LALIT BANSILAL VAYA,THANE vs. COMMISSIONER OF INCOME TAX (APPEALS), THANE

These two appeals by the assessee are directed against separate orders passed by the Ld. CIT(A), NFAC, both dated 19.02.2026 for A.Ys. 2010-11 and 2011-12. Since common facts and identical issues are involved, these appeals were heard together and are being disposed of by this consolidated order. For the sake of convenience, A.Y. 2010-11 is taken as the lead year.

Briefly stated, the assessee is engaged in the business of trading in iron and steel through his proprietary concern M/s. Arvind Metal. Based on information received from the Sales Tax Department and Investigation Wing that certain parties were engaged in providing accommodation purchase bills without actual delivery of goods, the assessment was reopened. The Assessing Officer observed that the assessee had obtained purchase bills aggregating to Rs.1,28,71,819/- from four parties alleged to be hawala dealers and treated the entire purchases as unexplained expenditure u/s 69C of the Act. The addition was sustained by the Ld. CIT(A). Similar addition on account of alleged bogus purchases amounting to Rs.1,98,92,505/- was made and confirmed in A.Y. 2011- 12.

Before us, the Ld. Authorised Representative submitted that the assessee had furnished complete details in support of the purchases including purchase invoices, ledger accounts, quantitative details, bank statements evidencing payments through banking channels and corresponding sales. It was submitted that neither the Assessing Officer nor the Ld. CIT(A) has doubted the sales disclosed by the assessee. The Ld. AR contended that once sales are accepted, the entire purchases cannot be disallowed.

The Ld. AR further submitted that the Ld. CIT(A) confirmed the addition by placing reliance upon the decision of the Hon'ble Bombay

The Ld. AR further submitted that if the entire purchases are disallowed, the resultant gross profit rate would work out to 46.20%, which is wholly unrealistic and commercially impossible in the line of business carried on by the assessee. It was submitted that the assessee had disclosed gross profit of about 2.25% and therefore the addition sustained by the lower authorities leads to absurd results divorced from business realities.

The Ld. Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer and the Ld. CIT(A). It was submitted that the suppliers could not be produced and the information received from the Sales Tax Department clearly established that the parties were accommodation entry providers.

We have considered the rival submissions and perused the material available on record. The addition has been made solely on the basis of information received from the Sales Tax Department that the suppliers were listed as hawala dealers. However, it is equally true that the assessee has furnished purchase invoices, ledger accounts and proof of payments through banking channels. More importantly, the corresponding sales have been accepted by the Revenue. There is no

We find considerable force in the contention of the assessee that the reliance placed by the Ld. CIT(A) on the decision in Kanak Impex cannot be read as laying down an absolute proposition that in every case the entire purchases are liable to be disallowed. The coordinate bench in the case of Khimchand Okchand Bhansali (supra), after considering the decision in Kanak Impex, has held that where the assessee has furnished supporting evidences and the sales are not doubted, only a reasonable estimation of profit is warranted. Similar view has been taken by the coordinate bench in the case of Dinesh Chand Mehta (supra).

In the present case, we find that the assessee has placed on record documentary evidences in support of the purchases and the sales have remained undisturbed. At the same time, considering the adverse information received from the Sales Tax Department and the inability of the assessee to establish the genuineness of the suppliers beyond doubt, some addition on account of possible savings made by purchasing goods from the grey market would be justified.

Considering the totality of facts and circumstances, the nature of business carried on by the assessee, the judicial precedents relied upon before us and keeping in view that these are old assessment years, we are of the considered opinion that the ends of justice would be met if the income is computed by adopting gross profit rate of 3% on the impugned purchases. We may also note that the assessee has already disclosed gross profit of around 2.08% on the corresponding sales. Therefore, in

We accordingly direct the Assessing Officer to recompute the addition by adopting gross profit rate of 3% on the disputed purchases and grant credit for the gross profit already disclosed by the assessee at 2.08% on such sales. The balance addition shall stand deleted.

Since the facts and issue involved in A.Y. 2011-12 are identical, our findings and directions recorded hereinabove shall apply mutatis mutandis to A.Y. 2011-12 also. The Assessing Officer shall recompute the addition in that year on the same basis.

In the result, both the appeals of the assessee are partly allowed.