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Judgment
PER MANISH AGARWAL, AM:
The captioned appeal is filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A) in short”] u/s 250 of the Income Tax Act, 1961 [“the Act in short”], dated 18.09.2025 against the assessment order passed u/s 143(3) of the Act, 1961 for Assessment Year 2022-23.
Brief facts of the case are that assessee is an individual and filed his return of income on 19.09.2022, declaring total income of Rs. 10,18,390/-. The case of the assessee was selected under CASS for scrutiny for the reason “substantial purchases made from the suppliers who are non-filers”. Thereafter, notice u/s 143(2) of the Act was issued followed by various notices u/s 142(1) alongwith questionnaire from time to time and after considering the notices and submissions made by the assessee, AO passed the order by making additions of Rs. 11,52,23,230/- being purchases made from six parties as tabulated at page 3 & 4 of the assessment order held as bogus.
Against the said order, the assessee filed the appeal before the Ld. CIT(A) who dismissed the appeal of the assessee and uphold the addition of entire purchases held as bogus.
Aggrieved by this order, the assessee is in appeal before the Tribunal by taking following grounds of appeal:
1.“When the nature and source of expense of Rs.11,52,23,230 was not doubted by the Assessment Unit, the learned CIT (Appeals) erred in recourse to Section 69C as against Section 37 of the Income Tax Act, 1961 and further erred in dismissing the appeal by solely relying on the ratio laid down by Honourable Supreme Court in N.K. Proteins Ltd. v. Dy. CIT (84 taxmann.com).
2.That the learned CIT (Appeal) erred in rejecting the evidence filed by the assessee in support of the impugned Purchases of Rs.11,52,23,230 and further erred in not holding:-
(i)that the Audit Report issued was on specific format as provided in Income Tax Rules, 1922, and notwithstanding the absence of physical verification of stock, the Tax Auditor has made no adverse comment either on stock reconciliation or on production/sale quantities or otherwise reported any shortages;
(ii)that the Assessment Unit had nothing adverse to state on such quantitative details and reconciliation as reported in Tax Audit Report and abstract of Stock Register filed;
(iii)that the manufacturing activity of the assessee involved copper wire drawing and that there is no meaningful wastage or by-product;
(iv)that no disallowance out of Purchases be made in the relevant assessment year as such transactions remained fully vouched and abstract from GST on-line portal were filed supporting existence of the impugned suppliers at the relevant period.
3.That the learned CIT (Appeal) erred in not holding that the assessee could not be held responsible for contravention of any statutory provisions by the impugned suppliers as AU had accepted the sales against such purchases and not rejected the books of accounts u/s 145 of the Income Tax Act, 1961.
4.That the learned CIT (Appeals) erred in not holding that qua the assessee the reports of Verification Unit personnel were 'third party' and erred in not allowing assessee reasonable opportunity to cross-examine such persons before relying on the reports and wrongly dismissing assessee's appeal on the issue.
5.That on facts and circumstances of the case and in law the learned authorities below erred in disallowing Rs.11,52,23,230 out of Purchases erroneously holding such Purchases as 'non-genuine' merely because the suppliers failed to comply with notice u/s 133(6) of the Act issued in each case and respectively violative of their statutory obligations.”
In all the Grounds of appeal, the assessee has challenged the addition made of Rs. 11,52,23,230/- being the purchases made from Six parties alleged as bogus.
Before us, the Ld. AR of the assessee submits that the assessee has filed all evidences to prove the genuineness of the purchase which includes ledger accounts, bank statements, E-way bills and other particulars. He submits that the books of accounts of the assessee were not rejected, therefore, no addition could be made on account of purchases held as bogus. In the alternate it is submitted by ld. AR that entire purchases held as bogus could not be added and only a reasonable profit rate would be added.
On the other hand, the Ld. Sr. DR for the Revenue vehemently supported the orders of lower authorities and submits that when the assessee has failed to substantiate the purchases made, the AO has rightly made the addition of the entire amount of purchases as undisclosed income of the assessee and, therefore, she prayed for confirmation of the order of lower authorities.
Heard both the parties and perused the materials available on record. In the instant case, we find that the Ld. CIT(A) has considered all the aspects with respect to the purchases made from the parties alleged as the bogus/non-genuine. The Ld. CIT(A) in para 5.2.2 of the order has discussed all the contention raised by the assessee and then reached to the conclusion that the suppliers have not replied to the notices issued u/s 133(6) of the Act and none of the party was found at the given addresses. Further the notices issued to the transporters also remained un-responded. Therefore, such purchases could not be accepted as genuine purchases. The relevant observations of ld. CIT(A) in para 5.2.3 of the order are reproduced as under:
goods which happened in the case of the appellant with regard to alleged purchases. The AO also mentioned that the appellant has also not helped his case by providing any account confirmation from the said Vendors so as to disprove his findings.
Contention No. (ii) - The appellant's books of accounts are duly audited and Tax Audit Report have been placed on record
If the contention of the appellant is accepted then in all those cases where tax audit has been done u/s 44AB of the Act, no addition can be made by the Department to the Total Income of such assessees. Further, in the appellant's case, it is not that all the purchase bills and its corresponding corroborative evidences to verify the genuineness of purchases made by the appellant have been done by his statutory auditor so as to rule out any mischief played by the appellant on this count. This process of continuous verification of all the purchases/expenses bills and the procedure to account for the same, in addition to conformity with the norms of valid delivery of the goods purchased, is subject matter of internal audit. An internal audit is an independent and objective assurance and consulting activity designed to add value and improve an organization's operations by evaluating and enhancing its risk management, control, and governance processes. It involves a methodical review of a company's internal controls, operations, and compliance with policies and regulations to identify weaknesses, prevent fraud, ensure accuracy, and offer constructive recommendations for improvements to management and the board. Obviously, since in the appellant's case internal audit is not mandatory, it has not been conducted. Notwithstanding the above, from tax audit report submitted by the appellant in Form 3CB, it is noted that vide para 5(3) and 5(4), the auditor has reported as under:
3 Others The cash in hand and closing stock are not physically verified by us on 31st march 2022 but the same are reconciled and confirmed form the accounting records
4 Others As informed by the assessee, the information reported under clause 44 of Form 3CD is based on the information extracted from accounting software/ relevant GST report. However this may not be accurate as the accounting software used by Assessee is not configured to generate report as required under this clause in absence of any prevailing statutory requirement. In addition, the software/system does not capture information relating to the entities falling under composition scheme or supply with ineligible credit. Therefore, it is not possible for us to verify the break-up of total expenditure of entities registered or not registered under the GST and unable to comment on accuracy of information provided therein. Total expenditure reported under the clause includes capital expenditure however does not include depreciation, Interest, bad debt etc. and expenditure which is not a supply as per GST. The auditor has clearly reported that closing stock has not been physically verified by him and with respect to break-up of total expenditure of entities registered or not registered under the GST (as per clause 44 of Report in Form 3CD) the information may not be accurate as the accounting software used by the appellant is not configured to generate report as per the requirements of the said clause of Form 3CD.
Further, in column 4 of Form 3CD as to whether or not the appellant was liable to pay indirect taxes, it has been mentioned 'YES'. The said clause is reproduced hereunder:
04 Whether the assessee is liable to pay indirect tax like excise duty, service tax, sales tax, goods and service tax, customs duty, etc. if yes, please furnish the registration number or GST number or any other identification number allotted for the same Yes Name of Act State Other Goods and service tax DELHI Registration No. 07E05PM5640E1ZS Description (optional) However, in clause 26B(a) & (b) of Report in Form 3CB, it has been mentioned that nothing has been paid by the appellant for any item covered u/s 43B of the Act even when under clause (a) of section 43B of the Act, GST is included. The said clause 26B(a) & (b) of Report in Form 3CB is reproduced hereunder:
26 1 In respect of any sum referred to in clause (a),(b),(c),(d),(e),(f) or (g) of section 43B, the liability for which:- A pre-existed on the first day of the previous year but was not allowed in the assessment of any preceding previous year and was a) paid during the previous year: Nil Nature of Liability Amount Remarks if any: Section b) not paid during the previous year: Nil Nature of Liability Amount Remarks if any: Section B) was incurred in the previous year and was a) paid on or before the due date for furnishing the return of income of the previous year under section 139(1): Nil Nature of Liability Amount Remarks if any: Section b) not paid on or before the aforesaid date: Nil Nature of Liability Amount Remarks if any: Section As per columns 35(b)(A) and (B) of Tax Audit Report in Form 3CD, it is seen that the auditor has quantified the items traded by the appellant categorizing him as a manufacturing concern. As per column 35(b)(A), the purchased quantity during the year of copper wire is mentioned as 247293.85 kgs and the same quantity has been mentioned as being consumed during the year. As per column 35(b)(B) it is mentioned that quantity manufactured during the year was also 247293.85 kgs, ie., exactly the same as quantity purchased and consumed. It is not understandable as to how under a manufacturing process exactly same quantity of raw material consumed, being 247293.85 kgs, is also manufactured, even when there is no by-product. The relevant clauses of the report are reproduced hereunder:
35 a) In the case of a trading concern, give quantitative details of principal items of goods traded :
Item Name Unit opening stock purchases during the previous year sales during the previous year closing stock shortage / excess, if any NA b)In the case of a manufacturing concern, give quantitative details of the principal items of raw materials, finished products and by-products :
| A Raw Materials : | ||||||||
|---|---|---|---|---|---|---|---|---|
| Item Name | Unit | opening stock | purchases during the previous year | consumption during the previous year | sales during the previous year | closing stock | * yield of finished products | *percentage of yield, % |
| Copper Wire | Kilograms | 0 | 247293.85 | 247293.85 | 0 | 512.35 | ||
| B Finished products : | ||||||||
| Item Name | Unit | opening stock | purchases during the previous year | quantity manufactured during the previous year | sales during the previous year | closing stock | shortage / excess, if any | |
| Copper Wire | Kilograms | 2888 | 247293.85 | 241881.00 | 8299.95 | |||
| C By products : | ||||||||
| Item Name | Unit | opening stock | purchases during the previous year | quantity manufactured during the previous year | sales during the previous year | closing stock | shortage / excess, if any | |
| NA | ||||||||
Therefore, it can be said that the Tax Audit Reports relied upon by the appellant cannot be considered as evidence with respect to proving the genuineness of purchase transaction entered into by the appellant with the Vendors.
Contention No. (iii) - As the sales made against the purchases have not been doubted by the AO, entire purchases could not be added
If the contention of the appellant that as the sales made against the purchases have not been doubted by the AO, entire purchases could not be added, is accepted then it would make the provisions of section 69C of the Act redundant in nature which says that any unexplained expenditure incurred and claimed by an assessee in his financial statements is to be disallowed in toto. Nowhere does the said section give any benefit to an assessee on account of its proving the genuineness of the application of such expenditure, in this case the same being sales. Reliance in this regard is placed on the decision of Hon'ble Gujarat High Court in the case of N.K. Industries Ltd. v. Deputy Commissioner of Income-tax[2016] 72 taxmann.com 289 (Gujarat) – In this case the Hon'ble HC in paragraph in paragraph 6 of its judgment held as under:
6....In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,322/-.
(Emphasis given by underlining)
It is to be noted that the SLP filed by the assessee in this case before the Hon'ble Supreme Court was dismissed in N. K. Proteins Ltd. v. Deputy, Commissioner of Income-tax [2017] 84 taxmann.com 195 (SC), thereby establishing that 100% disallowance of bogus purchases ought to be made in consonance with provisions sections 68 and 69C of the Act.
Contention No. (iv) - The copies of invoices and e-way bills are placed on record along with ledger accounts of all the Vendors
As the appellant had claimed expenses in the form of purchases made from the Vendors, the initial onus was casted upon him to prove the existence of the said Vendors and genuineness of the transactions. As mentioned above, on account of non-service of notices u/s 133(6) of the Act issued by the AO to the Vendors and report of the VU mentioning that the said Vendors did not exist at the given addresses, the onus was all the more incumbent on the appellant to discharge that the alleged Vendors in fact existed. However, rather than discharging the said onus, the appellant has failed to bring on record a single account confirmation from any of the six Vendors till date. Copies of invoices and ledger accounts of the Vendors in the books of the appellant are self-created documents which cannot be relied upon in the absence of external corroborative evidences to substantiate the delivery of the materials. Also the appellant has failed to bring on record any details with respect to transporter who has offered his services to the appellant for movement of alleged goods purchased from the Vendors. As mentioned above, even notice issued to the transporter u/s 133(6) of the Act by the AO went without any response from him. Further, the e-way bills submitted by the appellant were perused and it was found that the same were also without any details with respect to the transporter. One such e-way bill is reproduced hereunder:
e-Way Bill
1. E-WAY BILL Details
e-Way Bill No. 7912 0072 9429 Generated Date: 24/07/2021 08:18 PM Generated By: KPPB PRT04 04/2021 Valid Date: 24/07/2021 Mode: Read Approx. Distance: 22km Type: Outboard - Supply Document Details: Tax Invoice - 10 - 24/07/2021 Transaction type: Regular
2. Address Details
From DETAIL OFFICE: PETER BAKER 2000 S. WAYNE STREET, BOGOTSWOOD BOGOTSWOOD Corporate Name: VINCENT BAKER BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO CORP. BROWN & WILLIAMSON TOBACCO
To DETAIL OFFICE: PETER BAKER 2000 S. WAYNE STREET, BOGOTSWOOD BOGOTSWOOD Address: 1. City: BOGOTSWOOD 2. City: BOGOTSWOOD 3. City: BOGOTSWOOD 4. City: BOGOTSWOOD 5. City: BOGOTSWOOD 6. City: BOGOTSWOOD 7. City: BOGOTSWOOD 8. City: BOGOTSWOOD 9. City: BOGOTSWOOD 10. City: BOGOTSWOOD 11. City: BOGOTSWOOD 12. City: BOGOTSWOOD 13. City: BOGOTSWOOD 14. City: BOGOTSWOOD 15. City: BOGOTSWOOD 16. City: BOGOTSWOOD 17. City: BOGOTSWOOD 18. City: BOGOTSWOOD 19. City: BOGOTSWOOD 20. City: BOGOTSWOOD 21. City: BOGOTSWOOD 22. City: BOGOTSWOOD 23. City: BOGOTSWOOD 24. City: BOGOTSWOOD 25. City: BOGOTSWOOD 26. City: BOGOTSWOOD 27. City: BOGOTSWOOD 28. City: BOGOTSWOOD 29. City: BOGOTSWOOD 30. City: BOGOTSWOOD 31. City: BOGOTSWOOD 32. City: BOGOTSWOOD 33. City: BOGOTSWOOD 34. City: BOGOTSWOOD 35. City: BOGOTSWOOD 36. City: BOGOTSWOOD 37. City: BOGOTSWOOD 38. City: BOGOTSWOOD 39. City: BOGOTSWOOD 40. City: BOGOTSWOOD 41. City: BOGOTSWOOD 42. City: BOGOTSWOOD 43. City: BOGOTSWOOD 44. City: BOGOTSWOOD 45. City: BOGOTSWOOD 46. City: BOGOTSWOOD 47. City: BOGOTSWOOD 48. City: BOGOTSWOOD 49. City: BOGOTSWOOD 50. City: BOGOTSWOOD 51. City: BOGOTSWOOD 52. City: BOGOTSWOOD 53. City: BOGOTSWOOD 54. City: BOGOTSWOOD 55. City: BOGOTSWOOD 56. City: BOGOTSWOOD 57. City: BOGOTSWOOD 58. City: BOGOTSWOOD 59. City: BOGOTSWOOD 60. City: BOGOTSWOOD 61. City: BOGOTSWOOD 62. City: BOGOTSWOOD 63. City: BOGOTSWOOD 64. City: BOGOTSWOOD 65. City: BOGOTSWOOD 66. City: BOGOTSWOOD 67. City: BOGOTSWOOD 68. City: BOGOTSWOOD 69. City: BOGOTSWOOD 70. City: BOGOTSWOOD 71. City: BOGOTSWOOD 72. City: BOGOTSWOOD 73. City: BOGOTSWOOD 74. City: BOGOTSWOOD 75. City: BOGOTSWOOD 76. City: BOGOTSWOOD 77. City: BOGOTSWOOD 78. City: BOGOTSWOOD 79. City: BOGOTSWOOD 80. City: BOGOTSWOOD 81. City: BOGOTSWOOD 82. City: BOGOTSWOOD 83. City: BOGOTSWOOD 84. City: BOGOTSWOOD 85. City: BOGOTSWOOD 86. City: BOGOTSWOOD 87. City: BOGOTSWOOD 88. City: BOGOTSWOOD 89. City: BOGOTSWOOD 90. City: BOGOTSWOOD 91. City: BOGOTSWOOD 92. City: BOGOTSWOOD 93. City: BOGOTSWOOD 94. City: BOGOTSWOOD 95. City: BOGOTSWOOD 96. City: BOGOTSWOOD 97. City: BOGOTSWOOD 98. City: BOGOTSWOOD 99. City: BOGOTSWOOD 100.
Quantity Variable Amount Rs. Tax Rate (D+E+F=Case)/Case (Min./Adult) 1810.57 1020 1180000.07 0.000+0.000-0.000+0.000=0.00 Tax Taxable Amt: 1180000.07 COST Amt: 107720.00 COST Amt: 107720.00 COST Amt: 0.00 CESS Amt: 0.00 CESS Amt:0.00 Other Amt: -0.00 Total tax Amt: 1410442.00
4. Transportation Details Transporter ID & Name : None Transporter Doc. No & Date : 8.24/07/2021
6. Vehicle Details
| Route | Vehicle / Name Box No & ID | Code | External Date | External By | Details Inc. (if any) | Date Vol./No. (if any) |
|---|---|---|---|---|---|---|
| Road | PRT04021 | 24/07/2021 08:18 PM | KPPB/PRT04/2021 |
In our considered opinion, action of Ld. CIT(A) in holding the purchases made from the Six parties is based on the appreciation of facts of the case, therefore, we restrained ourselves to interfere in such findings of ld. CIT(A). However, ld. CIT(A) has uphold the addition of entire purchases made from these six parties by rejecting the plea of the assess to apply a reasonable profit rate by placing reliance on the judgements of Hon’ble Bombay High Court in the case of PCIT Vs. Kanak Impex (India) Ltd. reported in [2025] 172 Taxman.com 283(Bom.) and further in the case of Shoreline Hotel (P) Ltd. Vs. CIT reported in [2018] 98 Taxman.com 234(Bom.).
The Revenue could hardly dispute that the assessee’s sales figure in his books of account in regular business activity has been duly reflected and accepted in both the lower proceedings. The fact also remains that the assessee also could not plead and prove the impugned purchases as genuine all along in the lower proceedings. The question whether entire purchases should be disallowed or addition should be restricted to the profits embedded in sale proceeds was answered by Hon'ble Gujarat High Court in the case of CIT Vs. President Industries reported in 258 ITR 654 (Guj. HC) and Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Balchand Ajit Kumar reported in 263 ITR 610 (M.P. HC) wherein it is held that only the profit should taxed.
Recently the Hon’ble Gujarat High Court in the case of PCIT Vs. Sunil Kumar Parasmal Jain reported in [2026] 185 Taxmann.com 916 (Guj.), has upheld the profit rate of 6% of the purchases alleged as bogus. The SLP filed by the revenue against the said order stood dismissed by the Hon’ble Apex Court in [2026] 186 Taxmann.com 285 (SC). The relevant observation of the Hon’ble Gujarat High Court are as under:
4.“This Court finds that in several matters arising out of transactions with the said Bhanwarlal Jain Group, the Tax Appeals of the Department have been dismissed where the learned ITAT has assessed the disallowance at6% , as has been done in the present case. This Court in the case of PCIT v. Keshri Exports [2024] 168taxmann.com 528 (Gujarat) after considering the decision in the case of Pr. CIT v. Pankaj K. Chaudhary [Tax Appeal No. 617 of 2022, dated 07-03-2023] has upheld the disallowance of 6% of bogus purchases.
5.The relevant extracts from the judgment in the case of Keshri Exports (supra) is as under:-
"5.The Assessing Officer noticed the contentions of the assessee that confirmation, purchase bills, bank statement, stock register, copy of ITR were already filed. The Assessing Officer was, however, of the view that transactions were bogus and merely that it routed through the banking channel, was not sufficient to conclude that they were the genuine transactions. The contention of the assessee that he had not dealt with the Bhanvar lal Jain group was also negatived. The appellate Commissioner took the view that disallowance was required to be sustained at 12.5% of the purchase. The Assessing Officer was directed accordingly to workout disallowance. In para 10.6, the Commissioner of Income Tax (Appeals),recorded thus, "As held above, it is clear that the appellants have made purchases from elsewhere, but have obtained bills from the impugned suppliers. From the Trading & P & L account and Audit report it can be seen that the GP rate shown by appellant is 1.85% oil sales. In such circumstances the disallowance of 100% of purchases cannot be justified. Also as held above, the appellant would nave indulged in above practice in order to get some benefit. And it is this benefit derived by the appellant that need to be taxed. What would be the magnitude of benefit derived by the appellant is the mute question. In the appellant's case, it is seen that GP rate shown is 0.78%".
5.1The final view was expressed in para 10.10,
"Following the above judicial pronouncements and views taken by Ld. CIT(A) & AOS in a few identical cases. In a couple of identical cases, where the GP shown by the appellants is more than5%, I have confirmed the disallowance of the impugned purchases to the extent of 5% of the impugned purchases. However in the instant case the appellant is showing measly G.P. of only0.78% on turnover. In view of this I am of the considered opinion that disallowance of 12.5% of the impugned purchases would be reasonable and would meet the ends of justice. Hence, the disallowance is restricted to 12.5% of the impugned purchases for the assessment year in appeal.
5.2The disallowance at 100% was made in the assessment order for the year under consideration to the tune of Rs. 4,34,00,343/-, which was reduced to 12.5% at Rs. 54,25,040/-. Thereafter, the issue was dealt with by the appellate Tribunal. The appellate Tribunal endorsed to the view taken by the appellate Commissioner. It was observed that Assessing Officer failed to consider the evidence furnished by the assessee.
5.3Considering the facts and relevant aspect, the Income Tax Appellate Tribunal partially allowed the appeal of the assessee to further reduce the disallowance at 6%. In so concluding, the Tribunal observed in paragraph No.21 as under,
".......during the financial year under consideration the assessee has shown total turnover of Rs.66,09,62,458/-. The assessee has shown Gross Profit @ 78% and net Profit @ 0.02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs. 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the Ld. CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03% on turnover of Rs 1.86Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases / disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No.2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed."
6.In so concluding, the Tribunal observed in paragraph No.21 as under,
"............during the financial year under consideration the assessee has shown total turnover of Rs.66,09,62,458/-. The assessee has shown Gross Profit @ 78% and net Profit @ 0.02% (page 11 of paper Book). The assessee while filing the return of income has declared taxable income of Rs.1,81,840/- only. We are conscious of the facts that dispute before us is only with regard of the disputed purchases of Rs. 4.34 Crore, which was shown to have purchased from the entity managed by Bhanwarlal Jain Group. During the search action on Bhanwarlal Jain no stock of goods/material was found to the investigation party. Bhanwarlal Jain while filing return of income has offered commission income (entry provider). Before us, the Ld. CIT-DR for the revenue vehemently submitted that the ratio of decision of Hon'ble Gujarat High Court in Mayank Diamond Private Limited (supra) is directly applicable on the facts of the present case. We find that in Mayank Diamonds the Hon'ble High Court restricted the additions to 5% of GP. We have seen that in Mayank Diamonds P Ltd (supra), the assessee had declared GP @ 1.03%) on turnover of Rs 1.86Crore. The disputed transaction in the said case was Rs. 1.68 Crore. However, in the present case the assessee has declared the GP @ 0.78%. It is settled law that under Income-tax, the tax authorities are not entitled to tax the entire transaction, but only the income component of the disputed transaction, to prevent the possibility of revenue leakage. Therefore, considering overall facts and circumstances of the present case, we are of the view that disallowances @ 6% of impugned purchases/ disputed purchases would be sufficient to meet the possibility of revenue leakage. In the result the ground No.2 of appeal raised by the assessee is partly allowed and the grounds of appeal raised by revenue are dismissed."
6 . The view taken and the conclusion arrived at by the appellant Tribunal are based on material before it and after analysing the facts and figure available before it. When the Tribunal has thought it fit to reduce the disallowance at 6% from 12.5%, the Tribunal had before it the facts which were duly analysed by it. No interference is called for in the said conclusion and findings of the Tribunal in the present appeal by this court.
6.1The another weighing aspect is that the Tax Appeal No. 674 of 2022 in Principal Commissioner of Income Tax 1, Surat v. M/s.Surya Impex which came to be decided by the co-ordinate Bench on16.1.2023 dealt with the very issue of accommodation entries provided by Bhanwarlal Jain Group. The group involved in the said case is the same group who is saddled with allegations of providing accommodation entry to the assessee. In M/s. Surya Impex (supra) the court held in favour of the assessee. The questions of law involved in the said case were of the same nature and were in the context of similar facts involving the same group.
7.For all the above reasons, substantial questions of law proposed by the appellant in this appeal stands already answered. No question of law much less any substantial questions of law arise in the facts of the present case. No other substantial question of law arises. The appeal is meritless. It is summarily dismissed."
6.In view of the above, the substantial questions of law proposed by the appellant in the appeal stands already answered and therefore, no question of law much less any substantial questions of law, can be said to have arisen in the facts of the present case.
Considering the above decisions of Hon’ble Gujarat High Court and a catena of recent decisions passed by the Tribunals relying on the aforesaid decisions, only the profits embedded in sale proceeds should be taxed instead of addition on account of entire purchases. Looking to the circumstantial evidence in the present case, it is evident that impugned purchases from the alleged supplier were not genuine. One must consider the totality of facts, surrounding circumstances and human probability for arriving at such a conclusion.
Since the issue whether the entire purchases are to be added or only a reasonable profit could be added in the case where the purchases were held as non-genuine/bogus. There are different views expressed by various Hon’ble High Courts therefore, by respectfully following the judgement of Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd reported in [1973] 88 ITR 192 [SC] and this view is to be considered and followed by the judgement of Hon’ble Gujarat High Court in the case of PCIT Vs. Sunil Kumar Parasmal Jain (supra) wherein Hon’ble Gujarat High Court held that 6% profit rate is alleged as reasonable. The said order sought confirmed by the Hon’ble Supreme Court also.
In view of above discussion and considering the factual matrix of the case, we are of the opinion that the ratio of the decision of the Hon'ble Gujarat High Court in the case of Sunil Kumar Parasmal Jain (supra), is squarely applicable mutatis mutandis to the instant case. Accordingly, in our considered view profit rate of 5% on the non-genuine/suspicious/bogus purchases of Rs 11,52,23,230/- would be just and proper with a rider that the same shall not be treated as a precedent. We direct accordingly. Thus, all the grounds of appeal raised by the assessee on this issue are treated as partly allowed.
In the result, the appeal of the assessee is partly allowed.