CRYSTAL CONSTRUCTION,MUMBAI vs. WARD 41(2)(1) MUMBAI, MUMBAI

INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI BENCH: C BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA 7697/MUM/2025 (िनधा�रण वष�/Assessment Year: 2019-20) Crystal Construction Ward 41(2)(1) Mumbai 806 Dhamji Shamji Gallaria Kautilya Bhavan LBS Marg Kanjurmarg West, Bandra Kurla Complex Mumbai-400078, Bandra East, Vs. Maharashtra Mumbai-400051, Maharashtra अपीलाथ� Appellant ��थ� Respondent

Permanent Account Number of Assessee: AAEFC0268N

अपीलाथ� �ारा/Appellant represented by: Shri Dharmesh Shah and Ms Metali Parekh, Advocates ��थ� �ारा/Respondent represented by: Shri Ajay Soneji, Sr. DR

सुनवाई की तारीख / Date of conclusion of hearing: 09.07.2026 घोषणा की तारीख / Date of pronouncement: 07.10.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by assessee is against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide Order No. ITBA/NFAC/S/250/2025-26/1081477634(1) dated 06.10.2025 passed against the assessment order by Assessment Unit of Income-tax Department, u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 (‘the Act’) dated 27.12.2024, for Assessment Year 2019-20.

2.1. During the course of hearing, ld. Counsel for the assessee submitted a prayer for admission of additional ground of appeal challenging the jurisdiction and validity of reopening of assessment u/s 147. The additional ground raised by the assessee reads as under:

"1. The Ld. CIT(A) ought to have appreciated that the reopening of assessment u/s. 147 of the Act and issue of notice u/s. 148 of the Act was invalid and void ab initio."

2.2. Ld. Counsel submitted that the additional ground raised is purely legal in nature going to the root of jurisdiction and all relevant material facts are already available on record. Relying upon the binding ratios of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC) and Jute Corporation of India Ltd. v. CIT 187 ITR 688 (SC), as well as the Full Bench decision of the Hon'ble Bombay High Court in Ahmedabad Electricity Co. Ltd. v. CIT 199 ITR 351 (Bom) and CIT v. Pruthvi Shareholding Pvt. Ltd. 349 ITR 336 (Bom), ld. Counsel prayed for the admission of the additional ground.

3.1. However, at the time of hearing, ld. Counsel for assessee submitted that since assessee has a strong case on merits, the legal ground challenging the reopening u/s 147 of the Act and sanction u/s 151 of the Act is not being pressed at this stage and may be left open. Accordingly, the additional ground challenging the jurisdiction and validity of reassessment proceedings is dismissed as not pressed and we proceed to adjudicate the appeal strictly on the merits of the case.

3.2. The main issue raised in the grounds of appeal pertains to the action of ld. CIT(A) in confirming the addition/disallowance of ₹86,89,263/- made u/s 37 of the Act by treating genuine purchases made from M/s. Maxx Tradelink as non-genuine/bogus.

5.1. Ld. Counsel pointed out serious factual errors in the assessment order at para 4.8, where ld. Assessing Officer observed that notice u/s 133(6) sent to M/s. Maxx Tradelink failed because "PAN: CDPPS4923P is not in existence". However, as per CGST communication and departmental records, the correct PAN of the proprietor/firm is CDPPS4923P and GSTIN is 27CDPPS4923P1ZI. The assertion by ld. DR and ld. Assessing Officer that PAN was non-existent is factually incorrect and shows non-application of mind. Also, ld. CIT(A) in para 5.4 records the submission made by the assessee as “While the appellant submitted audited books and payment proofs through banking channels, these documents alone cannot overshadow credible external fraud findings and lack of direct proof of goods receipt.”

7.1. On examination of the Financial Statements and Profit & Loss Account, assessee reported Gross Profit of ₹35,92,254.81 on contract receipts of ₹2,58,84,980.50, giving a GP ratio of 15.54%, and Net Profit of 6.95%. Disallowing ₹86,89,263/- out of purchases would result in an unachievable gross profit margin in government civil work contracts. Assessee has furnished a table giving details of turnover and gross profit for the preceding two years for comparison, which suggests a GP ratio of 14.76% in AY 2017-18 and 14.21% in AY 2018-19. In the year under consideration, the GP ratio is 15.4%, which is higher than the two preceding years. Reference was made to the decision of Hon’ble jurisdictional High Court of Bombay in the case of PCIT v. Mohammad Haji Adam and Company (2019) 203 taxmann.com 459 (Bom), wherein it was held that disallowance ought to be restricted to the positive difference if any, between gross profit element in the undisputed purchases and that on the alleged bogus purchases.

7.2. Furthermore, we note a clear factual inconsistency in the assessment order at para 4.8, where ld. Assessing Officer recorded that PAN ‘CDPPS4923P’ does not exist. The record reveals that the PAN belongs to Mohammad Wasim Mohd Hasan (Prop. M/s. Maxx Tradelink), and the department itself cited this PAN in its official communication. The conclusion that the supplier's PAN was non- existent is factually incorrect and therefore the contention of the Department that assessee failed to produce the party as required by the ld. AO for which notice under section 133(6) was issued and remained non-complied does not hold good.

7.3. In respect of reliance placed by the ld. AO on the information of CGST on the enquiries undertaken by them, there is nothing on record from where it can be inferred as to what enquiries were undertaken so as to provide an opportunity of cross verification/examination before taking an adverse view for the assessee.

7.3. Since contract receipts/sales are accepted, books of account are audited, payments were made through account payee cheques and consumption of materials in BMC civil contracts is established by measurement records, disallowance of 100% of purchases u/s 37 is wholly unjustified.

“30. We fail to understand that the respondent-assessee having consciously and intentionally decided not to join the investigation, cannot now contend that the appellant-revenue should have given them all the details before making the addition. In our view, such a conduct of the respondent-assessee cannot be accepted. It was incumbent upon the respondent-assessee to have joined the re-assessment proceedings, discharge the initial onus of proving the purchases and seek details, if any.” 8.1. Hon’ble Court while referring to the decision of Mohammad Haji Adam & Co. [2019] 203 taxmann.com 459 (Bom), noted that in this case, assessee had participated in the assessment proceedings, ld. CIT(A) compared the purchases and sales statement and there was a finding that purchases cannot be rejected since there was correlation between the purchases and sales.

8.2. Based on the above observations and conclusion drawn by the Hon’ble Court in Kanak Impex (supra), the present facts of the case do not warrant its application as it is evidently demonstrated that assessee has participated in the assessment proceedings as well as at the first appellate stage.

8.3. On the stated similar factual position as in the present case before us, we take note of the observations and findings of the Hon'ble jurisdictional High Court of Bombay in the case of SVD Resins and Plastics Pvt. Ltd. (supra). In Para-11, Hon'ble Court noted that-

“It is an admitted position that during the assessment proceedings, the E assessee filed all necessary documents in support of the returns on which the ledger accounts were prepared, including confirmation of the supplies by the suppliers, purchase bills, delivery bank statements etc, to justify the genuineness of the purchases, however, such documents were doubted by the AO on the basis of general information received by the AO from the Sales Tax Department. In our opinion, to wholly reject these documents merely on a general information received from the Sales Tax Department, would not be a proper approach on the part of the AO, in the absence of strong documentary evidence, including a statement of the Sales Tax Department that qua the actual purchases as undertaken by the assessee from such suppliers the transactions are bogus. Such information, if available, was required to be supplied to the assessee to invite the response on the same and thereafter take an appropriate decision. Unless such specific information was available on record, it is difficult to accept that the AO was correct in his approach to question such purchases, on such general information as may be available from the Sales Tax Department, in making the impugned additions. This for the reason that the same supplier could have acted differently so as to generate bogus purchases qua some parties, whereas this may not be the position qua the others. Thus, unless there is a case to case verification, it would be difficult to paint all transactions of such supplier to all the parties as bogus transactions.” 8.4. From the above, it is worth noting that similar factual position exists in the present case before us. Ld. Assessing Officer has proceeded on the basis of general information received by him from the CGST Department against which assessee has filed necessary documents wherein no defect or deficiency has been pointed out. Assessee has furnished details relating to measurement records for the civil work undertaken.

8.5. On the above stated observations, Hon'ble Court thus, opined that full addition could be made only on the basis of proper proof of bogus purchases available before the ld. Assessing Officer, as the law would recognize the same and would unequivocally indicate the transactions are wholly bogus. According to the Hon'ble Court, by no stretch of imagination, it cannot be concluded that the entire expenditure claimed by the assessee is to be taxed.

8.6. An important observation has been made by the Hon'ble Court in para-13 of this judgment whereby it opined that “wherever relevant, any confusion in regard to the transaction being bogus, needs to be aligned only after the Assessing Officer consults the sales tax department and a thorough enquiry in regard to such specific transactions being bogus, is also conclusion of the sales tax department.” Thus, the Hon'ble Court held that in absence of such a cohesive and coordinated approach of the Assessing Officer with the sales tax authorities, it would be difficult to come to a concrete conclusion with regard to such purchases/sales transaction being bogus, merely on the basis of general information, so as to discard such expenditure and make the addition thereof.

8.7. This above stated judgment was subsequently followed by the same Court in the case of Ashok Kumar Rungta vs. ITO [2024] 167 taxmann.com 429 (Bom) and also in the case of PCIT vs. Ramelex Pvt. Ltd. [2025] 179 taxmann.com 374 (Bom).

8.9. Taking into account the factual matrix, detailed submissions and documentary evidences placed on record as well as jurisprudence analyzed and discussed in the above paragraphs, we find it appropriate to restrict the addition for gross profit element embedded in the alleged non-genuine purchase from the said party by taking in to consideration the judicial pronouncement in the case of Mohammed Haji Adam and Company (supra) wherein it was held that the disallowance ought to be restricted to the positive reference, if any, between the gross profit element in the undisputed purchase and that on the alleged non- genuine purchases. We direct the ld. AO to compute such a difference and make the addition, if any, accordingly. In this regard, details of GP ratio and NP ratio are already noted above. Grounds raised by the assessee in this regard are partly allowed.

Order is pronounced in the open court on 07 October, 2026

Sd/- Sd/- (Saktijit Dey) (Girish Agrawal) Vice President Accountant Member Dated: 07 October, 2026 MP, Sr.P.S.

Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER, ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.16 10:24:24 +05'30' (Dy./Asstt.Registrar) ITAT, Mumbai