2020 (9) TMI 607 - AT - Income Tax

Tribunal Decision: Burden of Proof on Assessee in Grey Market Transactions

The Tribunal upheld the Ld. AO's addition of Rs. 9,30,487/- but set aside the Ld. CIT (A)'s decision to treat the entire purchase amount as income for AY ... Bogus purchases - AO estimated 10% of the bogus purchase - CIT (A) enhanced the addition by treating the entire bogus purchases as the income of the assessee - HELD THAT:- Onus is on the assessee to establish the genuineness of the suppliers. Though the payment made by the assessee towards the purchases are through banking channels, it is also revealed that the suppliers were issuing bogus bills and vouchers to various parties. In this situation, producing the bills and vouchers and evidencing the payment made through cheque alone will not establish that the transactions are genuine. AO was right in relying on the decision of the Hon’ble Apex Court in the case of M/s. Kachwala Gems [2006 (12) TMI 83 - SUPREME COURT] estimating the additional income of 10% on the bogus purchases made from the grey market which works out to ₹ 9,30,487/-. Order of the Ld. CIT (A) to enhance the addition by treating the entire bogus purchases as the income of the assessee is not appropriate because it is evident that the assessee had made purchases apparently from his accounted money as the payments have made through banking channels. Further it is also a fact that the Gold/Jewellery purchased are either sold by the assessee or remains with the assessee as his closing stock, since there are no other contrary findings by the Revenue. Set aside the order of the Ld. CIT (A) and confirm the order of the Ld. AO. - Appeal of the assessee is partly allowed. Issues:1. Discrepancy in addition to income by Ld. CIT (A) compared to Ld. AO's assessment for AY 2009-10.Analysis:The appeal involved a discrepancy regarding the addition to income made by the Ld. CIT (A) as opposed to the Ld. AO's assessment for the Assessment Year (AY) 2009-10. The crux of the matter was the Ld. CIT (A) enhancing the addition to Rs. 93,04,866/-, while the Ld. AO had initially added Rs. 9,30,487/-. The case revolved around the genuineness of purchases made by the assessee, an individual engaged in trading Gold Ornaments through M/s. Vijay Jewellers. The search and seizure operation under Section 132 of the Income Tax Act revealed that the assessee had obtained accommodation entries for gold purchases from certain individuals, raising concerns about creditworthiness and genuineness of transactions.The Ld. AO treated the purchases as bogus transactions, following precedents and estimated 10% of the bogus purchase as undisclosed income. On appeal, the Ld. CIT (A) added the entire amount of Rs. 93,04,866/- to the assessee's income. The assessee argued that payments were made through banks with proper documentation, citing legal precedents supporting the genuineness of transactions when backed by proper bills and vouchers. However, the Appellate Tribunal noted that the assessee failed to establish the genuineness of suppliers beyond bills, vouchers, and bank statements. Given the grey market nature of gold transactions, the burden was on the assessee to prove legitimacy.While upholding the Ld. AO's addition of Rs. 9,30,487/-, the Tribunal set aside the Ld. CIT (A)'s decision to treat the entire purchase amount as income. The Tribunal reasoned that since payments were made through banking channels and no contrary findings existed, the purchases were likely made from accounted money. The order emphasized the need for the assessee to provide concrete evidence of transaction legitimacy, especially in the context of grey market dealings. The Tribunal's decision was influenced by the Mumbai Bench's ruling in a similar case due to the Covid-19 pandemic, allowing the appeal in part and confirming the Ld. AO's order.In conclusion, the Tribunal's decision highlighted the importance of substantiating transactions in the face of suspicion, emphasizing the burden on the assessee to prove the authenticity of dealings, especially in markets prone to tax evasion.