DY.COMMISSIONER OF INCOME TAX, VASHI vs. BHAVESH RANCHHODDAS MADIAR, NAVI MUMBAI

The solitary ground raised by the Revenue relates to challenging the order of the CIT(A) in deleting the additions made by the AO.

In this regard, we have heard the counsel for both the parties, perused the material placed on record and the orders passed by the revenue authorities. From the records, we noticed that, as per the facts of the present case, search and seizure and survey action was conducted on 15/02/2022 in the case of Ramesh Chaurasia, Achal Chaurasia, and ARC Group.

During the course of the search action, incriminating physical and digital evidence was found and seized, which reflected that the group was involved in illegal online betting and gambling activities and was generating huge amounts of unaccounted cash from these activities.

The evidence found during the search and seizure action was in the form of Excel workbooks, PDF sheets, loose papers, and WhatsApp chats, which were also corroborated by the statements given by the key persons to prove that the cash was being introduced into the books of accounts of various ARC Group concerns in the form of accommodation entries. Some of the unaccounted cash was routed into the books of account of ARC Group entities through accommodation entries in the form of bogus trading income and bogus sales.

Therefore, based on the documentary and digital evidence, the assessment was completed vide order under section 147 dated 29/03/2025, thereby making an addition of Rs. 4,81,36,140 on account of disallowance of purchase transactions with M/s Aadesh Agri Farm LLP under section 69C of the Income Tax Act. Although the said addition was challenged by the assessee, the Ld. CIT(A), after considering the totality of the facts and circumstances, deleted the said addition. Against this, the Revenue has now filed the present appeal before us on the grounds mentioned hereinabove.

Before we proceed further, it is necessary to evaluate the decision of the learned CIT(A) while deleting the additions. The operative portion of the learned CIT(A)'s order is contained in paragraphs 5.2.3 to 5.2.22.

After having considered the facts of the case, we found that the DR has mainly relied upon the order passed by the AO. The operative portion of the assessment order is reproduced hereinbelow:

The learned AR also reiterated the same arguments as were raised by him before the revenue authorities and, more particularly, before the learned CIT(A). The relevant extract of the written submissions is reproduced hereinbelow:

From the facts of the present case, we notice that during the course of reassessment proceedings as well as appellate proceedings, the assessee has explained his business model which, according to the assessee, primarily involves trading in pulses. As per the assessee, the business model functions within a network of multiple traders and includes transactions with various parties through back-to-back invoicing. However, due to the involvement of numerous intermediaries, the business of the assessee generally operates on relatively low margins, which goes to show that some wholesalers and retailers in this line of trade often engage in transactions without the physical movement of goods. In this way, the goods are ultimately delivered by the trader who deals directly with the end consumer. In the rest of the transaction chain, although the title to the goods passes through sales bills, the assessee, being the final trader, physically receives and then delivers the goods to the customer. In this manner, the trades of the assessee reflected the movement of stocks:

After having considered the above model, we found that the said model has been consistently explained by the assessee even in the earlier years as well, and the Assessing Officer had not raised any adverse comments or findings with respect to the business model of the assessee itself. At no stage has the Department ever pinpointed that the assessee's line of trade is a sham or that the assessee failed to carry out transactions within the framework of this business model. Whereas, on the contrary, the AO had drawn an inference from third-party investigations without disputing the "fundamental nature" of the assessee's business operations.

We further notice that in the assessee's own case for assessment year 2014-15, the Ld. CIT(A) in that year had occasion to examine this very business model in detail. After considering the documentary evidence and the overall circumstances, no inference with respect to the business model of the assessee was drawn in that year as well, which goes to show that the degree of continuity and acceptance by the Department that the assessee's mode of trading is characterized by back-to-back invoicing, low margins, and volatility in prices is in line with how this industry operates.

We also notice that the absence of any negative finding either in the earlier scrutiny proceedings or in the present proceedings under consideration on the model per se gives support to the genuineness of the assessee's explanation.

Considering all these facts and the documentary evidence furnished by the assessee, we notice that the assessee has placed on record the ledger account and confirmation from M/s Aadesh Agri Farm LLP, bank statements evidencing payments through banking channels, purchase invoices, import documents, broker confirmations, stock registers, weighbridge receipts, godown rent ledgers, loading and unloading charges, and details of onward sales supported by PAN particulars of the buyers.

After having collectively seen and appraised these documents, we found that the assessee's transactions were carried out in the ordinary course of trade and were duly recorded in his regular books. The AO has failed to point out any defect or falsehood in the documents being relied upon by the assessee. It is important to mention here that during the entire assessment proceedings, even after evaluating the entire documents being relied upon by the assessee, the AO had not rejected the books of account by invoking section 145(3) of the Income Tax Act, nor had he disputed the sales disclosed by the assessee. Thus, one can infer that if sales have been accepted and are fully backed by documentary evidence, then, in that eventuality, the corresponding purchases too cannot be disregarded without cogent material placed on record in order to uproot the presumption attached to them.

Even otherwise, the economic realities of trading in agricultural commodities such as pulses, the volatility in prices, is an inherent feature of the trade and arises due to multiple factors, including demand-supply imbalances, crop yield, international price movements, quality specifications, and buyer preferences.

Thus, in this view, the difference in purchase and sale prices or variations across transactions in the same period are a natural consequence of market forces and cannot by themselves be construed as evidence of accommodation entries or manipulation.

Accordingly, the business model of the assessee, in our view, remained consistent and had also been accepted in the past, which has not been disputed even during the present proceedings. Since the business of the assessee has been corroborated by independent evidence and commercial realities of the trade, therefore, all the documents furnished by the assessee and relied upon have to be read and appreciated in the proper context of his business model. One of the striking aspects that emerges is that the Assessing Officer has not drawn any adverse inference in respect of the sales declared by the assessee. The said sales as recorded in the books of account have been accepted in full, and no addition or disallowance has been made on that account itself.

Although the assessee has furnished an extensive set of evidence, which includes the documents as mentioned by us above, even otherwise, the evidence filed by the assessee in respect of purchases from Adesh Agri Farm LLP also includes ledger confirmations, bank statements showing payments through regular banking channels, and purchase invoices with quantitative details. All these documents, when read together with the sale- side evidence, provide a consistent picture that the trading activities were real and not illusory.

Moreover, we have also to analyze the evidentiary material relied upon by the AO. The main documents from the entire set of facts, as pointed out by the AO, that lead to the conclusion are:

All these documents were analyzed and examined closely in order to determine as to whether they create any tangible nexus with the assessee or not. In this regard, we have meticulously seen the findings of the learned CIT(A), more particularly, and the operative portion is contained hereinbelow:

Having analyzed the findings and having heard the parties in this matter, we found that when the Department's own key documents—i.e., the approval note, third-party statements, and the debtor list—are compared with the assessee's comprehensive evidence, it becomes quite clear that there is no direct nexus established between the assessee and the alleged cash circulation of ARC Group.

Even otherwise, the order of the learned CIT(A) discussed in detail the rebuttal submitted by the assessee in response to the conclusion drawn in the assessment order, which is contained in paragraph 5.2.9 of the order of the learned CIT(A), and the same is reproduced hereinbelow:

We also noticed that the genuineness of the transaction itself has not been doubted on any tangible basis and, even if the pricing adopted by the assessee is subjected to scrutiny, then the question that arises is as to whether the Revenue can step into the shoes of the businessman and rewrite its commercial decisions.

The assessee's explanation that the trade of agro commodities like pulses, prices fluctuate widely based on daily demand-supply, import conditions, and spot market pressures is fully borne out by industry practices. Moreover, the assessee has consistently demonstrated that the transactions were conducted at arm's length with third parties. Payments were also made and received through banking channels, and there is no allegation of funds being routed back in cash and no evidence to suggest collusion with counterparties. Even assuming without admitting that the pricing may not align with the AO's perception of market conditions, the law does not permit the disallowance of entire purchases or sales merely on that ground.

Thus, while adopting a correct approach, we notice that the CIT(A) rightly concluded that the assessee's transactions are genuine and at arm's length, supported by a complete documentary trail and undertaken in the ordinary course of business, and in this way, the Revenue's attempt to recharacterize the same as accommodation entries rests purely on suspicion without any evidence.

Even otherwise, in the entire assessment proceedings, the supplier, namely Adesh Agri Farm LLP, was not alleged to be a paper company at all because the AO himself had not established any fact suggesting that the said entity was non-existent, untraceable, or fictitious. On the contrary, all the transactions with this party have been supported by documentary evidence, which we have already discussed in the above paragraphs as well.

Moreover, the learned CIT(A), while adjudicating these grounds, has also discussed and taken into consideration the evidence filed before the CIT(A) in AY 2014-15 and the order of the CIT(A), wherein, in the said year, the Revenue itself had already examined the assessee's business model and accepted the genuineness of sales. Further, in the year under consideration as well, from the very business model of the assessee and the manner in which his trading operations are conducted, it is quite clear that such transactions were the result of advance arrangements and business commitments rather than ad-hoc or afterthought dealings.

No new facts, circumstances, or documents have been placed on record by the Ld. DR in order to controvert or rebut the lawful findings so recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings so recorded by the Ld. CIT(A). Hence, we dismiss the grounds raised by the Revenue and uphold the order of the Ld. CIT(A).

In the result, the appeal filed by the Revenue stands dismissed.