Loading judgment…
Facts
The assessee filed its return for AY 2014-15. The case was reopened based on information that the assessee made purchases of Rs.92,20,100/- from an accommodation entry provider, M/s. Siddh Syndicate. The AO added this amount as bogus purchases.
Held
The Tribunal held that while the purchases might not be genuine from Siddh Syndicate, disallowing the entire amount was not justified. The addition was restricted to the profit element, calculated as 5% higher than the assessee's disclosed Gross Profit.
Key Issues
Whether purchases made from a party identified as an accommodation entry provider can be disallowed entirely, or only the profit element should be taxed?
Sections Cited
147, 148, 143(3), 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 30.06.2025 for the Assessment Year (A.Y.) 2014-15 in the proceeding under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
(Assessment Year: 2014-15) Indian Ion Exchange & Chemicals Ltd. vs. ITO Page 2 of 8 2. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2014-15 on 29.11.2014 declaring total income of Rs.25,93,822/-. Subsequently, the case of the assessee was reopened on the basis of information received that the assessee had made transactions with an accommodation entry provider in respect of purchases of Rs.92,20,100/-. Accordingly, a notice under Section 148 of the Act was issued on 22.03.2019. In the course of assessment, the Assessing Officer made addition of Rs.92,20,100/- on account of purchases made from M/s. Siddh Syndicate which were held as bogus. The assessment was completed under Section 143(3) read with Section 147 of the Act on 16.12.2019 at a total income of Rs.1,18,31,330/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
The assessee is now in second appeal before us. The following grounds have been taken in this appeal: -
1. In law and in the facts and circumstances of the case, the Ld. AO has erred in reopening the case of the appellant u/s.148 of 1.T. Act, 1961.
In Law and in the facts and circumstances of the case, the Ld. CIT(A) has erred in confirming the addition made by the Ld. AO by treating the purchase made by appellant from Siddh Syndicate as Bogus Purchase and thereby erred in confirming addition of Rs 92,20,100/-.
3. The appellant craves leave to add to, alter, amend and or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
5. The first ground pertains to reopening of the case under Section 148 of the Act. In the course of hearing, the Ld. AR of the assessee did not press this ground. Hence, this ground is dismissed.
6. The next ground pertains to addition of Rs.92,20,100/- on account of bogus purchase from M/s. Siddh Syndicate. Shri Biren Shah, Ld. AR of the assessee, explained that the assessee company is engaged in the business of trading of Water Treatment Plant. The case of the assessee was reopened on the basis of statement of one Shri Mahendra Shantilal Patel who had given statement that he was engaged in the activities of providing accommodational entries. The Ld. AR submitted that the assessee was not provided with the statement of Shri Mahendra Shantilal Patel and no opportunity to cross examine him was provided in spite of specific request. On the other hand, the assessee had furnished all the relevant evidences in the form of purchase bills, copy of ledger account, bank statement etc. to establish that the purchase of Rs.92,20,100/- made by the assessee from M/s. Siddh Syndicate was genuine. The Ld. AR further submitted that the assessee had also co-related the purchases made from the said party with corresponding sales and reconciliation statement of purchase and sales was also filed. Under the circumstances, there were no basis to treat the purchases of the assessee as bogus. The Ld. AR further submitted that the Gross Profit (GP) disclosed by the assessee in the current year was 12.63% which was much higher than the GP of 9.29% in the preceding year. Considering this fact, as well as the evidences as brought on record by the assessee, the addition as made by the Assessing Officer was not called for. In this regard, the Ld. AR also relied upon the following decisions: - (Assessment Year: 2014-15) Indian Ion Exchange & Chemicals Ltd. vs. ITO Page 4 of 8 1) CIT vs. Premkumar B. Rathi, 59 taxmaznn.com 203 (Guj.) 2) CIT vs. Simit P. Sheth, 38 taxmann.com 385 (Guj) 3) CIT vs. Bholanath Poly Fab P. Ltd., 40 taxmann.com 494 (Guj,) 4) CIT vs Odeon Builders Ltd., 110 taxmann.com 64 (SC)
Per contra, Shri B.P. Srivastava, Ld. Sr. DR submitted that a search operation was conducted in the case of one Shri Mahendra Shantilal Patel and in the course of search it was found that he was operating under four different names with different date of birth, with four PANs and multiple bogus concerns were utilized for providing accommodation entries through bogus bills. In the course of statement recorded during the search under Section 132(4) of the Act, Shri Mahendra Shantilal Paltel had admitted that he did not supply the materials, that he was issuing only bogus bills and that he had no supporting documents in respect of transportation to parties, labour charges paid etc. The Ld. Sr. DR submitted that there was no dispute to the fact that M/s. Siddh Syndicate, from whom the assessee had made purchases of Rs.92,20,100/- during the year, was operated by Shri Mahendra Shantilal Patel and this concern was providing entries in the nature of accommodation entry only. The Ld. Sr. DR further submitted that the assessee was unable to produce delivery documents such as delivery challans, vehicle numbers, weighing slips, bilty for transportation of goods etc. in respect of the purchases made from M/s. Siddh Syndicate; which substantiated the statement of Shri Mahendra Shantilal Paltel that the purchases made by the assessee from this party was bogus. The Ld. Sr. DR, therefore, strongly supported the order of the lower authorities.
(Assessment Year: 2014-15) Indian Ion Exchange & Chemicals Ltd. vs. ITO Page 5 of 8 8. We have considered the rival submissions. It transpired that the entire case of the Revenue is based on the statement of Shri Mahendra Shantilal Patel, the accommodation entry operator. The fact that the assessee had made purchase of Rs.92,20,100/- from M/s. Siddh Syndicate, which was operated by the said accommodation entry provider, has not been disputed. In the case of purchase from accommodation entry provider, the purchase bills and payment through bank statement will certainly be there. Therefore, the authenticity of the purchases cannot be confirmed only on the basis of the purchase bills and the payment details. The assessee has been unable to bring on record any evidence for transportation of goods purchased from M/s. Siddh Syndicate. No evidence for transportation of the goods including delivery challan, vehicle number etc. was brought on record. At the same time, no enquiry was made by the Assessing Officer to find out the cash trail of these purchase transactions. As admitted by Shri Mahendra Shantilal Patel, he was giving back cash against cheque/RTGS received from the persons availing bogus purchase entries. In view of this admission of the entry provider, the Assessing Officer should have examined the bank account of M/s. Siddh Syndicate, the entry provider, to find out the cash trail and establish that cash was immediately withdrawn after the payments made by the assessee through cheque/RTGS. The Assessing Officer had made addition of Rs.92,20,100/- based only on third party information and the transaction of the assessee was not subjected to any further scrutiny. The Assessing Officer also did not provide the copy of the statement of the accommodation entry provider to the assessee.
(Assessment Year: 2014-15) Indian Ion Exchange & Chemicals Ltd. vs. ITO Page 6 of 8 8.1 The assessee had co-related the purchases made from M/s. Siddh Syndicate with sales and reconciliation chart in this respect was brought on record in the paper-book filed by the assessee. The Revenue has neither disputed the sales shown by the assessee nor contradicted the reconciliation of purchases from M/s. Siddh Syndicate with corresponding sales. Considering the fact that the sales of the assessee has not been doubted, one can only conclude that the assessee had made purchases from different parties but the bills were obtained from the accommodation entry provider. The assessee had disclosed GP of 12.63% during the current year, as against the GP of 9.2% only in the preceding year. Considering the higher GP during the current year, the purchases made by the assessee cannot be held as bogus without disputing the sale figures. Therefore, no disallowance for the entire purchase of Rs.92,20,100/- made from M/s. Siddh Syndicate was called for. Apart from the statement of the entry provider, the Revenue has been unable to bring on record any evidence that the purchase of the assessee was bogus. At the same time, since the assessee has been unable to produce evidence for transportation of the goods purchased from M/s. Siddh Syndicate, it will be reasonable to conclude that the purchases were made not from M/s. Siddh Syndicate but from third parties and the profit derived in such transactions will be certainly higher than the GP rate as disclosed by the assessee.
8.2 In the case of Premkumar B. Rathi (supra), Hon’ble Gujarat High Court had upheld the disallowance of 10% of bogus purchases as confirmed by the Tribunal. Similarly, in the case of Simit P. Sheth (supra), the Hon’ble Gujarat High Court had held that only profit element embedded in purchases made from accommodation entry providers could (Assessment Year: 2014-15) Indian Ion Exchange & Chemicals Ltd. vs. ITO Page 7 of 8 be added and upheld the addition of 12.5% sustained by the Tribunal. In the case of Bholanath Poly Fab P. Ltd. (supra) also, the Hon’ble Gujarat High Court had reiterated that only profit margin embedded in bogus purchases could be subjected to tax and not the entire purchases. Similarly, Hon’ble Gujarat High Court in the case of Kesari Exports, (174 taxmann.com 162) had upheld the addition of 6% of bogus purchases made from accommodation entry provider.
8.3 Considering the consistent view of the Hon’ble Jurisdictional High Court that only profit margin embedded in the bogus purchases are required to be taxed, it will be reasonable to restrict the addition in respect of purchases made from M/s. Siddh Syndicate, @ 5% higher than the GP disclosed by the assessee in the current year. Accordingly, the Assessing Officer is directed to estimate the profit out of the purchase of Rs. Rs.92,20,100/- made from M/s. Siddh Syndicate at the rate of 17.63%. Since, the assessee had already disclosed GP of 12.63% in respect of these purchases in its accounts, the addition made by the AO is restricted to 5% Rs.92,20,100/-. The ground taken by the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on this 16th October, 2025.