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Facts
The assessee, engaged in salt trading, had its books of account rejected by the AO under Section 145(3) and an addition of 12.5% of total purchases (Rs. 2,94,72,993) was made, treating them as bogus. The CIT(A) deleted this addition, relying on a favorable ITAT order in the assessee's own case for AY 2018-19, which involved identical facts and the same premise of bogus purchases.
Held
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition. The tribunal emphasized judicial discipline, stating that its previous decision in the assessee's own case for AY 2018-19, which found the transactions to be circular trading rather than bogus, was binding given the identical facts and circumstances.
Key Issues
The key legal issue was whether the purchases made by the assessee were bogus or constituted circular trading, and if the principle of judicial discipline required following a prior ITAT decision on identical facts for a different assessment year.
Sections Cited
Section 68, Section 145(3), Section 147, Section 148, Section 250, Section 251
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI, AM. & Dr. DINESH MOHAN SINHA, JM
आदेश / O R D E R PER, Dr. DINESH MOHAN SINHA JM;
Captioned two appeals filed by the assessee, pertaining to Assessment Year 2017-18, is directed against order passed under section 250 of the Income Tax Act, 1961 by National Faceless Appeal Centre (NFAC), Delhi/Commissioner of Income Tax (Appeals), dated 07/07/2025, which in turn arises out of an order passed by the Assessing Officer u/s 147 of the I.T. Act, on dated 30/03/2025.
The Grounds of appeal raised by the assessee are as follows: -
1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,94,72,993/- made on account of rejection of book results.
2. The Ld. CIT(A) has erred in law and on fact in deleting the addition following the order of the Tribunal in the instant case of the assessee for A.Y. 2018-19 ignoring the decision in the Tax Appeal in the case of CIT vs. Simit P. Sheth and CIT vs, Satyanarayana P Rathi wherein the High Court has confirmed the addition @ 12.5% of the bogus purchase.
3. It is therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the AO be restored to the above extent.
4. The finding of the AO and the addition made by the AO may be upheld in toto
5. The appellant craves leave to add, amend, alter OR withdraw any OR more grounds of appeal at the time of hearing of appeal.
Facts of the Case
The assessee is an individual and engaged in the business of trading of Salt under the Smita Enterprise. The assessee maintains regular books of account and the books of accountant are audited by Charted Accountant. The Assessee has filed his return of income in response to notice u/s 148 of the Act for the AY 2017- 18 on 24/06/2024 declaring income of Rs. ……….
The case was reopened to verifying the purchase transaction of Rs. 23,57,83,942/- from M/s Ankur Chemfood Ltd. The Assessee was issued show cause cum draft assessment order stating that purchase of Rs. 23,57,83,942/- shall be added to his total income in pursuance of section 68 of the Act. The Assessee in replay to ACIT vs. Kamlesh Deoraj Jain notice submitted detail replay along with documentary evidence comprising served Annexures, in order to establishing the genuineness of the purchase transactions. Even after producing concrete documents, the Ld. AO proceed to rejected the books of accounts u/s 145(3) of the Income Tax Act. and an addition amounting Rs 2,94,72,993/ being 12.5% of total purchase transaction stating the entire purchase are bogus.
That the assessee filed an appeal against the order of assessment before Ld. CIT(A) dated on 07/07/2025, with following observation:
In the absence of any contrary material brought on record by the AO to disprove these documents, the addition cannot be sustained merely on suspicion or general observations. Further, it is pertinent to mention that the appellant's case for AY 2018-19 is covered by a favorable ITAT order in appellant's own case wherein the purchaser, nature of transaction, pattern of documentation, and the treatment by the AO are identical for A.Ys. 2017-18 and 2018-19. In fact, the AO in both years made an addition of 12.5% on the very same premise i.e., bogus purchases which has already been struck down by the appellate authority. Disregarding a binding appellate precedent, particularly in the appellant's own case, without fresh material or cogent reasoning, would constitute a clear violation of judicial discipline. The Hon'ble Supreme Court in Union of India v. Kamakshi Finance Corporation Ltd., 1991 AIR 711 emphasized that:
"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities."
This principle squarely applies here. The impugned addition, being on identical facts and already settled in favor of the appellant, cannot be upheld.
In view of the above facts, legal analysis, and binding precedents, the decision of the Hon'ble ITAT in appellant's own case for AY 2018-19, on identical facts, is binding and directly applicable. In view of the above facts and in conformity with the binding decision of the Hon'ble ITAT, Rajkot in appellant's own case, the addition of 2,94,72,993/- made by applying 12.5% profit on purchases from M/s Ankur Chemfood Ltd. is hereby deleted.
In result appeal of the appellant is Allowed. Order passed u/s.250 r.w.s 251 of the Act.
That the Revenue has challenged the legality and validity of the impugned order dated 30.03.2025 and filed an appeal before this Tribunal.
i). The Ld. DR for the revenue Submitted that the Ld. CIT(A) has wrongly delete the addition of Rs. 2,94,72,993/- and also wrongly found the Books of Account are maintain in the ordinary course of business. That major transportation income received from Ankur Chemfood Ltd. there is no actual purchase transaction conducted by the assessee The LD. DR prayed that the order of Ld. CIT is set aside and the order of the AO be afraid. Page | 4 ACIT vs. Kamlesh Deoraj Jain ii). The Ld. AR of the assessee there are no bogus purchase transections in this regular course of business and the order of Ld. CIT(A) was relied by the assessee.
We have heard the rival contention of both the parties and perused the material available on record. The assessee is doing transportation work for M/s Ankur Chemfood Limited. Even in the transportation, the assessee does not have any trucks of his own. Truck are obtained from the market on rent. The major portion of transportation income amounting to Rs.2,64,40,980/- is received from Mis Ankur Chemfood Limited. Account in to Form 26AS total received was of Rs. 2,64,40,98,000/- TDS amt to Rs. 2,64,42,400/- We note that during the course of proceedings, the assessee also submitted that assessment proceedings for A.Y. 2017-18 the assessee has failed to prove the genuineness of the transaction made by the assessee with M/s Ankur Chemfood Ltd and M/s Oswal Petrochem, it is quite evident that there is a circular transaction made by the assessee along with others without actual movement of salt. The assessee cited various case laws in support of his claim. Here reliance is being placed on the judgment of Hon'ble Supreme Court as the judgment was delivered by a division bench comprising of Justice M.R. Shah and Justice C.T. Ravikumar. [TS-99-SC- 2023-VAT] "SC allows Revenue's appeal, sets-aside Karnataka HC judgment allowing purchasing dealers to claim ITC while elucidating that "The dealer claiming ITC has to prove beyond doubt the actual transaction" and the "actual physical movement of the goods" which cannot be proved by producing tax invoices and payment by cheque:
Pronouncing the orders of lower authority as well as HC as "erroneous", SC elaborates that "for claiming ITC genuineness of the transaction and actual physical movement of the goods are the sine qua non and the aforesaid can be proved only by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc."; SC clarifies that "mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70.." since tax invoice as per Rule 27 and Rule 29 "cannot be said to be proving the actual physical movement of the good"; However, SC adds that while the tax invoice and cheque can be said to be proving one of the documents, it is not sufficient to prove the genuineness of transaction and on these lines, SC categorically mentions that aforesaid information regarding actual physical movement of the goods would be in addition to tax invoices, particulars of payment etc.." We have carefully examined the submissions of the appellant and the material available on record, including the detailed findings of the AO in the assessment order dated 30.03.2025. In the present case, the AO after scrutiny of the transactions entered by the appellant with Ankur Chemford Ltd. has concluded that the transactions amounted to circular trading without any genuine business purpose, leading to the disallowance of purchases under section 68 of the Income-tax Act. 1961. AO observed that The primary onus on the appellant to prove that the purchases claimed by it are genuine and are wholly and exclusively for the purpose of business.
AO has concluded that the transactions undertaken with M/s Ankur Chemfood Ltd. were in the nature of circular trading, lacking any genuine business purpose. Lack of actual movement of goods, and suspicious financial flows. These factors point to the absence of commercial substance, suggesting that the transactions were intended solely to artificially inflate turnover. Furthermore, since the appellant has claimed the related expenditure. The appellant has failed to discharge this burden satisfactorily. The credible information received from the Investigation Wing reveals the modus operandi of bogus transactions among related group concerns viz. M/s Bhagyalaxmi Brinechem Pvt. Ltd. M/s Oswal Petrochem and M/s Ankur Chemfood Ltd. This further strengthens the AO's findings and justifies the disallowance of purchases However, without prejudice to the above, during the course of appellate proceedings, the appellant submitted that the same issue had arisen in AY 2018-19 wherein the Hon'ble Tribunal Rajkot Bench in dated 21.05.2025, has deleted the addition on the grounds that the transactions were circular in nature and not bogus. The Hon'ble ITAT Rajkot Bench has categorically held that *...circular trading, while not commercially prudent or desirable, does not automatically render the transactions as fictitious or bogus, especially when such transactions are documented, routed through banking channels, and reflected in the quantitative records" The AO's own conclusion that the transactions were "circular" negates the applicability of principles used in "bogus purchase cases such as CIT v. Simit P. Sheth and CIT v. Bholanath Polyfab. Therefore, the application of a flat 12.5% profit rate on the Transaction which is generally used to estimate profit in cases of unverified or fictitious purchases, is legally and factually untenable in the present case. Further, the Hon'ble ITAT, own case for AY 2018-19, after examining similar evidence, held: ...all characteristics of a genuine ACIT vs. Kamlesh Deoraj Jain transaction are present documentation, third-party confirmations, banking trail, and matching sales. There is no basis to treat such transaction as sham or fictitious." In the absence of any contrary material brought on record by the AO to disprove these documents, the addition cannot be sustained merely on suspicion or general observations. Present case for A.Y. 2017- 18 identical to 2018-19. In fact, the AO in both years made an addition of 12.5% on the very same premise i.e. bogus purchases which has already been struck down by the appellate authority. The binding appellate precedent, (in the appellant's own case,) without fresh material or cogent reasoning, available on record we have to follow our earlier decision considering the judicial president. The Hon'ble Supreme Court in Union of India v. Kamakshi Finance Corporation Ltd., 1991 AIR 711 emphasized that: The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. This principle squarely applies here. The impugned order Whereby the addition in income was deleted by ld. CIT(A), is being on identical facts and already settled in favor of the appellant. Keeping in view the above facts and circumstances of the case. We are of the view that there is no informally in the order of Ld. CIT(A). this court has already taken the view in the own case of the assessee A.Y. 2018-19. Since, identical case and facts and circumstances. We hereby dismissed the appeal of the Department.