DCIT CC 4(2), MUMBAI, MUMBAI vs. SHRI GANESH JAGAJI MODI, MUMBAI

The grounds of the appeals are as under:- ITA No. 76 /MUM/2025 (AYs 2009-10) (1) On the facts and in law, the learned CIT(A) erred in sustaining addition of Rs.27,97,902/- being 12.50% of the alleged bogus purchases, without appreciating the fact that the learned AO passed assessment order without properly following the directions of the Hon ITAT of examining the concerned parties and giving opportunity of cross examination to the assessee. (2) On the facts and in law and without prejudice to ground no 1 above, the learned CIT(A) erred in restricting addition to 12.50% of alleged bogus purchases and not to the extent of overall GP rate at the entity level, which is 4.79% in case of appellant. Page 3 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai of alleged bogus purchases and not to the extent of overall GP rate at the entity level, which is 4.79% in case of appellant.

At the outset, it may be stated here that instant appeals are second round of litigation as the appellate orders passed originally have been set aside and remitted back to the Assessing Officer for allowing cross-examination of the witnesses to the assessee and also to make enquiries and investigation in respect of alleged bogus purchases.

Briefly stated facts of the case are that the return of income was filed declaring total income of Rs.17,47,290/-. The original assessment was completed u/s 143(3) of the Act at income of Rs.19,06,230/-. During assessment proceedings, it was found by the AO that the assessee had taken accommodation entries from certain parties to inflate its purchases. On the basis of tangible material available, the case was reopened. Information was received from the Sales Tax Department, Govt. of Maharashtra that the assessee had obtained accommodation purchase entries from M/s. Ananaddeep Metal, M/s. Asian Steel, M/s. Siddhvinayak Steel, M/s. Suraj Tube Corporation, M/s. Valiant Steel Engg. Co. and M/s. Chanchal Tube Corporation aggregating to Rs 2,23,83,218/-.Notices u/s 133(6) of the Act calling for information to verify the genuineness of the purchases from the said six parties were issued which were returned back as 'undelivered' in the case of three आयकर अपीलीय आधकरण INCOME TAX APPELLATE TRIB Page 4 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai parties and reply was not received in the case of balance three parties. The AO asked the assessee to produce the above parties for examination but it failed to comply. As the assessee failed to establish the genuniness of the purchases, the assessment was completed making an addition of Peak credit of Rs.2,15,09,510/- determining total income of Rs.2,34,15,740/-.

1 Aggrieved, the assessee filed appeal before ld.CIT(A) following the ratio laid down by certain High Courts and ITAT sustained the addition to the extent of 12.5% of the purchases made as profit element embedded in it. The assessee went in further appeal before the Hon'ble ITAT which vide order no. ITA No. 1968/Mum/2016 dated 08.09.2017 set aside the order passed by the Ld.CIT(A) and remitted the file back to the AO to pass the assessment order afresh after examining the concerned parties and giving opportunity of cross examination to the assessee.

Accordingly, in the second round of assessment proceedings, following the above directions of ITAT to allow cross examination, the assessee was granted opportunity to present the case in person or through authorized representative. Summons u/s 131 of the Act to the concerned entry providers in question were also issued. However, none आयकर अपीलीय अधिकर INCOME TAX APPELLATE TRIB Page 5 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai of them attended the office and filed any details. The assessee was also asked to produce the parties in person as the purchases were made by him which it failed stating that the parties could not be traced as they might have changed their address. Accordingly, the AO repeated the same additions made earlier by observing that it is a settled position in law that when an expenditure is claimed to have been incurred and debited to the Trading/ profit & loss Account, onus is on the assessee to substantiate and prove the genuineness of the claim and the commercial expediency of incurring such expenditure. Furthermore, the sales tax of the Maharashtra Government has been involved in detailed investigation in the affairs of the dealers who have been issuing bogus purchase bills and as a result thereof, publically displayed a list of nearly 2000 persons/ dealers on the website of the sales tax department, who had admitted to issuing bogus purchase bills. The assessee even after giving reasonable opportunities had not pointed out or produced any material evidence or fact that could prove the genuineness of the purchases. As the assessee had claimed the expenditure on account of purchases, it had to prove their genuineness of their by way of bilateral acts rebutting the circumstantial evidences going against the assessee.. In the instant case as the assessee failed to do so, the preponderance of probability entirely went against it. Therefore, it was held that the books आयकर अपीलीय आधका INCOME TAX APPELLATE TRIBUNAL Page 6 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai of accounts maintained by the assessee were manipulated and unreliable and accordingly claim of the assessee was rejected and the accommodation entry of Rs 2,23,83,218/- in the net profit declared by the assessee was added to the returned income.

1 Aggrieved by the same, the assessee filed appeal before CIT(A) who observed that in this case vide ITA No. 1968/Mum/2016 and ITA No. 2771/Mum/2016 dated 08.09.2017 the hon'ble ITAT had clearly held that the primary facts had not been produced before the AO during the course of original assessment proceedings. The findings and directions of the ITAT were reproduced herein as under: "13.1 We find that the assessee had not disclosed the primary facts regarding purchases from the above six parties during the course of original assessment proceedings made u/s 143(3) by the AO on 30.11.2011. The AO had issued notice to the assessee to prove the genuineness of transaction with the above six parties. The assessee filed a reply to it, which has been extracted by the AO at para 5.6 of the assessment order dated 21.03.2014. A copy of the said reply was filed before us which is at page 37-39 of the P/B. A perusal of it indicates that the assessee did not file the details regarding the above six parties before the AO during the course of original assessment proceedings.” After discussing the issue on merit, the Hon'ble ITAT eventually held as under:

1 In view of the above position of law, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh assessment after examining the concerned parties and giving opportunity of cross- examination to the assessee. We direct the assessee to file the relevant details before the AO. Needless to say, the AO would give reasonable opportunity of being heard to the assessee before finalizing the assessment order. As we have restored the matter to the file of the AO, we are not adverting to the case-laws referred by the Ld. counsel of the assessee and Ld. DR on the merit of the additions." आयकर अपीलीय अधिकरण INCOME TAX APPELLATE TRIB Page 7 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai

2 The ld.CIT(A) observed that from a plain reading of the above, it was clear that the hon'ble ITAT has directed the assessee to file the relevant details before the AO. An opportunity of cross examination would arise only after the primary onus is discharged by the appellant. The AO has also remarked in the assessment order that summons were issued to the above mentioned parties and none of them attended. The assessee was also asked to produce the parties but he could not produce the same. Since, the primary onus was on the assessee, he did not find any fault with the action of the AO. As regards the opportunity to cross examine these parties, it was stated that the same arises only when the appellant has discharged its onus. Right to Cross-examination as held in various decisions, is not absolute in nature. Hence, the appellant's contention that cross examination ought to have been provided by the AO is rejected. He restricted the addition to of 12.5% of the bogus purchases of Rs.2,23,83,218/-and balance amount was deleted.

Before us, the ld.AR has claimed that the assessee during assessment proceedings, submitted all relevant details in support of its contention that all purchases were genuine. The ld.DR on the other hand has relied on the assessment order claiming that the ld.CIT(A) should have upheld the entire disallowance rather than applying a flat rate of आयकर अपीलीय आधकरण INCOME TAX APPELLATE TRIBU Page 8 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai 12.5%.He placed reliance on certain recent decisions of hon'ble Bombay High Court wherein it is decided that once the onus is not discharged there is no question of restricting the addition to any estimate.

We have carefully considered the above facts and find that although the AO allowed opportunity of cross examination to the assessee once, on account of non attendance of the parties concerned, it could not be completed. It is not known from the records as to whether the AO made any fresh effort or penalise the parties for non appearance so as to take the cross examination proceedings to a logical end. We find that the ld.CIT(A) has observed that no cross examination could be granted to the assessee since it did not produce the alleged sellers.

1 We find that the ITAT has given a categorical direction to the AO for necessary compliance which apparently has not been complied with. Action of the AO in this regard appears to be casual and half baked rather than making sincere efforts to comply with such specific direction. Even the appellate order shows lack of serious in complying with specific direction of ITAT. The AO has not been fair in placing reliance on the statements of alleged entry providers and not providing the assessee to cross examine them. Our view is supported by the judgment of the Hon'ble Supreme Court in the case of M/s. Andaman आयकर अपीलीय अधिकार INCOME TAX APPELLATE TRIB Page 9 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai Timber Industries Vs. Commissioner of Central Excise, Kolkata-II, C.A No.4228 of 2006 (SC) dated 02.09.2015. In the aforesaid case, the Tribunal had upheld the rejection by the lower authorities of the assessee's request for allowing a cross-examination of the dealers whose statements were relied upon by the adjudicating authority while passing its order by observing that the plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex- factory prices remain static. It observed that since we are not upholding and applying the ex -factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioner's orders. On appeal, the Hon'ble Apex Court was of the view that the failure on the part of the adjudicating authority to allow to the assessee an opportunity to cross- examine the aforementioned persons whose statements were made the very basis of the impugned order was a serious flaw which rendered the order as nullity inasmuch as it amounted to violation of the principles of natural justice. It was observed by the Hon'ble Apex Court that though the assessee had requested for an opportunity to cross-examine the aforementioned persons but the said requests were turned down by the आयकर अपीलीय अधिकरण INCOME TAX APPELLATE TRIB Page 10 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai adjudicating authority. Considering the fact that the Tribunal had upheld the orders of the lower authorities which had turned down the assessee's request for a cross-examination, the Hon'ble Apex Court held the order of the Tribunal as totally untenable. Referring to the observations of the Tribunal that cross-examination of the persons concerned would not serve any purpose, the Hon'ble Apex Court was of the view that it was not for the Tribunal to have taken recourse to any guess work as to for what purposes would have been served by the assessee appellant by carrying out cross- examination. For the sake of clarity, the observations of the Hon'ble Apex Court are culled out as under: "We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in आयकर अपीलीय अधिकार INCOME TAX APPELLATE TRIBUNA Page 11 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross- examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide

1 Considering the aforesaid judgment of the Hon'ble Apex Court, we are of the view that the AO remained under a statutory obligation to facilitate cross-examination. The assessee could have dispelled the material that the AO acted upon to disprove the authenticity of the purchase transaction only if it was provided an opportunity to cross-examine the entry providers which had allegedly referred the name of the assessee as a beneficiary of accommodation आयकर अपीलीय आधकरण INCOME TAX APPELLATE TRIBU Page 12 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai entry. The assessee was vested with a statutory right to dispel the same by seeking cross-examination of the said person, which had wrongly been declined by the A.O. As the very declining of the assessee's request for seeking cross-examination clearly militates against the mandate of law, the adverse inferences as regards the authenticity of the transaction, as had been drawn by the A.O cannot be summarily accepted. Accordingly, in all fairness, the matter requires to be restored to the file of the AO with a direction to facilitate the cross examination of the person/persons on whose statements adverse inferences as regards the authenticity of the purchase transaction in question have been drawn in the case of the assessee.

We also find that the assessee did not comply with the direction of the ITAT in producing relevant details so as to prove the genuniness of the purchases. Evidently, the onus in this regard which lies heavily on the assessee has not been discharged.

Accordingly, we consider it appropriate to set aside the appellate order and send back the entire matter to the file of the AO to frame de novo assessment after allowing adequate opportunity of hearing to the assessee to prove the genuineness of the impugned purchases. The assessee would also be allowed to cross examine the आयकर अपीलीय आधकरण INCOME TAX APPELLATE TRIBU Page 13 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai alleged entry providers directly linked to the above named purchasers. Thus, the grounds of the assessee in this regard are allowed for statistical purposes.

ITA No. 77/MUM/2025 (A.Y. 2010-11) (1) On the facts and in law, the learned CIT(A) erred in sustaining addition of Rs.33,51,728/- being 12.50% of the alleged bogus purchases, without appreciating the fact that the learned AO passed assessment order without properly following the directions of the Hon ITAT of examining the concerned parties and giving opportunity of cross examination to the assessee. (2) On the facts and in law and without prejudice to ground no 1 above, the learned CIT(A) erred in restricting addition to 12.50% of alleged bogus purchases and not to the extent of overall GP rate at the entity level, which is 4.25% in case of appellant.

The decision rendered in para 9 above applies to above appeal as well which is also allowed for statistical purposes.

In the result, both the appeals of the assessee are allowed for statistical purposes.

ITA No. 78/Mum/2025 (AY 2009-10) (Revenue) (1) "On the facts and in circumstances of the case, the Ld.CIT(A) erred in appreciating the fact that the onus of proving the expenses claimed is on assessee." (2) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in not appreciating the fact that impugned parties have not responded to notices u/s.133(6) of the Income Tax Act, 1961 nor attended in response to summon issued u/s.131 of the Income Tax Act, 1961." (3) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in not appreciating the fact that the assessee failed to आयकर अपीलीय आधकरण INCOME TAX APPELLATE TRIBUNAL Page 14 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai produce the parties before AO from whom he had claimed to make purchases." (4) "On the facts and in the circumstances of the case, the Ld.CIT(A) fictitious invoices and debited in the P & L account are established as bogus, restricting the addition to a certain percentage goes against the principle of section 68 and 69 C of the Income Tax Act, 1961." (5) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in directing that the addition as made by the A.O. be restricted to 12.5% of the alleged purchases. 14.ITA No. 79/MUM/2025 (A.Y. 2010-11)(Revenue) (1) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in appreciating the fact that the onus of proving the expenses claimed is on assessee." (2) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in not appreciating the fact that impugned parties have not responded to notices u/s.133(6) of the Income Tax Act, 1961 nor attended in response to summon issued u/s.131 of the Income Tax Act, 1961." (3) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in not appreciating the fact that the assessee failed to produce the parties before AO from whom he had claimed to make purchases." (4) "On the facts and in the circumstances of the case, the Ld.CIT(A) fictitious invoices and debited in the P & L account are established as bogus, restricting the addition to a certain percentage goes against the principle of section 68 and 69 C of the Income Tax Act, 1961." (5) "On the facts and in the circumstances of the case, the Ld.CIT(A) erred in directing that the addition as made by the A.O. be restricted to 12.5% of the alleged purchases." Page 15 ITA No. 76 77 78 & 79 Mum 2025 Α.Υ. 2009-10, 2010-11 Ganesh Jagaji Modi, Mumbai

Since we have already set aside the appellate orders of both the assessment years in the preceding paras and allowed the appeals for statistical purposes by sending back the entire matter once again to the file of the AO, the above cross appeals are also allowed for statistical purposes.

In the result, both the above appeals of the assessee and the Cross appeals of the Revenue are allowed for statistical purposes. Order pronounced in the open court on 08.12.2025. SANDEEP SINGH KARHAIL (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 08.12.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) आदेश की प्रतिलिपि अग्रेषित/