ACIT CENTRAL CIRCLE 7 1, MUMBAI vs. ELECMEC ENGINEERING & PROJECTS PRIVATE LIMITED, MUMBAI

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ITA 3056/MUM/2025Status: DisposedITAT Mumbai08 October 2025AY 2018-19Bench: SHRI SAKTIJIT DEY, HON'BLE VICE PRESIDENT\n&\nSHRI NARENDRA KUMAR BILLAIYA, HON'BLE ACCOUNTANT MEMBER\nI.T.A. Nos.3055, 3057 & 3056/Mum/2025\nAssessment Year: 2016-17, 2017-18 & 2018-19\nAssistant Commissioner of\nIncome Tax, Central Circle – 7(1) Vs\nMumbai\nElecmec Engineering &\nProjects Private Limited\n208, Ashirwad Building\nAhmedabad Street\nCarnac Bunder, Chinchbunder\nMumbai - 400009\n[PAN: AADCE9111C]\nअपीलार्थी/ (Appellant)\nप्रत्यर्थी / (Respondent)\nC.O. Nos.194, 195 & 196/Mum/11 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the findings of the CIT(A) and dismissed the Revenue's appeals. The Tribunal noted that a coordinate bench, in a similar case involving a group entity (Duli Trade & Commodities Pvt. Ltd.) from the same search proceedings, had held that the transactions were 'circular trading' aimed at increasing turnover and availing bank credit facilities, not for suppressing income. The coordinate bench also found that the profit earned from such transactions was duly reflected in the books of accounts. Furthermore, the Tribunal observed that the AO made additions on a presumptive basis without concrete evidence of cash receipts or identification of the payer. The Tribunal also considered that the profit margin on genuine wholesale trading is significantly lower than the 5% estimated by the AO. It was held that the profit disclosed in the audited books of accounts includes the commission earned, and no further addition is warranted, especially in the absence of evidence of cash payments. Therefore, the additions made by the AO were deleted, and the disallowance of indirect expenses was also upheld. The assessee's cross-objections were rendered infructuous.

What were the facts?

The Revenue filed appeals against orders of the CIT(A) for AYs 2016-17, 2017-18, and 2018-19, and the assessee filed cross-objections. A search operation on the Jatia Group on April 17, 2018, revealed that the assessee company, Elecmec Engineering & Projects Private Limited, was involved in bogus transactions, including inflated purchases and sales, and misuse of banking credit facilities. The AO rejected the assessee's books of accounts, made an addition of Rs. 7,55,00,747/- on a total turnover of Rs. 1,54,76,35,288/- (representing estimated income from bogus purchases), and disallowed administrative expenses of Rs. 4,91,355/-. The CIT(A) reduced the addition to 5% of alleged bogus sales/purchases, but then deleted the addition entirely, holding that no bogus sales occurred and that expenditure incurred for earning income should be allowed. The CIT(A) also deleted the disallowance of indirect expenses.

What were the issues?

1. Whether the addition of Rs. 7,55,00,747/- made by the Assessing Officer (AO) on account of alleged bogus purchases and sales is sustainable in law, considering the findings of the Commissioner of Income Tax (Appeals) [CIT(A)]? Assessee's Contention: The assessee argued that it had no income other than what was recorded in its books and no evidence supported income from alleged back-to-back transactions. The CIT(A) correctly found no bogus sales and allowed expenses. The Tribunal should follow the CIT(A)'s findings. Revenue's Contention: The Revenue supported the AO's findings, arguing that the assessee was involved in providing accommodation bills and misusing LC funding facilities, leading to bogus transactions. The AO's addition and disallowance were justified. 2. Whether the disallowance of administrative expenses of Rs. 4,91,355/- made by the AO is justified? Assessee's Contention: The assessee contended that since income from circular trading was disclosed, the expenditure incurred for earning that income should be allowed. The CIT(A) correctly deleted this disallowance. Revenue's Contention: The Revenue supported the AO's disallowance, as it believed the assessee was engaged in booking bogus sales and purchases, thus indirect expenses were not proven.

Which sections of the Income-tax Act were involved?

Section 153C

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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLE

For Appellant: Shri Vijay Mehta, A/R
For Respondent: Shri Ritesh Misra, CIT, D/R
Hearing: 30/09/2025Pronounced: 08/10/2025

आदेशानुसार/ BY ORDER TRUE COPY

1.

Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai , 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 11

Initial Date 1. Draft dictated on 30/09/2025 Sr.PS

2.

Draft placed before author 06/10/2025 Sr.PS 3. Draft proposed & placed JM/AM before the second member 4. Draft discussed/approved JM/AM by Second Member. 5. Approved Draft comes to /10/2025 Sr.PS/PS the Sr.PS/PS 6. File pronounced on /10/2025 Sr.PS 7. File sent to the Bench Clerk /10/2025 Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes

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