Sachin Goel HUF vs ITO

PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :

These captioned two appeals have been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-Delhi [‘CIT(A)’ in short] dated 07.03.2025 arising from the assessment orders dated 30.12.2022 and 28.03.2024 passed by the AO under Section 143(3) read with section 144B of the Income Tax Act, 1961 (the Act) concerning Assessment Years 2021-22 & 2022-23, respectively.

Since the above captioned appeals were heard together and the facts in issues are identical, these appeals are being disposed off by this common order for the sake of convenience and brevity. We take the ITA 3058/Del/2025 as the lead case.

The grounds raised by the assessee are as under :

The assessee is engaged in activity of Trading & Wholesale of Copper, Aluminium and Motor Parts. The assessee e-filed its return of income for the A.Y. 2021-22 on 30.03.2022 declaring total income of Rs.12,08,440/-. The issue involved is estimation @ 8% of total bogus purchase of Rs.43,23,49,500/- and estimating the income at Rs.3,45,87,960/-.

In the course of assessment proceedings, the AO found that the assessee had made purchases of Rs 43.24 crore from 5 parties ranging from 2.5 crores to 14.16 crores. Though these persons’ turnover were liable for audit u/s 44AB under the income Tax Act, they had not filed their ITRs for the A.Y.2021-22. These persons also did not respond to notice u/s133(6) issued with a view to verify the purchases. The assessee also failed to satisfy the AO with regard to transport of the goods purchased from these parties. Since the identity of the suppliers and genuineness of the transactions was not established, the AO concluded that the impugned purchases were in the nature of bogus purchases. Relying on the Hon’ble Delhi High Court in the case of CIT vs La Medical and the Hon’ble ITAT Bombay Bench in the case of M/s Lifeline Drugs and Intermediates Pvt. Ltd. the AO held that the purchases from these five parties were bogus and added 8% of such purchases which works out to Rs.3,45,87,960/-. On appeal, the same was upheld by the CIT(A). Aggrieved the assessee is before us.

The learned Counsel of the assessee vehemently stated that the assessee is in the business of trading & wholesale of copper aluminium and motor parts and the total gross profit shown by the assessee is 0.57% and net profit is 0.23%. The learned Counsel argued that the estimation made by the AO does not consider the commercial expediency and business expediency of the assessee. It is also stated that the Assessing Officer has estimated the income without rejecting the books of account.

Per contra, the learned AO strongly relied upon the orders of the AO and CIT(A).

We have heard the rival submissions and carefully perused the materials on record. We find that the assessee has stressed the commercial expediency and business exigency regarding its business operations and profits earned from the same. Nevertheless, we find that the assessee, prima facie, has failed to justify and verify the purchases of Rs.43.30 crore from the five suppliers who have not filed any income tax return. We further note that the notice under section 133(6) issued to these suppliers were not complied with nor the assessee could give satisfactory explanation with regard to identity and genuineness of the transactions with them. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention of commercial expediency and business exigency, cannot be fully justified. In the factual matrix of assessee’s failure to explain the purchases made from the aforesaid five suppliers leading to excessive ascertainment of net profit by the AO, cannot be ruled out. Be that as it may, we are of the view that the estimation made by the AO appears to be on a higher side as the assessee’s gross profit and net profit has been 0.57% and 0.23% respectively of the total turnover. In such circumstance, it is deemed appropriate, in larger interest of justice, the net profit embedded in the unverified purchases be restricted to 1% of the purchases made from aforesaid 5 suppliers whose purchases has been considered as bogus with the rider that that the same may not be considered has precedent, so as to cover all loopholes. The AO is directed to calculate 1% of aforesaid purchases as net profit and additional income of the assessee. The ground are accordingly partly allowed.

The facts of the instant year is identical to the facts of the A.Y 2021-22 decided as above, except that for A.Y 2022-23, the AO has rejected the books of accounts u/s 145(3) and estimated net profit at the rate of 15% of the total purchase. The learned Counsel of the assessee stated that the AO has not identified the suppliers from whom purchases has been considered as bogus purchases. It is submitted that the AO has considered the entire purchase as bogus and has taken 15% of the entire purchases as gross profit of the assessee.

Per contra, the ld DR relied on the order of the authorities below.

We have heard the rival submissions and have perused the materials on record. We find that the AO, though has rejected the books of account of the assessee for the instant AY 2022-23, he has not identified the suppliers from whom the purchases made, have been considered as bogus. In view of the same, we are of the considered view that it would meet the end of justice, to set aside the issue to the file of the AO to determine/identify the bogus suppliers and thereafter apply a net profit margin of 1% on the bogus purchase so determined, as income of the assessee. The grounds are disposed of in the aforesaid terms.

In the result, appeals of the assessee ITA No. 3058 and 3059/Del/2025 are partly allowed.