BABULAL GHEESARAM GHANCHI,VAPI vs. ITO WARD 1, GANDHIDHAM

Since, the issues involved in all these appeals and cross objection are common and identical; therefore, these appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No. 780/Rjt/2025 for A.Y. 2020-21, have been taken into consideration for deciding the above appeals en masse.

The grounds of appeal raised by the revenue in ITA No. 780/Rjt/2025 are as follows:

The grounds of appeal raised by the assessee in ITA No. 853/Rjt/2025 are as follows: “1. The Ld. CIT (Appeals) has erred both in law and on the facts in estimating the net total business income of the Appellant @ 30% of the total turnover of the business without considering the submissions and evidences furnished by the Appellant regarding the existence of the entities in dispute and genuineness of purchase transactions with them during the course of assessment proceedings before the Ld. Assessing Officer. 2. Without prejudice to the above, the Ld. CIT (Appeals) has erred both in law and on the facts in rejecting audited book results of the Appellant without explicitly indicating discrepancy in material terms in respect of correctness or completeness of the books of accounts of the Appellant in the impugned order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"]. 3. Without prejudice to the above, the Ld. CIT (Appeals) has erred both in law and on the facts in estimating net profit @ 30% of total turnover of the business of the Appellant on arbitrary basis and without recording reasons for such estimation in the impugned order under section 250 of the Act and without considering net profit reported in audited profit and loss account of the previous year relevant to the assessment year under consideration.

The grounds of appeal raised by the assessee in C.O. No. 16/Rjt/2025 are as follows: 1. The Ld. CIT (Appeals) has erred both in law and on the facts in estimating the net total business income of the Cross Objector @30% of the total turnover of the business without considering the submissions and evidences furnished by the Cross Objector regarding the existence of the entities in dispute and genuineness of purchase transactions with them during the course of assessment proceedings before the Ld. Assessing Officer.

Brief facts qua the issue are that the assessee in the capacity of an Individual had filed its e-return for the assessment year (A.Y.) 2020-21, on 13/10/2020, declaring total income of Rs. 1,07,970/-. The return was selected for scrutiny through CASS. The reason for selection of complete scrutiny under CASS as follows: 1. Business Purchase 2. Non- Furnishing of Quantitative Details 3. High Creditors/ liabilities Accordingly notice u/s. 143(2) vide no. ITBA/AST/S/143(2)/2021- 22/1033798587(1) was generated and served on the assessee on 29/06/2021 through electronic mode. In response to this notice, the detail was furnished by the assessee. Further, query was sent to the assessee u/s 142(1) calling to file response through e-filing portal. The assessee has complied by submitting e- response which were examined and considered. During the assessment proceeding, various notices u/s 133(6) of the Act, were issued electronically on 06/12/2021 to the following parties from whom the assessee has purchased goods during the period of consideration:

PANKAJ BHASIN PAN: AJMPB6556D

AMAR FLAVOURS PRIVATE LIMITED PAN: AAHCA2253M

JITENDER SINGH PAN: BCUPS0653J

G S INTERNATIONAL PAN: DOZPS5107A

KUMAR SALES PAN: AYEPS1722R

SOURBH/ PRAHEM TRADELINKS PVT. LTD. PAN: KZWPS7891L

DEEPANSHU DIXIT/ SHRI NATH EXPORTS PAN: BPSPD6056B

PREMIER SOLUTIONS PAN: AAWFP7776N

ARJUN RAJ RANA/ RDR OVERSEAS PAN: ASAPRT5936Q

KANAK SHALLFY INDUSTRIES PAN: AAGCK6506N PRIVATE LIMITED

PREMIER SOLUTIONS PAN: AAWFP7776N

ARJUN RAJ RANA/ RDR OVERSEAS PAN: ASAPRT5936Q

KANAK SHALLFY INDUSTRIES PRIVATE LIMITED PAN: AAGCK6506N

On 12/09/2022 vide letter No. ITBA/AST/F/143(3)(SCN)2022-23/ 1045380621(1), Show cause was issued by the assessing officer to the assessee for the assessment year 2020-21 asking to furnish his reply by 18.09.2022. The assessee was asked to furnish the following details with explanations viz:

However, assessee did not furnish any reply on or before due date of the show cause notice (SCN). Therefore, assessing officer noted that it is now clear that the assessee has no reply against the queries made. On perusal of the documents and information available with the Department, it is noted that assessee had made purchase of Rs. 146,72,24,650/- from the under mentioned parties and amount outstanding were Rs.145,54,50,097/-.

Therefore, the assessing officer observed that in normal course of business such type of incident is not familiar where almost total amount of purchase is outstanding at the end of the previous year. However, the assessee was given opportunity to furnish details of payments, if made in subsequent financial years. The assessee did not furnish the same. Notice u/s 133(6) was issued to the parties from whom no reply were received. As per information available in Insight Portal these parties are non-filer for the A.Y-2020-2021. It is also unexpected that the persons doing business in such huge volume did not file return of income. It is only possible when the purchases are fabricated and bogus. In this case, on perusal of facts available on record, it is noted that after conducting all possible investigation and opportunity extended to the assessee to furnish evidences during the course of assessment proceedings, as per which, the assessee had to file confirmations from the parties and also to produce evidence of payments if made in subsequent years. But, the assessee could neither file confirmations, nor produce any evidence. Therefore, considering these facts and the ratio laid down by the Hon’ble Supreme Court in the case of NK Proteins Ltd vs DCIT (2017) 292 CTR 354 (SC) which is squarely applicable to the facts of assessee case, where the Hon’ble Supreme Court dismissed appeal filed by the assessee and confirmed the findings of Hon’ble Gujarat High Court in respect of bogus purchases, where the Hon’ble Gujarat High Court, after analyzing necessary facts at para 6 of the order, held that once the Tribunal having come to a categorical finding that the purchases from certain parties are bogus, it was not incumbent on it to restrict the disallowance to the extent of 25% of such purchases. Considering the above discussion, the whole amount of transaction as purchase Rs.146,72,24,650/- was added back to the income of the assessee as per Section 69C of the Income Tax Act , 1961 as unexplained expenditure read with section 115BBE of the Income Tax Act, 1961.

Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before CIT(A) who has partly allowed the appeal of the assessee. The ld.CIT(A) observed that in assessee's case raw materials appear to have been purchased from grey market and bills are arranged from the parties whose names appear as creditors in the books of the assessee. Although bills are arranged for a higher quantity but it is not possible to conduct the manufacturing activities without purchase of any raw materials. In such situations, there are several judgements which indicate that after rejecting book results, profit element can be estimated by keeping in mind the nature of business and the ratio of profit in similar line of business. In the case of PCIT Vs Rishbhdev Technocables Ltd (Bombay High Court) INCOME TAX APPEAL(IT) No. 1330 of 2017 dt 10.02.2021, the Hon'ble Bombay High Court has held that where genuineness of purchases are not proved, entire purchases can not be disallowed. Only the profit element embedded in purchases would be subjected to tax and not the entire amount. Similar views have been held by the Hon'ble Court in (Bholanath Polyfab 355 ITR 290 (Guj) and Kaveri Rice Mills 157 Taxman 376 (All) & La Medica 250 ITR 575 (Del). Therefore, ld.CIT(A) held that book results of the assessee are not reliable and hence these are rejected for the reasons discussed above. The assessee has failed to establish the genuineness of the purchases. Hence, a reasonable estimate of profit would do justice in this case. It has been also been observed by ld.CIT(A) that profit element in this line of business is very high as due to brand/product loyalty consumers are ready to pay higher prices. Keeping in mind all these factors, it is reasonable to expect net profit of 30% on the total turnover of the business. Accordingly, ld.CIT(A) directed the assessing officer, to restrict the net total business income of the assessee to 30% of the total turnover of the business.

Aggrieved by the above findings of the ld.CIT(A), the revenue, as well as assessee, both are in appeal before this Tribunal.

Learned DR for the revenue argued that no confirmations were filed by the assessee from the suppliers and notice issued by the assessing officer u/s. 133(6) of the Act remained unattended, that is, no response from the suppliers were received by the assessing officer during the assessment proceedings. Therefore the purchases are bogus. All the parties who have supplied the goods to the assessee are non-filer of return of income, that is, these big suppliers are not filing any return of income, hence, all purchases are bogus. Out of total parties, 13 parties amounts are outstanding since long and creditors were not paid by the assessee. Similarly, the assessee did not received the amount from the debtors. Therefore, 100% purchases are bogus and hence should be disallowed. The Ld. DR also submitted that in assessee’s case two times, the search and seizure were conducted by two different agencies, however, ledger confirmations were not filed. Moreover, the statement made by the assessee during the proceedings, is also defective and no repayment is made to the creditors in subsequent years. In addition to this, the assessee is not maintaining stock register and has not furnished all the documents and evidences demanded by the assessing officer.

The Ld. D.R. for the revenue also submitted that before the Bench, the assessee has submitted following additional evidences. The list of these additional evidences which is given in the Paper Book of the assessee are reproduced below:

On the other hand, learned Counsel for the assessee submitted before us, synopsis of arguments, and written submission. The sum and substance of the arguments of learned Counsel is that when the assessing officer accepted the sales, then all the purchases are going to be genuine and no addition should be made by the assessing officer. The assessee submitted all the possible documents before the assessing officer, therefore, matter should not be restored back to the file of the assessing officer for fresh adjudication.

We have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that above additional evidences submitted by the assessee before this Tribunal have material impact on the determination of total income of the assessee and tax thereon. The assessee submitted sales register & sales invoice, first time before this Tribunal, therefore, assessing officer has not examined the Sales/turnover of the assessee and has not examined the sales invoices. Hence, arguments of the learned Counsel for the assessee to the effect that assessing officer has accepted the sales, as genuine sales, therefore, purchases are going to be accepted as genuine, cannot be accepted. To examine the sales/ turnover of the assessee, Sales register, and Sales invoices are essential, which were not submitted by the assessee before the assessing officer, therefore it is a material evidence and have impact on the determination of total income and taxes thereon. At the cost of repetition, we reproduce the list of additional evidences as follows: ADDITIONAL EVIDENCES under rule 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 1 Screen shot of GST Registration and GSTR-1 of the suppliers in dispute 486-570 2 Sales Register & Sales Invoice 571-723 3 GSTR-2A of the assessee (F.Y. 2019-20) 724-753 4 Ledger, Invoices and E-way bills of other suppliers of the assessee 754-771 5 Audited Financial Statements and Tax Audit Report of A.Y. 2021-22 772-797 6 SEZ related documentary evidences 798-810

Rule 29 – ITAT Rules, 1963, permits the Tribunal to admit additional evidence only in exceptional circumstances, namely:

We have also noticed from the facts narrated above from the assessment order and we find that during the assessment proceedings, there was non- compliance attitude of the assessee. The assessee, did not take care to attend the various notices issued by the assessing officer and assessee did not file the required documents and evidences before the assessing officer, during the assessment proceedings. The assessee has also not filed stock register before the assessing officer as pointed out by learned DR for the revenue and assessee has also not filed the evidence in respect of subsequent payment to creditors and debtors as demanded by the assessing officer during the assessment proceedings.

Learned counsel for the assessee also submitted before us that assessing officer has made addition under wrong section, namely section 69C of the Act. However, we note that mistake in quoting the section in the assessment order can be corrected by the higher authority and moreover the additions were made by the assessing officer based on the facts narrated in the assessment order, therefore facts narrated in the assessment order should be taken into account to sustain the addition in the hands of the assessee. We note that as Per Chagla CJ,.Navinchandra Mafatlal v CIT [1955] 27 ITR 245, 261, affirmed, [1961] 42 ITR 53 (SC), the Hon’ble Court held that: “If an order is made by an income-tax Officer and even though he may state that he has not made it under any particular section of the income-tax Act, or even if he may state that he has made it under a particular section, it is for us to decide which is the proper provision of the law under which such an order should have been made.”

In the combined result, the appeal of the assessee, cross objection filed by the assessee and appeal filed by the revenue are allowed for statistical purposes, in above terms.