Assessee wins partial relief as ITAT restricts bogus purchase addition to 6% profit element under section 69C

The ITAT Mumbai partially allowed the assessee's appeal regarding bogus purchases. The CIT(A) had sustained 100% disallowance of purchases from two concerns under section 69C. The ITAT held that since sales were not disturbed by tax authorities, only the profit element embedded in the transaction should be taxed. The assessee had offered 6% profit on disputed purchases. The ITAT directed the AO to restrict the addition to 6% of the disputed purchases instead of 100% disallowance, following established judicial precedent.

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Issues Involved:
1. Reopening of the assessment u/s 147 of the Income Tax Act.
2. Sustaining disallowance of purchases u/s 69C of the Act.
3. Premature penalty and interest charged u/s 234A, 234B, and 234C.

Summary:

Reopening of the assessment u/s 147 of the Act:
The assessee raised a legal issue against the reopening of the assessment u/s 147 of the Act but did not argue it before the Tribunal. Therefore, this issue was not adjudicated.

Sustaining disallowance of purchases u/s 69C of the Act:
The primary grievance was the action of the Ld. CIT(A) in sustaining the disallowance of Rs. 20,84,190/- u/s 69C of the Act, representing 100% of the total purchases from two parties, M/s. Kriya Impex Pvt. Ltd. and M/s. Sun Diam. The AO had reopened the assessment based on information from the Director of Investigation Tax (Inv.) indicating that the assessee had transacted with concerns providing accommodation entries. The AO noted that the assessee failed to produce the proprietor/director of the two concerns to prove the genuineness of the purchases and thus treated the transactions as non-genuine, disallowing 100% of the purchases.

The Tribunal noted that the AO and Ld. CIT(A) did not disturb the sales shown by the assessee, which included the diamonds purchased from the two concerns. It was inferred that the assessee procured diamonds from the grey market and used the services of the two concerns to provide sales bills. In such cases, only the profit embedded in such sales should be brought to tax. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. Nitin Ramdeoji Lohia, which held that if the purchases are bogus, the corresponding sales must also be bogus unless proven otherwise.

The Tribunal directed the AO to restrict the addition to 6% of the disputed purchases, as the assessee had himself offered a profit element of 6%.

Premature penalty and interest charged u/s 234A, 234B, and 234C:
Ground no. 3 regarding penalty was deemed premature, and the interest charged u/s 234A, 234B, and 234C was consequential, leading to its dismissal.

Conclusion:
The appeal of the assessee was partly allowed, restricting the addition to 6% of the disputed purchases. The order was pronounced in the open court on 29/11/2023.

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