2024 (2) TMI 1193 - AT - Income Tax

Estimation of income - bogus purchases - HELD THAT - We find that neither any detail on TDS of alleged commission was furnished nor any substantive evidence in the form of confirmation of parties or agreement/agency agreement was placed on record. We find that the CIT(A) recorded that a profit element in similar bogus purchases can only be brought to tax. Despite the fact that the CIT(A) restricted the addition to 0.50% without referring any material evidence available on record. We find that this combination in number of decisions wherein the purchases are shown from Gautam Jain Bhanwarlal Jain or Rajendra Jain and Company who were proved entry provider similar addition was either restricted or enhanced to 6%. We further find a similar order was followed in the case of ITO Vs Rajesh Kumar Pamecha 2023 (1) TMI 1321 - ITAT SURAT ITO Vs Mukesh Mahavirprasad Sen 2023 (1) TMI 1321 - ITAT SURAT and other cases dated 13/01/2023. Therefore taking a consistent view the order of ld. CIT(A) is modified and the disallowance restricted to the extent of 0.50% is increased to 6% of the impugned purchases. We further find that in a similar case in PCIT Vs Surya Impex 2023 (1) TMI 835 - GUJARAT HIGH COURT the Hon ble Jurisdictional High Court affirms the decisions of this Tribunal on similar facts. Therefore order of CIT(A) is modified and the assessing officer is directed to restrict the disallowance of purchases from there three parties be restricted to 6% of aggregate of purchase of Rs. 2.01 Crore. Grounds of appeal raised by the revenue are partly allowed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Treatment of commission on bogus purchases.
3. Existence of entities providing bogus purchase bills.
4. Maintenance and submission of books of accounts and stock register.
5. Validity of reopening the case based on information from the Investigation Wing.

Summary:

1. Deletion of Addition on Account of Bogus Purchases:
The Revenue challenged the deletion of Rs. 2,00,60,757/- made on account of bogus purchases by the ld. CIT(A). The Assessing Officer (AO) added the entire purchases shown from Mihir Diamonds, Krishna Diam P. Ltd., and Krishna Diamonds Pvt. Ltd., totaling Rs. 2,01,61,565/-, as the entities were found to be non-existent and used for providing bogus purchase bills. The assessee contended that he was a commission agent for rough and polished diamonds, and the transactions were genuine, recorded in his books of account.

2. Treatment of Commission on Bogus Purchases:
The AO rejected the assessee's claim of being a commission agent, noting that the assessee had been filing returns as a trader in rough and polished diamonds. The ld. CIT(A) restricted the addition to 0.50% of the impugned purchases, treating the profit margin embedded in the purchases as the only amount to be disallowed.

3. Existence of Entities Providing Bogus Purchase Bills:
The AO's addition was based on information from the Investigation Wing, which revealed that the entities from which the assessee made purchases were benami firms managed by Gautam Jain and his associates, providing accommodation entries without actual delivery of goods. The ld. CIT(A) accepted the assessee's contention that the purchases were genuine, supported by stock tally and payments made by account payee cheques.

4. Maintenance and Submission of Books of Accounts and Stock Register:
The AO noted that the assessee did not submit proper books of accounts or stock register during the assessment proceedings. The ld. CIT(A) found that the assessee maintained proper records and that the AO did not point out any defects in the books of account or reject the book results.

5. Validity of Reopening the Case:
The ld. CIT(A) upheld the validity of reopening the case, citing sufficient material with the AO to form a belief about escapement of income based on information from the Investigation Wing. This decision was supported by the jurisdictional High Court's ruling in Peass Industrial Engineers Pvt. Ltd. Vs DCIT.

Conclusion:
The Tribunal, considering the submissions and material on record, modified the ld. CIT(A)'s order. It increased the disallowance from 0.50% to 6% of the impugned purchases, aligning with similar cases where purchases from entry providers were involved. The Tribunal directed the AO to restrict the disallowance to 6% of the aggregate purchases of Rs. 2.01 crore. Consequently, the appeals for both assessment years were partly allowed. The order was announced in open court on 21st February 2024.