SMT. REETA GOEL,MUZAFFARNAGAR V. INCOME TAX OFFICER, WARD-2(4), MUZAFFARNAGAR

ITA 4258/DEL/2024

AI Insights

The case involves cross appeals by the Revenue and the assessee, Smt. Reeta Goel, against the order of the CIT(A)/NFAC, Delhi, which pertained to the assessment year 2021-22. The primary issue was the disallowance of the assessee's purchases amounting to Rs. 23,50,86,503, which the Assessing Officer initially treated as bogus. The CIT(A) reversed this decision to some extent by estimating the profit on these purchases at 20%. Both parties were aggrieved by this decision, leading to the appeals before the Tribunal. The Tribunal upheld the CIT(A)'s decision in principle but modified the profit estimation to 12.5%, aligning with precedents that suggest a more nuanced approach where the sales are accepted but the purchases are found to be unsupported by genuine transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773976 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2021-2022
• Appeal Filed On: 16-09-2024
• Other Referred Cases: Nikunj Eximp Enterprises (P.) Ltd. v. CIT, CIT v. Nangalia Fabrics (P.) Ltd., CIT v. M.K. Bros., Asstt.CIT v. Akruti Dyeing & Printing Mills (P.) Ltd., Dy. CIT v. Adinath Industries, CIT v. Precious Jewels Corpn., CIT v. Rajesh P. Soni, PCIT v. Mohd. Haji Adan & Co., N.K. Industries Ltd. v. Dy. CIT, Vijay Proteins Ltd. v. CIT, Indian Woolen Carpet Factory v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Corroborative evidences; Unexplained expenditure; Bogus purchase; Accommodation entries; Wrong claim; Bogus
• Section: 143(3); 68; 133(6); 69C

Judgement Text

"1 ITA No. 4258/Del/2024 Smt. Reeta Goel IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’ NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 4094/Del/2024 Assessment Year: 2021-22 Income Tax Officer, Muzaffarnagar. Vs Reeta Goel, Near Arihant Lane Meerut Road Muzaffarnagar-251002 PAN: ACTPG 3961 F APPELLANT RESPONDENT AND ITA No. 4258/Del/2024 Assessment Year: 2021-22 Reeta Goel, Near Arihant Lane Meerut Road Muzaffarnagar-251002 PAN: ACTPG 3961 F Vs Income Tax Officer, Muzaffarnagar. APPELLANT RESPONDENT Assessee represented by Shri Ankit Gupta, Adv. Department represented by Sh. Jitender Singh, CIT (DR) Date of hearing 25.08.2025 Date of pronouncement 25.09.2025 O R D E R PER SATBEER SINGH GODARA, J.M: Printed from counselvise.com 2 ITA No. 4258/Del/2024 Smt. Reeta Goel These Revenue’s as well as assessee’s cross appeals ITA Nos. 4094 & 4258/Del/2024 for assessment year 2021-22 arise against order dated 16.07.2024 [DIN & Order No: ITBA/NFAC/S/250/2024-25/1066760397(1)], passed by the learned CIT(A)/NFAC, Delhi, in proceedings u/s 143(3) of the Income-tax Act, 1961, hereinafter referred to as the “Act”. Heard both the parties at length. Case file perused. 2. It emerges during the course of hearing that both the Revenue as well as the assessee herein are aggrieved against the CIT(A)’s lower appellate findings reversing the Assessing Officer’s action disallowing the latter’s entire purchases of Rs. 23,50,86,503/-; to the extent of estimating profit thereof @ 20% only, as under: “4.3.0 I have gone through the grounds of appeal, assessment order and statement of facts submitted by the appellant. It is seen from the assessment order that in response to the notice u/s. 133(6) of the IT Act issued to the third parties reply from M/s. Hindustan Trading Co; Prop: Nadeem and M/s.Bharat Trading Co. Prop: Meerhasan on 17.12.2022 along with copy of ledger accounts and bank statements. It is noticed that non receipt of reply from the supplier and non-production of the party, the AO added the total purchases of Rs. 23,50,86,503/- being bogus purchases as unexplained expenditure under section 69C of the Act. Section 69C reads. \"Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the AO, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Printed from counselvise.com 3 ITA No. 4258/Del/2024 Smt. Reeta Goel 4.3.1 As can be seen from the provision, for applying the section 69C, what is important is that there should be no explanation about the source of expenditure or that the explanation offered is not found satisfactory. In other words, the source of expenditure incurred is the heart of section 69C. Here in this case, the appellant furnished an explanation of source from his bank account along with supporting evidence of purchase invoices and payment made for the said purchases by cheques. Therefore, in this case, the source of expenditure for purchases stands explained through the bank account. Therefore in invoking of section 69C in the present case is not proper. 4.3.2 Many Benches of ITAT and Hon'ble High Courts have held that when purchases are supported by sufficient documentary evidences, then merely because of non-appearance before the AO, one cannot conclude that the purchases were not made by the assessee. Reliance is placed on the decisions in Nikunj Eximp Enterprises (P.)Ltd. v. CIT 216 Taxman 171 (Bom.), CIT v. Nangalia Fabrics (P.)Ltd. 220 Taxmann 17 (Guj.), CIT v. M.K. Bros. 163 ITR 249 (Guj.), Asstt.CIT v. Akruti Dyeing & Printing Mills (P.)Ltd. Dy. CIT v. Adinath Industries [2001] 252 ITR 476 (Guj.), CIT v. Precious Jewels Corpn.17 taxmann.com 264 (Raj.), CIT v. Rajesh P. Soni [Tax Appeal No. 1107 of 2006, dated 27-2-2012.]. 4.3.3 Though, the appellant was not able to produce the concerned party before the Assessing Officer, fact remains that the appellant produced bank account statement, purchase bills, etc., to prove the genuineness of the purchases. It is also a fact on record that the Assessing Officer has not doubted the sales affected by the appellant. Thus, it is logical to conclude that without corresponding purchases being affected, the appellant could not have made the sales. Merely relying upon the information from the GSTR the Assessing Officer could not have treated the purchases as bogus. The appellant has brought documentary evidences on record to prove genuineness of such transactions, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned parties are through proper banking channel and there is no evidence before the AO that the payments made were again routed back to the appellant, the addition of bogus purchases is not sustainable in law and facts. Only corollary that follows in such situation is that the appellant could have obtained the accommodation bills for the material purchased locally. In other words the entities may not be the actual supplier but may have provided the bills for the material purchased locally. Therefore the saving Printed from counselvise.com 4 ITA No. 4258/Del/2024 Smt. Reeta Goel on account of VAT and other incidental charges made by the appellant on the said bogus purchases can be brought to tax as additional profit. Keeping in view the totality of facts and circumstances of the case, the AO is directed to estimate the profit @ 20% on the purchases i.e Rs. 23,50,86,503/-. The AO is directed to modify the addition accordingly and the appellant gets part relief. This ground is partly allowed. 5. Lastly, the \"appellant crave leave to add, alter, amend the grounds of appeal\". However, no such option has been exercised by the appellant during appeal proceedings. Hence, this ground is dismissed as infructuous. 6. In the result, the appeal is ' partly allowed'.” This is what leaves both the Revenue as well as the assessee aggrieved who have preferred their respective cross appeals herein. 3. We now come the vehement rival submissions. Learned CIT(DR)’s case in support of the Revenue’s pleadings is that the Assessing Officer had rightly disallowed the assessee’s entire purchases based on the overwhelming supportive material gathered during scrutiny which specifically indicated the same to be bogus and accommodation entries only. The assessee on the other hand seeks to buttress the point that it’s corresponding sales have nowhere been doubted all along. 4. Be that as it may, the fact remains that although the assessee’s sales have been accepted in principle, it has not been able to plead and prove the impugned purchases amounting to Rs. 23,50,86,503/- as genuine in entirety. We, thus, are of the considered view that impugned alleged bogus purchases disallowance is to be Printed from counselvise.com 5 ITA No. 4258/Del/2024 Smt. Reeta Goel confirmed in principle. We, accordingly, find merit in the Revenue’s vehement contention to this extent. 5. Next comes the equally important aspect of quantification of the impugned bogus purchases disallowance. We are of the considered view that given the fact that the assessee’s sales and other book results stand accepted, it would indeed be in the interest of larger justice to restrict the impugned bogus purchases firstly @ 12.5% followed by estimation of profit element thereupon; going by PCIT v. Mohd. Haji Adan & Co. (2019) 103 taxmann.com 459 (Bombay) holding as under: “2. The issues relate to the Assessment Year (\"AY.\" for short) concerning the respondent assessee who is a trader of fabrics. During the survey operations in case of the entities from whom the assessee had claimed to have made purchases, the department collected information suggesting that such purchases were not genuine. The Assessing Officer (\"AO\" for short) noticed that the assessee had shown purchases of fabrics worth Rs. 29.41 Lacs (rounded off) from three group concerns, namely, M/s. Manoj Mills, M/s. Astha Silk Industries and M/s Shri Ram Sales &? Synthetics. On the basis of the statement recorded during such survey operations, the A.O. concluded that the selling parties were engaged only in supplying the bogus bills, that the goods in question were never supplied to the assessee, and therefore, the purchases were bogus. He, therefore, added the entire sum in the hands of the assessee as its additional income. 3. The assessee carried the matter in the appeal before the Commissioner of Appeals who accepted the factum of purchases being bogus. However, he compared the purchases and sales statement of the assessee and observed that the department had accepted the sale, and therefore, there was no reason to reject the purchases, because without purchases there cannot be sales. He, therefore, held that under these circumstances A.O. was not correct in adding the entire amount of purchases as the assessee's income. He, therefore, deleted the addition refreshing it to 10% of the purchase Printed from counselvise.com 6 ITA No. 4258/Del/2024 Smt. Reeta Goel amount. He also directed the A.O. to make addition to the extent of difference between the gross profit rate as per the books of account on undisputed purchases and gross profit on sales relating to the purchases made from the said three parties 4. The assessee carried the matter before the Tribunal. The Revenue also carried the issue before the Tribunal. The Tribunal in the impugned Judgment allowed the appeal of the assessee partly and dismissed that of the Revenue. The Tribunal noted that the CIT(A) had not given any reasons for retaining 10% of the purchases by way of ad hoc additions. The Tribunal, therefore, deleted such additions, but retained the portion of the order of the CIT(A) to that extent he permitted the A.O. to tax the assessee on the basis of difference in the GP rate 5. Learned counsel Mr. Chhotaray for the Revenue strenuously contended, that the CIT(A) and the Tribunal committed serious error. In the present case when it was established that the purchases are bogus, the entire amount should have been added to the income of the assessee. There is no question of granting any relief in the facts of the case. In this context he relied on a decision of the Division Bench of Gujarat High Court in the case of N.K. Industries Ltd. v. Dy. CIT [2016] 72 taxmann.com 289. In such judgment the Court had observed as under- \"The Tribunal in the case of Vijay Proteins Ltd. v. CIT had observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woolen Carpet Factory (supra) or M/s. Vijay Proteins Ltd. In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income-tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs 2,92,93,288/-represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs.73,23,322/-\" Printed from counselvise.com 7 ITA No. 4258/Del/2024 Smt. Reeta Goel 6. Counsel pointed out that the S.L.P. against such decision was dismissed by the Supreme Court 7. On the other hand, Ms. Khan learned counsel for the assessee opposed the appeals contending that the Tribunal has given proper reasons. The assessee was a trader. Even if the purchases are found to be bogus, entire purchase amount cannot be added by way of assessee's income. 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 CP. 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 he 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 said question is Printed from counselvise.com 8 ITA No. 4258/Del/2024 Smt. Reeta Goel answered partially in favour of the assessee and partially in favour of the revenue.\" 6. We adopt their lordships’ above detailed observation mutatis mutandis and direct the learned assessing authority to disallow the assessee’s profits element in very terms as per law. Ordered accordingly. No other ground or argument has been pressed before us. 8. This Revenue’s appeal ITA No. 4094/Del/2024 is dismissed and assessee’s cross appeal ITA No. 4258/Del/2024 is partly allowed in above terms. A copy of this common order be placed in the respective case files. Order pronounced in open court on 25.09.2025. Sd/- Sd/- (NAVEEN CHANDRA) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25.09.2025. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "