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2023 (1) TMI 478 - AT - Income TaxEstimation of income on Bogus purchases - AO concluded that assessee has failed to discharge its onus to prove that it had purchased diamonds - assessee had not actually made purchases of diamonds from the above mentioned concern but merely obtained bills from this concern to inflate its purchases by paying commission as stated by Shri Bhanwarlal M. Jain, in their statements recorded - HELD THAT - We note that the issue raised in the Revenue s appeal and assessee s cross appeal, is squarely covered by the judgment in the case of Pankaj K. Chaudhary, 2021 (10) TMI 653 - ITAT SURAT wherein it was held that addition @ 6% of bogus purchases are quite reasonable. We direct the AO to make the addition at the rate of 6% of bogus purchases.
Issues Involved:
1. Restriction of addition made on account of bogus purchases. 2. Genuineness of purchase transactions. 3. Reopening of assessment by issuing notice under Section 148 of the Income Tax Act, 1961. 4. Opportunity for cross-examination and principles of natural justice. Detailed Analysis: 1. Restriction of Addition Made on Account of Bogus Purchases: The Revenue contended that the CIT(A) erred in restricting the addition made on account of bogus purchases from Rs.2,50,25,283/- to Rs.62,56,320/-. The CIT(A) followed the precedent set by the Hon'ble ITAT Ahmedabad in the case of Vijay Proteins Ltd. Vs. ACIT, which was affirmed by the Hon'ble Gujarat High Court. The CIT(A) concluded that while the purchases from the mentioned parties were not genuine, the assessee did purchase goods from other sources. Therefore, a proportionate disallowance of 25% of the total purchase value was deemed appropriate. The Tribunal, however, noted that the issue was covered by the judgment in the case of Pankaj K. Chaudhary, where a 6% addition of bogus purchases was considered reasonable. Consequently, the Tribunal directed the Assessing Officer to make the addition at the rate of 6% of bogus purchases. 2. Genuineness of Purchase Transactions: The Revenue argued that the assessee could not prove the genuineness of the purchase transactions. The Assessing Officer noted that the assessee failed to substantiate purchases by producing the parties for verification and relied on mere confirmations and bank statements. The AO concluded that the assessee had not actually made purchases from the mentioned concerns but had obtained bogus bills to inflate purchases. The Tribunal observed that the assessee had submitted purchase bills, vouchers, and conducted transactions through banking channels. However, the Tribunal upheld the addition at 6% of bogus purchases, aligning with the decision in Pankaj K. Chaudhary. 3. Reopening of Assessment by Issuing Notice under Section 148: The assessee challenged the reopening of the assessment, arguing that it was based on third-party information without preliminary investigation. The Tribunal referred to the jurisdictional High Court decisions in Peass Industrial Engineers (P) Ltd Vs DCIT and Pushpak Bullion (P) Ltd Vs DCIT, which justified reopening assessments based on credible information from the Investigation Wing. The Tribunal upheld the validity of the reopening, stating that the AO had sufficient reason to believe that income had escaped assessment. 4. Opportunity for Cross-Examination and Principles of Natural Justice: The assessee argued that the opportunity for cross-examination of Bhanwarlal Jain's statement was not provided, violating the principles of natural justice. The Tribunal noted that the assessee had not demanded cross-examination during the assessment stage. The Tribunal also pointed out that the case related to Bhanwarlal Jain group cases, where the Tribunal had consistently made additions at the rate of 6% of bogus purchases. Therefore, the Tribunal did not find a violation of natural justice principles in this context. Conclusion: The Tribunal concluded that the addition should be sustained at the rate of 6% of bogus purchases, in line with the precedent set by the Coordinate Bench in the case of Pankaj K. Chaudhary. The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed. The Tribunal directed the Assessing Officer to make the addition at the rate of 6% of bogus purchases. The order was pronounced on 09/01/2023.
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