Bombay High Court
Pr. Commissioner Of Income Tax-5, … vs Kanak Impex (India) Ltd on 3 March, 2025
Author: M. S. Sonak
Bench: M. S. Sonak
2025:BHC-OS:3383-DB
Digitally signed 1
SAYYED by SAYYED
46.ITXA.791.21.docx
SAEED ALI SAEED ALI
AHMED ALI
AHMED Date: 2025.03.03 Saeed
ALI 14:47:30 +0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 791 OF 2021
Pr. Commissioner of Income Tax-5, Mumbai
Aaykar Bhavan, Maharshi Karve Road,
Mumbai-400020 ...Appellant
Versus
Kanak Impex (India) Ltd.
32/40, Krishna Baug,
Shop No.6, 2nd Parshiwada,
Mumbai-400004. ...Respondent
______________________________________________________
Mr Suresh Kumar, for the Petitioner/Appellant.
Mr. Subramaniam a/w Mr. V. S. Hadade for the Respondent.
______________________________________________________
CORAM : M. S. Sonak &
Jitendra Jain, JJ.
RESERVED ON : 26 February 2025
PRONOUNCED ON : 3 March 2025
JUDGMENT (Per Jitendra Jain J):
–
1. The appellant-revenue has instituted this appeal for the
assessment year 2009-10, challenging the order of the Income Tax
Appellate Tribunal (‘Tribunal’) dated 26 June 2019.
2. On 22 January 2025, this Court admitted the appellant-
revenue’s appeal on the following substantial questions of law
under Section 260A of the Income Tax Act (‘the Act’).
“SUBSTANTIAL QUESTIONS OF LAW
(i) Whether the Tribunal after accepting that this is a case of bogus
purchases, could have proceeded to determine profit rate without
confirming the disallowance of purchases, without considering the
provisions of Section 69C of the Income Tax Act, 1961 and without::: Uploaded on – 03/03/2025 ::: Downloaded on – 03/03/2025 22:17:55 :::
2 46.ITXA.791.21.docxconsidering the decision of the Gujarat High Court in the case of N.K.
Industries Ltd. Vs. Deputy Commissioner of Income Tax, (2016) 72
taxmann.com 289 since the Special Leave Petition against the said
decision was dismissed by the Hon’ble Supreme Court in case of N. K.
Protiens Ltd. Vs. Deputy Commissioner of Income Tax, on 16 January
2017, (2017) 84 taxmann.com 195 (SC) ?
(ii) On the facts and circumstances of the case and in law, the
ITAT has erred in restricting the disallowance to profit margin on
unproven purchases without considering the position of law
established by the Hon’ble Apex Court in the case of N. K. Protiens
Ltd, that 100 % disallowances on bogus purchases is upheld ?
Brief facts :-
Regular Assessment :
3. The respondent-assessee is a company engaged in the
business of trading in Iron and Steel. The respondent-assessee
returned income of Rs.2,84,700/- while filing its returns of income
under Section 139 of the Act. The original assessment was
completed under Section 143(3) of the Act on 13 December 2011
determining total income at Rs.3,86,250/-.
Reassessment Proceedings :
4. Subsequently, the case of the respondent-assessee was
reopened under Section 147 of the Act on the basis of an
intimation received from Director General of Income Tax (Inv.),
Mumbai/Sales Tax Department regarding bogus purchases made
from havala givers by the respondent-assessee to the tune of
Rs.20,06,80,150/-. The notice under Section 148 of the Act was
served by email at the email address mentioned in the return of
income since the notice sent by the postal authorities was returned
as “unserved.” The notice was also served by affixture by the Ward
Inspector. Thereafter, the appellant-revenue made various
unsuccessful attempts to serve a notice under sub-section (1) of
Section 142 of the Act and ultimately the said notice was affixed
on the front door of the office premises. There was no compliance
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of any of the notices either sent by email or by affixture, and hence
an order under Section 144 read with Section 147 of the Act came
to be passed. In the said order, Rs.20,06,80,150/- was added on
account of bogus purchases since the genuineness of the purchases
could not be verified. The Assessing Officer (AO) issued notices
under Section 133(6) of the Act at the address of the persons from
whom the respondent-assessee had purchased the goods but same
were returned “unserved”. The details of these suppliers were
made available by the Sales Tax Department. Since the respondent-
assessee did not appear before the AO during the course of the
reassessment proceedings and the respondent-assessee failed to
prove genuineness of the purchases, the AO made the additions of
Rs.20,06,80,150/- on account of bogus purchases.
Proceedings before CIT (A) :
5. The respondent-assessee filed an appeal before the
Commissioner of Income-tax [CIT(A)] against the order passed
under Section 144 read with Section 147 of the Act. It is important
to note that the address mentioned in the assessment order of the
respondent-assessee by the AO is the same address which the
respondent-assessee has mentioned in his Form No.35 which is a
Form for filing of an appeal to the CIT(A).
6. On 28 August 2016, the CIT(A) upheld initiation of the
reassessment proceedings by rejecting the contention of the
respondent-assessee that no notice was served on them. The
CIT(A) observed in paragraph 4.2.1 that there was no change of
address of the appellant and the address mentioned in the
assessment order and the address mentioned in the appeal memo
was same and, therefore, the CIT(A) observed that there could be
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AO. Further, the CIT(A) observed that the notice sent by the email
did not bounce and also considered various notices served by
affixture for rejecting the contention of non-service of the notices.
Therefore, the CIT(A) rejected the contention of the respondent-
assessee on the issue of validity of the reassessment proceedings by
holding that the notice was validly issued and served.
7. Concerning the ground relating to the addition of
Rs.20,06,80,150/- on account of bogus purchases from the parties
mentioned in the assessment order, the CIT(A) in paragraph 5.2.1
of his order upheld the reasoning and the approach of the AO in
making the additions. The CIT(A) further observed that the
activities of the accommodation entries in the trading community
are not unheard of and further stated that the investigation by the
Sales Tax Department concerning VAT violations cannot be lost
sight of more particularly since the names of the bogus sellers
supplied by the Sales Tax Department are appearing in the books of
respondent-assessee and, therefore, the link of involvement of the
respondent-assessee in getting bogus bills is established. However,
after giving the findings on the bogus purchases, the CIT (A),
without any further reasoning, straight away referred to the
decision of the Gujarat High Court in the case of CIT Vs. Simit P.
Sheth1 and estimated 12.5.% of the bogus purchases as the
additions to be made instead of confirming entire bogus purchases.
8. We may note that CIT(A) ‘s observation in paragraph 5.2
concerns the Tribunal’s decision regarding other assesses, not the
present respondent-assessee. This observation was in support of
the CIT(A) findings that only 12.5% of the bogus purchases should
be added.
1 (2013) 356 ITR 451
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Proceedings before the Tribunal:-
9. Being aggrieved by the order of the CIT(A), the appellant-
revenue and the respondent-assessee both, filed cross-appeals
before the Tribunal, which were heard on 13 June 2019 and the
impugned order was pronounced on 26 June 2019. The revenue
before the Tribunal took a specific ground that the CIT(A) erred in
considering the GP at 12.5% on alleged bogus purchases instead of
adding 100% as the AO did. The assessee challenged the findings
of the CIT(A) on whether the addition of 12.5% could at all be
made.
10. In paragraph 6 of its order, the Tribunal merely relied upon
the decision of the Co-ordinate Bench of this Court in the case of
Pr. CIT-17 Vs Mohammad Haji Adam & Co. 2 and dismissed the
revenue’s appeal. It directed the AO to restrict the additions to the
extent of bringing the GP rate of disputed purchases to the same
rate as that of other genuine purchasers. Against this backdrop, the
appellant-revenue is in appeal before this Court. The respondent-
assessee has not challenged the order of the Tribunal by filing any
appeal before this Court.
Submissions of the appellant-revenue :
11. Mr. Suresh Kumar, learned counsel for the appellant-revenue
submitted that the respondent-assessee failed to prove the
genuineness of the purchases and, therefore, the additions made in
the assessment order were justified. He submits that the onus was
on the respondent-assessee to prove the genuineness of the
purchases, and having failed to do so, the additions were justified.
He further relied upon Section 69C of the Act and the proviso to
said Section in support of his submission. He submitted that the
2 (2019) 103 taxmann.com 459 (Bom.)
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decisions relied upon by the Appellate Authorities are
distinguishable and not applicable to the facts of the present case,
and in any case, the decisions have not considered the provisions
of Section 69C of the Act, which are squarely applicable to the facts
of the present case. He, therefore, submitted that the additions
made by the AO be restored to the extent of 100% of the bogus
purchases and the orders of the Appellate Authorities be reversed.
He relied upon the decision of the Gujarat High Court in the case
of N.K. Industries Ltd. Vs. DCIT 3, and its dismissal of SLP by the
Supreme Court4. Mr Suresh Kumar also relied upon the decision of
the Calcutta High Court in the case of Principal Commissioner of
Income Tax vs. Mrs. Premlata Tekriwal 5 in support of his
submissions.
Submissions of the respondent-assessee :
12. Mr. Subramaniam, learned counsel for the respondent-
assessee admitted that the respondent-assessee did not appear
before the AO. However, he submitted that in the statement of facts
filed before the CIT(A) challenging the re-assessment order, he has
stated that during the course of original assessment proceedings
under section 143(3) of the Act, the respondent-assessee had filed
details of sundry debtors and creditors with pan number and
confirmation. He submitted that these details were filed before the
CIT(A) also in the present proceedings. He submitted that the AO
has not given any details in the course of the assessment
proceedings before making any addition. He submitted that profit
will be exponential high if purchases are disallowed. He, therefore,
defended the orders passed by the Appellate Authorities. Mr.
Subramaniam relied upon the decision in the case of
3 (2016) 72 taxmann.com 289
4 (2017) 84 taxmann.com 185
5 (2022) 143 taxmann.com 173
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Commissioner of Income Tax vs. Odeon Builders Pvt Ltd. 6,
Principal Commissioner of Income-tax vs. Shapoorji Pallonji & Co.
Ltd.7 and Pr. Commissioner of Income Tax-21 vs. Pravin U. Parmar
(Jain)8 of this very bench. Mr. Subramaniam, learned counsel for
the respondent-assessee did not make any other submissions other
than what is recorded hereinabove.
Analysis & Conclusion:-
13. The short issue which requires adjudication in this appeal is
whether additions of Rs.20,06,80,150/- made by the AO on
account of the failure of the respondent-assessee to prove the
genuineness of the purchases can be said to be valid.
14. Before we adjudicate the issue, it is relevant to understand
the concept of accommodation entry by an example. Mr. A has
unaccounted cash, which he uses to buy goods for selling.
However, the sales are made by cheque. Since the goods are
purchased with unaccounted money, they cannot be recorded in
the books of account. Therefore, the modus operandi to bring such
purchases into the books of account is that Mr A will contact Mr B,
an accommodation entry provider. Mr B would issue a paper
invoice in the name of Mr A, and Mr A would issue a cheque to Mr
B to show that the purchases have been made by cheque from Mr
B. After deducting certain commission, Mr B would then withdraw
the money from his bank account and return the cash so
withdrawn to Mr A. By this process, the purchases made by Mr. A
by unaccounted cash enter the books of account as if the purchases
are made from Mr. B. However, what has actually happened is that
the unaccounted money of Mr. A is shown to have entered the
6 (2019) 418 ITR 315 (SC)
7 (2020) 117 taxmann.com 625 (Bombay)
8 ITXA No.1015 2018 dtd. 9 January 2025
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books of account by such a modus operandi and Mr. A gets back his
unaccounted cash from Mr. B.
15. The source of such unaccounted cash, which was utilised by
Mr. A to buy goods originally, must be examined. Mr. B is only a
paper entry provider. Therefore, the purchases are made from
someone else, but through Mr. B they get formalised in the books
of account so that sales can be made and recorded in the books of
account. However, what needs to be examined is how he financed
the original purchases. If such financing is out of unaccounted
income, then the same has to be brought to tax, and if it is out of
accounted income, it cannot be brought to tax. The onus is on Mr A
to show the source of financing for the original purchase and to
give the correct details from whom he has purchased the goods
originally. This is the simplest model of accommodation entry.
However, various complex models are adopted to avoid tracing the
flow of money. This menace is harmful to the country’s economy,
and it amounts to routing unaccounted cash into the formal
economy without the original unaccounted income being taxed.
16. The genuineness of the purchases would inter alia also
include explanation with regard to the source for paying for such
purchases. Explaining the source of purchases would be one of the
prime considerations for concluding whether the purchases have
been made from accounted or unaccounted sources and to test the
veracity of transaction being only accommodation entry. It is well
settled and undisputed that the onus of proving any genuineness of
the expenditure claimed as deduction is on the assessee. The
primary onus is on the assessee to discharge his burden to prove
the purchases, which an assessee has claimed as a deduction under
the Income Tax Act for arriving at the taxable income.
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17. In the instant case before us, admittedly, the respondent-
assessee did not appear before the AO during the reassessment
proceedings to prove the deduction claimed for purchases
amounting to Rs.20,06,80,150/-. There is no justification for non-
appearance before the AO to establish the purchases. The plea of
the respondent-assessee that they were not served with the notices
has been negatived by the Appellate Authority and the same has
not been challenged. Therefore, the respondent-assessee in the
present case has failed to prove the purchases of which the claim
for deduction was made before the AO.
18. The CIT(A) has also given a finding against the respondent-
assessee in paragraph 5.2.1, stating that the respondent-assessee
failed to prove the genuineness and source of the purchases and
confirmed its involvement in the modus operandi. In our view,
CIT(A) was not justified after giving such a finding that the
additions should be restricted only to 12.5% of such purchases and
not entire purchases. The issue before the CIT(A) was not whether
the profit disclosed by the respondent-assessee was low so as to
justify the estimation of the profit of 12.5%. The issue before
CIT(A) was whether the purchases had been proved and the
CIT(A), having observed against the respondent-assessee on this
issue, ought to have confirmed the additions of the entire
purchases. In our view, the CIT(A) misdirected himself by
estimating a profit of 12.5%.
19. It was nobody’s case that both the sales and purchases are
unaccounted. If that be so and the purchases have been recorded in
books of account by accommodation entry, then same gets
automatically reflected in the books of account. In the instant case,
since the purchases are recorded by accommodation entry in the
books of account and sales have not been disputed, the CIT(A) was
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not justified in estimating the profit, when the basis of addition
was not low profit.
20. The Tribunal also misdirected itself by approaching the issue
with the erroneous belief that it was estimating profit. In fact, the
issue before the Tribunal was whether the CIT(A) was justified in
not confirming entire purchase additions. Therefore, to that extent,
the Tribunal too misdirected itself by approaching the issue solely
based on estimating profit.
21. In our view, both the Appellate Authorities ought to have
appreciated that the issue before them was whether the
respondent-assessee had proved the purchases of which the claim
for deduction was made. The respondent-assessee, having failed to
discharge its onus on this issue before all three authorities, in our
view, the additions made in the assessment order by the AO was
justified.
22. If the approach of the Appellate Authorities of estimating the
profit on such purchases is to be accepted, then, in effect, the
consequence would be that even if respondent-assessee has failed
to prove its claim of deduction of purchases, still by estimating
profit, impliedly deduction of purchases is given. For example, if
the purchases by accommodation entries are Rs.100/- and a profit
of 10% is estimated, then to the extent of Rs.90/- deduction on
account of purchases is deemed to have been given by the
Appellate Authorities. This approach would not be correct since it
is nobody’s case that the respondent-assessee has made sales out of
books by purchasing the goods out of books.
23. If the approach of the Appellate Authorities is accepted, then
the provision of Section 69C, which is an enabling provision, would
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become redundant. Section 69C provides that where an assessee
has incurred any expenditure and offers no explanation about the
source of expenditure or the explanation offered is not in the
opinion of the AO satisfactory, then the amount of expenditure may
be deemed to be the income of the assessee and such unexplained
expenditure which is deemed to be the income of the assessee shall
not be allowed as a deduction under any head of income. In our
view, if the approach of the CIT(A) and the Tribunal is accepted,
then it would amount to endorsing outright conduct of illegality,
contrary to the express provisions of Section 69C of the Act, which
the Appellate Authorities have entirely ignored. In the above
example, by estimating 10% and thereby impliedly giving a
deduction of Rs.90/-, in the teeth of the provisions of Section 69C
of the Act, which expressly bars the allowability of unexplained
expenditure.
24. Mr. Suresh Kumar, learned counsel for the appellant-
revenue, is justified in relying upon the decision of the Gujarat
High Court in the case of N.K. Industries Ltd. (supra). The Gujarat
High Court observed that estimating a certain percentage of the
bogus claim is against the principles of Sections 68 and 69C of the
Act, and if the purchases are bogus, then it is not incumbent upon
the Tribunal to restrict the disallowance only to confirm certain
percentage of such purchases. In the instant case before us, the
respondent-assessee has failed to prove the purchases including
source of expenditure by not offering any explanation in the course
of the re-assessment proceedings, thereby accepting the purchase
have not been proved and in the absence of any explanation of the
source of expenditure, provisions of Section 69C are clearly
attracted and, therefore, the AO was justified in making the
addition of Rs.20,06,80,150/-.
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25. Mr. Suresh Kumar learned counsel for the appellant-revenue
is justified in relying upon the decision in the case of Mrs. Premlata
Tekriwal (supra). In the said decision, a specific question was
raised on the provisions of Section 69C of the Act as to whether the
addition on account of bogus purchases should have been made of
the entire expenses or only a certain percentage of the bogus
purchases. The AO disallowed certain percentage of the bogus
purchases in the assessment order. This order was revised by the
PCIT under Section 263 of the Act and the PCIT held that the
entire expenses has to be disallowed as bogus purchases. On an
appeal against the order under Section 263 of the Act, the Tribunal
stated that only 2% of the bogus purchases may be added to the
total income. Being aggrieved by the Tribunal’s order, the revenue
filed an appeal to the Calcutta High Court.
26. The Calcutta High Court observed that in spite of the AO
having allowed the assessee to explain the transaction the assessee
did not produce any document but stated that 2% of the bogus
purchases may be added to the total income. Based on this, the
High Court held that the purport of this admission would be that
the assessee had accepted the allegation against them and precisely
for that reason, they offered that 2% of the bogus purchases may
be added to the total income. The High Court further observed if
that was the factual position it was incumbent upon the AO to take
the proceedings to their logical end and having not done so, the
PCIT was fully justified in exercising jurisdiction under Section 263
of the Act by which the entire expenses was to be disallowed as
bogus purchases. The decision of the Allahabad High Court in the
case of Assistant Commissioner of Income Tax vs. Shanti Jain 9 also
takes similar view.
9 (2015) 55 taxmann.com 378
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27. We may also observe that the views expressed by us in the
present appeal is also supported by the decision of the Co-ordinate
Bench of this Court in the case Shoreline Hotel (P.) Ltd. Vs.
Commissioner of Income Tax10. In that case based on information
received from the Sales Tax Department, the purchases made by
the assessee were held to be non-genuine purchases even though
the assessee had filed the documentary evidence. However, the AO
based on the submissions made by the assessee added only 15% of
such purchases as income. The CIT(A) invoked revisional
jurisdiction under Section 263 of the Act and observed that the
entire purchases ought to have been added and not only 15%. This
finding and the revisional order of the CIT(A) was confirmed by
the Tribunal. On an appeal by the assessee before this Court, the
Co-ordinate Bench of this Court observed that the reasons assigned
by the CIT(A) are cogent and satisfactory. The Court further
observed that once the assessee could not produce any material
nor he could ensure the presence of the suppliers before the AO,
citing difficulties and agreeing to the additions of gross profit of
the purchases would mean that the AO was expected to complete
the exercise in accordance with law and there was no reason for
the AO to accommodate the assessee in the manner done. The
Hon’ble High Court therefore approved the reasoning of the CIT(A)
that in case where the purchases are not proved, the entire
purchases should have been added and not certain percentage of
such purchases. In our view, in the instant case also, the
respondent-assessee as observed above has failed to prove the
purchases and therefore there was no justification for CIT(A) and
the Tribunal to confirm the additions only to the extent of 12.5%.
In our view, both the Appellate Authorities ought to have
confirmed the entire purchases in line with the decision of this
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Court.
28. Mr. Subramaniam, learned counsel for the respondent-
assessee relied upon the details of sundry debtors and sundry
creditors filed during the original assessment proceedings under
Section 143(3) of the Act to contend that the details of purchases
have been furnished. In our view, these details were furnished in
the course of the original assessment proceedings under section
143(3) and not during the re-assessment proceedings. This fact has
been admitted by the counsel for the respondent-assessee. After the
original assessment order under Section 143(3), the appellant-
revenue, on the basis of the information received from the DGIT
(Inv.)/Sales Tax Department, reopened the case on the ground that
the purchases made by the respondent-assessee are from hawala
operator. Therefore, the details of sundry debtors and creditors
filed in the original assessment proceedings do not absolve the
respondent-assessee from proving the source of the purchases in
the course of the re-assessment proceedings. On the contrary, on
account of reasons for which case was reopened, the onus was
more to prove purchases which respondent-assessee has totally
failed.
29. The re-assessment proceedings were initiated for this very
reason that the purchases which were accepted in the original
assessment proceedings are non-genuine after the passing of the
assessment order. The respondent-assessee chose not to attend the
re-assessment proceedings even though the notices were sent to
the respondent-assessee by post, email and affixture. The CIT(A)
has given a finding that the address of the petitioner mentioned in
the assessment order and in Form No.35, which is an appeal filed
by the respondent-assessee, is same and the respondent-assessee
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intentionally did not accept notice sent by post. The CIT(A) has
also given a finding that notices sent by email have not bounced
back and there is no rebuttal to the affixture of notice on the office
of the respondent-assessee.
30. We fail to understand that the respondent-assessee having
consciously and intentionally decided not to join the investigation,
cannot now contend that the appellant-revenue should have given
them all the details before making the addition. In our view, such a
conduct of the respondent-assessee cannot be accepted. It was
incumbent upon the respondent-assessee to have joined the re-
assessment proceedings, discharge the initial onus of proving the
purchases and seek details, if any. Having not joined the re-
assessment proceedings, the contentions raised by the respondent-
assessee on this issue are to be rejected.
31. The submission of Mr.Subramaniam, learned counsel for
respondent-assessee that if this addition made by the AO is
sustained, then profit rate would be exorbitant and therefore
addition should be deleted is to be rejected. The fallacy of this
argument is that the AO has not made the addition because of low
profit. The addition was made because the respondent-assessee
failed to prove genuineness of purchases because of allegation of
purchases by accommodation entries as explained above. If
contention of learned counsel is accepted, then every addition
would have to be deleted if related to business deduction. In our
view, such a submission is to be rejected outright.
32. Mr. Subramaniam, learned counsel for the respondent-
assessee relied upon the decision in the case of Odeon Builders Pvt
Ltd. (supra). This decision does not apply to the facts of the
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present case. In that case, the assessee had joined the investigation
and sought a copy of the statements relied upon by the AO and
requested for cross-examination after discharging the initial burden
of substantiating the purchases. In the present case, the
respondent- assessee has not discharged the initial onus cast upon
them since the respondent-assessee never attended the re-
assessment proceedings. Therefore, in our view, the respondent-
assessee, having not discharged their initial onus of proving the
purchases during the course of re-assessment proceedings and
having never joined the re-assessment proceedings, cannot rely
upon the said decision which is distinguishable on facts. Similarly,
the decision of the Coordinate Bench of this Court in the case of
Shapoorji Pallonji and Co. Ltd. (supra) is distinguishable on facts
since, in that case also, the assessee had discharged the initial onus
cast upon it and had participated in the assessment proceedings
which is not the position in the present case before us.
33. Mr. Subramaniam, learned counsel for the respondent-
assessee, also relied upon the decision of this Bench in the case of
Pravin U. Parmar (supra). This Bench, in the case of Pravin
Parmar, did not admit the appeal of the revenue based on the
findings of facts of the Tribunal in that case, which are reproduced
in paragraph 6 of Pravin Parmar‘s case. In that case, there was
participation by the assessee and discharge of the initial onus by
the assessee, and the only issue was the estimation of the gross
profit. In the present case before us, we are not at the stage of
admission of the appeal but of the final hearing. Furthermore, as
observed above, in the present case, the respondent-assessee has
not participated in the re-assessment proceedings and has also not
discharged the onus.
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34. We may observe that CIT(A) in paragraph 5.2.1 has given a
clear finding of fact that the respondent-assessee was involved in
getting bogus bills. This finding has not been challenged by the
respondent-assessee before the Tribunal, and only submission
made before the Tribunal was on the estimation of gross profit by
relying upon the decision in the case of Mohammad Haji Adam &
Co. (supra).
35. In our view, the Tribunal was not justified in relying upon
the decision in the case of Mohammad Haji Adam & Co. (supra) .
In that case, the assessee had participated in the assessment
proceedings, and CIT(A) compared the purchases and sales
statement, and there was a finding that the purchases cannot be
rejected since there was a correlation between purchases and sales.
The Coordinate Bench proceeded on this finding of fact recorded
by the authorities and dismissed the revenue’s appeal on the
ground that no substantial question of law arises. The issue in the
present appeal is on failure of discharging onus by the respondent
as to purchases including the source of the purchases made by the
respondent-assessee and which source has not been explained by
the respondent-assessee.
36. The question of law admitted in this appeal states explicitly
that neither of the Appellate Authorities has considered the
provisions of Section 69C of the Act. Even the decision in the case
of Mohammad Haji Adam & Co. (supra) is not a decision on the
applicability of Section 69C of the Act, which is the case before us.
The only reference of Section 69C in the case of Mohammad Haji
Adam & Co. (supra) is where there is an extraction of the Gujarat
High Court decision in the case of N. K. Industries limited (supra) .
There was no question framed on Section 69C before the
Coordinate Bench of this Court in the case of Mohammad Haji
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18 46.ITXA.791.21.docx
Adam & Co. (supra). We have already observed above, how
provisions of Section 69C of the Act are attracted in the present
case.
37. The learned counsel for the respondent-assessee has not
made any submissions on the provisions of Section 69C of the Act,
although the same were explicitly framed in the admission order
and relied upon by the counsel for the appellant-revenue in the
course of the hearing. Therefore, the only conclusion that can be
arrived at is that the respondent-assessee does not dispute the
applicability of the provisions of Section 69C of the Act to its facts.
38. In our view, in the instant case, the respondent-assessee has
offered no explanation of the source of the expenditure incurred on
account of purchases of Rs.20,06,80,150/- and, therefore, the AO
was justified in making an addition of the said amount and the
Appellate Authorities were not justified in estimating the profit rate
and thereby impliedly grant deduction of such unexplained
expenditure which is contrary to the express provision of Section
69C of the Act.
39. In the instant case before us, the respondent-assessee has
not appeared in the re-assessment proceedings to discharge its
onus on proving purchase transactions under consideration. Before
the CIT(A) for the first time, scanty details of sundry debtors,
creditors and stocks were given. The CIT(A) gave a finding of the
respondent-assessee’s involvement in bogus transaction. Therefore,
the finding of the AO on the genuineness of the purchases was
confirmed by the CIT(A). Before the Tribunal, the respondent-
assessee has not canvassed any submission on the genuineness of
the purchases but only pleaded for an estimation of a certain
percentage of such bogus purchases to be added. Therefore, before
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19 46.ITXA.791.21.docx
all three authorities, the respondent-assessee has not proved the
genuineness of the purchases, which inter alia include the source
of making the payment for such purchases. In the light of these
factual findings by three authorities, today before this Court, the
respondent-assessee’s submissions that they have discharged the
onus cast upon them to prove the genuineness of the purchases,
including the source cannot be accepted.
40. In view of the above, the appeal of the appellant-revenue is
allowed by answering the question in favour of the appellant-
revenue and against the respondent-assessee. Consequently, the
order of the AO dated 19 March 2015 is restored, and the order
passed by CIT(A) and the Tribunal is reversed. However, we make
it clear that the aggregate addition after considering the CIT(A)
and the Tribunal’s order should not exceed Rs.20,06,80,150/-.
41. The appeal is allowed in the above terms.
42. No order for costs.
(Jitendra Jain, J) (M.S. Sonak, J)
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