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Income Tax Appellate Tribunal, MUMBAI BENCH “J (SMC
Before: MS. PADMAVATHY S & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals) – Addl/JCIT (A)-2, Hyderabad [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 29.07.2024 for the A.Y. 2010-11 wherein the Ld. CIT(A) confirmed the additions made by AO of Rs. 5,15,721/- being 4% of allegedly evaded VAT tax on the suspicious purchase u/s 69C of the Act.
The brief facts of the case are that, the assessee is an individual and engaged in the business of trading in plastic granules and lumps and other sources. The return of income for AY 2010-11 was filed on 20.09.2010 declaring total income of Rs. 2,60,117/-. The return was processed u/s 143(1) of the Act. Subsequently, an information was received from Sales Tax Department and DGIT(Inv.), Mumbai that some businessman had indulged in the acceptance of bogus purchase bills from the bogus hawala bill providers and assessee is one the beneficiary of such bogus purchase bills and during the year under considering, the assessee had accepted bogus bills from the following parties:- TIN NAME OF THE PARTY AMOUNT 27230614753V LEO IMPEX 1,268,462 27060224373V CORAL TRADING CO 217,592 27450680107V DHIREN MERCANTILE PVT LTD 423,852 27540680106V ANSHU MERCANTILE PVT LTD 874,926 27370565400V SUNRISE ENTERPRISES 2,156,102
27240652044V KV TRADING CO 2,733,874 27580171804V SHREE YAMUNA IMPEX 437,944 27440677542V GOODLUCK IMPEX INDIA 819,638 27980662404V SHALAKA INTERNATIONAL 1,390,688 27030265566V AMAR ENTERARISE 1,028,794 27790284742V KWALITY ENTERPRISE 239,226 27310687071V RATNAKAR TRADERS 1,301,950 12,893,048
3. From the above facts, the AO had reason to believe that income has escaped assessment within the meaning of section 147 of the Act and accordingly, notice u/s 148 dated 04.03.2015 was issued for reopening of assessment. In response, the assessee furnished the details /explanations as called for. It is further alleged that during the course of the assessment proceedings, in order to ascertain the genuineness of purchases made by the assessee, notice u/s. 133(6) was issued to the above parties which were returned unserved by the postal authorities with a remark "left". During the course of assessment proceedings, assessee was asked to produce the parties and also show cause as to why the purchases made from the aforesaid party should not be disallowed. However, the assessee has failed to prove the onus relied upon him by producing the register, stock register, etc. in support of the contention that sales invoices submitted are the same Page | 3 that were purchased from the hawala dealers. The AO found it not tenable and acceptable as the assessee failed to furnish any cogent evidence to substantiate his claim of purchases from aforesaid party. For these reasons, the AO concluded that the alleged purchases were bogus having been made from those parties which were not available and were not found existing at the addresses given by the assessee. Thus the same were bogus and non- genuine and these purchases made from these parties amounting to Rs. 1,28,93,048/- is treated as bogus purchase. The Ld. AO estimated the gross profit on the above said bogus purchases @ 13.5% being the possible profit out of the purchases made through non-genuine parties known as tainted purchases. While making the estimation of gross profit, the Ld. AO kept in mind the gross profit declared by the assessee @ 5% for the current /relevant year. Hence an addition of Rs. 16,11,631/- being 12.5% of Rs. 1,28,93,048/- the amount of bogus purchases. The break-up of 12.5% has been shown/included (estimated hidden GP of 8.5% and 4% of VAT). Considering the above, the total income of the assessee is computed as under:- Total income (as declared) Rs. 2,60,117/- Add Disallowance as discussed above Rs. 16,11,631/- Total income Rs. 18,71,748/- Rounded off to Rs. 18,71,750/-
Aggrieved by the order of AO, assessee challenged the order before the Ld. CIT(A) and while disposing the appeal the Ld. CIT(A) observed that the appellant has made purchases from the grey market which gives the appellant saving on account of non-payment of tax (VAT) and other at the expense of exchequer. Regarding the estimation of embedded profit, the Ld. CIT(A) observed that “As regards the quantification of the profit element embedded in making of such bogus purchases by the appellant, I find that as held by Hon’ble High Court of Bombay in recent judgment Pr. CIT vs. M. Haji Adam & Co. (ITA No. 1004/2016 dated 11.02.2019), the addition in respect of bogus purchase is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as on other genuine purchases.” The Ld. CIT(A) has reproduced the finding of the Hon’ble High Court in para no. 7.3.2 and disposed the issue in para no. 7.3.3 as under:-
“7.3.3. I respectfully following the aforesaid Judgment of the Hon'ble High Court and in view of the facts of the case, I also find that Gross Profit for the genuine purchases was offered as 4.93% and same of suspicious purchases was offered as Rs.4.99% and since Gross Profit at the similar rate has already been offered and taxed, no further addition is required to be made in this regard. However, it is also a fact that the appellant has made purchases to the extent of Rs.1,28,93,048/- from the grey market and evaded taxes in the form of VAT and Page | 5 others at the expense of the exchequer, therefore, this evasion of VAT at the rate of 4% should also be taxed on bogus purchases made by the appellant. Accordingly, the addition of Rs.5,15,721/- (4% of Rs.1,28,93,048/-) is hereby confirmed u/s 69C of the Act and the remaining addition of Rs. 10,95,910/- is hereby deleted. Accordingly, the ground no.3 of the appeal is partly allowed.”
Aggrieved by the impugned order, the assessee preferred the appeal before us and has raised the following grounds of appeal:-
1. The order dated 29/07/2024 bearing No. ITBA/APL/S/250/2024- 25/1067112137[1] passed by the Hon'ble CIT[A]-ADDL/JCIT [A]-2, HYDERABAD, is excessive, unreasonable, arbitrary, against the provisions of Income Tax Act, 1961 and therefore liable to be quashed. FOND AM
2. On facts and circumstances of the case and in law, the Honorable C.I.T.(A) has erred in confirming the addition of Rs.5,15,721/- being 4% of alleged suspicious purchases under section 69C of Income Tax Act, 1961.
The appellant craves to alter, add, delete, substitute, or modify and other grounds of appeal..
We have heard Ld. AR and Ld. DR and examined the record. Ld. DR had relied upon the order of the Ld. AO and stating that the Ld. AO has considered all the materials and documents and reached to the right conclusion that the assessee has failed to substantiate the creditworthiness and identity of the parties and genuineness of the transactions and has found the alleged purchase from those parties as bogus purchase. It is further submitted that the Ld. CIT(A) has rightly followed the settled law and confirmed the addition u/s 69C of the Act and submitted for dismissal of the appeal filed by the assessee. The Ld. DR further submitted that the Hon’ble Jurisidictional High Court in PCIT vs. Kanak Impex (India) Ltd. (2025) 172 taxmann.com 283 (Bom) order dated March 3, 2025 was pleased to hold that on account of bogus purchases, the Assessing Officer was justified in making addition of entire amount of bogus purchases u/s 69C of the Act. It is therefore stated that there is no merit in appeal and the same be dismissed.
On the other hand, Ld. AR on behalf of the assessee submitted that the revenue has not challenged the order of Ld. CIT(A) and therefore reliance on order dated March 3, 2025 by the Ld. DR is misplaced. Ld. AR further submitted that the addition of 4% VAT alongwith self declared 4.99% profit on the alleged bogus purchases by the appellant has resulted into miscarriage of justice as there was no justification with respect to allegedly evaded 4% VAT tax addition as there was no material in that regard before the Ld. CIT(A).
We have considered the rival submissions and examined the material placed on record. The arguments advanced on behalf of the revenue are Page | 7 quite convincing and the Ld. CIT(A) has based his judgment on sound and convincing legal reasoning supported by settled legal precedents while making addition on account of evaded VAT tax @ 4% i.e. Rs, 5,72,721/-. For these reasons, we are not convinced by the arguments advanced by the Ld. AR and there is no legal infirmity in the findings returned by the Ld. CIT(A) and accordingly the grounds raised by assessee/appellant are rejected.
In the result, the appeal is accordingly dismissed in above terms.