TaxTMI 
TaxTMI 
2024 (12) TMI 308
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....t in respect of the bogus purchases, the assessee would have made purchases from the grey market, thereby avoiding paying many taxes, and hence the gross profit margin in the case of bogus purchases would be higher than the gross profit margin in the case of genuine purchases" 2. Whether on the facts and in circumstances of the case and in law, the Ld CITA) was justified in deleting the addition made on account of unproved purchases, by disregarding the fact that various appellate authorities across the country have confirmed addition on the basis of higher GP estimate in cases related to Bhawarlal Jain group? 2 Fact in brief is that the case of the assessee for the year under consideration was subject to scrutiny assessment. The assessing officer has referred the search and survey action conducted in the case of Shri Bhanwarlal Jain Group on 03.10.2013 by the Investigation Wing, Mumbai. During the course of search action, it was seen that various entities managed by Bhanwarlal Group were involved in providing accommodation entries by issuing of bogus bill to various parties. During the year under consideration, the assessee had taken accommodation entries of purchases ....
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....nuine purchases. The relevant extract of the decision of ld. CIT(A) is reproduced as under: "14. DECISION I have considered the submission of the appellant, assessment order and the facts available on record. 14.2 The relevant and material facts involved in this ground of the appeal are that a search action u/s. 132 of the Act was conducted by the Investigation Wing of the Income Tax Department on Shri. Bhawarlal Jain on 03.10.2013. During the course of search, it was found that all the directors, partners, proprietors of the nearly 70 concerns are dummy and the same belong to native place of Shri. Bhawarlal Jain and family in Rajasthan. In their respective statements recorded under oath they admitted that they were made directors, partners and proprietors of various concerns at the direction of Shri. Bhawarlal Jain and family which were eventually being managed and controlled by the later. During the course of search, the evidence found established that Shri. Bhawarlal Jain and family have been using 70 benami concerns to give accommodation entries in the nature of bogus purchases and bogus unsecured loans to various beneficiaries. 14.3 The main....
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....que, it is a genuine transaction. First it has to be found out whether the transaction in question is genuine and only thereafter, the assessee would be entitled to the benefit of disallowance" In the light of above decisions, the payment by way of bank cheques or payment through the process of banking transaction in itself is of no consequence. 14.6 During the course of appellate proceedings, the appellant submitted the following documents in respect of the alleged parties: i. Acknowledgement of Income Tax Return filed ii. Confirmation of Accounts iii. Audited Financial Statement iv. Bank Statement v. One-to-One mapping of purchases with sales 14.6.2 The appellant further made the submission vide letter dated 04.10.2023, showing the working of the gross profit margin on the alleged bogus purchases as per the decision of the the Hon'ble Bombay High Court in the case of The Principal Commissioner of Income Tax-17 Vs. Mohommad Haji Adam & Co (103 taxmann.com 459). The appellant contends that the A.O has ignored the overwhelming factual evidences. The confirmations of the parties are placed on record. The purchase....
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.... 4.26 3.34 3.5 5. From the above table, it is observed that the gross profit margin on genuine purchase/ sales was higher than the gross profit margin on alleged bogus purchase/ sales during the initial years i.e. from A.Y. 2007-08 to A.Y. 2009- 10. However, from A.Y. 2010-11 onwards, the gross profit margin on genuine purchase/ sales was lower than the gross profit margin on alleged bogus purchase/ sales. Moreover, in some cases i.e. for A.Y. 2012 - 13 and A.Y.2013-14, the gross profit margin on supposedly non bogus purchase/ sales is negative. Hence, application of gross profit margin of supposedly non bogus purchase/ sales to bogus purchase/sales would be an absurdity. 6. For determining the above gross profit margins, reliance has been placed on submissions made by the assessee with respect to mapping of non bogus purchase to sales and alleged bogus purchase to sales. Hence, the veracity of the above gross profit margins is contingent on the accuracy of the data provided by the assessee with respect to mapping of non bogus purchase with sales and bogus purchase with sales. As it is not possible to independently verify the genuineness of the data....
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....on'ble Mumbai ITAT has upheld addition on estimate basis @ 6% of the bogus purchase. 9. In view of the above discussion, the estimation of GP at 5-8% of purchases is reasonable and hence the additional information submitted by the assessee during the course of appellate proceedings wherein it has submitted revised GP calculations for various assessment years may not be admitted. 10. In view of the above discussion, it is prayed that the additions made by the Assessing Officer in the assessment orders passed u/s 143(3) / 147 of the I.T. Act 1961 may be upheld, in toto. This is issued with the prior approval of the Addl. CIT-Central-Range-8, Mumbai vide letter dated 11.03.2024." 14.7.2 It is seen from the A.O's report that, she has not carried out the verification of one to one mapping of alleged bogus purchase with the sales on the ground that it is not possible to verify the genuineness of the data submitted by the assessee. Instead she has reiterated the contention of the A.O as per the assessment orders. 14.8 I have considered the contentions of the appellant and the A.O. and gone through the record. In present case, though the app....
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....n recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs. 3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs." 14.9.2 The Hon'ble Mumbai ITAT in case of Adesh Exports vs. ACIT ITA 5921, 5922, 5923, 5924/ Mum/ 2019 followed the decision of Mohommad Haji Adam & Co. and held that "11. Following the decision of the Hon'ble Bombay High Court (supra), we direct the Assessing Officer to restric....
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....O. With respect to the gross profit computed by the assessee from bogus sales is based on the number of carats purchased by the assessee and the same number of carats sold by the assessee. With respect to purchases from three different entities, the learned CIT - A has computed gross profit of Rs. 44.49 Lacs and purchases from our A Distributors private limited gross profit is computed at Rs. 40.72 lakhs. Thus, the average gross profit earned by the assessee on total purchases of Rs. 11.66 crores; assessee has earned gross profit of Rs. 85.21 lakhs, which is 6.81%. Gross profit as per the regular books of account is 6.73%. Thus, no infirmity can be found in the finding of the learned CIT - A whereas assessee has shown higher gross profit from alleged bogus purchases compared to its regular transaction. The honourable Bombay High Court in has dealt with identical issue in case of Mohammad Haji Adam & Co [supra] 14.9.4 The Honble Mumbai ITAT, In the case of Shri Rameshkumar Daulatraj Vs ITO in ITA No. 4192/Mum/2018 order dated07/05/2019 has held as under: "9. When these facts were confronted to the learned Sr. DR, he requested for application of reasonable profit ra....
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....8% of such alleged bogus purchases. The CIT(A) has upheld the addition made by Assessing Officer. The contention of the assessee is that the addition may be restricted to the extent of difference between actual gross profit and G.P declared on non-genuine purchases from hawala dealers. Taking into consideration entirety of facts, I deem it proper to restore this issue back to the file of Assessing Officer for fresh adjudication in the light of the decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Mohammed Haji Adam & Co (supra)." 14.9.6 The Honble Mumbai ITAT, in case of R. K. Color Diamonds Pvt. Ltd. Vs. ITO 5(3)(1) in ITA 4998/ Mum/ 2019 where the assessee has obtained bogus purchase bills from M/s. Prime Star a firm belonging to Bhawarlal Jain Group. It was held that "5. Submissions made by ld. Departmental Representative heard, orders of authorities below examined. The assessee has allegedly obtained bogus purchase bills from M/s. Prime Star a firm belonging to Bhawarlal Jain Group. Undisputedly, the assessee failed to discharge its onus in conclusively proving genuineness of alleged bogus purchases. However, at the same time the Assessing ....
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.... as their ITR acknowledge and audited financial statement. However, during the course of search and survey action carried out in the case of Bhanwarlal Jain and group it was found that the aforesaid entities controlled by Bhanwarlal Jain group were merely issuing accommodation bills of purchases. However, after taking into account the corresponding sales shown against such purchases, the assessing officer concluded that assessee had made purchases from the grey market even though all the documentary evidences were furnished and estimated the profit element embedded in such purchases as undisclosed income of the assessee. The ld. CIT(A) after following the decision of Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. vide Income Tax Appeal No. 1004 of 2016 dated 11.02.2019 restricted the additions to the extent of gross profit declared on genuine purchases. Following the decision of Hon'ble Bombay High Court in the case of Mohammad Haji Adam & Co. we do not find any reason to interfere in the decision of ld. CIT(A) therefore both the grounds of appeal of revenue are dismissed. Accordingly, the appeal of the revenue is dismissed. ITA 3694/M/2024 6. On identical ....