TaxTMI 
TaxTMI 
2025 (10) TMI 804
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....as filed on 31.08.2022 declaring total income of Rs. 12,61,340/-. The case of the assessee was selected for scrutiny for examination of the creditors and during the course of assessment proceedings, the AO issued notice u/s 136(6) to the 11 parties from whom purchases have been made and balance were outstanding at the year end. However, none of the party appeared except in case of the two parties, since, notices 136(6) could not be issued. The AO observed that out of total nine supplier, "six suppliers" never filed their ITR and two suppliers filed their last ITR in Assessment Year 2018-19. AO further observed that out of 9 suppliers to whom notices u/s 136(6) were issued and served a reference was made to the verification unit for making necessary verification of the claim of purchases. However, it was found that none of the parties was available at the given addresses. The AO further observed that except one party Manita Rani, in case of remaining suppliers, their GST No. were got cancelled by the respective authorities. Accordingly, the AO held that the total purchases of Rs. 40,96,63,102/- made from these 11 parties are unverifiable and bogus purchases and addition of 25% of th....
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....ng the net profit rate of 1.39% on the total turnover. (ii) That, on the facts and circumstances of the case, the Ld. CIT(A) has erred in applying the net profit rate of 1.39% on the total turnover of the assessee over and above 1.39% Gross Profit Rate declared by the assessee. (iii) That the above said addition has been sustained rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee in this regard 2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs. 19,852/- on account of carriage inward expenses incurred on above purchases. 3. Without prejudice to the above, even otherwise the learned CIT(A), NFAC has erred both on facts and in law in rejecting the contention of the assessee that both the above additions made by AO under section 69C are not legally sustainable as it is not case of purchases/expenses Incurred not recorded in the books of accounts and hence the provision of section 69C are not applicable to the facts of the case of the assessee. 4. That, on the facts and circumstances of the case,....
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.... entire purchase could be disallowed looking to the fact that by making such kind of bogus purchase assessee has been to inflate the purchases and reduce the profits, therefore, he requested for the confirmation of the order of the AO on this issue. 9. On the other hand, the Ld. AR of the assessee submits that the books of account of the assessee were not doubted and the trading results were accepted. The assessee's books were duly audited and purchases were duly supported by respective invoices, the payments were made through banking channel and were duly reported in the GST return filed. The Ld. AR further submits that the corresponding sales have been admitted. Therefore, it could not be said that the purchases made from few parties was bogus. He also filed all the relevant details to establish the purchases made as genuine which includes details of item wise purchases, ledger account of the suppliers, purchases registers, invoices and E-way bills etc. which are available in the paper book pages 347 to 1033. He further submits that assessee has filed the GST return wherein input credit of the purchases made from these parties was claimed and allowed by the respective authorit....
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....m whom purchases of Rs. 24,78,750/- was claimed, his GST registration was cancelled on 03.09.2021. 11. From the perusal of the date of cancellation of the GST No of few of the suppliers as stated above, it is established that during the year under appeal, i.e. in Assessment Year 2022-23 relevant to previous year 2021-22, these parties were either not having any valid GST No. or it was cancelled during the year itself thus, the purchases claimed to have been made from these parties remained doubtful and cannot be held as genuine. The Ld. CIT(A) after considering all these facts, has reached to the conclusion that the purchases made from these parties is non-genuine and bogus purchases and made additions of the GP rate declared by the assessee. The relevant observations of the Ld. CIT(A) in this regard as contained in para 6.25 to 6.42 are as under: "6.25 During the discussion on previous grounds of appeal it has proven beyond doubt that none of suppliers were found to be existing during the course of assessment proceedings hence the present ground does not hold any water. Thus the 10th ground of appeal taken by the appellant is dismissed. 6.26 The 9th ground of ....
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....he corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs. 3,70,78,125/- which comes to Rs. 20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue." 1. Assuming without admitting, even if the ratio of the Hon'ble Supreme Court in N.K. Proteins (supra) was to be applied to the present case, the addition has to be restricted to only 1.29% which is the gross profit in the books of the complete Assessee-Appellant. Thus, the findings of the Ld. A.O. are completely perverse. 1. Without prejudice to what has been submitted and strictly in the altemative, it is respectfully submitted that the even if the addition were to be made on the gross profit margin of the Assessee-Appellant (as was done in the case of N.K. Proteins (supra)), the same ought to be restricted to a mere 1.29% which is the actual gross margi....
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....ply. Hence the conclusion drawn by the assessing officer is correct that the appellant might have purchased goods from other parties on lower rate and introduced the bills of other parties on higher side to reduce the profitability of the business. 6.34 In the given circumstances since the sale of the appellant is not doubtful and has not been questioned by the assessing officer it can be concluded that unless some purchases are made there cannot be corresponding sale. But the question arises regarding income which is embedded in such bogus purchases or alterriatively what percentage of purchases can be treated as unexplained expenditure, this involves guess work. The correct approach in such case is to estimate suppressed. profit element embedded in the amount of such bogus purchases. In the case of Deputy Commissioner of Income-tax v. Rajeev G. Kalathil [2014] 51 taxmann.com 514/[2015] 67 SOT 0052 (Mumbai) in which case the Assessing Officer disallowed the entire expenditure incurred by the assessee on purchases as it was one of the beneficiaries of bogus hawala bills, as per information available with the Assessing Officer. The CIT (Appeals) held that when sales were ac....
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....was enhanced for obtaining higher bank finance, during post-search investigation no cooperation was extended, the assessee failed to reconcile the differences in the value of stock found at the time of search and the stock as per books, the finding of the AO that either fake purchase bills were introduced so as to increase stock or the sales were reduced, and on that basis books were rejected, application of higher GP rate was held justified. [refer-Clarity Gold (P.) Ltd. v. Pr. CIT [2019] 102 taxmann.com 421 (Raj.)]. 6.40 The assessee, trading in paper and paper products, found indulging in hawala business without actual transaction. The AO disallowed entire purchases of Rs. 4.17 Crores u/s. 69C. The CIT(A) applied GP rate of 3.67% on bogus purchases, whereas the Tribunal enhanced the disallowance to 12.5% of bogus purchases. It was held that no substantial question of law arose [refer-Pooja Paper Trading Co (P.) Ltd. v. ITO [2019] 104 taxmann.com 95/264 Taxman 260 (Bom.); Pr. CIT v. Synbiotics Ltd. [2019] 106 taxmann.com 316/265 Taxman 34 (Gujarat) (Mag.) (where GP rate of 25% of bogus purchases was applied)]. 6.41 In cases where on the basis of statements of al....