RAINBOW VANIJYA PVT LTD.,NEW DELHI V. ACIT, KOLKATA

ITA 1891/KOL/2025

AI Insights

Rainbow Vanijya Pvt. Ltd. appealed against the order of the National Faceless Appeal Centre, which had enhanced the assessment by ₹66,12,43,527 on account of alleged bogus purchases and confirmed an addition of ₹1,33,61,982 as commission received from accommodation entries. The Tribunal examined the legality of these additions, focusing on whether the books of accounts were properly rejected and whether the enhancements were justified. The Tribunal noted that the assessee had maintained proper records and complied with all statutory requirements, and that the additions were made without proper basis or rejection of the books of accounts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 824719 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 20-08-2025
• Other Referred Cases: PCIT Vs. Konak Impex (India) Ltd., PCIT Vs. Forum Sales Pvt. Ltd., LS Contractors Pvt. Ltd. vs. DCIT, Vista Tie Up Pvt Ltd. vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADIP KUMAR BISWAS
• Assessee Lawyers: S. K. TULSIYAN; LATA GOYAL; ARS; FRAMING
• Keywords: Set aside; Reassessment proceedings; Question of law; Unexplained expenditure; Rejection of books of accounts; Document seized; Documents seized; Bogus purchase; Principle of natural justice; Accommodation entries; Tangible material; Related party transaction; Bogus
• Section: 143(3); 142(1); 69C

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1891/KOL/2025 (Assessment Year: 2020-21) Rainbow Vanijya Pvt. ltd. G-02, Ground Floor, RG Citylawrence Road, Delhi-110035 Vs. ACIT ACIT, Range 104(1) Kolkata, Kolkata-700001, West Bengal (Appellant) (Respondent) PAN No. AACCR2791L Assessee by : Shri S.K. Tulsiyan& Ms. Lata Goyal, ARs Revenue by : Shri Pradip Kumar Biswas, DR Date of hearing: 10.12.2025 Date of pronouncement: 31.12.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 30.07.2025 for the AY 2020-21. 2. There are two effective issues raised in the various grounds of appeal, which are as under:- i. The assessee has challenged the order of ld. CIT (A) enhancing the assessment by ₹66,12,43,527/- on account of alleged bogus purchases without doubting the sales recorded the books of accounts and thus, the ld. CIT (A) has exceeded the jurisdiction since, the addition made by the ld. AO was ₹1,33,61,981/- in respect of commission earned out of books of accounts and the Printed from counselvise.com Page | 2 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 enhancement is beyond the subject matter of appeal /under a different head/ source. ii. The second issue raised by the assessee is against the order of ld. CIT (A) confirming the addition of ₹1,33,61,982/- as made by the ld. AO on account of alleged commission received on account of transactions in the nature of accommodation entries being 1% of purchases/ sales and advances during the year. 3. So far as the first issue is concerned, the facts in brief are that the assessee filed the return of income on 24.03.2021, declaring loss of ₹1,97,88,455/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 29.06.2021, which was duly served upon the assessee. There were three reasons for selection of security as per the said notice, which are as under:- i. Assessee has shown high liabilities in balance sheet as compared to low income, which required verification. ii. The case of the beneficiaries has been identified on the basis of date of high-risk billers received from CBIC, which requires verification. iii. The assessee has disclosed substantial amounts of investments and advances and loans in the balance sheet. 02. Subsequently, notice u/s 142(1) of the Act was issued on 18.11.2021, which was duly complied with by the assessee on 10.12.2021, on 16.12.2021 and on 17.03.2022. Thereafter, after taking into account the evidences/ replies by the assessee, the ld. AO issued show cause notice on 25.08.2022, giving show cause as to why an addition of Printed from counselvise.com Page | 3 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 ₹64,47,79,406/- should not be made in respect of bogus purchases from the three parties namely; Rimjim Stainless Ltd., Swaraj Overseas and Veto Merchandise. The ld. AO, after taking into account the reply of the assessee, issued first show cause notice on 23.09.2022, alleging that the assessee is a accommodation entry provider and show caused as to why 1% commission in respect of bogus purchases, sales and loans & advances should not be added to the income of the assessee. The assessee replied the said show cause notice on 26.09.2022. Finally, the assessment was framed by the ld. AO after taking into account the said reply of the assessee by framing the assessment u/s 143(3) read with section 144B of the Act vide order dated 29.09.2022 by making an addition of ₹1,33,61,982/- by making an addition at the rate of 1% of the aggregate of purchases, sales and loans and advances. 03. The assessee preferred an appeal before the ld. CIT (A), however, the ld. CIT (A) enhanced the assessment by an amount of ₹66,12,43,517/- by making the addition of entire purchases on the ground that assessee has taken accommodation entries of the said amount. Now, the assessee is in appeal before us. 3.1. The ld. AR vehemently submitted before us that the assessee is engaged in the business of steel and other items and has been maintained books of accounts in regular course of business which are duly audited under the companies Act as well as u/s 44AB of the Act. the ld. AR also submitted that the assessee had also filed the required GST return as per GST law. The ld. AR submitted that the assessee has made purchases aggregating to ₹66,12,48,517/- from five parties and effected corresponding sales of ₹66,79,51,656/- to ten parties. The ld. AR submitted that the assessee earned profit of Printed from counselvise.com Page | 4 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 ₹67,03,139/-, which is approximately 1%. The assessee submitted that the assessee is a ‘Pacca Arahitya’ and goods purchased were directly delivered to the customers and this is a regular practice in the trade. The ld. AR referred to the evidences such as e-way bills, which were also produced before the ld. AO along with purchase bills and transport documents which are available at page no.165 to 1074 from paper book no.2. The ld. AR submitted that the ld. AO has acknowledged the said fact at page no.25 para 2 of the assessment order that on the basis of perusal of bills and e-way bills furnished by the assessee it was noticed that goods were shipped to the third parties. The said fact was also noted by CIT (A) in the appellate order at page no.21 Para no.6.1. Thus, the ld. AR submitted that in terms of CBDT Circular 252 dated 17.03.1987, the assessee is a ‘Pacca Arahitya’, who had been acting as principal who is buying goods in its name as his purchases and selling to the buyers as sales or turnover and getting the books audited u/s 44AB of the Act. In other words, the assessee has duly recorded the goods purchased and shipped to the third parties as its own purchases and sales. The ld. AR submitted that so far as the commission of 1% on the loan given of ₹70,05,140/- is concerned, the assessee has given loan of ₹61,55,140/-, to its group entity and is shown as related party transactions in note no.14 of note to accounts at page 61 of the Paper Book. It was further submitted that balance loans of ₹8,50,000 were given to other body corporates who were not related to the assessee. The assessee has furnished all the details and documents requisitioned by the ld. Assessing Officer during the assessment proceedings. The ld. AR further argued that neither the ld. AO nor the ld. CIT (A) treated the sales/ loans as bogus. The ld. AR referred to the various replies furnished before the authorities below, where Printed from counselvise.com Page | 5 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 that the assessee enclosed purchase bills, e-way bills, transport documents, GST 2A, GSTR 3B, stock register, etc. and the ld. AO after considering the reply of the assessee treated the assessee as accommodation entry provider and accordingly applied the rate of 1% on the aggregate of purchases, sales and loans which is totally wrong and against the facts on record. The ld. AR also submitted that the purchases were directly paid by the third parties to the suppliers and only adjustment entries were made in the books of account which is evident from the confirmations of accounts enclosed at page no.109 to 116 of the Paper Book and debtor ledgers, available at page no. 117 to 158 of the Paper Book. 04. The ld. AR submitted that the ld. AO as well as the ld. CIT (A) did not treat the sales as well as the loans given to be bogus and also accepted the sales to be genuine. Therefore, how the addition can be made at the rate of 1% of aggregate of purchases, sales and loans & advances by the ld. Assessing Officer. Similarly, the ld. AR submitted that the ld. CIT (A) has added the entire purchases without doubting and disbelieving the corresponding sales which is very ridiculous and unsustainable when the books of accounts of the assessee are audited u/s 44AB of the Act. The ld. AR submitted that the assessee has been doing its business in the earlier as well as in the subsequent years and this is for the first time that addition on this count has not been made and enhanced by the ld. Commissioner of Income-tax (Appeals). 05. The ld. AR submitted that the ld. AO has not done any independent enquiry to establish as to how the assessee’s transaction of purchases/ sales and loans were not genuine on the basis of material collected by him. The documents comprising conformations, purchase invoices, e-way bills, transport documents, GSTR-1, GSTR-3B and Printed from counselvise.com Page | 6 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 GSTR-2A have not been found to be bogus and therefore, the conclusion drawn by the ld. AO is only based on the surmises and presumptions and has no substantive and objective basis . Similarly, the ld. CIT (A) without referring to any further materials decided to treat the purchases as bogus by relying on the decision of Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex (India) Ltd. (2025) 172 taxmann.com 283 (Bom) . The ld. AR submitted that the said decision of the Hon'ble Bombay High Court is distinguishable on facts and is not applicable to the assessee’s case by referring to the facts of that case vis a vis facts of the assessee. 06. So far as the addition of 1% on purchases/ sales are concerned, the ld. AR submitted that the same is not sustainable as the ld. AO has not rejected the books of accounts and without rejection how the books could be disbelieved which were audited under the Companies Act as well as under Section 44Ab of the Act. In defense of his argument the ld. AR relied on the decision of Hon'ble Delhi High Court in case of PCIT Vs. Forum Sales Pvt. Ltd. in ITA No. 862 & 863/2019 and the decision of the co-ordinate bench of Kolkata in case of M/S Vista Tie Up Pvt Ltd. ITA 2091/KOL/2025. Therefore, the ld. counsel prayed that the addition made at the rate of 1% is wrong and cannot be sustained. 07. So far as the enhancement of income by ld CIT(A) is concerned, the ld. AR argued that the same is bad in law as the decision of the Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex (India) Ltd. (supra), which is the very basis of ld. CIT(A) decision ,is not applicable to the assessee’s facts. Finally, the ld. AR prayed that the addition made by the ld. CIT (A) may kindly deleted by quashing the appellate order and directing the ld. AO as well to delete the addition. Printed from counselvise.com Page | 7 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 The ld. AR also relied on the decision of the co-ordinate bench in case of LS Contractors Pvt. Ltd. vs. DCIT in ITA Nos. 2207 & 2208/DEL/2025 for A.Ys. 2019-20 & 2020-21, vide order dated 21.11.2025, wherein it has been held that purchases supported by e- way bills, cannot be treated as non-genuine. 08. The ld. DR on the other hand relied heavily on the orders of the authorities below by submitting that the assessee is a accommodation entry provider and submitted that the ld. CIT (A) besides sustaining the addition made by the ld. AO correctly enhanced the addition. The ld. AR submitted that the assessee is part of an organized racket operating in the market for providing accommodation entries and therefore, the ground raised by the assessee may kindly be dismissed. 09. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is a ‘Pacca Arahitya’ and is engaged in purchase and sale of steel and other items, recording the transactions as its purchases/ sales in the books of account maintained. The assessee is directly supplying the material from sellers to buyers and also directly arranging the payments/remittances from buyers to the sellers/suppliers and in the process the assessee is charging profit at the rate of 1% in consideration. The books of accounts of the assessee were audited under the Companies Act as well as u/s 44AB of the Act. The assessee was duly maintaining the stock register as well as other records in the ordinary course. We note that during the assessment proceedings, furnished before the ld. AO the bills of purchase, sales invoices, e-way bills, other transport documents etc. and the ld. AO has accepted that assessee has genuinely shipped the materials to third parties, however, made addition at the rate of 1% of total of purchases/ Printed from counselvise.com Page | 8 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 sales, and loans by treating the assessee as accommodation entry provider. The ld. CIT (A), without referring to any further materials or without doing any further enquiry, treated the entire purchases as income in the hands of the assessee by making the enhancement to the income as assessed by the ld. Assessing Officer. We note that while making the assessment, the ld. AO has not rejected the books of account u/s 145(3) of the Act and therefore, the estimation of income at the rate of 1% of the total of purchases/ sales and loans cannot be made unless the books are rejected and results are disbelieved as has been followed by Hon'ble Delhi High Court in case of PCIT Vs. Forum Sales Pvt. Ltd. (supra), wherein the Hon'ble court has held as under:- “29 Admittedly, the addition of income as discussed in questions (B), (C) and (D) on estimate basis has been done without rejecting the books of account. In view of the aforesaid, we find that no substantial question of law arises in the present appeals.\" Further, the Court in the aforesaid case also held that \"any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification, is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee.\"” 010. Similarly, the co-ordinate Bench has decided the issue in favour of the assessee by holding that the addition cannot be made on estimation basis without rejecting the books of account in the case of vista Tie Up Pvt. Ltd. Vs. ITO in ITA No. 2091/KOL/2025, wherein the co-ordinate bench has held as under:- “6. We have carefully considered the rival submissions, examined the record, and perused the judicial precedents cited. The addition of ₹61,49,041/- has been made solely on the basis of information emanating from seized documents found in the case of M/s J.M. Jain LLP, which allegedly contained entries of PJ Garments. It is undisputed that the said documents were not seized from the assessee’s premises and were never provided to the assessee for rebuttal. The law is well settled that additions cannot be made on the basis of unverified third-party material. In ACIT v. Ms. Lata Mangeshkar (97 ITR 696, Bom), the Hon’ble High Court held that tax authorities cannot make additions merely relying upon third-party documents or statements without independent corroboration. Suspicion, however strong, cannot replace evidence. In the Printed from counselvise.com Page | 9 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 present case, the AO did not establish any direct nexus between the assessee and the seized material. The assessee categorically denied having any business transaction with M/s J.M. Jain LLP and produced purchase bills and confirmations from other regular suppliers. The AO did not disprove the genuineness of such records. Further, as rightly contended, the AO did not invoke section 145(3) to reject the books of account. The Hon’ble Delhi High Court in PCIT v. Forum Sales Pvt. Ltd. (supra) has clearly held that estimation of income is permissible only after rejection of books of account on valid grounds. In the absence of such rejection, the AO’s estimation of 8% on alleged unaccounted purchases is legally unsustainable. We also note that the alleged seized ledger has not been authenticated or proved to belong to the assessee. Section 292C of the Act creates a rebuttable presumption of ownership only when documents are found in possession of the assessee or its authorized agent. In the present case, the documents were found in the possession of a third party; hence, such presumption is inapplicable. The AO’s failure to furnish copies ofseized material relied upon against the assessee amounts to violation of natural justice, as held by the Hon’ble Supreme Court in Kishan Chand Chellaram v. CIT [1980] 125 ITR 713 (SC),. The Hon'ble Supreme Court in the case of Kishan Chand Chellaram v. CIT [1980] 125 ITR 713 (SC), the Court held that though the proceedings under the Income are not governed by the strict rules of evidence, the department is bound to afford an opportunity to controvert and cross- examine the evidence onwhich the department places its reliance on. Therefore, the addition made by the AO and confirmed by the CIT(A) is not supported by any tangible material, is based on mere suspicion and third-party information and cannot be sustained in law. Considering the totality of facts and circumstances, and in light of judicial precedents, we hold that the AO was not justified in making an addition of ₹61,49,041/- without rejecting the books of account under section 145(3), furnishing seized materials to the assessee and (establishing any nexus between the assessee and the alleged unaccounted purchases. Accordingly, we hold that the said addition of Rs.61,49,041/- is unjustified and is hereby deleted.” 011. In view of the underlying facts vis a vis the decisions as discussed above, we are not in agreement with the conclusion drawn by the ld. CIT (A) upholding the addition as made by the ld. AO equal to 1% of the total of purchases/ sales and loans. 012. So far as the enhancement of addition is concerned, we find that the ld. CIT (A) without bringing any material on record or doing any further enquiry added the entire purchases by relying on the decision of Hon'ble Bombay High Court in case of PCIT Vs. Konak Impex Ltd.v(Supra). We have perused the above decision of the Hon'ble Bombay High Court and find that the said decision is distinguishable on facts. We observe that in the case before the Hon'ble Bombay High Court, the respondent assessee has not made any Printed from counselvise.com Page | 10 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 submission/compliance before the authorities and has also not offered any explanation about the source of expenditure. Further, the respondent has not appeared in the reassessment proceedings to discharge its onus in proving the purchase transactions under consideration. In other words, the assessee was totally non- cooperative before the tax authorities in that case , whereas in the present case the assessee has been fully compliant by filing all the details/ documents/ evidences before the authorities below. In the said decision, the ld. AO added the bogus purchases u/s 69C of the Act which is on account of unexplained expenditure. However, in the present case, the assessee has clearly established as to how the purchases were directly funded by the buyers and confirmations to that effect were placed before the ld. AO as well as the ld. CIT (A) which were not found to be false by both the authorities. Further, the authorities below have not conducted any enquiry u/s 142(2) of the Act to establish that statements made in the confirmations were false and a contrary view was taken. Therefore, the decision of the Hon'ble Bombay High Court is not applicable to the present case. We also find that in that case the LS Contracts Pvt. Ltd. vs. DCIT (supra), the co- ordinate bench has held that purchases supporting e-way bills cannot be treated as non-genuine for observing and holding as under:- “9. Ax could be seen from the above for the AY 2019-20 the assessee purchased cement worth Rs. 1.61.71.338/- from R.R. Associates and these purchases were said to have been procured byway of E-way bill. If the Assessee had made purchases on E- way Bill the movement of goods cannot be doubted and thus the purchases to that extent cannot be treated as non genuine. Similarly, during the AY 2020-21 the assessee purchased cement worth Rs.77,43.750/- from RK & Company & RR Associates by E-way bill which shows that the assessee procured cement from these parties and to that extent cannot be treated as non genuine. Therefore, we are of the view that wherever the assessee had procured the materials by way of Eway bill such materials cannot be treated as non genuine and the materials procured other than E- way bill for these two assessment years can he considered as unproved purchases and certain percentage of profit element should be considered for the purpose of the addition since there is no dispute that the sales were already considered for taxation. Printed from counselvise.com Page | 11 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 Thus, taking the totality of facts and circumstances into consideration, we direct the Assessing Officer to estimate the profit element from the purchases other than those made by way of E-way bill @6% subject to verification. In the instant case, it shall be evident that e-way bill submitted by the assessee clearly shows that the goods were directly delivered to the parties to whom sales were made by the assessee. Therefore, the Goods sold by assessee are the same which were purchased from the alleged suppliers and the only margin earned by assessee is 1%.” 013. Considering these facts on record, we are of the considered view that the addition made by the AO is uncalled for and not sustainable as the AO has resorted to estimation of income without rejecting the books of accounts. Similarly the enhancement of income by ld CIT(A) is also not tenable as the same is done without bringing any materials on records to prove to the contrary and without doing any enquiry. We note that learned CIT(A) has not doubted the sales and advances by the assessee and only purchases were added to the income of the assessee which is patently wrong and can not be sustained. Besides the decision of PCIT Vs. Konak Impex Ltd.(Supra) is not applicable to the assessee’s facts. Consequently we are inclined to set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition. Consequently both the issues raised by the assessee in the various grounds of appeal are allowed. 014. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 31.12.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 31.12.2025 Sudip Sarkar, Sr.PS Printed from counselvise.com Page | 12 ITA No. 1891/KOL/2025 Rainbow Vanijya Pvt. ltd; A.Y. A.Y. 2020-21 Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "