Top Stories Income Tax Case Digest: Addition on Bogus Purchases under Income Tax Act This case digest deals with the cases related to ‘addition on bogus purchases under Income Tax Act.’ By Saagarika Gopinath – On November 25, 2024 1:46 pm – 22 mins read The word bogus refers to fake, false, sham, or not genuine. Bogus purchases under the Income Tax Act, 1961 refer to transactions where taxpayers falsely claim purchases from fictitious or non-existent entities. These claims are often made to inflate expenses and reduce taxable income, thereby avoiding taxes. Such practices lead to revenue losses for the government. It is also important to note that bogus purchases and untested purchases are not the same. While accounting for the records, bogus purchases refer to the entries made in the books that fraudulently show purchases, even when no real purchases or goods were involved at the time of recording. In order to deal with bogus claims, the Income Tax Department carries out scrutiny, cross-verification of records, and investigative actions like surveys and raids. To address this issue, the Income Tax Department scrutinizes suspicious purchase claims through various methods, including data analytics, cross-verification of records, and investigative actions like surveys and raids. Bogus purchases are disallowed under the Act, and taxpayers found engaging in such practices may face disallowance of expenses, penalties, and even prosecution under relevant provisions. Thus in the case of bogus purchase, genuine or real purchases are not made.

In involves the process of inflating the purchases in order to falsely reduce taxable profits. The AO may add the entire amount of bogus purchase as income as actual purchases are non existent. ITAT Restores Matter to AO for De Novo Adjudication on Alleged Bogus Purchases, Allowing Additional Evidence [Read Order] Income Tax Officer vs Greta Energy Limited CITATION: 2024 TAXSCAN (ITAT) 1317 The Chennai Bench Of Income Tax Appellate Tribunal ( ITAT ) restored the matter to the Assessing Officer ( AO ) for de novo adjudication concerning alleged bogus purchases by the assessee, allowing the consideration of additional evidence. The tribunal noted that while purchases had been made from the supplier, the appellant-assessee had failed to substantiate these transactions adequately. However, considering new evidence that could materially impact the case, the tribunal set aside the orders of the lower authorities. ITAT Reverses AO’s Additions, upholds Legitimacy of Long-Term Capital Gains from Share Transactions [Read Order] Bhavna Lal it Jain vs The Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 1288 In this case, the ITAT emphasised the need for concrete evidence before declaring transactions as bogus, referencing judicial precedents. The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) reversed the Assessing Officer’s ( AO ) additions and upheld the legitimacy of long-term capital gains reported by an individual assessee, for the assessment year(AY) 2014-15.

The ITAT reviewed several judicial pronouncements, including CIT vs. Jamnadevi Agarwal and PCIT vs. Indravadan Jain (HUF), affirming that documented transactions should not be deemed bogus without concrete evidence. It highlighted that the sale of shares occurred on a recognized exchange, and the AO failed to provide compelling proof of any price rigging scheme. Purchases Supported by Bills, Entries Made in Books and Payment made by Cheque not Bogus: ITAT [Read Order] Patel Kenwood Pvt. Ltd vs Income Tax Officer Ward CITATION: 2024 TAXSCAN (ITAT) 1252 The Income Tax Appellate Tribunal ( ITAT ) in Ahmedabad has affirmed that purchases supported by proper documentation—such as bills, recorded entries in books of accounts, and payments made through cheques—cannot be deemed as bogus transactions. This decision arose from the appeals of M/s. Patel Kenwood Pvt. Ltd., challenging the additions made by the Assessing Officer ( AO ) regarding certain purchases. The tribunal held that the mere listing of a supplier as a defaulter does not automatically render transactions with them bogus. Non-discharge of Onus of Proof by AO: Bombay HC quashes treatment of Purchase Expenses as Bogus [Read Order] It was noted that a previous Income Tax Appeal lodged by the Revenue pertaining to the very same matter had not been entertained by a Division Bench of the Bombay HC.

The Bombay High Court ( Bombay HC ) recently set aside an order by the Income Tax Appellate Tribunal ( ITAT ) and Revenue Department, ruling that the purchase expenses claimed by the petitioner could not be treated as ‘bogus’ due to the failure of the Revenue Department to discharge the onus of proof required to purport such an allegation. In light of the findings made, the Bombay High Court referred to its own decision in the case of Principal Commissioner of Income-tax-1 Vs. SVD Resins & Plastics (P.) Ltd. (2024) wherein the High Court observed that any ‘half-hearted approach by the AO to make additions on the issue of bogus purchases on the basis of general information, lacking proof would not be conducive to the purpose of law’. “Purchases in question were not Bogus”: ITAT uses CESTAT Ruling Ratio to quash Income Tax Revision Proceedings [Read Order] Panchmahal Steel Ltd vs The Principal Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 1190 The Income Tax Appellate Tribunal ( ITAT ) quashed the revision proceedings under Section 263 of the Income Tax Act initiated against the assessee at Vadodara for Assessment Years 2010-11 and 2011-12 by placing reliance on a Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) decision. The revision was initiated based on alleged bogus purchases and wrongful VAT claims identified during scrutiny proceedings by the Principal Commissioner of Income Tax (PCIT). The backbone of the ITAT’s decision stemmed from a subsequent order by the CESTAT, which ruled in favour of the assessee, confirming that the purchases in question were genuine. The CESTAT dismissed the Department’s allegations of bogus purchases, stating that there was no evidence to support such claims.

This finding directly undercut the very foundation on which the PCIT had based the Section 263 Income Tax Act revision proceedings. Unverified Sellers: ITAT upholds 20% Addition on Alleged Bogus Purchases [Read Order] K L Tambi & Company vs Dy. Commissioner of Income-Tax CITATION: 2024 TAXSCAN (ITAT) 1102 The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) upheld a 20% addition on alleged bogus purchases due to unverified sellers. The tribunal reduced the original 25% disallowance, agreeing that the assessee failed to prove the genuineness of the transactions, and confirmed penalty proceedings. The bench upheld the 25% disallowance but reduced the GP rate from 25% to 20% ITAT rejects 25% Addition for Unverifiable Purchases u/s 153A of Income Tax Act citing Incorrect GP Rate Estimation [Read Order] Govindam Export vs Dy. Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 1001 The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) rejected the 25% addition for unverifiable purchases under Section 153A of Income Tax Act, 1961 citing incorrect Gross Profit (GP) rate estimation. The appellate tribunal reviewed the 25% profit estimation by the CIT(A) for bogus purchases and noted that the tribunal had incorrectly deleted the addition based on GP rates from similar industries.

Absence of Incriminating Material: ITAT rules out Addition on Completed Assessment [Read Order] Govindam Export vs Dy. Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 993 The Jaipur Bench of Income Tax Appellate Tribunal ( ITAT ) ruled out additions on completed assessments due to the absence of incriminating material. The tribunal noted that the Assessing Officer (AO) had not addressed the specific issues remanded by the High Court and merely repeated previous findings. It was noted that the department’s search did not reveal material that was incriminating in supporting claims of bogus purchases or inflated export profits. The AO issued notices for these years after the time limits had expired, making any additions invalid. Profit Embedded amount Purchase would be Subjected to Tax: ITAT directs AO to restrict Addition of Rs. 16.8 crores [Read Order] Sangam Wires vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 667 The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) directed the Assessing Officer to limit the addition of Rs. 16.8 crores, indicating that the profit-embedded amount from the purchase would be subjected to tax. Further the various other decisions relied on by the counsel for the assessee also support his case to the proposition that only the profit element embedded in such alleged bogus purchases can be added and not the entire purchases especially when such purchases are recorded in the books of account, quantitative details are given and the sales have been accepted. Addition u/s 68 Should Be Restricted To Extent Of Gross Profit At Same Rate Of Genuine Purchases: ITAT [Read Order] Murtuza Abdul Gaffar Khan 339 vs National Faceless Appeal Centre (NFAC)Delhi CITATION: 2024 TAXSCAN (ITAT) 647 ITAT observed that the assessee had given the quantitative sales corresponding to the quantitative purchase, which is from alleged bogus suppliers.

The Bench found that the resultant gross profit from alleged bogus purchases and sales is 5.096%.  The Bench further observed that the gross profit ratio without alleged bogus purchases and corresponding sales is 5.407%, which will result in an addition of 0.3% of alleged bogus purchases of ₹1,15,86,557/-which would be minuscule. While allowing the appeal, the ITAT held that a minuscule amount of addition to be retained. Non-striking of Irrelevant Matter would Render Income Tax Penalty Notice Defective: ITAT [Read Order] The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) recently quashed a pre-drafted penalty notice that included both concealed and inaccurately furnished income particulars. The appellant, in this case, contested an addition of Rs. 1,00,15,634 due to purported bogus purchases. ITAT noted that when the Assessing Officer indicates satisfaction for imposing penalties based on Section 271(1)(c) of the Act, failure to strike out irrelevant portions renders the notice defective. This defect would compromise the penalty proceedings. Penalty Notice issued without deleting or striking off  inapplicable part: ITAT Deletes Penalty levied u/s 271(1)(c)  of Income Tax Act [Read Order] Supertech Construction Company vs Assistant Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 194 The facts reading to the appeal was  for the Assessment Year 2009-10, assessment under Section 143(3) read with Section 147 of the Act was framed on the Appellant at Income of INR 30,16,469/- after making addition of INR 10,02,379/- under Section 69 of the Act in relation to the alleged bogus purchases holding the same to be unexplained expenditure. Therefore In appeal, the CIT(A) restricted the addition to 12.5% of the alleged bogus purchases which was confirmed by the Tribunal. Subsequently the Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of the Income Tax  Act and penalty of INR 38,716/- was levied on the Appellant under Section 271(1)(c) of the Act being tax on 12.5% of alleged bogus purchases.

ITAT directed the Assessing Officer to compute short credited interest under section 244A  of the Income Tax Act.  Sale without Purchase is Invalid, No Addition to Income Tax Act: ITAT [Read Order] Bhartiya International Ltd vs Dy. Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 114 The Delhi bench of the Income Tax Appellate Tribunal (ITAT) observed that Sale Without Purchase is Invalid, as it was evident that the accounting is complete only by taking into account both sides of the transactions. The ITAT deleted the addition under the Income Tax Act, of 1961 on Bogus Purchase. Reopening of Assessment on Allegation of Bogus Purchase based on Statement: Supreme Court Dismisses SLP [Read Order] THE PR. COMMISSIONER OF INCOME TAX-1 SURAT vs SURYA IMPEX CITATION: 2023 TAXSCAN (SC) 294 The Supreme Court dismissed the Special Leave Petition (SLP) which arose out of the impugned final judgment and order passed by the High Court of Gujarat wherein the Challenge against reopening of assessment on allegation of bogus purchase based on statement.

M/S Surya Impex, the petitioner challenged the high court order wherein the question was whether cross-examination is vital for making addition on the allegation of bogus purchase? No Corroborative Evidence to show Bogus Purchase: ITAT sets aside Income Tax Addition [Read Order]  Yashaswi Fish Meal and Oil Company vs Deputy Commissioner of Income-tax CITATION: 2023 TAXSCAN (ITAT) 2593 ITAT observed that the Assessing Officer(AO) has made the addition only based on the sworn statement of the managing partner. Without rejecting the books of accounts the AO cannot make any additions towards bogus purchases. The Tribunal deleted the addition made on the premise of bogus purchase in all these assessments. “As there was no corroborative material to support the addition and the statement has already been retracted, the addition based on no supporting evidence cannot be made.”, the bench concluded. Partial relief of Disallowance u/s 40 40A(3) on Bogus Purchase without seeking Remand Report: ITAT upholds Partial relief as no Additional Evidence is taken [Read Order] Income Tax Officer vs Balajay Infrastructure Pvt. Ltd CITATION: 2023 TAXSCAN (ITAT) 2582 The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has upheld the partial relief as no additional evidence was taken while dealing with partial relief of disallowance under Section 40A(3) of the Income Tax Act 1961 on bogus purchase without seeking remand report. The A.O. had received the information from the Investigation Wing that it had conducted a search in the case of Tricon Construction on 5.12.2012.

Tricon Construction had obtained bogus bills for material and labour. The Investigation Wing had identified bogus billers and these bogus billers had admitted under oath that they had not rendered any actual service or supply of goods against the payment received. Failure of Assessee to provide Evidence/Convincing reply about Goods received: ITAT made disallowance of 5% on account of Profit element [Read Order] New Sushama Industries vs ITO CITATION: 2023 TAXSCAN (ITAT) 2492 The Single-member bench comprising of Rajesh Kumar (Accountant member) held that in the case of bogus purchases the entire purchases cannot be added to the income and only the profit element embedded in the said purchases can be added. In similar type of cases, the various Coordinate Benches have held that where the assessee has obtained bogus bills of purchases and the purchases were in fact made from the other suppliers i.e grey market thereby making the savings in respect of Value Added Tax (VAT) and other additional expenses and therefore, the assessee earns more than the normal profits.  ITAT deletes addition made towards bogus Interest Expenditure based on Sworn Statements as well as Reconciliation Statements filed by Assessee during  Course of Assessment Proceedings [Read Order] M/s. Tulsian Refinery Pvt. Limited vs DCIT CITATION: 2023 TAXSCAN (ITAT) 2606

The Income Tax Appellate Tribunal (ITAT), Chennai  bench deleted the addition made towards the bogus interest expenditure based on sworn statements as well, as reconciliation statements filed by the assessee during the course of assessment proceedings. The tribunal observed that the additions are based on sworn statements as well as reconciliation statements filed by the assessee during the course of assessment proceedings. Also the KRPL’s claim qua bogus purchases has been accepted for all the years except for AY 2016-17 by the Income Tax Settlement Commission. Accommodation Entries provided in form of bogus Purchases from Dummy Companies: ITAT upholds Addition u/s 69C of Income Tax Act AAA Teleshopping Pvt. Ltd vs The ACIT Circle CITATION: 2023 TAXSCAN (ITAT) 2458 The Delhi bench of the Income Tax Appellate Tribunal (ITAT) upheld the addition under Section 69C of the Income Tax Act, 1961, and held that the accommodation entries provided in the form of bogus purchases from the dummy companies. The Assessing Officer made an addition of said amount in the hands of the assessee under Section 69C of the Income Tax Act by observing that Shri Himanshu Verma and his associates Shri Anjani Kumar have admitted in their statements that the said two companies were controlled by Shri Himanshu Verma and he was using these companies for providing bogus accommodation entries to various persons including the assessee. Inability to Produce parties of Bogus Purchases and Requesting AO for Additions to Returned Income: ITAT restricted Addition from 12.5% to 6% [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) restricted the addition from 12.5% to 6% due to the inability to produce the parties of bogus purchases and requests made to the Assessing Officer for additions to the returned income. In the cases relied upon by the Assessee, the Co-ordinate Benches of the Tribunal restricted the addition qua bogus purchases at 6 to 7 % of the sales, hence, considering the peculiar facts and circumstances, the bench deemed it appropriate to direct the Assessing Officer to restrict the addition being profit embodied, from 12.5% to 6% of the alleged purchases made. Consequently, the addition is confirmed only to the extent of 6% of the purchases made. Application of Section 147 of Income Tax Act by AO having Tangible Material in Possession indicating Escapement of Income Chargeable to Tax is Valid: ITAT [Read Order] M/s. Lakshman Tools Pvt. Ltd vs Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 2231 The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the application of Section 147 of the Income Tax Act 1961, by an Assessing Officer (AO) having tangible material in possession indicating escapement of Income chargeable to tax is valid.

The returns filed by the assessee were initially processed under section 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer received information from the Investigation Wing of the Department indicating that certain purchases shown by the assessee in the relevant assessment years were not genuine, as, purchases are in the nature of accommodation entries availed by the assessee through bogus purchase bills from hawala traders. No Assessment Order shall be passed u/s 153C of Income Tax Act when Seized documents did not establish any correlation with that Assessment Year :ITAT [Read Order] Zoom Developers SEZ vs A.C.I.T CITATION: 2023 TAXSCAN (ITAT) 2211 The Income Tax Appellate Tribunal (ITAT) Delhi bench held that no assessment order should be passed under Section 153C of the Income Tax Act, 1961 when seized documents did not establish any correlation with that assessment year.  On the basis of the aforementioned satisfaction, the Assessing Officer initiated proceedings u/s 153C of the Act and completed proceedings by making addition on account of commission on accommodation entries on account of bogus purchases and bogus sales. Penalty u/s 271(1)(c) of Income Tax Act is not Leviable on Estimated Addition: ITAT [Read Order] L.S. Diamonds vs The CIT(A) CITATION: 2023 TAXSCAN (ITAT) 1746 The Income Tax Appellate Tribunal (ITAT) Mumbai Bench held that penalty under section 271(1)(c) of Income Tax Act, 1961 is not leviable on estimated addition. The assessee L.S. Diamonds is engaged in the business of export of diamonds. During the assessment proceedings  Assessing officer made an addition on account of bogus purchases alleged to have been made by the assessee. The Assessing Officer made an addition at 100% of the value of alleged bogus purchases and the same was reduced to 5% by the CIT(A) in assessment year 2009-10 and 3% to 5% in Assessment year 2007-08.

Manoj Kumar Sinha, Departmental representatives argued that additions have been made on the basis that the assessee has booked bogus purchases in the books of account which has resulted in furnishing inaccurate particulars of income. Reopening of Assessment. u/s 147 of Income Tax Act not Valid in Absence of an Allegation Failure to Disclose Material Fact: Delhi HC [Read Order] PR. COMMISSIONER OF INCOME TAX vs DSC LTD CITATION: 2023 TAXSCAN (HC) 1143 The Delhi High Court has held that reopening of assessment under section 147 of the Income Tax Act, 1961 is not valid in the absence of an allegation of failure to disclose a material fact. The AO was also not satisfied with the claim for purchases made from an entity going by the name, Aggarwal Iron & Steel Co. to the tune of Rs.8,79,55,368/-.  These were also categorized by the AO as bogus purchases.  Only Profit Element of Bogus Purchase can be Added to Taxable Income Under Income Tax Act when Assessee Reconciled the Stock: Bombay HC [Read Order] The Bombay High Court has held that only the profit element of a bogus purchase can be added to taxable income under the Income Tax Act, 1961 when the assessee reconciled the stock.

The Tribunal has observed that the A.O. has not doubted the sales made by the assessee against the purchases and the assessee has reconciled the quantitative details of stock as per sale invoices.  The A.O. has observed that the respondent has purchased material from someone else while bogus bills were organized by these Hawala Traders. Gross Profit Rate of 5% against 0.69% Made on Addition of Bogus Purchase is too High: Bombay HC Remands Matter to ITAT [Read Order] Principal Commissioner of Income Tax vs Nitin Ramdeoji Lohia CITATION: 2023 TAXSCAN (HC) 1118 The Bombay High Court has held that the gross profit rate of 5% against 0.69% made on the addition of bogus purchases is too high and remanded the matter to Income Tax Appellate Tribunal (ITAT) to adjudicate it. Nitin Ramdeoji Lohia, the Respondent assessee is engaged in the business of trading in industrial oil and transport services. A return of income was filed by the assessee declaring a total income of Rs.4,47,970/-. The Sales Tax Department of the Government of Maharashtra provided information to the Assessing Officer (A.O.) giving names, addresses and details of persons, who had provided entries of bogus purchases. AO issues notice u/s 148A(b) of Income Tax Act without Furnishing Relevant Material against alleged Bogus Purchases: Delhi HC directs Fresh Adjudication [Read Order] RAJNISH YADAV vs INCOME TAX OFFICER CITATION: 2023 TAXSCAN (HC) 1112 The Delhi High Court directed a De novo adjudication against the notice under Section 148A(b) of the Income Tax Act, 1961 issued by the Assessing Officer (AO) without furnishing the relevant material or information against the alleged bogus purchases.

The petitioner was accused of engaging in bogus purchases. The alleged value of these bogus purchases is set at Rs. 11,98,577/-. In relation to this matter, the petitioner received a notice dated 29.03.2023 under Section 148A(b) of the Income Tax Act. Profit from Bogus Purchases can be added to Taxable Income: ITAT [Read Order] DCIT vs Parth Developers CITATION: 2023 TAXSCAN (ITAT) 1674 The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that the profit from bogus purchases can be added to taxable income. The Tribunal had held that though the purchases were made from bogus parties, nevertheless, the purchases themselves were not bogus as the entire quantity of opening stock, purchases, and sales were tallying, and hence, only the profit margin embedded in such amount would be subjected to tax.

Addition Made Purely on Estimation Basis , No Penalty shall be Leviable u/s 271(1)(c) of Income Tax Act : ITAT Deletes Penalty [Read Order] Fancy Diamonds India Pvt. Ltd. vs DCIT CITATION: 2023 TAXSCAN (ITAT) 1665 The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the penalty levied under Section 271(1)(c) of the Income Tax Act,1961 is liable to be canceled in the instant cases since the additions have been made on an estimated basis. The Assessing Officer (AO) reopened assessment for all the years under consideration by issuing notices under Section 148 of the Income Tax Act on the basis of information that the assessee made bogus purchases by availing accommodation entries from Bhanwarlal Jain group. Hence, concluded the assessments by estimating profit from alleged bogus purchases at 12.5%. ITAT upholds Addition made on 5% Estimate basis on Bogus Purchase [Read Order] DCIT vs Silmohan Gems Private Limited CITATION: 2023 TAXSCAN (ITAT) 1553 The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the addition made by Commissioner of Income Tax (Appeals)[CIT(A)] on a 5% estimated basis on bogus purchase. Upon reviewing the details, the tribunal highlighted that it is primarily the responsibility of the taxpayer to provide evidence supporting the purchases made from the mentioned party.

However, the taxpayer failed to present the party in question and provide substantiation for the purchases, despite the goods being recorded in the stock register. Additionally, it was noted that the goods were actually acquired from a different source, while accommodation bills were obtained solely from M/s Millennium Stars. Addition made to Income which was Already Declared in Income Disclosure Scheme : ITAT directs Re-adjudication [Read Order] Ravi Kedia vs The Income Tax Officer CITATION: 2023 TAXSCAN (ITAT) 1324 The Raipur bench of the Income Tax Appellate Tribunal (ITAT) directed re-adjudication to the assessing officer for making the addition to Income that was already declared in Income Disclosure Scheme,2016. ITAT  observed that restricting the addition to the extent of the difference between the gross profit of genuine purchases transactions and gross profit of bogus purchases transactions would be reduced on a pro-rata basis, i.e to the extent such gross profit was attributable to bogus/unverified purchase transactions.

A single-member bench comprising Ravish Sood(Judicial) held that the assessee had declared part of the bogus purchases/gross profit of his regular business transactions in the IDS and the same could not have been once again subjected to tax by the Assessing officer and directed re-adjudication to the assessing officer while allowing the appeal filed by the assessee. Carat Wise Stock Maintenance is Sufficient Compliance to Genuine Purchases in Diamond Trade :ITAT Deletes Addition [Read Order] DCIT vs Asian Star Company Ltd. CITATION: 2023 TAXSCAN (ITAT) 1290 The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition holding carat wise stock maintenance was sufficient compliance to prove genuine purchases in diamond trade. The Bench  held that the alleged bogus purchases show gross profit higher than the regular gross profit shown by the assessee, no further addition was required to be made in the hands of the assessee and the amount invested in acquiring the bogus purchases should also be considered as an addition, because the only addition was disallowance of bogus purchases, no further addition was warranted. ITAT Disallows 25% of Alleged Bogus Purchase on Account of Inflation of Purchase Price [Read Order] Sumer Chand Jain vs ITO CITATION: 2023 TAXSCAN (ITAT) 1220 The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has disallowed 25% of the alleged bogus purchase on account of inflation of purchase price. The tribunal following the decision of Vijay Protein Ltd. and Sanjay Oil Cake Industries held that the lower authorities instead of treating the entire impugned purchases as bogus and adding the same to the income of the assessee had rightly restricted the addition to 25% of such purchases. Works by Government Agencies would not Complete if Entire Purchases were held as Non-genuine: Bombay HC upholds  ITAT’s order on Bogus Purchases [Read Order] Pr.

Commissioner of Income Tax vs Vishwashakti Construction CITATION: 2023 TAXSCAN (HC) 817 In a recent ruling, a Division Bench of Bombay High Court while dismissing the appeal, upheld the order of the Income Tax Appellate Tribunal (ITAT) that the purchases from ten parties were bogus and sustaining that addition to the extent of 12.5% of the amount of the disputed purchases. No Income Tax Penalty if Addition is Made on Estimated Basis on Alleged Bogus Purchase: ITAT [Read Order] M/s. Goldstar Finvest Pvt. Ltd. vs The Assitt. Commissioner of Income Tax CITATION: 2023 TAXSCAN (ITAT) 980 The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that no income tax penalty could be imposed on an alleged bogus purchase if the addition was made on an estimated basis. The revenue rather made the addition on the basis of information received from the Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases, the Bench further observed. Income Escaped for Assessment not Represented “in the form of an asset”: ITAT quashes Addition u/s 153A Towards Bogus Purchase and Disallowance of Salary Viraj Profiles Limited vs DCIT CITATION: 2023 TAXSCAN (ITAT) 961 The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has quashed the addition under Section 153A of the Income Tax Act, 1961 towards bogus purchase and disallowance of salary as the income escaped for assessment was not represented in the form of an asset.

“What was assessed in this year under Section 153A of the Income Tax Act was the addition towards alleged bogus purchases and disallowance of salary/professional fee under Section 37 of the Income Tax Act. It was not shown that the income, if any, generated out of these two disallowances is represented in the form of asset”, the Income Tax Appellate Tribunal Bench further observed. Bogus Purchases Bills without actual delivery of goods: ITAT directs AO to charge 6.5% Gross Profit Rate [Read Order]  Babulal Hajarimalji Jain, Vs Income Tax Officer 19(1)(2), CITATION: 2023 TAXSCAN (ITAT) 880 The Mumbai bench of Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer (AO) to charge 6.5% Gross Profit Rate on the bogus purchase bills. Due to information from the Sales Tax Department and the Directorate General of Income Tax (Investigation) [DGIT (Inv.)] that “some businessmen have engaged in accepting bogus purchase bills from bogus hawala bill providers and the assessee is one of such beneficiaries of bogus purchase bills,” the assessment was reopened during the assessment year. This was done by starting the proceedings under sections 147 or 148 of the Income Tax Act, 1961. Penalty u/s 271(c) of Income Tax not leviable in Absence of Proper Show Cause Notice to the Assessee: ITAT [Read Order] Zile Singh Kashyap vs ITO CITATION: 2023 TAXSCAN (ITAT) 717 The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the penalty is not leviable in absence of proper show cause notice to the assessee. It was noticed by AO that the assessee received bogus entries of Rs.15,00,000/- on different dates during the Financial Year 2010-11. A perusal of data from AST Systems reveals that though the assessee had filed a return of income for A.Y. 2011-12 the bogus purchases/accommodation entries of Rs.15,00,000/- was not disclosed while preparing taxable income.

Mere Non-Production of Original Bills will not make Purchases ‘Bogus’: ITAT [Read Order] Entire Industries vs ITO CITATION: 2023 TAXSCAN (ITAT) 708 The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has recently held that mere non –production of original bills would not make purchase Bogus. The tribunal of Suchitra Kamble, Judicial Member, while allowing the appeal filed by the assesee, observed that assessee through its bills has established that there is a co-relation between the sales and the purchase and merely not producing original bills cannot make the purchase bogus. Initiating Penalty u/s 271(1)(c) of Income Tax Act without Valid Notice is Invalid: ITAT [Read Order] Mrs. Vaishali Kamlesh Bavishi vs National Faceless Appeal Centre (NFAC) CITATION: 2023 TAXSCAN (ITAT) 658 The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ), ruled that initiating penalty under Section 271(1)(c) of the Income Tax Ac, 1961 without valid notice is invalid. On the basis of the assessment framed by the AO under section 143(3) of the Income Tax Act, 1961 making addition of Rs.2 lakhs being the 25% of the bogus purchases made by the assessee to the tune of Rs.11 lakhs which was added to the total income of the assessee under section 69C of the Income Tax Act, penalty proceedings under section 271(1)(c) of the Income Tax Act were initiated.

Declining the contentions raised by the assessee, the AO proceeded to levy the penalty of Rs.77,600/- being 100% of the tax sought to be evaded. The Bench comprising Prashant Maharishi, Accountant Member and Kuldip Singh, Judicial Member observed that “We are of the considered view that since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Income Tax Act by issuing the valid notice, the penalty levied by the AO and confirmed by the CIT(A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice.” Entire Bogus Purchases cannot be Disallowed when Sales are Not Disputed: ITAT deletes Penalty based on Estimated Addition [Read Order] Mukesh Shaligram Sharda vs Income-tax Officer CITATION: 2023 TAXSCAN (ITAT) 617 The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it, while deleting penalty based on estimated addition, held that entire bogus purchases cannot be disallowed when sales are not disputed.

“Heard both the sides and perused the materials on record. It is undisputed fact that impugned penalty was levied only on estimated addition. The Assessing Officer had made addition of entire bogus purchases, however, did not doubt the sales made against such purchases. We observe that the Tribunals in various decisions have held that where sales are not disputed, entire alleged bogus purchases cannot be disallowed and only the gross profit on the alleged purchases to be disallowed.” Disputed Income Tax Calculation based on FAQ from CBDT Circular invalid if Specific Provision exists in Act: Bombay HC remands matter [Read Order] Agarwal Industrial Corporations Limited vs Union of India CITATION: 2023 TAXSCAN (HC) 338 A Division Bench of the Bombay High Court has recently remanded an income tax matter to the Principal Commissioner, while the impugned order was quashed and set aside as the calculations were based on an FAQ from a Central Board of Direct Taxes (CBDT) Circular when specific provisions for determination of the same existed in the Income Tax Act, 1961.

The return of income was fled by the petitioner declaring a total income of Rs.93.92 Lakhs. Subsequently, the assessment was completed under section 143(3) of the Income Tax Act. Reassessment proceedings were initiated against the petitioner and the income was reassessed at Rs. 3.56 Crores after making an addition of 100% of alleged bogus purchases under section 68 of the Income Tax Act. Income Tax: No Penalty where Addition is made on Estimated Basis, rules ITAT [Read Order] V. K. Ispat & Alloys Vs ITO-17(3)(5), Mumbai CITATION: 2023 TAXSCAN (ITAT) 441 The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) recently ruled that no penalty where addition is made on an estimated basis. The assessee’s case was reopened based on the investigation made by the Sales Tax Department, wherein it was found that the assessee was a beneficiary of bogus purchases from various hawala parties. The Coram comprising judicial members’ Shri Prashant maharishi, am and Ms. Kavitha Rajagopal observed that “We are of the view that the penalty under section 271(1) (c) of the Income Tax Act, 1961 cannot be levied where the addition is made on an estimated basis. We hereby delete the penalty levied by the A.O. and find No justification in the order of the ld. CIT (A).

The appeal filed by the assessee was allowed. ITAT Confirms Addition in respect of Commission Earned from 54 Paper Companies [Read Order]  Praveen Kumar Jain vs Dy. Commissioner of Incometax CITATION: 2023 TAXSCAN (ITAT) 397 The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has confirmed the addition in respect of the commission earned from 54 paper companies. The Division Bench of S Rifaur Rahman (Accountant Member) and Kuldip Singh (Judicial Member) confirmed the addition and dismissed the appeal observing that, “It is proved on record that assessee being into the business of providing accommodation entries for an unsecured loan, share application money, long-term capital gain, for bogus sales and purchases, for entries of turnover trading and accommodation entries for facilitating exempt income from bogus LTCG in penny stock by floating paper companies and by charging commissions, which is nothing but a fraud on the state exchequer,” “In other words, it is an illegal business of money laundering.

Assessee was also into providing accommodation entry in the form of circular transactions by securing bogus purchase bills of various natures like capital goods, trading raw materials, etc., then converting the same into a cheque and RTCG from one dummy concern to the main beneficiary or in the sister concern in the form of share application money.” Remand back of matter to AO to calculate Disputed Tax and not Fresh Adjudication: Bombay HC quashes action of PCIT [Read Order] Agarwal Industrial Corporations Limited vs Union of India CITATION: 2023 TAXSCAN (HC) 338 In a recent ruling the Bombay High Court quashed the action of the Principal Commissioner of Income Tax ( PCIT ) as the remand back of the matter to the Assessing Officer (AO) was to calculate disputed tax and not fresh adjudication.

The Return of income was filed by the petitioner, Agarwal Industrial Corporations Limitedand subsequently, the assessment was completed under section 143(3) of the Income Tax Act, 1961. The Reassessment proceedings were initiated against the petitioner and the income was reassessed after making an addition of 100% of alleged bogus purchases under section 68 of the Income Tax Act.  The Tribunal partly allowed the appeal of the petitioner and remanded the matter to the to the file of the Assessing Officer. The petitioner filed declaration in Form-I under Direct Tax Vivad se Vishwas Act with Rules, 2020 framed thereunder in respect of 25% addition of alleged bogus purchase. Income Tax Penalty u/s 271(1)(c)cannot be Levied based on Information from Outside Agency/ Dept: ITAT [Read Order]BShri Poonam K.Prajapati 81/83 vs ITO – 19(2)(5) Matrumandir CITATION: 2023 TAXSCAN (ITAT) 291 In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that income tax penalty under section 271(1)(c) cannot be levied based on Information from outside agencies/departments. The Assessing Officer (AO) received the information from DGIT (Inv) that the assessee has obtained accommodation entries/bogus purchases bills from the six parties as per the information from Sales Tax Department.

The AO has reason to believe that there is income escaping the Assessment and the assessee is one of the beneficiaries and issued notice under section 148 of the Act. The AO found that the assessee has obtained accommodation entries/ bogus purchase bills from six parties aggregating to Rs.63,52,693/- and AO has issued notice u/s 133(6) of the Act on the six none genuine partiesand the said notices were returned unserved by the postal authorities. No Income Tax Addition When Expenses are Shown under WIP and not added in Trading Account: ITAT [Read Order] Vipin Madanlal Thapar 502 vs DCIT CITATION: 2023 TAXSCAN (ITAT) 168 In this case, the AO did not agreed with the submission of the assessee and stated that it has been established by the Sale Tax Department that the parties from whom the purchases were made by the assessee were bogus. Therefore, the A.O disallowed the amount as purchases made from the aforesaid parties. The Bench observed that “We have considered the judicial pronouncements referred by the Counsel wherein it is held that since the expenses were shown by the assessee under the head work in progress and has not been reflected in the trading account, therefore, no addition can be made.”

Payment of TDS with Interest to ensure No Loss to Revenue: ITAT deletes Penalty [Read Order] Corrtech International Pvt. Ltd vs Assistant Commissioner of Income Tax CITATION: 2022 TAXSCAN (ITAT) 1781 The Ahmadabad Bench of the Income Tax Appellate Tribunal ( ITAT ), deleted penalty as there was payment of TDS with interest to ensure no loss to revenue. The Counsel also submitted that the addition on account of bogus purchase was on ad-hoc basis and cannot be the criteria for levying the penalty. The Counsel for the Revenue submitted that the assessee failed to bring the parties before the Assessing Officer and to controvert the findings of the Assessing Officer that sales shown was bogus in nature. Thus, the penalty imposed by the Assessing Officer was correct and there is no need to interfere with the findings of the CIT(A)