RUMANA LEATHER COMPANY,CHENNAI vs. ACIT, CENTRAL CRICLE-1(1), CHENNAI

Since identical facts and issues are involved in both these appeals, these appeals were heard together and disposed of by this common order. For the sake of clarity and convenience the facts relevant in the ITA No.3895/CHNY/2025 for the Assessment Year 2022-23 are stated herein:

The Assessee in ITA No.3895/CHNY/2025 raised Grounds of Appeal as under : “1. The order of the CIT (A), Chennai- 18 dated 11.12.2025 vide DIN & Order No. ITBA/APL/S/250/2025-26/1083560530(1) for the above-mentioned Assessment Year is contrary to law, fact and in circumstances of the case.

Briefly the facts of the case are that the appellant is a Partnership Firm engaged in the business of manufacturing and sale of leather. The appellant filed the Return of Income for the Assessment Year 2022-23 on 21.10.2022 disclosing the income of Rs.15,45,66,400/-. Against the said Return of Income, no scrutiny assessment was made. Against the said Return of Income, the assessment was completed by the ACIT, Central Circle-1(1), Chennai vide order dated 20.03.2024 passed u/s.143(3) of the Act at a total income of Rs.18,94,91,075/-. While doing so, the Assessing Officer made addition of Rs.3,49,24,675/- by holding that the appellant made a bogus purchases from AJS Leather Industries Private Limited which was found during the course of survey proceedings conducted in the business premises of the appellant.

Being aggrieved by the above assessment order, the appellant preferred an appeal before ld.CIT(A), contending that the mere statement recorded from the partners of the appellant firm does not constitute the evidence for the purpose of making addition and further contended that without rejecting gooks of accounts, no addition can be made, however, the ld.CIT(A) dismissed the appeal. However, the ld.CIT(A) directed the Assessing Officer not to tax the amount of addition at the rates prescribed u/s.115BBE of the Income Tax Act.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal.

The ld.Counsel submits that no addition can be made merely based on the statement recorded from the partners of the firm during the course of survey operations u/s.133A of the Act. He further submitted that ld.CIT(A) failed to appreciate that no addition can be made based on the findings reached in the assessment of third party. Without prejudice to the above, he submits that in view of the settled position of view that in case of bogus purchase only profit element embedded therein alone can be made addition.

On the other hand, the Learned Sr.DR has no serious objection to remand the matter back to the file of Assessing Officer to make addition only the gross profit embedded in the bogus purchases in view of the settled position of law.

We heard rival submissions and perused the material available on record. The only issue that survives for our consideration is to what extent of bogus purchases can be taxed as income. The Assessing Officer observed that certain purchases made by Assessee with AJS Leather Industries Private Limited were bogus. Therefore, he added the entire purchases as unexplained expenditure. While reaching such conclusion, the Assessing Officer had relied upon the statement recorded from the partners of the appellant firm as well as statement of supplier. However, it is not clear from the material on record whether the appellant had made payment to such suppliers and whether sources of the expenditure payment was stands explained or not! Furthermore, it is not clear whether there was any discrepancy between the purchases shown by the appellant and the sales declared. If there was no discrepancy between the purchases shown and the sales declared by the appellant, the entire bogus purchases could not have added as the income of the assessee. The addition was to be limited to the extent of gross profit embedded in the bogus purchases and therefore, the matter is restored back to the file of Assessing Officer for the verification of the above factual aspect and redo for the denovo assessment on the above lines in accordance with law after affording an opportunity of being heard to the appellant.

In the result, appeal filed by the assessee stands partly allowed for statistical purpose. ITA No.3896/CHNY/2025 11. Since the facts and issues involved in the above captioned appeal is identical, therefore, our decision in ITA No.3895/CHNY/2025 for the Assessment Year 2022-23 shall apply mutatis mutandis to the present appeal of the assessee i.e. ITA No.3896/CHNY/2025 for the A.Y.2023-24 also. Accordingly, grounds of appeal filed by the assessee are partly allowed for statistical purpose.

To sum up, both appeals filed by the assessee are partly allowed for statistical purpose. Order pronounced in the open Court on 27th May, 2026.