SIRAJUDEEN SAMIUDEEN,CHENNAI vs. INCOME TAX OFFICER, CHENNAI

PER SS VISWANETHRA RAVI, J.M:

These cross appeals by the Revenue and assessee are against

the order dated 24.07.2025 passed by the Learned Commissioner of Income Tax [herein after “CIT(A), National Faceless Appeal Centre

(NFAC), Delhi, for the assessment year 2019-20.

assessee’s appeal in ITA No. 3799/Chny/2025 as the same was filed

challenging the action of the ld.CIT(A) in adopting profit rate @ 12.5% as

against the addition made by the AO on account of bogus purchases.

He requested to take the same as lead case for the sake of

convenience. The ld.DR, Shri. Shiva Srinivas, CIT, reported no

objection. Upon hearing both the parties and with their consent, we

proceed to take up the assessee’s appeal in ITA No. 3799/Chny/2025 as

a lead case for the sake of convenience.

First we take up assessee’s appeal in ITA No. 3799/Chny/2025:

the ld.CIT(A) in adopting the profit rate at 12.5% on entire purchases

Page - 2 - of 12 instead of restricting the same to transactions with reference to alleged

transaction of M/s. LKR Enterprises only in the facts and circumstances

of the case.

proprietor concern of M/s. Jannath Steels and an authorized signatory of

M/s. Ayesha Traders. According to the AO, on verification of the

information received from DGGI, Chennai Zonal Unit and by a voluntary

statement of the assessee on 03.12.2019 and 05.12.2019, it was

confirmed that the assessee availed Input Tax Credit (ITC) on the

strength of GST invoices procuring fake invoices from M/s. LKR

Enterprises and M/s. Arasan Steels without actual receipts of goods.

Accordingly proceedings u/s. 148A(a) to 148A(d) of the Income-tax Act,

1961 [herein after ‘the Act’] were initiated and notice u/s. 148 of the Act

was issued on 29.03.2022, in response to which the assessee filed

return of income. Notice u/s. 143(2) of the Act was issued on

07.07.2022 and in response to the said notice, the assessee filed

submissions. However, not satisfied with the submissions made by the

assessee, the AO disallowed purchases as bogus purchases and

treated a sum of Rs.23,27,64,896/- as unexplained expenditure.

Aggrieved by the order of the AO, the assessee preferred an appeal

before the ld.CIT(A). The ld.CIT(A) considering the facts and Page - 3 - of 12 circumstances of the case held that the disallowance of entire purchases is excessive and unjustified and restricted the addition to Rs.2,90,95,612/- which is 12.5% of total purchases i.e. Rs.23,27,64,896/- and deleted the balance addition and partly allowed

the appeal of the assessee.

the ld.CIT(A) stating that it is perverse in sustaining the addition of Rs.2,90,95,612/- on account of bogus purchases without appreciating the extensive documentary evidence furnished by the assessee

including audited books, bank payments, GST returns, E-way bills, delivery challans and stock records, which conclusively demonstrate the genuineness of purchases and movement of goods. Further, the ld.AR

submits that the order of ld.CIT(A) is erroneous in sustaining any addition when the AO himself accepted the sales, stock position and banking-channel payments to suppliers, leaving no factual foundation to

conclude that purchases were fictitious or that any profit element was suppressed. He argued vehemently that the ld.CIT(A) has erred in sustaining a disallowance of 12.5% of purchases on an ad-hoc and arbitrary basis without demonstrating any nexus, computation

methodology or evidence of inflated profits or suppressed purchases, making the estimation wholly unsustainable in law. Page - 4 - of 12

order of Assistant Commissioner for GST and Central Excess with reference to M/s. LKR Enterprises. He drew our attention to the page no. 4 of the impugned order and submits that the allegation of the AO

and the ld.CIT(A) is that the assessee availed bogus invoices on the strength of GST relevant to M/s. LKR Enterprises without actual receipts of goods. He argued vehemently that the net profit rate @ 12.5%

adopted by the ld.CIT(A) is not applicable to entire purchases but it should be applied to the alleged transactions with M/s.LKR Enterprises. He referred to para no. 21 of the order of the Assistant Commissioner,

GST and Central Excise, Egmore Division and argued that the Assistant Commissioner confirmed the demand of income tax credit with reference to M/s. LKR Enterprises for tax period 2018-19 only. He argued

vehemently, the adoption of profit rate at 12.5% is applicable only to M/s. LKR Enterprises involving tax period to 2018-19. He prayed to set aside the order of the ld.CIT(A) and direct the AO to adopt 12.5% on M/s. LKR Enterprises being tax value at Rs.18,92,250/- for tax period 2018-19.

Page - 5 - of 12

has made an aggregate sales amount of Rs.23,28,17,936/- relating to

FY 2018-19 (2019-20) with the parties which are reproduced from page

no. 6 to 11 of the assessment order. He submits that the AO collected

the said information as retrieved from insight portal reported in GSTR-1

under PAN of the assessee. He submits that the assessee is engaged

in the activities of bogus bill trading and has availed bogus input tax

credit, as incriminating information received from DGGI Department.

According to AO why the assessee has entered into only one transaction

with the parties and since a commission has to be paid for taking bill

entry of such a huge amount. Further, it was opined the biller can

charge commission for such large amount bill as he has to maintain his

books of accounts and pay GST on the amount billed. The assessee

has entered into only one transaction with the above said party in

respect of sale and purchase for the entire financial year 2018-19. He

drew our attention to the financial statements at page no. 13 of the

assessment order and submits that the assessee shown purchases

2,327.649 lakhs and average inventory at Rs.33.846 lakhs. He argued

that for the earlier three years there was no purchases and it is found

that the assessee has started such fictitious purchases only this year.

He submits that the AO was surprised to see that suddenly procurement

was increased from Zero to 23 crores thereby proving that the assessee Page - 6 - of 12 has no genuine business during FY 2018-19 (2019-20). He submits that

the assessee could not prove the genuineness of sales and the AO

rightly treated the said sales as bogus sales. He argued vehemently that

the AO relied on the decision of Hon’ble Supreme Court in the case of

Roshan Di Hatti reported in 107 ITR 938 which held “the laws is well

settled that the onus of proving the source of a sum of money found to

have received by an assessee is on him. Where the nature and source

of a receipt, whether it be of money or other property cannot be

satisfactorily explained by the assessee, it is open to the Revenue to

hold that it is the income of the assessee and no further burden lies on

the revenue to show that the income is from any particular source.” He

argued that the assessee did not file relevant cogent and corroborative

evidence proving genuineness of sales. The AO rightly made no

addition on account of bogus sales since addition is being made on

bogus purchases and argued that the ld.CIT(A) has failed to appreciate

that the assessee failed to furnish bills, vouchers, confirmation or

evidence of commencement of business and entire purchases are liable

to be added to the income. He vehemently argued that the ld.CIT(A) has

erred in adopting profit rate @ 12.5% of purchases as against entire

disallowance made by the AO. The ld.CIT(A) further erred in holding

that purchases were partly genuine despite AO’s finding that the

assessee merely recorded bogus entries on paper without actual Page - 7 - of 12 business activity. He submits that the ld.CIT(A) failed to appreciate that there was no such purchases for the last three years which proves fictitious transactions in the year under consideration. Further, the ld.DR referring to para no. 2.3 of the Assistant Commissioner order submits

that M/s. Jannath Steels is one of such receiver of invoices without actual receipt of goods or services from the fake entities namely M/s. LKR Enterprises and M/s. Arasan Steels. By referring to para no. 3.9 of

the said order, the assessee appeared and admitted availing of invoices issued by M/s. LKR Enterprises. The ld.DR prayed to dismiss the ground nos. 5 to 8 raised by the assessee and restore the order of the

AO.

record. We note that the AO reproduced summary of information/evidence collected as available in insight portal under the PAN of the assessee in page no. 6 to 11 of the assessment order. On

perusal of the same, we find that the assessee stated to have indulged in bogus bills trading and consequentially availing bogus input tax credit with reference to one party i.e., Paranjothi Sundarrajan Suresh, being an individual of a proprietary concern under the name and style M/s. LKR

Enterprises for an amount of Rs.18,92,250/- for entire financial year 2018-19 relevant to AY 2019-20 i.e. year under consideration. We find Page - 8 - of 12 no dispute in this regard by the ld.DR and as such it is evident from page

no. 12 of the assessment order as well as para no. 4(ii) of impugned

order. Therefore, it is clear that the allegation of the AO that the

involvement of assessee in procuring bogus invoices on the strength of

GST invoices is with reference to M/s. LKR Enterprises only. In view of

the same now let us examine the order dated 23.07.2025 passed by the

Assistant Commissioner, GST and Central Excise, Egmore Division,

whereas the details of M/s. LKR Enterprises and M/s. Arasan Steels

were tabulated in para 21 of the said order, which is reproduced here

under for better understanding:

“On verification of available records, SCN received from DGGI and taxpayer reply, I find that as per the SCN tax period involved is January 2019 to December 2019, where as per DRC 07 form issued by the State Tax authorities tax period is July 2020. Further, I find that DRC 01 and DRC 01 A, the period specified is July 2020. Further, I find that in summary of Order vide DRC 01, DRC 01A and DRC 07, the State Tax authorities had mentioned period from April 2019 to March 2020. From GSTR 2A returns of the taxpayer I found that DGGI has issued the SCN for the period 2018-19 & 2019-20. The year wise breakup of the ITC availed by the taxpayer as per GSTR 2A is as detailed below: S. GSTIN of Supplier Name of the Taxable CGST SGST Tax No Supplier Value period 1 33DDJPS1664B1ZO M/s. LKR 18,92,250 170303 170303 2018-19 Enterprises 4,28,16,950 3853525 3853525 2019-20 2 33CGOPK2396H1Z M/s. Arasan 2,83,22,700 2549043 2549043 2019-20 Steels Total 6572871 6572871 13145742

Commissioner gave breakup of ITC availed by two parties as per

GSTR-IIA and further examination of the above said table which clearly

shows that the breakup of ITC availed by M/s. LKR Enterprises involving Page - 9 - of 12 tax period 2018-19 and 2019-20, we note the tax period involves from

January to December. Therefore, we have to consider taxable value of

Rs.18,92,250/- showing CGST and SGST at Rs.1,70,303/- and

Rs.1,70,303/- respectively. We find the taxable value with reference to

tax period 2018-19 is also matching with the details reproduced by the

AO at page no.10 showing against Paranjothi Sundarrajan Suresh in the

individual capacity. We find no dispute from ld.DR in this regard. Thus,

we find force in the arguments of the ld.AR since the AO’s allegation is

only against M/s. LKR Enterprises for the year under consideration and

no addition is maintainable on entire purchases of Rs.23,28,17,936/-.

Since, we find no dispute with reference to involvement of assessee in

procuring bogus invoices on the strength of GST invoices from M/s. LKR

Enterprises and it is fair and just to adopt profit rate at 12.5% on an

amount of Rs.18,92,250/- involving M/s. LKR Enterprises as it is

supported by the order of Assistant Commissioner, GST and Central

Excise, Egmore Division. In view of the same, the order of the ld.CIT(A)

in adopting 12.5% on entire purchases is not justified and set aside.

Therefore, we direct the AO to adopt 12.5% on taxable value of

Rs.18,92,250/- on account of M/s. LKR Enterprises only and ground nos.

5 to 8 raised by the assessee are allowed.

Page - 10 - of 12

evidence before the ld.CIT(A), but however no adjudication was done in the first appellate proceedings. The ld.DR, opposed the same, no submissions whatsoever made by the assessee before the first appellate

authority. Having heard both the parties and on perusal of the record, we note that the assessee raised ground no.5 challenging the action of the AO in not allowing deduction u/s. 80D and 80TTA of the Act, but

however, on perusal of the written submissions filed by the assessee on 12.06.2025 before the ld.CIT(A) which is reproduced from page no. 5 to

15 of the impugned order, it is noted nowhere the assessee filed

submissions with reference to deductions u/s. 80D and 80TTA of the Act. Therefore, as rightly pointed by the ld.DR no submissions along

with supporting evidences were placed before the ld.CIT(A). Thus, ground no. 9 raised by the assessee is misconceived and is dismissed.

Sd/- Sd/- (एस. पदमावती) (यस यस �व�वने� र�व) (S. PADMAVATHY) (SS VISWANETHRA RAVI) लेखा सद�यकेसम� /Accountant Member �या�यक सद�य / Judicial Member Chennai, Dated: 02nd June, 2026. JPV

Copy to: 1. Appellant 2. Respondent 3. CIT - Chennai/Coimbatore/Madurai/Salem. 4. DR 5. GF PRASANN Digitally signed by PRASANNA A VANI VANI JETTY Date: 2026.06.16 JETTY 14:45:26 +05'30' Page - 12 - of 12