PRAKASH SHAH,MUMBAI vs. DCIT CIRCLE 12(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 3146/MUM/2023 (Assessment Year: 2009-10) Prakash Shah, Plot No. 1, Apple Industrial Hub Pelhar, Off National HGY No. 48, Nallasoparara, (East), Vasai, Palghar - 401209 [PAN: ALPPS2294G] …………. Appellant Vs Assistant Commissioner of Income Tax- …………. 17(2), Mumbai Respondent ITA No. 3145/MUM/2023 (Assessment Year: 2011-12) Prakash Shah, Plot No. 1, Apple Industrial Hub Pelhar, Off National HGY No. 48, Nallasoparara, (East), Vasai, Palghar - 401209 [PAN: ALPPS2294G] …………. Appellant Deputy Commissioner of Income Tax- Vs Circle 12(2), Mumbai …………. Respondent Appearance For the Appellant/Assessee : Shri Mani Jain Shri Prateek Jain For the Respondent/Department : Shri H.M. Bhatt Date Conclusion of hearing : 25.01.2024 Pronouncement of order : 28.02.2024

O R D E R Per Rahul Chaudhary, Judicial Member: These are 2 appeals pertaining to Assessment Years 2009-10 and 1. 2011-12 preferred by the Assessee against two separate orders

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘the CIT(A)’]. Since the appeals involve identical issues, the same were heard together and are being disposed by way of a common order.

ITA No. 3146/MUM/2023 (Assessment Year: 2009-10) We would first take up appeal for the Assessment Year 2009-10 2. which has been preferred by the Assessee challenging the order, dated 07/07/2023, passed by the CIT(A) for the Assessment Year 2009-10, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2016, passed under Section 143(3) read with Section 147/254 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised following grounds of appeal in ITA No. 3. 3146/Mum/2023 pertaining to Assessment Year 2009-10: 1. On the facts and circumstances of the Appellant's case and in law the ld. CIT(A) erred in confirming the action of the ld. AO in passing an impugned assessment order u/s 143(3) r.w.s. 147/254 of the Act, which is illegal and bad in law. 2. On the facts and circumstances of the Appellant's case and in law the ld. CIT(A) erred in confirming the action of the Id. A.O. in reopening the assessment u/s 147 by issue of notice dated 31.03.2016 u/s 148 which is merely due to change in opinion and therefore reopening is bad in law. 3. On the facts and circumstances of the Appellant's case and in law the Id. CIT (A) erred in confirming the action of the ld. A.O. in reopening the assessment u/s 147 by issue of notice dated 31.03.2016 u/s 148, which is barred by limitation of law in view of the first proviso to the Sec 147 of the Income Tax Act, 1961. 4. On the facts and circumstances of the Appellant's case and in

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 law the Id. CIT(A) erred in confirming the action of the ld. AO of passing an order u/s 143(3) r.w.s 147/254, which is barred by limitation of law in view of the Sec 153 of the Income Tax Act, 1961. 5. On the facts and circumstances of the case and in law, the Id, CIT(A) erred in confirming the action of the ld. A.O in estimating the Gross Profit @5% as against the Gross Profit @1.61% as offered by the assessee, for the reasons mentioned in the impugned order or otherwise.

The appeal before us pertains to Assessment Year 2009-10. This is 5. the second round of litigation for the Assessment Year 2009-10. In the first round of litigation the Tribunal had, vide order dated 30/04/2013 passed in ITA No. 1486/Mum/2010, remanded the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 issue of determination of gross profit for the Assessment Year 2009-10 back to the file of Assessing Officer with directions. Subsequently, reassessment proceedings under Section 147 of the Act were initiated against the Appellant by issuance of notice, dated 31/03/2016, under Section 148 of the Act. The reassessment proceedings culminated into order, dated 28/12/2016, passed under Section 143(3) read with Section 147/254 of the Act. The present appeal arises from the order of CIT(A) whereby the appeal preferred by the Appellant against the aforesaid order, dated 28/12/2016, was partly allowed by the CIT(A).

The Appellant has raised 7 grounds in the present appeal which are 6. reproduced in paragraph 3 above and are taken up hereinafter in seriatim.

Ground No. 1 Ground No. 1 does not require separate adjudication and is 7. disposed of as being general in nature.

Ground No. 2 & 3 Ground No. 2 & 3 raised by the Appellant are disposed off as not 8. pressed in terms of the statement made by the Ld. Authorised Representative for the Appellant under instructions.

Ground No. 4 Ground No. 4 challenges the validity of the order, dated 9. 28/12/2016, passed by the Assessing Officer under Section 143(3) read with Section 147/254 of the Act on the grounds of limitation.

9.1. During the course of hearing, the Ld. Authorised Representative for

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 the Appellant had submitted that the Assessment Order, dated 28/12/2016 is barred by limitation since the same has not been passed within time limit specified under Section 153(2A) of the Act.

9.2. On perusal of Assessment Order, dated 28/12/2016, we find that reassessment proceedings were initiated in the case of the Appellant by issuance of notice dated 31/03/2016, under Section 148 of the Act.

9.3. As per reasons recorded (placed at page 17 to 17A of the paper- book) the reassessment proceeding were initiated on the basis of information received from the office of Commissioner of Income Tax (Investigation)- Unit-I (3), Mumbai that the Appellant had made purchases of INR 37,89,29,577/- [out of total purchase of INR 38,50,75,829/-] from the un-registered dealers. During the period February 2009 to July 2009, the Appellant has received cheque deposits to the tune of INR 15 Crores and RTGS transfer of INR 60,00,000/- in his bank account from Mumbai, Delhi and Allahabad. The deposits were followed by the withdrawals in cash, most of which were detail threshold limit of INR 10,00,000/-. The Appellant had received regular credits from various sources in the bank account which were immediately withdrawn in cash. On verification of the transportation details furnished by the Appellant for sale made, it was found that the details of such vehicles were not available on the website of VAHAN, of Ministry of Road Transport & Highways. The Appellant had challenged the validity of initiation of reassessment proceedings by way of Ground No. 2 and 3 raised in the present appeal.

9.4. It is not disputed that the re-assessment proceedings were initiated

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 by issuance of notice, dated 31/03/2016, issued under Section 148 of the Act and the order under Section 143(3) read with Section 147 of the Act. Section 153(2) of the Act provides the time limit within which order under Section 147 of the Act is required to be passed. The Order, dated 28/12/2016, was passed by the Assessing Officer within a period of 9 months from the end of the financial year in which notice under Section 148 of the Act was served upon the Appellant in accordance with the provisions contained in Section 153(2) of the Act. In our view, the provisions contained in Section 153(2A) of the Act on which reliance was placed on behalf of the Appellant are not attracted in the facts of the present case as the assessment has been framed under Section 147 of the Act which was initiated after the order dated 30/04/2013 was passed by the Tribunal in appeal for the Assessment Year 2009-10 [ITA No. 1486/Mum/2010] and therefore, the judgments cited by the Ld. Authorised Representative for the Appellant have no application to the facts of the present case. The additions made by the Assessing Officer do not fall outside the scope of the reasons recorded for reopening the assessment. In case the submission advanced on behalf of the Appellant are accepted and the provisions of Section 153(2A) of the Act are applied, the same would amount to curtailing the time prescribed by the Act for completing the reassessment proceedings under Section 147 of the Act. Therefore, we reject the contention of the Appellant that provisions of Section 153(2A) of the Act would be attracted in the facts and circumstances of the present case.

9.5. In view of the above, we hold that the order, dated 28/12/2016, passed by the Assessing Officer under Section 143(3) read with Section 147/254 of the Act is not barred by limitation. Ground No. 4

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 raised by the Appellant is, therefore, dismissed.

Ground No. 5 and 6 10. Ground No. 5 and 6 are directed against the addition of INR 1,34,09,859/- made by the Assessing Officer while computing gross profits at the rate of 5% as against the rate of 1.61% declared by the Appellant in the Profit & Loss Account.

10.1. Before dealing with the specific grounds raised in the present appeal it would be pertinent to take into consideration the relevant factual background.

Assessment Year 2007-08 (First Year) 10.2. Assessment Year 2007-08 was the first year of business of waste paper trading for the Appellant. The Assessing Officer completed the assessment for the Assessment Year 2007-08, vide order, dated 30/12/2009, passed under Section 143(3) of the Act determining total income at INR 2,56,13,280/- after making the following disallowance (a) disallowance of INR 23,942,000/- and INR 8,51,391/- under Section 40A(3) of the Act; and (b) disallowance of bank charges of INR 1,19,711/-. The Appellant preferred appeal before the Commissioner of Income Tax (Appeals) against the Assessment Order for the Assessment Year 2007-08. The Commissioner of Income Tax (Appeals) found discrepancies in respect of purchases and therefore, enhanced the gross profits rate from 4.9% declared by the Appellant to 10%. However, the CIT(A) granted some relief to the Appellant by directing the Assessing Officer to compute the disallowance under Section 40A(3) of the Act at the rate of 10% as against the rate of 20% adopted by the Assessing Officer. Being aggrieved, the Appellant carried the issue

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 in appeal before the Tribunal. Vide order, dated 16/05/2012, passed in ITA No. 7213/Mum/2010 pertaining to Assessment Year 2007-08, the Tribunal remanded the issue of determination of gross profit for the Assessment Year 2007-08 back to the file of Assessing Officer with the following directions:

“5. We have perused the paper book filed by the assessee and have heard the rival submissions. We have taken note of the fact that this was the first year of business of the assessee and comparative figure submitted by the assessee were of subsequent years. Before us, assessee submitted data of Shree Sira Paper Co., dealing in same line. AR admitted that said material was not made available to the CIT(A). We are of the opinion that without making a comparative study of similar business, final conclusion in favour or against the assessee cannot be drawn. Gross Profit of a business depends on many a factors. We are of the opinion that in the interest of justice, matter should be remitted back to the file of the AO. Assessee should make all his submission with comparative charts before the AO.” 10.3. On perusal of above, we find that the Tribunal had concluded that the gross profit rate depended upon many factors. Without making comparative study of similar business function, conclusion in favour or against the Appellant could not have been drawn by the Assessing Officer. Previous year relevant to the Assessment Year 2007-08 was the first year of business of trading in waste paper, and therefore, the comparative figures submitted by the Appellant in relation to the business of the Appellant pertained to the subsequent years. However, since the Appellant had submitted data of Shree Sira Paper Company dealing in same line of business, the matter was remanded back to the file of Assessing Officer for determining the gross profit rate after carrying out comparative study of the gross profits earned during the same assessment year (Assessment Year 2007-08). Pursuant to the aforesaid order of the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 Tribunal, the Assessing Officer, vide order dated 14/03/2014,passed under Section 143(3) read with Section 254 of the Act, adopted the gross profit rate to 5% for the Assessment Year 2007-08 after making the following observations:

“Now the only issue to be settled before the AO is to decide the G.P. The AY 2007-08 is assessee's first year of business of waste paper trading. Hence, Assessee's G.P. cannot be compared with that of earlier year's G.P. percentage. But the assessee has written vide letter dated 03/02/2014 G.P. percentage for subsequent A.Y.'s as under: A.Y. Turnover (Rs.) G.P (Rs.) G.P. ( Percentage) 2008-09 237169823 1032619 4.36% 2009-10 392545195 6301502 1.61% 2010-11 288021998 6413153 2.23% 2011-12 360637046 9742960 2.70%

In this respect the assessee has furnished G.P. rates on similar line of business in the case of Shree SIRA PAPERS for the under mentioned years.

Name of the A.Y. Turnover (Rs.) G.P. (Rs.) G.P. Party (Percentage) Shree SIRA 2008-09 199,512,729 81,28,079 2.57% PAPER CO. Shree SIRA 2009-10 302,029,530 87,35,363 2.23% PAPER CO. Shree SIRA 2010-11 141,216,131 36,47,181 2.56% PAPER CO. Shree SIRA 2011-12 266,856,966 68,74,382 2.57% PAPER CO.

From the above it can be seen that either in the case of the assessee or in the case of similar case referred to by the assessee i.e. in Shree SIRA PAPER CO., the G.P. percentage is not at all more than 2.8% in any year. The assessee has made waste paper purchases to the tune of Rs.124,142,523/ -from various parties, hawkers,

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 paddlers, small retailers and sales are to same companies in bulk. The purchases are made purely on cash basis and sale proceeds are by cheques only. The assessee was an employee in the same line of business on salary basis in earlier years. Being first year of business he has shown CP. @4.9%. In view of all the facts and circumstances of the case the G.P. is adopted @ 5% at Rs. 64,02,683/-.” Assessment Year 2009-10 (Relevant Assessment Year)

10.4. The appeal before us pertains to the Assessment Year 2009-10.

10.5. During the original assessment proceedings for the Assessment Year 2009-10, the Assessing Officer, vide order dated 28/12/2011, passed under Section 143(3) of the Act, made an addition to the return income by re-computing gross profit of the Appellant at the rate of 10% by placing reliance upon the decision of the Commissioner of Income Tax (Appeals)-23, Mumbai, dated 27/07/2010, pertaining to the Assessment Year 2007-08. In the first round when the issue travelled to the Tribunal, vide order, dated 30/04/2013, passed in appeal [ITA No. 1486/Mum/2013] for the Assessment Year 2009-10, the Tribunal restore the issue back to the file of Assessing Officer holding as under:

“5. In this view of the situation, after hearing both the parties and going through the order passed by the Assessing Officer, who has simply relied upon the order passed by the Ld. CIT(A) in respect of A.Y. 2007-08, since the said order of the Ld. CIT(A) has been restored back to the file of AO by the Tribunal with the following observation, we restore ground No. 2 & 3 to the file of AO with similar directions.

"5. We have perused the paper book filed by the assessee and

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 have heard the rival submissions We have taken note of the fact that this was the first year of business of the assessee and comparative figure submitted by the assessee were of subsequent years, Before us, assessee, submitted data of Shree Sira Paper Co., dealing in same line. AR admitted that said material was not made available to the CIT(A). We are of the opinion that, without making a comparative study of similar business, final conclusion in favour or against the assessee cannot be drawn. Gross Profit of a business depends on many a factors. We are of the opinion that in the interest of justice, matter should be remitted back to the file of the AO. Assessee should make all his submission with comparative charts before the AO.” 6. Accordingly, Ground No. 2 & 3 of the present appeal are considered to be allowed for statistical purposes in the manner aforesaid.”

10.6. On perusal of above, it can be seen that the Tribunal took note of the fact that the Assessing Officer had simply followed the decision of the Commissioner of Income Tax (Appeals), Mumbai for the Assessment Year 2007-08. It was also noted by the Tribunal that appeal preferred against the aforesaid order of Commissioner of Income Tax (Appeals), Mumbai for the Assessment Year 2007-08, the issue of determination of gross profit for the Assessment Year 2007-08 was restored back to the file of the Assessing Officer. Therefore, the Tribunal adopted similar approach for the Assessment Year 2009-10 and vide order dated 30/04/2013 passed in ITA No. 1486/Mum/2010 restored the issue back to the file of Assessing Officer for determination of gross profit for the Assessment Year 2009-10 with ‘similar directions’ as issued for the Assessment Year 2007-08.

10.7. Subsequent thereto, based upon the reassessment proceedings were initiated under Section 147 of the Act on the basis information received from Deputy Director of Income Tax (Investigation), Unit-

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 1(3), Mumbai, and notice dated 31/03/2016 was issued to the Appellant under Section 148 of the Act.

10.8. During the re-assessment proceedings, the Assessing Officer took note of the fact that as per the directions issued by the Tribunal [vide order dated 16/05/2012 passed in ITA No. 7213/Mum/2010, for the Assessment Year 2007-08] the Assessing Officer had, vide order dated 14/03/2014, passed under Section 143(3) read with Section 254 of the Act recomputed the gross profit of the Appellant for the Assessment Year 2007-08 @ 5%. Therefore, vide re- assessment order, dated 28/12/2016, passed under Section 143(3) read with Section 147/254 of the Act, the Assessing Officer adopted the gross profit rate of 5% for determining the taxable profits for the Assessment Year 2009-10.

10.9. Being aggrieved, the Appellant carried the issue in appeal before CIT(A). During the appellate proceedings before CIT(A) for the Assessment Year 2009-10 it was contended on behalf of the Appellant that the Assessing Officer had compared the gross profit of the Appellant for the Assessment Year 2009-10 with Assessment Year 2007-08, whereas as per the directions of the Tribunal, the Assessing Officer was directed to compare the gross profit of the Appellant for the Assessment Year 2009-10 with the gross profit of Shree Sira Paper Company for the Assessment Year 2009-10. The relevant extracts of the submissions made by the Appellant before CIT(A) (as reproduced in paragraph 5.1 of the order impugned), read as under:

“11. It is submitted that during the appeal proceeding for AY 2007- 08, the appellant submitted G.P. rates table of one M/s. SHREE SIRA PAPER CO. who was engaged in similar line of business. (the said

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 table was also reproduced in the order passed u/s 143(3) r.w.s 254 for AY 2007-08 placed at page no 192 to 195 of the paper book). Subsequent to the direction of tribunal, assessment order for AY 2007-08 was passed u/s 143(3) r.w.s 254 wherein the gross profit rate as declared by the appellant (4.9%) was compared and accepted by the Id. AO and accordingly the order was passed accepting the same.

10.10. However, the CIT(A) was of the view that there was no reasons to interfere with the findings returned by the Assessing Officer since the Appellant had failed to discharge the primary onus as the Appellant had failed to furnish documentary evidence or books of accounts to support his claim that gross profit for the Assessment Year 2009-10 stood at 1.61%. Therefore, vide order, dated 07/07/2023, the CIT(A) confirmed the order passed by the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 Assessing Officer in this regard.

10.11. Being aggrieved by the order, dated 07/07/2023, passed by the CIT(A), the Appellant has carried the issue in appeal before us.

10.12. The Ld. Authorised Representative appearing before us vehemently submitted that the Assessing Officer had failed to comply with the directions issued by the Tribunal vide order, dated 30/04/2013, passed in ITA No. 1486/Mum/2010 in the first round of litigation. Per Contra the Learned Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A).

10.13. We have considered the rival submissions and perused the material on record.

10.14. On perusal of the directions issued by the Tribunal while remanding the issue of determination of gross profit in appeal for the Assessment Year 2007-08 (ITA No. 7213/Mum/2010, Order dated 16/05/2012), we find that since 2007-08 was the first year of the business, the Tribunal had directed the Assessing Officer to arrive at gross profit after carrying out comparative study of gross profit earned by entity engaged in similar line of business.

10.15. Vide order, dated 30/04/2013, passed by the Tribunal in ITA No. 1486/Mum/2010 for the Assessment Year 2009-10 (in the first round), the Tribunal had restored the matter back to the file of Assessing Officer giving ‘similar directions’. Since Assessment Year 2009-10 is not the first year of business, in our view, as per the directions of the Tribunal the Assessing Officer was required to carry out comparative study of gross profit earned by the Appellant during the preceding years and was not bound to restrict analysis

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 only to the gross profits declared by Shree Sira Paper Company for the Assessment Year 2009-10 only. We note that while passing order under Section 143(3) read with Section 254 of the Act for the Assessment Year 2007-08, the Assessing Officer, vide order, dated 31/03/2007, had recorded that the gross profit percentage in case of Shree Sira Paper Company for the Assessment Year 2008-09 to 2011-12 was not more than 2.8% whereas the Appellant had declared gross profit of 4.9% the Assessment Year 2007-08 which was the first year of business. We note that even in the subsequent assessment years the gross profits earned by Shree Sira Paper Company were less than the gross profit margin of the Appellant. Therefore, in our view, the Assessing Officer was correct on placing reliance on the profits earned by the Appellant during the preceding assessment years.

10.16. During the course of hearing, the Ld. Authorised Representative for the Appellant had filed ‘details of corrected gross profits’ earned by the Appellant for the Assessment Year 2007-08 and 2008-09. It was submitted that when the details of gross profit margin were furnished during the assessment proceedings, the direct expenses pertaining to loading and unloading purchases were not taken into account while computing gross profit for the Assessment Year 2007-08 and 2008-09, whereas for the Assessment Year 2009-10 before us the same were taken into consideration leading to distortion in gross profit rate. Therefore, in case loading and unloading purchase are taken into consideration for computing gross profit for the Assessment Year 2007-08 and 2008-09 gross profit margin for the aforesaid assessment years gets reduced to 3.72% and 3.05%, respectively.

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12

10.17. In response to query from the Bench, the Ld. Authorised Representative was not able to provide satisfactory reasons for reduction of gross profit rate from 3.72% from 2007-08 to 1.61% for the Assessment Year 2009-10 apart from submitting that 2007- 08 was the first year of business. While the Ld. Authorised Representative for the Appellant has submitted that the gross profit determined by the Assessing Officer is on a higher side, the Ld. Authorised Representative for the Appellant failed to justify or support the gross profit of 1.61% declared by the Appellant for the Assessment Year 2009-10. The finding returned by the Assessing Officer in the first round of litigation that the Appellant has failed to furnish the primary documents to support the claim/contentions has not been disturbed even in the second round.

10.18. In view of the above we held that the Assessing Officer was justified in estimating the gross profits by taking into consideration the profits earned by the Appellant during the preceding assessment years. We note that while implementing the directions of the Tribunal for the Assessment Year 2007-08, the Assessing Officer has determined profits by adopting gross profit rate of 5% (corrected rate 3.72%). For the Assessment Year 2008-09, the Appellant has disclosed Gross Profit Rate of 3.05%. Accordingly, taking into consideration overall facts and circumstances of the present case, we direct the Assessing Officer to re-compute the taxable income for the Assessment year 2009-10 by computing gross profits by adopting rate of 3.05% (corrected rate) as disclosed by the Appellant for the immediately preceding assessment year (i.e. Assessment Year 2008-09). In terms of the aforesaid, Ground No. 5 & 6 raised by the Appellant are allowed for

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 statistical purposes. It is clarified that we have not expressed any opinion on the gross profits declared by the Appellant for the Assessment Year 2008-09 and have adopted the rate disclosed by the Appellant for the purpose of estimation of gross profits for the Assessment Year 2009-10.

Ground No. 7 Ground No. 7 is directed against the addition of INR 1,69,25,000/- 11. made by the Assessing Officer in respect of alleged bogus unsecured loans by invoking provisions of Section 68 of the Act which was confirmed by the CIT(A).

11.1. During the assessment proceedings, the Assessing Officer noted that the Appellant had taken unsecured loan form 59 parties aggregating to INR 2,29,25,000/-. The Appellant was asked to file the complete details relating to 59 loan creditors. In response the Appellant filed details of persons giving unsecured loan along with amount of loan and loan confirmation. In most of the cases, the acknowledgement of the income tax return containing Permanent Account Number and addresses as well as the bank statements of the loan creditor were also furnished during the assessment proceedings. However, in the assessment framed in the first round, the Assessing Officer had discussed about two main creditors namely Shri Chimanlal K. Gala and Smt. Sharmila Chimanlal Gala from whom the Appellant had received loan of INR 40,00,000/- and INR 20,00,000/-, respectively. However, the Assessing Officer rejected all the loan creditor as being bogus in nature and made an addition of INR 2,29,25,000/- in the hands of the Appellant invoking provisions of Section 68 of the Act. The CIT(A) also confirmed the aforesaid additions. When the issue travelled to the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 Tribunal, the Tribunal observed that the Assessing Officer had simply added all the cash credits without discussion of evidence submitted by the Appellant in respect of loan creditors (except for Shri Chimanlal K. Gala and Smt. Sharmila Chimanlal Gala) without bringing on record any evidence contrary to the primary evidence furnished by the Appellant. Taking note of the fact that the time available with the Assessing Officer for completing the assessment was short, the Tribunal had restored the issue back to the file of the Assessing Officer with the directions to re-adjudicate the issue after giving the Appellant a reasonable opportunity of being heard. According to the Tribunal it was not possible for the Appellant to produce all the creditors before the Assessing Officer and therefore, the Tribunal directed the Assessing Officer to choose creditors on test check basis and ask the Appellant to produce such loan creditors before the Assessing Officer.

11.2. It was submitted by the Ld. Authorised Representative for the Appellant that while passing the Assessment Order, dated 28/12/2016, under Section 143(3) read with Section 147/254 of the Act in the second round, the Assessing Officer had failed to comply with the aforesaid directions of the Tribunal. All the primary evidence produced by the Appellant during the original assessment proceedings was already on record. However, the Assessing Officer has, without carrying out any enquiry/verification in compliance with the directions issued by the Tribunal, again made an addition of INR 1,69,25,000/- [INR 2,29,25,000/- less INR 60,00,000/-].

11.3. Per contra, the Ld. Departmental Representative submitted that the Assessing Officer had given effect to the directions issued by the Tribunal and deleted the addition of INR 40,00,000/- and INR

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 20,00,000/- made in respect of two loan creditors namely Shri Chimanlal K. Gala and Smt. Sharmila Chimanlal Gala. It was further submitted that information was received from the Investigation Wing that out of purchase of INR 38,50,75,829/- made by the Appellant, purchase of INR 37,89,29,577/- were made from un- registered dealers. The Assessing Officer has returned the findings that the purchases have been made from various non-existent and imaginary persons and the Appellant has failed to maintain record of such cash purchases neither any voucher nor any books of accounts were maintained by the Appellant which support the aforesaid purchases. Therefore, the Assessing Officer was justified in treating the credits in the books of accounts as bogus/unexplained cash credits and making addition under Section 68 of the Act.

11.4. We have considered the rival submissions and perused the material on record. We find merit in the contention advanced on behalf of the Appellant that the Assessing Officer has confirmed the addition of INR 1,69,25,000/- without complying with the directions issued by the Tribunal. As was in the case first round, the Assessing Officer had completely ignored the primary evidence filed by the Appellant in relation to unsecured loan creditors. The assessment order contains no discussion in relation to the same. In appeal preferred by the Assessee, the CIT(A) had also simply relied upon paragraph 4.3 of the Assessment Order and confirmed the addition holding that the Appellant had failed to prove the identity and creditworthiness of the creditors and the genuineness of the transaction in respect of all 59 creditors. We note that the Assessing Officer has neither issued summons to the creditors nor issued direction to the Appellant to produce any of the secured

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 creditors. Since the Assessing Officer has failed to comply with the directions issued by the Tribunal, we delete the addition of INR 1,69,25,000/- made by the Assessing Officer. Ground No. 7 raised by the Assessee is allowed.

ITA No. 3145/MUM/2023 (Assessment Year: 2011-12) Next we would take up appeal Assessment Year 2011-12 which has 12. been preferred by the Assessee challenging the order, dated 07/07/2023, passed by the CIT(A) for the Assessment Year 2011- 12, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 25/03/2014, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised following grounds of appeal in ITA No. 13. 3145/Mum/2023 pertaining to Assessment Year 2011-12:

“1. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of ld. A.O. in estimating the Gross Profit @ 5% as against 2.7% offered by the appellant, for the reasons stated in the impugned order or otherwise 2. On the facts and circumstances of the Appellant's case and in law, the ld. CIT(A) erred in confirming the action of the ld. AO in making an addition of Rs. 82,88,892/- for the reasons stated in the impugned order or otherwise 3. On the facts and circumstances of the Appellant's case and in law the ld. CIT(A) erred in confirming the actions of ld. A.O. in making a disallowance of Rs. 25,30,972/- on account of interest expenditure for the reasons stated in the impugned order or otherwise. 4. On the facts and circumstances of the case and in law, the ld

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 CIT(A) erred in confirming the actions of ld. A.O. erred in making an addition of Rs 2.54,000/- on account of alleged bogus unsecured loans, for the reasons stated in the impugned order or otherwise. 5. The appellant craves leaves to alter, amend, withdraw or substitute any ground or grounds or to add any new ground or grounds of appeal on or before the hearing. The appellant prays this Hon’ble Tribunal to delete the disallowance made by the ld. AO, which is confirmed by the ld. CIT(A).” The relevant facts in brief are that for Assessment Year 2011-12, 14. the Appellant filed return of income on 30/09/2011. The case of the Appellant was selected for regular scrutiny. During the assessment proceedings, the Assessing Officer noted that the Appellant has declared gross profit rate at the rate of 2.7%. On verification, the Assessing Officer found that 90% of the purchase remained unverified, the same were made in cash and no address of the sellers was available. Therefore, placing reliance upon the Assessment Order for the Assessment Year 2007-08 and 2009-10, the Assessing Officer asked the Appellant to show cause why gross profit rate of 10% should not be applied for computing the taxable income of the Appellant for the Assessment Year 2011-12. Vide reply, dated 18/03/2014, the Appellant submitted that for the Assessment Year 2007-08, vide order dated 14/03/2014, passed under Section 143(3) read with Section 254 of the Act, gross profit at the rate of 5% had been adopted by the Assessing Officer while giving effect to the directions of the Tribunal vide order dated 16/05/2012 passed in ITA No 7213/Mum/2010. The Appellant further submitted that details of the gross profit shown by M/s Shree Sira Paper Company. According to which gross profit 2.23%

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 to 2.57% were earned by M/s Shree Sira Paper Company for the Assessment Years 2008-09 to 2011-12 on a turnover ranging from INR 14.21 Crores to INR 13.20 Crores. Taking note of the fact that the Appellant had submitted that the gross profit rate 5% (which was accepted by the Assessing Officer for the Assessment Year 2007-08) may be adopted for the Assessment Year 2011-12, the Assessing Officer computed gross profits by adopting the gross profit rate of 5%. Further, the Assessing Officer concluded that during the relevant previous year the Appellant had taken aggregate loan of INR 22,54,000/- from four parties creditworthiness of which was not accepted during the assessment proceedings for the Assessment Year 2009-10. Taking note of the fact that the Assessee had furnished different set of names in respect of aggregate loans of INR 22,54,000/- shown to be received by the Appellant during the relevant previous year, the Assessing Officer made an addition of INR 22,54,000/- under Section 68 of the Act holding the same to be unsecured unexplained cash credit. The Assessing Officer further noted that the Appellant had claimed deduction in respect of aggregate interest of INR 29,95,849/- paid/payable to unsecured loan creditors which were held to be not genuine during the assessment proceedings for the Assessment Year 2009-10 and 2011-12, therefore, the Assessing Officer disallowed aforesaid interest of INR 29,95,849/-. Thus, the Assessing Officer completed the assessment vide order dated 25/03/2014, passed under Section 143(3) of the Act.

Being aggrieved, the Appellant preferred appeal before the CIT(A). 15. The CIT(A) noted that during the assessment proceedings, the Appellant had made a submission to the effect that gross profit rate

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 of 5% may be accepted and decline to grant relief to the Appellant by placing reliance on paragraph 3.1 of the Assessment Order. Further, in respect of the additions made under Section 68 of the Act and the disallowance of interest of INR 29,95,849/-, the CIT(A) grated partial relief holding as under: “5.3 In view of the above it is observed that the AO disallowed the loans taken from the above mentioned 4 parties as unexplained cash credit since creditworthiness of all of these 4 lenders was not accepted in the assessment order for AY 2009-10. However during the course of finalization of assessment proceedings u/s 143(3) r.w.s 147/254 of the Act. for AY 2009-10 in the appellant's own case, The AO allowed loan from Shri Chimanlal K Gala to the tune of Rs. 40,00,000/-as directed by ITAT vide its order, ITA No. 1486/MUM/2013 dated 30.04.2013 for AY 2009-10. Hence loan from Shri Chimanlal K Gala was accepted by the AO. So addition of Rs. 2,54,000/- (22,54,000-20,00,000) is being upheld as unexplained cash credits during the year on account of unsubstantiated new unsecured loans. Hence ground no. 3 is partly allowed. 5.4 In view of the above interest paid on the loans mentioned above may be allowed accordingly. Hence ground no. 2 is partly allowed.” Not being satisfied by the relief granted by the CIT(A), the 16. Appellant carried the issues in appeal before the Tribunal.

Ground No. 1 and 2 Ground No. 1 and 2 raised by the Appellant pertain to estimation of 17. gross profits. While deciding the identical issue raised in appeal for the Assessment Year 2009-10, we have concluded that gross profit rate of 3.07% be adopted for computation of business profit for the Assessment Year 2009-10.

17.1. For the Assessment Year 2011-12, the Assessing Officer and CIT(A) have returned concurrent finding that the rate of 5% for determining the gross profits was adopted by accepting the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 submission made by the Appellant to the effect that vide order dated 14/03/2014, passed under Section 143(3) read with Section 254 of the Act, gross profit at the rate of 5% had been adopted by the Assessing Officer for the Assessment Year 2007-08 and therefore, for the Assessment Year 2011-12 also gross profit rate of 5% be adopted. The aforesaid concurrent finding returned by the Assessing Officer and CIT(A) have gone uncontroverted during the appellate proceedings before us. The Learned Authorised Representative has submitted that even if the Appellant had made such a submission before the Assessing Officer, the Appellant was not bound by the same. We note that the Appellant had failed to place primary material before the Assessing Officer to support the gross profit rate declared by the Appellant. The findings returned by the Assessing Officer that 90% of the purchases remained unverified has not been assailed and the thrust of the submission before authorities below was on estimation of profits. Therefore, We do not find any infirmity in the approach adopted by the Assessing Officer to estimate the gross profits for the Assessment 2011-12 by taking into account the gross profit rate of the Appellant for the preceding assessment years.

17.2. While deciding appeal for the Assessment Year 2008-09, we have accepted the contention of the Appellant that there was difference in the computation of the gross profit rate for the Assessment Year 2007-08 and 2009-10 on account of exclusion/inclusion of loading and unloading charges, and have adopted the corrected rate of 3.07% for estimating the profits for the Assessment Year 2009-10. The position continues to be the same for the Assessment Year 2011-12. Therefore, instead of adopting the rate of 5% (corrected rate 3.72%) adopted for the Assessment Year 2007-08, we direct

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 the Assessing Officer, we direct the Assessing Officer to compute the profits by adopting the gross profit rate of 3.07% adopted for computing gross profits for the Assessment Year 2009-10. In terms of the aforesaid, Ground No. 1 and 2 raised by the Appellant are partly allowed.

Ground No. 3 By way of Ground No. 3 the Appellant has challenged the order of 18. CIT(A) confirming the disallowance of interest of INR 25,30,972/- out of disallowance of interest of INR 29,95,849/- made by the Assessing Officer.

18.1. On perusal of the assessment order, we find that the Assessing Officer had made disallowance of interest of INR 29,95,849/- taking note of the fact that the aforesaid interest debited to the Profit & Loss Account consisted of interest on unsecured loans which were held to be unexplained cash credit during the assessment proceedings for the Assessment Year 2009-10 and 2011-12.

18.2. In appeal preferred by the Assessee, the CIT(A) had disposed off the issue relating to disallowance of interest without dealing with contentions raised by the Appellant in the following manner:

“5.4 In view of the above interest paid on the loans mentioned above may be allowed accordingly. Hence ground no. 2 is partly allowed.” 18.3. Thus, no findings was returned by the CIT(A) regarding the disallowance of interest of INR 25,30,972/- which was confirmed by the CIT(A). Accordingly, we deem it appropriate to remand this issue back to the file of CIT(A) for adjudication after granting the

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 Appellant a reasonable opportunity of being heard. It is clarified that while deciding appeal for the Assessment Year 2009-10, we have deleted the addition made by the Assessing Officer under Section 68 of the Act in respect of unsecured loans since the Assessing Officer had failed to comply with the directions issued by the Tribunal without expressing any views on the merits on the addition made under Section 68 of the Act. Accordingly, all the rights and contention both the parties in relation to this issue are left open and the CIT(A) shall be at liberty to consider the same as per law. In terms of the aforesaid, Ground No. 3 raised by the Appellant is allowed for statistical purposes.

Ground No. 4 Ground No. 4 raised by the Appellant is directed against the order 19. of CIT(A) upholding the addition of INR 2,54,000/- under Section 68 of the Act in respect of unsecured loans.

19.1. We have heard the rival submissions and perused the material on record on this issue.

19.2. On perusal of the assessment order we find that the Assessing Officer had concluded that the Appellant had received additional unsecured loans of aggregating to INR 2,54,000/- from the following three parties: S.No. Name Opening Addition Closing Balance Balance 1 Geeta G Savla 1,50,000 1,50,000 3,00,000 2 Talakshi Shivji Shah 4,50,000 50,000 5,00,000 3 Vikram P Maru 5,00,000 54,000 5,54,000 2,54,000 19.3. The Assessing Officer held the aforesaid amount of INR 2,54,000/-

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 to be unexplained cash credit taxable in the hands of the Appellant under Section 68 of the Act.

19.4. However, on perusal of material placed before us we find that the Appellant did not receive any additional loan from Vikram P Maru. Credit of INR 54,000/- during the relevant previous year represented interest- on loan granted in prior years. Accordingly, addition of INR 54,000/- made by the Assessing Officer under Section 68 of the Act, which was sustained by the CIT(A), is deleted.

19.5. As regards additional loan of INR 1,50,000/- and INR 50,000/- received from Geeta G Savla and Talakshi Shivji Shah, respectively, the Learned Authorized for the Appellant submitted that the Appellant had placed on record ledger account, balance confirmation, bank statement and income tax return acknowledgement. However, the Assessing Officer without pointing out any infirmity in the same, rejected the aforesaid documents/details and concluded that the Appellant had failed to meet the requirements of Section 68 of the Act. We find merit in the aforesaid contention raised on behalf of the Appellant. On perusal of the Assessment Order we find that there was no discussion by the Assessing Officer in relation to the additional loan of INR 1,50,000/- and INR 50,000/- received from Geeta G Savla and Talakshi Shivji Shah, respectively, during the relevant previous year. The Assessing Officer has proceeded to make the addition under Section 68 of the Act without examining the loan/transaction undertaken by the Appellant during the relevant previous year and had made the addition under Section 68 of the Act by merely placing reliance on the assessments framed for Assessment Year

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 2009-10 wherein similar disallowances were made under Section 68 of the Act. In our view, for the Assessment Year 2011-12, the Appellant has been able to discharge the primary onus cast upon the Appellant to prove the identity and creditworthiness of the two parties and the genuineness of the transaction undertaken during the relevant previous year, while on the other hand the Revenue has failed to bring anything on record to shift the onus back upon the Appellant. Therefore, in our view, the addition of INR 1,50,000/- and INR 50,000/- made by the Assessing Officer under Section 68 of the Act in respect of amount received from Geeta G Savla and Talakshi Shivji Shah, respectively, cannot be sustained and the same is deleted.

19.6. In view of the above, Ground No. 4 raised by the Appellant is allowed.

In result, both the appeals preferred by the Assessee are partly 20. allowed.

Order pronounced on 28.02.2024.

Sd/- Sd/- (Om Prakash Kant) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 28.02.2024 Alindra, PS

ITA No. 3145 & 3146//Mum/2023 Assessment Year 2009-10 & 2011-12 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai