ACIT CENTRAL CIRCLE 7 (1), MUMBAI V. DILSHAD TRADING COMPANY PRIVATE LIMITED, MUMBAI

ITA 3053/MUM/2025

AI Insights

The case involves multiple appeals by the Revenue and the assessee, Dilshad Trading Co. Private Limited, concerning the assessment years 2013-14 to 2018-19. The appeals arose from a common order passed by the Commissioner of Income Tax (Appeals)-49, Mumbai, under section 250 of the Income Tax Act, 1961. The primary issues revolved around the rejection of books of account, estimation of additional income, and additions under section 68 of the Act. The Tribunal examined the findings of the Assessing Officer, which were based on a search and seizure operation, and the subsequent assessments which alleged that the assessee was involved in non-genuine trading activities and accommodation entries. The Tribunal's decision was influenced by the lack of concrete evidence linking the assessee to undisclosed income beyond what was already recorded in the books.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848502 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2026
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2017-2018
• Appeal Filed On: 30-04-2025
• Other Referred Cases: CIT vs. State Trading Corporation of India Ltd., Dhakeshwari Cotton Mills Ltd. v. CIT, Subhkaran & Sons, Supreme Holdings and Hospitality (India) Limited, Duli Trade Commodities Pvt Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: UMA SHANKAR PRASAD; LD
• Assessee Lawyers: SIDDHARTH SRIVASTAVA; LD
• Keywords: Business income; Business expenditure; Corroborative evidences; Depreciation; Rejection of books of accounts; Income from undisclosed sources; Document seized; Documents seized; Bogus purchase; Search and seizure; Accommodation entries; Block assessment; Validity of assessment; Bogus
• Section: 143(3); 142(1); 132; 153A; 68; 131; 133(6); 139; 145; 37; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER 1. ITA No. 2803/Mum/2025 (Assessment Year: 2013-14) 2. ITA No. 2802/Mum/2025 (Assessment Year: 2014-15) 3. ITA No. 2804/Mum/2025 (Assessment Year: 2015-16) 4. ITA No. 2799/Mum/2025 (Assessment Year: 2016-17) 5. ITA No. 2800/Mum/2025 (Assessment Year: 2017-18) 6. ITA No. 2801/Mum/2025 (Assessment Year: 2018-19) Dilshad Trading Co. Private Limited 1, 3rd Floor, 14A, Sukhia Building, Cawasji Patel Road, Horniman Circle, Fort, Mumbai -400 001 Vs. DCIT Central Circle-7(1), Room No. 653, 6th floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400 020 PAN/GIR No. AAACD1652Q (Applicant) (Respondent) & 7. ITA No. 3050/Mum/2025 (Assessment Year: 2013-14) Printed from counselvise.com 2 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 8. ITA No. 3051/Mum/2025 (Assessment Year: 2014-15) 9. ITA No. 3093/Mum/2025 (Assessment Year: 2015-16) 10. ITA No. 3052/Mum/2025 (Assessment Year: 2016-17) 11. ITA No. 3053/Mum/2025 (Assessment Year: 2017-18) 12. ITA No. 3054/Mum/2025 (Assessment Year: 2018-19) DCIT Central Circle-7(1), Room No. 653, 6th floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400 020 Vs. Dilshad Trading Co. Private Limited 1, 3rd Floor, 14A, Sukhia Building, Cawasji Patel Road, Horniman Circle, Fort, Mumbai -400 001 (Applicant) (Respondent) Assessee by Shri Siddharth Srivastava, Ld. AR Revenue by Shri Umashankar Prasad, Ld. DR Date of Hearing 11.02.2026 Date of Pronouncement 27.03.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: These appeals filed by the assessee as well as the Revenue arise out of the common order passed by the learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter Printed from counselvise.com 3 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited referred to as \"CIT(A)\"]under section 250 of the Income Tax Act, 1961[hereinafter referred to as \"the Act\"], for Assessment Years 2013–14 to 2018–19.The assessments for all the years were framed by the ACIT, Central Circle-7(1), Mumbai [hereinafter referred to as \"Assessing Officer”],under section 153A of the Act pursuant to search action under section 132. Since common facts and identical issues are involved, these appeals are heard together and disposed of by this consolidated order, taking A.Y. 2013–14 as the lead year. Accordingly, the findings and conclusions rendered hereinafter shall apply mutatis mutandis to all other assessment years under consideration. Facts of the Case 2. A search and seizure action under section 132(1) of the Act was carried out on 17.04.2018 in the case of Jatia Group and other related entities, including the assessee company. The search concluded on 21.04.2018. The assessee was found to be part of a group engaged primarily in the business of steel trading and related activities. Consequent to the search, the case of the assessee was centralized with the DCIT, Central Circle-7(1), Mumbai for coordinated investigation. Thereafter, notice under section 153A dated 23.10.2019 was issued for all the years under consideration. In response, the assessee filed returns of income for respective years, generally reiterating the originally returned income. Notices under sections 143(2) and 142(1) were thereafter issued and complied with. Printed from counselvise.com 4 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 3. During the course of search and assessment proceedings, the Assessing Officer examined the seized material, including books of account maintained in tally software. The Assessing Officer recorded a categorical finding that the assessee was not engaged in any genuine trading activity. The key findings of the Assessing Officer, consistently recorded across all years, are as under: i. There was no evidence of actual movement of goods, such as transport documents, lorry receipts, weighment slips or delivery challans; ii. The assessee failed to produce purchase orders, sales orders or inventory records either during search or assessment proceedings; iii. The transactions reflected in books were back-to-back purchases and sales without physical delivery; iv. Statements recorded during search indicated that certain counterparties were dummy entities acting on instructions; v. The seized material demonstrated that transactions were structured only to avail Letters of Credit (L/Cs) from banks and to artificially inflate turnover; vi. The entire trading activity was carried out through paper entities for providing accommodation entries. 4. The Assessing Officer has specifically observed that - “The assessee company has been found to be not conducting any business activity. There was no iota of evidence to indicate transactions Printed from counselvise.com 5 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited that involved actual movement of material. All the documents merely pointed out to invoices backed by no material movement.” (para 6 of the order) 5. Further, it was observed that: “The documents retrieved and books of account seized during the course of intrusive action clearly pointed to the manufacture of make-believe invoices to avail L/C from banks and artificially inflate sales and purchase figures in the financials in order to satisfy the bank requirements to continue availing L/C and keep the circular bogus transactions between all the entities flowing.” (para 6 of the order). 6. On analysis of the books, the Assessing Officer noted that the assessee had recorded huge turnover by way of corresponding purchases and sales through shell entities. Based on the above findings, the Assessing Officer concluded that the books of account were not reliable and accordingly rejected the same under section 145(3) of the Act.Thereafter, treating the entire trading activity as non-genuine accommodation entries, the Assessing Officer estimated income by applying a profit rate of 7% on the turnover and made additions to the returned income for each year. 7. The year-wise particulars as emerging from the respective assessment orders are tabulated below: (Figures in Rs. Lacs) Particulars A.Y. 2013–14 A.Y. 2014– 15 A.Y. 2015–16 A.Y. 2016–17 A.Y. 2017–18 A.Y. 2018– 19 Total Income as per ROI filed u/s 139 533.64 559.00 513.02 560.82 48.18 (139.85) Total Income as per ROI 533.64 559.00 513.02 560.82 48.18 (139.85) Printed from counselvise.com 6 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited filed u/s 153A Add: Addition as per earlier 143(3) 4.92 — — — — — Add: Addition of Income 2065.00 1783.94 2195.54 2457.65 3167.53 3575.66 Add: Disallowance of Depreciation 9.13 9.57 40.56 42.62 27.76 17.03 Add: Disallowance of Indirect Expenses 1763.25 2396.69 2105.65 2195.87 7907.74 1061.42 Add: Addition of Unsecured Loans 9837.16 4180.36 7162.19 8710.39 243.00 — Assessed Total Income 14213.09 8929.57 12016.96 13967.35 11394.20 4514.26 8. The assessee carried the matter in appeal before the learned CIT(A), who passed a common order under section 250 for all the assessment years. The learned CIT(A), after considering the assessment orders and submissions, recorded the following findings: i. The rejection of books of account by the Assessing Officer was justified in view of lack of supporting evidences; ii. However, the conclusion that the entire turnover was non- genuine could not be sustained; Printed from counselvise.com 7 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited iii. Even in cases involving accommodation entries, only the profit element embedded in such transactions can be brought to tax; iv. The estimation made by the Assessing Officer was excessive and not supported by any rational basis. 9. Accordingly, the learned CIT(A) held that a reasonable estimation of profit would meet the ends of justice and restricted the addition to 0.5% of the turnover for all the years under consideration. 10. Aggrieved by the orders of CIT(A), the Revenue and Assessee are in cross appeals before us. 11. Revenue’s all (six) appeals contain identical grounds of appeal which are as follows: 1. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of the assessee by disregarding the rejection of books of accounts under Section 145 of the Income Tax Act, 1961, by the AO, which was justified based on the non- genuineness of the transactions and lack of supporting documents. 2. On facts and circumstances of the case and in law, The Ld. CIT(A) failed to appreciate the fact that the AO had sufficient evidence, including statements recorded during the search operation, and corroborative material, which clearly established that the assessee company was involved in providing accommodation entries and the transactions recorded were not genuine. 3. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in upholding the assessee’s contention that the books of accounts were correct and complete despite the fact that the assessee failed to provide basic documents such as stock registers, purchase invoices, sales invoices, inward and outward movement of Printed from counselvise.com 8 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited goods, and transport documents, which further supports the AO’s conclusion regarding the rejection of the books under Section 145(3). 4. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in reducing the additional income from 7% to 0.5% of the turnover when the facts and circumstances clearly indicate that the assessee, being involved in high-risk accommodation entry activities, earned additional commission income at a higher rate of 7%, which was rightly estimated by the AO. 5. On facts and circumstances of the case and in law, The Ld. CIT(A) failed to consider the high level of risk taken by the assessee in facilitating L/C funding and booking accommodation entries, and thus erred in reducing the estimated commission rate from 7% to 0.5% of turnover, which is inconsistent with the facts and the financial performance of similar entities involved in similar transactions. 6. On facts and circumstances of the case and in law, The Ld. CIT(A) failed to acknowledge the legal position that the Assessing Officer is the best judge to estimate the income when the books of accounts are rejected under Section 145(3), as per the judicial precedents in the case of CIT vs. State Trading Corporation of India Ltd. (2010) 328 ITR 257 (Delhi), where it was held that the AO’s estimation of income was valid in cases of rejection of books of accounts. 7. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in holding that the expenses claimed by the assessee, including indirect expenses and depreciation, should be allowed as deductions, despite the clear evidence that the assessee was involved in bogus transactions and illegal activities. 8. On facts and circumstances of the case and in law, The Ld. CIT(A) failed to consider the fact that the assessee’s business activities were based on false and fabricated transactions and therefore, any expenses claimed by the assessee in relation to these activities cannot be allowed as a deduction under Section 37 of the Income Tax Act, 1961. 9. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in allowing the depreciation claim without properly considering the fact that the assessee had not carried out any genuine business Printed from counselvise.com 9 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited activity, and as per established legal principles, depreciation can only be allowed on assets used for business activities. 10. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in failing to appreciate that the assessee had contravened provisions of the RBI Act, Money Lenders Act, and the Income Tax Act by engaging in illegal activities involving the diversion of LC funds through paper transactions, and as such, any expenses related to these activities should not be allowed as deductions. 11. On facts and circumstances of the case and in law, The Ld. CIT(A) erred in deleting the addition made under Section 68 of the Income Tax Act, 1961. The CIT(A) failed to consider that the assessee did not discharge its onus of proving the genuineness of the loan transactions and the creditworthiness of the lending entities. 12. On facts and circumstances of the case and in law, The Ld. CIT(A) failed to appreciate the findings of the then AO, who had established that the lending companies were part of a network engaged in bogus circular trading. The CIT(A) did not consider the fact that the lending companies had no actual business activity, and the loans were merely accommodation entries. 13. The appellant craves leave to add to alter, amend, modify and/or delete any or all of the above said grounds of appeal. The appellant reserves its right to file further submission in the appeal. 12. The grounds of appeal raised by the assessee, as extracted from the record in ITA No. 2803 (A.Y. 2013–14) and stated to be common across all appeals, are reproduced as under: 1. The Learned DDIT(Inv.). Unit-1(2), Mumbai, erred in issuing search warrant No. MUM C/U-4/18-19/06 dated 17.04.2018, led by Team- JWO-6, without having any information in its possession on the basis of which a reasonable belief can be founded that the appellant has omitted or failed to produce books of accounts or other documents before conducting search action u/s 132 of the Act or that the appellant was in possession of any money, bullion, jewellery or other valuable article which represents wholly or partly any income or property, which has not been disclosed by the appellant. In view of the same, the search warrant No. MUM C/U-4/18-19/06 dated 17.04.2018, led by Team- Printed from counselvise.com 10 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited JWO-6, is clearly illegal, bad in law and ultra-vires the provisions of the Income tax Act 1961. 2. The Learned DDIT(Inv.). Unit-1(2), Mumbai, erred in issuing search warrant No. MUM C/U-4/18-19/06 dated 17.04.2018, led by Team- JWO-6, in the name of M/s. Asuti Trading Pvt. Ltd., without appreciating the facts that Asuti Trading Pvt. Ltd neither has as an office at 1, Pearl Mansion [N], 91, M. Karve Road, Mumbai -400 020 nor Vinod Jatia group of Companies have any ownership in Asuti Trading Pvt Ltd. 3. The Learned DDIT(Inv.). Unit-1(2), Mumbai and The Learned Assessing Officer erred in alleging the appellant of being engaged in the practice of providing bogus Back-To-Back sales & purchases entries from the various paper companies and thereafter further erred in alleging the appellant of having arrangements with directors and promoters of Topworth Group, Lloyds Group and Uttam Galva Group without having any evidence whatsoever claimed to have been gathered during pre and post search investigation and even during the course of assessment proceedings as well. 4. The Learned DDIT(Inv.). Unit-1(2), Mumbai and The Learned Assessing Officer erred in alleging the appellant of framing Vinod Jatia Group of Companies by literally sending and addressing Notices to all suppliers and Customers of Vinod Jatia Group of Companies and thereby damaging his reputation and goodwill. 5. The Learned Assessing Officer erred in issuing notice u/s 153A of the Income Tax Act, 1961 without appreciating the fact that there are no incriminating documents in seized material suggesting that any income has escaped assessment. Hence, the notice issued u/s 153A of the Act is clearly Bad in Law, illegal and ultra-vires the provision of the Act. 6. The Learned CIT (A)-49 Mumbai has erred in estimating additional Income at the rate of 0.5% of sales of Rs. 391,44,29,123/- which come to Rs. 1,95,72,146/- without appreciating the facts of the case in the right perspective. 7. The ground of appeal is without prejudice to the other. 8. The appellant reserve the right to amend, alter or add to the grounds of appeal. Printed from counselvise.com 11 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 13. Upon consideration of the grounds raised by both the assessee as well as the Revenue across all the years under consideration, it is observed that the controversy essentially revolves around three core issues. i. Whether the addition on account of gross profit / estimation of income is justified and, if so, at what rate; ii. Whether the disallowance of indirect expenses is sustainable; and iii. Whether the addition on account of unsecured loans under section 68 is legally tenable. 14. We shall now deal with and adjudicate each of the aforesaid issues separately. Issue Related with addition on account of estimation of income by applying gross profit rate on the alleged turnover. 15. The learned Departmental Representative, relying upon the assessment orders, took us through the relevant findings recorded by the Assessing Officer and strongly supported the action of the Assessing Officer in rejecting the books of account and estimating the income. 16. The learned DR, elaborating upon the findings recorded in the assessment order, submitted that during the course of search and seizure action under section 132 of the Act, the books of account of the assessee maintained in tally software were seized and subjected to detailed analysis. It was contended that such analysis clearly revealed that the assessee was not engaged in Printed from counselvise.com 12 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited any genuine business activity. The learned DR drew our attention to the specific finding of the Assessing Officer that there was no evidence whatsoever to indicate actual movement of goods and that the transactions recorded in the books were merely invoices without any underlying material movement. It was further pointed out that even the director of one of the trading concerns had admitted to being a dummy acting on instructions, thereby supporting the allegation that the transactions were not genuine. 17. The learned DR further submitted that during the course of search as well as post-search and assessment proceedings, the assessee failed to produce any documentary evidence in support of actual trading activities such as transport documents, inventory records, sales and marketing records or any evidence relating to movement of goods. It was emphasized that the seized material demonstrated that the transactions were structured only to generate make-believe invoices with the objective of availing letter of credit facilities from banks and artificially inflating turnover so as to sustain circular trading amongst various entities. 18. Referring further to the assessment order, the learned DR pointed out that the Assessing Officer had examined the ledger accounts and the pattern of transactions and observed that the letter of credit facilities were misused by routing back-to-back purchases and sales through shell entities belonging to Topworth Group, Uttam Galva Group and Lloyds Group. It was submitted that such arrangement clearly established that the assessee was Printed from counselvise.com 13 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited engaged in providing accommodation entries and facilitating finance through banking channels without any real underlying trade. 19. The learned DR also relied upon the findings of the Assessing Officer that physical verification of the business premises of the concerned entities revealed that such entities were non-existent or not engaged in any genuine business activity. Based on these facts and the corroborative evidences gathered during investigation and assessment proceedings, it was contended that the Assessing Officer had rightly concluded that the assessee was engaged in the practice of providing bogus back-to-back purchase and sale entries through paper companies and, therefore, the rejection of books and estimation of income was fully justified. 20. Referring to the graphical representation placed on record, the learned DR further explained the modus operandi adopted by the assessee, as noted by the Assessing Officer. It was submitted that the data and material gathered during the course of search and subsequent assessment proceedings clearly demonstrated that the assessee had misused the banking credit facilities, particularly the letter of credit mechanism. 21. The learned DR submitted that the assessee had routed transactions through various paper and shell entities belonging to Topworth Group, Uttam Galva Group and Lloyds Group by booking bogus purchases. These entities, in turn, discounted the bills with banks and funds were released through the letter of Printed from counselvise.com 14 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited credit mechanism. It was pointed out that the banks, on behalf of the Vinod Jatia Group of Companies, transferred funds to such shell entities, which were thereafter routed to other group concerns for actual utilisation. 22. It was thus contended that the entire chain of transactions was merely a circuitous movement of funds through banking channels without any corresponding movement of goods. The learned DR emphasized that all the alleged purchases were supported only by letter of credit payments and that multiple LCs were opened during the year solely for routing such bogus transactions. According to the learned DR, this clearly established that the assessee was engaged in providing accommodation entries by artificially inflating purchases and sales, and therefore, the findings of the Assessing Officer rejecting the books of account and estimating income were fully justified. 23. The learned DR further drew our attention to the detailed findings of the Assessing Officer to submit that the entire pattern of transactions clearly establishes that the assessee was dealing only within a closed circuit of group entities and not with any independent third parties. It was pointed out that the Assessing Officer has identified specific entities from whom the assessee allegedly made purchases and to whom sales were recorded, and that all such entities were either paper companies or belonged to the Topworth Group, Uttam Galva Group and Lloyds Group. 24. The learned DR emphasized that the Assessing Officer, on examination of the purchase and sales registers, has categorically Printed from counselvise.com 15 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited recorded that the assessee had booked bogus purchases from such shell entities and immediately thereafter corresponding sales were made to similar entities within the same group. It was submitted that there were no transactions with unrelated parties and that the entire turnover represented back-to-back entries within the same group, thereby demonstrating that the transactions lacked commercial substance. 25. It was further submitted that the Assessing Officer has specifically observed that once bogus purchases were recorded from entities of a particular group, the corresponding sales were also booked to entities of the same group, and no inter-group independent transactions were carried out. This, according to the learned DR, clearly establishes that the transactions were pre- arranged accommodation entries and not genuine business transactions. 26. The learned DR also referred to the enquiries conducted under section 133(6) and submitted that the majority of the parties failed to furnish any meaningful details or supporting evidences. It was further pointed out that during the course of search, the business premises of several such entities were found to be closed and statements recorded from certain directors revealed that these entities were merely paper companies with no actual business activity and no movement of goods. 27. The learned DR further submitted that the Assessing Officer had carried out detailed financial profiling and money trail analysis of these entities, which demonstrated that the funds Printed from counselvise.com 16 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited were routed through banking channels without any corresponding delivery of goods. It was also pointed out that many of these entities had either not filed returns of income or had declared negligible income, had no financial capacity to undertake such large transactions, and in several cases funds were routed through security premium accounts. 28. It was thus contended that the cumulative evidences, including the failure of parties to respond to summons under section 131, absence of supporting documents, and the financial incapacity of the counterparties, clearly establish that the assessee was engaged in circular trading through paper entities and that the Assessing Officer was justified in treating the transactions as non-genuine and estimating the income accordingly. 29. The learned DR further submitted that the enquiries conducted during post-search investigation as well as during the course of assessment proceedings clearly demonstrated the non- genuine nature of the transactions. It was pointed out that summons under section 131 and notices under section 133(6) were issued to various parties to whom the assessee had shown sales or from whom purchases were claimed. These parties were specifically called upon to furnish supporting evidences such as purchase invoices, proof of delivery of goods, details of transporters, and inward and outward registers. However, it was submitted that in response to such statutory notices, most of the parties either failed to respond or furnished only basic and Printed from counselvise.com 17 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited incomplete details, which did not substantiate the genuineness of the transactions. 30. The learned DR further submitted that, in order to independently verify the existence and genuineness of these entities, the Assessing Officer had deputed an Inspector for field verification. As per the report of the Inspector, none of the entities were found to be carrying on any business activity at their registered addresses. In several cases, the premises were either found to be occupied by other concerns or there was no indication whatsoever of the existence of the concerned entities.It was thus contended that the field enquiries conclusively established that these entities were merely paper companies created for the purpose of providing accommodation entries. According to the learned DR, the failure of the parties to furnish complete evidences, coupled with the adverse findings of the Inspector’s report and the absence of any real business activity at the stated addresses, clearly corroborated the conclusion of the Assessing Officer that the transactions recorded by the assessee were not genuine and were merely accommodation entries. 31. The learned DR further invited our attention to the analysis of inward (purchase) and outward (sale) registers extracted from the seized books of account maintained in tally software. It was submitted that such analysis clearly revealed that the assessee had recorded back-to-back purchase and sale transactions without any independent commercial substance. According to the learned DR, once purchases were recorded from certain entities, Printed from counselvise.com 18 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited corresponding sales were immediately booked to other entities within the same group, thereby demonstrating that the transactions were merely accommodative in nature. 32. The learned DR also placed reliance on the statement recorded under section 132(4) of Shri Narsingh Vijay Dhawale, wherein he categorically admitted that the transactions of purchase and sale were largely accommodation entries carried out with entities belonging to Topworth Group, Lloyds Group and Uttam Group. It was pointed out that he had clearly stated that there was no physical movement of goods and that such transactions were undertaken primarily for availing letter of credit facilities from banks and routing funds within the group, with only nominal margins being shown. 33. Referring to the product-wise analysis extracted from the seized material, the learned DR submitted that the same corroborated the statement of Shri Dhawale and established that identical quantities of goods were purchased and sold within the same group of entities. It was emphasized that the purchases made from certain group entities were immediately followed by corresponding sales of the same quantity to other entities of the same group, thereby indicating absence of any real trading activity. 34. The learned DR further pointed out that the gross profit disclosed by the assessee was abnormally low and, in certain years, losses were also reported, which according to him, was consistent with the modus operandi of pre-arranged transactions Printed from counselvise.com 19 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited with minimal margin. It was submitted that the immediate booking of sales upon receipt of purchase invoices with only nominal mark-up further demonstrated that the transactions lacked any commercial basis. 35. The learned DR also referred to the sample invoices examined by the Assessing Officer and submitted that such invoices did not contain essential details such as proof of delivery, transporter details, dispatch particulars, or any evidence of movement of goods. According to the learned DR, this clearly established that the transactions were only paper entries without any actual trading activity. 36. It was thus contended that the cumulative evidences, including the seized records, statement recorded during search, product-wise analysis, and deficiencies in supporting documents, conclusively established that the assessee was engaged in recording bogus purchases and sales by misusing banking facilities, particularly letter of credit arrangements. Therefore, it was submitted that the Assessing Officer was fully justified in rejecting the books of account under section 145 and estimating the income on account of suppression of profit. 37. The learned Departmental Representative further submitted that the Assessing Officer had duly considered the reply furnished by the assessee vide letter dated 17.04.2021 and had effectively rebutted the same. It was contended that the assessee’s claim that all relevant documents such as proforma invoices, tax invoices, delivery challans and L/C documents were Printed from counselvise.com 20 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited furnished is factually incorrect. The learned DR pointed out that the Assessing Officer has recorded a clear finding that documentary evidences relating to actual movement of goods, particularly delivery challans and transport details, were either not furnished or were furnished only selectively. Even in respect of such documents, it was submitted that the same were self- serving in nature, lacking essential particulars such as lorry or truck numbers, delivery addresses and other logistical details, thereby failing to establish actual movement of goods. 38. Addressing the contention of the assessee that the transactions were routed through banking channels and, therefore, should be regarded as genuine, the learned DR submitted that mere routing of funds through banking channels does not ipso facto establish the genuineness of transactions. It was emphasized that the Assessing Officer has rightly observed that banking transactions, particularly those structured through letter of credit facilities, can also be part of accommodation entry arrangements and cannot, by themselves, validate the underlying transactions. 39. The learned DR also submitted that the credibility of the counterparties, namely entities belonging to Topworth Group, Uttam Group and Lloyds Group, is itself questionable and has been subject to scrutiny in various proceedings. It was thus contended that the assessee’s reliance on the financial standing of such entities is misplaced. Printed from counselvise.com 21 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 40. In view of the above, the learned DR submitted that the Assessing Officer has rightly rejected the explanation of the assessee and has correctly concluded that the transactions recorded in the books are not genuine but are merely accommodation entries supported by incomplete and unreliable documentation. Accordingly, the rejection of books of account and estimation of income was justified. 41. The learned DR further addressed the objections raised by the assessee with regard to alleged denial of opportunity of cross- examination. It was submitted that the Assessing Officer had, in fact, provided opportunity to the assessee; however, the concerned deponents did not appear as scheduled. It was further contended that the assessee, despite raising such grievance, failed to specify the particular portions of the statements which it intended to controvert through cross-examination. According to the learned DR, a mere demand for cross-examination, without pointing out any specific factual inaccuracy or contradiction, cannot invalidate the findings recorded by the Assessing Officer. It was emphasized that, in any case, the assessee was not precluded from substantiating its claim by producing independent evidences of actual purchase, sale and movement of goods, which it failed to do. 42. The learned DR also referred to a specific illustration relied upon by the Assessing Officer in respect of transactions with one entity, namely M/s Maruti Strips and Ferro Alloys Private Limited. It was submitted that even in this case, despite issuance Printed from counselvise.com 22 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited of notice under section 133(6), the said entity failed to furnish any evidence to establish actual purchase and sale of goods. The learned DR pointed out that the assessee produced a delivery challan at a belated stage and only in respect of a single transaction, which by itself could not establish genuineness of the entire volume of transactions undertaken during the year. 43. The learned DR further submitted that the assessee’s contention that the transactions being routed through banking channels and letter of credit facilities establish their genuineness is misconceived. It was contended that large-scale misuse of banking channels, including LC mechanisms, has been observed in various instances and, therefore, mere routing of funds through banks cannot be regarded as conclusive proof of genuineness. According to the learned DR, instead of discharging its onus by demonstrating actual movement of goods, the assessee has sought to shift the burden by implicating the banking system, which is not tenable. 44. The learned DR also submitted that the assessee had referred to stock audits conducted by banks; however, no material was placed on record to demonstrate that any physical verification of stock was actually carried out. It was pointed out that the stock audit reports relied upon by the assessee do not contain any categorical finding that physical stock was verified and found to exist. In these circumstances, it was contended that the reliance placed by the assessee on such stock audit reports is misplaced. Printed from counselvise.com 23 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 45. In view of the above submissions, the learned DR reiterated that the assessee had failed to establish the genuineness of the transactions and that the Assessing Officer was justified in treating the same as accommodation entries and estimating the income accordingly. 46. The learned DR further justified the rejection of books of account by placing reliance on the detailed findings recorded by the Assessing Officer. It was submitted that the Assessing Officer has categorically held that the assessee was engaged in pre- arranged transactions of purchases and sales which were not governed by normal market forces but were structured to suit predetermined objectives. 47. The learned DR pointed out that the Assessing Officer has recorded a clear finding that the assessee failed to furnish any credible evidence regarding the nature and movement of goods allegedly traded. It was emphasized that except for ledger entries, no supporting documentary evidences such as proper purchase and sale invoices containing complete particulars of goods, transportation details or delivery records were furnished during the assessment proceedings. 48. It was further submitted that the Assessing Officer has also observed that the sundry debtors and creditors reflected in the books were largely non-genuine entities. Even the details of unsecured loans furnished by the assessee were found to be inconsistent with the data extracted from the seized material, Printed from counselvise.com 24 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited thereby casting serious doubt on the correctness and completeness of the books of account. 49. On the basis of these findings, the learned DR submitted that the Assessing Officer has rightly concluded that the assessee was merely acting as an accommodation entry provider by recording bogus purchases and sales without any actual delivery of goods. Accordingly, the books of account, though audited, did not present a true and fair view of the affairs of the assessee and were liable to be rejected under section 145(3) of the Act. 50. The learned DR further submitted that after rejecting the books, the Assessing Officer proceeded to estimate the income by applying a net profit rate of 7% on the total turnover. It was pointed out that against such estimated income, the assessee had declared profit at a much lower rate of 1.73%, and therefore, the difference amounting to Rs. 20,65,00,350/- was rightly added to the total income. 51. In support of the estimation, the learned DR also pointed out the judicial precedent relied upon by the Assessing Officer in the decision of the Hon’ble Madras High Court in the case of CIT vs. Rayala Corporation (P) Ltd. (215 ITR 883), to contend that in a best judgment assessment, the Assessing Officer is entitled to make a reasonable estimate based on material available on record, and such estimate cannot be interfered with unless it is shown to be arbitrary or without basis. Printed from counselvise.com 25 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 52. In view of the above, it was submitted that both the rejection of books of account and estimation of income made by the Assessing Officer are in accordance with law and the learned CIT(A) was not justified in restricting the addition. 53. The learned DR further clarified that the addition made by the Assessing Officer is not in the nature of commission income for providing accommodation entries, but represents suppressed business profits arising from the assessee’s trading activities. It was submitted that the Assessing Officer has treated the entire turnover as part of the assessee’s business operations and, after rejecting the books of account, has estimated the income by applying a profit rate on such turnover. Accordingly, it was contended that the addition has been rightly characterised as business income on account of suppression of profits and not merely as commission for facilitating accommodation entries. 54. The learned DR, adverting to the findings of the learned CIT(A), submitted that the relief granted by the first appellate authority is not justified either on facts or in law. 55. It was pointed out that the learned CIT(A), while dealing with the issue of rejection of books of account, has held that since the figures in the books were relied upon for estimation and certain debtors were admitted in NCLT proceedings, the books could not have been rejected under section 145 of the Act. The learned DR submitted that such reasoning is internally inconsistent inasmuch as the learned CIT(A) has accepted the existence of circular transactions and yet declined to uphold the Printed from counselvise.com 26 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited rejection of books. It was contended that once the foundational finding is that the transactions are not genuine and are in the nature of circular accommodation entries, the books of account, even if audited, cannot be said to reflect a true and fair view and were rightly rejected by the Assessing Officer. 56. The learned DR further submitted that the learned CIT(A) has erred in observing that the regular income from such transactions stands accounted for in the books. It was contended that the very basis of the assessment order is that the transactions recorded in the books themselves are not genuine and therefore, the profit disclosed therein cannot be accepted as reflecting real income. According to the learned DR, mere admission of certain claims before NCLT does not validate the genuineness of underlying transactions for the purpose of income-tax proceedings. 57. Referring to the estimation of income, the learned DR submitted that the Assessing Officer had applied a profit rate of 7% on the turnover considering the nature of activities, including misuse of letter of credit facilities and the risks undertaken by the assessee in facilitating such transactions. It was contended that the learned CIT(A), while agreeing in principle that some additional income has been earned by the assessee from such activities, has arbitrarily reduced the rate to 0.5% by following another case, without appreciating the peculiar facts of the present case. Printed from counselvise.com 27 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 58. The learned DR further submitted that the learned CIT(A) has wrongly characterised the addition as comprising commission income and other ancillary receipts, whereas the Assessing Officer has treated the same as suppressed business profits. It was contended that the activities of the assessee involved large- scale manipulation of turnover and misuse of banking channels and therefore, the estimation of income at a higher rate was justified. 59. It was thus submitted that the learned CIT(A) has erred in (i) not upholding the rejection of books of account, and (ii) substantially reducing the rate of estimation of income from 7% to 0.5%, and therefore, the order of the Assessing Officer deserves to be restored on this issue. Disallowance of Indirect Expenses 60. The learned DR, adverting to the findings of the learned CIT(A) on the issue of disallowance of indirect expenses, submitted that the learned CIT(A) has erred in allowing the claim of the assessee without appreciating the factual matrix brought on record by the Assessing Officer. 61. It was pointed out that the learned CIT(A) has proceeded on the premise that the assessee had disclosed income from the alleged circular transactions in its books and, therefore, the corresponding expenditure, including indirect expenses and depreciation, ought to be allowed. The learned DR submitted that such reasoning is fundamentally flawed, inasmuch as the Printed from counselvise.com 28 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited Assessing Officer has categorically held that the entire business model of the assessee is based on non-genuine and accommodation transactions, and therefore, the expenditure claimed cannot be said to have been incurred wholly and exclusively for the purpose of genuine business. 62. The learned DR further submitted that the learned CIT(A) has observed that it is not the case of the Assessing Officer that the expenses were not actually incurred. However, according to the learned DR, the very finding of the Assessing Officer is that the transactions themselves are not genuine and, therefore, the allowability of expenditure cannot be examined in isolation from the nature of such transactions. It was contended that once the underlying activity is found to be non-genuine, the related expenditure cannot be automatically allowed merely because entries exist in the books. 63. It was also submitted that the learned CIT(A) has accepted the explanation of the assessee regarding finance charges, including letter of credit charges, bill discounting charges and interest on unsecured loans, without appreciating that such expenses are intrinsically linked to the alleged accommodation entry operations and misuse of banking facilities. The learned DR emphasized that the allowability of such expenses under section 37(1) requires that the expenditure should be incurred for the purpose of legitimate business, which condition is not satisfied in the present case. Printed from counselvise.com 29 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 64. The learned DR further contended that the learned CIT(A) has misdirected himself in holding that payments made to banks cannot be treated as violative of law and therefore allowable, without examining whether the entire arrangement itself was structured for non-genuine purposes. It was submitted that the Assessing Officer has clearly demonstrated that the letter of credit mechanism was used as a tool for routing funds and inflating turnover, and therefore, the associated financial expenses cannot be treated as allowable business expenditure. 65. Accordingly, it was submitted that the learned CIT(A) has erred in deleting the disallowance of indirect expenses and depreciation and that the order of the Assessing Officer on this issue deserves to be restored. Additions under section 68 of the Act. 66. The learned DR further referred to the findings of the learned CIT(A) in relation to the addition made under section 68 and submitted that the learned CIT(A) has erred in deleting the addition without properly appreciating the findings of the Assessing Officer. 67. It was pointed out that the learned CIT(A) has held that the amounts received by the assessee from the four entities represent inter-corporate deposits and that the identity of the parties is established, transactions are routed through banking channels, and most of the amounts have been repaid either in the same Printed from counselvise.com 30 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited year or in subsequent years. On this basis, the learned CIT(A) concluded that the provisions of section 68 are not applicable. 68. The learned DR submitted that such reasoning is contrary to the findings recorded by the Assessing Officer, who has categorically established that these entities are merely paper companies providing accommodation entries and lacking creditworthiness. It was contended that mere routing of transactions through banking channels or subsequent repayment of loans cannot establish the genuineness of the transactions, particularly when the surrounding circumstances indicate that the entities are non-genuine. 69. The learned DR further submitted that the learned CIT(A) has erred in treating the transactions as inter-corporate deposits without appreciating that the assessee has failed to discharge the primary onus cast upon it under section 68 to prove the identity, creditworthiness and genuineness of the creditors in a substantive manner. It was emphasized that the Assessing Officer has brought on record material to show that the lenders were part of the same accommodation entry network and lacked the financial capacity to advance such loans. 70. It was also contended that the learned CIT(A) has placed undue reliance on the fact that repayments were made and that no cash deposits were found prior to the transactions. According to the learned DR, these factors by themselves do not conclusively establish genuineness, especially in cases involving circular routing of funds through banking channels. Printed from counselvise.com 31 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 71. Accordingly, the learned DR submitted that the learned CIT(A) has erred in holding that section 68 is not applicable and in deleting the addition of Rs. 98,37,15,701/-, and therefore, the order of the Assessing Officer on this issue deserves to be restored. 72. The learned Authorised Representative (AR), on the other hand, assailed the very validity of the assessment proceedings and submitted that the entire action of the Department is vitiated in law. The learned AR primarily contended that the additions made by the Assessing Officer are devoid of any factual foundation, inasmuch as there is no identification of any counterparty who has allegedly provided accommodation entries, no correlation or pairing of transactions with any specific party, and no evidence of any cash trail. It was further submitted that no incriminating material whatsoever was found during the course of search to substantiate the allegations of bogus transactions. On this basis, it was argued that the entire addition is based on mere assumptions and is unsustainable in law. 73. The learned AR, in support of the addition made on account of alleged business profits, placed reliance on the decision of the Co-ordinate Bench in the case of Subhkaran & Sons (ITA Nos. 2906, 2907, 2908, 2909 and 2910/MUM/2025) and invited our attention to paragraph 5.6 of the said order. Referring to the said decision, it was submitted that in identical facts arising out of the same search proceedings, the Tribunal has held that in absence of any evidence of unaccounted income or cash trail, no Printed from counselvise.com 32 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited further addition is warranted over and above the profit already disclosed in the books. It was further contended that the Co- ordinate Bench, after examining the industry practices and comparable cases, has observed that the profit margins in such line of business are inherently low and that the profit disclosed by the assessee sufficiently covers any alleged commission income / suppressed profits. 74. The learned AR accordingly submitted that the assessee has already declared gross profit which is higher than the prevailing industry margins as well as comparable entities, and therefore, no further estimation of profit is justified. It was thus contended that the addition made by the Assessing Officer and even the estimation sustained by the learned CIT(A) is unwarranted and liable to be deleted. 75. In so far as the addition made under section 68 on account of unsecured loans is concerned, the learned Authorised Representative placed reliance on the decision of the Co-ordinate Bench in the case of Supreme Holdings and Hospitality (India) Limited in ITA No. 1437/Mum/2024.Referring to paragraph 10 of the decision in Supreme Holdings and Hospitality (India) Limited, the learned Authorised Representative submitted that the primary contention of the Revenue in such cases is founded on a generalized allegation that the lender entities are shell or dubious entities involved in circular trading or misuse of banking facilities such as letter of credit, and therefore, any transaction entered into with such entities, including unsecured loans, ought Printed from counselvise.com 33 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited to be treated as non-genuine. It was submitted that the Co- ordinate Bench, while dealing with such contention, has noted that the Revenue’s case is essentially premised on the background of search findings and alleged modus operandi of certain group entities, without bringing any specific material on record to demonstrate that the loan transactions in the hands of the assessee are sham or fictitious. On the strength of the said observation, the learned AR contended that mere characterization of the lender entities as part of a group allegedly engaged in irregular activities, without establishing a direct nexus between such activities and the loan transaction in question, cannot be a valid basis to disregard the documentary evidences furnished by the assessee. It was thus submitted that suspicion, howsoever strong, cannot take the place of evidence, and in absence of any material demonstrating that the impugned loans are accommodation entries, the addition made under section 68 is unsustainable. 76. In rebuttal, the learned DR assailed the findings of the learned CIT(A) by contending that the relief has been granted primarily on the premise that the claims of the assessee against certain parties have been admitted in proceedings before the NCLT, which, according to the learned DR, itself indicates that funds had been routed and siphoned through such entities and therefore lends support to the case of the Revenue rather than the assessee. Printed from counselvise.com 34 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 77. The learned DR further submitted that the absence of a demonstrable cash trail cannot be held to be decisive in the facts of the present case, inasmuch as the entire modus operandi, as brought out by the Assessing Officer, involves routing of funds through banking channels by way of letters of credit and accommodation entries. It was contended that the benefit to the assessee has accrued in the form of credit facilities and unsecured loans, and therefore, the absence of direct cash movement does not dilute the inference of non-genuine transactions. 78. It was also argued that for the purpose of invoking the provisions of section 68, establishing a cash trail is not a sine qua non. The learned DR emphasised that the crucial requirement under section 68 is to satisfactorily establish the genuineness of the transaction and the creditworthiness of the lender, and where the surrounding circumstances, seized material and statements indicate that the transactions are structured and not backed by real business activity, the same can be treated as non-genuine notwithstanding the movement of funds through banking channels. The learned DR thus contended that in the present case, the issue is not merely of creditworthiness but fundamentally of genuineness of the transactions, which, according to the Revenue, stands seriously impeached in view of the findings recorded by the Assessing Officer regarding circular trading, accommodation entries and misuse of banking facilities. Printed from counselvise.com 35 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 79. We have carefully considered the rival submissions, perused the material available on record, including the assessment orders, the order of the learned CIT(A), and the judicial precedents relied upon by both the parties. The issues arising for our consideration are adjudicated as under, issue-wise. Validity of Assessment u/s 153A 80. The assessee has challenged the validity of assessment on the ground that no incriminating material was found during the course of search. At the outset, we note that the Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell (P) Ltd in Civil Appeal No.6580 of 2021has held that the object of section 153A is to bring under tax undisclosed income which is found during course of search or pursuant to search or requisition, therefore, only in a case where undisclosed income is found on the basis of incriminating material, Assessing Officer would assume the jurisdiction to assess or reassess total income for entire six years block assessment period even in case of completed/unabated assessment. In case of search under section 132 or requisition under section 132A, Assessing Officer assumes jurisdiction for block assessment under section 153A and that all pending assessments/reassessments shall stand abated. In respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A. Printed from counselvise.com 36 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 81. We also note that in the case of Supreme Holdings & Hospitality (India) Ltd., the Co-ordinate Bench declined to entertain challenge to validity of search and held that additions were based on findings of search and statements: 4. Where as in the cross objection, assessee has challenged the validity of search and the search warrant issued in the name of M/s. Asuti Trading Pvt. Ltd., where assessee had no direct or indirect co- relationship in the said entity; and secondly, addition has been made without any incriminating material and therefore, the addition is beyond the scope of Section 153A. After hearing the Ld. Counsel on these grounds, we were prima facie of the opinion that there not much substance as validity of search cannot be looked into by this Tribunal especially whether there was proper satisfaction or not or search in case of assessee was on some mistaken identity; and the addition made are based on findings of the search and statements. Thus, we are not going into the grounds raised by the assessee in the cross objection and accordingly, we are deciding the issue raised in Revenue’s appeal. 82. In the present case, unlike cases of unabated assessments without incriminating material, the Assessing Officer has relied upon seized books in tally, statements recorded during search, pattern of transactions and investigation findings. Therefore, it cannot be said that additions are made in absence of incriminating material. Accordingly, the legal ground of the assessee is dismissed. Addition on account of estimation of income / gross profit 83. We have heard the rival submissions at considerable length and carefully perused the orders of the lower authorities as well as the judicial precedents placed before us. We have also given our thoughtful consideration to the elaborate arguments Printed from counselvise.com 37 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited advanced by the learned Departmental Representative in support of the assessment orders. 84. The case of the Assessing Officer, as strongly supported by the learned DR, is that the assessee was not carrying on any genuine trading activity and that the entire pattern of purchases and sales reflected in the books was nothing but a web of back- to-back accommodation entries routed through concerns belonging to Topworth Group, Lloyds Group and Uttam Group. The learned DR took us through the seized tally data, the purchase and sale registers, the money mapping, the graphical representation of L/C driven transactions, the statements recorded during search, the field enquiries, the notices issued under sections 131 and 133(6), and the physical verification reports. On the strength of the same, it was contended that there was no real movement of goods, no meaningful documentary support such as transport documents, lorry receipts, weighment slips, stock registers or inward and outward records, and that the transactions were designed only to misuse banking credit facilities and generate artificial turnover. The learned DR also emphasised that the purchases and sales were largely confined within the same cluster of related or shell concerns and, therefore, the books did not reflect true and complete affairs of the assessee. It was thus urged that the rejection of books under section 145(3) was fully justified and that the estimation of additional income at 7% of turnover, considering the risk element and the L/C facilitation, deserved to be restored. Printed from counselvise.com 38 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 85. We find considerable force in the submission of the learned DR only to the limited extent that the material brought on record by the Assessing Officer does reveal serious infirmities in the regular books. The analysis made by the Assessing Officer, the absence of primary evidences of physical movement of goods, the pattern of immediate matching purchases and sales, the role of shell entities, and the inability of several parties to substantiate their existence or business operations do justify serious doubt about the correctness and completeness of the books. On these facts, we are unable to agree with the broad reasoning of the learned CIT(A) insofar as he did not uphold the rejection of books. In our considered view, once the Assessing Officer has demonstrated that the books are not supported by ordinary commercial evidence expected in such large-scale trading operations, invocation of section 145(3) cannot be faulted. Therefore, to this extent, the Revenue succeeds and the rejection of books of account is upheld. 86. However, the matter does not end there. The real controversy is not whether the books could be rejected, but whether, after such rejection, any further addition over and above the income already disclosed by the assessee was at all warranted, and if yes, whether the learned CIT(A) was justified in sustaining the addition at 0.5% of sales. 87. At this stage, the decision of the Coordinate Bench in the case of Subhkaran & Sons(supra) assumes direct relevance, as it arises from the same search proceedings, involves the same Printed from counselvise.com 39 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited alleged modus operandi, and deals with the identical controversy concerning circular trading, rejection of books and estimation of additional income. The Coordinate Bench, after setting out the very issues framed by the learned CIT(A), noted as under: 5.2. The transactions in question can be said to be in the nature of circular trading' carried out with the objective of increasing the turnover and availing bank credit facilities. Through such transactions, bank funds are made available to the entities of Llyod, Topworth and Uttam group for their use. Since the transactions are carried out using the funds of the banks and therefore, it is for the banks to judge whether their funds were misused or otherwise. The responsibility for action on misuse of funds, if any, lies with the bank. What is relevant from the point of view of income-tax under the Act is whether the income from such circular trading is disclosed by the assessee or not. 88. The Bench then reproduced and approved the factual finding recorded by the learned CIT(A) in that case in the following terms: “This sale value, as per the invoice, comprises of the Purchase price + 2% to 4%/Rs. 100 to 150 + LC charges. This shows that a profit has been booked on the final step. As per the chart given above, appellant is involved in the first and the last step of the cycle and both these steps are duly accounted for. The income generated out of the sale transaction gets accounted for in the books… In view of the discussion above, it can be said that the regular income from the purchase and sale transactions has been accounted for by the appellant.” 89. The above factual analysis, in our view, directly addresses the heart of the controversy. Even if the transactions are assumed to be circular and engineered for facilitating L/C based financing, the purchase leg and sale leg are both routed through the books. The resulting gross profit or margin embedded in such transactions stands reflected in the regular accounts. The Printed from counselvise.com 40 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited question, therefore, is whether there is any reliable material to show that the assessee earned something more than what is already recorded in the books. 90. On this aspect, the learned DR argued that the additional income is in the nature of suppressed business profits and not merely commission, that the benefit accrued to the assessee by way of credit facilities and loans, that a cash trail is not necessary for invoking section 68 or for making an estimation, and that genuineness rather than creditworthiness is the real issue. These contentions, though forcefully advanced, do not, in our considered view, bridge the evidentiary gap in relation to the impugned estimation of additional business income. The Assessing Officer has undoubtedly established that the transactions were not ordinary arm’s length trade transactions. He has also shown that the assessee played a facilitating role in a circular chain. But beyond that, there is no material to quantify any income over and above the profit already embedded and disclosed in the books. 91. The Coordinate Bench in Subhkaran & Sons(supra), while dealing with the very same line of reasoning adopted by the department, expressly noted that even where circular trading is assumed, there must be some evidence that the assessee earned extra cash or extra consideration outside the books. The Bench noted the findings of CIT(A) as: 18. Alternatively, it was also submitted that even if it is to be assumed that the assessee has entered into circular transaction, there is no Printed from counselvise.com 41 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited evidence nor any findings arising out from the search proceedings to suggest that the assessee has earned extra cash which is in excess of amounts/profits already reflected in the books of accounts. The Bench further noted from the order of CIT(A) as: “Most importantly, there is no mention of any cash consideration or compensation being paid for availing the alleged bogus invoices in any of the search statements including confessional statements.” (para 18 of order of CIT(A)) Again, it was categorically noted that: “Not only there are no seized documents supporting the findings of the AO, absolutely there is no deposition made by anybody indicating any cash receipts by the assessee.”(para 19 of order of CIT(A)) And further noted that: “The complete absence of such evidence, in spite of extreme action of search and seizure, strongly suggest that no cash income was actually received by the assessee.” (para 20 of order of CIT(A)) 92. The Coordinate Bench then rejected the very basis of presumption underlying the estimated addition by holding that conjectural reasoning cannot sustain such addition: 6. The very basis adopted by ld. CIT(A) of resorting to the estimation of additional income by applying the rate of 0.50% has been meritoriously dislodged by the decision of the Coordinate Bench in the aforesaid case of M/s. Duli Trade Commodities Pvt Ltd. We further note that all the aspects of additions made in the present case have been elaborately dealt by the Coordinate Bench in the case of Duli Trade Commodities Pvt Ltd. (supra), including inter alia, the following: a. Transactions were executed in an auto mode with a pre- determined commission structured as profits. Most importantly, there is no mention of any cash consideration or compensation being paid for availing the alleged bogus invoices in any of the search statements including confessional statements. Printed from counselvise.com 42 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited b. Not only there are no seized documents supporting the findings of the AO, absolutely there is no deposition made by anybody indicating any cash receipts by the assessee. There is a mere presumption and inference drawn about the cash consideration, far from factual position. Such a conjectural reasoning cannot form the basis for a sustainable addition under the Act. c. Complete absence of any evidence in spite of extreme action of search and seizure, strongly suggest that no cash income was actually received by the assessee. d. After evaluating the entire records, it was also found that the payer of the alleged amount has not been identified throughout the assessment proceedings. Revenue has also not made any addition in the hands of any counter party in respect of such huge amount allegedly paid to the assessee. e. The additions sustained by the Ld. CIT(A) is excessive. As per prevailing industry practice, the profit margin earned in case of a genuine wholesale trading is between 0.17% and 0.63%, fact of which has been accepted by the Ld. CIT(A). f. No prudent businessman would pay such a high commission to a mere entry provider, especially when the commission exceeds or equals the profit margins earned in legitimate trading activity. 6.1. Considering the factual matrix and the judicial precedents in the entities forming part of the same search exercise conducted by the Department, ground no. 6 raised by the assessee in its appeal for Assessment Year 2013-14 is allowed whereby addition sustained by the ld. CIT(A) adopting 0.50% for estimation of additional income is deleted. Also, since the appeal of the assessee is allowed on the merits of the case, jurisdictional issues raised are left open. Since we have deleted the additions upheld by Ld. CIT(A) in assessees appeal, consequently, the grounds raised by the revenue in its appeal stands dismissed. 93. The said proposition was supported by reference to the decision of the Hon’ble Supreme Court in Dhakeshwari Cotton Mills Ltd. v. CIT 26 ITR 775, wherein it was held that though the Assessing Officer is not bound by strict technical rules of Printed from counselvise.com 43 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited evidence, he cannot make an addition on pure guesswork without material. The Coordinate Bench has already applied that principle in the context of the same search and the same fact- pattern. We see no reason to depart from it. 94. The learned DR also placed much emphasis on the risk assumed by the assessee in making its asset base and goodwill available for L/C facilities, and on that foundation contended that higher income ought to be presumed. In our view, risk by itself cannot be equated with taxable income. Tax is levied on real income and not on hypothetical benefit. If the department’s case is that the assessee earned additional consideration for taking such risk, some material must exist to show the nature, source or measure of such additional receipt. The absence of identified payer, the absence of any corresponding addition in the hands of alleged payers, and the absence of any seized paper or statement indicating payment beyond book profit, all militate against such presumption. The Coordinate Bench in Subhkaran & Sons (supra) has specifically noticed this aspect by observing findings of CIT(A): 22. After evaluating the entire records, we also found that the payer of the alleged amount has not been identified throughout the assessment proceedings. It is strange that the AO has alleged that the receipt of excess consideration to the extent of 5% of the turnover, which aggregates to approximately Rs. 250 crores for all the years under consideration but at the same time had not identified the person who had paid such a huge amount to the assessee. The revenue has also not made any addition in the hands of any counter party in respect of such huge amount allegedly paid to the assessee. Thus in our view, if the assessee had received the cash consideration outside the books of accounts, then in that eventuality, there has to be some entity who has Printed from counselvise.com 44 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited paid such amount and such entity ought to have been identified and taxed by the Income-tax Department. (para 22 of order of CIT(A)) 95. We are in respectful agreement with the above reasoning. The learned DR’s submission that money flow will not take place because the benefit accrued by way of credit and loans is too broad and too indeterminate to sustain a specific quantified addition. At best, it explains the commercial objective of circular transactions. It does not establish undisclosed income in the hands of the assessee beyond the profit already booked. 96. The learned CIT(A), while granting part relief, accepted that some additional benefit must have accrued and therefore sustained the addition at 0.5% by borrowing the rate adopted in another case. However, the Coordinate Bench in Subhkaran & Sons has expressly considered this very approach and disapproved it. The Bench recorded that the very foundation of the 0.5% estimate had already been dislodged by the earlier decision in Duli Trade Commodities Pvt. Ltd., and after considering the entire material held that no further addition was warranted. The crucial finding of the CIT(A) is recorded as under: “Even otherwise, the profit margin disclosed by the assessee on alleged circular transactions comes to 0.27% for the year under consideration (chart showing profit margin for the all the years is enclosed in the file). Therefore, in our view, considering the thin margin in this line of business, it is held that the profits disclosed by the assessee in its audited books of account includes commission income earned, therefore, in our considered opinion, no further addition is warranted on this account.” (para 24 of order of CIT(A)). Printed from counselvise.com 45 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 97. The factual position before us is materially identical. The search is the same. The alleged modus operandi is the same. The department’s case of circular trading through Topworth, Lloyds and Uttam entities is the same. The nature of estimation is the same. The department has not brought to our notice any distinguishing feature of substance so as to justify a different conclusion. Judicial discipline, therefore, requires that we follow the view already taken by the Coordinate Bench on identical facts, particularly when that view directly addresses the precise controversy before us. 98. Accordingly, while we uphold the rejection of books of account under section 145(3), we hold that no further addition on account of estimated business profit is sustainable in the facts of the present case. The entire addition sustained by the learned CIT(A) at 0.5% of sales is therefore deleted. 99. In the result, on this issue, the grounds of the assessee are allowed and the corresponding grounds of the Revenue are dismissed. Disallowance of Indirect Expenses and Depreciation 100. We have heard the rival submissions and perused the orders of the lower authorities. The learned Departmental Representative assailed the relief granted by the learned CIT(A) in respect of disallowance of indirect expenses, contending that once the transactions of purchases and sales were held to be non-genuine or circular in nature, the corresponding indirect expenses could Printed from counselvise.com 46 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited not be said to have been incurred wholly and exclusively for the purposes of business. It was further contended that the Assessing Officer had rightly made proportionate disallowance of such expenses, since part of the turnover itself was held to be non-genuine. 101. Per contra, the learned AR relied on the order of CIT(A). 102. At the outset, it is pertinent to note that the Assessing Officer made disallowance of indirect expenses on a proportionate basis, primarily for the reason that part of the turnover was treated as non-genuine. This approach, in our considered view, is intrinsically linked to the primary addition made on account of alleged additional income from circular transactions. We have already, while adjudicating the earlier issue, held that though the books of account are liable to be rejected under section 145(3), no further addition is sustainable on account of alleged suppressed or additional income, as the profit embedded in the transactions already stands disclosed in the books. 103. Once this foundational addition does not survive, the very basis for proportionate disallowance of indirect expenses ceases to exist. 104. In this regard, we find guidance from the reasoning adopted by the Coordinate Bench in Duli Trade & Commodities Pvt. Ltd., wherein, after deleting the addition on account of estimated income, the Tribunal also held that consequential disallowances linked to such estimation cannot be sustained. The Bench, while Printed from counselvise.com 47 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited allowing the appeal, observed that the income disclosed in the books already captures the business results and no further artificial adjustments are warranted. 105. The principle emerging therefrom is that once the business results as per books are accepted, subject to rejection for limited purpose of estimation, and no further income is determined, there cannot be a simultaneous disallowance of expenditure without establishing that such expenditure is either bogus or not incurred for business purposes. 106. In the present case the Assessing Officer has not identified any specific defect in the claim of indirect expenses; no finding has been recorded that the expenses are not genuine or are not supported by evidences and the disallowance is purely ad hoc and proportionate, based on the premise of alleged non-genuine turnover. Such an approach is not sustainable in law. Even in cases where books are rejected, disallowance of expenses must be based on cogent material and not on mere estimation linked to turnover. Further, it is a settled principle that business expenditure cannot be disallowed merely because the Assessing Officer doubts part of the transactions, unless it is shown that such expenditure has not been incurred or is not related to business. 107. In view of the above discussion the disallowance of indirect expenses made by the Assessing Officer is found to be purely consequential and without independent basis. Since we have already deleted the addition on account of estimated business Printed from counselvise.com 48 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited income, the proportionate disallowance of indirect expenses cannot survive. The order of the learned CIT(A) granting relief on this issue is upheld. The grounds raised by the Revenue on this issue are dismissed. Addition under section 68 108. We have heard the rival submissions and perused the material available on record, including the orders of the lower authorities and the judicial precedents relied upon by both sides. 109. The Assessing Officer made addition under section 68 on account of unsecured loans / credits appearing in the books of the assessee, primarily on the ground that the transactions were part of the overall accommodation entry structure involving circular trading and L/C based fund rotation. The learned DR supported the addition by contending that the genuineness of the transactions is in serious doubt, that cash trail is not a sine qua non for invoking section 68, and that the benefit accrued to the assessee through layered transactions and credit facilities itself establishes non-genuine nature of the credits. 110. Per contra, the learned AR submitted that the assessee has discharged the primary onus by furnishing identity, confirmations, PAN, financial statements and banking details of the lenders and the transactions are routed through banking channels and are reflected in audited books. It was also submitted that no incriminating material has been found during search to establish that the credits are unexplained and no cash Printed from counselvise.com 49 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited trail, no identified payer, and no adverse material has been brought on record. Reliance was placed on the decision of the Coordinate Bench in Supreme Holdings and Hospitality (India) Ltd. (ITA No. 1437/Mum/2024), particularly para 10 thereof. 111. It is well settled that for invoking section 68, the assessee is required to establish Identity of the creditor, Creditworthiness of the creditor and Genuineness of the transaction. Once the assessee discharges the initial burden, the onus shifts upon the Revenue to bring material on record to rebut the same. 112. On careful examination of the record, we find that: i. The assessee has furnished documentary evidences in support of the credits including confirmations, banking details and financial particulars; ii. The transactions are recorded in the books and are routed through banking channels; iii. The Assessing Officer has not brought any direct evidence to show that the impugned credits represent the assessee’s own undisclosed income; iv. No incriminating material found during the course of search establishes that the loan entries are accommodation entries backed by cash. 113. The entire addition has been made primarily on the basis of general observations regarding circular trading and alleged accommodation entry mechanism. Printed from counselvise.com 50 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited 114. The Coordinate Bench in the case of Supreme Holdings and Hospitality (India) Ltd.(supra) dealing with the same search proceedings has categorically held that: 17. Further, nowhere in the various statements as referred by the ld. AO, there is any whisper about the assessee or any question was asked by the searched parties or the authorised officers that any such person or entity have given any kind of accommodation entry to the assessee or the loan given by these parties were bogus. The entire allegation of the AO based on the statement recorded and finding of the search parties is that these groups were doing either bogus sales or purchases or circular trading to get LC from the bank. There might be movement of funds from one company to other and overdrawing the money from the banks through Letter of Credit without any credentials at the time of Bill Discounting or for any other purpose, but nowhere there is any finding of investigation wing or any material found or statement during the search, that some unaccounted money has been given by the assessee company to accommodate any loan entry or there is any cash trail. Neither there is involvement of any kind of entry operator nor were these companies found to providing accommodation entry of loan by taking some temporary cash. Without such information or material, there cannot be any presumption that these companies had provided bogus entry of loan or the transaction is not genuine. Thus, the finding of the Ld. CIT(A) cannot be tinkered with. Accordingly, the additions made u/s.68 is deleted and the order of the ld. CIT (A) is confirmed and the grounds raised by the Revenue are dismissed. 115. The learned DR has emphasized that genuineness is the core issue and that mere banking channel transactions do not establish genuineness. There is no quarrel with this proposition. However, suspicion, however strong, cannot take the place of evidence. In the present case no specific defect has been pointed out in the documents furnished by the assessee; no independent enquiry has resulted in any adverse material against the lenders; no statement or material establishes that the funds originated from the assessee itself; and the alleged accommodation entry Printed from counselvise.com 51 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited theory remains uncorroborated in the context of the specific credits. Further, as noted by the Coordinate Bench in Duli Trade, even where large scale additions were made, the failure of the department to identify the payer or establish the flow of funds was considered fatal: “the payer of the alleged amount has not been identified… if the assessee had received the cash consideration… such entity ought to have been identified and taxed.” (para 22) The same reasoning applies with greater force in the context of section 68. 116. The learned DR has also relied upon the fact that certain amounts have been admitted in insolvency proceedings before the NCLT, suggesting siphoning of funds. In our considered view, admission of claims in insolvency proceedings only establishes existence of debt and default. It does not, ipso facto, establish that the credit entries in the books of the assessee are unexplained or represent undisclosed income. On the contrary, such admission supports the existence of liability rather than negates it. 117. Considering the totality of facts and respectfully following the decisions of the Coordinate Benches in Supreme Holdings and Hospitality (India) Ltd. and Duli Trade & Commodities Pvt. Ltd., we hold as under: i. The assessee has discharged the primary onus cast upon it under section 68 by furnishing necessary evidences. Printed from counselvise.com 52 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited ii. The Revenue has failed to bring on record any cogent material to establish that the impugned credits represent unexplained income of the assessee. iii. The addition made by the Assessing Officer is based on generalised allegations and presumptions arising from the alleged circular trading model, without specific evidence qua the impugned credits. iv. In absence of incriminating material, cash trail, or identification of source of alleged unexplained funds, the addition under section 68 is not sustainable. 118. Thus, the addition made under section 68 is hereby deleted. The grounds raised by the assessee are allowed and the corresponding grounds of the Revenue are dismissed. 119. In the combined result, all the appeals of the assessee are allowed and all the appeals of the Revenue are dismissed. Order pronounced in the open court on 27.03.2026. Sd/- Sd/- (SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 27/03/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. Printed from counselvise.com 53 ITA No. 2803/Mum/2025 & Others Dilshad Trading Co. Private Limited आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai Printed from counselvise.com "