INCOME TAX OFFICER, SURAT vs SAFFRON GREEN INTERNATIONAL PRIVATE LIMITED, SURAT

Before: SHRI SIDDHARTHA NAUTIYAL & SHRI BIJAYANANDA PRUSETH

Hearing: 10/07/2025Pronounced: 26/09/2025

IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.958/SRT/2024 Assessment Year: 2018-19 (Hybrid hearing) Income Tax Officer, Ward- Saffron Green International Pvt. बनाम/ 2(1)(3), Surat, Room No.221, Ltd. Shop No.3008, Shree Mahavir Vs. 2nd Floor, Aaykar Bhavan, Textiles Puna Kumbhariya Road, Majura Gate, Surat-395 001 Surat-395 010 �थायीलेखासं./जीआइआरसं./PAN/GIR No: AAWCS 3137 M (अपीलाथ�/Appellant) (��थ� /Respondent) िनधा�रती की ओर से /Appellant by Shri Deven K. Kapadia, CA राज� की ओर से /Respondent by Shri Aashish Pophare, CIT-DR सुनवाई की तारीख/Date of Hearing 10/07/2025 उद्घोषणा की तारीख/Date of Pronouncement 26/09/2025 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, 'the Act’) dated 16.07.2024 by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short, ‘the CIT(A)’] for the assessment year (AY) 2018-19, which in turn arises out of assessment order passed by the Assessing Officer (in short, ‘AO’) u/s. 147 r.w.s 144 r.w.s 144B of the Act on 21.03.2023. 2. Grounds of appeal raised by the revenue are as under: “i. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made by the Assessing Officer of Rs.5,70,70,621/- on account of 100% bogus purchase to 0.25% of the bogus purchases and allowing the appeal of the assessee ignoring the facts that these purchases are sham transactions fabricated through bogus paper concerns of M/s. Savitri Trading Company and Mohammed Javed Mohammed Jabir Momin which were engaged in providing accommodation entries.

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd.

ii. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the appeal of the assessee in restricting the addition made of 100% of the bogus purchases to 0.25% of the bogus purchases without appreciating the finding of inquiry that M/s. Savitri Trading Company and Mohammed Javed Mohammed Jabir Momin has no real business activities rather it only providing bogus/fake bogus purchase and assessee is one of the beneficiaries of the same. iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire addition ignoring the fact that bogus purchase shown in the books of assessee from paper companies which were specifically formed to provide accommodation entries and the assessee re-routed its unaccounted income through the purchase transaction made from these paper companies to hide the true income of the assessee for the year under consideration. iv. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the entire addition without considering the judgement of Hon’ble Gujarat High Court in the case of M/s. N K Industries Ltd. and N K Proteins Ltd., reported in Tax Appeal no. 240 to 242 & 260 & 261 of 2003, wherein the Hon’ble High Court held that 100% of purchases from bogus parties was liable to be added in the hands of the Assessee, reversing the decision of Hon’ble ITAT to restrict the addition to 25% and the same was later on confirmed by the Hon’ble Supreme Court vide order M/s. N K Industries Ltd. vs. DCIT [2016] 72 taxmann.com 289 (SC) and M/s. N K Protein Ltd. Vs. DCIT [2017] 84 taxmann.com 195 (SC). v. On the facts and circumstances of the case and in law, the Ld. CIT(A) has violated the principles of natural justice while admitting the additional evidences and not providing opportunity of being heard to the AO as per the provisions of section 250(2) of the Income tax Act, 1961 and Rule 46A(3) of the Income tax Rules, 1962. vi. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in admitting the additional evidences, which were not produced before the AO during the course of the assessment proceedings without appreciating the fact that the assessee has not satisfied the basic conditions laid down under Rule 46A(1) of the Income tax Rules, 1962. vii. On the basis of the facts and in circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the AO. viii. It is, therefore, prayed that the order of Ld. CIT(A) may kindly be set aside that of the Assessing Officer be restored.

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. ix. The appellant craves leave to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of the appeal.”

Facts of the case in brief are that the assessee company filed its return of income for A.Y.2018-19 on 30.10.2018 declaring total income at Rs.15,49,250/-. Information was received from the Investigation Wing, Kolkata that the assessee had made bogus purchases from M/s. Savitri Trading Company, Kolkata and Mohammed Javed Mohammed Jabir Momin (Prop. J.J. Textiles) who had issued bogus invoices of huge amounts during F.Y. 2017-18 without actual supply of goods. During the course of assessment proceedings, on inquiry, it was found that M/s. Savitri Trading Company was indulged in issuance of fake invoices of huge amounts to other entities. The said invoices were apparently issued without actual supply of goods implying bogus purchases. Income-tax return filed by M/s. Savitri Trading Company revealed that it has paid nominal tax despite significant revenue from operation. Huge business transactions made by the entity is not commensurate with the income declared by it. Therefore, it was construed that M/s. Savitri Trading Company was a paper entity with no financial worth and was used for providing accommodation entries in the guise of invoice issuance. Hence, the transactions made by the entity were sham transactions and all the sales made by the entity were bogus sales. Therefore, all the sale proceeds in the hands of the recipient were actually bogus purchases, by which profit of the assessee has been suppressed. The transaction details made by M/s. Savitri Trading

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. Company during the A.Y. 2018-19 were obtained from Insight portal, which revealed sales of Rs.3,58,51,194/- to the assessee. 3.1 Another credible information was received that Shri Rajib Dhar (Prop. M/s. Purvi Suppliers) was also indulged in issuance of fake GST invoices for passing irregular input tax credit to other business entities and for doing this, they had also availed and utilized input tax credit (ITC) against fake invoices issued by others. This company was found to be a bogus entity having no existence at its declared place of business at Kolkata. On verification, it was observed that Shri Rajib Dhar had not even filed his return of income for the A.Y. 2018-19. Hence, M/s Purvi Suppliers was only a paper entity with no financial worth and was used for providing accommodation entries. The list of the entities to which sales were made by Shri Rajib Dhar during A.Y. 2018-19 includes one Mr. Mohammed Javed Mohammed Jabir Momin, from whom the assessee had made bogus purchases of Rs.2,12,19,427/-. Therefore, it became evident that the assessee had made fictitious purchases of Rs.3,58,51,194/- from M/s. Savitri Trading Company and Rs.2,12,19,427.75/- from Shri Mohammed Javed Mohammed Jabir Momin. In view of the same, the case of the assessee-company was reopened u/s.147 of the Act and notice u/s.148 of the Act was issued on 31.03.2022 with prior approval of the specified authority. No return was filed in response to the notice issued u/s.148 of the Act.

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. 4. During the re-assessment proceedings, the assessee did not file reply to the initial notice. However, in response to the show cause notice, the assessee filed reply on 17.03.2023 and submitted vouchers, bank statement and various papers related to the transactions with M/s Savitri Trading Company and Shri Mohammed Javed Mohammed Jabir Momin (Prop. J.J Textiles). It was submitted that all transactions with the above two entities are genuine and even GST department had accepted the returns. The explanation of the assessee was not accepted and AO held that the assessee had claimed bogus purchases to the tune of Rs.3,58,51,194/- and Rs.2,12,19,427/- from the above two parties. Thus, a sum of Rs.5,70,70,621/- was bogus expenditure in the books of the assessee in the previous year and there was no explanation by the assessee. Therefore, Rs.5,70,70,621/- [Rs.3,58,51,194/- + Rs.2,12,19,427/-] was added to the total income of the assessee as unexplained expenditure u/s.69C r.w.s. 115BBE of the Act. The assessment was finalized u/s.147 r.w.s.144 r.w.s 144B of the Act on 21.03.2023 and total income was determined at Rs.5,86,19,871/-.

Aggrieved by the assessment order passed by AO, assessee filed appeal before CIT(A). In the appellate proceedings, the assessee filed written submission and additional evidences. The same were forwarded to the AO and a remand report was called for by the CIT(A). It was submitted by the assessee before CIT(A) that the director of the assessee-company was busy in treatment of cancer of his father, who finally died. Due to above reasons, full compliance

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. could not be made before AO. The AO submitted his remand report to the CIT(A), in response to which the assessee filed rejoinder along with further documents to substantiate the purchases. The AO was given another opportunity to offer his comment but the AO did not file the same within the time given to him. Therefore, on the basis of the submissions of the appellant and the remand report, the CIT(A) observed that the appellant had submitted its balance-sheet, profit and loss account, bank statement, transportation receipts purchase bills, statement of bank realization issued by the DGFT, ledger account of purchases along with confirmation and GST return. The sales bills have been verified by the Customs and GST Departments. The CIT(A) further observed that the appellant had filed all relevant documents related to purchases during assessment proceedings along with confirmations, which have not been controverted by the AO. Thereafter, CIT(A) relied on the decisions in cases of (i) CIT vs. Odeon Builder Pvt. Ltd. (2019) 418 ITR 315 (SC), (ii) CIT vs. Sanjay Dhokad (2023) 456 ITR 77 (Bom) and (iii) CIT vs. Nikunj Exim Enterprises (P) Ltd. (2013) 35 taxmann.com 384 (Bom). He observed that the AO has not discharged the onus of disproving the transactions between the appellant and the above 2 parties. The entire case of the AO rests only on the information received from the Investigation Wing. However, appellant submitted all necessary documents for verification from which it is evident that appellant had received the goods and same have been consumed for manufacture of finished goods. Without purchasing the goods, it would not

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. have been possible to manufacture. Further, AO had accepted the sales without accepting the purchases. Neither the books have been rejected nor trading result has been recasted by the AO. Hence, addition cannot be sustained. However, he partly allowed the appeal with the following observation:

"With a view to plug any possible revenue leakage in the aforementioned circumstances, bases on the financials of the appellant company an estimated ad-hoc disallowance of 0.25% of gross profit is being made and held to be reasonable to safeguard the interest of which is in line with various decisions of higher judicial fora." 6. Aggrieved by the order of CIT(A), the revenue filed appeal before the Tribunal. Ld. CIT-DR for the revenue contended that M/s. Savitri Trading Co. and Shri Mohammed Javed Mohammed Jabir Momin had no real business activity. They were only entry providers and made paper transactions to channelize the unaccounted money into the books of the final beneficiaries through bogus purchases and the assessee is one of the beneficiaries of the accommodation entries, who had made the bogus purchases of Rs.5,70,70,621/-. Hence, the addition made by AO may be upheld and order of CIT(A) may be set aside.

On the other hand, the Ld. AR submitted that the assessee is private limited company and is also registered with GST Department. It is engaged in the business of textile fabric material and related accessories on retail as well as wholesale basis. It also used to export such fabric material and accessories out of India. Regarding the addition made on account of disallowance of

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. alleged bogus purchases, the Ld. AR submitted that all the allegations made in aforesaid grounds are completely baseless. He stated that information received by the AO from Investigation wing was insufficient to prove that the appellant had received fake bills. Ld. AR further contended that the AO has brought nothing on record including any corroborative evidences to establish that the appellant received fake bills to the tune of Rs.5,70,70,621/-. He stated that the assessee submitted following documents before AO in reply to the show cause notice issued on 17.03.2023: (i) copies of bank statements evidencing/highlighting the transaction of payments made to M/s. Savitri Trading Company and M/s J. J. Textiles, (ii) copy of ledger account of J. J. Textiles, (iii) copy of ledger account of M/s. Savitri Trading Company, (iv) copies of export invoices, (v) copies of bank advice for realization of exports, (vi) copies of GSTR – 2A evidencing purchases made from the concerned parties, and (vii) copy of audit report and computation of income and other relevant details. However, the AO did not verify the documents and made the addition. The same observation had been made by CIT(A) on page 10 of the appellate order. The AR further stated that during the appellate proceedings, the respondent submitted some additional documents viz., extract of stock statements, transportation receipts, tracking of purchases made from alleged parties ultimately resulting to sales. It is contended that CIT(A) made specific observation in its appellate order, which is as under:

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. “………..the AO although made the impugned addition on bogus purchases, no comments have been made on the nature of sales made by the assessee. Neither has the AO rejected the books of accounts of the assessee nor has he recast the trading results based on gross profit. The additions cannot be sustained on these grounds as well……....” The Ld. AR supported the finding of the CIT(A) and submitted that the addition sustained by CIT(A) is justifiable.

7.2 Regarding the reliance placed by the Ld. CIT-DR on the judgement of jurisdictional High Court in the case of M/s. N K Industries Ltd. vs. DCIT 72 taxmann.com 289 (SC) and N K Proteins Ltd. vs. DCIT, 84 taxmann.com 195 (SC), the Ld. AR submitted that facts and circumstances of these cases are clearly distinguishable from those of the assessee, hence the same are not applicable in the instant case. It is stated that in the aforementioned cases, search action was carried out at the premises of both the companies and incriminating documents of the third parties were recovered from their premises whereas in the case of the assessee, neither any search or survey action had been carried out nor any incriminating material had been found.

7.3 Regarding the contention raised by the Ld. CIT-DR regarding the violation of principles of natural justice at the end of CIT(A) on account of admission of additional evidence during appellate proceedings without giving reasonable opportunity to AO, the Ld. AR stated that perusal of appellate order of CIT(A) makes it amply clear that the AO was given opportunity to furnish remand report twice. However, the AO availed the opportunity once

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. only and filed the remand report. Therefore, the question of violation of principles of natural justice does not arise.

We have heard both parties and perused the materials available on record. We have also deliberated the case laws relied on by both sides. Ground Nos.1 to 4 pertain to restriction of addition from 100% to 0.25% of bogus purchases by the CIT(A). The revenue’s principal contention is that the CIT(A) erred in restricting the addition to 0.25% despite overwhelming evidence that the assessee had indulged in sham transactions with non- existent/bogus parties, who had no real business operations and were only providing accommodation entries. The CIT(A) after considering submission and additional evidence filed by the appellant and remand report of AO partly allowed appeal of the assessee. We do not find merit in the contentions of the Ld. CIT-DR for the reasons discussed below. 8.1 The AO did not reject the books of account of the assessee u/s.145(3) of the Act. There was no exercise undertaken to re-compute the gross profit ratio or trading results. It is settled law that in the absence of rejection of books, no estimation of income can be made by disallowing entire purchases. The AO also did not question the genuineness of sales made by the assessee, nor did he examine the flow of goods, realization of sales or resultant income. If the sales are accepted as genuine, corresponding purchases cannot be disallowed in toto, as it would result in taxing the gross receipt instead of profit component. We also find that the assessee had submitted the bank statement

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. evidencing payments to the suppliers, ledger accounts of alleged suppliers, copies of export invoices and bank advice for export realizations, GSTR-2A copies reflecting purchases and audit report and stock statement before the AO. However, the AO made the addition only on the basis of the report of the Investigation Wing without making any further enquiry to controvert the assertion of the assessee. During appellate proceedings, the CIT(A) has categorically observed that despite such evidences, the AO failed to carry out any independent verification and proceeded to make addition solely based on third-party information. The CIT(A) has rightly exercised powers under Rule 46A of the IT Rules, 1962 and admitted additional evidence for substantial cause in the interest of justice. He has obtained a remand report from the AO, which was duly considered before deciding the issue. Hence, there is no violation of principles of natural justice. The CIT(A) held that addition cannot be sustained on the ground adopted by the AO. However, to plug possible revenue leakage, the CIT(A) restricted the disallowance to 0.25% of the bogus purchases. In our considered view, instead of disallowance of @ 0.25% disallowance of 2% of the impugned purchases would be fair and reasonable in the given facts and circumstances of the case. Accordingly, the AO is directed to disallow 2% of the impugned purchases and delete the remaining addition. The grounds are partly allowed. 9. Ground Nos. 5 and 6 pertain to violation of Rule 46A and natural justice. The Ld. CIT-DR submitted that CIT(A) violated Rule 46A by admitting additional

ITA No.958/Srt/2024 A.Y 18-19 Saffron Green International P.Ltd. evidence without providing opportunity to AO. This argument fails in light of the remand report obtained by the CIT(A), as evident from the appellate order. The AO was given opportunity to verify additional documents. The AO filed one remand report and failed to file the second. Further, the CIT(A) exercised powers under Rule 46A(4) for substantial cause in the interest of justice, which is within his jurisdiction, especially when documents were relevant to determine the nature of purchases. Accordingly, ground Nos. 5 and 6 are dismissed. 10. Ground Nos.7 to 9 pertain are general in nature and do not require any adjudication. 11. In the result, appeal of revenue is partly allowed. Order pronounced in accordance with Rule 34 of ITAT Rules, 1963 on 26/09/2025 in the open court. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (BIJAYANANDA PRUSETH) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ ACCOUNTANT MEMBER सूरत /Surat �दनांक/ Date: 26/09/2025 Dkp Outsourcing Sr.P.S* आदेश क� �ितिलिप अ�ेिषत/ Copy of the order forwarded to :  अपीलाथ�/ The Appellant  ��यथ�/ The Respondent आयकर आयु�/ CIT  आयकर आयु� (अपील)/ The CIT(A)  िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, सूरत/ DR, ITAT, SURAT  गाड� फाईल/ Guard File  By order/आदेश से, // True Copy // सहायक पंजीकार आयकर अपील�य अ�धकरण, सूरत

INCOME TAX OFFICER, SURAT vs. SAFFRON GREEN INTERNATIONAL PRIVATE LIMITED, SURAT