MANOJ NARANDAS BHAVSAR,BHAYANDAR WEST THANE V. INCOME TAX OFFICER, THANE WEST

ITA 2644/MUM/2023

AI Insights

The case involves Manoj Narandas Bhavsar, who appealed against the order of the CIT(A) confirming the addition of Rs 28,46,688 as unexplained expenditure under section 69C of the Income Tax Act, 1961. The addition was based on allegations of bogus purchases from three entities. The Assessing Officer had initially disallowed these purchases after receiving information from the Sales Tax Department that they were bogus. The CIT(A) upheld this decision, noting the lack of substantial evidence from the assessee to prove the genuineness of the transactions. The Tribunal, however, found that the assessee was not given a proper opportunity to explain the source of the cash expenditure for procuring goods from the grey market and thus remanded the matter back to the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312133 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Other Referred Cases: Kanchwala Gems v. JCIT, Ashok Kumar Rungta v. ITO, PCIT v. Kanak Impex (India) Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN UNAVEKAR
• Assessee Lawyers: RAHUL HAKANI
• Keywords: Opportunity of being heard; Reassessment proceedings; Unexplained expenditure; Bogus purchase; Accommodation entries; Bogus
• Section: 148; 271(1)(c); 133(6); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “K (SMC)” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 2644/MUM/2023 Assessment Year: 2010-11 Manoj Narandas Bhavsar, A-405, Mahavir Jyot, Station Road, Bhayandar West, Maharashtra-401101. Vs. ITO, Room No. 16, B Wing, 6th floor, Ashar IT Park, Road No. 16Z, MIDC, Thane West-401101. PAN NO. ACZPB 2228 E Appellant Respondent Assessee by : Mr. Rahul Hakani Revenue by : Mr. Kiran Unavekar, Sr. DR Date of Hearing : 01/04/2025 Date of pronouncement : 29/04/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 31.05.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2010-11. The assessee revised its ground vide letter dated 29.01.2025. The revised grounds are reproduced as under: Manoj Narandas Bhavsar 2 ITA No. 2644/MUM/2023 1) The Learned CIT(A)/NFAC erred in confirming addition of Rs 28,46,688/- u/s 69C being alleged bogus purchases from AG Corporation Rs 96,200/-, Nimesh Trading Co Rs 4,23,800/- and Shreeji Enterprises Rs 23,26,688/- without appreciating that Section 69C will not apply as payment is made through banking channels and further the sales are not disputed, books are not rejected, quantitative tally is given, purchases are supported by invoice, delivery challan and confirmations, suppliers were registered with sales tax and filed returns, the income tax department has not discharged its burden to show with clinching evidence that purchases are bogus and hence the addition of Rs 28,46,688/- may be deleted. 2) Without prejudice to above, entire purchases of Rs 28,46,688/- cannot be disallowed and the disallowance may be restricted to 2% of the alleged bogus purchases or any other reasonable percentage. 2. Briefly stated, facts of the case are that the assessee is a engaged in the business of manufacturing of metallic salts of Tungsten, Cobalt etc. from the scrap through its proprietary concern namely “M/s Manudeep Metachem”. For the year under consideration, the assessee filed return of income on 23.09.2010 declaring total income of Rs.2,47,457/-. 2.1 Subsequently, information was received from the Sales Tax Department of Maharashtra that assessee had received bogus bills from various entry providerers without actual delivery of the goods to the assessee. On the basis of the said information case of the assessee was reopened and notice u/s 148 of the Income-tax Act,1961( in short the ‘Act’) was issued on 31.03.2017. The detail of the information received from the Sales Tax Department is reproduced for ready reference: Manoj Narandas Bhavsar 3 ITA No. 2644/MUM/2023 S. No. Hawala tin Hawala Name PAN F.Y. Amount(Rs.) 1 27790587479V A G CORPORATION ASTPK2445G 2009-10 96,200 2 27770112384V NIMESH TRADING CO ALVPK4383L 2009-10 4,23,800 3 27400536623V SHREEJI ENTERPRISE. AKLPP3256E 2009-10 23,26,688 Total 28,46,688 2.2 During the course of the reassessment proceedings, the Assessing Officer issued notice u/s 133(6) of the Act for verification of parties, but there was no compliance from the relevant parties. The Assessing Officer also contacted to the relevant bank of those parties however their bank accounts were found to be closed. Further, the Assessing Officer also referred to the affidavit given by these parties to the Sales Tax Department wherein they admitted that payments towards bogus bills were received through cheque and deposited in their bank accounts and after depositing of the same, cash was withdrawn and handed over back to the assessee after deducting certain commission for providing accommodation entries. Accordingly, the Assessing Officer rejected the contention of the assessee. The Assessing Officer referred to the decision of Hon’ble Supreme Court in the case of M/s Kanchwala Gems v. JCIT (2006) 288 ITR 10 wherein it is held that payment by account payee cheque is not sufficient to establish the genuineness of the purchases. Accordingly, the Ld. Assessing Officer made the addition in respect of purchase entered in the books of accounts of Rs.28,46,488/- as unexplained expenditure in terms of section 69C of the Act observing as under: Manoj Narandas Bhavsar 4 ITA No. 2644/MUM/2023 “11. From the above facts, it is clearly established that the above alleged purchases made with the aforementioned parties were not genuine. The purchases had made with these parties on the basis of only fictious invoices. Moreover, the aforementioned hawala parties had also confirmed that they had neither done any genuine business activities nor transferred any goods to their parties. Therefore, the assessee's claim of alleged purchases from the above mentioned hawala parties amounting to Rs.28,46,688/- is disallowed and added to the total income within the meaning of section 69C of the Income Tax Act, 1961 on agreed basis. Penalty proceedings u/s 271(1)(c) of the Act is initiated separately for the default committed by the assessee within the meaning of this section for concealing the particulars of his income or furnishing inaccurate particulars of such income.” 2.3 The Ld. CIT(A) also upheld the addition made by the AO observing as under: “I have gone through the addition made by the AO and the submissions of the appellant. It is clear that the appellant obtained bogus purchase bills amounting to Rs. 28,46,688/- from the three hawala parties mentioned in the assessment order. The AO has made the addition based on the inquiry conducted in respect of three purchase bills provided by hawala operators. The affidavits have been filed by them before the Sales Tax Department revealing the modus operandi. The said parties also closed their accounts (all three accounts) maintained with as found during enquiry by the AO to trace the payments on these alleged purchases. The claim of the appellant that the sales tax returns were filed by these three parties and sales tax were paid has no relevant as there is no acceptance by Sales Tax Authorities that they are genuine parties and have paid taxes. It is seen that this evidence was not filed before the AO. The appellant has also not moved any application for admission of addition evidence. It is to note that it was sales tax authorities who initially found them to be bogus accommodation entry providers. Unless they are accepted as genuine by them, the appellant's claim cannot be accepted. Considering the overwhelming evidence against the appellant and appellant failing to produce the parties to substantiate the genuineness of purchases, the addition made is upheld and the only ground is dismissed.” Manoj Narandas Bhavsar 5 ITA No. 2644/MUM/2023 3. Before us, the Ld. counsel for the assessee filed a Paper Book containing pages 1 to 160. The Ld. counsel for the assessee referred to Paper Book page 1 to 153 wherein the detailed manufacturing process of the assessee form scrap comprising of Tungsten, Cobalt etc, ranging from 10 to 70% of Tungsten and 6 to 18% Cobalt respectively. These scrap under goes various chemical process and treatment with acid etc. and after various chemical processes, the Tungsten metal powder having purity of 99.9% purity is manufactured and sold in the market. The Ld. counsel further referred to page 111 of the Paper Book containing entire details of the purchases, highlighting the purchases which were alleged to be bogus by the Assessing Officer. Further, the Ld. counsel referred to the Paper Book page 131 containing details of the sales of finished products to support that sales have not been doubted by the Assessing Officer. Further, the Ld. counsel referred to the letter written by the assessee to the sales tax office, Palghar submitting that those three parties had already paid their sales tax and therefore, the claim of the input credit should be allowed to the assessee. The Ld. counsel further referred to Paper Book pages 112 to 125, which are the copies of the purchase bills along with challans issued by those three alleged bogus parties. The Ld. counsel for the assessee referred to the decision of the Hon’ble Bombay High Court in the case of Ashok Kumar Rungta v. ITO [2024] 167 taxmann.com 429 (Bombay) and submitted that sales have not Manoj Narandas Bhavsar 6 ITA No. 2644/MUM/2023 been doubted by the Assessing Officer and therefore, disallowance of the purchases was not justified. 3.1 On the contrary, the Ld. Departmental Representative (DR) submitted that first of all the assessee failed to substantiate the purchases corresponding to the bills from the above three parties. He submitted that those bills and delivery challans have been provided by the assessee in respect of those three parties but no proof of the transport of those materials to the premises of the assessee has been filed by the assessee either before the Assessing Officer or before the Ld. CIT(A) or before the Tribunal. Therefore, in such circumstances, the bills recorded in the books of accounts of the assessee are only accommodation entry bills. He further submitted that sales have not been doubted by the Assessing Officer therefore, the assessee must have purchased goods in cash from the grey market from supplying sales parties and source of such expenditure in cash has not been explained by the assessee and therefore, the amount equivalent to the purchase recorded in the books of accounts and incurred in cash is liable to be added in the hands of the assessee as unexplained expenditure in terms of section 69C of the Act. The Ld. DR in support of his contention relied on the decision in the case of Hon’ble Bombay High Court in the case of PCIT v. Kanak Impex (India) Pvt. Ltd. reported in (2025) 172 taxmann.com 283 (Bombay). 4. We have heard rival submissions of the parties and perused the relevant materials on record. As far as facts of the case is concerned, Manoj Narandas Bhavsar 7 ITA No. 2644/MUM/2023 an information was received from the Sales Tax Department that three parties as mentioned in the list above were stated to be bogus hawala parties and provided only accommodation entry bills without actual delivery of the goods. In the circumstances, the onus was on the assessee to substantiate whether the goods were actually received from those parties corresponding to bills issued by them but the assessee could not file any evidence in support that goods were actually transported by those parties to the premises of the assessee. In absence of any such proof of delivery or transport of the goods, merely issue of the bills and payment by cheque by the assessee to those parties is not sufficient to hold the purchases as genuine and thus in such circumstances. Undoubtedly, the purchases from those parties are recorded in the books of accounts but same are merely accommodation entry bills and the cheque issued by the assessee to those parties must have been returned by way of cash back to the assessee but now the question arises as how the assessee has supplied the goods to the sales parties as sales are not doubtful. Therefore, it is presumed that assessee must have purchased goods in cash from the grey market and it is for the assessee to explain the source of the cash expenditure. Since the assessee has not explained source of such cash expenditure and therefore, the expenditure incurred on goods obtained corresponding to sales are in the nature of the unexplained expenditure. In similar circumstances, the Hon’ble Supreme Court in the case of Kanak Impex (India) Pvt. Ltd. (supra) held the entire bogus purchases as unexplained expenditure Manoj Narandas Bhavsar 8 ITA No. 2644/MUM/2023 in terms of section 69C of the Act. The relevant finding of the Hon’ble Supreme Court is reproduced as under: “13. The short issue which requires adjudication in this appeal is whether additions of Rs.20,06,80,150/- made by the AO on account of the failure of the respondent-assessee to prove the genuineness of the purchases can be said to be valid. 14. Before we adjudicate the issue, it is relevant to understand the concept of accommodation entry by an example. Mr. A has unaccounted cash, which he uses to buy goods for selling. However, the sales are made by cheque. Since the goods are purchased with unaccounted money, they cannot be recorded in the books of account. Therefore, the modus operand! to bring such purchases into the books of account is that Mr A will contact Mr B, an accommodation entry provider. Mr B would issue a paper invoice in the name of Mr A, and Mr A would issue a cheque to Mr B to show that the purchases have been made by cheque from Mr B. After deducting certain commission, Mr B would then withdraw the money from his bank account and return the cash so withdrawn to Mr A. By this process, the purchases made by Mr. A by unaccounted cash enter the books of account as if the purchases are made from Mr. B. However, what has actually happened is that the unaccounted money of Mr. A is shown to have entered the books of account by such a modus operandi and Mr. A gets back his unaccounted cash from Mr. B.” 4.1 In the instant case, the bills entered in the books of accounts corresponding to purchase under reference of Rs. 23,26,688/- were held to be non-genuine by Ld.AO, in view of no corresponding delivery of goods from the parties was not substantiated by the assessee by way of documentary evidences. But the sales corresponding to non- genuine purchase bills has not been doubted thus, it is presumed that the assessee must have procured goods from the grey market corresponding to those bogus non genuine bills. Therefore, onus was on the assessee to explain the source of expenditure for goods procured from the grey market and explain whether the payment was Manoj Narandas Bhavsar 9 ITA No. 2644/MUM/2023 made in cash or in credit. We find that though the assessing officer has recorded that the assessee agreed for the addition u/s. 69C of the Act amounting to Rs. 23,26,688/-, but apparently no show cause was issued to the assessee providing for opportunity of being heard as why the addition u/s 69C of the Act might not be made for not explaining source of expenditure incurred for procuring of those goods from grey market. Therefore, we feel it appropriate to setaside the order of ld CIT(A) and restore the matter back to the file of the Assessing officer for providing opportunity of being heard to the assessee and explain the source of expenditure for procuring goods form grey market for supplying to sales parties corresponding to the bogus of Rs. 23,26,688/-. After proving adequate opportunity of being heard and taking into consideration submission of the assessee, the Assessing officer may decide issue in dispute in accordance with law. The grounds of the appeal of the assessee are accordingly allowed for statutory purpose. 5. In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open Court on 29/04/2025. Sd/- Sd/- (RAHUL CHAUDHARY) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated:29/04/2025 Rahul Sharma, Sr. P.S. Manoj Narandas Bhavsar 10 ITA No. 2644/MUM/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai "