| The Tax Publishers2019 TaxPub(DT) 6892 (Mum-Trib) INCOME TAX ACT, 1961
Section 69C
Where AO was not justified in disallowing the entire purchases made by assessee considering them as bogus, keeping in view the tax rates in case of assessee's business of trading in diamond and also keeping in view the Board's Instruction No. 22008 dt. 22-2-2008, the AO was accordingly directed to disallow 3% of the purchases in place of total purchases made by assessee.
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Income from undisclosed sources - Addition under section 69C - Bogus purchases -
Assessee was engaged in trading in diamonds. AO received information from Investigation Wing that assessee had taken accommodation entries of bogus purchases from benami concerns. In order to ascertain genuineness of purchases made by assessee, the AO issued summons under section 131 to the parties from whom the assessee made purchases. As the parties did not appear before AO, he asked the assessee to produce the said parties. However, as the assessee failed to produce them, thus, AO made addition of the entire purchases made by AO considering them as bogus. However, CIT(A) restricted the said disallowance to 3% of the purchases. Aggrieved, Revenue was in appeal. Held:It was found that AO disallowed the entire purchases without questioning the sale side. If the entire purchases, i.e., Rs. 11,17,20,486 were disallowed out of a turnover of Rs. 38,28,16,417, it would lead to gross profit of Rs. 13,38,12,665, which worked out to an impracticable and astronomical gross profit ratio, i.e., 34.95% and the net profit would be 30.67%. It was absurd for a diamond trader particularly in the background of the fact that gross profit and net profit shown in the preceding year were very meagre, which was as per the trend of the diamond industry. Thus, it was clear that disallowance of entire purchases was not at all justified. In the case of diamond business, the VAT charges are 1% and the customs duty on import is above 2%. Keeping in view the said tax rates, and also, keeping in view the Board's Instruction No. 22008 dt. 22-2-2008, the AO was accordingly directed to disallow 3% of the purchases in place of total purchases made by assessee.
Distinguished:N.K. Proteins Ltd. v. Dy. CIT SLP CC No. 769 of 2017 v. Dy. CIT dt. 16-1-2017: 2017 TaxPub(DT) 1860 (SC)
REFERRED : Naitik Gems v. ITO [I.T.A. No. 4760/Mum/2017, dt. 2-11-2017] Asstt. CIT v. Choron Diamond (I) (P.) Ltd. (ITA No. 4449, 6798 and 6800/Mum/2016) : 2017 TaxPub(DT) 4740 (Mum-Trib) Amy Diam Vega Jewellery (P.) Ltd. v. Dy. CIT (ITA No. 5799, 5800, 5801/Mum/2016) (ITAT 'J' Bench Mumbai): 2017 TaxPub(DT) 4850 (Mum-Trib) ACIT v. Jaipur Jewels [ITA No.1699/Mum/2017, dt. 13-9-2017]
FAVOUR : In assessee's favour
A.Y. :
IN THE ITAT, MUMBAI BENCH
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