GUJARAT VAIBHAV PUBLICATIONS PVT. LTD.,AHMEDABAD vs. THE ITO, WARD-2(1)(1), AHMEDABAD

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: These two appeals are filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”), both dated 09.04.2025, for the Assessment Years (A.Y.) 2015-16 & 2016- 17 in the proceeding under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. As the facts and the issues involved in the two appeals are identical, both the matters were heard together and are being disposed of vide this ITA Nos.1358 & 1359/Ahd/2025 (Assessment Years: 2015-16 & 2016-17) consolidated order for the sake of convenience. We will first take up appeal in ITA No.1358/Ahd/2025 for the A.Y. 2015-16. ITA No.1358/Ahd/2025 for the A.Y. 2015-16 3. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2015-16 on 12.09.2015 declaring loss of Rs.(-) 97,895/-. The Assessing Officer had received an information from the ADIT (Inv.), New Delhi, that the assessee had made huge transactions with entities M/s. A.M. Enterprise and M/s. Vandana Raj Corporation. On enquiry, the assessee has submitted that it has made purchase of newsprint papers from the above entities. The Assessing Officer had issued summons to M/s. A.M. Enterprise and M/s. Vandana Raj Corporation, which were returned undelivered. Thereafter, physical enquiry was made and M/s. A.M. Enterprise was not found in existence at the given address. Regarding M/s. Vandana Raj Corporation, it was reported by the Inspector that this firm belongs to one Shri Raj Kumar Singh who was engaged in dealing of hardware items. On the basis of the enquiry reports, the Assessing Officer had recorded his reason under Section 147 of the Act for escapement of income and the case of the assessee was reopened by issue of notice under section 148 of the Act on 13.02.2019. In the course of assessment, the Assessing Officer had treated the purchase of Rs.2,91,37,222/- made by the assessee from M/s. Vandana Raj Corporation as bogus and 15% of the purchases was considered as income of the assessee and accordingly an addition of Rs.43,70,583/- was made. No transaction was found made with the other party M/s. A.M. Enterprise during the year. The assessment was completed under Section 143(3) read with Section 147 of the Act on 27.12.2019 at total income of Rs.42,72,730/-.

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17)
5. Now the assessee is in appeal before us. The following grounds have been taken in this appeal: -
“1. The learned CIT(A) has erred in law and on facts of the case in confirming action of Id. AO of reopening the assessment u/s. 147 of the Act. Under the facts and circumstances of the case, the action of reopening is without juri iction and is not permissible either in law or on facts.

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17)
7. Ground nos.2 & 3 pertain to addition of Rs.23,30,978/- confirmed by the Ld. CIT(A) in respect of bogus purchase at the rate of 8%. The other grounds taken by the assessee are only subsidiary ground in respect of this addition. Shri Tushar Hemani, Ld. Sr. Advocate appearing for the assessee, submitted that the Assessing Officer had reopened the case alleging bogus purchase of Rs.2,00,000/- from M/s. A.M. Enterprise.
However, the Assessing Officer did not make any addition in respect of purchase from M/s. A.M. Enterprise. The Ld. Sr. Counsel submitted that it is a settled law that no addition can be made on other issues in absence of addition for the issues based on which the case was reopened. In this regard, he placed reliance on the following decisions:- a)
CIT vs. Mohmed Juned Dadani – [2014] 355 ITR 172 (Guj) b)
CIT vs Jet Airways – [2011] 331 ITR 236 (Bombay) c)
Ranbaxy Laboratories Ltd. – [2011] 336 ITR 136 (Delhi)

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17)
9. Per contra, Shri Rajiv Garg, Ld. Sr. DR, submitted that the Assessing Officer had reopened the case for the reason that the transactions by the assessee made with M/s. A.M. Enterprise and M/s.
Vandana Raj Corporation were not genuine. He explained that the Assessing Officer had conducted enquiries in respect of both these parties which are duly incorporated in the reason as recorded by the Assessing
Officer. Merely because the Assessing Officer had quantified the escapement of income of Rs.2,00,000/- pertaining to the transaction of M/s. A.M. Enterprise, it cannot be held that the case was reopened only to verify this particular transaction. The Ld. Sr. DR submitted that the fact regarding issue of summon to M/s. Vandana Raj Corporation and non- compliance thereof as well as the enquiry report of the Inspector at the premises of M/s Vandana Raj Corporation was duly mentioned in the reason recorded by the Assessing Officer. He emphasized that the case was reopened not only to examine the transaction the assessee with M/s
A.M. Enterprise but also with M/s. Vandana Raj Corporation. As regarding quantum of escapement of income, the Ld. Sr. DR submitted that the case was reopened within four years and the quantum of escapement of income as stipulated under Section 149 of the Act was not applicable in the present case. With regards to merits of the addition, the Ld. Sr. DR submitted that mere copy of invoice/bill for the purchases and the payments through banking channel does not establish the genuineness of the purchases. He submitted that no supporting documents for transportation of goods, delivery challan, vehicle nos., weighing slips, bilty for transportation etc. were brought on record to establish that the ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17) purchases were genuine. The Ld. Sr. DR, therefore, strongly supported the order of the lower authorities on the issue of bogus purchase. As regarding estimation of income out of bogus purchase, the Ld. Sr. DR submitted that no addition for entire bogus purchase was made, rather the Assessing Officer had made addition for only profit element embedded in such bogus purchase at the rate of 15% which was reduced to 8% by the Ld. CIT(A). He further submitted that, considering the gross profit of 2.57%
disclosed by the assessee, the estimation of profit @ 8% as upheld by the Ld. CIT(A) was reasonable.
10. We have considered the rival submissions. The contention of the assessee is that the Assessing Officer had recorded escapement of income of Rs.2,00,000/- only pertaining to M/s. A.M. Enterprise, in respect of which no addition was made in the assessment order. Under the circumstances, no addition could have been made in respect of transaction with of any other party and, therefore, the addition in respect of M/s. Vandana Raj Corporation was not justified. A copy of the reason recorded by the Assessing Officer has been brought on record in the paper-book filed by the assessee. In order to deal with this contention of the assessee, we deem it proper to reproduce the reason as recorded by the Assessing Officer, which is as under: -
“The assessee company e-filed its Return of income for the A.Y. 2015-16 on 12/09/2015 declaring total loss at Rs. (-)97,859/- which was processed u/s.
143(1) of the Act on 18/04/2016. The assessee company is engaged in business of printing and publishing.
2. An information was received from the Office of Asst. Director of Income
Tax (Inv.), Unit-7(3), New Delhi vide letter No. ADIT(Inv.)/Unit-7(3)/ST/2018-19
dated 05/03/2019 that credible information is in possession of the department in the case of M/s. Vaibhav Publications Pvt. Ltd. and M/s Gujarat Vaibhav
Publication Pvt. Ltd. It is found that both the companies have made huge transactions with entities like M/s AM Enterprise and M/s Vandana Raj
Corporation. The assessee company was asked to provide nature and purpose of these transactions. In response, the AR of the Gujarat Vaibhav Publication

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17)
Pvt. Ltd. submitted that the company purchased News Print paper from M/s AM
Enterprise and M/s Vandana Raj Corporation during the F.Y. 2014-15 to 2016-
17. Copies of ledger account for both the parties are submitted.
However, to cross verify the transactions made, summons were issued to M/s AM Enterprise and Vandana Raj Corporation, but the same was returned undelivered from the addresses available on record. Further, the Inspector was deputed for field enquiry of the said entities. The Inspector reported that there is no such entity at the given address in case of M/s AM Enterprises. Regarding
Vandana Raj Corporation the Inspector reported that the firm belongs to Mr.
Raj Kumar Singh. The same is engaged in dealing of hardware items, however on enquiring from neighbours about the activities and person related the said address, they conveyed Mr. Raj Kumar Singh lives there with his family, and they have no knowledge of any business activity carried out from the said address.
3. On analysis of information received, it is noticed that the entity i.e. M/s
AM Enterprises appeared to be mere paper entity and the assessee company could not justify the transaction made with the M/s AM Enterprises during the F.Y. 2014-15 relevant to A.Y. 2015-16 to the tune of Rs.2,00,000/-. In view of the above, I have reason to believe that there is escapement of income from tax to the tune of Rs.2,00,000/- by reason of failure on part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year. Therefore, this is a fit case for initiating proceedings u/s.147
of the Act for Α. Υ. 2015-16. 4
In this case, return of income was filed for the year under consideration but no scrutiny assessment u/s.143(3) of the Act was made. Accordingly, in this case the only requirement to initiate proceedings u/s.147 is reason to believe which has been recorded above.
5. It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s. 2(40) of the Act was made and the return was processed only u/s.143(1) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.
6. This case is within four years from the end of the assessment year under consideration. Hence, necessary sanction to issue notice u/s.148 is requested for approval from Addl. Commissioner of Income Tax, Range-2(1). Ahmedabad as per provisions of section 151 of the Act and the same was approved on 11.03.2019.”

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17) with M/s. A.M. Enterprise and M/s. Vandana Raj Corporation. The Assessing Officer had made enquiries in respect of both these parties.
The summon issued to M/s. A.M. Enterprise and M/s. Vandana Raj
Corporation, both were returned undelivered from the address available on record. Thereafter, field enquiries were conducted in respect of both the parties. While M/s. A.M. Enterprise was not found in existence at the given address, as per the Inspector’s report the proprietor of M/s.
Vandana Raj Corporation, Shri Raj Kumar Singh, was found engaged in dealing with hardware items. In view of these categorical findings in the reason as recorded by the Assessing Officer, the assessee cannot take a plea that the case was reopened only to examine the transactions of the assessee with M/s. A.M. Enterprise and not with M/s. Vandana Raj Corporation. From the reason as recorded by the Assessing Officer, it is evident that the case was reopened to examine the transactions of the assessee with both the parties. In paragraph - 3 of the reason, however, the Assessing Officer had recorded the quantum of escapement of Rs.2,00,000/- only in respect of M/s. A.M. Enterprise, on the basis of which the assessee has contended that the escapement was recorded in respect of this party only. The reason recorded by the Assessing Officer cannot be read in isolation vis-à-vis paragraph no.-3
only. The condition regarding quantum of escapement, as provided in section 149 of the Act, was relevant only where the case was reopened after expiry of four years from the end of the relevant assessment year.
In the present case, the case was reopened within four years and, therefore, the quantum of escapement of income was not relevant at all.
The case could have been rightly reopened by the Assessing Officer even without mentioning the quantum of escapement in the reason. Since the case of the assessee was reopened in order to examine the transactions

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17) of the assessee with M/s. A.M. Enterprise as well as with M/s. Vandana
Raj Corporation, the Assessing Officer had rightly made the addition in respect of the transactions with M/s. Vandana Raj Corporation. From the reasons as recorded by the Assessing Officer, it cannot be held that the case was not reopened to examine the transactions of the assessee with M/s. Vandana Raj Corporation. Therefore, the contention of the assessee that no addition could have been made in respect of the transactions with M/s. Vandana Raj Corporation, is rejected.
12. As regarding genuineness of purchases from M/s. Vandana Raj
Corporation, the assessee has submitted that the evidences in the form of bills and vouchers as well as payment through banking channels were duly brought on record. The authenticity of the purchases cannot be confirmed only on the basis of purchase bills and payment details. Such evidences are also kept on record even in respect of bogus purchases.
The assessee was unable to bring on record any evidence for transportation of the goods purchased from M/s. Vandana Raj
Corporation. No evidence for transportation of goods including delivery challan, vehicle number etc. was brought on record. On enquiry, the proprietor of M/s. Vandana Raj Corporation was found dealing in hardware items only. The contention of the assessee is that the sales were not doubted and, therefore, underlying purchases has to be held as genuine and correct. It is true that the Revenue did not dispute the sales shown by the assessee but this does not make the purchases from this party genuine. The assessee might have purchased the goods from one party but the bills might have been obtained from a different party. It is for this reason that the Assessing Officer had estimated a higher profit margin of 15% on the alleged bogus purchases as the profit derived in such transactions will be certainly higher than the GP rate as disclosed by the ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17) assessee. Hon’ble Gujarat High Court has consistently held that only profit element embedded in purchases is required to be taxed. In the case of Indian Ion Exchange & Chemicals Limited ITA No.1420/Ahd/2025
dated 16.10.2025 decided by the co-ordinate bench of this Tribunal it was held that it will be reasonable to restrict the addition in respect of bogus purchases @ 5% higher than the GP disclosed by the assessee.
Following the same, the Juri ictional Assessing Officer is directed to estimate the profit out of the purchase of Rs.2,91,37,222/- made from M/s.
Vandana Raj Corporation at the rate of 5% higher than the GP rate disclosed by the assessee in the current year, after allowing an opportunity of being heard to the assessee. The grounds taken by the assessee are partly allowed.

ITA No.1359/Ahd/2025 for the A.Y. 2016-17
15. The facts involved in ITA No.1359/Ahd/2025 for A.Y. 2016-17 are identical to ITA No.1358/Ahd/2025 for the A.Y. 2015-16. The grounds raised by the assessee in this year are also identical. Accordingly, the decision taken by us in ITA No.1358/Ahd/2025 for A.Y. 2015-16 is applicable mutatis mutandis to A.Y. 2016-17 as well. Accordingly, the appeal of the assessee is partly allowed.

ITA Nos.1358 & 1359/Ahd/2025
(Assessment Years: 2015-16 & 2016-17)
PBN/*
Copies to: (1)
The appellant
(2)
The respondent

(3)
The PCIT

(4)
The CIT(A)

(5)
Departmental Representative

(6)
Guard File
By orderE COPY