ELECMEC ENGINEERING AND PROJECTS PRIVATE LIMITED,MUMBAI V. ACIT CENTRAL CIRCLE 7 1, MUMBAI

CO 196/MUM/2025

AI Insights

The case involves the Assistant Commissioner of Income Tax, Central Circle \\u2013 7(1) Mumbai as the appellant and Elecmec Engineering & Projects Private Limited as the respondent. The dispute arose from a search and seizure operation conducted on the Jatia Group and related entities, which led to allegations of bogus transactions and misuse of banking credit facilities. The AO made substantial additions to the assessee's income based on these allegations, which were contested and partially overturned by the CIT(A). The Tribunal's decision was influenced by precedents set in similar cases involving the same group, where it was found that the income from circular trading was disclosed in the books and no additional income was earned outside the books.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780252 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2018-2019
• Appeal Filed On: 22-07-2025
• Other Referred Cases: DCIT v. Supreme Holdings and Hospitality (India), Dhakeshwari Cotton Mills Ltd. v. CIT, Kamlesh DeoraJ Jain v. ITO, Seo Lehenga House v. DCIT, ACIT v. Salaries Holdings Pvt Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RITESH MISRA; DR
• Assessee Lawyers: VIJAY MEHTA; AR
• Keywords: Rejection of books of accounts; Income from undisclosed sources; Document seized; Documents seized; Bogus purchase; Sham transactions; Search and seizure; Accommodation entries; Bogus

Judgement Text

" | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 Assessment Year: 2016-17, 2017-18 & 2018-19 Assistant Commissioner of Income Tax, Central Circle – 7(1) Mumbai Vs Elecmec Engineering & Projects Private Limited 208, Ashirwad Building Ahmedabad Street Carnac Bunder, Chinchbunder Mumbai - 400009 [PAN: AADCE9111C] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) C.O. Nos. 194, 195 & 196/Mum/2025 Assessment Year: 2016-17, 2017-18 & 2018-19 Elecmec Engineering & Projects Private Limited 208, Ashirwad Building Ahmedabad Street Carnac Bunder, Chinchbunder Mumbai - 400009 [PAN: AADCE9111C] Vs Assistant Commissioner of Income Tax, Central Circle – 7(1) Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Vijay Mehta, A/R Revenue by : Shri Ritesh Misra, CIT, D/R सुनवाई की तारीख/Date of Hearing : 30/09/2025 घोषणा की तारीख /Date of Pronouncement: 08/10/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 are three separate appeals by the revenue against three separate orders of the ld. CIT(A) – 49, Mumbai [hereinafter ‘the ld. CIT(A)’] pertaining to AYs 2016-17, 2017-18 & 2018-19 and C.O. Nos. 194, 195 & 196/Mum/2025 are cross- Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 2 objections by the assessee preferred against the very same order of the ld. CIT(A). 2. Since common issues are involved in appeals by the revenue and the cross-objections by the assessee, the captioned bunch was heard together and are disposed of by this common order for the sake of convenience and brevity. 3. As the underlying facts in the issues are identical, we heard the representatives on the facts of AY 2016-17 in ITA No. 3055/Mum/2025. 4. Briefly stated the facts of the case are that search and seizure operation was conducted in the case of Jatia Group and other related parties at their business premises and residential premises of Directors on 17/04/2018. 4.1. Consequent the search proceedings, post-search proceedings and assessment proceedings, in the case of searched entities, it was found that the assessee company is covered u/s 153C of the Act. Accordingly statutory notices were issued and served upon the assessee. 5. During the course of search and seizure action it transpired that searched entities and the related entities were involved in bogus transactions indulging in large scale booking of bogus entries running into crores by way of bogus sales & purchases through various paper entities. The AO found that assessee misused banking credit facilities. During the year under consideration various paper/shell entities. One Mr. Vinod Jatia, Director of the searched entities has made arrangements with the Directors and promoters of Topworth, Uttam Galva and Lloyds Group of Companies in connection with availing the letter of credit facilities from various banks and assessee was one of the Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 3 group companies of Lloyd Group of companies. The AO rejected the books of accounts of the assessee holding that the assessee is involved in providing purchase accommodation bills as well as accommodation bills and misusing LC funding facility. Thereafter, at a total turnover of Rs. 1,54,76,35,288/- and the total bogus purchase with the searched entities as Rs. 1,51,00,14,956/-, as the estimated income of the assessee and made the addition of Rs. 7,55,00,747/-. The AO further disallowed the administrative expenses since he had already decided that the assessee was engaged in the practice of booking bogus sales and bogus purchase entries from various parties and, therefore, there is not proof for the indirect expenses of Rs. 4,91,355/-. 5.1. The assessee strongly agitated the matter before the ld. CIT(A) and strongly contended that the assessee has not earned any other income than what is recorded in its books of accounts and there is no evidence whatsoever to show that the assessee has earned income from the alleged back to back transactions. After considering the facts and the submissions, the ld. CIT(A) found that the addition is calculated @5% of the alleged bogus sales/purchases, whichever is high. The 5% estimation is stated to include commission on accommodation entries of purchase and sales made/passed on to further entries obtained from searched entities and other unaccounted incomes like bill discounting income, interest received, discount income on account of suppression of GP etc. The ld. CIT(A) dismissed the claim of the AO to adopt the higher of sales and purchase values for the purpose of estimation. According to the ld. CIT(A), since the profit are estimated on the sales, the figures of sales should be adopted for the said parties. On this premises, since Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 4 there are no bogus sales in the year under consideration, the ld. CIT(A) held that no addition can be made in the hands of the assessee and accordingly the addition of Rs. 7,55,00,747/-. Insofar as the disallowance of indirect expenditure of Rs. 4,91,355/- is concerned, the ld. CIT(A) deleted the same observing that since the income from circular trading is disclosed by the assessee, the expenditure incurred for earning the income has to be allowed. 6. Before us, the ld. D/R strongly supported the findings of the AO and read the operative part. Per contra, the ld. Counsel for the assessee supported the findings of the ld. CIT(A). We find that on identical set of facts and circumstances in one of the group entities, namely, Duli Trade & Commodities Pvt. Ltd., formerly known as Indrajit Properties Pvt. Ltd., the Co-ordinate Bench in a bunch of appeals in ITA No. 2139/Mum/2025 & Ors., interalia held as under:- “14. However on merits of the additions, the Ld. CIT(A) framed two issues to be answered for the purpose of adjudication of the appeal. The relevant discussion is being reproduced herein below: \"7.2.8. I have considered the discussion made in the assessment order and the submission of the appellant. In the context of the allegations against the appellant, usually, it is seen that the bogus transactions are booked by the assesses to suppress the taxable income. For the suppression of income, the preferred modus is to inflate the purchases or expenses by taking accommodation entries. In the present case, the allegation is that the appellant has booked back-to-back bogus sales and bogus purchases. Considering that both sales and purchases have been inflated, it doesn't seem that the transactions were carried out for suppression of income. The issues to be examined are 1. What is the nature of transactions entered by the appellant? 2. Whether there is any other income earned by the appellant from these back to-back transactions?” After evaluating the records, the Ld. CIT(A) answered the first question by holding that the assessee has entered into circular transaction of bogus purchase and sales. Further, it was observed that the assessee had duly reflected the profits earned in the Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 5 books of accounts from such circular transactions. The relevant portion is reproduced herein below for: \"7.2.11 It is seen that a detailed analysis of the pattern of transaction of sale and purchases has been made in the assessment order before arriving at the conclusion that they are bogus transactions. Absence of supporting documents for transport of goods, marketing, purchase orders inward and outward register etc., further strengthen the findings of the AO. The statements recorded during the search, corroborate the findings of the search. Considering the facts before me, I concur with the findings of the AO that the appellant has shown back-to- back sale and purchase transaction without carrying out actual sale and purchase. On the nature of transactions, in my view, the transactions in question do not appear to be 'Bogus' transactions in a conventional sense, where the cheque is deposited in lieu of cash. Such bogus transactions are either carried out to generate unaccounted cash or to introduce unaccounted cash into the books. The transactions in question can be said to be nature of 'circular trading carried out with the objective of increasing the turnover and availing of bank credit facilities. Through such transactions, the bank funds are made available by the Jatia group 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 I to judge whether their funds were misused or otherwise. The f responsibility for action on misuse of funds, if any, lies with the I bank. What is relevant from, the point of view of the Income-Tax, ' is whether the income from such circular trading is disclosed by W the appellant? In light of this discussion, I proceed to examine r whether the income from the transactions have been disclosed by the appellant. 7.2.12. From the chart above, it is seen that the purchases made by the concerns are backed by the letter of credit facility of buyers bank and bill discounting of sellers bank, which means that two Banks are involved in the transaction. These transactions are duly accounted for in the books of respective concerns. The resultant income is accounted for in the books. In reply to Q no. 13, Shri Narsingh Dhavale has stated that, \"immediate sales transactions have been made after the receipt of purchase bills with small additions as per agreed amount with promoters of the group, therefore back-to-back transaction of sales and purchase are there and very less profits have been shown\". From the chart given above, it can be seen that the final sale value as per the invoice comprises of the Purchase price + 2% to 4%/Rs. 100 to 150+ LC charges, which means that profit has been booked on the final sale. Thus, the back-to-back sale and purchase transactions and the resultant income from the transaction is disclosed in the books.\" 16. As regards the second question is concern the Ld. CIT(A) has that he does not agree with the decision of the AO to adopt the higher of sales and purchase values for the purpose of estimation. According to the Ld. CIT(A), since the profits are estimated on sales, the figures of sales should be adopted for the said purpose. On the issue as to whether the assessee has in fact earned anything outside the books of account, in this regard it was observed that it is unlikely that any assessee would undertake such activity on such massive scale, unless there are some more added benefits. The Ld. CIT(A) has thereafter referred to the comparable cases of genuine traders and observed that considering the overall facts of the case, the additional Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 6 income is to be estimated at 0.5% of the sales. The relevant portion is reproduced herein below:.- \"7.2.15. On the second issue of Whether there is any other income earned by the appellant from these back-to-back transactions?, it is seen that the AO has made an addition of Rs 55,21,60,756/- to the income of the appellant. The addition is calculated at the rate of 5% of the alleged bogus sales or purchases, whichever is higher. The 5% estimation is stated to include commission on accommodation entries of purchases and sales made/passed on to further the entries obtained from searched entities and other unaccounted incomes like bill discounting income, interest received, discount income on account of suppression of GP, etc. In the assessment order, AO has observed as under. \"The assessee is involved in providing purchases accommodation bills, sales accommodation bills and misusing LC funding facility. The assessee company has total turnover of Rs 13870871523/- for the assessment year under consideration. Total bogus purchase with the searched entities is Rs. 1898128934/-and total bogus sales with the searched entities are Rs. 11043215122/ For the purpose of estimation of income, the higher of the two being Rsll043215122/-. is considered. I do not agree with the decision of the AO to adopt the higher of sales and purchase values for the purpose of estimation. According to me, since the profits are estimated on the sales, the figures of sales should be adopted for the said purpose. Besides, as per the modus circular trading discussed in para 7.2.9 above, in the first step of circular trading, the company of the appellant group raises a sale bill on the company of the Jatia group. After the sale bill is raised, the payment is received from the bank of the buyer, through letter of credit. The money received from the banks is used by the appellant group for its own business or for circulating amongst within the group entities or to other non- group entities. The money remains with it for a period of around 180 days. The circle gets completed in the final step, when the entity of Jatia group raises the sale bill against entity of the appellant group and receives back the amount with some commission and LC charges. Since, the fund used for circular trading has been received in the hands of appellant through inflated sales, the value of such inflated sales should be adopted for purpose of estimation of income earned on the funds so received. As discussed in the paras above, the regular income arising out of the sale and purchase transactions gets automatically accounted for in the books. However, it is unlikely that the any assessee would undertake such activity on such a massive scale, unless there is some more added benefit in store for it. It is evident that the appellant group and the Jatia group have mutually got benefitted by extensively using/misusing the L/C facility. The appellant has reinvested the funds received from the LC facility in its own business and must have earned some income on the same. It has circulated the funds within its group entities and also with entities of other groups. There is an element of undisclosed Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 7 commission income, which the appellant would have received from such other beneficiaries. In my view, the AO has rightly made the addition of such other income earned by the appellant on the circular transactions. However, I do not agree with the rate of 5% adopted by the AO. It is seen that the rate of 5% has been applied in all assessment orders passed from AY 2013-14 to AY 2019-20, resulting in the total addition of Rs 245,51,74,504/-, which in my view is unreasonable and excessive. Appellant has provided data on the Gross profits disclosed by similarly placed concerns, not belonging to the group. As per industry standards, the gross margin in the business of trading in metal is in the range of 0.17 to 0.63 percent. The rate of 5% adopted by the AO is clearly on the higher side. To meet the ends of justice, such additional income is re-estimated by adopting the average rate of profit as per industry standards. Considering the overall facts of the case, the additional income is estimated at 0.50% of the sales of Rs 1104,32,15,122/, which comes to Rs 5,52,16,0 76/-. The said addition of Rs 5,52,16,0 76/-shall comprise/cover the additional income earned by the appellant by reinvesting the funds in the same business, the commission on accommodation entries of purchases and sales made/passed on to further the entries obtained from searched entities and any other unaccounted incomes like bill discounting income, interest received, discount income on account of suppression of OP etc. The appellant gets relief of Rs. 49,69,44,680/-.\" 17. Now considering the above facts in detail, we proceed to decide the merits of the additions. In this regard, it was submitted that the assessee had not entered into any bogus/circular transactions as held by the AO. As per Ld. AR the assessee is engaged in the business of wholesale trading of metals and metal ores having a turnover of more than Rs. 2,000 crores. Considering the nature of the goods traded, which are heavy and bulky in size, there is typically no physical movement of such goods at the time of sale. Instead, the goods are stored at designated warehouses, and symbolic delivery is effected by way of transfer of title documents or delivery orders, which is an accepted and recognized commercial practice in the line of business. Such operational model is standard across the industry and does not, in any manner, indicate the presence of sham transactions. Thus the transactions are genuine. 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 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. On the contrary, the statements recorded of various individuals at the time of search indicate that the assessee has earned commission as its profits for providing the service of generating alleged non-genuine invoices. In this regard out attention was drawn to the statement of Shri Narsingh Vijay Dhawale, accountant of Mr. Vinod Jatia which is at paper book page No. 56 & 57, (Q. No. 13 and 14). Further, statement of Shri Riyaz Shaikh, CFO of Lloyds Metal and Energy Limited (group company of the assessee) which is at paper book page No. 71, (Q. no. 32). Thus, in this way we Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 8 have noticed that the statements itself indicate that the 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. 19. We noticed from the record 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. It is important to mention here that in a case where there would have been such statements during the course of search alleging such cash receipts, the assessee would have an opportunity to cross examine the deponent. However, as per the facts of the present case, the assessee is in a worst situation in as much as the AO and Ld. CIT(A) has merely presumed and inferred cash consideration and thus the assessee had no such opportunity. 20. We further noticed that the additions made by the AO for all the six years is of approximately Rs. 250 crores. However, it is impossible and against the prudence that such substantial amounts have been paid to the assessee without leaving behind any documentary evidence such as notings, diaries or any cash trail. 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. Thus the absence of any evidence in itself is a positive evidence to suggest absence of cash transactions. On this proposition reliance is being placed upon the decision of the Coordinate Bench of the Mumbai of the Hon'ble Tribunal in the case of DCIT v. Supreme Holdings and Hospitality (India) wherein, with respect to the same search proceedings of Mr. Vinod Jatia and his companies, the Coordinate Bench of the Tribunal held that there is no involvement of any cash transaction nor there is any cash trail found in the search proceedings. 21. Furthermore, neither the AO nor the Ld. CIT(A) has referred to or relied upon any specific finding or tangible evidence to demonstrate that the assessee had actually received any cash. In our view, at the time of making the addition, the AO has merely proceeded on a presumptive basis by stating that the assessee might have received cash, without bringing any concrete, corroborative or even circumstantial evidence on record to substantiate such an assumption. Such reasoning of the revenue authorities is based purely on conjectures was also accepted by the Ld. CIT(A). In our considered view, such conjectural reasoning cannot form the basis for a sustainable addition under the Act. On this proposition, reliance is being placed up on the decision of the Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v. CIT (26 ITR 776) (PBP 144), wherein, it was held that although, the AO is not restricted by the strict and technical rules of the evidence and pleadings, he cannot proceed to make an addition purely on a guess work without any reference to material or tangible evidence. 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 Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 9 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 paid such amount and such entity ought to have been identified and taxed by the Income-tax Department. 23. Even otherwise, the additions sustained by the Ld. CIT(A) is excessive. As in this regard, it was submitted that as per prevailing industry practice, the profit margin earned in case of a genuine wholesale trading is between 0.17% and 0.63%. (Thia fact has been accepted by the Ld. CIT(A) on Pg. 86). Therefore, in our view, even assuming that the transaction entered by the assessee are circular in nature and non-genuine, then in that eventuality the findings of the Ld. CIT(A) that the assessee must have earned 0.5% commission is contrary to commercial logic. 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. Hence, the commission earned by the assessee has to be much lower than the industry's average net profit margin. 24. 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. Reliance is being placed on the decision of the Rajkot Bench of the Hon'ble Tribunal in the case of Kamlesh DeoraJ Jain v. ITO (PBP 154), Chandigarh Bench of the Hon'ble Tribunal in the case of Seo Lehenga House v. DCIT (PBP 173) and Nagpur Bench of the Hon'ble Tribunal in the case of ACIT v. Salaries Holdings Pvt Ltd. (PBP 197), wherein it has been held that in case of a circular transaction, the profit declared in the books of accounts covers the commission portion and that no further addition is warranted especially in absence of any evidence of cash payments. 25. Therefore, considering the totality of the facts and circumstances of the present case and also considering the decisions of the Coordinate Benches of the Tribunal as discussed by us above we allow the grounds of appeal raised by the assessee and direct the AO to delete the additions.” 7. Finding parity of facts, respectfully following the decision of the Co-ordinate Bench (supra), we decline to interfere with the findings of the ld. CIT(A). Insofar as, the deletion of addition of indirect expenses is concerned, we uphold the same. Accordingly, the substantive grounds argued before us are dismissed. Since we have dismissed the grounds raised by the revenue, the cross-objections of the assessee become infructuous. Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 10 8. In the result, appeals of the revenue and cross-objections by the assessee are dismissed. Order pronounced in the Court on October, 2025 at Mumbai. (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated /10/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai Printed from counselvise.com I.T.A. Nos. 3055, 3057 & 3056/Mum/2025 C.O. Nos. 194, 195 & 196/Mum/2025 11 Date Initial 1. Draft dictated on 30/09/2025 Sr.PS 2. Draft placed before author 06/10/2025 Sr.PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS /10/2025 Sr.PS/PS 6. File pronounced on /10/2025 Sr.PS 7. File sent to the Bench Clerk /10/2025 Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes Printed from counselvise.com "