Gujarat High Court Upholds 6% Addition for Bogus Purchases - Revenue Appeal Dismissed

The Hon'ble High Court of Gujarat in Principal Commissioner of Income Tax 1 v. Rajesh Suresh Chopra, R/Tax Appeal No. 913 of 2024, decided on June 17, 2025, held that the substantial questions of law proposed by the appellant in the appeal stood already answered by the coordinate bench judgment. The Court observed that the learned advocate for the Appellant-Revenue had conceded that the issue was no more res-integra pursuant to the judgment of the Coordinate Bench in Principal Commissioner of Income Tax Versus Pankaj K. Choudhary. The Court noted that in respect of bogus purchases, the addition at the rate of 6% of bogus purchases is fair and reasonable. The appeal was accordingly dismissed as meritless with no substantial question of law arising from the facts of the present case.

Facts of the Case

The Respondent-assessee, Rajesh Suresh Chopra, filed his return of income for Assessment Year 2012-13 on July 26, 2012 declaring total income of Rs. 1,76,510. The return of income was processed under Section 143(1) of the Income Tax Act on March 6, 2013. The Assessment order under Section 143(3) read with Section 147 of the Act was passed on November 13, 2019, assessing total income at Rs. 118,84,64,330 after making addition of Rs. 116,49,88,059 on account of accommodation entry of purchases and Rs. 2,32,99,761 on account of unaccounted cash paid as commission of such accommodation entry at the rate of 2% of the amount of accommodation.

Being aggrieved by the Assessment order, the Respondent preferred an appeal before CIT (Appeals), who, vide order dated March 29, 2023 dismissed the appeal of the Respondent. Being aggrieved by the order passed by the appellate authority, the assessee preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal, by the impugned order dated March 28, 2024, partly allowed the appeal of the assessee and restricted the addition made by the Assessment Officer of 100% to 6% of the bogus purchases.

The case involved allegations of wrongful availment of Input Tax Credit through issuance of bogus invoices connected to the Bhanwarlal Jain Group companies which were engaged in providing accommodation entries. The Principal Commissioner of Income Tax filed the present Tax Appeal under Section 260A raising substantial questions of law challenging the Tribunal's decision to delete the addition made by the Assessing Officer at the rate of 100% of bogus purchases amounting to Rs. 116,49,88,059. The Revenue was aggrieved by the Tribunal's decision to restrict the addition to only 6% instead of the full 100% addition made by the Assessing Officer for what they claimed were sham transactions fabricated through bogus paper concerns.

Issue

Whether the Hon'ble Income Tax Appellate Tribunal was justified in restricting the addition from 100% to 6% of bogus purchases in cases involving accommodation entries provided by the Bhanwarlal Jain Group companies.

Held by the Court

The Hon'ble High Court of Gujarat in Principal Commissioner of Income Tax 1 v. Rajesh Suresh Chopra, R/Tax Appeal No. 913 of 2024, decided on June 17, 2025, held that:

• Court observed that at the outset, learned advocate Mr. Karan Sanghani for the Appellant-Revenue had conceded to the fact that the issue was no more res-integra pursuant to the judgment of the Coordinate Bench of the Court. The Court noted that the Coordinate Bench (Coram: Hon'ble Mr. Justice N.V. Anjaria and Hon'ble Mr. Justice Niral R. Mehta) in case of Principal Commissioner of Income Tax Versus Pankaj K. Choudhary dated March 7, 2023 rendered in Tax Appeal No. 617 of 2022 had partly allowed the appeal of the Revenue wherein it was held that in respect of bogus purchases, the addition at the rate of 6% of bogus purchases is fair and reasonable.

• Court held that the view taken and the conclusion arrived at by the appellant Tribunal were based on material before it and after analysing the facts and figure available before it. The Court observed that when the Tribunal had thought it fit to reduce the disallowance at 6% from 12.5%, the Tribunal had before it the facts which were duly analysed by it. The Court ruled that no interference was called for in the said conclusion and findings of the Tribunal in the present appeal.

• Court further held that another weighing aspect was that Tax Appeal No. 674 of 2022 in Principal Commissioner of Income Tax 1, Surat vs. M/s. Surya Impex which came to be decided by the co-ordinate Bench on January 16, 2023 dealt with the very issue of accommodation entries provided by Bhanwarlal Jain Group. The Court noted that the group involved in the said case was the same group who was saddled with allegations of providing accommodation entry to the assessee, and in M/s. Surya Impex the court held in favour of the assessee. The Court concluded that no question of law much less any substantial questions of law arose in the facts of the present case, and the appeal was accordingly dismissed as meritless.

Relevant Sections

• Section 260A of Income Tax Act, 1961

• Section 143(1) of Income Tax Act, 1961

• Section 143(3) of Income Tax Act, 1961

• Section 147 of Income Tax Act, 1961

• Sections 68 and 69C of Income Tax Act, 1961

Pari Materia / Cases Referred

Principal Commissioner of Income Tax Versus Pankaj K. Choudhary, Tax Appeal No. 617 of 2022, decided on March 7, 2023 - The Gujarat High Court held that in respect of bogus purchases, the addition at the rate of 6% of bogus purchases is fair and reasonable.

Principal Commissioner of Income Tax 1, Surat vs. M/s. Surya Impex, Tax Appeal No. 674 of 2022, decided on January 16, 2023 - The Gujarat High Court dealt with accommodation entries provided by Bhanwarlal Jain Group and held in favour of the assessee.

N.K. Industries Ltd case - Referenced regarding restricted addition to 25% and principles of Sections 68 and 69C of Income Tax Act.

PCIT vs. Premlata Tekriwal  - Calcutta High Court case involving similar issue of purchase from bogus concern to suppress profits where entire amount of bogus expenditure was to be added to income.

N.K. Proteins v. Dy. CIT [2017]  - Supreme Court case on unexplained expenditure (bogus purchase) where SLP filed by assessee was dismissed.

______________________________________________________________

DISCLAIMER: The views expressed are strictly of the author and NLF Tax and Legal Advisory. The contents of this article are solely for informational purposes and for the reader’s personal non-commercial use. It does not constitute professional advice or a recommendation of the firm. Neither the author nor the firm and its affiliates accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing, and we reserve the legal right for any infringement on usage of our article or newsletter without prior permission