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Facts
During a search action, the DGIT found that the Rajendra Jain Group was involved in providing accommodation entries for purchases and bogus unsecured loans. The assessee was identified as a beneficiary of such entries from various parties for purchases totaling Rs. 2,01,62,146/-. The Assessing Officer (AO) reopened the assessment under Section 147.
Held
The Tribunal held that while the issue of bogus purchases is identical to previous decisions, the addition should be restricted to the difference in Gross Profit (GP) rate. The Tribunal noted that the GP on sales related to disputed purchases was higher than on undisputed purchases. Following precedent, the AO was directed to adopt a 6% rate as a fair estimate of the profit element in the alleged bogus purchases and restrict the addition accordingly.
Key Issues
Whether the addition on account of bogus purchases is to be made in full or restricted to the difference in Gross Profit (GP) rate, considering the facts and precedents.
Sections Cited
147, 148, 143(3), 145(3), 46A, 68, 66(2)
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM:
1. The captioned appeal is filed by the assessee, directed against the order of Commissioner of income tax appeals (for short “ld. CIT(A)”), NFAC, New Delhi dated 08.09.2025, for the assessment year (AY) 2010-11, which in turn arises from the assessment order dated 30.12.2017 passed by Assistant Commissioner of Income Tax, Circle-19(3), Mumbai (for short “Ld. AO”)) under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for Short “The Act”).
“1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of assessing officer in re-opening assessment u/s 147 by Issuing notice u/s. 148 of the Income Tax Act, 1961.
2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in making wrong observation that the assessee has filed additional evidence and not attended assessment proceedings when no additional evidence were filed and assessee attended assessment proceedings.
3. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the action of assessing officer in making addition of Rs. 2,01,62,146/- on account of bogus purchases.
4. It is therefore prayed that the assessment please may be quashed and/or the case may be set-aside to the file of CIT(A).
5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief Facts: as per, a search and survey action carried out by the DGIT (investigation), Mumbai, in the case of Shri Rajendra Jain Group on 03.10.2013, it is found that the said Group was engaged in providing of accommodation entries in the form of purchase and sale of materials and bogus unsecured loans to various beneficiaries. It is observed by the AO that as per records of the group for the year under consideration, the modus operandi adopted was revealed. It is further noted that the assessee was also a beneficiary of accommodation entries (bills) from the following parties:
Sl. No. Name of the hawala the parties Bill amount 1 AADI 30,62,165/- 2 KALASH 81,60,516/-
In view of the aforesaid facts and circumstances, the case of assessee was reopened as per provisions of section 147. In response, the assessee through its counsel have furnished necessary replies, the matter has been discussed accordingly. During the course of assessment, the assessee was asked to substantiate the alleged transactions of purchase with impugned activities and show caused as to why the said transactions be not treated as bogus transactions, the books maintained by the assessee should not be considered as manipulated and unreliable, thus the book results should not be rejected under section 145(3) of the Act. Ld. AO also described the entire facts about the Rajendra Jain group including admission of Shri Rajendra Jain to have provided accommodation entries to various entities. In response, the assessee produced books of accounts, sale purchase register along with sale and purchase invoices to support the claim that the purchases are genuine, assessee also submitted that the transactions were made through bank account and therefore cannot be termed as bogus. Contentions of the assessee could not find favour by the learned AO, who observed that as per circumstantial evidences collected through the various facts and the corroborative evidence in the form of statements of the commission agents through with bogus bills were collected, it 2,01,62,146/- treating the same as bogus entries.
5. Being aggrieved, assessee preferred an appeal before the learned CIT(A), wherein the contentions of the assessee are treated as devoid of merits and accordingly the addition made by the learned AO has been affirmed, appeal of the assessee accordingly dismissed with the following observations:
“The assessing officer during the course of assessment proceedings sent various notices to the appellant assessee, but the appellant assessee was not able to prove the identity, creditworthiness of the parties whom purchases have been made. So the assessing officer made the following addition: a. Addition amounting to Rs. 2,01,62,146/- on account of Bogus purchases.
The Appellant assessee in its submissions to this appellate authority have stated that:
The Appellant is a firm assessed to tax. The Appellant is engaged in the business of diamonds since long. The Appellant had filed return of income declaring a total income of RS. 48,22,391/-. The assessment was completed u/s. 143 (3) r.w.s. 147 and an amount of Rs. 2,01,62,146/-being 100 percentage of alleged non-genuine purchase of Rs. 2,01,62,146/- from various parties was added to the total income. The fact of the matter is that the purchases mad e from the said parties are genuine and made in the ordinary course of its business. These are duty supported by tax/retail invoice stating also the fact of delivery of goods and its place, PA Numb er of the supplier, TINICST Number under Sales Tax laws. The purchase transactions are duly accounted in the books of accounts. The stock records are also maintained and respective entry for purchases, sales, etc. are duly made vis-a-vis the respective transaction.
R Suresh & Co. The Appellant assessee states that "The Appellant is a firm assessed to tax. The Appellant is engaged in the business of diamonds since long. The Appellant had filed return of income declaring a total income of RS. 48,22,391/-. The assessment was completed u/s. 143 (3) r.w.s. 147 and an amount of Rs. 2,01,62,146/- being 100 percentage of alleged non-genuine purchase of Rs. 2,01,62, 146/- from various parties was added to the total income. The fact of the matter is that the purchases mad e from the said parties are genuine and made in the ordinary course of its business. These are duly supported by tax/retail invoice stating also the fact of delivery of goods and its place, PA Numb er of the supplier, TIN/CST Number under Sales Tax laws. The purchase transactions are duly accounted in the books of accounts. The stock records are also maintained and respective entry for purchases, sales, etc. are duly made vis-a-vis the respective transaction" but the contentions of the appellant assessee cannot be considered by this appellate authority as the appellant assessee has not provided its submissions on merits.
The appellant assessee has provided documentary evidences which were not provided during the course of assessment proceedings and have also not filed any application under rule 46A of the Income Tax Rules
The language of Rule 46A is reproduced hereunder:
1) The appellant shall not be entitled to produce before the ¹[ Joint Commissioner) (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely: -
(a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer or.
(c) where the appellant was prevented, by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or R Suresh & Co. (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
So, in view of the above, this appellate authority rejects the additional evidences of the appellant assessee filed at this stage as the appellant has not provided proper justification that under what circumstances the appellant assessee was not able to attend the assessment proceedings and non-complaint behaviour of the appellant assessee during the course of assessment proceedings.
This appellate authority puts its reliance on the following Judgments a. Hon'ble Supreme Court in case of CIT vs P Mohankala which has held that:
The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessees; such credit has to be of a sum during the previous year, and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
Relying on the decisions of this Court in BejoyGopal MukherjiVs. Pratul Chandra Ghose [AIR 1953 SC 153] & M/s Orient Distributors Vs. Bank of India Ltd. &Ors. [AIR 1979 SC 867], Shrilyer, learned senior counsel contended that issue relating to the propriety of legal conclusion that could be drawn on basis of proved facts gives rise to a question of law and, therefore, the High Court is justified in interfering in 6 R Suresh & Co. the matter since the authorities below failed to draw a proper and logical inference from the proved facts. We are unable to persuade ourselves to accept the submission. The findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence. No question of law much less any substantial question of law had arisen for consideration of the High Court. The High Court misdirected itself and committed error in disturbing the concurrent findings of facts. No other point is urged.
The appeals preferred by the Revenue Department deserve to be allowed and they are accordingly allowed. No costs. b. Hon'ble Supreme Court in case of A. Govindarajulu Mudaliarvs Commissioner Of Income-Tax has held that:
Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govinda swamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There 7 R Suresh & Co. is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs.
Appeal dismissed. c. Hon'ble Supreme Court in case of Kale Khan Mohammad Hanif vs CIT has held that It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show elther that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income.
As we have earlier said, the question as to the source from which a particular income is derived has to be decided on all the facts of the case. In the present case, the Income-tax Officer held the income represented by the credit entries to be income from undisclosed sources, that is, neither from the manihari (general merchandise) nor from the bidi business of the assessee which he had disclosed. This view was upheld by the Appellate Commissioner and by the Tribunal excepting as to two of the amounts earlier mentioned. It was open to the assessee to raise the question that the finding that those amounts were income received from undisclosed sources was not based on any evidence or was, for other reasons, perverse. It appears that he did raise some questions of this type before the Tribunal for reference to the High Court but the Tribunal did not think that those questions legitimately arose and did not refer them to the High Court. The assessee accepted the decision of the Tribunal and did not move the High Court to 8 R Suresh & Co. direct a reference in regard to those questions under section 66(2), Those questions, therefore, cannot be raised in this court. We have dealt with the reference made on the basis that the finding that the amounts of the credit entries were income received from undisclosed sources was disputed only on the ground that the income from the business had been computed on the basis of an estimate. In the circumstances of the case we could not have done anything else.
These appeals fail and are dismissed with costs. There will be one set of hearing fees.
Appeals dismissed.
6. Ground c & d are accordingly disposed off. In result the appeal of the assessee is rejected and the following additions made by the assessing officer are confirmed:
a. Addition amounting to Rs. 2,01,62,146/- on account of Bogus purchases.
In the result, the appeal is dismissed”
6. On the dismissal of appeal by the learned CIT(A), assessee preferred an appeal before the Tribunal, which is under consideration in the instant case.
7. At the outset Ld. AR on behalf of the assessee submitted that the issue in present case is squarely covered by various decisions and findings therein, sited as under:
PCIT vs. Mohommad Hazi Adam & Co. - 103 taxmann.com 459 (Bom.)
PCIT vs. Siyaram Metals Udyog Pvt. Ltd. - 156 taxmann.com 132 (Guj.)
3. CIT vs. Nikunj Exim Enterprises Pvt. Ltd. - 372 ITR 619 (Bom.)
4. ACIT vs. Vardhman Exports - Tax Appeal No. 265 of 2008 (Guj.)
CIT vs. Nangalia Fabrics - Tax Appeal No. 689 of 2010(Guj)
7. ACIT vs. Akruti Dyeing & Printing Mills Pvt. Ltd. - Tax Appeal No. 997 of 2008(Guj)
M/s. Simoni Gems vs. DCIT - ITA 747/MUM/2018 (Mum. Trib.)
Sai Diamonds vs. ACIT - ITA 3165/MUM/2023 (Mum. Trib.)
Sai Diamonds vs. ACIT - ITA 6452/MUM/2024 (Mum. Trib.)
8. Taking support from the aforesaid decisions Ld. AR submitted that the facts of the instant case are at parity with the cases referred to, the sales and purchase figures of the assessee has been accepted, returned income has not been disturbed, even there was no adverse finding qua the quantitative details of the assessee, accordingly no addition is called for. At the most the difference in GP rate on sales relating to undisputed purchases and GP rate on sales relating to purchase made from alleged parties can be disallowed / added. It is submitted that the GP rate of assessee’s sales related to undisputed purchases was 4.81%, whereas, GP on sales related to disputed purchase was 5.21%, which is higher so no further addition would be required, even by following the ratio laid down in aforesaid decisions. Ld. AR further referred to the paper book furnished before us have submitted that all the relevant documents are furnished by the assessee, such as Financials of Assessee, bank statements of the alleged parties, chart showing corresponding sale against the disputed purchases, sales invoices, stock book. Account confirmation, purchase invoice etc, but no adversity in 10 R Suresh & Co. such documents could be brought on records. Ld. AO made the addition solely based on information received from the Investigation wing. It is also argued that even 133(6) notices are also responded by the respective suppliers, copies of which are furnished by the assessee vide its reply dated 15.12.2017.
9. It is therefore prayed that the addition made by Ld. AO would liable to deleted or alternatively restricted to the extent of GP rate difference on the sale related to undisputed purchases vis-à-vis disputed purchases.
10. Per contra Ld. Sr. DR submitted that the supplies have not responded directly AO towards the enquiries-initiated u/s 133(6) of the Act. He strongly supported the order of Ld. AO / Ld. CIT(A) and requested to upheld the same.
We have considered the rival submissions, perused the material available on record and case laws relied upon. Admittedly, the issue of bogus purchase raised in present case is identical to the decision cited by the Ld. AR, where in it is held that if there was no discrepancy between purchase shown by the assessee and sales declared observed by the assessing officer, the addition on account of bogus purchase should be restricted to bringing the gross profit rate on such purchases at the same rate as applied in other genuine purchases. From the facts of instant case also it can be observed that all primary evidence qua the transactions were furnished by the assessee, even otherwise there was no adverse finding or discrepancy in the financials statement of the assessee was R Suresh & Co. pointed out, returned income of the assessee has been accepted as such and an addition / disallowance was made for purchases without any reduction to the corresponding sales. The issue thus squarely covered by the decisions referred to supra, accordingly an addition of only the difference in GP% on sales related to alleged bogus purchase vis-à-vis the GP% on sales from genuine purchase would be made. In present case, it is submitted that the GP% (5.21%) on sale from alleged bogus purchase is higher than the GP% (4.81%) on sale related to normal / regular undisputed purchases, thus no further disallowance is called for. However, following the decision of ITAT in the case of SAI Diamonds in dated 25.01.2024 (AY 2012-13), if profit element imbedded in alleged purchase is considered @6%, the difference of 6% minus actual GP declared by the assessee shall be the amount of disallowance. We take support from the decision of ITAT Mumbai in ITA 6452/Mum/2024 in the case of Sai Diamond (AY 2010-11), wherein the tribunal had further reduced the rate of GP from 6% (adopted by Ld. CIT(A)) to 2.33% since the assessee had already shown a GP of 3.67%. We accordingly direct the Ld. AO to adopt a rate of 6% as fair estimate of the profit element embedded in the alleged bogus purchase and restrict addition by reducing the GP margin already declared by the assessee.
Order pronounced in the open court on 30-12-2025.