RAJESH HARISHBHAI SHAH (HUF),MUMBAI V. ITO-WARD-24(3)(1), MUMBAI

ITA 4890/MUM/2024

AI Insights

The case involves an appeal by Rajesh Harishbhai Shah (HUF) against the order of the CIT(A)/NFAC, which confirmed the disallowance of purchases amounting to Rs. 36,92,969 under section 69C of the Income Tax Act, alleging them to be bogus. The assessing officer had made this disallowance based on information from the Investigation Wing regarding hawala dealers. The Tribunal found that the assessee had provided sufficient evidence of the genuineness of the purchases, as the sales were not disputed and the books of account were not rejected. The Tribunal's decision was influenced by precedents that allowed for a reasonable profit addition on such alleged bogus purchases, rather than a complete disallowance.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772607 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: PCIT vs Kanak Impex (India) Ltd, ITO vs Sailesh Metal Corporation, Bharat Kumar Ramchandraji Modi vs ITO, Quality Heighten Private Limited vs DCIT, Ajit Anant Joshi vs DCIT, PCIT Vs Mohammad Haji Adam & Co., Amrat B Prajapati
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: DINKLE HARIYA
• Keywords: Opportunity of being heard; Bogus purchase; Principle of natural justice; Accommodation entries; Bogus
• Section: 147; 144; 69C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 4890/MUM/2024 (AY: 2011-12) (Physical hearing) Rajesh Harishbhai Shah (HUF) 403/404, Mona Apartment, Near Navrang Theatre, J.P. Road, Andheri (W), Mumbai-400058. [PAN No. AAAHR0439N] Vs ITO, Ward – 24(3)(1), Mumbai Piramal Chambers, Lalbaug, Mumbai – 400012. Appellant / Assessee Respondent / Revenue Assessee by Ms. Dinkle Hariya, Advocate Revenue by Sh. Surendra Mohan, Sr. DR Date of Institution 23.09.2024 Date of hearing 24.07.2025 Date of pronouncement 29.08.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of Ld. CIT(A)/NFAC dated 25.07.2024 for assessment year (AY) 2011-12.The assessee has raised following grounds of appeal: “1. THE ORDER BAD, ILLEGAL AND WITHOUT JURISDICTION 1.1 In the facts and the circumstances of the case, and in law, the appellate order framed by the Commissioner of Income tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, ['Ld. CIT (A)'] is bad, illegal and without jurisdiction, as the same is framed in breach of the statutory provisions and the scheme and as otherwise also is not in accordance with the law. 1.2 Otherwise also, in the facts and the circumstances of the case, and in law, the appellate order so framed by the Ld. CIT (A) is bad, illegal and void as the same is arbitrary and perverse. 2. NATURAL JUSTICE Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 2 2.1 The Ld. CIT (A) erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the appellate order. 2.2 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as: (i) The same is framed in breach of the principles of natural justice; and (ii) The same is passed without application of mind to the facts. 2.3 It is submitted that in the facts and the circumstances of the case, and in law, nо such action was called for. WITHOUT PREJUDICE TO THE ABOVE 3. REASSESSMENT 3.1 The Ld. CIT (A) erred in confirming the action of the A.O. in initiating the reassessment proceeding and framing the assessment of the Appellant by invoking the provisions of section 147 r.w.s. 148 of the Act. 3.2 While doing so, the Ld. CIT (A) failed to appreciate that: (i) The case of the Appellant did not fall within the parameters laid down by section 147 r.w.s. 148 r.w.s. 149 & 151 of the Act; and (ii) The necessary preconditions for initiating the reassessment proceeding and completion thereof were not satisfied. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, the reassessment so framed is bad, illegal, void and without jurisdiction. WITHOUT FURTHER PREJUDICE TO THE ABOVE 4. DISALLOWANCE OF PURCHASES OF RS. 36,92,969/- U/S, 69C OF THE ACT AS ALLEGED BOGUS PURCHASES 4.1 The Ld. CIT (A) erred in confirming the action of the A.O. in making disallowance of Rs. 39,92,969/- u/s, 69C of the Act on account of alleged non genuine purchase/alleged bogus purchase. 4.2 While doing so, the Ld. CIT (A) erred in: (i) Basing his action only on surmises, suspicion and conjecture; (ii) Taking into account irrelevant and extraneous considerations; and Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 3 (iii) Ignoring relevant material and considerations as submitted by the Appellant. 4.3 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 4.4 Without prejudice to the above, assuming - but not admitting - that some addition was called for, it is submitted that the Ld. CIT (A) failed to appreciate that the computation of the addition made by the A.O. is arbitrary, excessive and not in accordance with the law. 5. LIBERTY The Appellant craves leave to add, alter, delete or modify all or any the above ground at the time of hearing.” 2. Rival submissions of both the parties have heard and record perused. I find that assessee has raised several ground of appeal challenging the jurisdiction of assessing officer, denial of natural justice and validity of reassessment under section 147. However, at the time of making submission, no specific submission was made, therefore, ground no. 1 to 3 is treated as not pressed and dismissed as such. 3. Ground no. 4 relates to disallowance of purchases of Rs. 36,92,969/- under section 69C. The ld. AR of the assessee submits that assessee is in the trading of hardware items. The assessing officer made disallowance of certain purchases shown from Sona Engg. Co. and Sona Tools Traders aggregating of Rs. 36,92,969/-. The assessing officer made disallowance solely on the basis of alleged information with the assessing officer from Investigation Wing of Income Tax Department, which was based on information from Sales Tax Department about certain hawala dealers. During assessment, the assessee furnished complete details to substantiate its purchases. The assessing officer disregarded such evidences and made disallowance of 100% of purchases. Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 4 Before ld. CIT(A), the assessee again furnished complete details. The ld. CIT(A) recorded that assessee given only partial reply. Fact remains the same that assessee substantiated purchases. The assessee sold all the purchased items. Sale of assessee is not disputed by assessing officer. Sale is not possible in absence of purchases. Books of assessee was not disputed and rejected by assessing officer. The assessee has shown good gross profit ranging from 3.16% to 7.15% from A.Y. 2008-09 to 2011-12. In 2011-12, the assessee has shown gross profit @ 6.55% in the current financial year. The ld. AR of the assessee submits that entire purchases of the assessee are genuine. The purchases of the assessee cannot be disputed if the seller party defaulted in making payment of VAT. In the alternative submissions, the ld. AR of the assessee submits that to avoid the long drawn process of litigation, some token / adhoc disallowance may be sustained and the assessee may be allowed benefit of gross profit already declared in its books of account. 4. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The ld. Sr. DR for the revenue submits that during assessment, the assessee issued notice under section 133(6). None of the parties responded to such notice. The assessee was asked to produce the parties. The assessee failed to produce such parties. Since onus was on the assessee to substantiate the purchases. The assessee failed to discharge his onus. Therefore, the lower authorities were justified in making disallowance of entire purchases shown from hawala parties. To support his submission, the ld. AR relied upon the decision of Jurisdiction High Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 5 Court in PCIT vs Kanak Impex (India) Ltd in tax Appeal No. 791 of 2021 dated 03.03.2025. 5. In the rejoinder submission, the ld. AR of the assessee submits that facts in case Kanak Impex (India) Ltd. are not applicable on the facts of their case as facts in the said case are totally different. The assessee is the said case failed to substantiate purchase. However, the assessee has given complete details of its purchases. The assessee during assessment substantiated the purchases. Mere non-response by seller parties in response to notice under section 133(6), the purchases of the assessee cannot be treated as non-genuine. To support her submission, the ld. AR relied upon the following decisions:  ITO vs Sailesh Metal Corporation (ITA No. 2977/M/2025)  Bharat Kumar Ramchandraji Modi vs ITO (ITA No. 6545/M/) 2024  Quality Heighten Private Limited vs DCIT (ITA No. 1489/M/2025)  Ajit Anant Joshi vs DCIT (ITA No. 700/M/2025) 6. I have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. I have also deliberated on various case laws relied by both the parties. I find that assessing officer made addition on the basis of report of Investigation Wing that certain parties were indulging in providing accommodation entries without actual delivery of goods. The assessing officer made addition of 100% of purchases shown from Sona Engg. Co. and Sona Tools Traders. The assessee has furnished details of purchases and sales thereof. The sales of assesse is not disputed. Books of account of assessee was also not disputed. It is settled position in income tax proceedings that sale is not possible in absence of purchases, therefore, in my view, the disallowance of 100% purchases is not justified in the present case. Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 6 I find that assessee is in the trading activities of hardware items. All the items purchased by the assessee were sold. I find that once the assessee has discharged its primary onus by filing details of purchases. Thus, considering the decision of Hon’ble Jurisdiction High Court in PCIT Vs Mohammad Haji Adam & Co. (supra) and decision of Tribunal in Amrat B Prajapati in ITA No. No. 5982/Mum/2019 dated 29.01.2020, I am of the view that reasonable profit on alleged bogus purchases would meet the end of justice. Hence, the assessing officer is directed to retain the estimated addition 12.5% of the impugned / bogus purchases from these two parties and but to allow deduction towards gross profit already declared in the regular books of account. In the result, the ground of appeal raised by assessee is partly allowed. 7. So far as in PCIT Vs Kanak Imports (supra) relied by ld. Sr. DR for the Revenue is concern, in my humble view, the ratio of said decision is not applicable on the facts of present case as facts of the present case is at variance. In the said case, assessment was completed under section 144 wherein assessee failed to substantiate the purchases. However, in the present case, the assessee has furnished details of purchases before assessing officer and assessee himself stated for making addition on the basis of decisions of Gujarat High Court to avoid the future litigation with the department. Thus, in the present case, the assessee has primarily discharged his primary onus to substantiate the purchases. In the result, the ground No. 4 of appeal raised by the assessee is partly allowed. Printed from counselvise.com ITA No. 4890/Mum/2024 Rajesh Harishbhai Shah (HUF) 7 8. In the result, the appeal of the assessee is partly allowed. Order was pronounced in the open Court on 29/08/2025. Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated 29/08/2025 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai Printed from counselvise.com "