VAYAM TECHNOLOGIES LIMITED,NEW DELHI V. DCIT CIRCLE-25(1), NEW DELHI

ITA 1476/DEL/2023

AI Insights

The case involves Vayam Technologies Limited, which appealed against the order of the Commissioner of Income-Tax (Appeals) that partly confirmed the additions made by the Assessing Officer regarding unexplained purchases from a shell company. The shell company was identified as being controlled by the Jain Brothers, who were involved in providing accommodation entries. The Tribunal found that while the purchases were not genuine, the entire amount of the purchases could not be added to the income of the assessee as the sales were not disputed. The Tribunal applied a profit rate of 12.5% on the unverified purchases, aligning with various judicial decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473264 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Odeon Builder Pvt. Ltd. (SC), PCIT vs. Paramshakti Distributors Pvt. Ltd. (Bombay High Court), PCIT vs. Tejua Rohitkumar Kapadia, Hon'ble Supreme Court of India, Bholanath Polyfab vs. CIT, CIT vs. Simit P. Seth, ITA No.1476/Del/2023
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: OM PARKASH
• Keywords: Set aside; Business income; Opportunity of being heard; Corroborative evidences; Income from undisclosed sources; Bogus purchase; Onus to prove; Reopening of assessment; Principle of natural justice; Third party statement; Search and seizure; Accommodation entries; Initiation of penalty proceedings; Share purchase agreement; Revision of order; Opportunity of cross examination; Bogus
• Section: 147; 148; 143(3); 142(1); 250; 263; 271(1)(c); 132; 68; 131; 13; 20

Judgement Text

" INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 1476/DEL/2023 Assessment Year: 2012-13 Vayam Technologies Limited, Thapra House, 124-Janpath, New Delhi PIN 1100 01 PAN No. AAAC18050R Vs. DCIT, Circle-25 (1), New Delhi (Appellant) (Respondent) O R D E R PER VIMAL KUMAR, JUDICIAL MEMBER: The appeal filed by the appellant/assessee is against order dated 16.03.2023 passed by Learned Commissioner of Income- Tax(Appeals)/National Faceless Appeal Centre(NFAC), Delhi (hereinafter referred as ‘Ld. CIT(A)’) under Sections 250 of the Income-Tax Act, 1961 (hereinafter referred as “the Act”) arising out of assessment order dated 29.12.2017 under Section 143(3) read with section 147 of the Act of the Addl. Commissioner of Assessee by: N o n e Department by: Shri Om Parkash, Sr. DR Date of Hearing: 24.03.2025 Date of pronouncement: 24.03.2025 ITA No.1476/Del/2023 2 Income Tax, Special Range-9, New Delhi (hereinafter referred as ‘Ld. A.O.’) for assessment year 2012-13. 2. Brief facts of the are that the appellant/assessee filed return declaring loss of Rs.2,43,38,377/- on 28.09.2012. The case was taken up for compulsory scrutiny and after giving proper opportunities to the assessee, the assessment was completed under Section 143(3) of the Act at total loss of Rs.1,23,28,822/- on 27.03.2015. Later on, an information was received in case of the assessee from the Directorate of Investigation, New Delhi on 28.03.2017, regarding taking of accommodation entries amounting to Rs.1,78,25,000/- from shell companies controlled by Jain Brothers. Notice under Section 148 of the Act was issued on 30.03.2017. Further notices under Section 142(1) of the Act were issued. In response to notices, Mr. P.K. Katyal and Mr. Jai Shukla, CA/ARs of the assessee attended the proceedings and filed details. On completion of proceedings, additions of Rs.1,78,25,000/- and Rs.5,85,67,419/- vide order dated 29.12.2017 were made by the ld. AO. ITA No.1476/Del/2023 3 3. Against the order dated 29.12.2017, the appellant/assessee preferred an appeal before Ld. CIT(A) which was partly allowed vide order dated 16.03.2023. 4. Being aggrieved, the appellant/assessee preferred present appeal with the following grounds: “1. That the order of the Ld. Assessing Officer is bad at law and on facts of the case. 2. That the addition made by the Ld. Assessing Officer and partly confirmed by CIT(Appeal) is based on presumption, suspicion, conjecture and surmises with no specific evidence to support the findings and making the assessments on the basis of reason to suspect. 3. That even otherwise the impugned order is contrary to the facts of the case as there is always a correlation between purchase and sales when sales are not doubted the purchases can-not be rejected summarily as is the well settled principle of law and as such, the disallowance is liable to be set aside. 4. That the Ld. CIT(Appeal) has erred in ignoring that the transactions occurred long back and the purchase of goods were in furtherance of business and payments made thru proper banking transactions and accepted by VAT and Service tax department. 5. That the Ld. CIT (Appeal) has erred in confirming an amount of Rs. 22,28,125/ being profit of 12.50% on unconfirmed purchases (12.50% of Rs.1,78,25,000/-) as no specific evidence has been provided nor put for cross examination by the Ld. Assessing officer to prove the in- genuineness of the transactions. 6. That the Ld. Assessing officer has erred in holding guilty the assessee in income tax proceedings instead of findings ITA No.1476/Del/2023 4 the fault of the other party well knowing that the transaction took place long back. 7. That the Ld. Assessing Officer has erred in taxing the genuine transaction on the basis of presumptions and surmises and has not provided any of evidence having any adverse remark on the purchase shown by the assessee in the books of accounts. Once the purchases have been accepted, then the corresponding sales cannot be disturbed without giving any conclusive evidence/finding. 8. That the Ld. Assessing Officer has erred in taxing the genuine transaction as there cannot be a reason to doubt the selective sales/ transactions when there are numerous transactions/sales that have been entered into during the year under consideration which has not been disturbed by the Ld. Assessing Officer. Once the sales of the assessee have not been doubted and has already been taken in the P&L A/c, the same cannot be added as undisclosed income u/s 68 of the Act. 9. That another appeal with the Ld. Assessing Officer is allowed in other assessment proceedings on the same ground against the above transaction with the parties. 10. That appellant craves to reserve the right to add, alter, delete and modify all or any of the grounds of appeal at any time either before or during the course of the appellate proceedings and further an opportunity of being heard before the orders are passed in this appeal”. 5. At the time of hearing, none appeared on behalf of the appellant/assessee on 16.11.2023, 25.01.2024, 13.03.2024, 15.07.2024, 29.08.2024, 01.10.2024, 08.01.2025 and today. 6. Learned Authorised Representative for the Revenue relied on orders of Ld. AO and Ld. CIT(A). ITA No.1476/Del/2023 5 7. From examination of records, it is evident that Ld. CIT(A) in para nos. 5.5 to 5.14 and 6 has held as under: “5.5 Ground No. 2, 5, 8, 9, 10 and 15 are interrelated, challenging the addition of Rs. 1,78,25,000/- (alleged bogus purchase) made by the AO on account of purchases made from Macro IT System Pvt. Ltd. 5.6 The Ld. AO discussed the impugned addition on account of bogus purchase in paras 1, 2 and 3 as under: As per the information received from the Directorate of Investigation, New Delhi, it was seen that assessee M/s. Vayam Technologies Ltd. had taken accommodation entries from the Jain Brothers from the material evidence gathered during the search operations which is as follows: S.No. Name F. Y. 2011-12 1. M/s Vayam Technologies Ltd. Rs.1,78,25,000/- From the above, it is seen that during the financial years 2011-12, M/s Vayam Technologies Ltd. has taken accommodation entry amounting to Rs. 1,78,25,000/- from shell companies which was controlled by Jain Brothers. During the course of search incriminating documents were seized from the premises controlled by Jain Brothers, wherein the details of entries taken by the assessee company have been mentioned. The same as follows: ITA No.1476/Del/2023 6 F Y Date Party Receipt 2011-12 03.03.2012 Macro IT Systems Pvt. Ltd. 26,25,000/- 2011-12 27.03.2022 Macro IT Systems Pvt. Ltd. 37,00,000/- 2011-12 28.03.2022 Macro IT Systems Pvt. Ltd. 1,15,00,000/- Total 1,78,25,000/- As per information received the assessee company has received an amount of Rs. 13,60,94,060/- in the ten instalments from September 29th to June 28th. From the documents filed P&L account for A.Y. 2011-12, it was found that the assessee company has not shown these remittances received from outside India in its P&L account. The Ld. PCIT, Delhi-9 vide his order u/s 263 of the I.T. Act dated 16.02.2016 has cancelled the assessment of the assessee company for the A.Y. 2011-12 and directed that fresh assessment should be made and the taxability of Rs. 13,60,94,060/- should be examined. The relevant extract of the order of Ld. PCIT-Delhi-9 passed u/s 263 is very relevant and reproduced below: ............................................ ITA No.1476/Del/2023 7 During the course of assessment proceedings u/s 143(3) r.w.s. 263 of the I.T. Act, it was seen that the assessee company has received an amount of Rs. 13,60,94,060.75/- in the 10 instalments from September, 29 to June, 28, however as only extract of the bank statement were filed during the assessment proceedings and also even before Ld. PCIT-9, it was not clear whether the entries related to 2010 or 2011. However, as the so called statement extracts filed relating to the F.Y. 2010-11 only, accordingly the entries from the September to October are assumed that they pertain to F. Y. 2010 and the entries from 7th May to 28th June are treated as pertaining to 2011. Accordingly though the assessee has also admitted in its reply before the undersigned that they have received sum of Rs. 13.60 crores and also relying on the documents filed before the Ld. PCIT-9 the amount of Rs. 5,85,67,419/- pertaining to bank entries from September, 29 to October, 25 were treated as pertaining to F. Y. 2010-11 and as the same was not offered for taxation, was added back in the income of the assessee company for A. Y. 2011-12. Further an amount of Rs. to entries from 7th May to 28th June are treated as pertaining to F. Y. 2011-12 and from the return of income filed, it is seen that same was not offered for taxation by the assessee company hence the sum of Rs. 7,75,26,641/- was escaped assessment within the meaning of clause c (i) of Explanation 2 below 2nd proviso appended section 147 of the IT Act. 2. Subsequently, notice u/s 148 of the IT Act was issued on 30.03.2017 by the AO i.e. Addl. CIT, Special Range-9, New Delhi. Further, notices u/s 142(1) were again issued in response to the notices, Mr. P.K. Katyal and Mr. Jai Shukla, CA/ARs of the assessee attended from time to time. Details called for have been filed and the case was discussed. A copy of the reasons recorded was duly provided to the assessee in accordance with judgment of M/s GKN Drive Shaft Ltd. 259 ITR (SC). 3. As per information received, a Search & Seizure operation under section 132 of the Income Tax Act 1961 was conducted on 17.12.2015, in the case of Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain (the Jain Brothers) who are in the business of providing accommodation entries to various beneficiaries through cheques/DD/RTGS/NEFT in lieu of cash, through ITA No.1476/Del/2023 8 various paper and dummy companies floated and controlled by them. Both the persons mentioned above are practicing Charted Accountants. However their main business is restricted to providing illegal accommodation entries. For this purpose they have created certain entities such as companies and firms which are managed and controlled by them. The modus operandi of the Jain Brothers as entry operators follows the standard pattern of most other entry providers wherein is routed through paper companies controlled by the Jain brothers. These companies are found to be incorporated by taking care of all formalities such as registering with ROC but are having only postal addresses with no real office or employees. Many of these companies did not even have proper postal addresses as the services of the postmen were used to deliver the statutory letters to the agents/employees of the Jain Brothers. The directors of such companies are again individuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. Many of such directors were not traceable and of the companies of which they were the directors Many of these \"directors\" were actually working as peons, watchmen domestic help etc. It was established during the investigations, these are only paper companies used to route the unaccounted income and provide bogus accounts for non-existent transactions, Also it has been exposed through search and seizure operations and the post search actions of investigations that the jain Brothers control a number of bank accounts for depositing cash and companies for routing the entries. In fact, on the basis of the complete perusal of the evidences seized during the entire In fact, on the basis of search, the following is concluded:- a. Papers and digital premises covered by the search. shell companies were found in all the premises covered by the search. b. Whatever documentary or digital evidence was found during the search related either to the Jain Brothers and their shell companies, or to the concerns/persons who were ITA No.1476/Del/2023 9 the beneficiaries of the transactions passed through the shell companies. The folder named \"Jain\" in which the records of such entry transactions had been maintained in tally software. This data contained details of the amounts rotated in cash and through banks and was being used by the Jain Brothers to keep track of the accommodation entries rotated by them through the various companies and firms controlled by them. The names of these companies/firms henceforth referred to as the shell companies of the Jain Brothers, have been given below:- S. No. Name ADDRESS DIRECTORS/ Partner PAN NO. 1 MACRO SYSTEM LTD. IT 326, LGF SANT PVT NAGAR, EAST OF KAILASH, NEW DELHI ANIL KUMAR NITIN KUMAR CHADDA RAVINDER KUMAR AAECM7259E The investigation in respect of the documents and electronic data seized from the various premises revealed a number of bank statements and signed & unsigned cheque books. All these bank documents pertained to the shell companies of the Jain Brothers. Accordingly, information was called in respect of the bank accounts from various banks and branches which were identified form the seized materials. From the perusal of the details collected from the banks, it was found that most of these accounts were managed and controlled by Shri Anand kumar jain or Shri Naresh Kumar Jain. The complete details collected in this regard are encapsulated in the following table:- ITA No.1476/Del/2023 10 S. No Company Name Bank Branch A/c No. Registered Mobile No. Mail id 1. MAGRO IT SYSTEM PVT LTD KOTAK MAHIN DRA ROHIN I DELHI 61201100 0958 98180457 81 (NARESH JAIN) macroits ystem @yahoo. com 2. MAGRO IT SYSTEM PVT LTD HDFC BANK NORTH EX MALL ROHIN I DELHI 13472560 001542 98180457 81 (NARESH JAIN) macroits ystem @yahoo. com The above table furnishes the specific information about the above mentioned companies/concerns being under the control of the Jain Brothers as their mobile number and email IDs were registered with the accounts of these companies maintained with the respective banks. All the information of the transactions were being forwarded by the banks to the Jain Brothers of these numbers and their affairs were managed by them instead of the directors/partners of these concerns. The material seized during the search on the various premises of the Jain Brothers includes specific evidence such as blank unsigned as well blank signed cheque books of these companies, Share Certificates of these companies, Acknowledgement of filling of Returns of these companies, User Ids and password of all companies for e-filling of their returns, Bank A/c Opening & Closing letters, Authorization letters for attending the assessment proceedings books of account in tally format as well as in the format required for filling the retum of income, copy of the ledger accounts required for their confirmations, proof of use of mobile nos. of Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain in Bank A/c opening forms where option of mobile banking was required, etc. Thus all these companies are tools in the business of providing accommodation entries in lieu of cash/cheques, and these were effectively being ITA No.1476/Del/2023 11 used by the Jain Brothers by drawing a long trail of bank transactions to impart a colour of genuineness on these transactions. The information was confronted to the assessee company and it was asked vide note sheet entries as following: Date of order sheet entry. Information to be furnished 08.12.2017 To prove the identity creditworthiness and genuineness of the credits with supporting evidence. To produce the party for verification. 12.12.2017 To furnish the information in respect of notice u/s 142(1) dated To furnish the i 19.09.2017 has not been filed. Furnish proof of compliance of notice u/s 148 and return filed in response to notice. 20.12.2017 To produce M/s Macro IT Systems for verification/examination Furnish any of bank account. 22.12.2017 To show cause why an addition of Rs. 1,78,25,000/- should not be made being unexplained. Information about the accommodation entry has been confronted to the assessee. 26.12.2017 As M/s Macro IT Systems does not exist at the address given. Asked to produce the party for examination. In its reply dated 22.12.2017 assessee company submitted following facts: “The reply of the assessee has been considered and is not tenable in the view of the discussions below. ITA No.1476/Del/2023 12 The bills filed by the assessee are incomplete as does not mention, the following significant facts:- Delivery Note Mode/terms of payment Suppliers Ref Other references (s) Buyer's order no. Dated Dispatch Document no. Dated Dispatched through Destination Terms of Delivery Despite repeated opportunity the assessee has been unable to produce the party for examination and other corroborative evidence to prove the genuineness of the transaction. It was clearly mentioned that M/s Marco Systems (P) Ltd. is controlled by Shri Naresh Kumar Jain, who was involved in providing the accommodation entries. Burden of proof: During the assessment proceedings, summons u/s 131 of the IT Act were issued to following companies by the AO, but not complied by them:- 1) Macro IT Systems Pvt. Ltd. The burden to prove the genuineness of the transactions is upon your company. ITA No.1476/Del/2023 13 Summary of evidence which proves that assessee had received accommodation entries: The office has collected several credible evidences to prove that the assessee had received accommodation entries of Rs. 1,78,25,000/- from Jain Brothers. This credible evidence may be summarized. The assessee received fund from the company which do not have any independent existence but was paper company being operated, controlled and used by Jain Brothers. The investor company was the part of group of paper companies used and operated by Jain Brothers for providing accommodation entries in lieu of cash payment. This investor company did not have any known business activities and identified business offices. During the course of search and survey no books of accounts, documents suggesting any genuine transactions by these investor company was found. During the course of search incriminating books of accounts and documents were seized from the premises controlled by Jain Brothers. This company did not have identifiable offices, business activity, books etc. It was noticed during search and seizure and survey operation that this company was not located at disclosed addresses. The bank accounts of the group of Investor Company was operated and controlled by Jain Brothers. Cheque book pass book and bank accounts of this web of investor companies were found in the control and custody of Jain Brothers and contact number of these companies to the bank was disclosed as mobile number of Jain Brothers and his employees. In view of the foregoing discussion that I am of the view that a sum of Rs. 1,78,25,000/- paid to M/s Macro IT System Pvt. Ltd. i.e. a Jain Brothers papers company and debited in the books of account of the assessee fails to pass the test of genuineness. Assessee company is not able to prove genuineness and identity of the above company and thus inflated total purchases. A sum ITA No.1476/Del/2023 14 of Rs. 1,78,25,000/- is therefore, added back to the income of the assessee company being unexplained. I am satisfied that the assessee has concealed/fumished inaccurate particulars of the income and accordingly penalty proceedings u/s 271(1)(c) of the I.T. Act is initiated on this issue. (Addition: Rs. 1,78,25,000/-) 5.7 I have carefully perused the Grounds of Appeal, Statement of Fact, Assessment Order, Written Submission uploaded as well judicial pronouncements relied upon by the appellant. The factual matrix of the case is summarized as under: (i) That the case of the appellant was re-opened after issuing a notice u/s 148 of the Act based on the information received from the Director of Investigation, New Delhi that the appellant has taken an accommodation entry for F.Y. 2011-12 amounting to Rs. 1,78,25,000/- from M/s. Macro IT Systems Pvt. Ltd. as under. F Y Date Party Receipt 2011-12 03.03.2012 Macro IT Systems Pvt. Ltd. 26,25,000/- 2011-12 27.03.2012 Macro IT Systems Pvt. Ltd. 37,00,000/- 2011-12 28.03.2012 Macro IT Systems Pvt. Ltd. 1,15,00,000/- Total 1,78,25,000/- ITA No.1476/Del/2023 15 (ii) The above information was result of a search and seizure operation u/s 132 of the Act conducted in the premises of Sh. Anand Kumar Jain and Sh. Naresh Kumar Jain (the Jain brothers). (iii) It is the case of the A.O. that Jain Brothers were engaged in providing the accommodation entries to various entities through shell companies controlled by them through DD/RTGS/NEFT in lieu of cash as per the investigation report and documents and electronic data ceased from the premises of the Jain Brothers. (iv) A.O. issued summon u/s 131 of the Act to the above party as mentioned above for verifying the purchases made by the appellant but no compliance was made. (v) The evidence for making the impugned addition regarding taking the accommodation entry is summarized by the A as under: Summary of evidence which proves that assessee had received accommodation entries: The office has collected several credible evidences to prove that the assessee had received accommodation entries of Rs. 1,78,25,000/- from Jain Brothers. This credible evidences may be summarized. The assessee received fund from the company which do not have any independent existence but was Paper Company being operated, controlled and used by Jain Brothers. The investor company was the part of group of paper companies used and operated by Jain Brothers for providing accommodation entries in lieu of cash payment. This investor company did not have any known business activities and identified business offices. During the course of search and survey no books of accounts, documents suggesting any genuine transactions by these investor company was found. ITA No.1476/Del/2023 16 During the course of search incriminating books of accounts and documents were seized from the premises controlled by Jain Brothers: This company did not have identifiable offices, business activity, books etc. It was noticed during search and seizure and survey operation that this company was not located at disclosed addresses. The bank accounts of the group of Investor Company was operated and controlled by Jain Brothers. Cheque book, pass book and bank accounts of this web of investor companies were found in the control and custody of Jain Brothers and contact number of these companies to the bank was disclosed as mobile number of Jain Brothers and his employees. In view of the foregoing discussion that I am of the view that a sum of Rs. 1,78,25,000/-paid to M/s Macro IT System Pvt. Ltd. i.e. a Jain Brothers papers company and debited in the books of account of the assessee fails to pass the test of genuineness. Assessee company is not able to prove genuineness and identity of the above company and thus inflated total purchases. A sum of Rs. 1,78,25,000/- is, therefore, added back to the income of the assessee company being unexplained 5.8 The additions/reopening of assessment in this case were made by the Assessing Officer on the basis of the information received from the Investigation Wing in respect of alleged involvement of Jain Brothers in providing the accommodation entries to various entities through control of shell companies. A.O. has further pointed out that the appellant received fund from the company M/s Macro IT Systems Pvt. Ltd. on various dates as tabulated above during the F.Y. 2011-12, which do not have any independent existence but was paper company being operated, controlled and used by Jain Brothers. But, on perusal of record it reflects that, in fact impugned addition of Rs. 1,78,25,000/- is not related to the fund received by the appellant but actually paid to M/s. Macro IT Systems Pvt. Ltd. during the year under consideration debited in the books of account of the appellant and found to be bogus purchase by the A.O. as appellant allegedly not able to prove the genuineness and identity of the above company. Appellant on the other hand requested for opportunity to cross examine the person who has made the ITA No.1476/Del/2023 17 statement regarding giving accommodation entries to the appellant during the course of assessment proceedings. The same was not provided to the appellant. 5.9 It is the contention of the appellant that the entire disallowance in this case is based mainly on third party information gathered by the Investigation Wing of the Department. It is an admitted fact that AO has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant. However, A.O. has issued summon to M/s Macro IT Systems Pvt. Ltd. for verification but was not complied. Appellant has submitted documents substantiating the purchases through various documentation including purchase invoices supported by Bills, copy of return reported with VAT department along with sales and purchase, corresponding sales of these transactions in VAT return, subsequent receipt of amounts from sales and the fact of Payments through banking channels only. The appellant has also relied on various judicial pronouncements as under: 1. CIT vs. Odeon Builder Pvt. Ltd. (SC). 2. PCIT vs. Paramshakti Distributors Pvt. Ltd. (Bombay High Court) 3. PCIT vs. Tejua Rohitkumar Kapadia, Hon'ble Supreme Court of India 5.10 It is the contention of the appellant that M/s Macro IT Systems Pvt. Ltd. is neither controlled by Jain Brothers nor floated by them. The impugned addition on account of bogus purchase made by the A.O. has entirely based on the statement of Jain Brothers and no opportunity for cross examination was provided to the appellant. However, as it can be seen in this case, the decision of the AO regarding non-genuineness of purchase and disallowance is not solely and wholly based on statement of third-party; but on basis of the evidences, circumstantial facts unearthed during the Search in the case of Jain brothers as well as the inquiries made by the AO himself in course of Assessment proceedings. Therefore, the case laws relied upon by the appellant in the case of CIT vs. Odeon Builder Pvt. Ltd. (SC) is not applicable, which relate to scenario where the third party statement is the whole and sole basis of disallowance. In this case, there are factual, circumstantial and inquiry-based ITA No.1476/Del/2023 18 evidences and inferences. Hence, the question of third-party examination is not essential to the legality of the disallowance. Further, it is set on record that the AO has also made independent inquiries and has arrived at conclusion that the parties are non-existent/ non-genuine. A.O, has also pointed out some defects in the purchase bill submitted by the appellant l.e. delivery note, suppliers reference, buyers order, dispatch documents, term of delivery etc. Further, A.O. has also mentioned that appellant was not able to produce the above party/seller for examination and that M/s Macro IT Systems Pvt. Ltd. is controlled by Shri Naresh Kumar Jain involved in providing the accommodation entries. The same have been confronted to the appellant too. In response, the appellant has failed to produce the parties for examination. Hence, the onus remained un-discharged on part of the appellant. Hence, there is no failure on part of the AO in terms of adherence to the principles of natural justice. 5.11 Appellant has given papers and documents like bank statement, VAT/ST challans etc. However, the shell companies are paper-based companies and all documents/papers are generated. Also it is trite law that transactions through banking channel are not sacrosanct. Hence, the arguments of the assessee for complete genuineness are not acceptable. However, keeping in view the assessment order, arguments of the assessee, the following facts emerges as under: (i) AO has not questioned the genuineness of the sales. (ii) Hence, there must be purchases made by the appellant from grey market in respect of the sales. (iii) The appellant would have saved taxes like VAT, which were payable on genuine purchases. The grey market purchases also evade indirect taxes. 5.12 Upon careful consideration of facts and circumstances of the case as well as judicial pronouncements on the issue, I find some force in the above arguments of the appellant that the entire alleged bogus purchases cannot be added. Hence, the profit element embedded in such gray market purchases have been determined by various Courts at rate of 12.5% of unverified purchases. In light of the above fact and contentions, without going into technicality of defects in purchase invoices, I am of the ITA No.1476/Del/2023 19 view that in spite of repeated opportunities, conformation could not be obtained in respect of purchase of Rs. 1,78,25,000/- made from M/s Macro IT Systems Pvt. Ltd. Hence, purchase of Rs. 1,78,25,000/- remain unverified. 5.13 It is also an admitted fact that the sales declared by the appellant have not been disturbed in this case. Hon'ble Gujarat High Court in the case of Bholanath Polyfab 355 ITR 290 (Guj) held that even though the assessee has not proved the genuineness of the purchases, yet if the AO has accepted the sales, the entire purchases cannot be disallowed. Only the profit element embedded in purchases would be subjected to tax tax and a not the entire amount. The Ld. Assessing officer can tax only the margin earned (Gross profit) on corresponding sales. The rationale being no sales is possible without actual purchases. Where the sales cannot be discarded, the issue would boil down to finding out the element of suppressed profit embedded in purchases which the appellant would have made from some unknown or bogus entities. Further, Hon'ble Gujarat High Court in the case of CIT v. Simit P. Seth [356 ITR 451] held that when the total sales are accepted by the Assessing Officer then the entire purchases cannot be added to the income of the assessee. ITAT Mumbai Benches in a number of cases has taken a consistent view and directed the Assessing Officer to estimate net Profit of 12.5% to 15% on total bogus purchases. The sum and substances of ratios laid down by the courts and Tribunals is that in the case of bogus purchases only profit element embedded in such purchases is to be taxed but not total bogus purchases. Therefore, in view of the above judicial decisions of the Hon'ble Gujarat High Court as well as ITAT, only the fair profit ratio should be added back to the income of the appellant. 5.14 Considering the totality of the peculiar facts and circumstances of the instant case and respectfully following the above judicial pronouncements, a fair estimation of the disallowance of 12.5% of unverified alleged bogus purchase of Rs. 1,78,25,000/- from M/s Macro IT Systems Pvt. Ltd. as mentioned above under the facts and circumstances of the case, in my opinion, will meet the ends of justice. Therefore, the disallowance in respect of alleged bogus purchase of Rs. 1,78,25,000/- from M/s Macro IT Systems Pvt. Ltd. as discussed in preceding paras is restricted to 12.5% i.e. Rs. 22,28,125/-. Thus, ground no. 2, 5, ITA No.1476/Del/2023 20 8, 9, 10 and 15 raised by the appellant challenging the addition of Rs. 1,78,25,000/- (alleged unexplained bogus purchase) is partly allowed. 6.0 Decision on Ground No.16: Ground no.16 raised is against initiation of penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars and concealing income. This ground of appeal is premature at this stage, hence not adjudicated separately, therefore, dismissed for statistical purpose”. 8. In view of the above referred well reasoned findings given by the Ld. CIT(A), the grounds of appeal in absence of any other supporting material evidence are not tenable. Therefore, the grounds of appeal are dismissed. 9. In the result, the appeal of the appellant/assessee is dismissed. Order pronounced in the open court on 24/03/2025. Sd/- Sd/- (SHAMIM YAHYA) (VIMAL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 03/04/2025 Mohan Lal Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "