When a taxpayer's purchases are deemed bogus or unverifiable but the corresponding sales are accepted as genuine by the revenue authorities, the entire purchase expenditure should not be disallowed; instead, the profit element embedded in such purchases should be estimated and disallowed.

ORDER

PER SATBEER SINGH GODARA, JM

This assessee’s appeal for assessment year 2012-13, arises against the Commissioner of Income Tax (Appeals)-24 [in short, the “CIT(A)”], New Delhi’s order dated 18.11.2024 passed in case no. CIT(A), Delhi-16/10011/2020-21, involving proceedings under section 147 r.w.s. 144 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

Heard both the parties. Case file perused.

2. This assessee’s appeal raises the following substantive grounds:

1. Order of the Ld. CIT(A) is bad in law and against the facts of the case and in upholding the order of L.d. AO passed u/s 144/147 on 10-12-2019.

2. The Ld. CIT(A) is totally unjustified in upholding the order of Ld. AO who has assessed the income at Rs. 2,03,63,006/- in place of returned income 43,41,010/-.

3. The assessee has made purchases to the tune of Rs. 1,58,73,026/- from M/s Gayatri Maa Enterprises which were treated as bogus purchases by the Ld. AO without giving cross examination opportunity to the assessee.

4. That the action of Ld. AO in disallowing the entire purchase thereby making an addition to the tune of Rs. 1,58,73,026/- is totally unjustified as these purchases were duly accepted by the Ld. AO while passing the order u/s 143(3) of the Income Tax Act and is liable to be deleted without giving an opportunity for cross-examination.

5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.

3. Learned counsel submits at the outset that the assessee does not wish to press for his first, second and fifth substantive grounds. Rejected accordingly.

4. Next comes the sole substantive issue of correctness of both the learned lower authorities’ action disallowing the assessee’s alleged bogus purchases of Rs.1,58,73,026/- sourced from M/s. Gayatri Maa Enterprises in assessment order dated 10.12.2019 as upheld in the CIT(A)’s lower appellate discussion, reading as under:

“5.2 I have considered the material on record, including the written submission of the appellant filed in the course of appellate proceedings. I have also perused the assessment order passed u/s 144 of the Income Tax Act, the remand report of the Assessing Officer and the rejoinder of the appellant thereon. In the present appeal, the appellant has raised eight grounds of appeal, which have been reproduced in para 2.1 above. All the grounds are interlinked and dealt together in the following paragraphs.

5.23 During the course of appellate proceedings, the appellant submitted that he had made purchases from M/s Gayatri Maa Enterprises, and these purchases cannot be termed as bogus. The assessee received the goods in actuality, and all payments were duly made by account payee cheques. Further, if the Assessing Officer accepted the sales made by the assessee, then the addition on a/c of purchases is totally unjustified. Otherwise, when the sales are accepted, further additions can only be made on account of the gross profit/net profit ratio. The appellant filed a copy of M/s Gayatri Maa Enterprises' account along with purchase bills and the bank statements of M/s Deepak Enterprises with HDFC Bank, A/c No.02172790001543. The appellant stated that this statement clearly shows that the payment has been made by cheques/RTGS to M/s Gayatri Maa Enterprises. The gross profit and Net profit of the firm for the last 2 years are as under:

5.4 The appellant also relied upon various judgements of the Hon'ble courts in support of his contention. The appellant