INCOME TAX OFFICER, KALYAN vs. J D ELECTRIC WORKS, KALYAN

PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against order dated 26.09.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2009-10, raising following grounds:

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has been held that once the purchases are bogus, additions should has been held that once the purchases are bogus, additions should has been held that once the purchases are bogus, additions should be made on the entire purchases and not only the profit embedded be made on the entire purchases and not only the profit embedded be made on the entire purchases and not only the profit embedded in such purchases against which the SLP filed by the assessee was in such purchases against which the SLP filed by the assesse in such purchases against which the SLP filed by the assesse dismissed by the Hon'ble Apex Court vide (2017) 292 CTR 354 (SC) dismissed by the Hon'ble Apex Court vide (2017) 292 CTR 354 (SC) dismissed by the Hon'ble Apex Court vide (2017) 292 CTR 354 (SC) 2. On the facts and in circumstances of the case, the CIT(A) erred in On the facts and in circumstances of the case, the CIT(A) erred in On the facts and in circumstances of the case, the CIT(A) erred in deleting the addition of Rs. 2,08,96,633/ deleting the addition of Rs. 2,08,96,633/- on the basis of the on the basis of the submissions and supporting evidences, which were made for the submissions and supporting evidences, which were made f submissions and supporting evidences, which were made f first time during the appellate proceedings and were in the nature of first time during the appellate proceedings and were in the nature of first time during the appellate proceedings and were in the nature of additional evidences, without allowing the Assessing Officer to additional evidences, without allowing the Assessing Officer to additional evidences, without allowing the Assessing Officer to examine the additional evidences as per Rule 46A(3) of the I.T. examine the additional evidences as per Rule 46A(3) of the I.T. examine the additional evidences as per Rule 46A(3) of the I.T. Rules 1962. The appellant craves leave to add, amen Rules 1962. The appellant craves leave to add, amend or alter or d or alter or alter any ground/grounds, which may be necessary. alter any ground/grounds, which may be necessary. 2. Briefly stated facts of Briefly stated facts of the case are that the assessee the case are that the assessee firm is running a business of executing electrical contract business of executing electrical contracts mainly for business of executing electrical contract Government and semi semi-government authorities. For the year unde For the year under consideration, the assessee filed return of income on 30.09.2009 consideration, the assessee filed return of income on 30.09.2009 consideration, the assessee filed return of income on 30.09.2009 declaring total income declaring total income at Rs.28,16,550/-. Subsequently, in view of . Subsequently, in view of the information from the Sales Tax Department that assessee had the information from the Sales Tax Department that assessee had the information from the Sales Tax Department that assessee had obtained bogus bills from the certain obtained bogus bills from the certain ‘hawala’ operators, ’ operators, the Assessing Officer reopened the assessment by way of issue of notice Assessing Officer reopened the assessment by way of issue of notice Assessing Officer reopened the assessment by way of issue of notice u/s 148 of the Income Income-tax Act, 1961( In short ‘ the Act’) , 1961( In short ‘ the Act’) . In the reasons recorded, the Assessing Officer noted that assessee had reasons recorded, the Assessing Officer noted that assessee had reasons recorded, the Assessing Officer noted that assessee had taken bogus bills amounting to Rs.23,04,437/ taken bogus bills amounting to Rs.23,04,437/- - from ‘hawala’ dealers. In response to the notice u/s 148 of the Act, no return of dealers. In response to the notice u/s 148 of the Act, dealers. In response to the notice u/s 148 of the Act, income was filed. The Assessing Officer completed the he Assessing Officer completed the reassessment he Assessing Officer completed the after disallowing the entire purchases of Rs.23,04,437/- vide his after disallowing the entire purchases of Rs.23,04,437/ after disallowing the entire purchases of Rs.23,04,437/ order dated 16.01.2015 in terms of section 143(3 order dated 16.01.2015 in terms of section 143(3) r.w.s. 147 of the ) r.w.s. 147 of the Act. On further appeal On further appeal, the ld CIT(A) deleted the addition. Aggrieved, , the ld CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal raising grounds reproduced above. the Revenue is in appeal raising grounds reproduced above. the Revenue is in appeal raising grounds reproduced above.

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“Ground 1.1 & 1.2 Ground 1.1 & 1.2 The ground 1.1 and 1.2 are general grounds of appeal and being The ground 1.1 and 1.2 are general grounds of appeal and being The ground 1.1 and 1.2 are general grounds of appeal and being considered while adjudicating other grounds as under. considered while adjudicating other grounds as under. Ground No. 2.1: Ground No. 2.1: 1. The learned AO has carried out 1. The learned AO has carried out addition of Rs.23,04,437/ addition of Rs.23,04,437/- on account of purchases made by the appellant from hawala dealers. The learned AO purchases made by the appellant from hawala dealers. The learned AO purchases made by the appellant from hawala dealers. The learned AO has treated such entire purchases as unexplained expenditure and added has treated such entire purchases as unexplained expenditure and added has treated such entire purchases as unexplained expenditure and added to total income of the appellant. In this regard, the appellant, has raised to total income of the appellant. In this regard, the appellant, has raised to total income of the appellant. In this regard, the appellant, has raised multiple sub grounds of appeal which are adjudicated collectively as multiple sub grounds of appeal which are adjudicated collectively as multiple sub grounds of appeal which are adjudicated collectively as under. 2. The learned AO has re 2. The learned AO has re-opened the assessment proceedings based on opened the assessment proceedings based on information received from sales tax department wherein it was contested information received from sales tax department wherein it was contested information received from sales tax department wherein it was contested that the appellant has made bogus purcha that the appellant has made bogus purchase from hawala dealers as se from hawala dealers as under:

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Sr. No. Name of Hawal Dealer Amount (Rs.) Amount (Rs.) 1. Renuka Sales 7,75,013/- 7,75,013/ 2. Rekha Trading 8,36,868/- 8,36,868/ 3. Deepali Enterprises 6,92,556/- 6,92,556/ Total 23,04,4371/- 23,04,4371 The leamed AO had issued notice u/s 133(6) to above parties for cross The leamed AO had issued notice u/s 133(6) to above parties for cross The leamed AO had issued notice u/s 133(6) to above parties for cross confirmation but the same were not complied by the parties and thus, the confirmation but the same were not complied by the parties and thus, the confirmation but the same were not complied by the parties and thus, the leamed AO treated them as bogus and added to total income. leamed AO treated them as bogus and added to total income. leamed AO treated them as bogus and added to total income. 1. In this regard, the appellant submitted that the income tax department's In this regard, the appellant submitted that the income tax department's In this regard, the appellant submitted that the income tax department's action pertaining to hawala purchases were carri action pertaining to hawala purchases were carried out for 3 AYs in its ed out for 3 AYs in its case. 1. 1. The appellant claimed the aforesaid purchases as genuine since all 1. The appellant claimed the aforesaid purchases as genuine since all 1. The appellant claimed the aforesaid purchases as genuine since all the material were used for fulfilling its Govt. consignments. the material were used for fulfilling its Govt. consignments. 1. 1. However, in order to buy peace of mind, the appellant had 1. However, in order to buy peace of mind, the appellant had 1. However, in order to buy peace of mind, the appellant had approached DDIT and had off approached DDIT and had offered gross profit of 12% (rounded off to ered gross profit of 12% (rounded off to Rs.20/- lakhs) as additional income to tax as under: lakhs) as additional income to tax as under: Assessment year Assessment year Purchase Amount 12% of the purchase 12% of the purchase 2009-10 23,04,437 2,76,532 2,76,532 2010-11 1,16,37,017 13,96,442 13,96,442 2011-12 10,17,551 1,22,106 1,22,106 TOTAL 1,49,59,005 17,95,088 17,95,088

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profit return must necessarily vary with the nature of business and no profit return must necessarily vary with the nature of business and no profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted. uniform yardstick can be adopted. 1. Nickunj Eximp Enterprises Pvt. Ltd Vs CIT [Bombay HC 1. Nickunj Eximp Enterprises Pvt. Ltd Vs CIT [Bombay HC -WRIT PETITION WRIT PETITION NO.2860 OF 2012] NO.2860 OF 2012] 2. In the underlined writ petition, Bombay HC uphel 2. In the underlined writ petition, Bombay HC upheld addition based on d addition based on GP ratio 3. The Hon'ble Bombay High Court in the case of PCIT vs. Pinaki D. Panani 3. The Hon'ble Bombay High Court in the case of PCIT vs. Pinaki D. Panani 3. The Hon'ble Bombay High Court in the case of PCIT vs. Pinaki D. Panani vide order dated January 18, 2020 has held that even if the purchases vide order dated January 18, 2020 has held that even if the purchases vide order dated January 18, 2020 has held that even if the purchases made by the assessee are to be treated as bogus, it does not mean that made by the assessee are to be treated as bogus, it does not mean that made by the assessee are to be treated as bogus, it does not mean that entire amount can be disallowed. As the AO did not dispute the t can be disallowed. As the AO did not dispute the t can be disallowed. As the AO did not dispute the consumption of the raw materials and completion of work, only a consumption of the raw materials and completion of work, only a consumption of the raw materials and completion of work, only a percentage of net profit on total turnover can be estimated. percentage of net profit on total turnover can be estimated. 4. The Hon'ble Bombay High Court in the case of Usha Exports vs. ACIT 4. The Hon'ble Bombay High Court in the case of Usha Exports vs. ACIT 4. The Hon'ble Bombay High Court in the case of Usha Exports vs. ACIT vide order dated December 21, 2019 has held that in case of bogus dated December 21, 2019 has held that in case of bogus dated December 21, 2019 has held that in case of bogus purchases where sales are accepted, the addition can be made only to the purchases where sales are accepted, the addition can be made only to the purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal extent of difference between the GP declared by the assessee on normal extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. The AO is directed purchases vis a vis bogus purchases. The AO is directed purchases vis a vis bogus purchases. The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of addition to the extent of lower GP declared by the assessee in respect of addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. bogus purchases as compared to G.P. on normal purchases. bogus purchases as compared to G.P. on normal purchases. 5. PCIT vs. Jakharia Fabric (P) Ltd. (2020) 429 ITR 323 (Bom 5. PCIT vs. Jakharia Fabric (P) Ltd. (2020) 429 ITR 323 (Bom 5. PCIT vs. Jakharia Fabric (P) Ltd. (2020) 429 ITR 323 (Bom-HC) dated 10/02/2020 In the underlined case, hon In the underlined case, honourable HC upheld the decision of ITAT for ourable HC upheld the decision of ITAT for restricting adjustment to the tune of estimated profit element involved in restricting adjustment to the tune of estimated profit element involved in restricting adjustment to the tune of estimated profit element involved in bogus purchase. bogus purchase. 1. 6. In view of the above, it would be justified to restrict addition to the 1. 6. In view of the above, it would be justified to restrict addition to the 1. 6. In view of the above, it would be justified to restrict addition to the tune of certain gross profit percentage. tune of certain gross profit percentage. Considering totality of the case and relying on various judicial Considering totality of the case and relying on various judicial Considering totality of the case and relying on various judicial pronouncements by Honorable High courts and ITATs, I am of the view pronouncements by Honorable High courts and ITATs, I am of the view pronouncements by Honorable High courts and ITATs, I am of the view that the addition shall be restricted to gross profit. The appellant has that the addition shall be restricted to gross profit. The appellant has that the addition shall be restricted to gross profit. The appellant has already offered additional 12% gross profit to tax already offered additional 12% gross profit to tax and thus no further and thus no further enhancement to total income is warranted in the impugned case. enhancement to total income is warranted in the impugned case. enhancement to total income is warranted in the impugned case. Restaurant, the addition made by learned AO for sum of Rs.23,04,437/ Restaurant, the addition made by learned AO for sum of Rs.23,04,437/ Restaurant, the addition made by learned AO for sum of Rs.23,04,437/- is deleted.” 3.1 We find that Ld Assessing Officer has ignored the additional We find that Ld Assessing Officer has ignored the additional We find that Ld Assessing Officer has ignored the additional profit of Rs. 2,76,532/ profit of Rs. 2,76,532/- declared at the rate of 12 percentile on the declared at the rate of 12 percentile on the purchases of Rs. 23,04,437/ purchases of Rs. 23,04,437/- (i.e. the amount of purchases in i.e. the amount of purchases in dispute ) treating the same ing the same to be bogus in nature and he held in nature and he held entire bogus purchase as disallowable. But, when he has not held entire bogus purchase as disallowable. But, when he has not held entire bogus purchase as disallowable. But, when he has not held

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the sales correspond the sales corresponding to those purchases as bogus, then without ing to those purchases as bogus, then without purchases, there can’t be any sales. Thus, the ld CIT(A) observed purchases, there can’t be any sales. Thus, the ld CIT(A) observed purchases, there can’t be any sales. Thus, the ld CIT(A) observed that only possibility in such case could be that where as bills of that only possibility in such case could be that where as bills of that only possibility in such case could be that where as bills of purchases would have been obtained from those bogus billers, the purchases would have been obtained from those bogus billers, the purchases would have been obtained from those bogus billers, the assessee must have purchased goods in cash from grey market and t have purchased goods in cash from grey market and t have purchased goods in cash from grey market and supplied to the sale parties. Thus, addition could be made only for supplied to the sale parties. Thus, addition could be made only for supplied to the sale parties. Thus, addition could be made only for part of additional profit on such sales corresponding to bogus part of additional profit on such sales corresponding to bogus part of additional profit on such sales corresponding to bogus purchase bills. The assessee has declared such additional profit at purchase bills. The assessee has declared such additional profit at purchase bills. The assessee has declared such additional profit at 12. Now, the only issue in the rate of 12 percentile in AY 2011 ate of 12 percentile in AY 2011-12. Now, the only issue dispute could be that that in which assessment year, the assessee in which assessment year, the assessee should have declared said additional profit on bogus purchase bills. should have declared said additional profit on bogus purchase bills. should have declared said additional profit on bogus purchase bills. Normally, such additional profit Normally, such additional profit should have been been declared in corresponding assessment sponding assessment year, but the Revenue has taken but the Revenue has taken tax on 12. The question which arises is such additional profit in AY 2011 such additional profit in AY 2011-12. The question which arises is whether the Revenue is justified in whether the Revenue is justified in rasing tax on same income in tax on same income in year under consideration, when tax on same has already been year under consideration, when tax on same has already been year under consideration, when tax on same has already been taken in another assessment year. In our opinion, the answer is n in another assessment year. In our opinion, the answer is n in another assessment year. In our opinion, the answer is negative unless the Revenue refund corresponding tax collected in negative unless the Revenue refund corresponding tax collected in negative unless the Revenue refund corresponding tax collected in another assessment another assessment year, otherwise. it amounts to taxing the same t amounts to taxing the same income twice, which is not permitted in law. income twice, which is not permitted in law.

3.2 In view of the above discussion, we do not find any infirmity in above discussion, we do not find any infirmity in above discussion, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly, the order of the Ld. CIT(A) on the issue in dispute and accordingly the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. we uphold the same. The ground no. 1 of the appeal of Revenue is The ground no. 1 of the appeal of Revenue is accordingly dismissed. accordingly dismissed.

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“5. Observation and Decision: “5. Observation and Decision: Though there are 4 grounds of appeal raised by the assessee however the Though there are 4 grounds of appeal raised by the assessee however the Though there are 4 grounds of appeal raised by the assessee however the main issue involved in the present appeal is addition of Rs 23,04,4371 main issue involved in the present appeal is addition of Rs 23,04,4371 main issue involved in the present appeal is addition of Rs 23,04,4371- U/S 69C,40(3)&40A(3A) and addition of Rs 2,08,96,633/ U/S 69C,40(3)&40A(3A) and addition of Rs 2,08,96,633/- U/s 37(1) of the U/s 37(1) of the I.T Act as unexplained expenses made by the AO based on the information I.T Act as unexplained expenses made by the AO based on the information I.T Act as unexplained expenses made by the AO based on the information received from sales tax department of Maharashtra which are actual received from sales tax department of Maharashtra which are actual received from sales tax department of Maharashtra which are actual grounds as 2.1 and 2.2 and ground number 1. grounds as 2.1 and 2.2 and ground number 1.3 and 4 are general and 3 and 4 are general and consequential in nature. consequential in nature. There is a issue of additional evidences submitted by the assessee during There is a issue of additional evidences submitted by the assessee during There is a issue of additional evidences submitted by the assessee during appellate proceedings for which assessee has claimed that these appellate proceedings for which assessee has claimed that these appellate proceedings for which assessee has claimed that these evidences could not be claimed in front of AO as no sufficient opport evidences could not be claimed in front of AO as no sufficient opport evidences could not be claimed in front of AO as no sufficient opportunity was provided to him during the assessment proceedings .Even if was provided to him during the assessment proceedings .Even if was provided to him during the assessment proceedings .Even if contention of the assessee is not to be believed and additional evidences is contention of the assessee is not to be believed and additional evidences is contention of the assessee is not to be believed and additional evidences is not to be admitted it is pertinent to notice that the remand report in this that the remand report in this not to be admitted it is pertinent to notice case is pending on part of AO as l case is pending on part of AO as long as since more than six years ong as since more than six years and the appeal proceedings under these circumstances can't be kept the appeal proceedings under these circumstances can't be kept the appeal proceedings under these circumstances can't be kept permanently in abeyance hence additional in abeyance hence additional evidences produed by the evidences produed by the assessee are taken on record and case is decided on merit. assessee are taken on record and case is decided on merit.” ” (emphasis supplied externally) (emphasis supplied externally) 5. We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. Before us, the dispute and perused the relevant material on record. Before us, the dispute and perused the relevant material on record. Before us, the Ld. DR submitted that additional evidence has been admitted by Ld. DR submitted that additional evidence has been admitted by Ld. DR submitted that additional evidence has been admitted by

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the Ld. CIT(A) without allowing opportunity the Ld. CIT(A) without allowing opportunity to the Assessing Officer Assessing Officer for examining those additional evidence those additional evidences. In our opinion, the above . In our opinion, the above argument of the Ld. DR argument of the Ld. DR is incorrect as the Ld. CIT(A is incorrect as the Ld. CIT(A) has allowed the Assessing Officer did not respond opportunity and for six year opportunity and for six years the Assessing Officer did not respond on those additional evidence on those additional evidences and therefore, it cannot be said that erefore, it cannot be said that no opportunity has been provided to the Assessing Officer. It is the no opportunity has been provided to the Assessing Officer. no opportunity has been provided to the Assessing Officer. Assessing Officer, who has not availed the opportunity for almost Assessing Officer, who has not availed the opportunity for almost Assessing Officer, who has not availed the opportunity for almost six years. In such circumstances, there was no option with the six years. In such circumstances, there was no option with the six years. In such circumstances, there was no option with the lf analysed the additional evidences on CIT(A) appeal and he himse CIT(A) appeal and he himself analysed the additional evidences on merit under co-terminus power of the Assessing officer. I terminus power of the Assessing officer. In our terminus power of the Assessing officer. I opinion, the Ld. CIT(A) has passed a reasoned order after opinion, the Ld. CIT(A) has passed a reasoned order after opinion, the Ld. CIT(A) has passed a reasoned order after considering the additional evidence considering the additional evidences on record. We do not find any on record. We do not find any infirmity in the order of t infirmity in the order of the Ld. CIT(A) on the issue in dispute and he Ld. CIT(A) on the issue in dispute and we uphold the same. The ground No. 2 of the appeal of accordingly, we uphold the same. The ground No. 2 of the appeal of we uphold the same. The ground No. 2 of the appeal of the Revenue is accordingly dismissed. the Revenue is accordingly dismissed.

Order pronounced in the open Court on nced in the open Court on 06/05 /05/2024. Sd/- Sd/- Sd/ (NARENDER KUMAR CHOUDHRY NARENDER KUMAR CHOUDHRY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 06/05/2024 Rahul Sharma, Sr. P.S.

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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai