ACIT,CIRCLE -20(1),MUMBAI, MUMBAI vs. UTKARSHA VIVEK PARKAR, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL
“F” BENCH MUMBAI

BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT &
SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER
ACIT Circle-20(1),
Mumbai
Room No. 305, 3rd
Floor, Piramal
Chambers, Parel,
Mumbai – 400 012. Vs.
Utkarsha Vivek
Parkar,
108, A-Wing, Byculla
Service Industrial
Estate, D. K. Cross
Road, Byculla,
Mumbai-400 027
PAN/GIR No. AGJPP4377J
(Applicant)

(Respondent)

Revenue by Shri Nayanjyoti Nath, Ld. DR
Assessee by Ms. Dinkle Hariya, Ld. AR

Date of Hearing
11.03.2026
Date of Pronouncement
16.03.2026

आदेश / ORDER

PER MAKARAND VASANT MAHADEOKAR, AM:

This appeal by the Revenue is directed against the order passed under section 250 of the Income Tax Act, 1961
[hereinafter referred to as "the Act"]by the Ld.
Addl./JCIT(Appeals),
Panchkula from the office of the Commissioner of Income Tax(Appeal) [hereinafter referred to as 2
Utkarsha Vivek Parkar

"CIT(A)"] dated 21.08.2025, arising from the assessment order passed by the Assessing Officer under section 143(3) read with section 147 of the Act dated 20.12.2018 for Assessment Year
2011-12. 2. The brief facts of the case are that the assessee is an individual engaged in proprietary business under the name
Neoimage CTP, which is stated to be engaged in supplying printing plates to customers who are mainly offset printers.
During the year under consideration the assessee derived income from business and profession. The assessee filed her return of income for A.Y. 2011-12 on 28.09.2011 declaring total income of Rs. 27,38,943/-. The return of income was processed under section 143(1) of the Act on 17.08.2012. 3. Subsequently, the Assessing Officer received information from the DGIT (Investigation), Mumbai based on inputs from the Sales Tax Department, Government of Maharashtra, alleging that the assessee had obtained accommodation entries in the form of bogus purchase bills from certain hawala dealers during the relevant previous year. The information indicated that the assessee had allegedly made purchases aggregating to Rs.
28,28,113/- from two parties, namely Crystal Corporation (Rs.
5,06,785/-) and Shruti Traders (Rs. 23,21,328/-), who were stated to be listed as hawala dealers providing accommodation bills without actual delivery of goods.
4. On the basis of the said information, the Assessing Officer recorded reasons to believe that income chargeable to tax had 3
Utkarsha Vivek Parkar escaped assessment within the meaning of section 147 of the Act and accordingly issued notice under section 148 dated
21.03.2018.In response to the notice issued under section 148, the authorised representative of the assessee vide letter dated
05.04.2018 requested that the original return filed on 28.09.2011
be treated as the return filed in response to the said notice. The assessee subsequently filed the return electronically on 14.08.2018 declaring income of Rs. 27,38,940/-
5. During the reassessment proceedings, the Assessing Officer issued statutory notices under sections 143(2) and 142(1) and called for details regarding the alleged purchases from the aforesaid parties. The assessee furnished certain submissions including ledger accounts of the suppliers and purchase details.
The Assessing Officer, however, observed that the parties from whom purchases were claimed had been identified by the Sales
Tax Department of Maharashtra as hawala operators providing accommodation bills without actual supply of goods. The Assessing Officer further noted that the assessee had failed to furnish documentary evidence such as delivery challans, transport receipts, weighment slips, octroi receipts, or stock register entries evidencing receipt of goods. In order to verify the genuineness of the purchases, the Assessing Officer issued notices under section 133(6) to the said suppliers. However, the notices were returned by the postal authorities with remarks such as “Left” and “Not Known”, and the Inspector deputed for field verification could not locate the parties at the addresses

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Utkarsha Vivek Parkar provided. According to the Assessing Officer, despite granting sufficient opportunity, the assessee failed to produce the alleged suppliers or substantiate the genuineness of the purchases. The Assessing Officer held that the purchases claimed from the said parties were not genuine and were merely accommodation entries used to inflate expenditure and suppress profits. The Assessing
Officer therefore concluded that the assessee had obtained accommodation entries in the form of bogus purchase bills and treated the entire amount of Rs. 28,28,113/- as unexplained expenditure under section 69C of the Act. The said amount was added to the total income of the assessee. Consequently, the total income was assessed at Rs. 55,67,060/-. Penalty proceedings under section 271(1)(c) were also initiated separately.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee challenged both the validity of reopening as well as the addition made by the Assessing Officer. The assessee contended that the reassessment proceedings were initiated merely on the basis of information received from the Sales Tax Department without independent application of mind by the Assessing Officer. It was further submitted that copies of the statements relied upon by the department were not furnished to the assessee and no opportunity of cross-examination was provided. On merits, the assessee submitted that the purchases were genuine and duly recorded in the books of account. The assessee had furnished purchase details, ledger accounts of suppliers and details

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Utkarsha Vivek Parkar correlating purchases with the sales of finished goods. It was also contended that the Assessing Officer himself had acknowledged in the assessment order that the purchases were correlated with the raw material consumption and sales of finished goods.
Therefore, when the sales had not been doubted, the purchases could not be disallowed in entirety. The assessee further submitted that the purchases were supported by invoices and payments were made through banking channels. It was also argued that the suppliers were registered under the Sales Tax Act at the time of transactions and the assessee had no mechanism to verify whether the vendors had deposited VAT collected from the assessee. The assessee also pointed out that the gross profit of the business was already reasonable and if the entire purchases were disallowed the profit margin would increase to an unrealistic level which was not consistent with the nature of the assessee’s business. Without prejudice, the assessee submitted that even in the assessee’s own case for A.Y. 2009-10, on similar facts, the department had restricted the addition to 12.5% of the alleged bogus purchases, and therefore the addition of the entire purchase amount in the present year was not justified.
7. After examining the material available on record and considering the judicial precedents cited by the assessee, the CIT(A) held that where sales are accepted and purchases are recorded in the books of account, it would not be appropriate to disallow the entire purchases. The appellate authority observed that in such cases only the profit element embedded in the 6
Utkarsha Vivek Parkar alleged bogus purchases could be brought to tax. Accordingly, the CIT(A) restricted the addition to 12.5% of the alleged bogus purchases, thereby granting partial relief to the assessee.
8. Being aggrieved by the relief granted by the CIT(A), the Revenue has preferred the present appeal before us and has raised following grounds of appeal:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl./JCIT(A) was correct in restriction of addition to 12.5% of bogus purchases.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl./JCIT(A) was right in not appreciating the action of the AO that the disallowance was made of Rs. 28,28,113/- on account of bogus purchase u/s. 69C of the Income Tax Act,1961. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl./JCIT(A) was right in not appreciating the action of the AO that this is a case of bogus purchases, could have proceeded to determine profit rate without confirming the disallowance of purchases, without considering the provisions of Section 69C of the Income Tax Act, 1961 and without considering the decision of the Bombay High Court in the case of Kanak Impex (India) Ltd. [2025]
172 taxmann.com 283 (Bombay) and in the case of Drisha Impex Pvt
Ltd [2025] 173 taxmann.com 571 (Bombay).
4. Whether on the facts and in the circumstances of the case and in law, the Ld. Addl./JCIT(A) has erred in restricting the disallowance to profit margin on unproven purchases without considering the position of law established by the Hon'ble Bombay High Court in the case of Drisha Impex Pvt Ltd, that 100 % disallowances on bogus purchases is upheld.
5. It is prayed that the tax effect involved in this case is Rs.7,64,651/- which is below the monetary limits as prescribed in the CBDT's
Circular No.09/2024 dated 17.09.2024 and but the case falls in the exceptions mentioned in para 3.1(h) of circular No. 05/2024 dated
15.03.2024. 6. The appellant craves to leave to add amend or alter modify or delete any of the grounds of appeal taken above.

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Utkarsha Vivek Parkar

9
Utkarsha Vivek Parkar

Department regarding alleged hawala dealers. During the course of assessment proceedings, the assessee was required to substantiate the genuineness of the purchases. According to the Assessing Officer, the assessee failed to produce the parties and the notices issued under section 133(6) remained unserved. On this basis, the Assessing Officer concluded that the purchases were not proved and proceeded to disallow the entire purchases amounting to Rs. 28,28,113/- by invoking the provisions of section 69C of the Act. However, the Ld. CIT(A), after examining the material on record, noticed that the assessee had recorded the purchases in the books of account and the same were reflected in the trading results. The Ld. CIT(A) further observed that the sales declared by the assessee had not been doubted by the Assessing Officer. In such circumstances, the Ld. CIT(A) held that although the purchases from the concerned parties could not be fully verified, the entire purchases could not be disallowed since the corresponding sales were accepted. Accordingly, the Ld.
CIT(A) restricted the addition to 12.5% of the alleged bogus purchases, representing the possible profit element embedded in such purchases.
15. After considering the facts of the case, we find ourselves in agreement with the view taken by the Ld. CIT(A). It is an undisputed position on record that the sales declared by the assessee have not been rejected by the Assessing Officer. Once the sales are accepted as genuine, it necessarily follows that the assessee must have procured goods for effecting such sales. In non-genuine. What can at best be inferred is that the assessee might have procured the goods from the grey market and obtained accommodation bills from the alleged parties in order to regularise the transactions in the books of account. In such situations, the judicial view consistently taken is that only the profit element embedded in such purchases can be brought to tax.
16. The trading results of the assessee placed on record also support the above conclusion. The assessee has disclosed sales of Rs. 3,71,90,972/- with a gross profit of Rs. 1,31,58,153/-, resulting in a gross profit rate of 35.38%, which is higher than the gross profit rate of 27.34% declared in the immediately preceding year. The net profit declared during the year is Rs.
28,38,943/-, representing a net profit rate of 7.63%, which is comparable with the preceding year. If the entire purchases of Rs.
28,28,113/- are added back, the gross profit would increase to 42.98% and the net profit would rise to 15.23%, which appears to be disproportionately high considering the nature of business carried on by the assessee. These facts clearly indicate that the addition of the entire purchases would result in unrealistic trading results.
17. We also note that in the assessee’s own case for Assessment
Year 2009–10, on similar facts involving alleged hawala purchases, the addition was restricted to 12.5% of the purchases.
Therefore, the estimation adopted by the Ld. CIT(A) is consistent with the past approach taken in the assessee’s own case.
18. The learned Departmental Representative has placed reliance on the recent judgments of the Hon’ble Bombay High
Court in the case of Principal Commissioner of Income-tax v.
Kanak
Impex
(India)
Ltd.
(supra) and Principal
Commissioner of Income-tax v. Drisha Impex (P.) Ltd.(Supra) to contend that the entire purchases should be disallowed. We have carefully examined the ratio of the aforesaid decisions. In the case of Kanak Impex (India) Ltd., the Hon’ble High Court held that where the assessee had completely failed to appear before the Assessing Officer during reassessment proceedings and had failed to produce any evidence to establish the genuineness of the purchases or the source of expenditure, the addition of the entire purchases under section 69C was justified.
However, the facts of the present case are materially different. In the present case, the assessee has recorded the purchases in the books of account and the corresponding sales have been accepted by the Assessing Officer. The dispute is not regarding the existence of sales but only regarding the identity and genuineness of the suppliers. Therefore, the inference drawn by the Ld. CIT(A) that the assessee might have procured goods from the grey market and obtained accommodation bills cannot be ruled out. In such circumstances, the entire purchases cannot be treated as unexplained expenditure. Similarly, in the case of Drisha Impex
(P.) Ltd., the Hon’ble Bombay High Court upheld the addition of assessee in accommodation entry transactions. The Court held that once the purchases were found to be bogus and the assessee failed to establish their genuineness, the appellate authorities were not justified in merely estimating the profit element.
19. In the present case, however, the facts are distinguishable.
Firstly, the sales declared by the assessee have not been rejected.
Secondly, the purchases are duly recorded in the books of account and form part of the trading account. Thirdly, the trading results of the assessee indicate a reasonable gross profit rate which is even higher than the preceding year. Therefore, the factual matrix of the present case does not warrant the extreme conclusion of disallowing the entire purchases. On the contrary, the approach adopted by the Ld. CIT(A) is in consonance with the well-settled judicial principle that in cases of unverifiable purchases, the addition should be restricted to the profit element embedded in such purchases. Such an approach strikes a balance between the possibility of purchases from the grey market and the fact that the corresponding sales have been accepted.
20. Considering the entirety of the facts and circumstances of the case, we are of the view that the Ld. CIT(A) has adopted a reasonable and pragmatic approach in restricting the addition to 12.5% of the alleged bogus purchases. We therefore find no infirmity in the order of the Ld. CIT(A).Accordingly, the order of the Ld. CIT(A) is upheld and the grounds raised by the Revenue are dismissed.
21. In the result appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 16.03.2026. (SAKTIJIT DEY)
ACCOUNTANT MEMBER

Mumbai, Dated 16/03/2026
Dhananjay, Sr.PS

आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to :