SANTOSH LAUJARI GUPTA,MUMBAI V. ASSESSING OFFICER - 33(3)(3), KAUTILYA BHAVAN

ITA 2971/MUM/2025

AI Insights

The case involves Santosh Laujari Gupta, the appellant, who contested the order of the National Faceless Appeal Centre (NFAC) / CIT(A), Mumbai, which confirmed the rejection of his books of accounts and the estimation of gross profit at 10% by the Assessing Officer. The dispute arose from the reopening of the assessee's case based on information from the Maharashtra Sales Tax Department about bogus bills and hawala dealers. The Assessing Officer rejected the books of account due to unserved notices to three parties and estimated the gross profit, leading to an addition of Rs. 35,56,507 to the assessee's income. The Tribunal, after considering the submissions and the precedents cited, partly allowed the appeal, directing a more reasonable estimation of the profit only on the disputed purchases rather than the entire turnover.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712702 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: CIT vs Simit P. Sheth, Bholanath Poly Fab Pvt. Ltd., Sanjay Oil Cake Industries
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.M. BRINDHA
• Assessee Lawyers: VIMAL PUNMIYA; INVOKING PROVISIONS OF SECTION
• Keywords: Business income; Rejection of books of accounts; Bogus purchase; Bogus
• Section: 147; 148; 143(3); 133(6); 234B; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No. 2971/MUM/2025 (AY: 2011-12) (Physical hearing) Santosh Laujari Gupta A-801, Raj Heights, M G Road, Near Vora Colony, Kandivali West, Mumbai-400067. [PAN No. ADUPG8487C] Vs ITO, Ward-33(3)(3), Mumbai Appellant / Assessee Respondent / Revenue Assessee by Sh. Vimal Punmiya, CA Revenue by Smt. R.M. Brindha, Addl. JCIT/ Sr DR Date of hearing 30.06.2025 Date of pronouncement 30.07.2025 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 National Faceless Appeal Centre (NFAC) / Ld. CIT(A), Mumbai dated 19.12.2023 for assessment year (AY) 2011-12. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming rejection of books of accounts of the appellant and estimating rate of gross profit to 10% by the learned Assessing Officer and thereby confirming addition of Rs. 3556507/- to the total income of the appellant. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming rejection of books of accounts of the appellant by invoking provisions of section 145(3) of the Act by the learned Assessing Officer. 3. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have appreciated that proceeding initiated under section 147 of the Act and issuance of notice Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 2 under section 148 of the Act is not in conformity with and is contrary to the provisions of the Act and liable to be cancelled / annulled. 4 On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the impugned assessment order is illegal and void ab-initio as the learned Assessing Officer failed to issue notice under section 143(2) of the Act within the time limit stipulated under section 143(2) of the Act. 5. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that order made under section 143(3) rws 147 of the Act by the learned Assessing Officer is illegal, bad-in-law, ultra virus, without allowing reasonable opportunity of the hearing, without appreciating facts, submission and evidences in their proper perspective, without providing copies of material relied upon without providing copy of reasons so recorded and without providing cross examination, is liable to be annulled. 6. The learned Commissioner of Income Tax (Appeals) erred in confirming charging of interest under section 234A, 234B and 234C of the Act. 7. The appellant crave leave to add, amend, alter and/or vary any of the grounds of appeal before or at the time of hearing.” 2. Rival submissions of both the parties have heard and record perused. I find that assessee has raised multiple grounds of appeal, i.e. against rejection of books of account, validity of reopening under section 147, issuance of notice under section 148 and non-issuance of notice under section 143(2). However, no submissions were made on all such grounds of appeal which are subject matter of ground no. 2 to 5. Hence, all such grounds of appeal are treated as not pressed and dismissed. Ground no. 1, relates to sustaining the addition of gross profit of 10% of the total sales turnover. The learned Authorised Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 3 Representative (ld. AR) of the assessee submits that assessee is in business of trading of Iron and Steel. The assessee filed his return of income for A.Y. 2011-12 on 29.09.2011 declaring total income of Rs. 9,26,034/-. Initially, the return was processed under section 143(1). Subsequently, the case of assessee was reopened on the basis of information from Maharashtra Sales Tax Department that certain dealers were indulging and providing bogus bills without actual delivery of goods. The assessee has shown purchases of Rs. 2.40 crore from such tainted dealers. The assessing officer on the basis of information about such hawala dealers rejected the book profit of assessee and estimated gross profit @10%. The assessee has shown profit @ 5.21%. On appeal before ld. CIT(A), the action of assessing officer was upheld. The ld. AR of the assessee submits that during the year under consideration, the assessee made total purchases of Rs. 7.00 crore (Approx). The total turnover of assessee is of 7.42 crore. The assessee has shown gross profit of Rs. 38.69 lacs, which is 5.21% of total turnover. The assessing officer rejected the books of account on the ground that notices sent to three (3) parties were returned unserved. There were total eleven parties, which were considered as hawala party by assessing officer. The assessing officer estimated 10% gross profit and worked out addition of Rs. 74,25,544/-. The assessee already declared gross profit of Rs. 38,69,037/- which was set off and he worked out the addition of Rs. 35,56,507/-. The estimation made by assessing officer in an arbitrary manner. The ld. AR of the assessee of the assessee submits that the alleged bogus purchases as per observation of assessing officer are of Rs. 2.40 crore. In A.Y. 2011-12, the assessing officer Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 4 estimated gross profit on similar purchases at 6.5%. if similar GP addition is made on purchases of Rs. 2.40 Crore, it would be 15,60,020/-. The assessee has already declared GP @5.21%. 5.21% of 2.40 crore will be Rs. 12,50,415/- and thus, balance of 1.29% will be Rs. 3,09,603/-. Even if consistency is followed with the additions of A.Y. 2010-11, the maximum addition would be Rs. 3,09,603/-. 3. The ld. AR further submits that during assessment, the assessee furnished complete details to substantiate the purchases. The details furnished by assessee consist of bank statement as the copy of ledger account of parties. All the bills of purchases were furnished. The payments were made through account payee cheque. The sale of assessee is accepted. Without purchases, sale is not possible the accounts of assessee are duly audited. All purchase bills show VAT details. VAT was paid by assessee to State Government. There is no evidence that cash was received by assessee. The allegation of assessing officer is that assessee has shown purchase to reduce the profit. If the contention of assessing officer is accepted, it will lead to unexpected profit, which is not practical in the business of assessee. In other alternative submission, the ld. AR of assessee submits that assessee has shown gross profit; therefore, no addition may be sustained. 4. On the learned Senior Departmental Representative (ld. Sr. DR) for the revenue submits that assessing officer issued notice to three dealers under section 133(6) on test check basis and in all three cases, the notice was returned back unserved, none of the dealers responded to the notices issued by assessing officer. Thus, the genuineness of purchases remained Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 5 unsubstantiated. The assessing officer rejected the books of account and estimated the profit on reasonable basis. On the specific submission of ld. AR of the assessee that in earlier year that is in A.Y. 2010-11, the Assessing Officer estimated 6.5% profit on similar type of purchases, the ld. Sr. DR for the revenue submits that each year is a brought and independent year, therefore, order for A.Y. 2010-11 cannot be considered as precedent. 5. I have considered the rival submissions of both the parties and perused the material available on record. I find that during the reassessment proceeding, the assessing officer recorded that assessee is a beneficiary of purchases shown from 11 dealers which were shown in the list of bogus entry provider as uploaded by Maharashtra Sales Tax Department on their website. The assessee has shown purchases of Rs. 2.40 crore from such parties. The assessing officer issued notice under section 133(6) to all three such parties for seeking certain information as mentioned in para 5 of assessment order was issued. For remaining 8 parties, no investigation was carried out by assessing officer. The assessing officer rejected the books of account and estimated 10% of profit on total turnover. The assessee has shown gross profit of Rs. 38,69,037/-. By allowing set off of such profit made addition of Rs. 35,56,507/-. I find that before ld. CIT(A), the assessee again filed detailed written submission. The assessee also stated that in A.Y. 2010-11, the assessing officer on identical facts estimated gross profit at 6.50. Such facts are recorded on page no. 6 of order of ld. CIT(A). The assessee also furnished the details of purchases and corresponding sales. The assessee stated that they have discharged their primary onus. The ld. CIT(A) after Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 6 considering the submission of assessee upheld the action of assessing officer. The ld. CIT(A) also referred the decision of Gujarat High Court in CIT vs Simit P. Sheth 356 ITR 0451 and Bholanath Poly Fab Pvt. Ltd. 355 ITR 290 and Sanjay Oil Cake Industries 316 ITR 274 (Guj) wherein profit element of 12.5% was sustained and held that assessing officer has fairly estimated margin at 10%. On considering all such decision as referred by ld. CIT(A), I find that in all such decisions the subject matter of disallowances was the component of alleged bogus purchases and not the entire turnover. The entire turnover of assessee in the present case is Rs. 7.24 crores, however, the tainted / disputed purchases are only Rs. 4.20 crore, thus reliance on such decision by not comparing the facts are misplaced. 6. On independent consideration of fact, I find merit in the submission of ld. AR of the assessee. In my view, the disallowance if any is to be restricted to the impugned purchases which is bone of contention between the assessee and department and not the other purchases. However, I find that assessment order of A.Y. 2010-11 is not placed on record to appreciate the fact that GP addition in A.Y. 2010-11 was restricted to impugned purchases of that year or to the entire turnover. In my view when the assessee has discharged his primary onus in furnishing complete details of the impugned purchase and the assessing officer investigated only in respect of three parties, the rejection of books result was not justified. Thus, considering the facts that in earlier year, the assessing officer made lower estimation of income, the assessing officer is directed to restrict the disallowance @ 10% of impugned purchased of Rs. 2.40 Crore and further allowed setoff of gross profit Printed from counselvise.com ITA No. 2971/Mum/2025 Santosh Laujari Gupta 7 declared qua such impugned purchases by the assessee. In the result, the ground No. 5 of the appeal is partly allowed. Ground No. 6 is consequential and Ground No7 is general which need no specific adjudication. 7. In the result, the appeal of the assessee is partly allowed. Order was pronounced in the open Court on 30/07/2025. Sd/- PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated: 30/07/2025 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 "