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Facts
The assessee's case was reopened under Section 147 following a search and seizure operation under Section 132(1). The Assessing Officer made an addition of Rs. 68,20,000/- under Section 69C for unexplained expenditure related to alleged bogus purchases. The CIT(A) partly allowed the assessee's appeal, deleting Rs. 59,67,500/- of the Section 69C addition by applying a gross profit rate on the alleged bogus purchases, relying on judicial precedents.
Held
The Income Tax Appellate Tribunal upheld the CIT(A)'s order, finding no infirmity in its decision to delete a portion of the Section 69C addition. The Tribunal affirmed that the entire purchase amount could not be disallowed solely based on the statement of a bogus bill provider when the assessee provided evidence of genuine transactions, banking payments, and GST compliance.
Key Issues
Whether the CIT(A) was justified in deleting a major portion of the Section 69C addition for unexplained expenditure on alleged bogus purchases by estimating a gross profit rate, or if the entire amount should have been disallowed by the AO.
Sections Cited
139, 132(1), 147, 148, 143(2), 142(1), 69C, 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM: This is the appeal preferred by the revenue against the order of Commissioner of Income Tax (Appeals), -27, Kolkata (hereinafter referred to as the Ld. CIT(A)] dated 28.09.2024 for AY 2019-20.
Assessment Year: 2019-20 M/s Dhansar Engineering Company Pvt. Ltd.
It appears from the report of the registry that the appeal has been filed after a delay of 6 days. At the time of hearing the counsel of the assessee explained the reason for delay in filing the appeal. The Ld. A.R did not raise any objection in condoning the delay. Keeping in view, the submission made by the A.R. and the judicial pronouncement that a case should be decided on merit not on technical issue, the delay is hereby condoned.
The facts of the case are that the assessee had filed return of income u/s 139 of the Income Tax Act, 1961 declaring total income at Rs.25,18,60,550/- on 31.10.2019. A search & seizure operation u/s 132(1) was conducted at various residential and business premises of “DECO Group” and related parties on 02.03.2023 and subsequent dates. Subsequent to the search and seizure operation, the DECO group of cases were centralized vide DGIT(Inv.) WB, Sikkim & NER letter dated 29.03.2023 in F. No. DGIT(inv.)/Kol/Tech1/Centralization/F109/2022-23/10065 and further PCIT(C)-2, Kolkata letter dated 17/04/2023 in F.No. Pr.CIT(C)-2/Kol/Tech-2/Cent./DECO Group/2023-24/137-139. DECO Group is a Kolkata and Dhanbad based business group engaged in business of Mining of Coal and other related services. M/s Dhansar Engineering Co. Private Limited is the flagship company of the group which provides services in the field of mining of Coal, Iron and other minerals. Apart from West Bengal and Jharkhand, the group has also marked their presence in Orissa, Chhattisgarh, Maharashtra and Assam. The assessee was also covered under the Search & Seizure action conducted u/s 132(1) of the Act on 02.03.2023. Consequent upon the operation u/s 132 of the Act, the case was reopened for assessment u/s 147 of the Act after obtaining prior approval from specified authority. The assessee filed return of income against notice u/s 148 on 16/10/2023 declaring income at Rs.25,18,60,550/-. Notice u/s 143(2) of the Income Tax Act, 1961 was issued and duly served upon the assessee. Further, notice u/s. 142 (1) of the Act along with a set of questionnaires was duly served upon the assessee. The assessee furnished written submission against the same. The return of income filed for the year under consideration, information emanating out in consequence of search and seizure operation and documents placed during the course of assessment proceedings was perused by the AO. The AO then passed an assessment Assessment Year: 2019-20 M/s Dhansar Engineering Company Pvt. Ltd. order dated 02.02.2024 assessing total income at Rs.26,24,61,058/-. On perusal of the assessment order, it is noticed that the AO had made additions on six grounds viz (i) disclosure of additional income based on seized documents to the tune of Rs.6,60,000/- (ii) unexplained expenditure u/s 69C of the Act to the tune of Rs.68,20,000/- (iii) Default in payment of Provident Fund to the tune of Rs.26,41,148/- (iv) disallowance of Interest on TDS to the tune of Rs.99,360/- (v)disallowance of deduction u/s 80G of the Act to the tune of Rs.1,00,000/- and (vi)Addition on account of undisclosed income to the tune of Rs.2,80,000/-.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed. The Ld. CIT(A) has directed the AO to delete Rs. 59,67,500/- against the addition made by the AO to the tune of Rs. 68,20,000/- u/s 69C of the Act and dismissed the appeal of the assessee on the ground of interest paid on the arrears of TDS etc.
Being aggrieved and dissatisfied the revenue preferred an appeal before us.
The Ld. D.R challenges the very impugned order on the following grounds: i) That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s 69 of the Act amounting to Rs. 59,67,500/- on account of unexplained cash credit made in respect of bogus purchase without appreciating the material brought on record and facts evaluated by the AO in the assessment order . ii) That the case clearly falls under the exceptional clause i.e. case involving organized tax evasion by way of expenditure booked against accommodation entries vide para no. 3.1(h) of Circular NO. 5/2024 dated 15.03.2024 by way of bogus purchase from a bogus supplier. iii) That on the judgments of the case law as cited by the Ld. CIT(A) cannot be accepted as it does not squarely applicable to the grounds of appeal filed by the assessee in this case. iv) That the Department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.
6. Contrary to that the Ld. A.R supports the impugned order thereby submitting that during the relevant year, the assessee company had purchased spare parts being track Assessment Year: 2019-20 M/s Dhansar Engineering Company Pvt. Ltd. shoe Assembly of excavators from M/s M. K Impex amounting to Rs. 68,20,000/- and the assessee has submitted relevant invoice of the goods received, ledger of the party and extract of the bank statement evidencing the payment made through banking channels. The Ld. A.R has further submitted that the Ld. CIT(A) has discussed the facts of the case, also discussed the documents with judicial pronouncement and thereafter gave relief to the assessee.
7. Upon hearing the submission of the counsel of the respective parties, we have gone through the order passed by the Ld. CIT(A) and from perusal of the same following facts have been emerged: i)The said purchases are actual purchases, part & partial of the regular books of accounts of the assessee and made in normal course of their business. ii)The said purchases are fully supported with bills & vouchers. iii)The GST liabilities arising on sale by the said supplier are reflected in their GST Returns while the corresponding GST input credit there against is reflected in the GST Returns of the assessee. iv)These spare parts are used/ consumed in the course of providing the mining services, against which there is also credit by way of service charges income. The GST liabilities on these incomes are also reflected in the GST returns of assessee. v)All the payments against the said purchases are made through proper banking channel only. vi) No incriminating document relating to the above purchases was found & seized from the assessee’s premises in the course of search & seizure at assessee premises.
8. We have also gone through the order passed by the Ld. CIT(A) and find that the Ld. CIT(A) has discussed the submission made by the assessee and also Assessment Year: 2019-20 M/s Dhansar Engineering Company Pvt. Ltd. discussed the case law. The relevant portion of the order of the Ld. CIT(A) is essential to reproduce herein below:
5.3 Discussion and Decision: 5.3.1 I have gone through the assessment order as well as the submission made by the appellant. On perusal of the same, it is observed that the assessee contends that the AO made the addition u/s 69C of the Act on the basis of the statement recorded of Sri Mukesh Kumar Chaurasia, Proprietor of M/s. M.K. Impex while ignoring the documents submitted by the assessee for proving the genuineness of the purchase. The assessee also contends that it was not provided a copy of the statement given by Mr. Chaurasia and was not given an opportunity to cross- examine him. The assessee also referred to this provision claiming that since the source of the expenditure has been explained by the assessee and that the purchases made from Mr. Chaurasia are part and parcel of the books of the assessee and the payment has been made through proper banking channel and source of such payments were also explained to the AO during the course of assessment proceedings. The assessee also claimed that the AO had not pointed out any defect in the documents produced before him to support the purchases made. Hence, under any circumstances provision of Section 69C cannot be attracted to make the addition. 5.3.2 Reliance may be placed on the judgement of Hon’ble Bombay High Court, in the case of ‘The Principal Commissioner of Income Tax-17 vs. M/s Mohommad Haji Adam & Co., 1013, 1059, 1064, 1075, 1095, 1204 & 1012 of 2016, dated 11.02.2019’, where the Hon’ble Court had held the following: “8 In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact, in paragraph 8 of the same Judgment the Court held and observed as under- “So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66 %. Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue.”
Assessment Year: 2019-20 M/s Dhansar Engineering Company Pvt. Ltd.
In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.” Further, in the judgement of Hon’ble ITAT, in the case of ‘Jitendra M Kitavat, Mumbai vs Ito 18(1)(5), Mumbai on 13 April, 2018, in & 7102/Mum/2016, dated 13/04/2018 had held the following: “The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s. Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @ 12.5% is applied on such total alleged bogus purchases amounting to Rs.1,05,18,970/-, the additional gross profit on such purchases would come to Rs.13,14,871/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and the balance addition made amounting to Rs.92,04,099/-is hereby deleted. The Assessing Officer is directed accordingly. Hence, grounds no. 1 & 2 are partly allowed.” 5.3.3 In view of the above discussion and judicial pronouncements, it is seen that the AO has added the entire amount of expenditure i.e. Rs.68,20,000/- u/s 69C of the Act to the total income of the assessee. Statement of bogus bills provider cannot be the sole basis for disallowing the entire expenditure. It is proposed to estimate Gross Profit on bogus purchases of Rs.68,20,000/- @12.5% which come to Rs.8,52,500/- (68,20,000 @12.5% = 8,52,500/-). Therefore, the AO is directed to delete Rs.59,67,500/- from the addition. Hence this ground of appeal raised by the assessee is partly allowed.”
9. Going over the facts of the case as well as the order passed by the Ld. CIT(A), we do not find anything in the impugned order. Accordingly, the appeal of the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order is pronounced in the open court on 2nd July, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 2nd July, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- ACIT, Central Circle-4(2), Kolkata 2. Respondent – M/s Dhansar Engineering Company Pvt. Ltd., 2nd Floor, 46B, Rafi Ahmed Kidwai Road, Park Street, Kolkata-700016 3. Ld. CIT(A)- 27, Kolkata 4. Ld. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)