TaxTMI 
TaxTMI 
2025 (9) TMI 1612
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....as against the returned income of (-) Rs. 1,05,74,639/- declared by the Assessee by filing its return of income on 10.04.2019 and made the following additions: 1. Addition of Rs. 48,00,000/- being bogus purchase u/s 69C of the Act. 2. Addition of Rs. 96,000/- on account of commission @ 2% on bogus purchases 3. Addition of Rs. 2,00,00,000/- being bogus loan u/s 68 of the Act. 4. Addition of Rs. 1,08,000/- being commission @ 0.54% on bogus loan. 2.1 The Additions of Rs. 48,00,000/- on account of bogus purchases u/s 69C of the Act and Rs. 96,000/- on account of unexplained expenditure being commission @ 2% on bogus purchases are interconnected, hence, for the sake of brevity, we will conjointly decide the same. The AO during the course of the reassessment proceedings u/s 147 of the Act, has found that the Assessee has entered into non-genuine transaction with M/s. Shree Om Sai Industries Ltd. for a sum of Rs. 48,00,000/-, however, could not justify the actual movement/supply of the goods by filing necessary documentary evidence. Therefore, the AO in order to verify, by issuing show cause notice dated 01.03.2023 show caused the Assessee as under: ....
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....of Rs. 2,55,000/- earned on said transaction is already disclosed in profit and loss account and return of income filed for AY 2018-19. 6.6.1 Assessee has also sought personal hearing through Video Conferencing. A letter dated 07.03.2023 intimating the schedule of VC for 09.03.2023 at 11.45 A.M. The VC was conducted successfully on 09.03.2023." 2.3 The AO though considered the submission of the Assessee specifically to the effect the material was directly dispatched/shipped to the seller party; however, the AO doubted the transactions more or less by observing as under: "That the Assessee has not filed requisite details regarding transportation of goods and from the perusal of the copies of invoices and delivery challan, it is seen that in all the invoices/delivery challan the name of the Assessee i.e. M/s. SKA Techinfra Pvt. Ltd. has been mentioned in the consignee column and therefore the contention of the Assessee that goods were directly dispatched/shipped to the purchaser party is not found to be correct. Further, if the material is directly dispatched to the purchaser then the onus is on the Assessee to arrange the relevant details from the party from who....
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....ate of 2% on total bogus purchases of Rs. 48,00,000/- should not be treated as unexplained expenditure of the Assessee. Though the Assessee has not specifically replied on this issue, however, in reply to the show cause notice submitted that the purchases are genuine. Since the purchases are held as bogus, therefore the amount of Rs. 96,000/- (2% of Rs. 48,00,000/-) is treated as unexplained expenditure of the Assessee u/s 69C of the Act and taxed @ 60% as per the provision of u/s 115BBE of the Act and added back to the income of the Assessee". 3. The Assessee, being aggrieved with the reopening of the assessment as well as issuing the notice u/s 148 of the Act by the AO and making the additions on merits, challenged the same by filling first appeal before the Ld. Commissioner and has claimed as under: "6.2 The appellant during the course of appeal proceedings has submitted that the entire addition had been made purely on the basis of assumption and surmise and that there is no evidence or material on record to justify that the appellant had incurred any unexplained expenditure to purchase the goods. The appellant submitted that during course of assessment, it furnished....
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....s well as seller i.e. address, PAN, Sales Tax Number etc. 6.5 The appellant submitted that it acted as an intermediary between buyer and seller and that it purchased the fabric as and when receive the order from buyer and instruct the seller to directly deliver the goods to the buyer. It was submitted that the appellant did not have any role in transportation of goods and therefore it doesn't have documents other than delivery challan in support of delivery of goods. The appellant also submitted that genuineness of purchase cannot be doubted merely because party did not respond to notice issued u/s. 133(6) when all the details are furnished to justify the purchase. The appellant has also relied on a number of judicial decisions and the same has been duly examined." 4. The Ld. Commissioner though affirmed the reopening of the assessment as well as issuing the notice u/s 148 of the Act by the AO as valid, however by considering the aforesaid submissions/claim of the Assessee, restricted the addition of Rs. 48,00,000/- to the extent of Rs. 6,00,000/- {being 12.5% of the bogus purchases of Rs. 48,00,000/-} by observing and holding as under: "6.6 I have carefully co....
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....element embedded in the bogus purchases by returning following findings: "4. Having considered the memo of Appeal and the Orders passed by AO / CIT(A) and the Order of ITAT, the only issue that comes up for consideration is with respect to the extent of ad-hoc disallowance to be sustained with respect to bogus purchases. The AO has observed 100% of the purchase value to be added to the income of Assessee, the CIT(A) has said it should be 15% and ITAT has said it should be 10%. First of all, this would be an issue which requires evidence to be led to determine what would be the actual profit margin in the business that Assessee was carrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor do not show abnormal deviation. 5. Whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal has concluded that the assessee did make the purchase, as a natural corollary....
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....sed by the Hon'ble Gujarat High Court in the case of N.K. Proteins Ltd. vs. DCIT (2016) 72 taxmann.com 289 (Guj.) and submitted that the Hon'ble Gujarat High Court in para 6 of the judgment has held that where the supplier is proven non-existent then 100% of the bogus purchases should be disallowed. Further, commissions are integral to such fictitious purchases and must be added when the supplier is non-existent. 7.1 On the contrary, the Ld. A.R. of the Assessee refuted the claim of the Ld. D.R. and supported the decision of the Ld. Commissioner in restricting the addition from 100% to 12.5% of the bogus purchases and deleting the addition of Rs. 96,000/-. 7.2 We have given thoughtful consideration to the orders passed by the authorities below and the rival claims of the parties. Admittedly the Assessee during the assessment proceedings to prove the genuineness of the purchases made, furnished various documentary evidences such as purchase and sale bills, ledger account, PAN of suppliers, details of purchases made from the said party i.e. M/s. Shree Om Sai Industries Ltd. and bank statements to justify the genuineness of the payments made thereon through banking channels. The....
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....rrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor does not show abnormal deviation." 7.5 The Ld. Commissioner also taken into consideration the judgment passed by the Hon'ble Jurisdictional High Court in the case of PCIT-15, Mumbai vs. Jakaria Fabric (P) Ltd. (2020) 118 taxman.com 406 (Bombay) wherein it was held that the profit margin embedded in such amount of purchases would be subjected to tax but not the entire amount of purchases made. 7.6 The Ld. Commissioner has also taken into consideration the judgment passed by the Hon'ble Jurisdictional High Court in the case of Ashok Popat Bhai Chaudhari vs. ITO 1676/M/2021 wherein the Coordinate Bench of the Tribunal by respectfully following the judgment of the Hon'ble Jurisdictional High Court in the case of Nikunj Exim Enterprises Writ Petition No.2860 order dated 18.06.2014 restricted the addition to the extent of profit element. 7.7 Though the LD. D.R. has relied on the judgment of the Hon'ble Gujarat High Court....
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....ITAT came to a conclusion on facts that there is a possibility that assessee might have saved VAT and also obtained some discount on purchase price and in this kind of situation, the principle of taxing the profit embedded in such purchases covered by the bogus bills, should only be disallowed instead of disallowing entire expenditure. The CIT(A) also took this view but adopted the net profit rate for sustaining the addition. The ITAT modified the order of CIT(A) to adopt the gross profit level, but retain the addition to the extent of 12.50% of the value of alleged bogus purchases. 6. The common impugned order of ITAT is for Assessment Years 2009-2010, 2010-2011 and 2011-2012. 7. There are innumerable judgments of this Court and other High Courts where the Courts have held that the ITAT was correct in restricting the addition limited to the extent of bringing the gross profit rate on purchases and not the entire amount paid. 8. Since both the authorities, i.e., the CIT(A) and the ITAT have held that it is not the entire sales consideration which is to be brought to tax, but only the profit attributable on the total sales consideration which alone can be ....
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....f the company and therefore the AO doubted the receipt of loan of Rs. 2,00,00,000/- being free of interest and ultimately added the same on account of unexplained cash credits u/s 68 of the Act. The AO also made the addition of Rs. 1,08,000/- being commission @ 0.54% of Rs. 2,00,00,000/- and added the same in the income of the Assessee. 9. The Assessee also challenged the said additions before the Ld. Commissioner and has claimed that the Assessee has duly filed the relevant documents before the AO in order to substantiate its claim as filed during the first appeal proceeding, such as: (i) Name, address and PAN of the lender (ii) CIN Master Data of Lender Company; (iii) Confirmation of Lender Company; (iv) ITR Acknowledgement Receipt of the lender; (v) Copy of Audited Financial Statements of the lender company; (vi) Copy of Bank Statement of lender highlighting payments to assessee company through normal banking channel; (vii) Copy of Bank Statement of the assessee company. 9.1 The Assessee, before the Ld. Commissioner also submitted that the entire loans had been received through banking channel by A/c payee cheques /RTGS....
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....er also analyzed the various relevant judgments concerning the issue, wherein it was held that the Assessee is obliged to explain the source of its credit but not the source of source. When full particulars inclusive of confirmation with name, address and PAN numbers, copy of the income tax returns, balance sheet, profit & loss account and computation of the total income in respect of the creditors/lenders were furnished and when it has been found the loans were received through cheques and loan accounts were duly reflected in the balance sheet, the AO was not justified in making the addition. The Ld. commissioner also observed that where the Assessee has given names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income tax Assessees and their index numbers were in the file of the Revenue, still the Revenue Department apart from issuing notices u/s 131 of the Act, did not pursue the matter further and also did not examine the source of income of the said alleged creditor to find out whether it was creditworthy or such person who could advance the loans. There was no effort made to pursue the so-called alleged creditor.....