AMAN MITTAL,UTTAR PRADESH vs. ACIT, NFAC, DELHI

PER MANISH AGARWAL, AM: The captioned appeal is filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A) in short”] u/s 250 of the Income Tax Act, 1961 [“the Act in short”], dated 18.09.2025 against the assessment order passed u/s 143(3) of the Act, 1961 for Assessment Year 2022-23.

2 ITA Nos.7716/Del/2025 2. Brief facts of the case are that assessee is an individual and filed his return of income on 19.09.2022, declaring total income of Rs. 10,18,390/-. The case of the assessee was selected under CASS for scrutiny for the reason “substantial purchases made from the suppliers who are non-filers”. Thereafter, notice u/s 143(2) of the Act was issued followed by various notices u/s 142(1) alongwith questionnaire from time to time and after considering the notices and submissions made by the assessee, AO passed the order by making additions of Rs. 11,52,23,230/- being purchases made from six parties as tabulated at page 3 & 4 of the assessment order held as bogus.

3 ITA Nos.7716/Del/2025 (i) that the Audit Report issued was on specific format as provided in Income Tax Rules, 1922, and notwithstanding the absence of physical verification of stock, the Tax Auditor has made no adverse comment either on stock reconciliation or on production/sale quantities or otherwise reported any shortages; (ii) that the Assessment Unit had nothing adverse to state on such quantitative details and reconciliation as reported in Tax Audit Report and abstract of Stock Register filed; (iii) that the manufacturing activity of the assessee involved copper wire drawing and that there is no meaningful wastage or by-product; (iv) that no disallowance out of Purchases be made in the relevant assessment year as such transactions remained fully vouched and abstract from GST on- line portal were filed supporting existence of the impugned suppliers at the relevant period. 3. That the learned CIT (Appeal) erred in not holding that the assessee could not be held responsible for contravention of any statutory provisions by the impugned suppliers as AU had accepted the sales against such purchases and not rejected the books of accounts u/s 145 of the Income Tax Act, 1961. 4. That the learned CIT (Appeals) erred in not holding that qua the assessee the reports of Verification Unit personnel were 'third party' and erred in not allowing assessee reasonable opportunity to cross-examine such persons before relying on the reports and wrongly dismissing assessee's appeal on the issue. 5. That on facts and circumstances of the case and in law the learned authorities below erred in disallowing Rs.11,52,23,230 out of Purchases erroneously holding such Purchases as 'non- genuine' merely because the suppliers failed to comply with notice u/s 133(6) of the Act issued in each case and respectively violative of their statutory obligations.”

4 ITA Nos.7716/Del/2025 6. Before us, the Ld. AR of the assessee submits that the assessee has filed all evidences to prove the genuineness of the purchase which includes ledger accounts, bank statements, E-way bills and other particulars. He submits that the books of accounts of the assessee were not rejected, therefore, no addition could be made on account of purchases held as bogus. In the alternate it is submitted by ld. AR that entire purchases held as bogus could not be added and only a reasonable profit rate would be added.

5 ITA Nos.7716/Del/2025 purchases could not be accepted as genuine purchases. The relevant observations of ld. CIT(A) in para 5.2.3 of the order are reproduced as under:

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13 ITA Nos.7716/Del/2025 addition should be restricted to the profits embedded in sale proceeds was answered by Hon'ble Gujarat High Court in the case of CIT Vs. President Industries reported in 258 ITR 654 (Guj. HC) and Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Balchand Ajit Kumar reported in 263 ITR 610 (M.P. HC) wherein it is held that only the profit should taxed.

14 ITA Nos.7716/Del/2025 directed accordingly to workout disallowance. In para 10.6, the Commissioner of Income Tax (Appeals),recorded thus, "As held above, it is clear that the appellants have made purchases from elsewhere, but have obtained bills from the impugned suppliers. From the Trading & P & L account and Audit report it can be seen that the GP rate shown by appellant is 1.85% oil sales. In such circumstances the disallowance of 100% of purchases cannot be justified. Also as held above, the appellant would nave indulged in above practice in order to get some benefit. And it is this benefit derived by the appellant that need to be taxed. What would be the magnitude of benefit derived by the appellant is the mute question. In the appellant's case, it is seen that GP rate shown is 0.78%". 5.1 The final view was expressed in para 10.10, "Following the above judicial pronouncements and views taken by Ld. CIT(A) & AOS in a few identical cases. In a couple of identical cases, where the GP shown by the appellants is more than5%, I have confirmed the disallowance of the impugned purchases to the extent of 5% of the impugned purchases. However in the instant case the appellant is showing measly G.P. of only0.78% on turnover. In view of this I am of the considered opinion that disallowance of 12.5% of the impugned purchases would be reasonable and would meet the ends of justice. Hence, the disallowance is restricted to 12.5% of the impugned purchases for the assessment year in appeal. 5.2 The disallowance at 100% was made in the assessment order for the year under consideration to the tune of Rs. 4,34,00,343/-, which was reduced to 12.5% at Rs. 54,25,040/-. Thereafter, the issue was dealt with by the appellate Tribunal. The appellate Tribunal endorsed to the view taken by the appellate Commissioner. It was observed that Assessing Officer failed to consider the evidence furnished by the assessee. 5.3 Considering the facts and relevant aspect, the Income Tax Appellate Tribunal partially allowed the appeal of the assessee to further reduce the disallowance at 6%. In so concluding, the Tribunal observed in paragraph No.21 as under, ".......during the financial year under consideration the assessee has shown total turnover of Rs.66,09,62,458/-. The assessee has shown Gross Profit @ 78% and net Profit @ 0.02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are

15 ITA Nos.7716/Del/2025 conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs. 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the Ld. CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs 1.86Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No.2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed." 6. In so concluding, the Tribunal observed in paragraph No.21 as under, "............during the financial year under consideration the assessee has shown total turnover of Rs.66,09,62,458/-. The assessee has shown Gross Profit @ 78% and net Profit @ 0.02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs. 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the Ld. CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03%)

16 ITA Nos.7716/Del/2025 on turnover of Rs 1.86Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases/ disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No.2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed." 6 . The view taken and the conclusion arrived at by the appellant Tribunal are based on material before it and after analysing the facts and figure available before it. When the Tribunal has thought it fit to reduce the disallowance at 6% from 12.5%, the Tribunal had before it the facts which were duly analysed by it. No interference is called for in the said conclusion and findings of the Tribunal in the present appeal by this court. 6.1 The another weighing aspect is that the Tax Appeal No. 674 of 2022 in Principal Commissioner of Income Tax 1, Surat v. M/s.Surya Impex which came to be decided by the co-ordinate Bench on16.1.2023 dealt with the very issue of accommodation entries provided by Bhanwarlal Jain Group. The group involved in the said case is the same group who is saddled with allegations of providing accommodation entry to the assessee. In M/s. Surya Impex (supra) the court held in favour of the assessee. The questions of law involved in the said case were of the same nature and were in the context of similar facts involving the same group. 7. For all the above reasons, substantial questions of law proposed by the appellant in this appeal stands already answered. No question of law much less any substantial questions of law arise in the facts of the present case. No other substantial question of law arises. The appeal is meritless. It is summarily dismissed." 6. In view of the above, the substantial questions of law proposed by the appellant in the appeal stands already answered and therefore, no question of law much less any substantial questions of law, can be said to have arisen in the facts of the present case.

17 ITA Nos.7716/Del/2025 12. Considering the above decisions of Hon’ble Gujarat High Court and a catena of recent decisions passed by the Tribunals relying on the aforesaid decisions, only the profits embedded in sale proceeds should be taxed instead of addition on account of entire purchases. Looking to the circumstantial evidence in the present case, it is evident that impugned purchases from the alleged supplier were not genuine. One must consider the totality of facts, surrounding circumstances and human probability for arriving at such a conclusion.

18 ITA Nos.7716/Del/2025 Accordingly, in our considered view profit rate of 5% on the non- genuine/suspicious/bogus purchases of Rs 11,52,23,230/- would be just and proper with a rider that the same shall not be treated as a precedent. We direct accordingly. Thus, all the grounds of appeal raised by the assessee on this issue are treated as partly allowed.

Order pronounced in the open Court on 16.04.2026.

Sd/- Sd/- Sd/- Sd/- (SATBEER SINGH GODARA) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 29.06.2026 *Amit Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI