PARAG DUSANE,DOMBIVILI vs. INCOME TAX OFFICER, KALYAN

Since all the issues involved in both these appeals are common and identical therefore, they have been clubbed, heard together and consolidated order is being passed. Firstly, we shall take ITA No. 5024/Mum/2025, A.Y 2013-14 as lead case and facts narrated therein.

At the very outset we noticed that there is delay of approximately 2 days in filing the appeal before us. Considering the entire factual position as explained before us and also keeping in view the principles laid down by Hon’ble Supreme Court in the case of Collector Land Acquisition, Anantnag & ... vs Mst. Katiji & Ors 1987 AIR 1353 (SC) wherein it has been held that where substantial justice is pitted against the technicalities of non-deliberate delay then in that eventuality substantial justice is to be preferred. In our view, the principle of advancing substantial justice is of prime importance, hence, considering the explanation put forth by the assessee by justifiably and properly explaining the delay which occurred in filing the appeal and considering the expression “sufficient

All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in upholding the additions made by the AO.

In this regard, we have heard the counsel for both the parties and perused the material placed on record, judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that during the course of assessment proceedings, it was observed by the AO that the assessee had obtained bogus purchase bills from entry providers who have confirmed that they had only issued bills without supplying goods. Therefore, after serving statutory notice and providing an opportunity of being heard, the AO made additions by treating the purchases made by the assessee as bogus and consequently made disallowance under Section 69C of the Act. Apart from that, the AO also disallowed expenditure of Rs. 30,000 towards the personal element of expenditure. Although the order of assessment was challenged before the Ld. CIT(A), the same was upheld qua the disallowance made on account of purchases of Rs. 6,68,010/-, while the disallowance on account of personal expenditure was deleted.

From the records, we noticed that the assessee, being an individual, was engaged in the manufacturing of engineering

It is important to mention here that the assessee could not submit any explanation defending his case and only filed copies of bills and bank statements, whereas the assessee could not prove the transportation of any material and further could not satisfactorily demonstrate that the material in question under the invoices had actually reached the site and was, in turn, used for manufacturing items.

Therefore, considering the totality of facts and circumstances, and more particularly the assessee’s admission before the Maharashtra Sales Tax Department, wherein the assessee himself had admitted to availing bogus purchase credits and subsequently had also made payment of VAT on the above purchases, thereby treating the same as bogus.

Even the Ld. CIT(A) has dealt with this issue in detail, and the operative portion of the same is contained in Para 6.1 to 6.1.5. and the same is reproduced herein below:

In the instant case before us, admittedly, the respondent-assessee did not appear before the AO during the reassessment proceedings to prove the deduction claimed for purchases amounting to Rs. 20,06,80,150/-. There is no justification for nonappearance before the AO to establish the purchases. The plea of the respondent-assessee that they were not served with the notices has been negatived by the Appellate Authority and the same has not been challenged. Therefore, the respondent-assessee in the present case has failed to prove the purchases of which the claim for deduction was made before the AO

The CIT(A) has also given a finding against the respondent-assessee in paragraph 5.2.1, stating that the respondent-assessee failed to prove the genuineness and source of the purchases and confirmed its involvement in the modus operandi. In our view, CIT(A) was not justified after giving such a finding that the additions should be restricted only to 12.5% of such purchases and not entire purchases. The issue before the CIT(A) was not whether the profit disclosed by the respondent-assessee was low so as to justify the estimation of the profit of 12.5% The issue before CIT(A) was whether the purchases had been proved and the CIT(A), having observed against the respondent-assessee on this issue, ought to have confirmed the additions of the entire purchases. In our view, the CIT(A) misdirected himself by estimating a profit of 12.5%

It was nobody's case that both the sales and purchases are unaccounted. If that be so and the purchases have been recorded in books of account by accommodation entry, then same gets automatically

The Tribunal also misdirected itself by approaching the issue with the erroneous belief that it was estimating profit. In fact, the issue before the Tribunal was whether the CIT(A) was justified in not confirming entire purchase additions. Therefore, to that extent, the Tribunal too misdirected itself by approaching the issue solely based on estimating profit

In our view, both the Appellate Authorities ought to have appreciated that the issue before them was whether the respondent-assessee had proved the purchases of which the claim for deduction was made. The respondent-assessee, having failed to discharge its onus on this issue before all three authorities, in our view, the additions made in the assessment order by the AO was justified

If the approach of the Appellate Authorities of estimating the profit on such purchases is to be accepted, then, in effect, the consequence would be that even if respondent-assessee has failed to prove its claim of deduction of purchases, still by estimating profit, impliedly deduction of purchases is given. For example, if the purchases by accommodation entries are Rs. 100/- and a profit of 10% is estimated, then to the extent of Rs.90/- deduction on account of purchases is deemed to have been given by the Appellate Authorities. This approach would not be correct since it is nobody's case that the respondent-assessee has made sales out of books by purchasing the goods out of books……………

It was incurribent upon the respondent-assessee to have joined the reassessment proceedings, discharge the initial onus of proving the purchases and seek details, if any. Having not joined the reassessment

The submission of leamed counsel for respondent-assessee that if this addition made by the AO is sustained, then profit rate would be exorbitant and therefore addition should be deleted is to be rejected. The fallacy of this argument is that the AO has not made the addition because of low profit. The addition was made because the respondent-assessee failed to prove genuineness of purchases because of allegation of purchases by accommodation entries as explained above. If contention of learned counsel is accepted, then every addition would have to be deleted if related to business deduction, in our view, such a submission is to be rejected outright…………….

In the instant case before us, the respondent-assessee has not appeared in the re-assessment proceedings to discharge its onus on proving purchase transactions under consideration. Before the CIT(A) for the first time, scanty details of sundry debtors, creditors and stocks were given. The CIT(A) gave a finding of the respondent-assessee's involvement in bogus transaction. Therefore, the finding of the AO on the genuineness of the purchases was confirmed by the CIT(A). Before the Tribunal, the respondent-assessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added. Therefore, before all three authorities, the respondent-assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. In the light of these factual findings by three authorities. today before this Court, the respondent- assessee's submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted.

In view of the above, the appeal of the appellant-revenue is allowed by answering the question in favour of the appellant revenue and against the respondent-assessee. Consequently, the order of the AO dated 19 March 2015 is restored, and the order passed by CIT(A) and the Tribunal is reversed. However, we make it clear that the aggregate addition after considering the CIT(A) and the Tribunal's order should not exceed Rs.20,06,80,150/-"

Therefore, considering the totality of facts and circumstances and keeping in view the decision of the jurisdictional High Court in the case of PCIT vs. Kanak Impex (India) Ltd. [2025] 172 Taxmann.com 283 (Bombay), wherein it was held that when purchases are proved to be bogus, the entire purchase should be disallowed instead of a percentage disallowance.

Thus we are of the view that since the assessee had failed to substantiate the genuineness of the purchases with cogent evidence and had merely relied upon book entries, the Ld. CIT(A) had rightly concluded that the entire expenditure pertaining to

No new facts, circumstances, or documents have been placed on record in order to controvert or rebut the lawful findings so recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings so recorded by the Ld. CIT(A). Hence, we dismiss the grounds raised by the assessee and uphold the order of the Ld. CIT(A).

In the result, the appeal filed by the assessee stands dismissed with no order as to cost. ITA No. 5465/Mum/2025 (Assessment Year: 2009-10)

As the facts and circumstances in this appeal is identical to ITA No. 5024/Mum/2025 for the A.Y 2010-11 (except variance in days of delay, if any) therefore, the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, the grounds of appeal of the present appeal is dismissed. Order pronounced in the open court on 27.04.2026