DCIT 19 1 MUMBAI, MUMBAI vs. B.M. ENTERPRISES, MUMBAI

PER RATNA DASGPUTA, AM

The present appeal by the Revenue arises from order dated 25/02/2026 passed by the National Faceless Appeals Centre - hereinafter referred to as the Ld. CIT(A) - u/s 250 of the Income-tax Act - hereinafter referred to as "the Act".

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i. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition to 5% of the alleged bogus purchases as against 100% disallowance made by the Assessing Officer u/s 69C, without properly appreciating the facts and evidences on record. ii. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) failed to appreciate that the assessee had failed to discharge the onus of proving the genuineness of purchases, as the parties were found to be non-genuine/shell entities providing accommodation entries. iii. Whether on the facts and in the circumstances of the case and in law, the Ld. CITIA) erred in granting relief on pure estimation basis without bringing any cogent material on record to justify restriction of addition to 5%. iv. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that once the purchases are held to be bogus and unexplained, the entire amount is liable to be added u/s 69C, as the source of such expenditure remains unexplained." v. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) ignored the fact that the addition was made based on specific information received from the Investigation Wing and supported by material evidence indicating accommodation entries. vi. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition to 5% of bogus purchases, ignoring the binding judicial precedent laid down in the case of N.K. Proteins Ltd. vs DCIT wherein it has been held that 100% of bogus purchases are liable to be disallowed when the transactions are found to be non-genuine and merely accommodation entries.

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vii. The order of the Ld. CIT(A) is contrary to the provisions of section 69C and settled legal position, and therefore is not sustainable in law. viii. The appellant craves leave to add, alter, amend or withdraw any of the above grounds of appeal at the time of hearing. 3. Subsequently, before this Tribunal, the assessee has preferred Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963, to raise the following legal issues: -

i. On the facts and in the circumstances of the case and in law the assessment order passed by AO u/s 143(3) r.w.s. 147 of Income-Tax Act dated 27/12/2019 is bad in law and perverse, void ab initio and deserves to be annulled as the reassessment order passed without disposing off the objections raised by the assessee regarding reopening/initiating reassessment proceedings objected vide letter. dated 13/06/2019. ii. That on the facts and the circumstances of the case, the Ld. A.O erred in reason for reopening was not signed either digitally or manually, the same would be invalid and because such reason is invalid, no jurisdiction would vest with A.O to continue the proceedings pursuant to such reason. iii. On the facts and in the circumstances of the case and in law, the Ld. A.O failing to appreciate that the Notice under Section 148 issued on 30/03/2019 is void ab initio and bad in law, as the mandatory reasons for reopening were recorded subsequently on 22/05/2019, thereby rendering the Assessing Officer's assumption of jurisdiction entirely illegal. 4. The brief facts of the case are that the assessee, a partnership firm, had filed return of income on 22/09/2012 declaring total income of Rs. 51,74,730/- for the relevant year. The return was

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processed u/s 143(1) of the Act on the declared income. Thereafter, the Ld. AO reopened the case by issue of notice u/s 148 of the Act, the reopening being based on information from the Investigation Wing, Thane, that the assessee had made non-genuine purchases of Rs. 25,35,667/- from M/s Supreme Multitrade Pvt. Ltd., a party declared as a shell company and a non-filer and engaged in the business of issuing non-genuine purchase bills. In response to notice under section 148, the assessee filed return on 24/04/2019, disclosing the same total income of Rs. 51,74,730/-. During the course of subsequent re-assessment proceedings, the assessee made written submissions and filed various documents, but the Ld. AO was not satisfied with the explanation furnished by the assessee, and he completed the assessment by adding back the disputed purchases as unexplained expenditure u/s 69C of the Act. On assessee's appeal against this order, the Ld. CIT(A) restricted the addition to 5% of the disputed purchases, relying primarily on the decision of the Ld. CIT(A) in the assessee's own case in A.Y. 2011-12. Relevant part of the aforesaid order of the Ld. CIT(A) for A.Y. 2011-12 is as follows: -

“4.3.2. The appellant…is in the business of trading in ferrous and non- ferrous metals. The GP in this line of business, normally ranges from 2 to 5%. The appellant has already shown a GP of 8.72% on these purchases. With the estimate of the AO, the GP shoots up to 21.2% which is very high.

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Presuming that the appellant has made the purchases from the grey market, the benefit that the appellant would have obtained Is the VAT amount which is 4%. Therefore, in order to meet the ends of justice and to have a realistic picture of profit, I feel the additional GP to be estimated should be restricted to 5% of such alleged purchases. This would cover up evasion on account of VAT and also any other leakages to revenue. The appellant gets relief of the balance amount. This ground of appeal is partly allowed.”

Aggrieved with the order of the Ld. CIT(A), Revenue has preferred appeal before this Tribunal. All the original grounds of appeal converge on one broad issue – that of restriction by the Ld. CIT(A) of the addition on account of bogus purchase to 5% of the disputed purchases notwithstanding, inter alia, the decision of the Hon’ble Supreme Court in N.K.Proteins vs. DCIT, in terms of which the entire bogus purchases should have been disallowed.

5.1 The Ld. AR for the assessee, on the other hand, pointed out that the assessee submitted various documents – including copy of

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purchase register, month-wise purchase summary, copy of sales register, summary of month-wise sales, copies of product-wise and month-wise stock registers, details of purchases from M/s Supreme Multitrade Pvt. Ltd. and corresponding sales to other parties, copies of purchase invoices from M/s Supreme Multitrade Pvt. Ltd., and copy of relevant bank statement showing payments made for purchases – but the Ld. AO has brushed aside all these supporting documents and added back the entire disputed purchases as suppressed profit of the assessee. The Ld. AR pointed out that gross profit of 11.04% for the relevant year was more than reasonable in the assessee's line of business, and that the GP for A.Y. 2012-13 was higher than the 7.69% disclosed for the immediately preceding year. He argued that addition of 100% of the disputed purchases was harsh and unjustified since the assessee had itself disclosed GP margin at 16.80% on the alleged disputed purchases. More important, although the Ld. AO had disallowed the alleged bogus purchase, he did not dispute the corresponding sales transactions. Further, all payments for the purchases had been made by A/c payee cheques, and it was unfair on the Ld. AO's part to make addition on account of suppressed profits merely because information had been received from the Investigation Wing, Thane. It was contended that the case was reopened on the basis of general statement made by a third party, copy of which was not provided to the assessee, and neither was the assessee given any opportunity to

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cross-examine the party. The Ld. AR relied on various judicial pronouncements which were placed before the Ld. CIT(A) in support of his claim that purchases cannot be held as bogus relying solely on general statements made by the supplier, that non-existence of the supplier at the given address would not necessarily mean that the purchases were non-genuine and that, at best, only real profit embedded in non-genuine purchases could be taxed. The Ld. AR, therefore, contended that the material on record did not justify disallowance of 100% of the purchases, particularly when the corresponding sales had been accepted and the assessee had disclosed the resulting profit in its books.

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the entire purchase value while simultaneously accepting the corresponding sales as forming part of the assessee’s turnover. The purchase price is an expenditure incurred by the assessee for earning income from the corresponding sales, and once the sales have been accepted, the entire purchases cannot be disallowed. The only issue that needs to be determined here is the extent to which the assessee derived an advantage by obtaining the purchase bills from the alleged party rather than making purchases from genuine, identifiable suppliers.

8.1 In determining the quantum of purchases that needs to be disallowed, adoption of the average GP rate over the past and present years will not provide a sound basis. The trading results of different years cannot, and should not, be transplanted into the present year without considering other background circumstances that may have influenced the GP rate. If accommodation bills have been obtained in respect of actual purchases, the addition has to be directed towards the additional profit embedded in such transactions.

8.2 At the same time, the contention that merely because corresponding sales have been accepted, the disputed purchases must also be accepted in totality, is not acceptable. The material on record, as discussed by the lower authorities, casts grave doubt on the genuineness of the stated supplier and the transactions through

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it. Therefore, some addition on account of benefit derived by the assessee by obtaining accommodation purchase bills is definitely warranted.

8.3 But disallowance of the impugned purchases @ 100% would, as discussed hereinbefore, amount to treating the entire purchase consideration as the assessee’s income notwithstanding the corresponding sales and the business activity carried on by the assessee. Such an approach would not be correct. In the peculiar facts of the present case, we are of the considered view that a reasonable estimate has to be made of the profit element embedded in the impugned purchases. We are, in the given circumstances, inclined to agree with the conclusion of the Ld. CIT(A) in his order in the assessee’s own case for A.Y. 2011-2012 that the assessee would have made purchases from the grey market to avail of benefit of VAT which is @ 4%. In the interest of justice, we accordingly restrict the estimation of the additional GP to 5% of the disputed purchases. We, however, make it clear that the above estimation is confined only to the peculiar facts of the instant case and shall not be understood as laying down a bench-mark applicable to all cases involving alleged bogus purchases.

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pressed before us. The issues, therefore, become academic, and do not require adjudication at this stage.

Order pronounced in the open Court on 07/09/2026

Sd/- Sd/- (BEENA PILLAI) (RATNA DASGPUTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 07/09/2026 Z.U., P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai