AXTRON TEX-CHEM (INDIA) PRIVATE LIMITED ,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -6(1), MUMBAI

ITA 4788/MUM/2024

AI Insights

The case involves multiple appeals by Axtron Tex-Chem (India) Pvt. Ltd. against the orders of the Deputy Commissioner of Income Tax, Central Circle \\u2013 6(1), Mumbai, concerning the assessment years 2015-16 to 2018-19. The appeals were consolidated with A.Y. 2018-19 as the lead year due to identical facts across the years. The primary contention revolved around the estimation of income from bogus transactions and the percentage of disallowance applied. The AO initially made a disallowance of 2% on total transactions deemed bogus, which was later reduced to 1% by the CIT(A) based on various tribunal decisions. Both parties challenged the CIT(A)'s decision, leading to the current appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396903 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Other Referred Cases: Principal Commissioner of Income-tax v. Buniyad Chemicals Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEPPA HIRAY
• Assessee Lawyers: SURESH OTWANI; SUNIL; WAY OF
• Keywords: Business income; Additional evidence; Unexplained cash credit; Rejection of books of accounts; Income from undisclosed sources; Bogus purchase; Search and seizure; Accommodation entries; Bogus
• Section: 144; 142(1); 68; 2; 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM ITA No. 4789/Mum/2024, (Assessment Year: 2015-16) ITA No. 4788/Mum/2024, (Assessment Year: 2016-17) ITA No. 4787/Mum/2024, (Assessment Year: 2017-18) ITA No. 4786/Mum/2024, (Assessment Year: 2018-19) Axtron Tex-Chem (India) Private Limited Bldg. No. 17/19, 2nd Floor, Champa Galli, Zaveri Bazar, Mumbai – 400002. Vs. Deputy Commissioner of Income Tax, Central Circle – 6(1), Mumbai Aaykar Bhavan, Mumbai – 400020. PAN/GIR No. AAFCA4592H (Appellant) : (Respondent) ITA No. 5178/Mum/2024, (Assessment Year: 2017-18) ITA No. 5175/Mum/2024, (Assessment Year: 2018-19) Assistant Commissioner of Income Tax, Central Circle – 6(1), Mumbai Vs. Axtron Tex-Chem (India) Private Limited Bldg. No. 17/19, 2nd Floor, Champa Galli, Zaveri Bazar, Mumbai – 400002. PAN/GIR No. AAFCA4592H (Appellant) : (Respondent) Assessee by : Shri Suresh Otwani and Shri Sunil Talreja Respondent by : Ms. Deppa Hiray (Addl. CIT) Date of Hearing : 29.04.2025 Date of Pronouncement : 30.05.2025 O R D E R Per Bench: These are captioned appeals filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) 54, Mumbai (‘ld. CIT(A)’ for short), ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 2 passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2015-16 to 2018-19 and cross appeals filed by the revenue for A.Y. 2017-18 and 2018-19. 2. As the facts are identical in these appeals, we hereby pass a consolidated order by taking A.Y. 2018-19 as a lead year. ITA No. 4786/Mum/2024, (A.Y. 2018-19) 3. The assessee has raised the following grounds of appeal: “1. The FAA i.e, CIT(A)-54 Mumbai erred in not accepting the additional ground filed before CIT(A) -54 Mumbai. Additional Ground is reproduced hereunder :-4th Additional Ground- In view of Ground No 5 in the Original Grounds of Appeal we would like to add that A.O erred in coming to conclusion that Appellant is connected with SVP Group on whose premises Search took place on 22.08.2017 as far as this financial year is concerned. A.O erred in adopting the percentage of estimation on turnover of sales and purchase which is not the case in this year. 2. The FAA ie, CIT(A) erred in directing the A.O in restricting the estimation@ 1% on bogus trading of sales and purchase as against plead @ 0.05% 3. The Appeal is in time and order.” ITA No. 5175/Mum/2024, (Assessment Year: 2018-19) 4. The revenue has raised the following grounds of appeal: 1. \"Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) erred in restricting the addition on account of bogus entries at 1% as against disallowance made by the assessing officer @ 2% of bogus entries when the director of the company has admitted in his statement in oath to have carried out bogus entries and also erred in appreciating the fact that as per the market practice the commission rate for providing such entries is generally 2% to 3% of the entry provided, also the facts of the cases are distinguishable from present case on which the Ld. CIT has relied upon?\" 5. Brief facts of the case are that the assessee had filed its return of income dated 26.02.2019, declaring total income at Rs. 17,07,210/- and the same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny under CASS pursuant ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 3 to search and seizure action carried out in the case of SVP Group on 22.08.2017, where it was found that the group companies of SVP Group such as SVP group of Platinum Textiles Ltd., Citron Infraprojects Ltd., SVP Global Ventures Ltd., Scenraio Communication Ltd. and Shrivallabh Pittie Industries. Ltd. and various companies where Shri Vinod Pittie and Chirag Pittie were promoters of the companies which were into manufacturing of polyster and cotton blended yarn and on the basis of the incriminating materials it was found that the assessee company has sold capital goods to SVP group for their factory at Jhalawar, Rajasthan, and the same was found to be a bogus accommodation entry with no physical delivery of goods. Based on the survey action u/s. 133A of the Act carried out in the office premises of the assessee dated 24.08.2017, the director of the assessee Shri Jainam Madhukant Rathod had agreed that the assessee was engaged in providing accommodation entries to various entities of SVP group. The ld. AO issued notices u/s. 143(2) and 142(1) dated 28.09.2019 and 12.12.2019 and 17.12.2019 respectively. The assessee did not comply with the said notice and the ld. AO then passed the assessment order u/s. 144 of the Act being the best judgement assessment, where the total income was determined at Rs. 4,42,61,246/- being 2% of the total transactions of sales and purchases amounting to Rs. 221,30,62,291/-. 6. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 22.07.2024, restricted the disallowance to the 1% of the total bogus transactions by relying on various decisions of the coordinate bench. ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 4 7. The assessee as well as revenue are in appeal before us, challenging the impugned order of the ld. CIT(A). 8. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that on identical facts various coordinate benches have held the disallowance on bogus sales and purchases to be lesser than 1% and relied on a catena of decisions for the disallowance being restricted to lesser than 0.5% as tabulated herein under: Sr. No. Name of case referred Forum A.Y. Appeal No. Rate Adopted Adopted on Sale/Purc hase Both 1 Anand Kumar Jain vs. ACIT, Central Circle-26, New Delhi ITAT Delhi 2016-17 1324/DEL/2019 0.47% Sales 2. Naresh Kumar Jain vs. DCIT, Central Circle-26, New Delhi ITAT Delhi 2016-17 1331/DEL/2019 0.47% Sales 3. JCIT (OSD) vs, Pradip Overseas Ltd. ITAT Ahmedabad 2013-14 ITA /790/AHD/2018 0.30% Purchases 4. Ram Prakash Bhatia vs. ACIT ITAT Delhi 2012-13 ITA/651/DEL/2023 0.15% Sales 5. Spanco Ltd. vs. Department of Income Tax ITAT Mumbai 2007-08 ITA 1128/Mum/2012 0.25% Sales 6. Goldstar Finvest P. Ltd. vs. DCIT ITAT Mumbai 2010-11 ITA/74/Mum/2015 0.15% Sale & Purchase 7. ITO- 10(2)(4), Mumbai vs. Moonlight Electrical ITAT Mumbai 2009-10 ITA/7344/MUM/2016 2.00% Purchases 8. Arman Fashion Pvt. Ltd. vs. ITO ITAT Ahmedabad 2009-10 ITA/2400 and 2407/AHD/2012 0.05% Sales ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 5 9. The learned Departmental Representative ('ld. DR’ for short) for the revenue on the other hand controverted the said fact and relied on the recent decision of the Hon'ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax v. Buniyad Chemicals Ltd., [2025] 172 taxmann.com 462 (Bombay). 10. We have heard the rival submissions and perused the materials available on record. It is observed that there were incriminating materials during the search action in SVP group pertaining to the assessee and even during the survey action u/s. 133A of the Act, the director of the assessee company has admitted to have receive commission of Rs. 0.05% for providing accommodation entries to various entities. During the assessment proceeding, it is observed that the statement of Mr. Chirag Pitte, Director of the SVP Group and Mr. Pravin, Mr. Shyam (Employee) and Mr. Pradeep who is also one of the Director of SVP group admitted on oath before the Investigation Wing about the bogus transactions which again was not rebutted by the assessee nor has furnished any details or documents to substantiate its claim. The ld. AO further observed that the total sales transaction entered into by the assessee during the year under consideration was Rs. 113,11,63,396/- and total purchases was Rs. 108,18,98,895/- where it aggregates to Rs. 221,30,62,291/-. The ld. AO held entire sales and purchase transaction to be a bogus transaction, where the assessee company was providing accommodation entries to SVP group and to various other entities for commission. There has been no denial by the Director of the assessee company about this fact and further it was stated that 0.05% was the commission that was charged though the market rate for providing such entities ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 6 was between 2% to 3%. The ld. AO rejected the books of accounts of the assessee u/s. 145(3) of the Act. The assessee did not comply with the notice before the ld. AO and the ld. AO proceeded to pass an ex parte order u/s. 144 of the Act being the best judgement assessment, thereby making disallowance of 2% on the total transactions aggregating to Rs. 221,30,62,291/-. The assessee failed to provide documentary details pertaining to the transaction entered into with SVP group during the assessment proceeding and during the first appellate proceeding had submitted some of the details, where remand report was called for. The assessee further contended that it did not transact with SVP group from A.Y. 2013-14 to 2014-15 and the details of parties of SVP group in which the assessee was transacted from A.Y. 2015-16 to 2018-19 were said to be furnished along with the details of purchase and sales transaction with the said entities. It was also observed that the SVP Group has entered into various transactions, where payments to other entities were made against bogus purchases and booked bogus expenditure on capital goods which were received back by the group either as unsecured loans, share premium or in the form of cash received. The ld. CIT(A) also remanded the same to the ld. AO for the reason that the assessee’s contentions was that it had transacted only with seven entities of the SVP group, where even during the remand proceeding, the assessee was unable to file the complete details of the transaction with supporting documentary evidences. In the absence of the documentary evidences, the ld. CIT(A) held the assessee to be an accommodation entry provider, where the assessee itself has offered 0.05% of total sales and purchases. The ld. CIT(A) relied on a catena of decision of the Tribunal and held 1% to be fair and ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 7 reasonable rate for estimating the undisclosed income earned by the assessee by way of accommodation entries through bogus transactions. 11. On the above factual matrix of the case, it is observed that the ld. AO has made an addition of 2% on the total bogus purchases and the ld. CIT(A) has restricted the same to 1% by relying on various decisions of the Tribunal. We would like to place our reliance on the recent decision of the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax v. Buniyad Chemicals Ltd., [2025] 172 taxmann.com 462 (Bombay), where on identical facts the assessee being an accommodation entry provider, the Hon'ble High Court had elaborately dealt with the said issue, where the assessee himself has admitted that he was into providing accommodation entries to various parties, the ld. AO made an addition u/s. 68 of the Act as unexplained credit and the first appellate authority restricted the commission income to only those parties, where the assessee has identified the beneficiaries and for the remaining sum credited the beneficiaries being unidentifiable, confirmed addition u/s. 68 of the Act. The Tribunal restricted the addition to 0.15% on the total deposits by relying on its earlier orders. The Hon'ble High Court held that the ld. CIT(A)’s approach in restricting the commission only to the identified beneficiaries and the entire addition on unidentified parties was held to be a fair approach and not the view taken by the Tribunal in restricting the addition to 0.15% on the total deposits which was according to the Hon’ble High Court not the appropriate approach to such a serious matter having rampant tax evasion. The relevant extract of the same is cited herein under for ease of reference: “19. Before the Assessing Officer, the respondent-assessee has not made any submissions backed by any document to show that the credits appearing in the bank account for AY 2009-10 have been assessed in the hands of the beneficiaries and, therefore, no addition should be made. If that be the case, we cannot accept the submission of the respondent-assessee that the amount added is included in the assessment of the beneficiaries and, therefore, same cannot be added once again in the hands of the respondent-assessee. There is no basis for such a submission ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 8 made by the respondent-assessee, nor is it stated so before the Assessing Officer or the Appellate Authorities. Such a factual submission for the first time before this Court in a third appeal by oral argument across the bar cannot be permitted. 20. The CIT(A) has adopted a fair approach by stating that if the respondent- assessee identifies the beneficiaries, then the rate of commission adopted should 0.37% of such identified beneficiaries and if the respondent-assessee fails to identify the beneficiaries, then in that case, the sum credited in the bank accounts would stand confirmed under Section 68 of the Act. In our view, the Tribunal was not justified in directing 0.15% of the total deposits (explained and unexplained) appearing in the bank accounts as income. The Tribunal has not given any reason as to why the directions of the CIT (A) in para 4.3 of the CIT appeal's order are wrong or erroneous. In our view, the Tribunal did not consider the issue from the proper perspective. The addition is made by the AO and confirmed by CIT (A) under section 68 of the Act as 'income from other sources' and under section 68 the unexplained credit in books is treated as income. 21. Although it was the case of the respondent-assessee that they are only accommodation entry providers and only certain percentage should be taxed as income, in the assessment order the addition is made that since the respondent- assessee failed to explain the credits appearing in its bank account. The Assessing Officer never accepted in the assessment order that only certain percentage of such credit should be assessed as income. Even the CIT(A) directed to adopt commission rate only qua identified beneficiaries and not all the beneficiaries. In any case, taxation of commission income and taxation of unexplained credits are two different things. Therefore, the same cannot be mixed to contend that only commission income should be taxed, not unexplained cash credits. “ 12. Further, the Hon'ble High Court distinguished the cases relied upon by the ld. Counsel for the assessee, where the beneficiaries have been identified. Also, it held that the estimation of income can be made only in cases of identified beneficiaries and the remaining credits would be taxed u/s. 68 of the Act. It was also emphasized that if the assessee who is the accommodation entry provider fails to give details of beneficiaries but only claims that commission income has to be taxed in his hand then there will be no recourse to the revenue to bring to tax the unaccounted money which has to be either taxed in the hands of the beneficiaries or the assessee in case of failure on his part to disclose the identity of the beneficiaries for whom he has provided accommodation ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 9 entries. The Hon’ble High Court had taken cognizance of such serious nature of tax evasion and had directed various authorities to act upon the same. It is trite to reproduce the relevant extract of the said decision for ease of reference: “ 37. We do not accept the submissions of the respondent-assessee that because he is engaged in the business of providing accommodation entry, revenue cannot assess the credits appearing in its bank account which are the money deposited by its customers. The respondent-assessee, to succeed in this submission, must give verifiable details of these customers; only then can the revenue verify whether the credits appearing belong to such customers. The CIT (A), therefore, gave the relief in para 4.3 by observing that an estimate of income will be made only in case of identified beneficiaries and balance credits would be assessed under Section 68 of the Act. 38. The respondent-assessee cannot contend that they will not give details of beneficiaries, but at the same time, credits cannot be assessed in its hands. We wonder how the revenue can find out to whom the credits belong to unearth unaccounted income. The respondent- assessee cannot act as a shield for beneficiaries by making such a submission and at the same time refuse to pay taxes for the unexplained amounts in its bank accounts. 39. If the submissions made by the counsel for the respondent-assessee that since they are engaged in providing accommodation entry and therefore, the credits appearing in the bank cannot be assessed in its hands has to be accepted without the respondent-assessee giving details of the beneficiaries which they have flatly refused as recorded in the statement referred to hereinabove then the consequence would be that such unaccounted sum can never be brought to tax under the Act by the revenue authorities in the hands of none of the assessee/persons to whom such unaccounted sum belongs to. In the absence of any details provided by the respondent-assessee of the beneficiaries, the revenue will not be able to verify whether such credits really belong to those beneficiaries, in which case provisions of Section 68 get attracted in the hands of the respondent-assessee. Any interpretation which would make admitted unaccounted income tax free based on the denial by the assessee/persons to give details has to be rejected.” 13. From the above observation, it is evident that in case of accommodation entry providers, addition has been made only on the commission income alleged to have been received, which is also the case of the assessee in the present appeal. Pertinently, in the case in hand, the assessee has been non-compliant during the assessment proceeding, where it was observed that the assessee has entered into a total bogus sales and purchase transaction amounting to Rs. 147,22,51,028/- which was not substantiated by the ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 10 assessee and the ld. AO passed the best judgment assessment disallowing only 2% of the total transaction without the details of the beneficiaries of such accommodation entries. During the appeal before the first appellate authority, the assessee is said to have furnished some of the details as additional evidence for which remand report was called for. It is observed that during the remand proceedings, the assessee is said to have not filed the complete details pertaining to the 12 parties of SVP group and has also not furnished details pertaining to transactions with other than SVP group along with documentary evidences. It is also not emanating from the assessee’s submission as well as the order of the lower authorities that additions have been made in the hands of the beneficiaries and to what extent of the bogus transactions the assessee has disclosed the identity of the beneficiaries along with the quantum of the transactions with each of those parties. It may be contended that though the issue of whether or not addition has been made in the hands of the beneficiaries is not before us, as a last fact finding authority, we are inclined to peruse the facts which are before us in the present appeal, where the director of the assessee company Mr. Jainam Madhukant Rathod in the statement recorded on oath during survey has admitted to providing accommodation entries to various other groups and has partly given details of the beneficiaries but has failed to comply with the proceeding before the ld. AO. In the absence of complete details supported by documentary evidences, we deem it fit to remand this issue back to the file of ld. AO for de novo assessment, where we direct the assessee to make compliances without any undue delay on its side. We also direct the ld. AO to decide the issue in hand, in view of the proposition laid down by the Hon’ble jurisdictional ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 11 High Court on similar issue in the case of Buniyad Chemical (supra). We also direct the assessee to give details of the percentage of commission received from the beneficiaries in case where the beneficiaries have been identified by the assessee and the ld. AO is directed to restrict the percentage of the commission income only to that extent which has been proved by the assessee with documentary evidences to show what was the percentage of commission that was received by the assessee and thereby to pass a de novo assessment on the merits and in accordance with law. 14. In the result, the appeal filed by the assessee is allowed for statistical purpose. ITA No. 4789/Mum/2024, (Assessment Year: 2015-16) ITA No. 4788/Mum/2024, (Assessment Year: 2016-17) ITA No. 4787/Mum/2024, (Assessment Year: 2017-18) ITA No. 5178/Mum/2024, (Assessment Year: 2017-18) ITA No. 5175/Mum/2024, (Assessment Year: 2018-19) 15. The finding recorded in ITA No. 4786/Mum/2024, (Assessment Year: 2018-19) will apply mutatis mutandis to these appeals also. 16. In the result, the appeals filed by assessee as well as revenue are allowed for statistical purpose. Order Pronounced under Rule 34(4) of the ITAT Rules by placing result on the notice board on 30.05.2025 Sd/- Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 30.05.2025 Karishma J. Pawar (Stenographer) ITA No. 4789/Mum/2024 & Ors. (A.Y. 2015-16 to 2018-19) Axtron Tex-Chem (India) Pvt. Ltd. 12 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "