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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
PER PRABHASH SHANKAR [A.Μ.] :- The present appeal is filed by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s.143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act"] dated 25.03.2014 for the Assessment Year [A.Y.] 2011-12. Page 2 Α.Υ. 2011-12 M/s Kobe Steel India
The grounds of appeal are as under: 1. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/ made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, without considering the fact that the action of the Assessing Officer was based on credible information received from the Maharashtra Sales Tax Department, that the parties declared as hawala traders who were bogus traders and not doing any genuine business, but were involved in providing only accommodation entries of bogus purchases ?” 2. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/ made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, by ignoring the fact that assessee had claimed purchases from M/s. Shree Sundha Steels Private Limited, a party which has allegedly been enlisted as Hawala Trader, through the Investigations carried out by the Maharashtra Sales Tax Department and it was found that assessee was one, who has obtained accommodation entries through bogus bills for the suspicious purchases ?”
"Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/- made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, by ignoring the fact that during the assessment proceedings the assessee has failed to provide documentary evidences such as transport bills and delivery challan etc. which proves that there was no genuine transactions carried out and the assessee was only obtained accommodation entries, without delivery of actual materials or goods ?” 4. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/- made us unexplained expenditure u/s 69C of the Income-Tax Act 1961, Page 3 Α.Υ. 2011-12 M/s Kobe Steel India without appreciating the views expressed in Section 69C of the IT Act, that where an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or if the explanation officer by him is in the opinion of the AO not satisfactory, the amount covered by such expenditure or part thereof, as the case may be deemed to be the income of the assessee for the financial year under consideration?” 5. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/- made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, without appreciating the decision of the Hon'ble Apex Court, in the case of M/s. N. K. PROTEINS LTD Vs. Dy. CIT (2016) 292 CTR (Gul.) 354, Dated. 16.01.2017, wherein the Hon'ble Court has held that, when the purchases are from bogus suppliers/hawala traders, the entire suspicious purchases are liable to be disallowed ?” 6. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/- made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, without considering the order in the case of Swetambar Steels Ltd., of the Hon'ble ITAT, Ahmadabad, wherein the Hon'ble ITAT had confirmed the disallowance of the bogus/suspicious purchases, in entirety stating that the purchases shown from the respective parties were found non- genuine and further, appeal against the decision of Hon'ble ITAT was not admitted by the Hon'ble Gujarat High Court and the assessee had also lost before the Hon'ble Supreme Court?” 7. “Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the entire addition of Rs.98,15,270/- made as unexplained expenditure u/s 69C of the Income-Tax Act 1961, without considering that after invocation of provisions of section 145(3) of the Act, the Assessing Officer acquired the mandate even to add the whole amount of purchases found as bogus to the total income Page 4 Α.Υ. 2011-12 M/s Kobe Steel India of the assessee One such case is Srl. Ganesh Rice Mills Vs. CIT 294 ITR 316 (All), wherein the entire amount of bogus purchases, from the hawala parties, was disallowed and same was also upheld ?”
Whether on the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) is perverse in not considering that the order of Hon'ble Supreme Court, in the case of N. K. PROTEINS LTD Vs. Dy. CIT (2016)292 CTR (Guj.) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases, was already the law of the land when the Ld. CIT(A) has pronounced its order on 29.07.2024 ?”
In this case, the tax effect involved is Rs.30,32,920/-, which is below the prescribed limit as per CBDT's revised circular No. 05 of 2024 dated 15.03.2024. However, this case falls under the exception within the ambit of exceptional clause 3.1(c) of the CBDT's Circular mentioned above, wherein it is stated that the information received from external agency, the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. Hence, the appeal u/s 253 of the Act, is being filed before Hon'ble ITAT.
Brief facts of the case are that the AO noticed that the assessee per the information received from Sales tax Department, Maharashtra Government had purchased goods from one Shree Sunda Steels Pvt Ltd('SSSPL') amounting to Rs.1,11,83,942/- during the F.Y.2010-11. The AO during assessment issued notices under section 133(6) of the Act to several suppliers of the appellant to ascertain the genuineness of their respective supplies/purchases. He noted that in response to the notice issued to SSSPL, no reply was received from the said party and accordingly the assessee was asked to produce the party Page 5 Α.Υ. 2011-12 M/s Kobe Steel India along with his stock register, purchase register, sale register, bills, delivery challan etc. However, the assessee could furnish details such as (a) Copy of ledger Account b) Copy of list containing details of purchases and corresponding sales with it (c) Copy of Purchase bills and corresponding sale invoice. d) Copy of Bank statements highlighting purchase parties payment.(e) Copy of relevant extracts of VAT audit report. Further, the AO had information that the Maharashtra Sales Tax Department had come up with list of dealers who were found to be involved in issuing bogus purchase bills and providing accommodation entries. He specifically, referred to the list of hawala operators forwarded by the DGIT(Investigation) Mumbai mentioning SSSPL as one of the parties providing accommodation entries to the beneficiaries. In view of the no response from the supplier concerned and the assessee's failure to produce evidence like transport bills, delivery challan etc., in respect of the alleged purchases from SSSPL and also considering the fact that the above-mentioned supplier had been blacklisted in the list provided by Directorate of Investigation, Mumbai, he considered the purchases of Rs.98,15,270/- as bogus. Further, having verified the purchase register, and the stock register he concluded that the assessee had made certain cash purchases from the undisclosed sources and parties, which were camouflaged by obtaining the Page 6 Α.Υ. 2011-12 M/s Kobe Steel India accommodation bills from the above-mentioned party. Accordingly, on the basis of the available material on record, AO completed the assessment with an addition of Rs.98,15,270/- treating the purchases as unexplained expenditure u/s 69C of the Act. He proceeded to assess the peak credit, or the investment made in the cash purchases in lieu of which the bogus or accommodation entries were taken in the books of accounts as unexplained expenditure under section 69C of the Act.
Before the ld.CIT(A) it was submitted by the assessee that the AO did not doubt the sales and the stock records and submitted copies of invoices, bank statement and payment by account payee cheque, etc to prove their purchases. Mere reliance on information obtained from the sales tax department or the investigation directorate was not sufficient to treat the purchases as bogus and thereafter make addition under section 69C of the Act. The appellant further challenged the working of the peak investment of Rs.98,15,270/- in respect of the purchases from SSSPL on the ground that the AO had considered opening credit balance of Rs.85,43,696/-, being the purchases carry forward from the preceding previous year and the same was not related to purchases made during the previous year. Accordingly, the assessee submitted that the opening balance of peak would be only Rs.12,71,574/- and not Rs 98,15,270/- as worked out by the AO. It also submitted that Page 7 Α.Υ. 2011-12 M/s Kobe Steel India the appellant is eligible for set off of gross profit shown in the books of accounts and the incremental percentage of profit should only be disallowed as held in the case of Ratnagiri Steals (80 taxman.com 265 Mumbai).
The ld.CIT(A) took note of the fact that the AO did not doubt the sales and the stock records and copies of invoices, bank statement and payment by account payee cheque,etc to prove the purchases. He concluded that there was no merit in treating the entire purchase as unexplained expenditure u/s 69C of the Act. The said sales have already been accounted for in the books of account and goods worth the same have already been sold. Therefore, addition made would result in double taxation. Further, the assessee had disclosed gross profit for the year at 8.37% which was much more than earlier years figures. Therefore, the same was found acceptable and the addition made was deleted.
Before us, the ld.DR has vehemently argued that the ld.CIT(A) did not appreciate the facts of the case and also the fact that the assessee had taken accommodation bill after transacting in cash so as to reduce the taxable income. He placed reliance on the assessment order and the decisions relied upon by the AO. Per contra, the ld.AR reiterated the same contentions as made before the ld.CIT(A). Page 8 Α.Υ. 2011-12 M/s Kobe Steel India
We have carefully considered all the relevant facts of the case and find that the addition made by the AO is devoid of any merit and without taking cognizance of the evidences put forth by the assessee before him to prove the genuineness of the impugned transaction. Apart from the information regarding alleged bogus transaction, nothing has been brought on record before taking adverse view. Neither the sales have been doubted nor the books of account. He did not find any infirmity in the evidence furnished by the assessee. We find that similar cases have been adjudicated by various coordinate benches of Tribunal including Mumbai bench where additions have been restricted to the profit only and the balance addition made u/s 69C has been deleted. In the case of Sunjewels Pvt. Ltd, Mumbai on 28 February, 2025 in ITA No.4062/MUM/2024,following conclusion was drawn:
“12. Coming to the merits of the case, the Revenue Department, being aggrieved against the decision of the Ld. Commissioner in restricting the addition to the extent of 10% and deleting the addition to the extent of 90%, has claimed that in view of the judgment passed by the Hon'ble High Court in the case of N.K. Industries Ltd. the addition has to be made @ 100% in the bogus purchase cases.
On the contrary, the Ld. A.R. has claimed that the decision of the Ld. Commissioner is based on the judgment of the same High Court in the case of CIT vs. Simit P. Sheth 356 ITR 051 and Bholenath Fab Pvt. Ltd. 355 ITR 290 (Guj.) as mentioned by the Ld. Commissioner in para number 5.9 of the impugned order and therefore the appeal of the Revenue Department is liable to be dismissed.
We have given thoughtful consideration to the peculiar facts and circumstances of the case. It is a settled law, as observed by the Ld. Commissioner that the estimation varies with the nature of business and no uniform yardstick could be adopted and once the sale is accepted then the very basis of purchase would not be questioned. Further, only profit element embedded in the purchase should be taxed. The decision Page 9 Α.Υ. 2011-12 M/s Kobe Steel India of the Ld. Commissioner is based on the logical reasoning and under the facts and circumstances of the case, therefore the same needs no interference except sustaining the addition to the extent of 10% which, we, in the Assessee's appeal reduced to 5%. Hence, the appeal filed by the Revenue Department is liable to be dismissed and thus the same is dismissed."
In view of the facts of the case and also in light of the cited decision above, we hold that the ld.CIT(A) has not taken due cognizance of the fact that the said party did not respond to notice u/s 133(6) of the Act. The assessee did not furnish any evidence of transportation and delivery of the goods. In such a situation, he is not justified in deleting the entire addition. Considering the totality of above facts and the circumstance of the case and also in view of the decision of coordinate bench in Sunjewels Pvt. Ltd (supra), we restrict the addition to 5% of the impugned sum and balance amount would stand deleted. In the result, the appeal of the Revenue is partly allowed. Order pronounced in the open court on 10.09.2025. NARENDER KUMAR CHOUDHRY (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 10.09.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) A.Y. 2011-12 M/s Kobe Steel India आदेश की प्रतिलिपि अग्रेषित/