AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 745
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....ppeals are connected, hence the same are heard together and being disposed off by this common order. We take up the Revenue's appeal being ITA No.1520/Del/2025 for AY 2018-19 as lead case to adjudicate the issues under consideration. 3. The Revenue has raised the following three issues in the grounds of appeal :- (i) Deletion of addition of Rs. 43,25,530/- to the extent of Rs. 10,38,127/- on account of bogus purchases made by the assessee; (ii) Reduction of gross profit margin from 25% to 6% of bogus purchases; (iii) Restricting the disallowance u/s 14A read with Rule 8D to Rs. 5,02,400/-. 4. With regard to deletion of addition of Rs. 43,25,530/- to the extent of Rs. 10,38,127/- and reduction of gross profit....
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....rt that the payments for purchases are made through banking channels, copy of Tax Audit indicating the details of quantitative stock item wise, GSTR 1 evidencing the transactions reported by the vendor by uploading the invoices, GSTR 2A evidencing reconciliation of input claimed by the assessee etc. However, to buttress its position on account of genuineness of purchase transaction, assessee also explained the details of working of GST regime in the assessment order. The assessee submitted that after the introduction of GST regime in 2017, the process of purchase/sale transactions are system driven and interconnected. For instance, the buyer of goods or services gets the input tax credit on the basis of seller's GST return. The assessee....
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....5% of bogus purchases of Rs. 1,73,02,120/- amounting to Rs. 43,25,530/-. 7. Aggrieved assessee preferred an appeal before the ld. CIT(A) and filed detailed submissions. After considering the detailed submissions, ld CIT(A) held as under :- "6.5 .......... ....................... 6.10 Accordingly, the estimation is required to made on the basis of the prevailing market condition of comparable cases or the previous history of the assesses. The prevailing market condition would mean the profit margin that a third-party trader dealing with similar items during identical period would earn. The previous history of the assessed would mean the book results that are shown by the assesses from year to year. Further, in t....
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....f purchases from the open/grey market." The Jurisdictional Delhi ITAT in the case of ACIT circle 22(1) New Delhi vs. M/s. Sanvik Engineers India Pvt, Ltd. bearing ITA 3201/DEL/2016 dated 30.05.2019 held that "Since in the instant case the Assessing Officer has not disturbed the sales and has not rejected the books of accounts, therefore, the entire amount of bogus purchases as alleged cannot be added to the total income of the assessee and the addition has to be restricted to the extent of the G.P. Rate on purchases at the same rate of other genuine purchases. The assessee in the paper book page 54 has given the calculations of such GP rate at 9.96%. We therefore set aside the order of the CIT(A) and direct the Assessing O....
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....e revenue." The ITAT Tribunal, in the matter of Murtuaa Abdul Gaffar Khan vs. National Faceless Appeal Centre (NFAC) bearing ITA No. 2698/Mum/2023 dated 15.03.2024 held that "However as held by the honourable Bombay High Court in case of Mohmd. Haji Adam & company (supra) where sales are not disputed, no discrepancy between purchases shown by the assessee and the sales declared, only the addition should be restricted to the extent of bringing the gross profit on purchases at the same basis of other genuine purchases. On this mandate, it was found that assesses has given the quantitative sales corresponding to the quantitative purchases, which is from alleged bogus suppliers. The resultant gross profit from alleged bogus pu....
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....ade before the ld. CIT(A) and heavily relied on the findings of the ld. CIT(A). 11. Considered the rival submissions and material available on record. We observed that based on the information received, the purchases declared by the assessee were found to be bogus purchases. At the same time, we observed that assessee has already declared the sales and also recorded alleged bogus purchases, however the Assessing Officer observed that as the material have been received, entire bogus purchases cannot be treated as undisclosed income and accordingly, only profit element embedded in the bogus purchases is required to be added as undisclosed income and adopted 25% as the embedded profit element. However, we observed that Hon'ble High Court ha....