ACIT CC 7(3), MUMBAI vs. KISAN MOULDINGS LTD., MUMBAI

At the time of hearing, none appeared on behalf of the assessee to represent its case. Considering the nature of the controversy involved and the material available on record, the appeal is taken up for hearing ex parte qua the assessee, after hearing the Ld. DR. The appeal is considered on merits on the basis of the assessment order, the impugned appellate order and the grounds raised by the Revenue.

The revenue has taken the following grounds: “1."Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs.55,03,464/ made u/s. 69C of the Act being 5% of the bogus / unverifiable purchases amounting to Rs. 11,00,69,267/-." 2. "Whether on the facts and circumstances of the case and in law, the Ld.. CIT(A) is justified in deleting the addition of Rs.55,03,464/ made u/s. 69A of the Act being 5% of the bogus sales amounting to Rs. 11,00,69,267/-." 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that search action was conducted on the Kushal Group by Investigation Wing of Income Tax Department and by the Central GST Commissionerate, Ahmedabad South, which established that the Kushal Group is engaged in providing accommodation entries in the nature of bogus purchases, bogus sales, bogus loan, etc. and that assessce company M/s. Kisan Mouldings Ltd. is one of the beneficiaries of such accommodation entries." 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to consider the fact that M/s. Kushal Limited is engaged in manufacturing & trading in paper, paper waste and it has no manufacturingfacility of water purifier, PVC, etc. which the assessee company M/s. Kisan Mouldings Ltd. has stated to have purchased from M/s. Kushal Limited, which signify that the purchases shown by the assessee are not genuine." 5. "The appellant craves leave to add, to alter, to amend, modify and/or delete any or all of the above said grounds of appeal."”

The brief facts of the case are that the assessee is a company engaged in the business of manufacturing PVC pipes, fittings, moulded furniture and other allied products. The assessee filed its return of income on 29.10.2018, declaring a loss of Rs.6,83,68,985/-. The case was selected for scrutiny, and statutory notices under sections 143(2) and 142(1) of the Act were issued. During the course of assessment proceedings, the Ld. AO received information from the office of the Deputy Director of Income Tax (Investigation), Ahmedabad, regarding search and seizure proceedings conducted in the case of the Kushal Group. As per the information received, the said group was allegedly engaged in providing accommodation entries through bogus purchases, sales and other transactions without actual movement of goods. The investigation conducted by the Central GST Commissionerate, Ahmedabad South, had also revealed alleged artificial turnover and accommodation transactions undertaken by the said group. On examination of the information, the Ld. AO observed that the assessee had recorded purchases amounting to Rs.9,06,94,717/- from M/s Kushal Limited and Rs.1,93,74,550/- from M/s Kushal Tradelink Limited, aggregating to Rs.11,00,69,267/-. The Ld. AO issued notices under section 133(6) of the Act to the aforesaid concerns. However, according to the assessment order, no response was received from the said parties. During the assessment proceedings, the assessee furnished copies of purchase invoices, ledger accounts, transportation receipts, bank statements and other supporting documents to substantiate the genuineness of the purchases. The assessee also contended that the materials purchased had been duly accounted for and subsequently sold in the ordinary course of business. However, the Ld. AO was not satisfied with the explanations and supporting evidence furnished by the assessee. The Ld. AO observed that the assessee had failed to establish the genuineness of the purchases from the aforesaid concerns, particularly in view of the adverse information received from the Investigation Wing and the non-compliance with notices issued under section 133(6) of the Act.

Accordingly, the Ld. AO estimated 5% of the alleged unverifiable purchases amounting to Rs.11,00,69,267/- and made an addition of Rs.55,03,464/- under section 69C read with section 115BBE of the Act. The Ld. AO further made a separate addition of Rs.55,03,464/- under section 69A read with section 115BBE of the Act, being 5% of the alleged bogus sales, on the premise that the assessee had earned commission income from such transactions. Thus, the aggregate additions under sections 69C and 69A amounted to Rs.1,10,06,928/-. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, the assessee furnished detailed written submissions and supporting documentary evidence, including purchase invoices, transportation receipts, ledger confirmations, bank statements and particulars of corresponding sales. The Ld. CIT(A), after considering the assessment order, submissions of the assessee and documentary evidence available on record, observed that the assessee had established a nexus between the purchases made from the Kushal Group concerns and the corresponding sales. The Ld. CIT(A) further recorded that the assessee had disclosed a profit of 2.14% on the corresponding sales. Considering these facts, the Ld. CIT(A) held that the estimation of income at 5% on both purchases and sales was not sustainable and accordingly directed the deletion of the additions of Rs.55,03,464/- each made under sections 69C and 69A read with section 115BBE of the Act. Aggrieved by the aforesaid relief granted by the Ld. CIT(A), the Revenue has preferred the present appeal before the Tribunal.

The Ld. DR vehemently supported the assessment order passed by the Ld. AO and submitted that the Ld. CIT(A) had erred in deleting the additions made under sections 69C and 69A of the Act. The Ld. DR contended that the additions were based on specific information received from the Investigation Wing, Ahmedabad, pursuant to search and seizure proceedings conducted in the case of the Kushal Group. It was further submitted that the investigation conducted by the Central GST Commissionerate, Ahmedabad South, had established that the Kushal Group was engaged in generating artificial turnover through accommodation entries without actual movement of goods.

The Ld. DR further submitted that the assessee was identified as one of the beneficiaries of the accommodation entries provided by the Kushal Group concerns. It was contended that M/s Kushal Limited was primarily engaged in manufacturing and trading in paper and paper waste and did not possess manufacturing facilities for PVC products and other goods allegedly purchased by the assessee. The Ld. DR further emphasised that the notices issued under section 133(6) of the Act to the concerned suppliers remained uncomplied with and, therefore, the genuineness of the transactions could not be independently verified. The Ld. DR invited the our attention in impugned assessment order. The relevant paragraph is reproduced as below:-

The Ld. DR argued that the mere production of invoices, ledger accounts and evidence of payments through banking channels could not, by itself, establish the genuineness of the purchases, particularly when adverse material had been gathered during the investigation proceedings. It was further submitted that the Ld. AO had adopted a reasonable estimate of 5% of the alleged unverifiable purchases and corresponding sales, and the Ld. CIT(A) was not justified in deleting the additions in their entirety. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be set aside and the additions made by the Ld. AO be restored.

We have heard the submissions of the Ld. DR and perused the material available on record, including the assessment order and the impugned appellate order. The controversy involved in the present appeal is confined to the deletion of two additions of Rs.55,03,464/- each, made under sections 69C and 69A read with section 115BBE of the Act, arising from the alleged accommodation transactions with the Kushal Group concerns.

We find that the Ld. AO primarily relied upon the information received from the Investigation Wing, Ahmedabad, and the findings of the Central GST Commissionerate, Ahmedabad South, regarding the alleged accommodation- entry activities of the Kushal Group. On the basis of the said information and the failure of the suppliers to respond to notices issued under section 133(6) of the Act, the Ld. AO treated the purchases as unverifiable and estimated the additions at 5% of the transaction value under each of the aforesaid provisions.

However, the assessment order itself records that the assessee had furnished purchase invoices, ledger accounts, transportation receipts and details of payments made through banking channels. The assessee had also furnished particulars of the corresponding sales and maintained that the 6 materials purchased were duly accounted for in its business records. The Ld. CIT(A), upon examination of these documents, recorded a categorical finding that the assessee had established the nexus between the purchases and the corresponding sales and had disclosed a profit of 2.14% on such sales.

We further find that the Ld. CIT(A), in paragraph 7.1.2 of the impugned order, specifically considered the documentary evidence furnished by the assessee, including bills, vouchers, ledger confirmations, transportation receipts and bank statements evidencing payments. The Ld. CIT(A) also considered the corresponding sales and the profit disclosed thereon. The relevant findings of the Ld. CIT(A) are that the assessee had discharged its onus of establishing the genuineness of the purchases and corresponding sales and that the estimation of income at 5% on both purchases and sales could not be sustained. It is pertinent to observe that the information received from the Investigation Wing regarding the activities of the supplier concerns undoubtedly constituted relevant material warranting examination of the transactions. However, the existence of adverse information against the suppliers must be considered alongside the documentary evidence furnished by the assessee and the findings recorded regarding the corresponding sales. The failure of the suppliers to respond to notices under section 133(6) of the Act is a relevant circumstance, but the evidentiary value of such non- compliance must be evaluated in the context of the entire material available on record.

In the present case, the Ld. AO made an addition of Rs.55,03,464/- under section 69C of the Act by estimating 5% of the purchases. A further addition of an identical amount was made under section 69A of the Act on the assumption that the assessee had earned commission income from the corresponding sales. The assessment order does not identify a separate receipt of commission or a distinct unexplained monetary amount corresponding to the latter addition. The second addition thus rests upon an inference drawn from the same set of transactions.

The Ld. CIT(A) has failed to examine the primary documents like physical delivery goods related to the alleged transaction. We find merit on the argument of the Ld. DR. So, the impugned appellate order is set aside to the file of the Ld. CIT(A) & directed to verify the evidence in accordance with the defect point out by the Ld. AO. Needless to say both the parties should be allowed reasonable opportunity in set aside appellate proceeding. So, all the grounds raised by the revenue are restorted to the file of the Ld. CIT(A).

In the result, the appeal of the revenue bearing ITA No. 6512/Mum/2026 is allowed for statistical purposes. Order pronounced in the open court on 15th day of October 2026.