2020 (4) TMI 327 - AT - Income Tax

Bogus purchases - Addition on the basis of information gathered during the course of search and survey in the cases of accommodation entry providers giving bogus purchase bills to various parties and the assessee being one of the beneficiary of accommodation entry - AO as well as the ld. CIT(A) has estimated 8% profit - HELD THAT - ITAT in the case of Renisha Impex Pvt.Ltd. 2017 (10) TMI 1509 - ITAT MUMBAI has considered an identical issue and directed the AO to estimate 6% profit on alleged non-genuinene purchases. In yet another case the ITAT Mumbai Bench in case of M/s Decent Dia Jewel Pvt Ltd 2020 (2) TMI 137 - ITAT MUMBAI has taken similar view and estimated 6% profit on alleged non-genuine purchases. We therefore considereing facts and circumstances of this case and by following the case laws discussed herein above direct the ld. AO to estimate 6% profit on alleged non-genuine purchases. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 57,81,073 to the total income based on alleged bogus purchase transactions.
2. Assumption of jurisdiction by the AO for initiating reassessment proceedings under section 148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 57,81,073 to the Total Income:

The assessee, engaged in trading cut and polished diamonds, filed returns for AY 2008-09, declaring an income of Rs. 1,24,680. The assessment was completed under section 143(3) of the I.T. Act, 1961, with a determined income of Rs. 2,16,130. The case was reopened based on information from DIT (Investigation)-II, indicating that the assessee benefited from bogus purchase bills amounting to Rs. 6,61,52,954 from hawala dealers. The AO completed the reassessment under section 143(3) r.w.s. 147, determining the total income at Rs. 59,97,203, including an 8% profit margin addition on alleged bogus purchases.

The assessee appealed, arguing that the AO erred in adding purchases from certain parties based on statements recorded during searches, despite providing necessary evidence to justify the purchases. The CIT(A) upheld the AO's addition, referencing the Task Force group's recommendations for the diamond industry and various judicial precedents. The CIT(A) noted that the profit element embedded in bogus purchases should be assessed as undisclosed income, with the AO's 8% profit rate deemed reasonable based on industry standards and judicial decisions.

2. Assumption of Jurisdiction by the AO:

The assessee contended that the AO's initiation of reassessment proceedings under section 148 was legally flawed. The CIT(A) and the tribunal did not explicitly address this issue in their detailed findings, focusing instead on the substantive issue of the profit margin on alleged bogus purchases.

Tribunal's Findings:

The tribunal reviewed the material and arguments, noting that the AO's findings were based on extensive evidence, including the modus operandi of entry providers and statements from the Bhanwarlal Jain group. The CIT(A) supported the AO's conclusions, noting that the findings were corroborated by incriminating material seized during searches. The tribunal acknowledged the CIT(A)'s reliance on the Task Force group's recommendations and judicial precedents, but noted that the task force recommended a 2%-3% profit margin, while the AO and CIT(A) estimated 8%.

The tribunal cited ITAT decisions in similar cases, directing the AO to estimate a 6% profit on alleged non-genuine purchases, aligning with precedents such as Renisha Impex Pvt. Ltd. and Decent Dia Jewel Pvt. Ltd.

Conclusion:

The tribunal partly allowed the appeals for AY 2008-09, 2011-12, and 2014-15, directing the AO to estimate a 6% profit on alleged non-genuine purchases, consistent with judicial precedents. The order was pronounced on 29/01/2020.