ITAT Mumbai reduces disallowance on alleged bogus diamond purchases from 12.5% to 5% applying consistency principle

ITAT Mumbai reduced disallowance on alleged bogus diamond purchases from 12.5% to 5%. The tribunal applied consistency principle, noting that 5% profit margin on disputed cut and polished diamond transactions was accepted in assessee's previous years. The case involved bogus bills from entities while diamonds were allegedly purchased elsewhere at lower costs. Following precedent from assessee's own case history, the tribunal restricted disallowance to 5% of disputed purchases, partially allowing the assessee's appeal on merits.

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Issues Involved:
The judgment involves challenges to the re-assessment and disallowance of purchases for the assessment years 2007-08, 2009-10, and 2012-13 under section 250 of the Income Tax Act, 1961.

Assessment Year 2007-08:
The assessee challenged the re-assessment and disallowance of purchases. The Assessing Officer disallowed the entire purchases as bogus, but the CIT(A) restricted the disallowance to 12.5% based on a Gujarat High Court decision. The ITAT found the assessee failed to prove the genuineness of purchases, suggesting a reasonable disallowance to prevent revenue leakage. Following consistency in other years, the disallowance was restricted to 5% of disputed purchases, partly allowing the appeal.

Assessment Years 2009-10 and 2012-13:
The appeals for these years involved similar issues of disallowance on account of alleged bogus purchases. The ITAT applied the same reasoning as in the 2007-08 assessment, restricting the disallowance to 5% of disputed purchases. The grounds challenging the invocation of proceedings under section 147 were not argued and dismissed as not pressed. Consequently, the appeals for these years were partly allowed.

In conclusion, all the appeals by the assessee challenging the re-assessment and disallowance of purchases for the assessment years 2007-08, 2009-10, and 2012-13 were partly allowed by the ITAT Mumbai.

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