2023 (10) TMI 400 - AT - Income Tax

Revenue's Appeals Partly Allowed; Section 40A(3) Disallowances Upheld Due to Insufficient Justification Under Rule 6DD

The tribunal partly allowed the Revenue's appeals and rejected the assessees' cross-appeals, upholding the section 40A(3) disallowances due to ... Bogus sale purchase transactions - Addition u/s 40A(3) - AO rejecting the book results and thereby enhancing the turnover and adopting the GP rate @ 15% - Learned counsel submitted that not only sec. 40A(3) disallowances herein does deserves to be deleted but also these twin assessee’s are entitled for reduction in G.P. which has been assessed at a very exorbitant rate of 2% in the CIT(A)'s respective orders under challenge - HELD THAT:- As lower authorities had found these twin assessee’s as well as various other entities to have sourced their purchases from, and to, as the case may be, M/s. Blue Bird India Ltd., which in turn, was found to be engaged in providing accommodation entries. We further wish to reiterate that this so-called accommodation entry provider entity’s book results as well as turnover have been found to be genuine in this tribunal’s learned coordinate bench’s order. The necessary corollary that flows therefrom is that once M/s. Blue Bird India Ltd., has been held to be a genuine entity which was seriously doubted so as to give rise to all these sec. 148/147 proceedings, we must necessarily hold that all the corresponding sale/purchase book results of these assessees must also deserve to be accepted in toto since not based on any other independent finding. That being the case, we must also hold that the learned lower authorities action, more particularly, that of the AO rejecting books as well as disallowing sec. 40A(3) cash purchases deserve to be upheld qua the latter issue only as these twin assessee’s had themselves recorded the same in their returns submitted but also there is no justification of their part in justifying the respective cash purchases as per Rule 6DD. The very factual position continues before us as well as these twin assessee’s identical endeavor is only to reduce the gross profit estimation than explaining the mitigating circumstances/business exigencies in making cash purchases. Faced with the situation, we conclude that these twin assessee’s respective book results ought to be treated as genuine, which inturn, forms sufficient material for us to revive the Ld. Assessing Officer(s) identical action to the extent he had made sec. 40A(3) disallowance, involving varying sums, in all these cases. The Revenue’s stand is partly accepted to this limited extent in all of it’s instant three appeals Issues Involved:1. Reopening of assessments under sections 148/147.2. Treatment of trading business turnovers as bogus and disallowance of corresponding purchases under section 40A(3).3. Gross profit estimation and rejection of books of accounts.4. Deletion of section 40A(3) disallowance by CIT(A).5. Revenue's appeal against CIT(A)'s order and assessee's cross-appeals.Summary:1. Reopening of Assessments:The cases involved the reopening of assessments under sections 148/147 due to alleged bogus sale-purchase transactions with M/s. Blue Bird India Ltd. The Assessing Officers treated the trading business turnovers as bogus and disallowed corresponding purchases under section 40A(3).2. Treatment of Trading Business Turnovers and Disallowance under Section 40A(3):The Assessing Officers disallowed the cash purchases based on departmental and CBI investigations, treating the turnovers as accommodation entries. The CIT(A) assessed the turnovers for gross profit additions while deleting section 40A(3) disallowances, as the books of account were rejected.3. Gross Profit Estimation and Rejection of Books:The CIT(A) assessed the gross profit at 2%, which the assessees contested as exorbitant. The Revenue argued that the Assessing Officers' disallowances should be upheld entirely. The tribunal noted that the coordinate bench had settled the issue in M/s. Blue Bird India Ltd.'s case, confirming the entity had not engaged in accommodation entries.4. Deletion of Section 40A(3) Disallowance by CIT(A):The tribunal found that the CIT(A) had correctly deleted the section 40A(3) disallowance after rejecting the books of account. The tribunal referenced its recent order in M/s. Laukik Paper Industries (P) Ltd., which held that section 40A(3) disallowance is not sustainable after rejection of books.5. Revenue's Appeal and Assessee's Cross-Appeals:The tribunal partly accepted the Revenue's appeals, reviving the Assessing Officers' section 40A(3) disallowances as the assessees did not justify the cash purchases under Rule 6DD of the I.T. Rules, 1962. The tribunal rejected the assessees' cross-appeals, concluding that the book results should be treated as genuine, but the section 40A(3) disallowances should be upheld.Conclusion:The tribunal partly allowed the Revenue's appeals and rejected the assessees' cross-appeals, upholding the section 40A(3) disallowances while treating the book results as genuine. The order was pronounced in the open court on 09.10.2023.