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Facts
A search action under Section 132 led to an assessment under Section 153A for the assessee. The AO made an addition of ₹75,00,000/- u/s 68 for an unexplained unsecured loan, disallowed interest of ₹9,41,221/- u/s 69C on unsecured loans, and added ₹37,46,308/- for bogus purchases. The CIT(A) deleted the additions u/s 68 and u/s 69C, and restricted the bogus purchase disallowance to 5% of the purchase value as a profit element. The Revenue appealed against the CIT(A)'s order.
Held
The ITAT upheld the CIT(A)'s deletion of the addition u/s 68 for unsecured loans, noting that repayment had been made and evidence of genuineness was provided. Consequently, the deletion of interest disallowance u/s 69C was also affirmed. For bogus purchases, the ITAT confirmed the 5% disallowance as a profit element, acknowledging that material was consumed and sales were made. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.
Key Issues
Whether the CIT(A) correctly deleted the addition for unsecured loans u/s 68 and disallowance of interest u/s 69C. Whether the CIT(A) was justified in restricting the disallowance for bogus purchases to 5% of the purchase value.
Sections Cited
68, 132, 153A, 139(1), 143(2), 133(6), 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
This is an appeal preferred by the revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-26 (hereinafter referred to as the “Ld. CIT(A)”] dated 25.02.2025 for the AY 2019-20.
The first issue raised by the Revenue in Ground no.1 is against the deletion of addition by the ld. CIT (A) of ₹75,00,000/-as made by the AO u/s 68 of the Income-tax Act, 1961 (the Act).
2.1. The facts in brief are that the assessee filed the return of income on 02.12.2021. Thereafter, search u/s 132 of the Act was conducted on 29.01.2021 in the case of Balaji Group, during which various incriminating material were seized. Notice u/s 153A of the Act was issued on 09.10.2021, which was complied with by the assessee by filing the return of income declaring the same
2.2. In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee by holding that assessee has proved the identity, creditworthiness and genuineness of the creditor by filing the necessary evidences. The ld. CIT (A) noted that genuineness of the transactions was proved as it borrowed the money through banking channel and was carrying on genuine business. The ld. CIT (A) also noted that the loan was repaid on a later date and interest was paid after tax deducted at source.
2.3. After hearing the rival contentions and perusing the materials available on record, we find that in this case the loans
The issue raised in second ground of appeal is against the deletion of addition of ₹9,41,221/- u/s 69C of the Act in respect disallowance of interest paid on unsecured loan.
3.2. After hearing the rival contentions and perusing the materials available on record, we find that the interest paid comprised payment to two parties (i) Everlight Vincom Private Limited of ₹2,14,773/- and Rasili Barter Private Limited of ₹7,26,448/-. The ld. CIT (A) deleted the addition after treating the loan of ₹75,00,000/- as genuine so far as the loan of Everlight Vincom Private Limited. Since, we have affirmed the order of the ld. CIT (A) on this issue, therefore, the interest paid on the said loan is also rightly deleted by the ld. CIT (A).So far as the interest amount of ₹7,26,448/- paid to Rasili Barter Private Limited is concerned, we note that the ld. CIT (A) has recorded the finding that in A.Y. 2015-16, the assessee has taken the said loan from Rasili Barter Private Limited and AO has not made any reverse finding and no addition as made. Accordingly, we do not find any infirmity in the order of the ld. CIT (A). The ground no.2 is dismissed by upholding the order of the ld. CIT (A) on this issue.
The issue raised in ground no.3 and 4 are in support to ground no.1 and 2 and therefore, dismissed.
The issue raised in ground no. 5 is against the order of the ld. CIT (A) restricting the disallowance of 5% on account of bogus purchase to the tune of ₹37,46,308/- from Pushpadham Heights (P) Ltd.
5.1. The facts in brief are that in the assessment proceeding, the ld. AO made an addition on account of bogus purchases of ₹37,46,308/- then the assessee failed to substantiate the identity
5.2. In the appellate proceedings, the ld. CIT (A) uphold the appeal of the assessee by applying the ratio of 5% on the said bogus purchases by observing and holding as under: - “5. After hearing the rival contentions and perusing the material on record, we find that the assessee is in the business of manufacturing of electrical goods and aluminium items. The AO after receiving the information from DDIT (Inv.), Kolkata came to the conclusion that the assessee has purchased goods worth Rs. 7,27,536/-from the concerns controlled and operated by Sri Sanjiw Kumar Singh who is engaged in providing accommodation We note that the assessee has produced evidences, comprising bills vouchers however has not responded to the show cause notice issued by the AO. In our opinion in the case of bogus purchases the entire purchases cannot be added to the income and only profit element embedded in the said purchases can be added. In the similar type of cases, the various Coordinate Benches have held that where the assessee has obtained bogus bills of purchases and the purchases were in fact made from the other suppliers i.e grey market thereby making the savings in respect of VAT and other additional expenses and therefore,the assessee earns more than the normal profits. In the present case the assessee has duly furnished bills and vouchers and the material was consumed in the manufacturing process. However, since the assessee has failed to offer any cogent and convincing reply about the goods being received by the assessee with necessary evidences, we deem it fit to make a reasonable disallowance of 5% on account of profit element. Accordingly, the order of Ld. CIT(A) is modified and the AO is directed to sustain the addition to the extent of 5% of the bogus purchases.
6. In the result, the appeal filed by the assessee is partly allowed. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, then the AO would be justified in adding back the entire purchases to the income of the assessee. In the present case, the assessee has duly furnished bills and vouchers and the material was consumed in the manufacturing process. However, since the assessee has failed to offer any cogent and convincing reply about the goods being received by the assessee with necessary evidences, it is deemed fit to make a reasonable disallowance of 5% on account of profit element. Respectfully, following the decisions cited above, the AO is directed to restrict the disallowance to 5% on account of profit element on the bogus purchase.” 5.3. After hearing the rival contentions and perusing the materials available on record, we note that the ld. CIT (A) has recorded the finding that the assessee has produced all the evidences comprising bills and vouchers. The ld. CIT (A) noted
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 30.07.2025.