Where alleged bogus purchases are made through banking channels in the ferrous/nonferrous metal trade, the profit estimation should be restricted to a reasonable margin (e.g., 5%) rather than a higher arbitrary percentage, provided the source of expenditure is not doubted.

O R D E R

Per : Narender Kumar Choudhry, Judicial Member:

This appeal has been preferred by the Assessee against the order dated 15.03.2025, impugned herein, passed by National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals) [in short Ld. Commissioner] u/s 250 of the Income Tax Act, 1961, [in short ‘the Act’] for the A.Y. 2011-12.

In the instant case, the case of the Assessee was reopened u/s. 147 of the Act, by issuing notice dated 10.03.2016 u/s 148 of the Act, on the information received from the DCIT (Investigation) Wing, Mumbai regarding issuing of Hawala bills or accommodation entries received by the Assessee from various parties to the tune of Rs.6,61,31,668/- in total, as detailed/mentioned by the Assessing Officer in Para No.2 of the Assessment Order. The reopening of the Assessment proceedings, ultimately resulted into making the addition of Rs.82,66,459/- being 12.5% of the alleged non-genuine purchases of Rs.6,61,31,668/- on some discrepancies found specifically with regard to mode of transportation, which allegedly remained to be explained properly.

The Assessee being aggrieved challenged the said Assessment Order, as well as the addition made by the Assessing Officer by way of such Assessment Order, by filing 1st appeal before the Ld. Commissioner, who vide impugned order affirmed the alleged non-genuine purchases/transactions to the extent of Rs.6,09,98,252/- instead of Rs.6,61,31,668/- and ultimately restricted the addition of Rs.82,66,459/- to Rs.76,24,782/-.

The Assessee being aggrieved preferred instant appeal challenging the impugned order and during the appellate proceedings before this Court, also raised legal grounds/issues including challenging the Assessment Order for want of notice u/s 143(2) of the Act, and claimed that the Assessing Officer has passed the Assessment Order, without issuing notice u/s 143(2) of the Act. However, the Assessee during the course of hearing, did not press this particular ground and in effect, emphasized on merits of the case.

On the contrary, the Ld. DR supported the orders passed by the authorities below and refuted the claim of the Assessee on merit by relying on judgment of the Jurisdictional High Court in the case of Principal Commissioner of Income Tax-5 Vs. Kanak impex (India) Ltd., ITA No.791/2021 (Bombay High Court, 03.03.2025)

Having heard the parties and perusing the relevant material available on record and considering the rival submissions of the parties, we observed that the Assessee deals in ferrous and nonferrous steel material.

The Hon’ble Coordinate Bench of the Tribunal in the case of ITO Vs. Khimchand Okhchand Bhansali (174taxmann.com 148) while considering the identical facts and circumstances of that particular case, wherein, the addition @ 12.5% has been made by the Assessing Officer in the identical facts and circumstances, as involved in the instant case and the Ld. Commissioner on appeal restricted the addition to 4% by partly allowing the appeal of the Assessee and distinguishing the judgment in the case of Kanak impex (supra), ultimately restricted the addition @ 5% of the alleged bogus purchases, by observing and holding as under:-

“3. The Assessee has claimed that it deals in ferrous and nonferrous metals and during the year under consideration, made the purchases of Rs. 1,12,13,732/- through banking channels and respective purchase invoices and has established the purchases made, by filing relevant purchase invoices, copy of bank statements evidencing payment made through proper banking channels, highlighting the relevant entries, chart showing the details of the purchases made from the parties and quantitative tally in respect of purchases made from the parties and the corresponding sales. The Assessee further claimed before he assessing officer that there is one to one co-relationship between purchasers, sales are fully vouched, purchases from the said parties can be c