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Facts
The assessee's appeals concerned the disallowance of bogus purchases made by the lower authorities. The Assessing Officer disallowed the entire amount of Rs. 43,16,444/-, while the CIT(A) restricted the disallowance to 20% of these purchases, amounting to Rs. 8,63,289/-, based on profit element. The tribunal noted that the issue was identical across the assessment years under appeal.
Held
The Tribunal, while acknowledging that the entire purchases were bogus accommodation entries, decided to restrict the disallowance to 18% of the bogus purchases. This was based on the facts, the GST rate on cement, and the costs associated with obtaining accommodation entries, aiming for a fair estimation of the profit element.
Key Issues
Whether the disallowance of bogus purchases should be based on the entire amount or a profit element, and if so, at what rate (18% decided).
Sections Cited
153C, 143(3), 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. Manish Agarwal
Asstt. Year : 2020-21 M/s S. N. Malhotra & Sons, Vs DCIT, 760, Ramesh Nagar, Central Circle-30, New Delhi-110015 New Delhi110055 (APPELLANT) (RESPONDENT) PAN No. AABFS6724N Assessee by : Sh. Dhani Ram Anthwal, Adv. & Sh. Rakesh, Adv. Revenue by : Sh. Dayainder Singh Sidhu, CIT-DR Date of Hearing: 29.09.2025 Date of Pronouncement: 29.09.2025 ORDER Per Satbeer Singh Godara, Judicial Member: These assessee’s three appeals in 833 & 834/Del/2025 for Assessment Years 2018-19, 2019-20 & 2020- 21 arise against the CIT(A)-30, New Delhi’s DIN & order No. ITBA/APL/M/250/2024-25/1071341134(1), 1071341700(1) & 1071341990(1) all dated 18.12.2024, in proceedings u/s 153C r.w.s. 143(3) of the Income Tax Act, 1961 (in short “the Act”), respectively.
Heard both the parties at length. Case files perused.
It emerges during the course of hearing that the assessee’s instant three appeals raise an identical issue of 833 & 834/Del/2025 S. N. Malhotra & Sons disallowance of bogus purchases made by both the learned lower authorities; involving varying sums, in their respective assessments as upheld in the lower appellate discussion.
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.”
The Revenue is not in appeal before us.
At the outset, the Ld. Counsel contended that the purchases of Rs.43,16,444/- was genuine as the payments had been made through the banking channel and the AO had not disputed the consumption of material purchased for Rs.43,16,444/-. Alternatively, he submitted that the GP rate of 12.5% might be applied in this case instead of 20% applied by the Ld. CIT(A).
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.
We have heard both parties and have considered the material available on record. The Ld. CIT(A) has applied the rate of 20% keeping in view the entire facts of the case, GST rate and the cost of accommodation entries. However, the Ld. CIT(A) has not given details in this in the impugned order. Keeping in view the facts in totality, material available on the record and in the interest of justice, we are of the considered opinion that the GP rate of 18% will be sufficient as the assessee had to give payment for accommodation entries after deriving income from the above bogus purchases. Accordingly, we restrict the disallowance/addition to 18%. The appellant gets consequential relief.”
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.
No other ground or argument has been pressed before us.