2024 (12) TMI 976 - AT - Income Tax

Diamond trading company's bogus purchase disallowance upheld despite Revenue's failed conduit allegation proof

Assistant Commissioner of Income-tax, Vejalpur, Ahmedabad Versus Krishnaavtar J. Kabra (HUF)

The ITAT Ahmedabad upheld the CIT(A)'s decision regarding disallowance of bogus purchases from a diamond trading company. The assessee was alleged to be ... Disallowance of bogus purchases - Information received from DDIT (Inv.), Unit-2, Surat that the company named M/s. Delight Diam Pvt. Ltd. is involved in providing accommodation entries related to diamond trading as confessed by the Director of the company and assessee who is one of the parties who has shown purchases of diamond from the said company - As argued assessee is acting as a conduit for transfer of money. HELD THAT:- In the instant case, the issue of cross-examination does not arise as the assessee has also not attended the office of the Revenue Authorities, though Shri Deepak Babel has also not attended on the said date. In case both the purchase and sales have been treated as bogus, then the difference amount of Rs. 2,81,914/- is to be treated as the amount earned by the assessee after receiving the money from two parties namely M/s. Isabelle Tours N Travels and M/s. Shreeji Overseas (I) Pvt. Ltd., and sending it to a third party namely M/s. Delight Diam Pvt. Ltd. In that way, the assessee is acted as a conduit for transferring money through his account. Revenue has failed to undertake any inquiry to prove that the assessee is operating as a conduit for transfer of money to various persons. The Revenue has also not disputed that the sales parties were bogus to buttress the arguments that the assessee is acting as a conduit for transfer of money. AO has held that the assessee has inflated the purchases by taking accommodation entries to reduce the legitimate tax liability (para 4.5 of the AO). If that is the case, the contention of the Assessing Officer cannot be accepted that, in order to sell goods worth Rs. 3.56 crores the assessee has inflated the purchases by Rs. 3.51 crores. Further, we find that there was a total of 10 transactions entered by the assessee with regard to the sale and purchase of goods. Thus keeping in view order of Grishma Hemanshu Mody [2023 (10) TMI 1473 - ITAT MUMBAI] and Siddheshwar Impex Pvt. Ltd [2024 (8) TMI 1500 - ITAT MUMBAI] wherein the issue of bogus purchases pertaining to M/s. Delight Diam Pvt. Ltd. involving Shri Deepak Babel have been adjudicated, we decline to interfere with the order of the Ld. CIT(A). Decided against revenue. Issues Involved:1. Legitimacy of the deletion of the addition made on account of disallowance of bogus purchases.2. Examination of whether the transactions with M/s. Delight Diam Pvt. Ltd. were genuine or sham.3. Consideration of the retraction of the statement by the Director of M/s. Delight Diam Pvt. Ltd.4. Evaluation of the evidence provided by the assessee to substantiate the genuineness of the purchases.5. Assessment of the procedural aspects, including the opportunity for cross-examination.Detailed Analysis:1. Legitimacy of the Deletion of the Addition:The Revenue contested the deletion of an addition of Rs. 3,51,71,221/- made by the Assessing Officer (AO) on account of bogus purchases. The CIT(A) deleted this addition, concluding that the AO failed to establish the purchases as bogus. The CIT(A) noted that the assessee provided documentary evidence to support the genuineness of the purchase transactions and that payments were made through proper banking channels without any evidence of money being routed back to the assessee. The sales were also not disputed by the AO, which further supported the CIT(A)'s decision.2. Examination of Transactions with M/s. Delight Diam Pvt. Ltd.:The Revenue argued that the transactions with M/s. Delight Diam Pvt. Ltd. were pre-arranged and sham, as the Director, Shri Deepak K. Babel, admitted that the company provided accommodation entries and did not engage in actual diamond trading. The AO concluded that the company lacked the assets necessary for such a large turnover, supporting the claim that the transactions were not genuine.3. Retraction of the Statement by the Director:The assessee's counsel argued that Shri Deepak Babel retracted his statement, which was initially given on oath, and this retraction was acknowledged by the Tribunal in a related case. The Tribunal noted that the retraction was not considered by the AO in the proceedings, which weakened the Revenue's position.4. Evidence Provided by the Assessee:The assessee demonstrated that the diamonds were sold to two entities, M/s. Isabelle Tours N Travels and M/s. Shreeji Overseas (I) Pvt. Ltd., and received payments for these sales. The assessee argued that the sales could not have occurred without genuine purchases, thereby countering the Revenue's claim of bogus purchases. The Tribunal found that the Revenue failed to prove that the assessee acted as a conduit for money transfers, as the sales were not disputed.5. Procedural Aspects and Cross-examination:The Revenue argued that the assessee failed to cross-examine Shri Deepak Babel, which could have challenged the statement regarding accommodation entries. However, the Tribunal noted that the opportunity for cross-examination was not availed by either party, and the absence of this process did not conclusively prove the Revenue's claims.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing the lack of evidence from the Revenue to prove the purchases were bogus. The Tribunal also highlighted the retraction of the Director's statement and the genuine sales transactions as key factors in its decision. Consequently, the appeal by the Revenue was dismissed.