Case Law Details
Virani Exports Vs ITO (ITAT Surat)
The Income Tax Appellate Tribunal (ITAT), Surat, partly allowed the assessee’s appeal by restricting the addition on alleged bogus purchases to a profit estimation instead of sustaining the entire purchase amount as income. The assessee’s case was reopened under Sections 147 and 143(3) of the Income Tax Act to examine alleged accommodation entries obtained from the Bhanvarlal Jain Group. During assessment, the Assessing Officer (AO) treated purchases of ₹5,95,728 from M/s Ankita Exports, an entity of the Bhanvarlal Jain Group, as bogus and added the entire amount to the assessee’s income.
The Commissioner of Income Tax (Appeals) upheld the addition. Before the Tribunal, the assessee contended that only the profit element embedded in the purchases could be taxed and relied on Gujarat High Court decisions. The Tribunal referred to various Gujarat High Court judgments, including Surya Impex, Premkumar B. Rathi, Simit P. Sheth, Bholanath Poly Fab Pvt. Ltd., and Kesari Exports, which consistently held that only the profit element in bogus purchases from accommodation entry providers is taxable, not the entire purchase value.
Following this settled position, the Tribunal directed the Assessing Officer to estimate the profit on the disputed purchases by applying a net profit rate 5% higher than the assessee’s normal net profit rate for the relevant year. Accordingly, the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT SURAT
This appeal is filed by the assessee against the order of the Commissioner of Income Tax, Appeal, ADDL/JCIT (A)-1, Delhi, (in short ‘the CIT(A)’), dated 29.09.2025 for the Assessment Year 2011-12 in the proceedings under Section 147 read with Section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The brief facts of the case are that the assessee had filed return of income for A.Y. 2011-12 on 22.09.2011 declaring total income of Rs.19,115/-. The case of the assessee was reopened to examine bogus accommodation entry taken from one Shri Bhanvarlal Jain Group. In the course of assessment, an addition of Rs.5,95,728/- was made in respect of bogus purchase made from M/s. Ankita Exports, an entity of Shri Bhanvarlal Jain Group. The assessment was completed u/s.147 r.w.s. 143(3) of the Act on 21.12.2018 at total income of Rs.6,14,818/-.
3.Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee is second appeal before us.
5. Shri Hiren Vepari, Ld. AR appearing for the assessee submitted that the Ld. CIT(A) was not correct in confirming the addition of entire purchase of Rs.5,95,728/- made from M/s. Ankita Exports, alleged to have been operated by Shri Bhanvarlal Jain Group. He submitted that the disallowance in the case of unexplained purchases should have been restricted to 6% only, as held by Hon’ble Gujarat High Court in the case of PCIT vs. Surya Impex, [2023] 451 ITR 395 (Gujarat).
6. Per contra, Shri Ajay Uke, Ld. Sr. DR supported the orders of lower authorities.
7. We have considered the rival contentions. The AO had treated the entire purchase of Rs.5,95,728/- made from M/s. Ankita Exports as income of the assessee. Apart from the case law relied upon by the assessee, in the case of Premkumar B. Rathi (59 com 203 (Guj.)), Hon’ble Gujarat High Court had upheld the disallowance of 10% of bogus purchases, as confirmed by the Tribunal. Similarly, in the case of Simit P. Sheth (38 taxmann.com 385 (Guj)), the Hon’ble Gujarat High Court had held that only profit element embedded in purchases made from accommodation entry providers could be added and upheld the addition of 12.5% sustained by the Tribunal. In the case of Bholanath Poly Fab P. Ltd. (40 taxmann.com 494 (Guj,)) also, the Hon’ble Gujarat High Court had reiterated that only profit margin embedded in bogus purchases could be subjected to tax and not the entire purchases. Similarly, Hon’ble Gujarat High Court in the case of Kesari Exports, (174 taxmann.com 162) had upheld the addition of 6% of bogus purchases made from accommodation entry provider.
8. Considering the consistent view of the Hon’ble Jurisdictional High Court that only profit margin embedded in the bogus purchases are required to be taxed, it will be reasonable to restrict the addition in respect of purchases made from M/s. Ankita Exports, @ 5% higher than the GP disclosed by the assessee in the current year. Accordingly, the Assessing Officer is directed to estimate the profit out of the purchase of Rs. 5,95,728/-made from M/s. Ankita Exports by applying the net profit rate of 5% higher than the normal net profit rate of the assessee for the current year.
9. In the result, the appeal of the assessee is partly allowed.
This Order pronounced on 09/06/2026
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