ROHIT DHIRAJLAL MEHTA,MUMBAI vs. ITO WARD 17(3)(2), MUMBAI

आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :-

The above captioned appeals preferred by the assessee emanate from the orders of even date passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2014-15 and 2010-11. Since

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta the issues are common and interlinked and also the fact that the appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity. We take up the appeal for AY 2014-15 as ‘Lead Case’. The decision rendered would apply mutatis mutandis to other appeal.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta in Iron and Steel and also in supplying materials to various clients, on the basis of order received. During assessment proceedings, AO had asked for partywise details of purchases made by the assessee which was submitted. To verify the purchases, the AO had issued notices u/s 133(6) of the Act selectively to some of the parties. Out of these notices, two notices were return back unserved and five parties did not reply to notices u/s 133(6). These facts were communicated to the assessee and he was asked to produce these parties for examination. However, assessee could bring only two of such parties, whose statements were recorded by the AO. These parties produced copies of bills, ledger accounts, bank statements etc. but they could not produce any supporting evidence regarding actual transport of goods. As the actual transactions could not be established in the absence of proof regarding transportation of traded goods, the AO has held that purchases from four parties on whom notices could not be served, were bogus. Hence,he disallowed entire purchases from these parties and added Rs. 1,32,34,000/- to the total income.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta but failed to produce crucial evidence regarding transportation of goods purchased from these parties. Even the parties who appeared before the AO could not furnish any evidence regarding transportation of goods. Thus, he observed that without the evidence regarding transportation of goods, self serving paper documents were not sufficient to establish the genuineness of the transaction. The assessee had cited various case laws where it has been held that 100 percent disallowance of purchases cannot be justified. However, facts of assessee's case are distinguishable. He had made purchases from a large number of parties. However, purchases had been disallowed only in respect of purchases from four parties. Thus, entire purchases had not been disallowed. Hence assessee's contention were not found acceptable in this regard.

4.1 In respect of the allegation that the additions had been made on the basis of information available on the website of Maharashtra VAT Department and on the basis of statements of suppliers recorded by the VAT Department. Since, assessee had not been provided any opportunity to cross examine these persons, the additions made were bad in law. Nowhere in the assessment order the AO had made any reference to the information shared by Maharashtra Sales Tax Department nor the AO had relied on any adverse statements of third parties.

4.2 The ld.CIT(A) noted that in the submissions assessee had mostly raised technical objections against the assessment order and 4

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta avoided saying anything on the merits of the case. During assessment proceedings AO had asked the assessee as well as the two parties who had appeared before the AO, to provide the evidences regarding transportation of goods. However, neither the assessee nor the two parties could satisfactorily explain and provide evidences regarding transportation of goods. This is a very crucial evidence to establish the genuineness of transaction. If assessee had purchased something from the said 4 parties, then along with purchase bills, vouchers, ledger accounts, bank statements etc., there would be some documentary proof regarding actual transportation of goods supplied by the said 4 parties. However, the assessee had failed to furnish any supportive evidences regarding transportation of goods. Even during appellate proceedings, the assessee had not been able to explain how the goods were transported. Under the circumstances, he observed that there were no genuine purchases from these four parties and the assessee had only obtained bogus purchase bills from them and thus, failed to establish the genuineness of purchases from them. The addition of Rs,1,32,34,000/- was confirmed.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta assessee was asked by the AO to produce the party. He admitted that the party was not available on the given address but explained that transactions were 5 years old and they were not aware about the current address. In view of the incriminating information from Investigation Wing and failure of the assessee to provide satisfactory explanation, self- serving paper documents produced by the assessee were rejected. The AO asked the assessee to provide evidence regarding transportation of the goods purchased from M/s Creative Enterprises. But assessee failed to do so. Under these circumstances, purchases from M/s Creative Enterprises were held to be bogus and addition of Rs. 1,58,48,146/- was made.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta that Sh. Satish Rana. Prop. of M/s Creative Enterprises was involved in providing entries This fact was admitted by Mr. Rana in his statement u/s 131 of the Act. The AO had provided sufficient opportunity to the assessee to establish the genuineness of his transactions with M/s Creative Enterprises. He was asked to provide crucial evidence regarding transportation of goods. However, assessee failed to do so. Thus, the AO reached conclusion on the basis of incriminating facts involved in this matter and not because of some incriminating statement against the assessee. The AO had done field enquiry and also he had tried to examine all the facts involved in the matter. However, due to non cooperation from assessee's side, he could not examine the party involved. In this matter, the assessee had failed to discharge his onus and the genuineness of the purchases was not established. Hence, AO's action in disallowing purchases from M/s Creative Enterprises was upheld and addition of Rs.1,58,48,146/- was confirmed.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta on several coordinate bench decisions contesting 100% addition of alleged bogus purchases.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta verification and confirmation of the transactions. Besides, the ld.AR has also not explained the genuineness of the transaction with Creative Enterprises in any manner especially in the light of admission of the supplier that he was mere an accommodation entry provider. In the light of such admission, the onus was all the more on the assessee to prove the genuineness of the transaction. The ld.AR has merely laid undue stress on payments made through cheques and other documents as also on the ground that the sale were not doubted and the books of account were not rejected by the AO. 9.2 The reliance placed on certain Tribunal order are factually distinguishable. Rather,in view of recent decisions of hon’ble jurisdictional High Court in several cases concerning similar issue of bogus purchases through entry providers, such purchases if not proved by the assessee are liable to be treated as non-genuine or bogus and there is no question of application of estimated profit vis-à-vis the bogus purchases either. In this regard, we refer to the landmark decision in the case of Kanak Impex (India) Ltd in Income Tax Appeal No. 791 of 2021 dated 03.03.2025.In this case Rs.20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified. Relevant paras are extracted as below for ready reference:

“The CIT(A) further observed that the activities of the accommodation entries in the trading community are not unheard of and further stated that the investigation by the Sales Tax Department concerning VAT violations cannot be lost sight of more particularly since the names of the bogus sellers supplied 9

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta by the Sales Tax Department are appearing in the books of respondent- assessee and, therefore, the link of involvement of the respondent-assessee in getting bogus bills is established. However, after giving the findings on the bogus purchases, the CIT (A), without any further reasoning, straight away referred to the decision of the Gujarat High Court in the case of CIT Vs. Simit P. Shethi and estimated 12.5.% of the bogus purchases as the additions to be made instead of confirming entire bogus purchases. 18. The CIT(A) has also given a finding against the respondent- assessee in paragraph 5.2.1, stating that the respondent-assessee failed to prove the genuineness and source of the purchases and confirmed its involvement in the modus operandi. In our view, CIT(A) was not justified after giving such a finding that the additions should be restricted only to 12.5% of such purchases and not entire purchases. The issue before the CIT(A) was not whether the profit disclosed by the respondent-assessee was low so as to justify the estimation of the profit of 12.5%. The issue before CIT(A) was whether the purchases had been proved and the CIT(A), having observed against the respondent-assessee on this issue, ought to have confirmed the additions of the entire purchases. In our view, the CIT(A) misdirected himself by estimating a profit of 12.5%. 19. It was nobody's case that both the sales and purchases are unaccounted. If that be so and the purchases have been recorded in books of account by accommodation entry, then same gets automatically reflected in the books of account. In the instant case, since the purchases are recorded by accommodation entry in the books of account and sales have not been disputed, the CIT(A) was not justified in estimating the profit, when the basis of addition was not low profit. 21. In our view, both the Appellate Authorities ought to have appreciated that the issue before them was whether the respondent-assessee had proved the purchases of which the claim for deduction was made. The respondent- assessee, having failed to discharge its onus on this issue before all three authorities, in our view, the additions made in the assessment order by the AO was justified. 22. If the approach of the Appellate Authorities of estimating the profit on such purchases is to be accepted, then, in effect, the consequence would be that even if respondent-assessee has failed to prove its claim of deduction of purchases, still by estimating profit, impliedly deduction of purchases is given. For example, if the purchases by accommodation entries are Rs.100/- and a profit of 10% is estimated, then to the extent of Rs.90/- deduction on account of purchases is deemed to have been given by the Appellate Authorities. This approach would not be correct since it is nobody's case that the respondent- assessee has made sales out of books by purchasing the goods out of books. 23. If the approach of the Appellate Authorities is accepted, then the provision of Section 69C, which is an enabling provision, would become redundant. Section 69C provides that where an assessee has incurred any expenditure and offers no explanation about the source of expenditure or the explanation offered is not in the opinion of the AO satisfactory, then the amount of expenditure may be deemed to be the income of the assessee and such unexplained expenditure which is deemed to be the income of the

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta assessee shall not be allowed as a deduction under any head of income. In our view, if the approach of the CIT(A) and the Tribunal is accepted, then it would amount to endorsing outright conduct of illegality, contrary to the express provisions of Section 69C of the Act, which the Appellate Authorities have entirely ignored. In the above example, by estimating 10% and thereby impliedly giving a deduction of Rs.90/-, in the teeth of the provisions of Section 69C of the Act, which expressly bars the allowability of unexplained expenditure. 27. We may also observe that the views expressed by us in the present appeal is also supported by the decision of the Co-ordinate Bench of this Court in the case Shoreline Hotel (P.) . In that case based on information received from the Sales Tax Department, the purchases made by the assessee were held to be non-genuine purchases even though the assessee had filed the documentary evidence. However, the AO based on the submissions made by the assessee added only 15% of such purchases as income. The CIT invoked revisional jurisdiction under Section 263 of the Act and observed that the entire purchases ought to have been added and not only 15%. This finding and the revisional order of the CIT was confirmed by the Tribunal. On an appeal by the assessee before this Court, the Co-ordinate Bench of this Court observed that the reasons assigned by the CIT are cogent and satisfactory. The Court further observed that once the assessee could not produce any material nor he could ensure the presence of the suppliers before the AO, citing difficulties and agreeing to the additions of gross profit of the purchases would mean that the AO was expected to complete the exercise in accordance with law and there was no reason for the AO to accommodate the assessee in the manner done. The Hon'ble High Court therefore approved the reasoning of the CIT that in case where the purchases are not proved, the entire purchases should have been added and not certain percentage of such purchases. In our view, in the instant case also, the respondent-assessee as observed above has failed to prove the purchases and therefore there was no justification for CIT(A) and the Tribunal to confirm the additions only to the extent of 12.5%. In our view, both the Appellate Authorities ought to have confirmed the entire purchases in line with the decision of this (2018) 98 taxmann.com. 34. We may observe that CIT(A) in paragraph 5.2.1 has given a clear finding of fact that the respondent-assessee was involved in getting bogus bills. This finding has not been challenged by the respondent-assessee before the Tribunal, and only submission made before the Tribunal was on the estimation of gross profit by relying upon the decision in the case of Mohammad Haji Adam & Co. (supra). 38. In our view, in the instant case, the respondent-assessee has offered no explanation of the source of the expenditure incurred on account of purchases of Rs.20,06,80,150/- and, therefore, the AO was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C of the Act. 9.3 We find that the instant case is duly covered by the above decision which has since been affirmed by the hon’ble Supreme Court by

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta dismissing SLP of the assessee refusing to interfere with the hon’ble Bombay High Court judgment dated 03.03.2025, thereby upholding the 100% disallowance of bogus purchases.

9.4 In another case of Shree Ganesh Construction in ITA No.719/2028(Bom) dated 05.03.2025, the hon’ble Bombay High Court observed and held as under: “4. On 29 May 2015, the CIT (A) with respect to the alleged bogus purchases deleted the additions with regard to all the suppliers except M/s Neptune Trading Co. and Hari Om Traders. With respect to these two parties, the additions made by the Assessing Officer (AO) was confirmed to the extent of only 12.5% of the purchases made from these parties. 5. The appellant-revenue challenged the order of the CIT (A) by filing an appeal to the Tribunal. In the grounds of appeal, the appellant-revenue challenged the deletion of the purchases made from various parties. With respect to M/s Neptune Trading Co. and Hari Om Traders, a specific ground was also taken by the appellant-revenue to the effect that the CIT (A) erred in estimating profit at 12.5% on the bogus purchases. It is important to note that the respondent-assessee has not challenged the additions sustained by the CIT (A) to the extent of 12.5% on the purchases made from M/s Neptune Trading Co. and Hari Om Traders. 12. Admittedly, the respondent-assessee did not discharge its onus of proving the purchases made from various parties during the course of the assessment proceedings. The respondent-assessee did file some evidence before the AO but same was not to the satisfaction of the AO and, therefore, the AO rejected the explanation of the respondent-assessee with respect to various parties referred to in paragraph 4 of the assessment order and made an addition of Rs.14,30,90,442/-. 20. It is also important to note that the respondent-assessee has accepted the addition of 12.5% of the purchases from these two parties. By accepting the said percentage, the respondent-assessee has impliedly accepted that the transactions with these two parties could not be proved and, therefore, the logical conclusion that both the Appellate Authorities ought to have adopted was to confirm the total additions of purchases from these two parties. The issue before both the Appellate Authorities was whether the purchases made from these two parties has passed the test of proving the genuineness. By accepting the additions of 12.5% of the purchases from these two parties, the respondent- assessee has accepted that these transactions of purchases are unproved and consequently, there was no justification, therefore, to restrict the addition to 12.5% only.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta 21. The Co-ordinate Bench of this Court in the case Shoreline Hotel (P.) had an occasion to adjudicate a very similar issue. In that case, the Officer made an addition of 15% of the purchases which were not proved. The CIT (A), while exercising his jurisdiction under Section 263 of the Act held that in such a case, the total purchases should have been added and not only 15%. The matter was carried unsuccessfully before the Tribunal and thereafter before this Court. This Court observed that once certain percentages of the purchases which are admitted has been not proved then, the Officer could not have added only that percentage but ought to have added full purchases. Although this was a case 13 (2018) 98 taxmann.com 234 (Bombay) arising out of revisional proceedings under Section 263 but in the revisional order, the Commissioner had given a definite finding that the entire purchases should have been added. Therefore, the counsel for the respondent-assessee was not justified in distinguishing this judgment on the ground that it deals with the proceedings under Section 263 and not Section 143(3) of the Act. 22. The issue is not under which section the proceedings were initiated but the issue is that if an assessee accepts certain percentage of unproved purchases as his income then whether the additions should be made of certain percentage or the entire purchases. In our view, this decision supports the view which we have taken in the present case. The respondent-assessee having accepted 12.5% of the purchases made from M/s Neptune Trading Co. and Hari Om Traders, the natural corollary was that both the Appellate Authorities ought to have sustained total purchases from these parties and not 12.5%. 23. Similar situation arose before the Calcutta High Court in the case of Premlata Tekriwal where on very similar fact situation, the Calcutta High Court too echoed the same view that in such a case, the entire purchases should be added and not certain percentage. The view which have taken also finds support from the decision of Allahabad High Court in the case of 14 (2022) 143 taxmann.com 173 (Calcutta) Assistant Commissioner of Income- tax Vs. Shanti Swarup Jain15 and judgment of the Gujarat High Court in the case of N.K. Industries Vs. DCIT16. 24. If the approach of the Appellate Authorities of estimating the profit on such purchases is to be accepted, then, in effect, the consequence would be that even if respondent-assessee has failed to prove its claim of deduction of purchases, still by estimating profit, impliedly deduction of purchases is given. For example, if the purchases by accommodation entries are Rs.100/- and a profit of 10% is estimated, then to the extent of Rs.90/- deduction on account of purchases is deemed to have been given by the Appellate Authorities. This approach would not be correct since it is nobody's case that the respondent- assessee has made sales out of books by purchasing the goods out of books.” 9.5 In view of the above discussion, we do not find any infirmity in the appellate order upholding the addition by the AO. As regard the reliance placed by the ld.AR on coordinate benches of ITAT deleting similar addition in entirety or restricting the addition to certain

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta percentage only, we do not find much merits in view of the clear cut findings and decisions of the aforesaid decisions of hon’ble jurisdictional High Court which have binding effect on all subordinate authorities. It needs to be emphasised the findings of the ld.CIT(A) wherein he has categorically concurred with the AO that the genuineness of the alleged purchases could not be established by the assessee which is also similar to the cases of Kanak Impex and Shree Ganesh Constructions in preceding paras.

9.6 In the light of the legal position emerging from the above cited decisions and the facts of the instant case being identical, we are of the considered view that the assessee had failed to discharge the primary onus in proving the impugned purchases as genuine We therefore, uphold the addition made by the AO, thus, dismissing the grounds of appeal of the assessee. 10. In the result, the appeal of the assessee is dismissed.

ITA No. 7569 & 7570/Mum/2025 A.Y. 2014-15, 2010-11 Rohit Dhirajlal Mehta 13. In the result, both the appeals of the assessee in ITA Nos. 7569 and 7570/Mum/2025 are dismissed.

Order pronounced in the open court on 07/09/2026.

Sd/- Sd/- (PAWAN SINGH) (PRABHASH SHANKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: म ुंबई/Mumbai ददनाुंक /Date 07.09.2026 Lubhna Shaikh / Steno

आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt. Registrar) ITAT