INCOME TAX ACT, 1961

Section 145

Accounting method - Estimation of income - Bogus purchases - Addition made on account of @8% on value of alleged bogus purchases

Assessee was engaged in business of export of cut and polished diamonds and made certain purchases from two companies. AO had observed in assessment order that these parties belong to a group which was found during the course of search action. Department had observed that these parties along with various other parties were engaged in business of providing accommodation bills only and there was no physical delivery of goods made by them. Accordingly, AO concluded that even though assessee had made payments to these parties by account payee cheques, since transportation bills were not produced by assessee for delivery of goods, purchases made from these parties were to be treated as bogus. AO, however, observed that assessee had actually exported the goods that were purchased from the grey market, hence, only profit element embedded thereon, could be brought to tax and accordingly, determined the profit element @8% on the value of alleged bogus purchases. Held: Assessee had disclosed total gross profit of 3.6%. Since, assessee was engaged in business of export of cut and polished diamonds, there was no question of any VAT portion incurred by assessee on the purchases. Gross profit disclosed by assessee on disputed purchases was 2.42%. These facts were not controverted by revenue. Profit element determined @8% was on much higher side and it would be fit to estimate the profit @3% on the value of purchases treated as non-genuine by placing reliance on Ralf Jems (P) Ltd. (ITA No. 1575 to 1578/Mum/2018, dated 30-9-2019).

Followed:M/s. Ralf Jems (P) Ltd. v. ITO 5 (3) (1) [ITA No. 1575 to 1578/Mum/2018, dated 30-9-2019]

REFERRED :

FAVOUR : Partly in assessee's favour

A.Y. : 2007-08

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