ITO Vs Borda Brothers (ITAT Surat)
Conclusion: Since the business sales were accepted as genuine and only the purchases were routed through accommodation entries, only a part of the purchases needed adjustment to reflect possible inflation of expenses confirming the restriction of bogus purchase addition to 5% and when additions were made on an estimated basis, penalty for concealment under Section 271(1)(c) could not be imposed.
Held: Assessee-Borda Brothers, a firm engaged in the diamond trade, had filed its return of income for Assessment Year 2007-08 declaring total income of Rs.43,17,209. The case was reopened under Section 148 based on information from search operations conducted on the Rajendra Jain Group, which was found engaged in providing accommodation entries. AO concluded that Borda Brothers had made bogus purchases from entities linked to the Rajendra Jain Group and made an addition of Rs.9,64,13,991 under Section 69A. In appeal, CIT (Appeals) restricted the addition to 5% of the bogus purchases based on assessee’s business reality and the consistent approach adopted in earlier years. On appeal. It was held that CIT(A) had correctly relied on the Tribunal’s earlier decisions in the assessee’s own case for Assessment Year 2008-09, wherein similar bogus purchases were also restricted to 5%. Tribunal held that CIT(A) had adopted a consistent and reasonable view based on factual findings and evidence. Tribunal distinguished the Department’s reliance on the Gujarat High Court’s judgment in N.K. Industries Ltd. v. DCIT, noting that the facts there involved unexplained investments without correlation to real business activities, unlike in the present case where sales were accepted and only purchases were disputed. Tribunal also considered the Department’s arguments based on PCIT v. Premlata Tekriwal but found that the facts were distinguishable. Since the business sales were accepted as genuine and only the purchases were routed through accommodation entries, only a part of the purchases needed adjustment to reflect possible inflation of expenses. Further, in the Department’s penalty appeal, Tribunal upheld the CIT(A)’s deletion of the penalty under Section 271(1)(c). It was agreed with CIT(A) that when additions were made on an estimated basis, penalty for concealment could not be imposed. Reliance was placed on judicial precedents including CIT v. Sahu Construction (P.) Ltd. and CIT v. Aero Traders (P.) Ltd.
