2022 (3) TMI 475 - AT - Income Tax

Tribunal allows Revenue's appeal, limits bogus purchases to 6% due to low profit margin

Income Tax Officer, Ward-2 (3) (7), Surat Versus Ashok Sonraj Jain

The Tribunal partially allowed the Revenue's appeal, directing the Assessing Officer to restrict the addition of bogus purchases to 6% of the disputed ... Bogus purchases - addition of 100% of purchases shown from Pravin Kumar Jain Companies/entities - HELD THAT:- We find the assessee has filed bill of purchases and bank statement in order to substantiate the genuineness of purchases. The evidence furnished by assessee bills of purchases and bank statement showing the transaction through banking channel. AO has disregarded such documentary evidence furnished by assessee. The sales of the assessee is not disputed by assessing officer. AO not rejected the books of account. No other observation on books of assessee was made. It is settled law that no sale is possible in absence of purchase. We find that before, ld. CIT(A) the assessee filed in very detailed and exhaustive submissions. The profit element in such disputed purchase is to be disallowed to avoid the possibility of revenue leakage. We find that Assessing Officer identified the disputed purchase to the extent of sale of ₹ 12.05 Crores and disallowance of 100% of such purchases. In our view, 100% of disallowance of such purchases without disputing the sales is not justified. Similarly, disallowance restricted by ld. CIT(A) to the extent of 5% is also not justified when the assessee has shown GP of less than of less than 1% (.88%). Considering over all facts and circumstances of the case, we are of the view that disallowance of 6% of the disputed purchases of ₹ 3.46 Crore, would meet possibility of revenue leakage. Hence, the Assessing officer is directed to disallow/restrict the addition of bogus purchases to the extent of 6% of such purchases. In the result, the appeal of the Revenue is partly allowed. Issues:1. Restriction of addition made by the Assessing Officer on account of bogus purchases.2. Failure to appreciate the genuineness of purchases and suppressing profit.3. Upholding the order of the Assessing Officer.Issue 1: Restriction of addition made by the Assessing Officer on account of bogus purchasesThe appeal by the Revenue was against the order of the ld. Commissioner of Income tax (Appeals)-1, Surat, for assessment year 2007-08. The case involved purchases from parties managed by Shri Praveen Kumar Jain Group, which were suspected to be bogus. The Assessing Officer disallowed the entire purchases of &8377; 3.46 Crores from the concerned parties. The ld. CIT(A) restricted the disallowance to 5% of the disputed purchases based on a previous decision in a similar case. The Tribunal found the 5% restriction to be unjustified due to the low profit margin in diamond trade. It directed the Assessing Officer to restrict the addition of bogus purchases to 6% of the disputed purchases, considering the facts and circumstances of the case.Issue 2: Failure to appreciate the genuineness of purchases and suppressing profitThe Assessing Officer based the disallowance on evidence collected during a search and seizure action at Shri Praveen Kumar Jain Group's premises, where it was revealed that the parties from whom purchases were made were involved in accommodation entries without actual delivery of goods. The Assessing Officer rejected the genuineness of purchases despite the submission of bills and bank statements by the assessee. The ld. CIT(A) upheld the disallowance but restricted it to 5% of the disputed purchases. The Tribunal emphasized that no sale is possible without purchase and considered the profit element in disputed purchases for disallowance to prevent revenue leakage.Issue 3: Upholding the order of the Assessing OfficerThe Tribunal reviewed the submissions of both parties and the orders of the lower authorities. It noted that the ld. CIT(A) restricted the addition based on a previous decision without discussing the specific facts of the case in detail. The Tribunal found the 5% restriction unjustified given the low profit margin of the assessee. Considering the overall facts and circumstances, the Tribunal directed the Assessing Officer to restrict the addition of bogus purchases to 6% of the disputed purchases. As a result, the appeal by the Revenue was partly allowed, emphasizing the need to prevent revenue leakage while ensuring a fair assessment based on the specific circumstances of the case.