TaxTMI 
TaxTMI 
2026 (3) TMI 781
X X X X Extracts X X X X
X X X X Extracts X X X X
....g VAT registration of the parties, consumption chart vis a vis sales, therefore the disallowance is unjustified. 2. The Ld.CIT(A) failed to appreciate that the parties are registered dealers with Sales tax authorities and are not in the list of suspected dealers on the portal of Sales tax Department, therefore to treat the said parties as non-genuine is unjustified. 3. The Ld.CIT(A) failed to appreciate that the Gross Profit of the assessee was consistence for last 3 years, the material consumption was also consistence and therefore the disallowance is unjustified liable to be deleted. II. Ad hoc disallowance of expenditure: 4. The Ld. CIT(A) erred in upholding the Assessment Order upholding the ad-hoc disallowance of genuine business expenditure ranging between 10% to 20% without any proper reasons. 5. The Ld. CIT(A) failed to appreciate that the expenditure incurred were wholly and exclusively for business purpose and supported by necessary voucher/ bills, therefore the disallowance is unjustified. Assessment time barred: 6. The Assessment Order is undated and therefore the order passed is not accordance with law liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s showing the gross profit of 23% only. In first two months assessee was having higher profit and in later month the gross profit reduced. This could only be done by making bogus purchases and inflating purchases in the end of the year. This observation also strengthened the fact that the assessee was showing bogus purchases from certain parties mentioned in the order which were not traceable even by the assessee himself. In view of the above facts, it was held that purchases of Rs. 1,35,66,404/- made from the parties mentioned above were not genuine and added back to the income of the assessee u/s Section 68 of the Act. 4. Aggrieved, the assessee filed appeal. Before the ld.CIT(A),it was claimed that the impugned purchases were genuine, evidenced by valid commercial invoices from parties registered with the Sales Tax Department, whose TINs were on the bills. The material was consumed, enabling the declared turnover, and it was argued that the Sales Tax Department had not declared these parties as bogus. The assessee attributed the untraceability of parties to the passage of over two years since the purchases. It was also emphasized that balance confirmations and Income Tа....
X X X X Extracts X X X X
X X X X Extracts X X X X
....umption. The significant disparity in the Gross Profit ratios in the initial months (69.7% and 34.78%) compared to the overall declared GP of 23% strongly suggested manipulation of purchases to reduce profits. The assessee's revised GP calculation was self-serving and appeared to be an attempt to reconcile figures retrospectively without verifiable primary evidence. The AO's analysis, based on the records and inquiries, reasonably pointed to inflation of purchases. Given the cumulative evidence i.e. untraceability of suppliers despite diligent efforts by the department and lack of quantity-wise stock records, and significant discrepancies in profit margins, the ld.CIT(A) held that the AO was justified in concluding that the purchases were not genuine and adding them back to the assessee's income. 5. Before us, the ld.AR has contended that all relevant details were furnished in support of the genuineness of the impugned purchases. The assessee submitted sales and purchase summary, copy of bank statement, balance confirmation from three parties, ITR of two parties along with comparative details of Sales, Purchases, Gross Profit & Net Profit for last 3 years, ledger account....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Co [2019] 103 taxmann.com 459 (Bombay) and M/s Paramshakti Distributors Pvt Ltd ITA no. 413 of 2017, dtd 15/07/2019],PCIT v. Vaman International Pvt. Ltd (2020)422 ITR 520 /118 taxmann.com 406 (Bom) (HC)Commissioner Trade and Tax Delhi v. Shanti Kiran India (P.) Ltd. [2025] 179 taxmann.com 665 (SC) [09-10-2025] etc. 6. The ld.DR relied on the orders of the authorities below submitting that the assessee failed to prove the genuineness of the impugned purchases. The decision of the hon'ble High Court in Kanak Impex was squarely applicable to the facts of the case. 7. We have carefully considered all the relevant facts of the case, perused the records and heard rival submissions. It is a settled law that onus is on the assessee to prove the genuineness of any expense, including purchase which has a bearing on the taxability of its income. The assessee failed to prove the said purchases as despite best efforts of the AO, they could not be traced though surprisingly, the assessee submitted their tax details, sales tax orders etc. to prove the genuineness of the transactions. However, once the said parties were found non traceable, the AO was prevented from making any further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the bogus purchases as the additions to be made instead of confirming entire bogus purchases. 18. The CIT(A) has also given a finding against the respondent- assessee in paragraph 5.2.1, stating that the respondent-assessee failed to prove the genuineness and source of the purchases and confirmed its involvement in the modus operandi. In our view, CIT(A) was not justified after giving such a finding that the additions should be restricted only to 12.5% of such purchases and not entire purchases. The issue before the CIT(A) was not whether the profit disclosed by the respondent-assessee was low so as to justify the estimation of the profit of 12.5%. The issue before CIT(A) was whether the purchases had been proved and the CIT(A), having observed against the respondent-assessee on this issue, ought to have confirmed the additions of the entire purchases. In our view, the CIT(A) misdirected himself by estimating a profit of 12.5%. 19. It was nobody's case that both the sales and purchases are unaccounted. If that be so and the purchases have been recorded in books of account by accommodation entry, then same gets automatically reflected in the books of account....
X X X X Extracts X X X X
X X X X Extracts X X X X
....penditure. 27. We may also observe that the views expressed by us in the present appeal is also supported by the decision of the Co-ordinate Bench of this Court in the case Shoreline Hotel (P.) . In that case based on information received from the Sales Tax Department, the purchases made by the assessee were held to be non-genuine purchases even though the assessee had filed the documentary evidence. However, the AO based on the submissions made by the assessee added only 15% of such purchases as income. The CIT invoked revisional jurisdiction under Section 263 of the Act and observed that the entire purchases ought to have been added and not only 15%. This finding and the revisional order of the CIT was confirmed by the Tribunal. On an appeal by the assessee before this Court, the Co-ordinate Bench of this Court observed that the reasons assigned by the CIT are cogent and satisfactory. The Court further observed that once the assessee could not produce any material nor he could ensure the presence of the suppliers before the AO, citing difficulties and agreeing to the additions of gross profit of the purchases would mean that the AO was expected to complete the exercise i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d purchases sacrosanct. The arguments defies any logic and is therefore, not acceptable. 8. In view of the above discussion, we do not find any infirmity in the appellate order which is in consonance with above decisions of hon'ble Bombay High Court and the ratio of the decision in the case of N.K.Protein (supra). In the light of the legal position emerging from the above cited decisions and the facts of the instant case being identical, we are of the considered view that the assessee has failed to discharge the primary onus in proving the impugned purchases as genuine. The grounds in this regard are accordingly dismissed. 9. The ground no.4 and 5 pertain to ad hoc disallowance of certain expenses. The AO in respect of expenses debited to the profit and loss account in respect of Conveyance Expenses, Office expenses, Staff Welfare Expenses, Business promotion expenses, Motor car expenses and Depreciation on Car and Telephone expenses. 10. Before the ld.CIT(A) the assessee challenged the ad hoc disallowances of various expenses, arguing that they represented a small percentage of the total turnover (1% to 1.5%), thus implying immateriality. It claims that detailed books of ....