INDRAVADAN HANJARIMAL JAIN,MUMBAI V. CIRCLE 42(2)(1), MUMBAI

ITA 6280/MUM/2024

AI Insights

The case involves three appeals by Indravadan Hanjarimal Jain against the orders passed by the Deputy Commissioner of Income Tax, which were confirmed by the Commissioner of Income Tax (Appeals). The appeals challenged the additions made on account of alleged bogus purchases and the penalties imposed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal examined the evidence provided by the assessee, including the nature of the business, the transactions recorded, and the payments made. It was found that the purchases were genuine and necessary for the business, and the corresponding sales were not disputed by the AO. The Tribunal also considered previous decisions in similar cases and the lack of opportunity for cross-examination of third-party statements, which were crucial in their decision to allow the appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 25276 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Other Referred Cases: CIT vs Orissa Corporation Pvt. Ltd., Khandelwal Construction vs CIT, Andaman Timber Industries vs CCE, Late Harbhajan Singh Makkar v ACIT, CIT v Ashwani Gupta, H.R. Mehta vs ACIT, CIT vs S. Khader Khan Son, PCIT vs Ashwin Purshotam Bajaj, PCIT vs. Rishabhdev Technocable Ltd, M/s Steel Line (India), Geolife Organics v/s ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH PAMNANI
• Assessee Lawyers: RIDHISHA JAIN AW KARAN JAIN
• Keywords: Peak credit; Bogus purchase; Onus to prove; Principle of natural justice; Third party statement; Accommodation entries; Bogus loan; Opportunity of cross examination; Bogus
• Section: 147; 143(3); 142(1); 250; 143(1); 271(1)(c); 133(6); 13; 133A; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & HON’BLE SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA Nos. 6279, 6280 & 6281/Mum/2024 (A.Ys: 2007-08, 2008-09 & 2009-10 ) Indravadan Hanjarimal Jain 701, Anmol Prestige, Near Patel Petrol Pump, Goregoan 400104. Vs. Dy. CIT, Circ-42(2)(1) Kautilya Bhavan, BKC Bandra East PAN/GIR No. AAAPJ9737B (Applicant) (Respondent) Assessee by Ms. Ridhisha Jain a/w Shri Karan Jain Revenue by Shri Mahesh Pamnani, Sr.DR Date of Hearing 17.02.2025 Date of Pronouncement 04.04.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM: These three appeals have been filed by the assessee challenging the impugned order 30.09.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / Ld. CIT(A) for the A.Ys 2007-08, 2008-09 & 2009-10. Since all the issues involved in these three appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed for 2 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai the sake of convenience and brevity. We shall take ITA No. 6279/Mum/2024, A.Y 2007-08 as lead case and facts narrated therein. The assessee has raised the following grounds of appeal: 1. On the facts & in the circumstances of the case and in law the Hon'ble CIT(A) erred in dismissing the appellant's appeal in limine without considering the subject issues on merit by passing an ex parte order and confirming the addition made by the Id. Assessing Officer and the reasons assigned for doing so are wrong and contrary to the provisions of Income Tax and rules made thereunder. Therefore, the appeal may kindly be restored to the Hon'ble CIT(A) for fresh adjudication. 2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the initiation of assessment proceeding u/s 147 of the Act merely on basis of information from investigation wing 3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the addition made by the Ld AO of Rs. 10,16,906/- to the returned income by treating genuine purchases made during the normal course of business as bogus without assigning any valid reason and the reasons assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and rules made there under. 4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the penalty initiated by Ld AO u/s. 271(1)(c) of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 5. Your Appellant crave, leave to add, alter, amend or modify any or all grounds of appeal on or before the date of hearing. 2. Since, Ld. AR submitted that the issue raised in the present appeals are covered by the decision of ITAT in 3 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai assessee’s own case, therefore we have decided to adjudicate ground No. 3 which is factual in nature firstly. Ground of appeal No. 3 raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the additions made by AO on account of bogus purchases. 3. In this regard, we have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and orders passed by the revenue authorities. From the records, we noticed that assessee being an individual is engaged in execution of civil construction works awarded by government / semi-government organization, and filed his return of income which was processed u/s 143(1) of the Act. Later on, information was received by the AO from the DGIT (Inv), Mumbai that the assessee has availed accommodation entries by way of bogus purchase from various parties. List of the said parties year wise are mentioned herein below: 4 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai Thus reopened and completed assessment after issuing of statutory notices and passed the order u/s 143(3) r.w.s 147 of the Act thereby making addition by holding the purchases made by assessee as bogus. 3. From the records, we also noticed that during the course of asesssmnet the assessee had complied with all the notices issued u/s 142(1) of the Act and submitted details of purchases made from the above parties i.e name of parties, address of parties, ledger account , 5 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai confirmation, bank statement etc., in respect of purchases and also other details as called for by the AO. All these details have also been submitted before us in paper book which are at page 23 to 211. The AO doubted the genuineness of the purchases and treated the same as bogus by relying upon the information of investigating wing, Mumbai. 4. After having gone through the documents submitted before us, we found that assessee has discharged his initial onus in proving the identity and genuineness of the goods purchased during the year under considerations in the normal course of business activities from aforementioned parties during the respective assessment years. In respect of all the purchases made and utilization thereof proper records are maintained and all the purchases are duly recorded in the regular books of account maintained. Now it was the onus of the AO to rebut the evidences. However, nothing has been brought on record that assessee has received cash back against the payment made. The assessee has made payments by account payee cheques against purchases made and the suppliers have deposited the said cheque in their account. Similarly, in respect of sales a/c payee cheque have been received and the same have been deposited in assessee's Bank a/c which 6 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai conclusively proves the genuineness of the purchases and sales made. 5. It is an undisputed fact that assessee is a civil contractor and executes works awarded by Government and semi government and said works would not have been completed if there were no corresponding purchases. A project could be completed only if the goods were available with assessee. It is also pertinent to mention here that no discrepancy has been observed by the government agencies and reported and even corresponding sales have not been doubted by the AO. The goods so purchased have been entered in the material inward register and there is corresponding utilization of goods for execution of projects awarded and the ordinary rule of law is that apparent state of affairs is true unless the contrary is proved. We have also noticed that for the below mentioned assessment years, the assessee has offered GP and NP as stated hereunder copy of Balance Sheet and P&L are placed at page no 212- 217 of the paper book 7 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai From the aforesaid details it is clear that the GP and NP offered by the assessee are legitimate and reasonable. Moreover the corresponding sales on which the assessee has earned GP are not at all in doubt hence the additions on account of treatment of genuine purchases as unexplained will lead to absurd result It has been brought to our noticed that Ld. CIT(A) in assessee's brother's case for AY 2007-08, 2008-09 and 2009-10 wherein similar additions were made on account of alleged bogus purchases from above parties have restricted the addition to 8% of the alleged bogus purchases. However, where the GP offered by the assessee's brother is above 8% in that eventuality the entire additions have been deleted. Copy of Ld. CIT(A)’s order of AY 2007-08, 2008-09 and 2009-10 in the case of assessee’s brother is placed at paper book page No. 218- 276. We found that to treat the genuine purchases as bogus the AO has relied upon the statements of third party and concluded the same as accommodation entry. Since the Ld AO before making addition has not brought on record any valid/justifiable/cogent evidence to independently prove that the said purchases are ingenuine, hence under these circumstances addition made are not sustainable as has been held in the case of CIT vs Orissa 8 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai Corporation Pvt. Ltd. 158 ITR 78 (SC) and the ratio laid down in Khandelwal Construction vs CIT 227 ITR 900(Guw.), wherein it has been held that the satisfaction has to be derived from the relevant facts and that too on the basis of proper enquiry by the Assessing Officer and such enquiry must be reasonable and just. Under the facts of the present case, the assessee in order to support its contention has provided details of purchase parties viz the proof of identity like PAN, confirmation of accounts, bank account details from the bank, other relevant material to prove the genuineness of transaction. However, before coming to adverse conclusion against the assessee, the AO did not provide any opportunity to cross examine on whose statement the AO relied upon. Since in the present case no such statement of third party nor opportunity to cross examination has been provided thus in our view additions are not sustainable On this proposition reliance is being placed on the following decisions: a) Hon'ble Supreme Court in the case of Andaman Timber Industries vs CCE 62 taxmann.com 3 (SC); 281 CTR 241 (SC) while dealing with the issue of violation of principles of natural justice for not providing the opportunity of cross examination of the witnesses whose statements were relied on by the AO has held in para 6 to 9 that once the 9 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai assessee has disputed the correctness of the statement and wanted to cross examine the witness which was not given by the AO as well as Ld CIT(A), then the orders passed based on such statement are not sustainable in law. Followed by Hon'ble Delhi ITAT in Late Harbhajan Singh Makkar v ACIT dated 16/10/2019. b) Hon'ble Delhi High Court in another case of CIT v Ashwani Gupta, 322 ITR 396 (Delhi) while dealing with the issue of not providing the opportunity to cross examine the witnesses has held in para 5 to 7 that once there is violation of principles of natural justice inasmuch as seized material is not provided to the assessee nor is cross examination of the person on whose statement the AO relied upon, granted, then, such deficiencies would amount to denial of opportunity and consequently would be fatal to the proceedings. c) Hon'ble Bombay High Court in the case of H.R. Mehta vs ACIT 387 ITR 561 (Bombay) has also considered the issue of not providing opportunity of cross examination in para 11 to 17 and held that the denial of opportunity to cross examine goes to the root of the matter and strikes at the very foundation of the assessment and, therefore, renders the assessment order passed by the AO not sustainable. 10 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai 9. As per the facts of the present case, the AO even did not provide any information and allegation if any, made therein, which has been used against the assessee. In these circumstances the principle of natural justice, demands that without confronting the assessee of such evidences, if any, or the information, no addition can be made. In this regard reliance is being placed on the decision of Commissioner Of Income Tax- Central V/S Sunita Dhadda Special Leave Petition (Civil) Diary No(S).9432/2018 We have noticed that AO without rebutting the evidence produced and placed on record by the assessee in respect of explained & genuine purchases, had made the additions by merely relying upon statement of third parties which is not sustainable at laws as held in the case of a) S.P. Agarwalla alias Sukhdeo Prasad Agarwalla v. ITO [1983] 140 ITR 1010 (Cal.) wherein it is held that a mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment. 11 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai b) Further the additions merely on third party statement are not justified as held in the case of CIT v. Concorde Capital Management Co. Ltd. 334 ITR 346 (Del) and Dr. R. L. Narang 174 Taxman 96 (Chd)(Mag). c) In the case of Saveetha Institute of Medical and Technical Sciences v. ACIT (2011) 012 ITR (Trib) 376 (Chen), wherein addition towards capitation fee allegedly collected by the institute was made solely on the basis of statements of students and staff recorded u/s 132(4) of the Act was made. Except for a note giving the breakup of number of students who were admitted under different quotes in various courses, there was no incriminating material as to the receipt of capitation fee. Referring to the Instruction F.No. 286/2/2003-IT (Inv.II) dated 10/03/2003, the addition made was deleted observing that admission made u/s 132(4) of the Act was not a valid piece of evidence. d) In the case of CIT v. Ashok Kumar Soni 291 ITR 172 (Raj.) it was held that admission in statement during search proceedings is not ‘conclusive proof’. Applying the above preposition of law as discussed above, we also found that as per the facts of the present case, the addition in the present case were also made on the statement of third party therefore keeping in view the 12 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai above principles, we are of the view that additions are not sustainable on this ground. (ii) Now while taking into consideration the alternative arguments put forth before us to the effect that only the profit element embedded in the purchases can be added and not the entire purchases especially when the sales have not been doubted. a) In this regard reliance is placed upon the decision of the Hon'ble Bombay High Court in the case of PCIT vs Ashwin Purshotam Bajaj [2023] (ITA No. 576 of 2018) (Copy of judgement enclosed hereto at page no. 277- 280 of the paper book) have held as under: 6. In the present case, one thing is clear is that the A.O. has not doubted the sales made by respondent against the purchases. Similar case of respondent was also considered by the Tribunal with regard to issues for Assessment Year 2010-11. In that also the Tribunal has observed that the A.O. has not doubted the sales made by assessee against the purchases and assessee has reconciled the quantitative details of stock as per sale invoices. The A.O, has observed that respondent has purchased material from someone else while bogus bills were organized by these Hawala Therefore, at least to the extent even if it has been purchased from Hawala Traders the indisputable fact is that the purchases have been made and admittedly quantitative reconciliation of the stock was done by respondent of sale and purchase. The ITAT therefore accepted the explanation of respondent that only the profit element in these accommodation entries are to be added to the income. The CIT(A) has restricted the addition by estimating the gross profit at 12.5%. Whether that is the right estimate is a question of fact. Therefore, we see no reason to interfere\". 13 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai b) The Hon'ble Bombay High Court in another case titled PCIT vs. Rishabhdev Technocable Ltd in ITAT (IT) No.1330 of 2017 vide order dated 10.02.2020 (Copy of judgement enclosed hereto at page no. 281-292 of the paper book) has observed as under: On thorough consideration of the matter, we do not find any error or infirmity in the view taken by the Tribunal. The lower appellate authorities had enhanced the quantum of purchases much beyond that of the Assessing Officer i.e., from Rs.24,18,06,385.00 to Rs.65,65,30,470.00 but having found that the purchases corresponded to sales which were reflected in the returns of the assessee in sales tax proceedings and in addition, were also recorded in the books of accounts with payments made through account payee cheques, the purchases were accepted by the two appellate authorities and following judicial dictum decided to add the profit percentage on such purchases to the income of the assessee. While the CIT (A) had assessed profit at 2% which was added to the income of the assessee, Tribunal made further addition of 3% profit, thereby protecting the interest of the Revenue. We have also considered the two decisions relied upon by learned standing counsel and we find that facts of the present case are clearly distinguishable from the facts of those two cases to warrant application of the legal principles enunciated in the two cited decisions In Bholanath Polyfab Limited (supra), Gujarat High Court was also confronted with a similar issue. In that case Tribunal was of the opinion that the purchases might have been made from bogus parties but the purchases themselves were not bogus. Considering the fact situation, Tribunal was of the opinion that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. Gujarat High Court upheld the finding of the Tribunal. It was held that whether the purchases were bogus or whether the parties from whom such purchases were allegedly made were bogus was essentially a question of fact. When the Tribunal 14 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai had concluded that the assessee did make the purchase, as a natural corollary not the entire amount covered by such purchase but the profit element embedded therein would be subject to tax\" c) The Coordinate Bench Mumbai ITAT in the case of M/s Steel Line (India) in ITA No 1321/M/2016 dated 29.08.2017 held as under: \"From the record, we found that AO has made addition in respect of purchases found to be bogus as per the information from sales tax department. In the appellate proceedings, the CIT(A) recorded a finding to the fact that AO has not disputed the quantitative details and also day to day stock register maintained by the assessee. Assessee company being a trader of goods, AO not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of peak balance on such purchases. Accordingly, CIT(A) concluded that issue boil down to find out the element of profit embedded in bogus purchases which the assessee would have made. When the corresponding sales have not been doubted and the quantitative details of purchases and sales vis-à-vis stock was available, we deem it appropriate considering the entirety of facts and circumstances of the case to restrict the addition to the extent of 2% of such bogus purchase. Accordingly, the order of both the lower authorities are modified and AO is directed to restrict the addition to the extent of 2% on such purchases\". d) Further, the Hon'ble Mumbai ITAT in the case of Geolife Organics v/s ACIT (2017) 58 ITR (Trib) 0297 (Mumbai), held as under: \"12.........Assessing Officer has not brought any material on record to conclusively establish the fact that purchases are bogus. Merely relying upon the information from the Sales Tax Department or the fact that party were not produced the Assessing Officer could not have treated the purchases as bogus and made addition. If the Assessing Officer had any 15 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai doubt with regard to purchases made, it was incumbent upon him to make further investigation to ascertain the genuineness of the transactions. Without making any further enquiry or investigation the Assessing Officer cannot sit back and make the addition by simply relying upon the information obtained from the Sales Tax Department and issuing notices under section 133(6) of the Act. As the Assessing Officer has failed to make any enquiry or investigation to prove the fact that the purchase transactions are not genuine whereas the assessee has brought documentary evidences on record to prove genuineness of such transactions which are not found to be fabricated or non-genuine, the action of the Assessing Officer in ignoring them cannot be accepted. When the payment to the concerned party are through proper banking channel and there is no evidence before the Assessing Officer that the payments made were again routed back to the assessee, the addition made by estimating further profit of 12.5% earned by the assessee is not sustainable in law and facts. Keeping in view the totality of facts and circumstances of the case, court are inclined to restrict the addition to the extent of 2% of such purchases.\" Since in the present case, the GP for the last three year is more than 8%, therefore needs no further additions. 6. It is pertinent to mention here that during the course of assessment proceedings, the assessee had provided complete details of purchases made from all the parties including the alleged bogus purchase parties, along with all the bills, the evidence of payment made through banking channel were also placed on record by giving details of bank accounts. Moreover, the ‘identical additions’ were made in assessee’s own case on the purchases made from the same parties and therefore 16 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai while deciding the matter, the Coordinate Benches of ITAT after having thoroughly examined the existence of the respective parties had allowed the respective appeals by holding that purchases made from these parties cannot be disallowed when the sales have not been doubted. In this regard we rely upon the different decisions of the Coordinate Bench of ITAT in respect of following parties and detailed chart in this regard is mentioned herein below: 17 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai Deep Enterprises: 18 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai 19 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai 7. Since the Coordinate Benches of ITAT had already decided the matter in favour of assessee in assessee’s own case under the identical set of facts moreover, the nature of business remained the same over the years and the AO could not bring on record any contrary material therefore following the decision of the Coordinate Benches we also conclude that no additions are called for considering the facts of the present during the year under consideration as well. Another aspect of the present case is, that AO has relied upon the statement of assessee recorded during the course of survey proceedings for making addition for the impugned assessment years. In this regard we rely upon the judgement of Hon'ble Supreme Court in the case of CIT vs S. Khader Khan Son (2012) 352 ITR 480 (SC) wherein the Hon'ble Judges have held that Statement obtained under survey would not automatically be binding upon the 20 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai assessee as it is not conclusive piece of evidence by itself and that section 133A of the Act does not empower any Income-tax Officer to examine any person on oath thus the statement recorded under section 133A has no evidentiary value and therefore any admission made during such statement cannot be made basis of additions. 8. Therefore considering the entire discussion in detail as mentioned above, we are also of the view that when the assessee has provided all the documentary evidences to prove the genuineness of the transactions carried out in the present case, then the burden to prove otherwise shift upon the department which the department has fail to discharge in rebutting the documents of the assessee. Therefore AO and Ld. CIT(A) merely cannot treat the genuine transactions as in genuine on the basis of suspicious and surmises as held by Hon’ble Supreme Court in the case of Omkar Sahay Mohd Sail 37 ITR 151 (SC), Kishan Chand Chellaram Vs. CIT, 125 ITR 713 (SC) and Umacharan Shah & Bros, 37 ITR 271 (SC). Hence in these circumstances no additions are warranted. Therefore considering the overall factual and legal position we direct the AO to delete the addition. ITA Nos. 6280 & 6281/Mum/2024 10. As the facts and circumstances in these appeals are identical to ITA No 6279/Mum/2024 for the A.Y 2007-08 21 ITA No. 6279, 6280 & 6281/Mum/2024 Indravadan Hanjarimal Jain, Mumbai (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for this appeal also. Accordingly, the grounds of appeal of the present appeals also stands allowed. 11. In the result, all the appeals filed by the assessee stands allowed. Order pronounced in the open court on 04.04.2025. Sd/- Sd/- (PRABHASH SHANKAR) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 04/04/2025 KRK, PS आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u000eथ / The Respondent. 3. संबंिधत आयकर आयु\u0019 / The CIT(A) 4. आयकर आयु\u0019(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मु\u0003बई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, स\u000eािपत ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु\u0003बई मु\u0003बई मु\u0003बई मु\u0003बई / ITAT, Mumbai "