Absence of Materials in Support of Presumption, cannot be accepted: ITAT sets aside Income Tax Addition on Bogus Purchases [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench consisting of B.R. Baskaran, Accountant Member and Pavan Kumar Gadale, Judicial Member set aside addition on bogus purchases on the absence of material evidence.

The assessee, Euro Diamonds Pvt. Ltd is engaged in the business of manufacturing, import and export of diamond studded gold and platinum jewellery and plain gold jewellery. During the course of assessment proceedings, it was noticed by the AO that the assessee has purchased diamonds for an amount of Rs.2.26 crores from a concern named M/s. Mayur Exports, which belonged to M/s Bhanwarlal Jain group.

The revenue has conducted search action in the hands of M/s. Bhanwarlal Jain group and found out that this group is engaged in providing accommodation sales bills, without actually supplying the goods. Based on this information, the AO took the view that the purchases made from M/s Mayur Exports are bogus in nature. However, the AO took the view that the profit element embedded therein should be assessed in the hands of the assessee.

Accordingly, the AO estimated the profit embedded in the above said purchases at the rate of 9% of the value of alleged bogus purchases, which worked out to ₹ 20,34,753/-. It is pertinent to note that the assessee was eligible for deduction u/s 10AA of the Income Tax Act @ 50% during this year, since the assessee is located in SEZ. The AO allowed deduction under section 10AA of the Act in respect of the above said addition also. The CIT(A) also confirmed the addition and hence the assessee preferred an appeal before the Tribunal.

The Division Bench of the Tribunal held that “It is pertinent to note that the AO has not brought any material on record to show that the assessee could have purchased the goods from persons other than M/s Mayur Exports in support of the bills received from M/s Mayur Exports. In the absence of materials in support of this presumption, the same cannot be accepted.

Allowing the appeal, the Tribunal added “We hold that the impugned addition made alleging bogus purchases could not be sustained. Accordingly, we set aside the order passed by CIT(A) and direct the AO to delete the addition relating to purchases made from M/s Mayur Exports.”

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