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TMI Blog2023 (1) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee firm received accommodation entries from Shri Bhanwarlal Jain Group. Shri Bhanwarlal Jain and his son Shri Rajesh Bhanwarlal Jain provided accommodation entries to various parties in the form unsecured loan and bogus purchases. When accommodation entries in the form of bogus purchases to the tune of Rs.8.10 crores (rounded of) is alleged against the assessee from M/s. Rose Gems (P) Ltd., one of the entities controlled by Shri Bhanwarlal Jain. The Assessing Officer on the ground that assessee had accommodation entry decided to do to disallow the fictitious expenditure claimed by the assessee in the form of bogus purchases. While finalising the assessment to 100% of the alleged bogus purchases claimed, was disallowed and added to the income of the assessee. 5. Aggrieved assessee had challenged the same before the Commissioner of Income Tax (Appeals), where the CIT (Appeals) restricted the addition to 12.5% of the disputed purchases of Rs.8.10 crores amounting to Rs.1,01,32,060/- by relying on various judicial pronouncements. 6. The assessee preferred an appeal before the Income Tax Appellate Tribunal ('ITAT' hereinafter), which partly allowed the appeal of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, the Tribunal has categorically observed that the assessee had dhown bogus purchases amounting to Rs.2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs.2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs.73,23,322/-. 6.1 In the case of NR Paper & Boards Ltd. (supra), this Court has discussed the issue as to whether after making of block assessment, regular assessment is barred or prohibited by law. This Court has held that there would be no overlapping in the nature of assessment made under this Chapter of undisclosed income and the regular assessment made u/w.143(3). However, if the said decision is read in contest of questions raised in the present appeal, it cannot be reads as having held that even if the material found during the course of search expose the falsity of the entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (ACIT / ITOs) have not made 100% disallowances, but the disallowances ranging from 3% to 5% of the impugned purchases. The relevant observations made by the CIT (Appeals), Surat in relation to the same in paragraph 0.7 to 0.9 as under : "0.7 The AR has brough to my notice that on identical facts, there is a binding decision of Hon'ble Gujarat High Court in the case of M/s. Mayank Diamond Pvt. Ltd., reported in 2014 (11) TMI 812 (Guj) in Tax Appeal No.200 of 2003 dated 07.11.2014. In that case, the appellant was engaged in trading of polished diamonds. The learned Assessing Officer came to the conclusion that purchases amounting to Rs.1,86,36,447/- are bogus and disallowed the same. The learned CIT (Appeals) dismissed the appeal, however, the Hon'ble ITAT gave partial relief to the assessee by directing the learned Assessing Officer to make addition @12.5%. On appeal, the Hon'ble High Court of Gujarat has held that '....Gross Profit rate of 5% is the average rate of the industry and we think it fit to make addition on account of % gross profit rate. ...' 0.8 Also, the AR brought to my notice the decision of the Commissioner of Income Tax, Mahidharpura, (AT 2007-08) dated 21.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G.P of less than 1.15%. In our view the disallowance restricted by Ld. CIT(A) is on higher side. The profit margine in the industry is 5% to 7%. It is settled law in case of disputed purchases shown from such hawala dealers on the profit element embedded to avoid the possibility of revenue leakage is to be disallowed. No doubt made the assessee has shown extremely low G.P i.e. 1.15% only, yet the disallowance at rate of 12.5% is on higher side. This combination is similar cases, wherein the purchases are shown from Bhanwarlal Jain for providing accommodation entry, have restricted or enhanced the addition to the extent of 6% of impugned or disputed purchases. Therefore, taking the consistent the disallowance of purchases in the present case is also restricted to 6% of the disputed purchases. In the result, the grounds of appeal raised by assessee is partly allowed." 11. Having found that the Assessing Officer has chosen not to reject the books of accounts of the assessee and had made the estimated additions of the pieces of the purchases. Both, the CIT (Appeals) and the Tribunal, have concurrently and rightly held to make the additions, which the CIT (Appeals) had done @ 12.5% o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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