2025 (3) TMI 929 - AT - Income Tax

Estimation of income - bogus purchases - addition restricted being 12% of the total bogus purchases - HELD THAT - We note that in this case the assessee is a very big jeweler who has declared income during the year and each and every item of purchases were meticulously recorded in the book of accounts as well as in stock register. Thereafter the movement of stocks were also recorded minutely with all details and descriptions and finally recording the sales made against the said purchases. Direct stock tally is available in the stock register of the assessee. Besides the payments were made through banking channels and it was not the allegation that the cash was introduced before the payments made for the purchases. Therefore we are in a position to subscribe to the conclusion drawn by the ld. CIT (A) of partly sustaining the addition to the extent of 12% of the so-called bogus purchases especially when the sales were accepted by both the authorities below. Even GST authorities have not made any adverse inference qua these purchases by the assessee from these parties. Considering all these facts and circumstances we are not in a position to sustain the addition. We are inclined to set aside the finding of the ld. CIT (A) with regard to sustaining of addition to the tune of 12% and direct the ld. AO to delete the addition -Appeal of the Revenue is dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the purchases made by the assessee from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd. were genuine or constituted bogus transactions.

2. Whether the Assessing Officer (AO) was justified in treating the purchases as unexplained expenditure under Section 69C of the Income Tax Act, 1961, and adding it to the assessee's income.

3. Whether the decision of the CIT (A) to sustain an addition of 12% on the alleged bogus purchases was appropriate and supported by the facts and evidence.

ISSUE-WISE DETAILED ANALYSIS

1. Genuineness of Purchases from Tanman Jewels Pvt. Ltd. and Saffron Gems Pvt. Ltd.

Relevant legal framework and precedents: The case revolves around the provisions of Section 69C of the Income Tax Act, which deals with unexplained expenditure. The AO's decision was based on the finding that the transactions were accommodation entries, a concept often scrutinized in tax law to identify fictitious transactions.

Court's interpretation and reasoning: The Tribunal found that the assessee had provided substantial documentation to support the genuineness of the purchases, including bills, vouchers, bank statements, and stock registers. The Tribunal observed that the AO's conclusion was primarily based on the inability to locate the business premises of the suppliers and the information from the Directorate of Income Tax (Systems).

Key evidence and findings: The assessee provided evidence such as stock tallies, audited books of accounts, and banking transactions, which were not adequately countered by the AO. The CIT (A) noted that the sales were accepted as genuine, which raised questions about the AO's classification of the purchases as non-genuine.

Application of law to facts: The Tribunal applied the principles from previous judgments, such as the decision in M/s Diagnostics Vs. CIT, to conclude that transactions conducted through banking channels and supported by documentation should not be dismissed as non-existent.

Treatment of competing arguments: The Tribunal considered the AO's reliance on the investigation report and physical verification failures but found the assessee's documentary evidence more compelling.

Conclusions: The Tribunal concluded that the purchases should not be treated as bogus, given the evidence provided by the assessee.

2. Appropriateness of the 12% Addition by CIT (A)

Relevant legal framework and precedents: The CIT (A) applied a profit estimation approach, a common practice in cases where exact verification of transactions is challenging.

Court's interpretation and reasoning: The Tribunal disagreed with the CIT (A)'s application of a 12% profit element, finding it inconsistent with the evidence that supported the genuineness of the purchases.

Key evidence and findings: The Tribunal emphasized the absence of any adverse findings from the GST authorities and the acceptance of sales as genuine by the tax authorities.

Application of law to facts: The Tribunal referenced decisions like ACIT Vs. Urgaya Foods and Fees Private Limited, which supported the view that genuine transactions should not be arbitrarily assigned profit percentages without substantial justification.

Treatment of competing arguments: The Tribunal considered the CIT (A)'s rationale for the 12% estimation but ultimately found it unsupported by the factual matrix of the case.

Conclusions: The Tribunal directed the deletion of the 12% addition, concluding that the purchases were genuine and adequately substantiated.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The Tribunal concluded that transactions conducted through banking channels and supported by documentation should not be dismissed as non-existent."

Core principles established: The judgment reinforces the principle that documented transactions, especially those conducted through banking channels, should not be deemed fictitious without compelling evidence to the contrary.

Final determinations on each issue: The Tribunal allowed the cross objection raised by the assessee, directing the deletion of the 12% addition. Consequently, the appeal of the Revenue was dismissed as infructuous.

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