TaxTMI 
TaxTMI 
2020 (7) TMI 492
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....) was justified in restricting the addition made by the AO. On account of bogus purchases to 3% of Rs. 5,97,06,315/- not withstanding that the addition made on the basis of credible information from DGIT(Inv.) Mumbai based on the Search and seizure action u/s 132 in the case of Bhanwarlal Jain Group?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in restricting the addition made by the AO on account of accommodation entries of purchase, ignoring that the assessee had not discharged its onus of proving the genuineness of the purchase?" 3. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the AO be restored. 4. The assessee is engaged in the business of import and export of diamonds. The return of income for the year under appeal was filed on 04.09.2010 declaring total income of Rs. 42,09,210/-. The case was reopened u/s 147, by issuing notice u/s 148 of the Act, on 30.03.2017. The reasons for reopening of the assessment is based on the information that Search & Seizure operations were conducted on 03.10.2013 by the Investigation wing, Mumbai, in the group cases of one Shri Bh....
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....purchases which the appellant would have made from such unknown entities. In this regard, it is apt to refer certain decisions dealing the similar issue of bogus purchases. The decision of Gujarat High court in the case of Bholanath Poly Fab Pvt.Ltd. 355 ITR 290 (Guj.) where the Hon'ble court was battling with the finding of Hon'ble ITAT that purchases were made from bogus parties since notice issued by the AO to these parties were allegedly received returned/unserved and the assessee was unable to produce any confirmation from these parties. The Tribunal had held that though purchases were made from bogus parties, nevertheless, the purchases themselves were not bogus as the entire quantity of opening stock, purchases and sales were tallying and hence, only the profit margin embedded in such amount would be subjected to tax. The Hon'ble Gujarat High court taking cognizance of the fat held that whether purchases themselves were bogus or whether parties form whom such purchases were made were bogus, is essentially a question of fact and the Tribunal having examined the evidence on record and concluded that the assesee did produce cloth and sell finished goods, the entire amount cover....
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....ars to be inflation of purchase price so as to suppress true profits. Considering the facts of the case as well as the various case laws cited (supra) especially in the case of CIT vs. Simit P.Sheth(supra) I agree with the action of the AO estimating the addition on the profit element embedded on such bogus purchases. 6.13 However, AO estimated the profit margin @100% solely relied on the decision of apex court in the case of M/s N.K.Protiens Ltd.. In similar cases Assessing Officers have estimates profit margin at 3% of the purchases. Though I am in agreement with the reasoning of the AO for estimating of the profit percentage @100% in this nature of trade. Further, the appellant has stated that the facts of the N.K.Protiens Ltd. Case are completely different. The chart furnished by appellant during the appellate proceedings to distinguish the facts, is reproduced as under:- Sr.No. N.K.Protiens Ltd. case Appellants case 1 The search had taken place at assessee premises The search had not taken place at your appellant's premises 2 No documents relating to such purchase were discovered at the time of search All documents relation to such alleged bogus purchases were....
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....s the profit element embedded in such purchases from the three parties belonging to the Shri Bhanwarlal Jain Group concerns, the same will meet the ends of justice. Accordingly I direct the AO to restrict the addition @3% on the total purchase of Rs. 5,97,06,315/- as the profit element embedded in such purchases. Grounds of appeal raised on this issue are treated as Partly Allowed." 6. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We find that the Ld. AO has made 100% addition on alleged bogus purchases on the ground that the assessee is one of the beneficiary of accommodation entries of bogus purchase bills issued by Hawala dealers. According to the Ld. AO, although assesee has filed certain basic evidences, but failed to file further evidence in the backdrop of clear finding by Investigation wing that those parties are involved in providing accommodation entries without actual delivery of goods. The Ld. AO had also taken support from the investigation conducted during the course of assessment proceedings, as per which notice issued u/s 133(6) to the parties were returned un-served by the postal authori....