MADANMOHANLAL G ARORA,MUMBAI vs. INCOME TAX OFFICER, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BENERJEE (JUDICIAL MEMBER)

ITA No.207/MUM/2026 Assessment Year: 2010-11

Madanmohanlal G Arora, Income Tax Officer, 225, Sant Tukaram Road, Iron Market, Kautilya Bhavan, Mumbai – Vs. Masjid Bunder (East), Mumbai – 400009, 400051, Maharashtra. Maharashtra. PAN NO. AABPA 1302 Q APPELLANT RESPONDENT

: Shri Devendra Jain Assessee by : Shri Surendra Mohan, (SR. DR) Department by Date of Hearing : 21.04.2026 : 05.05.2026 Date of pronouncement ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 10.12.2025, passed by the Learned Commissioner of Income-Tax (Appeals) - National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Assessment Year (in short ‘A.Y’) 2010-11, raising following grounds: -

“1. The learned assessing officer and the CIT (A) erred in assessing income at 2,87,94,535 instead of returned income of 21,67,620. Non consideration of evidences submitted

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of the Income-tax A tax Act, 1961 (in short “the Act”) on 11.12.2017, ct, 1961 (in short “the Act”) on 11.12.2017, determining the total income at Rs. 54,96,990/ determining the total income at Rs. 54,96,990/-. While framing the . While framing the assessment, the AO observed that the assessee had allegedly assessment, the AO observed that the assessee had allegedly assessment, the AO observed that the assessee had allegedly obtained accommodation entries in the guise of purchases obtained accommodation entries in the guise of purchases obtained accommodation entries in the guise of purchases aggregating to Rs. 2,66,26, aggregating to Rs. 2,66,26,915/-, which were treated as non , which were treated as non- genuine. Proceeding on the premise that the purchases were not genuine. Proceeding on the premise that the purchases were not genuine. Proceeding on the premise that the purchases were not verifiable and were merely book entries intended to suppress verifiable and were merely book entries intended to suppress verifiable and were merely book entries intended to suppress profits, the AO held that the entire purchases could not be profits, the AO held that the entire purchases could not be profits, the AO held that the entire purchases could not be disallowed, as the corresponding sales disallowed, as the corresponding sales were not doubted. were not doubted. Accordingly, following the principle that only the profit element Accordingly, following the principle that only the profit element Accordingly, following the principle that only the profit element embedded in such transactions is liable to be brought to tax, the embedded in such transactions is liable to be brought to tax, the embedded in such transactions is liable to be brought to tax, the AO estimated the same by applying a gross profit rate of 12.5% on AO estimated the same by applying a gross profit rate of 12.5% on AO estimated the same by applying a gross profit rate of 12.5% on the alleged bogus purchases. In support the alleged bogus purchases. In support of such estimation, the AO of such estimation, the AO placed reliance on various judicial precedents, including decisions placed reliance on various judicial precedents, including decisions placed reliance on various judicial precedents, including decisions of the Coordinate Benches of the Tribunal as well as the Hon’ble of the Coordinate Benches of the Tribunal as well as the Hon’ble of the Coordinate Benches of the Tribunal as well as the Hon’ble High Courts, wherein it has been consistently held that in cases High Courts, wherein it has been consistently held that in cases High Courts, wherein it has been consistently held that in cases involving unverifiable or accom involving unverifiable or accommodation purchases, the addition modation purchases, the addition ought to be restricted to the profit element embedded therein rather ought to be restricted to the profit element embedded therein rather ought to be restricted to the profit element embedded therein rather than the entire purchase value. Consequently, the AO made an than the entire purchase value. Consequently, the AO made an than the entire purchase value. Consequently, the AO made an addition of Rs. 33,28,364/ addition of Rs. 33,28,364/-, being 12.5% of the alleged non , being 12.5% of the alleged non-genuine purchases of Rs. 2,66,26, purchases of Rs. 2,66,26,915/-, to the income of the assessee. , to the income of the assessee. The relevant finding of the AO is reproduced as under: relevant finding of the AO is reproduced as under:-

“6.7. As discussed above, the assessee has intentionally inflated the 6.7. As discussed above, the assessee has intentionally inflated the 6.7. As discussed above, the assessee has intentionally inflated the purchases by taking accommodation entry to reduce the profit element. In purchases by taking accommodation entry to reduce the profit element. In purchases by taking accommodation entry to reduce the profit element. In the present case, even it presumed that the assessee has sold the goods ven it presumed that the assessee has sold the goods ven it presumed that the assessee has sold the goods purchased from the alleged bogus parties to various parties. That being purchased from the alleged bogus parties to various parties. That being purchased from the alleged bogus parties to various parties. That being

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the position, only profit element embedded in such purchases can be the position, only profit element embedded in such purchases can be the position, only profit element embedded in such purchases can be added to income of the assessee. The Hon'ble ITAT, Mumbai in the case added to income of the assessee. The Hon'ble ITAT, Mumbai in th added to income of the assessee. The Hon'ble ITAT, Mumbai in th of ACIT vs. Arya Texturisers & Twisters (ITA No. 29/MUM/02) dated 03- of ACIT vs. Arya Texturisers & Twisters (ITA No. 29/MUM/02) dated 03 of ACIT vs. Arya Texturisers & Twisters (ITA No. 29/MUM/02) dated 03 12-2005 has upheld the GP addition. Further, the Hon'ble ITAT, Mumbai 2005 has upheld the GP addition. Further, the Hon'ble ITAT, Mumbai 2005 has upheld the GP addition. Further, the Hon'ble ITAT, Mumbai in the case of Shri Madhukant B. Gandhi Vs. ITO in ITA No. in the case of Shri Madhukant B. Gandhi Vs. ITO in ITA No. in the case of Shri Madhukant B. Gandhi Vs. ITO in ITA No. 1950/MUM/2009 dated 23 1950/MUM/2009 dated 23-02-2010 after considering the facts and e facts and circumstances of the case, restricted the addition to certain percentage of circumstances of the case, restricted the addition to certain percentage of circumstances of the case, restricted the addition to certain percentage of disputed purchases. Furthermore, the Hon'ble Gujarat High court in the disputed purchases. Furthermore, the Hon'ble Gujarat High court in the disputed purchases. Furthermore, the Hon'ble Gujarat High court in the case of CIT Vs. Bholanath Ply. Fab Pvt. Ltd. (2013) (355 ITR 290/40 case of CIT Vs. Bholanath Ply. Fab Pvt. Ltd. (2013) (355 ITR 290/40 case of CIT Vs. Bholanath Ply. Fab Pvt. Ltd. (2013) (355 ITR 290/40 Taxmann.com 494 (2014) 220 Ta Taxmann.com 494 (2014) 220 Taxmann 82 (Mag. (Guj.) (HC) has xmann 82 (Mag. (Guj.) (HC) has confirmed the decision of ITAT that the addition should be restricted to confirmed the decision of ITAT that the addition should be restricted to confirmed the decision of ITAT that the addition should be restricted to profit element/benefit accrued to the assessee. The Hon'ble High Court in profit element/benefit accrued to the assessee. The Hon'ble High Court in profit element/benefit accrued to the assessee. The Hon'ble High Court in the case of CIT Vs. Simit P.Sheth has held that only estimated possible the case of CIT Vs. Simit P.Sheth has held that only estimated possible the case of CIT Vs. Simit P.Sheth has held that only estimated possible profit out of purchase made through non out of purchase made through non-genuine parties can be added. genuine parties can be added. 6.8 In view of the foregoing discussion, to plug 6.8 In view of the foregoing discussion, to plug-in the leakage of revenue, in the leakage of revenue, Rs.33,28,364/-, , being being 12.5% 12.5% of non-genuine genuine purchase purchase of of Rs.2,66,26,915/- for the year under consideration, is for the year under consideration, is disallowed and disallowed and added back to the total income of the assessee. Penalty proceedings u/s added back to the total income of the assessee. Penalty proceedings u/s added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) of the IT Act, 1961 are separately initiated for furnishing 271(1)(c) of the IT Act, 1961 are separately initiated for furnishing 271(1)(c) of the IT Act, 1961 are separately initiated for furnishing inaccurate particulars of income and concealment of income. inaccurate particulars of income and concealment of income.” ” 3. Subsequently, the ld Principal Comm Subsequently, the ld Principal Commissioner of Income Tax issioner of Income Tax (PCIT), in exercise of his revisional jurisdiction under Section 263 of (PCIT), in exercise of his revisional jurisdiction under Section 263 of (PCIT), in exercise of his revisional jurisdiction under Section 263 of the Act, passed an order dated 23.02.2021, holding that the the Act, passed an order dated 23.02.2021, holding that the the Act, passed an order dated 23.02.2021, holding that the assessment order framed by the Assessing Officer was erroneous assessment order framed by the Assessing Officer was erroneous assessment order framed by the Assessing Officer was erroneous insofar as it was prejudicial to the i insofar as it was prejudicial to the interests of the Revenue. The nterests of the Revenue. The learned PCIT was of the view that the Assessing Officer had failed to learned PCIT was of the view that the Assessing Officer had failed to learned PCIT was of the view that the Assessing Officer had failed to carry out necessary enquiries to ascertain the genuineness of the carry out necessary enquiries to ascertain the genuineness of the carry out necessary enquiries to ascertain the genuineness of the impugned purchases, including verification of the parties and impugned purchases, including verification of the parties and impugned purchases, including verification of the parties and examination of the cash trail examination of the cash trail. According to the learned PCIT, in light . According to the learned PCIT, in light of the ratio laid down by the Hon’ble Supreme Court in N.K. of the ratio laid down by the Hon’ble Supreme Court in of the ratio laid down by the Hon’ble Supreme Court in Proteins Ltd. v. DCIT (supra) Proteins Ltd. v. DCIT (supra), the entire amount of alleged bogus , the entire amount of alleged bogus purchases aggregating to Rs. 2,66,26,915/ purchases aggregating to Rs. 2,66,26,915/- ought to have been ought to have been brought to tax, instead of brought to tax, instead of restricting the addition to the profit restricting the addition to the profit

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element embedded therein. The failure of the Assessing Officer to element embedded therein. The failure of the Assessing Officer to element embedded therein. The failure of the Assessing Officer to adopt such an approach, coupled with lack of adequate enquiry, adopt such an approach, coupled with lack of adequate enquiry, adopt such an approach, coupled with lack of adequate enquiry, was held to render the assessment order unsustainable in law. was held to render the assessment order unsustainable in law. was held to render the assessment order unsustainable in law. Invoking the provisions o Invoking the provisions of Explanation 2 to Section 263(1) of the f Explanation 2 to Section 263(1) of the Act, the learned PCIT set aside the assessment order dated Act, the learned PCIT set aside the assessment order dated Act, the learned PCIT set aside the assessment order dated 11.12.2017 and restored the matter to the file of the Assessing 11.12.2017 and restored the matter to the file of the Assessing 11.12.2017 and restored the matter to the file of the Assessing Officer with a direction to conduct fresh and comprehensive Officer with a direction to conduct fresh and comprehensive Officer with a direction to conduct fresh and comprehensive enquiries and to frame the asses enquiries and to frame the assessment de novo in accordance with sment de novo in accordance with law, after affording due and reasonable opportunity of being heard law, after affording due and reasonable opportunity of being heard law, after affording due and reasonable opportunity of being heard to the assessee. The relevant finding of the Ld. PCIT is reproduced The relevant finding of the Ld. PCIT is reproduced The relevant finding of the Ld. PCIT is reproduced as under:-

“6. Under the circumstances delineated above, the failure of the 6. Under the circumstances delineated above, the failure of the 6. Under the circumstances delineated above, the failure of the Assessing Officer with regard to identifying genuineness of the ficer with regard to identifying genuineness of the ficer with regard to identifying genuineness of the transaction, establishing cash trail, conducting the requisite enquiries into transaction, establishing cash trail, conducting the requisite enquiries into transaction, establishing cash trail, conducting the requisite enquiries into the genuineness of the parties, considering the decision of the SC in N.K the genuineness of the parties, considering the decision of the SC in N.K the genuineness of the parties, considering the decision of the SC in N.K Protiens (supra), has to be regarded as erroneous in Protiens (supra), has to be regarded as erroneous in so far as it is so far as it is prejudicial to the interests of the revenue, within the meaning of section prejudicial to the interests of the revenue, within the meaning of section prejudicial to the interests of the revenue, within the meaning of section 263 of the Act. Accordingly, the assessment order dated 11.12.2017 263 of the Act. Accordingly, the assessment order dated 11.12.2017 263 of the Act. Accordingly, the assessment order dated 11.12.2017 passed by the AO under section 143(3) of the Act is set aside as per passed by the AO under section 143(3) of the Act is set aside as per passed by the AO under section 143(3) of the Act is set aside as per provisions of Explanation 2 provisions of Explanation 2 to section 263(1) of the Act to the Assessing to section 263(1) of the Act to the Assessing Officer. He is directed to conduct the requisite enquiries to arrive at the Officer. He is directed to conduct the requisite enquiries to arrive at the Officer. He is directed to conduct the requisite enquiries to arrive at the correct conclusion as per law and frame the order of assessment de novo, correct conclusion as per law and frame the order of assessment de novo, correct conclusion as per law and frame the order of assessment de novo, keeping in mind the observations made in the foregoing paragraphs. keeping in mind the observations made in the foregoing paragr keeping in mind the observations made in the foregoing paragr Needless to add, adequate opportunity of being heard will be afforded to Needless to add, adequate opportunity of being heard will be afforded to Needless to add, adequate opportunity of being heard will be afforded to the assessee to file details and furnish its explanation. the assessee to file details and furnish its explanation.” 4. Aggrieved by the revisional order passed under Section 263 of Aggrieved by the revisional order passed under Section 263 of Aggrieved by the revisional order passed under Section 263 of the Act, the assessee preferred an appeal before the Tribunal. The the Act, the assessee preferred an appeal before the the Act, the assessee preferred an appeal before the Coordinate Bench of the Tribunal, vide order dated 28.02.2022 in Coordinate Bench of the Tribunal, vide order dated 28.02.2022 in Coordinate Bench of the Tribunal, vide order dated 28.02.2022 in ITA No. 514/Mum/2021, upheld the assumption of jurisdiction by ITA No. 514/Mum/2021, upheld the assumption of jurisdiction by ITA No. 514/Mum/2021, upheld the assumption of jurisdiction by the learned PCIT under Section 263, holding that the assessment the learned PCIT under Section 263, holding that the assessment the learned PCIT under Section 263, holding that the assessment

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order was passed without requisite enquiry and verification and order was passed without requisite enquiry and ver order was passed without requisite enquiry and ver was, therefore, erroneous insofar as prejudicial to the interests of was, therefore, erroneous insofar as prejudicial to the interests of was, therefore, erroneous insofar as prejudicial to the interests of the Revenue within the meaning of Explanation 2 to Section 263(1) the Revenue within the meaning of Explanation 2 to Section 263(1) the Revenue within the meaning of Explanation 2 to Section 263(1) of the Act. However, the Tribunal did not concur with the of the Act. However, the Tribunal did not concur with the of the Act. However, the Tribunal did not concur with the observation of the learned PCIT that the entire a observation of the learned PCIT that the entire amount of alleged mount of alleged non-genuine purchases was liable to be added to the income of the genuine purchases was liable to be added to the income of the genuine purchases was liable to be added to the income of the assessee. The Coordinate Bench clarified that, in cases of alleged assessee. The Coordinate Bench clarified that, in cases of alleged assessee. The Coordinate Bench clarified that, in cases of alleged bogus purchases, it is only the profit element embedded therein bogus purchases, it is only the profit element embedded therein bogus purchases, it is only the profit element embedded therein that is liable to be brought to tax, and n that is liable to be brought to tax, and not the entire purchase ot the entire purchase value, particularly when the corresponding sales are not disputed. value, particularly when the corresponding sales are not disputed. value, particularly when the corresponding sales are not disputed. Accordingly, while sustaining the revisional jurisdiction exercised Accordingly, while sustaining the revisional jurisdiction exercised Accordingly, while sustaining the revisional jurisdiction exercised by the learned PCIT, the Tribunal modified the directions to the by the learned PCIT, the Tribunal modified the directions to the by the learned PCIT, the Tribunal modified the directions to the extent that the quantum of additi extent that the quantum of addition should not be mechanically on should not be mechanically taken at 100% of the alleged non taken at 100% of the alleged non-genuine purchases. Instead, the genuine purchases. Instead, the Assessing Officer was directed to determine, in accordance with law, Assessing Officer was directed to determine, in accordance with law, Assessing Officer was directed to determine, in accordance with law, the appropriate percentage of profit to be embedded in such the appropriate percentage of profit to be embedded in such the appropriate percentage of profit to be embedded in such purchases, purchases, after after conducting conducting proper prop er verification verification and and upon upon consideration of the relevant material to be furnished by the consideration of the relevant material to be furnished by the consideration of the relevant material to be furnished by the assessee. The Tribunal thus upheld the order passed under Section assessee. The Tribunal thus upheld the order passed under Section assessee. The Tribunal thus upheld the order passed under Section 263 of the Act, subject to the aforesaid modification, and restored 263 of the Act, subject to the aforesaid modification, and restored 263 of the Act, subject to the aforesaid modification, and restored the matter to the file of the Asses the matter to the file of the Assessing Officer for fresh adjudication sing Officer for fresh adjudication on the limited aspect of quantification of the addition. The relevant on the limited aspect of quantification of the addition. on the limited aspect of quantification of the addition. finding of the Coordinate of the Tribunal (Supra) is reproduced as finding of the Coordinate of the Tribunal (Supra) is reproduced as finding of the Coordinate of the Tribunal (Supra) is reproduced as under:-

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“5. Heard both the sides perused the material available on record. The “5. Heard both the sides perused the material available on record. The “5. Heard both the sides perused the material available on record. The assessing officer has specifically reopened the assessment u/s 147 of assessing officer has specifically reopened the assessment u/s 147 of assessing officer has specifically reopened the assessment u/s 147 of the Act on the basis of information received that assessee has obtained the Act on the basis of information received that assessee has obtained the Act on the basis of information received that assessee has obtained accommodation entries in respect of bogus purchases from the hawala accommodation entries in respect of bogus purchases from the hawala accommodation entries in respect of bogus purchases from the hawala parties without delivery of goods. During the parties without delivery of goods. During the course of reassessment course of reassessment proceedings, the assessing officer has issued a number of notices as proceedings, the assessing officer has issued a number of notices as proceedings, the assessing officer has issued a number of notices as referred above in this order, however, the assessee has not made any referred above in this order, however, the assessee has not made any referred above in this order, however, the assessee has not made any compliance before the assessing officer. The assessee has even not compliance before the assessing officer. The assessee has even not compliance before the assessing officer. The assessee has even not furnished any basic detail o furnished any basic detail of transactions of sale and purchases made by f transactions of sale and purchases made by him during the year under consideration. Under the circumstances the him during the year under consideration. Under the circumstances the him during the year under consideration. Under the circumstances the A.O has categorically stated that assessee has failed to establish the A.O has categorically stated that assessee has failed to establish the A.O has categorically stated that assessee has failed to establish the genuineness of the purchases genuineness of the purchases as no evidence has been submitted by the as no evidence has been submitted by the assessee to prove the genuineness of the purchases. Without retreating ssessee to prove the genuineness of the purchases. Without retreating ssessee to prove the genuineness of the purchases. Without retreating the facts as reported in this order it is observed that the case of the the facts as reported in this order it is observed that the case of the the facts as reported in this order it is observed that the case of the assessee was specifically reopened to verify the genuineness of assessee was specifically reopened to verify the genuineness of assessee was specifically reopened to verify the genuineness of purchases. However, the assessee has not produce a purchases. However, the assessee has not produce any detail before the ny detail before the assessing officer during the course of reassessment proceedings in spite assessing officer during the course of reassessment proceedings in spite assessing officer during the course of reassessment proceedings in spite of issuing a number of notices the assessee has deliberately not made of issuing a number of notices the assessee has deliberately not made of issuing a number of notices the assessee has deliberately not made any compliance before the assessing officer. Even the basic detail of any compliance before the assessing officer. Even the basic detail of any compliance before the assessing officer. Even the basic detail of purchase and sales mad purchase and sales made during the year were not available before the e during the year were not available before the assessing officer before estimating the bogus purchases being 12.5% of assessing officer before estimating the bogus purchases being 12.5% of assessing officer before estimating the bogus purchases being 12.5% of the purchases made by the assessee from the hawala entries providing the purchases made by the assessee from the hawala entries providing the purchases made by the assessee from the hawala entries providing parties. Such material facts demonstrate that before estimating the bogus parties. Such material facts demonstrate that before estimating the parties. Such material facts demonstrate that before estimating the purchases material and details pertaining to the impugned purchases purchases material and details pertaining to the impugned purchases purchases material and details pertaining to the impugned purchases made by the assessee from the alleged parties was available with the made by the assessee from the alleged parties was available with the made by the assessee from the alleged parties was available with the assessing officer. Even during the course of appellate proceedings before assessing officer. Even during the course of appellate proceedings before assessing officer. Even during the course of appellate proceedings before us the assessee has failed to furnish t us the assessee has failed to furnish the basic details pertaining to the he basic details pertaining to the purchase and sale made to prove the genuineness of the transactions. purchase and sale made to prove the genuineness of the transactions. purchase and sale made to prove the genuineness of the transactions. The case law referred by the Id. Counsel are factually distinguishable The case law referred by the Id. Counsel are factually distinguishable The case law referred by the Id. Counsel are factually distinguishable from the basic facts prevailing in the case of the assessee, as the ld. from the basic facts prevailing in the case of the assessee, as the ld. from the basic facts prevailing in the case of the assessee, as the ld. Counsel except making legal submission on the validity of invoking xcept making legal submission on the validity of invoking xcept making legal submission on the validity of invoking provision of Sec. 263 of the Act has neither brought to our notice any provision of Sec. 263 of the Act has neither brought to our notice any provision of Sec. 263 of the Act has neither brought to our notice any material, nor even slightly demonstrate that the assessing officer had material, nor even slightly demonstrate that the assessing officer had material, nor even slightly demonstrate that the assessing officer had examined the relevant material pertaining to purchase tr examined the relevant material pertaining to purchase transaction from ansaction from the alleged parties before arriving at estimation addition @ 12.5% of the the alleged parties before arriving at estimation addition @ 12.5% of the the alleged parties before arriving at estimation addition @ 12.5% of the bogus purchases. Looking to above facts and circumstances, we consider bogus purchases. Looking to above facts and circumstances, we consider bogus purchases. Looking to above facts and circumstances, we consider that in view of the Explanation 2 to Section 263 the order in this case is that in view of the Explanation 2 to Section 263 the order in this case is that in view of the Explanation 2 to Section 263 the order in this case is passed without any en passed without any enquiry or verification by the assessing officer, quiry or verification by the assessing officer, therefore, order of the assessing officer is deemed to be erroneous and therefore, order of the assessing officer is deemed to be erroneous and therefore, order of the assessing officer is deemed to be erroneous and prejudicial to the interest of the revenue. Therefore, in our considered prejudicial to the interest of the revenue. Therefore, in our considered prejudicial to the interest of the revenue. Therefore, in our considered opinion, the exercise of power u/s 263 of the Act to revise the assessment opinion, the exercise of power u/s 263 of the Act to revise the opinion, the exercise of power u/s 263 of the Act to revise the order is valid except the order is valid except the observation of the Pr. CIT that 100% of non observation of the Pr. CIT that 100% of non- genuine purchases to be added to the total income of the assessee. We genuine purchases to be added to the total income of the assessee. We genuine purchases to be added to the total income of the assessee. We consider that the percentage of bogus purchases to be added in this case consider that the percentage of bogus purchases to be added in this case consider that the percentage of bogus purchases to be added in this case is to be determined by the asse is to be determined by the assessing officer as per law after verification ssing officer as per law after verification of the relevant material to be produced by the assessee. Therefore, we of the relevant material to be produced by the assessee. Therefore, we of the relevant material to be produced by the assessee. Therefore, we uphold the impugned order of the ld. Pr. CIT subject to aforesaid terms uphold the impugned order of the ld. Pr. CIT subject to aforesaid terms uphold the impugned order of the ld. Pr. CIT subject to aforesaid terms

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and conditions. Accordingly, the Grounds of appeal of the assessee are and conditions. Accordingly, the Grounds of appeal of the assessee ar and conditions. Accordingly, the Grounds of appeal of the assessee ar dismissed.” 5. Pursuant to the directions issued under Section 263 of the Pursuant to the directions issued under Section 263 of the Pursuant to the directions issued under Section 263 of the Act, the Assessing Officer initiated fresh assessment proceedings Act, the Assessing Officer initiated fresh assessment proceedings Act, the Assessing Officer initiated fresh assessment proceedings and issued a detailed query letter to the assessee. In the absence of and issued a detailed query letter to the assessee. In the absence of and issued a detailed query letter to the assessee. In the absence of compliance, the same was followed by a show compliance, the same was followed by a show-cause notice. In the cause notice. In the said notice, the Assessing Officer primarily relied upon two aspects, said notice, the Assessing Officer primarily relied upon two aspects, said notice, the Assessing Officer primarily relied upon two aspects, namely: (i) information received from the Investigation Wing of the namely: (i) information received from the Investigation Wing of the namely: (i) information received from the Investigation Wing of the Department, and (ii) the failure of the assessee to discharge the Department, and (ii) the failure of the assessee to discharge the Department, and (ii) the failure of the assessee to discharge the onus cast upon it to substantia onus cast upon it to substantiate the genuineness of the impugned te the genuineness of the impugned purchases. The Assessing Officer noted that specific information The Assessing Officer noted that specific information The Assessing Officer noted that specific information had been received from the office of the Director General of Income had been received from the office of the Director General of Income had been received from the office of the Director General of Income Tax (Investigation), Mumbai, as well as from the Sales Tax Tax (Investigation), Mumbai, as well as from the Sales Tax Tax (Investigation), Mumbai, as well as from the Sales Tax Department, indicating that c Department, indicating that certain parties were engaged in ertain parties were engaged in providing accommodation entries without carrying on any genuine providing accommodation entries without carrying on any genuine providing accommodation entries without carrying on any genuine business activity. Based on such information, it was alleged that business activity. Based on such information, it was alleged that business activity. Based on such information, it was alleged that the the the assessee assessee assessee had had had shown shown shown purchases purchases purchases aggregating aggregating aggregating to to to Rs. Rs. Rs. 2,66,26,915/- from such entities having det from such entities having details as under: ails as under:

Name TIN No. PAN Amount (Rs.) Siddhivinayak 27050389521V AGVPS7889Q 13,901,735/- Steel Chanchal Tube 27460355491V AVFPS0644A 4,505,956/- Corporation Asian Steel 27860346638V AWZPS2908L 3,734,484/- 4,484,740/- Surat Tube 27550304371V APMPS5397D Corporation Total 2,66,26,915/-

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5.1 The AO further referred to The AO further referred to investigation reports investigation reports, which suggested that these entities were non suggested that these entities were non-existent at their given existent at their given addresses and were merely issuing invoices without actual delivery addresses and were merely issuing invoices without actual de addresses and were merely issuing invoices without actual de of goods, with the corresponding payments being routed back to the of goods, with the corresponding payments being routed back to the of goods, with the corresponding payments being routed back to the beneficiaries in cash after deduction of nominal commission. It was beneficiaries in cash after deduction of nominal commission. beneficiaries in cash after deduction of nominal commission. also reported that the also reported that the ‘Hawala’ parties, in their statement recorded parties, in their statement recorded in front of DGIT(Inv) have clearly stated that they in front of DGIT(Inv) have clearly stated that they had had not done any business business activities and business activities and activities and were were were involved involved involved merely merely in providing merely in in providing providing accommodation entries, though on record they show themselves as accommodation entries, though on record they show themselves as accommodation entries, though on record they show themselves as seller, trader or resellers. seller, trader or resellers.

5.2 Regarding the discharge of the egarding the discharge of the onus by the assessee the AO by the assessee the AO observed as under:-

“6.1. It is settled law that onus lies on the assessee to prove the It is settled law that onus lies on the assessee to prove the It is settled law that onus lies on the assessee to prove the genuineness of any expenditure which is claimed as deduction in genuineness of any expenditure which is claimed as deduction in genuineness of any expenditure which is claimed as deduction in computing its taxable income. Therefore, the onus in the said case lies on computing its taxable income. Therefore, the onus in the said case lies on the assessee to prove genuineness of the purchases which is said to have the assessee to prove genuineness of the purchases which is said to have the assessee to prove genuineness of the purchases which is said to have been made from the Hawala party which had been held to be bogus been made from the Hawala party which had been held to be bogus been made from the Hawala party which had been held to be bogus parties by the departmental authorities. It was incumbent on the assessee parties by the departmental authorities. It was incumbent on the assessee parties by the departmental authorities. It was incumbent on the assessee to prove that the suppliers were genuine suppliers and they really supplied to prove that the suppliers were genuine suppliers and they really supplied to prove that the suppliers were genuine suppliers and they really supplied material to the assessee and the assessee really made payments by material to the assessee and the assessee really made payments by material to the assessee and the assessee really made payments by cheques to these very parties and none else. Such a burden has to be cheques to these very parties and none else. Such a burden has to be cheques to these very parties and none else. Such a burden has to be discharge by the assessee with very strong and clinching evidence. Onus discharge by the assessee with very strong an d clinching evidence. Onus is on assessee to prove genuineness of the transaction. The assessee is on assessee to prove genuineness of the transaction. The assessee is on assessee to prove genuineness of the transaction. The assessee should produce during reassessment proceedings the following:- should produce during reassessment proceedings the following: should produce during reassessment proceedings the following: -Books of account showing purchases Books of account showing purchases- Purchase bills/Invoices- Purchase bills/Invoices -Bank Statement/bank passbook Bank Statement/bank passbook showing payment for purchases showing payment for purchases Apart from this the assessee should produce Stock, Register, Delivery Apart from this the assessee should produce Stock, Register, Delivery Apart from this the assessee should produce Stock, Register, Delivery Challan, Transporter Bills, Confirmation from brokers, payment evidence, Challan, Transporter Bills, Confirmation from brokers, payment evidence, Challan, Transporter Bills, Confirmation from brokers, payment evidence,

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Quantity tally one to one correlation of receipt of goods with sales, Quantity tally one to one correlation of receipt of goods with sales, Quantity tally one to one correlation of receipt of goods with sales, Confirmation from third parties including brokers/transporters, other from third parties including brokers/transporters, other from third parties including brokers/transporters, other statutory record, excise register, octroi payment receipt, certificate from statutory record, excise register, octroi payment receipt, certificate from statutory record, excise register, octroi payment receipt, certificate from expert valuer. 7. During re-assessment proceedings, the assessee has failed to prove the assessment proceedings, the assessee has failed to prove the assessment proceedings, the assessee has failed to prove the genuineness of transactions with these parties. The assessee has not genuineness of transactions with these parties. The assessee has not given any documentary evidence which leads to conclusion that there were given any documentary evidence which leads to conclusion that there were given any documentary evidence which leads to conclusion that there were actual purchases from above mentioned parties and these parties actually actual purchases from above mentioned parties and these parties actually actual purchases from above mentioned parties and these parties actually exists. The inescapable conclusion one draws from above is that the exists. The inescapable conclusion one draws from above is that the exists. The inescapable conclusion one draws from above is that the purchase from the above parties are bogus and not genuine. Hon'ble Delhi ase from the above parties are bogus and not genuine. Hon'ble Delhi ase from the above parties are bogus and not genuine. Hon'ble Delhi High Court in the case of CIT Vs. La Medica 117 Taxman 628 (2001) has High Court in the case of CIT Vs. La Medica 117 Taxman 628 (2001) has High Court in the case of CIT Vs. La Medica 117 Taxman 628 (2001) has held that once it is accepted that the supplies were not made by the bogus held that once it is accepted that the supplies were not made by the bogus held that once it is accepted that the supplies were not made by the bogus party to whom the payments were alleged to have been made, the question party to whom the payments were alleged to have been made, the question whether the purchases were made from other source ought not to have whether the purchases were made from other source ought not to have whether the purchases were made from other source ought not to have weighed with the Tribunal as a factor in favour of the assessee. weighed with the Tribunal as a factor in favour of the assessee. weighed with the Tribunal as a factor in favour of the assessee. 7.1 Even after giving the benefit of doubt to the assessee that the quantity 7.1 Even after giving the benefit of doubt to the assessee that the quantity 7.1 Even after giving the benefit of doubt to the assessee that the quantity of purchase is correct which has been finally utilized for the purpose of the correct which has been finally utilized for the purpose of the correct which has been finally utilized for the purpose of the business, the assessee has not been able to establish, with documentary business, the assessee has not been able to establish, with documentary business, the assessee has not been able to establish, with documentary evidence that the Total Quantity of purchase match with the invoices evidence that the Total Quantity of purchase match with the invoices evidence that the Total Quantity of purchase match with the invoices raised. Thus, while there is not dispute about the quantity of goods (or raised. Thus, while there is not dispute about the q uantity of goods (or number of goods as the case may be), the assessee has utilized the number of goods as the case may be), the assessee has utilized the number of goods as the case may be), the assessee has utilized the services of 'hawala parties' to inflate the expenses to reduce its taxable services of 'hawala parties' to inflate the expenses to reduce its taxable services of 'hawala parties' to inflate the expenses to reduce its taxable income. 5.3 Thereafter, though the AO noted that only profit element Thereafter, though the AO noted that only profit element Thereafter, though the AO noted that only profit element embodied in such purcha such purchases could be added. The relevant finding of The relevant finding of the AO is reproduced as under: the AO is reproduced as under:-

“8. As discussed above, the assessee has intentionally inflated the “8. As discussed above, the assessee has intentionally inflated the “8. As discussed above, the assessee has intentionally inflated the purchases by taking accommodation entry to reduce the profit. The purchases by taking accommodation entry to reduce the profit. The purchases by taking accommodation entry to reduce the profit. The assessee may have sold the goods purchased from the alleged bogus assessee may have sold the goods purchased fro m the alleged bogus parties to various parties. Therefore, only profit element embedded in such parties to various parties. Therefore, only profit element embedded in parties to various parties. Therefore, only profit element embedded in purchase can be added to income of the assessee. purchase can be added to income of the assessee. 9. Unexplained Expenditure: In view of the above position of law, as the 9. Unexplained Expenditure: In view of the above position of law, as the 9. Unexplained Expenditure: In view of the above position of law, as the assessee failed to offer any explanation/justification with corroborative assessee failed to offer any explanati on/justification with corroborative evidence about the purchases made by the assessee from the above evidence about the purchases made by the assessee from the above evidence about the purchases made by the assessee from the above mentioned mentioned vendors vendors of of Rs Rs 2,66,26,915/-during 2,66,26,915/ during the the year year under under consideration, the same is disallowed and is treated as his unexplained consideration, the same is disallowed and is treated as his unexplained consideration, the same is disallowed and is treated as his unexplained expenditure u/s 69C of the Act.” expenditure u/s 69C of t

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5.4 However, notwithstanding the observation that only the profit However, notwithstanding the observation that only the profit However, notwithstanding the observation that only the profit element embedded in such transactions would ordinarily be liable element embedded in such transactions would ordinarily be liable element embedded in such transactions would ordinarily be liable to tax, the Assessing Officer ultimately proceeded to disallow the to tax, the Assessing Officer ultimately proceeded to disallow the to tax, the Assessing Officer ultimately proceeded to disallow the entire amount of Rs. 2,66,26,915/ entire amount of Rs. 2,66,26,915/- by treating by treating the same as unexplained expenditure under Section 69C of the Act, on the unexplained expenditure under Section 69C of the Act, on the unexplained expenditure under Section 69C of the Act, on the ground that the assessee had failed to furnish any satisfactory ground that the assessee had failed to furnish any satisfactory ground that the assessee had failed to furnish any satisfactory explanation supported by credible evidence. explanation supported by credible evidence.

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determined by the Assessing Officer upon due verification of the determined by the Assessing Officer upon due verification of the determined by the Assessing Officer upon due verification of the material to be furnished by the assessee. be furnished by the assessee. 7.1 A perusal of the impugned assessment order ( A perusal of the impugned assessment order ( A perusal of the impugned assessment order (Para No.8 as reproduced above)reveals that the Assessing Officer has, in reveals that the Assessing Officer has, in reveals that the Assessing Officer has, in principle, accepted the aforesaid legal position and has himself principle, accepted the aforesaid legal position and has himself principle, accepted the aforesaid legal position and has himself observed that only the profit element em observed that only the profit element embedded in such purchases bedded in such purchases is liable to be brought to tax. However, in a manifest departure from is liable to be brought to tax. However, in a manifest departure from is liable to be brought to tax. However, in a manifest departure from such finding, the Assessing Officer has proceeded to disallow the such finding, the Assessing Officer has proceeded to disallow the such finding, the Assessing Officer has proceeded to disallow the entire amount of purchases under Section 69C of the Act. Such an entire amount of purchases under Section 69C of the Act. Such an entire amount of purchases under Section 69C of the Act. Such an approach is clearly inconsiste approach is clearly inconsistent, both internally within the nt, both internally within the assessment order and vis assessment order and vis-à-vis the binding directions issued by the vis the binding directions issued by the Coordinate Bench of the Tribunal. Coordinate Bench of the Tribunal. 7.2 The Ld. Counsel referred to the decision of the Hon’ble The Ld. Counsel referred to the decision of the Hon’ble The Ld. Counsel referred to the decision of the Hon’ble Bombay High Court in the case of Principal Commissioner of Commissioner of Bombay High Court in the case of Principal Income Tax Vs. M/s Mohommad Haji Adam and Co. in [Income me Tax Vs. M/s Mohommad Haji Adam and Co. in [Income me Tax Vs. M/s Mohommad Haji Adam and Co. in [Income Tax Appeal No.1004 of 2016 Tax Appeal No.1004 of 2016 in order dated 11.02.2019], in order dated 11.02.2019], where in it is held that where the sales are not disputed, and the held that where the sales are not disputed, and the held that where the sales are not disputed, and the purchases are treated as non purchases are treated as non-genuine, the addition cannot be made genuine, the addition cannot be made on the entire purchase value; rather, it must be restricted to the urchase value; rather, it must be restricted to the urchase value; rather, it must be restricted to the extent of the profit element by bringing the gross profit rate on such extent of the profit element by bringing the gross profit rate on such extent of the profit element by bringing the gross profit rate on such purchases in line with that of genuine transactions. The said purchases in line with that of genuine transactions. The said purchases in line with that of genuine transactions. The said principle squarely governs the facts of the present case. The principle squarely governs the facts of the present case. principle squarely governs the facts of the present case. relevant finding of the Hon’ble finding of the Hon’ble High Court is reproduced as under: Court is reproduced as under:-

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“8. In the present case, as noted above, the assessee was a trader of In the present case, as noted above, the assessee was a trader of In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing fabrics. The A.O. found three entities who were indulging in bogus billing fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by activities. A.O. found that the purchases made by the assessee from the assessee from these entities were bogus. This being a finding of fact, we have these entities were bogus. This being a finding of fact, we have these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the proceeded on such basis. Despite this, the question arises whether the proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should Revenue is correct in contending that the entire purchase amount should Revenue is correct in contending that the entire purchase amount should be added by way of assessee's be added by way of assessee's additional income or the assessee is additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the correct in contending that such logic cannot be applied. The finding of the correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not CIT(A) and the Tribunal would suggest that the department had not CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the disputed the assessee's sales. There was no discrepancy between the disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the shown by the assessee and the sales declared. That being the shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the position, the Tribunal was correct in coming to the conclusion that the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a purchases cannot be rejected without disturbing the sales in case of a purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, therefore, correctly restrict trader. The Tribunal, therefore, correctly restricted the additions limited to ed the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other the extent of bringing the G.P. rate on purchases at the same rate of other the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of purchases. The decision of the Gujarat High Court in the case of purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd N.K. Industries Ltd. (supra) cannot be applied without reference to the . (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and In fact in paragraph 8 of the same Judgment the Court held and In fact in paragraph 8 of the same Judgment the Court held and observed as under- "So far as the question regarding addition of Rs.3,70,78, 125/ "So far as the question regarding addition of Rs.3,70,78, 125/ "So far as the question regarding addition of Rs.3,70,78, 125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer gross profit on sales of Rs.37.08 Crores made by the Assessing Officer gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales despite the fact that the said sales had admittedly been recorded in the had admittedly been recorded in the regular books during Financial Year 1997 regular books during Financial Year 1997-98 is concerned, we are of the 98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted view that the assessee cannot be punished since sale price is accepted view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6% gross profit is taken into account, by the revenue. Therefore, even if 6% gross profit is taken into account, by the revenue. Therefore, even if 6% gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be e corresponding cost price is required to be deducted and tax cannot be e corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly levied on the same price. We have to reduce the selling price accordingly levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66%. Therefore, considering 5.66% as a result of which profit comes to 5.66%. Therefore, considering 5.66% as a result of which profit comes to 5.66%. Therefore, considering 5.66% of Rs.3,70,78,125/ of Rs.3,70,78,125/-which comes to Rs.20,98,621.88 we think it fit to 20,98,621.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make direct the revenue to add Rs.20,98,621.88 as gross profit and make direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is necessary deductions accordingly. Accordingly, the said question is necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of answered partially in favour of the assessee and partially in favour of answered partially in favour of the assessee and partially in favour of the revenue." 7.3 The assessee has also placed before us a comparative chart of The assessee has also placed before us a comparative chart of The assessee has also placed before us a comparative chart of gross profit, both including and excluding the alleged non-genuine gross profit, both including and excluding the alleged non gross profit, both including and excluding the alleged non purchases, which, prima facie, has a direct bearing on the purchases, which, prima facie, has a direct bearing on the purchases, which, prima facie, has a direct bearing on the determination of the appropriate profit element. determination of the appropriate profit element. The The relevant chart is reproduced as under: is reproduced as under:-

Calculation Audit Report Audit Report Alleged Purchases GP GP after after Removing Removing Difference of GP and Corresponding alleged purchases & alleged purchases & Sales Corresponding sales Corresponding sales

Madanmohanlal G Arora Madanmohanlal G Arora 14 ITA No.207/MUM/2026 ITA No

Opn Stock 41,65,782 41,65,782 41,65,782 41,65,782 Add Purchase 13,62,94,614 13,62,94,614 2,66,01,141 10,96,93,473 10,96,93,473 Less Sales 14,20,66,277 14,20,66,277 2,70,45,483 11,50,20,794 11,50,20,794 Less-Clg 27,75,819 27,75,819 27,75,819 27,75,819 Stock GP 43,81,699 43,81,699 4,44,342 39,37,357 39,37,357 GP% 3.08 3.08 1.64 3.42 1.78 7.4 Since this factual aspect requires verification at the level of the Since this factual aspect requires verification at the level of the Since this factual aspect requires verification at the level of the Assessing Officer, we deem it appropriate to restore the matter for Assessing Officer, we deem it appropriate to restore the matter for Assessing Officer, we deem it appropriate to restore the matter for this limited purpose. In view of the foregoing, the impugned order this limited purpose. In view of the foregoing, the impugned order this limited purpose. In view of the foregoing, the impugned order of the learned CIT(A) is set aside, and the matter i of the learned CIT(A) is set aside, and the matter is restored to the s restored to the file of the Assessing Officer for the limited purpose of verifying the file of the Assessing Officer for the limited purpose of verifying the file of the Assessing Officer for the limited purpose of verifying the gross gross gross profit profit profit computation computation computation furnished furnished furnished by by by the the the assessee assessee assessee and and and determining, in accordance with law, the appropriate addition on determining, in accordance with law, the appropriate addition on determining, in accordance with law, the appropriate addition on account of alleged non account of alleged non-genuine purchases, strictly in consonance tly in consonance with the directions of the Coordinate Bench of the Tribunal in ITA with the directions of the Coordinate Bench of the Tribunal in ITA with the directions of the Coordinate Bench of the Tribunal in ITA No. 514/Mum/2021 dated 28.02.2022 and the law laid down by No. 514/Mum/2021 dated 28.02.2022 and the law laid down by No. 514/Mum/2021 dated 28.02.2022 and the law laid down by the Hon’ble jurisdictional High Court. the Hon’ble jurisdictional High Court. The Assessing Officer shall The Assessing Officer shall afford reasonable opportunity of being heard afford reasonable opportunity of being heard to the assessee and to the assessee and pass a reasoned order in accordance with law. pass a reasoned order in accordance with law.

Order pronounced in the open Court on ounced in the open Court on 05/0 /05/2026.

Sd/- Sd/ Sd/- (ANIKESH BENERJEE ANIKESH BENERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER

Madanmohanlal G Arora Madanmohanlal G Arora 15 ITA No.207/MUM/2026 ITA No

Mumbai; Dated: 05/05/2026 M. Ranganath Vittal , Sr. P.S. M. Ranganath Vittal , Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai