ITO, WARD 21(1), NEW DELHI, NEW DELHI vs. RUPTEX MINERAL WATER PRIVATE LIMITED , NEW DELHI

The Revenue has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”, for short] dated 10.03.2025 for the Assessment Year 2018-19 and the assessee has filed cross objections against the aforesaid impugned order dated 10.03.2025. 2. Brief facts of the case are, a survey action was conducted on 27.04.2018 on M/s. Sarvroopey Vyapar Pvt Ltd. at Sec 23, Dwarka and M/s. Shashi Sales & Marketing Pvt Ltd., Astral Food Pvt Ltd & Rabik Exports Ltd. at G-10 Padma Tower, Rajendra Place, Delhi. Information was received that during demonetization, huge amount of cash was deposited in the accounts of entities. However, during the course of the survey and from post survey proceedings, it was alleged that there were two main persons, namely, Smt Rani Sharma and Shri Yash Pal Gupta, who were involved in providing accommodation entries of sale & purchase bills to various beneficiaries from many paper entities deposited in the bank accounts of these entities. AO observed that the assessee received accommodation entries of Rs.1,92,000/-, Rs.79,33,500/- and Rs.48,17,500/- from M/s. Rabik Exports Ltd., M/s. S.K. Agencies and Unique Enterprises respectively, the bogus entities and proprietorship concerns controlled by Shri Yashpal Gupta and Smt. Rani Sharma.

The order under section 148A(d) of the Income-tax Act, 1961 (for short ‘the Act’) was issued on 29.03.2022 stating that the assessee has taken accommodation entries in the nature of fictitious loan, share premium and sale/purchase without specifying the correct nature of alleged transaction which shows that there was no proper satisfaction recorded with respect to the nature of alleged accommodation entries. In response to the same, the assessee has filed a return of Income on 13.08.2022 declaring total income as Nil. 4. The AO made the impugned additions in the hands of the assessee by placing reliance upon the statements given by Shri Yashpal Gupta and his associates whose opportunity for cross- examination by the Assessee vide letter dated 04.03. 2023 was rejected and the AO treated the impugned additions as accommodation entries. The assessee has requested for cross examination of Shri Yash Pal Gupta and his associates, however the AO failed to facilitate the same and made alleged addition to the total income of the assessee to the extent of Rs.1,27,51,000/- u/s 69A of the Income- tax Act, 1961 (for short ‘the Act’) as unexplained money, on account of alleged accommodation entry. 5. Aggrieved assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. The ld. CIT (A), after going through the written

The appellant has also placed reliance up the following case laws in support of its contentions: - a) Judgment of Hon'ble Apex Court in the case of Pr. CIT, Surat-1 vs. Tejua Rohit Kumar Kapadia, Diary Nos 1267O of 2018

I find that the AO has not disputed the books of account of the appellant and has also not disputed the purchase of the assessee. The AO has not made any substantial enquiries on the evidences furnished by the appellant during the assessment proceedings. Based on the aforesaid, 100% disallowance of sales is not justified. Further, since the AO has not questioned the corresponding purchases made by the appellant, only the profit element embedded in such sale can be subject to tax in the hands the assessee.

The assessee, in its submissions has shown the gross profit for the last 3 years as :-

From the financial statements of the appellant, it is seen that the average GP ratio of the appellant for the last three years, i.e. AY 2016-17, 2017- 18 & 2018-19 is 12.17%. However the, GP ratio for the current year, i.e. AY 2018-19 is 13.45%. Therefore, based on the above facts, only the profit element embedded in the sales (considered as non-genuine by the AO amounting to Rs.1,27,51,000), which can be computed on the basis of the GP ratio of AY 2018- 19. Thus, the profit element works out to Rs.17,15,009.50/- being 13.45% of the total sales disallowed (being Rs.1,27,51,000/-). The disallowance under this head is therefore restricted to Rs1715,009.50/-. Thus, the grounds no. 3&4 are partially allowed.”

Aggrieved against the aforesaid order, Revenue is in appeal before us against the restriction of addition and assessee has filed cross objections against the confirmation of addition of Rs.17,15,009/- by raising following grounds of appeal :- “REVENUE’S APPEAL 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the addition of Rs.1,27,57,190/- to Rs.17,15,009/- u/s 68 of the Act, 1961 merely on the ground that the AO has not disputed the books of accounts whereas the AO has made the addition on account of beneficiaries of accommodation entries particularly.

Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in restricting the addition without appreciating the fact that Smt. Rani Sharma and Shri Yashpal Gupta in their statements recorded during survey on oath clearly admitted that the both alleged entries were amongst the several entities managed and controlled by them and their associates and these entities are merely used for providing accommodation entries.”

That the Ld. CIT (A) has erred in law as well as on facts by restricting the addition of Rs.17,1l5,009/- without proper appreciation of the facts of the case.

That the Ld. AO has erred in law and on facts in computing the EBITDA without rejecting the books of account under section 145(3) of the Act, thereby rendering the computation arbitrary and unjustified.”

At the time of hearing, ld. DR of the Revenue submitted that the transactions are not genuine and submitted that ld. CIT (A) has not considered the factual matrix and detailed findings of Assessing Officer. 8. On the other hand, ld. AR of the submitted that the ld. CIT (A) wrongly restricted the addition to GP rate of the yeas as : a) The assessee had already submitted all the relevant and requisite documents to prove the genuineness of the sales transaction; b) The purchases had never been doubled by the AO or CIT (A); c) The assessee had provided details of corresponding purchases along with purchase invoices; d) The books of accounts were never rejected by the AO u/s 145(3) of the Act; e) The assessee had already paid the tax on gross profit earned on the disputed sales.

He therefore submitted that if any addition is warranted in AY 2018-19, then such addition may be restricted to the difference between the GP earned on disputed sales and GP earned on normal sales. He further submitted the working of the same as under :- Working of GP rate for AY 2018-19 on impugned sales Details of sales in question

Ld. AR further submitted that it is evident from the foregoing details that the gross profit (GP) rate reported on the disputed sales is 17.08%, which is higher than the gross profit rate of 13.31% reported on the remaining sales and accordingly, it is submitted that the assessee has already disclosed a higher gross profit on the disputed sales as compared to the other sales during the year. Therefore, he pleaded that no further addition to the income is warranted in the case of the assessment year under consideration.

Considered the rival submissions and material placed on record. We observed that the Assessing Officer has observed that the assessee has taken accommodation entries from the accommodation entry providers for sales of Rs.1,27,51,000/-. He proceeded to make the addition completely over-looking the fact that the assessee also taken accommodation entry of purchases to the extent of Rs.1,05,71,580/-. Since both sales and purchases are bogus, the assessee has already declared the GP of 17.08% in these transactions. The above GP is bogus entry obtained by the assessee. The ld. CIT (A) has restricted the addition to the extent of bogus profit. However, we observed that the assessee had declared the above GP in its books. In order to penalize the assessee for obtaining such entries, we are inclined to restrict the disallowance at 5% of gross sales. Therefore, we are inclined to dismiss the grounds raised by the Revenue, at the same time, the grounds raised by the assessee in the cross objections are partly allowed. 12. In the result, the appeal of the Revenue is dismissed and the cross objections filed by the assessee is partly allowed. Order pronounced in the open court on this 10th day of December, 2025. (VIMAL KUMAR) ACCOUNTANT MEMBER