DYNAMATIC DEVELOPERS PRIVATE LIMITED,MUMBAI vs. DCIT, CENTRAL CIRCLE 5(4), MUMBAI

PER SANDEEP GOSAIN, JUDICIAL MEMBER: These cross appeals have been filed by the Revenue and the assessee against the order of the learned CIT(A), Ahmedabad, dated 20.02.2025 for the AY 2017-18.

i) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/- (being 6% of bogus purchases) on account of bogus purchases ignoring the fact that the assessee has failed to provide documentary evidence to show that purchases made from M/s One World Industries Put. Ltd. were genuine.

ⅱ) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/- (being 6% of bogus purchases) on account of bogus purchases ignoring the fact that the investigation wing has established that the entity M/s One World Industries was involved in providing accommodation entries of purchases without actual delivery of goods

iii) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/- (being 6% of bogus purchases) on account of bogus purchases ignoring the fact that Shri Urvil Jain and Shri Manoj Khushalani in their statement recorded under oath had admitted that M/s One World Industries Put. Ltd. and all 'One World' group entities were involved in providing accommodation entries of purchases without actual supplies.

iv) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/- (being 6% of bogus purchases) on account of bogus purchases ignoring the fact that the Hon'ble ITAT in the case of Pratibha Pipes & Structurals Ltd. in ITA No. 3874/Mum/2015 held that the Assessing Officer had rightly made 100% addition on account of bogus purchases.

v) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/- (being 6% of bogus purchases) on account of bogus purchases ignoring the fact that Hon'ble Supreme Court in case of N.K. Proteins Pvt. Ltd. held that 100% of bogus purchases was required to be added to the total income of the assessee.

vi) On the facts and circumstances of the case, the Ld. CIT(A) erred in restricting the disallowance of Rs. 10,00,25,550/- to 60,01,533/-(being 6% of bogus purchases) on account of bogus purchases and while doing so failed to convey any basis for restricting the disallowance to 6% of total bogus purchase.

vii) The appellant craves leave to add, delete, modify the grounds of appeal before or at the time of hearing.

In this regard, we notice that the assessee is an Indian company and filed its original return of income along with the tax audit report under Section 44AB of the Act. However, information received by the AO through the Insight Portal, along with copies of the statements of Urvil Jain and Manoj Kushlani recorded during the search/survey operation conducted in the case of "One World Group Entities" by the Directorate of Income Tax (Investigation), Mumbai, revealed that Urvil Jain and Manoj Kushlani, in their statements, admitted to managing and controlling the affairs of One World Group entities, including One World Industries Private Limited, and that all these entities were involved in bogus purchase and sale transactions wherein no actual goods were supplied or transferred. Thus, on the basis of the above statements of Urvil Jain and Manoj Kushlani, it was concluded that the assessee had taken accommodation entries of Rs. 10,00,25,550/- in the guise of purchases from One World Industries Private Limited during the year under consideration. Therefore, based on this information, the AO called for an explanation from the assessee, and since the assessee could not furnish proof of delivery of the material purchased, a disallowance under Section 37(1) of the Act was made.

8.1 The AO, relying on information provided by the Directorate of investigation, Mumbai, concluded that the appellant had obtained an accommodation entry amounting to Rs. 10,00,25,550/- from M/s. One World Industries Pvt. Ltd. during the FY 2016-17, relevant to AY 2017-18, under the guise of purchases. During the course of the assessment proceedings, the appellant failed to furnish any conclusive documentary evidence substantiating the actual delivery of goods claimed to have been purchased from M/s. One World Industries Pvt. Ltd. Further, the appellant was unable to establish the genuineness of the said transaction Consequently the AO having regard to the material available on record, concluded that the purchases amounting to Rs. 10,00,25,550/- from M/s. One World Industries Pvt. Ltd. were non genuine and accordingly made an addition of the said amount by treating the transaction as a bogus purchase.

8.2 During the appellate proceedings, the appellant has stated that assessment Order of the AO is found to be 'High Pitched Assessment by Local Committee vide Order Dated 10.05.2024 and Concerned PCIT was requested to ensure no coercive recovery action to be taken in the case of appellant it has further contended that the purchase of Rs. 10,00,25,550/- was made in the ordinary course of business generating corresponding sales of Rs. 10,38,42.357/- and a profit of Rs.38,16.807/-which were duly accounted for. The AO erroneously disallowed the entire purchase amount under Section 37(1) of the Income Tax Act, 1961, without establishing non-compliance with the statutory conditions or disproving the Appellant's documentary evidence, including delivery proofs and transactional records. Further, the AO failed to verify the nexus between the alleged bogus purchases and the declared turnover/sales, disregarded the principle of telescoping and unjustly rejected the Appellant's submissions.

8.2.1 The appellant had also cited and relied on vanous decisions of the Hon'ble Jurisdictional High Courts and others Hon'ble High Courts who have held that even if the purchases made by the assessee are to be treated as bogus, it does not mean that entire amount can be disallowed. As the AO did not dispute the consumption of the raw materials and completion of work, only a percentage of net profit on bogus purchase can be estimated.

8.3 On careful perusal of the assessment order and the submissions furnished by the appellant regarding the merits of the addition, it is evident that the AO has placed reliance on the report of the Directorate of Income Tax (Investigation), Mumbai The investigation report discloses that during the search and survey operations conducted in the cases of One World Group entities, Shri Urvil Jain and Shri Manoj Khushalani, in their respective statements, admitted to managing and controlling the affairs of the One World Group entities, including M/s. One World Industries Pvt. Ltd. They further acknowledged that all entities under the 'One World Group' were engaged in facilitating bogus purchase and sale transactions, wherein no actual goods were supplied or transferred. As per the statements of Shri Urvil Jain and Shri Manoj Khushalani, M/s. Dynamatic Developers Ltd. had obtained an accommodation entry amounting to Rs. 10.00.25,550/-under the guise of purchases from M/s. One World Industries Pvt. Ltd. during the FY 2016 17. Further, during the assessment proceedings the AO observed that the appellant failed to provide any documentary evidence to substantiate the actual delivery of goods claimed to have been purchased from M/s. One World Industries Pvt. Ltd. In light of the unequivocal admissions made by Shri Urvil Jain and Shri Manoj Khushalani, which confirm that M/s. One World Industries Pvt. Ltd. was. involved in bogus purchase and sale transactions without the actual supply or transfer of goods, the AO's findings are reinforced. It is also pertinent to note that it is a common practice in the prevailing market for traders to procure goods from the grey market, where invoices are not readily available, and consequently, accommodation entries are utilized to obtain such invoices. However, the appellant's contention that if the AO has accepted the sales, the entire purchases from M/s. One World Industries Pvt. Ltd. cannot be disallowed, is found to be reasonable, Similar issue has been dealt with by Hon'ble High Court of Gujarat in the case of PCIT vs Keshri Exports [2024] 168 taxmann.com 528 (Gujarat), wherein it is held as under:

"Section 62, read with section 260, of the Income-tax Act, 1961- Unexplained investments (Bogus purchases) - Assessment year 2013-14 Assessing Officer received information from investigation Wing that assessee had obtained non-genuine purchase bills from a group which was engaged in business of issuing non-genuine purchase bilis, unsecured loans and accommodation entries Assessing Officer, thus, reopened assessment and made addition of entire amount of non-genuine purchase hills to income of assessee - Tribunal estimated addition in respect of bogus purchases at rate of 6 per cent of such purchases - It was noted that in case similar to assessee High Court held that conclusion arrived at by Tribunal of restricting disallowance at 6 per cent was based on facts before it which were duly analysed and thus, no interference was called for in findings of Tribunal Whether, thus, following aforesaid view, Tribunal was justified in estimating addition at rate of & per cent of bogus purchase-Held, yes (Para 7)"

8.4 The Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income- tax v. Mohit Pukhraj Kawdiya [2024] 167 taxmann.com 473 (Gujarat)(20-09-2024] has held that

"Section 690 of Income-tax Act, 1961 Unexplained expenditure (Bogus purchases) - Assessment year 2011-12-On basis of information received from Director (Investigation) that during search proceedings in case of BJ Group, it was found that assessee was a beneficiary of accommodation entries in form of bogus purchase transactions obtained from BJ Group to tune of certain amount-Assessing Officer made addition on account of bogus purchases - Whether Tribunal was justified in restricting addition to extent of 6 per cent of bogus purchases - Held, yes (Para 6)"

8.5 The Hon'ble ITAT, Surat in the case of Deputy Commissioner of Income-tax v Center Point Gems (P.) Ltd [2024] 164 taxmann.com 662 (Surat-Trib.) has held that

"Section 59 of the Income-tax Act, 1961- Unexple med investments (Bogus purchases)- Assessment year 2012-13- Assessee had purchased goods from four companies of a group totalling to Rs. 36.32 crores and purchase of Rs. 13.66 crores from three other concerns which were assisting group to transer money to UAE and Hong Kong Assessing Officer made an addition on account of entire purchase amount treating some as accommodation entries Commissioner (Ap cals) found that assessee had mode bogus purchases to tune of Rs. 13.64 crores - Accordingly, he had sustained addition of profit element being 2 per cent of above purchas: It was noted that in ITO v. Pankaj K Chaudhary [IT Appeal No. 1152 (Ahd.) of 201 dated 27-9-2021), case similar to assessee, Tribunal had sustained addition at rule of 6 per cent of bogus purchases -Whether, thus, following aforesaid view, addition at rate of 6 per cent of bogus purchase was to be sustained - Held, yes [Para 9.5]"

8.6 The Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income- tax v. Deepak Banwarilal Agarwal [2024, 161 taxmann.com 601 (Gujarat) (23-01-2024] has held that:

"Section 69, read with section of the income-tax Act, 1961 Unexplained Investments (Bogus purchases) - Assessment year 2008-09-Assessing Officer receiven information from investigation Wing that assessee had obtained non-genuine purchase bills from a group which was engaged in business of issuing non-genuine purchase bills, unsecured louns and accommodation entries Assessing Officer, thus, reopened assessment and made addition of entire amount of non-genuine purchase bills to income of assessee - Tribunal estimated addition in respect of bogus purchases at rate of 6 per cent of such purchases It was noted that in case similar to assessee, High Court held that conclusion arrived at by Tribunal of restricting disallowance at 6 per cent was based on facts before it which were duly analysed and thus, no interference was called for in findings of Tribunal-Whether, thus, following aforesaid view, Tribunal was justified in estimating addition at rate of 6 per cent of bogus purchase - Held, yes (Para 7)"

8,7 Similarly, there is a plethora of judgments by various Hon'ble courts and other judicial authorities, wherein the addition of bogus purchases has been restricted to 6% of the disputed amount. Taking into account the overall facts and circumstances of the present case, I am of the view that a disallowance of 6% of the bogus purchases would be sufficient to meet the possibility of revenue leakage. Accordingly, the addition of Rs. 10,00,25,550/- made by the AO is restricted to Rs. 60,01,533/- (i.e., 6% of Rs. 10,00.25,550), Consequently, the remaining addition of Rs. 9,40,24,017/- stands deleted. Accordingly, ground of appeal No. 4, 12 to 18 are partly allowed.

a) In the case of Palmon Impex Pvt. Ltd. Vs. ITO (ITA No. 2561/MUM/2025), the assessee, a company engaged in the business of manufacturing and exporting garments, challenged the assessment order for A.Y. 2011-12 involving a disallowance of bogus purchases totaling *4,22,12,305. The Assessing Officer (AO) reopened the case under Section 147 based on information from the Sales Tax Department, Maharashtra, which identified several of the assessee's suppliers as "hawala dealers" who provided accommodation entries without the actual delivery of goods. While the assessee submitted purchase invoices, ledger accounts, and proof of payment via banking channels to substantiate the transactions, the AO noted that the assessee failed to produce the suppliers for verification or provide independent evidence of the physical movement of goods, such as delivery challans or transport receipts. On appeal, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench observed that while the sales were not disputed and the books of accounts were not rejected, the assessee had not conclusively proved the genuineness of the specific suppliers; consequently, the Bench modified the 100% disallowance to a reasonable profit estimation of 12.5% of the disputed purchases to cover the potential tax leakage from sourcing goods from the grey market. b) In the case of Rajesh Shivji Shah Vs. ITO (ITA No. 525/Mum/2025), the assessee, a dealer in products for newborn babies, challenged an addition of 16,29,314 made under Section 69C of the Income Tax Act for the assessment year 2011- 12. The Assessing Officer (AO) had reopened the assessment based on third- party information from the Sales Tax Department, Mumbai, which alleged that the assessee had engaged in "hawala transactions" with specific suppliers. Although the assessee submitted comprehensive evidence-including purchase bills, ledgers, bank statements, and proof that all payments were made through banking channels the AO disallowed the purchases because the assessee could not produce the suppliers for verification and the suppliers failed to respond to notices under Section 133(6). The Income Tax Appellate Tribunal (ITAT) Mumbai Bench deleted the addition, noting that the AO had accepted the corresponding sales while rejecting the purchases, failed to provide the assessee an opportunity to cross-examine witnesses, and ignored that the VAT authorities had already verified and accepted the transactions as genuine. c) In the case of ACIT vs. Dhiraj Parbat Gothi (ITA No. 580/MUM/2025), the Revenue challenged the appellate order that deleted a significant addition of ₹4,65,72,500 made under Section 69C of the Income Tax Act for the assessment year 2011-12. The Assessing Officer (AO) had reopened the assessment based on information from the Sales Tax Department, Maharashtra, alleging that the assessee had obtained accommodation entries for bogus purchases from several entities identified as hawala dealers. Although the assessee submitted documentary evidence, including purchase invoices, ledger accounts, and bank statements showing payments through banking channels, the AO disallowed the entire purchase amount because the assessee could not produce the suppliers for verification and the notices issued under Section 133(6) were returned unserved. The Income Tax Appellate Tribunal (ITAT) Mumbai Bench, however, upheld the deletion of the 100% disallowance, noting that the AO had accepted the corresponding sales and that the VAT authorities had already verified and accepted the transactions as genuine, thereby following established judicial precedents that disallowances should be limited to the profit element rather than the entire purchase price when the existence of goods is not in doubt. d) In the case of Rahul M Dalmia Vs. ITO (ITA No. 3883/MUM/2024), the dispute arose from a reassessment order where the Assessing Officer (AO) made an addition of ₹10,93,845-representing 25% of purchases totaling 43,75,381- treating them as "bogus purchases" from the vendor M/s Arun Paper and Iron Traders. The assessee, a trader in craft paper, dyes, and chemicals, contended that the purchases were genuine and supported by purchase bills, ledger accounts, and stock records showing quantitative inward and outward movement. Although the AO initially took an adverse view due to the vendor's non-appearance, the proprietor of the vendor firm, Shri Arun Agarwal, later appeared during remand proceedings to file documents confirming the transactions and had previously given statements in the case of the assessee's spouse confirming genuine business dealings. The Income Tax Appellate Tribunal (ITAT) Mumbai Bench ultimately deleted the addition, noting that the assessee had discharged the onus of proof and that the vendor had confirmed the transactions, distinguishing this from cases where taxpayers failed to participate in the assessment process.

ITA No. 2007/Mum/2025 (AY 2017-18)

Order pronounced in the open court on 31.07.2026.

Sd/- Sd/- BIJAYANANDA PRUSETH SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 31.07.2026 RY-SrPS

Copy to: DCIT CC 5.4 , ROOM NO. 436, 4TH FLOOR KAUTILYA 1 BHAVAN BKC, MUMBAI-400051, MAHARASHTRA DYNAMATIC DEVELOPERS PRIVATE LIMITED, 702-703, JEEVAN SAPNA BUILDING NO. 5, 2 JP GARDENS, OFF MG ROAD NO. 4, MUMBAI, PIN- 400067, MUMBAI-400067, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE