WARYAM STEEL CASTINGS PRIVATE LIMITED,LUDHIANA V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, LUDHIANA

ITA 715/CHANDI/2024

AI Insights

The case involves Waryam Steel Castings Private Limited, which appealed against the order of the National Faceless Appeal Centre (NFAC) that upheld the disallowance of certain purchases deemed bogus. The purchases were from M/s Gauri Shankar Trading Co. and five other parties, totaling significant amounts. The Assessing Officer (AO) had treated these purchases as bogus based on investigations and non-responses to notices. The Tribunal examined the evidence, including GST returns and bank transactions, and found that while some irregularities existed, the purchases were not entirely bogus. The Tribunal thus restricted the addition to 12.5% of the purchase value, aligning with the profit element theory in similar cases.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315965 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2019-2020
• Other Referred Cases: Principal Commissioner of Income-tax v. Nitin Ramdeoji Lohia, Geolife Organics v. Assistant Commissioner of Income-tax-23(2), Mumbai, Principal Commissioner of Income-tax v. Shapoorji Pallonji & Co. Ltd, Principal Commissioner of Income Tax-12 v Smt Krishna Devi, GTC industries Ltd. v. ACIT, Jagadish Thakkar v. ITO, Hi Lux Automotive (P.) Ltd. v. ITO, M/s. Bardhaman Dharmaraj Paper Mill v. Principal Commissioner Of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VED PARKASH KALIA
• Assessee Lawyers: ASHWANI KUMAR; C.A
• Keywords: Set aside; Business income; Opportunity of being heard; Reassessment proceedings; Business expenditure; Question of law; Unexplained expenditure; Unexplained investment; Rejection of books of accounts; Cost of acquisition; Bogus purchase; Onus to prove; Commercial expediency; Gross profit estimation; Principle of natural justice; TDS; Accommodation entries; Opportunity of cross examination; Audi alteram partem; Penny stocks; Bogus
• Section: 148; 143(3); 142(1); 69; 133(6); 69C; 115JB; 37(1)

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी राजपाल यादव, उपाȯƗ एवं ŵी क ृणवȶ सहाय, लेखा सद˟ BEFORE: SHRI. RAJPAL YADAV, VP &SHRI. KRINWANT SAHAY, AM आयकरअपीलसं./ ITA No. 715 /Chd/ 2024 िनधाŊरणवषŊ / Assessment Year : 2019-20 M/s Waryam Steel Castings Private Limited, Kanganwal Road, Jugiana, Ludhiana, Punjab-141010 बनाम The DCIT Circle-4, Ludhiana ˕ायीलेखासं./PAN NO: AAACW1494P अपीलाथŎ/Appellant ŮȑथŎ/Respondent आयकरअपीलसं./ ITA No. 757/Chd/ 2024 िनधाŊरणवषŊ / Assessment Year : 2019-20 The ACIT Circle-4, Ludhiana बनाम M/s Waryam Steel Castings Private Limited, Kanganwal Road, Jugiana, Ludhiana, Punjab-141010 ˕ायीलेखासं./PAN NO: AAACW1494P अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Ashwani Kumar, C.A and Ms. Muskan Garg, C.A राजˢकी ओर से/ Revenue by : Shri Ved Parkash Kalia, Sr. DR सुनवाई की तारीख/Date of Hearing : 25/02/2025 उदघोषणा की तारीख/Date of Pronouncement : 14/05/2025 आदेश/Order PER KRINWANT SAHAY, A.M: The above appeal filed by the Assessee and Cross Appeal filed by the Revenue are against the order of the Ld. CIT(A)/NFAC dt. 10/05/2024 for the Assessment Year 2019-20. 2 2. Firstly, we shall deal with the appeal of the Assessee in ITA No. 715/Chd/2024 wherein following grounds have been raised: 1. That the order dated 10.05.2024 passed u/s 250 of (\"Act\") by the National Faceless Appeal Centre is against law and facts on the file in as much as he was not justified to uphold action of the Learned Assessing Officer, Income Tax Department in issuing notice under section 148 of the Act in as much as- (i) there are no circumstances suggesting that any '\"income chargeable to tax\" has escaped assessment; (ii) that the Ld. |Assessing Officer has merely relied upon the information relayed to him form external sources/agencies without application his mind thereto or conducting any further enquiries to arrive at a conclusion that income has. allegedly, escaped assessment; (iii) there is no information within the meaning of Explanation to section 148 which suggests that income chargeable to lax has escaped assessment iv (notice u/s 148 has been issued by the jurisdictional AO and assessment framed by the NFAC. (v)complete reasons for initiation reassessment proceedings have not been provided. 2. That the order dated 10.05.2024 passed u/s 250 of the Act by the National faceless Appeal Centre (NFAC). Delhi is against law and (acts on the (lie in as much as he was not justified to uphold the action of the Ld. Assessing Officer. Assessment Unit. Income Tax Department in restricting the addition on account of purchases made from various parties to Rs. 59.20,585 (being 12.5% of Rs. 4,73,64,687/- i.e. the aggregate of purchases of Rs. 63,84.522/- made from Gauri Shankar Trading Co. and Rs. 4,11,60.437/- from five parties (i.e. M/s Tejinder Fabricators. Prop Gaurav Dhir - Rs. 25,93,105/-, M/s Radhika Enterprises, Prop Rahul Tiwari - Rs. 15.03,504/-, M/s Garg Trading Co, Prop Raj Kumar - Rs. 1,73,18,821/-, M/s Aryan International. Delhi, Prop Aditya Pnpreja - Rs. 5,46,167/-and M/s Akriti Industries, Prop Sanjeev Kumar - Rs. 1,91.98,840/-) as reduced by the returned loss of Rs. 1,80,272/- by allegedly holding the said purchases to be bogus. 3. That the order dated 10.05.2024 passed u/s 250 of the Act by the National Faceless Appeal Centre (NFAC), Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer. Assessment Unit, Income Tax Department in framing the assessment by ignoring the basic principles of natural justice by relying on statements of various persons and data without affording the Appellant any opportunity to cross examine such persons, thus, making the assessment bad in law. That the order dated 10.05,2024 passed u/s 250 of the Act by the National Faceless Appeal Centre (NFAC). Delhi is against law andfuels on thefile in as much as he was not justified to uphold the action of the Ld. Assessing Officer in passing the appellateorder without providing an opportunity of being heard to the Appellant Company either video conferencing or any other means as prescribed in the Departmental instructions for which a specific request was also made to the Ld. Commissioner of Income-tax (Appeals), NFAC. That the Appellant craves to add, amend, alter, modify or delete any or all of the grounds of appeal before or at the time of hearing. 3 3. Briefly, facts of the case are that Waryam Steel Castings Private Limited, a private limited company is engaged in the manufacture of steel products, specifically steel ingots, by melting iron scrap in electric furnaces. For the Assessment Year 2019-20, the company filed its return of income on 30.10.2019, declaring a loss of Rs. 1,80,272/- under normal provisions and an income of Rs. 62,98,757/- under Section 115JB of the Income Tax Act, 1961. The company's turnover for the year was reported at Rs. 134.08 crores. Based on information from the Insight Portal regarding a purchase transaction of Rs. 63,84,522 with M/s Gauri Shankar Trading Co. (GSTC), a proprietorship concern of Shri Rahul Pratap Singh, the AO initiated proceedings under Section 148A. A show-cause notice was issued on 21.03.2023, and after considering the assessee’s reply dated 28.03.2023, a notice under Section 148 was issued on 31.03.2023. The assessee filed a return on 26.04.2023, declaring income of Rs. 62,98,757 under Section 115JB. During the assessment, the AO issued notices under Sections 143(2), 142(1), and 133(6) to verify the purchases, including those from GSTC and five other parties: M/s Tejinder Fabricators, M/s Radhika Enterprises, M/s Garg Trading Co., M/s Aryan International-Delhi, and M/s Akriti Industries, totaling Rs. 4,11,60,437. The AO’s inquiries, supported by the Verification Unit’s reports, led to the assessment order dated 24.01.2024 under Section 147, computing the total income at Rs. 4,73,64,687/- by disallowing purchases deemed bogus. 4 3.1 The AO found that M/s Gauri Shankar Trading Co. (GSTC) was a fraudulent entity with no actual business, based on investigations by the DGGI, GST Intelligence, Delhi Zone, and the Income Tax Department’s Investigation Wing. Rahul Pratap Singh, the proprietor of GSTC, stated on oath that neither he nor his family were associated with GSTC, claiming it was a fake entity created without his knowledge. The AO noted discrepancies in GSTC’s operations, including its registration in 2018, cancellation in the following year, and failure to file income tax returns despite reporting sales of Rs. 2,31,83,49,973/- in FY 2018-19 with minimal purchases. The AO issued a notice under Section 133(6) to Rahul Pratap Singh, which went unanswered, and the Verification Unit confirmed the lack of transactions with the assessee. The AO also observed irregularities in the bill numbers issued by GSTC, which were non-sequential, and concluded that the transportation bills were unreliable. Consequently, the AO disallowed the purchase of Rs. 63,84,522/- from GSTC as bogus. 3.2 For the purchases from the five other parties (M/s Tejinder Fabricators, M/s Radhika Enterprises, M/s Garg Trading Co., M/s Aryan International-Delhi, and M/s Akriti Industries), totaling Rs. 4,11,60,437, the AO issued notices under Section 133(6), which either went unanswered or could not be served due to incorrect or non- existent addresses. The Verification Unit reported that: 5  Raj Kumar of Garg Trading Co. resided at the given address but no business was conducted there;  Gaurav Dhir of Tejinder Fabricators did not reside at the stated address;  Aditya Pupreja of Aryan International-Delhi was unknown at the address,  Rahul Tiwari of Radhika Enterprises was linked to a closed workshop; and  Sanjeev Kumar of Akriti Industries provided an incorrect address. 3.3 The AO noted that these parties were newly registered with GST, did not file income tax returns, and lacked verifiable transactions. The assessee failed to provide confirmations from these suppliers, email correspondence, or daily stock registers, and the AO found the submitted documents (invoices, transport vouchers, and stock ledgers) unsatisfactory. The AO also highlighted that payments through banking channels did not prove genuineness and that the assessee’s transactions with these parties were limited to a short period. Additionally, the AO observed a lower gross profit rate compared to previous years and noted that the audit report did not confirm the maintenance or auditing of a stock register. Based on these findings, the AO disallowed the entire purchase amount of Rs. 4,11,60,437/- as bogus, concluding that the assessee failed to establish the genuineness of these transactions. Consequently, the AO added Rs. 4,75,44,959/- (Rs. 63,84,522/- + Rs. 4,11,60,437/-) to the 6 assessee’s total income, determining it at Rs. 4,73,64,687/- under normal provisions, while retaining Rs. 62,98,757/- under section 115JB. Penalty proceedings under sections 270A, 271B, and 272A(1)(d) were initiated for under-reporting income, failure to file an audit report, and non-compliance with statutory notices, respectively. Interest under sections 234A, 234B, and 234C was also charged. 4. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). The Ld. CIT(A) in the impugned order held as under: 5.1. The facts relevant for the present appeal: 5.1.1. The Appellant is a Private Limited Company engaged in the business of manufacture of steel products. Return of income for A/Y 2019-20 was filed on 30.10.2019 declaring loss of Rs.1,80,272/- under normal provisions and an income of Rs.62,98,757/- as per the provisions of Section 115JB of the Act. The AO was in receipt of information that per investigations carried out by DGGI, GST Intelligence, Delhi Zone and by the Investigation Wing of the Income Tax Department, it was determined that the said concern M/s Gauri Shankar Trading Co. (GSTC) is, allegedly, a fraud concern with no actual business and GSTC was also allegedly, involved in fake billing to provide ITC. It also came to the notice of the AO that the appellant company had made an alleged purchase of Rs.63,84,522/- with GSTC, a Proprietorship concern of Shri Rahul Pratap Singh (RPS). To confirm the above findings, it is pertinent to mention that RPS, the Prop of GSTC, in statement recorded on oath, admitted that neither he nor any of his/her family members were associated with GSTC. Further, he stated that he has no idea about who created his entity and this entity is totally fake. The mobile number and e mail id that was used to create to GST No. for GSTC was never used by him. Upon receipt of the said information, a show cause notice u/s 148A(b) of the Act was issued by the Ld. Assessing Officer on 21.03.2023 to the Appellant Company. In response thereto a reply dated 28.03.2023 was filed by the Appellant Company before the Ld. Assessing Officer. The reply submitted by the Appellant Company was not found tenable by 7 the Assessing Officer who proceeded to pass an order dated 31.03.2023 u/s 148A(d) of the Act. 5.1.2. Thereafter, notice u/s 148 of the Act was issued on 31.03.2023. In response to which, return of income was filed on 26.04.2023 declaring income of Rs. 62,98,757/- as per the provisions of section 115JB of the Act. The notices u/s 143(2) and 142(1) alongwith questionnaires were issued to the Appellant Company from time to time which were responded to, and requisite information/details furnished. 5.1.3. During the course of assessment proceedings, a notice u/s 133(6) were also issued to RPS and also to some of the parties from whom the appellant had allegedly made purchases. As most of these notices were returned un-served and no response was received from the noticees, the matter was referred to the Verification Unit. On the basis of the facts known to the AO, the report received from the verification unit, the AO, after issuing show cause notice and considering the reply filed by the appellant, disallowed the alleged purchase made from GSTC amounting to Rs.63,84,522/- as bogus purchase. In addition, the alleged purchase made from some other parties, the name and detail of which shall be discussed later in this order amounting to Rs.4,11,60,437/- was also disallowed as bogus purchases. 5.1.4. Aggrieved by the above decision of the AO, the assessee is in present appeal. 5.2. Ground No. 1: This ground is general in nature, therefore, it need not be adjudicated separately. 5.3. Ground No. 2: In this ground, the appellant has argued that the very assumption of jurisdiction to reassess without conducting and independent inquiry is bad in law. While making this argument, apparently the appellant has ignored the discretionary power vested in the AO u/s 148A(a) to conduct an inquiry with prior approval of specified authority if he requires to do so, after receipt of information. The argument of the appellant is not maintainable as it is not correct appreciation of law. This ground is dismissed. 5.4. Ground No. 3: 5.4.1. This ground is against the decision of the AO per which he has treated purchases made by the appellant from GSTC amounting to Rs.63,84,522/-, as bogus. 5.4.2. In the paragraph No. 4.6 of the impugned order, which bears the title “conclusion drawn”, the AO instead of giving detailed reasoning as to why the submission made by the appellanton this 8 ground was not accepted, has mentioned that the reason for non acceptance of the reply filed by the appellant has already been discussed in para 4.5 of the impugned order. This para 4.5 (more specifically para 4.5.2) of the impugned order, in turn refers that the detailed finding are discussed in para 2.B.4.1 of the show cause notice. Therefore, to appreciate the reason for treating the alleged purchase as bogus, the finding in para 4.5 has to be read along with the findings given in the show cause notice at part 2.B.4.1. 5.4.3. Para 2.B.4.1 of the impugned order reads as follows- “2.B.4.1As discussed in above paras, during the year under consideration, the assessee has claimed purchases from Rahul Pratap Singh, PAN: DDMPS9057P (GauriShamkar Trading Co.) for Rs.74,82,000/-. However, during the course of various investigations as carried out by DGGI, GST Intelligence, Delhi Zone, RK Puram and investigation carried out by investigation wing of Income Tax Department, it is found that the concern M/s Gauri Shankar Trading Co. is a fraud company with no actual business. During the course of assessment proceedings, notice u/s 133(6) of the Act was issued to Rahul Pratap Singh, PAN: DDMPS9057P and physical verifications are carried out by Verification Unit. The verification report with copy of service of notice, verification report of ITI, copy of Aadhar Card of Mr. Rahul Pratap Singh, copy of reply via email sent by Mr.Rahul Pratap Singh to VU, copy of affidavit and police complaint filed by Mr.Rahul Pratap Singh is submitted before this office. On perusal of the same, it is evident that the party Rahul Pratap Singh, PAN: DDMPS9057P(Gauri Shamkar Trading Co.) has not made any transactions with the assessee. The assessee has submitted that “GSTR Form-1 showing sale of goods to assessee and other parties, GSTR- 3B calculating the net of input tax and output tax. Further who has operated the bank account irrespective the quantum of entries. The Department has not made any efforts to find out the person who is involved in these activities. Without knowing these things how one can claim that Gauri Shankar Trading Co. is a fake company. After all either Rahul Partap Singh is involved or somebody else is involved on the behalf of Rahul Partap Singh. As an assessee, we have right to know this fact keeping in view the matters related with the purchases.” In this regard, it is to mention that the party Rahul Pratap Singh, PAN: DDMPS9057P has clearly submitted his reply that he has not transacted with the assessee. Therefore, the assessee is better knows the better answer as it has taken the entries in its books of accounts. It is very important to mention here that the assessee has 9 submitted transport bills in support of evidence that the purchased goods has been delivered to its address. The details of these bills are tabulated below: In addition to the above, the AO has given details of transaction wise bill no. of different alleged purchases made by the appellant from GSTC in tabular form. Which is at page 25 and 26 of the impugned order. From the perusal of bills issued for alleged purchase transaction, the AO has successfully demonstrated that purchase allegedly effected on subsequent date/occasion bears bill numbers preceding to that of the bill no. issued to the alleged purchases on previous dates. For example, on 29.10.2018, for an alleged purchase the bill bears no. 6637 while for alleged purchase on 24.10.2018, the bill no. is 6697, for another purchase allegedly made on 24.10.2018, the bill no. used 7026. The use of bill in a non serial manner is also evident from alleged purchases effected on other dates. On the basis on the above mentioned findings, the AO at para 4.5.2 of impugned order, concludes that the transportation bills are not found in order in respect of bill no. and date of its issue. However, elsewhere in the imagined order the AO has also doubted the genuineness of the alleged concern and as a corollary doubted the genuineness of the purchases recorded by the appellant from said concern, on the basis of the fact the GSTC was registered with GST only during the year and the GST Number of GSTC was also cancelled in immediate following year. All the recorded alleged purchases were only in month of October 2018, the appellant did not have transaction with GSTC before or after the said month. GSTC despite having substantial recorded sale did not file its' return of Income. All these reasons collectively lead the AO to conclude that GSTC was a paper concern. 5.4.4. It is matter of record that RPS who was proprietor of GSTC had admitted that neither him nor any of his family members were associated with the affairs of M/s Gauri Shankar Trading Company. He had also affirmed during these statements that the above concern was fake. The above averment was one of the reason but not only reason as to why the alleged transaction of purchase reported by the appellant from GSTC was treated as bogus. During the course of assessment proceedings, the appellant had made a request to cross examine of RPS who was the holder of the PAN and GST no. which was being used by GSTC. In this regard, the AO had decided the following- “4.5.1 The submission of the assessee is duly perused but not fully acceptable. The assessee has asked for cross examination with Mr. 10 Rahul Pratap Singh, PAN- DDMPS9057P (claimed by assessee as Prop. Gauri Shankar Trading Co.) who has provided contrary information/evidences against it. In this regard, it is hereby submitted that Mr. Rahul Pratap Singh has submitted his reply during the course of investigation proceedings as well as during the course of assessment proceedings on the same line. As Mr. Rahul Pratap Singh has clearly stated the facts of the case, there is no merit for providing cross examination. In this regard it is to state that the right of cross examination is not an absolute right. International Sales vs. UOI, AIR 1992 (Del) 295). The Hon'ble Supreme Court has also held that the right of hearing does not necessarily include right of cross examination. The right of cross examination must depend upon the circumstances of each case and also on the statute concerned . In State of J&K vs. Bakshi Gulam Mohammad AIR 1967 SC 122). The question whether the assessee is entitled to cross examination is a question which may largely depends on the facts and circumstances of the case (ef. Shyamlal Biri Merchantvs. UOI (1993) 68 ELT 548, 551(All.). In the case of assessee, no such circumstances are warranted as during the course of investigation proceedings in the case of Mr. Rahul Pratap Singh, PAN- DDMPS9057P (claimed by assessee as Prop. Gauri Shankar Trading Co.) as mentioned in the order u/s 148A(d) of the Act, it was found that the assessee is one of the beneficiary of accommodation entries issued by a fake company. It is further informed that the assessee has been identified as a beneficiary not because of any statement provided by any person but based on information collected during the course of search/investigation in the case of Gauri Shankar Trading Co. In view of the above, cross examination of any third party is not warranted in the case of assessee.” 5.4.5. During the course of the present proceedings, the following arguments were made, by the appellant, in support of this ground. These arguments not only address to the concluding reasoning of the AO on the basis of which he has treated the alleged purchases made from GSTC as bogus, but also argues against some of the other findings made by the AO elsewhere in the impugned order:- “3. That NFAC gravely erred in making an addition of Rs. 63,84,522/- by holding that the purchases made from M/s Gauri Shankar Trading Co are bogus. The above ground of appeal challenges the action of the Ld Assessing Officer in making an addition of Rs. 63,84,522/- on account of purchases made from M/s Gauri Shankar Trading Co as, 11 allegedly, bogus. The said action of the Learned Assessing Officer is based on various arguments/evidences/investigations as discussed in the body of the order, including the findings arrived at by various investigating agencies and reliance upon the the statement made by Shri Rahul Pratap Singh (Prop Gauri Shankar Trading Co). In this connection the following submissions are being made for and on behalf of the Appellant Company:- (1) The Appellant is a Private Limited Company engaged in manufacturing steel ingots. The manufacturing process entails melting of scrap and other materials through series of steps in the electric furnace. In this process iron scrap is converted into molten liquid in the furnace at very high temperatures which is then poured in moulds to produce steel ingots of the required shape(s) and size(s). The principal place of business of the Appellant Company is located at Kanganwal Road, Village Jugiana, Ludhiana. Its turnover for the year under consideration stood at Rs. 134.08 crores. (2) The Appellant Company has entered into purchase transaction of Rs. 63,84,522/- with M/s Gauri Shankar Trading Co (PAN : DDMPS9057P), a Proprietary concern of Shri Rahul Pratap Singh during the year ended March 31, 2019. The Appellant Company had purchased iron-scrap from the said party which forms an integral part of its manufacturing process. (3) During the course of proceedings u/s 148A vide show cause notice u/s 148A(b) dated 21.03.2023 and during the assessment proceedings vide notice u/s 142(1) of the Act dated 21.09.2023 respectively, the Ld. Assessing Officer has observed as follows:- (a) During the F.Y 2018-19 the Appellant Company has entered into purchase transactions amounting to Rs. 63,84,522/- with one M/s Gauri Shankar Trading Co (PAN : DDMPS9057P), Proprietorship concern of Shri Rahul Pratap Singh. (b) As per investigations carried out by DGGI, GST Intelligence, Delhi Zone, RK Puram by the Investigation Wing of Income Tax Department, M/s Gauri Shankar Trading Co is a fraud company with no actual business and that it was involved in fake ITC billing. (c) M/s Gauri Shankar Trading Co is filing its Income Tax Return in ITR -1 and is showing no income from business. However, it has reported huge sales in GST return during F.Ys. 2017-18 to 2019-20. During F.Y. 2018-19 it has reported total sales of Rs. 2,31,83,49,973/- with total purchase of just Rs. 9,52,381/-. 12 (d) Upon analysing the Bank account details of the said party it has been gathered that Gauri Shankar Trading Co has only one bank account with Punjab National Bank with account No. 1603000102147418. However, total credit during F.Y. 2018-19 in this account is Rs. 3,17,007/- against total debit of Rs. 3,19,964/-. (e) Summons were issued u/s 131(1A) of the Income-tax Act, 1961 to Shri Rahul Pratap Singh, Prop of Gauri Shankar Trading Co whose statement was recorded on oath. In his statement, Sh Rahul Pratap Singh stated that neither him nor any of his/her family members are associated with Gauri Shankar Trading Co. Further he has stated that he has no idea about who created this entity and that this Company is totally fake. The mobile number and email id that was used to create GST No. for Gauri Shankar Trading Co was never used by him. (f) It is thus, allegedly, clear that Gauri Shankar Treading Co is a fake company issuing bogus bills to beneficiaries. As per GST return data, during the F.Y. 2018-19 the Appellant Company entered into bogus purchases with Gauri Shankar Treading Co for Rs. 63,84,522/-. (4) In response thereto replies dated 28.03.2023 and 29.11.2023 were duly filed during both the proceedings u/s 148A and subsequent assessment proceedings alongwith exhaustive documentary evidence which, however, were not found acceptable by the Ld. Assessing Officer resulting in the impugned addition. (5) At the outset, the allegation of the Department, allegedly, based on investigations carried on by the department along and statement(s) recorded that purchase of Rs. 63,84,522/- from M/s Gauri Shankar Trading Co., a proprietorship concern of Shri Rahul Partap Singh (PAN- DDMPS9057P) is bogus is vehemently denied. (6) In this context and as colloquially understood, bogus purchase would refer to purchases which are merely reflected in the books of accounts but are not backed/supported by actual purchase of goods/materials. It is the humble, yet vehement submission on behalf of the Appellant Company that considering the entire gamut of evidence duly backing the said purchase viewed in the context of the facts and circumstances of the case, no cause exists or even arises to even suggest that the said purchases are bogus. In this connection, a detailed discussion duly supported by documentary evidence is as below. (7) A perusal of copy of Ledger Account of M/s Gauri Shankar 13 Trading Co. in the books of the Appellant Company (enclosed herewith) reveals the following: (a) The Appellant Company has made purchases for the said party in the month of October, 2018 against which payment has been mostly cleared before 2nd November, 2018. (b) The payment has been made through RTGS to the bank account number 10180004880886 with Bandhan Bank (IFSC BDBL0001799) standing in the name of M/s Gauri Shankar Trading Co which name is reflected in the bank statement of the Appellant Company (Copy of Bank Statement is enclosed). (c) The GST number of M/s Gauri Shankar Trading Company has been issued with the PAN of Shri Rahul Pratap Singh. (8) It may be mentioned here that the said PAN and GST number issued in the name of Shri Rahul Partap Singh and/or his proprietorship concern are by themselves evidence of the identity and existence of the said party. It may be mentioned here that the issuance of PAN and GST registration are preceded by a rigorous checking and compliance exercise by the relevant Department(s) and only after satisfying rigorous criteria and stringent compliance requirements do they proceed to process the application further. In that view of the matter when two separate wings of the executive have duly granted registration, the question of the said party being allegedly bogus gets decisively answered in the negative. Moreover, the said Department having duly done their respective verification/due diligence exercise(s) the Appellant Company, dealing with the said party on an arms' length basis, was absolved of any further responsibility in the matter whereby the existence and credibility of the said party stands duly proved beyond doubt. (9) Further, the Appellant Company has received goods, which were integral to its manufacturing process, through transport agencies as per the following bill-wise details: Sr. No. Date Invoice Amount Transporters' Name & Vehicle No. 1 03.10.2018 GST-910 Rs.6,26,095/- R.K. Transport HR-64A-5598 2 24.10.2018 GST-986 Rs.10,26,370/- Amrit Maya Roadways PB-10ES-3062 3 24.10.2018 GST-982 Rs.7,20,535/- Amrit Maya Roadways PB-10BU-4015 4 26.10.2018 GST-994 Rs.8,68,939/- Amrit Maya Roadways PB-10BV-3289 5 25.10.2018 GST-989 Rs.10,33,230/- Amrit Maya Roadways HR-63A-8084 6 26.10.2018 GST-995 Rs.6,37,306/- Amrit Maya Roadways PB-10DH-9609 7 24.10.2018 GST-985 Rs. 8,72,008/- Amrit Maya Roadways PB-10BV-3290 8 29.10.2018 GST-1010 Rs.6,93,274/- Amrit Maya Roadways PB-10CL-9291 9 29.10.2018 GST-1009 Rs. 10,55,978/- Amrit Maya Roadways PB-11AT-8571 14 (10) In this regard copies of invoices, E-Way Bills and Transporter Bills are enclosed herewith as Annexure (11) It needs to be emphasized that the goods were purchased through E-Way Bill which are a necessary ingredient for the movement of goods and are generated digitally on the e-way Bills portal. The E-Way Bills reflect following critical information which by themselves are sufficient and credible proof of the movement of goods and the underlying transaction: a) E-Way Bill No. b) E-Way Bill Date c) Point of origin of goods d) Place of destination of the goods e) Detail of Vehicle(s) in which goods transported f) Name of the consignor (seller) g) Name of the consignee (buyer (12) The e-way bills being generated on the GST portal through a digital interface while being a compliance mechanism also evidence the actual movement of goods. The goods purchased from M/s Gauri Shankar Trading Co are duly recorded in the stock register wherein inward/outward movement of materials in quantity terms is duly recorded. The relevant part of stock register showing the purchases made from Gauri Shankar Trading Co is enclosed. (13) The supply of the said goods is duly reflected in GSTR-2A (details of inward supplies of the Appellant Company) which clearly indicates that the counter-party duly confirms the supply of goods. The reflection of the said amount in GSTR -2A (which is auto generated without any manual intervention) and on the basis of GSTR-1 (i.e. the detail of outward suppliers) of the said party is by itself sufficient credible evidence of the movement and receipt of goods whereby the genuineness of the transaction and eligibility of the Appellant Company to claim input tax credit become evident. (14) The GST Department having allowed credit against such purchase, merely on the basis of statement it cannot be said that the details in GSTR-2A are wrong. Both GSTR-1 and GSTR-2A being auto generated on the GST portal are themselves sufficient evidence of the underlying transactions with no scope for any doubt therein whereby the purchases get duly evidenced and justified. 15 (15) With regard to the Ld. Assessing Officer's averment that as per various investigations carried out by DGGI, GST intelligence, Delhi Zone R.K. Puram and by Investigation Wing of Income Tax Department, Gauri Shankar Trading Co has, allegedly been determined to be a fraud company, allegedly, involved in fake ITC bill, it is submitted that the Appellant Company has used tax paid on purchases from M/s Gauri Shankar Trading Co. as input on the basis of GSTR-2A filed by the said party. (16) Merely on the basis of ITR filed by Gauri Shankar Trading Co showing \"Nil\" income it cannot be established that Gauri Shankar Trading Co is a fake company as sales and purchase must have been considered by Gauri Shankar Trading Co. to determine income. Income is derived by considering the entire scenario of commercial/business operations, wherein even after substantial activity, considering the rigors of business, income might be low or even a loss. (17) As regards the allegation in the bank account number 1603000102147418 with Punjab National Bank total credits are of Rs. 3,17,007/- in the F.Y. 2018-19, it is quite possible, in fact inevitable that M/s Gauri Shankar Trading Co. might be using another bank account which is not in the possession of the Department. As per the information available with the Appellant Company, M/s Gauri Shankar Trading Co. is maintaining a bank account with Bandhan Bank where payments made by the Appellant Company are credited. The Appellant Company has made payments in the current account in the name of Gauri Shankar Trading Co and not in bank account 1603000102147418 which is a savings account in the name of Shri Rahul Partap Singh. (18) In view of the above, since the purchase and subsequent receipt of goods is evidenced by E-Way Bills, goods has been transported through vehicle mentioned in the E-way bill, production has been made against the goods purchased (which are a necessary ingredient of its production process) and sale duly reflected in the accounts merely on the basis of statement of Shri Rahul Pratap Singh it cannot be concluded that all such evidence cannot be relied upon. (19) Shri Rahul Partap Singh proprietor of Gauri Shankar Trading Co. has, allegedly, stated in his statement recorded on oath by Income Tax Department, subsequent to summon issued u/s 131(1A) , that neither him nor any of his family member are associated with Gauri Shankar Trading Co and has, allegedly, even denied to have 16 created the said entity. By using such evasive and diversionary tactics Shri Rahul Partap Singh is clearly getting himself free from his acts and the affairs of Gauri Shanking Trading Co. However the fact remains that M/s Gauri Shankar Trading Co. exists, its bank account is being operated and ITR and GST Return are being filed. This makes it clear that either Shri Rahul Partap Singh or some person acting on his behalf is responsible for the said transactions without which it is impossible to comprehend the manifestation of so many evidences to prove the existence of M/s Gauri Shankar Trading Co. (20) With regard to the said concern having in F/Y 2018-19 reported total sales of Rs. 2,31,83,49,973/-, the same are a matter of record and there is no doubt as to their authenticity and correctness. (21) With regard to the Mobile number and e-mail id that was used to create GST Number for M/s Gauri Shankar Trading Co., allegedly, being never used by him, the Appellant Company is unable to comment since his mobile number and e-mail id is not mentioned in the bill. (22) The Ld. Assessing Officer has not been able to controvert the above argument or to disprove the evidences furnished or to provide any evidence which could show that the evidence on which the Appellant Company has relied are wrong or fraudulent. The various evidences which have been furnished on behalf of the Appellant Company to establish that purchase is genuine has not been denied/rebutted by the Department except the statement of supplier of which the evidentiary value is itself subject to question in the absence of an opportunity for cross-examination. (23) The blanket, yet unwholesome, reliance solely on the statement of Shri Rahul Pratap Singh pales into insignificance in the light of the plethora of evidences and fact including the bills issued by the supplier, delivery made through transport, e-way bill generated and payment made through banking channels in his bank account. Moreover, the basic documents available with the Appellant Company and filed before the Ld. Assessing Officer viz. Purchase Bill, Transport Bill, Payment through Banking Channel, confirmation of supply by way of uploading GSTR-1 by the supplier have not been rebutted by the Department. (24) The balance of equity heavily favours the Appellant Company given the weight, nature and authenticity of the documents furnished when viewed against the evidence of Shri Rahul Pratap Singh which is one sided given the lack of opportunity for cross examination provided to the Appellant Company. 17 (25) The various arguments, specious at best, spelt out by the Ld. Assessing Officer to reject the arguments made on behalf of the Appellant Company are decisively rebutted as follows: (a) With regard to the fact it is not conclusive from the bankstatement of the Appellant Company that payments were actually made into the bank account maintained by Gauri Shankar Trading Co and that the narrations in bank account are not conclusive, it is submitted that the said arguments seek to, rather unsuccessfully at that, the entire functioning of the banking system. It seems incredulous at best that while the narration on bank statements mentions the name of the recipient of the funds and his account number funds could have been remitted to another bank account. If the said argument of the Ld. Assessing Officer were to be even given any credence, the entire functioning of the mammoth banking system, which forms the fulcrum for the entire framework of the economy and commercial transactions would be brought into question. (b) As regards no proof of payments made to transporters, billty/booking receipt given by transporters not mentioning any freight amount being paid to the transporters, no proof attached with respect to weightment slips of Dharam Kanta at the time of delivery, non furnishing of any proof/copy of delivery receipt issued to the supplier, the bility/booking receipt with the transporter not mentioning any detailed address as to from where goods were picked and delivered, it may be noted that while the payments were made in all cases through banking channels and tax deducted at source wherever required, the said information/documentation is only peripheral to determining the genuineness of the entire transaction which itself gets duly authenticated and validated by the extensive documentary evidence otherwise filed. (c) With regard to the mode of contact with M/s Gauri Shankar & Co and record of correspondence, it may be noted that the transactions with said party were finalized on a person to person contact and being not very material, in relation to the aggregate level of its activities, no records were perhaps kept. However, being a promoter-driven or organization, suffice to say, the entire exercise was under their close monitoring and control whereby the fact of absence of any formal e-mails/communication does not carry even a semblance of significance. (d) With regard to documents related to purchase of stock and entry into stock registers being, allegedly, self-serving and capable 18 of being relied upon it may be noted that the stock records being a part of the regular internal control, record-keeping accounts and an integral part of the internal operating eco-system of the Appellant Company, they cannot be brushed away as simply self-serving. This is because the stock records, while an incontrovertible evidence of the receipt and subsequent use of goods have to be viewed in conjunction with the other records viz invoices, e-way bills, transporters bills etc. which when viewed in their entirety leads to the inescapable conclusion that no cause exists or can even be contemplated to deny their authenticity and evidentiary value. (e) The Ld. Assessing Officer has also laid credence on the fact that the supplier (M/s Gauri Shankar Trading Co) has himself denied the fact of carrying out any business transaction whereby it is not possible that the Appellant Company can claim such transactions to have taken place and the importance of looking beyond apparent facts and looking into circumstances surrounding the transactions. The Ld. Assessing has also placed reliance on the decision of Delhi High Court in the case of Sumati Dayal v CIT wherein it was held that Assessing Officer has the authority to look beyond the apparent facts and go deeper to find out the true nature of transaction. (f) By way of rebuttal it may also be submitted that while Shri Rahul Partap |Singh has denied being associated with Gauri Shankar Trading Co., it begs the question as to who is the real owner which the Department has not made any efforts to find out whereby mere reliance on that statement without any effort to unearth the real state of affairs makes the entireexercise hollow. It may be noted that the statement recorded on oath has per se no evidentiary value, more particularly, when no opportunity for cross-examination has been provided. The issue of violation of principles of natural justice consequent upon the denial of the right of cross-examination and its effect on the validity of the instant assessment proceedings are being discussed separately. (g) It may be emphasized that once Department concluded that the said Shri Rahul Partap Singh, the person who has given statement, is not the real person it became its duty bound to unearth//discover out the real Shri Rahul Partap Singh so that it could be concluded that Gauri Shankar Trading Co. is a fake company. (h) In order to further elucidate the matter, it is submitted that the material purchased from M/s Gauri Shankar Trading Co. is not sold as it is but is used as a raw-material in its manufacturing process. The 19 iron scrap purchased from the said party is recorded in the stock register from where it is gradually released for production of steel ingots through Electric Furnace as per the production schedule. The stock register itself reflects purchases not from only M/s Gauri Shankar Trading Co. but also from other parties with the balance remaining as a part of stock as on 31.03.2019 for preparing balance sheet and calculating profit and loss account. (i) In the instant case also, the impugned transactions were carried out by the Appellant Company within the four corners and defined parameters of law. The Assessing Officer, apart from relying on uncorroborated pieces of third party evidences/statements which were not subjected to cross examination by the Appellant Company herein, and the doctrine of apparent not being real (Delhi High Court judgment in the case of Sumati Dayal) has nothing concrete whatsoever to establish a case against the Appellant Company . He has unflinchingly failed to prove, by bringing on record some cogent evidence that the impugned transactions were bogus. The Appellant Company on the other hand has submitted conclusive documentary evidences in support of its claim, which the Assessing Officer has decidedly failed to controvert. (j) The Ld. Assessing Officer has also placed strong reliance, rather unilaterally, on the theory of apparent not being real by relying upon the decisions of the Delhi High Court in the cases of Sumati Dayal vs. CIT. In this connection, it is humbly submitted that, although it is a normal rule governing civil proceedings that a fact can be said to have been established if proved by a preponderance of probabilities or circumstantial evidence, it should be noted that the same comes into prominence only when it is hard to unearth direct evidence or demonstrative proof with respect to a particular fact. Only in a case where the direct evidence is either of questionable quality or which has been effectively countered and negated since no prima - facie evidence is available, is the resort to secondary evidence on the basis of preponderance of probabilities warranted. (k) It may also be mentioned here that while the theory of apparent not being real (preponderance of probabilities) does form a part of legal lexicon, the same has to be applied in a nuanced manner suitably iterated to the facts of any case and only when direct evidence to attest to a certain state of affairs is not available, which is not the situation in the instant case. The doctrine being so far reaching in its approach has to be applied in a selective and an extremely cautious and calibrated manner. Given the voluminous 20 and authenticate data filed on behalf of the Appellant Company, no cause remains, in fact none arises with regard to the transactions entered with M/s Gauri Shankar Trading Co mere suspicion and overlook or override the dominant inescapable factual situation (l) In this connection kind attention is invited to the judgment of Special Bench of Hon'ble Mumbai Income Tax Appellate Tribunal in the case of GTC industries Ltd. v. ACIT [(2017) 164 ITD 1 (Mumbai Trib.) (SB)] wherein the Hon'ble Tribunal has pertinently observed as under: The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favorable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against assessee. (m) In this connection reliance is placed on a decision of the Hon'ble Delhi High Court in the case of Principal Commissioner of Income Tax-12 v Smt Krishna Devi [(2021) 126 taxmann.com 80(Delhi)] the Hon'ble High Court has disregarded the principle of preponderance and has held that evidence produced by the assessee overpowers the principle of preponderance and observed as follows:- \"However, the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behaviour and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent.” In view of the above there is no ground to hold that the given purchases from M/s Gauri Shankar Co are bogus whereby the said addition is not called for and it is prayed for the disposal of this ground in the light of the submissions made above. 5.4.6. I have carefully perused the order of assessment and the submission made by the appellant. The arguments made by the appellant, in support of genuineness of the transactions of purchase, are summed up as follows:- i) The transactions are backed by bills of sale, which bears detail of transportation and details of e way bill issued. Payment against 21 the purchases have been made through banking channel; ii) As per the GST database, the purchases have been reflected to have been made by the appellant, entries in GST return filed by GSTC reflect the purchases made by the appellant and credit for payment of GST also gets reflected for availing ITC. iii) Unilateral statement of Rahul Pratap Singh that he has not conducted any business does not have any evidentiary value on the face of the fact that various compliances to GST law was made by him and payment was also received by him through banking channel. iv) The appellant argues that if Rahul Pratap Singh was not the proprietor there must have been some other person conducting the business in name and style of M/s Gauri Shankar Trading Company. He further adds that it was for the department to find out as to who was conducting the business under the name of M/s Gauri Shankar Trading Company. v) The appellant has also challenged the decision of the AO which is based upon the statement of Rahul Pratap Singh as he was not given opportunity to cross examine the said person, the statement of which is pivotal evidence for the decision of the AO. 5.4.7. The arguments at clause i), ii) and iii) of para 5.4.6 above, suffers from logical fallacy referred to as circulus in probandoorCircular reasoning. In this fallacy, the reasoner (herein the appellant) begins with what they are trying to end with.[Circular reasoning is not a formal logical fallacy, but a pragmatic defect in an argument. In this fallacy, the premises need to be proved the same way as the conclusion. In a normal argument, the premises do not need to be proved. Since in the present argument the premises also need to be proved, the argument does not persuade. There is no reason to accept the premises unless a person already believes the conclusion. In the present lis, the premise of the AO, based upon his findings, is that supplier of the Good namely the GSTC is a fraud concern which is engaged into providing entries relating to ITC claim. Therefore it is concluded by him that the bills of sale issued by it, will be bogus or fraudulent. As the objective of these fraudulent bills is to provide ITC claims to the appellant it has to have all and correct mention of e way bill. The filing of GSTR returns is also mandatory pre requisite to pass on fictitious ITC claim to the appellant. To counter this proposition of the AO, the appellant assumes and argues that the bills are true and correct and therefore the supplier GSTC exist. The conclusions drawn by the AO has been 22 treated as premises by the appellant, therefore in his arguments the correctness of the conclusion drawn by the AO need not be proven. In other words, when the correctness or the authenticity of the bills are in question, the appellant needs to first prove the correctness of the bills by proving inter alia that the actual transaction that is evidenced by the papers had in fact taken place instead of building his argument that the documents relating to transaction is genuine. Further, the appellant herein, fails to prove or establish the person with whom he had transacted. How the order of purchase was placed. If RPS has denied have entered into any transaction with the appellant, it was on the appellant to bring forth the name of person with whom the order was placed and with whom the discussion relating to the transactions were affected. Further it was proven as to where are the godowns of the supplier, what was the point of collection of scrap by the seller, particularly when the office of seller was located at residential cum commercial area. He also fails to adduce the primary documents which can prove that the goods allegedly purchased were actually received by him. The production of stock register does not prove the receipt of good by the appellant particularly in the circumstances where the Auditors of the Accounts of the appellant do not even certify that the appellant has maintained stock register much less any such book was audited by him. In simpler words, when the authenticity of the bills issued by a fraudulent seller (GSTC) is under question the appellant can not build up his whole argument on the basis of the assumption that the bills issued by the fictitious seller are genuine and they in turn persuade the genuineness of the seller. 5.4.8. Let us now examine the argument made by the assessee which has been summarised at clause iv) of para 5.4.6. above. It is settled law that in order to claim an expenditure, the onus of proof lies on the appellant. On the issue relating to onus of proof, it would be profitable to refer to the ratio decided by Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC). The Hon'ble Supreme Court pointed out that on the question of onus law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not andit depends on the facts and circumstances of each case. It was further held that in some cases, the onus may be heavy whereas in others, it may be nominal. Insimilar circumstances in K. Laxmanan v. Thekkayil Padmini & Ors., AIR 2009 SC 951, Hon'ble Supreme Court held \"that when there are suspicious circumstances regarding the execution of the Will, the onus is also on the propounder to explain them to the satisfaction of the Court and only when such responsibility is 23 discharged, the Court would accept the Will as genuine. Even where there are no such pleas, but circumstances give rise to doubt, it is on the propounder to satisfy the conscience of the Court. In such a case, the Court would naturally expect that all legitimate suspicion should be completely removed before the document is accepted as the last Will of the testator.\" In the circumstances of the present case where there are overwhelming evidences and finding by different investigating government agencies that the GSTC was a fraudulent company, merely production of some of the documentary evidences, which in normal course of assessment proceedings are treated to be discharge of onus to prove the genuineness of expenditure may not be treated as discharge of onus and the onus shall not shift to the revenue, as argued by the appellant. The appellant has failed to even bring forth the name of the person or persons with whom he had transacted. Particularly when RPS had categorically denied having entered into any transaction with the appellant. 5.4.9. Let us now direct ourselves to the argument at clause v) of para 5.4.6 above. In this argument the assessee proposes that the denial of cross examination vitiates the process of assessment. It is observed that in deciding that the sale of scrap by GSTC to the appellant as bogus transaction, the AO took support from the fact that the alleged proprietor of M/s GSTC had denied to have any business in trading of scrap. However, the decision of the AO was not solely based upon the statement of RPS. The fact stands admitted by the appellant too. This is apparent from the following relevant extract from the submission made by him on this ground:- \"The above ground of appeal challenges the action of the Ld Assessing Officer in making an addition of Rs. 63,84,522/- on account of purchases made from M/s Gauri Shankar Trading Co as, allegedly, bogus. The said action of the Learned Assessing Officer is based on various arguments/evidences/investigations as discussed in the body of the order, including the findings arrived at by various investigating agencies and reliance upon the the statement made by Shri Rahul Pratap Singh (Prop Gauri Shankar Trading Co).” In this situation, it needs to be examined whether the decision of the AO can be treated as erroneous on the basis of the fact that the opportunity to cross examine was not given to the appellant. As already mentioned in para 5.4.4, the AO is of the opinion that the circumstances of the case did not mandate cross examination of Rahul Pratap Singh for arriving at the decision on this ground. The high court of Calcutta, in the landmark recent case Pr CIT vs. Swati 24 Bajaj [2022] 139 taxmann.com 352 (Calcutta), has reviewed the law on the proposition being argued here. It has after the review of various authorities on subject matter concluded that failure to provide opportunity to cross examine does not, in all fact situations, vitiates the assessment order, particularly when the entire case of the revenue is not based solely on the statement so recorded. To extract from the decision of the Hon'ble High Court:- \"56. In State Bank of Patiala v. S.K. Sharma AIR 1996 SC 1669, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may be a situation where interest of the state or public interest may call for curtailing of rule of audi alteram partem and in such a situation the Court may have to balance public/state interest with the requirements of natural justice and arrive at an appropriate decision. 57. In a very recent decision of the Hon'ble Supreme Court in Chairman, SBI v. M.J. James [Civil Appeal No. 8223 of 2009, dated 16-11-2021] after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural and/or substantive provisions of law embodied the principles of natural justice, their infraction per-se does not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest but 25 also in public interest. Further by referring to the decision in State of Uttar Pradesh v. Sudhir Kumar Singh [2020] SCC Online SC 847, it was held that the \"prejudice\" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant, it should exist as a matter of fact or to be cast upon a definite inference of likelihood of prejudice flowing from the non-observance of natural justice. 58. Therefore, the assessees have to specifically point out as to how they were prejudiced on account of non- furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the \"modus operandi\" adopted and in that process now seek to identify the assessees who have benefited on account of such \"modus operandi\". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. ……. In KishanlalAgarwalla v. Collector of Land Customs AIR 1967 Cal 80, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied. 60. In State of J & K v. Bakshi Ghulam Mohammad AIR 1967 SC 122 the Hon'ble Supreme Court held that the right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. 5.5.2 After having reviewed the position of law as above and also 26 after considering the ratio of Asam Timbers (Supra) and CIT vs Odeon Builders Pvt. Ltd CA No. 9604-9605 of 2018 (SC) the Hon'ble Calcutta High Court decided as follows \"61. Having noted the above legal position, it goes without saying there is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. The investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG.\" \"65. Thus, the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non- furnishing of the investigation report or non production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee.” 5.4.10. In terms of the discussion above, I am of the opinion that the appellant has failed in establishing the genuineness of purchase of scrap from GSTC. Therefore, the purchases amounting to Rs.63,84,522/- is hereby considered to be bogus. 5.5. Ground No. 4: 5.5.1. In this ground, the appellant has challenged the decision of the AO in treating the purchases made from M/s Tejinder Fabricators, Radhika Enterprises, Garg Trading Co., Aryan International Delhi and Akriti Industries amounting in total to Rs.4,11,60,437/- as bogus. 5.5.2. It is matter of record that during the course of assessment proceedings, upon receipt of details of party wise purchases, the AO had issued notice u/s 133(6) to some of the parties. From among the noticee, no reply was received. Under these circumstances, in order to ascertain the existence of these parties, the AO made reference to verification unit (VU). The VU in its report inter aliainformed the following i) Mr. Rajkumar Prop. of M/s Garg Trading Co. resides at the given address. However, the Inspector visiting the premises does not report any business being conducted from that premise. The notice on Shri Rajkumar could only be served after a neighbour made a telephonic call to Shri Rajkumar. No response was received from 27 said person upon service of notice. ii) Mr. Gaurav Dhir, Prop. of M/s Tejinder Fabricators, did not reside at the given address on the date of inquiry. Notice could not be served on him, therefore, the question of receipt of reply to the notice does not arise. iii) Mr. Aditya Pupreja, Prop. of M/s Aryan International – Delhi, the Inspector of VU reports that at the given address no such firm ever existed. Rather, at the said address there was another concern in name and style of Dental Solutions was being run by one Dr. Preeti Gaba. None of the local shop owners had ever heard of Mr. Aditya Pupreja. iv) Mr. Rahul Tiwari owner of M/s Radhika Enterprises, the Inspector of VU reports that at the given address there was a closed workshop and no one in the vicinity knew about Mr. Rahul Tiwari. v) Mr. Sanjeev Kumar Prop. of M/s Akriti Industries, the Inspector of VU reports that the address given was incorrect. Therefore, notice could not be served upon the person. 5.5.3. Based upon the above report and also other investigation undertaken by the AO himself, he enlists the following reason as to why he has treated the alleged purchases made from these parties as bogus. i. The assessee has claimed purchases from the above parties who have not filed return of income for the year under consideration. As the major purchase parties have not filed their return of income for the assessment year under consideration i.e. A.Y. 2019-20, the transaction made by the assessee with these parties are not found to be verifiable. ii. The above mentioned parties have not replied to the notice u/s 133(6) of the Act even after service of the notice through their registered email id. iii. On physical verification from the Verification Unit, these parties were not found at the given / registered address / and not furnished reply (details already furnished in the SCN), iv. The Assessee has not provided Email of these suppliers in spite of the fact that the assessee must have been in possession of the information in view of GST purchases made (where further communication channel required for proper ITC claim based on supplier return). 28 v. Assessee has also not provided any latest dated account confirmation statement from these suppliers confirming the genuineness of the transactions. v. The assessee has majorly claimed purchases out of above parties who have newly registered with GST (registered during the year under consideration only). vi Assessee's submission (including invoices, transport voucher copies, stock ledger) regarding show cause reason 'why the purchases made should not be treated as bogus purchase' found unsatisfactory not only in view of factual observation made in the show cause notice dated 26/12/2023 but also in view of additionalinformation/evidence being discussed after analysis of audit report filed during assessment proceedings which is already mentioned above. vii. It is noticed that the assessee has not engaged with business with these parties regularly but made transactions for a limited period during the year which can be seen from the above table at point no 4.5.2.1.3. viii. The assessee has furnished month wise accumulative stock register and not day wise stock register which shows daily incoming and outgoing of stock. As stated above, in the submitted audit report also, it is seen that Stock Register was not maintained and audited by the Auditor. ix. Payment through banking channel does not prove the genuineness and nature of the transaction, thus, the same is also not acceptable. x. It is also pertinent to mention here that only few transporters and that also common are shown as transporter of these suppliers. xi. Further, the bills issued by the suppliers / claimed by the assessee in respect of its purchases and transportation details mentioned thereon is placed below along with other remarks: xii. The assessee has failed to furnish any documentary evidence, substantiating receipt of material claimed to be purchased from these parties. xiii. The assessee has failed to furnish the details of purchase parties as called for vide notice u/s 142(1) of the Act dated 21/09/2023. The relevant questionnaire is reproduced below:-” 5.5.4. The argument of the appellant in respect of the above ground 29 is as follows “That NFAC gravely erred in making an addition of Rs. 4,11,60,437/- by arbitrarily holding that the purchases made from the following five parties are bogus: (a) M/s Tejinder Fabricators (Prop Gaurav Dhir) - Rs. 25,93,105/ - (b) M/s Radhika Enterprises (Prop Rahul Tiwari) Rs. 15,03,504/ - (c) M/s Garg Trading Co (Prop Raj Kumar) Rs. 1,73,18,821/- (d) M/s Aryan International - Delhi (Prop) Aditya Pupreja) Rs.5,46,167/- (e) M/s Akriti Industries (Prop Sanjeev Kumar) - Rs. 1,91,98,840/- In this connection the following submissions are being made for and on behalf of the Appellant Company: (1) During the course of assessment proceedings notices u/s 133(6) of the Act were issued by the Ld. Assessing Officer to some parties from whom the Appellant Company had made purchases. However, it appears that the following parties did not reply to the same: SNo. Name of the Party PAN Amount of Purchase (Rs) (a) Raj Kumar (Garg Trading Co) AZOPK3790Q 1,98,17,705/- (b) Gaurav Dhir (Tejinder Fabricators) ALBPD2819C 30,59,863/- (c) Aditya Pupreja (Aryan International - Delhi CPXPP0971F 6,42,800/- (d) Rahul Tiwari (Radhika Enterprises) AWFPT5102R 17,72,100/- (e) Sanjeev Kumar Akriti Industries) GJXPK6190R 2,25,93,761/- Total 4,78,86,229/- (2) As per the contents of the assessment order it appears that the matter was also referred to the Verification Unit which apparently carried out a physical verification and found or that these parties did not exist. In addition, the Ld. Assessing Officer has also returned a finding that there is no response from some parties to the notice issued u/s 133(6) or that the notice could not be served on them or that they could not be found at the given address. (3) In view of the same the Ld. Assessing Officer vide show cause notice dated 26.12.2023 asked the Appellant Company to show cause as to why the amount of Rs. 4,78,86,229/- should be disallowed and added to the total income on account of, alleged, non-genuine purchases from the said party. In response thereto exhaustive replies were filed, which were however not found 30 acceptable by the Ld. Assessing Officer , resulting in the impugned addition (4) In this regard the submissions made before the Ld. Assessing Officer are being reiterated and reinforced below. (5) (a) With respect to purchases from the impugned parties the following documents were filed before the Ld. Assessing Officer and are again being enclosed herewith to authenticate the factum of purchases from them: (a) Copy of their Accounts in the books of the Appellant Company reflecting purchases on different dates and also payment made; (b) Copy of Stock Register showing the Goods received. (c) Copy of Production Register showing the use of goods purchased for production. (d) Copy of Bill raised by the various parties (e) Cop of E-Way Bills (f) Copy of Transporters Bills in support of movement of goods so purchased. (g) Copy of GSTR 2A showing purchase made from the various parties (h) Copy of Bank Statement showing the payment made to the various parties (6) In addition in order to justify the genuineness of purchases made by the Appellant Company from various parties, confirmation issued from the bank confirming the payment made through RTGS and showing the Account Number on which payment has been made were also filed before the Ld. Assessing Officer as per the following details:- SNo. Name of the Party whom Purchases made Payment made to through Bank parties Name of the Bank on which payment has been given Account No of the Party to which Account payment given 1. Garg Trading Co HDFC Bank Indusind Bank 201002935332 2. Tejinder Fabricators Punjab National Bank Axis Bank 917020025045935 3. Aryan Punjab National Union Bank of 519501010035982 31 International Bank India 4. Radhika Enterprises HDFC Bank Indusind Bank 201003000367 5. Akriti Industries Punjab National Bank and HDFC Bank Limited Indian Overseas Bank 057602000000601 (7) The Ld. Assessing Officer has relied upon certain parameters and arguments, somewhat conjectural, to bolster his case in favour of the aforesaid addition including the following: (i) Majorly transportation got done through three contractors and some minor irregularities in bills provided by them; (ii) Failure to furnish documentary evidence substantiating receipt of material purchased from the said parties; (iii) Failure to furnish the details as called for vide point No. 10.1 of notice u/s 142(1) dated 21.09.23; (iv) Non-production of confirmation from parties for verification. (v) Fall in the Net Profit /Gross Profit, both absolutely and in terms of rates, in spite of sales having increased. (8) In response to the same, it is submitted that while it is the prerogative of a businessman/concern/entity to manage, plan and run its affairs as it deems fit, it is beyond the purview of an Assessing Officer's remit to step into his/its shoes to view it from the being of commercial expediency/rationality. The fact that major business was conducted only by three transporters was the Appellant Company's thought out decision and to question the same is beyond the remit of the Ld. Assessing Officer and does not impact the determination of taxable income in any manner. Further, the perceived, minor at best, irregularities therein do not in any manner serve to strike at the root of the factum of the transaction or their authenticity. (9) As regards the alleged failure to furnish documentary evidence either justifying the purchases or as required by notice u/s 142(1) dated 21.09.2023 it is submitted that while exhaustive documentation was submitted the questionnaire dated 21.09.2023 was also responded to almost in the entirety, the lapses being only peripheral and, it may be submitted with respect, non consequential in the overall scenario and viewed in terms of the exhaustive documentation filed. (10) In the light thereof while the Appellant Company been diligent and of course serious in its efforts it may be submitted that there has 32 been an abject failure on behalf of the Ld. Assessing Officer in examining and verifying the documentary evidence furnished before him. (11) It may be mentioned here that responding to income tax notices (such as a notice u/s 133(6)) or non-existence at a particular address all factors over which the Appellant Company does not have any control, whereby the said failures/irregularities/inconsistencies cannot be festooned to enlarge the onus cast on it and resultantly latch it with some kind of far- reaching adverse conclusions with potentially serious ramifications. (12) Further, the attempt to link increase in sales with corresponding increases in NP/GP rates ignores the fact of any business operating in a dynamic scenario wherein a large basket of variables (some of which has no or may even notional control) determine the ultimate outcome. In such a situation where economic, political, global, industry, market and a host of other factors guide its operations and their ultimate size and scale and ultimate profits. to assume a certain empirical straight jacketed relationship between sales and profitability would amount to grossly underestimating the dynamics of the situation and accordingly the same cannot be relied upon as a determining factor to arrive at some kind of an adverse decision/conclusion. (13) At the outset it may be emphasized that the Ld. Assessing Officer was duty bound to verify and determine the authenticity of the documents filed/ evidences furnished before arriving at an adverse conclusion particularly given the fact that no bills have established to be fake. It may be also be noted that, given the exhaustive documentary evidence filed including that generated digitally from the online portal and also from the external sources, which authentically and emphatically attests to the fact of purchases, subsequent receipt of goods in the Appellant Company's premises, their being recorded in the stock register and ultimate use , as and when required, in the production process the Ld. Assessing Officer was required to specifically arrive at a finding disputing the same and not merely rely on his own findings, the basis of which being somewhat suspect has also being dealt with separately. Moreover, no opportunity of cross-examination of the said parties was also provided to the Appellant Company. Thus purchases so made which is well recorded in the stock register and production register, cannot be a bogus purchase. 5.5.5. I have carefully perused the reason for disallowance given by the AO in the impugned order and also the submission made by the 33 appellant. Fact remains that the appellant during the course of assessment proceedings could not produced basic documentary evidence such as confirmation from the alleged seller. Filing of confirmation assumes significance in view of the fact that the parties from whom the alleged purchase has been recorded, do not even exist at the given address much less have a premises at which scrap can be bought and stored for it's sale. In few of the cases, the given address is patently incorrect, therefore, the very identity of the seller is under cloud. Consequently, the genuineness of the documents issued by these paper suppliers are questionable. Here again, it is emphasised that the appellant cannot successfully argue existence of the sellers on the basis of the documents issued by those paper concerns. The fallacy in this argument has already been elaborately discussed in para 5.4.7 above. In para 5.4.8 above, the onus of proving the genuineness of an expenditure has also been elaborately discussed. In terms of discussion in those paragraphs and for the reason already discussed above, the purchases from these parties are considered to be bogus. 5.6. Arguments common to ground no 3 and 4: 5.6.1. The appellant in his submission, after making arguments in support of ground no 3 and 4, has made general submission which relates to both the grounds. The appellant has argued that purchases cannot be decided to be bogus only on the strength of information received from other department. And also purchases cannot be decided to be bogus on strength of statement recorded of any person who was not cross examined by the appellant. For these proposition, the appellant has relied on several judicial authorities. To quote from the submission made by the appellant- “(15) In this connection with respect to the Ground Nos. 3 and 4, Your Honour's attention is invited to the following authoritative judicial pronouncements which support its case vehemently. (i) Where Assessing Officer made addition by disallowing expenses on purchases on ground that an information was received from sales tax department that assessee was beneficiary of accommodation entries on account of bogus purchases, since Assessing Officer had not disputed corresponding sales transactions, purchases also could not be bogus and, thus, impugned addition made on account of bogus purchases to be deleted. Principal Commissioner of Income-tax v. Nitin Ramdeoji Lohia [2022] 145 taxmann.com 546 (Bombay) 34 (ii) Section 69 of the Income-tax Act, 1961 - Unexplained investments (Bogus purchase) Assessment year 2009-10 - Where Assessing Officer had not brought any material on record to conclusively establish fact that purchases were bogus, merely relying upon information from Sales Tax Department or fact that parties were not produced Assessing Officer could not have treated purchases as bogus and made addition [In favour of assessee] Geolife Organics v. Assistant Commissioner of Income-tax-23(2), Mumbai [2017] 88 taxmann.com 756 (Mumbai - Trib.) (iii) Merely on suspicion based on information received from sales tax authority, Assessing officer could not make additions on account of bogus purchases without carrying out independent enquiry and affording opportunity to assessee to controvert statements made by seller. Principal Commissioner of Income-tax v. Shapoorji Pallonji & Co. Ltd [2020] 117 taxmann.com 625 (Bombay) (iv) Section 69C of the Income-tax Act, 1961 - Unexplained expenditure (Bogus purchases) Assessee made payments to several suppliers for supply of goods – Assessing Officer made additions under section 69C on account of such payments - Tribunal deleted addition, inter alia, on grounds that Assessing Officer made such additions merely relying on material collected by Sales Tax Department - He relied on submissions of witnesses without offering them for cross examination - There was no independent evidence that assessee's suppliers were not genuine - It was noted that assessee had also pointed out that payments were made through cheques - Whether there was no any error in view of Tribunal, thus, impugned addition under section 69C were correctly deleted - Held, yes Principal Commissioner of Income Tax v. Uni Packs (India) [2019] 108 taxmann.com 454 (Bombay). (v) Where assessee-proprietor, engaged in resale of industrial goods, made payments through banking channels towards certain purchases and furnished evidences in form of delivery challans, purchase bills etc. relating to same, Tribunal was justified in holding that assessee had discharged initial burden or onus of providing details of parties and, thus, case did not fall within ambit of section 69C. Principal Commissioner of Income-tax v. Jagdish Thakkar [2022] 145 taxmann.com 414 (Bombay). 35 (vi) Where in order to establish genuineness of purchase transactions, assessee broughton record name and address of parties, their PAN, TDS deducted, date of bills, details of cheques issued, etc., in such a case, he could not be held responsible for parties not appearing in person and, thus, impugned addition made under section 69C deserved to be deleted. Principal Commissioner of Income-tax, Mumbai v. Chawla Interbild Construction Co. (P.) Ltd [2019] 104 taxmann.com 402 (Bombay) (vii) Where sales supported purchase and payment was made through banks, merely because suppliers had not appeared before Assessing Officer purchase could not be rejected as bogus. Commissioner of Income-tax-1, Mumbai v. Nikunj Eximp Enterprises (P.) Ltd [2013] 35 taxmann.com 384 (Bombay). (viii) Whether on the facts and in the circumstances of the case and in law, Tribunal was justified in holding that provisions of section 69C of the Income Tax Act, 1961 are not applicable in case of bogus purchases or sales where the genuineness of the transaction is not explained or explanation offered by the assessee is not satisfactory and the same is to be treated as income of the assessee ? Whether on the facts and in the circumstances of the case and in law, Tribunal was justifed in holding that in order to prove genuineness of the said purchase transaction even though assessee did not provide any lorry receipts or delivery challans for the delivery of goods and that the same fact is established by the Assessing Officer, then is it mandatory for the Assessing Officer to limit himself to the mere submission and other documents provided by the assessee even though the purchases are non-genuine? Pr. Commissioner Of Income Tax - 13 vs Vaman International [2020] 422 ITR 0520 (Bom) (ix) Where assessee had submitted purchase bills, transportation bills, confirmed copy of accounts and VAT Registration of sellers as also their Income-tax Return and payment was made through cheques, impugned purchases could not be disallowed. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disallowed - Commissioner (Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, 36 thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return -He held that purchases made by appellant was acceptable and disallowance was to be deleted - Tribunal dismissed revenue's appeal - High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings - Whether no substantial question of law arose from impugned order of Tribunal - Held, yes [Para 4] [In favour of assessee]. Commissioner of Income Tax-7, New Delhi v. Odeon Builders (P.) Ltd. [2019] 110 taxmann.com 64 (SC) (x) Section 69C of the Income-tax Act, 1961 - Unexplained expenditure – Assessment year 1996-97 - Assessee was manufacturer of tractor lights - For relevant assessment year, it claimed deduction of payments made to various parties on account of purchase of raw materials - Assessing Officer doubted genuineness of transactions and disallowed assessee's claim in respect of some of parties - On appeal, Commissioner (Appeals) upheld order of Assessing Officer - On second appeal, Tribunal, inter alia, noticed that all payments were made to said parties by account-payee cheques only; that bank statements of said parties showed that cheques issued by assessee had been duly received by those parties in their bank accounts; and that bank accounts of said parties also showed that they were small dealers/job workers and were dealing mainly with assessee - On basis of said findings, Tribunal believed in genuineness of transactions and allowed assessee's claim – Whether since finding of fact arrived at by Tribunal was plausible and based on evidence, it needed no interference - Held, yes. Commissioner of Income-tax v.Hi Lux Automotive (P.) Ltd [2009] 183 Taxman 260 (Delhi) (xi) Assessment year 2004-05 - During relevant assessment year, assessee had purchased sand from 'S' on different dates - Assessing Officer issued notice to 'S' under section 133(6) which returned back with remarks 'not known' - Assessing Officer, thus, disallowed assessee's claim on ground that it had failed to file confirmation from concerned person in support of its purchases - It was seen from records that after issuing notice to 'S', 37 Assessing Officer did not take any steps to procure his presence - On other hand, assessee had filed a certificate from bank indicating fact that cheques issued by it in favour of 'S' were duly cleared - Whether on facts, it could be concluded that assessee had received goods from 'S' and credit balance in shape of sundry credit appearing in books of account was not unaccounted money of assessee - Held, yes - Whether, therefore, impugned addition made by Assessing Officer was to be deleted - Held, yes Cheil India (P.) Ltd. v .Income-tax Officer, Word 3(3), New Delhi [2016] 68 taxmann.com 410 (Delhi - Trib.) (xiv) Where purchases made by assessee-trader were duly supported by bills and payments were made by account payee cheque, seller also confirmed transaction and there was no evidence to show that amount was recycled back to assessee, Assessing Officer was not justified in treating said purchases as bogus under section 69C: SLP dismissed. (xvi) In absence of any direct evidence showing non - genuineness of purchases, addition made on account of bogus purchases by merely relying on statements of third parties recorded under survey proceedings, was not sustainable. Cannon Industries (P.) Ltd. v. Deputy Commissioner of Income-tax [2015] 59 taxmann.com 65 (Mumbai - Trib.) 5.6.2. On careful perusal of the impugned order, it is but obvious that the decision of the AO is not based only upon the finding of third parties. It is matter of record that the AO had, on his own, conducted enquiries, the finding of which was corroborated by the findings of the other investigation agencies. Similarly, the decision that the above mentioned transactions are bogus purchases is not merely based upon statement of one person. Therefore the case laws relied upon by the appellant where it was decided that no addition on account of bogus purchases is warranted are distinguishable. 5.6.3. The next common argument made by the assessee relates to the manner in which the addition/disallowances are to be made consequent to the finding that purchases are bogus. The argument of the appellant can best be appreciated from para 14 of his submission, which reads as follows: 38 “(14) In addition, the Ld Assessing Officer has without rejecting the books of accounts or disturbing the trading results and without questioning the authenticity of sales, has rather illogically and in a manner largely unfair to the Appellant Company proceeded to make an addition for the amount of purchases only which has resulted in a double addition. It may be noted that the goods purchased, which have been disputed here have been used in the production process whereby ultimately they get embedded in the income side as sales. Accordingly, an addition, per-se of purchases has resulted in an extreme injustice to the Appellant Company since the corresponding income side retains its status ab-initio. 5.6.4. In his submission the appellant has also relied upon some of the authorities who have decided the manner in which the disallowances or additions may be made in event of finding of bogus purchases, where the sale have not been doubted. “(xii) Where Assessing Officer treated purchases made byassessee as bogus and made addition in respect of same, since assessee had maintained inventory of stock and payments for such purchases were made by account payee cheques and tax invoices were obtained, such purchases could not be rejected and addition to be restricted to extent of profit element Principal Commissioner of Income-tax v. Tirupati Earth Neerprima JV [2023] 154 taxmann.com 197 (Bombay) (xv) Section 69C of the Income-tax Act, 1961 - Unexplained expenditure (Bogus purchases) - Assessment year 2010-11 - Where Assessing Officer had accepted sales corresponding to bogus purchases, addition of 5 per cent of alleged bogus purchases was made to income of assessee. Income-tax Officer 24(1)(4) v. Deepak Khusaldas Mehta [2017] 83 taxmann.com 63 (Mumbai - Trib.) (xvii) Factum of bogus purchase established - Sales accepted, no reason to reject purchases - Purchase cannot be rejected without disturbing the sales - CIT(A) added 10% of purchase amount - ITAT - Tax only on the basis of difference in the GP rates - Assessee cannot be punished since sale price is accepted by the revenue Order of ITAT upheld. PCIT Vs. M/s Mohommad Haji Adam & Co. [ITA No. 1004 of 2016] High Court of Bombay-\" 5.6.5. The question as to what amount should be added or disallowed, after it has been decided that some of the purchases are bogus, has been subject matter of judicial review. At one hand 39 there is authority of N.K. Industries Ltd. v. Dy. CIT [2016] 72 taxmann.com289, wherein the Gujarat High Court found that as entire purchases of Rs.2,92,93,288/- shown on the basis of fictitious invoices had been debited in the trading account and Tribunal had once come to a categorical finding that the amount of Rs.2,92,93,288/- represented alleged purchases from bogus suppliers, it was not incumbent on it to restrict the disallowance to only Rs.73,23,322/-, being 25% of such bogus purchases. However, while deciding so, on the facts of that case the Hon'ble high Court was not concerned with the effect of disallowance of the purchases on the sales and/or on the closing stock declared by the assessee and accepted by the revenue. On the other hand, various judicial authorities in cases decided subsequently, have concerned themselves with the question of quantum of addition in event of the finding of the bogus purchases when the sales of the assesseehas not been doubted. The decision of Hon'ble ITAT Ahmadabad in ITO vs. Balajay Infrastructure Pvt. LtdI.T.A. No. 290/Ahd/2017 delivered on 18.10.2023 is worth referring to on the basis of near identity in the facts and circumstances of the present lis. Facts of that case was recorded by ITAT at para 3 of the order- \"3. The facts of the case are that the A.O. had received the information from Investigation Wing that it had conducted a search in the case of M/s. Tricon Construction on 5.12.2012. M/s. Tricon Construction had obtained bogus bills for material and labour. The Investigation Wing had identified bogus billers and these bogus billers had admitted under the oath that they had not rendered any actual service or supply of goods against the payment received. The bogus billers had also admitted that they had withdrawn the cash and returned the same to the payers after deducting their commission........Apart from the above referred two bogus billers the A.O. further identified two more persons likely to be bogus billers because of design of bills issued by them to the assessee. They were namely Bhavi Enterprise and Harsh Enterprise. An enquiry was conducted by the A.O. through the Inspector which resulted into the finding that no such parties were available at the given address or were existing.......In response the assessee submitted that it had undertaken the work and the payments have been made only through account payee cheques. However, on failure of the appellant as well as the four persons mentioned above as bogus billers to attend as well as non-verification of their address the A.O. concluded that the appellant was not able to discharge its onus........Therefore, the amount of Rs. 2,26,77,928/- i.e. quantum of 40 billing done by these four persons were added back to the income of the appellant by the A. O..” Under the above stated facts which is identical to the present lis, the following was decided. “9. In the case of Madhukant B. Gandhi v. ITO [IT Appeal No. 1950 (Mum.) of 2009, dated 23-2-2010, where on the basis of statements of alleged suppliers it was found that no supplies were made to the assessee, it was held that purchases were bogus but on the presentation of quantitative tally of the opening stock, purchases, sales and closing stock, it was further held that \"unless some purchases are made there cannot be corresponding sale\" and, therefore, application of higher net profit rate of 5%, in a manner similar to Section 44AF, could be justified. In CIT v. Premkumar B. Rathi [2015] 59 taxmann.com 203/232 Taxman 638/377 ITR 447 (Guj.), the assessee, who was dealing in edible oils, on semi-whole sale basis, failed to prove the genuineness of purchases of Rs.2 crores (approx..) made from five parties. The AO made addition of 25% of such unexplained purchases which was reduced to 10% by the Tribunal. Even though, the High Court did not approve non-speaking order passed by the Tribunal, it confirmed the Tribunal's order on net profit rate on the ground that GP rate declared that year was better than earlier years. It may be noted that in this case the AO himself did not make addition of entire bogus purchases but restricted himself to a percentage thereof. The Hon'ble Gujarat High Court followed its own decision in CIT v. Simit P. Sheth [2013] 38 taxmann.com 385/219 Taxman 85 (Mag.)/356 ITR 451, wherepurchases were not found to be bogus but were made from parties other than those mentioned in books of account, it was held that not entire purchase price but only profit element embedded in such purchases could be added to income of assessee. Similar view was taken by Hon'ble Gujarat High Court in Pr. CIT v. Jagdish H Patel[2017] 84 taxmann.com 259, on the basis of fact that if entire bogus purchases are added to the profit, then gross profit margin would be worked out to 100.18 per cent. Therefore, entire lot of purchases could not be treated as bogus. In Vijay Trading Co. v. ITO [2016] 76 taxmann.com 366/388 ITR 377 (Guj.), assessee was not able to prove the genuineness of certain purchases to the satisfaction of the AO, entire amount of such purchases was added as income. The Tribunal confirmed the order of the AO. It was held by the Hon'ble High Court that not the entire amount covered under such purchases, but the profit element embedded therein would be subject to tax. Hence, 25% of the cost of such purchases was held as 41 income. Similarly, in CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 40 taxmann.com 494 / [2014] 220 Taxman 82 (Mag.)/355 ITR 290 (Guj.) it was held on facts that the Tribunal found that, though purchases were made from bogus parties, but purchases themselves were not bogus as entire quantity of stock was sold by assessee, therefore, that only profit margin embedded in such purchases would be subjected to tax and not entire purchases. 10. Accordingly, looking into the facts of the instant case and judicial precedents on the subject, which have held that in case of bogus purchases, if the sale is not in doubt, then only the profit element embedded in such purchases may be subject to tax in the hands the assessee. In the result, looking into the facts of the instant case, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference.” 5.6.6. Similar view was also taken by Hon'ble Bombay High Court, in the recent case, of Pr. CIT vs. Vishwashakti Construction (2023) 454 ITR 448 (Bom)(HC), decided on 7th October 2023, it was held that, even if the assessee failed to produce parties for verification, the Assessing Officer could not have treated entire purchases as bogus purchases; only the profit element embedded in such purchases to be considered for addition. The Calcutta high Court in the case of Principal Commissioner Of Income Tax vs M/S. Bardhaman Dharmaraj Paper Mill ITAT/207/2023 decided on 3 January, 2024 was inter alia was concerned with adjudication of the issue and it came to similar finding- \"8. In the present case, as noted above, the assessee was a trader of fabrics. The A.O. found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sales declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in case of a trader. The Tribunal, 42 therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases.” In deciding so the Hon'ble High Court of Calcutta also referred to the finding of N. K. Proteins Ltd. vs. DCIT. And found that in the given facts the above decision is not in variance with the decision of N. K. Proteins. Under similar fact situation in the case of Simit P. Sheth [2013] 38 taxmann.com 385 (Gujarat), in which the assessee was engaged in business of trading in steel on wholesale basis. The Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus. He, accordingly, added entire amount of purchases to gross profit of assessee. The Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 per cent of purchase cost as probable profit of assessee. The Tribunal however, sustained addition to extent of 12.5 per cent. The High Court held that since purchases were not bogus but were made from parties other than those mentioned in books of account, only profit element embedded in such purchases could be added to assessee’s income. Accordingly, the High Court sustained the addition to the extent of 12.5% of the bogus purchases. In the case of Pooja Paper Trading Co (P.) Ltd. 104 taxmann.com 95 (Bombay), the assessee, trading in paper and paper products, found indulging in hawala business without actual transaction. The AO disallowed entire purchases of Rs.4.17 Crores under Section 69C. The CIT(A) applied GP rate of 3.67% on bogus purchases, whereas the Tribunal enhanced the disallowance to 12.5% of bogus purchases. 5.6.7. The AO has, in the impugned order discussed as to how the assessee has not maintained Stock register, along with other reasons, based upon this finding he has treated the purchases made from the above mentioned paper parties as Bogus Purchase. The AO has also successfully demonstrated that GP in the assessment year is low as compared to immediately preceding years. However he has neither questioned the figure of Sale recorded by the Appellant nor he has disturbed the valuation of Stock at the end of the year as reflected in the Financial Account. The AO despite having all the above information has not rejected the books of account. If the purchases are entirely fictitious, then addition of entire expenses shown as purchases may be added only after successfully demonstrating as to what will be it's impact on the 43 reported sale of the closing stock. This AO has not given any finding to this effect. Therefore, following the decision of more recent authorities, discussed above, and considering the low GP rate reported by the assessee in the present year, I consider it fair to disallow 12.5% of the Value of bogus Purchase as GP rate addition. In terms of the discussion above disallowance is being restricted to 12.5% of Rs.4,73,64,687/-, (which is Rs.63,84,522/- disallowed as bogus purchase from GSTC and Rs.4,11,60,437/- disallowed as bogus purchase from 5 different parties) The addition of Rs.59,20,585/- is being upheld. As a result the ground no 3 and 4 are partly allowed. 5.7. Ground No. 5. 5.7.1. In this ground, the appellant has claimed that the impugned order is bad in law as principle of natural justice were grossly violated. 5.7.2. The submission filed by the appellant has carefully been perused. It is not the case of the appellant that he was not given sufficient opportunity to reply to the notices issued by the department. It is also not the case of the appellant that sufficient number of notices were not issued to him. The violation of the natural justice is being argued by the appellant only on account of the fact that the appellant was not offered an opportunity to cross examine Mr. RPS who was prop. of GSTC. In my opinion, this argument has already been dealt by me in para 5.4.9 of this order. More specifically the ratio of Hon'ble Supreme Court in Chairman, SBI v. M.J. James [Civil Appeal No. 8223 of 2009, dated 16-11-2021] is being referred to dismiss this ground of appeal. 6. In the result, the appeal is partly allowed. 5. Against the order of the Ld. CIT(A) the assessee preferred the appeal before the Tribunal. 6. During the course of the hearing, the learned counsel for the assessee argued each ground individually. 7. Regarding Ground No. 1 Ld. Counsel for the Assessee point wise argued that – 44 A. Suo-moto reliance on the information flagged on the insight portal. (i) The Ld. Counsel for the Assessee submitted that the Assessing Officer has placed suo-moto and blanket reliance on the information flagged on the insight portal with respect to transactions carried out with one Shri Rahul Pratap Singh (Prop Gauri Shankar Trading Co). (ii) Ld. Counsel for the Assessee submitted that the Assessing Officer has merely relied on the information disseminated on the Insight Portal without conducting any enquiry with respect thereto or even analyzing the same to determine its link and applicability to the Appellant Company. The mere receipt of information from the Investigation Wing/GST Department has led to a conclusion as to income having escaped assessment without establishing or even attempting to establish any link between the said information and the failure of income having escaped assessment in the case of the Appellant Company. B. Notice u/s 148 issued by the jurisdictional Assessing Officer and assessment framed by the National Faceless Assessment Centre. (i). Ld. Counsel for the Assessee submitted that Notice under section 148A(b) of the Act dated 21.03.2023 has been issued by the Jurisdictional Assessing Officer which is in contravention with the 45 provisions of section 151A of the Act. The scheme of section 151A is clear and categorical that notice under Section 148 of the Act shall be issued through \"automated allocation\" and in a faceless manner. The term \"automated allocation\" is defined to mean random allocation of cases to Assessing Officers which by itself precludes the jurisdictional Assessing Officer. (ii). Reference is made to the decision of the Hon'ble Bombay High Court in Hexaware Technologies Ltd. vs. ACIT [(2024) 464 ITR 430(Mumbai)] wherein the relevant observations of the Court are as follows: \"(v) The Revenue has wrongly contended in paragraph 3.1 of the Office Memorandum that \"Therefore, whether JAO or NFAC should issue such notice is decided by administration keeping in mind the end result of natural justice to the assessees as well as completion of required procedure in a reasonable time.\" In our opinion, there is no such power given to the administration under either Section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme. (vi) In paragraph 3.3 of the Office Memorandum, it is again erroneously stated that \"Here it is pertinent to note that the said notification does not state whether the notices to be issued by the NFAC or the Jurisdictional Assessing Officer (\"JAO\") ........ It states that issuance of notice under section 148 of the Act shall be through automated allocation in accordance with the risk management strategy and that the assessment shall be in faceless manner to the extent provided in section 144B of the Act.\" The Scheme is categoric as stated aforesaid that the notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. The Scheme clearly provides that the notice under Section 148 of the Act is required to be issued by NFAC and not the JAO\" (iii). In connection with the above, our attention was also invited to the following case laws wherein the above view has been clearly affirmed: -  Jasjit Singh v. Union of India: [(2024) 165 taxmann.com 114 (Punjab and Haryana)]; 46  Jatinder Singh Bhangu v. Union of India: [(2024) 165 taxmann.com 115 (Punjab and Haryana)];  Kankanala Ravindra Reddy vs. ITO [(2023) 156taxmann.com 178 (Telangana)];  Ram Narayan Sah vs. Union of India [(2024) 163 taxmann.com 478 (Gauhati)];  Royal Bitumen (P.) Ltd. v. ACIT [(2024) 164 taxamnn.com 606 (Bombay)];  Pravina Jagdish Patel v. ITO [(2024) 164 taxmann.com 659 (Bombay)];  Venus Jewels vs. ACIT: [(2024) 164 taxmann.com 414 (Bombay)];  Paras Mahendra Shah vs. NFAC [W.P. 3148/2024) (Bombay)];  L & T Finance Ltd vs. Asstt. CIT: [(2024) 165 taxmann.com 331 (Bom)];  Swarn Singh v. ITO [(2024) 163 taxmann.com 745 (Amritsar -Trib)] 8. Regarding Ground No. 2 Ld. Counsel for the Assessee argued that restricting the addition on account of purchases to Rs. 59,20,585/- (being 12.50% of the purchases of Rs. 63,84,522/- made from M/s Gauri Shankar Trading Co and Rs. 4,11,60,437/- from the five parties viz. M/s Tejinder Fabricators (Prop Gaurav Dhir) -Rs. 25,93,105/- ; M/s Radhika Enterprises (Prop Rahul Tiwari) Rs. 15,03,504/-; M/s Garg Trading Co (Prop Raj Kumar) Rs. 1,73,18,821/-; M/s Aryan International - Delhi (Prop) Aditya Pupreja) Rs. 5,46,167/- and M/s Akriti Industries (Prop Sanjeev Kumar) - Rs. 1,91,98,840/- as being allegedly bogus. A. Addition on account of Purchases from M/s Gauri Shankar Trading Co. (i) Ld. Counsel for the Assessee submitted that the assessee Company engaged in the business of manufacture of steel products had filed its Return of income for A/Y 2019-20 on 30.10.2019 declaring 47 loss of Rs. 1,80,272/-under normal provisions and an income of Rs. 62,98,757/- as per the provisions of Section 115JBof the Act. (ii) Ld. Counsel for the Assessee the Assessing Officer was in receipt of information from the Insight Portal regarding purchase transactions of Rs. 63,84,522/- with M/s Gauri Shankar Trading Co, (a Proprietorship concern of Shri Rahul Pratap Singh) which is, allegedly, a fraud company with no actual business and was also, allegedly, involved in fake ITC billing. (iii) It was further submitted by the Ld. Counsel for the Assessee that As per the Assessing Officer summons were issued u/s 131(1 A) of the Act to Shri Rahul Pratap Singh, Prop of Gauri Shankar Trading Co,. In his statement recorded on oath Sh. Rahul Pratap Singh, allegedly, stated that - (a) neither him nor any of his/her family members are associated with Gauri Shankar Trading Co.; (b) he has no idea about who created his entity and this company is totally fake; (c) the mobile number and e-mail id that was used to create to GST No. for M/s Gauri Shankar Trading Co. was never used by him. (iv) On the basis of the said information, a notice u/s 148A(b) of the Act was issued by the Assessing Officer on 21.03.2023. In response to 48 the same, the Appellant Company filed a reply dated 28.03.2023. Being not satisfied with the reply the Assessing Officer passed an order dated 31.03.2023 u/s 148A(d)of the Act after obtaining prior approval of the Principal Commissioner of Income Tax, Ludhiana and issued notice u/s 148. (v) In response to the notice u/s 148, the Appellant Company filed a return of income on 26.04.2023declaring income of Rs. 62,98,757/- as per the provisions of section 115JB of the Act. (vi) The (re)assessment proceedings were subsequently taken up and notices u/s 143(2) and 142(1) alongwith questionnaires were issued to the Appellant Company from time to time which were responded to, and requisite information/details furnished (vii) The Appellant Company had purchased iron-scrap (which forms an integral part of its manufacturing process) of Rs. 63,84,522/- from M/s Gauri Shankar Trading Co (PAN : DDMPS9057P), a Proprietary concern of Shri Rahul Pratap Singh during the year ended March 31, 2019. (viii) During the course of assessment proceedings, notice u/s 133(6) notice was also issued to Shri Rahul Pratap Singh (PAN DDMPS9057P) and the matter was also referred to the Verification Unit. On the basis of the same, the fact that the GST number of Shri Rahul Pratap Singh has been cancelled and some other allegedly adverse findings, the 49 Assessing Officer issued a show cause notice dated 26.12.2023asking the Appellant Company to show cause as to why a proposed variation of Rs. 74,82,000/- with regard to purchases from the said party be not made. (ix) The main thrust and substance of the arguments of the Assessee Company are as follows:- (a) A perusal of copy of Ledger Account of M/s Gauri Shankar Trading Co. in the books of the Assessee Company filed during both the assessment and first appellate proceedings reveals the following:-  The Assessee Company has made purchases from the said party in the monthof October, 2018 against which payment has been mostly cleared before 2ndNovember, 2018.  The payment has been made through RTGS to the bank account number10180004880886 with Bandhan Bank (IFSC BDBL0001799) standing in thename of M/s Gauri Shankar Trading Co which name is reflected in the bankstatement of the Appellant Company (Copy of Bank Statement isenclosed.  The GST number of M/s Gauri Shankar Trading Company has been issued withthe PAN of Shri Rahul Pratap Singh. (b). The Assessee Company has received goods, which were integral to its manufacturing process, through transport agencies as per the following bill-wise details: - 50 Sr. No. Date Invoice Amount Transporters' Name & Vehicle No. 1 03.10.2018 GST-910 Rs.6,26,095/- R.K. Transport HR-64A-5598 2 24.10.2018 GST-986 Rs.10,26,370/- Amrit Maya Roadways PB-10ES-3062 3 24.10.2018 GST-982 Rs.7,20,535/- Amrit Maya Roadways PB-10BU-4015 4 26.10.2018 GST-994 Rs.8,68,939/- Amrit Maya Roadways PB-10BV-3289 5 25.10.2018 GST-989 Rs.10,33,230/- Amrit Maya Roadways HR-63A-8084 6 26.10.2018 GST-995 Rs.6,37,306/- Amrit Maya Roadways PB-10DH-9609 7 24.10.2018 GST-985 Rs.8,72,008/- Amrit Maya Roadways PB-10BV-3290 8 29.10.2018 GST-1010 Rs.6,93,274/- Amrit Maya Roadways PB-10CL-9291 9 29.10.2018 GST-1009 Rs.10.55,978/ - Amrit Maya Roadways PB-11AT-8571 (c). In this regard copies of invoices, E-Way Bills and Transporter Billswere duly filed. The E-Way Bills reflect following critical information which by themselves are sufficient and credible proof of the movement of goods and the underlying transaction:- i) E-Way Bill No. ii) E-Way Bill Date iii) Point of origin of goods iv) Place of destination of the goods v) Detail of Vehicle(s) in which goods transported vi) Name of the consignor (seller) vii) Name of the consignee (buyer) (d) The e-way bills being generated on the GST portal through a digital interface while being a compliance mechanism also evidence the actual movement of goods. The goods purchased 51 from M/s Gauri Shankar Trading Co are duly recorded in the stock register wherein inward/outward movement of materials in quantity terms is duly recorded. (e) The supply of the said goods is duly reflected in GSTR-2A (details of inward supplies of the Appellant Company) which clearly indicates that the counter-party duly confirms the supply of goods. The reflection of the said amount in GSTR -2A (which is auto- generated without any manual intervention) by itself sufficient credible evidence of the movement and receipt of goods (i.e. purchases) whereby the genuineness of the transaction and eligibility of the Appellant Company to claim input tax credit become evident. (f) Accordingly, merely on the basis of the statement of an external party it cannot be said that the details in GSTR-2A are wrong. (g) In view of the above, since the purchase and subsequent receipt of goods is evidenced by E-Way Bills, goods has been transported through vehicle mentioned inthe E-way bill, production has been made against the goods purchased (which are a necessary ingredient of its production process) and sale duly reflected in the accounts merely on the basis of statement of Shri Rahul Pratap Singh it cannot be concluded that all such evidence cannot be relied upon. 52 (h) The statement of Shri Rahul Partap Singh proprietor of Gauri Shankar TradingCo. recorded on oath subsequent to summons issued u/s 131(1 A), that neither himnor any of his family member are associated with Gauri Shankar Trading Co and has,allegedly, even denied to have created the said entity are merely evasive anddiversionary tactics for getting himself free from his acts and the affairs of GauriShanking Trading Co. The fact remains that M/s Gauri Shankar Trading Co. exists, itsbank account is being operated and ITR and GST Return are being filed. This makes it clear that either Shri Rahul Partap Singh or some person acting on his behalf isresponsible for the said transactions without which it is impossible to comprehend themanifestation of so many evidences to prove the existence of M/s Gauri ShankarTrading Co. (i) With regard to the said concern having in F/Y 2018-19 reported total sales ofRs. 2,31,83,49,973/-, the same are a matter of record and there is no doubt as to theirauthenticity and correctness. (j) With regard to the Mobile number and e-mail id that was used to create GST Number for M/s Gauri Shankar Trading Co., allegedly, being never used by him, the Appellant Company is unable to comment since his mobile number and e-mail id is not mentioned in the bill. 53 9. Ld. Counsel for the Assessee submitted that the replies dated 28.03.2023 and 29.11.2023 filed during both the proceedings u/s 148A and assessment proceedings u/s 143(3) alongwith exhaustive documentary evidence and the reply dt. 11.01.2024 to the show cause notice were not found acceptable by the Assessing Officer resulting in the impugned addition. 10. The main thrust of the arguments of the Assessing Officer are as follows: - (a) As per investigations carried out by DGGI, GST Intelligence, Delhi Zone, RK Puram by the Investigation Wing of Income Tax Department, M/s Gauri Shankar Trading Co is a fraud company with no actual business and that it was involved in fake ITC billing. (b) M/s Gauri Shankar Trading Co is filing its Income Tax Return in ITR -1 and is showing no income from business. However, it has reported huge sales in GST return during F.Ys. 2017-18 to 2019-20. During F.Y. 2018-19 it has reported total sales of Rs. 2,31,83,49,973/- with total purchase of just Rs. 9,52,381/-. (c) Upon analysing the Bank account details of the said party, it has been gathered that Gauri Shankar Trading Co has only one bank account with Punjab National Bank with account No. 54 1603000102147418. However, total credit during F.Y. 2018-19 in this account is Rs. 3,17,007/- against total debit of Rs. 3,19,964/-. (d) Summons were issued u/s 131(1 A) of the Income-tax Act, 1961 to Shri Rahul Pratap Singh, Prop of Gauri Shankar Trading Co whose statement was recorded on oath. In his statement, Sh Rahul Pratap Singh stated that neither him nor any of his/her family members are associated with Gauri Shankar Trading Co. Further he has stated that he has no idea about who created this entity and that this Company is totally fake. The mobile number and email id that was used to create GST No. for Gauri Shankar Trading Co was never used by him. (e) It is thus, allegedly, clear that Gauri Shankar Treading Co is a fake company issuing bogus bills to beneficiaries. As per GST return data, during the F.Y. 2018-19 the Appellant Company entered into bogus purchases with Gauri Shankar Treading Co for Rs. 63,84,522/-. 11. The Assessing Officer has not been able to controvert the above argument furnished on behalf of the Appellant Company or to disprove the evidences furnished or to provide any evidence which could show that the evidence on which the Appellant Company has relied arewrong or fraudulent. The various evidences which have been furnished on behalf of the Appellant Company to establish that purchase is genuine has not been denied/rebutted by the Department except for the unilateral reliance on the statement 55 of a supplier of which the evidentiary value is itself subject to question in the absence of an opportunity for cross-examination. 12. The blanket, yet unwholesome, reliance solely on the statement of Shri Rahul Pratap Singh pales into insignificance in the light of the plethora of evidences and fact including the bills issued by the supplier, delivery made through transport, e-way bill generated and payment made through banking channels in his bank account. Moreover, the basic documents available with the Appellant Company and filed before the Assessing Officer viz. Purchase Bill, Transport Bill, Payment through Banking Channel, confirmation of supply by way of uploading GSTR-1 by the supplier have not been rebutted by the Department. 13. The balance of equity heavily favours the Appellant Company given the weight, nature and authenticity of the documents furnished when viewed against the evidence of Shri Rahul Pratap Singh which is one sided given the lack of opportunity for cross- examination provided to the Appellant Company. B. Addition of Rs. 4,11,60,437/- by holding that the purchases made from the following five parties are bogus: - (a) M/s Tejinder Fabricators (Prop Gaurav Dhir) - Rs. 25,93,105/- (b) M/s Radhika Enterprises (Prop Rahul Tiwari) Rs. 15,03,504/- (c) M/s Garg Trading Co (Prop Raj Kumar) Rs. 1,73,18,821/- 56 (d) M/s Aryan International - Delhi (Prop) Aditya Pupreja) Rs. 5,46,167/- (e) M/s Akriti Industries (Prop Sanjeev Kumar) - Rs. 1,91,98,840/- (i). During the course of assessment proceedings notices u/s 133(6) of the Act were issued by the Assessing Officer to some parties from whom the Appellant Company had made purchases. However, it appears that the following parties did not reply to the same. S No. Name of the Party PAN Amount of Purchase (Rs) (a) Raj Kumar (Garg Trading Co) AZOPK3790Q 1,98.17,705/- (b) Gaurav Dhir (Tejinder Fabricators) ALBPD2819C 30,59,863/- (c) Aditya Pupreja (Aryan International - Delhi CPXPP0971F 6,42,800/- (d) Rahul Tiwari (Radhika Enterprises) AWFPT5102R 17,72,100/- (e) Sanjeev Kumar (Akriti Industries) GJXPK6190R 2,25,93,761/- Total 4,78,86,229/- (ii). Further, as per the Assessing Officer the matter was also referred to the Verification Unit by whom it was, allegedly, found that the said parties did not exist. On that basis and not being ratified with the reply furnished on behalf of the Appellant Company, Assessing Officer has proceeded to make an addition of Rs. 4,11,60,437/- being the amount of purchases from the said parties. (iii) As per the contents of the assessment order it appears that the matter was also referred to the Verification Unit which apparently carried out physical verification and found or that these parties did not exist. In addition, the Assessing Officer has also returned a finding 57 that there is no response from some parties to the notice issued u/s 133(6) or that the notice could not be served on them or that they could not be found at the given address. (iv) In view of the same the Assessing Officer vide show cause notice dated 26.12.2023 asked the Appellant Company to show cause as to why the amount of Rs. 4,78,86,229/- should be disallowed and added to the total income on account of, alleged, non- genuine purchases from the said party. (v) In response thereto exhaustive replies were filed enumerating the stand of the Appellant Company with respect to the said issue of purchases from the said five parties enumerated as follows: - (a) the following sets of documents with respect to each party were filed before the Assessing Officer to authenticate the factum of purchases from them: - (i) Copy of their Accounts in the books of the Appellant Company reflectingpurchases on different dates and also payment made. (ii) Copy of Stock Register showing the Goods received. (iii) Copy of Production Register showing the use of goods purchased forproduction. (iv) Copy of Bill raised by the various parties (v) Cop of E-Way Bills (vi) Copy of Transporters Bills in support of movement of goods so purchased. (vii) Copy of GSTR 2A showing purchase made from the various parties 58 (viii) Copy of Bank Statement showing the payment made to the variousparties (b) In addition, in order to justify the genuineness of purchases made by the Appellant Company from various parties, confirmation issued from the bank confirming the payment made through RTGS and showing the Account Number on which payment has been made were also filed before the Assessing Officer as per the following details: - s No. Name of the Party whom Purchases made Payment made to through Bank parties Name of the Bank on which payment has been given Account No of the Party to which Account payment given 1. Garg Trading Co HDFC Bank Indusind Bank 201002935332 2. Tejinder Fabricators Punjab National Bank Axis Bank 917020025045935 3. Aryan International Punjab National Bank Union Bank of India 519501010035982 4. Radhika Enterprises HDFC Bank Indusind Bank 201003000367 5. Akriti Industries Punjab National Bank and HDFC Bank Limited Indian Overseas Bank 057602000000601 (vi) The replies filed during the assessment proceedings u/s 143(3) alongwith exhaustive documentary evidence and to the show cause notice were not found acceptable by the Assessing Officer resulting in the impugned addition. (vii). The Assessing Officer has relied upon certain arguments in favour of the aforesaid addition as follows: - (i) Majorly transportation got done through three contractors and some minorirregularities in bills provided by them; 59 (ii) Failure to furnish documentary evidence substantiating receipt of materialpurchased from the said parties; (iii) Failure to furnish the details as called for vide point No. 10.1 of notice u/s142(1) dated 21.09.23; (iv) Non-production of confirmation from parties for verification. (v) Fall in the Net Profit /Gross Profit, both absolutely and in terms of rates, in spiteof sales having increased. (viii) The fact that major business was conducted only by three transporters was the Appellant Company's thought-out decision and to question the same is beyond the remit of the Assessing Officer and does not impact the determination of taxable income in any manner. Further, the perceived, minor at best, irregularities therein do not in any manner serve to strike at the root of the factum of the transaction or their authenticity. (ix) As regards the alleged failure to furnish documentary evidence either justifying the purchases or as required by notice u/s 142(1) dated 21.09.2023 it is submitted that while exhaustive documentation was submitted the questionnaire dated 21.09.2023 was also responded to almost in the entirety, the lapses being only peripheral and, it may be submitted with respect, non-consequential in the overall scenario and viewed in terms of the exhaustive documentation filed. (x) In the light thereof while the Appellant Company been diligent and of course serious inits efforts it may be submitted that there has 60 been an abject failure on behalf of the Assessing Officer in examining and verifying the documentary evidence furnished before him. (xi) It may be mentioned here that responding to income tax notices (such as a notice u/s 133(6)) or non-existence at a particular address all factors over which the Appellant Company does not have any control, whereby the said failures/ irregularities/ inconsistencies cannot be festooned to enlarge the onus cast on it and resultantly latch it with some kind of far-reaching adverse conclusions with potentially serious ramifications. (xii) The attempt to link the increase in sales with corresponding increases in NP/GP rates ignores the fact of any business operating in a dynamic scenario wherein a large basket of variables (some of which has no or may even notional control) determine the ultimate outcome. In such a situation where economic, political, global, industry, market and a host of other factors guide its operations and their ultimate size and scale and ultimate profits, to assume a certain empirical straight jacketed relationship between sales and profitability would amount to grossly underestimating the dynamics of the situation and accordingly the same cannot be relied upon as a determining factor to arrive at some kind of an adverse decision/conclusion. 61 (xiii) Exhaustive documentary evidence was filed including that generated digitally from the online portal and also from the external sources, which attests to the fact of purchases, subsequent receipt of goods in the Appellant Company's premises, they being recorded in the stock register and ultimate use, as and when required, in the production process. The Assessing Officer has not arrived at a specific finding disputing the same (xiv) The Assessing Officer has without rejecting the books of accounts or disturbing the trading results and without questioning the authenticity of sales, has rather illogically and in a manner largely unfair to the Appellant Company proceeded to make an addition for the amount of purchases only which has resulted in a double addition. The goods purchased, which have been disputed here have been used in the production process whereby ultimately, they get embedded in the income side as sales. The addition per -se, of purchases has resulted in an extreme injustice to the Appellant Company since the corresponding income side retains its status ab initio. C. CONCLUSION 1. The Commissioner of Income (Appeals) vide order dated 10.05.2024 has restricted the addition to Rs. 59,20,585/- being 12.5% of Rs. 4,73,64,687/-, the total addition on account of purchases made from the six parties viz. 62 2. The above discussion and the record makes it clear that there is no ground to treat the purchases as bogus. Moreover, the Assessing Officer has not rejected the books of accounts, no found fault with the stock/records/quantitative tally nor questioned either the sales or the value of closing stock. As such even the restriction of disallowances to 12.5% of purchases from the said parties is not called Jorjand no part of the entire expenditure is disallowable. 3. In this connection reliance is placed on the following decision of the Hon'ble Chandigarh Bench. The facts of this case fit like hands & gloves to the facts of the present case. (a)Decision of Hon'ble Bench in the case of Prime Steel Industries (P) Ltd vs DCIT [order dated 20.09.2024 in ITA Nos. 275/Chd/2024 and 500/Chd/2024] wherein on almost identical facts the entire addition on account of bogus purchases has been deleted by the Hon'ble Income Tax Appellate Tribunal. As in the instant case, in that case also exhaustive documentation such as confirmation of the party, its ledger account, relevant extract of the Bank statement invoices, e-way bills etc. were duly filed by the Appellant Company in support of each and every doubtful party. Moreover, the Assessing Officer had also rejected the Appellant Company's books, which is not the situation in the given case. The Assessing Officer made an addition of 12.5% of the doubtful purchases which were reduced to 5.94% by the 63 Commissioner of Income Tax (Appeals) who has also overturned the decision of the Assessing Officer to reject the books of accounts and has infact accepted the same. (b)The Hon'ble Income Tax Appellate Tribunal vide the impugned order has deleted the entire addition by alluding to the fact that there has been no doubt as regards the manufacturing of goods out of the said purchases and the books of accounts have not been rejected. Reliance is placed on the said order as well as the exhaustive documentation filed in support of the disputed/doubtful purchases from the said six parties. Ground No. 3 Denial of opportunity of cross-examination 1. A perusal of the assessment order and history of the assessment proceedings would show that various references have been made and reliance placed on the statement of Shri Rahul Pratap Singh recorded by different wings of the Department. The conclusion drawn by the Assessing Officer relies heavily on the said statement which has been unilaterally and critically, but unjustifiedly used to the prejudice of and to the detriment of the Appellant Company. 2. The said action of the Assessing Officer is decidedly and most crucially is against the basis canons of tax administration in as much 64 was not provided with an opportunity for cross-examination in spite of specific requests being made Keeping in view the detailed submissions made above and also the facts & circumstances of the case, it is prayed that the revenue's appeal deserves to be dismissed and as far as the assessee's appeal is concerned there is no justification on part of Ld. CIT(A) to uphold the impugned disallowance @12.5% of the value of purchases & deserves to be deleted. 14. Per contra the Ld. DR relied on the orders of the lower authorities. 15. We have heard the rival contentions of both parties, examined the material available on record, and considered the findings of the Ld. CIT(A) in the appellate order. We have also taken into account the arguments and written submissions filed by the Ld. Counsel for the assessee during the proceedings before us, as well as the submissions made by the Ld. DR in the Revenue’s cross appeal. Since both appeals are interrelated, we are deciding them together. 15.1 We find that the case of the AO / Revenue is based on the claim that the purchases made from five parties namely, M/s Tejinder Fabricators (Prop. Gaurav Dhir), M/s Radhika Enterprises (Prop. Rahul Tiwari), M/s Garg Trading Co. (Prop. Raj Kumar), M/s Aryan International, Delhi (Prop. Aditya Pupreja), and M/s Akriti Industries (Prop. Sanjeev Kumar)were not genuine. Therefore, the AO 65 added the entire purchase amount to the assessee’s income. However, at the same time, the AO / Revenue failed to disallow the sales corresponding to these purchases. 15.2 In fact, the lower authorities have not brought any evidence on record to show that the opening balance of the assessee was incorrect or that the corresponding sales and production made from purchases from the allegedly bogus parties were disallowed or rejected.  The Ld. Counsel for the Assessee has brought on record all the details of copy of the account of such party in the books of the appellant company reflecting purchase of different date and payment thereof through banking channel.  Copy of Stock Register showing goods received.  Copy of production register showing use of goods purchased for production  Copy of bills raised by the various parties  Copy of E-way bills  Copy of Transporters bills in support of movement of goods so purchased  Copy of GSTR 2A showing purchase made from various parties.  Copy of Bank Statement showing the payment made to various parties. 15.3 Revenue has not brought on record anything to rebut these documents brought on record by the Ld. Counsel for the Assessee. In 66 fact, without rejecting the purchases and the corresponding sales / purchases made from the allegedly bogus parties, it is difficult for the Revenue to establish that such purchases were not genuine. The Coordinate Bench of the ITAT, Chandigarh, in the case of Prime Steel Industries (P) Ltd. vs. DCIT [order dated 20.09.2024 in ITA Nos. 275/Chd/2024 and 500/Chd/2024], under identical facts, deleted the additions made by the lower authorities. In that case as well, the additions were made on account of bogus purchases without rejecting the corresponding sales. 15.4 Even if, for the sake of argument, the Revenue's position is accepted that the purchases were made from bogus parties then the question arises as to how the Revenue justifies the production and sales arising from such allegedly bogus purchases. In the present case, the Revenue has not provided any material to rebut the details filed by the assessee. Moreover, there is no evidence to show that the production from these purchases was not accepted by the Assessing Officer or the CIT. The Revenue has also not disputed the sales of goods made from the allegedly bogus purchases. Therefore, it is difficult to accept the Revenue’s arguments in this matter. Accordingly, the assessee’s appeal on this issue is allowed. 16. In the result, appeal of the Assessee is allowed. 17. Now coming to the Cross Appeal filed by the Revenue wherein following grounds have been raised: 67 1, Whether on the facts and circumstances of the case, the Ld. C1T(A) lias erred inrestricting the disallowance to 12.5% of the Value of bogus Purchase (Rs.63,84,522/-)from Sh. Rahul Pratap Singh. PAN; DDMPS9057P (M/s Gauri Shankar Trading Co.),instead of disallowing the entire amount of bogus purchases Rs.63,84.522/-) asdecided by A.O. in assessment order. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred inrestricting the disallowance to 12.5% of the Value of bogus Purchase (Rs.63,84,522/-)from Sh. Rahul Pratap Singh, PAN: DDMPS9057P (M/s Gauri Shankar Trading Co.), not considering the decision of Hon’ble Allahabad High Court in the case of Kaveri Rice Mills, (157 Taxman 376) that once purchases were bogus, addition has to be made to the extent of purchases found to be fictitious. 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance\" to 12.5% of the Value of bogus Purchase (Rs.4,11,60,437/-)from 5 different parties instead of disallowing the entire amount of bogus purchases (Rs.4,11,60,437/-) as decided by A.O. in assessment order. 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance to 12.5% of ..the Value of bogus Purchase (Rs,4,l 1,60.437/-) from 5 different parties, not considering the decision of Hon'ble Allahabad High Court in the case of Kaveri Rice Mills, (157 Taxman 376) that once purchases were bogus addition has to be made to the extent of purchases found to be fictitious. 5, It is prayed that the order of the Ld. CIT(A) may be set aside and the order of AO may be restored. 6, That the appellant craves to add or amend any ground of appeal before it is finally disposed of.. 18. During the proceedings before us, the Ld. DR vehemently argued that once the verification unit has confirmed the purchases from the five parties mentioned above were bogus, as these parties did not exist, the action of the learned CIT(A) in restricting the addition to only 12.5% of the value of such bogus purchases i.e., Rs. 4,11,60,437/- was not logical. The Ld. DR also heavily relied on the decision of the Hon’ble Allahabad High Court in the case of Kaveri Rice Mills (157 Taxman 376), wherein it was held that once it is proved beyond doubt that the purchases are bogus, the entire amount of such purchases is to be disallowed 68 19. Since the issue of bogus purchases on which the CIT(A) sustained an addition of 12.5% and against which the Revenue has filed an appeal has already been addressed, our findings on the assessee’s purchases will apply to this matter as well. Accordingly, the confirmation of the 12.5% addition by the learned CIT(A) is not acceptable. Therefore, both the entire addition made by the Assessing Officer (AO) and the 12.5% addition sustained by the CIT(A) in respect of the alleged bogus purchases are hereby deleted. 20. In the result, appeal of the assessee is allowed and the Cross appeal of the Revenue is dismissed. Order pronounced in the open Court on 14/05/2025. Sd/- Sd/- राजपाल यादव क ृणवȶ सहाय (RAJPAL YADAV) (KRINWANT SAHAY) उपाȯƗ/VICEPRESIDENT लेखा सद˟/ ACCOUNTANT MEMBER AG 14/05/2025 आदेशकी Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकरआयुƅ/ CIT 4. आयकरआयुƅ (अपील)/ The CIT(A) 5. िवभागीयŮितिनिध, आयकरअपीलीयआिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊफाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar "