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DCIT CC 7(2), MUMBAI, MUMBAI vs M/S MAN INDUSTRIES (INDIA) LIMITED, MUMBAI | BharatTax

DCIT CC 7(2), MUMBAI, MUMBAI vs. M/S MAN INDUSTRIES (INDIA) LIMITED, MUMBAI

ITA 618/MUM/2025Status: DisposedITAT Mumbai28 May 2025AY 2015-16Bench: SHRI OM PRAKASH KANT (Accountant Member), MS. KAVITHA RAJAGOPAL ( (Judicial Member)1 pages

AI SummaryDismissed

Facts

The Revenue appealed against two orders of the CIT(A) for assessment years 2012-13 and 2015-16. For AY 2012-13, the appeal concerned the deletion of an addition of Rs. 2,60,61,006/- made by the AO under Section 68 as unexplained cash credit. For AY 2015-16, the appeal challenged the deletion of penalty under Section 271(1)(c) related to bogus purchases.

Held

The Tribunal held that the addition of Rs. 2,60,61,006/- under Section 68 for AY 2012-13 was not sustainable as the assessee had provided sufficient explanation and documentary evidence for the credit entries. For AY 2015-16, the Tribunal held that penalty under Section 271(1)(c) cannot be levied on additions made purely on an estimated basis, especially when the original addition itself was restricted by higher authorities.

Key Issues

Whether the addition under Section 68 for unexplained cash credit is justified when the assessee provides documentary evidence? Whether penalty under Section 271(1)(c) is leviable on additions made on an estimated basis?

Sections Cited

68, 143(3), 148, 153A, 271(1)(c), 115JB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI

Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL

For Appellant: Mr. R.R. Makwana, Addl. CIT

Hearing: 28/05/2025

heard together and disposed off by way o heard together and disposed off by way of this consolidated order f this consolidated order for the sake of convenience. for the sake of convenience.

Firstly, we take up the appeal of the Revenue having we take up the appeal of the Revenue having we take up the appeal of the Revenue having ITA No. 617/Mum/2025 for assessment year 2012 617/Mum/2025 for assessment year 2012-13. The grounds raised 13. The grounds raised in the appeal are reproduced as in the appeal are reproduced as under:

"Whether on the facts and 1. "Whether on the facts and circumstances of the case and in circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of law, the Ld. CIT (A) erred in deleting the addition of law, the Ld. CIT (A) erred in deleting the addition of Rs.2,60,61,006/ Rs.2,60,61,006/- as unexplained cash credit u/s 68 of the as unexplained cash credit u/s 68 of the Act, without appreciating the facts of the case. Act, without appreciating the facts of the case.

2. Whether on the facts and circumstances of the case and in 2. Whether on the facts and circumstances of the case and in 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the total income of the law, the Ld. CIT(A) erred in allowing the total income of the law, the Ld. CIT(A) erred in allowing the total income of the appellant at Rs. 1,55,13,50,398/ appellant at Rs. 1,55,13,50,398/- as against the income as against the income determined by the AO of Rs. 1,57,74,11,400, without properly determined by the AO of Rs. 1,57,74,11,400, without properly determined by the AO of Rs. 1,57,74,11,400, without properly appreciating the facts of the case. appreciating the facts of the case.

The order of the Ld. CIT(A) is erroneo 3. The order of the Ld. CIT(A) is erroneous in law and on facts us in law and on facts of the case and is liable to be set aside and the order of of the case and is liable to be set aside and the order of of the case and is liable to be set aside and the order of the AO be restored? restored? 3. Briefly stated facts of the case are that Briefly stated facts of the case are that the assessee company the assessee company was engaged in the business of manufacturing and export of large was engaged in the business of manufacturing and export of large was engaged in the business of manufacturing and export of large diameter carbon steel l diameter carbon steel line pipes for various high pressure transport ine pipes for various high pressure transport applications. The assessee filed its return of income electronically assessee filed its return of income electronically assessee filed its return of income electronically on 29.09.2012 declaring total income at Rs.154,94,33,700/- which on 29.09.2012 declaring total income at Rs.154,94,33,700/ on 29.09.2012 declaring total income at Rs.154,94,33,700/ was subsequently revised on 30.12.2013 was subsequently revised on 30.12.2013, declaring total income declaring total income at Rs.148,93,31,110/-. The assessment u/s 143(3) r.w.s. 153A of the . The assessment u/s 143(3) r.w.s. 153A of the . The assessment u/s 143(3) r.w.s. 153A of the Income-tax Act, 1961 (in short ‘the Act’) was completed on tax Act, 1961 (in short ‘the Act’) was completed on tax Act, 1961 (in short ‘the Act’) was completed on 28.12.2017 assessing the total income at Rs.155,13,50,398/-. 28.12.2017 assessing the total income at Rs.155,13,50,398/ 28.12.2017 assessing the total income at Rs.155,13,50,398/ Subsequently, information was received from the Investigation Wing Subsequently, information was received from the Investigation Wing Subsequently, information was received from the Investigation Wing of the Income-tax Department, Mumbai regarding deposit of tax Department, Mumbai regarding deposit of tax Department, Mumbai regarding deposit of Man Industries (I) Ltd. 3 618/MUM/2025 618 Rs.2.50 crores in the bank account of the assessee, nature and Rs.2.50 crores in the bank account of the assessee Rs.2.50 crores in the bank account of the assessee source which, the assessee failed to explain during inquiry , the assessee failed to explain during inquiry , the assessee failed to explain during inquiry conducted by the Investigation Wing. In view of the information, the conducted by the Investigation Wing. In view of the information, the conducted by the Investigation Wing. In view of the information, the Assessing Officer recorded reasons to believe that income escaped ecorded reasons to believe that income escaped ecorded reasons to believe that income escaped assessment and accordingly issued notice u/s 148 of the Act on assessment and accordingly issued notice u/s 148 of the Act on assessment and accordingly issued notice u/s 148 of the Act on 29.03.2019. The assessee filed return of income in response to 29.03.2019. The assessee filed return of income in response to 29.03.2019. The assessee filed return of income in response to notice u/s 148 of the Act on 04.10.2019 and thereafter statutory notice u/s 148 of the Act on 04.10.2019 and thereafter statutory notice u/s 148 of the Act on 04.10.2019 and thereafter statutory notices under the Act were issued and complied with. During the Act were issued and complied with. During the Act were issued and complied with. During the course of reassessment proceedings, the Assessing Officer asked course of reassessment proceedings, the Assessing Officer asked course of reassessment proceedings, the Assessing Officer asked the assessee to explain the deposit of Rs.2,60,61,006/- in HSBC the assessee to explain the deposit of Rs.2,60,61,006/ the assessee to explain the deposit of Rs.2,60,61,006/ Bank Account No. 019 Bank Account No. 019-860063-001. The assessee explained that 001. The assessee explained that Rs.2,55,61,006/- was was received by way of proceeds of of export bill and Rs.5,00,000/- was transferred from other bank account was transferred from other bank account was transferred from other bank account of assessee company maintained with the ICICI Bank, but t company maintained with the ICICI Bank, but the explanations of he explanations of the assessee were not accepted by the Assessing Officer and he the assessee were not accepted by the Assessing Officer and he the assessee were not accepted by the Assessing Officer and he made addition u/s 68 of the Act holding the credit as unexplained s 68 of the Act holding the credit as unexplained s 68 of the Act holding the credit as unexplained cash credit.

Man Industries (I) Ltd. 4 618/MUM/2025 618 made u/s 68 of the Act. The case of the appellant was reopened made u/s 68 of the Act. The case of the appellant was reopened made u/s 68 of the Act. The case of the appellant was reopened on the basis of information received from Investigation wing that sis of information received from Investigation wing that sis of information received from Investigation wing that there were credit entries of the said amount in the bank account there were credit entries of the said amount in the bank account there were credit entries of the said amount in the bank account of the appellant followed by of the appellant followed by immediate transfer of funds to immediate transfer of funds to another another another account. account. account. In In In the the the assessment assessment assessment proceedings, proceedings, proceedings, the the the explanation for the cr explanation for the credits was not accepted by the AO and the edits was not accepted by the AO and the entire amount of was entire amount of was added to the income of the appellant u/s added to the income of the appellant u/s 68 of the Act, which is being contested in 68 of the Act, which is being contested in the present appeal. the present appeal. Appellant has challenged the addition on merits. It has also Appellant has challenged the addition on merits. It has also Appellant has challenged the addition on merits. It has also raised legal grounds challeng raised legal grounds challenging the validity of the reasons for ing the validity of the reasons for reopening and notice reopening and notice u/s 148 of the Act. I proceed to decide the u/s 148 of the Act. I proceed to decide the issue on merits. issue on merits. 9.1. The amounts in question are two credit entries of Rs 9.1. The amounts in question are two credit entries of Rs 9.1. The amounts in question are two credit entries of Rs 5,00,000 and Rs. 5,00,000 and Rs. 2,55,61,006/- transferred to appellant’s transferred to appellant’s HSBC bank account no. HSBC bank account no. 019-860063001. Appellant has Appellant has explained that the Rs. 5,00,000/ explained that the Rs. 5,00,000/- was transferred from its ICICI was transferred from its ICICI Bank A/c No. 000451000358 to HSBC Bank A/c No. 019 A/c No. 000451000358 to HSBC Bank A/c No. 019- A/c No. 000451000358 to HSBC Bank A/c No. 019 860063-001 on 7/6/2011. It has 001 on 7/6/2011. It has submitted the account submitted the account statement of both the banks as evidence. I have perused th statement of both the banks as evidence. I have perused th statement of both the banks as evidence. I have perused the bank statement and find that the name of the appellant and bank statement and find that the name of the appellant and bank statement and find that the name of the appellant and bank account no. of ICICI bank account no. of ICICI Bank is mentioned on the HSBC bank Bank is mentioned on the HSBC bank statement against the credit entry of Rs. statement against the credit entry of Rs. 5,00,000/ 5,00,000/- on 07.06.2011. The explanation of the appellant is found to be in 07.06.2011. The explanation of the appellant is found to be in 07.06.2011. The explanation of the appellant is found to be in order. 9.2. The other amount of Rs 2,55,61,006/ other amount of Rs 2,55,61,006/-, it is explained that , it is explained that the Appellant the Appellant had made an export sale to its overseas customer had made an export sale to its overseas customer M/s. Al Zahem International Group M/s. Al Zahem International Group for a sale consideration of for a sale consideration of USD USD USD 5,20,740.76, 5,20,740.76, 5,20,740.76, vide vide vide Export Export Export Invoice Invoice Invoice no. no. no. 207 207 207 dated dated dated 09.02.2012. 09.02.2012. The The relevant relevant Export Export Invoice Invoice No.207/EXP/Anj/Saw/11 No.207/EXP/Anj/Saw/11-12 dated 09.02.2012 raised to M/s. 09.02.2012 raised to M/s. Al Zahem International Group, Packing List, Certificate of Al Zahem International Group, Packing List, Certificate of Al Zahem International Group, Packing List, Certificate of Origin, Shipping Bill and Bill of Lading were submitted to the Assessing Shipping Bill and Bill of Lading were submitted to the Assessing Shipping Bill and Bill of Lading were submitted to the Assessing officer. The export sales have been accounted and o export sales have been accounted and o export sales have been accounted and offered as revenue in Audited Books of revenue in Audited Books of Account. The appellant had Account. The appellant had received the export proceeds of USD 5,20,740.76 from received the export proceeds of USD 5,20,740.76 from received the export proceeds of USD 5,20,740.76 from M/s. Al Zahem International Group on 02.03.2012 being converted into Zahem International Group on 02.03.2012 being converted into Zahem International Group on 02.03.2012 being converted into INR Rs. 2,55,61,006/ 2,55,61,006/- (which includes Rs. 4,94,561/ (which includes Rs. 4,94,561/- received on 06.03.2012 on account of 3.2012 on account of currency exchange difference) in currency exchange difference) in HSBC Bank A/c No. 019 HSBC Bank A/c No. 019-860063001 through proper 860063001 through proper banking channel. The bank realization certificate and bank payment channel. The bank realization certificate and bank payment channel. The bank realization certificate and bank payment advice for the advice for the same was submitted to the assessing officer same was submitted to the assessing officer along with the reply to the s along with the reply to the show-cause notice filed on notice filed on 21.12.2019.

4. Rs. 5,30,000/ 4. Rs. 5,30,000/- transferred to Corporation Bank on n Bank on 14/03/2012. 14/03/2012. Therefore, it is very clear that the funds are transferred to from Therefore, it is very clear that the funds are transferred to from Therefore, it is very clear that the funds are transferred to from HSBC bank account HSBC bank account to other bank accounts held and operated to other bank accounts held and operated by the Company itself and not to any by the Company itself and not to any outsider. Thus, the outsider. Thus, the appellant has explained the source of the funds as appellant has explained the source of the funds as well as the well as the destination of the funds. destination of the funds. 9.6. The above explanation was also provided during the 9.6. The above explanation was also provided during the 9.6. The above explanation was also provided during the assessment proceedings. assessment proceedings. However, the AO had rejected the However, the AO had rejected the appellant’s contention. Para 3.2 of the appellant’s contention. Para 3.2 of the assessment order in assessment order in which carried the AOs comments on the submis which carried the AOs comments on the submissions made by sions made by the appellant is reproduced as under the appellant is reproduced as under “3.2 The assessee's submission is considered but the same is “3.2 The assessee's submission is considered but the same is “3.2 The assessee's submission is considered but the same is not found to be acceptable. The transactions entered into by the be acceptable. The transactions entered into by the be acceptable. The transactions entered into by the assessee are not vague assessee are not vague but specific with reference to certain but specific with reference to certain credit entries. T credit entries. Therefore, the basic issue in question is whether in question is whether or not the afore or not the afore-mentioned credit entries into the assessee's assessee's bank account are genuine or otherwise. In these circumstances, bank account are genuine or otherwise. In these circumstances, bank account are genuine or otherwise. In these circumstances, the onus lies on the assessee to establish along the onus lies on the assessee to establish along-with supporting with supporting evidences that th that the credit entries into the assessee's bank e credit entries into the assessee's bank account are genuine. However, account are genuine. However, the assessee has failed to the assessee has failed to furnish the cogent evidences in respect of the claim furnish the cogent evidences in respect of the claim made by it. made by it. It has, therefore, failed to satisfactorily explain the nature and It has, therefore, failed to satisfactorily explain the nature and It has, therefore, failed to satisfactorily explain the nature and genuineness of the genuineness of the aforesaid transactions”. With these observations, the AO has proceeded to invoke the With these observations, the AO has proceeded to invoke the With these observations, the AO has proceeded to invoke the provisions of section 68 of the Act. section 68 of the Act.

Man Industries (I) Ltd. 7 618/MUM/2025 618 9.7 On perusal of the Para 3.2. of the order, it appears that the 9.7 On perusal of the Para 3.2. of the order, it appears that the 9.7 On perusal of the Para 3.2. of the order, it appears that the explanation provided by the appellant was rejected without provided by the appellant was rejected without provided by the appellant was rejected without assigning any specific reasons. AO any specific reasons. AO has not elaborated on what has not elaborated on what other evidence was required to prove that the said credit other evidence was required to prove that the said credit other evidence was required to prove that the said credit entries were genuine sale proceeds. I feel that the Appellant had duly were genuine sale proceeds. I feel that the Appellant had duly were genuine sale proceeds. I feel that the Appellant had duly discharged its discharged its onus in explanting the source of credits. The onus onus in explanting the source of credits. The onus was on the AO to conduct further he AO to conduct further enquiries to disprove the enquiries to disprove the appellant, if he was not satisfied with the explanation. AO appellant, if he was not satisfied with the explanation. AO appellant, if he was not satisfied with the explanation. AO has not carried out any such enquiry. The information received by not carried out any such enquiry. The information received by not carried out any such enquiry. The information received by the Investigation the Investigation wing has been adopted without considering wing has been adopted without considering the submission made the submission made by the appellant in the assessment the assessment proceedings. 9.8 From the overall facts of the case, it is seen that the 9.8 From the overall facts of the case, it is seen that the 9.8 From the overall facts of the case, it is seen that the appellant has explained appellant has explained the credits of Rs 2,60,61,006/ the credits of Rs 2,60,61,006/- in the bank account with documentary evidences. The bank account with documentary evidences. The addition Rs addition Rs 2,60,61,006/ 2,60,61,006/- u/s 68 of the Act cannot be upheld .AO is Act cannot be upheld .AO is directed to delete directed to delete the said addition. Ground nos 1 and 3 are Ground nos 1 and 3 are allowed.”

We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. We find that the issue in dispute is . We find that the issue in dispute is the credit of Rs.2,60,61,006/-. The assessee in respect of source of in respect of source of the credit of Rs.2,60,61,006/ explained that United United State dollar (USD) 5,20,74 5,20,740.76 (Indian received from overseas customers Rupees 2,55,61,006/ 55,61,006/-) was received from overseas customers against the material supplied vide export invoice No. 207 dated against the material supplied vide export invoice against the material supplied vide export invoice 09.02.2012. The assessee filed all the documentary evidence in 09.02.2012. The assessee filed all the documentary evidence in 09.02.2012. The assessee filed all the documentary evidence in support of export documents documents interalia- Commercial Invoice, Packing Commercial Invoice, Packing List, Certificate of Origin, Shipping Bill and Bill of Lading of Origin, Shipping Bill and Bill of Lading of Origin, Shipping Bill and Bill of Lading, copy of bank advise, copy of bank certificate etc bank advise, copy of bank certificate etc. With respect to amount of . With respect to amount of Rs.5,00,000/- (Rs.2,60,61,006 (Rs.2,60,61,006 – Rs.2,55,61,006) the assessee Rs.2,55,61,006) the assessee explained that same was transferred from the company’s other explained that same was transferred from the company’s other explained that same was transferred from the company’s other bank account maintained with the ICICI bank. Thus, it is evident bank account maintained with the ICICI bank. Thus bank account maintained with the ICICI bank. Thus that assessee has explained source of the that assessee has explained source of the total amount of total amount of Man Industries (I) Ltd. 8 618/MUM/2025 618 Rs.2,60,61,006/-. Before the Ld. CIT(A) also the assessee reiterated . Before the Ld. CIT(A) also the assessee reiterated . Before the Ld. CIT(A) also the assessee reiterated the source of the deposit and file the source of the deposit and filed all the documentary evidence in all the documentary evidence in support thereof. In our opinion, order of the Ld. CIT(A) on the issue support thereof. In our opinion, order of the Ld. CIT(A) on the issue support thereof. In our opinion, order of the Ld. CIT(A) on the issue in dispute is well reasoned and in dispute is well reasoned and we do not find any infirmity in the we do not find any infirmity in the same. Accordingly, we uphold the same. The grounds of appeal of same. Accordingly, we uphold the same. The grounds of appeal of same. Accordingly, we uphold the same. The grounds of appeal of the Revenue are accordingly dismissed. the Revenue are accordingly dismissed.

5. The appellant craves leave to add to alter, amend, modify 5. The appellant craves leave to add to alter, amend, modify 5. The appellant craves leave to add to alter, amend, modify and/ or delete any or all of and/ or delete any or all of the above said grounds of appeal. the above said grounds of appeal. The The The appellant appellant appellant reserves reserves reserves its its its right right right to to to file file file further further further submission in in the appeal. 6.1 Briefly stated, facts of the case are that the assessee file Briefly stated, facts of the case are that the assessee file Briefly stated, facts of the case are that the assessee filed its original return of income on 30.11.2015 declaring total income at original return of income on 30.11.2015 declaring total income at original return of income on 30.11.2015 declaring total income at Rs.32,38,23,920/-. Thereafter the . Thereafter the return of income filed by the turn of income filed by the assessee was selected for scrutiny and notice u/s 143(2) of the Act assessee was selected for scrutiny and notice u/s 143(2) of the Act assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued and served upon the assessee. Subsequently, a search was issued and served upon the assessee. Subsequently, a search was issued and served upon the assessee. Subsequently, a search was conducted u/s 132 of the Act on 10.12.2014. Thereafter, the was conducted u/s 132 of the Act on 10.12.2014. Thereafter, the was conducted u/s 132 of the Act on 10.12.2014. Thereafter, the assessment was completed u/s 143(3) of the Act on 29.12.2016 ment was completed u/s 143(3) of the Act on 29.12.2016 ment was completed u/s 143(3) of the Act on 29.12.2016 determining total income at Rs.78, determining total income at Rs.78,27,92,610/- under normal provisions of the Act and book profit of Rs.87,74,75,621/- u/s provisions of the Act and book profit of Rs.87,74,75,621/ provisions of the Act and book profit of Rs.87,74,75,621/ 115JB of the Act after after making various additions including addition making various additions including addition for the bogus purchases of Rs.9,14,75,919/ for the bogus purchases of Rs.9,14,75,919/-. The Assessing Officer . The Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act. On further initiated penalty proceedings u/s 271(1)(c) of the Act. On further initiated penalty proceedings u/s 271(1)(c) of the Act. On further appeal against the quantum addition, the Ld. CIT(A) partly allowed appeal against the quantum addition, the Ld. CIT(A) partly allowed appeal against the quantum addition, the Ld. CIT(A) partly allowed the appeal of the assessee against which both the Revenue and the of the assessee against which both the Revenue and the of the assessee against which both the Revenue and the assessee preferred appeal before the Income assessee preferred appeal before the Income-tax Appellate Tribunal tax Appellate Tribunal (ITAT). The ITAT vide its order dated 25.11.2021 restricted the (ITAT). The ITAT vide its order dated 25.11.2021 restricted the (ITAT). The ITAT vide its order dated 25.11.2021 restricted the addition made on account of bogus purchases to 5% of the amount addition made on account of bogus purchases to 5% of the amount addition made on account of bogus purchases to 5% of the amount of Rs.9,14,75,919/-. In view of addition to the extent of 5% in . In view of addition to the extent of 5% in . In view of addition to the extent of 5% in respect of bogus purchases confirmed by the Tribunal, the respect of bogus purchases confirmed by the Tribunal, the respect of bogus purchases confirmed by the Tribunal, the Assessing Officer issue a show cause notice dated 12.07.2022 to the Assessing Officer issue a show cause notice dated 12.07.2022 to the Assessing Officer issue a show cause notice dated 12.07.2022 to the Man Industries (I) Ltd. 10 618/MUM/2025 618 assessee asking as why the penalty u/s 271(1)(c) of the Act as why the penalty u/s 271(1)(c) of the Act as why the penalty u/s 271(1)(c) of the Act might not be levied in respect of addition sustained by the ITAT. The levied in respect of addition sustained by the ITAT. The levied in respect of addition sustained by the ITAT. The assessee contested that there was no concealment of the income or assessee contested that there was no concealment of the income or assessee contested that there was no concealment of the income or furnishing inaccurate particulars of the income and disallowance furnishing inaccurate particulars of the income and disallowance furnishing inaccurate particulars of the income and disallowance was merely made on the a was merely made on the ad-hoc estimation of the profit. T hoc estimation of the profit. The Assessing Officer rejected the contention of the assessee ng Officer rejected the contention of the assessee ng Officer rejected the contention of the assessee and levied a penalty at the rate of at the rate of 100% of the tax evaded on the said addition 100% of the tax evaded on the said addition, which was worked out to Rs.15,54,634/ which was worked out to Rs.15,54,634/-. On further appeal, the . On further appeal, the Ld. CIT(A) deleted the penalty for the reason that same was levied in Ld. CIT(A) deleted the penalty for the reason that same was l Ld. CIT(A) deleted the penalty for the reason that same was l respect of addition sustained on the estimate basis relying on the respect of addition sustained on the estimate basis relying on the respect of addition sustained on the estimate basis relying on the decision of the Co-ordinate Bench of the Mumbai ITAT. Aggrieved, ordinate Bench of the Mumbai ITAT. Aggrieved, ordinate Bench of the Mumbai ITAT. Aggrieved, the Revenue is in appeal before the Tribunal by way of raising the the Revenue is in appeal before the Tribunal by way of raising the the Revenue is in appeal before the Tribunal by way of raising the grounds as reproduced above. grounds as reproduced above.

Man Industries (I) Ltd. 11 618/MUM/2025 618 various documents viz. Ledger a various documents viz. Ledger account of Harmony Exim Pvt. Ltd, ccount of Harmony Exim Pvt. Ltd, copy of Store issue report wherein HR coil purchase from M/s copy of Store issue report wherein HR coil purchase from M/s copy of Store issue report wherein HR coil purchase from M/s Harmony Exim Pvt. Ltd. were shown to be issued for production / Harmony Exim Pvt. Ltd. were shown to be issued for production / Harmony Exim Pvt. Ltd. were shown to be issued for production / manufacturing of spiral pipes, copy of inspection report was also manufacturing of spiral pipes, copy of inspection report was also manufacturing of spiral pipes, copy of inspection report was also filed before AO, copy of lorry r filed before AO, copy of lorry receipt in respect of goods eceipt in respect of goods transported from Mumbai to Anjar and stock register showing transported from Mumbai to Anjar and stock register showing transported from Mumbai to Anjar and stock register showing month wise receipt and consumption of HR Coil. Under these month wise receipt and consumption of HR Coil. Under these month wise receipt and consumption of HR Coil. Under these circumstances the only possibility is that though the purchases circumstances the only possibility is that though the purchases circumstances the only possibility is that though the purchases are held to be bogus but certainly the purchas are held to be bogus but certainly the purchases were made from es were made from some other source in the grey market. Such purchases can not be some other source in the grey market. Such purchases can not be some other source in the grey market. Such purchases can not be ruled out as the materials were used in the manufacturing ruled out as the materials were used in the manufacturing ruled out as the materials were used in the manufacturing process, the inspection report whereof was on the records and process, the inspection report whereof was on the records and process, the inspection report whereof was on the records and stock register showing monthwise receipt and consumpti stock register showing monthwise receipt and consumpti stock register showing monthwise receipt and consumption of materials. So under these circumstances it is settled position now materials. So under these circumstances it is settled position now materials. So under these circumstances it is settled position now that entire alleged bogus purchases can not added to the income that entire alleged bogus purchases can not added to the income that entire alleged bogus purchases can not added to the income of the assessee as it would affect the profits of the assesse of the assessee as it would affect the profits of the assesse of the assessee as it would affect the profits of the assesse unrealistically unrealistically unrealistically and and and unreasonably. unreasonably. unreasonably. Therefore Therefore Therefore under under under such such such circumstances only profit margin on those bogus purchases can rcumstances only profit margin on those bogus purchases can rcumstances only profit margin on those bogus purchases can at the most be added. Accordingly we set aside the order of id at the most be added. Accordingly we set aside the order of id at the most be added. Accordingly we set aside the order of id CIT(A) on this issue and direct the AO to apply a profit rate of 5% CIT(A) on this issue and direct the AO to apply a profit rate of 5% CIT(A) on this issue and direct the AO to apply a profit rate of 5% on the bogus purchases of Rs.9,14,75,919/ on the bogus purchases of Rs.9,14,75,919/-. The appeal of the . The appeal of the assesse is partly partly allowed.” 7.1 The Ld. CIT(A) deleted the penalty observing mainly for The Ld. CIT(A) deleted the penalty observing mainly for The Ld. CIT(A) deleted the penalty observing mainly for the reason that addition was upheld on the estimation basis. The that addition was upheld on the estimation basis. The that addition was upheld on the estimation basis. The relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under: relevant finding of the Ld. CIT(A) is reproduced as under:

7.2.1 Decision “7.2.1 Decision- During the search action, evid During the search action, evidences were gathered which ences were gathered which suggested that the suggested that the appellant had taken accommodation entries of appellant had taken accommodation entries of purchases amounting to Rs purchases amounting to Rs 9,14,75,919- from a concern named from a concern named M/s Harmony Exim Pvt ltd. Based on this M/s Harmony Exim Pvt ltd. Based on this evidences, entire evidences, entire purchases of Rs 9,14,75,919 were added to the in purchases of Rs 9,14,75,919 were added to the income of the come of the appellant. The said addition was confirmed by the CIT(A). appellant. The said addition was confirmed by the CIT(A). appellant. The said addition was confirmed by the CIT(A). Hon’ble ITAT while Hon’ble ITAT while deciding the issue restricted the addition to deciding the issue restricted the addition to 5% of the purchases. The relevant extract 5% of the purchases. The relevant extract of the order of ITAT is of the order of ITAT is reproduced as under: reproduced as under: “126. We have heard the rival “126. We have heard the rival parties and perused the materials parties and perused the materials on records. Undisputed facts are that the assesse as well as M/S Undisputed facts are that the assesse as well as M/S Undisputed facts are that the assesse as well as M/S Harmoney Exim Pvt. Ltd have Harmoney Exim Pvt. Ltd have admitted to fact that these were admitted to fact that these were accommodation entries only and no physical delivery accommodation entries only and no physical delivery of materials of materials were made to the assesse. Howev were made to the assesse. However the assesse filed various er the assesse filed various documents viz. Ledger account of Harmony Exim Pvt. Ltd, copy of documents viz. Ledger account of Harmony Exim Pvt. Ltd, copy of documents viz. Ledger account of Harmony Exim Pvt. Ltd, copy of Man Industries (I) Ltd. 12 618/MUM/2025 618 Store issue report Store issue report wherein. HR coil purchase from M/s Harmony wherein. HR coil purchase from M/s Harmony Exim Pvt. Ltd. were shown to be issued Exim Pvt. Ltd. were shown to be issued for production / for production / manufacturing of spiral pipes, copy of inspec manufacturing of spiral pipes, copy of inspection report was also tion report was also filed before AO, copy of lorry receipt in respect of goods before AO, copy of lorry receipt in respect of goods before AO, copy of lorry receipt in respect of goods transported from Mumbai to Anjar transported from Mumbai to Anjar and stock register showing and stock register showing month wise receipt and consumption of HR Coil. Under month wise receipt and consumption of HR Coil. Under month wise receipt and consumption of HR Coil. Under these circumstances the only possibility is that though the pur circumstances the only possibility is that though the pur circumstances the only possibility is that though the purchases are held to be are held to be bogus but certainly the purchases were made from bogus but certainly the purchases were made from some other source in the grey some other source in the grey market. Such purchases can not be market. Such purchases can not be ruled out as the materials were used in the ruled out as the materials were used in the manufacturing manufacturing process, the inspection report whereof was on the records and process, the inspection report whereof was on the records and process, the inspection report whereof was on the records and stock register showing monthwise receipt and consumption of register showing monthwise receipt and consumption of register showing monthwise receipt and consumption of materials. So under these materials. So under these circumstances it is settled position now circumstances it is settled position now that entire alleged bogus purchases can not that entire alleged bogus purchases can not added to the income added to the income of the assessee as it would affect the profits of the assesse of the assessee as it would affect the profits of the assesse of the assessee as it would affect the profits of the assesse unrealistically alistically alistically and and and unreasonably. unreasonably. unreasonably. Therefore Therefore Therefore under under under such such such circumstances only profit circumstances only profit margin on those bogus purchases can margin on those bogus purchases can at the most be added. Accordingly we set at the most be added. Accordingly we set aside the order of ld aside the order of ld CIT(A) on this issue and direct the AO to apply a profit rate of 5% CIT(A) on this issue and direct the AO to apply a profit rate of 5% CIT(A) on this issue and direct the AO to apply a profit rate of 5% on the bogus purchases of Rs.9,14,75,919/-. The appeal of the . The appeal of the assesse is partly assesse is partly allowed.

Hon’ble ITAT has observed that the purchases form Ms Harmony Hon’ble ITAT has observed that the purchases form Ms Harmony Hon’ble ITAT has observed that the purchases form Ms Harmony Exim Pvt ltd were bogus, but the purchases would have been ltd were bogus, but the purchases would have been ltd were bogus, but the purchases would have been made from some other source in made from some other source in grey market. Since the appe grey market. Since the appellant has shown consumption of the material and has shown consumption of the material and corresponding sales, corresponding sales, the profit margin was worked out at 5% of such purchases. the profit margin was worked out at 5% of such purchases. the profit margin was worked out at 5% of such purchases. 7.2.2 As regards filing of inaccurate particulars, I am of the view 7.2.2 As regards filing of inaccurate particulars, I am of the view 7.2.2 As regards filing of inaccurate particulars, I am of the view that the appellant that the appellant had filed inaccurate particulars of purcha had filed inaccurate particulars of purchases in its books of account. However, it has in its books of account. However, it has been held that the been held that the purchases were made, not from the parties shown by the purchases were made, not from the parties shown by the purchases were made, not from the parties shown by the appellant but from the grey market. Further, the income arising but from the grey market. Further, the income arising but from the grey market. Further, the income arising out of such purchases has been out of such purchases has been estimated at 5% of such estimated at 5% of such purchases. purchases. Appellant Appella nt has has cited cited number number of of judicial judicial pronouncements including that of Jurisdictional Mumbai ITAT, pronouncements including that of Jurisdictional Mumbai ITAT, pronouncements including that of Jurisdictional Mumbai ITAT, wherein it is held that wherein it is held that the penalty should not be levied on the penalty should not be levied on estimated additions. I find that the present case estimated additions. I find that the present case gets covered by gets covered by the case laws relied upon by the appe the case laws relied upon by the appellant. 7.3 Considering the overall facts of the case, I hold that the 7.3 Considering the overall facts of the case, I hold that the 7.3 Considering the overall facts of the case, I hold that the penalty u/s 271(1)(c) penalty u/s 271(1)(c) cannot be sustained in this case as the cannot be sustained in this case as the penalty is calculated on estimated income. penalty is calculated on estimated income.” Before us, the Ld. counsel for the assessee has relied on the 7.2 Before us, the Ld. counsel for the assessee has relied on the Before us, the Ld. counsel for the assessee has relied on the Tribunal in the case of ITO v. IORA Diamonds Pvt. Ltd. in case of ITO v. IORA Diamonds Pvt. Ltd. in ITA Nos. e case of ITO v. IORA Diamonds Pvt. Ltd. in ITA Nos.

“5. We have heard both the sides and perused the material on 5. We have heard both the sides and perused the material on 5. We have heard both the sides and perused the material on record. We find that the CIT(A) has deleted the penalty by record. We find that the CIT(A) has deleted the penalty by record. We find that the CIT(A) has deleted the penalty by following the decision of the Tribunal in the case of Supertech following the decision of the Tribunal in the case of Supertech following the decision of the Tribunal in the case of Supertech Construction Co. Vs. ACIT [ITA No. 910/Mum/2023, dated Construction Co. Vs. ACIT [ITA No. 910/Mum/2023, dated Construction Co. Vs. ACIT [ITA No. 910/Mum/2023, dated 05/12/2023] and ju 05/12/2023] and judgment of the Hon'ble Rajasthan High Court dgment of the Hon'ble Rajasthan High Court in the case of CIT vs. Krishi Tyre Retreading and Rubber in the case of CIT vs. Krishi Tyre Retreading and Rubber in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries [360 ITR 580]. The relevant extract of the decision of Industries [360 ITR 580]. The relevant extract of the decision of Industries [360 ITR 580]. The relevant extract of the decision of CIT(A) reads as under: CIT(A) reads as under: "8. Decision: 8.1. The instant appeal has been filed against the 8.1. The instant appeal has been filed against the 8.1. The instant appeal has been filed against the order u/s.271(1)(c) dated 05 u/s.271(1)(c) dated 05- 01-2022 for A.Y.2008-09. In the 09. In the assessment order the AO had made addition of Rs. 3,42,644/ assessment order the AO had made addition of Rs. 3,42,644/ assessment order the AO had made addition of Rs. 3,42,644/- being 12.5% of bogus purchases. The above estimated addition being 12.5% of bogus purchases. The above estimated addition being 12.5% of bogus purchases. The above estimated addition was reduced by CIT(A) by reducing the percentage of estimation was reduced by CIT(A) by reducing the percentage of estimation was reduced by CIT(A) by reducing the percentage of estimation from 12.5% to 8%. The above order was confirmed by Hon. ITAT. % to 8%. The above order was confirmed by Hon. ITAT. % to 8%. The above order was confirmed by Hon. ITAT. The AO has levied penalty of Rs. 67,762/ The AO has levied penalty of Rs. 67,762/- u/s 271(1)(c) on the u/s 271(1)(c) on the above addition, against which the appellant has filed the instant above addition, against which the appellant has filed the instant above addition, against which the appellant has filed the instant appeal. 8.2 I have considered the submissions filed by the appellant 8.2 I have considered the submissions filed by the appellant 8.2 I have considered the submissions filed by the appellant Assessment Year 2008 ssment Year 2008-2009, 2009-2010 & 2010-2011 during 2011 during the appellate proceedings, which have been extracted in the the appellate proceedings, which have been extracted in the the appellate proceedings, which have been extracted in the preceding para. In the case of Supertech Construction Co. Vs. preceding para. In the case of Supertech Construction Co. Vs. preceding para. In the case of Supertech Construction Co. Vs. ACIT, In Hon. ITAT, Mumbai vide order ACIT, In Hon. ITAT, Mumbai vide order ACIT, In ITA No. 910/Mum/2023, Hon. ITAT, Mumbai vide order dated 05.12.2023 has h dated 05.12.2023 has held that penalty u/s 271(1)(c) u/s 271(1)(c) is not imposable on bogus purchase addition. The Hon. Rajasthan High imposable on bogus purchase addition. The Hon. Rajasthan High imposable on bogus purchase addition. The Hon. Rajasthan High Court in the case of CIT Vs. Krishi Tyre Retreading and Rubber Court in the case of CIT Vs. Krishi Tyre Retreading and Rubber Court in the case of CIT Vs. Krishi Tyre Retreading and Rubber Industry has held that, where addition Industry has held that, where addition is made purely on is made purely on estimation basis, no penalty estimation basis, no penalty u/s 271(1)(c) of the Act is leviable. of the Act is leviable. There are catena of decisions by different High Courts and There are catena of decisions by different High Courts and There are catena of decisions by different High Courts and various benches of ITAT wherein penalty various benches of ITAT wherein penalty u/s 271(1)(c) u/s 271(1)(c) of the Act levied on the basis of estimated addition has been held to be levied on the basis of estimated addition has been held to be levied on the basis of estimated addition has been held to be unsustainable. Thus, in the facts of the instant case, penalty unsustainable. Thus, in the facts of the instant case, penalty unsustainable. Thus, in the facts of the instant case, penalty levied u/s 271(1 u/s 271(1)(c) of the Act levied based on estimated addition of the Act levied based on estimated addition of bogus purchases is unsustainable. The assessing officer is of bogus purchases is unsustainable. The assessing officer is of bogus purchases is unsustainable. The assessing officer is directed to delete the penalty. The grounds of appeal s are directed to delete the penalty. The grounds of appeals are directed to delete the penalty. The grounds of appeals are allowed.

In the result, the appeal is a 9. In the result, the appeal is allowed." 6. There is nothing on record to persuade us to take a view 6. There is nothing on record to persuade us to take a view 6. There is nothing on record to persuade us to take a view different from the above view taken by the CIT(A). The Learned different from the above view taken by the CIT(A). The Learned different from the above view taken by the CIT(A). The Learned Authorized Representative for the Appellant has also placed on Authorized Representative for the Appellant has also placed on Authorized Representative for the Appellant has also placed on record the decisions of Mumbai Bench of the Tribunal in the record the decisions of Mumbai Bench of the Tribunal in the record the decisions of Mumbai Bench of the Tribunal in the case of (a) Fancy Diamonds India Pvt. Ltd. Vs. DCIT a) Fancy Diamonds India Pvt. Ltd. Vs. DCIT 5(1)(1), Mumbai 5(1)(1), Mumbai [ITA No.961 to 963/Mum/2023, Assessment Years 2010 [ITA No.961 to 963/Mum/2023, Assessment Years 2010 [ITA No.961 to 963/Mum/2023, Assessment Years 2010-11 to 2012-13, dated 20/06/2023] and (b) M/s. 13, dated 20/06/2023] and (b) M/s. Vijay Jewellers Vs. Vijay Jewellers Vs. Deputy Commissioner of Income Tax Deputy Commissioner of Income Tax 19(3), Mumbai [ITA No.4203 19(3), Mumbai [ITA No.4203 & 4304/Mum/2024, Assessment Years 2012 & 4304/Mum/2024, Assessment Years 2012-13 & 2011 13 & 2011-12, dated dated dated 03/10/2024] 03/10/2024] 03/10/2024] whereby, whereby, whereby, in in in identical identical identical facts facts facts and and and circumstances, the Tribunal had deleted penalty levied u circumstances, the Tribunal had deleted penalty levied u circumstances, the Tribunal had deleted penalty levied under Section 271(1)(c) Section 271(1)(c) of the Act on the ground that addition was made of the Act on the ground that addition was made on estimate basis. In view of the above, we decline to interfere on estimate basis. In view of the above, we decline to interfere on estimate basis. In view of the above, we decline to interfere with the order passed by the CIT(A) deleting the penalty levied with the order passed by the CIT(A) deleting the penalty levied with the order passed by the CIT(A) deleting the penalty levied under Section 271(1)(c) Section 271(1)(c) of the Act, and therefore, Ground No.1, 2 of the Act, and therefore, Ground No.1, 2 and 3 raised by the Revenue are dismissed.” d by the Revenue are dismissed.” 7.3 Respectfully following the finding of the Tribunal (supra), we Respectfully following the finding of the Tribunal (supra), we Respectfully following the finding of the Tribunal (supra), we uphold the finding of the T uphold the finding of the Tribunal on the issue in dispute, the ribunal on the issue in dispute, the ground of appeal of the Revenue are accordingly dismissed. ground of appeal of the Revenue are accordingly dismissed. ground of appeal of the Revenue are accordingly dismissed.