SURENDER KUMAR JAIN,DELHI V. ACIT,CENTRAL CIRCLE-14, NEW DELHI

ITA 102/DEL/2024

AI Insights

The case involves cross-appeals by the assessee, Surender Kumar Jain, and the revenue against the order of the Commissioner of Income Tax (Appeals)-26, New Delhi, concerning the assessment year 2021-22. The primary issues were the disallowance of purchases from Bombay Gold Lab, treated as bogus by the Assessing Officer (AO), and the estimation of a grey market premium on sales. The Tribunal examined the evidence presented, including responses to notices under sections 133(6) and 131 of the Act, and found that the purchases were genuine and the sales were properly recorded in the assessee's books.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 303127 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2021-2022
• Other Referred Cases: Orissa Corporation vs. 159 ITR 78(SC), PCIT Vs. Kanak Impex India Ltd 172 taxmann.com 283 (Bom HC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: P. ROYCHOUDHARY
• Keywords: Unexplained expenditure; Income from undisclosed sources; Bogus purchase; Bogus
• Section: 143(3); 131; 133(6); 69C; 37

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 931/Del/2024 (Assessment Year: 2021-22) DCIT, Central Circle-14, New Delhi Vs. Surender Kumar Jain, 1241, Kucha bagh, Chandani Chowk, New Delhi (Appellant) (Respondent) PAN:AEIPJ7446P ITA No. 102/Del/2024 (Assessment Year: 2021-22) Surender Kumar Jain, 1241, Kucha bagh, Chandani Chowk, New Delhi Vs. ACIT, Central Circle-14, New Delhi (Appellant) (Respondent) PAN:AEIPJ7446P Assessee by : Shri P. Roychoudhary, Adv Revenue by: Ms. Jaya Chaudhary, CIT DR Date of Hearing 01/04/2025 Date of pronouncement 23/04/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.102/Del/2024 filed by the assessee and 931/Del/2024 filed by the revenue for AY 2021-22, arise out of the order of the Commissioner of Income Tax (Appeals)-26, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 10051/2020-21 dated 22.12.2023 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.12.2022 by the Assessing Officer, ACIT, Central Circle-14, New Delhi (hereinafter ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 2 referred to as ‘ld. AO’). As these are cross appeals, they are taken up together and disposed of by this common order for the sake of convenience. Identical issues are involved in both these appeals, hence, they are taken up together and disposed of by this common order for the sake of convenience. 2. No arguments were advanced by the ld AR for the legal grounds raised in the appeal of the assessee. Hence, they are treated as not pressed. 3. The Ground Nos. 4 and 5 raised by the assessee and Grounds raised by the revenue are only with regard to addition made on account of bogus purchase and profit estimation on sales. 4. We have heard the rival submissions and perused the materials available on record. The assessee filed his return of income on 07.12.2022 declaring taxable income of Rs. 1,89,79,930/-. The assessee is engaged in the business of trading of gold and silver bullion in the name of proprietorship concern M/s. S.K. Impex. The assessee made purchase form M/s. Bombay Gold Lab (proprietor Shri Pravin Patil) in the sum of Rs. 2,79,52,732/- during the year under consideration which was treated as bogus and disallowed by the ld AO u/s 37 of the Act. The ld CIT(A) sustained only the profit element embedded in the value of such purchase to the extent of 1% thereon and confirmed the addition of Rs. 2,79,527/- and deleted the remaining sum. Against this order of the ld CIT(A), the assessee as well as the revenue are in appeals before us. 5. The assessee had made sales to the following parties:- Bombay Gold Lab (proprietor Praveen Patil)- 127,42,23,352 M/s. Dharneesh Gold Pv. Ltd 46,03,35,337 M/s. Bhagya Laxmi Gems and jewelers Pvt. Ltd 3,45,15,132/- ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 3 6. The ld AO made addition @8% on these 3 sales treating that actual sales had been made in the grey market and accordingly would have earned grey market premium on sales. The total addition made in this regard was Rs. 14,15,25,906/-. This addition was reduced to 2% of sales by the ld CIT(A) as against 8% made by the ld AO. Aggrieved, both assessee as well as the revenue are in appeals before us. 7. With regard to purchase made from M/s. Bombay Gold Lab by the assessee amounting to Rs. 2,79,52,732/-, the same was treated as ingenuine purchase on the ground that the Mr. Praveen Patil did not respond to the summons issued u/s 131 of the Act by the ld AO to cross verify the veracity of purchase made from him by the assessee. Further, Inspector Report suggested that no company in the name of Bombay Gold Lab exists at the given address. The assessee submitted that it had made sales of Rs. 127,42,23,352/- to M/s. Bombay Gold Lab during the year under consideration. In support of the transactions with Bombay Gold Lab, the assessee submitted the copy of the purchase and sales bills, bank statement, ledger copy of the said party (as appearing in the books of assessee), copy of ITR of the said party, computation of income and audited financial statements of the said party. All these documents were also sent by M/s. Bombay Gold Lab directly in response to notice 133(6) of the Act before the ld AO. Despite this, the ld AO noted that no response u/s 133(6) of the Act was submitted by the said party. Later the ld AO deputed his inspector on 16.12.2022 to verify particulars of M/s. Bombay Gold Lab at the given address wherein, the Inspector reported that no company in that name exists. Thereafter, on 19.12.2022, the proprietor Shri Pravin Patil submitted his reply in Tapal wherein he had stated that he has been doing his business from the premises No. 1184, 3rd Floor, Kucha Mahajani, Chandni Chowk, Delhi 110006. Therefore, a inspector was again deputed at this new address ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 4 who reported that no such company exists. The inspector enquiry report is reproduced at page 159 of the assessment order. Later summons u/s 131(1) of the Act was issued to Shri Pravin Patil on 23.12.2022 requesting him to appear before the ld AO along with books of account and other related documents on 26.12.2022 which stood uncomplied. Accordingly, the ld AO concluded that M/s. Bombay Gold Lab as a bogus party and proceeded to disallow the purchase made from them in the sum of Rs. 2,79,52,732/- u/s 37 of the Act. Since, the said party was not found to be existing at the given address, the sales made by the assessee to the said party was also doubted. The ld AO concluded that the said entity is a bogus entity engaged in the business of providing accommodation entry of bogus sales and purchase of bullion. The ld AO further observed that assessee had made purchase from Govt entities and banks such as MMTC and HDFC , hence, genuineness of the purchase cannot be doubted in respect of sales stated to be made to bogus entity Bombay Gold Lab by the assessee in order to cover up the actual sales made to some other party at higher profit margin in grey market. Thus grey market premium was estimated at 8% by the ld AO on account of alleged sales to Bombay Gold Lab. This premium percentage was reduced to 2%. Similar sales was made to Dharneesh Gold Pvt. Ltd, the ld AO concluded that this was paper entity and the sales made to this party are only to cover up the actual sales made by the assessee in grey market at higher premium. Thus grey market premium was estimated by the ld AO at 8% which was reduced to 2% by the ld CIT(A). 8. At the outset, we find that the sales made by the assessee to Bombay Gold Lab, Dharneesh Gold Pvt. Ltd and M/s. Bhagya Laxmi Gems and Jewellers Pvt. Ltd have already been disclosed as sales in the audited balance sheet and profit and loss account as well as in the income tax return filed by the assessee. There is absolutely no iota of evidence brought on ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 5 record by the ld AO or by the ld CIT(A) to come to the conclusion that assessee had indeed made actual sales to some other parties in the grey market in cash at a higher premium and these parties names were shown only to cover up the actual cash sales made in the grey market. On the contrary, Bombay Lab had even responded to the notice u/s 133(6) of the Act before the ld AO and is regularly assessed to income tax in PAN ASUPP4258R and GST No. 07ASUPP4258RIZI. Similarly Dharneesh Gold Pvt Ltd has duly responded to the notice u/s 133(6) of the Act which fact is also noted by the ld AO in the assessment order by filing the requisite documents like copy of confirmation of the party, copy of invoices of the party, respective bank statement etc. We find that Dharneesh Gold Pvt. Ltd is a company registered under the Companies Act in Hyderabad and also duly assessed to income tax in PAN AADCD5806H and its GST No. 36AADCD5806H1ZR. This party has already furnished confirmation that it had indeed made purchase from the assessee. Merely because there was some cash deposit in its bank account prior to the issuance of cheques to the assessee towards payment of purchase consideration, it cannot be concluded that the source of said cash deposit represent the unaccounted income of the assessee. Similarly, with regard to sales made by the assessee to M/s. Bhagya Laxmi Gems and Jewellers Pvt. Ltd, the said company is a Pvt ltd company registered under Companies Act at Secunderabad, Telengana and assessed to income tax in PAN AAECB3009K and GST No. 33AAECB3009K1ZO. Further, the said party had filed its confirmation that it had made purchase from the assessee and had directly responded to the notice issued u/s 133(6) of the Act before the ld AO, which fact is also mentioned by the ld AO in the assessment order. 9. For all the sales made to these 3 parties, i.e. Bombay Gold Lab, Dharneesh Gold Pvt. Ltd and Bhagya Laxmi Gems and Jewellers Pvt. Ltd, the ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 6 assessee had already declared the same in its profit and loss account and in the income tax returns. There is absolutely no evidence brought on record that assessee had made cash sales in grey market at a huge premium. Hence, there is absolutely no question of bringing to tax any amount on account of profit of premium at grey market. Hence, the addition made again @8% by the ld AO which was reduced to 2% by the ld CIT(A) does not deserve to survive at all. Accordingly, the grounds raised by the assessee in this regard are allowed and grounds raised by the revenue in this regard are dismissed. 10. Now what is left is only the addition made on account of purchase made by the assessee from Bombay Gold Lab to the tune of Rs. 2,79,52,732/-. As stated earlier, this party had duly responded to the notice issued u/s 133(6) of the Act directly before the ld AO by furnishing the requisite documents. Of course, he had not responded to the summons issued u/s 131 of the Act. The assessee cannot be faulted for non appearance of the 3rd party in response to the summons when all the requisite documents were placed by the assessee from his end and also by the said party from his end directly before the ld AO in response to notice u/s 133(6) of the Act. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Orissa Corporation reported in 159 ITR 78(SC) wherein, failure of a 3rd party in not responding to the summons would not lead to draw an adverse inference against the assessee. The assessee on its part had proved the veracity of the purchase made from the said party and disclosed the same in its profit and loss account. The payments for the same were made through regular banking channels of the assessee. The sources for making payment for the same are duly drawn from the books of account of the assessee. The ld DR vehemently relied on the decision of the Hon’ble Bombay High Court in the case of PCIT Vs. Kanak ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 7 Impex India Ltd reported in 172 taxmann.com 283 (Bom HC). We find that in that case the purchase made from the said party was held to be bogus and sought to be added as unexplained expenditure u/s 69C of the Act. These parties were also found to be hawala operators and no response from the said party have been made. The assessee could not even prove the source of making payment to the said party. Under these circumstances, addition was sought to be sustained u/s 69C of the Act. Hence, we hold that the decision relied upon by the ld DR on the Hon’ble Bombay High Court is factually distinguishable. In the instant case, the purchase made by the assessee from Bombay Gold Lab has been duly reflected in the audited books of account of the assessee, source for making payment are duly established by the assessee and corresponding sales made out of such purchase were also given to the ld AO and reflected in the books of account of the assessee. At the cost of repetition, the said party Bombay Gold Lab had duly responded to the notice issued u/s 133(6) of the Act by furnishing the requisite details directly before the ld AO. The assessee had even given the PAN details and GST details of the said party before the lower authorities. Hence, purchase transaction made from the said party cannot be treated as bogus. Once corresponding sales made out of disputed purchase stands accepted, the purchase cannot be doubted. The books of account of the assessee have not been rejected by the ld AO or by the ld CIT(A). With regard to the Inspector report that Bombay Gold Lab does not exist at the address given, the assessee had already pleaded that said Inspector’s Report was never furnished to the assessee for its rebuttal over the purchase made by the assessee which includes the disputed purchase, the closing stock, sales which are reflected in the books of account already cannot be doubted as they are not rejected by the ld AO. The ld CIT(A) duly appreciated all these facts and erroneously proceeded to make an ad hoc addition @1% of ITA No. 931/Del/2024 ITA No. 102/Del/2024 Surender Kumar Jain Page | 8 the value of purchase treating it as an accommodation entry on account of claim of expenditure. Once, the transaction from Bombay Gold Lab is held to be genuine, there is no question of treating the same as accommodation entry. Consequentially, there would be no question for incurrence for commission expenditure thereon. Accordingly, the addition made on account of commission expenditure stands deleted as it was not incurred at all and it was not required to be incurred by the assessee. Similarly the disallowance made in the sum of Rs. 2,79,52,732/- towards purchase made from Bombay Gold Lab is unwarranted and thereby directed to be deleted. Accordingly, the grounds raised by the assessee in this regard are allowed and Grounds raised by the revenue in this regard are dismissed. 11. In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed. Order pronounced in the open court on 23/04/2025. -Sd/- -Sd/- (SATBEER SINGH GODARA) (M BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23/04/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "