PALLAVI DHAIRESH SANGHVI,MUMBAI vs. ITO - WARD 19(2)(4), MUMBAI

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ITA 9484/MUM/2025Status: DisposedITAT Mumbai27 May 20269 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that while the suppliers were found to be non-genuine, the assessee's corresponding sales were not disputed, and quantitative details were maintained. Therefore, only the profit element embedded in the purchases should be taxed.

What were the facts?

The assessee claimed purchases from the 'R.K. Group', which was later found to be involved in providing accommodation entries for bogus purchases. The Assessing Officer disallowed the entire purchase amount, and this was upheld by the CIT(A).

What were the issues?

Whether the entire amount of purchases from alleged bogus entry providers should be disallowed, or only the profit element embedded therein.

Which sections of the Income-tax Act were involved?

Section 37,Section 147,Section 144B,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI

For Appellant: Shri Paresh Shaparia -CA
For Respondent: Shri V.S. Mahajan (Sr.DR)
Hearing: 14/05/2026Pronounced: 27/05/2026

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No.9484/Mum/2025 (Assessment year: 2017-18)

Pallavi Dhairesh Sanghvi vs ITO Ward 19(2)(4), Mumbai 601/602, Sankalp CHS, 18 Piramal Chambers, Lalbaug, Walkeshwar Road, Malabar Mumbai-400012 Hill, Walkeshwar, Mumbai- 400006 PAN: AAFPS2775P APPELLANT RESPONDENT Assessee by : Shri Paresh Shaparia -CA Revenue by : Shri V.S. Mahajan (Sr.DR) Date of hearing : 14/05/2026 Date of pronouncement : 27/05/2026 O R D E R Per: Anikesh Banerjee (JM): The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity the “Ld. CIT(A)”], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2017-18, date of order 10.11.2025. The impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 147 r.w.s. 144B of the Act date of order 29.05.2023.

2 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi 2. The brief facts of the case are that the assessee is in individual capacity filed the return by declaring total income of Rs.5,27,970/-. The information was received by the Ld. AO that the assessee is involved to take the bogus purchase from the R.K. Group consistent of following concern M/s. R.K. Traders, M/s. R.K. Impex, M/s. R.L. Textile whereby it is established that the said group is involved in providing accommodation entries in the form of bogus purchase and sales. During the survey action on a group named “One World Group” it was found that the assessee had made a bogus purchase transactions amount to Rs.1,86,34,353/- during the assessment year from various entities. As mentioned above, the assessee’s case was reopened u/sec. 147. The assessment was framed and the Ld. AO determined the total assessed income amount to Rs.2,22,34,406/-. The addition was made on account of disallowance as per section 37 of the Act related to expenses amount to Rs.2,17,06,436/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). the Ld. CIT(A) uphold the impugned addition. Being aggrieved assessee filed an appeal before u/sec. 3. The Ld. AR argued filed a paper book comprising pages 1 to 173 which has been placed on record. The Ld. AR submitted the details fact related to assessment and in appellate proceeding. The statement of fact is reproduced as below: “1. The appellant is an individual, Proprietor of "Overseas Textile Company" doing business of trading in textiles, clothing & shirting etc. 2. The Original Return of Income was e-filed on 15.09.2017 declaring taxable income at Rs.5,27,970/- after claiming deduction chapter VI-A of Rs. 1,50,000/- vide acknowledgement no. 211331211150917.

3 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi 3. The Appellant received notice u/s 148 on 19.04.2021 for A.Y. 2017-18 against which the Return of Income was e- filed on 07.05.2021 declaring taxable income of Rs. 5,27,970/- vide Acknowledgement Number 349286581070521. 4. Reasons for reopening the assessment proceedings u/s 148 was issued vide notice dated 24.08.2021 for bogus sale /purchase transaction to tune of Rs. 1,86,34,353 in relation to R K group. 5. Show Cause Notice u/s 148A(b) dated 29.05.2022 was issued for subsequent proceeding with reference to section 148A(b) based on Supreme Court judgement in case of Union of India &Ors vs Ashish Agrawal (2022 SCC Online SC 543) dated 04.5.2022 6. No reply against the SCN could be filed as the appellant had not received the said notice. 7. The Order u/s 148A(d) has been passed on 30.07.2022 for A.Y. 2017-18 stating fit case for reopening treating the appellant as beneficiary of accommodation entry of Rs. 1,86,34,353/-. 8. The appellant received a fresh notice u/s 148 dated 30.07.2022 for A.Y. 2017-18. against which Return of Income was e- filed on 05.08.2022 declaring taxable income of Rs 5,27,970/- which is same as the original return. 9. The appellant was issued notice u/s 143(2) on 02.12.2022 against which reply letter dated 15.12.2022 was e-filed on 16.12.2022. 10. The appellant was further issued notice u/s 142(1) 12.01.2023 seeking the information and documents. The reply dated 25.01.2023 against the said notice was e-filed on 26.01.2023.11. Show Cause Notice (SCN) was issued on 19.05.2023 for making disallowance of expenses claimed of Rs.1,86,34,353/- for purchases from R K Group against which reply was e-filed on 22.05.2023 and also request for seeking video conference hearing was made on the same date. 12. The Appellant was intimated about the VC on 23.05.2022 fixing the hearing on 24.05.2023 at 3:30 pm which was attended by the authorized representative of the appellant. 13. The appellant had also further filed the synopsis of arguments and explanations post VC hearing on the same day i.e on 24.05.2023. 14. The appellant then received another Show Cause Notice (SCN) on 26.05.2023 for making disallowance of expenses claimed of Rs. 2,17,06,436/- (in earlier SCN such disallowance was proposed at Rs.1,86,34,353/-) for purchases from R K Group at 8:00 pm fixing the hearing on 27.05.2023 on the very next date i.e. Saturday. The hearing was fixed within very short period of time by the AO thereby not granting the appellant reasonable time and opportunity. 15. The appellant had reply on 27.05.2023 against the said Show Cause Notice.

4 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi

16.

The appellant had requested cross examination of the parties whose statement has been relied upon vide letters dated 15.12.2022, 22.05.2023, 24.05.2023 & 27.05.2023, however no such cross examination opportunity was granted. 17. The Order u/s 147 r.w.s. 1448 was passed on 29.05.2023 assessing income at Rs. 2,22,34,406/- 18. The difference between the Returned Income of Rs. 5,27,971/- and Assessed Income of Rs. 2,22,34,406/- as per assessment order is Rs. 2,17,06,436/- on account of following: -  Disallowance of ineligible expenses u/s 37 of Rs.2.17,06,436/- (purchases from R K group). 19. The penalty proceedings u/s 274 r.w.s. 270A of the Income Tax Act, 1961 are separately initiated for underreporting of income in consequence of misreporting. 20. An appeal was preferred before CIT(A)-NFAC, on 16.06.2023 against order under section 147 r.w.s 1448 dated 29.05.2023 passed assessing income at Rs. 2,22,34,406/-. 21. CIT(A)-NFAC issued letter for VC to us dated 26.09.2025 against which the appellant opted to seek VC vide letter dated 29.09.2025. However, the CIT(A)-NFAC has stated that no such VC was opted which is factually incorrect. 22. The CIT(A)-NFAC vide his order number ITBA/NFAC/S/250/2025-26/1082435731(1) dated 10.11.2025 confirmed the disallowance of ineligible expenses u/s 37 of Rs.2,17,06,436/- (Purchases from R K group).” 4. The Ld. AR contended that both in assessment and in appeal the assessee submitted the details of evidence like sale register, purchase register, bills, ledgers and delivery challans in support of his claim related to the purchase. The Ld. AR has drawn our attention in relevant paragraphs of the impugned appellate order contend in pages 16 and 17 which are reproduced as below: “13. During the course of assessment proceedings, the appellant vide letter dated 15.12.2022 and 25.01.2023 have submitted the following documents and supporting evidence to prove the above purchase transactions are genuine with M/s R.K. Traders, M/s R.K. Impex and M/s R.M. Textiles which is duly accepted by AO:-

5 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi  Party wise details of Sales made during the year along with all ledger accounts (Refer Factual Paper Book-ll Pg. No. 54-55)Party wise details of Purchases made during the year along with all ledger accounts (Refer Factual Paper Book-II Pg. No. 53)  Quantity wise summary of sales and purchases made during year (Refer Factual Paper Book-ll Pg. No. 167)  Purchase bills/invoices (Refer Factual Paper Book-Il Pg. No. 56-75)  Sales bills/invoices (Refer Factual Paper Book-II Pg. No. 76-116)  Bank statement depicting the payment made to the said parties (Refer Factual Paper Book-ll Pg. No. 174-178)  Confirmation of Account duly signed by both the parties for A.Y. 2017-18 & Α.Υ. 2018-19 (Refer Factual Paper Book-II Pg. No. 168-173)  Purchase & Sales Delivery Challans (Refer Factual Paper Book-II Pg. No. 117-166)  Few invoices for sale of the goods pertaining to purchases from the parties R.K Traders, R.K Impex and M/s R.M Textiles (Refer Factual Paper Book-II Pg. No. 76-116)  Details of Sundry Debtors and Sundry Creditors  Stock records depicting opening, purchase, sale and closing (Refer Factual Paper Bookil Pg. No. 167). Kindly note there is opening and closing stock, all purchase made have been sold during the year  Bank statements of all bank accounts for F.Y 2016-17”

5.

The Ld. AR contended that the Ld. AO observed that the total transaction was made with the R.K. Group amount to Rs.1,86,34,353/- but the addition made in the impugned assessment order amount to Rs.2,17,06,436/-. The reasonable cause was not duly cited for enhancement this expenses from Rs.1,86,34,353/- to 2,17,06,436/-. The said grievance was duly submitted before the Ld. CIT(A). But the Ld. CIT(A) had rejected the assessee plea and uphold the addition which is unjustified. The Ld. AR further invited our attention in the details of stock records depicting opening purchase as well as closing stock which is submitted in a tabular format which is reproduced as below:

6 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi

6.

The Ld. AR further respectfully relied on the order of Hon'ble Bombay High Court in the case of PCIT vs Amcon Construction reported at (2026) 185 taxmann.com 937 Bombay. The relevant paragraphs 12 to 16 is reproduced as below: “12. We are therefore of the view that, in the facts of the present case as well, the information regarding alleged Hawala entry providers was forwarded by the Sales Tax Department, and on the basis of such information the purchases in question were treated as bogus and added to the income of the Respondent/ Assessee.13. The facts in the present case stand on a similar footing as those in the cases of Paramshakti Distributors Pvt. Ltd. (supra), SVD Resins (supra), and Ramalex (P.) Ltd. (supra). We are therefore of the view that the aforesaid decisions squarely cover the questions of law raised by the Appellant/ Revenue in the present appeal. 14. The ITAT, upon appreciation of the facts on record, has rightly restricted the addition to 10% of the alleged bogus purchases, representing the profit element embedded therein. 15. In any event, the issues involved are essentially findings of fact, which do not give rise to any substantial question of law requiring interference or consideration in the present appeal under Section 260A of the Act. 16. In view thereof, the appeal filed by the Appellant/ Revenue is dismissed, as no substantial question of law arises for consideration. No costs.”

7 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi 7. The Ld. DR argued and contended that a search was conducted in the R.K. Group and it is factually correct that the assessee had made a purchase from the three entities of the “R.K. Group”. The department found that the said group, is the entry providers so, the purchase made by the assessee is from bogus entity. Admittedly, the addition made by the Ld. AO and sustained by the Ld. CIT should be uphold. The Ld. DR has drawn our attention the observations in impugned appellate order in paragraph no. 7.53 which is reproduced as below: “7.53 Therefore, to sum up the crux of all the judgement, it is held by all the courts that when there is a bogus entry then the right step is to over all delete that entry. In the present case, the Ld. AO has shown that the parties through which purchases were made i.e. M/s. R. K. Traders, M/s. R. K. Impex and M/s. R. L. Textiles were involved in bogus purchase and sale transactions and no actual genuine business activities were being carried out by the so called R.K. Group. Further, the appellant has not been able to disprove this findings of the Ld. AO regarding this group through whom such bogus purchases were made by the appellant. Therefore, the contention of the appellant that full disallowance of purchases from such parties (R.K. Group consisting of M/s. R. K. Traders, M/s. R. K. Impex and M/s. R. L. Textiles), should not be made and percentage of G.P. should be applied to such bogus purchases to tax the profit element out of such bogus purchases, is not justified and hence dismissed. Thus, the addition made by the Ld. AO by disallowing the total bogus purchases made from such parties by the appellant amounting to Rs.2,17,06,436/- is confirmed.”

8.

We heard the rival submissions and considered the documents available on record. It is an undisputed fact that the assessee had entered into purchase transactions with the concerns belonging to the “R.K. Group”, namely M/s. R.K. Traders, M/s. R.K. Impex and M/s. R.L. Textiles. The information was received from the Investigation Wing consequent to survey/search proceedings conducted on the said group wherein it was established that the entities of the group were engaged in providing accommodation entries in the nature of bogus purchases and sales without carrying out any genuine business activities. Based on such tangible material, the assessment was reopened and the impugned addition was

8 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi made. The Ld. AR contended that the assessee had furnished purchase bills, sales invoices, ledger accounts, stock records, delivery challans, confirmations and bank statements in support of the purchases. It was further argued that corresponding sales have not been doubted by the revenue authorities and quantitative details of stock movement were duly furnished. The Ld. AR also contended that no opportunity of cross-examination of the alleged entry providers was granted to the assessee. On the other hand, the Ld. DR strongly relied upon the findings of the Investigation Wing as well as the observations of the Ld. CIT(A) and submitted that the entities of the “R.K. Group” were merely accommodation entry providers and, therefore, the purchases claimed from such entities were not genuine.

9.

On careful consideration of the entire factual matrix, we find that though the suppliers were found to be non-genuine accommodation entry providers, the corresponding sales declared by the assessee have not been disputed by the revenue authorities. The assessee had also maintained quantitative details, stock records, purchase and sales registers and banking transactions. Therefore, it cannot be presumed that no purchases whatsoever were made by the assessee. At the same time, considering the findings of the Investigation Wing and the inability of the assessee to conclusively establish the genuineness of the suppliers, the possibility of purchases being made from the grey market cannot be ruled out.

10.

We find force in the contention of the assessee that only the profit element embedded in such purchases can be brought to tax. The Hon’ble Bombay High Court in the case of Amcon Construction (supra) upheld the estimation of profit

9 ITA No.9484/Mum/2025 Pallavi Dhairesh Sanghvi element at 10% of the alleged bogus purchases amount to Rs.1,86,34,353/-. Similar view has consistently been taken by the Hon’ble Jurisdictional High Court in various decisions dealing with bogus purchase transactions. Respectfully following the ratio laid down by the Hon’ble Bombay High Court, we direct the Ld. AO to restrict the disallowance to 10% of the alleged bogus purchases amount to Rs. 1,86,34,353/- which comes to Rs. 18,63,435/- and delete the balance addition. Accordingly, the addition is sustained only to the extent of 10% of the impugned purchases i.e. Rs. 18,63,435/- and the remaining addition stands deleted. Accordingly, the grounds raised by the assessee are partly allowed.

11.

In the result, the appeal of the assessee bearing ITA No.9484/Mum/2025 is partly allowed. Order pronounced in the open court on 27th day of May 2026. Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 27/05/2026 SAUMYASr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI

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