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Facts
The Revenue filed an appeal against the order of the CIT(A) who deleted two additions made by the Assessing Officer. The first addition was of Rs. 12,39,23,374/- on account of bogus purchases from three parties, and the second was of Rs. 17,42,770/- on account of unaccounted sales. The AO's additions were based on information from the GST department and seized documents.
Held
The Tribunal restored the issue of bogus purchases to the Assessing Officer for fresh verification, considering past assessments and sister concerns. For the second issue regarding unaccounted sales, the Tribunal found no infirmity in the CIT(A)'s deletion and dismissed the Revenue's ground.
Key Issues
Whether the addition on account of bogus purchases is justified and whether the addition on account of unaccounted sales is sustainable, considering the evidence and submissions.
Sections Cited
132, 133(6), 143(2), 142(1), 271AAB, 271AAD, 28, 131, 144, 147, 143(3), 69C
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the Revenue is directed against the order dated 11.03.2024 of the Ld. CIT(A), Pune -12 relating to assessment year 2021-22.
Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of steel products such as MS Billets & TMT Bars. It filed its return of income on 28.01.2022 declaring total income of Rs.3,85,46,910/-. A search and seizure action u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was carried out in the case of the assessee on 23.09.2021. The case of the assessee was selected for scrutiny under the compulsory guidelines for scrutiny and accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the AR of the assessee filed the requisite details from time to time.
3. During the course of assessment proceedings the Assessing Officer observed that the DDIT(Inv) in the appraisal report had stated that information was received from the GST Department regarding the bogus purchases from various entities in respect of the assessee company. In the appraisal report names of 19 parties were mentioned. Notices u/s 133(6) of the Act were issued to these parties and the purchases were confirmed by the parties except OM Traders, Sunny Traders and Krypton Scrap Works Pvt. Ltd. It was further mentioned that information was also received from GST department that the assessee company had purchase transactions with three other suspicious entities i.e. M/s Sunny Traders, Surat, M/s Om Traders, Surat & Krypton Scrap Works Private Limited. During the course of the search action, the search team gathered that the GST department had conducted an action recently and they were verifying transactions related to more such suspicious entities involved in providing fraudulent ITC without supply of goods. In view of the facts mentioned above, the Assessing Officer during the course of assessment proceedings issued notices u/s 133(6) of the Act to the following parties on 20.10.2022 which were returned back by the postal authority:
Sr. No. PAN Name of the assessee Amount of Purchases 1 DTDPS8899N Jitendra Sisodia (Prop. OM 11,43,35,046/- Traders) B-16, Hardik Society, 3rd Floor, Station Road, Bhayandar West, Thane, Maharashtra-401101
2 CFSPC5215E Haresh Bhai Popatbhai Chauhan 1,44,35,272/- (Prop. Sunny Traders), Mafatnagar, Jogivad Meldimani Dhar, Anandnagar Bhavnagar, Gujrat-364005 3 AAHCK9795N Krypton Scrap Works Pvt. Ltd. SR 2,28,42,024/- No. 33/4 NR Kamthe Kaman
4. Accordingly, a show cause notice was issued to the assessee asking it to explain as to why an amount of Rs.15,16,12,342/- should not be disallowed being non-genuine purchases. The assessee in response to the same submitted purchase invoices, weighment slips of third party, transporter’s lorry receipts, weighment slip of the assessee company carried out at its factory promise e-way bill, photo of the truck being weighed along with the driver at the factory premises, the truck driver’s KYC details, etc. It was submitted that in view of all these evidences the purchases cannot be dis-believed merely because the persons did not respond to the notices u/s 133(6) of the Act issued by the Assessing Officer. Relying on various decisions it was submitted that no disallowance of purchases can be made merely on the non-compliance made to notice u/s 133(6) of the Act. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs.12,39,23,374/- by recording as under: “The reply of the assessee is not acceptable except quantum of purchases due to following reasons: 1. The say of the assessee that the purchases are required to be disallowed excluding GST is acceptable and amount of disallowance is considered as per the figures mentioned by the assessee and as per the reply of the assessee some amount of purchasing is only the contra entry passed in the books of accounts because this amount pertains to the cheque return on various date which is cheque presented but due to technical reasons was not cleared. The same have been verified and the figure mentioned by the assessee is considered.
2. The parties to whom notices u/s 133(6) were issued have failed to comply with the notice. The notices issued were undelivered and returned by the postal authority. It is seen that the parties were not available on the addresses given.
Possession of documents like purchase deals, photos of driver and other record cannot lead to make the purchases genuine. The purchase bills are provided by the bill provider and the other documents can be available but it can be seen that GST department has clearly identified these 3 parties i.e. Sunny Traders, OM Traders and Krypton Scrap Works Private Limited as entry providers. More can be said that if the assessee had contact with these sellers then they could have filed confirmation letter or produced these three persons for verification. It is seen that the CGST department has identified these parties as bill providing entities. It is mentioned in the correspondence addressed to DDIT(inv), Aurangabad by GST dept that these parties are found to be providing bills without actual delivery of raw material. Mere possession of purchase bills and other documents cannot be a basis to make the purchases genuine.
With reference to the seizure of documents of these three parties by GST department, it is mentioned that the persons could have replied to the effect that their documents have been seized by GST department and they could not comply to the notice. However it is clear that these three sellers i.e. Sunny Traders, OM Traders& Krypton Scrap Works Private Limited have kept mum and not complied the notice u/s 133(6) of the IT Act. These persons could have produced bank statement and other documents which can be downloaded easily for verification to this office. It will be relevant to mention that all other seller except these three persons have complied with the notice u/s 133(6) of the IT Act. This makes difference between the tainted entities and normal entities. The entry in outward and inward can be made by the employees of the assessee when invoices are received. What in reality is required is physical movement of goods and which is absent. 5. The DDIT(Inv.)-IV(1), Thane has conducted inquiries in pursuance with the commission issued to him. On verification, the said party Sunny Traders was not found on the given address. Similarly it was seen that the person is non- filer. Thus it is clearly seen that the parties who have supplied the raw material to the assessee are having dubious credentials. The genuineness of purchases from these parties is not established. 6. The assessee has again enclosed documents regarding purchases of these three parties. The detailed reason why purchases are not genuine is already mentioned above. The contention of the assessee that they have ample proof/evidence that the material is reached to the factory premises is also not acceptable because the GST department after verifying the records and evidences has specifically mentioned that these parties are entry provider only. It is seen that order of adjudication for disallowance of GST input is under progress. Finality of this order is awaited. Thus the proofs/evidences of receipts of goods furnished by the assessee are questionable.
The assessee has relied on various decisions as mentioned in the submission which are perused. The same are distinguishable from the facts of the case of the assessee. Here in the case of the assessee the sellers have not complied to the notice u/s 133(6) but certain investigations by enforcement agencies are also going against them. Therefore the decision of CIT vs Nikunj Eximp enterprise is not applicable to the case of the assessee. In addition to the notice u/s 133(6), this office has issued commission to the DDIT(inv.) Thane for verification. Thus investigation/verification is multi pronged, therefore the decision of ITO vs. Karsan Nadu is different and not applicable to the case of the assessee. Similarly for the reasons mentioned above the other decision quoted by the assessee are not applicable to the facts of the case. It is submitted that an action u/s 132 of the IT Act was conducted in the case of the assessee during which the information received from GST department was also looked into. Moreover, the AO has also caused independent inquiries and applied his mind on the outcomes of enquiries. The information received was not solely relied blind foldingly. The details of enquiries caused and outcome thereof was duly provided to the assessee in the show cause notice and various annexures to this effect were also enclosed.
It is never denied that the assessee company has furnished bank statement etc. However it is seen that such documents are always available in the normal course of business. What is required is third party's confirmation and genuineness of transactions. Degree of genuineness for certain transactions needs be higher when transactions are suspected and are under surveillance and investigations.
9. The claim of assessee is not being rejected solely on the ground that notices u/s 133(6) are not complied. Detailed investigation is already made in this case. The demand for calling the record from GST department is made at the fag end of the assessment proceedings. It is clear that GST department has searched these three persons and investigation is under progress. Moreover GST department has also raided on the assessee in pursuance with the doubtful purchases made by them from these entities. Due to specific connectivity of evasion aspect, such actions have been taken by the various departments and transactions made by the assessee with these persons are under cloud. 10. No statement of any person is relied upon by this office. For this reason no issue of opportunity of cross examination arises. This demand is unnecessary. 11. Methodology followed by GST department for issuing registration is general procedure and is not fully related to the issue of disallowance of purchases. Mere filing of GST return cannot make the purchases genuine. What is required is movement of goods accompanied by confirmation of seller. Moreover GST license of these parties is also cancelled. The issue of GST credit is not adjudicated with. It is logical that company will take input credit on purchases made by it. The claim that purchases cannot be concluded as non genuine as the adjudication order of GST department is pending is not acceptable. However it is again clarified that purchases of assessee are being disallowed not only on the basis of information of GST department but also on the basis of other factors mentioned above.
12. On 29.12.2022 the assessee filed copy of ledger confirmation of OM Traders. This is furnished by the assessee only and not by the OM Traders. Similarly it is seen that this confirmation was filed at the fag end of proceedings. Hence the reply furnished by the assessee is not reliable and requires further confirmation from proprietor of M/s. OM Traders. In view of the Hon'ble Supreme Court decision in the case of NK Proteins Ltd Vs. DCIT, entire amount purchases of Rs. 12,39,23,374/-(Rs. 9,26,42,000 OM Traders + Rs. 1,22,33,281 Sunny Traders + Rs. 1,90,47,886 Krypton Scrap Works Pvt. Ltd.) is requires to be disallowed. For the reasons mentioned above the purchases made from the OM traders, Sunny Traders and Krypton Scrap Works Private Limited are not genuine and the same is hereby disallowed and amount of Rs. 12,39,23,374/- added to the total income of the assessee. As the disallowance is made on the basis of findings of search u/s 132 of the Act, penalty proceedings under clause b of subsection 1A of section 271AAB of the IT Act, 1961 are initiated herewith. The assessee had obtained false entry by obtaining fake invoices hence penalty proceedings under sub section 1 of the section 271AAD are initiated herewith for amount of Rs.12,39,23,374/-.”
Similarly, the Assessing Officer asked the assessee to explain as to why the amount received as distribution of amounts received in the form of flat against the unaccounted transaction amounting to Rs.17,42,770/- should not be added to the total income of the assessee. Rejecting the explanation given by the assessee the Assessing Officer made addition of Rs.17,42,770/- by recording as under: “The reply furnished by the assessee is not found to be acceptable due to following reasons: On perusal of the seized material, it is clearly seen that the account of "Gautam Munot's account settled @61" which shows that there was a settlement between Kuber Laxmi Properties and (Gautam Monot) one of the partner in Kuber Laxmi Properties and M/s. Rathi Steel and Metal Pvt. Ltd. (Icon Group) and assessee of other group companies. Further papers related to similar transaction was found on the residential premises of D.B.Soni. While recording his statement Shri D.B. Soni recorded u/s 132(4) of the Act he has stated in his answer to Q.No. 10 Rajuri steel pvt. Ltd. had supplied steel to M/s Kuber Laxmi Properties at there Ambad
Cahufuli site. Kuber Laxmi Properties is partnership firm of Gautam Munot and others. Because of some financial constrains, instead of money, they have offered various flats/properties against the outstanding amount payable to Rajuri Steel PL Sr. No. 3 on page no. 3 of this bundle is one such property they have offered in lieu of money. It is confirmed that there was distribution of flat and cash mentioned in the seized documents. From the seized document titled as "Gautam Munof's account settled @61" and the statement of Shri D.B.Soni, it is clear that there is distribution of Flats/Cash in the group companies mentioned therein against the supply of steel material to Kuber Laxmi. Therefore it is clearly established that against the supply of steel to the Kuber Laxmi has given flat and cash to the group company. It is seen that the statement of Shri Ramesh Mundara and Shri D.B. Soni was recorded during the search proceedings. The reply of Shri D.B. Soni, one of the directors of the assessee company, during the post search enquiries is totally different. The seized paper is not a dumb paper and clearly shows the amount receivable against outstanding debtors. It is seen that Shri Gautam Munot was debtor of companies and individuals mentioned on the paper. It is seen that instead of paying money against steel supplier the flats and some money is being received by the persons. It is seen that the unaccounted sale is made by Rathi Steel and Metal Pvt. Ltd also therefore the amount is receivable to it. It is also mentioned in the seized paper that the flats are to be registered in the name of companies so as to save stamp duty. The distribution of date receivable is mentioned in detail and meticulously. Percentage of distribution is also mentioned. The claim that the amount of Rs. 17,42,770/- is being received against the capital of Rs. 61 Lakhs invested by Shri D.B. Soni in the Kuber Laxmi Properties is an after thought. No person will relinquish the share capital of 61 Lakhs against the sum of Rs. 17.42 Lakhs. Moreover it is seen that the firm has huge land having substantial value. Thus the claim that paper relates to the relinquishment of share of firm is not backed by any evidence and will be rejected herewith. Moreover the account of Gautam Munot is settled also. Thus it is seen that the assessee has supplied steel of Rs.17.42 Lakhs. During the assessment year under consideration the amount of Rs 17.42 lakhs is receivable against the sale. Even though the money against the sale is not yet to be received and as the debt is not shown in the accounts and sales of Rs. 17,42,770/- is not accounted in the books of accounts maintained by the assessee. Therefore the amount of Rs. 17,42,770/- is added to total income of the assessee as unaccounted sales u/s 28 of the Act. As the addition is made on the basis of seized papers found during the course of search, penalty proceedings under clause b of subsection 1A of section 271AAB of the IT Act, 1961 are initiated herewith. (Addition Rs.17,42,770/-)”
In appeal, the Ld. CIT(A) deleted both the additions made by the Assessing Officer. So far as the addition on account of bogus purchases is concerned, he deleted the same by observing as under:
“5.2 I have gone through the submission of the appellant along with supporting documents submitted during the appellate proceedings as well as during the assessment proceedings before the Ld. AO. While disallowing the non genuine purchases, the Ld. AO has heavily relied on the report of GST department. DGGI had identified and declared some parties as Bogus Parties. Based on the same, the DDIT (Inv) has reported that purchases made from M/s. Sunny Traders, Om Traders and Krypton Scrap Works Pvt Ltd amounting to Rs.12,39,23,367/- are bogus purchases. The appellant has submitted relevant documents to substantiate that purchases made by the appellant from these parties are genuine. In support of the same, the appellant has submitted few bills, sample copies of Invoices prescribed under GST Act, lorry receipts along with RTO registration, copy of e- way bill, weighment slips, photographs of the vehicles arrived at factory gate and at weighment bridge etc. Apart from this, the appellant has also submitted the copies of various forms like GSTR 2A, form 3B, GSTR1 etc and proof of payment made though banking channel as also the replies from most of the suppliers in response to the notices issued u/s 133(6). 5.3 The appellant has submitted the status report of the suppliers which is also available on the website of the GST department. The status report denotes the filing status of various forms which are mandatorily to be filed by the GST registered suppliers. I have gone through the status reports and it is observed that the alleged bogus suppliers have filed the requisite forms which are for reporting of sales, filing of monthly and annually GST returns, etc. This shows that there is proper compliance from the alleged bogus suppliers and the same is available in the public domain as facilitated by the GST department. The appellant has also submitted that it had replied to the GST department vide its letter dated 2nd September 2021 and contended that based on the documentary proofs and available documents with the GST department, the purchases from these alleged parties are genuine. The appellant has also relied upon few judgments of the jurisdictional High Court and ITAT to demonstrate that the allegations/ findings of the GST department are not final and are challengeable. Further the appellant has submitted that the GST department has not provided the opportunity of cross examination in respect of the disallowance of ITC claimed. The appellant has further argued that the entire purchases disallowed by the Ld. AO are based on the information forwarded by the DDIT (Inv.) which in turn was received from GST Department. The Ld. AO in the assessment order has held that it is mandatory to collect the TCS on purchase of scrap, however, the sellers of scrap have not claimed TCS in the ROI filed. Hence, in absence of TCS details the AO held the purchases as bogus. The appellant has submitted that the applicability of TCS on scrap comes into picture only when the trade of scrap is between traders and not between manufacturer and traders. The Ld. AO has held that the GST registration was cancelled with retrospective effect. However, various judgments of the High Court on cancellation of GST registration by the GST department have held that the department's action to cancel registration with retrospective effect without following proper procedure of law is not justifiable. 5.4 The Ld. AO has also held that the alleged parties are not identified and are not found on given address and mere possession of purchase bills and other documents cannot be the basis for holding the purchases as genuine. In this regard, the appellant has contended that the appellant has submitted all relevant documents and supporting evidence in support of its claim that the purchases are genuine. The Ld. AO has not discussed as to what further documents and evidence are required to justify the genuineness of purchases. The AO has not been able to prove that the documents are fake or incorrect. The Ld. AO has verified the books of accounts and stock records and accepted the books of accounts and did not find any mistake or formed adverse opinion. Thus the contention of the Ld. AO is not correct. The appellant has countered all of the arguments/contentions raised by the Ld. AO with supporting documents and supporting case laws, thus the argument of the appellant is found to be correct and legally valid. 5.5 The Ld. AO has relied on the Hon'ble Supreme court's decision in the case of NK Proteins Ltd vs DCIT (2017) 292 CTR 354 SC and NR Paper and Bowende Est. The facts of these cases are different than the appellant's case. In these cases, the bogus purchases were proved with thorough investigation ant parties were found fictitious and some material was found during the course of search action which proved that the impugned purchases were bogus. The said ratio cannot be applied in the case of the appellant. The appellant has provided sufficient documents and evidence to prove the genuineness of purchases and filed various documents before the AO such as De address of all the parties and has also furnished details of payment through bank account in to the bank account of such suppliers, copies of Tax Invoices for purchases along with supporting documentary evidence such as transportation receipts, E-way Bits, weighment slips, photo of the vehicles at The factory gate and at the weighment bridge. It is pertinent to note that no infirmity has been pointed out in the documents submitted by the appellant. Further the appellant has made purchases from these suppliers who were registered under GST and has claimed input tax credit of the GST on the purchases made from them as per statement GSTR 2A reflected on GST portal. The appellant has provided the reconciliation of stocks giving complete details regarding opening stock, purchases, sales and closing stock. Similarly, the sales have not been doubled by the AD. It is further observed that the appellant has produced the proof of such payments through banking channel but the AD has failed to substantiate that the appellant received it back in cash. As held in the case of CIT v. Nikunj Eximp Enterprises (P) Ltd. (2013) 216 Taxman 171 (High Court of Bombay) books of Accounts of the appellant have not been rejected. There were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were made. If sales are not doubted merely because suppliers had not appeared before the Assessing Officer purchases cannot be disallowed. 5.6 Considering the fact of the case and submission made by the appellant the disallowance made by the AO is deleted. Ground no 1 of the appeal is, therefore, allowed.”
7. So far as the addition of Rs.17,42,770/- is concerned, the Ld. CIT(A) deleted the same by observing as under:
“6.2 On perusal of the records and facts of the case it is seen that the AO has made the addition of Rs.17,42,770/- on the basis of documents seized from the premises of Shri Ramesh Mundada. The AO held that the appellant has supplied steel to the M/s Kuberlaxmi Properties. However, on the basis of material on record the AO has not brought any corroborative evidence in this regard other than the loose paper and the various statements recorded u/s 132(4) of the Act. The AO has not been able to substantiate the nexus between the loose paper and the unrecorded sales by the appellant. It is submitted by the Appellant that the transaction never materialized hence, never recorded in the books. Hence, due to lack of evidence and absence of any corroborative evidence on record, the addition made by the AO is not sustainable. Hence the Addition made by the AO is deleted. In the result, this ground of appeal is hereby allowed.”
8. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs.12,39,23,374/- made on account of bogus purchase, ignoring the facts that the supplier of goods has not confirmed the sale and movement of goods delivered to assessee company in response to notice issued u/s 133(6) to these suppliers.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in not taking cognizance that CGST department had conducted search and identified the suppliers as entry providers without actual supply of material.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) while deleting the addition of Rs.12,39,23,374/- has erred in Ignoring the fact that the DDIT(Inv.). Unit-IV(1), Thane in response to commission issued u/s 131(d) of the IT Act has conducted enquiry and reported that the suppliers of material to the assessee company are non- filer of return of income and found to be non-existent, thereby the identity of the suppliers is not proved beyond doubt.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.17,42,770/- in the case of assessee even after placing corroborative evidence based on which AO had able to prove the nexus between the loose paper and the unrecorded sales by the assessee.
5. The appellant craves leave to add, alter, modify, delete and amend any of the grounds, as per the circumstances of the case.
The Ld. DR strongly objected to the order of the Ld. CIT(A) in deleting the addition made by the Assessing Officer on account of bogus purchases. Referring to the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (2025) 172 taxmann.com 283 (Bom), he submitted that the Hon’ble High Court in the said decision has held that the addition of entire amount of bogus purchases from hawala operators in hands of assessee was justified due to failure of assessee to prove said purchases.
So far as the deletion of Rs.17,42,770/- is concerned, he relied on the order of the Assessing Officer.
The Ld. Counsel for the assessee on the other hand strongly relied on the order of the Ld. CIT(A). He submitted that the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (supra) relied on by Ld. DR is not applicable to the facts of the present case. He submitted that the said case was based on specific facts of that case where the assessee failed to comply with the notices issued during the course of assessment proceedings, failed to participate in investigation and re-assessment proceedings leading to a situation where the genuineness of the transactions could not be established. Further, the assessment order in that case was passed u/s 144 of the Act. However, in the instant case the assessee company has complied to all the notices issued by the income tax department, GST authorities, participated in the assessment proceedings and investigation proceedings filed various details to substantiate the purchases. In the case of PCIT vs. Kanak Impex (India) Ltd. (supra), the assessee failed to discharge the initial burden of proof of genuineness of purchases during the course of re-assessment proceedings and source of payment made. However, in the instant case the assessee company has demonstrated complete transparency by submitting all the required documents such as purchase invoices, weighment slips of third party, transporters lorry receipt, E-Way bill, photo of the truck being weighted along with the driver at the factory premises including the KYC details of the driver to substantiate the genuineness of the alleged purchases. Further the assessee company submitted the entire bank statements highlighting the payments made to the parties. The primary onus to prove the genuineness of the purchases was discharged by the assessee company. Further, in the case of PCIT vs. Kanak Impex (India) Ltd. (supra) it was a non-disputed finding of the Ld. CIT(A) against the respondent assessee that the assessee company failed to prove the genuineness and source of purchases and confirmed its involvement in modus operandi of bogus bills. However, in the instant case the Ld. CIT(A) has verified all documentary evidences in support of the purchases and given a detailed finding accepting the genuineness of the purchases. Further, the Ld. CIT(A) also has distinguished the judgment of the Hon'ble Supreme Court in the case of NK Proteins Ltd. (supra) wherein the bogus purchases were proved through thorough investigations and also based on materials found during the course of search. However, the facts of the present case are entirely different.
He submitted that in the case of PCIT vs. Kanak Impex (India) Ltd. (supra) the Assessing Officer has made the addition u/s 69C due to failure on the part of the assessee to prove the genuineness of the purchases. The Hon’ble Bombay High Court has specifically dealt with the questions of applicability of the provisions of section 69C of the Act which was not considered by the appellate authority. However, in the case of the assessee the addition for non-genuine purchases was not made u/s 69C of the Act. The purchases were added to the income from business and profession of the assessee company. He further submitted that the facts of the instant case are different from the facts of the case before the Hon’ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (supra) and therefore, the said decision of the Hon’ble Bombay High Court is not applicable to the facts of the present case.
The Ld. Counsel for the assessee relying on various other decisions submitted that no disallowance can be made on account of bogus purchases merely because the concerned parties did not respond to the notices u/s 133(6) of the Act. The Ld. Counsel for the assessee referring to assessment orders for assessment years 2017-18, 2018-19, 2019-20 and 2020-21, which were passed subsequent to the assessment for the assessment year 2021-22 submitted that the Assessing Officer, under identical circumstances has estimated the profit from such non- genuine purchases at 5% of the purchases. Referring to the assessment order of the sister concern of the assessee namely Metarolls Ispat Pvt. Ltd. for assessment year 2021-22, he submitted that the Assessing Officer in that case also has made addition on account of non-genuine purchases in the case of M/s. Om Traders and M/s. Sunny Traders apart from another concern. The Ld. CIT(A) deleted the addition made by the Assessing Officer on account of such non-genuine / bogus purchases and on appeal filed by the Revenue, the Tribunal has restricted the disallowance to 5% of such un-tested / bogus purchases. He accordingly submitted that the order of the Ld. CIT(A) be upheld and the grounds raised on this being be dismissed. In his alternate contention, he submitted that the profit @ 5% on such purchases may be adopted.
So far as the second issue is concerned, the Ld. Counsel for the assessee submitted that the Assessing Officer, without any material on his hands and without appreciating the facts of the case, has made the addition which has rightly been deleted by the Ld. CIT(A). Therefore, the grounds raised by the Revenue deleting the addition of Rs.17,42,770/- also should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as the first issue raised by the Revenue is concerned, it relates to the order of the Ld. CIT(A) in deleting the addition of Rs.12,39,23,374/- made by the Assessing Officer on account of bogus purchases. It is an admitted fact that on the basis of the appraisal report of the Investigation Wing along with information received from the GST department, the Assessing Officer issued notice u/s 133(6) of the Act to 3 parties in question from whom the assessee has made the purchases to the tune of Rs.12,39,23,374/-. It is also an admitted fact that the notices so issued to the above 3 parties were returned un-served and the assessee failed to prove to the satisfaction of the Assessing Officer regarding the genuineness of the purchases from the above 3 parties for which he treated the purchases as bogus and made the addition, the reasons of which have already been reproduced in the preceding paragraphs. We find the Ld. CIT(A) deleted the addition, the reasons of which have been reproduced in the preceding paragraphs. It is the submission of the Ld. DR that in view of the decision of the Hon’ble jurisdictional High Court passed recently in the case of PCIT vs. Kanak Impex (India) Ltd. (supra), the order of the Ld. CIT(A) is not justified and therefore the same should be reversed and that of the Assessing Officer be restored. It is the submission of the Ld. Counsel for the assessee that the facts of the case decided by the Hon’ble Bombay High Court in the case of PCIT vs. Kanak Impex (India) Ltd. (supra) are distinguishable and not applicable to the facts of the present case especially when the assessee in the instant case has participated in the assessment proceedings, filed the requisite details, proved the source of payment made and the addition has not been made in the instant case u/s 69C of the Act. In the light of the above arguments and counter arguments, we have to see as to whether the addition made by the Assessing Officer on account of un-tested / bogus purchases can be sustained or not.
From the various details furnished by the Ld. Counsel for the assessee, we find subsequent to the order passed by the Assessing Officer for assessment year 2021-22 in the case of the assessee, he has reopened the assessments for assessment years 2017-18 to 2020-21 and in the orders passed u/s 143(3) / 147 of the Act, the Assessing Officer has estimated the profit on account of such un- tested/bogus purchases @ 5%. Further, we find from the order of the Tribunal in the case of the sister concern of the assessee namely M/s. Metarolls Ispat Pvt. Ltd. for assessment year 2021-22 that the assessee in that case has made purchases from M/s. Om Traders and M/s. Sunny Traders. The Assessing Officer in that case made addition of the entire purchases holding the same to be bogus which has been deleted by the Ld. CIT(A) and on appeal the Tribunal directed the Assessing Officer to adopt the profit rate percentage @ 5% on such purchases. Under these circumstances, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to verify the records of the assessee for the preceding assessment years as well as in the case of the sister concern namely M/s. Metarolls Ispat Pvt. Ltd. for the current as well as preceding assessment years and verify as to whether the 3 parties were found to be genuine or not, methodology adopted by the Assessing Officer on account of such un-tested / bogus purchases and decide the issue as per fact and law. While doing so, he shall keep in mind the decisions of the Hon’ble Bombay High Court cited by the Revenue, the distinguishable features brought on record by the Ld. Counsel for the assessee and decide the issue as per fact and law. Needless to say, the Assessing Officer shall give due opportunity of being heard to the assessee. We hold and direct accordingly. The first issue raised by the Revenue is accordingly allowed for statistical purposes.
So far as the second issue is concerned, we find during the course of search action u/s 132 of the Act on 23.09.2021 at the residence of Shri Ramesh Mundada, printout of screenshot from his mobile was taken and seized as per Annexure B. It was found from page 12 Item No.1 of Annexure B that the transaction on this page is related to distribution of certain amount. From the said transaction, he noted that the account of Shri Gautam Munot is settled for Rs.61 lakhs. The amount of Rs.61 lakhs is distributed to Rajuri Group 19.1662, Icon Group 17.4277, Meta Group 17.4277m SSM 5.5754 and SNL 1.3908 totaling to Rs.60.9878 i.e. Rs.60,98,780/-. Similar transaction was also noticed in the premises of Shri D.B. Soni. On the basis of these notings which according to the Assessing Officer pertain to the distribution of amount received in the form of flat against the unaccounted transaction he confronted the assessee to explain as to why an amount of Rs.17,42,770/- should not be made in the hands of the assessee. We find the Assessing Officer without any material that the assessee has received the flat against supplies, made the addition which has been deleted by the Ld. CIT(A), the reasons of which have already been reproduced in the preceding paragraphs. The Ld. DR could not bring any material to controvert the finding given by the Ld. CIT(A) on this issue. Since no corroborative evidence was brought on record in this regard other than the loose papers and statements recorded u/s 132(4) of the Act of various persons and considering the fact that there is no evidence before the Assessing Officer that the transaction has ever materialized, therefore, in absence of any contrary material brought to our notice, we do not find any infirmity in the detailed order of the Ld. CIT(A) deleting the addition. The grounds raised on the second issue by the Revenue are accordingly dismissed.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in the open Court on 27th May, 2025.