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Facts
The assessee, part of the Kanodia Group, was found during a search operation to be involved in bogus sales and purchase transactions intended to inflate turnover. The Assessing Officer (AO) made an addition by applying a 4% profit rate on these bogus purchases, and in another assessment year, made an entire addition for bogus purchases involving an intermediary, which the assessee denied. The Ld. CIT(A) deleted these additions, noting that the bogus purchases and sales were managed by the same brokers, fully disclosed in books, and a percentage of profit on such transactions was already offered by the assessee.
Held
The Income Tax Appellate Tribunal (ITAT) upheld the Ld. CIT(A)'s decision, thereby dismissing the Revenue's appeals. The Tribunal observed that both the purchases and sales were fictitious, arranged by the same operators for circular trading to inflate turnover, and since the assessee had already offered a percentage of profit on such transactions in its returns, no further addition was warranted. This decision was applied mutatis mutandis to similar appeals for other assessment years.
Key Issues
Whether additions for bogus purchases and sales are sustainable when transactions are circular trading to inflate turnover, and the assessee has already offered a percentage of profit on such transactions in its books of accounts, or if the entire addition made by the AO on bogus purchases is justifiable.
Sections Cited
139(1), 115JB, 132, 147, 143(3), 263, 69C, 133(6), 131, 68, 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM
Theseare appeals preferred by the Revenue against the orders of the Commissioner of Income-tax (Appeals), Kolkata-27 (hereinafter referred to as the “Ld. CIT(A)”] dated 13.04.2025 for the AYs 2015-16 to 2018-19.
As the facts and issues in all the appeals of Revenue are exactly identical, hence, for the sake of brevity, we take for A.Y. 2015-16 and decide the issue accordingly.
A.Y. 2015-16 3.1. The facts in brief are that the assessee filed the return of income u/s 139(1) of the Act on 31.03.2016, showing total income of ₹3,88,16,830/- under the normal provision and ₹3,23,00,903/- under the 115JB of the Act. A search u/s 132 of the Act was conducted on 30.11.2022 and on the subsequent dates in the case of Kanodia Group of cases and assessee was also covered under the said search. The ld. AO found during the course of assessment proceedings that assessee was involved in transactions of bogus sale and purchase of material which was intended to increase the turnover of the assessee and accordingly, applied a profit rate of 4% on the said bogus purchases in assessment framed dated 31.03.2024, passed u/s 147/143(3) of the Act.
3.2. In the appellate proceedings, the ld. CIT (A) deleted the addition by holding that the bogus purchases and sales are only managed by the same brokers/ commission agents and since both the purchases as well as the sales are fully disclosed in the books of account and were intended to inflate the turnover, therefore, no further addition is required to be made.
3.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is belonging to Kanodia Group of cases and we have already decided the identical issue in & Ors for A.Y. 2015-16 & Ors, wherein we uphold the order of ld. CIT (A). The operative part is as under:-
It would kindly be appreciated that the facts of the case in hand is totally different as no incriminating document was found during the case of search and seizure operation conducted by the department. The disallowance has been made on the basis of the information available in the insight portal and also The facts in this appeal are also identical as in involved as discussed above in A.Y. 2015-16. The only difference is that in stead of apply profit rate 4%, the ld. AO made the entire addition of bogus purchases to the income of the assessee on the ground that unaccounted transactions through intermediary M/S Reyansh Reroller Pvt Ltd. despite the assessee stating before the AO that the assessee has no transactions with the said party. Ld. Commissioner of Income- tax (Appeals) delete the addition by recording a finding of facts that there was no transaction with the said party and in fact noted in the appellate order that the assessee had done transactions with the sai d party in A.Y. 2015-16. We note that the ld. AO has made addition under wrong appreciation of facts which correctly recognized by the appellate authority in the appellate proceedings. The operative part is as under:-
“6.2. Discussion and decision:- 6.2.1. I have perused the assessment order u/s 147 r.w.s 144B of the Act dated 26.03.2022, post search assessment order u/s 147/143(3) of the Act dated 31.03.2024 and submission of the assessee.
On going through the above tabulated finding, it is quite evident that the assessee has not made any fake purchases or received any amount from the alleged entity M/s Reyansh ReRoller Private Limited during the period of AY 2016-17. Indeed, the A.Ys 2016-17 to 2018-19 1690 & 1691 /KOL/2025 4. The issue raised in these appeals are similar to one as decided by us in A.Y. 2015-16. Accordingly, our decision would, mutatis mutandis, apply to these appeals of assessee in & 1691/KOL/2025. Hence, the appeals of Revenue are dismissed.
In the result, the appeals of the Revenue are dismissed.
Order pronounced in the open court on 15.12.2025.