2021 (10) TMI 1049 - AT - Income Tax

Estimation of income - Bogus Purchase u/s 69C - HELD THAT - The assessee has shown Gross Profit @ 6.3% and Net Profit @ 4.69%, which is in line in the business of diamonds. We find that the impugned purchases are less than 10% of the total transactions of the assessee. Assessee has not fully substantiated purchases, the Revenue Authorities are not entitled to make addition @ 100% of the transaction rather to tax the income component in the said transaction - Lower Authorities has not discarded the documentary evidence furnished by assessee. The Lower Authorities basically relied upon the report of Investigation Wing. Therefore, considering the peculiarity of the facts and circumstances of the case, we are of view that to avoid the possibility of revenue leakage, the disallowance of token amount of ₹ 20,000/- will meet the end of justice.

Summary

Issues:
1. Addition of ?3,50,000 on account of Bogus Purchase under Sec 69 of the Income Tax Act, 1961.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the addition of ?3,50,000 on account of Bogus Purchase for the Assessment Year 2009-10. The case was reopened under section 147 of the Income Tax Act based on information received from the Investigation Wing regarding accommodation entries provided by a certain group. The Assessing Officer (AO) disallowed the entire purchases shown from a specific entity, considering them as accommodation entries.

2. The assessee contended that the purchases were genuine, supported by confirmation invoices and bank statements. The assessee's turnover was ?32 lakhs, and the disputed purchases were only ?3.5 lakhs. The AO and the Commissioner of Income Tax (Appeals) relied on the Investigation Wing's report, concluding that the purchases were not genuine. The assessee argued for the deletion of the addition, emphasizing the reasonable profit shown in the diamond business.

3. The Tribunal noted that the AO did not conduct an independent investigation and solely relied on the Investigation Wing's report. Considering the overall facts and circumstances, the Tribunal held that a 100% addition was not justified. Instead, to prevent revenue leakage, a token disallowance of ?20,000 was deemed appropriate. The Tribunal found that the lower authorities did not reject the documentary evidence provided by the assessee, but based their decision on the Investigation Wing's report.

4. The Tribunal's decision was based on the principle of taxing the income component in the transaction rather than disallowing the entire amount. The Tribunal considered the assessee's turnover, profit margins, and the proportion of disputed purchases to total transactions. The Tribunal concluded that a token disallowance of ?20,000 would serve the interest of justice, partially allowing the assessee's appeal.

5. Therefore, the Tribunal partially allowed the appeal, emphasizing the importance of considering all relevant factors before making additions in cases involving disputed purchases based on accommodation entries.