ITO-19(3)(1), MUMBAI vs. RAMNIKLAL SHIVJI SAVLA, MUMBAI
Facts
The Revenue appealed against the CIT(A)'s order which restricted the addition for bogus purchases of Rs. 1,73,63,923/- to 8%, as opposed to the 25% addition made by the AO. The CIT(A) had relied on a previous ITAT order for AY 2011-12, which in turn followed Gujarat and Bombay High Court decisions. The Revenue contended that recent High Court and Supreme Court judgments mandate a stricter approach, potentially requiring 100% disallowance for unproven bogus purchases.
Held
The Tribunal noted that the CIT(A) restricted the addition solely based on an earlier ITAT order for the assessee's own case, without independently examining the facts for the current assessment year or considering subsequent binding judicial precedents. Consequently, the ITAT set aside the CIT(A)'s order and remanded the matter for fresh adjudication. The CIT(A) is directed to re-examine the issue in light of applicable binding precedents and record a reasoned finding.
Key Issues
Whether the CIT(A) erred in restricting the addition for bogus purchases to 8% based on earlier precedents, ignoring subsequent binding judicial pronouncements that advocate for a stricter disallowance regime, and if the matter requires fresh adjudication considering these newer legal positions.
Sections Cited
Section 37, Section 68, Section 69C
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Income Tax Appellate Tribunal, MUMBAI BENCH “H (SMC
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H (SMC)” MUMBAI
BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SANDEEP SINGH KARHAIL (JUDICIAL MEMBER)
ITA No. 3525/MUM/2025 Assessment Year: 2009-10
ITO-19(3)(1), Ramniklal Shivji Savla, 405, 4th floor, Piramal Chamber, Parag Steel, 74, Mulji Bhai Vs. Parel, Mumbai-400012. Building, Khetwadi Road, Mumbai-400 004. PAN NO. AACPS 7486 C Appellant Respondent
: Ms. Khushali Pandya Assessee by Revenue by : Mr. Pravin Salunkhe, Sr. DR
Date of Hearing : 22/01/2026 Date of pronouncement : 27/02/2026
ORDER PER OM PRAKASH KANT, AM
This appeal by the Revenue is directed against order dated 06.03.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, raising following grounds:
Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to the extent of 8%
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as against the 25% addition made by the AO, on account of bogus as against the 25% addition made by the AO, on account of bogus as against the 25% addition made by the AO, on account of bogus purchases amounting to Rs.1,73,63,923/ purchases amounting to Rs.1,73,63,923/- made with M/s. Metalix made with M/s. Metalix Metal Corpn. M/s. Mercury Metal Corpn. M/s. Goodluck Metals, Metal Corpn. M/s. Mercury Metal Corpn. M/s. Goodluck Metals, Metal Corpn. M/s. Mercury Metal Corpn. M/s. Goodluck Metals, M/s. Mahalaxmi Steel(India), all are identified as bogus entiti M/s. Mahalaxmi Steel(India), all are identified as bogus entiti M/s. Mahalaxmi Steel(India), all are identified as bogus entities by the Maharashtra State Sales Tax Department under MVAT 2002, the Maharashtra State Sales Tax Department under MVAT 2002, the Maharashtra State Sales Tax Department under MVAT 2002, involved in practice of providing accommodation entries for bogus involved in practice of providing accommodation entries for bogus involved in practice of providing accommodation entries for bogus purchases?" 2. "Whether on the facts and circumstances of the case and in law, 2. "Whether on the facts and circumstances of the case and in law, 2. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addit Ld. CIT(A) has erred in restricting the addition to the extent of 8% ion to the extent of 8% as against the 25% addition on Rs. 1,73,63,923/ as against the 25% addition on Rs. 1,73,63,923/- by ignoring the by ignoring the fact that action of the Assessing officer was based on the fact that action of the Assessing officer was based on the fact that action of the Assessing officer was based on the information received from office of the DGIT (Investigation Wing) information received from office of the DGIT (Investigation Wing) information received from office of the DGIT (Investigation Wing) Mumbai, that all four were bogus and fraud Mumbai, that all four were bogus and fraudulent entities, engaged ulent entities, engaged only in the business of providing accommodation entries for bogus only in the business of providing accommodation entries for bogus only in the business of providing accommodation entries for bogus purchases and the assessee was found to be one of beneficiary, purchases and the assessee was found to be one of beneficiary, purchases and the assessee was found to be one of beneficiary, obtained accommodation entries of bogus purchases without obtained accommodation entries of bogus purchases without obtained accommodation entries of bogus purchases without actual delivery of any goods and this transac actual delivery of any goods and this transaction were undertaken tion were undertaken to generate paper tail only ?" to generate paper tail only ?" 3. "Whether on the facts and circumstances of the case and in law, 3. "Whether on the facts and circumstances of the case and in law, 3. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition to the extent of 8% Ld. CIT(A) has erred in restricting the addition to the extent of 8% Ld. CIT(A) has erred in restricting the addition to the extent of 8% as against the 25% addition on Rs. 1,73,63,923/ as against the 25% addition on Rs. 1,73,63,923/-, by ignoring the , by ignoring the fact that the assessee has failed to prove the genuineness and fact that the assessee has failed to prove the genuineness and fact that the assessee has failed to prove the genuineness and creditworthiness of transactions and parties for verification, by not creditworthiness of transactions and parties for verification, by not creditworthiness of transactions and parties for verification, by not producing any documents/evidences/delivery challans, stock producing any documents/evidences/delivery challans, stock producing any documents/evidences/delivery challans, stock registers etc. before Assessing officer during the assessment registers etc. before Assessing officer during the assessment registers etc. before Assessing officer during the assessment proceedings ?" oceedings ?" 4. "Whether on the facts and circumstances of the case and in law, 4. "Whether on the facts and circumstances of the case and in law, 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is right in relying the decision of the Hon'ble. ITAT in the Ld. CIT(A) is right in relying the decision of the Hon'ble. ITAT in the Ld. CIT(A) is right in relying the decision of the Hon'ble. ITAT in assessee's own case in A.Y. 2011 assessee's own case in A.Y. 2011-12, thereby the Ld.CIT(A) in 12, thereby the Ld.CIT(A) in holding that the income from bogus purchas holding that the income from bogus purchase transaction should e transaction should be restricted to 8% of total value of purchase transactions from be restricted to 8% of total value of purchase transactions from be restricted to 8% of total value of purchase transactions from four bogus parties, although there was no dispute that the bogus four bogus parties, although there was no dispute that the bogus four bogus parties, although there was no dispute that the bogus purchases were made and so act of infraction of low was purchases were made and so act of infraction of low was purchases were made and so act of infraction of low was committed by the assessee on provision of section committed by the assessee on provision of section 74(1A) of the 74(1A) of the Maharashtra Value Added Tax Act, 2002 and such purchases are Maharashtra Value Added Tax Act, 2002 and such purchases are Maharashtra Value Added Tax Act, 2002 and such purchases are not allowable as per express provision u/s. 37 of the Act ?" not allowable as per express provision u/s. 37 of the Act ?" not allowable as per express provision u/s. 37 of the Act ?" 5. Whether on the facts and circumstances of the case and in law, 5. Whether on the facts and circumstances of the case and in law, 5. Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in restricting the addition to Ld. CITIA) has erred in restricting the addition to the extent of 8% the extent of 8% without appreciating the decision of the Hon'ble. Supreme Court in without appreciating the decision of the Hon'ble. Supreme Court in without appreciating the decision of the Hon'ble. Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01.2017, wherein the Hon'bLd. Court has (Guj.) 354, Dated. 16.01.2017, wherein the Hon'bLd. Court has (Guj.) 354, Dated. 16.01.2017, wherein the Hon'bLd. Court has held that once a findings of act has been give held that once a findings of act has been given that entire n that entire purchases shown on the basis of fictitious invoices and debited in purchases shown on the basis of fictitious invoices and debited in purchases shown on the basis of fictitious invoices and debited in
Ramniklala Shivji Savla 3 ITA No. 3525/MUM/2025
the P & L account are established as bogus, then restricting the the P & L account are established as bogus, then restricting the the P & L account are established as bogus, then restricting the addition to a curtained percentage goes against the principle of addition to a curtained percentage goes against the principle of addition to a curtained percentage goes against the principle of section 68 and 69C of the Income Tax Act, 196 section 68 and 69C of the Income Tax Act, 1961 ?" 6. "Whether on the facts and circumstances of the case and in law, 6. "Whether on the facts and circumstances of the case and in law, 6. "Whether on the facts and circumstances of the case and in law, the order of the Ld. CIT(A) perverse in not considering that the the order of the Ld. CIT(A) perverse in not considering that the the order of the Ld. CIT(A) perverse in not considering that the order of Hon'bLd. Supreme Court in the case of M/s. N. K. Proteins order of Hon'bLd. Supreme Court in the case of M/s. N. K. Proteins order of Hon'bLd. Supreme Court in the case of M/s. N. K. Proteins Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases, was already the law of is on the similar issue of bogus purchases, was already the law of is on the similar issue of bogus purchases, was already the law of the land when the Ld. CIT(A) has pronounced it's order on the land when the Ld. CIT(A) has pronounced it's order on the land when the Ld. CIT(A) has pronounced it's order on 06.03.2025 ?" Ltd. 06.03.2025 ?" Ltd. 7. " Whether on the facts and circumstances of the case and in 7. " Whether on the facts and circumstances of the case and in 7. " Whether on the facts and circumstances of the case and in law, the decision of the Ld. CIT(A), law, the decision of the Ld. CIT(A), is right in view of the decision is right in view of the decision of the Hon'bLd. High Court Mumbai, in the case of Pr. of the Hon'bLd. High Court Mumbai, in the case of Pr. of the Hon'bLd. High Court Mumbai, in the case of Pr. Commissioner of Income Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex (India) 5, Mumbai Vs. Kanak Impex (India) Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. 03.03.2025, Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. 03.03.2025, Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. 03.03.2025, wherein the decision of 100% addition made by AO ha wherein the decision of 100% addition made by AO ha wherein the decision of 100% addition made by AO has been allowed, by rejecting the ITAT's decision of estimating the profit allowed, by rejecting the ITAT's decision of estimating the profit allowed, by rejecting the ITAT's decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant rate @12.5% on bogus purchases and thereby impliedly grant rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 69C of deduction of such unexplained expenditure incurred u/s. 69C of deduction of such unexplained expenditure incurred u/s. 69C of the Act, eventhough the assessee faild.d to discharge its on the Act, eventhough the assessee faild.d to discharge its on the Act, eventhough the assessee faild.d to discharge its onus to prove the genuineness of alLd.ged purchases and has offered no prove the genuineness of alLd.ged purchases and has offered no prove the genuineness of alLd.ged purchases and has offered no explanation of the sources of expenditure incurred on account of explanation of the sources of expenditure incurred on account of explanation of the sources of expenditure incurred on account of such purchases?" such purchases?" 8. "Whether on the facts and circumstances of the case and in law, 8. "Whether on the facts and circumstances of the case and in law, 8. "Whether on the facts and circumstances of the case and in law, Ld. CITIA) has erred in restricting th Ld. CITIA) has erred in restricting the addition without e addition without appreciating the fact that in the case of M/s. Swetamber Steels appreciating the fact that in the case of M/s. Swetamber Steels appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon'bLd. ITAT Ahmadabad, had conformed the Ltd. (Supra), the Hon'bLd. ITAT Ahmadabad, had conformed the Ltd. (Supra), the Hon'bLd. ITAT Ahmadabad, had conformed the disallowance of the bogus purchase, by stating that the purchases disallowance of the bogus purchase, by stating that the purchases disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non g shown from respective parties were found non genuine and the enuine and the decision of the ITAT was upheld by Hon'bLd. Gujarat High Court decision of the ITAT was upheld by Hon'bLd. Gujarat High Court decision of the ITAT was upheld by Hon'bLd. Gujarat High Court and thereafter also by the Hon'bld. Supreme Court?" and thereafter also by the Hon'bld. Supreme Court?" 9. The tax effect involved in this case is Rs.13,02,294/ 9. The tax effect involved in this case is Rs.13,02,294/ 9. The tax effect involved in this case is Rs.13,02,294/-, which is below the prescribed limit as mentioned in the CBDT's Circ below the prescribed limit as mentioned in the CBDT's Circ below the prescribed limit as mentioned in the CBDT's Circular F.No.279/Misc. 142/2007 F.No.279/Misc. 142/2007-ITJ(Pt) amended vide No. 09/2024 ITJ(Pt) amended vide No. 09/2024 dated. 17.09.2024. However, the appeal is being fild.d before the dated. 17.09.2024. However, the appeal is being fild.d before the dated. 17.09.2024. However, the appeal is being fild.d before the Hon'bLd. ITAT, as this case also falls under one of the exceptions Hon'bLd. ITAT, as this case also falls under one of the exceptions Hon'bLd. ITAT, as this case also falls under one of the exceptions specified in paragraph 3.1(h) of the of the CBDT's Circular specified in paragraph 3.1(h) of the of the CBDT's Circular specified in paragraph 3.1(h) of the of the CBDT's Circular No.05/2024 Dated. 15.03.2024, wherein it is stated that in cases o.05/2024 Dated. 15.03.2024, wherein it is stated that in cases o.05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving "Organized Tax Evasion", in such cases the decision to involving "Organized Tax Evasion", in such cases the decision to involving "Organized Tax Evasion", in such cases the decision to fild. appeal/SLP shall be taken on merit without regard to the tax fild. appeal/SLP shall be taken on merit without regard to the tax fild. appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. effect and the monetary limit.
Ramniklala Shivji Savla 4 ITA No. 3525/MUM/2025
In the grounds raised, the In the grounds raised, the sole issue in dispute is restricting sole issue in dispute is restricting the addition made by the Assessing Officer in respect of bogus the addition made by the Assessing Officer in respect of bogus the addition made by the Assessing Officer in respect of bogus purchases from 25% to 8% of the bogus purchases. purchases from 25% to 8% of the bogus purchases.
We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. Before us, the Ld. counsel for the , the Ld. counsel for the assessee submitted that in the case in first round of the assessee submitted that in the case in first round of the assessee submitted that in the case in first round of the proceedings before the ITAT, the complete copy of the order of the proceedings before the ITAT, the complete copy of the order of the proceedings before the ITAT, the complete copy of the order of the Ld. First Appellate Authority was not available and therefore, ITAT Ld. First Appellate Authority was not available and therefore, ITAT Ld. First Appellate Authority was not available and therefore, ITAT restored the matter back to the file restored the matter back to the file of the Ld. CIT(A) vide ITA No. of the Ld. CIT(A) vide ITA No. 1261/Mum/2020 with the direction to follow the order of the 1261/Mum/2020 with the direction to follow the order of the 1261/Mum/2020 with the direction to follow the order of the Tribunal in the case of the assessee for assessment year 2011-12 Tribunal in the case of the assessee for assessment year 2011 Tribunal in the case of the assessee for assessment year 2011 passed in ITA No. 6696/Mum/2019 for assessment year 2011-12 passed in ITA No. 6696/Mum/2019 for assessment year 2011 passed in ITA No. 6696/Mum/2019 for assessment year 2011 wherein the Tribunal following the decis wherein the Tribunal following the decision of the Hon’ble Gujarat ion of the Hon’ble Gujarat High Court in the case of CIT v. Simit P. Seth [38 taxmann.com High Court in the case of CIT v. Simit P. Seth [38 taxmann.com High Court in the case of CIT v. Simit P. Seth [38 taxmann.com 385] and Hon’ble Bombay High Court in the case of CIT v. Nikunj 385] and Hon’ble Bombay High Court in the case of CIT v. Nikunj 385] and Hon’ble Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171] directed to restrict the addition to the Eximp [216 Taxman.com 171] directed to restrict the addition to the Eximp [216 Taxman.com 171] directed to restrict the addition to the profit element from non profit element from non-genuine purchases @ 8%. The Ld. CIT(A) @ 8%. The Ld. CIT(A) consequently passed the impugned order and restricted the passed the impugned order and restricted the passed the impugned order and restricted the disallowance of bogus purchases to the 8% as against 25% disallowance of bogus purchases to the 8% as against 25% disallowance of bogus purchases to the 8% as against 25% determined by the Assessing Officer. The relevant finding of the Ld. determined by the Assessing Officer. The relevant finding of the Ld. determined by the Assessing Officer. The relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:
“7. The Grou 7. The Ground No. 1 is that the AO was wrong in holding nd No. 1 is that the AO was wrong in holding purchases to the tune of Rs. 1,73,73923/ purchases to the tune of Rs. 1,73,73923/-, as non genuine and , as non genuine and making addition at 25% of such alleged non making addition at 25% of such alleged non- genuine purchases. genuine purchases. This appeal has been preferred by the assessee against the order of This appeal has been preferred by the assessee against the order of This appeal has been preferred by the assessee against the order of the Assessing Offi the Assessing Officer (AO) making an addition of 25% of the cer (AO) making an addition of 25% of the
Ramniklala Shivji Savla 5 ITA No. 3525/MUM/2025
purchases treating them as non purchases treating them as non-genuine. The learned AO, based on genuine. The learned AO, based on the information received from the Sales Tax Department, concluded the information received from the Sales Tax Department, concluded the information received from the Sales Tax Department, concluded that the assessee had made purchases from certain dealers that the assessee had made purchases from certain dealers that the assessee had made purchases from certain dealers providing accommodation e providing accommodation entries without actual supply of goods. ntries without actual supply of goods. Consequently, the AO made an addition of Rs. 43,40,981/ Consequently, the AO made an addition of Rs. 43,40,981/ Consequently, the AO made an addition of Rs. 43,40,981/-, being 25% of the alleged bogus purchases. Subsequently, on appeal 25% of the alleged bogus purchases. Subsequently, on appeal 25% of the alleged bogus purchases. Subsequently, on appeal before the CIT(A), the appellate authority has restricted the addition before the CIT(A), the appellate authority has restricted the addition before the CIT(A), the appellate authority has restricted the addition to 12.5% of such non to 12.5% of such non-genuine Purchased. 7.1. Against the same, the "SMC" Bench, Mumbai. In the decision 7.1. Against the same, the "SMC" Bench, Mumbai. In the decision 7.1. Against the same, the "SMC" Bench, Mumbai. In the decision pronounced, the Hon'ble ITAT has directed the appellate authority to pronounced, the Hon'ble ITAT has directed the appellate authority to pronounced, the Hon'ble ITAT has directed the appellate authority to adjudicate the matter by considering the order passed by the adjudicate the matter by considering the order passed by the adjudicate the matter by considering the order passed by the Hon'ble ITAT, in its own case for A.Y. 2011 Hon'ble ITAT, in its own case for A.Y. 2011-12. On perusal of 12. On perusal of records, it is seen that the Hon'ble Income Tax Appellate Tribunal records, it is seen that the Hon'ble Income Tax Appellate Tribunal records, it is seen that the Hon'ble Income Tax Appellate Tribunal (ITAT), Mumbai, has passed an order in ITA No. 6696/Mum/2019, (ITAT), Mumbai, has passed an order in ITA No. 6696/Mum/2019, (ITAT), Mumbai, has passed an order in ITA No. 6696/Mum/2019, dated 03.08.2021, for A.Y. 2011 dated 03.08.2021, for A.Y. 2011-12 in the assessee's own case. In 12 in the assessee's own case. In this regard, it is important to reproduce t this regard, it is important to reproduce the relevant portion of the he relevant portion of the judicial decision for A.Y. 2011 judicial decision for A.Y. 2011-12, which is as under: "6. Heard Ld.DR, perused the orders of the authorities below. "6. Heard Ld.DR, perused the orders of the authorities below. "6. Heard Ld.DR, perused the orders of the authorities below. It is not in dispute that sales have been accepted as genuine It is not in dispute that sales have been accepted as genuine It is not in dispute that sales have been accepted as genuine from out of these purchases. When the sales have been from out of these purchases. When the sales have from out of these purchases. When the sales have accepted as genuine the entire purchases cannot be treated accepted as genuine the entire purchases cannot be treated accepted as genuine the entire purchases cannot be treated as non as non-genuine. The Hon'ble Gujarat High Court in the case genuine. The Hon'ble Gujarat High Court in the case of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when of Bholanath Polyfab Pvt. Ltd [355 ITR 290] held that when the assessee made purchases and sold the finished goods as the assessee made purchases and sold the finished goods as the assessee made purchases and sold the finished goods as a natural corol a natural corollary not the entire amount covered under such lary not the entire amount covered under such purchases would be subject to tax but only the profit element purchases would be subject to tax but only the profit element purchases would be subject to tax but only the profit element embedded therein. embedded therein. Similar view has been taken by the Similar view has been taken by the Hon'ble Gujarat High Court in the case of CIT Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth v. Simit P. Seth [38 taxman.com 385). Simply beca [38 taxman.com 385). Simply because the parties were not use the parties were not produced the entire purchases cannot be added as held by produced the entire purchases cannot be added as held by produced the entire purchases cannot be added as held by the Bombay High Court in the case of CIT v. Nikunj Eximp the Bombay High Court in the case of CIT v. Nikunj Eximp the Bombay High Court in the case of CIT v. Nikunj Eximp [216 Taxman.com 171). I agree with the view of the lower [216 Taxman.com 171). I agree with the view of the lower [216 Taxman.com 171). I agree with the view of the lower authorities that there should be an estimation of profit authorities that there should be an estimation of profit authorities that there should be an estimation of profit element from these purchases and should be estimated ment from these purchases and should be estimated ment from these purchases and should be estimated reasonably as the assessee could not conclusively prove that reasonably as the assessee could not conclusively prove that reasonably as the assessee could not conclusively prove that the purchases made are from the parties as claimed, the purchases made are from the parties as claimed, the purchases made are from the parties as claimed, especially in the absence of any confirmations from them. especially in the absence of any confirmations from them. especially in the absence of any confirmations from them. Taking the totality of facts and ci Taking the totality of facts and circumstances, keeping in rcumstances, keeping in view the nature of business of the assessee i.e. trader in view the nature of business of the assessee i.e. trader in view the nature of business of the assessee i.e. trader in Ferrous and non Ferrous and non-Ferrous Metals, it would be justified if the Ferrous Metals, it would be justified if the profit element embedded in those purchases are estimated at profit element embedded in those purchases are estimated at profit element embedded in those purchases are estimated at 8%. Accordingly, I direct the Assessing Officer to estimate the 8%. Accordingly, I direct the Assessing Officer to e 8%. Accordingly, I direct the Assessing Officer to e profit element from the non profit element from the non-genuine purchases at 8% and genuine purchases at 8% and restrict the disallowance of purchases to 8% and compute the restrict the disallowance of purchases to 8% and compute the restrict the disallowance of purchases to 8% and compute the income accordingly. income accordingly.
Ramniklala Shivji Savla 6 ITA No. 3525/MUM/2025
In the result, appeal of the assessee is partly allowed." 7. In the result, appeal of the assessee is partly allowed." 7. In the result, appeal of the assessee is partly allowed." 7.1.1. In the above said order, the Hon'ble IT 7.1.1. In the above said order, the Hon'ble ITAT held that when AT held that when sales are not disputed, the entire purchases cannot be disallowed, sales are not disputed, the entire purchases cannot be disallowed, sales are not disputed, the entire purchases cannot be disallowed, and it is only the profit element embedded in such purchases that and it is only the profit element embedded in such purchases that and it is only the profit element embedded in such purchases that should be brought to tax. Accordingly, the ITAT restricted the should be brought to tax. Accordingly, the ITAT restricted the should be brought to tax. Accordingly, the ITAT restricted the addition to 8% of the total purchases addition to 8% of the total purchases. 7.2. During the present appellate proceedings, the appellant has . During the present appellate proceedings, the appellant has . During the present appellate proceedings, the appellant has made detailed submission and requested to delete the addition of made detailed submission and requested to delete the addition of made detailed submission and requested to delete the addition of 12.5% as held by the Hon'ble CIT(A) 12.5% as held by the Hon'ble CIT(A)-30, Mumbai. However, the 30, Mumbai. However, the same cannot be considered as the directions of the Hon'ble ITAT is same cannot be considered as the directions of the Hon'ble ITAT is same cannot be considered as the directions of the Hon'ble ITAT is specific and clear that to consider the matter for present year in line pecific and clear that to consider the matter for present year in line pecific and clear that to consider the matter for present year in line with the decision of Hon'ble ITAT for A.Y. 2011 with the decision of Hon'ble ITAT for A.Y. 2011-12. Considering that 12. Considering that the issue involved in the present appeal is identical to that the issue involved in the present appeal is identical to that the issue involved in the present appeal is identical to that adjudicated by the ITAT in A.Y. 2011 adjudicated by the ITAT in A.Y. 2011-12, and the decis 12, and the decision of the Hon'ble ITAT is binding on this appellate authority, I am inclined to Hon'ble ITAT is binding on this appellate authority, I am inclined to Hon'ble ITAT is binding on this appellate authority, I am inclined to follow the same principle. Therefore, the addition on account of non follow the same principle. Therefore, the addition on account of non follow the same principle. Therefore, the addition on account of non- genuine purchases is restricted to 8% of the total purchases made genuine purchases is restricted to 8% of the total purchases made genuine purchases is restricted to 8% of the total purchases made by the assessee during the year under co by the assessee during the year under consideration. As such, the nsideration. As such, the addition is restricted to 8% of the total purchases instead of 25% as addition is restricted to 8% of the total purchases instead of 25% as addition is restricted to 8% of the total purchases instead of 25% as determined by the AO. The AO is directed to recompute the income determined by the AO. The AO is directed to recompute the income determined by the AO. The AO is directed to recompute the income accordingly. Hence, the Ground No. 1 is partly allowed accordingly. Hence, the Ground No. 1 is partly allowed accordingly. Hence, the Ground No. 1 is partly allowed.” 3.1 The The Ld. Ld. Departmental Departmental Representative Representativ e submitted submitted that that subsequent judicial developments subsequent judicial developments—particularly the decision of the particularly the decision of the Hon’ble Bombay High Court in Pr. Commissioner of Income Pr. Commissioner of Income-Tax- Hon’ble Bombay High Court in 5, 5, 5, Mumbai Mumbai Mumbai Vs. Vs. Vs. Kanak Kanak Kanak Impex Impex Impex (India) (India) (India) Ltd(2025)172 Ltd(2025)172 Ltd(2025)172 Taxmann.com Taxmann.com 283 283 (Bombay) (Bombay) Dated. Dated. 03.03.2025, 03.03.2025 warrant reconsideration of the issue, and that the entire bogus purchases n of the issue, and that the entire bogus purchases n of the issue, and that the entire bogus purchases ought to be disallowed in view of the principles emerging from M/s. ought to be disallowed in view of the principles emerging from ought to be disallowed in view of the principles emerging from N. K. Proteins Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated N. K. Proteins Vs. Dy. CIT (2016) 292 CTR (Guj.) 354 N. K. Proteins Vs. Dy. CIT (2016) 292 CTR (Guj.) 354 16.01.2017.
3.2 The Ld. Counsel for the assessee, on the other hand, The Ld. Counsel for the assessee, on the other hand, The Ld. Counsel for the assessee, on the other hand, submitted that the Ld. CIT(A) merely followed the specific direction ed that the Ld. CIT(A) merely followed the specific direction ed that the Ld. CIT(A) merely followed the specific direction
Ramniklala Shivji Savla 7 ITA No. 3525/MUM/2025
of the Tribunal in the assessee’s own case and could not have taken of the Tribunal in the assessee’s own case and could not have taken of the Tribunal in the assessee’s own case and could not have taken a contrary view.
We have heard the rival submissions and perused the record. We have heard the rival submissions and perused the record. We have heard the rival submissions and perused the record. The Revenue’s primary contention is that the legal landscape has The Revenue’s primary contention is that the legal landscape has The Revenue’s primary contention is that the legal landscape has shifted significantly following the recent decision of the Hon'ble shifted significantly following the recent decision of the shifted significantly following the recent decision of the Bombay High Court in Bombay High Court in Pr. CIT v. Kanak Impex (India) Ltd Pr. CIT v. Kanak Impex (India) Ltd (supra). In that ruling, the Hon'ble High Court critiqued the routine In that ruling, the Hon'ble High Court critiqued the routine In that ruling, the Hon'ble High Court critiqued the routine practice of estimating a 12.5% or 8% profit rate when the assessee practice of estimating a 12.5% or 8% profit rate when the assessee practice of estimating a 12.5% or 8% profit rate when the assessee fails to discharge the primary onus of proving the genuineness of fails to discharge the primary onus of proving the genuineness of fails to discharge the primary onus of proving the genuineness of the source and the transaction. the source and the transaction.
4.1 In the present case, the In the present case, the Ld. CIT(A) did not independently Ld. CIT(A) did not independently examine whether the facts align with the stricter line of authority examine whether the facts align with the stricter line of authority examine whether the facts align with the stricter line of authority emerging from later judgments. The restriction to 8% was made emerging from later judgments. The restriction to 8% was made emerging from later judgments. The restriction to 8% was made solely on the basis of the earlier order of the Tribunal in A.Y. 2011– solely on the basis of the earlier order of the Tribunal in A.Y. 2011 solely on the basis of the earlier order of the Tribunal in A.Y. 2011 12, without examining w 12, without examining whether the factual position for A.Y. 2009 hether the factual position for A.Y. 2009– 10 is identical or whether subsequent binding precedent alters the 10 is identical or whether subsequent binding precedent alters the 10 is identical or whether subsequent binding precedent alters the legal position.
4.2 Accordingly, the impugned order on this issue is set aside, and Accordingly, the impugned order on this issue is set aside, and Accordingly, the impugned order on this issue is set aside, and the matter is restored to the file of the Ld. CIT(A) for fresh the matter is restored to the file of the Ld. CIT(A) for fresh the matter is restored to the file of the Ld. CIT(A) for fresh adjudication in accordance with law, after affording due opportunity adjudication in accordance with law, after affording due opportunity adjudication in accordance with law, after affording due opportunity of hearing to the assessee. The Ld. CIT(A) shall examine the issue of hearing to the assessee. The Ld. CIT(A) shall examine the issue of hearing to the assessee. The Ld. CIT(A) shall examine the issue afresh in the light of applicable binding precedents and record a afresh in the light of applicable binding precedents and record a afresh in the light of applicable binding precedents and record a reasoned finding.
Ramniklala Shivji Savla 8 ITA No. 3525/MUM/2025
The issue in dispute raised by th The issue in dispute raised by the Revenue in the ground of e Revenue in the ground of appeal is accordingly allowed for statistical purposes. appeal is accordingly allowed for statistical purposes. appeal is accordingly allowed for statistical purposes.
In the result, the appeal of the Revenue is allowed for In the result, the appeal of the Revenue is allowed for In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced in the open Court on ounced in the open Court on 27/02/2026. /02/2026.
Sd/- Sd/- Sd/ (SANDEEP SINGH KARHAIL (SANDEEP SINGH KARHAIL) (OM PRAKASH OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 27/02/2026 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai
