DCIT(CENTRAL)-1, RAIPUR vs. KALMESH KUMAR KESHARWANI, RAIPUR

आदेश / ORDER PER BENCH: The captioned cross-appeals filed by the assessee and the revenue are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals), Raipur-3, dated 05.02.2024 and 02.02.2024, which in turn arises from the respective orders, viz. (i) order passed by the A.O under Sec.143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short ‘the Act’) dated 24.12.2018 for A.Y.2013-14; (ii) order passed by the A.O u/s. 143(3) of the Act, dated 23.12.2016 for A.Y.2014-15; AND & (iii) order passed by the A.O u/s. 143(3) r.w.s. 147 of the Act, dated 30.11.2017 for A.Y. 2015-16. As the facts and issues involved in the captioned appeals are more or less inextricably interlinked and in fact

2. We shall first take up the cross-appeals filed by the assessee and the revenue in & for assessment year 2013-14, wherein the assessee has assailed the impugned order on the following grounds of appeal before us:

“1. On the facts and circumstances of the case and in law, reopening u/s.148/147 is invalid; it is merely on change of opinion as based on findings of survey conducted upon assessee u/s.133A on 15-3-16 which had been considered in original assessment made u/s.143(3) dt.31-3-16 and addition had also been made on such count; reopening of concluded assessment made u/s.143(3) dt.31-3-16 in absence of any fresh/new material, be treated merely on change of opinion on the same material facts, is not permissible in the eyes of law, is liable to be quashed; relied on Siemens Energy Industrial Turbo India (P) Ltd (2024) (Bom HC); Mira Bhavin Mehta (2024) (Bom HC); Godrej Projects Development (P) Ltd (2024) (Born HC); Kelvinator (2010) (SC); Marico Ltd (2020) (SC); Techspan India PL (2018) (SC); Usha International Ltd (2012) (Del HC) (Full Bench).

3. On the facts & circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.1,22,08,002 on count of 4 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 adhoc estimation of GP of 10% on alleged bogus purchases of Rs. 14,41,32,250 without giving any basis for such arbitrary estimation; while the assessee is a trader in goods i.e., paddy, rice and broken rice; corresponding sales has been accepted; there cannot be a case of "bogus purchase" in case of a "trader in goods" wherein corresponding sales quantity of goods is not disputed by the revenue; addition of Rs.1,22,08,002 is unjustified; is liable to be deleted.

4. On the facts & circumstances of the case and in law, ld CIT(A) has erred in sustaining addition of Rs.1,22,08,002 on count of adhoc estimation of GP of 10% on alleged bogus purchases of Rs.14,41,32,250 without giving any basis for such arbitrary estimation; revenue has rejected books of account-, applied sec. l45(3); estimation of GP made @10% but assessment not made u/s.144; in such a situation, assessment made u/s.143(3) would be invalid; addition is liable to be deleted & assessment is liable to be quashed.

5. On the facts & circumstances of the case and in law, Id. CIT(A) has erred in sustaining addition of Rs.10,00,000 on the count of arbitrary estimation of unexplained investment in bogus purchases; addition made merely on presumption & surmises without bringing any material/ evidence on record; addition is unjustified and is liable to be deleted.

6. On the facts & circumstances of the case and in law, ld. CIT(A) has erred in sustaining addition of Rs.5,99,982 on the count of mistake in the original assessment made u/s.143(3) dt.31-3-16 as in such assessment, expenses of Rs.26,70,479 was disallowed while addition was made mistakenly of Rs.20,70,497; it is a factual mistake which is liable to be deleted.

7. The appellant craves leave to add, urge, alter, modify or withdraw any grounds before or at the time of hearing.”

On the other hand, the revenue has assailed the impugned order on the following grounds of appeal before us:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,38,25,061/- out of total addition of Rs.3,60,33,063/-, ignoring his own finding in his order that "there is no doubt regarding bogus purchases of Rs.14,41,32,250/- had been made

5 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 by the assessee" whereby he has upheld the basic finding of AO in entirety? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,38,25,061/- out of total addition of Rs.3,60,33,063/-, ignoring the ratio of several judgements including the following in which 100% disallowance on account of bogus purchases has been upheld: a) Para 6 of N.K. Industries Ltd. [2016] 72 taxmann.com 289 (Gujarat), in which SLP of the assessee has been dismissed vide [2017] 84 taxmann.com 195 (SC)? b) Decision of ITAT Mumbai in the case of Soman Sun City in 3. Without prejudice to the above, wh4ther on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,38,25,061/- out of total addition of Rs.3,60,33,063/-, by assuming that the assessee had made alternative actual purchases when the assessee not proved the same with any verifiable documents?”

4. The A.O based on information that had surfaced during the survey conducted u/s.133A of the Act by the Jt. CIT, Range-1, Raipur on Nagrik Sahakari Bank Ltd. Raipur as well as the office/premises of three other rice millers and two brokers on 15.03.2016, viz. (i) that the assessee had made bogus purchases of Rs.14,41,32,250/- from six tainted parties; and (ii) that the assessee had made unexplained investment of Rs.10 lacs for 6 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 carrying out the aforesaid unaccounted transactions reopened his concluded assessment u/s. 147 of the Act. Notice u/s.148 of the Act, dated 26.03.2018 was issued to the assessee. In compliance, the assessee filed his return of income on 03.05.2018, declaring an income of Rs.14,44,910/-.

S. Name of the party Total purchase Peak Date of peak No. purchase purchase amount (Rs.) 1. M/s. Bajrang Food 7,97,24,750/- 10,00,000/- 14.01.2013 Product, Raipur 2. M/s. Shrikhand 2,37,55,000/- 5,35,000/- 28.11.2012 Agrotech, Raipur 3. M/s. Eaden Rice Mill, 2,69,10,000/- 4,65,000/- 01.09.2012 Raipur 4. M/s. Sakshi Gopal 22,12,500/- 3,68,750/- 10.12.2012 Corporation, Raipur 5. M/s. Shiv Shankar 37,70,000/- 4,71,250/- 11.12.2012 Chawal Udyog, Raipur 6. M/s. Hardha Agency 77,60,000/- 5,35,000/- 27.11.2012 Total 14,41,32,250/-

7 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

6. The A.O observed that a survey operation u/s.133A of the Act was conducted at the business premises of Shri Sanjay Sharma, Hanuman market, Raipur and the assessee, viz. Shri Kamlesh Kesharwani, commission Agent, Ramsagarpara, Raipur, as well as three rice millers of Tilda on 15.03.2016, which revealed that certain rice millers would procure bogus bills from brokers/entry operators without any actual purchase of goods. It was observed by the A.O that substantial incriminating material evidencing the aforesaid facts were found in the course of the survey proceedings. The A.O also noticed that survey action was carried out in the case of Nagarik Sahakari Bank, Raipur where some of the brokers/entry operators maintained their bank accounts. It was further observed by him that the brokers/entry operators had in their respective statements recorded on oath u/s.131 of the Act had admitted of having provided bogus bills to rice traders and millers without any actual supply of goods. Also, it was noticed by the A.O that certain rice millers in their statements admitted of being involved in the nefarious activity of providing bogus bills without any corresponding sales of goods. After deliberating at length on the modus-operandi that was adopted by the brokers/entry operators and certain rice millers who had admitted of their involvement in providing/facilitating bogus bills in lieu of commission, and referring to their statements which were recorded u/s.131 of the Act a/w.

8 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 those recorded in the course of their cross-examination by the rice millers who were alleged by them as beneficiaries, the A.O observed that brokers viz. Shri Sanjay Sharma, Shri Aditya Sharma, Shri Kamelsh Kesharwani (the assessee), Shri Ghanshuam Rijwani and Shri Narad Sahu had stated on oath that they had provided bogus entries or bogus bills to various rice millers. It was also observed by him that the assessee had failed to substantiate the genuineness of the purchases that he had claimed to have made from the aforementioned parties on the basis of supporting documentary evidences, viz. delivery challans etc.

7. The A.O based on the aforesaid information/material called upon the assessee vide his “Show Cause Notice”/letter dated 21.11.2018 to put forth an explanation as regards two issues, viz. (i) as to why the purchases of Rs.14.41 crore (approx.) that he had claimed to have made from the aforementioned six parties may not be held as bogus and 25% of their value be not added as his income; and (ii) that as to why an addition of Rs.10 lacs towards unexplained investment in making the aforementioned unaccounted transactions be not made in his case. As the assessee failed to substantiate the authenticity of the impugned purchase transactions that he had claimed to have made from the aforementioned six parties, therefore, the A.O taking cognizance of certain material aspects, viz. (i) that the notices/letters issued u/s. 133(6) to all the aforementioned six parties for confirmation of the transactions were either returned or not responded

9 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 by them; (ii) the bank accounts of the aforementioned parties revealed that the amounts received by them towards sale consideration through cheques or RTGS were on the same day withdrawn in the form of cash leaving a miniscule amount of balance in their bank account; (iii) that the assessee had failed to produce transportation details evidencing the supply of goods from the aforementioned parties; and (iv) that the suppliers had neither accounted for the purchases made by the assessee nor paid taxes thereon, thus, concluded that the assessee had not made any genuine purchases of Rs.14.41 crore (approx.) from the aforementioned parties. Accordingly, the A.O after drawing support from certain judicial pronouncements held the purchases that the assessee had claimed to have made from the aforementioned parties as bogus and disallowed 25% of the aggregate value of the same i.e. Rs.3,60,33,063/- (25% of Rs.14,41,32,250/-).

10 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

11 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.

12 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

13 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 concerns mentioned in the “reasons to believe”, had thus, resulted to an observation conflicting with the earlier view that was arrived by his predecessor while framing the original assessment u/s. 143(3) of the Act. The Ld. AR submitted that as initiation of proceedings u/s. 147 of the Act was based on a “change of opinion”, therefore, the consequential assessment framed was liable to be struck down for want of valid assumption of jurisdiction on the part of the A.O.

15 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 thus, are of the view that the claim of the assessee that his concluded assessment was reopened based on a mere “change of opinion” cannot be accepted and is accordingly, rejected.

19 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 transpires that he had categorically stated that the case of the assessee was reopened u/s. 147 of the Act as per “Explanation 2(c)(i)” of Section 147 of the Act. For the sake of clarity, Sr. No.7 of the proposal of approval is culled out as under:

(emphasis supplied by us)

We find that as per “Explanation 2(c)(i), of Section 147 of the Act, as was then available on the statute, the same was applicable in a case where an assessment had been made but income chargeable to tax was underassessed. Apart from that, we find that the A.O while recording the “reasons to believe”, had at the threshold stated that scrutiny assessment in the case of the assessee was framed u/s. 143(3) r.w.s. 144 of the Act, dated 31.03.2016, wherein his income was assessed at Rs.33,00,380/- as against the returned income of Rs.7,38,440/-. We find that the aforesaid facts were stated in the “reasons to believe” dated 05.02.2018 that had been approved by the Jt. CIT vide his approval dated 06.02.2018.

“3.1.5 During the appeal proceeding the appellant company to submitted the reply as under:- "The assessee is running a 'trading concern' in a proprietary concern M/s.Kesharwani Rice Mill, Raipur, which deals in trading

22 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 in paddy, rice & broken rice, thus, it is engaged in 'trading activities' of paddy, rice & broken rice. The total sales for the F.Y. 2012-13 comes to Rs.20.39 crores as per audited trading & P & L account. No 'manufacturing activity' has been done by the assessee during the F.Y. 2012-13, in other words, there is no question of any kind of suppression of 'yield' of any item traded in. Working of manufacturing and trading portion during the year is as under:- Total turnover (i.e. sales) Rs.20,39,52,845 Manufacturing portion (Rs.Nil Trading portion (0%) (Rs.20,39,52,845 (100%)] Paddy sales at Rs.1175.35L + rice sales at Rs.703L + Broken Rice sales at Rs.161.17L Trading Trading portion treated portion treated as genuine by as bogus by the Ld. AO the Ld. AO Rs.610.84L Rs.1428.69L (29.95%) (70.05%) Thus, out of the “whole books” the Ld. AO has accepted 29.95% as genuine and 70.05% as bogus.

"That the Ld. AO has dully accepted the 'book results' of 30% portion of its trading activities in terms of quantity and value, and thus, he has suspected/doubted only 70% of the total sales of Rs. 20,39,52,845 on the count of paddy, broken rice and rice purchases which is purely related to its trading activities and thus , he only doubted the purchases made from the alleged six vendors, while he had again duly accepted the corresponding sales including quantity involved therein, shown in the same books of account, in between, he has not found any kind of suppression of yield in Broken rice and Rice because the assessee had not involved any kind of manufacturing activities during the year under consideration and thus, the main allegation of the Ld. AO that the assessee had made bogus purchases does not stand in its own legs, because of the reason that the assessee had not involved in manufacturing activities during the year under consideration (i.e., FY 2012-13),and thus, the main allegation of 23 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 the Ld. AO that the assessee had made 'bogus purchases', does not stand in its own legs, because of the reason that the assessee had not involved in manufacturing activities and there is no question of any kind of suppression of yield of any item, and the Ld. AO has doubted only some part 70%) of its 'trading activities' of the assessee and simultaneously, he had duly accepted the 'corresponding sales' alongwith its quantity, so without making purchases, sales cannot be done, so, more so, this is a case of 'genuine purchases from outsiders' and certainly not a case of 'bogus purchases' as misapprehended/alleged by the Ld. AO. And in this case, when 'genuine purchases' as made during 'trading activities', for which 'corresponding sales alongwith its quantity' had already been accepted by the Ld. AO, the alleged arbitrary disallowance of purchases at 25% is totally unjustified, invalid and not permissible as per law. That, the Ld. AO has disallowed the purchases at 25% out of the purchases claimed at Rs.1441.32 lakhs from 6 parties, only relying in the case of Sanjay oil Cake Industries (2009) 316 ITR 274 (Guj HC) in Par No. 7 Pg No. 19 and stated in Para No. 8 Pag No.20 as under: "8. As mentioned in Point 11-13 of the above referred order, the AO has rightly made disallowance of 25% of the bogus purchases which clearly applies to the present case also. Accordingly, the submission of the assessee is not accepted and 25% of such purchase expenses of the assessee are not allowed on account of being bogus purchases. The facts mentioned above reveals the said amounts of bogus purchase which leads to rejection of books of account for the limited purpose as per sec.145(3). For the reasons detailed above, the purchases recorded in the books of account of the assessee amounting to Rs.14,41,32,250 are held to be bogus and 25% of such purchase amount works out at Rs.3,60,33,063 is hereby added to the total income of the assessee." 3.1.6 It further submitted that the assessee's case does not fall in the category of Sanjay Oil Cake Industries (2009) (Guj HC) being on distinguishable facts which is enumerated in Para No.1.20, Pg No.15 of this submission in the sense that, the case of Sanjay Oil Cake Industries was a 'manufacturing concern' and in that case the revenue has proved by clinching evidence on record that yield has been suppressed and to cover up such suppressed yield, bogus purchases of raw material has been introduced from bogus parties and purchase price of raw material has also been inflated according to their own will, since, the parties were not traceable; they opened the bank accounts of such bogus parties and in which cheques were credited and 24 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 ITA Nos. 135, 136 & 138/RPR/2024 amounts were withdrawn by bearer cheques through their own staffs and in this way, they created bogus parties as conduit for showing bogus purchases of raw materials/semi-finished goods. 3.1.7 The assessee is running a trading concern in a proprietary concern M/s.Kesharwani Rice Mill, Raipur, which deals in trading in paddy, rice & broken rice, thus, it is engaged in trading activities of paddy, rice & broken rice. The total sales for the F.Y. 2012-13 come to Rs.20,39,52,845/-(i.e. manufacturing portion of Rs.0/- and trading portion of Rs.20,39, 52,845/-) as per audited trading and Profit & Loss account. No manufacturing activity has been done by the assessee during the F.Y. 2012-13. - -while, in this case, no manufacturing activities has been done by the assessee and the Ld. AO has only objected some part of its 'trading activities' and 'trading results' as enumerated above in Pt No.1.1, and thus, the assessee is mainly engaged in 'trading activities' being 'a trader' and there in no inflation in the price of goods has been made by the assessee, and the assessee being as 'a trader', when the 'corresponding sales, had been duly accepted by the Ld. AO, and there is no error/defect found by the Ld. AO in the quantitative details of the materials (i.e. Paddy, Broken rice & Rice) traded in, and thus, the alleged purchases cannot be treated as bogus. Our case in similar to the case of Tejua Rohit kumar Kapadia (2018) 94 taxmann.com 324 (Guj HC), in which it was held as under:- "3. It can thus, be seen that the appellate authority as well as theTribunal came to conclusion that the purchases already made by the assessee from M/s.Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions . There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that 'the assessee the trader' had also shown sales out of purchases made from Raj lmpex which were also ·accepted by the Revenue, no que of law arises.

4. TA is dismissed." The above judgment of Guj HC has ben affirmed by the Hon'ble SC in Tejua Rohitkumar Kapadia (2018) 94 taxmann.com 325 (SC). That the Ld. AO has not doubted the entire quantity of opening stock, closing stock and the quantity traded during the year under consideration i.e. AY 13-14, in other words, where sales made out of such purchases were not disputed or questioned and the resultant profit on such sales had been accepted in toto by the Ld.AO, disallowing such purchases as bogus purchases is unjustifiable, invalid. Alternatively, not the 25 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

entire amount, but the profit margin embedded in such amount may be subjected to tax. Further, the Ld.AO did not find any 'inflation' in purchase price for coming to the conclusion that the purchases are bogus, the addition made at Rs.3,60,33,063 may kindly be deleted." 3.1.8 From the reply of assessee contention is coming out that the case of assessee is not a manufacturing concern but a trading concern, hence it is distinguishable from 'Sanjay Oil Cake Industries' case. If the case of assessee is not manufacturing, disallowance of 25% should not be applicable in his case, only certain NP/GP may be applied in case, after rejection of books of account. I have gone through the detailed investigation in this rice miller's case assessment order of assessee and the reply of assessee during the appeal proceeding. I thoroughly examined the reply of assessee with the facts of the case. Now, it is clear that the present case is a case of trading concern and there is not any manufacturing activity hence the case is little bit distinguishable from Sanjay Oil Cake Industries, relied by the Ld. AO. Secondly, there is no doubt regarding bogus purchases of Rs.14,41,32,250/- had been made by the assessee. Thirdly, a detailed investigation has been done to prove these purchases as bogus and even cross exanimation was also done b'. rice millers during the investigation. As the Ld. AO has rejected books of account for limited purpose, but he had not questioned the sales. This is a well settled proposition that the sales cannot be made without purchases. So, if the purchases have not been made from the six parties mentioned in assessment order then the assesses should have made these purchases from somewhere else. In such cases of bogus purchases, actual purchases were made from other parties and mainly in cash. These purchases are always done at lower rates. Taxes and other expenses are also saved. Now, the assessee should have disclosed the actual parties and actual amount of purchase. These purchases might have been purchased from gray market and in cash. There is a strong possibility of a lower rate purchases as other taxes and expenses will be saved in such gray purchases. Hence, actual GP will be much higher then declared in the books of account. There are some judicial pronouncements, on the similar facts.

26 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

The Delhi Tribunal in the case of NKG has held that since purchase debited by the assessee has already been considered in audited accounts in arriving at the income, therefore if purchase is considered bogus and a profit ratio is decided then only the difference of GP so decided and the GP shown by the assessee should be added as the profit element on account of bogus purchase. The decision of the ITAT is as under – The Assessment order clearly indicates that before passing assessment order dt.31.03.2018, the Ld. AO concluded a thorough inquiry on the aspects including the purchases made by the assessee from Sharma group aggregating Rs.63.90 crores and having considered the contentions of the assessee, Ld. AO reached a conclusion that the material purchased from the Sharma was bogus, and since the assessee itself offered rate of GP in business at approximately . 8% however, to recover any further leakage of revenue, 0.25% was to be added to the rate offered by the assessee. Basing on this premise, Ld. AO recalculated the GP at 9% of the sales turnover by rejecting the books of account of the assessee u/s.145. According to AO the difference ween 9% of the turnover, the aggregate amount of the GP already declared by the assessee and the additions made during the earlier assessment u/s.153A had to be added. Decision on similar line has been given by ITAT Mumbai in case of Ratnagiri Stainless Pvt. Ltd. Vs ITO Dated 04.04.2017. Facts are as under- "The AO, on the basis of information received from Dy. Director of IT (Inv.) that assessee had received bogus purchase invoice from 28 entry providers, reopened assessment. No evidence was produced by assessee to show that purchases were genuine by actual delivery of goods on said parties. Notice u/s 133(6) were returned unserved. One of the parties appeared before the AO and confirmed that the transaction were bogus. Assessee having purchased the goods from grey market for earning higher profits, GP rate 12.5% applied by AO and confirmed by CIT(A) was justified. However the assessee will get credit of GP ratio declared on these bogus purchase in the return of income filed with the Revenue." In the line of business of rice millers and traders in the state, the GP varies from 3% to 10% depending on various factors such as price of paddy paid by the government, level of crop production and quantity of procurement committed by the statement government. Adopting a GP of 10%, since the GP shown by the assessee is 1.53%, an addition of 8.47% on the suspicious purchases is hereby sustained, attributing to the extra profit

27 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 earned by showing purchases. Therefore on a purchase of Rs. 14,41,32,250/- an amount of Rs.1,22,08,002/- is hereby sustained and balance addition is deleted.”

S. Name of the party Total purchase Peak Date of peak No. purchase purchase amount (Rs.) 1. M/s. Bajrang Food 7,97,24,750/- 10,00,000/- 14.01.2013 Product, Raipur 2. M/s. Shrikhand 2,37,55,000/- 5,35,000/- 28.11.2012 Agrotech, Raipur 3. M/s. Eaden Rice Mill, 2,69,10,000/- 4,65,000/- 01.09.2012 Raipur 4. M/s. Sakshi Gopal 22,12,500/- 3,68,750/- 10.12.2012 Corporation, Raipur 5. M/s. Shiv Shankar 37,70,000/- 4,71,250/- 11.12.2012 Chawal Udyog, Raipur 6. M/s. Hardha Agency 77,60,000/- 5,35,000/- 27.11.2012 Total 14,41,32,250/- Admittedly, it is a matter of fact borne from record that the assessee in his statement recorded in the course of survey proceedings u/s. 133A of the 28 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 Act, dated 15.03.2016 had accepted that he in lieu of commission income was providing bogus purchase bills to rice millers/traders i.e. the beneficiaries, and had explained at length the modus-oparandi that was adopted by him to facilitate the said nefarious activity. Rather, the assessee in reply to Question No.25 of his statement recorded during the course of survey proceedings conducted u/s. 133A of the Act, dated 15.03.2016 had admitted that he was involved in the business of providing bogus bills since the year in question i.e. F.Y.2012-13 (i.e. the year under consideration). Also, the assessee in reply to Question No.58 of his said statement had stated that he was in receipt of commission of Rs.5/- per Qntl (in cash) for providing bogus bills which, however, was not disclosed by him in his return of income. Further, the assessee in reply to Question No.3 of his statement recorded on 30.03.2016, had stated that there was no actual supply of goods but only bogus bills were provided to the beneficiaries. Apart from that, the assessee in reply to Question No 5 & 7 of his statement recorded on 30.03.2016 (supra), had also explained as to how the mandi-anugya receipts were obtained and provided to the beneficiaries concerns to whom bogus bills were issued. Although the assessee who is proprietor of M/s. Keshwarni Rice Mills, i.e. a concern engaged in the business of trading in rice/by products, had admitted that he was deriving commission income @ Rs.5/- per quintal from providing bogus purchase bills, but independent of and in addition of his said

29 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 stream of income he was deriving income from the business of trading in rice/by products.

30 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

28. Apropos the addition towards unaccounted investment of Rs.10 lacs that was made by the A.O, we are of the view that as observed by the CIT(Appeals), and rightly so, the assessee would have made certain unexplained investment in his business of providing bogus billing. Ostensibly, the A.O had taken the amount of “peak purchase” appearing in the account of one of the aforesaid bogus concerns as a bogus outstanding liability and made an addition of the same in the hands of the assessee. Thereafter, the CIT(Appeals) had approved the view taken by the A.O, observing as under:

“3.2 Ground No. 4:- On the facts & circumstances of the case and in law, the Ld. AO has erred in making addition of Rs.10,00,000 as unaccounted investment on these bogus purchases considered by the Ld. AO, which is without bringing any clinching material evidence on record and in absence of this, the addition of Rs. 10,00,000 is liable to be deleted. 3.2.1 During the assessment proceeding the assessee was indulged in obtaining bogus bills. Therefore, the expenditure outstanding at the end of the year relating to those parties is undisputedly bogus. Therefore, this needs to be added to the total income. Accordingly, the peak amount of Rs.10,00,000/- is added back to the total income of the assessee. 3.2.2 During the appeal proceeding the appellant company to submitted the reply as under:-

32 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

"It is submitted that the Ld. AO has made this addition on mere presumption, conjectures and surmises and on a baseless belief that the assessee had made unexplained investment in alleged bogus purchases of paddy broken rice and rice from the alleged parties/vendors while the fact is the assessee has earned Rs. 7,16,475 as commission income which has been added by the Ld AO in the A. Y. 2013-14 (i.e. in original scrutiny assessment dated 31.03.2016), which has not disputed by the assessee and since, it is not dispL4ed by the assessee in first appellate proceedings before your Honor, it means, the alleged income earned during the A.Y. 2013-14 at Rs.7,16,475 be available to the assessee for the alleged unexplained investment i.e. Rs.10 lakhs considered by the Ld. AO in the A.Y. 2013-14. The Ld. AO has not brought any material/evidence on record to substantiate his baseless proposition in this respect, thus the addition of Rs. 10,00,000/- on account of unexplained investment in purchase shown, in absence of any evidence/material brought on record by the Ld. AO, may kindly be deleted, Reliance is placed on: It is submitted in Vishnu Prasad Maharwal (2014) (Jai-Trib) dated 31.03.2014 held as under:- "3.6 We find force in the contention of the Ld. AR that this year was the second year of the assessee in contract business. However, in current year the contract receipts of the assessee have increased by more than 6 times from last year. The NP rate declared by the assessee in A.Y. 2008-09 was 6.01% which increased to 7.02% in A.Y. 2009-10. Therefore, in view of Bhawan VA Path Nirman (Bohra) & Co (Raj), the past history of the assessee is best guiding factor. Further, the result shown by the assessee is better than M/s.Rishabh construction (P) Ltd. Further the trading result is better because the entire cash and other found as the result of the search were surrendered as business income for A.Y. 2010-11. Further, if trading addition for A.Y. 2009-10 is sustained then the same is entitled for telescoping benefit in A.Y. 2010-11 against the cash and other assets found as the result of search in view of Anantharam Veerasinghaiah & Co (1980) (SC) and Tyaryamal Bal Chand (1987) (Raj) and such telescoping benefit has not been given by the AO and Ld. CIT (A)." 3.2.3 Consider the above discussion, the AO has added possible investment in effecting the unaccounted purchases added by him, from a seller the assessee has made several purchases. Ld. AO has picked up the largest amount out of purchases from each seller. Such largest amounts from all sellers have been added and total has been treated as unaccounted investment. On the facts of the case, the assessee making bogus purchase of Rs. 14,41,32,250/-.The case of purchases made out of unknown

33 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 sources. The transactions reflected in the bank accounts of assessee are having the same pattern. The assessee giving check/online transfer to six parties and these six parties withdraw the same amount from their bank accounts in form of cash. This cash is handed over to the assessee by the entry operator. Then this cash is used for purchases from gray market in cash at lower rate. Then the sales is done and payment received in bank accounts. Here one round is completed. Then, the another payment in form of bank transfer is made for bogus purchases and entire year it goes on like in this way. In this process there is a first initiative money to run all these affairs and it is always unaccounted money i.e. seed money of all these bogus purchases. In this case this seed money is also present. The Ld. AO is validly assessed it as Rs.10,00,000/- by drawing the peak of purchases is hereby confirmed. The appeals of ground is dismissed.”

We have thoughtfully considered the aforesaid issue and finding no infirmity in the view taken by the CIT(Appeals) who had rightly sustained the addition of unexplained investment of Rs.10 lacs (supra) made by the A.O, sustain the same. Thus, the Ground of appeal No.5 raised by the assessee is dismissed in terms of our aforesaid observations.

34 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

1. On the facts & circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.1,36,78,421 on count of adhoc estimation of GP of 10% on alleged bogus purchases of Rs.15,99,81,541 without giving any basis for such arbitrary estimation; while the assessee is a trader in goods i.e., paddy, rice and broken rice; corresponding sales has been accepted; there cannot be a case of "bogus purchase" in case of a "trader in goods" wherein corresponding sales quantity of goods is not disputed by the revenue; addition of Rs.1,36,78,421 is unjustified; is liable to be deleted.

2. On the facts & circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.1,36,78,421 on count of adhoc estimation of GP of 10% on alleged bogus purchases of Rs.15,99,81,541 without giving any basis for such arbitrary estimation; revenue has rejected books of account; applied sec.145(3); estimation of GP made @10% but assessment not made u/s.144; in such a situation, assessment made u/s.143(3) would be invalid; addition is liable to be deleted & assessment is liable to be quashed.

3. On the facts & circumstances of the case and in law, Id CIT(A) has erred in sustaining addition of Rs.27,93,750 on the count of arbitrary estimation of unexplained investment in bogus purchases; addition made merely on presumption & surmises without bringing any material/ evidence on record; addition is unjustified and is liable to be deleted. 4. "The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing."

On the other hand, the revenue has assailed the impugned order on the following grounds of appeal before us:

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 2,63,16,964/- out of total addition of Rs. 3,99,95,285/-, ignoring his own finding in his order that "there is no doubt

35 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 regarding bogus purchases of Rs. 15,99,81,541/- had been made by the assessee" whereby he has upheld the basic finding of AO in entirety? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,63,16,964/- out of total addition of Rs. 3,99,95,285/-, ignoring the ratio of several judgements including the following in which 100% disallowance on account of bogus purchases has been upheld: a) Para 6 of N.K. Industries Ltd. [2016] 72 taxmann.com 289 (Gujarat), in which SLP of the assessee has been dismissed vide [2017] 84 taxmann.com 195 (SC)? b) Decision of ITAT Mumbai in the case of Soman Sun City in 3. Without prejudice to the above, whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,63,16,964/- out of total addition of Rs.3,99,95,285/-, by assuming that the assessee had made alternative actual purchases when the assessee has not proved the same with any verifiable documents?”

Sr. Name of the Bogus firm Amount of Peak purchase Date of peak No. purchase amount purchase 1. M/s. Agrawal Agro, Dunda, Rs.3,83,06,950/- Rs.5,58,750/- 11/11/2013

36 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

Raipur 2. M/s. Shrikhand Agrotech, Rs.1,14,89,000/- Rs.5,43,750/- 03/09/2013 Raipur 3. M/s. Hardaha Agency, Rs.1,60,81,691/- Rs.4,48,750/- 02/05/2013 Abhanpur, Raipur 4. M/s. Sakshi Gopal Rs.1,18,35,000/- Rs.3,81,250/- 13/02/2014 Corporation, Raipur 5. M/s. Bajrang Food Products Rs.7,96,24,600/- Rs.5,35,000/- 30/08/2013 6. M/s. Eden Rice Mill Rs.3,32,27,500/- Rs.5,10,000/- 19/07/2013 7. M/s. Shri Shyamji Rice Rs.2,98,04,500/- Rs.5,71,250 26/09/2013 Agrotech 8. M/s. Shree Annapurna Foods Rs.45,63,750/- Rs.3,33,750/- 28/12/2013 9. M/s. Shri Laxmi Agrotech Rs.7,23,750/- Rs.3,75,000/- 28/02/2014 Total Rs.23,26,56,741/- Rs.42,57,500/-

37 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 (Page 4 & 5 of the assessment order). In response, the assessee submitted a written reply wherein, it was stated by him that, viz. (i) that he had received commission of Rs.5/- per Qntl. from other firms (i.e. M/s. Agrawal Agro, M/s. Shri Shyamji Rice Agrotech and M/s. Shri Annapurna Foods in F.Y.2015-16) as per his statement recorded during the survey conducted on 15.03.2016, but in F.Y.2013-14 ( i.e. the subject year), he had only received commission of Rs.3 to 3.5 per Qntl.; (ii) that he had made purchases from M/s. Eden Rice Mill (closing balance Rs.26,72,073/-), M/s. Hardaha Agency (closing balance Rs.15,11,691/-); and M/s. Sakshi Gopal Corporation (closing balance Rs.26,84,944/-), and to substantiate his claim had placed on record confirmations of the said parties for both F.Y.2013-14 and F.Y.2014-15.

38 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 purchase of goods were made from the aforementioned parties. Further, the A.O observed that the assessee in his statement recorded u/s. 131 of the Act, dated 21.12.2016 had admitted of having earned commission of Rs.40,41,225/- from the transactions made during the year under consideration in the firms, viz. (i) M/s. Agrawal Agro; (ii) M/s. Annapurna Foods; and (iii) M/s. Shyamji Rice Agrotech. It was observed by the A.O that the assessee had admitted that the aforementioned firms which though were actually owned by him were being run in the name of third parties. Also, the A.O observed that the assessee could not explain the peak investment that was made by him for carrying out the aforementioned bogus purchase transactions in the cases other than the aforementioned three firms which were declared as his own firms. Considering the aforesaid facts, the A.O held the amount of Rs.40,41,225/- (supra) as the income of the assessee u/s. 68 of the Act.

39 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 purchases by placing on record the documentary evidence that was called for by the A.O. Accordingly, the A.O held a view that the assessee had failed to substantiate the authenticity of his claim of having made genuine purchases. Thus, the A.O held that the impugned purchases claimed by the assessee, except for, the purchases made from three firms, viz. (i) M/s. Agrawal Agro; (ii) M/s. Annapurna Foods; and (iii) M/s. Shyamji Rice Agrotech which were stated to be the assesse’s own concerns as bogus. Thereafter, the A.O rejected the assessee’s books of accounts u/s. 145(3) of the Act and held the balance amount of purchases pertaining to the remaining six parties of Rs.15,99,81,541/- as bogus and thus, disallowed 25% of the value of the same with a consequential addition of Rs.39,99,538/-(sic).

40 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

41 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

“I have gone through the detailed investigation in this rice miller's case assessment order of assessee and the reply of assessee during the appeal proceeding. I thoroughly examined the reply of assessee with the facts of the case. Now, it is clear that the present case is a case of trading concern and there is not any manufacturing activity hence the case is little bit distinguishable from Vijay Proteins Ltd, relied by the Ld. AO Secondly, there is no doubt regarding bogus purchases of Rs.15,99,81,541/- had been made by the assessee. Thirdly, a detailed investigation has been done to prove these purchases as bogus and even cross examination was also done by rice millers during the investigation. As the Ld. AO has rejected books of account for limited purpose, but he had not questioned the sales. This is a well settled proposition that the sales cannot be made without purchases. So, if the purchases have not been made from the six parties mentioned in assessment order then the assesses should have made these purchases from somewhere else. In such cases of bogus purchases, actual purchases were made from other parties and mainly in cash. These purchases are always done at lower rates. Taxes and other expenses are also saved. Now, the assessee should have disclosed the actual parties and actual amount of purchase. These purchases might have been purchased from gray market and in cash. There is a strong possibility of a lower rate purchases as other taxes and expenses will be saved in such gray purchases. Hence, actual GP will be much higher than declared in the books of account. There are some judicial pronouncements, on the similar facts. The Delhi Tribunal in the case of NKG has held that since purchase debited by the assessee has already been considered in audited accounts in arriving at the income, therefore if purchase is considered bogus and a profit ratio is decided then only the difference of GP so decided and the GP shown by the assessee should be added as the profit element on account of bogus purchase. The decision of the ITAT is as under — The Assessment order clearly indicates that before passing assessment order dt. 31.03.2016, Ld. AO conducted a thorough inquiry on the aspects including the purchases made by the assessee from Sharma group aggregating Rs. 63.90 crores and having considered the contentions of the assessee, Ld. AO reached a conclusion that the material

42 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 purchased from the Sharma was bogus, and since the assessee itself offered rate of GP in business at approximately 8% however, to recover any further leakage of revenue, 0.25% was to be added to the rate offered by the assessee. Basing on this premise, Ld. AO recalculated the GP at 9% of the sales turnover by rejecting the books of account of the assessee u/s 145. According to AO the difference between 9% of the turnover, the aggregate amount of the GP already declared by the assessee and the additions made during the earlier assessment u/s 153A had to be added. Decision on similar line has been given by ITAT Mumbai in case of Ratnagiri Stainless Pvt. Ltd. Vs ITO Dated 04.04.2017 Facts are as under- "The AO, on the basis of information received from Dy. Director of IT (Inv,) that assessee had received bogus purchase invoice from 28 entry providers, reopened assessment. No evidence was produced by assessee to show that purchases were genuine by actual delivery of goods on said parties. Notice u/s 133(6) were returned unserved. One of the parties appeared before the AO and confirmed that the transaction were bogus. Assessee having purchased the goods from grey market for earning higher profits, GP rate 12.5% applied by AO and confirmed by CIT(A) was justified. However the assessee will get credit of GP ratio declared on these bogus. purchase in the return of income filed with the Revenue." In the line of business of rice millers and traders in the state, the GP varies from 3% to 10% depending on various factors such as price of paddy paid by the government, level of crop production and quantity of procurement committed by the statement government. Adopting a GP of 10%, since the GP shown by the assessee is 1.45%, an addition of 8.55% on the suspicious purchases is hereby sustained, attributing to the extra profit earned by showing purchases. Therefore on a purchase of Rs.15,99,81,541/- an amount of Rs. 1,36,78,421/- is hereby sustained and balance addition is deleted.”

43 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 of the bogus parties, the CIT(Appeals) finding no infirmity in the view taken by the A.O, upheld the same, observing as under:

3.2 Ground No. 4:- On the facts & circumstances of the case and in law, the Ld. AO has erred in making addition of Rs. 27,93,750 as unaccounted investment on these bogus purchases considered by the Ld. AO, which is without bringing any clinching material evidence on record and in absence of this, the addition of Rs.27,93,750 is liable to be deleted. 3.2.1 During the assessment proceeding the assessee making bogus purchase of Rs.15,99,81,541/- the assessee must have invested his unaccounted income which is being rolled into its business activities, hence the element of unaccounted investment has to be determined which is taken as the peak purchase amount from theses bogus firms (except three as above ) and stands at Rs.27,93,750/-. The same is added to the total income of the assessee us/ 68 of the I.T. Act, 1961. 3.2.2 During the appeal proceeding the appellant company to submitted the reply as under:- "It is submitted that the Ld. AO has made this addition on mere presumption, conjectures and surmises and on a baseless belief that the assessee had made unexplained investment in alleged bogus purchases of paddy broken rice and rice from the alleged parties/vendors while the fact is the assessee has earned Rs.40,41,225 as commission income on undisclosed bank account of the alleged 3 firms which has been added by the Ld. AO on the basis of statement recorded on 21.12.2016 which forms part of the assessment order dt. 23.12.2016 .It is not disputed by the assessee in first appellate proceedings before your Honor, it means the alleged income earned of Rs. 40,41,225/- during the A.Y. 2014-15 be available to the assessee for the alleged investment considered by the Ld. AO in the A.Y. 2014-15, thereafter, in the A.Y. 2013-14 also the addition of Rs. 7,16,475/- has been made by the Ld. AO on the count of commission income earned, which also not disputed by the assessee and thus, it will also be available for the alleged investment considered by the Ld. AO in the A.Y. 2014-15. The Ld. AO has not brought any material/evidence on record to substantiate his baseless proposition in this respect, thus, the addition of Rs. 27,93,750/- on account of unexplained investment in purchases shown, in absence of any evidence/material

44 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 brought on record by the Ld. AO, may kindly be deleted, Reliance is placed on: It is submitted in Vishnu Prasad Maharwal (2014) (Jai-Trib) dated 31.03.2014 held as under:- "3.6 we find force in the contention of the Ld. AR that this year was the second year of the assessee in contract business. However, in current year the contract receipts of the assessee have increased by more than 6 times from last year. The NP rate declared by the assessee in A.Y. 2008-09 was 6.01% which increased to 7.02% in A.Y. 2009-10. Therefore in view of Bhawan VA Path Nirman (Bohra) & Co (Raj), the past history of the assessee is best guiding factor. Further, the result shown by the assessee is better than M/s. Rishabh construction(P) Ltd. Further the trading result is better because the entire cash and other found as the result of the search were surrendered as business income for A.Y. 2010-11. Further, if trading addition for A.Y. 2009-10 is sustained then the same is entitled for telescoping benefit in A.Y. 2010-11 against the cash and other assets found as the result of search in view of Anantharam Veerasinghaiah & Co (1980) (SC) and Tyaryamal Bal Chand (1987) (Raj) and such telescoping benefit has not been given by the AO and Ld. CIT (A)." 3.3.3 Consider the above discussion, the AO has added possible investment in effecting the unaccounted purchases added by him, from a seller the assessee has made several purchases. Ld. AO has picked up the largest amount out of purchases from each seller. Such largest amounts from all sellers have been added and total has been treated as unaccounted investment. On the facts of the case, the assessee making bogus purchase of Rs.15,99,81,541/-.The case of purchases made out of unknown sources. The transactions reflected in the bank accounts of assessee are having the same pattern. The assessee giving check/online transfer to six parties and these six parties withdraw the same amount from their bank accounts in form of cash. This cash is handed over to the assessee by the entry operator. Then this case is used for purchases from gray market in cash at lower rate. Then the sales is done and payment received in bank accounts. Here one round is completed. Then the another payment in form of bank transfer is made for bogus purchases and entire year it goes on like in this way. In this process there is a first initiative money to run all these affairs and it is always unaccounted money i.e. seed money of all these bogus purchases. In this case this seed money is also present. The Ld. AO is validly assessed it as Rs.27,93,750/- by drawing the peak of purchases is hereby confirmed. The appeals of ground is dismissed.

45 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

(A) the A.O observed that the assessee had during the subject year made bogus purchases from 6 parties (out of 9 parties) aggregating to Rs.15,99,81,541/- (aggregate of purchases made by the assessee from 6

46 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 parties). Accordingly, the A.O after rejecting the books of account u/s.145(3) of the Act quantified the profit which the assessee would have made by purchasing the subject goods not from the aforementioned bogus parties, but from the open grey/market and worked out the addition @25% of the value of the bogus purchases of Rs.14,41,32,250/- i.e. at Rs.3,99,95,285/- (wrongly taken by the A.O in the assessment order as Rs.39,99,538/-).

(B) On appeal, the CIT(Appeals) principally concurred with the A.O that the assessee would have made profit by procuring the subject goods not from the aforementioned 6 bogus/hawala parties but at a discounted value from the unknown parties operating in the open/grey market. At the same time, the CIT(Appeals) was of the view that the profit which the assessee would have made by procuring the subject goods from the open/grey market could safely be quantified by adopting GP rate of 10% (as was prevailing in the business of rice milling/trading). Accordingly, the CIT(Appeals) after considering the GP rate of 1.45% that was disclosed by the assessee during the subject year scaled down the addition to 8.55% [10 % (-) 1.45%] of Rs.15,99,81,541/-(supra) i.e. at an amount of Rs.1,36,78,421/-.

47 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 & ITA No.135/RPR/2024, finding no infirmity in the view taken him, thus, uphold the same. Thus, the Grounds of appeal Nos. 1 & 2 raised by the assessee are dismissed and Grounds of appeal Nos. 1 to 3 raised by the revenue are dismissed in terms of our aforesaid observations.

ITA No.124/RPR/2024 (Assessee’s appeal)

(Revenue’s appeal) A.Y.2015-16

48 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

1. On the facts and circumstances of the case and in law, approval u/s.151(2) by Jt.CIT is invalid; in the reasons recorded, there is no escaped income; in the "Proposal Form" for seeking approval u/s.151, escaped income at 'nil' (Sl.No.6); without pointing out mistake committed by AO in the "Proposal Form" put up before him; non application of mind by Jt.CIT while granting such mechanical approval on his part; in absence of a valid approval as mandated by law u/s.151, reopening u/s148/147 would be invalid and would be liable to be quashed; relied on Kalpana Shantilal Haria (2017) (Bom HC); Sea Glimpse Investments (P) Ltd (2021) (Bom HC);

2. On the facts and circumstances of the case and in law, approval u/s.151(2) by Jt.CIT is invalid as Jt.CIT has granted approval by mentioning "Yes, satisfied"; there is completely non application of mind by Jt.CIT while granting such mechanical & routine approval on his part; in absence of a valid approval as mandated by law u/s 151, reopening u/s 148/147 would be invalid and would be liable to be quashed; relied on Synfonia Tradelinks (P) Ltd (2021) (Del HC); S Goyanka Lime & Chemicals Ltd (2015) (SC); Chhugamal Rajpal (1971) (SC); Arjun Singh (2000) (MP).

3. On the facts & circumstances of the case and in law, ld CIT(A) has erred in sustaining addition of Rs.1,32,65,272 on count of adhoc estimation of GP of 10% on alleged bogus purchases of Rs. 15,44,26,911 without giving any basis for such arbitrary estimation; while the assessee is a trader in goods i.e., paddy, rice and broken rice; corresponding sales has been accepted; there cannot be a case of "bogus purchase" in case of a "trader in goods" wherein corresponding sales quantity of goods is not disputed by the revenue; addition of Rs. 1,32,65,272 is unjustified; is liable to be deleted.

4. On the facts & circumstances of the case and in law, ld CIT(A) has erred in sustaining addition of Rs.1,32,65,272 on count of adhoc estimation of GP of 10% on alleged bogus purchases of Rs. 15,44,26,911 without giving any basis for such arbitrary estimation; revenue has rejected books of account; applied sec145(3); estimation of GP made @10% but assessment not made u/s144; in such a situation, assessment made u/s143(3)

49 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 would be invalid; addition is liable to be deleted & assessment is liable to be quashed.

5. On the facts & circumstances of the case and in law, ld CIT(A) has erred in sustaining addition of Rs.4,80,650 (i.e., Rs.26,80,650 addition made by AO (-) Rs.22,00,000 accepted by assessee) on the count of arbitrary estimation of unexplained investment in the alleged bogus purchases; remaining addition of Rs.4,80,650, merely on presumption & surmises without bringing any material/ evidence on record; addition is unjustified and is liable to be deleted.

6. The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing.”

On the other hand, the revenue has assailed the impugned order on the following grounds of appeal before us:

“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,53,41,456/- out of total addition of Rs.3,86,06,728/-, ignoring his own finding in his order that "there is no doubt regarding bogus purchases of Rs.15,44,26,911/- had been made by the assessee" whereby he has upheld the basic finding of AO in entirety? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 2,53,41,456/- out of total addition of Rs.3,86,06,728/-, ignoring the ratio of several judgements including the following in which 100% disallowance on account of bogus purchases has been upheld: a) Para 6 of N.K. Industries Ltd. [2016] 72 taxmann.com 289 (Gujarat), in which SLP of the assessee has been dismissed vide [2017] 84 taxmann.com 195 (SC)? b) Decision of ITAT Mumbai in the case of Soman Sun City in 3. Without prejudice to the above, whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,53,41,456/- out of total addition of Rs.3,86,06,728/- by assuming that the assessee had made

50 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 alternative actual purchases when the assessee has not proved the same with any verifiable documents?”

Sr. Name of the Bogus firm Amount of Peak purchase Date of peak No. purchase amount purchase 1. M/s. Agrawal Agro, Dunda, Rs.3,51,50,375/- Rs.5,17,500/- 11/06/2014 Raipur 2. M/s. Shrikhand Agrotech, Rs.1,86,22,050/- Rs.5,42,500/- 27/07/2014 Raipur 3. M/s. Hardaha Agency, Rs.72,34,000/- Rs.5,82,500/- 29/07/2014 Abhanpur, Raipur 4. M/s. Sakshi Gopal Rs.1,20,16,800/- Rs.5,48,750/- 06/08/2014 Corporation, Raipur 5. M/s. Pushkar Paddy Rs.1,49,00,050/- Rs.5,58,900/- 07/07/2014

51 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

53 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 pertaining to the aforesaid bogus firms (except for six concerns) of Rs.26,80,650/- u/s. 68 of the Act. Accordingly, the A.O based on his aforesaid observations vide his order passed u/s.143(3) of the Act, dated 30.11.2017 after, inter alia, making the aforesaid additions determined the income of the assessee at Rs.4,88,46,806/-.

“I have gone through the detailed investigation in this rice miller's case assessment order of assessee and the reply of assessee during the appeal proceeding. I thoroughly examined the reply of assessee with the facts of the case. Now, it is clear that the present case is a case of trading concern and there is not any manufacturing activity hence the case is little bit distinguishable from Vijay Proteins Ltd, relied by the Ld. AO Secondly, there is no doubt regarding bogus purchases of Rs.15,44,26,911/- had been made by the assessee.

54 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

Thirdly, a detailed investigation has been done to prove these purchases as bogus and even cross examination was also done by rice millers during the investigation. As the Ld. AO has rejected books of account for limited purpose, but he had not questioned the sales. This is a well settled proposition that she sales cannot be made without purchases. So, if the purchases have not been made from the ten parties mentioned in assessment order then the assesses should have made these purchases from somewhere else. In such cases of bogus purchases, actual purchases were made from other parties and mainly in cash. These purchases are always done at lower rates. Taxes and other expenses are also saved. Now, the assessee should have disclosed the actual parties and actual amount of purchase. These purchases might have been purchased from gray market and in cash. There is a strong possibility of a lower rate purchases as other taxes and expenses will be saved in such gray purchases. Hence, actual GP will be much higher then declared in the books of account. There are some judicial pronouncements, on the similar facts. The Delhi Tribunal in the case of NKG has held that since purchase debited by the assessee has already been considered in audited accounts in arriving at the income, therefore if purchase is considered bogus and a profit ratio is decided then only the difference of GP so decided and the GP shown by the assessee should be added as the profit element on account of bogus purchase. The decision of the ITAT is as under — The Assessment order clearly indicates that before passing assessment order dt. 31.03.2016, Ld. AO conducted a thorough inquiry on the aspects including the purchases made by the assessee from Sharma group aggregating Rs.63.90 crores and having considered the contentions of the assessee, Ld. AO reached a conclusion that the material purchased from the Sharma was bogus, and since the assessee itself offered rate of GP in business at approximately 8% however, to recover any further leakage of revenue, 0.25% was to be added to the rate offered by the assessee. Basing on this premise, Ld. AO recalculated the GP at 9% of the sales turnover by rejecting the books of account of the assessee u/s.145. According to AO the difference between 9% of the turnover, the aggregate amount of the GP already declared by the assessee and the additions made during the earlier assessment u/s.153A had to be added.

55 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024

Decision on similar line has been given by ITAT Mumbai in case of Ratnagiri Stainless Pvt. Ltd. Vs ITO Dated 04.04.2017. Facts are as under- "The AO, on the basis of information received from Dy Director of IT (Inv.) that assessee had received bogus purchase invoice from 28 entry providers, reopened assessment. No evidence was produced by assessee to show that purchases were genuine by actual delivery of goods on said parties. Notice u/s 133(6) were returned unserved. One of the parties appeared before the AO and confirmed that the transaction were bogus. Assessee having purchased the goods from grey market for earning higher profits, GP rate 12.5% applied by AO and confirmed by CIT(A) was justified. However the assessee will get credit of GP ratio declared on these bogus purchase in the return of income filed with the Revenue." In the line of business of rice millers and traders in the state, the GP varies from 3% to 10% depending on various factors such as price of paddy paid by the government, level of crop production and quantity of procurement committed by the statement government. Adopting a GP of 10%, since the GP shown by the assessee is 1.41%, an addition of 8.59% on the suspicious purchases is hereby sustained, attributing to the extra profit earned by showing purchases. Therefore on a purchase of Rs. 15,44.26,911/- an amount of Rs.1,32,65,272/- is hereby sustained and balance addition is deleted.”

“3.2 Ground No.3:- On the facts & circumstances of the case and in law, the Ld. AO has erred in making addition of Rs.4,80,650 (i.e. Rs.22,00,000 accepted by the assessee as unaccounted investment out of total addition made by the Ld. AO at Rs.26,80,650) as unaccounted investment on these bogus purchases considered by the Ld. AO, which is without bringing any clinching material evidence on record and in absence of the addition of Rs.4,80,650 is liable to be deleted. 3.2.1 During the assessment proceeding the assessee making bogus purchase of Rs.15,44,26,911/- the assessee must have invested his unaccounted income which is being rolled into its business activities. hence the element of unaccounted investment has to be determined which is taken as the peak purchase amount from theses bogus firms (except six as above) and stands at Rs.26,80,650/-. The same is added to the total income of the assessee us/ 68 of the I.T.Act, 1961. 3.2.2 During the appeal proceeding the appellant company to submitted the reply as under:- "It is submitted that the Ld. AO has made this addition on mere presumption, conjectures and surmises and on a baseless belief that the assessee had made unexplained investment in alleged bogus purchases of paddy broken rice and rice from the alleged parties/vendors while the fact is the assessee has earned Rs.62,83,788 as commission income on undisclosed bank account of the alleged 6 firms which has been added by the Ld. AO on the basis of statement recorded on 09.11.2017 which forms part of the assessment order dt. 30.11.2017. It is not disputed by the assessee in first appellate proceedings before your Honor, it means the alleged income earned of Rs.62,88,788/- during the A.Y. 2015-16 be available to the assessee for the alleged investment considered by the Ld. AO in the A.Y. 2015-16, thereafter, in the A.Y. 2014-15 also the addition of Rs.40,41,255/- has been made by the Ld. AO on the count of commission income earned from alleged 3 firms and which was accepted/ not disputed by the assessee and similarly, in the A.Y. 2013-14 also the addition of Rs.7,16,475 has been made by the Ld.AO on the count of commission income earned, which also not disputed by the assessee and thus, it will also be available for the alleged investment considered by the Ld. AO in the A.Y. 2015-16. The Ld. AO has 57 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 not brought any material/evidence on record to substantiate his baseless proposition in this respect, thus, the addition of Rs.4,80,650/- on account of unexplained investment in purchases shown, in absence of any evidence/ material brought on record by the Ld. AO, may kindly be deleted, Reliance is placed on: It is submitted in Vishnu Prasad Maharwal (2014) (Jai-Trib) dated 31.03.2014 held as under:- "3.6 we find force in the contention of the Ld. AR that this year was the second year of the assessee in contract business. However, in current year the contract receipts of the assessee have increased by more than 6 times from last year. The NP rate declared by the assessee in A.Y. 2008-09 was 6.01% which increased to 7.02% in A.Y. 2009-10. Therefore, in view of Bhawan VA Path Nirman (Bohra) & Co (Raj), the past history of the assessee is best guiding factor. Further, the result shown by the assessee is better than M/s. Rishabh construction(P) Ltd, Further the trading result is better because the entire cash and other found as the result of the search were surrendered as business income for A.Y. 2010-11. Further, if trading addition for A.Y. 2009-10 is sustained then the same is entitled for telescoping benefit in A.Y. 2010-11 against the cash and other assets found as the result of search in view of Anantharam Veerasinghaiah & Co (1980) (SC) and Tyaryamal Bal Chand (1987) (Raj) and such telescoping benefit has not been given by the AO and Ld. CIT (A)." 3.2.3 Consider the above discussion, the AO has added possible investment in effecting the unaccounted purchases added by him, from a seller the assessee has made several purchases. Ld. AO has picked up the largest amount out of purchases from each seller. Such largest amounts from all sellers have been added and total has been treated as unaccounted investment. On the facts of the case, the assessee making bogus purchase of Rs.15,44,26,911/-.The case of purchases made out of unknown sources. The transactions reflected in the bank accounts of assessee are having the same pattern. The assessee giving check/online transfer to six parties and these six parties withdraw the same amount from their bank accounts in form of cash. This cash is handed over to the assessee by the entry operator. Then this cash is used for purchases from gray market in cash at lower rate. Then, the sales is done and payment received in bank accounts. Here one round is completed. Then the another payment in form of bank transfer is made for bogus purchases and entire year it goes on like in this way. In this the process there is a first initiative

58 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 money to run all these affairs and it is ng always unaccounted money i.e. seed money of all these bogus purchases. In this case this seed money is also present. The Ld. AO is validly assessed it as Rs.26,80,650/- by drawing the peak of purchases is hereby confirmed. The appeals of ground is dismissed. 4. In the result, appeal are partly allowed.”

59 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 (A) the A.O observed that the assessee had during the subject year made bogus purchases from 10 parties aggregating to Rs.15,44,26,911/- (supra). Accordingly, the A.O after rejecting the assessee’s books of account u/s.145(3) of the Act quantified the profit which the assessee would have made by purchasing the goods not from the aforementioned bogus parties, but from the open grey/market and worked out an addition @ 25% of the value of bogus purchases at Rs.3,86,06,728/-.

(B) On appeal, the CIT(Appeals) principally concurred with the A.O that the assessee would have made profit by procuring the goods not from the aforementioned 10 bogus/hawala parties but at a discounted value from the unknown parties operating in the open/grey market. At the same time, the CIT(Appeals) was of the view that the profit which the assessee would have made by procuring the subject goods from the open/grey market could safely be quantified by adopting GP rate of 10% (as was prevailing in the business of rice milling/trading). Accordingly, the CIT(Appeals) after considering the GP rate of 1.41% that was disclosed by the assessee as per his audited accounts during the subject year, scaled down the addition to 8.59% [10% (-) 1.41%] of Rs.15,44,26,911/- (supra) i.e. at an amount of Rs.1,32,65,272/-

60 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 appeals for the immediately preceding assessment year i.e. A.Y.2013-14 in & ITA No.135/RPR/2024, find no infirmity in the view taken by him and, thus, uphold the same. Thus, the Grounds of appeal Nos. 3 & 4 raised by the assessee are dismissed and Grounds of appeal Nos. 1 to 3 raised by the revenue are dismissed in terms of our aforesaid observations.

61 Kamlesh Kumar Kesharwani Vs. ACIT-1(1), Raipur to 124/RPR/2024 136 & 138/RPR/2024 62. Resultantly, the appeals filed by the assessee and the revenue are dismissed in terms of our aforesaid observations.

Order pronounced in open court on 10th day of February, 2025.