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Facts
The Revenue filed appeals against the deletion of additions made by the AO in reassessment proceedings for AYs 2013-14 to 2016-17. The AO had reopened the cases based on allegations of circular trading and accommodation entries, but ultimately made additions as unexplained cash credits for fictitious trade receivables, a different issue.
Held
The Tribunal held that the addition on account of trade receivables could not be made u/s 68 of the Act. The Tribunal agreed with the CIT(A) that treating trade receivables as fictitious and adding them back would amount to double addition if sales were already included in gross receipts. The matter was restored for verification regarding double addition.
Key Issues
Whether additions made as unexplained cash credit for trade receivables are sustainable when the reassessment was based on allegations of circular trading, and whether such additions amount to double addition.
Sections Cited
147, 144, 144B, 68, 148, 142(1), 143(2)
AI-generated summary — verify with the full judgment below
Before: SHRI RAHUL CHAUDHARY & SMT. RENU JAUHRI
3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These appeals are filed by the revenue against the orders of the Learned Commissioner of Income-tax (Appeals), Mumbai-/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Years [A.Ys.] 2013-14, 2014-15, 2015-16 & 2016-17.
The assessee has raised the following grounds of appeal: AY 2013-14 1. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by deleting the addition of Rs. 19,26,64,275/-, without appreciating facts that the assessee has been fully non-corporative and has not filed any details during the course of entire proceeding and therefore, the AO was left with no option but to complete the assessment on best judgment basis u/s. 144 of the Act.?
2. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by wrongly giving the finding of no involvement of circular transaction without appreciating the fact that the AO has clearly mentioned in his assessment order at Para No. 5.1 that the assessee is beneficiary of circular movement of the funds?
3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the assessee has not given any details taking the shelter of Writ Petition filed by the Assessee before the Hon'ble High Court even though no stay was granted by Hon'ble High Court on assessment proceedings?
4. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the addition has been made by the AO as unexplained cash credit u/s. 68 of the IT Act 1961 in the best judgment order in the background that the assessee has refused to cooperate in the proceedings at all and has not produced any details?" AY 2014-15 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. 1. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by deleting the addition of Rs. 25,23,70,328/-, without appreciating facts that the assessee has been fully non-corporative and has not filed any details during the course of entire proceeding and therefore, the AO was left with no option but to complete the assessment on best judgment basis u/s. 144 of the Act.?" 2. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by wrongly giving the finding of no involvement of circular transaction without appreciating the fact that the AO has clearly mentioned in his assessment order at Para No. 5.1 that the assessee is beneficiary of circular movement of the funds?" 3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the assessee has not given any details taking the shelter of Writ Petition filed by the Assessee before the Hon'ble High Court even though no stay was granted by Hon'ble High Court on assessment proceedings?" 4. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the addition has been made by the AO as unexplained cash credit u/s. 68 of the IT Act 1961 in the best judgment order in the background that the assessee has refused to cooperate in the proceedings at all and has not produced any details?" AY 2015-16 1. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by deleting the addition of Rs. 6,32,32,505/-, without appreciating facts that the assessee has been fully non-corporative and has not filed any details during the course of entire proceeding and therefore, the AO was left with no option but to complete the assessment on best judgment basis u/s. 144 of the Act.?" 2. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by wrongly giving the finding of no involvement of circular transaction without appreciating the fact that the AO has clearly mentioned in his assessment order at Para No. 5.1 that the assessee is beneficiary of circular movement of the funds?" 3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the assessee has not given any details taking the shelter of Writ Petition filed by the Assessee before the Hon'ble High Court even though no stay was granted by Hon'ble High Court on assessment proceedings?" 4. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the addition has been made by the AO as unexplained cash credit u/s. 68 of the IT Act 1961 in the best judgment order in the background that the 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. assessee has refused to cooperate in the proceedings at all and has not produced any details?" AY 2016-17 1. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by deleting the addition of Rs. 7,71,89,443/-, without appreciating facts that the assessee has been fully non-corporative and has not filed any details during the course of entire proceeding and_therefore, the AO.. was... left with no option but to complete the assessment on best judgment basis u/s. 144 of the Act.?" 2. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee by wrongly giving the finding of no involvement of circular transaction without appreciating the fact that the AO has clearly mentioned in his assessment order at Para No. 5.1 that the assessee is beneficiary of circular movement of the funds?" 3. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the assessee has not given any details taking the shelter of Writ Petition filed by the Assessee before the Hon'ble High Court even though no stay was granted by Hon'ble High Court on assessment proceedings?" 4. "Whether on the facts and in the circumstances of the case and in law the Ld. CIT (Appeal) erred in allowing the appeal of the assessee without appreciating the fact that the addition has been made by the AO as unexplained cash credit u/s. 68 of the IT Act 1961 in the best judgment order in the background that the assessee has refused to cooperate in the proceedings at all and has not produced any details?"
3. Since identical issues are involved in these four appeals, these are being disposed of by a common order, and is taken as the lead case.
Brief facts of the case are that the assessee had originally filed return declaring income of Rs. 5,18,757/- for AY 2013-14 on 30.09.2013. Subsequently, a notice u/s 148 was issued on 30.03.2021, in response to which, no return was initially filed by the assessee. Instead, the assessee filed a writ petition before the Hon’ble High Court under the notice u/s 148 for AY 2013-14 and subsequent 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. years. As there was no stay granted by the Hon’ble High Court on the assessment proceedings, Ld. AO proceeded to finalise the assessment, and the same was completed vide order dated 25.03.2022 u/s 147 r.w.s. 144 r.w.s. 144B of the Act at an income of Rs. 19,31,83,032/-. Ld. AO had made an addition u/s 68 of the Act of Rs. 19,26,64,275/- by holding that the trade receivables shown by the assessee were fictitious and hence, treated the same as unexplained cash credit u/s 68 of the Act.
Aggrieved with the order of Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). It was contended by the assessee that during the appellate proceedings, the assessment was reopened on the ground that the assessee was a beneficiary of the circular movement of funds as per the report received from the Investigation Wing by the AO. However, the assessment was finalised for altogether different reasons by treating trade receivable as fictitious, assessing the same as cash credit u/s 68 of the Act. The assessee has placed reliance on various case laws in support of his contention that if no addition is made for the issue of reopening, then the addition on any other issue cannot be made in reassessment proceedings. After considering the detailed arguments submitted by the assessee, Ld. CIT(A) allowed the assessee’s appeal on merits with the following observations: 6.3 Appellant vide ground of appeal
no 6 has challenged the addition of Rs.7,71,89,443/- and that the reopening was done on the ground that the appellant was beneficiary of circular movement of funds and in the assessment order addition has been made altogether on different issue of trade receivable. On perusal of the assessment order it is seen that the case was reopened on the issue of circular 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16
17. Devraj Multitrade Pvt. Ltd. movement of funds. However, it is seen that in the entire assessment order AO has not discussed anything regarding the circular movement of the funds. AO has neither carried out any enquiry regarding the same nor has stated anything regarding the investigation carried out by the investigation wing. AO has not even bothered to mention the modus operandi carried out by the appellant and how the appellant is found to be the beneficiary of the circular movement of funds. Additions has been made on account of unexplained trade receivables. AO has also not mentioned from which parties the above sum of money was receivable. Whether the entire trade receivable was against M/s Sharan Bio Medicine Ltd or there were any other parties?. AO has not carried out any enquiry and just added the entire trade receivable of the balance sheet of the appellant. Hence, it can be said that the addition was made on a different issue which was not part of the reasons recorded for reopening and no addition was made on the issue of circular movement of funds. However, AO is not justified in making the addition on separate issue when there is no addition made on the core issue on which case was reopened. Reliance is placed on the decision of the Hon'ble Bombay High Court, in the case of Jet Airways (1) Ltd, 331 ITR 236 wherein is has been held "Whether, however, if after issuing a notice under section 148, he accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee - Held, yes' Accordingly, appellant succeeds on this ground of appeal
. Further, it is noted that the AO has made addition on account trade receivable u/s 68 of the I.T. Act. The section 68 of the Act deals with cash credits and AO failed to establish how the trade receivables can be cash credits and added u/s. 68 of the Act. Trade receivable are parties to whom sales taken place but payment is due, so if the entire trade receivable is treated as bogus the corresponding sales has been included in the gross receipt. Accordingly adding back, the same would be double additions. Therefore, the addition made by the AO is without proper enquiry and without any reasoned basis, therefore illegal and cannot sustained. In view of the above, AO is directed to delete the addition of Rs.7,71,89,443/- made u/s 68 of the I.T. Act. Hence, ground of appeal no 6 is hereby allowed.” Aggrieved with the order of Ld. CIT(A), the revenue has filed an appeal before the Tribunal.
6. Although five grounds have been raised by the revenue, the sole substantive issue relates to the deletion of the addition of Rs. 19,26,64,275/- u/s 68 of the Act.
7. Before us, Ld. DR has submitted arguments in support of various grounds and has emphasised that Ld. CIT(A) has not called for documents or any report 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. from the AO and has decided the appeal without looking into the relevant documents. Ld. DR has further contended that some of the documents have been produced for the first time during the appellate proceedings before the Tribunal, whereas, the assessee had been fully non-cooperative during the assessment proceedings and did not file the requisite details during the entire proceedings, leaving the AO with no option to complete the assessment u/s 144 of the Act.
The following written submissions have been made by the Ld. DR: “2 Kindly refer to the revised grounds of appeal
filed by the Department on 11-06- 2024 in all the aforesaid appeals. The Department is aggrieved by the orders of the CIT(A) in all the above-mentioned AYs mainly on the ground that despite acknowledging that the assessee was totally non-co-operative during the assessment proceedings leaving no option for the AO but to pass best judgment order u/s 144 of the IT Act, 1961, yet the CIT(A) has simply granted relief to the assessee without calling for supporting evidences during appellate proceedings to examine the genuineness of transactions with M/s Sharon Bio Medicine Ltd.
3. The brief facts are as follows: -Specific information was received by the A. O from the Investigation Wing of the Department that the assessee was involved in circular and fictitious transactions with M/s Sharon Bio Medicine Ltd and was in turn being controlled by the above entity. This fresh, tangible and material information formed the basis of the A.O's reason to believe that assessee's income had escaped assessment. -The assessee's cases for AYs 2013-14 to 2016-17 were re-opened by the issue of notices u/s 148 of the Act dated 31-03-2021. As per the said notices, the assessee was required to file return of income within 30 days. -However, the assessee failed to comply to the said notices. Instead, it replied to the A.O that it had filed writ petition before the Bombay High Court against the issue of said notices and requested to keep the pending proceedings in abeyance till disposal of the writ petition. -No order of the Hon'ble High Court staying the proceedings u/s 147 of the Act was submitted to the A.O in spite of being specifically asked to do so vide notices u/s 142(1) of the Act. This proves that there was no stay of the Hon'ble court on the reassessment proceedings. -Not only did the assessee fail to file its return of income in response to notice u/s 148 of the Act, but it also failed to respond to the various notices issued and served u/s 142(1) of the Act for above-mentioned AYs. The detailed questionnaire issued with the notices asking the assessee to provide details of transactions with M/s Sharon Bio Medicine Ltd and supporting evidences 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. such as invoices, transportation vouchers etc remained uncompiled by the assessee throughout the assessment proceedings. -At the fag end of the assessment proceedings, the assessee submitted a reply dated 11-03-2022 that since its writ petition was dismissed, it is filing its return of income and asked to be supplied with the reasons for re-opening. -The A.O rejected the assessee's return as non-est and void as it was not filed within the due date. The A.O also stated that despite there being no stay order on the pending proceedings, the assessee had resorted to delaying tactics and that assessment proceedings cannot be left to its whims and fancies. Since there was no valid return on the record, there was no requirement to issue of notice u/s 143(2) of the Act to the assessee. Consequently, there was no question of following the guidelines issued by the Supreme Court in the case of GKN Driveshafts (India) Ltd such as provision of reasons of re-opening to the assessee or disposing of the objections filed to the re-opening by the assessee before completion of the assessment order. Thus, the A.O proceeded to pass best judgment order u/s 147 r.w.s 144 of the Act on the basis of material available on the record and made addition u/s 68 of the Act of the amounts shown as trade receivables in all the above-mentioned AYs.
4. The CIT(A), in his appellate order, was completely convinced about the non- cooperative attitude of the assessee during the assessment proceedings. He upheld the action of the A.O in passing the best judgment order. However, he relied on the Hon'ble Bombay High Court's order in the case of Jet Airways (1) Ltd 331 ITR 236 and allowed the assessee's appeal on technical ground that the addition was made on a different issue which was not part of reasons recorded. The CIT(A) also observed that the A.O had failed to mention about the modus operandi carried out by the assessee and how it was a beneficiary of the circular movement of funds. He also stated that the A.O had failed make any inquiry and had simply added the entire trade receivable of the balance sheet without specifying whether the entire trade receivable was against M/s Sharon Bio Medicine Ltd.
5. The CIT(A)'s order is not acceptable due to the following reasons: -Despite being a fact-finding authority himself, he has failed to examine the genuineness of the transactions of the assessee with M/s Sharon Bio Medicine Ltd, which formed the reasons for re-opening. -Nothing prevented the CIT(A) from exercising his co-terminus and concurrent powers with the A.O and requiring the assessee to produce evidences proving the genuineness of the transactions with M/s Sharon Bio Medicine Ltd. -The CIT(A) was well-aware that the A.O was completely handicapped in the assessment proceedings due to lack of compliance by the assessee. Since the assessee was complying at the stage of appellate proceedings, the CIT(A) ought to have gone into the root of the matter at hand.
6. Thus, the CIT(A) has granted relief to the assessee without calling for the necessary supporting documents during the appellate proceedings evidencing the genuineness of the transactions with M/s Sharon Bio Medicine Ltd. He has not at all adjudicated on the merits of the case. He has not given any finding on whether the transactions of the assessee with M/s Sharon Bio Medicine Ltd were genuine and whether the assessee was part of pre-arranged circular movement of funds between related parties.
3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd.
In view of the above facts, it is vehemently submitted that the impugned order of the CIT(A) in the aforesaid appeals is perverse. It is humbly prayed before the Hon'ble Bench that in the interest of justice, the said order be set aside.
Ld. AR has submitted that as per the reasons recorded at the time of issue of notice, a copy of which has been placed before us, the case was reopened on the allegation of circular trading by M/s. Sharan Bio Medicine Ltd. and its related companies, including the assessee company. It was recorded by the AO that the assessee is one of the beneficiaries and had obtained accommodation entry from M/s. Sharan Bio Medicine Ltd., which is required to be verified. However, in the assessment order, while making the best judgment assessment, the Ld. AO has treated the entire trade receivable of Rs. 19,27,64,275/- as fictitious and added the same to the total income of the assessee u/s 68 of the Act. There is no discussion regarding circular trading, which has further been submitted by the Ld. AR that all transactions are recorded in the books of account, and the summary has been placed before us.
The following written submissions with regard to the merits of the addition made have been submitted by the Ld. AR: (B) Addition cannot be made applying the ratio of the Judgement of the Hon'ble Bombay High Court in the case of Jet Airways India Ltd. Without prejudice to the validity of reassessment, the respondent also submits that no addition u/s. 68 could have been made in its case while completing the reassessment for all the above years. The respondent respectfully submits that the reassessments were initiated for the alleged circular movement of funds between the respondent and Sharon Bio- medicines Ltd. However, while completing the assessment, the assessment unit has not made any additions in relation to the said alleged circular movement of funds. Once the assessment unit has not made any addition in respect of the primary reason for which the reassessments were initiated, the assessment unit could not have made addition in relation to any other issues.
3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. The respondent relies on the judgment of the Hon'ble Bombay High Court in the case of CIT v. Jet Airways (2010) 331 ITR 236 (Bom.). The Hon'ble High Court has interpreted the provisions of section 147 of the Act and held that unless there is any addition made in respect of the primary issue for which the reassessment was initiated, the assessing officer cannot be make any other additions in respect of the issues which were not subject matter of reasons recorded for reassessment. The High Court has analysed the impact of Explanation 3 to section 147 of the Act as inserted with effect from 1-4-1989. It is held that the effect of the Explanation 3 inserted is that the Assessing Officer has to assess or reassess income ('such income') which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings. However, if after issuing a notice under section 148, he accepts the contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income. On the facts of the case, the appellant submits that no addition has been made in its case in relation to the alleged circular movement of funds which was the basis for reassessment and therefore it is not permissible to the assessment unit to make any other addition i.e. addition u/s. 68 of the Act. (C) The provisions of section 68 cannot be applied even on merits Without prejudice to any of the above contentions, the respondent submits that the provisions of section 68 cannot in any case apply in its case. The assessment unit has made addition of the total amount of debtors as appearing in the balance sheet of the respondent for all the above years by applying the provisions of section 68 of the Act. The respondent respectfully submit that section 68 of the Act deals with cash credits and there is no reason for treating the amount of debtors (trade receivables) as unexplained cash credits. The Hon'ble CIT (A) has correctly concluded in paragraph 6.3 of the order (page No. 26) that the assessing officer has failed to establish how the trade receivables can be cash credits and added u/s. 68 of the Act. The Hon'ble CIT (A) has further observed that the Trade receivable reflects the parties to whom sales have taken place but payment is due. So if the entire trade receivable is treated as bogus the corresponding sales has been included in the gross receipt. Accordingly adding back the same would amount to double additions. In view of the above, the respondent respectfully submits that there is no reason for considering the trade receivables as unexplained cash credit and make addition in respect of the same applying the provisions of section 68 of the Act. The respondent, therefore, prays that the order of the CIT (a) on the point deserves to be upheld and the appeals of the revenue deserves to be dismissed. The respondent prays for the same”
3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd.
We have considered the rival submissions and perused the material placed before us. After careful consideration of the facts and circumstances, we are of the view that, on merits, the addition on account of trade receivables could not be made u/s 68 of the Act, treating these as unexplained cash credits. In this regard, the Ld. AR has also placed reliance on the decision of the Hon’ble High Court of Gujarat in the case of PCIT-1 v/s KFC Exports Pvt. Ltd. (2025) 172 taxmann.com 157 (Gujarat).
In the light of the factual matrix and judicial pronouncements, we are of the view that the entire amount of trade receivables cannot be added in the hands of the assessee. We are also in agreement with Ld. CIT(A) on the proposition that if the entire trade receivables were treated as fictitious, and if the corresponding sales have already been included in the gross receipts, then adding back the same would amount to double addition. However, as pointed out by the Ld. DR, the assessee has not submitted any details/documents before the Ld. AO leaving him with no option but to make a best judgment assessment. Further, Ld. CIT(A) has also not sought any remand report from the Ld. AO in respect of documents furnished before him. Moreover, some of the documents have been filed before the Tribunal for the first time. Accordingly, in the interest of justice, we deem it appropriate to restore the issue for the limited purpose of verification as to whether the impugned addition has resulted in double addition and allow relief to the assessee to that extent after providing due 3512, 3511 & 3550/Mum/2023 A.Y. 2013-14, 14-15, 15-16 & 16-17 Devraj Multitrade Pvt. Ltd. opportunity to the assessee. Accordingly, the appeal of the revenue is partly allowed.
, 3511 & 3550/Mum/2023 for AYs 2014-15, 2015-17 & 2016-17 13. As identical issues are involved in all three years, the above decision will apply mutatis mutandis for these years also. 14. In the result, the appeals of the revenue are dismissed for AYs 2014-15, 2015-16 & 2016-17. Order pronounced in the open court on 27.06.2025.