TaxTMI 
TaxTMI 
2026 (8) TMI 212
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....eal No. 469 of 2026 : (a) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in restricting the disallowance to 10% of the bogus purchases, despite accepting that the purchase was non-genuine? (b) Whether in the facts and circumstances of the case and in law, the learned ITAT has erred in reducing the addition on account of alleged bogus purchases to 10% of such purchases against the ration laid down by this Hon'ble Court in the case of N.K. Industries Ltd. Vs. Deputy Commissioner of Income-tax (2016) 72 taxmann.com 289 (Gujarat)? 4. The assessee has proposed the following substantial questions of law in Tax Appeal No. 474 of 2026 : (i) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in not holding that assumption of jurisdiction under section 147 of the Act is not justified in the eye of law? (ii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in partly confirming the disallowance to the extent of 10% of alleged bogus purchases without giving any cogent reasons and without properly appreciating facts ....
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....ne. However, we also find force in the alternate argument of the Counsel for the assessee that entire purchases made by the assessee could not be added back as income where sale proceeds have been duly accounted in the books of accounts and offered to tax. In such type of cases, various Courts have held that addition should be restricted only to the profit element embedded in the value of disputed purchases. 10. In the case of Commissioner of Income-tax vs. Simit P. Sheth (2013] 38 taxmann.com 385 (Gujarat) / [2013] 219 Taxman 85 (Gujarat) (Mag.) /[2013] 356 ITR 451 (Gujarat), the assessee was engaged in business of trading in steel on wholesale basis. The Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to the assessee, but the assessee had only provided sale bills. Accordingly, the Assessing Officer held that purchases made from the said parties were bogus and added entire amount of purchases to the income of the assessee. In appeal, Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 percen....
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.... Municipal Corporation of Greater Mumbai (MCGM). Pursuant to filing return of income, assessment in case of assessee was completed under section 143(3) of the Act. The case of assessee was reopened on basis of information received from Sales Tax Department that assessee had made purchases of Rs. 4.50 crores, which seemed to be accommodation entries. An order was passed making entire addition of Rs. 4.50 crores as bogus purchase under section 69C of the Act. Ld. CIT(Appeals) held that payments made by assessee were through banking channels and since sale proceeds of goods had also been duly accounted for in books and offered to tax, entire purchase amount could not have been added in present case and that with a view to plug any revenue leakage in aforementioned circumstances, disallowance at the rate of 12.5 percent was held to be reasonable to safeguard interest of Revenue. On further appeal, Tribunal held that entire purchase made by assessee could not be added back as income, but only profit element embedded therein should be treated as income of assessee. The High Court held that order of Tribunal being well reasoned did not warrant any interference and accordingly confirmed di....
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....al precedents on the subject as cited above and the alternate argument of the Counsel for the assessee, it would be reasonable to restrict the disallowance to 10% of the alleged bogus purchases." 6. Learned advocate Mr. Parimalsinh Parmar for the respondent-assessee has tendered the four paper books filed before the Tribunal containing voluminous records to demonstrate that the purchase made by the assessee was genuine and no addition could have been made by the Assessing Officer and the Tribunal has therefore committed an error in restricting the addition to 10% of the alleged bogus purchases. 7.1. Learned Senior Standing Counsel Mr. Varun K. Patel for the appellant-Revenue submitted that the Assessing Officer and the CIT (Appeals) have rightly made disallowance of bogus purchases of the assessee after considering the documents on record and hence, the Tribunal ought not to have restricted the disallowance to 10% of bogus purchase. 7.2. Learned Senior Standing Counsel Mr. Varun Patel referred to and relied upon the following observations of the CIT (Appeals) while confirming the addition made by the Assessing Officer on account of the bogus purchase: "6.10 I have....
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....ingh) 3 27/01/2022 ADIT(Inv)-Jamshedpur Manish Kumar Naredi (Prop. Om Shiv Metallicks) 4 27/01/2022 ADIT(Inv)-Jamshedpur M/s Shakambari Metallicks (Prop. Sh. Manoj Kumar Pareek) The ADIT(Inv.) Jamshedpur had reported that as per information passed by GST department, the above parties had indulged in purchase and sale only in paper without actual movement of goods. The assessee is one of the beneficiaries and availed accommodation entry from the above parties. 6.13. Thus the AO has recorded clear finding that there was no actual movement of goods and the entire purchase and sale were only on paper to create a legal facade to conceal the bogus nature of transaction. find that AO had specifically asked for copy of invoices/bills/vouchers along with-evidence of record of movement of goods such as transport bills etc. but no such actual evidence of movement of purchased goods were made available either before the AO or before me." 7.3. It was pointed out that the CIT (Appeals) has referred to and relied upon the verifications made by the Designated Verification Unit (DVU) and inquiry conducted by DVU by issuing notice under Section 133(6) of ....
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....t would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (supra) or Vijay Proteins Ltd. (supra) In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,322/-. 6.1 In the case of NR Paper & Boards Ltd. (supra), this Court has discussed the issue as to whether after making of block assessment, regular assessment is....
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....ment of goods and the entire purchase and sales were only on paper to justify the bogus nature of transactions carried out during the year under consideration. 7.7. It was submitted that the assessee has failed to place on record any evidence of movement of goods such as transport bills along with invoices, bills, vouchers, etc. It was therefore submitted that the CIT (Appeals) has rightly held that the Assessing Officer was justified in making the addition of Rs. 39,00,60,232/- under Section 69C of the Act by relying upon the ratio of N.K. Industries Ltd. (Supra). 7.8. It was submitted that the decision in case of N.K. Industries Ltd. (Supra) has been affirmed by the Hon'ble Apex Court in N.K.Proteins Versus Dy. CIT reported in [2017] 84 taxmann.com 195 (SC). It was also submitted that the CIT (Appeals) has also rightly relied upon the decision of the Hon'ble Calcutta High Court rendered in similar facts in case of Mrs. Premlata Tekriwal Versus PCIT reported in [2022] 143 taxmann.com 173 (Calcutta). 7.9. It was therefore submitted that the Tribunal ought not to have restricted the disallowance to 10% of the total purchases by relying upon the decision in case of Commissio....
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....and relied upon the following statistics from the record in support of his submissions: "Impact of impugned addition on 'GP ratio' & 'NP ratio' Particulars Turnover Gross Profit (GP) GP ratio Net Profit (NP) NP ratio Before addition Rs. 383,98,20,127/- Rs. 35,00,53,239 9.12% Rs. 17,66,52,895 4.60% Addition by AO -- Rs. 39,00,60,323 -- Rs. 39,00,60,323 -- After addition Rs. 383,98,20,127/- Rs. 74,01,13,562 19.27% Rs. 56,67,13,218 14.76% Details of 'GP ratio' & 'NP ratio' of few years A.Y. GP/NP ratios of few years GP Ratio NP ratio Turnover Pg. of P/B 2014-15 5.42% 2.11% Rs. 317,13,49,283/- Pg.3497 2015-16 7.49% 2.47% Rs. 331,52,10,560/- Pg.3497 2016-17 9.19% 3.17% Rs. 278,70,89,157/- Pg.3554 2017-18 8.62% 3.40% Rs. 261,39,13,031/- Pg.3606 Average 7.68% 2.80% Rs. 297,18,90,508/- -- 2018-19 9.12% 4.6% Rs. 383,98,20,127/- P.83 8.2. Referring to the above factual details, it was submitted that by determining real income, the Revenue must have regard t....
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....ort of his submissions, reliance was placed on the following decisions: (1) PCIT v. Surya Impex reported in 451 ITR 395 (Gujarat); (2) PCIT v. Pankaj Choudhary reported in Tax Appeal 617 of 2022 (Gujarat); (3) PCIT v. Deepak B. Agarwal reported in 161 taxmann.com 601 (Gujarat); (4) PCIT v. Keshri Exports reported in 168 taxmann.com 528 (Gujarat); (5) PCIT v. Prathana Gems reported in 186 taxmann.com 673 (Gujarat); (6) PCIT v. Prathana Gems reported in 186 taxmann.com 984 (SC); (7) PCIT v. Sunilkumar P. Jain reported in 185 taxmann.com 916 (Gujarat); (8) PCIT v. Sunilkumar P. Jain reported in 186 taxmann.com 285 (SC); (9) PCIT v. Jigisha S. Mehta reported in 456 ITR 661 (Gujarat); (10) PCIT v. Mohit Pukhraj Kawdiya reported in 481 ITR 310 (Gujarat); (11) Sanjay Oilcake Industries v. CIT reported in 316 ITR 274 (Gujarat); (12) CIT v. Kishor Amrutlal Patel reported in Tax Appeal 679 of 2010 (Guj); (13) CIT v. Bholanath Poly Fab P. Ltd. reported in 355 ITR 290 (Gujarat); (14) Bholanath Poly Fab P. Ltd. v. ITO reported in ITA 137/ Ahd/2009; (15) CIT v. S....
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....ion was delivered in the peculiar facts, which has been distinguished by this Court in case of Principal Commissioner of Income-tax Versus Jigisha Satishkumar Mehta reported in [2023] 155 taxmann.com 279 (Gujarat) and by the Hon'ble Bombay High Court in case of CIT Versus Mohommad Haji Adam & CO. reported in 103 taxmann.com 459 (Bom). It was therefore submitted that no substantial question of law arises in the Tax Appeal filed by the Revenue as the Tribunal has recorded the findings of fact whereas, in the case of the assessee, the Tribunal could not have restricted the addition to 10% of the total purchases and Tribunal ought to have consider the profit rate declared in the books of accounts and ought to have granted set off in respect of such profit from the rate of 10%. It was submitted that in similar facts, this Court has restricted the addition to 6% and therefore, impugned order of the Tribunal is required to be set aside to that extent as no addition is required to be made on the ground of bogus purchase. 8.6. With regard to the second controversy regarding reopening, it was submitted that the Assessing Officer issued the show-cause notice under Section 148A(b) of the Ac....
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.... the CIT (Appeals), in paragraph No.6.7 (wrongly mentioned as 6.7 instead of 6.14 after paragraph No.6.13 on page No.43), reads as under: "6.7 In above view of the matter, I have no hesitation in holding that the transactions are only in namesake without any actual sale or purchase. The entire paperwork and the web of legal form created along with that, is, therefore, merely intended to conceal the true nature of these transactions, which were, in fact, mere accommodation entries and the same must be ignored to give effect to the true substance of the transaction. The assessing officer, therefore, rightly disregarded the artificially created evidence to make a set of bogus purchases look real and made an addition of Rs. 39.0060.2326- u/s 69C Dy playing the ratio of NK Industries Ltd v DCIT /2016] 72 taxmann.com 289 (Gujarat). The law under section 69C which does not envisage any such restrictions was explained by the Hon'ble Gujarat High Court in NK Industries Ltd in the following words: "6. The Tribunal in the case of Vijay Proteins Ltd. (supra) has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of th....
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....hedpur M/s.Shakambari Metalicks (Prop. Shri Manoj Kumar Pareek) The ADIT (Inv.) Jamshedpur-stated as per information passed by GST department, the above parties were indulged in purchase and sale only on paper without actual movement of goods. The assessee is one of the beneficiaries and availed accommodation entry from the above parties. 3.4 In view of the above facts of the case, an amount of Rs. 39,00,60,232/-claimed as purchase by the assessee is treated as bogus purchase and accordingly disallowed and added to the total income for the year under consideration. Penalty u/s 270A of the Act is initiated for under-reporting of income. 4. Table of variations: Sr. No. Description Amount 1 Income as per Return-U/s. 139 (1) 17,03,07,320/- 2 Income as per ITR-U/s. 148 17,03,07,320/- 3 Variation in respect of issue discussed as para no.3.3.2 39,00,60,232/- 5 Total income assessed 56,03,67,552/- 5. Assessed under section 143(3) r.w.s. 147 of the Income-tax Act. Penalty proceedings us 270A are initiated separately. Computation of income and demand notice u/s 156 of the Act are attached." 12. Thus, the c....
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...., in the instant case the appellant is showing measly G.P. of only 0.78% on turnover. In view of this I am of the considered opinion that disallowance of 12.5% of the impugned purchases would be reasonable and would meet the ends of justice. Hence, the disallowance is restricted to 12.5% of the impugned purchases for the assessment year in appeal." 5.2 The disallowance at 100% was made in the assessment order for the year under consideration to the tune of Rs. 4,34,00,343/-, which was reduced to 12.5% at Rs. 54,25,040/-. Thereafter, the issue was dealt with by the appellate Tribunal. The appellate Tribunal endorsed to the view taken by the appellate Commissioner. It was observed that Assessing Officer failed to consider the evidence furnished by the assessee. 5.3 Considering the facts and relevant aspect, the Income Tax Appellate Tribunal partially allowed the appeal of the assessee to further reduce the disallowance at 6%. In so concluding, the Tribunal observed in paragraph No.21 as under, ".......during the financial year under consideration the assessee has shown total turnover of Rs. 66,09,62,458/. The assessee has shown Gross Profit @ 78% and net Pr....