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Facts
The Assessing Officer made an addition on account of alleged bogus purchases at 15% of the purchase value. The CIT(A) restricted this disallowance to 5% of the purchase value. The Revenue is in appeal against the CIT(A)'s order.
Held
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 5% of the purchases. The Tribunal noted that the assessee's sales were accepted and the GP rate in preceding years was less than 1%.
Key Issues
Whether the disallowance of bogus purchases can be made at 15% when sales are accepted and GP rate is low? Whether the restriction of disallowance to 5% by CIT(A) is justified?
Sections Cited
147, 133(6)
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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
Date of hearing 03.12.2025 Date of pronouncement 03.12.2025 ORDER
PER SATBEER SINGH GODARA, JM
This Revenue’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Delhi’s-23 DIN and order no. ITBA/APL/S/250/2024- 25/1073510587(1), involving proceedings under section 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.
Coming to the Revenue’s sole substantive grievance raised in the instant appeal seeking to revive the Assessing Officer’s action disallowing the assessee’s alleged bogus purchases @ 15% which stand restricted to 5% in the CIT(A)/NFAC’s order, we note that the lower appellate discussion under challenged to this effect reads as under: “7.2 As stated in the impugned order, during the re-assessment proceedings purchase transaction could not be verified from M/s Sungold Trade Pvt. Ltd. even after issuing notice u/s 133(6) of the Act. Further, assessee company had not furnished the required details i.e. proof of transportation of the goods purchased from the alleged party, stock register etc. and also failed to produce the party for verification. The AO was also relied upon the investigation report of the Sales Tax Department wherein it was found that the said concerns were not doing any genuine business of purchase and sells of goods but merely indulged in providing accommodation bills. 7.3 Considering the same, the AO conclude that the appellant company might be purchased some goods from grey market for which bills were arranged from the alleged supplier i.e. M/s Sungold Trade Pvt. Ltd. and on the basis of which the AO has made addition of Rs. 3,35,29,737/- on estimated basis by taking G.P. @15% of purchases amounting to Rs. 22,35,31,581/- from M/S Sungold Trade Pvt. Ltd. 7.3.1 Perusal of the assessment order, it is clear that the AO did not deny the claim of the appellant company of sale to be genuine. There are plethora of judgments wherein it is held that in cases where sales are accepted by the Assessing Officer corresponding purchases cannot be discarded. Only the profit element therein, should be brought to tax. 7.4 In support of grounds of appeal, the appellant has submitted that without admitting if it is held that the assessee did make purchases of goods which remained unproved in the absence of non- filing of requisite documentary evidences, the addition at best could have been of the amount of GP embedded in the purchases. The appellant has submitted that during the year under consideration it had sold brass sheet on which it earned gross profit @ 0.66% whereas in A.Y. 2015-16 and 2016-17 the same was @ 0.51% & 0.86% respectively. The appellant has also relied on various judgments related to similar issues as mentioned in above para(s).
2 | P a g e 7.5 The similar issue is also discussed by the Hon’ble ITAT, Delhi in in the case of Bhartiya International Ltd. Dy. Commissioner of Income Tax, Circle-4(2), New Delhi in which same party i.e. M/S Sungold Trade Pvt. Ltd. is involved from purchase were made by the concerned party. The relevant para of the judgment are reproduced as under: “13.5 Before the Tribunal, the ld. counsel broadly reiterated the submissions made before the lower authorities and submitted that in trading activity, the assessee has ultimately earned a profit of Rs.10,36,945/-. The details of purchases and sales are given in the assessment order itself. All the purchases and sales are duly recorded in the books of account. The AO has duly accepted the sales but refused to accept the purchases and consequently failed to appreciate that no sales can be carried out without corresponding purchases. The action of the AO has resulted in double taxation one by way of sales recorded and second by disallowance of corresponding purchases of the same goods sold. The ld. counsel also contends that even in terms of directions passed by the DRP, the AO was not justified in making addition as the DRP has held that there cannot be sale without purchase. When the sale figure is taken into account by the AO for computing the income of the assessee, purchase figure is required to be necessarily considered. 13.6 We find that the additions made by the AO is not only erroneous but is also contrary to directions of DRP and settled legal position as held in Tejua Rohit Kumar Kapadia (supra); CIT vs. JMD Computers and Communications P. Ltd. (Del); Pr.CIT vs. Bansal Strips P. Ltd. (Del) and plethora of other judgments. 13.7 In the light of observations made by the DRP and plea raised on behalf of the assessee, we find prima facie merit in the plea of the assessee. While the AO has cast doubt on propriety of purchases of fabric made from Sungold Trade P. Ltd. on the basis of assessment order passed in the hands of such supplier, the AO has accepted the corresponding sale transactions. The exclusion of purchases from the trading results is not permissible without corresponding exclusion of the sales in such trading activity for arriving at a fair and balanced view. The action of the AO patently offends the rudimentary principle of accounting. We accordingly direct the AO to reverse the additions made and restore the position taken by the assessee.” 7.6 The facts of the instant appeal are similar as discussed by Ho’ble ITAT , Delhi in in the case of Bhartiya International Ltd. Dy. Commissioner of Income Tax, Circle- 4(2), New Delhi (supra) in which the same party i.e. M/S Sungold 3 | P a g e Trade Pvt. Ltd. from whom purchase were made by the concerned party and the AO has not categorically denied the sales corresponding to the purchases made from the M/S Sungold Trade Pvt. Ltd. However, in the instant appeal, the appellant had itself accepted that if it is held that the assessee did make purchases of goods which remained unproved in the absence of non-filing of requisite documentary evidences, the addition at best could have been of the amount of GP embedded in the purchases. The appellant stated that the gross profit in A.Y. 2015-16 and 2016-17 was @ 0.51% & 0.86% respectively. However, it is matter of fact that in those years there was no scrutiny assessment as evident from record. 7.7 The Assessing Officer of appellant stated in the order that the AO of M/s. Sungold Trade Pvt. Ltd. treated it as an entry provider while making assessment for AY 2017-18. The AO also requested the appellant to furnish proof of transportation of goods purchased by way of transport receipt, toll plaza receipt, etc. Further vide paras 6.4 and 8, the AO recorded a finding that no such details are furnished during the course of assessment proceedings. The Assessing Officer also held that the contention of appellant are not acceptable for the reasons such as:- i. physical delivery of goods might have obtained in grey market. ii. no delivery challan or freight receipt to prove the delivery of goods. iii. supplier were not produced for verification. After considering the reply of appellant in the end the Assessing Officer considered GP rate of 15% on the total purchases to meet the end of justice. 7.8 Considering, the facts discussed above, I hereby held that the AO has applied a G.P rate @15% in comparison to the preceding years which are less than 1%, therefore on a higher side. However, it is also a matter of fact that preceding years were not subjected to the scrutiny assessment. In such scenario the adhoc disallowance of alleged purchases are held valid in various judgements of higher courts. In the land mark case of M/s Vijay Proteins ltd. which was time and again referred to in various judgments of Hon’ble High Court and Tribunals the issue is whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. From the aforesaid discussion, facts of the case and case laws on the issue, I upheld the adhoc disallowance. However, considering the G.P. rate is on higher side, I hereby restrict the disallowance to @5% of total purchases of Rs. 22,35,31,581/- made from M/s. Sungold Trade Pvt. Ltd. which comes to the tune of Rs. 1,11,76,580/- to meet the end of justice. Therefore, addition of Rs. 1,11,76,580/- is confirmed out of the total addition of Rs. 3,35,29,737/-. Thus, ground nos. 3 & 4 are partly allowed.”
4 | P a g e This is what leaves the department aggrieved who has come in appeal before the tribunal.
We have given our thoughtful consideration to the Revenue’s and the assessee’s respective vehement submissions. We reiterate that this is not an instance wherein either the assessee’s impugned purchases have been allowed or declined in entirety since the Assessing Officer had rejected 15% of its impugned claim in assessment order whereas the CIT(A) holds that 5% disallowance thereof would be just and proper in the peculiar facts of the case. Various recent judicial precedents (2025) 173 taxmann.com 592 (Guj.) Ravjibhai Becharbhai Dhamelia vs. ACIT; (2024) 160 taxmann.com 110 (Bom) PCIT Vs. Hitesh Mody (HUF), (2024) 160 taxmann.com 93 (Del) PCIT Vs. Forum Sales (P) Ltd.; (2025) 172 taxmann.com 283 (Bom) PCIT Vs. Kanak Impex (India) Ltd; (2025) 178 taxmann.com 424 (Del. – Trib.) DCIT Vs. Kohinoor Foods Ltd.; and (2025) 177 taxmann.com 836 (Delhi-trib.) DCIT Vs. Tirupati Matsup (P.) Ltd. have recently decided the instant issue of bogus purchases with divergent views as well. This is indeed coupled with the fact that the assessee’s corresponding sales figures have been duly accepted as well. And also that its GP rate in the preceding
5 | P a g e assessment years is less than 1% (supra). We hereby conclude in these peculiar facts that learned CIT(A)/NFAC has rightly restricted the assessee’s impugned bogus purchases disallowance to 5% than that made in the assessment order @ 15% which does not warrant any interference on our part. Rejected accordingly.