AI Structured Summary
Not yet generated for this judgment
Judgment
PER NAVEEN CHANDRA [A. M]:
These three appeals filed by the Revenue are against orders dated 28.02.2025 passed by learned Commissioner of Income Tax(Appeals)-30, New Delhi (hereinafter referred to as ‘Ld. CIT(A)’), u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as, “the Act”] for Assessment Years 2018-19, 2019-20 and 2020-21 respectively. The assessments in the respective appeals are framed by the Assessing Officer [for short, AO] under section 153C r.w.s. 143(3) and of the Act.
Identical issues are involved in these appeals and hence they are taken up together and dispose of by this common order for the sake of convenience.
The Revenue has raised following grounds of appeal for Assessment Year 2018-19:-
“1.Whether on the facts and in the circumstances of the case and in the provisions of the law, the Ld. CIT(A) is correct in allowing the appeal of the assessee without appreciating the facts of the case.
2.Whether on the facts and in the circumstances of the case and in the provisions of the law, the Ld. CIT(A) is correct in applying the GP ratio @20% on the bogus purchases on the basis of which the addition to the tune of Rs.12,19,300/- has been sustained.
3.Whether on the facts and in the circumstances of the case and in the provisions of the law, the Ld. CIT(A) is correct in allowing the 80% of the bogus purchase ignoring the facts that the addition of Rs.48,77,200/-was made on the basis of the statements of the entry provider Sh. Sanjay Jain.
4.Whether on the facts and in the circumstances of the case and in the provisions of the law, the Ld. CIT(A) is correct in not considering the fact that the assessee took the purchase entry to escalate its purchase expenses over and above its actual purchase expenses to evade taxes.
5.Whether on the facts and in the circumstances, the CIT(A) is correct in not considering the facts that the assessee has shown the revenue from operation generated from the sale of actual purchase only. No sale has been shown by the assessee for the bogus purchase entry taken by the assessee. Hence, consideration of profit element embedded in the bogus purchases is not correct.
6.The grounds of appeal are without prejudice to each other.”
For the purposes of this adjudication, the facts for AY-2018-19 have been taken. The decision for AY-2018-19 shall apply mutatis mutandis for appeal for AY 2019-20 and 2020-21 also.
The issue involved in this case is that the Assessing Officer has considered the purchase made by the assessee as bogus on the basis of documents/evidence found and seized during the course of search and seizure operation.
Against the order of the ld. CIT(A) to adopt 20% of GP rate of bogus purchase, the Revenue is in appeal before us.
The main argument of the Revenue is that the ld. CIT(A) failed to appreciate the evidence and arbitrarily applied GP rate @20%, whereas the addition is based on statements of entry provider and documents found during search and relied upon the decision of the Hon’ble Supreme Court in the case of M/s Kanchwala Gems, Jaipur vs DCIT 288 ITR 10(SC).
Per Contra, learned Authorized Representative of the assessee supported the order of the ld. CIT(A).
We have considered the rival submission and perused the material available on record. We find that the ld. CIT(A) has considered and analysed the issues at hand and thereafter has applied GP rate approach taking 20% of the purchase as income of the assessee. The CIT(A) has held as under:-
“7.7In evaluating the evidence and submissions, it is clear that while the appellant has successfully addressed some of the AO's allegations, certain critical aspects remain unresolved. The verification of transport details and the submission of purchase invoices lend partial credibility to the appellant's claim. However, the absence of stock reconciliation records coupled with corroborative evidence from the statements of Sanjay Jain and Nikhil Sachar, establishes that the purchases in question were not entirely genuine.
7.8It is also important to acknowledge that the corresponding sales and consumption of materials have not been disputed, indicating that the materials were procured through back-channel operations. In such situations, taxing the entire amount of alleged bogus purchases would be excessive and inconsistent with judicial precedents. Instead, it is more appropriate to estimate and tax the profit element embedded in these transactions, taking into account the nature of the industry and the specific facts of the case.
7.9GST rate of 28%, inherently involves significant costs and margins when routed through accommodation entry operators. Given the high GST rate of 28% on cement and the inherent costs associated with back-channel operations (such as commissions and logistics), addition of 20% on the disputed purchases is deemed reasonable. This estimation adequately reflects the profit element involved in the transactions and aligns with the principle that additions must be based on fair and reasonable estimates. Although the Gujarat High Court in CIT vs. Simit P. Sheth upheld a GP addition of 12.5%, the higher GST, rate and other circumstances in this case justify a slightly higher addition of 20%.
7.10In light of the above findings, the addition made by the AO is modified. Accordingly, 20% of the disputed purchases, amounting to 12,19,300/-, is sustained as taxable income. Above grounds of appeal are partly allowed.
From the above narration, we find that the CIT(A) has estimated the profit element embedded in the transactions, termed as bogus purchase, mainly on account of the fact that the corresponding sales have not been disputed by the Revenue and also considering the nature of the industry and the specific facts of the case. We hardly find any reasons to interfere with this reasonable order of the ld. CIT(A). The appeal of the Revenue for Assessment Year 2018-19 is therefore dismissed.
As the facts of the Revenue’s appeal in ITA No.3747 and 3748/Del/2025 for Assessment Year 2019-20 and 2020-21 are identical to those in ITA No.3746/Del/2025 for Assessment Year 2018-19 (supra), the appeal of the Revenue for Assessment Year 2019-20 and 2020-21 are also dismissed.
In the result the appeal in ITA Nos.3746, 3747 and 3748/Del/2025 are dismissed.