ITO, INCOME TAX DEPARTMENT V. SKA TECHINFRA PVT LTD, MUMBAI

ITA 4369/MUM/2024

AI Insights

The case involves an appeal by the Income Tax Officer against M/s. SKA Techinfra Pvt. Ltd., concerning the assessment year 2018-19. The primary issues revolved around the additions made by the Assessing Officer (AO) under sections 69C and 68 of the Income Tax Act, 1961, which included bogus purchases and loans. The AO had initially added Rs. 48,00,000 for bogus purchases and Rs. 2,00,00,000 for a bogus loan, along with respective commissions. The Commissioner of Income Tax (Appeals) later reduced the addition for bogus purchases to 12.5% and deleted the commission addition, which the Revenue challenged in the Tribunal. The Tribunal's decision leaned on various judicial precedents that supported taxing only the profit element in such cases rather than the entire transaction amount.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33779 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2018-2019
• Other Referred Cases: N.K. Industries Ltd. vs. DCIT, Bhavesh Punmaji Devasi Vs ITO, JK Surface Coatings Pvt. Ltd. vs. ITO, PCIT-15, Mumbai v. Jakharia Fabric (P.) Ltd., Ashok Popatbhai Chaudhari Vs ITO, Nikunj Eximp Enterprises vs. ITO, Vijay Protein Vs CIT, CIT vs. Simit P. Sheth, Pr. Commissioner of Income Tax vs. Bharath Copy Centre Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNIL SAWANT; LD.
• Assessee Lawyers: PRAKASH JHUNJHUNWALA; LD; FILING ITS RETURN OF INCOME; ITA NO.M; CO NO.M
• Keywords: Business income; Reassessment proceedings; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Bogus purchase; Onus to prove; Accommodation entries; Bogus loan; Bogus
• Section: 148; 250; 68; 131; 133(6); 69C; 72; 145(3); 260A; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “G”, MUMBAI BEFORE SHRI BR BASKARAN, ACCOUNTANT MEMBER AND SHRI NARENDER KUMAR CHOUDHRY, JUDICIAL MEMBER ITA No.4369/M/2024 Assessment Year: 2018-19 Income Tax Officer, Income Tax Department, Room 227, Aayakar Bhawan, Mumbai, Maharashtra - 400020 Vs. M/s. SKA Techinfra Pvt. Ltd., 303 Blue Rose Industries, Borivali East, Mumbai, Maharashtra- 400 066 PAN: AAWCS7089N (Appellant) (Respondent) CO No.249/M/2024 (Arising out of ITA No.4369/M/2024) Assessment Year: 2018-19 M/s. SKA Techinfra Pvt. Ltd., 303 Blue Rose Industries, Borivali East, Mumbai, Maharashtra- 400 066 PAN: AAWCS7089N Vs. Income Tax Officer, Income Tax Department, Room 227, Aayakar Bhawan, Mumbai, Maharashtra - 400020 (Appellant) (Respondent) Present for: Assessee by : Shri Prakash Jhunjhunwala, Ld. A.R. Revenue by : Shri Swapnil Sawant, Ld. Sr. A.R. Date of Hearing : 19 . 11 .2024 Date of Pronouncement : 20 . 01 .2025 O R D E R Per : Narender Kumar Choudhry, Judicial Member: The instant appeal Cross objection respectively by the Revenue Department and the Assessee have been against the order dated 28.06.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) under section 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2018-19. ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 2 2. Relevant facts for the adjudication of the instant appeal and CO are that the Assessing Officer (AO) vide assessment order dated 21.03.2023 u/s 147 r.w.s. 144B of the Act, assessed the total income of the Assessee to the tune of Rs.2,50,04,000/- as against the returned income of (-) Rs.1,05,74,639/- declared by the Assessee by filing its return of income on 10.04.2019 and made the following additions: 1. Addition of Rs.48,00,000/- being bogus purchase u/s 69C of the Act. 2. Addition of Rs.96,000/- on account of commission @ 2% on bogus purchases 3. Addition of Rs.2,00,00,000/- being bogus loan u/s 68 of the Act. 4. Addition of Rs.1,08,000/- being commission @ 0.54% on bogus loan. 2.1 The Additions of Rs.48,00,000/- on account of bogus purchases u/s 69C of the Act and Rs.96,000/- on account of unexplained expenditure being commission @ 2% on bogus purchases are interconnected, hence, for the sake of brevity, we will conjointly decide the same. The AO during the course of the reassessment proceedings u/s 147 of the Act, has found that the Assessee has entered into non-genuine transaction with M/s. Shree Om Sai Industries Ltd. for a sum of Rs.48,00,000/-, however, could not justify the actual movement/supply of the goods by filing necessary documentary evidence. Therefore, the AO in order to verify, by issuing show cause notice dated 01.03.2023 show caused the Assessee as under: “As to why the purchase of Rs.48,00,000/- made from M/s. Shree Om Sai Industries Ltd. should not be treated as bogus and should not be disallowed as unexplained expenditure u/s 69C of the Act”. “Further, as to why Rs.96,000/- i.e. 2 % of Rs.48,00,000/- should not be treated as expenditure u/s 69C of the Act”. 2.2 The Assessee, in response to the show cause, filed its reply dated 06.03.2023 and mainly claimed as under: ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 3 “6.6 In response thereto, vide reply dated 06.03.2023, assessee has submitted that it has already provided the copy of invoices and delivery challan. The relevant portion of the submission of the assessee is as under: - 1. Proposed addition of Rs. 48,00,000/- being bogus purchase and Rs. 96,000/- being 2% commission on Rs. 48,00,000/-: In our earlier submissions, we stated that we are dealing and trading in textiles. Usually we purchase the fabrics as we get the order and ask the seller to directly supply to the buyer. Therefore we did not have any role in transportation of goods. But we took delivery challans from buyer to confirm delivery of goods by seller. We have already submitted invoices along with delivery challans in our earlier submissions. Therefore movement of goods is supported by delivery challans. We further submitted that the details of purchases viz-a-viz sales. We had purchased the fabric from M/s. Om Sai Industries Pvt Ltd and sold the same to other parties and earned profit of Rs. 2,55,000/-. The said profit is disclosed in the Profit & Loss Account of the company. We have also submitted Confirmation of Accounts of M/s. Om Sai Industries Pvt Ltd for the FY 2017-18 and Bank Statement of Assessee Company highlighting payments made against purchase of fabric. Without prejudice to above, if the purchase made from M/s. Om Sai Industries Pvt. Ltd of Rs. 48,00,000/- were bogus, then only profit embedded in said transaction to be added to total income of the assessee. In the case of assessee profit from said transaction was Rs. 2,55,000/-. Therefore said profit of Rs. 2,55,000/- to be added in total income and not the whole amount of Rs. 48,00,000/-. There cannot be a sale without purchase and therefore entire purchase amount should not be added to total income and profit embedded in said transaction to be added. Without prejudice to above profit of Rs. 2,55,000/- earned on said transaction is already disclosed in profit and loss account and return of income filed for AY 2018-19. 6.6.1 Assessee has also sought personal hearing through Video Conferencing. A letter dated 07.03.2023 intimating the schedule of VC for 09.03.2023 at 11.45 A.M. The VC was conducted successfully on 09.03.2023.” 2.3 The AO though considered the submission of the Assessee specifically to the effect the material was directly dispatched/shipped to the seller party; however, the AO doubted the transactions more or less by observing as under: ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 4 “That the Assessee has not filed requisite details regarding transportation of goods and from the perusal of the copies of invoices and delivery challan, it is seen that in all the invoices/delivery challan the name of the Assessee i.e. M/s. SKA Techinfra Pvt. Ltd. has been mentioned in the consignee column and therefore the contention of the Assessee that goods were directly dispatched/shipped to the purchaser party is not found to be correct. Further, if the material is directly dispatched to the purchaser then the onus is on the Assessee to arrange the relevant details from the party from whom the purchases claimed to have been made. Mere filing of bills/invoices, maintaining ledgers and payments through banking channel is not sufficient, if the serious question arises on the identity, creditworthiness on the entity and the genuineness of the transaction. The burden is on the Assessee to counter the findings, the non-existence of the supplier and to prove the genuineness of the transaction. The theory propound by the Assessee that the Assessee directly supplied/shipped the material and makes the payment, is the only thing it was supposed to do and its statement is not acceptable because actual supply of the goods is crucial and which the Assessee failed to prove. It is established that certain purchases are bogus. Generally, tax payers take the stand that its sales are genuine, then purchase cannot be bogus as without purchase the sales cannot be made. The stand of the tax payers needs to be rejected. The tax payer cannot take advantage of its failures. 2.4 The AO also considered various judgments including in the case of N.K. Industries Ltd. vs. DCIT (2016) 72 taxman.com 289 (Guj.) and ultimately disallowed the amount of Rs.48,00,000/- as unexplained expenditure u/s 69C of the Act and added back to the total income of the Assessee and charged @ 60% u/s 115BBE of the Act by holding under: “It is a clear-cut case of inflation of purchases by recording false entries in the books of account and required to be taxed u/s 69C of the Act as unexplained expenditure and therefore the bogus purchases to the tune of Rs.48,00,000/- is disallowed as unexplained expenditure u/s 69C of the Act and added back to the total income of the Assessee and charged @ 60% u/s 115BBE of the Act”. 2.5 The AO also made the addition of Rs.96,000/- ( being 2% of Rs.48,00,000/-) by treating the same as unexplained expenditure u/s 69C of the Act and taxed @ 60% as per the provision of u/s 115BBE of the Act and added back to the income of the Assessee by observing as under: ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 5 “That generally such transactions are carried out on commission basis ranging from 2-3% on the amount of bogus billing. The Assessee has received accommodation entries in the guise of bogus purchases of Rs.48,00,000/- through M/s. Shree Om Sai Industries Ltd. Therefore a show cause notice was issued to the Assessee as to why the commission expenses of Rs.96,000/- by applying the rate of 2% on total bogus purchases of Rs.48,00,000/- should not be treated as unexplained expenditure of the Assessee. Though the Assessee has not specifically replied on this issue, however, in reply to the show cause notice submitted that the purchases are genuine. Since the purchases are held as bogus, therefore the amount of Rs.96,000/- (2% of Rs.48,00,000/-) is treated as unexplained expenditure of the Assessee u/s 69C of the Act and taxed @ 60% as per the provision of u/s 115BBE of the Act and added back to the income of the Assessee”. 3. The Assessee, being aggrieved with the reopening of the assessment as well as issuing the notice u/s 148 of the Act by the AO and making the additions on merits, challenged the same by filling first appeal before the Ld. Commissioner and has claimed as under: “6.2 The appellant during the course of appeal proceedings has submitted that the entire addition had been made purely on the basis of assumption and surmise and that there is no evidence or material on record to justify that the appellant had incurred any unexplained expenditure to purchase the goods. The appellant submitted that during course of assessment, it furnished various documentary evidences such as purchase and sale bills, Ledger account, PAN of suppliers, details of purchases, payments made to the said party and bank statements to justify the genuineness of the recorded purchase and payments thereon. The appellant also submitted that it furnished a detailed statement displaying the purchase made from such party and corresponding sales made against such purchases and profit earned thereon. 6.3 The appellant submitted that it purchased the goods and made the payment against these purchase bill and appellant had not made any unaccounted cash payment for purchase of goods. The appellant submitted that it does not have any source of unaccounted income; thus, the possibility of unexplained payment would not arise. It was also submitted that the AO had not rejected the appellant's books of accounts u/s.145(3) of the Act. The appellant submitted that in audited P&L. account, it disclosed a Gross profit @5.04 % on sale of fabric which is most reasonable in trading activity of fabric/textile. The appellant ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 6 made a prayer to adopt the concept of real income and estimate the total income @ 5.04 % on sales. The appellant further to submitted that even in case of best judgment assessment is passed, after rejecting the books of accounts, then, in such case, the total income is estimated, on the basis of honest guess work as per the normal profit in the industry. 6.4 Further the appellant submitted that it has ceased the business of fabrics from July 2017 and therefore, for their record purpose has taken confirmation of account from M/s. Shree Om Sai Industries Private Limited and from other suppliers. The appellant submitted that confirmation of Account with old date cannot be made a ground for purchase bogus. The appellant submitted that during the assessment proceedings, it has submitted various documents i.e. copy of invoices, delivery challans and confirmation of accounts which were received from supplier M/s. Shree Om Sai Industries Private Limited and that the signature on all the documents submitted is same i.e. all the documents has been signed by single authorized person. It is submitted that the confirmation of account has been signed by person who has signed the invoices. Further, the appellant submitted that all the documents are properly stamped and signed mentioning complete details of buyer as well as seller i.e. address, PAN, Sales Tax Number etc. 6.5 The appellant submitted that it acted as an intermediary between buyer and seller and that it purchased the fabric as and when receive the order from buyer and instruct the seller to directly deliver the goods to the buyer. It was submitted that the appellant did not have any role in transportation of goods and therefore it doesn’t have documents other than delivery challan in support of delivery of goods. The appellant also submitted that genuineness of purchase cannot be doubted merely because party did not respond to notice issued u/s. 133(6) when all the details are furnished to justify the purchase. The appellant has also relied on a number of judicial decisions and the same has been duly examined.” 4. The Ld. Commissioner though affirmed the reopening of the assessment as well as issuing the notice u/s 148 of the Act by the AO as valid, however by considering the aforesaid submissions/claim of the Assessee, restricted the addition of Rs.48,00,000/- to the extent of Rs.6,00,000/- {being 12.5% of the bogus purchases of Rs.48,00,000/-} by observing and holding as under: “6.6 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. It is seen that during the ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 7 appellant during course of assessment, furnished various documentary evidences such as purchase and sale bills, Ledger account, PAN of suppliers, details of purchases, payments made to the said party and bank statements to justify the genuineness of the recorded purchase and payments thereon. I find that the appellant also furnished a detailed statement displaying the purchase made from such party and corresponding sales made against such purchases and profit earned thereon. The A.O has not rejected the appellant's books of accounts u/s.145(3) of the Act. I find that in the case of the appellant, genuineness of the purchase party is doubtful but genuineness of purchase on a whole cannot be doubted. The appellant has brought evidences on record that sales against the said purchases were effected by it during the year and the sales have also not been doubted by the AO. Therefore, it is apparent that appellant did purchase goods likely from some other supplier may be without bills and he has been benefited by providing margin of grey market. Various Courts and Tribunals have taken a view that only profit margin embedded in such transaction could be taxed. 6.7 The Hon’ble jurisdictional ITAT Mumbai in the case of Bhavesh Punmaji Devasi Vs ITO [ITA No. 1693/M/2022 Date of Judgement/Order : 31/05/2023 Related Assessment Year : 2010-11] held that, “……In view of what has been discussed above and following the judgment passed by the Hon’ble High Court and co-ordinate Bench of the Tribunal, we are of the considered view that in the light of the facts and circumstances of the case and prevalent gross profit in the business of ferrous and non ferrous metal trading which is to the tune of 5% to 8%, the addition made by the AO @ 12.5% of the bogus purchases of Rs.58,69,921/- appears to be fair and reasonable. The Ld. A.R. for the assessee has candidly admitted that addition @ 12.5% of the bogus purchases made by the AO may be upheld…..” 6.8 The Hon’ble jurisdictional High Court of Bombay in the case of JK Surface Coatings Pvt. Ltd. ITA No.1850 of 2017 order dated 28 October, 2021, upheld the view taken by the Tribunal that in such circumstances gross profit should be in the range of 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchases by returning following findings: “4. Having considered the memo of Appeal and the Orders passed by AO / CIT(A) and the Order of ITAT, the only issue that comes up for consideration is with respect to the extent of ad-hoc disallowance to be sustained with respect to bogus purchases. The AO has observed 100% of the purchase value to be added to the income of Assessee, the CIT(A) has said it should be 15% and ITAT has said it should be 10%. First of all, this would be an ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 8 issue which requires evidence to be led to determine what would be the actual profit margin in the business that Assessee was carrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor do not show abnormal deviation. 5. 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 has 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.” 6.9 In the case of PCIT-15, Mumbai v. Jakharia Fabric (P.) Ltd., [2020] 118 taxmann.com 406 (Bombay) wherein the Hon’ble High court has held that not the entire amount of purchases but the profit margin embedded in such amount would be subjected to tax. The Hon’ble ITAT Mumbai in the case of Ashok Popatbhai Chaudhari Vs ITO, ITA No. 1676/Mum/2021 held that, “……..It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon’ble jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in Writ Petition No. 2860, order dated 18.06.2014 ……….” 6.10 In view of the above facts and discussion and respectfully following the decision of the jurisdictional High Court and Tribunal, I am of the considered view that when sales are not doubted, 100% disallowance for bogus purchase cannot be done and only profit element embedded therein would be subject to tax. Therefore, it will be fair and reasonable to restrict the addition to 12.5% of the bogus purchases of Rs.48,00,000 which amounts to Rs 6,00,000.” 4.1 The Ld. Commissioner further deleted the addition of Rs.96,000/- being commission on bogus purchases, as un-sustainable. 5. The Revenue Department, being aggrieved, challenged the decision of the Ld. Commissioner in restricting the addition of Rs. 48,00,000/- to the extent of 12.5% and deletion of addition of Rs.96,000/- by filling 2nd appeal before the Tribunal. ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 9 6. The Assessee by filing CO No.249/M/2024 also challenged the decision of the Ld. Commissioner in affirming the reopening of the assessment by the AO, however, at the time of argument of this case, the Assessee in order to buy peace of mind and to cut short the litigations, has not specifically agitated the same and therefore, first we are inclined to decide Revenue’s appeal. 7. Heard the parties and perused the material available on record. The revenue has challenged the decision of the Ld. Commissioner in restricting the addition of Rs. 48,00,000/- to the extent of 12.5% and deleting the addition of Rs.96,000/- in entirety, before the Tribunal. The Ld. DR mainly relied upon the judgment passed by the Hon’ble Gujarat High Court in the case of N.K. Proteins Ltd. vs. DCIT (2016) 72 taxmann.com 289 (Guj.) and submitted that the Hon’ble Gujarat High Court in para 6 of the judgment has held that where the supplier is proven non-existent then 100% of the bogus purchases should be disallowed. Further, commissions are integral to such fictitious purchases and must be added when the supplier is non-existent. 7.1 On the contrary, the Ld. A.R. of the Assessee refuted the claim of the Ld. D.R. and supported the decision of the Ld. Commissioner in restricting the addition from 100% to 12.5% of the bogus purchases and deleting the addition of Rs.96,000/-. 7.2 We have given thoughtful consideration to the orders passed by the authorities below and the rival claims of the parties. Admittedly the Assessee during the assessment proceedings to prove the genuineness of the purchases made, furnished various documentary evidences such as purchase and sale bills, ledger account, PAN of suppliers, details of purchases made from the said party i.e. M/s. Shree Om Sai Industries Ltd. and bank statements to justify the genuineness of the payments ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 10 made thereon through banking channels. The Assessee has also furnished a detailed statement displaying the purchases made from such parties and corresponding sales made against such purchases and profit earned thereon. It is also an admitted fact that the AO has not rejected the Assessee’s books of accounts u/s 145(3) of the Act. The Assessee with regard to the non-providing the details qua actual movement/supply of goods has claimed that it has acted as an intermediary between the supplier and the sellers, as it is the modus operandi of the Assessee to purchase the fabrics as and when the order is received from the buyer and consequently instruct the seller to directly deliver the goods to the buyer. The Assessee did not have any role to play in transportation of goods and therefore did not have documents other than delivery Challans in support of delivery of goods. Further, the genuineness of the purchases cannot be doubted merely because the party did not respond to the notice u/s 133(6) of the Act, when all the details are furnished to justify the purchases. 7.3 The Ld. Commissioner by considering all the aforesaid aspects of the case observed that the Assessee during the course of assessment has furnished the necessary documents and the AO has not rejected the Assessee’s books of account. Further, the sales have not been doubted by the AO. 7.4 The Ld. Commissioner also considered the judgments passed by the various courts including by the jurisdictional High Court in the case of JK Surface Coatings Pvt. Ltd. vs. ITO (ITA No.1850 of 2017 order dated 28.10.2021) wherein the view taken by the Tribunal was upheld by holding that reasonable estimation of profit element would be ranging between 5% to 12.5%, embedded in the bogus purchases, when material consumption factor does not show abnormal deviation, by observing as under: ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 11 “4. Having considered the memo of Appeal and the Orders passed by AO / CIT(A) and the Order of ITAT, the only issue that comes up for consideration is with respect to the extent of ad-hoc disallowance to be sustained with respect to bogus purchases. The AO has observed 100% of the purchase value to be added to the income of Assessee, the CIT(A) has said it should be 15% and ITAT has said it should be 10%. First of all, this would be an issue which requires evidence to be led to determine what would be the actual profit margin in the business that Assessee was carrying on and the matter of calculations by the concerned authority. According to the Tribunal, in all such similar cases, it is ranged between 5% to 12.5% as reasonable estimation of profit element embedded in the bogus purchase when material consumption factor does not show abnormal deviation.” 7.5 The Ld. Commissioner also taken into consideration the judgment passed by the Hon’ble Jurisdictional High Court in the case of PCIT-15, Mumbai vs. Jakaria Fabric (P) Ltd. (2020) 118 taxman.com 406 (Bombay) wherein it was held that the profit margin embedded in such amount of purchases would be subjected to tax but not the entire amount of purchases made. 7.6 The Ld. Commissioner has also taken into consideration the judgment passed by the Hon’ble Jurisdictional High Court in the case of Ashok Popat Bhai Chaudhari vs. ITO 1676/M/2021 wherein the Co- ordinate Bench of the Tribunal by respectfully following the judgment of the Hon’ble Jurisdictional High Court in the case of Nikunj Exim Enterprises Writ Petition No.2860 order dated 18.06.2014 restricted the addition to the extent of profit element. 7.7 Though the LD. D.R. has relied on the judgment of the Hon’ble Gujarat High Court in the case of NK Proteins Ltd. against which the SLP(C) No.76/2019 has been dismissed by the Hon’ble Apex Court however admitted the fact that there are innumerable judgments of the Hon’ble Jurisdictional High Court and other Hon’ble High Courts including in the case of Vijay Protein Vs CIT (2015) 58 Taxman.com 44(Guj) and CIT vs. Simit P. Sheth 38 Taxmann.com 385 (Guj-HC) wherein the decision of the Tribunal in restricting the addition limited to the extent of bringing the gross profit rate on purchases and not the entire amount paid, has been upheld. Recently the Hon’ble Jurisdictional High Court in ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 12 the case of Pr. Commissioner of Income Tax vs. Bharath Copy Centre Pvt. Ltd. (ITA No.2127 of 2018 etc.) decided on 06.09.2023 reiterated the said dictum, by observing and holding as under: “2. The Appeal filed is under Section 260A of the Income Tax Act, 1961 (\"the Act\"). The following two questions of law are proposed in the Appeal : i. Whether on the facts and circumstances of the case and in law, the ITAT has erred in partly allowing the appeal of the revenue against the order of Ld. CIT(A) by restricting the disallowance to 12.5% of unproven purchases without considering the position of law established by Hon'ble Apex Court in the case of N. K. Protiens Ltd. that 100% disallowance on bogus purchases is upheld ? ii. Whether on the facts and circumstances of the case and in law, the ITAT was right in restricting the addition made by the A.O. to the extent of 12.5% of unproven purchases, without considering the fact that purchases remain unproven and even for the A.Y.'s, the ITAT has upheld disallowance on unproven purchases ? 3.……………………………………………………………………………………… 4.……………………………………………………………………………………… 5. Admittedly, in this case the assessee had purchased goods like paper, flex roll, ink, toner, card board and various other materials required for printing, publishing and photo copying. The fact that assessee had used those goods has not been disputed. The ITAT agreed with the findings of CIT(A) that AO having relied on the details provided by the Sales Tax Department but neither AO, nor the Sales Tax Department took a stand that the suppliers do not exist. Therefore, the ITAT came to a conclusion on facts that there is a possibility that assessee might have saved VAT and also obtained some discount on purchase price and in this kind of situation, the principle of taxing the profit embedded in such purchases covered by the bogus bills, should only be disallowed instead of disallowing entire expenditure. The CIT(A) also took this view but adopted the net profit rate for sustaining the addition. The ITAT modified the order of CIT(A) to adopt the gross profit level, but retain the addition to the extent of 12.50% of the value of alleged bogus purchases. 6. The common impugned order of ITAT is for Assessment Years 2009- 2010, 2010-2011 and 2011-2012. 7. There are innumerable judgments of this Court and other High Courts where the Courts have held that the ITAT was correct in restricting the ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 13 addition limited to the extent of bringing the gross profit rate on purchases and not the entire amount paid. 8. Since both the authorities, i.e., the CIT(A) and the ITAT have held that it is not the entire sales consideration which is to be brought to tax, but only the profit attributable on the total sales consideration which alone can be subject to income-tax, the view taken by the authorities, in our view, is a reasonable and possible view”. (Highlighted by us for better appreciation) 7.8 Coming to the instant case again, we observe that the facts of the NK Protein case even otherwise are not applicable to the instant case as in the NK Protein case, the purchases were proved completely bogus but in the instant case the Ld. Commissioner while restricting the addition to the extent of profit element embedded in the bogus purchases, has taken into the consideration relevant facts and documents such as purchase and sale bills, ledger accounts, PAN of suppliers, details of purchases, and bank statement to justify the genuineness of the purchase and payments made thereon through banking channels and the corresponding sales and the fact that the AO has not rejected the books of account of the Assessee u/s 145(3) of the Act and the Ld. Commissioner only raised the apprehension that the Assessee did purchase goods likely from some other suppliers, may be without bills and has been benefited by providing margin of grey market. Meaning thereby, the Ld. Commissioner has not affirmed the bogus purchases in entirety and therefore restricted the addition by following the judgments passed by the Hon’ble Jurisdictional High Court and of the Tribunal. Hence, on the aforesaid analyzations the grounds raised by the Revenue Department qua aforesaid additions as deleted by the Ld. Commissioner, are un-sustainable, as there is no perversity, impropriety and/or illegality in the decision of the Ld. Commissioner in restricting the addition from 100% to 12.5% of the bogus purchases and in deleting the addition of Rs.96,000/- which was ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 14 being made on account of commission on bogus purchases, being un- sustainable. 8. Coming to the next addition of Rs.2,00,00,000/- made on account of alleged bogus loan u/s 68 of the Act and the addition of Rs.1,08,000/- being commission @ 0.54% on the bogus loan, we observe that during the reassessment proceedings on perusing the balance sheet, it was found by the AO that the Assessee had shown un- secured loan of Rs.2,00,00,000/- from M/s. Aneri Fincap Pvt. Ltd. During the investigation by the Investigation Wing, such company has been allegedly proved as a paper company meant for providing accommodation entry as admitted in the statement made by Shri Rajesh Mehta, CEO of the company and therefore the AO doubted the receipt of loan of Rs.2,00,00,000/- being free of interest and ultimately added the same on account of unexplained cash credits u/s 68 of the Act. The AO also made the addition of Rs.1,08,000/- being commission @ 0.54% of Rs.2,00,00,000/- and added the same in the income of the Assessee. 9. The Assessee also challenged the said additions before the Ld. Commissioner and has claimed that the Assessee has duly filed the relevant documents before the AO in order to substantiate its claim as filed during the first appeal proceeding, such as: (i) Name, address and PAN of the lender (ii) CIN Master Data of Lender Company; (iii) Confirmation of Lender Company; (iv) ITR Acknowledgement Receipt of the lender; (v) Copy of Audited Financial Statements of the lender company; (vi) Copy of Bank Statement of lender highlighting payments to assessee company through normal banking channel; (vii) Copy of Bank Statement of the assessee company. 9.1 The Assessee, before the Ld. Commissioner also submitted that the entire loans had been received through banking channel by A/c payee ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 15 cheques /RTGS. The AO was not justified in ignoring the documentary evidences filed, which proves that the Assessee had thoroughly discharged its onus to prove the identity and capacity of the lender and genuineness of transactions. The Assessee further submitted that the statement of Mr. Rajesh Mehta cannot be used against the Assessee Company, as the statement made was general in nature and does not contain the name of the Assessee. The Assessee further submitted that though the Assessee has made prayer before AO to allow the opportunity to cross examine the said parties to confront & controvert its incorrect statement but no such opportunity was given by AO. The lender even has also confirmed that loans have been given to the Assessee out of accounted and disclosed funds and duly shown in its books of accounts. Further the said loans have been repaid in the subsequent year. The Assessee further submitted that the genuineness of loan cannot be doubted merely because party did not respond to notice issued u/s. 133(6), when all the details are furnished to justify identity and creditworthiness of the lender and genuineness of loan transaction. The Assessee in support of its case, has also relied on the following decisions: 1. Labh Chand Bohra vs. ITO 219 CTR 571 (Raj-HC) 2. CIT vs. Mehrotra Brothers 270 ITR 157 (MP-HC) 3. CIT vs. S. Kamaljeet Sing 147 Taxmann 18 (AII-HC) 4. CIT vs. Diamond Products Ltd 21 DTR 9(Del- HC) 9.2 The Ld. Commissioner by considering the aforesaid peculiar fact and circumstances of the case and the submission of the Assessee and the evidences on record, observed and found that the unsecured loan parties duly confirmed the ledger accounts of loan by providing its bank statement, ITR, acknowledgement and therefore the Assessee has discharged its initial onus cast upon it with respect to the creditors. The Ld. Commissioner also considered the fact that the loans were received ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 16 through banking channel and duly reflected in the balance sheet of the lender as well as of the creditor. The AO simply disbelieved the genuineness of the transaction that a summon u/s 133(6) of the Act was issued but remained un-complied with and during the investigation, M/s. Aneri Fincap Pvt. Ltd. has been proved as a paper company for providing accommodation entry as admitted by Shri Rajesh Mehta CEO of the company. The Ld. Commissioner also analyzed the various relevant judgments concerning the issue, wherein it was held that the Assessee is obliged to explain the source of its credit but not the source of source. When full particulars inclusive of confirmation with name, address and PAN numbers, copy of the income tax returns, balance sheet, profit & loss account and computation of the total income in respect of the creditors/lenders were furnished and when it has been found the loans were received through cheques and loan accounts were duly reflected in the balance sheet, the AO was not justified in making the addition. The Ld. commissioner also observed that where the Assessee has given names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income tax Assessees and their index numbers were in the file of the Revenue, still the Revenue Department apart from issuing notices u/s 131 of the Act, did not pursue the matter further and also did not examine the source of income of the said alleged creditor to find out whether it was creditworthy or such person who could advance the loans. There was no effort made to pursue the so-called alleged creditor. And therefore, in those circumstances, the Assesses could not do anything further, as held in the case of CIT vs. Odisha Corporation (P) Ltd. 159 ITR 78 (SC), by the Hon’ble Apex Court. 9.3 The Ld. Commissioner further considered the fact that the AO had made the third-party enquiry by issuing notices u/s 133(6) of the Act and on not receiving the reply, drawn the adverse inference, without confronting non-compliance of summon with the Assessee. Various Courts have held that non-compliance to the notices u/s 133(6) or 131 of the Act ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 17 by itself, is not sufficient to draw an adverse inference, where the Assessee had discharged its onus on establishing identity and creditworthiness of the lenders from whom unsecured loans were taken and genuineness of the transactions. Where the Assessee has discharged its burden cast upon it u/s 168 by filing the relevant documents and repaid the un-secured loan in the subsequent year, then burden shifts to AO to prove otherwise that the said transaction was nothing but undisclosed income of the Assessee. 9.4 The Ld. Commissioner, even otherwise also taken into consideration the judgment of the Hon’ble Apex Court in the case of CIT vs. Lovely Exports Ltd. (2008) 216 CTR 198 wherein it was held that where the Revenue urges that the amount of share application money has been received from bogus shareholders, then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. 9.5 The Revenue Department before us has claimed that mere submission of documents like bank statements or confirmation does not suffice, if the genuineness of the lender is questionable. The Hon’ble Apex Court in the case of CIT Vs. P. Mohanakala (2007) 291 ITR 278 (SC) has held that once the explanation offered by the Assessee qua income is found unsatisfactory, then the same must be treated as income u/s 68 of the Act. 9.6 As we have observed above that the Assessee has explained the identity, creditworthiness of the parties and genuineness of the transactions by filing relevant documents referred to above and the documents have not been doubted by the AO and even otherwise the ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 18 books of accounts of the Assessee also not rejected u/s 145(3) of the Act and therefore on the said facts and documents, the Assessee has duly discharged its prima-facie onus cast u/s 68 of the Act and thus simply on the basis of that the notice issued to M/s. Aneri Fincap Pvt. Ltd. remained to be complied with, itself is not sufficient to make and sustain the addition specifically in a case where the relevant and basic documents have been produced by the Assessee, in order to discharge its prima-facie onus cast u/s 68 of the Act. 9.7 Summing up the case, we again reiterate that the Assessee in the present case by providing name, address, PAN, copy of IT returns, balance sheet, profit & loss account of the creditors/lenders as well as its confirmation, has been able to justify and establish the identity and creditworthiness of the lender and genuineness of un-secured loan and consequently has discharged its onus cast u/s 68 of the Act and therefore the additions of Rs.2,00,00,000/- as made by the AO u/s 68 of the Act and Rs.1,08,000/- made on account of commission on such amount of Rs.2,00,00,000/-, are un-sustainable and therefore correctly deleted by the Ld. Commissioner. On the aforesaid analyzation we are of the considered view, as the decision of the Ld. Commissioner in deleting the aforesaid additions is not suffered from any perversity, impropriety and/or illegality, thus needs no interference. Consequently, the appeal of the Revenue Department deserves dismissal. 10. Coming to the CO filed by the Assessee, as we have observed above that the Assessee in order to buy peace of mind and cut short the litigations, has not specifically agitated the grounds raised in the CO and therefore the CO is dismissed being not pressed. ITA No.4369/M/2024 & CO No.249/M/2024 M/s. SKA Techinfra Pvt. Ltd. 19 11. In the result, the appeal filed by the Revenue Department stand dismissed on merits, whereas the CO filed by the Assessee stand dismissed being not pressed. Order pronounced in the open court on 20.01.2025. Sd/- Sd/- (BR BASKARAN) (NARENDER KUMAR CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER * Kishore, Sr. P.S. Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order Dy/Asstt. Registrar, ITAT, Mumbai. "