Income Tax Officer vs Sittin Tomar

“1.

Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,69,79,069/- and restricted the same to Rs 5,39,555/- being 2.03% of the addition made by AO, ignoring the fact that the AO has made detailed investigation regarding purchases made by the assessee from the six parties and held that the purchases of Rs.2,65,79,069/-was bogus and therefore the AO has made addition u/s 69C of the I.T. Act, 1961 correctly.

2.

Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.2,69,79,069/- and restricted the same to Rs 5,39,555/- being 2.03%, by ignoring the decisions of Hon'ble Courts on the similar facts as in the case of the assessee, the relevant case laws are as

a. PCIT-12 Mumbai vs Drisha Impact Pvt. Ltd., High Court of Mumbai, ITA No. 1240 of 2018 with ITA No. 2087 of 2018.

b. PCIT vs. Shri Ganesh Developers (TS-181-HC-2025) BOM (Date of Judgement 05.03.2025/BOM)

c. ACT, Pune vs.Pritam S. Mahalay; 2022 [Taxscan/TAT) 1948- Date of Judgement 15.11.2002 (ITAT Pune)

“6.4

The assessing officer had issued notice Us 133(6) to the 6 parties and out of the above 6 parties, 4 did not file any reply and 2 parties denied having done any business with the appellant. These facts have been well documented in the assessment order by the Ld. AO. Thus on the basis of the above enquiries it can be concluded that the appellant has not done purchase from the above said parties.

6.5

However the appellant filed additional submissions in the case. As per the additional submissions the appellant claimed: ……..

The addition of Rs. 2,65,79,069/- on account of bogus purchase cannot be considered as income by any stretch of imagination treating the purchases from six parties bogus. As mentioned, the accounts were duly audited by a firm of Chartered Accountant, as required under the Income Tax Act and the assessee was dealing for a meager Gross Profit margin of 2.03%. Audited Annual Accounts are enclosed herewith for your kind reference and perusal. It is further stated that if at all the additions are to be made then it must be at Gross Margin only, taking additions of whole purchases form 6 parties, by any stretch of imagination, cannot be justified at all.

6.6

The contention of the appellant is correct as the assessing officer has not rejected the books of accounts of the appellant. Furthermore once the sale is accepted then the purchase cannot be made completely bogus. At the most the claim can be made that the purchase was from the grey market and hence the addition should be limited to the Gross Profit margin i.e. 2.03%. Thus, the claim of the appellant is accepted and the addition is restricted to 2.03% of 2,65,79,069/-. Thus, the addition of Rs. 5,39,555/- should be made to the income of the appellant which should be treated as his business income and the addition made of Rs. 2,65,79,069/- is deleted.

6.7

The above position finds support from the following case laws.

6.8

In the case of Principal Commissioner of Income-tax v. Hitesh Mody (HUF) [2024] 160 taxmann.com 110 (Bombay) Hon'ble HIGH COURT OF BOMBAY has held that where Assessing Officer, on noting that assessee was indulged in bogus purchases, disallowed entire purchases, considering it unexplained expenditure under section 69C, however, Commissioner (Appeals) on finding genuineness in payments and sales, restricted disallowance to 8 percent of total purchases, order of Commissioner (Appeals) needed no interference.

6.9

Furthermore in the case of Principal Commissioner of Income-tax v. Max Flex and Imaging Systems Ltd. [2024] 161 taxmann.com 775 (Bombay) Hon'ble HIGH COURT OF BOMBAY has held that where assessee had furnished copy of tax audit report, P&L account and balance sheet, purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN card, bank statements, purchase confirmation of suppliers, etc., just because assessee could not produce dealers, entire purchases could not be treated as bogus purchases and Assessing Officer could have made further investigations to ascertain genuineness of transactions, which he failed to do. Where Assessing Officer had not disputed sales made by assessee out of purchases, only profit element in alleged bogus purchases amount could be treated as income.

6.10

The Hon'ble Court in its order has observed:

4.

We agree with the ITAT finding that just because Assessee could not produce the dealers, the entire purchases cannot be treated as bogus purchases and the AO could have made further investigations to ascertain the genuineness of the transactions, which he failed to do.

5.

Whether purchases were bogus or whether the parties from whom such purchases were made, were bogus are essentially questions of fact. In the present case, the indisputable fact is that assessee had furnished copy of the tax audit report, P&L A/c and balance-sheet. Assessee also filed purchase bills, payments made by cheques to all suppliers, their ledger accounts, PAN Card, bank statements, purchase confirmation of suppliers, etc. The AO did not accept the evidence but instead, added the amount in assessee's income. The AO, however, has not disputed the sales made by assessee out of such purchases. The ITAT has given detailed findings for justifying addition to the extent of 12.5% only. The Courts have time and again held that only the profit element in the alleged bogus purchases amount can be treated as income, particularly, when the sales has not been disputed. The CIT(A) restricted the addition by estimating the gross profit at 12.5%. Whether that is a right estimate is a question of fact. The ITAT has accepted it. Therefore, we see no reason to interfere.

6.11

In the case of Principal Commissioner of Income-tax v. Tirupati Earth Neerprima JV [2023] 154 taxmann.com 197 (Bombay) Hon'ble HIGH COURT OF BOMBAY has held that where Assessing Officer treated purchases made by assessee as bogus and made addition in respect of same since assessee had maintained inventory of stock and payments for such purchases were made by account payee cheques and tax invoices were obtained, such purchases could not be rejected and addition to be restricted to extent of profit element.

6.12

The Hon'ble Court in its order has maintained:

12.

The ITAT has come to a factual finding that though the suppliers were not produced before the AO, Respondent had maintained books of account which were audited and Audit Report were filed under section 44AB of the Act. Payments have been made by account payee cheques, tax invoices have been obtained and most importantly, Respondent has maintained inventory of stock and also consumed the materials purchased in executing the contract with BMC.

13.

Therefore, in our view the CIT(A) and the ITAT were correct in coming to the conclusion that the purchase cannot be rejected and the additions could be restricted to the extent of profit element, which they determined could be 12.5%.

This is because when material has been actually purchased and consumed in executing the contract, the cost price is required to be deducted and taxes cannot be levied on the same. Further, there is nothing to indicate whether the profit element should be more than 12.5%.

6.13

Thus in view of the above facts and case laws the addition is restricted to Rs. 5,39,555/-, which should be treated as his business income and the addition made of Rs. 2,65,79,069/- is deleted. Thus 1st, 2nd and 3rd Grounds of appeal taken by the appellant are partly allowed…”