ITO 19.3.1, MUMBAI V. TAGARAM GANESHRAM PRAJAPATI, MUMBAI

ITA 1006/MUM/2026

AI Insights

The case involves an appeal by the revenue against the order of the CIT(A) which had sustained the addition of 12.5% on non-genuine purchases but directed the AO to reduce the gross profit already offered by the assessee. The revenue contended that the addition should be 100% instead of 12.5%. The ITAT dismissed the revenue's appeal, referencing the Supreme Court's ruling that it does not have the authority to enhance the assessment under section 254(1) of the Income Tax Act. The case also discussed the precedents and decisions relevant to the treatment of bogus purchases under the Income Tax Act.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848451 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Mumbai
• Assessment Year: 2009-2010
• Appeal Filed On: 29-01-2026
• Other Referred Cases: M/s. N. K. Proteins Ltd. Vs. Dy. CIT, M/s. Swetamber Steels Ltd., Pr. Commissioner of Income Tax-5, Mumbai Vs. Kanak Impex (India) Ltd, CIT vs. Simit P. Sheth, Nikunj Eximp Enterprises
• Laws Referred To: Income-tax Act, 1961, Maharashtra Value Added Tax Act, 2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADITYA RAI
• Assessee Lawyers: POOJA H. CHHAWACHARIA
• Keywords: Unexplained expenditure; Bogus purchase; Onus to prove; Accommodation entries; Bogus
• Section: 147; 148; 142(1); 133(6); 69C; 37

Judgement Text

"1 IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “J (SMC)” BENCH, MUMBAI BEFORE SMT BEENA PILLAI, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No. 1006/MUM/2026 (AY:2009-10) ITO 19(3)(1), Room no 405, 4Th floor, Piramal Chambers, Parel, Mumbai- 400012. vs. Tagaram Ganesiiram Prajapati, 51/11, Dhabi Building, Dr. MG Mahimtura Marg, 3rd Kumbharwada opp. Durgadevi Garden, Mumbai-400004. PAN/GIR No: AAKPPSIOID (Appellant) (Respondent) Assessee by Ms. Pooja H. Chhawacharia Revenue by Shri Aditya Rai (SR DR) Date of Hearing 24.03.2026 Date of Pronouncement 25.03.2026 O R D E R PER BIJYANANDA PRUSETH, AM: This appeal filed by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the Commissioner of Income-Tax (Appeals), ADDL/JCIT (A)-3, Bengaluru [in short, ‘CIT(A)’], dated 26.11.2025 for the assessment year (AY) 2009-10. 2. The grounds of appeal raised by the revenue are as under: “1. Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) was justified in restricting the bogus purchases at the rate of 12:5 percent as against the 100 percent addition on account of bogus purchases of Rs. 1,57,08,424/- obtained from four entities namely Shree Mahavir Enterprises, Reliant Metal Corp., Padmavati Metal and Alloys, Adino Trading Co. Pvt Ltd, though there was no dispute that the bogus purchases were made and so an act of infraction of law was committed in violation of section 74(1A) of the Maharashtra Value Added Tax Act, 2022 and therefore such expenses are not allowed as per express provision u/s 37 of the Act. Printed from counselvise.com ITA No.1006/MUM/2026 (AY 2009-10) Tagaram Ganeshram Prajapati 2 2. Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) was justified in estimating the income of bogus purchases based on comparing of the bogus purchases with the purchases in the regular books of accounts ignoring that the fact of procuring bogus invoices leads to the unverified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of the accounts. 3. Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) was justified in ignoring the element of reason for procuring of bogus invoices when it is observed that the GP on these bogus invoices are almost matching with the GP as per genuine invoices and therefore such estimation of income out of bogus purchases with the GP as per regular books of accounts is not justified. 4. \"Whether on the facts and in the circumstances of the case and in lase, the Id CITIA) while deciding the issue has ignored the fact that his order is perverse in not considering that the order of Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (GuJ.) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases, was already the law of the land when the Ld. CITIA) has pronounced it's order on 26.11.2025. 5. Whether on the facts and in the circumstances of the case and in law, the L4. CITIA) has erred in restricting the addition without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad had conformed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non-genuine and the decision of the ITAT was upheld by Han ble Gujrat High Court and also by the Hon'ble Supreme Court. 6. \"Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) has erred in not considering the view expressed in the decision of the Hon'ble High Court Mumbai, in the case of Pr. Commissioner of Income Tax-5, Mumbai Vs. Kanak Impex (India) Ltd (2025) 172 Taxmann.com 283 (Bombay Dated. 03.03.2025, wherein the decision of 100 percent addition made by AO has been allowed, by rejecting the ITAT's decision of estimating the profit rate @12.5 percent on bogus purchases and thereby impliedly granting deduction of such unexplained expenditure incurred u/s. 69C of the Act, even though the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has not explained the sources of expenditure incurred on account of such purchase. 7. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.” Printed from counselvise.com ITA No.1006/MUM/2026 (AY 2009-10) Tagaram Ganeshram Prajapati 3 3. Facts of the case, in brief, are that the assessee filed his return of income for the AY 2009-10 on 29.09.2009 declaring total income at Rs.2,45,570/-. The case was reopened u/s 147 of the Act and notice u/s 148 was issued on 11.03.2014. The reasons for reopening the case was the information received from the Investigation Wing, Mumbai that some dealers indulged in the practice of providing accommodation entries in the form of issuing bogus sales and purchase bills without supplying any goods. The assessee had received such accommodation entries from 4 hawala parties amounting to Rs.1,57,08,424/-. The AO issued notices u/s 142(1) and called for various details. He also issued notices u/s 133(6) to the above parties, which were returned by the postal authorities. Subsequently, the AO asked the assessee to produce the said parties for examination, but the assessee did not produced them. In view of these facts, the AO held that the intention of indulging in such activity by the assessee was to suppress the true profit and reduce tax liability. Therefore, addition of higher profit margin was considered by the AO as fair and equitable. The AO, following the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, 356 ITR 451 (Guj.), added 12% of the non-genuine purchases of Rs.1,57,08,424/- amounting to Rs.19,63,550/- to the total income of the assessee. 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The assessee challenged the validity of the reopening u/s 147 of the Act as well as merits of the addition. The CIT(A) has reproduced the submission of the assessee at pages 5 to 20 of the appellate order. He dismissed the ground on reopening by observing that there was definite information received from the Printed from counselvise.com ITA No.1006/MUM/2026 (AY 2009-10) Tagaram Ganeshram Prajapati 4 Investigation Wing, Mumbai and the conclusion arrived at by the AO was based on certain information and verification of the return filed by the assessee. The CIT(A) has relied on various decisions including Rajesh Jhaveri Stockbrokers Pvt. Ltd. 291 ITR 500 (SC) to confirm the reopening u/s 147 of the Act. Regarding the merits of the addition, the CIT(A) has followed the decision of the ITAT in appellant’s own case for AYs 2008-09, 2010-11 and 2011-12 in ITA Nos. 1613, 1614 & 1615/Mum/20218 dated 02.11.2018. He directed the AO to tax the bogus purchases at 12.5% of the bogus purchases and allow the GP already offered by the assessee on these transactions. 5. Aggrieved by the order of CIT(A), the revenue filed appeal before the Tribunal. The Ld. AR relied on the grounds of appeal and submitted that the CIT(A) should have confirmed addition @100% of the bogus purchases of Rs.1,57,08,424/- as against 12.5% of the bogus purchases. 6. On the other hand, the Ld. AR of the assessee supported the order of CIT(A). He filed a paper book giving various details filed before the lower authorities and copy of the order of ITAT in case of assessee in ITA Nos. 1613, 1614 & 1615/Mum/20218 (supra). 7. We have heard both parties and perused the materials on record. We have also gone through the decisions relied upon by the Ld. AR. In this case the AO has added Rs.19,63,550/- being 12.5% of the total non-genuine purchases of Rs.1,57,08,424/-. The CIT(A) sustained the above addition but directed AO to reduce the profit already offered by the assessee on the impugned purchase. The Printed from counselvise.com ITA No.1006/MUM/2026 (AY 2009-10) Tagaram Ganeshram Prajapati 5 revenue is urging to enhance the income from Rs.19,63,550/- to Rs.1,57,08,424/. Such a request cannot be accepted because power of enhancement is not vested with the ITAT u/s 254(1) of the Act. The Hon’ble Supreme Court in case of Mcorp Global Pvt. Ltd. vs. CIT (2009) 309 ITR 434 (SC) held that the Tribunal has no power to take back the benefit conferred by the AO or enhance the assessment u/s 254(1) of the Act. 7.1 We find that similar issue was involved in appellant’s own case in AYs 2008- 09, 2010-11 and 2011-12. The instant appeal pertains to the missing year in the ITAT order being AY 2009-10. The ITAT partly allowed the appeal with the following observation:- 11. As regards the merits, upon careful consideration 1 find that the assessee has provided the documentary evidence for the purchase. Adverse inference has been drawn due to the inability of the assessee to produce the suppliers. I find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon'ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition no 2860, order dt. 18.6.2014). In this case the Hon'ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However in that case all the supplies were to government agency. In the present case, the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. In such situation, in my considered opinion, on the facts and circumstances of the case, 12.5% disallowance out of the bogus purchases meets the end of justice. However in this regard learned counsel of the assessee has prayed that when only the profits earned by the assessee on these bogus purchase transaction is to be taxed the gross profit already shown by the assessee and offered to tax should be reduced Printed from counselvise.com ITA No.1006/MUM/2026 (AY 2009-10) Tagaram Ganeshram Prajapati 6 from the standard 12.5% being directed to be disallowed on account of bogus purchase. 12. Upon careful consideration I find considerable cogency in the submission of the learned Counsel of assessee as otherwise it will be double jeopardy to the assessee. Accordingly, I modify the order of the Id. CIT(A) and direct that the disallowance in this of assessee case be restricted to 12.5% of the bogus purchases as reduced by the gross profit rate already declared by the assessee on these transactions. The Ld. Counsel of the assessee fairly accepted this proposition.” 8. The facts of the instant appeal are similar to the facts of the case discussed above. The CIT(A) has followed the decision of the Tribunal and allowed part relief by directing the AO to reduce the gross profit already offered by the assessee from 12.5% of the non-genuine purchases added by the AO. We do not find any infirmity in the order of CIT(A), which we confirm. 9. In the result, the appeal of the revenue is dismissed. Order is pronounced on 25.03.2026. Sd/- Sd/- (BEENA PILLAI) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER *Aniket Chand; Sr. PS MUMBAI Date: 25.03.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order Assistant Registrar ITAT, MUMBAI Printed from counselvise.com "