Spark Gems Vs ITO (ITAT Mumbai)
100% Bogus Purchase Addition on Diamonds Deleted – Only Profit Element Taxable: ITAT Mumbai
Mumbai ITAT has struck down the addition of ₹27.90 lakh sustained by CIT(A) on account of alleged bogus purchases. The case arose from a reopening based on investigation findings that Jain group entities were engaged in providing accommodation entries. AO treated the entire purchases as bogus & added back 100% of the amount.
Assessee argued that purchases were genuine & linked to export of cut & polished diamonds, which could not have taken place without actual procurement. Even if Revenue doubted the purchases, at most profit element could be taxed, not the whole purchase. Assessee had already declared presumptive income @ 8% u/s. 44AD (₹5.59 lakh) despite showing an actual book loss of ₹2.72 lakh. Assessee relied on ITAT’s own ruling in assessee’s case for AY 2012-13 (Impex Gems issue), where it was held that full purchases cannot be disallowed.
Department argued that Prime Star was conclusively identified as a bogus concern of the Jain group, & therefore 100% addition was justified. CIT(A) also rejected assessee’s reliance on Sec. 44AD, holding turnover exceeded ₹60 lakh limit (₹69.99 lakh).
Tribunal’s noted that the issue was identical to AY 2012-13, where ITAT had already held that bogus purchases cannot be added in full. Once transactions are recorded in books, only estimated GP addition could be considered. Since assessee had already offered 8% profit, which was higher than actual results, no further disallowance was warranted. CIT(A)’s approach of sustaining 100% addition was held erroneous & unjustified.
