In bogus purchase cases, where sales accepted, only profit element (GP rate) added to income, not entire purchase amount.

ORDER 

Per: Anikesh Banerjee (JM):

The instant appeal of the revenue and the cross objection of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2009-10, date of order 30.06.2025. The impugned order emanated from the order of the Ld. Income Tax Officer Ward 15(1)(3), Mumbai (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 147 of the Act, date of order 27.03.2014.

2. Brief facts of the case are that the assessee is a partnership firm which filed its return of income declaring a total income of Rs.19,78,876/-. During the year under consideration, the assessee reported total sales of Rs.4,53,79,314/- and purchases of Rs.3,57,03,898/-. The Ld. AO received information from the office of the DDIT (Inv.)–VI, Mumbai, stating that a search action had been conducted at the premises of M/s. SNB Infrastructure Pvt. Ltd., M/s. Swapnil Enterprises, and M/s. Amit Transport Services. During the course of such proceedings, a statement of Shri Ramnarayan Upadhyay was recorded under section 131 of the Act. In his statement, Shri Upadhyay admitted that he was the Managing Director of M/s. SNB Infrastructure Pvt. Ltd. and was also overseeing all associate concerns, including the assessee. He further admitted that the group concerns had booked purchases aggregating to Rs.46,73,63,536/- from various parties, which were alleged to be non-genuine. Based on the said information, the Ld. AO concluded that the assessee had made purchases amounting to Rs.2,17,94,500/- from such alleged bogus entities. Accordingly, the Ld. AO added the entire amount of Rs.2,17,94,500/- as bogus purchases. Further, the Ld. AO disallowed unverifiable expenses at the rate of 10% of total expenses claimed, amounting to Rs.10,40,138/-, resulting in a disallowance of Rs.1,04,000/-. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal by restricting the addition on account of non- genuine purchases is restricted to 15% of Rs. 2,17,94,500/- which amounts to Rs. 32,69,175/-. The remaining addition of Rs. 1,85,25,325/- [Rs. 2,17,94,500/- minus Rs. 32,69,175/-] is deleted. Being aggrieved, the revenue has preferred an appeal before us challenging the deletion on merits, whereas the assessee has filed cross-objections challenging the validity of the reopening of assessment. It is noted that the assessee has not challenged the disallowance relating to unverifiable expenses before any of the appellate authorities.

3. The Ld. DR submitted that Shri Ramnarayan Upadhyay had categorically admitted that the group concerns had undertaken bogus purchases, out of which purchases amounting to Rs.2,17,94,500/- pertained to the assessee. It was contended that the Ld. AO had rightly made the addition based on the statement recorded during the course of search proceedings. Accordingly, the Ld. DR supported the order of the Ld. AO.

4. Per contra, the Ld. AR contended that the entire addition had been made solely on the basis of the statement of Shri Upadhyay, without any corroborative evidence. It was submitted that there was no cogent material to substantiate the allegation of bogus purchases in the hands of the assessee. The Ld. AR further submitted that all transactions were carried out through banking channels and that complete documentary evidence, including bills and supporting records, had been furnished before the revenue authorities. The Ld. AR thus relied upon the order of the Ld. CIT(A). The relevant extract from para