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Facts
The assessee, Madhav KRG Limited, engaged in manufacturing TMT steel, purchased raw material amounting to Rs. 2,58,837 from M/s Shri Ganpati Enterprises. The Assessing Officer treated these purchases as bogus and made an addition. The CIT(A) upheld this addition.
Held
The Tribunal held that the addition was made solely on the basis of a statement recorded by the Investigation Wing, without providing the assessee an opportunity for cross-examination. Despite relevant documents and banking channel payments, the authorities doubted the purchases. The Tribunal found it illogical that purchases alleged to be bogus were accepted for production and sales. The invocation of Section 115BBE was also deemed not acceptable.
Key Issues
Whether the disallowance of purchases based on a statement without cross-examination and invocation of Section 115BBE is justified.
Sections Cited
143(2), 142(1), 131, 69C, 115BBE
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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘B’, CHANDIGARH
Before: SHRI LALIET KUMAR & SHRI KRINWANT SAHAY
Per Krinwant Sahay, AM : Appeal in this case has been filed by the assessee against the order dated 27.05.2022 of ld. Commissioner of Income Tax (Appeals)-5, Ludhiana for A.Y. 2018-19.
2. Grounds of appeal
are as under: - 291-Chd-2023 Madhav KRG Ltd., Patiala 2
1. The learned CIT(A) has erred in upholding the addition of Rs 2,58,837/- made on account of alleged bogus purchases, without providing opportunity for cross examination the person who have alleged to have been providing bogus bill & otherwise also his statement have large contradictions.
2. The learned CIT(A) has erred in upholding the addition Rs 2,58,837/- made on account of alleged bogus purchases, u/s 69C when the purchases are duly recorded and source explained. Hence the said provision is not applicable.
3. The learned CIT(A) has erred in upholding the provision of 115BBE on the alleged addition Rs 2,58,837/- made on account of alleged bogus purchases, which is arbitrary and unjustified.
4. That the appellant craves leave to add delete or modify any ground of appeal
and to add any new ground of appeal. Before the same is heard or disposed off.
1. 5. The learned CIT(A) has erred in upholding the addition Rs 2,58,837/- made on account of alleged bogus purchases, which is arbitrary & unjustified and alleging that paper evidence has been created which includes excise & taxation Deptt. Document also.
Brief facts of the case, as per assessment order, are as under:-
291-Chd-2023 Madhav KRG Ltd., Patiala 3 The assessee company is engaged in the business of manufacturing TMT steel from scrap under the name and style of M/s Madhav Alloys Private Limited, Mandi Gobindgarh, Fatehgarh Sahib. The case was selected for scrutiny through CASS. Notice u/s 143(2) of the Act was issued to the assessee on 23.09.2019 and was duly served on its e-filing account. Notice u/s 142(1) of the Income Tax Act, 1961 and detailed questionnaire were issued to the assessee on 21.01.2020. In response to the notice, the assessee furnished his reply on various dates on the e-filing portal.
2. On perusal of replies filed by the assessee, it is observed that the assessee has carried out purchases of raw material amounting to Rs2,58,837 from M/s Shri Ganpati enterprises vide voucher no PG17513-032 dated 13.05.2017.
M/s Shri Ganpati enterprises is a proprietorship concern of Sh. Pawan Mishra S/o Sh. Lallanmishra R/o 240-B, MCF. Bhagat Singh Colony, Ballabhgarh , Faridabad , Haryana. In order to seek information regarding the suspicious transactions in the bank accounts of M/s Shri Ganpati enterprises, the statement of Sh. Pawan Mishra was recorded on oath u/s 131 (1A) of the act on 18.12.2017 before the Asst. director of income tax (Investigation)-1, Faridabad. In the said statement, Sh. Pawan Mishra has stated on oath that he is the proprietor of numerous concerns whose registered address is the same. The details of such proprietorship concerns are as under:-
291-Chd-2023 Madhav KRG Ltd., Patiala 4 Sr Name of Address no. concern 1. Shakti sales 11/10, Bardh Mohalla Old corporation Faridabad 2. Shubham 11/10, Bardh Mohalla Old enterprises Faridabad 3. Shree Ganpati 11/10, Bardh Mohalla Old enterprises Faridabad It is a matter of fact that the aforementioned address i.e 11/10, Bardh Mohalla, Old Faridabad is the residential premises of Sh. Dayachand Prasher S/o Sh. B.K. Prasher. It was further stated by Sh. Pawan Mishra that no office of his proprietorship concerns is running on the aforementioned address i.e 11/10, Bardh Mohalla, Old Faridabad. Sh. Pawan Mishra categorically denied to have paid any sum to Sh. Dayachand Prashar toward the rent payment of the said premises. It was further stated by Sh. Pawan Mishra that his proprietorship concerns are not engaged into any real business and are merely paper entities formed with the purpose of providing accommodation entries to various concerns. When specifically asked to provide the location of office and godown of his proprietorship concerns, Sh. Pawan Mishra expressed his inability to do so and repeated his contention that his proprietorship concerns are bogus entities without any real business. Further, Sh. Pawan Mishra was unable to produce any copy of order placed by the buyers or weight / freight bilty of orders etc.
291-Chd-2023 Madhav KRG Ltd., Patiala 5 Sh. Pawan Mishra has further explained the modus operandi of his proprietorship concerns wherein he has stated that multiple bank accounts were opened in the name of his proprietorship concerns and payments were received in these accounts through cheque/RTGS etc. Further, Sh. Pawan Mishra withdrew cash from these bank accounts and gave it to various persons.
4. Aggrieved with the order of the Assessing Officer, the Assessee preferred an appeal before the Ld. CIT(A) who has given his findings on this issue as under:-
“..In the present case the genuineness of the purchases has not been established because on investigation, it was revealed that the firm M/s. Shree Ganpati Enterprises was not carrying out any business activities and did not exist at the given address and the proprietor accepted that he was just providing accommodation entries. The menace of floating paper concerns and through them laundering the black money has been wide spread as reported in the newspaper recently. Even the Central Government has acknowledged the existence of such shell companies and their use by the people for routing their unaccounted income by way of accommodation entries. Therefore, the Appellate Authorities also cannot turn a blind eye to such realities. The persons operating such paper concerns complete the paper formalities but no real business/activities are carried out by these concerns. The bank accounts are opened and operated only to launder money and provide accommodation entries. As brought out on record by the AO, the assessee has shown purchases from the entity which was not in- existence at the address 11/10, Bardh Mohalla, Old 291-Chd-2023 Madhav KRG Ltd., Patiala 6 Faridabad. In reality these concerns do not carry out any real business. In view of the said facts and circumstances, the Assessing Officer was justified in making the addition u/s 69 after granting adequate opportunity to the appellant and after duly rebutting the submissions of the appellant. Therefore, under the facts and circumstances of the case, the arguments of the AR are not found acceptable and the action of the AO in making the addition of Rs. Rs. 2,58,837/- treating the purchases of Rs. 2,58,837/- from M/s. Shree Ganpati Enterprises Prop. Sh. Pawan Mishra as bogus purchases and treating the same as unexplained expenditure to be deemed income of the assessee u/s 69C is found sustainable. The AO has duly mentioned the facts and the legal position in support of the additions made on the issue and hence the addition on this issue is confirmed.
We have considered the findings given by the Assessing Officer in the assessment order and by the ld. CIT(A) in the appellate order. We find that both the authorities below have not accepted the purchases made by the Assessee to the tune of Rs. 258837/- from one concern namely Ganpati Enterprises of Sh. Pawan Mishra (Prop.). During proceedings before us, it was brought on record by the Counsel of the Assessee that during assessment proceeding, in reply to show cause notice, the following documents were submitted in regard to purchases made from Shree Ganpati Enterprises, which are as under:
291-Chd-2023 Madhav KRG Ltd., Patiala 7 1. Copy of Bill issued by Shree Ganpati Enterprises. 2. Import slip issued by Excise and Taxation deptt. Punjab in which there is detail of supplier, Quantity of material, Vehicle No and detail of purchaser in Punjab, Which is reproduced as below. 3 .Copy of bank statement from where payment remitted to party through RTGS. 1. Copy of party account.
Copy of C-Form issued to party
3. Copy of stock C-Form issued to pary.
Copy of stock register where quantity received against the above bill duly recorded.
5. Further the sale of goods manufactured out of raw material purchases have been duly accepted in scrutiny assessment.
The said sales are also subject to GST.
7. The Books of account have been accepted in scrutiny assessment 8. The gross profit is progressive which is as under and have been mitted during scrutiny assessment:
6. During assessment proceedings and before the proceedings before Ld. CIT(A) it was submitted that all the relevant documents concerning such purchases were produced before the Assessing Officer as well as before the ld. CIT(A). It 291-Chd-2023 Madhav KRG Ltd., Patiala 8 was also submitted by the Counsel of the Assessee that both the authorities below have doubted purchases made from M/s Ganpati Enterprises despite the fact that all the relevant documents were produced but neither the AO nor the CIT(A) has denied corresponding production out of such purchases made by the Assessee. The Counsel also brought on record that the opening and closing balance of the Assessee has not been doubted by the authorities below. The sales made has also been accepted by the Revenue. Even books of account were not rejected on the basis of alleged bogus purchases made by the Assessee. On the basis of a statement made by one Shri Pawan Sharma of M/s Ganpati Enterprises, the purchases made from this concern has been disallowed. Even the Assessee was not given opportunity to cross examine Mr. Pawan Sharma despite the fact that the Assessee has requested for providing opportunity for cross examination of Mr. Sharma. We have considered the facts brought on record by the Counsel of the Assessee and different case laws relied on by him.
The ld. DR relied on the order of the authorities below.
We find that although the Assessing Officer has made addition of Rs. 2,58,837- on account of alleged bogus 291-Chd-2023 Madhav KRG Ltd., Patiala 9 purchases form M/s Ganpati Enterprises but this addition has been made solely on the basis of a statement recorded by Investigation Wing of one Mr. Pawan Mishra who is proprietor of M/s Ganpati Enterprises. Although the Assessee wanted to cross examine Mr. Sharma but no such opportunity was given to the Assessee by the Revenue. We further find that despite the fact that all the relevant documents showing the purchases made by the Assessee form M/s Ganpati Enterprises and payments made to that concern by the Assessee through banking channel only, the authorities below have not accepted the claim of the Assessee. We also find that neither the books of account for alleged bogus purchases have been rejected nor the corresponding production / sales made out of such alleged bogus purchases have been denied by the authorities below. It is beyond understanding that if some purchases are alleged to be bogus how come the Revenue have accepted the corresponding production/sales made out of such purchases. Keeping in view these facts and the case laws brought on record by the Counsel of the Assessee, the addition made by the Assessing Officer of Rs. 2,58,837/- for alleged bogus purchases and taxing it by 291-Chd-2023 Madhav KRG Ltd., Patiala 10 invoking the section 115BBE of the Act for the income earned, by the Assessing Officer and its confirmation by the Ld. CIT(A) is not acceptable. Accordingly, the addition made by the AO and its confirmation by the CIT(A) invoking the provisions of seciton115BBE for taxing it under a special provision are hereby deleted.
In the result, Assessee’s appeal is allowed.
Order pronounced on 28.05.2025.