2023 (9) TMI 470 - AT - Income Tax

Reliability of statement of third party - Estimation of income - Bogus purchases - AO rejected the books of the assessee and estimated 25 % of the purchase claimed as income of the assessee - HELD THAT - On going through the overall facts, instruction of CBDT and the fact that the quantity of purchase and sales is not doubted, the books were not found defective and the order is passed u/s. 143(3) of the Act we are of the considered view that the assessee has duly discharged its burden of proving the genuineness of book results. The assessing officer has not done any independent and proper investigation. He simply relied upon he statement of third party who also stated that he is involve in the diamond business though the modus operadi is different. Thus, merely the third person stated that he is involved in issuing accommodation bill, the book results declared by the assessee which is higher then the industry norms prescribed by the board the action of the assessing officer in estimating the profit over and above the books results confirmed by the ld. CIT(A) is not in accordance with the law. Appeal of assessee allowed.

Summary

Issues Involved:
1. Bogus Purchases
2. Addition of 25% of Alleged Bogus Purchases
3. Rejection of Books of Accounts under Section 145(3)

Summary:

Issue 1: Bogus Purchases

The assessee filed its return of income declaring total income of Rs. 79,20,110/-. The case was selected for manual scrutiny based on information from the DGIT (Investigation), Mumbai, revealing that the assessee had obtained accommodation entries in the form of bogus purchases amounting to Rs. 3,21,93,468/- from 11 parties. The AO observed that the assessee had purchased goods from different concerns than those listed and rejected the books of accounts, estimating 25% of the purchases as income.

Issue 2: Addition of 25% of Alleged Bogus Purchases

The AO made an addition of Rs. 80,48,367/-, being 25% of the alleged bogus purchases. The CIT(A) upheld the AO's decision, stating that the appellant failed to prove the genuineness of the purchases, as the suppliers were not produced for verification, and payments by account payee cheques do not make the transactions genuine. The CIT(A) also noted that the appellant did not provide correct business addresses for independent verification.

Issue 3: Rejection of Books of Accounts under Section 145(3)

The AO rejected the books of accounts under Section 145(3) based on the information from the DGIT (Investigation) and the inability of the appellant to produce the suppliers for verification. The CIT(A) confirmed the rejection, stating that the appellant failed to establish the existence of the suppliers and the genuineness of the transactions. The appellant argued that the AO did not provide any material in her possession, did not allow cross-examination of the parties, and did not point out any mistakes in the appellant's records.

Tribunal's Decision:

The Tribunal noted that the AO accepted the fact that the assessee had sold the goods and only disputed the real cost of purchases. The Tribunal observed that the profit declared by the assessee was higher than the industry norms prescribed by the CBDT, and the books of accounts were not found defective. The Tribunal held that the assessee had discharged its burden of proving the genuineness of the book results, and the AO's reliance on the statement of a third party was insufficient. The Tribunal vacated the addition of Rs. 80,48,367/- and allowed the appeal of the assessee.

Conclusion:

The Tribunal allowed the appeal, vacating the addition of Rs. 80,48,367/- and rejecting the AO's and CIT(A)'s findings on the alleged bogus purchases and the rejection of books of accounts under Section 145(3). The Tribunal emphasized that the profit declared by the assessee was higher than the industry norms and that the books of accounts were not found defective.