ITAT Upholds CIT(A) Decision Deleting Addition for Alleged Bogus Purchases, Citing Genuine Sales and Statement Retraction [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]'s decision deleting the addition for alleged bogus diamond purchases, citing genuine sales and the retraction of the statement.

The Revenue-appellant filed an appeal against the order dated 24.11.2023, passed by the CIT(A), for the Assessment Year (AY) 2012-13, in the case of Krishnaavtar J. Kabra (HUF), respondent-assessee.

The assessee, engaged in sarafi business and metal trading, had his case reopened under Section 147 of the Act based on information from Deputy Director of Income Tax (Investigation) [DDIT(Inv.)]. It was revealed that M/s. Delight Diam Pvt. Ltd. was providing accommodation entries related to diamond trading, as admitted by its Director, Shri Deepak K. Babel, during a statement recorded on 05.03.2018. The assessee had shown purchases of diamonds worth Rs. 3,51,71,221/- from the company in the Financial Year 2011-12, relevant to AY 2012-13.

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Shri Deepak K. Babel confirmed that the company was only providing paper-based transactions and that the purchases with the assessee were not genuine. The purchases took place between 05.01.2012 and 02.03.2012, with payments made via Real Time Gross Settlement ( RTGS ) from 15.03.2012 to 29.03.2012. After reviewing the company’s financials and finding no assets to support the claimed turnover, the Assessing Officer ( AO ) added Rs. 3,51,71,221.11 to the assessee's total income.

The assessee, dissatisfied with the AO's order, appealed to the CIT(A), who deleted the addition. The CIT(A) observed that the AO had failed to conduct any inquiry to prove that the purchases were bogus. The assessee provided evidence to show the purchases were genuine, and payments were made through proper banking channels. The AO did not show any proof that the payments were returned to the assessee. Also, the AO did not challenge the sales, as the assessee provided supporting documents for them.

The revenue aggrieved by the order appeal before the tribunal.

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The two member bench comprising Dr.B.R.R. Kumar(Vice President) and Siddhartha Nautiyal ( Judicial Member ) reviewed the arguments and records. It was noted that Shri Deepak Babel had initially given a statement on 05.08.2018 about accommodation entries but retracted it on 28.03.2018. This retraction was not considered by the AO. The assessee received payments from M/s. Isabelle Tours N Travels and M/s. Shreeji Overseas (I) Pvt. Ltd. for diamonds sold, which indicated that the diamonds were likely purchased from M/s. Delight Diam Pvt. Ltd.

If the 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.

The issue of cross-examination did not arise, as neither the assessee nor Shri Deepak Babel appeared before the Revenue Authorities. If both purchases and sales were treated as bogus, the difference of Rs. 2,81,914/- would represent the assessee’s income. However, the Revenue did not provide evidence to show that the assessee acted as a conduit for transferring funds or challenge the legitimacy of the sales.

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The 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.Based on these findings and applicable case law, the tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal.

To Read the full text of the Order CLICK HERE

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