2021 (8) TMI 859 - AT - Income Tax

Bogus purchases - information that was received by the A.O from the DGIT(Inv.), Mumbai, wherein it was intimated that the material unearthed in the course of the search proceedings conducted on Shri Bhanwarlal Jain and his associates concerns revealed, that the assessee as a beneficiary had obtained certain accommodation/bogus purchase bills - HELD THAT - We find that complete details as regards the sales carried out by both the aforementioned parties, viz. invoice numbers, weight of diamond (carats) and sale consideration have been specifically mentioned. Also, we find that the assessee had in the course of the assessment proceedings filed the confirmations of both of the aforementioned parties. In the backdrop of the aforesaid facts, we are of a strong conviction that now when the assessee had not only substantiated the authenticity of the purchases claimed to have been made from the aforementioned parties on the basis of supporting documentary evidence which had not been dislodged by the lower authorities, but had also got the confirmations from the respective parties alongwith their affidavits , therefore, there could have been no justification in the absence of any material proving to the contrary to doubt the genuineness of the purchases claimed by the assessee to have been made from the aforementioned parties. As the assessee had substantiated to the hilt the authenticity of the purchases claimed to have been made from the aforementioned parties, therefore, no disallowance qua any part of the impugned purchases was called for in its hands. We, thus, in the backdrop of our aforesaid deliberations set-aside the order of the CIT(A) and vacate the disallowance of 3% of the impugned purchases that had been sustained by him. The appeal of the assessee is allowed in terms

Summary

Issues Involved:
1. Addition to income on account of possible profit element in purchases from alleged non-genuine parties.
2. Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961.
3. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition to Income on Account of Possible Profit Element in Purchases from Alleged Non-Genuine Parties:

The assessee firm, engaged in trading polished diamonds, filed its return of income for AY 2013-14. During assessment proceedings, the AO received information from the DGIT(Inv.), Mumbai, indicating that the assessee had obtained accommodation entries of bogus purchases amounting to ?2,65,25,767/- from two parties, Prime Star and Mohit Enterprises. Despite the assessee providing stock registers, retail invoices, bank statements, and affidavits from the suppliers to substantiate the genuineness of the purchases, the AO concluded that the purchases were made from the grey market at a discounted value. Consequently, the AO added ?21,22,061/- (8% of the purchase value) to the assessee's income as the profit element from these purchases.

On appeal, the CIT(A) reduced this addition to ?7,95,773/-, corresponding to 3% of the purchase value, based on the profit margins in the diamond trading industry.

The assessee further appealed, arguing that the purchases were genuine and supported by irrefutable documentary evidence. The assessee highlighted that all purchases were backed by sales, payments were made via account payee cheques, and affidavits from the suppliers confirmed the transactions. The assessee cited similar cases where the ITAT had vacated such additions.

Upon review, the Tribunal found that the assessee had provided sufficient documentary evidence, including affidavits and confirmations from the suppliers, to substantiate the genuineness of the purchases. The Tribunal noted that the AO had not dislodged this evidence and had not provided any material to prove the contrary. Consequently, the Tribunal concluded that there was no justification for the disallowance and vacated the addition of 3% of the impugned purchases upheld by the CIT(A), thereby allowing the assessee's appeal.

2. Levy of Interest under Sections 234B and 234C of the Income Tax Act, 1961:

The CIT(A) held that the levy of interest under Sections 234B and 234C of the Income Tax Act, 1961, was mandatory. The assessee denied its liability for such interest.

3. Initiation of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act, 1961:

The CIT(A) held that the ground raised by the assessee disputing the initiation of penalty proceedings under Section 271(1)(c) was premature. The assessee denied its liability for such a penalty.

Conclusion:

The Tribunal allowed the appeal of the assessee, vacating the disallowance of 3% of the impugned purchases sustained by the CIT(A). The issues regarding the levy of interest under Sections 234B and 234C and the initiation of penalty proceedings under Section 271(1)(c) were noted but not specifically addressed in the Tribunal's final decision. The order was pronounced in the open court on 12.08.2021.