Failure of a 3rd party in not responding to the summons would not lead to draw an adverse inference before AO
ITAT Delhi recently has quashes Addition of Rs. 14.15 Cr on Alleged Grey Market Sales (on Declared Sales of Rs. 177 Cr) and Rs. 2.79 Cr on Bogus Purchases,as Revenue Fails to Substantiate Allegations in Bullion Trading Case.
Let us have a Short Overview of the case:
1. Background and Appeals
The assessee, engaged in bullion trading through M/s S.K. Impex, filed a return declaring income of Rs. 1.89 crore. The AO made two additions: (i) Rs. 2.79 crore disallowed as bogus purchase from M/s Bombay Gold Lab, and (ii) Rs. 14.15 crore added by applying 8% margin on declared sales of Rs. 177 crore to three entities, treating them as grey market transactions. The CIT(A) reduced the additions to 1% on purchases and 2% on sales. Both parties filed cross appeals.
2. Alleged Bogus Purchases from Bombay Gold Lab
The AO disallowed Rs. 2.79 crore on grounds that Pravin Patil failed to appear under Section 131 and “no company in the name of Bombay Gold Lab exists at the given address.” However, the assessee furnished purchase bills, bank statements, and the supplier responded under Section 133(6). The ITAT, citing Orissa Corporation (159 ITR 78), held that “failure of a 3rd party in not responding to the summons would not lead to draw an adverse inference,” and deleted the addition as “unwarranted.”
3. Grey Market Sales Addition
The AO applied an 8% margin on sales to Bombay Gold Lab, Dharneesh Gold Pvt. Ltd., and Bhagya Laxmi Gems and Jewellers Pvt. Ltd., alleging grey market dealings. The CIT(A) reduced this to 2%. The ITAT found all sales were “already disclosed in audited balance sheet and profit and loss account,” and that there was “no iota of evidence” of actual grey market cash sales. All parties had valid PANs, GST registrations, and responded to Section 133(6). The entire addition was deleted.
4. 1% Ad-hoc Disallowance
The CIT(A)’s 1% disallowance treating the purchase as an “accommodation entry” was also deleted. The ITAT noted, “once the transaction from Bombay Gold Lab is held to be genuine, there is no question of treating the same as accommodation entry.” The books were not rejected and the Inspector’s report was “never furnished to the assessee for its rebuttal.”
5. Conclusion
The Tribunal allowed the assessee’s appeal and dismissed the revenue’s. Both additions-on account of grey market premium and bogus purchases-were held “unsustainable in law and on facts” and directed to be deleted.
The copy of the order is as under:
