MS. MILAN ELECTRIC CORPORATION ,MUMBAI vs. INCOME TAX OFFICER 19(2)(3), MUMBAI

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ITA 857/MUM/2025Status: DisposedITAT Mumbai18 August 2025AY 2011-12Bench: SHRI AMIT SHUKLA, HON'BLE (Judicial Member), SHRI ARUN KHODPIA, HON’BLE (Accountant Member)1 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the purchases were admittedly returned by the assessee and the financial impact was reversed in the books of account, no addition or disallowance was warranted. The revenue authorities failed to conduct independent inquiries to establish the genuineness of the transactions.

What were the facts?

The assessee purchased goods worth Rs. 32,45,273/- from certain parties identified as non-genuine by the Sales Tax Department. The Assessing Officer added 12.5% of these purchases to the assessee's income. The assessee claimed these goods were returned to the sellers due to quality issues, providing documentation for the entire transaction trail.

What were the issues?

Whether additions based on alleged non-genuine purchases are sustainable when the assessee provides evidence of returning the goods and reversing the transactions in their books, and the revenue fails to conduct independent inquiries.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH ‘J(SMC

Before: SHRI AMIT SHUKLA, HON’BLE & SHRI ARUN KHODPIA, HON’BLE

For Appellant: Shri H.N. Motiwalla
For Respondent: Shri Aditya Rai, Sr. DR
Hearing: 13.08.2025Pronounced: 18.08.2025

O R D E R PER ARUN KHODPIA, AM:

This appeal is filed by the assessee to challenge the decision of Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (In short “ld. CIT(A)/NFAC”), vide order dated 15.01.2025 for the AY 2011-12, which in turn arises from the order u/s 143(3) r.w.s. 147 dated 23.11.2016, passed by Income Tax Officer – 19(2)(3), Mumbai (in short “Ld. AO”). The grounds of appeal raised by the assessee are as under:

“1. On the facts and in the circumstance of the case, the learned Commissioner of Income tax (Appeals), NFAC, New Delhi erred in confirming the order of the Assessing Officer under section 143(3) rw.s. 147 of the Act on the ground that DGIT has information from Sale-tax Department that the Appellant had purchased goods from non-genuine parties particularly when, the Assessing Officer has not made any independent enquiry about such parties, who have been assessed to tax and have VAT and CST numbers, therefore, the said order is bad-in-law, illegal and ab-initio-void.

Ms. Milan Electric Corporation 2. On the facts and in the circumstance of the case, the said order is also bad- in-law, illegal and ab-initio-void, particularly, no copy of the statement recorded by Sale Tax Department of alleged non-genuine parties was provided by the Assessing Officer to the appellant for cross verification.

3. On the facts and in the circumstance of the case, the said learned Commissioner of Income tax has also erred in confirming the order of the Assessing Officer in respect of rejecting the books of account and making addition @ 12.5% profit on the said non-genuine purchases without giving any independent findings that income chargeable to tax has escaped the assessment.

4.

On the facts and in the circumstances of the case, the said learned Commissioner of Income Tax has also erred in not considering the various judgements and decisions submitted with the grounds of appeal

and at the time of hearing and hence also the said order is bad in law, illegal and ab-intio-void.”

2. Brief facts of the case are that the assessee is engaged in the business of trading in electronic items. During the year under consideration, the assessee filed its return of income on 28.09.2011 declaring total income of Rs. 2,47,636/-. The case of assessee, thereafter, was reopened u/s 147, accordingly a notice u/s 148 dated 04.03.2016 was issued. During the course of reopening proceedings, the ld. AO raised the issue that the assessee is involved in receipt of bogus purchase entries from the following parties:

Sr. No. Name of the party Amount 1 Jay Enterprises 6,82,209/- 2 Nirmal Trading Co. 12,44,563/- 3 Ashar Impex 13,18,501/- Total 32,45,273/-

3. It is observed by the Ld. AO that during the course of investigation, the sales tax department has found that the aforesaid concerns were not doing any genuine business of purchase and sales, that they are indulged in providing of accommodation bills.

Ms. Milan Electric Corporation Assessee therefor was show caused to clarify in the matter, in response, the explanations furnished by the assessee are not found acceptable by the ld. AO and accordingly after discussing the modus operandi in execution of such transactions, the ld. AO added an amount of Rs. 4,05,659/- i.e. 12.5% of such suspicious purchases to the income of the assessee.

4. Being aggrieved with the aforesaid additions, assessee preferred an appeal before the ld. CIT(A), who after deliberating upon the facts on record and submissions of the assessee, was not convinced with the contentions raised by the assessee, accordingly, had dismissed the appeal of assessee and the addition made by ld. AO has been sustained by the ld. CIT(A).

5.

Dissatisfied with the aforesaid decision of ld. CIT(A), assessee preferred an appeal before the Tribunal which is under consideration.

6.

At the outset, ld. AR representing the assessee submitted that the entire purchases which are treated as non-genuine or bogus are in fact returned by the assessee to respective sellers (alleged to be bogus parties) in the subsequent financial year (FY 2011-12), as the same was rejected and returned by the customers to whom such items were sold the assessee, in effect debit notes were issued to the respective sellers, for which details are furnished before us along with the copies of invoice raised by the alleged seller parties, sale invoice raised by the assessee to the customer in selling of the subject items purchased from such bogus parties, letter of rejection of such goods by the customer, copy of challan through which the matter was returned by the customer to the assessee, credit note issued by the customer to the assessee, debit note issued by the assessee to the alleged bogus concern etc. The details of purchase return for entire purchases of Rs. 32,45,972/- furnished before us, as stated that the same have been furnished before Ld.CIT(A) also, the same are extracted here under, for the sake of clarity about the trail of transactions in question:

INDEX Sr. No. Particulars Purchase Page Amount Nos. 1 Purchase from Jay Enterprises Purchase invoice dated 19/10/2010 alongwith a. 6,82,909 1 to 7 delivery challan Corresponding sale invoice dated 26/10/2010 to b. Aanjaneya Life Care Ltd., c. Goods Return letter of Aanjaneya Life Care Ltd. dated 06/04/2011. Alongwith freight charges receipts paid by appellant and credit note on account of rejected goods to Aanjaneya Life Care Ltd d. Debit note dated 06/04/2011 of the appellant to Jay Enterprises on account of return of goods 2 Purchase from Ashar Impex Purchase invoice dated 21/03/2011 alongwith a. 6,50,266 8 to 16 delivery challan Corresponding sale invoice to Alembic Ltd dated b. 22/03/2011 alongwith delivery challan & lorry receipt. c. Goods rejection letter of Alembic Ltd dated 15/05/2011 alongwith delivery challan & Lorry receipt. Credit note of the appellant dated 15/05/2011 to d. Alembic Ltd. Debit note dated 15/05/2011 of the appellant to e. Ashar Impex on account of return of goods. 2A Purchase from Ashar Impex a. Purchase invoice dated 17/01/11 alongwith delivery 6,68,234 17 to 24 challan b. Correspondence Sale invoice to Blue Star dated 18/01/2011 alongwith delivery challan c. Goods rejection letter to Blue Star dated 05/06/2011 alongwith lorry receipt. d. Credit note of the appellant dated 10/06/2011 to Blue Star e. Debit note of the appellant dated 10/06/2011 to Ashar Impex on account of return of goods.

3.

Purchase from Nirmal Trading Co. a. Purchase Invoice dated 22.03.2011 along with 4,31,150 25 to 32 delivery challan b. Correspondence sale invoice dated 22.03.2011 to Aanjaneys Life Care Ltd. along with Freight Charges receipt c. Goods return letter of Aanjaneys Life Care Ltd. Alongwith Rreight charges d. Credit note of the appellant dated 27.05.2011 to Aanjaneys Life Care Ltd.

Debit note of the appellant to Nirmal Trading e. Co. dated 27.05.2011 Nirmal Trading Co. 3A a. 3,69,488 33 to Purchase Invoice dated 07.03.2011 along with 40 delivery challan b. Correspondence sale invoice to Blue Star dated 07.03.2011 along with Freight Charges receipt c. Goods rejection letter of Blue Star dated 30.05.2011 alongwith freight charges receipt d. Credit note of the appellant to Blue Star dated 30.05.2011 e. Debit note of the appellant to Nirmal Trading Co. dated 30.05.2011 3A Nirmal Trading Co.

Ms. Milan Electric Corporation a. Purchase Invoice dated 16.03.2011 along with 4,43,925 41 to delivery challan 44 b. Correspondence sale invoice to Blue Star dated 16.03.2011 along with Freight Charges receipt c. Goods rejection letter of Blue Star dated 30.05.2011 alongwith freight charges receipt d. Credit note of the appellant to Blue Star dated 30.05.2011 e. Debit note of the appellant to Nirmal Trading Co. dated 30.05.2011 It was the submission by the ld. AR, that the aforesaid 7. information was duly furnished before the ld. CIT(A) which is categorically noted by the ld. CIT(A) that “appellants only submission was that he has returned the goods to the respective concerns and amended his VAT return and same was accepted by the VAT department. Thus, submission of appellant is helpful in addressing the concerns of VAT department. Whereas the appellant continues to claim the said purchase in the Income Tax Return and profit was offered accordingly”. In view of aforesaid fact, it was the submission that the genuineness of transactions with the parties termed as involved in bogus transactions based on information received from Sales Tax Department were doubted by the revenue, whereas the assessing officer has not made any independent enquiry from such parties, who have been assessed to tax and have VAT & GST Nos., therefore, the impugned order passed by ld. AO is bad in law, illegal and void ab initio. Another argument of the ld. AR was that the impugned order is bad in law, also for the reason that copies of statement of alleged non-genuine parties, recorded by sales tax department were not provided to the assessee and also the Ms. Milan Electric Corporation opportunity to cross-examine to such parties was not provided. The ld. AR further submitted that there was no independent finding by the ld. AO while rejecting the books of account of the assessee and making an estimated addition @12.5% as profit on the alleged non- genuine purchases. Based on such submission, it was the prayer that the impugned order and further the appellate order passed, without considering the complete submissions of the assessee, supported with the judgements and decisions, are bad in law and liable to be quashed.

8.

On the other hand, the learned Senior Departmental Representative (in short “ld. Sr. DR”), representing the revenue vehemently supported the orders of revenue authorities. He submitted that the contention raised by the Ld. AR cannot be acceded, for the reason that the assessee had never requested the departmental authorities for statements of the bogus parties or the opportunity to cross examination. Consequently, the decision of Ld. CIT(A) in the impugned order deserves to be upheld.

9.

We have considered the rival submissions, perused the material available on record, including the specific findings by the ld. AO as well as ld. CIT(A). On perusal of the factual matrix of the case, it is transpired that there was a communication from the office of DGIT(Inv) based on information received from Sales Tax Department, stating that certain parties are involved in issuing of non-genuine sales bills and other bogus activities. That the assessee herein is one of the beneficiaries of such bogus purchase bills issued by the said parties. The assessee explained the ld. AO as well as before the ld. CIT(A), that these parties which are allegedly considered as non-genuine parties are having VAT and Ms. Milan Electric Corporation GST Nos., therefore, transactions with them cannot be treated as non-genuine. Further, the alleged transactions of Rs. 32,45,273/- cannot be treated as ingenuine, since the material procured under such purchases were sold to customers has been returned due to certain deficiencies in the quality of material, in turn the same was rejected, thereafter, the assessee also returned those items back to the sellers i.e., the alleged bogus parties. The ld. AR demonstrated the entire trail of such transactions with the copies of supporting documents, viz. purchase bills from the alleged seller parties, sale bill by the assessee, communication of rejection by the customer, challan showing transportation of goods, credit note issued to customers and debit note issued to the alleged non-genuine parties. All these documents are recorded in the books of assessee, which were prepared/ executed during the relevant financial year (FY 2010-11) and the following financial year (FY2011-12), thus, the impugned purchases are returned by the assessee in FY 2011-12, much before start of the reopening of the assessment in March, 2016. Since such documents have involvement of multi layers of parties i.e. the seller, assessee (the purchaser), the customer and also the transporter, however, there was no whisper in the orders of revenue authorities about the enquiries from such parties to check the genuineness of such transaction or other wise to establish that such transactions are bogus. Further, the transaction of purchase returned which would be crucial to decide the tax liability of the assessee, informed by the assessee to the appellate authority has been brushed aside considering it of no substance, even the acceptance of such transaction by VAT department was treated to be helpful in addressing the concern of VAT department only and are of no use for the case in hand in terms of Income Tax Ms. Milan Electric Corporation proceedings. The perception of ld. AO that the appellant has recorded such purchases in the books of account and not effected corresponding sales, therefore, had made addition of 12.5% of such amount is found to be contrary to the facts on record, as the subject items purchased were sold by the assessee to different entities in the relevant financial year itself, as evident from the details/evidence furnished by the ld. AR (referred to supra), for example the items purchased from Jay Enterprises on 19.10.2010 were sold to Anjaneya Life Ltd. on 26.10.2010, items purchased from Ashar Impex on 21.03.2011 are sold Alembic Ltd. on 22.03.2011 etc., for which copies of respective challans, receipts etc. are furnished before the revenue authorities.

10.

In the backdrop of aforesaid submissions, without commenting about the genuineness of the subject transactions, in absence of any clarification or corroboration by the assessee or dehors any independent investigation / enquiry by the Revenue Authorities, we find substance in the submissions of ld. AR that the entire alleged purchases made by the assessee are duly returned, therefore, their financial impact has been reversed in the books of account of the assessee, may be in the year under consideration or in the ensuing year, therefore, no addition / disallowance is warranted on such purchases which are admittedly returned by the assessee, so have been reversed in the books of accounts of the assessee. Accordingly, the decision of ld. CIT(A) in sustaining the said addition cannot be acceded to. Consequently, we set aside the impugned order of Ld. CIT(A) and direct to delete estimated addition made by ld. AO for Rs. 4,05,659/-, in terms of our aforesaid observations, with no findings to any other contention raised by the

11.

In the result, the appeal of assessee stands allowed, in terms of our observations, as indicated above.

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