, the Tribunal found that the Commissioner's estimation was in line with previous decisions based on the Task Force's report. Given that the Assessee was involved in both trading and manufacturing, the Tribunal upheld the 3% estimation as reasonable and fair, declining to interfere with it. Consequently, the Assessee's appeal for the relevant assessment year was dismissed. In summary, the judgment addressed the issues of reopening of assessment, disallowance of non-genuine purchases, and the estimation of the profit element in the context of the Assessee's business activities. The Tribunal upheld the Commissioner's decision to estimate the profit element at 3% for non-genuine purchases, considering industry standards and previous rulings, leading to the dismissal of the Assessee's appeals for the respective assessment years.
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