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Facts
The assessee's assessment for AY 2010-11 was reopened based on information regarding alleged bogus purchases amounting to Rs.17,00,076/-. The Assessing Officer made a 100% addition under Section 69C, which was upheld by the CIT(A). The assessee contended that Rs.14,09,614/- of these alleged bogus purchases had already been written back and offered to tax in AY 2014-15.
Held
The Tribunal distinguished the case from cited precedent as the assessee had participated in proceedings and furnished explanations. It deleted the addition to the extent of Rs.14,09,614/- that was already offered to tax in AY 2014-15. For the remaining amount of Rs.2,90,462/-, the AO was directed to apply a 12.5% profit margin, consistent with the treatment of the assessee's spouse's case.
Key Issues
Whether the addition for alleged bogus purchases under Section 69C was justified, especially when a portion was already offered to tax in a subsequent year, and if a profit margin should be applied instead of 100% addition.
Sections Cited
143(3), 147, 250, 69C, 148, 44AB, 144
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Income Tax Appellate Tribunal, “SMC” BENCH
Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL
Assessment Year: 2010-11 Ajit Anant Joshi Deputy Commissioner of 22 Parijat Society Kashish Income Tax Park, Thane Check Naka, Circle 1, Qureshi Mansion, Vs. Thane (W), 400604. Gokhale Road, Thane-400602. PAN: ADNPJ6782A (Appellant) (Respondent) Present for: Assessee : Shri. Ambalal Jain, CA Revenue : Shri. Rajesh Meshram, Sr. DR Date of Hearing : 25.03.2025 Date of Pronouncement : 30.05.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Commissioner of Income Tax, Appeal ADDL/JCIT (A)-5 Kolkata, vide Appeal no. CIT(A), Mumbai-40/10078/2016-17 (Manual Appeal Register number: 8/2016-17) dated 28.11.2024 passed against the assessment order by Income Tax Officer 29(1)(1), Mumbai u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 24.02.2016 for Assessment Year 2010-11.
Grounds taken by the Assessee are reproduced as under: “1) On facts and circumstances of the case and in law, the order passed by Ld. CIT(A) u/s 250 of the Act upholding the Order passed by Ld. A.O. u/s 143(3)/147 of the Act is bad in law, void ab initio, in violation of the principles of natural justice and is liable to be quashed.
2) On facts and circumstances of the case and in law, the Learned CIT(A)/A.O. have erred in making the addition of Rs. 17,00,076 as bogus purchases u/s 69C of the Act without providing a cross examination opportunity and without providing a copy of such third party statements relied upon leading to the violation of principles of natural justice. 3) On facts and circumstances of the case and in law, the learned CIT(A)/A.O. erred in making the addition alleging bogus purchases solely based on the investigation by third party investigating agency (sales tax department) and without making any further inquiries to substantiate such addition. 4) On facts and circumstances of the case and in law, the learned CIT(A)/A.O. has erred in disallowing the entire purchases as bogus ignoring the fact that the sales of the assessee have not been doubted by the learned CIT(A)/A.O. and the goods purchased by the assessee have been further sold to customers. The Ld CIT(A)\A.O has not appreciated that if the sales are genuine then the corresponding purchases are also genuine. 5) The Appellant craves, leave to add, alter, amend, modify or substitute any or all the above grounds of appeal
, including arising consequential to the points raised during the appeal proceeding before the final disposal of appeal, which are without prejudice to one another.”
3. Brief facts of the case are that assessee is a proprietor of Heramb Enterprises and is engaged in the business of manufacturing engineering goods. Assessee filed his return of income on 30.09.2010 reporting total income at Rs.6,57,220/-. Subsequently, on the basis of information received from DGIT (Inv.), Mumbai made available by the Sales Tax Department, Mumbai that assessee had obtained accommodation bills of purchase amounting to Rs.17,00,074/- from the following two parties, assessment was reopened u/s.147 of the Act, by issuing notice u/s.148 of the Act on 25.06.2024. The details of the two parties is tabulated below: Sr. No. Name of Sellers Amount 1 Rajeshwar Trading Pvt. Ltd. 8,51,204 35, Dr M G Mahimutra Rd., Goyanka Bhavan, 2nd Flr, Room No.16,3rd Kumbharwada, Mumbai -400 004 VAT-27480388751V 2 Navoday Trade Impex Pvt. Ltd. 8,48,872 B/403, Sai Saaj, Shop No.9, Plot No.3, Sectore-5, New Panvel (E)-410 206
VAT-27470563502V Total: 17,00,076 4. According to the Ld.AO, name of the assessee appears in the list as one of the beneficiary of alleged bogus purchases. Upon calling details and explanation, assessee furnished the same which included name and address of sellers, copy of purchase invoice, bank statements, copy of return, tax audit report u/s.44AB of the Act, to prove the genuineness of the purchase which have been alleged as bogus. In addition to the documents and explanations furnished, assessee also strongly submitted that an amount of Rs.9,85,062/- of the alleged purchases from Rajeshwar Trading Pvt. Ltd and amount of Rs.4,24,552/- from Navoday Trade Impex Pvt. Ltd had been written back to the total income in the return filed for AY 2014-15 and offered to tax. Assessee thus claimed that out of the total alleged bogus purchases of Rs.17,00,076/-, amount of Rs.14,09,614/- (Rs.9,85,062/- + Rs.4,24,552/-) has already been written back and offered to tax, the same cannot be again subjected to tax in the year under consideration.
Ld.AO after taking into account the submissions made by the assessee, observed that written back amount of Rs.14,09,614/- in AY 2014-15 is an afterthought. He also noted that assessee had failed to produce the parties from whom purchases were made. He also negated the submission that payment made by assessee by account pay cheque is not sacrosanct and filing of bills in support of purchase is not conclusive. He thus drew an adverse conclusion in para 6.5 which is reproduced as under: “1. The assessee has booked purchases from the parties which have been declared as "Hawala dealers" by the Sales Tax Department. 2. The assessee has not produced any documentary evidence to prove the identity of the purchase parties.
Further the assessee has merely produced the purchase bills. The assessee has not been able to establish the genuineness of these purchases.
The assessee has not been able to produce the following:
1. 1. Delivery challan ii. Octroi receipt etc.
5. The regular purchases bills are usually accompanied by: (a) excise invoice/custom invoice, (b) order number Whereas, the purchases booked through parties declared as "Hawala dealers" by the Sales Tax were not accompanied by the above documents.
6. The assessee was unable to produce the purchase parties for verification 6. Ld. AO thus completed the assessment by making an addition of Rs.17,00,076/- by applying provision of Section 69C of the Act. Before, the Ld. CIT(A), submission made at the assessment stage were reiterated including the fact of amount of Rs.14,09,614/- already offered to tax in AY 2014-15 by way of write back. Further assessee contented that he has made all the submissions as required in the assessment proceeding along with documentary evidences which have not been disproved nor any defect pointed out. It was also submitted by analysing the factual position on the sales and gross profit margin arrived at by the assessee during the year to point out that addition made leads to a gross profit margin of more than 20.53% which is unreasonable and unrealistic in the kind of business in which assessee is engaged in. The factual position as stated by assessee in this respect is reproduce below: “iv) The total sales during the year were Rs. 1,67,67,645 and purchases Rs. 1,68,64,670. The gross profit was Rs. 17,42,939 @ 10.39% and net profit Rs. 7,67,900 @ 4.57%. The opening and closing stock were Rs. 53,31,365 and Rs. 75,34,371 respectively. Out of total purchase of Rs. 1,68,64,670, the A.O. has treated Rs. 17,00,076 as bogus but has not doubted the sales as bogus. The assessee has shown Gross Profit margin @ 10.39% on the said sale and hence addition of entire purchases lead to gross profit margin of more than 20.53% (17,42,939 + Rs. 17,00,076 34,43,015/1,67,67,645*100) on the said total sales which is very much unreasonable, unrealistic and impossible to get especially in the kind of business run by the assessee.”
Assessee also pointed out that in the case of his wife Smt. Aditi Ajit Joshi, on identical fact, in her assessment made u/s.143(3) of the Act r.w.s. 147 of the Act, vide order dated 16.03.2015 for AY 2009-10, there was similar purchase of Rs.47,42,452/- on which an addition was made applying 12.5% as quantum of profit element involved on unaccounted implantation of said purchases. Thus, amount of Rs. 5,92,806/- was disallowed and added to the income of the spouse of the assessee. Copy of said assessment order is placed in the paper book at page 22. After considering the submissions made by the assessee, Ld. CIT(A) upheld the addition so made and dismissed the ground raised by the assessee in this respect.
Aggrieved, assessee is in appeal before the Tribunal. Before us, assessee has placed on record a written submission along with relevant documentary evidences in the paper book containing 70 pages. In the present set of facts, Ld.AO has alleged purchases made by the assessee from the two parties, details of which are already tabulated above, as bogus, based on information received by him from DGIT (INB), Mumbai who in turn had received details from Maharashtra Sales Tax Department. Assessee has effectively participated in the assessment proceedings and furnished all the details and explanation called for. Assessee had also asserted that out of the total amount of Rs.17,00,076/-, he has already written back Rs.14,09,614/- and offered it to tax in the return filed for AY 2014-15. Thus, adding the same amount in this year tantamount to taxing it twice. This fact has been altogether ignored by both the authorities below while taking the addition of the alleged bogus purchases. Furthermore, we note that on similar fact pattern, in the case of spouse of the assessee i.e. Smt. Aditi Ajit Joshi, Ld.AO has adopted a profit margin of 12.5% on the alleged bogus purchase transaction to make the addition in her hands while in the case of the assessee, entire purchases have been added u/s. 69C of the Act.
Ld. SR DR refereed to decision of Hon’ble Jurisdictional High Court of Bombay in the case of Kanak Impex (India) Ltd [2025] 172 taxmann.com 283 (Bom) to sustain the addition in the hands of the assessee.
For the reliance placed by Ld. SR DR on the decision of Hon’ble Jurisdictional High Court of Bombay in the case of PCIT vs Kanak Impex (India) Ltd (supra) calling for sustaining the addition of 100% of the alleged bogus purchases made by the Ld.AO and confirmed by Ld. CIT(A), we have perused this aforesaid judgment. We observe that in para 4, Hon’ble Court noted the factual position that assessee did not appear before the Ld.AO during the course of assessment proceedings and failed to prove the genuineness of the purchase. The said assessment was completed ex-parte u/s. 144 r.w.s 147 of the Act. Hon’ble Court also observed in para 17 about the non-appearance of assessee before the Ld.AO for which there is no justification. Again, it noted in para 29 that the assessee chose not to attend the reassessment proceedings even though the notices were sent by post, email and affixture. Accordingly, in para 13, Hon’ble Court concluded that assessee having not joined the reassessment proceedings, the contention raised by the assessee are to be rejected. Observation of the Hon’ble Court while rejecting the contention of the assessee are:
“30. We fail to understand that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition. In our view, such a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re-assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any.”
In the present set of facts, the said judgment of Kanak Impex (India) Ltd. (Supra) is distinguishable since assessee has participated and furnished all the required explanations and documentary evidence. Considering the above discussion made on factual position and the judicial precedent, we delete the addition to the extent of Rs.14,09,614/- which the assessee has written back and offered to tax in the return for AY 2014-15 out of the total addition of Rs.17,00,076/. For the balance amount of Rs.2,90,462/-, we direct the Ld.AO to apply the same margin of 12.5% as applied in the case of spouse of the assessee, to make the addition in the hands of the assessee and delete the balance. Accordingly, grounds raised by the assessee in this respect are partly allowed.
In the result, appeal of the assessee is partly allowed.