ITAT increases disallowance to 6% on bogus purchases from entry providers due to insufficient evidence

ITAT Surat modified CIT(A)'s order regarding bogus purchases from entry providers. The tribunal found insufficient evidence of TDS details, party confirmations, or agreements to support the transactions. While CIT(A) had restricted addition to 0.50% without material evidence, ITAT increased disallowance to 6% of impugned purchases totaling Rs. 2.01 crore, following consistent precedent in similar cases involving the same entry providers. The decision was affirmed by Gujarat HC in a comparable matter. Revenue's appeal was partly allowed with the enhanced disallowance rate.

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Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Treatment of commission on bogus purchases.
3. Existence of entities providing bogus purchase bills.
4. Maintenance and submission of books of accounts and stock register.
5. Validity of reopening the case based on information from the Investigation Wing.

Summary:

1. Deletion of Addition on Account of Bogus Purchases:
The Revenue challenged the deletion of Rs. 2,00,60,757/- made on account of bogus purchases by the ld. CIT(A). The Assessing Officer (AO) added the entire purchases shown from Mihir Diamonds, Krishna Diam P. Ltd., and Krishna Diamonds Pvt. Ltd., totaling Rs. 2,01,61,565/-, as the entities were found to be non-existent and used for providing bogus purchase bills. The assessee contended that he was a commission agent for rough and polished diamonds, and the transactions were genuine, recorded in his books of account.

2. Treatment of Commission on Bogus Purchases:
The AO rejected the assessee's claim of being a commission agent, noting that the assessee had been filing returns as a trader in rough and polished diamonds. The ld. CIT(A) restricted the addition to 0.50% of the impugned purchases, treating the profit margin embedded in the purchases as the only amount to be disallowed.

3. Existence of Entities Providing Bogus Purchase Bills:
The AO's addition was based on information from the Investigation Wing, which revealed that the entities from which the assessee made purchases were benami firms managed by Gautam Jain and his associates, providing accommodation entries without actual delivery of goods. The ld. CIT(A) accepted the assessee's contention that the purchases were genuine, supported by stock tally and payments made by account payee cheques.

4. Maintenance and Submission of Books of Accounts and Stock Register:
The AO noted that the assessee did not submit proper books of accounts or stock register during the assessment proceedings. The ld. CIT(A) found that the assessee maintained proper records and that the AO did not point out any defects in the books of account or reject the book results.

5. Validity of Reopening the Case:
The ld. CIT(A) upheld the validity of reopening the case, citing sufficient material with the AO to form a belief about escapement of income based on information from the Investigation Wing. This decision was supported by the jurisdictional High Court's ruling in Peass Industrial Engineers Pvt. Ltd. Vs DCIT.

Conclusion:
The Tribunal, considering the submissions and material on record, modified the ld. CIT(A)'s order. It increased the disallowance from 0.50% to 6% of the impugned purchases, aligning with similar cases where purchases from entry providers were involved. The Tribunal directed the AO to restrict the disallowance to 6% of the aggregate purchases of Rs. 2.01 crore. Consequently, the appeals for both assessment years were partly allowed. The order was announced in open court on 21st February 2024.

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