Presumptive additions from alleged bogus transactions are unsustainable without documentary corroboration; expenses must be verified.

Presumptive additions based on alleged bogus or circular transactions are unsustainable where there is no concrete documentary or testimonial evidence showing receipt of cash or excess consideration beyond booked amounts; the Tribunal deleted the estimated addition for the relevant years. Mechanical proportional disallowance of depreciation and indirect expenses without examination of invoices, nature of expenses and supporting documents is impermissible; those issues are remitted to the assessing officer for documentary verification and fresh adjudication. A challenge to the validity of the special assessment procedure was held infructuous in light of these substantive outcomes.

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Issues: (i) Whether the addition of undisclosed income estimated at 5% of purchases (or turnover) on account of alleged bogus/circular transactions is sustainable; (ii) Whether disallowance of depreciation and indirect expenses proportionate to alleged bogus transactions is sustainable; (iii) Whether the assessment framed under Section 153C is invalid.

Issue (i): Whether the addition estimated by the AO at 5% of turnover/purchases on the basis of alleged bogus circular trading should be sustained or deleted/reduced.

Analysis: The Tribunal examined the seized materials, statements, and the findings of co-ordinate benches dealing with identical search proceedings. It noted absence of any seized documentary or testimonial evidence demonstrating receipt of cash or excess consideration by the assessee, the lack of identification of any payer for the alleged extra cash, and judicial guidance that additions cannot rest on conjecture. The Tribunal considered co-ordinate-bench decisions which held that where transactions are industry-practice delivery-by-documents or where evidence does not show cash receipts beyond book profits, presumptive additions are unsustainable. The CIT(A)'s approach adopting 0.5% as commission was examined in light of the facts and precedent and the Tribunal found the coordinate-bench rulings directly applicable.

Conclusion: The addition on estimated basis sustained by the AO is not sustainable; the AO is directed to delete the addition for the relevant years (deletion directed for AY 2015-16 in lead matter and for AY 2018-19).

Issue (ii): Whether the AO was justified in disallowing depreciation and indirect expenses by applying the same percentage as alleged bogus transactions without documentary examination.

Analysis: The Tribunal found that the AO applied a proportional disallowance mechanically without examining the nature of expenses, documents or calling for details. The CIT(A) analyzed the nature of expenses and allowed them where linked to disclosed income from circular transactions. The Tribunal held that factual and documentary verification is required to determine genuineness of expenses and depreciation claims.

Conclusion: Disallowance of depreciation and indirect expenses is remitted to the AO for fresh adjudication with directions to call for and examine documentary evidence and decide in accordance with law.

Issue (iii): Whether the assessment completed under Section 153C is invalid on the grounds contended in the cross-objection (preconditions, non-mention of DIN, violation of natural justice).

Analysis: Given the Tribunal's decision on the substantive additions (deletion of estimated addition and remand of expense/disallowance issues), the cross-objection challenging the validity of the Section 153C assessment became infructuous and required no independent adjudication.

Conclusion: The cross-objection is dismissed as infructuous.

Final Conclusion: The Tribunal deleted the estimated addition based on alleged bogus sales for the years under consideration, remitted the issues of depreciation and indirect expenses to the AO for verification and fresh adjudication, and dismissed the cross-objection as infructuous; the revenue's appeal was partly allowed and the assessee's appeal for AY 2018-19 was allowed.

Ratio Decidendi: An addition based on alleged circular or bogus transactions cannot be sustained in absence of concrete, corroborative or circumstantial evidence of receipt of cash or excess consideration beyond amounts already reflected in books; mechanical proportional disallowance of expenses without documentary verification is impermissible and such matters must be remitted for factual examination.

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