ITO-19(3)(1), MUMBAI V. SAILESH METAL CORPORATION, MUMBAI

ITA 2977/MUM/2025

AI Insights

The case involves Sailesh Metal Corporation, which was accused of making bogus purchases from three hawala traders. The Income Tax Department, based on information from the Sales Tax Department of Maharashtra, reopened the assessee's case and identified these transactions as accommodation entries without actual delivery of goods. The assessing officer initially disallowed 20% of these purchases, which amounted to Rs. 15,23,887. However, the CIT(A) reduced this disallowance to 4.40%, aligning it with the gross profit ratio declared by the assessee. The revenue appealed against this reduction, arguing that the CIT(A)'s decision ignored the fact that the assessee had not proved the genuineness of the purchases. The tribunal, after considering the submissions and evidence, decided to further reduce the disallowance to 10%, finding this to be a reasonable compromise.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706171 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Assessment Year: 2010-2011
• Other Referred Cases: M/s. N. K. Proteins Ltd. Vs. Dy. CIT, Pr. Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex (India) Ltd, CIT Vs Bholanath Ply Fab P. Ltd.
• Laws Referred To: Income Tax Act, Maharashtra Value Added Tax Act 2002
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R.M. BRINDHA
• Assessee Lawyers: MISS KHUSAHIL PANDYA; CHIRAG
• Keywords: Unexplained expenditure; Bogus purchase; Onus to prove; Tax effect; Accommodation entries; Bogus
• Section: 68; 69C; 37

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 2977/MUM/2025 (AY : 2010-11)) (Physical hearing) ITA No.-19(3)(1), Mumbai Vs Sailesh Metal Corporation 202/15A, Black Stone Building, GoldeviMandir, Mumbai – 400004. PAN: AAIFS5147A Appellant / Revenue Respondent / Assessee Assessee by Miss Khusahil Pandya and Mr. Chirag Khona, CA Revenue by Smt. R.M. Brindha, Addl. JCIT Date of hearing 30.06.2025 Date of pronouncement 30.06.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JM; 1. This appeal by revenue is directed against the order of ld. CIT(A)-51 dated 05.02.2025 for A.Y. 2010-11. The revenue has raised following grounds of appeal: “\"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition @ 4.40% as against the 20% addition of Rs. 15,23,887/-made by AO u/s. 69C of the Act, on account of availing accommodation entries of bogus purchases amounting to Rs. 76,19,437/- from three hawala parties, identified by the Sales Tax Department of Maharashtra ?\" 2. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition upto 4.40% as against the 20% addition of Rs. 15,23,887/-, by ignoring the fact that the action of AO was based on the discreet report of the DGIT (Inv.) Mumbai, disclosed the fact that the three firms were bogus/hawala dealers, involved with a sole purpose of providing accommodation entries of bogus purchases and the assessee firm was found to be one of beneficiary who has obtained accommodation entries of bogus purchases from three hawala parties, amounting to Rs. 76,19,437/- without actual delivery of any goods and the transactions were undertaken to generate paper tail only?\" ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 2 3. Whether on the facts and circumstances of the case and in laws, the LA CIT(A) has erred in restricting addition upto 4.40% as against the 20% made by AO, by ignoring the facts that the three hawala traders were failed to submit any response or explanations to notices u/s.133(6) of the Act, issued by the AO to verify the genuineness of transactions made by the assessee firm and also all the three suspicious traders has not proved the creditworthiness of their firms?” 4. Whether on the facts and circumstances of the case and in laws, the Id CIT(A) was justified in estimating the income of bogus purchases on the basis of comparing of the bogus purchases with the purchases in the regular books of accounts ignoring that the fact of procuring bogus invoices lead the un-certified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of accounts?\" 5. Whether on the facts and circumstances of the case and in laws, the Ld. CIT(A) was justified in ignoring the element of reason for procuring of bogus invoices, when it is observed that the GP on these bogus invoices are at most matching with the GP as per genuine invoices and therefore such estimation of income out of bogus purchases with the GP as per regular books of accounts is not justified?\" 6. Whether in the facts and circumstances of the case and in laws, the Ld.CIT(A) was justified in holding that income from bogus purchase transaction should be restricted to 4.40% of total value of bogus purchase transactions, although there was no dispute that the bogus purchases were made and so act of infraction of law was committed by the assessee on provision of section 74(1A) of the Maharashtra Value Added Tax Act 2002 and such purchases are not allowable as per express provisions u/s. 37 of the Act ?\" 7. Whether on the facts and circumstances of the case and in law, the decision of the Ld. CITIA), is right in view of the latest decision of the Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Va. Dy. CIT (2016) 292 CTR (Gul) 354, Dated. 16.01.2017, wherein the Hon'ble Court has held that once a findings of Act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P & L account are established as bogus, then restricting the addition to a curtained percentage goes against the principles of section 68 and 69C of the Income Tax Act, 1961 8. Whether on the facts and circumstances of the case and in law, the decision of the Ld. CIT(A), is right in view of the decision of the Hon'ble High Court Mumbai, in the case of Pr. Commissioner of Income-Tax-5, Mumbai Vs. Kanak Impex (India) Ltd(2025)172 Taxmann.com 283 (Bombay) Dated. ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 3 03.03.2025, wherein the decision of 100% addition made by AO has been allowed, by rejecting the ITAT's decision of estimating the profit rate @12.5% on bogus purchases and thereby impliedly grant deduction of such unexplained expenditure incurred u/s. 69C of the Act, eventhough the assessee failed to discharge its onus to prove the genuineness of alleged purchases and has offered no explanation of the sources of expenditure incurred on account of such purchases?\" 9. Whether on the facts and circumstances of the case and in law, the order of the Ld. CIT(A) perverse in not considering that the order of Hon’ble Supreme Court in the case of M/s. N.K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, Dated. 16.01.2017, which is on the similar issue of bogus purchases, was already the law of the land when the Ld.CIT(A) has pronounced it's order on 05.02.20257 10. \"Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in restricting the addition without appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad, had confirmed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non- genuine and the decision of the ITAT was upheld by Hon'ble Gujarat High Court and also by the Hon'ble Supreme Court? 11. The Tax- Effect involved in the instant case is Rs. 8,94,770/-, which is below the prescribed limit as per CBDT's Circular F.No.279/Misc. 142/2007- ITJ(Pt) amended vide No 09/2024 dated. 17.09.2024. However, the case fall under one of the exceptions laid down in CBDT Circular No. 05/2024 Dated. 15.03.2024, wherein it is stated that in cases involving\" Organized Tax Evasion\", the decision to file appeal/SLP shall be taken on merit without regard to the tax effect and the monetary limit. 13. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.” 2. Rival submissions of both the parties have heard and record perused. The learned Senior Departmental Representative (ld. Sr. DR) for the revenue submits that assessee is trading in ferrous and non-ferrous metals. The case of assessee was reopened on the basis of specific information from the office of Principal Commissioner of Income Tax -4 (Pr. CIT), Mumbai which were based on information received from Sales Tax Department of Maharashtra, ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 4 the assessee is beneficiary of accommodation entry. The assessee is beneficiary of purchases from three such hawala traders who are indulging in providing accommodation entry. The assesse has shown aggregate purchases of Rs. 76,19,436/- from three such parties namely Anandeep Metal, Rajratan Metal Industries and Ramani Metals. During the assessment, the assessing officer issued notice to all three parties, out of which the notices sent to Anandeep Metal and Rajratan Metal Industries were returned back unserved and third person Ramani Metals is not received such notice. The assessee has not proved the genuineness of purchases by showing octroi receipt for the proof of delivery or transportation from all three parties, still the assessing officer was reasonable in disallowing only 20% of purchases shown from hawala parties. The assessing officer disallowed/ worked out disallowances of purchases of Rs. 15,23,887/-. The ld. CIT(A) allowed substantial relief to the assessee and restricted to the addition of bogus purchases to the extent of 4.40% only. The finding of the ld CIT(A) is erroneous and contrary to the facts. The assessee has not proved the delivery of goods. The ld. Sr. DR for the revenue submits that order passed from assessing officer may be restored by setting aside the order of ld. CIT(A). 3. On the other hand, learned Authorised Representative (ld. AR) of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee submits that purchase of assessee were genuine. The assessee has proved all the purchases. The assessee is in the business in the trading of ferrous and non-ferrous metals. The sale of assessee is not disputed by assessing ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 5 officer. The sale of assessee is not possible in the absence of purchases. The assessee has shown gross profit of 4.4% and shown good net profit. The assessee has shown or evidences before the assessing officer, the assessing officer made addition on higher side. The order passed by ld. CIT(A) is reasonable. On the allegation of non-service of notice under section 133(6), the ld. AR submits that assessing officer sent such notice after 7 years of purchases. Party may not be available on such address for a gap of 7 years. The ld AR of the assessee prayed for dismissal of appeal. 4. I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I find that case of assessee was reopened on the basis of information received by assessing officer that the assessee is beneficiary of accommodation entry as per the information received from Sales Tax Department. During the assessment, the assessing officer issued notice to all three parties from whom the assessee has shown purchases. The assessing officer recorded that notices sent to Anandeep Metal and Rajratan Metal Industries were returned back and third party Ramani Metals has not filed any reply. The assessee in order to justify the genuineness of purchase furnished copy of purchases ledger account and bank statement showing the payment to the parties. The assessing officer recorded that assessee has not furnished delivery challans and corresponding sales to third party, copy of octroi receipt and transportation receipt were not furnished. The assessee failed to link the material purchase with sales. The assessing officer, thus, rejected the contention of assessee. I find that assessing officer by referring certain case law including on the decision of ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 6 Gujarat High Court in CIT Vs Bholanath Ply Fab P. Ltd. (2013) 355 ITR 290 restricted the addition to the extent of 20% of the purchases. The ld. CIT(A) restricted the addition to the extent of 4.40% i.e. gross profit ratio declared by assessee on total purchases of Rs. 10.07 crore. I find that the ld. CIT(A) in para 5.3.2 has recorded that the ld. Assessing Officer has not disputed the sales. Such finding is contrary to the finding of assessing officer on page 3 of assessment order wherein the assessing officer clearly recorded “b. The assessee has failed to link the material purchased with sale made by it with the stock register or movement of goods with supporting documents”. Thus, in my view the ld. CIT(A) has not appreciated the fact in proper perspective. Still, I am of the view that disallowance made by assessing officer was on higher side, therefore, in my view, the disallowance to the extent of 10% of the impugned/bogus purchases from three parties would be fair, reasonable and sufficient to avoid the revenue leakage. Thus, the assessing officer is directed to restrict the addition @ 10% of purchases. 5. In the result, the appeal of the revenue is partly allowed. Order was pronounced in the open Court on 30/06/2025. Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated: 30/06/2025 Biswajit ITA No. 2977/Mum/2025 Sailesh Mestal Corporation 7 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "