VEEJAY EXPORTS PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICE, MUMBAI

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ITA 8428/MUM/2025Status: DisposedITAT Mumbai20 May 20269 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal noted that the majority of purchases were accepted as genuine and export sales were not doubted. It restricted the addition to the differential profit margin, directing the assessee to provide computation of gross profit margin for similar goods.

What were the facts?

The assessee, engaged in garment manufacturing and export, had purchases of INR 1.68 Crores added as bogus by the Assessing Officer, who estimated profit at 12.5%. The CIT(A) dismissed the appeal, upholding the addition.

What were the issues?

Whether purchases are bogus solely based on non-response to notices and unavailability of vendors. What is the appropriate profit margin to be added in case of deemed bogus purchases?

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, K(SMC

Per Rahul Chaudhary, Judicial Member:

1.

By way of the present appeal the Assessee has challenged the Order dated 09/10/2025, passed by the Commissioner of Income Tax, Appeal, ADDL/JCIT (A) Panchkula, [hereinafter referred to as the ‘CIT(A)’], whereby the Learned CIT(A) had dismissed the appeal of the Assessee against the Assessment Order, dated 31/03/2016, passed under Section 143(3), read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Years 2010-2011. 2. The Assessee has raised the following grounds of appeal:

1.

The Learned Assessing Officer has erroneously and unjustly added a sum of 21,07,185/- to the returned income of 3,00,210/- of the Assessment Year: 2010-11 = assessee by unjustly and erroneously deeming 21,07,185/- being 12.5 percent of the total deemed non genuine purchases of 1,68,57,477/- as profit earned from such purchases.”

3.

The relevant facts in brief are that the Assessee in the present case is the company engaged in manufacture and export of readymade garments. For the Assessment Years 2010-2011, the Assessee filed the return of income on 25/09/2010 declaring income of INR.3,00,210/- which was processed u/s. 143(1) of the Act. Subsequently, reassessment proceedings were initiated in the case of the Assessee under Section 147 of the Act which culminated into passing of the Assessment Order under Section 143(3) r.w.s 147 of the Act. The Assessing Officer assessed the income of the Assessee at INR.23,07,395/- after making an addition of INR.21,07,185/- in the hands of the Assessee. The Assessing Officer concluded that the Assessee had booked bogus purchases aggregating INR.1,68,57,477/- and therefore, made an addition of 12.5% of the aforesaid alleged bogus purchases in the hands of the Assessee.

4.

The Assessee preferred an appeal against the Assessment Order before the Learned CIT(A) and filed additional evidence. The Learned CIT(A) called for the remand report from the Assessing Officer in respect of the additional evidence and written submissions filed by the Assessee before the Learned CIT(A). In response, the Assessing Officer furnished the remand report wherein it was stated as under:

“6. On the submission of the appellant, a remand report was called from the Assessing Officer who submitted as under:- "In connection of case M/s Veejay Exports Pvt. Ltd (PAN: AACCV7971L) for AY 2010-11 filed against the order u/s 143(3) rws 147 of the Act filed on 31.03.2016, you have requisitioned a remand report. The assessee has also submitted reply to letter dated 18.10.2022, in which they have submitted submission made before the Hon'ble CIT(A). A copy of the said evidence and written submissions were forwarded for ready reference & necessary action. Accordingly, the undersigned has been asked to offer comments:

= a). On merits of the case, evidence and written submissions.

2.

The assessee has submitted in length the submissions which can be summarised as under:

i). The assessee had made genuine purchases of total net value Rs.16209112/- and gross value of Rs 16857477/-.

ii). It was unjust to deem genuine purchases as bogus merely on the grounds of third-party statements given to Sales Tax Authority.

iii). All transactions were duly supported by bills which have been made by account payee cheques, reflected in bank statements. Further tax invoices cum delivery challans were furnished during assessment and the purchases made have been utilised for the purpose of resale during the year which proves the commercial consideration of the said purchase as there cannot be usage without corresponding purchase.

iv). The assessee during the time of assessment proceedings submitted copies of invoices and has also placed on record the ledger account statements of the said parties through banking channels. The details of resale vide export have also been placed showing interpolation of purchases with the corresponding export. The details and documents prove that Company had made exports.

v). The textile industry being unorganized sector heavily dependent on agents and third-party persons the goods are not always delivered with proper transportation details as they are mostly delivered by hamals and such persons donot have any receipts or documents. They are paid by load generally by persons sending the goods. Similarly in the case of this case, goods were hand delivered through these means and hence there weren't any transportation or delivery challans.

vi) The purchases were deemed unauthentic only because a the persons were not available at the given addresses. The assessee has relied on judicial pronouncements in support of their defence. During the assessment proceedings, the assessee vide letter dated 28th December 2015, had stated as under:

1.

Assessee is carrying on business as Manufacturer, Exporter & Reseller of Garment, Textiles & General Merchandise. Firstly, Fabric Cloth and other general merchandise were purchase as sample. From Fabric Cloth various designs are prepared which are then shown to prospective buyers. Based on sample shown, buyers place their respective orders. After the confirmation of orders, raw materials are purchased in bulk.

2.

All the transactions were through agents and the assessee did not deal with the manufacturer of raw material directly. Agents provided credit facilities to assessee in consideration for commission. Agent = became important link between producer or manufacturer of raw materials from whom fabric cloths or general merchandise was purchased and cheques were handed to agents on day when the payments was due.

3.

Goods were being mostly hand delivered either by employees of the seller or by local delivery van. Transport charges were borne by Seller. Payments against purchases were made by account payee cheques which are also reflected in the bank statements. From the details submitted it can be only be inferred that there are agents for both purchase and sale of goods. Hence the assessee should have included commission payments at least for the goods soLearned However, the P & Loss statement do not show any direct expenses made for sales but only for purchases. The assessee has also submitted the bank statements that they had submitted during assessment proceedings.

a). On going through the bank details, it is seen that large amount of money has been debited on single day for different purchasers. Hence it can only be inferred that these cheques were bearer cheques and not account payee cheques.

b). To verify the genuineness of the purchase parties, as per the details provided by the assessee company, notices u/s 133(6) of the Income Tax Act were issued to the aforesaid parties during assessment proceedings. However, the parties have not responded to the said notices nor has any reply been submitted. The assessee has stated that the parties may have changed address and as the assessee did not have any transaction with the parties it is difficult to trace

c). Barring the purchase invoices and cheque payments details, no other document such as Delivery Challans, Lorry receipts, transportation details etc. were produced during the course of assessment proceedings. This proves that the purchases made were bogus.

4.

Now based on the submissions made by the assessee before the Ld CIT(A) and the details submitted during the assessment proceedings, the submissions made by the assessee should not be accepted for the following reasons.

i) The purchases were treated bogus only after specific information was received from Sales Tax Authorities.

ii) None of the parties from whom the purchases were made were found available at the given addresses.

iii) None of the parties could be produced by the assessee, when he was asked to do so in the course of assessment proceedings.

= iv) Merely based on facts that payments were routed through banking channels, the purchases cannot be said to be genuine. v) The assessee has not challenged the findings of the Sales Tax Authorities, who have treated these transactions as accommodation entries. The observation of the Sales Tax Authorities cannot be overlooked. vi) Taking into account the above facts and circumstances, the only conclusion that could be reached was that the assessee was a beneficiary of the accommodation bills issued by the parties mentioned above, wherein, there wasn't actual delivery/physical delivery of the goods. An accommodation bill is obtained for introducing unaccounted goods into the accounted stream. The goods are claimed to be genuine and consumed in the manufacturing process by the assessee, it is proved that the assessee was actually in possession of goods. At the same time, it did purchase goods from other suppliers, may be without bills which is commonly known as Grey Market and be so, the assessee has been benefited by providing margin of grey market. This is proved by the bank statement where the cheques were paid to 'agents' who encashed the various cheques on the same day."

5.

The Assessee was confronted with the above remand report, in response the Assessee made following submissions:

(a) During the relevant previous year, the Assessee had total export turnover of INR.41.39 Crores as against the corresponding purchases of INR.41.12 Cr. Out the aforesaid purchases, the Assessing Officer was of the view that the purchases of about INR1.69 Crores were bogus and therefore, the addition of INR 27,08,185/- being 12.5% of the aforesaid alleged bogus purchases was made in the hands of the Assessee.

(b) The Assessee had furnished the affidavit of agents who assisted the Assessee in purchase of goods in respect of which the remand report was furnished by the Assessing Officer.

(c) the Assessing Officer had failed to appreciate that the cheques were collected by the agents and thereafter, handed over for clearance to the bank. Since, the volume of the transactions = and business was large, there were multiple debits on the single day. Though, the Assessing Officer had issued notices to the various parties which were not responded to, the Assessing Officer had failed to appreciate that the transaction under consideration pertaining to Financial Year 2009-2010, whereas the notices were issued during the Financial Year 2022-2023. It was possible that due to efflux of time, the number of vendors would have shifted more so when the number of business were shut down on account of Covid-19 pandemic. It was contented that the Assessee was operating in largely unorganized sector, where delivery of goods were done by hands through hamals.

(d) It was further submitted that the Assessee had exported the goods out of India which could not have been done without purchases. The ledger confirmations received from the vendors/suppliers could not be procured since the Assessee was not directly in touch with the suppliers and was transacting the business through the agents. Therefore, the Assessee has placed on record the affidavit of the agents. The agents were maintaining purchases, records, delivery details and payment details.

(e) The Assessee company had started operations only in the Financial Year 2008-2009 and had majorly targeting exports. There was no allegation of the alleged bogus purchases in the Financial Year 2009-2010 and 2010-2011, wherein the Assessee earned the gross profit of 0.41% and 0.62% respectively. The additions have been made by the Assessing Officer merely on the grounds of suspicious harbor, on the basis of the reports received from the Sales Tax Department.

6.

The Learned CIT(A), after taking into consideration the submissions advanced by the Assessee and the remand report received from the Assessing Officer, dismissed the appeal preferred by the Assessee = observing that the Assessee had failed to bring on record any new material or specific evidence to show that the purchases were genuine. As regards, the estimation at the profit rate of 12.5% of the alleged bogus purchases is concerned, the Learned CIT(A) noted that the Assessing Officer correctly relied upon the Judgment of Hon’ble Jiwani [2022] 145 taxmann.com 230 (Bombay).

7.

Being aggrieved the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.

8.

All the grounds raised by the Assessee is directed against the addition of INR 21,07,185/- (being 12.5% of the alleged bogus purchases of INR 1,68,57,477/- made by the Assessing Officer and sustained by the Learned CIT(A). Both the sides reiterated their respective stands/submissions before the Learned CIT(A). On one hand the Assessee has contended that it was operating in unorganized sector and had purchases goods (being readymade garments) with the help of agents and delivery was made by hand by hamals. On the other hand, the Revenue has contended that the Assessee has booked bogus purchases to earn margin estimated to be 12.5% of alleged bogus purchases. The Assessing Officer has recorded that the notice issued under Section 133(6) of the Act were not responded to by the vendors/third parties and therefore, purchases were not genuine. During the course of hearing, it was contended by the Learned Authorised Representative for the Assessee that the Assessee earned the gross profit of 0.41% and 0.62% in the Financial Year 2009-2010 and 2010-2011, respectively, wherein there was no allegation of the alleged bogus purchases. Therefore, margin of 12.5% estimated by the Assessing Officer was very high. We note that neither the Assessing Officer nor the Learned CIT(A) have disputed the contention of the Assessee that the during the relevant previous year, the Assessee had made export sales of INR.41.39 = Crores as against the corresponding purchases of INR.41.12 Crores. Out of the aforesaid purchases of INR.41.12 Crores, purchases of about INR.1.69 Crores have been alleged to be bogus. The majority of purchases have been accepted as genuine and export sales have not been doubted. Therefore, keeping in view the judgment of the Hon'ble Bombay High Court in the case of Principal Commissioner of Income-tax-17 vs. Mohommad Haji Adam & Co. [2019] 103 taxmann.com 459 (Bombay)[11-02-2019] we restrict the addition to the differential profit margin being the difference in the gross profit disclosed by the Assessee in respect of genuine purchases and the alleged bogus purchases. For the same, the Assessee is directed to place before the Assessing Officer the computation of gross profit margin of similar goods purchased and sold during the relevant previous year. In terms of the aforesaid, the ground raised by the Assessee is partly allowed.

9.

In the result, the appeal preferred by the Assessee is partly allowed.

Order pronounced on 20.05.2026. (Om Prakash Kant) Judicial Member मुंबई Mumbai; िदनांक Dated : 20.05.2026 Aditi Pandare, Private Secretary =

आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : अपीलाथ" / The Appellant

1.

""थ" / The Respondent. 2. आयकर आयु"/ The CIT

3.

"धान आयकर आयु" / Pr.CIT 4. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT,

5.

Mumbai गाड" फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.

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