INCOME TAX OFFICER, WARD-19(2)(2), MUMBAI vs. KHIMCHAND OKCHAND BHANSALI, MUMBAI

The Assessee has claimed that it deals in ferrous and non- ferrous metals and during the year under consideration, made the purchases of Rs. 1,12,13,732/- through banking channels and respective purchase invoices and has established the purchases made, by filing relevant purchase invoices, copy of bank statements evidencing payment made through proper banking channels, highlighting the relevant entries, chart showing the details of the purchases made from the parties and quantitative tally in respect of purchases made from the parties and the corresponding sales. The assessee further claimed before the assessing officer that there is one to one co-relationship between purchasers, sales are fully vouched, purchases from the said parties can be corroborated, as the Assessee has made the payments through account paying cheques only. The Assessee at last claimed that without purchases, no sale can be made.

Though the Assessing Officer considered the aforesaid claim of the Assessee, however rejected the same, mainly on the reasons that Sales Tax Department, has given information with regard to the bogus accommodation entries on account of bogus purchases/bills. Further, the assessee has failed to produce the delivery challans, transport and octroi receipts etc. . The Assessing Officer also observed that mere filing of evidence qua purchases and making of payment through account cheque, cannot be conclusive in a case, where genuineness of the transaction, is in ITA No.6546/M/2024, 6549/M/2024, 6779/M/2024 Mr. Khimchand Okchand Bhansali

The Assessee being aggrieved, challenged the reopening of the proceedings u/s 147 of the Act, as well as the addition on merits by filling 1st appeal before the Ld. Commissioner. The Ld. Commissioner though affirmed the reopening proceedings u/s 147 of the Act, but restricted the addition from 12.5% to 4% of the bogus purchases by taking into consideration the judgment passed by the Hon’ble Tribunal in the case of Kamlesh Bhansali in ITA No. 1591/M/2020. In effect, the Ld. Commissioner deleted the addition of Rs. 9,41,167/-.

The revenue department being aggrieved is in appeal before this court and at outset has placed reliance on the judgment passed by the Hon’ble Juri ictional High Court in the case of Principal Commissioner Of Income Tax-5 Vs. Kanak Impex (India) Ltd. in ITA No. 791/2021 decided on 03.03.2025, wherein the Hon’ble High Court restored the addition made by the assessing officer @100% of the bogus purchases, which was restricted to 12.5% by the Ld. Commissioner, and subsequently got affirmed by the Hon’ble Tribunal, restricting the disallowance qua profit margin, on unproven purchases.

Ld. Counsel Mr. Dhaval Shah, on the contrary has demonstrated that this case is factually dissimilar to the case dealt with the Hon’ble High Court, as the Hon’ble High Court considered the case, wherein the assessing officer has made the addition

This Court observe that the Hon’ble High Court, while deciding the issue, has also taken into consideration the relevant fact specific to the effects that the Assessee in that case failed to prove the purchases including source of expenditure, by not offering any explanation in the course of reassessment proceedings and therefore in the absence of any explanation qua source of expenditure, the AO had applied the provisions of section 69(c) of the Act and therefore, the Hon’ble High Court justified the action of the AO, in making the addition @100%. Whereas in the instant case, admittedly the Assessee has proved that the transactions have been carried out through banking channels and the assessing officer has not also not doubted the same and accepted specifically in the assessment order itself vide para 7(xii) for making the payment through banking channel.

The Ld. Counsel also submitted four judgments qua identical issue, by the Hon’ble Juri ictional High Court, including in the case of Principal Commissioner of Income Tax-2 Vs Refrigerated Distribute Private Limited (ITA No. 1840/2018) decided on 05.03.2005, wherein the Assessing Officer estimated the gross profit @25%, which was confirmed by the then Ld. CIT(A). However, subsequently reduced by the tribunal to 10% and therefore, the Hon’ble High Court, by considering the peculiar fact that the issue involved relates to only estimation of profit; ultimately opined/decided that no substantial question of law can be said to have arisen in the instant case.

This Court further observe that Tribunal in the cases of Mr. Manish P. Lathia, HUF Vs. ITO in ITA No. 2906/M/2024 decided on 12.12.2024 and Mr. Vinesh Arvindkumar Shah Vs. ITO in ITA No. 2121/M/2024 decided on 12.12.2024, has also dealt with identical issue as involved in this case, wherein the Assessee was also involved in the identical business such as ferrous or non- ferrous metals. The Hon’ble Coordinate Bench of the Tribunal restricted the addition from 12.5% to 5%.

And therefore considering the peculiar fact and circumstances, for the just and proper decision of the case and substantial justice, this court deem it appropriate to restrict the addition @5% instead of 4% as restricted by the Ld. Commissioner.

Thus the Assessing Officer is directed to compute the profit element/margin/estimation %5% instead of 4%, as restricted by the Ld. Commissioner.

In view of judgment in ITA No. 6546/M/2024, all 03 appeals under consideration, are partly allowed in same terms.