INCOME TAX OFFICER, MUMBAI vs. R MEHTA & CO, MUMBAI

10. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.”

“7.2. The submission details furnished by the assessee and also the materials available on record have been carefully perused and considered. From the above discussions, the followings facts emerge

The Income tax Department has conducted search & seizure action in the case of the Group concerns of Rajendra Jain/Dharmichand Jain and conclusively proved that these parties are engaged in the business of providing accommodation entries only, as can be clearly seen from the discussions in the above paragraphs. The parties are issuing bills without delivering any goods and services.

(ii) Evidently, the assessee had adopted a modus operandi to reduce its true profits by inflating its expenses including purchase expenses by taking accommodation entries from such parties.

(ii) Thus, in the books of accounts of the assesse, the purchases to the extent made from the above said parties remained unverifiable and hence I arrive at a conclusion that the purchases shown by the assessee in the books of accounts are inflated and bogus purchases are debited to trading account to suppress the true profits to be disclosed to the department.

(iv) The onus was upon the assessee to establish the genuineness of purchases made by the assessee.

(v) Mere filing of evidences in support of purchases and payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct.

8. This issue has been in the fray for long and has now seen the face of Hon. Apex Court also in the case of N. K. Proteins Ltd. vs DCIT in Tax Appeal No. 240-242 of 2003 dated 20.06.2016 (against whose decision the SLP filed by the assessee is dismissed by Hon'ble Supreme Court vide order dated 16.01.2017.) has concluded that "Once a finding of fact has been given that entire purchases shown on the basis of fictitious invoices and debited in the P & LA/c are established as bogus, restricting the addition to a certain percentage goes against the principles of sections 68 and 69C of the L.T. Act.

9. Findings and conclusion

Therefore on the basis of the findings of facts as discussed above and also following the spirit of the judgment of the Hon'ble High Court which was later confirmed by the Hon. Apex court and considering all the circumstances it is held that the books of accounts maintained by the assessee is manipulated one and unreliable and accordingly the claim of the assessee is rejected and the impugned purchases claimed by the assessee is treated as bogus in entirety leading to addition of Rs. 1,05,64,803/ in the net profit declared by the assessee. Penalty proceedings u/s 271(1)(c) are initiated separately for concealment of income.

10. Subject to the above remarks, the total income of the assessee is computed as under SN Particulars Amount in Rs. 1 Total income as per ROI 4,54,180/- 2 Add: as discussed above 1,05,64,083/- 3 Total taxable income 1,10,18,263/- R Mehta & Co 5. Aggrieved with the aforesaid addition, the assessee preferred an appeal before the Ld.CIT(A), who decided the issue in favour of the assessee, with the following observations:

In this case, there was no discrepancy between purchases shown by assessee and sales declared, the question arises whether the entire amount of bogus purchases could be treated as income of assessee or addition was to be limited to extent of bringing gross profit rate on purchases at same rate as applied in other genuine purchases.

In this connection, reference is invited to the decision in the case of Principal Commissioner of Income-tax-17 v. Mohommad Haji Adam & Co [2019] 103taxmann.com 459 (Bombay) where it was held : 8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra)cannot he applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under— " So far as the question regarding addition of Rs. 3,70,78,125/- as gross profit on sales of Rs. 37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%.Therefore, considering 5.66% of Rs. 3,70,78,125/- which comes to Rs.20,98,621.88 we think it fit to direct the revenue to add Rs. 20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue."

R Mehta & Co 9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order as to costs . Applying the decision in the case of Mohammad Haji Adam (supra), it was held in Principal Commissioner of Income-tax v. Dhondiram Naryan Limbhore [2023]153 taxmann.com 539 (Bombay) that Where there was no discrepancy between purchases shown by assessee and sales declared, entire amount of bogus purchases could not be treated as income of assessee and addition was to be limited to extent of bringing gross profit rate on purchases at same rate as applied in other genuine purchases Applying the ratio in the decisions cited above to the facts of the case it is held that addition cannot be made of the entire purchases from the above parties as bogus. The additions is limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases.

The appellant in its submission has stated as under:

In this connection reference is invited to the decision in the case of Aashna Diamond vs ACIT, Circle-19(1),& Income Tax Officer19(1)(1), dtd 31/12/2024 wherein the same two parties were involved it was held:

6. We noticed that the Ld.CIT(A) has simply placed reliance on the report given by the Investigation Wing. While confirming the addition, the Ld.CIT(A) has observed that the assessee has also not furnished the detailed computation in respect of how these transactions were accounted in his books of accounts. We are unable to understand the same. Had the assessee not accounted for the purchases, the question of disallowance would not have arisen. Thus, we notice that the above said observation of the Ld.CIT(A) is out of context and deserves to be rejected. We further notice that the AO did not find any defect or deficiency in the documents furnished by the assessee to prove the purchases. The report given by the Investigation Wing is a generalized report. Hence, it is the duty of the AO to conduct independent enquiry to disprove the claim of the assessee that the purchases were genuine. The onus on the AO further increases, when the supplier confirms the transactions. However, the AO did not conduct any such independent enquiry. He has simply placed reliance on the investigation report given by the Investigation Department. The Ld.AR also submitted that the AO did not furnish any of those materials to the assessee. The Ld.AR also stated that Shri Rajendra jain has retracted his statement later. He further submitted that it is not shown that the transactions of the assessee have been identified as bogus by Shri Rajendra Jain in his statement. Thus, we notice that the AO has proceeded to disbelieve the purchases made by the assessee on the basis of general statement given by Shri Rajendra Jain.

8. We notice that the Hon’ble Bombay High Court has observed that the decision rendered by the Hon’ble Gujarat High Court in the case of N.K. Industries (supra) will not apply, when the sales recorded by the assessee has been R Mehta & Co accepted. The assessee has also demonstrated before the Ld.CIT(A) that the decision rendered by the Hon’ble Supreme Court in the case of N K Proteins(supra) will not apply to the facts of the present case. We notice that theLd.CIT(A) did not counter the said contentions. On a perusal of the facts prevailing between the present case and the case of N K Proteins, which have been tabulated and extracted by the Ld.CIT(A), we agree with the contentions of the assessee.

9. In the instant case also, the AO has accepted the sales recorded by the assessee. The assessee could not have affected sales without purchasing the goods. The assessee could match the sale with corresponding purchases. Hence, we are of the view that the disallowance of entire amount of purchases is not justified. In that case, as held by the Hon’ble Bombay High Court, the addition should be limited to the extent of bringing the GP rate on alleged bogus purchases to the same rate of other genuine purchases. In the instant case, the assessee has shown that the GP rate on sale of alleged bogus purchases is more than the GP rate of other purchases. Hence, we are of the view that no addition by way of disallowance of alleged bogus purchases is warranted in the facts of the present case. Accordingly, we set aside the order passed by theLd.CIT(A) in both the years and direct the AO to delete the addition of alleged bogus purchases made in both the years. Respectfully, following the decision in the case of Aashna Diamond (supra), the addition should be limited to the extent of bringing the GP rate on alleged bogus purchases to the same rate of other genuine purchases. The appellant submits that the GP on the bogus sales is less than GP on other sales to the extent of 3%. This aspect has not been examined by the AO in the course of assessment. Therefore, the AO is directed to verify the same and recompute the addition as per the decision cited above.

3. CIT vs. Nikunj Eximp Enterprises Pvt. Ltd., Hon’ble Mumbai High Court, of 2010, 17.12.2012.

4. PCIT Vs. Tejua Rohitkumar Kapadia, Hon’ble High Court of Gujarat, of 2017, 18.09.2017.

7. ITA 5877 & 6724/M/2016, Polar Star Vs. ACIT, ITAT Mumbai, dated 05.09.2017

8. ITA 6483/Mum/2018, Hemant m Mehta HUF Vs. ACIT, ITAT Mumbai, 06.12.2019.

7. Per contra Ld. Sr. DR vehemently supported the order of Ld. AO and submitted to reverse the finding of Ld. CIT(A), by restoring the addition/disallowance made by the AO.

Admittedly, the additions in present case have been made under similar circumstances, which have been dealt with and deliberated upon by the Hon’ble 10 R Mehta & Co Mumbai High Court in the case of Principal Commissioner of Income-tax-17 v. Mohommad Haji Adam & Co [2019] 103taxmann.com 459 (Bombay), Principal Commissioner of Income-tax v. Dhondiram Naryan Limbhore [2023]153 taxmann.com 539 (Bombay) and decision of ITAT Mumbai having precisely same issue and facts in the case of Aashna Diamond vs ACIT, Circle- 19(1),& Income Tax Officer19(1)(1), dtd 31/12/2024, wherein the identical transaction have undertaken with the same parties are involved herein. In the instant case also sales of the assessee have been accepted, purchases and finally the return income of the assessee was not tinkered with by the ld. AO. The allegation made by Investigation wing was the sole basis, which is followed and acted upon by the ld. AO, no finding qua any defect in the evidence furnished by the assessee. Even the quantitative information of the assessee was not challenge by the ld. AO. Since, the issue in present case is decided by Ld. CIT(A) following the principles/ratio emerging from decisions/cases referred to supra having identical facts and circumstances, which otherwise could not be contradicted by the revenue by any new /distinguished fact, evidence or decision. Consequently, we concur with the decision of Ld. CIT(A), de hors any infirmity to interfere with.

9. We, thus, reject the contentions raised by the revenue in the present appeal, being devoid and bereft of any merits, as discussed.

Order pronounced in the open court on 30-12-2025.