TaxTMI 
TaxTMI 
2025 (8) TMI 1785
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....ed as a lead case, and the decision rendered therein shall apply mutatis mutandis to the cross-appeal for the assessment year 2011-12. 3. In its appeal for the assessment year 2010-11, the assessee has raised the following grounds: - "1. On the facts and circumstances of the case and in law the Id. CIT(A) erred in confirming the action of Id. AO in reopening the assessment by issue of notice u/s. 148, which is illegal and bad-in-law or otherwise void for want of jurisdiction. 2. On the facts and circumstances of the case and in law the Id. CIT(A) erred in confirming the action of Id. AO in reopening the assessment by issue of notice u/s, 148 of the Act, which barred by limitation in view of first proviso to section 147 of the Act. 3. On the facts and circumstances of Appellant's case and in law the Id. CIT(A) erred in confirming the action of the Id. A.O. erred in holding that the appellant has made bogus purchase of Rs. 84,23,658/- during the course of search, for reasons stated in the impugned order or otherwise. 4. On the facts and circumstances of Appellant's case and in law the Id. CIT(A) erred in confirming the addition of gross ....
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....in the regular books of accounts ignoring that the fact of procuring bogus invoices leads to the uncertified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of accounts ?" 5. "Whether in the facts and circumstances of the case, the ld CIT(A) was justified in holding that income from bogus purchase transaction should be restricted to 7% of total value of bogus purchase transactions, although there was no dispute that the bogus purchases were made and so act of infraction of law was committed by the assessee on provision of section 74(1A) of the Maharashtra Value Added Tax Act 2002 and such purchases are not allowable as per express provisions u/s. 37 of the Act? 6. "Whether on the facts and circumstances of the case and in law, the decision of the Ld. CIT(A), is right in view of the latest decision of the Hon'ble Supreme Court in the case of M/s. N.K. Proteins Ltd. Va. Dy. CIT (2016) 292 CTR (Gul) 354, Dated. 16.01.2017, wherein the Hon'ble Court has held that Once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P & L account are establi....
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....see's appeal, challenging the initiation of proceedings under section 147 of the Act, were not pressed during the hearing. Accordingly, these grounds are dismissed as not pressed. 6. The other grounds raised in the assessee's appeal and all the grounds raised in the Revenue's appeal pertain to the addition made under section 69C of the Act on account of alleged bogus purchases by the assessee. Therefore, all these grounds are considered together. 7. The brief facts of the case pertaining to these grounds are that the assessee is engaged in the business of trading of cut and polished diamonds and is also a commission agent in the name and style of Chinar Gems. For the assessment year 2010-11, the assessee filed its return of income on 29/09/2010, declaring a total income of INR 1,60,090. Subsequently on the basis of the information received from the DGIT (Investigation), Mumbai, regarding the search and seizure action conducted in the case of Shri Bhanwarlal Jain and his son, who indulge in providing accommodation entries like bogus purchases through various bogus concerns, it was noticed that assessee is one of the beneficiary of accommodation entry transaction of bogus purch....
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....earned CIT(A) affirmed the findings of the AO in treating the purchases as bogus. However, the learned CIT(A), agreeing with the submission of the assessee that the AO has not disputed the sales made by the assessee and also not disputing the fact that there cannot be any sales without purchases, proceeded to restrict the addition only to the amount of profit element embedded in the purchases. Accordingly, accepting the calculation of the assessee in respect of additional gross profit margin, the learned CIT(A) made the addition of 7% of the bogus purchases, i.e. INR 5,89,656, being 7% of INR 85,83,748 and directed the AO to delete the balance addition of INR 78,34,002. Being aggrieved, both assessee and the Revenue are in appeal before us. 10. We have considered the submissions of both sides and perused the material available on record. In the present case, on the basis of the information received from the Investigation Wing that the assessee is a beneficiary of accommodation entry transaction of bogus purchases from entities manage and controlled by Shri Bhanwarlal Jain and his son, proceedings under section 147 of the Act were initiated. It is evident from the record that the....
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.... AR") reiterated the submission made before the lower authorities and made reference to all the documentary evidences filed before the lower authorities in support of its submission that all the purchases were genuine. However, no material was produced contrary to the findings of the learned CIT(A) that the purchases are not bogus. At the same time, it is pertinent to note that the AO has not disputed the sales made by the assessee. Therefore, from the material available on record it is evident that the assessee has failed to prove the genuineness of the purchases made from the supplier. Thus, it appears to be a case of bogus bills arranged from the aforesaid entities and materials purchased from somewhere else at a lower cost. Thus, we are of the considered view that a reasonable disallowance of the purchases would meet the possibility of revenue leakage. 13. During the hearing, the learned Departmental Representative ("learned DR") by placing reliance upon the decision of the Hon'ble Jurisdictional High Court in PCIT v/s Kanak Impex (India) Ltd, reported in [2025] 172 Taxmann.com 283 (Bom.), submitted that since the assessee could not prove the genuineness of the purchase tran....
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....lish the purchases. The Hon'ble High Court held that there is no justification in the findings of the learned CIT(A) in restricting the disallowance to 12.5% of such purchases once it came to the conclusion that the taxpayer failed to prove the genuineness and source of purchases, and also confirmed its involvement in the modus operandi. It was further held that the Tribunal also misdirected itself by approaching the issue with the erroneous belief that it was estimating profit. Thus, the Hon'ble High Court held that if this approach of the CIT(A) and the Tribunal is accepted, then it would be contrary to the provisions of section 69C of the Act, which mandates the taxpayer to explain the source of expenditure. Since in the facts of the case the taxpayer did not attend the reassessment proceedings and there was no explanation of the source of expenditure incurred for making the bogus purchases, the Hon'ble Jurisdictional High Court in Kanak Impex (supra) restored the addition made under section 69C of the Act. 15. In the present case, as noted above, the notices issued under section 133(6) of the Act were duly responded to by Daksh Diamonds from whom the assessee made the allege....