INCOME-TAX OFFICER, WARD-1(3)(1), AHMEDABAD, AHMEDABAD vs. RAMLAL MANEKCHAND HUF, AHMEDABAD

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal preferred by the Revenue is directed against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred as ‘CIT(A)’] dated 25.02.2025 for the Assessment Year (A.Y.) 2021-22 in the proceedings under Section 143(3) of the Income Tax Act, 1961
(hereinafter referred to as ‘the Act’).
2. The brief facts of the case are that the assessee had filed his return of income for the A.Y. 2021-22 on 17.01.2022 declaring income of Rs.18,91,730/-. The case was selected for scrutiny under CASS for the ITO vs. Ramlal Manekchand HUF
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reason that the assessee had made substantial purchases from suppliers who were either non-filers or had filed non-business Income-tax returns.
The assessee is engaged in the business of trading of gold bullions, silver bullions and jewellery. In the course of assessment, the Assessing Officer had made verification in respect of purchases made by the assessee.
Notices u/s 133(6) of the Act sent by the Assessing Officer was not responded by some of the suppliers. Thereafter, the matter was referred to the Designated Verification Units (DVU) who had conducted physical verification of the suppliers who had not responded to the notices u/s 133(6) of the Act. On the basis of the report of DVU, the Assessing Officer had made the following additions in the course of assessment: -
(i)
Two of the suppliers namely Pareshbhai Prabhudasbhai Tank and Rajeshbhai Maganbhai Badrakia were found working as labour (Mistry) and in furniture related work respectively and their business activities was not found commensurate with the purchases disclosed by the assessee from them. The total purchases of Rs.16,23,05,361/- made from them was treated as unexplained expenditure u/s 69C of the Act. In fact, the Assessing Officer had allowed gross profit relief on these purchases and net addition of Rs.16,13,74,905/- only was made in respect of purchases from these two parties.
(ii)
The other three parties namely Shri Bhavinbhai Bharatbhai
Soni, Umadevi Rajapurohit and Bhartiben Vinodbhai Purohit were not found traceable, in the course of enquiry. The total purchases of Rs.8,94,18,577/- made from these three parties was treated as purchase from non-genuine suppliers and the Assessing Officer had treated 10% of the total purchase as ITO vs. Ramlal Manekchand HUF
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additional profit from these non-genuine purchases.
Accordingly, an addition of Rs.89,41,858/- was made in respect of purchases from these three parties.
The assessment was completed under Section 143(3) of the Act on 22.12.2022 at a total income of Rs.17,22,08,493/-.
3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was allowed.
4. Now, the Revenue is in appeal before us. The following grounds have been taken by the Revenue in this appeal: -
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made of Rs.16,13,74,905/- u/s.69C of the Act without appreciating the fact that the assessee could not prove the creditworthiness, Identity and genuineness of the suppliers with whom it has carried out the transactions?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made of Rs.89,41,858/- on account of non-genuine purchases without appreciating the fact that the assessee could not prove genuineness of these parties with whom It has carried out the transactions?
3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”

deleting the addition of Rs.89,41,858/- in respect of the three parties which were not found traceable. The Ld. CIT-DR explained that the Ld. CIT(A) had allowed relief to the assessee on the basis of bills and invoices, ledger confirmation and bank statements, which doesn’t establish the creditworthiness of the parties and the genuineness of the transactions.
8. The core issue involved in this case is assessee’s failure to substantiate the genuineness of the purchases aggregating to Rs.25,17,23,938/- from five parties. The disallowance was made by the Assessing Officer considering the non-availability of the parties, serious concern regarding the identity of the supplier, credibility of the supporting documents and in the absence of evidence establishing the actual delivery of the goods and also the commercial substance of the transactions. In the course of hearing, we enquired from the Ld. AR about the status of input text credit (ITC) claimed under the GST regime in respect of purchases made from these five parties. The Ld. AR was unable to elucidate about the input credit in respect of these transactions under the GST regime. Neither the status of GST return of these five suppliers was clarified, so as to treat the transactions made with them as genuine. On the purchases of Rs.25,17,23,938/- from these five parties, GST component of Rs.75,51,718/- @ 3% was involved. It remains un- examined whether this GST credit was claimed and, if so, whether it was accepted or rejected by the GST Authorities. This is a material aspect which has a direct bearing on the genuineness of the underlying transactions. This aspect was neither examined by the Assessing Officer nor by the Ld. CIT(A). From the stand point of commercial rationality, it was required to be examined as to how the assessee had reconciled or sustained the economic burden of ITC loss, if the transaction to the extent of Rs.25,17,23,938/- was fictitious.
9. In view of the above facts, we deem it fit and proper to restore the matter to the file of Assessing Officer with a direction to reconcile the ITC claimed under the GST law in respect of bogus purchase of Rs.25,17,23,938/- from the five parties which were held as non-genuine in the course of original assessment. For this purpose, the AO may obtain
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