ITO, THANE vs. HANSU KUMAR PANDEY, BHAYANDER

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ITA 2298/MUM/2026Status: DisposedITAT Mumbai30 April 2026AY 2009-107 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that when purchases are found to be non-genuine but corresponding sales are accepted and books of account are not rejected, only the profit element embedded in such purchases is taxable. The CIT(A)'s restriction of disallowance to 12.5% was found reasonable.

What were the facts?

The assessee declared income for AY 2009-10. The AO reopened the case based on information that certain vendors were providing accommodation entries. The AO added the entire purchases made from one such vendor, M/s R.K. Enterprises, to the assessee's income.

What were the issues?

Whether the entire purchases from non-existent vendors should be disallowed when corresponding sales are accepted and books are not rejected. Whether the disallowance should be restricted to the profit element.

Which sections of the Income-tax Act were involved?

Section 147,Section 145

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: HON’BLE BEENA PILLAI & HON’BLE ARUN KHODPIA

For Respondent: Shri Sandeep Jumale-Sr. DR
Pronounced: 30/04/2026

आदेश / ORDER

PER BEENA PILLAI, JUDICIAL MEMBER:

Present appeal is filed by the Department against the order passed by the Learned Commissioner of Income Tax, Appeal, Addl/JCIT (A)-1 Gurugram, [hereinafter referred to as “the Ld.CIT(A)”] dated 16/12/2025 for the Assessment Year 2009-10, on the following grounds of appeal:

“1) a. On the facts and in circumstances of the case, the CIT(A) erred in restricting the disallowance of purchases to 12.5% of total bogus purchases of Rs. 7,70,422/- from non- existent vendors by not following the decision of the Hon’ble Bombay High Court in the cas of Kanak Impex (India) Ltd. reported in 172 Taxmann.com 283. b. It is submitted that present appeal may be filed in accordance with the CBDT’s Circular No.5/2024 dated 15.03.2024 as per Para 3.1c of the said Circular. The Order of the CIT(A) may kindly be vacated and the matter may be set- aside to the file of the AO for fresh assessment. c. The appellant craves leave to add, amend OR alter OR alter any ground/grounds, which may be necessary.” 2. Brief facts of the case are as under:

The assessee is an individual engaged in the business of manufacturing and trading of stainless steel jars used in mixers and grinders. For A.Y. 2009–10, the assessee filed return of income declaring total income of Rs.12,45,468/-. The case was reopened u/s 147 on the basis of information received from the Sales Tax Department that certain parties, including M/s R.K. Enterprises, were engaged in providing accommodation entries without actual delivery of goods.

2.1. During assessment proceedings, the Ld.AO observed that the assessee made purchases of Rs.7,70,422/- from the said party, which was listed as a hawala dealer. Relying upon statements and information from the Sales Tax Department, and in absence of satisfactory explanation from the assessee, the Ld.AO treated the entire purchases as non-genuine and added Rs.7,70,422/- to the income of the assessee.

Aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A).

3.

Before the Ld. CIT(A), the assessee submitted that the purchases were duly recorded in the books, supported by invoices, delivery challans and payments through banking channels. It was contended that sales corresponding to such purchases were accepted by the Ld.AO and books were not rejected u/s 145. The assessee further submitted that no independent inquiry was conducted by the Ld.AO and addition was made solely on the basis of third-party information without granting opportunity of cross- examination.

3.1. The Ld.CIT(A) upheld the validity of reopening on merits, observing that the assessee had produced partial evidences such as ledger account, bank statement and delivery challans; however, complete verification of payments was not established. At the same time, the Ld.CIT(A) noted that the Ld.AO had accepted the sales and had not rejected the books of account. Relying on judicial precedents in similar “hawala purchase” cases, the Ld. CIT(A) held that entire purchases cannot be disallowed and only profit element embedded in such purchases is liable to be taxed. Accordingly, the disallowance was restricted to 12.5% of the alleged bogus purchases, giving part relief to the assesse.

Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before this Tribunal.

4.

The Ld. DR vehemently relied upon the assessment order and submitted that the Ld. CIT(A) erred in restricting the disallowance to 12.5%. It was argued that the purchases were found to be from non-existent parties and duly supported by information from the Sales Tax Department along with statements of such parties admitting to issuing bogus bills. Therefore, the entire purchases ought to have been disallowed. The Ld. DR further relied on the decision of the Hon’ble Bombay High Court in the case of Kanak Impex (India) Ltd. reported in 172 Taxmann.com 283 and submitted that, the matter should be restored to the file of the Ld.AO in terms of CBDT Circular No. 5/2024.

4.1. The Ld.AR supported the order of the Ld.CIT(A) and submitted that the assessee had duly recorded purchases in the books and corresponding sales have been accepted by the Ld.AO. It was further submitted that payments were made through banking channels and quantitative details were maintained. The Ld.AR contended that once sales are accepted and books are not rejected, entire disallowance is unjustified and only a reasonable estimation of profit element, as done by the Ld.CIT(A), is warranted in line with settled judicial precedents.

We have perused the submissions advanced by both sides in light of the records placed before this Tribunal.

5.

The issue under consideration pertains to the addition made on account of alleged bogus purchases. It is observed that the Ld.AO has treated the entire purchases as non-genuine based on information received from the Sales Tax Department and statements of alleged hawala dealers. At the same time, it is an 4 undisputed fact that the sales declared by the assessee have been accepted by the Ld.AO. Further, no defects have been pointed out in the books of account and the provisions of Section 145 of the Act have not been invoked.

5.1. Under such circumstances, it is a settled proposition of law that where purchases are found to be non-genuine or unverifiable, but the corresponding sales are accepted, the entire purchases cannot be disallowed and only the profit element embedded in such purchases is liable to be brought to tax.

5.1.1. The Hon’ble Gujarat High Court in CIT v. Simit P. Sheth (2013) 356 ITR 451 (Guj) has held that where purchases are not fully verifiable, addition should be restricted to the profit element embedded therein. Similarly, the Hon’ble Gujarat High Court in CIT v. Bholanath Polyfab Pvt. Ltd. (2013) 355 ITR 290 (Guj) has held that when sales are accepted, entire purchases cannot be disallowed. Further, the Hon’ble jurisdictional High Court in Pr. CIT v. Mohammad Haji Adam & Co. (2019) 110 taxmann.com 95 (Bom) has affirmed that in such cases addition should be restricted to the extent of profit embedded in the alleged bogus purchases. The Hon’ble Bombay High Court in Nikunj Eximp Enterprises Pvt. Ltd. v. CIT (2013) 372 ITR 619 (Bom) has further held that where sales are accepted and purchases are supported by records, entire disallowance is not justified.

5.2. In the present case, the Ld. CIT(A), after considering the facts of the case, has restricted the disallowance to 12.5% of the alleged bogus purchases, thereby estimating the profit element embedded therein. We find that such estimation is reasonable and in consonance with the judicial precedents referred to hereinabove.

5.3. The reliance placed by the Ld. DR on the decision in the case of Kanak Impex (India) Ltd (supra), does not advance the case of the Revenue in the peculiar facts of the present case, particularly when the sales have been accepted and books of account have not been rejected.

Accordingly, we do not find any infirmity in the order passed by the Ld. CIT(A). The same is upheld and the grounds raised by the Revenue are dismissed.

In the result, appeal filed by revenue stands dismissed.

Order pronounced in the open court on 30/04/206.

Sd/- Sd/-

ARUN KHODPIA BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai Dated: 30/04/2026 Sc. Sr. P.S Copy to: ITO, ASHAR IT PARK, 1 THANE-400604, MAHARASHTRA HANSU KUMAR PANDEY, 35, SHIV SHANKER INDUSTRIAL ESTATE, BP 2 ROAD BHAYNDER-401105, THANE-401105, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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