|The Tax Publishers2021 TaxPub(DT) 0077 (Hyd-Trib)
INCOME TAX ACT, 1961
Since there was no materials on record to justify that the stock was reconciled with respect to purchases, sales and closing stock item-wise and there was every possibility for assessee to make payment through banking channel and receive the same back by way of cash and obtain bogus purchase bills, therefore, addition made by AO was justifiable on account of bogus purchases.
Income from undisclosed sources - Bogus purchases - Purchase of diamonds shown from bogus entities -
During the course of scrutiny assessment proceedings, the assessee had explained that one of the partners of the firm [elder brother] travelled to Surat in their own car and contacted the traders. After verifying the quality of the diamonds etc., they were purchased from M/s. Jewel Diam and directly brought to Hyderabad by road. It was further explained that the payment to the vendor was made subsequent to their sale after affixing it to the gold ornaments. It was further submitted that the diamonds were purchased by the assessee on credit due to trustworthiness. The assessee also produced the stock register in order to establish the purchases to be genuine. The assessee had further explained that the diamonds were handed over to the manufacturer for embedding in the jewelry and transferred to gold account. However, the AO treated the same as bogus transaction since during the course of investigation conducted on the seller of the diamonds it was revealed that they had issued bogus bills to the assessee without delivery of diamonds and it was also revealed that the vendor concerns merely existed on paper and they were not actually trading diamonds. AO further observed in his order that during the course of survey conducted in the case of the assessee under section 133A of the Act on 2-2-2007 it was revealed that excess stock of diamonds valued at Rs. 40,17,462 was found in the hands of the assessee. The assessee had accepted the same as 'un-accounted stock of diamonds' and offered the same in the return of income. Keeping in view of the above state of affairs of the assessee and the findings that the assessee had purchased diamonds valued at Rs. 98,69,702 by way of account payee cheques, which turned out to be bogus, the AO added the same in the hands of the assessee. Held: Against the turnover of Rs. 4,05,50,960, the assessee has declared net profit of Rs. 1,33,921 only. Thus, the assessee's net profit from trading of gold jewelry and diamonds is only 0.33% of turnover which is abnormally low taking into account of the nature of business of the assessee. It apparently appears that the assessee has manipulated the accounts to arrive at a lower profit, because it had already declared Rs. 40,45,000 as its un-accountant income in its return towards excess stock of diamonds found during the survey. In this situation, the books of account and the statement of accounts furnished by the assessee cannot be relied upon. Moreover, there was a categorical finding by the Investigation Department of the Revenue that the assessee had received bogus bills aggregating to Rs. 98,69,702 towards its purchases wherein the payments were made through banking channels. It was also the finding of the Investigation wing of the Revenue that those concerns who had issued bogus bills to the assessee were concerns existing only on papers for the purpose of issuing bogus bills and were not trading or manufacturing concerns. Further, it is apparent that the assessee had not requested the Revenue authorities for cross-examining the vendors at the time of the proceedings before them. Therefore, the argument of the assessee that proper opportunity was not given to the assessee for cross-examining the vendors who had conceded for giving bogus bills to the assessee for purchase of diamonds, does not have any merit. Moreover, just because the assessee had made payments through banking channels to the vendors and recorded the diamonds purchased in its stock book does not make the transactions to be genuine with conclusive evidence. Further there was no materials on record to justify that the stock was reconciled with respect to purchases, sales and closing stock item wise. Needless to mention that there is every possibility for the assessee to make payment through banking channel and receive the same back by way of cash and obtain bogus purchase bills. It is also obvious that in the nature of business carried out by the assessee, 0.33% net profit declared by the assessee is too low and cannot be accepted. Further even if 24% of the turnover is estimated as the income of the assessee, the assessee should have earned net income of approx. Rs. 98,00,000. But in the case of the assessee it has only declared net profit of Rs. 1,33,921. Considering these facts and circumstances of the case and the report of the Investigation Department of the Revenue, we are of the considered view that the addition made by the AO for Rs. 98,69,702 is justifiable when there was a corroborative evidence from the records maintained by the vendors of the assessee that the purchases made by the assessee was bogus.
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