Shail Internatinal Vs DCIT (IITAT Mumbai)
No addition for “bogus purchases” when assessee already declared higher GP – Mumbai ITAT grants major relief to diamond trader
In a significant ruling involving the diamond trade, the Mumbai ITAT held that no separate addition towards alleged bogus purchases can be sustained where the assessee has already disclosed a higher Gross Profit (GP) on such transactions than on genuine transactions. The Tribunal deleted the additions made by the AO and enhanced by the CIT(A), subject to verification of GP figures.
The reassessment proceedings were initiated on the allegation that the assessee had obtained accommodation entries and bogus purchase bills from concerns linked to the Bhanwarlal Jain Group, involving purchases aggregating to ₹2.87 crore. The AO estimated profit embedded in such purchases at 5%, resulting in an addition of ₹14.37 lakh, which was further enhanced by the CIT(A) to 6% relying upon earlier Tribunal rulings.
Before the Tribunal, the assessee demonstrated that all purchases and sales were routed through banking channels, quantitative details were fully available, and the corresponding sales were never disputed by the Revenue. More importantly, the assessee pointed out that the GP on alleged bogus purchases was 8.48%, whereas the GP on other regular transactions was only 8.18%.
The Tribunal accepted the contention that once the assessee had already declared a GP much higher than the estimated rate adopted by the department, no further addition was justified. The Bench also referred to the Task Force report relating to the diamond industry, which estimated normal profit margins in the range of 1% to 3%, whereas the assessee had already disclosed substantially higher margins.
Relying upon the Bombay High Court decisions in PCIT v. Mohammed Haji Adam & Co. and PCIT v. Dhondiram Naryan Limbhore, the ITAT reiterated that only the difference in GP between genuine and disputed purchases can at best be added, and where the GP on disputed purchases is already higher, no further addition survives.
Accordingly, the Tribunal directed deletion of the addition for AY 2009-10 and issued similar directions for AY 2011-12, observing that if the profit already declared on alleged bogus purchases exceeds the GP from normal transactions, no estimated addition can be made merely because purchases are treated as non-genuine
FULL TEXT OF THE ORDER OF ITAT MUMBAI
