DCIT 4 2 1 MUMBAI, AAYAKAR BHAVAN MUMBAI vs. DADHIMATI CONTRACTING PRIVATE LIMITED, MUMBAI

In the instant case, the assessment has been completed u/s 147/143(3) of the Act on 7th March, 2025, wherein the Ld. AO has made certain additions u/s 69C for Rs.60,08,125/- and u/s 68 for Rs.1,60,67,982/-. Further an addition on account of difference in contract income of the assessee as per 26AS as against the turnover shown by the assessee in its P & L, was made for Rs.1,56,13,896/-.

The assessee preferred an appeal before the Ld. CIT(A), who restricted the addition u/s 69C to Rs.7,51,016/- (12.5% of alleged transactions), whereas the addition u/s 68 for Rs. for Rs.1,60,67,782/-and Rs.1,56,13,896/- on account of

While deciding the issue, the Ld. CIT(A) had considered the submission of the assessee and had arrived at a conclusion that as per the ratio of law emerging from the judgment in Hon’ble Gujarat High Court in the case of CIT v. Simit P. Sheth (356 ITR 451, Gujarat), deliberating on the issue of alleged bogus purchases, had held that only profit element embedded should be disallowed on such purchases. Accordingly, the Ld. CIT(A) had estimated the addition and restricted it to 12.5% of the original addition made by the Ld. AO u/s 69C of the Act.

Apropos, the addition u/s 68, ld. CIT(A) observed that the liabilities comprised statutory dues, outstanding expenses, and advance from Steiner India Ltd. Statutory dues are obligations under law and cannot be treated as income. Outstanding expenses are business liabilities and not unexplained credits. Advances from Steiner India Ltd. are contractual liabilities supported by ledger and invoices, and advances are not income until services are rendered.

On the issue of difference in turnover, it is observed by the Ld. CIT(A) that the assessee has received an advance from M/s. Steiner India Ltd which is reflecting as liability and has been offered as income in subsequent AY 2020-21. Ld. CIT(A) also verified the carry forward of TDS and subsequent recognition of income by the assessee. Accordingly, the addition on account of difference in 3

Being aggrieved with the aforesaid reliefs granted by the Ld. CIT(A), the Revenue is in appeal before us to challenge the decision of Ld. CIT(A) for scaling down the addition made by the Ld. AO at 12.5% of the bogus transactions instead of the entire amount of alleged purchases. The Revenue relied on the decision of Hon’ble Bombay High Court in the case of PCIT-5 vs. Kanak Impex India Limited in ITA No.791 of 2021 date 03.03.2025 and PCIT vs. Disha Impex Private Limited.

At the outset, Ld. DR representing the Revenue submitted that the CIT(A) was not correct in following the decision of Hon’ble Gujarat High Court in the case of CIT v. Simit P. Sheth (supra),whereas in the facts and circumstances of present case, the decisions of Hon’ble Bombay High Court in PCIT-5 vs. Kanak Impex India Limited and PCIT vs. Disha Impex Private Limited (supra)are more relevant to be adopted. Accordingly, it is requested to set aside the order of Ld. CIT(A) on the aspect of assumption of profit on bogus purchases and to restore the additions made by the Ld. AO.

Per contra the Ld. Counsel of the assessee submitted that as per assessment order, there was an allegation of bogus purchases and difference in turnover, which are substantiated and explained by the assessee and the Ld. CIT(A) has judiciously decided the issues in favour of assessee by partly allowing the same. 4

We have considered the rival submissions, perused the material available on record and the case laws relied upon by the parties. Apparently in the present case, in absence of any plausible explanation and evidence furnished by the assessee, the Ld. AO has added the entire alleged bogus purchases of the assessee to the income of assessee for the year under consideration. Ld. AO has also rejected the books of assessee on account of difference in turnover as per Form 26AS and the turnover declared by the assessee in its P & L account. The difference of turnover has been examined by the Ld. CIT(A), who has found that it was just on account of certain advance payments received by the assessee which are duly offered to tax in the ensuing year. Therefore, such difference of turnovers cannot be the reason for addition in the hands of assessee. Once the issue of difference in turnover, which was the sole genesis for rejection of books 5

Impliedly, the returned income of assessee which is adopted by the Ld. AO for computation of assessee’s income which is generated from the assessee’s turnover emerging from the purchases, which are alleged to be the bogus purchases. Once the turnover of the assessee is not disturbed, whichcould not have been possible without the alleged purchases, the only addition to be made could be the profit estimation. Under such circumstances, a justifiable approach would be to estimate a profit embedded on account of such bogus purchases which the Ld. CIT(A) has found appropriate and adopted by estimating the profit on alleged bogus purchases at 12.5%. We find substance in the decision of Ld. CIT(A) as the actual income of assessee from the bogus transactions can only be taxed in the hands of assessee and not the entire amount of bogus transactions, unless it is proved that the assessee has never made such purchases and the sales reflected in assessee’s books of accounts have no nexuswith the stock or material actually purchased by the assessee to match the quantum shown under such bogus transactions. We accordingly, concur with the findings of Ld. CIT(A) in restricting the addition at 12.5% of the bogus purchases and accordingly do not 6

Resultantly, the appeal of Revenue in ITA No.1119/Mum/2026, stands dismissed in above terms.