EARTH HOMES PRIVATE LIMITED,FARIDABAD vs. ITO,WARD-8(1), NEW DELHI

ORDER

Per Satbeer Singh Godara, Judicial Member:

4. That being the case, both the parties hereby invite the tribunal’s attention to the learned co-ordinate bench recent order dated 29.07.2025 in assessment year 2021-22 in it’s appeal partly accepting the issue against the department as under: 2. The grounds of appeal

are not well drafted. However, sole issue raised by the assessee emerged therefrom is that whether the Ld. CIT(A) is justified in applying Gross Profit (‘GP’) @ 20% of the said bogus purchases of Rs.43,16,444/-.

3. The relevant facts giving rise to this appeal are that the assesseeappellant filed its Income Tax Return (‘ITR’) of the relevant year on 05.03.2022 declaring income of Rs.85,26,280/-. Search and seizure operations under section 132 of the Income Tax Act, 1961 (‘Act’) carried, on 26.10.2020, on Sanjay Jain & Mehta Group of cases revealed that the assessee had taken accommodation entries of Rs.43,16,444/- in the garb of purchases during the relevant year. Hence, the Assessing Officer (‘AO’), with detailed reasoning mentioned in the assessment order disallowed the entire bogus purchases of Rs.43,16,444/- and taxed the same in the hands of the assessee. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who restricted the disallowance/addition at Rs.8,63,289/-; i.e. @ 20% of the bogus purchases of Rs.43,16,444/- as under: - “8. The evidence, including statements of Sanjay Jain and Nikhil Sachar, and the seized Tally data, unequivocally establishes that the purchases were accommodation entries. The absence of corresponding delivery challans or transport records further corroborates this conclusion. While the purchases are deemed bogus, the fact that the corresponding sales and consumption are undisputed indicates that the materials were obtained through back channels. The appellant's argument that only the profit element 833 & 834/Del/2025 S. N. Malhotra & Sons should be taxed is valid. Considering the nature of the industry and the high GST rate of 28% on cement, it is reasonable to assume that back-channel operations would involve additional costs, such as commissions and logistics. A GP addition of 20% on the bogus purchases adequately reflects the profit embedded in such transactions, accounting for industry norms and the specific circumstances of this case. In CIT vs. Simit P. Sheth, the court upheld a 12.5% GP addition. However, given the higher GST rate and the inherent costs in accommodation entry operations for cement, a GP addition of 20% is more appropriate. This approach aligns with the principle that the addition must reflect a fair estimate of the profit element. In light of the above findings, the appeal is partially allowed. The addition of ₹43,16,444/- is modified, and 20% of the disputed purchases, amounting to ₹8,63,289/-, is sustained as taxable income.”

6. On the other hand, the Ld. Commissioner of Income Tax- Departmental Representative (‘CIT-DR’) contended that the average G.P. rate of the assessee had been applied as the GST on the purchases of cement was 28%. He contended that the Ld. Counsel had not contradicted the finding of the Ld. CIT(A). He prayed for dismissal of the appeal.

833 & 834/Del/2025 S. N. Malhotra & Sons 5. Both the parties could hardly dispute in this factual backdrop that the instant issue of disallowance of the assessee’s bogus purchases is very much an identical one in all these assessment years. We thus adopt the learned co-ordinate bench above detailed discussion mutatis mutandis to restrict the impugned bogus purchases disallowance to that @18% in very terms. Necessary computation shall follow as per law.