The Tribunal established that only the profit element embedded in bogus purchases should be taxed rather than the entire purchase amount in cases of dubious transactions.

ORDER

PER NAVEEN CHANDRA, AM :-

The above captioned four cross appeals by the assessee and the Revenue are directed against two separate orders of the ld. CIT(A), Delhi dated 27.01.2025 for A.Ys 2019-20 and order dated 27.01.2025 for A.Y 2020-21 respectively.

2. Since these appeals pertain to same assessee and involve common issues, they were heard together and are disposed of by this common order for the sake of convenience and brevity.

ITA No. 1929/DEL/2025 [A.Y 2019-20] (Assessee appeal)

ITA No. 1930/DEL/2025 [A.Y 2020-21]

3. Briefly stated, the facts of the case are that the assessee filed its original return of income for AY 2019-20 on 27.09.2019 declaring an income of Rs.72,45,970/-. A search and seizure operation u/s 132 of the Income-tax Act, 1961 [the Act, for short] was conducted on 26.10.2020 in the cases of Shri Sanjay Jain and Mehta Group at various residential & business premises.

4. Sanjay Jain is an entry operator found to be running several fictitious entities for providing accommodation entries. During the course of search, 2 sets of books of tally were found and seized from the office premise of Shri Sanjay Jain i.e 87, First Floor, Dharamvir Mann Marg, Sabji Market, Hari Nagar Ashram, New Delhi which were marked as Annexure A-31. The set of tally data contained the receipt and expenditure in cash. The details of commission of ledger of the intermediaries as per tally of Sanjay Jain Tally books with the name "Jain Enterprises" maintained by Shri Sanjay Jain were found during the search.

5. On the basis of these informations, the case of the assessee for the year under consideration, was opened u/s 153C of the Act, after recording the satisfaction note by the Assessing Officer.

6. The assessee has shown details of Purchases and Sales made during the AY 2019-20 and AY 2020-21 along with the GP & NP Ratios as under:

7. Details of additions made by the Assessing Officer u/s 37(1) of the Act, in relation to the purchases made from the entities allegedly linked to Shri Sanjay Jain are as under:

9. Accordingly, the AO considered the purchases made from the above entities as bogus and made addition of Rs. 1,63,25,806/- for AY 2019-20 and Rs 4,98,90,875 for A.Y 2020-21 as bogus purchase u/s 37 of the Act. On appeal, the CIT(A) reduced the addition to 32,65,161/- for AY 2019-20 and Rs. 99,78,175/- for A.Y 2020-21 being 20% of the gross profit embedded in the bogus purchase.

10. Aggrieved, both the rival representatives are in appeal before us against the order of the lower authorities. Assessee is before us against the 20% GP addition made by the CIT(A) and the Revenue is against CIT(A) giving relief of 80% of the bogus purchase.

11. The ld counsel of the assessee vehemently argued that the ld. CIT(A) did not consider the complete documentary evidences in support of the purchases including invoices, E-way bills, GST returns, Truck no. and corresponding bank statements evidencing payments, the correctness of which is not in dispute.

12. It is the say of the ld AR that despite such conclusive evidences, the CIT(A) has disregarded the same and solely on the basis of presumptions and conjectures, has passed the order dated 27.01.2025, arbitrarily estimating disallowance at 20% of the disputed purchases, which is not only excessive and without any rational basis, but also in total disregard to the Gross Profit of 22.56% and 26.02% earned by the assessee during the two respective years.

13. Per contra the ld DR heavily relied on the orders of the AO and relied on the decision of hon’ble Gujrat High Court in the case of N.K. Protein 72 taxmann.com289(Guj) whose SLP was dismissed by the Supreme Court.

14. We have heard the rival submissions and have