2023 (12) TMI 213 - AT - Income Tax

Estimation of income - Bogus purchases - HELD THAT - We find force in the contention of the assessee that the CIT(A) erred in sustaining the 100% disallowance of purchases from two concerns and thus, erred in confirming the addition u/s 69C of the Act. Therefore, as per the ratio laid down by the Hon ble Courts, profit embedded in the transaction need to be brought to tax particularly when the tax authorities have not disturbed the sales declared by the assessee. We note that the assessee had himself offered profit element @ 6% from purchases from the named parties, thus AO is directed to restrict the addition @ 6% of the disputed purchases. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Reopening of the assessment u/s 147 of the Income Tax Act.
2. Sustaining disallowance of purchases u/s 69C of the Act.
3. Premature penalty and interest charged u/s 234A, 234B, and 234C.

Summary:

Reopening of the assessment u/s 147 of the Act:
The assessee raised a legal issue against the reopening of the assessment u/s 147 of the Act but did not argue it before the Tribunal. Therefore, this issue was not adjudicated.

Sustaining disallowance of purchases u/s 69C of the Act:
The primary grievance was the action of the Ld. CIT(A) in sustaining the disallowance of Rs. 20,84,190/- u/s 69C of the Act, representing 100% of the total purchases from two parties, M/s. Kriya Impex Pvt. Ltd. and M/s. Sun Diam. The AO had reopened the assessment based on information from the Director of Investigation Tax (Inv.) indicating that the assessee had transacted with concerns providing accommodation entries. The AO noted that the assessee failed to produce the proprietor/director of the two concerns to prove the genuineness of the purchases and thus treated the transactions as non-genuine, disallowing 100% of the purchases.

The Tribunal noted that the AO and Ld. CIT(A) did not disturb the sales shown by the assessee, which included the diamonds purchased from the two concerns. It was inferred that the assessee procured diamonds from the grey market and used the services of the two concerns to provide sales bills. In such cases, only the profit embedded in such sales should be brought to tax. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. Nitin Ramdeoji Lohia, which held that if the purchases are bogus, the corresponding sales must also be bogus unless proven otherwise.

The Tribunal directed the AO to restrict the addition to 6% of the disputed purchases, as the assessee had himself offered a profit element of 6%.

Premature penalty and interest charged u/s 234A, 234B, and 234C:
Ground no. 3 regarding penalty was deemed premature, and the interest charged u/s 234A, 234B, and 234C was consequential, leading to its dismissal.

Conclusion:
The appeal of the assessee was partly allowed, restricting the addition to 6% of the disputed purchases. The order was pronounced in the open court on 29/11/2023.