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Facts
The Revenue appealed against the CIT(A)'s order which restricted an addition made by the AO from Rs. 1,01,32,433 to Rs. 12,66,554. The AO had made the addition on account of alleged bogus purchases from M/s. India Steel Impex, whose proprietor admitted to providing accommodation entries.
Held
The Tribunal held that the CIT(A) erred by applying the profit element principle to a manufacturer and that the credit balance of Rs. 1,01,32,433 was not representative of total purchases. The matter was remanded to the CIT(A) for a fresh adjudication on factual aspects.
Key Issues
Whether the CIT(A) was justified in restricting the addition on bogus purchases to the profit element for a manufacturer, and whether the entire purchases were correctly identified.
Sections Cited
147, 148, 68, 115BBE, 133A, 250
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Annapurna Gupta
Year : 2018-19 The Income Tax Officer Alinaqi Gulamabbas Bhimani बनाम/ Ward-1(8) Prop. Of United Steel v/s. Bhavnagar – 364 001 Corporation Nr. Bajrangdas Dada ni Vav At Sihor Dist. Bhavnagar – 364 240 "थायी लेखा सं./PAN: BLJPB 9200 L (अपीलाथ(/ Appellant) ()* यथ(/ Respondent) Assessee by : Shri Varis Isani, Advocate Revenue by : Shri Arvind Kumbhare, Sr.DR सुनवाई की तारीख/Date of Hearing : 20/01/2026 घोषणा की तारीख /Date of Pronouncement: 28/01/2026 आदेश/O R D E R Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 22/09/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2018-19. 2. The Revenue, in this appeal, has taken the following grounds of appeal: ITO vs. Alinaqi Gulamabbas Bhimani Asst. Year : 2018-19 2 “1. Whether the Ld. CIT(A) has erred in law and on facts in restricting the addition made of Rs 1,01,32,433/- to Rs. 12,66,554/- (being 12.5% of total purchases of Rs.1,01,32,433/-) made by the Assessing Officer under Section 68. (read with Section 115BBE) of the Income-tax Act, without appreciating the fact that assessee had made bogus purchases from M/s. India Steel Impex, whose proprietor, Shri Bhaveshkumar Bhogilal Patel, admitted under oath to issuing accommodation entries?
2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored".
3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of Steel Ingots and sales thereof. The assessee had shown certain purchases from one partly, namely, M/s. India Steel Impex proprietorship-concern of Shri Bhaveshkumar Bhogilal Patel. A survey was conducted u/s.133A of the Act on Shri Bhaveshkumar Bhogilal Patel during which he made a statement that he was providing accommodation entries to various beneficiaries. The assessee was also found to be one of the beneficiaries, who allegedly had obtained accommodation entry of bogus purchases. The case of the assessee was reopened u/s.147/148 of the Act. During the assessment proceedings, the assessee submitted the explanation stating that the purchases shown by the assessee from the said party was genuine. However, the Assessing Officer (AO) did not get satisfied. The AO, therefore, made the impugned addition of Rs.1,01,32,433/-, which amount was shown as outstanding/payable to M/s. India Steel Impex as on 31/03/2018. The AO also made addition of corresponding commission income paid by the assessee for obtaining the alleged accommodation entries. ITO vs. Alinaqi Gulamabbas Bhimani Asst. Year : 2018-19
4. In first appeal, the Ld. CIT(A), however, restricted the addition only to Rs.12,66,554/- being 12.5% of the total addition of Rs.1,01,32,433/- made by the AO u/s.68 of the Act.
Being aggrieved by the said action of the Ld. CIT(A), the Revenue has come in appeal before us.
We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. A perusal of the impugned order of the Ld. CIT(A) would reveal that the Ld. CIT(A) has restricted the addition only to 12.5% of the addition made by the AO, observing that not the entire purchases, but only the profit element involved should be added. In our view, the Ld. CIT(A), while upholding so, has misguided himself as this principle would be applicable in case of a trader, where the sales have been admitted. However, in the case of a manufacturer, the said principle is not applicable as the manufacturer can show bogus purchases and thereby showing that the entire purchases/raw-material has been consumed in the manufacturing process. The estimation of profit element in such cases cannot be held to be justified without going into the factual aspects, such as, how much raw-material is consumed as comparison to the finished goods manufactured. Moreover, there is another aspect which has not been looked into by the Ld. CIT(A) as the Ld. CIT(A) has held that the amount of Rs.1,01,32,433/- was related to entire purchases, whereas, the said amount was only the credit balance at the end of the year and not of the entire purchases made by the assessee from M/s. India Steel Impex. We feel that the entire factual aspects are to be looked into in detail by the Ld. CIT(A). We, therefore, set aside the impugned order of the Ld. CIT(A) and restore the matter to the file of the Ld. CIT(A) for decision afresh on merits by giving ITO vs. Alinaqi Gulamabbas Bhimani Asst. Year : 2018-19 detailed adjudication on factual aspects of the case. Needless to say, that the Ld.CIT(A) will give proper and adequate opportunity to the assessee to present his case and furnish the requisite details/documents, thereafter to decide the appeal of the Revenue in accordance with law.