DCIT-19(1), MUMBAI, MUMBAI vs. NINE METALS, MUMBAI

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that the reopening was based on specific and credible information received from the State GST Department regarding bogus transactions with M/s Dhanilaxmi Metal Industries, clearly indicating escapement of income chargeable to tax?"

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to delete the addition of Rs. 5,04,14,442/- made u/s 68 of the Income Tax Act. 1961 on account of bogus purchase and sale transactions with M/s Dhanlaxmi Metal Industries, without appreciating that the said concern was found by the State Tax authorities to be merely an accommodation entry provider?"

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 10,68,02,168/- made u/s 68 of the Income Tax Act, 1961 on account of unexplained sundry creditors, even though notices issued u/s 133(6) to the said parties remained uncomplied with, and the assessee failed to prove their identity, creditworthiness and genuineness of the transactions?"

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in directing the AO to delete the addition of bogus purchases made by the AO when the primary issue that whether the purchase party is bogus or purchase is bogus has not been examined because if the purchase party is bogus and the purchase is genuine, then estimation is correct but if purchase is bogus then the entire purchase amount deserves to be added?"

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A), has erred in not setting aside the issue to the lower authorities for examination of the primary fact of whether the purchase party is bogus or the entire purchase is bogus?"

"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the consequential penalty proceedings-initiated u/s 271AAC, which were directly linked to the additions made u/s 68."

"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), was perverse in not considering the recent judgment of the Hon'ble High Court of Bombay in the case of Kanak Impex, which is based on similar facts, wherein the assessee failed to prove genuineness?"

The appellant craves to add, alter, classify, reclassify, delete or modify any of the above grounds of appeal and requests to consider each of the above grounds without prejudice to one another."

All the grounds raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the additions made under Section 68 of the Act.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that during the course of assessment proceedings it was found that the assessee had made bogus sales and purchases from M/s. Dhanlaxmi Metal Industries, whose proprietor is Kapil Hukumchand Kothari. The said M/s. Dhanlaxmi Metal Industries was involved in bogus billing with several parties to avail bogus ITC. Therefore, after detailed investigation, the purchase and sales transactions of the parties with M/s. Dhanlaxmi Metal Industries were found to be non-genuine. Since the assessee had made sales and purchases from the said concern, additions under Section 68 of the Act were made by passing a detailed order and the same is reproduced herein below:

During the assessment proceedings, below mentioned notices and letters have been issued to you asking you to submit certain information:-

The assessee NINE METALS (PAN: AAEFN6873A) had filed its original return of Income for the A.Y. 2020-21 on 21.01.2021 declaring the total income at Rs. 1,59,41,150/- . Later on, information was received w.r.t. bogus sale and purchase by the assessee from one M/s Dhanlaxmi Metal Industries (PAN-AEBPK5633A) to the extent of Rs. 4,85,44,182/- and Rs. 18,70,260/- respectively totaling to Rs. 5,04,14,442/- during the period 01.04.2019 to 31.03.2020 relevant to the AY 2020-21. Based on the same, the case of the assessee was reopened and notice u/s 148 of the Act was issued and served on the assessee. However, the assessee did not file the return of income as desired.

The assessee had submitted the ledger copy of M/s Dhanlaxmi Metal Industries ( ΡΑΝ- ΑΕΒΡΚ5633A) in the books of M/s Nine Metals for the period under consideration. As per the same, the assessee had made purchases from M/s Dhanlaxmi Metal Industries on 14.10.2019 to the extent of Rs. 18,70,260/- (excluding the GST of Rs. 3,36.647/-). In addition to the above purchase, the assessee had also made sales to M/s Dhanlaxmi Metal Industries to the extent of Rs. 4,85,44,182/-

The assessee had further replied on 17.01.2025. The relevant portion of the reply is reproduced herewith for ready reference:-

In addition to the above, the assessee had also made transactions with M/s Dhanlaxmi Metal Industries(Sri KAPIL HUKMICHAND KOTHARI) for sale and purchase amounting to Rs 4,85,44,182/- and Rs. 18,70,260/- respectively totaling to Rs. 5,04,14,442/-during AY 2020-21 as mentioned in the earlier paras.

Based on the above, the assessment is completed as under:-

Penalty proceedings u/s 271AAC was initiated for the addition made u/s 68 of the Act.

Although this order was challenged before Ld. CIT(A) but Ld. CIT(A) deleted the additions only by concluding that the notice for reopening was issued by the jurisdictional AO rather than through the mandatory faceless mechanism introduced under Section 151A of the Act.

In this regard, the Ld. DR appearing on behalf of the Revenue specifically argued that by virtue of the amendment in the Finance Act, this ground is no longer available to the assessee. We are of the view that an appeal is in continuation of the assessment proceedings, and if any amendment is brought into the statute book during the pendency of the proceedings, then in such eventuality the Courts are duty-bound to look into the effect of such amendment.

Thus, following this principle, we find that by virtue of the amendment in the Finance Act, this ground is no longer available to the assessee. Accordingly, we set aside and quash the order of the Ld. CIT(A), wherein it was held that the assessment proceedings initiated were bad in law merely because the reassessment notice was issued by the jurisdictional AO rather than through the mandatory faceless mechanism as introduced under Section 151A of the Act, and restore the matter back to the file of the AO to decide this issue afresh in view of the latest amendment in the Finance Act.

Moreover, we also noticed that the additions made on merits were deleted by the Ld. CIT(A), but the Ld. CIT(A) has not dealt with the specific reasons recorded by the AO while reaching the conclusion for making additions under Section 68 of the Act. We are of the view that the said portion of the order of the Ld. CIT(A) is also not sustainable.

Therefore, we set aside and quash the order of the Ld. CIT(A) and restore the matter back to the file of the AO for fresh adjudication in accordance with law.

Needless to mention that the AO shall provide adequate opportunity of hearing to the assessee. The assessee shall not seek any adjournment on frivolous grounds and shall remain cooperative during the course of proceedings.

Before parting, we make it clear that our decision to restore the matter back to the file of the AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the AO independently in accordance with law.

In the result, appeal filed by the Department is allowed for statistical purposes.