ACIT, CENTRAL CIRCLE- 3(2), KOLKATA, KOLKATA V. M/S. K K GROUP OF COMPANY PVT. LTD., SIKKIM

ITA 2247/KOL/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) which had partly deleted an addition made by the Assessing Officer under section 69C of the Income Tax Act, 1961, concerning bogus purchases. The Assessing Officer had initially added a total of \\u20b94,12,70,471 as unexplained expenditure, which was later contested. The CIT (A) found that while the purchases were not substantiated by sufficient evidence, the entire amount could not be added to the income of the assessee without considering the sales, which were accepted by the department. The Tribunal agreed with the CIT (A) and dismissed the Revenue's appeal, emphasizing that the addition should be limited to the gross profit rate on the purchases, aligning with precedents set by the Bombay High Court and other judicial decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711893 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2011-2012
• Other Referred Cases: The Principal Commissioner of Income Tax-17 vs. M/s Mohommad Haji Adam & Co., Income Tax Officer-1(2) Raipur (C.G) vs. M/s Satyanarayan Nathulal, Jitendra M Kitavat, Mumbai vs Ito 18(1)(5), Mumbai
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMNATH DAS BISWAS
• Assessee Lawyers: SIDDHARTH AGARWAL
• Keywords: Set aside; Opportunity of being heard; Question of law; Unexplained expenditure; Bogus purchase; Revision of order; Bogus
• Section: 143(3); 142(1); 263; 133(6); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.2247/KOL/2024 (Assessment Year:2011-12) ACIT, Central Circle-3(2), Aaykar Bhavan Poorva, 5th Floor, 110, Shantipally, Kolkata-700107, West Bengal Vs. M/s KK Group of Company Pvt. Ltd. Singtam Bazar, East Sikkim, Singtam Forest Block, Singtam, S.O. 737134, Sikkim (Appellant) (Respondent) PAN No. AADCK8867D Assessee by : Shri Siddharth Agarwal, AR Revenue by : Shri Somnath Das Biswas, DR Date of hearing: 07.07.2025 Date of pronouncement: 22.07.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the Revenue against the order of the Commissioner of Income Tax, Appeal (hereinafter referred to as the “Ld. CIT (A)”] dated 26.08.2024 for the AY 2011-12. 02. The appeal of the Revenue is time barred by 03 days. Considering the facts and circumstances of the case, we find that there is plausible and genuine reasons for the delay and therefore the delay in filing the appeal is hereby condoned. 03. The only issue raised by the Revenue is against the part deletion to the tune of ₹3,61,11,660/- by the ld. CIT (A) as against the total Printed from counselvise.com Page | 2 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 addition of ₹4,12,70,471/- made by the ld. AO u/s 69C of the Act in respect of bogus purchases when the identity and genuineness of the transactions were not established because none of the parties have responded to the notices issued u/s 133(6) of the Act. 04. The facts in brief are that the assessment u/s 147/ 143(3) of the Act was framed on 21.12.2018, assessing the total income at ₹22,76,130/-. The said assessment order was set aside by the ld. PCIT u/s 263 of the Act directing the ld. AO to examine the issue of allowability of provisions of expenditure of ₹4,12,70,471/- claimed in the profit and loss account under the heads of ‘Provision of sub- contractor’ (Dikchu Project) and Provisions of sub-contractor (Pabong Project). The ld. AO in the set aside proceeding accepted the return income at ₹22,76,130/-passed u/s 263/147/143(3) of the Act dated 30.09.2021. Again, the second time the revisionary jurisdiction was invoked by the ld. PCIT by passing the order u/s 263 of the Act on 14.03.2022, directing the assessing officer to make necessary examination and pass a fresh assessment order on the same issue. The assessee was engaged in the business of Civil Construction on contractual basis and during the year under consideration the assessee company has claimed a sum of ₹1,64,83,461/- under the head of ‘Provisions of sub-contractor (Dikchu Project) and a sum of ₹2,47,87,010/- under the head ‘Provision for sub-contractor (Pabong Project) respectively. According to the ld. PCIT, the assessee has debited in the Profit and Loss account a sum of ₹4,12,70,471/- under the head of ‘Provision of sub-contractors’ which are not admissible. Accordingly, he reached a conclusion that the order passed u/s 263/147/143(3) of the Act dated 30.09.2021 is erroneous and Printed from counselvise.com Page | 3 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 prejudicial to the interest of the Revenue and accordingly issued notice u/s 263 of the Act. Finally, the ld. PCIT revised the assessment by directing the ld. AO to make necessary examination on the issue and pass a fresh assessment after allowing reasonable opportunity of hearing to the assessee. The ld. AO accordingly, issued notice u/s 142(1) on 02.02.2012, requesting the assessee to provide bills and vouchers and receipts in connection with the above expenditure. The ld. AO also issued notices u/s 133(6) of the Act to ten parties which were not complied with as mentioned in para no.4 of the assessment order and 8 parties did not respond. However, notice to parties at Serial No.3 and 10 were returned as unserved. Finally, the ld. AO added the amount to the total income of the assessee on the ground that the assessee has failed to prove the identity and genuineness of the transactions and therefore, the same remained unexplained u/s 69C of the Act. 05. In the appellate proceedings the ld. CIT (A) partly uphold allowed the appeal of the assessee by observing and holding as under: - “5.2. Discussion and decision: 5.2.1. I have perused the assessment order as well as the submission of the assessee. On examining the same, it is noticed that during the year under consideration, the assessee-company had claimed a sum of Rs.1,64,83,461/- under the head of 'Provision of sub-contractor [Dikchu Project]' and a sum of Rs.2,47,87,010/- under the head of 'Provision for sub- contractor [Pabong Project]'. However, by observing the fact that as per the provisions of the Act, the claim of deduction on account of any provision is not admissible, the Pr. C.I.T (Central)-2, Kolkata, was of the view that assessment order passed by the Assessing Officer u/s 263/147/143(3) dated 30.09.2021 was erroneous and prejudicial to the interest of Revenue. Later, an order u/s 263 of the Act was passed by Hon'ble Pr. C.I.T (Central)-2, Kolkata on 14.03.2022 with a direction to Assessing Officer to make necessary examination on the issue and pass fresh assessment order after giving reasonable opportunity of being heard to the assessee. During the fresh assessment proceedings, the assessee was asked to submit the relevant details and documents in respect of the aforesaid sub-contractor expenses of Printed from counselvise.com Page | 4 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 Rs.4,12,70,471/-, In response to the same, the assessee had furnished certain no. of bills claiming purchase of Raw materials from the aforesaid persons: 5.2.2. On perusal of the submission of the assessee, the AO had issued notices u/s 133(6) of the Act to the above parties to verify the authenticity of the above purchase transactions. However, the AO had claimed that in response to the same, none of the above parties had responded to the notice u/s 133(6) of the Act. Whereas, in the case of two parties (in Sl. No. 9 & 10), speed post returned unserved with postal remark 'addressee could not be located\" The AO had also contended that the assessee through its AR had only able to submit the relevant bills, however, it had failed to submit transportation details of raw materials, stock details, parties from whom raw material purchased by suppliers and mode of payment etc Hence, the AO had claimed that the identity of those suppliers and genuineness of transactions could not be established and he had made the addition of total unexplained purchase of Rs.4,12,70,471/- u/s 69C of the Act. 5.2.3. Further, in the appellate proceedings also, the assessee had submitted only the copy of the same bills. No other relevant details and documents was produced by the assessee. Hence, observing the effort made by the assessee, comparing the purchases and sales statement of the assessee and observed that the department had accepted the sales, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. Hence, I am of the view that under these circumstances AO was not correct in adding the entire amount of purchases of Rs.4,12,70,471/- as the assessee's income. Reliance may be placed on the judgement Printed from counselvise.com Page | 5 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 of Hon'ble Bombay High Court, in the case of The Principal Commissioner of Income Tax-17 vs. M/s Mohommad Haji Adam & Co., ITA No.1004, 1013, 1059, 1064, 1075, 1095, 1204 & 1012 of 2016, dated 11.02.2019', where the Hon'ble Court had held the following: \"8 in the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact, in paragraph 8 of the same Judgment the Court held and observed as under- \"So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the sald question is answered partially in favour of the assessee and partially in favour of the revenue. 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs.\" 5.2.4. Further, the Hon'ble ITAT, Raipur, in the case of 'Income Tax Officer-1(2) Raipur (C.G) vs. M/s Satyanarayan Nathulal, in ITA No.178/RPR/2018, dated 31.05.2022' had held the following: Printed from counselvise.com Page | 6 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 \"9. We have persuaded the facts of the case and also have heard the lengthy arguments of both the counsel. It is undisputed facts that the assessee is indulging in bogus billing activities and at the same time respectfully following the decision of Hon'ble Bombay High Court relied upon by the counsel where in it is held that the entire purchase amount of such bogus purchase cannot be added at best the addition limited to the extent of G. P. Rate on purchases at the same rate of the genuine purchase. On being asked about the computation of separate G. P. Rate of these two activities the Id. AR of the assessee has submitted a chart which requires the detailed verification and since the said analyses has not been so far placed by the assessee before lower authorities we restore the matter back to the file of the assessing officer with a direction to tax the appropriate rate of G. P. which the assessee has adopted for other genuine purchase and sale transactions with this remark the grounds of the revenue is allowed for statistical purposes.\" 5.2.5. Further, in the judgement of Hon'ble ITAT, in the case of 'Jitendra M Kitavat, Mumbai vs Ito 18(1)(5), Mumbai on 13 April, 2018, in ITA No. 7099 & 7102/Mum/2016, dated 13/04/2018 had held the following: The appellant has also not placed on comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s. Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @12.5% is applied on such total alleged bogus purchases amounting to Rs.1,05,18,970/-, the additional gross profit on such purchases would come to Rs.13,14,871/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and the balance addition made amounting to Rs.92,04,099/-is hereby deleted. The Assessing Officer is directed accordingly. Hence, grounds no. 1 & 2 are partly allowed.\" 5.2.6. In view of the aforesaid judicial pronouncements as well as the discussions held above, I am of the view that it will be justified to restrict the addition on account of the said bogus purchase of Rs.4,12,70,471/- to the extent of the additional GP rate i.e., @12.5% which comes to Rs.51,58,810/-. Consequently, the remaining addition of Rs.3,61,11,660/- is deleted. Therefore, these grounds of appeal raised by the assessee are partly allowed. Printed from counselvise.com Page | 7 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 6. In the Ground No. 3: General Ground.” 06. By applying the rate of 12.5% on the said bogus purchases thereby confirming the addition to the extent of ₹51,58,810/- and deleting the remaining amount of ₹3,61,11,660/-. 07. After hearing the rival contentions and perusing the materials available on record, we find that in this case the two round of revisionary proceedings were taken by ld. PCIT. In the first round, the assessment framed u/s 263/147/143(3) of the Act, the AO accepting the returned income as no addition as made in respect of ‘Provisions of sub-contractors’. The ld. PCIT again exercised the revisionary jurisdiction and revised the assessment. In the second round, the ld.AO added the entire amount to the income of the assessee u/s 69C of the Act as unexplained expenditure citing the reasons that the assessee has not proven the identity of the parties and genuineness of the transactions. The ld. AO also noted that the notices u/s 133(6) were not complied with by the suppliers/ parties. We find from the perusal of the appellate order that the ld. CIT (A) has taken a very judicial view of the whole matter by applying the additional GP of .5% to assess the income on the said expenses by holding that the department has not disputed the sales made by the assessee and therefore, there was no justification to reject the purchase because without purchases there could not be any sales and thus treated the addition made by the ld. AO to be unreasonable and not justified. The ld. CIT (A) followed the decision of Hon'ble Bombay High Court in case of PCIT vs. M/s Mohammad Haji Adam & co., in ITA No. 1004, 1013, 1059, 1064, 1095, 1204 & 1012 of 2016 dated 11.02.2019, wherein the Hon'ble High Court has held that the purchases cannot be rejected Printed from counselvise.com Page | 8 ITA No.2247/KOL/2024 M/s KK Group of Company Pvt. Ltd.; A.Y. 2011-12 without disturbing the sales in case of trader and the Tribunal correctly rejected the addition by bringing GP rate on the purchases on the same rate of other genuine purchases. Considering the facts before us, we find that similarly, the assessee could not have carried out any construction work/ sales without incurring the expenses. Therefore, to disallow the entire purchases to be bogus and non- genuine would be unreasonable and would lead to unrealistic GP and income of the assessee. Therefore, we are inclined to uphold the order of ld. CIT (A) by dismissing the appeal of the Revenue. 08. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 22.07.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 22.07.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata Printed from counselvise.com "