ACIT-19(3), MUMBAI, MUMBAI vs. SANJAYKUMAR MEHTA, MUMBAI

PER SANDEEP GOSAIN, JM: 07.08.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2011-12. 2. First, we shall take up the appeal filed by the assessee i.e. ITA No. 6295/Mum/2025 (AY:2011-12). The following grounds are reproduced below:

“1. the learned Assessing Officer erred in law and on facts in making an addition of Rs. 3,35,79,037/- by treating the purchases made by the appellant as bogus purchases under section 69C of the Income-tax Act, 1961. The appellant had duly furnished before the learned Assessing Officer copies of purchase bills, bank statements evidencing payments through account payee cheques, and statements showing inward and outward movement of materials corresponding to such purchases. Despite these evidences, the Assessing Officer proceeded to treat the entire purchases as unexplained expenditure merely on the basis of general information obtained from the Sales Tax Department and on the ground that notices issued to certain suppliers under section 133(6) had returned unserved. 2. the learned Assessing Officer failed to appreciate that the sales corresponding to the alleged purchases have been accepted and not disturbed by him, which clearly establishes that the purchases were genuine. It is a settled principle of law that unless corresponding sales are treated as bogus, the purchases cannot be treated as non-genuine. Without rejecting the sales turnover, the treatment of corresponding purchases as bogus is erroneous and unsustainable in law. the Assessing Officer erred in invoking. the provisions of section 69C, which are inapplicable to the facts of the case, since the appellant had duly recorded the purchases in its regular books of account and made payments through verifiable banking channels. The addition under section 69C was thus wholly unjustified and contrary to the evidences on record. 3. the learned Assessing Officer erred in law and facts in disallowing the deduction of Rs. 3,65,298/- being interest expenditure claimed against interest income under the head "Income from Other Sources." The said disallowance was made without properly appreciating the facts of the case and without affording adequate opportunity to the appellant to substantia the nexus of such expenditure with the earning of interest income. 4. the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in partly confirming the addition by sustaining an amount of Rs. 38,37,255/- on account of alleged bogus purchases. The Assessing Officer had originally made an addition of Rs. 3,35,79,037/- by treating the entire purchases from certain parties as unexplained expenditure under section 69C of the Act. The learned Commissioner of Income-tax (Appeals), while accepting that disallowance of the entire purchases was not sustainable, has nevertheless proceeded to estimate the profit element on such purchases and sustained an addition of Rs. 38,37,255/- by applying a profit margin.In arriving at this figure, the learned Commissioner of Income-tax (Appeals) noted that the appellant had shown purchases of Rs. 3,78,22,371/- from the said parties and corresponding sales of Rs. 4,16,59,626/-. By comparing these figures, the learned Commissioner of Income-tax (Appeals) worked out a difference of Rs. 38,37,255/- and treated the same as unaccounted income of the appellant. The appellant submits that such a method of estimation is arbitrary, incorrect, and unsustainable in law. The comparison between purchases and sales to determine unaccounted income is not a legally recognized method of computation. Further, once sales corresponding to the alleged purchases have been accepted by the Department, the genuineness of purchases cannot be doubted.

In connection to the addition of Rs. 38,37,255/- by the CIT(A) we would like to state that -

Firstly, the CIT(A) has accepted that the Ld. AO has erred in disallowing the entire purchases of the assessee from the alleged parties as the assessee had duly accounted all corresponding sales transactions, and his books of accounts were duly maintained and audited. The gross profit of the assessee has been consistent in the previous years and there is no sign of any suspicious transactions by the assessee.

The CIT(A) while granting partial relief to the assessee has made a use of estimation of profit method. The assessee has incurred purchases of Rs. 3,78,22,371/- and corresponding sales of Rs. 4,16,59,626/-, and the difference of Rs. 38,37,255/- was treated as unaccounted income. The CIT(A) thus sustained an addition of Rs. 38,37,255/- and deleted the balance.

In connection to this the assessee humbly submits that the action of the CIT(A) in sustaining the addition of Rs. 38,37,255/- is unsustainable in law for the following reasons: i. The assessee has duly filed his return of income and disclosed all transactions in his books of accounts supported by audited financials.

ii. On perusal of the Profit & Loss Account, it is evident that the assessee has shown total purchases of Rs. 47,72,11,526/- and corresponding sales of Rs. 51,67,75,201/-resulting in a net profit margin of approx. 4.03%.

iii. The assessee has already offered his entire turnover and income for taxation, and his books of account reflect complete accounting of sales, purchases, expenses, and profit.

iv. The purchases alleged to be from hawala parties are already included in the assesses total purchases and declared in his net profit.

v. Since the profit has already been calculated after considering these purchases, the income earned from these transactions is already taxed and declared.

vi. The department has accepted all sales of the assessee.

vii. The amount of 38,37,255/ that is being added to the income of the assessce as unaccounted income is not sustainable as it is already included in the income declared in the return.

viii. Adding the same amount again means the same income is being taxed twice.

Therefore, the addition made is not justified and should be deleted.

The assessee would also like to state that - When sales are accepted, purchases cannot be doubted It is a well-settled principle that when the sales have been accepted as genuine, the corresponding purchases cannot be disallowed. There can be no sale without purchase. The books of account are maintained by the assesse, and the assessee has also submitted his purchase register, sales register, delivery challans and other documents related to the sale and purchases which prove the genuineness of purchases. Therefore, once the Department has accepted the sales, it is illogical to treat the purchases as bogus.

The purchases are supported by audited books and bank statements All the purchases are duly recorded in the books of account, and payments have been made through banking channels. The assessee has furnished purchase invoices, ledger copies, stock registers, and bank statements. The mere fact that the suppliers were not traceable or were listed as "suspicious dealers cannot be the sole ground to disallow genuine purchases, especially when corresponding sales are accepted and quantitative details match. In the assessee case, the CIT(A) has not applied any reasonable profit rate but has mechanically computed a difference between purchases and sales, which has no judicial or logically supported.

No material evidence of inflation or suppression -

The Department has not brought on record any material to suggest that the assessee has inflated purchases, suppressed sales, or otherwise derived unaccounted profit. The books of account have not been rejected under Section 145 of the Act. In absence of such findings, any addition is unjustified and bad in law.

In view of the above facts, the addition sustained by the CIT(A) of Rs. 38,37,255/- is unjustified and deserves to be deleted in full.

Drawing strength from the same, we modify the orders of lower authorities to the extent indicated in para-5. 7.Ground No. 1 stands partly allowed. Ground No. 2 contesting rejection of books of accounts would require no adjudication in view of the fact that Ld. AO has not disturbed any of the financial parameters except to the extent of making addition on account of alleged bogus purchases. Ground No.3 contest validity of assessment proceedings which we are inclined to dismiss since the original return of income was processed u/s 143(1) and Ld. AO was clinched with fresh tangible material so as to invoke reassessment proceedings against the assessee. No fault could be found in the action of Ld. AO in reopening the case. Ground No. 4 stand dismissed in view of our findings in para 4. Ground No. 5 contest levy of interest u/s 234, which being mandatory and consequential, would require no adjudication. Ground No.6 is general in nature.

उि/सहायक िंजीकार ( Asst.