M/S VAIBHAV TRADING COMPANY, DURG,DURG vs. ITO-1(1), BHILAI, BHILAI

The assessee, vide three grounds of appeal, raised the issue of taxability of purchases of Rs.2,31,60,320/- under section 69 of the Act.

Facts, in brief, relevant for adjudication of this appeal are that the assessee, a partnership firm, is a wholesale cloth merchant. It filed its Income Tax Return (‘ITR’) of the relevant year on 26.08.2022 declaring income of Rs.2,48,940/-. The case was picked up for scrutiny. The Ld. Assessing Officer (‘AO’) was having information received from the Investigation Directorate of Income Tax Department that the search conducted on a third party; namely, M/s JM Jain LLP (Jeet Mal Charoria) group of cases revealed that Vaibhav Garments of Durg having PAN of the assessee had made cash payment of Rs.2,31,60,320/- during the relevant year. Therefore, the Ld. AO show-caused the assessee to explain the source and nature of said cash payment made to M/s JM Jain, LLP. In response, the assessee submitted that M/s JM Jain, LLP, Delhi was a wholesaler-cum-agent of readymade garments. During the course of assessment proceedings, the assessee admitted purchases in its partnership firm name; i.e. Vaibhav Trading Company and not in the name of Vaibhav Garments. Further, it denied ownership of Vaibhav Garments. However, the digital record containing ledger account of Vaibhav Garments with the assessee’s PAN seized from JM Jain, LLP Group of cases show cash payment of Rs.2,31,60,320/- made during the relevant year by the assessee. During the course of assessment proceedings, the assessee further submitted that when purchases were made through agent, invoices were directly raised by the relevant sellers and payments were made to them accordingly and the commission thereon was paid to the agent. However, when goods were purchased in small quantity from different parties then such parties/suppliers issued their bills in the name of agent (M/s JM Jain, LLP), who in turn issued its invoices/bills in the name of assessee/purchaser and the assessee used to pay such billed amount to the agent (M/s JM Jain, LLP) instead of different parties/suppliers. During the course of assessment proceedings, the assessee not only questioned the ledger account showing the cash payment of Rs.2,31,60,320/- made to M/s JM Jain, LLP by M/s Vaibhav Trading Company but also the misuse its PAN in the seized digital data of M/s JM Jain, LLP. However, the Ld. AO was not satisfied with the submissions of the assessee, therefore, he taxed the cash payment of Rs.2,31,60,320/- made to M/s JM Jain, LLP as unexplained investment under section 69 of the Act. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal as under: “7. Appellant’s submission were carefully considered. From the detailed discussions made by the AO in the assessment order, it is clear that the appellant had entered into transactions with M/s JM Jain LLP. The data recovered from the servers of the group revealed that there were two separate set of transactions, one recorded in the books of accounts and other made in cash and unaccounted. The modus operandi adopted by the appellant in connivance with M/s JM Jain LLP, in making unaccounted purchases was clearly brought out by the AO and the investigation wing, which has been elaborated in detail in the assessment order. Appellant did not furnish any material evidence to prove that it had not made those transactions. 8. Reliance is placed on the decision in the case of PCIT Vs. Drisha Impex Private Limited (2025) 173 taxman.com 571 (Bombay). In view of the above facts and circumstances, the addition of Rs.2,31,60,320/- made towards unaccounted purchases, in cash, is confirmed. Appeal on this ground is dismissed.

The Ld. CIT(A), after considering the assessee’s submission filed before him, dismissed the appeal after agreeing with the reasoning of the Ld. AO and placing reliance on the decision of Hon’ble Bombay High Court in the case of Drisha Impex Pvt. Ltd. (2025) 173 taxman.com 571. The Hon’ble Bombay High Court, the case of Drisha Impex Pvt. Ltd. (supra), upheld the addition of entire bogus purchases made by the Ld. AO by reversing the order of ITAT, Mumbai. The SLP filed by Drisha Impex Pvt. Ltd. was dismissed by the Hon’ble SC.

At the outset, Shri S.R. Rao, Ld. Counsel representing the assessee submitted that the Ld. CIT(A) had not given detailed finding and his reasoning in dismissing the appeal and upholding the assessment order. He contended that the order of the Ld. CIT(A) was not well reasoned. In brief, he reiterated the facts of the case and submissions filed before the Authorities below. He, without admitting the transactions belonging to the assessee, drew our attention to the statement of Shri Satya Narayan Sharma, Marketing Manager of M/s JM Jain, LLP (page 10 and 11 of the assessment order) recorded during the search operation on M/s JM Jain, LLP, wherein he admitted that M/s JM Jain, LLP used to issue under-invoiced bills to its customers. The difference between the pucca billed amount (received through banking channel) and actual sale consideration had been admitted by Shri Satya Narayan Sharma in the above mentioned statement having received in cash by M/s JM Jain, LLP. The cash component was admitted, by Shri Satya Narayan Sharma in the statement, to have been recorded in another ledger account of similar name having PAN of the concerned assessee. For the sake of discussion, he contended that the Ld. CIT(A) had not addressed the issue of taxability of entire purchase price vis-à-vis gross profit as the case in hand was not a case of unaccounted business involving unaccounted purchases and sales but it was case of under-invoicing wherein the value of purchases and sales were under dispute and not the quantity of purchases and sales. In support of this argument, he placed reliance on the assessment orders in the cases of Pawan Bothra, Ambikapur [page 29-62 of the Paper Book (PB)], Hitesh Kumar, Delhi (page 63-74 of the PB), Manoj Kumar Jaju, Kolkata (page 75-93 of the PB) and Shree Gopal Bihani, Delhi (page 94-143 of the PB) where certain additions based on the finding in JM Jain, LLP Group of cases had been done instead of entire purchases as done in the present case. He denied that the assessee had made any unaccounted purchases from M/s JM Jain, LLP. However, at most, part of the purchases could be taxed as done in the above mentioned cases.

The Ld. Counsel also submitted that the unaccounted purchases could not be taxed under section 69 of the Act. Hence, the addition made by the Ld. AO was uncalled for. The Ld. Counsel placed reliance on following decisions:  Kishinchand Chellaram (1980) 125 ITR 713 (SC)  Sun & Sun Inframetric in Tax Case no. 5 & 7 of 2022 (CG)  Sabh Infrastructure Ltd. (2017) 398 ITR 198 (Del.) SLP dismissed vide (2024) 461 ITR 339 (SC).  SKM Animla Feeds and Foods (India) Pvt. Ltd. (2024) 464 ITR 213 (Mad).

On the other hand, Dr. Priyanka Patel, Ld. Sr. DR, drawing our attention to various paras of orders of the Authorities below, argued the case vehemently. The Ld. Sr. DR drew our attention to section 292C(1)(ii) of the Act, contended that the contents of the seized documents were true any only true. Further, she submitted that when the purchases paid through banking channels by the assessee found mentioned in the seized documents got tallied with the regular books of account of the assessee then the unaccounted purchases recorded against the PAN of the assessee were also bound to be true. She, emphasizing the decision relied upon by the Ld. CIT(A), prayed for dismissal of the appeal.

We have heard both parties and have perused the material available on the record. We have taken note of the fact that the Ld. CIT(A) has not addressed the issue of taxability of entire purchase price vis-à-vis gross profit. Further, there is no specific finding in the impugned order that whether Vaibhav Garments was another trading unit owned by Vaibhav Trading Company or Vaibhav Garments was in existence only for making payments in cash equivalent to the difference between the pucca billed amount (received through banking channel) and actual consideration. Keeping in view the facts of the case and above discussion, we, without offering any comment on merit of the case, find the impugned order deem fit to set aside and remand the matter back to the file of the Ld. CIT(A) for deciding the case afresh/denovo, in accordance with the law, after affording reasonable opportunity of being heard to the assessee. We, therefore, order accordingly. Needless to say that the appellant assessee has to cooperate in remitted appellate proceedings.

In the result, this appeal of assessee is allowed for statistical purposes.