SHEETAL DILIP JAIN,MUMBAI vs. COMMISSIONER OF INCOME TAX APPEAS_NFAC, MUMBAI

Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 4,00,000/- without appreciating the fact that loan creditor of Shri Hiren Yashwant Jain has showed a mere income of only Rs. 3,10,510/- in his ITR filed, which proved that he has not creditworthiness to lend the loan to the appellant and the appellant has failed to submit the documentary evidences in support of loan transactions?

Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs. 6,34,908/- on account of non-genuine purchases transaction from M/s. Citizen Metalloys Limited, without appreciating the fact that appellant failed to establish genuineness of purchases transactions through evidences during the assessment proceedings?"

Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in restricting the estimation to M/s. Wafa International, upto Rs. 30,28,668/- by accepting additional evidences, without ignoring the fact that the appellant has not submitted any documentary evidences in spite of given opportunity during the assessment proceedings to prove that the purchase transactions are genuine one?”

The assessee is an individual and is a proprietor of Ms. Nishi Industries engaged in the business of manufacturing of machine tools and trading in non ferrous metals scrap on wholesale basis. The assessee filed the return of income for AY 2018-19 on 31.10.2018 declaring a total income of Rs.13,67,637/-. The case was selected for scrutiny under CASS and the statutory notices were duly served on the assessee. The Assessing Officer (AO) during the course of hearing called on the assessee to furnish complete details of unsecured loans along with identity, genuineness and creditworthiness of the loan parties. Based on the details furnished by the assessee the AO held loan from certain parties as bogus and accordingly Sheetal Dilip Jain Prop. M/s Nishi Industries made addition under section 68 of the Income Tax Act, 1961 (the Act). The AO also made addition towards purchase from M/s Citizen Metalloys Ltd. as bogus. The AO also estimated the GP of the assessee at 6.08% and made addition for the reason that certain vendors have not responded to the notice under section 133(6). On further appeal the CIT(A) granted partial relief to the assessee and both the assessee and the revenue are in appeal before us against the order of the CIT(A). The addition made by the AO and the partial relief given by the CIT(A) are tabulated as under:

The ld. AR submitted that during the course of assessment and appeal proceedings various documentary evidences to prove the identity, creditworthiness and the genuineness of the loan creditors were submitted. The ld. AR further submitted that the AO had issued notice under section 133(6) to the loan parties and all the parties have responded to the notice issued. The ld. AR also submitted that Sheetal Dilip Jain Prop. M/s Nishi Industries with respect to all the loan parties the primary reason as mentioned by the AO for making the addition is that the creditworthiness of the parties are not established. The ld. AR drew our attention to the findings of the CIT(A) where the CIT(A) has given relief after perusing the financial statement of the loan creditors to submit that the CIT(A) has examined the credit worthiness of the parties and given relief accordingly.

The ld. DR on the other hand vehemently argued that the assessee has not discharged the onus of proving the genuineness and credit worthiness of the loan creditors. The ld. DR through a detailed written submission brought out the discrepancies such as deposits being made immediately before the giving the loan to assessee, complete details of the loan creditor not being shared etc. Accordingly the ld DR submitted that the CIT(A) is not correct in deleting substantial addition made by the AO.

With respect to the addition retained by the CIT(A) to the tune of Rs. 17,25,162/- towards loan from Mehul Yashwant Jain, the ld. AR submitted that though the CIT(A) has not given any adverse findings with regard to the loan parties he has made the addition based on the audit report where the peak credit balance during the year with respect to the said parties is reported. The ld. AR further submitted that the CIT(A) has erroneously considered the peak credit balance as the closing balance of the loan and accordingly treated the difference as unexplained. The ld. AR drew our attention to the ledger a/c of the impugned parties to submit that there is no difference in the closing balance (page 39 & 40 of the Paper Book). Sheetal Dilip Jain Prop. M/s Nishi Industries 6. The ld. DR on other hand submitted that the Mr. Mehul Yashwant Jain's credit worthiness is not well substantiated since his own funds are less than the loan extended to the assessee. The ld. DR also submitted that there have been deposits immediately before the date of extending the loan which indicates that the assessee's own unaccounted money is circulated to appear as a loan. Accordingly the ld DR submitted that the CIT(A) has erred in giving relief accepting the submissions of the assessee.

We heard the parties and perused the material on record. The main contention of the AO for making the addition is that Mr. Mehul Yashwant Jain's credit worthiness has not been properly established and since there have been deposits immediately prior to giving loan to the assessee, the transactions are not genuine. On perusal of the ledger account of Mr. Mehul Yashwant Jain we notice that it is a running account and that the assessee has been periodically borrowing and repaying the loan.(page 36 of the paper book). Further from the perusal of the summary of loan statement (page 29 of paper book) we notice that during the year under consideration the assessee has borrowed RS.2,46,09,990 and has repaid Rs.88,42,371 resulting in a closing balance of Rs.1,66,26,651. We also notice from the Balance Sheet of Mr. Mehul Yashwant Jain that sufficient borrowed funds are available for extending the loan. The contention of the ld DR that the returned income of Mr. Mehul Yashwant Jain being low in our view cannot be the reason for questioning the credit worthiness and the entire financial statements need to be looked into for the purpose of testing the credit worthiness. It is also relevant to mention here that Mr. Mehul Yashwant Jain has responded to the notice under section 133(6) submitting the details called for and that the assessee has also furnished the details such as ITR, Balance confirmation, etc., before the AO. Considering these facts in our view, the AO is not correct in making the addition Sheetal Dilip Jain Prop. M/s Nishi Industries without bringing any concrete material on record to substantiate that the transaction is non-genuine. Now coming to the addition of Rs.17,25,162 sustained by the CIT(A), we notice that the CIT(A) has considered the maximum amount outstanding as reported in the Tax Audit report and held that the there is difference in the balance outstanding. However from the perusal of the ledger account and the balance confirmation submitted (page 36 to 40 of paper book) we notice that there is no difference in the closing balance. We further notice, the balance reported in the tax audit report is the maximum outstanding balance during the year and not the closing balance. Therefore in our view, the addition sustained by the CIT(A) on the ground that there is a mismatch in the closing balance of loan outstanding is not tenable. (ii) Loan from Hiren Yashwant Jain

The AO has made the disallowance on the ground that the party has not responded to the notice under section 133(6) of the Act and that credit worthiness of the party is not established. The CIT(A) has given relief on the ground that the assessee's credit worthiness is well established.

We heard the parties and perused the material on record. We notice that the assessee has a taken a loan of Rs.4,00,000 during the year from Mr.Hiren Yashwant Jain and has also repaid a sum of Rs.5,67,760/-. Further from the perusal of CIT(A)'s finding we notice that the CIT(A) has deleted the addition stating that the credit worthiness of the party is well substantiated. We also notice that the assessee has submitted ITRs, balance confirmation, ledger account copy, Bank statement etc., of Mr.Hiren Yashwant Jain and that the AO did not record any adverse findings with regard to these documents. Considering these facts, we see no infirmity in the Sheetal Dilip Jain Prop. M/s Nishi Industries given relief given by the CIT(A) towards loan from Mr.Hiren Yashwant Jain on the ground that the loan is well substantiated.

With regard to loan from Shri Janak Rahiklal Tora amounting to Rs. 10,00,000/- which is upheld by the CIT(A) as unexplained. The ld. AR drew our attention to the details submitted before the CIT(A) such as the copy of ITR, balance confirmation, ledger a/c and bank statement. The ld. AR in this regard argued that the contention that details regarding the identity, creditworthiness and genuineness are not submitted is factually incorrect and that the AO's finding that without ITR and PAN of the party the identity, creditworthiness and genuineness could not be established is also not correct.

The ld. DR on the other hand argued that the assessee's tax audit report did not contain the details of the loan creditor and that the assessee merely by claiming that the loan is genuine cannot discharge the onus. Further the ld DR argued that the credit worthiness of the loan creditor was not substantiated.

We heard the parties and perused the material on record. We notice from the details submitted by the assessee that the income declared by Shri Janak Rahiklal is Rs.2.41 lakhs for AY 2017-18 and Rs.2.29 lakhs for AY 2018-19. Further from the perusal of the bank statement we notice that there has been sudden inflow of huge funds into the SBI account in the months of January & February and the outflow is out of the said funds. Since the assessee has not furnished the financial statements of Shri Janak Rahiklal even during the course of hearing before us, we are unable to appreciate the contention that the credit worthiness and genuineness are substantiated. Though the allegation of the revenue that the PAN, Bank statement Sheetal Dilip Jain Prop. M/s Nishi Industries etc., of Shri Janak Rahiklal have not produced is factually incorrect, in our view, the documents submitted before the lower authorities are inadequate to hold that the loan is well substantiated by evidences. The ld. AR during the course of hearing conceded that the no other new documents are available in this regard. Considering these facts as discussed herein above, we see no reason to interfere with the decision of CIT(A) in confirming the addition made by the AO.

With regard to loan obtained from Mrs. Anita Y Jain and Mrs. Sushila B. Jain the ld. AR drew our attention to the detailed filed before the lower authorities (page 71 to 96) to submit that both these parties have creditworthiness which is substantiated by the balance sheet submitted by the assessee and that the income of the year under consideration being low cannot be the reason for rejecting the creditworthiness of the parties. The ld. AR submitted that the Tax Auditor have not included the names of the parties in the Tax Audit Report (TAR) is an inadvertent error and that cannot be a basis for holding that the loan transactions are non- genuine.

The ld. DR on the other hand vehemently supported the order of the AO. The ld. DR submitted that the assessee with respect to all the loan creditors failed to prove the genuineness and that the CIT(A) merely considering the balance-sheet has given partial relief to the assessee. The ld. DR during the course of hearing submitted a detailed written submission contending the relief given by the CIT(A) with regard to each of the loan creditors and the same has been taken on record for verification. Sheetal Dilip Jain Prop. M/s Nishi Industries 15. We heard the parties and perused the material on record. From the detailed findings recorded by the CIT(A) and from the perusal of the financial statements of the parties submitted before us (page no. 71 to 96 of PB) we notice that the Anita Y Jain and Sushila B Jain creditor are having sufficient financial strength i.e. the capital account of Anita Y Jain is around Rs.42 lakhs and that of Sushila B Jain is Rs.1.15 crores. Further the assessee in support of the loan transactions has submitted the ITR copies, financial statements, balance confirmations, ledger account of the assessee in the books of loan creditors and the bank statement containing the loan transactions. We notice that the AO has not recorded any adverse findings with regard to the documents submitted by the assessee and mere fact that the loans are not reflected in the TAR cannot be a reason for confirming the addition under section 68 of the Act. Considering the fact that the assessee has discharge the onus by producing all the relevant details and that the credit worthiness is well substantiated, we are of the view that the additions sustained by the CIT(A) towards loan from Anita Y Jain and Sushila B. Jain are not sustainable.

The AO during the course of hearing called on the assessee to furnish details pertaining to the parties from whom the assessee has made purchases. The AO also issued 133(6) notice to certain parties after perusing the details furnished by the assessee. One of the parties M/s. Citizen Metalloys Ltd. who have responded to the notice issued under section 133(6) of the Act has stated that they have purchased copper scrap from the assessee and have made payments towards the same. The AO was of the view that the assessee has filed incorrect details for the reason that the assessee has stated that purchases have been made from the said party. Accordingly, the AO held that the purchases made from the above party are not genuine and accordingly disallowed the same. Before the CIT(A), the assessee submitted that Sheetal Dilip Jain Prop. M/s Nishi Industries both sales and purchase transactions are entered into with M/s. Citizen Metalloys Ltd. and the ledger confirmation of the party contains both purchases and sales. The assessee further submitted before the CIT(A) that the AO has erroneously considered only the sales transactions to hold that the purchases from the party as non-genuine. The CIT(A) after perusing the details submitted by the assessee deleted the addition.

The ld DR submitted that the AO caught a clear discrepancy with respect to Citizen Metalloys Ltd. the assessee had recorded a purchase of ₹6.34 lakh from this party, but when the party was contacted, it responded that it had purchased scrap from the assessee, not sold to her. The ld DR further submitted that the assessee later claimed it was a mistake that goods sold were returned and the accountant booked it as purchase instead of negative sales and that the said explanation remained uncorroborated by any independent evidence. The ld DR also submitted that the CIT(A) has accepted the assessee's explanation at face value and deleted the addition, noting that the ledger had entries on both sides with Citizen Metalloys (implying a two-way trade).

The ld AR on the other hand submitted that the assessee has erroneously furnished the sales returns as purchases when the AO has called for the details of purchases. The ld AR further submitted that M/s. Citizen Metalloys Ltd., have responded to the summons under section 133(6) and has also submitted the balance confirmation. The ld AR drew our attention to the entries reflected in the ledger confirmation submitted by M/s. Citizen Metalloys Ltd. to argue that the same contains the transactions erroneously submitted as purchase transactions of the assessee. Accordingly it was argued by the ld AR that the addition stating that the purchases are unexplained is not correct. Sheetal Dilip Jain Prop. M/s Nishi Industries

We heard the parties and perused the material on record. During the course of hearing the ld. AR drew our attention to the ledger copy as furnished by M/s. Citizen Metalloys Ltd. containing the transactions entered into the assessee. From the perusal of the same we notice that the assessee has made sales to the party and the assessee has raised debit notes on the party which is reflected in the ledger. Therefore, there is merit in the submission of the assessee that there are both credit and debit transaction with M/s. Citizen Metalloys Ltd. and that the same cannot be treated as non-genuine. We also notice that the impugned transactions are subject to GST and have the reference of the debit note numbers. In view of this discussion, we see no reason to interfere with the decision of the CIT(A) in deleting the addition.

During the course of assessment proceedings, the AO issued notice under section 133(6) of the Act to various parties from whom the assessee has purchased the goods. The AO also noticed that the average GP of the assessee in earlier years was ranging between 5.17% and 7.07% and that the assessee for the year under consideration has declared a GP of 1% only. The AO estimated the average GP of the assessee to be 6.08% based on one sample party and applied the said rate on the purchases made from parties who are not responded to the notice under section 133(6) of the Act. Accordingly, the AO made an addition of Rs. 3,03,02,780/- as profit of the assessee. On further appeal the CIT(A) gave relief to the assessee by holding that “10.2 However, the appellant claimed that stock wise monthly summary to the AO and demonstrated that GP was only 17%. They also stated that confirmation from some of the parties were submitted to the AO. During the course of appeal proceedings, the appellant submitted confirmation letters from many of the Sheetal Dilip Jain Prop. M/s Nishi Industries Creditors. When the remand report was called for on the submission made by the appellant, the AO failed to respond to all the notices issued. On 25.01.2024 the appellant furnished ledger account and the ITRs of 14 Creditors out of 17 parties listed in para 8.1 of the assessment order. The details of Mighty marketing and Swarajya Industries were submitted on 07.02.2024. 10.3 However, the details regarding M/s. Wafa International (Rs.4,98,13,618/-) could not be furnished by the appellant. It is to be mentioned here that this party was not registered with department e-filing portal to enable the AO to conduct any enquiry. It was specifically reported in the table at Para 8.1 (at Sl.No.17). The appellant also failed to produce the details of this creditor to the AO. Hence, the appellant was asked to submit the confirmation letter. In response to the notice, the appellant submitted one page ledger confirmation obtained from M/s. Wafa International. In the assessment order, the AO reported that no letter u/s 133(6) of the IT Act could be issued as this Creditor has not registered in the e- filing portal. Hence, the appellant was specifically asked to submit the copies of ITR and bank account copy of the Creditor. However, the appellant could not furnish such details. Hence, the alleged purchase of Rs.4,98,13,618/-became unverifiable. Attention is drawn to Para 8.3 of the assessment order, where it was clearly mentioned that the appellant has made substantial purchases from multiple Suppliers, who are either non-filers or have no business activity. In view of the above, this purchase was treated as not genuine. The AO estimated gross profit @6.08% on total purchase of Rs.49,81,15,132/-. However, he is directed to restrict the estimation to M/s. Wafa International i.e. Rs.4,98,13,618/- alone, which works out to Rs.30,28,668/-, as the appellant failed to furnish the details of ITR filed, bank account copy, etc. in support of her claim to verify this purchase. As it was not produced, this purchase is treated as not genuine and the profit estimation is restricted to this Supplier.”

The ld. AR submitted that the AO has estimated the GP based on one sample transaction and that the AO has not found any fault with the books of accounts of the assessee. The ld. AR further submitted that the assessee has furnished the details pertaining to the party M/s Wafa International which has not been considered by the CIT(A). The ld. AR also submitted that the addition made towards estimated GP is not tenable without bringing any material on record to show that the assessee has inflated the expenses to show the reduced GP. Sheetal Dilip Jain Prop. M/s Nishi Industries 22. The ld. DR on the other hand submitted that the CIT(A) allowed the assessee to submit confirmation letters in appeal for some suppliers, and on that basis gave relief. The ld DR further submitted that even with confirmations, one must examine whether those parties were capable of supplying the goods or were mere billing entities and that the CIT(A) did not engage in that analysis for each party. The kd AR also submitted that the CIT(A) appears to have summarily dropped the entire issue except Wafa and that CIT(A)'s own action of sustaining Wafa's profit implies he agreed with the AO's methodology of profit estimation for bogus purchases. Therefore, the ld DR submited that CIT(A) should not have curtailed the addition and at a minimum, the profit addition on unverified purchases should be broadened beyond just Wafa any suppliers who did not independently confirm or who are of dubious status should be included.

We heard the parties and perused the material on record. From the perusal of the AO's order we notice that reason for making the GP addition on total purchases is that the parties have not responded to the notice under section 133(6). We further notice that the AO has not conducted any further inquiry and that the AO himself has mentioned about the payments made to parties towards supply of goods. We also notice that the AO did not reject the books of accounts and that the AO has not examined the stock statement of the assessee. From these facts it is clear that the AO without detailed enquiry or examination has made the addition merely for the reason that notice under section 133(6) was not responded. With regard to the addition sustained by the CIT(A), the ld AR drew our attention to the balance confirmation from the party. The ld AR, even before us did not bring any additional material on record to substantiate that the purchases made from M/s.Wafa International are genuine. Accordingly we are of the considered view that there is no infirmity in the Sheetal Dilip Jain Prop. M/s Nishi Industries addition sustained by the CIT(A) to the extent of GP rate on the purchases from M/s.Wafa International.

In result the appeal of the assessee and the appeal of the revenue are partly allowed. Order pronounced in the open court on 19-06-2025. (JUSTICE (RETD.) C V BHADANG,) (PADMAVATHY S) President Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,