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2018 (3) TMI 1525 - AT - Income TaxAddition of bogus purchases - jewellery business - allegation that jewellery was purchased from unexplained cash - Held that - The primary allegation of the ld AO that the assessee had received the cash back in lieu of account payee cheques issued from M/s Vitrag Jewels ( based on the statement of Shri Rajendra Jain) and used the said cash for purchasing diamonds from unknown parties in the grey market, gets defeated on this count also, in as much as, the ld AO had accepted the fact that factum of purchases of diamonds indeed has been made by the assessee in the Asst Year 2007-08 (i.e the year under appeal) and whereas the payments were made to Vitrag Jewels only in next Asst Year i.e AY 2008-09. It is highly impossible for M/s Vitrag Jewels to first hand over the cash even without receiving the cheques from the assessee. Hence no cash could be available with the assessee to make purchase of diamonds from unknown parties in the grey market in Asst Year 2007-08. Hence the allegation of the ld AO only leads to impossible situation. - Decided in favour of assessee
Issues Involved:
1. Validity of proceedings initiated under Section 147 of the Income Tax Act. 2. Justification of the addition of ?15,57,470/- as bogus purchases. 3. Chargeability of interest under Section 234B of the Income Tax Act. 4. General grounds raised by the assessee. Issue-Wise Detailed Analysis: 1. Validity of Proceedings Initiated under Section 147: - The assessee challenged the validity of the proceedings initiated under Section 147 of the Income Tax Act, arguing that the reassessment proceedings were bad in law. However, since the relief was granted on the merits of the case, the tribunal refrained from giving an opinion on the validity of the reopening of the assessment. 2. Justification of the Addition of ?15,57,470/- as Bogus Purchases: - The main issue was whether the addition of ?15,57,470/- as bogus purchases was justified. The assessee, a partnership firm in the jewellery business, had filed its return of income, which was later revised. The assessment was reopened based on information from the DGIT (Inv.), Mumbai, alleging bogus purchases from M/s Vitraj Jewels. - The Assessing Officer (AO) issued a show cause notice to the assessee, explaining that the purchases from M/s Vitraj Jewels were considered bogus based on statements from key persons of the group managing Vitraj Jewels. These statements indicated that Vitraj Jewels was involved in providing accommodation entries and not in actual trading of diamonds. - The assessee provided various documents, including books of accounts, bills, vouchers, stock registers, and bank statements, to support the genuineness of the purchases. The AO, however, added ?15,57,470/- to the income of the assessee as income from undisclosed sources, alleging that the assessee had received cash in lieu of cheques issued to Vitraj Jewels. - The tribunal found that the assessee maintained proper books of accounts and provided sufficient evidence to support the purchases, including bills, stock registers, and details of subsequent sales. The tribunal noted that the statements of the key persons from Vitraj Jewels were retracted, and there was no evidence to prove that the assessee received cash back in lieu of cheques issued. - The tribunal also referred to the jurisdictional High Court's decision in a similar case, which held that the revenue could not demonstrate that the payments were not genuine or routed back to the assessee. Based on these findings, the tribunal directed the AO to delete the addition of ?15,57,470/-. 3. Chargeability of Interest under Section 234B: - The ground regarding the chargeability of interest under Section 234B was deemed consequential and did not require specific adjudication. 4. General Grounds Raised by the Assessee: - The general grounds raised by the assessee were considered general in nature and did not require specific adjudication. Conclusion: - The appeal of the assessee was allowed, and the addition of ?15,57,470/- as bogus purchases was deleted. The tribunal refrained from commenting on the validity of the reopening of the assessment due to the relief granted on the merits of the case. The chargeability of interest under Section 234B was considered consequential, and the general grounds did not require specific adjudication.
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