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Facts
The assessee claimed purchases of Rs. 1,12,13,732/- made through banking channels for dealing in ferrous and non-ferrous metals. The Assessing Officer rejected this claim, citing information from the Sales Tax Department about bogus accommodation entries and the assessee's failure to produce delivery challans etc., estimating profit at 12.5% and making an addition. The Commissioner restricted the addition to 4%.
Held
The Tribunal held that the case is factually dissimilar to the High Court's judgment relied upon by the revenue. The Tribunal noted that the assessee had proved transactions through banking channels and the Assessing Officer himself had estimated profit at 12.5%, not 100%. Considering the facts and circumstances, the Tribunal restricted the addition to 5%.
Key Issues
Whether the addition made by the Assessing Officer on account of alleged bogus purchases, when the assessee has proved payments through banking channels, can be sustained, and if so, to what extent?
Sections Cited
250, 147, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY
Per : Narender Kumar Choudhry, Judicial Member:
These appeals have been preferred by the Revenue Department against the orders dated 16.10.2024, 14.10.2024 24.10.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Ys. 2009-10,2010-11,2011-12.
6549/M/2024, 6779/M/2024 Mr. Khimchand Okchand Bhansali 2. These 03 appeals are based on the identical facts, except variation in amounts, hence for the sake of the brevity, the same were heard together and are being disposed of, by this composite order and by taking into consideration facts and issue involved in (AY: 2009-10) as a lead case.
The Assessee has claimed that it deals in ferrous and non- ferrous metals and during the year under consideration, made the purchases of Rs. 1,12,13,732/- through banking channels and respective purchase invoices and has established the purchases made, by filing relevant purchase invoices, copy of bank statements evidencing payment made through proper banking channels, highlighting the relevant entries, chart showing the details of the purchases made from the parties and quantitative tally in respect of purchases made from the parties and the corresponding sales. The assessee further claimed before the assessing officer that there is one to one co-relationship between purchasers, sales are fully vouched, purchases from the said parties can be corroborated, as the Assessee has made the payments through account paying cheques only. The Assessee at last claimed that without purchases, no sale can be made.
Though the Assessing Officer considered the aforesaid claim of the Assessee, however rejected the same, mainly on the reasons that Sales Tax Department, has given information with regard to the bogus accommodation entries on account of bogus purchases/bills. Further, the assessee has failed to produce the delivery challans, transport and octroi receipts etc. . The Assessing Officer also observed that mere filing of evidence qua purchases and making of payment through account cheque, cannot be conclusive in a case, where genuineness of the transaction, is in 6549/M/2024, 6779/M/2024 Mr. Khimchand Okchand Bhansali doubt. The Assessing Officer thus on the aforesaid reasons, ultimately estimated the profit element at the rate of 12.5% of the total purchase of Rs. 1,12,13,732/- and consequently made the addition of Rs. 14,01,716/-.
The Assessee being aggrieved, challenged the reopening of the proceedings u/s 147 of the Act, as well as the addition on merits by filling 1st appeal before the Ld. Commissioner. The Ld. Commissioner though affirmed the reopening proceedings u/s 147 of the Act, but restricted the addition from 12.5% to 4% of the bogus purchases by taking into consideration the judgment passed by the Hon’ble Tribunal in the case of Kamlesh Bhansali in ITA No. 1591/M/2020. In effect, the Ld. Commissioner deleted the addition of Rs. 9,41,167/-.
The revenue department being aggrieved is in appeal before this court and at outset has placed reliance on the judgment passed by the Hon’ble Jurisdictional High Court in the case of Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in decided on 03.03.2025, wherein the Hon’ble High Court restored the addition made by the assessing officer @100% of the bogus purchases, which was restricted to 12.5% by the Ld. Commissioner, and subsequently got affirmed by the Hon’ble Tribunal, restricting the disallowance qua profit margin, on unproven purchases.
Ld. Counsel Mr. Dhaval Shah, on the contrary has demonstrated that this case is factually dissimilar to the case dealt with the Hon’ble High Court, as the Hon’ble High Court considered the case, wherein the assessing officer has made the addition
This Court observe that the Hon’ble High Court, while deciding the issue, has also taken into consideration the relevant fact specific to the effects that the Assessee in that case failed to prove the purchases including source of expenditure, by not offering any explanation in the course of reassessment proceedings and therefore in the absence of any explanation qua source of expenditure, the AO had applied the provisions of section 69(c) of the Act and therefore, the Hon’ble High Court justified the action of the AO, in making the addition @100%. Whereas in the instant case, admittedly the Assessee has proved that the transactions have been carried out through banking channels and the assessing officer has not also not doubted the same and accepted specifically in the assessment order itself vide para 7(xii) for making the payment through banking channel.
The Ld. Counsel also submitted four judgments qua identical issue, by the Hon’ble Jurisdictional High Court, including in the case of Principal Commissioner of Income Tax-2 Vs Refrigerated Distribute Private Limited (ITA No. 1840/2018) decided on 05.03.2005, wherein the Assessing Officer estimated the gross profit @25%, which was confirmed by the then Ld. CIT(A). However, subsequently reduced by the tribunal to 10% and therefore, the Hon’ble High Court, by considering the peculiar fact that the issue involved relates to only estimation of profit; ultimately opined/decided that no substantial question of law can be said to have arisen in the instant case.
6549/M/2024, 6779/M/2024 Mr. Khimchand Okchand Bhansali 10. Thus this Court is in concurrence with the contention raised by Mr. Dhaval and the claim made by the Assessee that this case is factually dissimilar to the case dealt with by the Hon’ble High Court Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in decided on 03.03.2025. Hence the addition the addition @ 100% of the bogus purchases made by the AO and as claimed by the Ld. DR, cannot be restored.
This Court further observe that Tribunal in the cases of Mr. Manish P. Lathia, HUF Vs. ITO in decided on 12.12.2024 and Mr. Vinesh Arvindkumar Shah Vs. ITO in decided on 12.12.2024, has also dealt with identical issue as involved in this case, wherein the Assessee was also involved in the identical business such as ferrous or non- ferrous metals. The Hon’ble Coordinate Bench of the Tribunal restricted the addition from 12.5% to 5%.
And therefore considering the peculiar fact and circumstances, for the just and proper decision of the case and substantial justice, this court deem it appropriate to restrict the addition @5% instead of 4% as restricted by the Ld. Commissioner.
Thus the Assessing Officer is directed to compute the profit element/margin/estimation %5% instead of 4%, as restricted by the Ld. Commissioner.
In view of judgment in all 03 appeals under consideration, are partly allowed in same terms.
Order pronounced in the open court on 03.04.2025.