ACIT Vs Krishnaavtar J. Kabra (HUF) (ITAT Ahmedabad)
Conclusion: Where assessee purchased diamonds for Rs. 3.53 crores and sold them for Rs. 3.56 crores, the accepted sales confirmed that corresponding purchases must have taken place. Without purchases, there would have been no sales. AO’s claim of inflated purchases to reduce tax liability was not substantiated, as all 10 transactions of diamond purchase and sale were documented with relevant details. CIT(A)’s decision deleting the addition for alleged bogus diamond purchases, citing genuine sales and the retraction of the statement was upheld.
Held: Assessee was engaged in sarafi business and trading of metals. During reassessment, the information revealed that the company named M/s. Delight Diam Pvt. Ltd. was involved in providing accommodation entries related to diamond trading as confessed by the Director of the company Deepak during the course of statement recorded u/s 131. As per the information available with the Revenue Authorities, assessee was one of the parties who had shown purchases of diamond from the said company M/s. Delight Diam Pvt. Ltd. to the tune of Rs.3,51,71,221/- during the Financial Year 2011-12, relevant to Assessment Year 2012-13. Before the Revenue Authorities, Deepak affirmed that the company was engaged in providing accommodation entries and the transactions made by assessee could not be considered as genuine. AO analysed the financial statements i.e. balance sheet of M/s. Delight Diam Pvt. Ltd to conclude that the company did not have any assets to conduct its business at such large turnover. AO concluded that neither the diamonds were purchased nor sold, therefore, he made addition of the amount of Rs. 3,51,71,221.11 to the total income of assessee. It was held that assessee had received amounts from two entities, namely M/s. I Tours N Travels and M/s. S Overseas (I) Pvt. Ltd., against the diamonds sold. It could not be expected that these two entities had paid amounts to assessee without receiving any goods – whether it be diamonds or otherwise. Hence, such diamonds had been duly purchased from M/s. Delight Diam Pvt. Ltd. If there were no purchases, then there would be no corresponding sales; then the income of the assessee would be reduced as there was some margin towards the sales and purchase difference and the same had to be taken as profit. But, in a situation where the corresponding sales had been accepted, it could not be said that there were no purchases. In the instant case, the issue of cross-examination did not arise as assessee had also not attended the office of the Revenue Authorities, though Deepak had also not attended on the said date. In case both the purchase and sales had been treated as bogus, then the difference amount of Rs.2,81,914/- was to be treated as the amount earned by the assessee after receiving the money from two parties namely M/s. I Tours N Travels and M/s. S Overseas (I) Pvt. Ltd., and sending it to a third party namely M/s. Delight Diam Pvt. Ltd. In that way, the assessee was acted as a conduit for transferring money through his account. AO had failed to undertake any inquiry to prove that assessee was operating as a conduit for transfer of money to various persons. AO had also not disputed that the sales parties were bogus to buttress the arguments that the assessee was acting as a conduit for transfer of money. AO held that assessee had inflated the purchases by taking accommodation entries to reduce the legitimate tax liability (para 4.5 of the AO). If that is the case, the contention of AO could not be accepted that, in order to sell goods worth Rs.3.56 crores assessee had inflated the purchases by Rs. 3.51 crores. Further, there was a total of 10 transactions entered by assessee with regard to the sale and purchase of goods. Tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
