RAJESH SHIVJI SHAH,MUMBAI V. 20(3)(1), MUMBAI

ITA 525/MUM/2025

AI Insights

The case involves Rajesh Shivji Shah, who appealed against the order passed by the National Faceless Appeal Centre, Delhi, which confirmed additions made under Section 69C of the Income Tax Act, 1961, for the assessment year 2011-12. The additions were based on allegations from the Sales Tax Department that certain suppliers were engaged in hawala transactions. The assessee provided substantial evidence including ledgers, bank statements, and purchase bills to prove the genuineness of the transactions. However, the AO disallowed the purchases without adequate evidence or opportunity for cross-examination. The Tribunal found that the AO's reliance on third-party information without further investigation or cross-examination violated the principles of natural justice.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312789 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Other Referred Cases: Krishna Textiles Vs. CIT, CIT Vs. Nikunj Eximp Enterprises, Ashok Kumar Rungta Vs. ITO, PCIT Vs. Kanak Impex (Ind) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KARPE
• Assessee Lawyers: MANISH TRIVEDI
• Keywords: Unexplained expenditure; Bogus purchase; Principle of natural justice; Opportunity of cross examination; Bogus
• Section: 147; 133(6); 69C; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA No.525/Mum/2025 (Assessment Year: 2011-12) Rajesh Shivji Shah Room No. 10, 2nd Floor, 142 Chakan Niwas, St. Paul St. Hindmata, Dadar (E), Mumbai – 400014. Vs. ITO – 20(3)(1) 2nd Floor, Piramal Chambers, Lower Parel 400013. PAN/GIR No. AAFPS4342A (Applicant) (Respondent) Assessee by Shri Manish Trivedi, CA Revenue by Shri Avinash Karpe – Sr. DR Date of Hearing 28.04.2025 Date of Pronouncement 29.04.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order 28.11.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2011-12. 2. All the grounds raised by the assessee are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in confirm the additions made u/s 69C of the 2 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai Act. Therefore I have decided to take up all the grounds together and to adjudicate the same through the present consolidated order. 3. After hearing both the parties at length and after going through the records, I noticed that assessee is in the business of selling new born babies products and the case of the assessee was reopened u/s 147 of the Act on the basis of third party information received from the Sales Tax Department, Mumbai which alleged that certain suppliers were engaged in hawala transactions and since the assessee had made purchases from the said suppliers therefore additions were made on the ground that assessee could not produce the said suppliers for verification from whom the assessee had made purchases to the tune of Rs. 16,29,314/-. 4. However during the assessment proceedings in order to prove the genuineness of these purchases, assessee had submitted ledgers, statement of account, copies of purchase bills, bank statement etc., to prove the transactions. The assessee has also proved on record that the entire payments were made through banking channel. 5. It is an undisputed fact that the Ld.AO throughout had never provided any documents, statements, affidavit which he had in his possession for cross examination of the alleged hawala suppliers. In this regard assessee had 3 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai made request to the AO and also before the Ld. CIT(A), but the revenue authorities ignored this violation of natural justice. It is also an admitted fact that the sales corresponding to the purchases were accepted by the AO but the purchases were disallowed which is contrary to the proposition of law. 6. Before proceeding further it is necessary to evaluate the provisions of Sec. 69C of the Act under which the present additions have been made and the extract of the provisions of Sec. 69C is reproduced herein below: Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Provided that, notwithstanding anything contained in any other provisions of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.\" 7. Section 69C deals with unexplained expenditure. It says that where an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof or if the explanation offered by him is in the opinion of the AO not satisfactory, then the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the 4 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai assessee for the financial year under consideration. As per the proviso, once such expenditure is treated as unexplained expenditure which is deemed to be the income of the assessee, then the same shall not be allowed as a deduction under any head of income. 8. The Hon’ble Gujarat High Court in the case of Krishna Textiles Vs. CIT, 310 ITR 227 has categorically held that under Sec. 69C of the Act, the onus is on the revenue to prove that the income really belongs to the assessee. However in the present case the assessee has already submitted all the required supportive documents in the shape of ledger, statement of account, copies of purchase bills, bank statements and proof regarding making of payment through banking channel and even the AO did not doubted the sales made by the assessee. On the contrary the AO has not brought on record any material evidence to conclusively prove that the said purchases are bogus. Mere reliance by the AO on information obtained from Sales Tax Department, without affording the assessee any opportunity to cross examine the witnesses in this regard or the fact that these parties did not respond to notice u/s 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition. In my view if the AO doubted the genuineness of the said purchases, then in that eventuality it was incumbent upon him to cause further enquiries in the matter to ascertain the 5 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai genuineness or otherwise of the transactions. Without causing any further enquiry in respect of the said purchases, the AO cannot make additions u/s 69C of the Act by merely relying upon the information obtained from the Sales Tax Department without providing assessee any opportunity of cross examination and for non response to notice u/s 133(6) of the Act. 9. In this case all the payments for the said purchases to the concern parties were through proper banking channel and there is no evidence brought on record by the AO to establish that the said payments were routed back to the assessee, the additions made by the AO u/s 69C of the Act are thus unsustainable, in this regard I am fortified by the decision of Hon’ble Bombay High Court in the case of CIT Vs. Nikunj Eximp Enterprises [2015] 372 ITR 619 (Bom HC). 10. From the facts I also found that there is no direct finding of bogus purchases in Sales Tax proceedings and mere VAT assessment does not established that the asessee’s transactions with the purchases parties were fictitious. In the present case the assessee has placed on record the decision of VAT Appellate Authority, wherein the said authority has verified the transactions and accepted Form No. 704, audit report which confirms compliance with tax laws and the input tax credit (ITC) was granted 6 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai which also goes to show that purchases were treated as genuine by the VAT authority. Thus while relying upon the decision of Hon’ble Bombay High Court in the case of Ashok Kumar Rungta Vs. ITO, ITA No. 1753/2018, 1759/2018, 2780/2018, wherein it was held that disallowance of purchases cannot be sustained when the VAT authorities have accepted the transactions. 11. Since the facts of the present case are identical with the facts in the case of Ashok Kumar Rungta (supra), therefore I am of the view that disallowance of purchases in the present case cannot be sustained when the VAT authorities itself have accepted the transactions. Although revenue has relied upon the decision of Hon’ble Bombay High Court in the case of PCIT Vs. Kanak Impex (Ind) Ltd Vs. ITA No. 791 of 2021, but the facts contained in the said decisions are different from the facts of the present case as in the case of PCIT Vs. Kanak Impex (Ind) Ltd (supra), the assessee had not cooperated and has not submitted the entire records and the books of accounts in the said case were also rejected. Whereas as per the facts of the present case the assessee had made full compliance before the AO by submitting all the relevant documents and the books of accounts have not been rejected by the AO. All the payments made in the present case were through banking channel and the same have been proved on record but the facts of the cited case i.e PCIT Vs. 7 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai Kanak Impex (Ind) Ltd (supra), is based on materially different facts. Therefore cannot be applied upon the present case. Considering the totality of the facts and circumstances independently as discussed by me above I allow the grounds raised by the assessee and direct the AO to delete additions made u/s 69C of the Act. 12. Since the Bench has deleted the additions made u/s 69C of the Act therefore other grounds need no adjudication as the same are academic in nature. 13. In the result the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 29.04.2025. Sd/- (SANDEEP GOSAIN) JUDICIAL MEMBER Mumbai, Dated 29/04/2025 KRK, PS 8 ITA No. 525/Mum/2025 Rajesh Shivji Shah, Mumbai आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u000eथ / The Respondent. 3. संबंिधत आयकर आयु\u0019 / The CIT(A) 4. आयकर आयु\u0019(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मु\u0003बई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, स\u000eािपत ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु\u0003बई मु\u0003बई मु\u0003बई मु\u0003बई / ITAT, Mumbai "