Ms. Sunita Tayal vs Income Tax Officer

This appeal by the assessee is directed against the order of CIT(A), NFAC, Delhi dated 25th March, 2026 for the assessment year 2018-19.

Shri J.B. Sharma, Advocate appearing on behalf of the assessee submits that the assessee is a proprietor of M/s M.K. Threads, Panipat. The assessee is a trader of yarn waste and yarns. During the period relevant to the assessment year under appeal, the assessee made total purchases of ₹1,40,33,604/- and made sales of ₹1,33,71,662/-. The above purchases include purchases from M/s Shree Banke Bihari Enterprises, Panipat amounting to ₹39,35,137/-. The assessment for assessment year 2018-19 in the case of the assessee was reopened on the basis of information received on Insight Portal that M/s Shree Banke Bihari Enterprises, Panipat is engaged in providing bogus sales bills without actual delivery of goods and the assessee has procured bogus bills from the said firm. The Assessing Officer made addition of ₹39,35,137/- u/s 68 of the Income Tax Act 1961 (in short 'the Act') in hands of the assessee on account of alleged bogus purchases from M/s Shree Banke Bihari Enterprises. Further addition of ₹78,703/- was made under Section 69C of the Act alleging that the assessee must have paid commission for obtaining accommodation entry. Aggrieved by the assessment order dated 27th March, 2023, the assessee filed appeal before the CIT(A). The assessee remained unsuccessful before the CIT(A). Hence, the present appeal before the Tribunal.

The learned Counsel submits that the sales made by the assessee and closing stock were accepted by the Assessing Officer. Without purchases, there cannot be sales. The learned Counsel, placing reliance on the decision of Hon'ble Bombay High Court in the case of PCIT vs. Mohd. Haji Adam & Co.in ITA No. 1004 of 2016 decided on 13.2.2029 stated that entire alleged bogus purchases cannot be added back as income of the assessee if, corresponding sales have been accepted by the Assessing Officer.

Per contra, Shri Manoj Kumar, Senior DR representing the Department, strongly placing reliance on the order of learned CIT(A), prayed for dismissing appeal of the assessee. The learned DR submits that the assessee has indulged in obtaining bogus purchase bills from tainted trader. The assessee failed to establish proof of delivery of goods. Hence, the entire purchases made by the assessee from said trader were rightly added back by the Assessing Officer.

Submissions made by rival sides heard, orders of lower authorities examined. The assessee in appeal has raised as many as eight grounds. The learned Counsel for the assessee, at the outset, made statement at Bar that ground Nos.2, 3, 4 and 5 of the appeal are not pressed. In view of the statement made by the learned Counsel for the assessee, the aforesaid grounds are dismissed as not pressed.

The only issue that is left for adjudication is the addition of ₹40,13,840/- assailed in ground No.6 of the appeal. The Assessing Officer has made addition of ₹39,35,137/- under Section 68 of the Act in respect of alleged bogus purchases by the assessee from M/s Shree Banke Bihari Enterprises. The Assessing Officer has made addition of entire alleged bogus purchases from the said firm. At the same time, the AO has also accepted closing stock and the sales declared by the assessee. Once the sales and closing stock has been accepted, entire alleged bogus purchases cannot be added back. There has to be purchases for matching sales. The possibility of assessee procuring goods from grey market cannot be ruled out and to match purchases, bogus bills were obtained by the assessee. The Hon'ble Bombay High Court in the case of PCIT vs. Mohd. Haji Adam & Co. (supra) has held that where there is no discrepancy between the purchases shown and the sales declared, the entire bogus purchases cannot be added back. The addition can be made to the extent of GP rate declared by the assessee on genuine purchases. The assessee in the present case has declared gross profit rate of 6.76 %. Considering facts of the case and the decision of Hon'ble Bombay High Court, the addition is restricted to the extent of 7% of the alleged bogus purchases i.e., ₹39,35,137/-.

Further, the Assessing Officer has made addition of ₹78,703/- under Section 69C of the Act in respect of alleged commission paid at the rate of 2% for obtaining bogus bills. The said addition is made merely on surmises and conjectures without there being any corroborative material. No addition can be made purely on suspicion, howsoever strong it may be. Hence, the said addition is directed to be deleted. Ergo, ground No.6 of appeal is partly allowed.

In the light of our above findings, appeal of the assessee is partly allowed.