Tribunal allows appeal on bogus purchases, rejects revenue's appeals. Labor charges essential for business upheld.

The tribunal allowed the assessee's appeal regarding alleged bogus purchases, directing an addition of 3% of the tainted purchases for two assessment years. The disallowance of labor charges for converting rough diamonds was deleted for both years, emphasizing the necessity of such charges for the business. The revenue's appeals were dismissed, and the assessee's cross-objections were partly allowed in a decision pronounced on 3rd May 2021.

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Issues Involved:
1. Condonation of delay in filing cross-objections.
2. Addition on account of alleged bogus purchases.
3. Disallowance of labor charges.

Detailed Analysis:

1. Condonation of Delay in Filing Cross-Objections:
The assessee's cross-objections for AYs 2012-13 and 2013-14 were delayed by 53 days. The delay was attributed to the Covid-19 pandemic, which hindered office operations and employee coordination. Despite opposition from the Ld. CIT-DR, the tribunal found reasonable cause for the delay and condoned it in the interest of justice.

2. Addition on Account of Alleged Bogus Purchases:
- Material Facts: For AY 2012-13, the assessee, part of a group engaged in diamond import and export, was assessed under sections 143(3) and 153A following a search on 18/11/2015. Allegations were made that the group indulged in accepting accommodation entries of bogus purchases from concerns operated by Shri Bhanwarlal Jain group, which was also subjected to a search on 03/10/2013. Despite providing purchase invoices, quantitative details, bank statements, and other documents, the Ld. AO disallowed purchases amounting to Rs. 470.66 Lacs.
- Before CIT(A): The assessee argued that the purchases were genuine, supported by customs certification and a quantitative tally in the Tax Audit Report. The CIT(A), however, noted that the suppliers were not found at the given addresses, and the basic onus to prove the genuineness of the purchases was not discharged. The CIT(A) estimated the profit element in these transactions at 15%, following precedents from the Gujarat High Court and other decisions.
- Tribunal's Decision: The tribunal found that the assessee was in possession of purchase invoices and made payments through banking channels. Given the complete quantitative tally and correlation of purchases with sales, the tribunal deemed it fit to estimate the profit element to prevent revenue leakage. Following a coordinate bench's decision in a related case, the tribunal directed the AO to make an addition of 3% of the tainted purchases, resulting in additions of Rs. 14,11,982 for AY 2012-13 and Rs. 4,81,103 for AY 2013-14. The assessee's cross-objection was partly allowed, and the revenue's appeal was dismissed.

3. Disallowance of Labor Charges:
- AY 2013-14: The assessee paid labor charges of Rs. 42,445 to M/s H.S. Enterprises, whose rubber stamp was found during the search. Despite the assessee's defense that the charges were for converting rough diamonds into polished ones and were paid after TDS deduction, the Ld. AO disallowed the charges. The CIT(A) noted the necessity of labor charges for the business and deleted the disallowance based on the ratio of labor charges to imported diamond value in AY 2016-17.
- Tribunal's Decision: The tribunal upheld the CIT(A)'s decision, noting that the conversion of rough diamonds to polished ones necessitated labor charges. The payment was made through account payee cheques after TDS deduction. The tribunal found no basis for disallowing the charges on mere suspicion and dismissed the revenue's appeal.
- AY 2015-16: Similar disallowance of Rs. 29.65 Lacs was made for labor charges paid to three entities. The CIT(A) confirmed an addition of Rs. 12.95 Lacs based on the ratio from AY 2016-17. The tribunal reiterated that labor charges vary based on several factors and cannot be assumed constant. The tribunal found no concrete material to support the disallowance and deleted the addition, allowing the assessee's appeal.

Conclusion:
The revenue's appeals were dismissed, the assessee's appeal was allowed, and the assessee's cross-objections were partly allowed. The order was pronounced on 3rd May 2021.

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