NARESHBHAI ARJANBHAI LATHIYA,SURAT V. ACIT, CIRCLE-3(3), SURAT

ITA 909/SRT/2024

AI Insights

The case involves Nareshbhai Arjanbhai Lathiya, the appellant, who contested the reopening of his assessment and the subsequent addition of Rs.8,27,67,788 as unverified purchases under section 69C of the Income Tax Act, 1961. The Assessing Officer had initially added this amount following a search and seizure operation that revealed non-genuine purchases linked to the Bhanwarlal Jain and Rajendra Jain groups. The Commissioner of Income-tax (Appeals) upheld this addition, leading to the appeal before the ITAT. The ITAT, referencing decisions from the Gujarat High Court, reduced the addition to 6% of the impugned purchases, aligning with judicial precedents on similar matters.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633146 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. President Industries, CIT vs. Bholanath Poly Fab Pvt. Ltd., Mayank Diamonds Pvt. Ltd., Durgaprasad More, CIT vs. N. R. Portfolio, Navodaya Castles Pvt. Ltd., PCIT vs. Keshri Exports, PCIT vs. Surya Impex
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JAIN
• Assessee Lawyers: P. M. JAGASHETH
• Keywords: Set aside; Bogus purchase; Search and seizure; Accommodation entries; Bogus
• Section: 147; 148; 143(3); 271(1)(c); 132; 133(6); 69C

Judgement Text

" IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.909/SRT/2024 Assessment Year: (2012-13) (Hybrid Hearing) Nareshbhai Arjanbhai Lathiya, 317, Regal Diamond Centre, Tata Road No. 1 &2 Opera House, Mumbai - 400004 Vs. ACIT, Circle – 3(3), Surat ̾थायीलेखासं./जीआइआरसं./PAN/GIR No: ADLPP8388A (Appellant) (Respondent) Appellant by Shri P. M. Jagasheth, CA Respondent by Shri Mukesh Jain, Sr. DR Date of Hearing 23/04/2025 Date of Pronouncement 09/06/2025 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), dated 25.06.2024, by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘CIT(A)’] for the Assessment Year (AY) 2012-13. 2. Grounds of appeal raised by the assessee are as under: “1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing officer in reopening the assessment u/s. 147 and issuing notice u/s.148 of the Act was issued. 2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing officer in the grossly erred in making addition of Rs.8,27,67,788/- treated alleged as unverified purchased u/s 69C of Income Tax Act 1961. 2 ITA No.909/SRT/2024/AY.2012-13 Nareshbhai Arjanbhai Lathiya 3. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing officer in the grossly erred by not considering all the materials available on record. 4. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has not considered submission during the applet proceeding and passed order hence the case may please be set aside and restored back to the CIT(A) or AO. 5. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in initiating penalty u/s. 271(1)(c) of the income tax act, 1961. 6. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 7. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.” 3. At the outset, learned Authorized Representative (ld. AR) of the assessee did not press ground No.1. Hence, ground No.1 is dismissed as not pressed. 4. Brief facts of the case are that the assessee filed his return of income for AY.2012-13 on 22.09.2012, declaring total income of Rs.33,34,574/-. Assessment order u/s 143(3) was passed on 29.03.2015 after making in addition of Rs.52,660/- and total income was determined at Rs.33,87,230/-. The case was subsequently re-opened based on information received from the ACIT, CC- 4, Surat regarding transactions carried out by the assessee with concerns of Shri Rajendra Jain group and Shri Bhanwarlal Jain group. In course of search and seizure operation u/s 132 of the Act, it was admitted by these groups that they were providing accommodation entries of bogus purchase to various beneficiaries. The assessee had made non-genuine purchases of 3 ITA No.909/SRT/2024/AY.2012-13 Nareshbhai Arjanbhai Lathiya Rs.8,27,67,788/- from M/s Kailash, M/s Prime Star, M/s Milan and Co., M/s Mukti Exports, belonging to these groups, during the year under consideration. In response to notice u/s 148 of the Act, the assessee did not file any return of income. Subsequently, Assessing Officer (in short, ‘AO’) issued seven notices, as detailed in para 5 of the assessment order, which were not complied with. Thereafter, AO issued final show cause notice on 16.09.2019, in response to which, a reply was uploaded but the same was not accompanied with any letter of authorization; hence, the same was not admitted. The AO also issued notice u/s 133(6) of the Act to the seller parties; however, the said notices could not be served on the official addresses in the sellers and it was reported that the above-mentioned concerns were closed long time back. Thereafter, the AO has referred to the statements of several persons, who admitted that they were working for the dummy concerns of the Shri Bhanwarlal Jain and Rajendra Jain group. The modus operandi has been discussed by the AO at pages 10 to 14 of the assessment order. Thereafter, the AO had discussed various decisions and the current position of law on the impugned issue and held that the impugned purchases made from the concerns of Shri Rajendra Jain and Shri Bhanwarlal Jain group are bogus. Accordingly, he added Rs.8,27,67,788/- u/s 69C of the Act. The total income was determined at Rs.8,61,55,018/- against returned income of Rs.33,87,230/-. 5. Aggrieved by the order of AO, the assessee filed this appeal before the CIT(A). The CIT(A) issued nine notices, which are mentioned at para 4 of the 4 ITA No.909/SRT/2024/AY.2012-13 Nareshbhai Arjanbhai Lathiya appellate order. The assessment order has been reproduced by the CIT(A) at pages 7 to 16 of his order. The reply of the assessee is reproduced at para 5.1 at pages 17 to 22 of the order. The appellant submitted that he had submitted details such as purchase bills, purchase register, sales register, stock register, bank statement, audit report, ledger accounts and various other details asked by the AO. It was also submitted that provisions of section 69C of the Act are not applicable in case of the appellant. In the alternative, it was submitted that when sales are recorded, the entire purchase cannot be added and only the profit component embedded in the purchases can be disallowed. For this, the appellant relied on the decision of Hon’ble Gujarat High Court in case of CIT vs. President Industries, 258 ITR 654 (Guj.), CIT vs. Bholanath Poly Fab Pvt. Ltd., 35 ITR 290 (Guj.), Mayank Diamonds Pvt. Ltd. and various decisions of the ITAT, Surat. The CIT(A) observed that though the purchases are recorded in the books of account, the appellant did not bring anything on record to prove that the purchases actually exist. The entries are standing in the books without any liability. He has relied on the decisions in case of Durgaprasad More, 82 ITR 540 (SC), CIT vs. N. R. Portfolio, 222 Taxman 57 (Del.), Navodaya Castles Pvt. Ltd., 56 taxmann.com 18 (SC) and held that non-filing of required details asked for by the AO, non-production of purchasers by the appellant and non-attendance of purchasers to the summons conclusively proved that purchases in the books are not genuine. Hence, he agreed with the findings of the AO and upheld the addition made by the AO. The appeal was dismissed by the CIT(A). 5 ITA No.909/SRT/2024/AY.2012-13 Nareshbhai Arjanbhai Lathiya 6. Aggrieved by the order of CIT(A), the assessee has filed appeal before the Tribunal. The appellant has challenged both reopening as well as merit of addition @ 100% of the bogus purchase of Rs.8,27,67,788/-, as upheld by CIT(A). The ld. AR has relied on the decisions Gujarat High Court in cases of PCIT vs. Keshri Exports, R/Tax Appeal No.723 of 2024 and PCIT vs. Surya Impex, 148 taxmann.com 154 (Guj.). He submitted that in all these cases disallowances were restricted to 6% of the bogus purchase. 7. On contrary, the learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) has supported order of lower authorities. He, however, admitted that the ITAT has been restricting such addition to 6% of the impugned purchases. 8. We have heard both the parties and perused the materials on record. We also deliberated various case laws relied upon by the parties. At the outset of hearing, both parties agreed that this issue is a fairly common and repetitive issue before the Tribunal and is covered by a number of decisions of the ITAT, wherein similar additions have been restricted @ 6% of the respective bogus purchases. It was further submitted that such decision of ITAT in restricting the addition to 6% has been confirmed by the Hon’ble jurisdictional High Court in case of Surya Impex (supra). The ld. CIT-DR also agreed that the issue is also covered by the decisions of ITAT and Hon’ble jurisdictional High Court. We find that the Hon’ble jurisdictional High Court, in the latest decision in case of Keshri Export (supra), has upheld the order of ITAT in restricting the addition to 6% of 6 ITA No.909/SRT/2024/AY.2012-13 Nareshbhai Arjanbhai Lathiya the bogus purchases/accommodation entries. It was observed that the tax appeals of the department have been dismissed in several matters arising out of transactions with the said Bhanwarlal Jain group, where the ITAT assessed the disallowance at 6%. The Hon’ble Gujarat High Court in case of Surya Impex (supra) has also held that the Tribunal was justified in limiting addition in the hands of the assessee @ 6% of the impugned purchases. Respectfully following these decisions, the order of CIT(A) is set aside and the AO is directed to restrict the addition to 6% of the impugned purchases from the said Bhanwarlal Jain and Rajendra Jain group. The ground is partly allowed. 9. In the result, the appeal of the assessee is partly allowed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 09/06/2025. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat िदनांक/ Date: 09/06/2025 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat "