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Facts
The assessee filed a return of income at Nil for AY 2013-14. The Assessing Officer (AO) selected the case for scrutiny and made additions on account of alleged bogus purchases (Rs. 1,26,33,360/-) and unaccounted stock (Rs. 68,07,172/-). The Commissioner of Income-tax (Appeals) [CIT(A)] partly upheld these additions. Aggrieved, the assessee filed an appeal before the Tribunal.
Held
The Tribunal directed the AO to restrict the addition for bogus purchases to 6% of the total creditors, amounting to Rs. 6,31,668/-, instead of Rs. 15,86,728/- sustained by the CIT(A). Regarding the addition for unaccounted stock, the Tribunal confirmed the finding of the CIT(A) and dismissed the ground raised by the assessee due to lack of verifiable evidence and non-audit of the relevant accounts.
Key Issues
Whether the additions made by the AO and partly confirmed by the CIT(A) on account of alleged bogus purchases and unaccounted stock are justified.
Sections Cited
68 of the I.T. Act, 1961, 69 of the I.T Act, 1961, 24(b) of the Act, 133(6), 44AB of the Act
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Before: MS. SUCHITRA RAGHUNATH KAMBLE & SHRI BIJAYANANDA PRUSETH
िनधा�रती की ओर से /Appellant by Shri Mehul Shah, CA राज� की ओर से /Respondent by Shri Ajay Uke, Sr-DR सुनवाई की तारीख/Date of Hearing 03/06/2025 उद्घोषणा की तारीख/Date of Pronouncement 21/07/2025 आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), dated 27.07.2022 by the National Faceless Appeal Centre, Delhi /Commissioner of Income-tax (Appeals), [in short ‘NFAC/CIT(A)’] for the Assessment Year (AY) 2013-14, which in turn assessment order passed by Assessing Officer (in short, ‘AO’) u/s 143(3) of the Act on 28.03.2016.
Grounds of appeal
raised by the assessee for the appeals are as under:
1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making the addition of Rs.15,86,728/- on account of alleged bogus purchases u/s 68 of the I.T. Act, 1961.
A.Y 13-14 Ramesh P Bansal 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in making the addition of Rs.68,07,172/- on account of alleged unaccounted stock u/s 69 of the I.T Act, 1961.
3. It is therefore prayed that addition made by Assessing Officer may please be deleted.
Appellant craves leave to add, alter or delete any ground(s) of appeal either before or in the course of hearing of the appeal.”
Brief facts of the case are that the appellant filed his return of income for A.Y. 2013-14 declaring total income at Nil on 30.09.2023. Subsequently, case was selected for scrutiny under CASS. The AO issued various statutory notices along with questionnaire and show cause notices but assessee did not make full compliance to the requirements of the AO. The AO found that there were sundry creditors of Rs.1,26,33,360/-, for which the assessee could not furnish proper details and evidences. He also issued notices u/s 133(6); however, majority of the notices were returned unserved. In response to the final show cause notice, the assessee did not file any reply. Hence, he added Rs.1,26,33,360/-.
3.1 The assessee has also shown opening stock of Rs.68,07,172/- as on 01.04.2012. However, the closing stock on 31.03.2012 was Rs.Nil. The assessee did not file any reply to the query on the above issue. Therefore, AO added the same as unaccounted stock of the assessee. He also added Rs.1,41,808/- by making disallowance of claim u/s 24(b) of the Act. The total income was
4. The appellant filed various details and written submission before the CIT(A) and also relied on the decisions of CIT(A) in case of his own brother, Shri Umesh Kumar Bansal. After considering the reply of the assessee, the CIT(A) held that the entire outstanding creditors cannot be added and only profit percentage has to be estimated on the unverifiable purchases. He observed that the sales made by the appellant were not doubted by the AO; hence, the entire purchases cannot be disallowed. He has relied on the decision of jurisdictional ITAT and order of CIT(A) in case of Shri Umesh Kumar Bansal, brother of assessee, where additional profit @ 5% of total purchases was added. Therefore, the CIT(A) estimated additional profit @ 5% of total purchases of M/s Shyam Textiles, proprietary concern of assessee and sustained addition of Rs.15,86,728/- (5% of Rs.3,17,34,574/-) in place of Rs.1,26,33,360/- added by AO.
4.1 As regards addition of Rs.68,07,172/- on account of alleged unaccounted stock, the appellant submitted that the above stock pertains to his other business activity in the name of M/s Ram Roop Enterprises, a builder. This amount of closing stock was spent on activities like fencing, retipuran, for making common road etc. The amount was spent in FY 2011-12 and was appearing as closing stock as on 31.03.2012 and consequently opening stock as on 01.04.2012. The appellant also submitted that the accounts of M/s Ram A.Y 13-14 Ramesh P Bansal Roop Enterprises were not audited in FY 2011-12 and hence, the AO could not find it in the audited financial of the appellant. The CIT(A) did not find the explanation convincing after verifying the ITR for FY 2011-12 (AY 2012-13). This is discussed at para-6.6 to 6.8 of the appellate order. He, accordingly, confirmed the addition of Rs.68,07,172/- as unexplained investment u/s 69 of the Act and dismissed the ground raised by the appellant.
Further aggrieved by the order of CIT(A), the assessee has filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee filed a paper book and relied on some case laws. He submitted that the CIT(A) had reduced the addition to 5% of the bogus purchases. We find that AO had issued various notices to the appellant to furnish details and explain the source of outstanding credits appearing in the books of the appellant. He also issued notices u/s 133(6) of the Act to various parties; however, majority of the notices were returned unserved. Therefore, he added the total creditors shown by the appellant at Rs.1,26,33,360/-. The CIT(A) however restricted the addition to 5% of the total purchases because the sales were not doubted by the appellant. We find that there are several decisions of this Co-ordinate Bench of this Tribunal, wherein on the similar circumstances, the Tribunal has sustained addition @ 6% of the bogus purchase. Reference may be made to the case of ITO vs. Pankaj K. Chaudhary in for AY 2007-08 dated 27.09.2021. The Co-ordinate Bench of this Tribunal in the above case decided a bunch of 14 appeals consisting of A.Y 13-14 Ramesh P Bansal appeals and COs by Revenue and different assessees. The lead case Pankaj K. Chaudhary (supra). After detailed discussion of the case and the legal position as well as precedents on the subject issue, the Tribunal sustained addition @ 6% of the bogus purchases. The facts of the present appeals are similar and hence it is squarely covered by the order of the Tribunal in the case of Pankaj K. Choudhary (supra). We also find that the disallowance @ 6% has been confirmed by the Hon’ble jurisdiction High Court in case of PCIT vs. Surya Impex (2023) 148 taxmann.com 154 (Guj). Respectfully following the above decisions, we direct the AO to restrict the addition to 6% of total creditors of Rs.1,26,33,360/- i.e. Rs.6,31,668/- instead of Rs.15,86,728/- sustained by the CIT(A). The ground is partly allowed.
Next ground pertains to addition of Rs.68,07,172/- on account of alleged unaccounted stock. The details have already been discussed in para-3.1 and 4.1 of this order. The Ld. AR submitted that the appellant was engaged in two business i.e., trading in textiles in the name of M/s Shyam Textile and business of builder in the name of M/s Ram Roop Enterprises. The appellant had purchased land and incurred various expenses amounting to Rs.68,07,172/- till 31.03.2012 and the same appeared as closing stock as on 31.03.2012; which in turn was the opening stock as on 01.04.2012. The Ld. AR submitted that opening stock was converted to work-in-progress and the opening stock has been wrongly treated as unaccounted stock by the AO and A.Y 13-14 Ramesh P Bansal CIT(A). The Ld. AR relied on the decision in case of PCIT vs. Asian Agency (21024) 160 axmann.com 248 (Guj).
On the other hand, learned Sr-DR for the revenue supported the order of lower authorities. He submitted that the appellant did not file any reply before the AO. Before CIT(A), the appellant filed details which were duly examined and rightly rejected after considering the details uploaded in the e- filing portal by the appellant.
We have heard both the parties and perused the materials available on record. We also deliberated on the decisions relied upon by both the sides. There is no dispute that the appellant had shown opening balance of Rs.68,07,172/- as on 01.04.2012. However, the AO found that the closing stock as on 31.03.2012 was Rs.Nil. Since no details were furnished, AO added the same as unaccounted stock. Before CIT(A), the appellant submitted that the above stock pertains to M/s Ram Roop Enterprises, another business activity as builder carried out by the appellant, in addition to the textile trading business in the name of M/s Shyam Textiles. The appellant had furnished trading and profit and loss account before CIT(A) which is reproduced at page- 27 of the appellate order and also at page-27 of the paper book. However, this account was not audited. This fact has been fairly admitted by the Ld. AR of the appellant. The CIT(A) has verified the ITR filed by the appellant from the CPC 2.0 and found that closing stock was Rs.Nil for AY 2012-13. Thus, no closing stock was shown by the appellant in the return of income for AY 2012- A.Y 13-14 Ramesh P Bansal 13. The CIT(A) has observed that the net profit was reduced to Rs.Nil in the purported profit and loss account after booking hotel expenses of Rs.23,000/-, which seems to be a balancing figure. He has also observed that there are no evidence of the expenses shown in the said trading and profit and loss account of M/s Ram, Roop Enterprises. The turnover of the said firm also exceeded the limit prescribed u/s 44AB of the Act, but its account were not audited. Hence, he concluded that the claim of closing stock of Rs.68,07,172/- was only an afterthought, not supported by any verifiable evidences. Hence, he upheld the addition of unexplained stock by the AO as unexplained investment u/s 69 of the Act. We do not find any reason to interfere with the finding of the CIT(A) in absence of any further explanation or cogent evidence before the Tribunal. The appellant has not filed any evidence in support various claimed in the trading and profit and loss account reproduced in the appellate order and paper book stated above. The decision in case of Asian Agency (supra) is not applicable to the facts of the present case because in the said case the profit declared by the assessee of earlier assessment year included in the closing stock, but, in the present case no such closing stock was included. In fact, the appellant has not audited the purported accounts of M/s Ram Roop Enterprises. As stated earlier, the various expenses claimed in the said accounts are also not supported by credible evidence. Hence, the ratio of the decision relied upon by the Ld. AR is not applicable to the case of the