NYK ENTERPRISES PVT. LTD.,NEW DELHI vs. ITO WARD-18(4), NEW DELHI

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC: NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND ITA No. 7393/Del/2019 Assessment Year: 2016-17 NYK Enterprises P. Ltd., ITO, Ward 18(4), New Delhi H.No. 83, Pocket-19, Sector-24, Rohini, New 110002 Delhi-110085 vs. PAN AADCN 1643 C (Appellant) (Respondent) For Assessee : Shri Rujesh Sinha, Adv. For Revenue : Shri Om Prakash, Sr. DR Date of Hearing : 06.04.2023 Date of Pronouncement : 23.06.2023 ORDER Per Chandra Mohan Garg:- The present appeal filed by the assessee for the assessment year 2016-17 is directed against the order of Ld. CIT(A)-6, Delhi dated 01.07.2019. It is pertinent to mention that earlier this appeal was dismissed ex-party by order dated 12.04.2022 and subsequently the miscellaneous application filed by the assessee was allowed in MA No. 153/Del/2022 by order dated 14.10.2022 and appeal was recalled. Now this is being adjudicated in presence of counsel of assessee. 2. The assessee has raised following grounds of appeal:- 1. “On the facts and circumstances of the case, the order passed u/s 143(3) by the learned Assessing Officer ("AO") and upheld by the learned Commissioner of Income tax (Appeals)-6 ("CIT(A)") is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the CIT(A) and AO have erred both on facts and in assessing the income of the appellant at an income of Rs.19,53,840 as against income of Rs.14,160 declared by the appellant. 3. That the CIT(A) and AO have erred on facts and in law in holding an addition of an amount on account of bogus purchases of Rs.18,65,080 and commission expenses of Rs.74,603.

ITA No. 7393/Del/2019 Assessment Year: 2016-17 4. That the addition has been made grossly indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumption and assumptions. 5. That the CIT(A) and AO have erred on facts and in law in not considering the fact that the appellant brought on record all evidences to prove the genuineness of the transactions. 6. That the CIT(A) and AO have erred both on facts and in law in not following the decision of the Hon'ble Supreme Court in the case of PCIT v. Tejua Rohitkumar Kapadia (256 Taxman 213) which held that purchases cannot be treated as bogus where the purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque, seller also confirmed transaction and there was no evidence to show that amount was recycled back to assessee. 7. Without prejudice, the CIT(A) and AO have erred on facts and in law in not accepting the purchases of the appellant whereas the sales, closing stock and the opening stock emanating from the books of accounts have been duly accepted. 8. That the CIT(A) and AO have erred on facts and in law in holding the transaction as a colorable device despite the same having been done through proper banking channels, as shown by relevant documentary evidences. 9. That the CIT(A) and AO have erred both on facts and in law in making the addition on the basis of material collected at the back of the appellant and without providing an opportunity to rebut the same, thus, violating the principle of natural justice. 10. That the CIT(A) and AO have erred both on facts and in law in making addition on the basis of certain statements recorded without giving assessee an opportunity to cross examine is violation of principle of natural justice 11. That the CIT(A) and AO have erred both on facts and in law in charging interest under sections 234A, 234B and 234C of the Act. The appellant craves leave to add to, alter, amend or vary the above grounds of appeal at or before the time of hearing.” 3. As per ld. counsel of the assessee, the facts giving rise to the present appeal are that in this case return declaring an income of Rs.14,160/- was filed on 23.09.2016 and was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”) on 01.10.2016. Thereafter, the Assessing Officer (“AO”) received information on 21.03.2017 from the Investigation Wing, New Delhi. On the basis of said report regarding accommodation entries of Rs.4,53,940/- to M/s Shivji Garments (P.) Ltd. on 05.09.2015. Thereafter, the AO selected the case under compulsory scrutiny and notice was issued to the assessee u/s 143(2) of the Act. In response to the notice, Ld. Authorized representative of the assessee attended the proceedings. The AO noticed that during the year under consideration, the assessee had declared total turnover of Rs.46,51,027/- from the business of sale/purchase of yarn from which total income of Rs.14,160/- has been declared. The AO called upon the assessee to give party-wise details of purchases. In response to that, the assessee submitted the details. Out of 2

ITA No. 7393/Del/2019 Assessment Year: 2016-17 these parties, the Assessing Officer noticed that the assessee has also made purchases from M/s NYR Creations Pvt. Ltd., Rohini, Delhi. Thereafter, the AO proceeded to verify the factum of these purchases from the concerned parties. The AO found that the assessee has taken accommodation entry from M/s. Shivji Garments (P.) Ltd. of Rs.4,53,940/-; from M/s Shivangi garments (P.) Ltd. of Rs.6,23,560/- and also from M/s. NYR Creations (P.) Ltd. of Rs.7,87,580/-. Hence, the AO made addition of these entries and also added the commission of Rs.74,603/-. Hence, the AO assessed the income of Rs.19,53,840/-. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, dismissed the appeal of the assessee and confirmed the addition. The aggrieved assessee is before this bench with the grounds as noted above against the upholding the addition by the ld. CIT(A). 5. The ld. counsel of assessee submitted that the CIT(A) and AO have erred both on facts and in assessing the income of the appellant at an income of Rs.19,53,840 as against income of Rs.14,160 declared by the appellant and submitted that authorities below have grossly erred in making and confirming the addition on account of bogus purchase and commission expenses only on the basis surmises and conjectures without brining on any direct evidence against the assessee only on the basis of presumptions and assumptions despite the fact the assessee brought on record all possible evidence under his command proving the genuineness of transaction. The ld. counsel also submitted that the authorities below have erred both on facts and in law in not following the decision of the Hon'ble Supreme Court in the case of PCIT v. Tejua Rohitkumar Kapadia (256 Taxman 213) which held that purchases cannot be treated as bogus where the purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque, seller also confirmed transaction and there was no evidence to show that amount was recycled back to assessee. 6. The ld. counsel also submitted that the CIT(A) and AO have erred on facts and in law in not accepting the purchases of the appellant whereas the sales, closing stock and the opening stock emanating from the books of accounts have been duly accepted and thus in holding that the transaction as a colorable device despite the same having been done through proper banking channels, as shown by relevant documentary evidences. He vehemently pointed out that the addition on the basis of material collected at the back of the appellant and without providing an opportunity to rebut the same, thus, violating the principle of natural justice and relying on the certain statements recorded without providing an opportunity of cross examine the persons in violation of principle of natural justice. Ld. counsel placing reliance on the orders of ITAT Delhi in the case of Manoj Sharma vs. ITO reported as (2019) 103 taxmann.com 105 (Del Trib.) and order

ITA No. 7393/Del/2019 Assessment Year: 2016-17 of ITAT Mumbai in the case of CIT vs Nikunj Eximp Enterprises (P) Ltd. (2013) 35 taxmann.com 384 (Bom) submitted that where entries in assessee’s trading account including quantitative tally of purchases, opening stock, sales and closing stock were found to be correct no addition can be made on account of unexplained purchases. 7. The ld. counsel has also place reliance on the judgment of Hon’ble High Court of Gujarat in the case of PCIT vs. Jagdish H Patel reported as (2017) 84 taxmann.com 259 (Guj.) and judgment of Hon’ble High Court of Bombay in the case of PCIT vs. S.V Jiwani reported as (2022) 145 taxmann.com 230 (Bom.) submitted that the assessee has made purchases which seem to be accommodation entries by the Assessing Officer, then also entire purchase amount cannot be added as income only profit element embedded therein was to be treated as income of assessee. The ld. counsel submitted that when the Assessing Officer has accepted sales recorded by the assessee then the corresponding purchases cannot be doubted as there can be no sales without purchases. The ld. counsel submitted that the impugned amount of alleged purchases cannot be taken as income of the assessee maximum to maximum certain percentage thereof can be added in the hands of assessee as an element of profit therein. 8. Replying to the above, the ld. Senior DR strongly supported that orders of the authorities below and submitted that the Assessing Officer has brought enough material on record to show that the transactions were sham and therefore the ld. CIT(A) rightly uphold the addition of Rs. 18,65,080/- on account of alleged bogus purchases and Rs. 74,603/- on account of payment of commission to entry providers and therefore no interference is called for. 9. On careful consideration of above rival submissions and careful perusal of the order of the authorities below and documents placed by the assessee at pages 38 to 75 of assessee paper book, first of all, I note that the Assessing Officer made addition in the hands of assessee on account of three parties by alleging that neither the assessee nor the relevant parties have filed any reply/confirmation with regard to assessee’s claim made from said three parties and thus the transaction could not be verified. However, the ld. CIT(A) allowed the assessee to submit written submission which has been reproduced in para 3 of first appellate order. The assessee, before the authorities below and before this Tribunal, consistently submitting that in all previous year, purchases are being made from many parties including present three parties and all such purchases stood accepted in the earlier years. It was also submitted that the assessee made payments against the purchases through banking channel which was duly reflected in the bank statement as well produce before the authorities below. The ld. Senior DR did not dispute that when the assessee was asked to produce director of M/s. Shivj Garments Pvt. Ltd. then the director of said company Mrs. Surbhi Chandra

ITA No. 7393/Del/2019 Assessment Year: 2016-17 appeared and stated on oath and stated that the transaction of sale of fabric to the assessee is genuine and also stated there is no iota of any accommodation entry providing to the assessee. 10. The submissions made by the assessee before the Assessing Officer as well as ld. CIT(A) has been placed at pages 30 to 37 and 38 to 75 of assessee paper book. I find that the assessee before the ld. CIT(A) filed its financial statement for the year ending of 31st March 2016 wherein the assessee has shown sales/revenue from operation of Rs. 46,51,027/- and cost of material consumed/purchase of stock in trade has been shown as Rs. 44,61,060/- which is lesser than the impugned amount of purchases of Rs. 18,65,080/-. The assessee, before the ld. CIT(A) submitted copies of confirmations from all three entities and copies of relevant bills and ITR of M/s. Shivj Garments P. Ltd. assessee also filed stock statement, purchase and sale registers and bank statement for FY 2015-16 showing that all transactions of purchases have been included in the purchases shown in the P&L account and payments have been made through banking channels. From the submissions submitted before the ld. CIT(A), I further note that the assessee company consistently explained that the assessee had made payment to the respective parties through banking channel and no sum or amount has never been introduced in the books of accounts rather amounts has gone out of coffer of assessee. The assessee also challenge of section 68 of the Act on the said premise. The assessee also alleged that the authorities below has relied on the statements of third party which cannot be taken into consideration against the assessee unless the assessee is given an opportunity to cross examine on him. These contentions have not been met or rebutted by the ld. CIT(A) while adjudicating the grounds no. 2 to 6 of assessee. 11. It is also pertinent to take respectful cognizance of judgment of Hon’ble Supreme Court in the case of PCIT vs. Tejua Rohitkumar (supra) wherein it was held that purchases cannot be treated as bogus where the purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque, seller also confirmed transaction and there was no evidence to show that amount was recycled back to assessee. From assessment order page 4 to 8, I note that the Assessing Officer has relied on the statement Mrs. Surbhi Chandra and he has reproduced her statement from which, I note that the assessee has not been provided opportunity to cross examine her. Even the statements recorded by the investigation wing during search and seizure operation on Gem Brothers, which was picked up by the investigation wing and sent to the Assessing Officer for initiating for taking action against the assessee have not been confronted to the assessee and therefore conclusion drawn by the authorities below has to be held has bad in law.

ITA No. 7393/Del/2019 Assessment Year: 2016-17 12. I also find force in the contention of the ld. counsel of assessee that the even the addition on account unexplained expenditure has been made only on the basis of investigation wing report that Jain Brothers were in the business of providing accommodation entry to beneficiaries in view of cash through their paper/shell companies for a commission at the rate of 2.5 to 4% of turnover in view of cash and there is no iota of evidence against the assessee before the authorities below that it has paid cash to the accommodation entry providers and in lieu of that received cheque showing bogus purchases and received commission against said transactions. In absence of any positive and adverse material against the assessee showing and establishing above facts, no addition can be made in the hands of assessee on account of allege bogus purchases u/s. 68 of the Act or any other charging section of the Act and on account of commission payment. 13. However, to cover up all possible leakage of revenue, I find it appropriate to follow the preposition rendered by Hon’ble High Court of Bombay in the case of PCIT vs. Mohd. Hazi Adam (supra) and restrict the addition to the element of profit embedded therein. In my humble view the GP rate declared by the assessee as per audited accounts may be a relevant fact but the same is not suffice to meet the requirement of tax proceedings. Therefore keeping in view entire factual position and rival submissions of both the sides I find it appropriate to restrict the addition to the tune of 8% of total impugned sales which is sufficient to cover all possible leakage of revenue. Accordingly, additions upheld by the ld. CIT(A) are substituted by the 8% of total alleged purchases. Accordingly, the grounds no. 3 & 4 of assessee are partly allowed.

Sd/- (CHANDRA MOHAN GARG) JUDICIAL MEMBER Dated: 23rd June, 2023. NV/- Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 6

ITA No. 7393/Del/2019 Assessment Year: 2016-17 4. CIT(A) 5. DR // By Order //

Asstt. Registrar, ITAT, New Delhi