2018 (5) TMI 1695 - AT - Income Tax

Additions on account of bogus purchases of diamonds - reopening of assessment - Held that - Addition made on account of the alleged bogus purchase of diamonds is squarely covered in favour of the assessee inter alia by the decision M/s. M.B. Jewellers and Sons vs DCIT 2018 (3) TMI 1525 - ITAT KOLKATA - assessee was maintaining proper books of accounts as per the tax audit report - assessee furnished the bills containing the name address as well as the sales tax numbers both Gujarat and Central sales tax together with the PAN of those parties from whom goods were purchased - payments were made to them by account payee cheques - thus the source for such purchases are explained - Decided in favor of assessee.

Issues Involved:
1. Validity of the reopening of assessment under section 143(3)/147.
2. Addition of ?12,39,532/- on account of alleged bogus purchases of diamonds.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment:
The assessee challenged the validity of the assessment made by the Assessing Officer (A.O.) under section 143(3)/147, arguing that the reopening of assessment was invalid. The A.O. had reopened the assessment based on information that the assessee had taken a bogus bill from M/s. Vitrag Jewels, which was allegedly involved in providing bogus entries. The A.O. issued a notice under section 148 and, after recording reasons, proceeded with the reassessment. The assessee objected to the reopening, but the A.O. rejected these objections. The CIT(A) upheld the A.O.’s decision, stating that M/s. Vitrag Jewels had not actually purchased or sold any material, and the appellant had purchased diamonds from the Grey Market in cash, subsequently recording these purchases in the books using bogus bills.

2. Addition on Account of Alleged Bogus Purchases:
The assessee disputed the addition of ?12,39,532/- made by the A.O. for alleged bogus purchases of diamonds from M/s. Vitrag Jewels. The CIT(A) confirmed the addition, citing that the appellant failed to prove the genuineness of the purchases and did not produce the parties from whom the purchases were made. The CIT(A) referenced the Supreme Court decision in N.K. Proteins Ltd., which treated the entire bogus purchase as income.

Tribunal's Findings:
The Tribunal found that the issue of alleged bogus purchases was covered in favor of the assessee by a previous decision in the case of M/s. M.B. Jewellers and Sons vs. DCIT. The Tribunal noted that the assessee maintained proper books of accounts, including stock registers, and all purchases were made against proper bills. The sales made by the assessee were accepted by the revenue, indicating that without purchases, there could be no sales. The Tribunal observed that there was no evidence proving that the assessee received cash back from M/s. Vitrag Jewels in lieu of cheques issued. Additionally, the statement of Shri Rajendra Jain, which was heavily relied upon by the revenue, was retracted, and thus, could not be considered reliable evidence.

The Tribunal also highlighted that the assessee provided detailed documentation, including purchase bills, ledger accounts, and payment details, proving the genuineness of the transactions. The Tribunal referenced the jurisdictional High Court's decision in CIT vs. Alpha Hydronics Pvt. Ltd., which supported the assessee's claim when payments were made by account payee cheques and no evidence suggested that the payments were routed back to the assessee.

Conclusion:
The Tribunal concluded that the revenue failed to make a case for the addition towards purchases of ?12,39,532/-. Consequently, the Tribunal deleted the addition made by the A.O. and confirmed by the CIT(A) on account of alleged bogus purchases. As a result, the issue regarding the validity of the assessment became academic or infructuous, and the Tribunal did not adjudicate upon it.

Final Order:
The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 24th May 2018.

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