AI Structured Summary
Not yet generated for this judgment
Judgment
Per Raj Kumar Chauhan, Judicial Member:
The appeal is directed against the order dated 20.06.2025 of Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)/NFAC”] passed u/s 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]wherein the appeal of the assessee was part ly co nfirmed.
The assessee company is engaged in the business of trad ing of fabric and cloth for A.Y . 2017–18. The return of income was filed on 31.03.2018 declaring total income of Rs.8 ,04,920/-, which w as selected for scrutiny under CASS and assessment was completed u/s 143(3) of the Income-tax Act, 1961.During the course o f assessment proceedings, the Assessing Officer examined the financial state ments and noted that the assessee had repor ted revenue from operations of Rs.41,15,00 ,000/- and purchase of stock in trade of Rs.39,95,09 ,435/-. In view of incomplete co nfirmations and adverse response from one party , the Assessing Officer issued a show cause notice proposing disallowance o f 20% of total purchases amounting to Rs.7,99,01 ,884/-. The assessee submitted that purchases were genuine, supported by books of account, ledger copies, bank statements, and stock records, and co ntended that non-resp onse to notices cannot be attributed to the assessee.However, the Assessing Officer was not satisfied with the explanation and held that the assessee failed to substantiate the genuineness of purchases. Accordingly, 2 0% of total purchases amounting to Rs.7 ,99,01,884/- was disallowed and added back to the income of the assessee. Further, AO also held that since the assessee has deposited cash during demonetization period amounting to Rs. 9,50 ,000/- in its bank account and was unable to furnish any docume nt which co uld prove the genuineness of its claim, hence made the additio n of Rs. 8,30,083/-.
Aggrieved by the assessment order, assessee filed appeal before the ld.C IT(A) which was partly allowed.
Aggrieved by the impug ned appellate order, the Revenue is in appeal before us and has raised the fo llowing grounds of appeal:
“1 . That on the facts and i n the ci rcumstanc es of t he case, and i n law L d. CIT(A ) erred i n deleting t he addition of Rs. 7 ,75,55,884/- made by Assessing Office r t owards unve ri fi able purc hases, without appreciati ng the fact that the ass essor failed to produc e satis factory c onfirmati ons from several parti es and one part y cate gorically de ni ed any transacti on wi t h t he assesse e.
2.That the Ld. CIT(A ) erred in not upholdi ng t he disal lowance of 2 0% pur chases made by the Assessi ng Officer, despite non-verification t rans acti ons and failure of the assessor t o s ubstantia te t he genui neness such purc has es wit h c ogent , third-party evidence.
3.That the Ld. CIT(A ) err ed i n deleti ng the additi on of Rs. 8 ,30,083/- made under section 69A o f the Inco me Tax Act , 1961, o n account o unexplained cas h depo sits duri ng the demonetizati on period, withoutproperly consideri ng the fact that the assessee failed to subst antiat e tin s ourc e of such de posits with cre dible evidence.
4.That t he Ld. CIT(A ) faile d to appreciate that t he assessor's ex planation rega rdi ng cash deposits was general and lac ked documentar y s uppor t, and no direct correlati on was es tablished bet ween sales and deposits .”
We have he ard the ld. DR and perused the recor ds. We find that the ld. CIT(A) has discussed the issues by observing as under:
“4 . Decisi on
I have carefully p erused grounds o f appeal, statem ent of facts, assessment or der, facts and mat erial available on rec ords and consi dered the written submission made by the Appellant. Gr ound no.1 i s gener al in nat ur e, he nc e not adj udicated.
Gro und 2-4
4.1As per t he grounds noted above , the A ppella nt has challenged the a dditi on of Rs.7,99,01,884/- on acco unt o f disal lo wance @ 20% on allege d bogus purc has es of Rs.3 9,95,09,422/- to the t otal income of the App ellant as one party deni ed of knowi ng t he appellant and s ome other parti es whom notices u/s 133(6) were ad dressed to could not be found i n t he res pective address es. The AO rec orded that o ut of the 9 notices bei ng issued r eply was received from 4 parties. Ther efore, the three 3 parties who have c onfirmed the purc has e t ransactions s houl d not be r egarded as bogus purc has es . It has be en contended by the appellant , duri ng the c ourse of this appeal, that the AO made t he additi on as some of the par ties fr om who m purchases made co uld not be found in t he gi ven addr ess es . T hey were asked to confirm purchase transac ti ons with t he appellant by notices u/s 133(6 ) of the Ac t. Accordi ng to the AO five notices were not delive red out of 9 parti es. Reply of four part ies were rec eived and in one cas e t he res pective party deni ed of havi ng made any t ransaction with t he appell ant. S hri . Niti n Srivasta va proprietor of N.S. Tradi ng submitted that he does not know the firm appellant r epres ents. Due to not havi ng any reply in res ponse t o notice u/s 133(6) of the Act, fr om re mai ning five parties the AO drawn a n i nfere nce and concl uded tha t 20% all the purchas e tra nsacti ons are bogus. The appellant co ntended further that, duri ng the ye ar under consideratio n he carri ed out tradi ng ac tivities i n fabric and cloths. In response to sho w caused issued by t he AO the appella nt r esponded a nd produced st oc k re gister of goods tr aded i n the year under considera tion.
4.1.1I ha ve consider ed the facts of the cas e as appeari ng from the assessment order. It was observed tha t against di sclosed i ncome of Rs. 8,04,920/- in t he ret urn, addition of Rs.7 ,99,01,884/- was made by t he AO by disall owi ng the 20% of entire purc hase of the appellant, due t o denial by o ne party, Sh. Ni tin Srivastava Pr op. of N.S . Trading and non delive ry of notices u/s 133(6) a nd c onfir matio n ther eof.
On perus al of ass essment order i t i s found that The AO did not di sput e about the openi ng stock, go ods purc has ed, goods sold and cl osing stock of go ods, quanti ty wis e. The AO also acc ept ed the sale proc eeds bei ng acc ount ed for by t he appellant as i ncome duri ng the year. Further, the sal e fi gure decla red by t he appellant has been acc epted in full. There is pl ethora of judgments wher e it has been hel d that w here the s ale has bee n accepted by the AO , the di sallowance of purc has e would no t be justifi ed. One s uch decision bei ng, PCIT vs. Niti n Ramdeoji L ohia [2022] 145 taxmann.com 546 (Bombay)/[2 023] 291 Taxman 469 (Bombay)/ 000000000[2023] 457 ITR 446 (B ombay)[21-10-2022]), it was held t hat:
“We ar e i n agree ment wit h the view express ed by t he CIT (Appeals) t hat, if the p urchases a re bogus, it woul d be imp ossible for the assessee t o co mpl ete t he busi ness transaction and that if the purc hase is bogus , the correspondi ng sale also must be bogus or els e t he tr ansaction woul d be impossi ble to c omplete and as a nec essary corollary, unl ess the corr espo ndi ng s ale is held to be bogus , the purchase also cannot be held to be bogus, rather it would be a case of pur chas e from bogus entities/parties .”
The disallowanc e is based s ol ely on non–s ervice /non res ponse of notice under section 133(6), and on by drawing inferenc e about all purc hase as bogus. The appellant has repl ied to the show c ause notice issued by the AO on t he fi ndings made in the c ourse of assess ment. The AO in the assessment order has r ecorded the rebuttal of the appellant, and has not deni e d the cl aim made by the appellant t hat it has produc ed ledger copy of all t he parti es fr om whom purchases were made, bank stat ement i n supp ort of proof of payment made t o them , and sal e r egi ster, stock regist er c ontai ni ng quantity wise details of i nward and outward m ovement of goods as proof of the busi ness activities .
The books of acc ounts are audited a nd the audit or has not made any adver se comments regarding mismatc h of quanti ty of stock mov ement and stocks bei ng held by t he appellant. In the absence of any specific defect or adv erse fi ndi ng in respect of all purchases, a flat disal lowance of 20% of the entire purchases is arbitrary, excessive and unsustai nable i n the eye of law. Consideri ng the facts of t he case it woul d be fair and in the i nter est of natural jus tice t o rest rict the di sallowance to t he ext ent of 20% of purchas e of Rs.1,17,30,000/-only, ma de from N.S. Trading as t he proprietor S hri Nitin Srivastava has categorically denied of having any busi ness transactio ns with the appellant in the year under consi deration. The appeal is partly allo wed on these thr ee grounds, i n t er ms o bser vati o n made above.
Gro und 5&8
4.2In these t wo grounds the appellant o nly rai sed the iss ue regarding additi on made by the AO amo unti ng to Rs .8,30,083/- only, on acc ount o f cash deposit u/s 69A of the I.T.Act. I n respons e to the notice i ssued from this end t he appellant s ubmitt ed that cash deposited of Rs. 9,50,000/- , duri ng demonetization peri od is duly reflected i n the cas h book and c orrespondi ng entries regardi ng t he s ource of t his cash is also accounte d for in the books of accounts mai ntaine d, as bei ng out of availabl e bala nce from sales and ot her receipts. The res ul ta nt balance in the c as h book was mai nly due to cash sal e proc eeds and cash withdra wals. From these balance the cash deposits were made in the bank acco unt and als o entered i nto i n the bo oks mai ntained. The said books of accounts are duly a udited by the audi tor.
On perus al of assess ment order it is found that the AO has not recorded anythi ng c ontrary to the explanation provided by the appellant . As pe r the s ettl ed position i n law sa me amount of i nc ome cannot be taxed twic e. If any sum has already bee n acc ounted for i n determi nati o n of to tal incom e and has been disclos ed by the assessee in the ret urn of i ncome, the n such income cannot be brought under taxation for the second time. This would res ul t i n double taxati on of the same income.
In t his regard, not hi ng c ontrar y to the explanation offered by the appella nt has been br ought on rec ord by the AO during ass essment. In view of the above, I am of the considered view t hat the additi on made u/s 69A of Rs. Rs .8,30,083/- on acc ount of unexplai ned cas h deposit is not s ustai nable . Henc e, these gro unds are allowed… …”
At the time of he aring, Ld. DR relied upon the order of the AO and submitte d that the impugned order of the Ld. CIT(A) may be set aside and accord ing ly, appeal of the Revenue be allowed.
After hearing the Ld. DR and perusing the relevant records, we are deciding the revenue appeal ex-parte qua the assessee, as none appeared on behalf of the asse ssee. In the instant case the assessee has challenged the addition of Rs.7 ,99,01,884/- on account of disallowance @ 20 % on alleged bogus purchases of Rs.39 ,95,09,422/- to the total income of the Assessee as one par ty denied of knowing the asse ssee and some other parties whom notices u/s 133(6) were addressed to could not be found in the respective addresses. It is evident that the AO recorded that out of the 9 notices being issued reply was received from 4 parties. Therefore, the three 3 parties who have confirmed the purchase transactions should not be regarded as bogus purchases. Before the AO, it has been contended by the assessee that no addition can be made if some of the par ties from whom purchases made could not be found at the given addresses. However, they were asked to confirm the purchase transactio ns with the assessee by way of notices issued u/s 133(6) of the Act. According to the AO five notices were not delivered out of 9 par ties. Reply of four parties were received and in one case the respective party denied of having made any transactio n with the assessee. One Shri Nitin Srivastava proprietor o f N.S. Trading submitted that he does not know the firm assessee represents. Due to not having any reply in response to notice u/s 133(6) of the Act, from remaining five parties the AO drawn an infere nce and concluded that 20% all the purchase transactio ns are bogus. The assessee contended further that, dur ing the year under consideration he carried out trading activities in fabric and cloths. In response to show caused issued by the AO the assessee responded and produced stock register of goods traded in the year under co nsideration. In appeal, Ld. First Appellate Author ity has observed that against d isclosed income of Rs. 8,04,920/- in the return, addition of Rs.7 ,99,01,884/-was made by the AO by disallow ing the 20% of entire purchase of the appellant, due to denial by one party, Sh. Nitin Srivastava Prop. of N.S. Trading and non-delivery of notices u/s 133(6) and confirmation thereof. He further observed that AO did not dispute about the opening sto ck, goods purchased, goods sold and closing stock of goods, quantity wise and also accepted the sale proceeds being accounted for by the assessee as income during the year. It is noted by the Ld. CIT(A) that the sale figure declared by the assessee has been accepted in full. Ld. CIT(A) also observed that it is settled law that where the sale has been accepted by the AO , the d isallowance of purchase would not be justified. In the case o f PCIT vs. Nitin Ramdeoji Lohia (2023) 457 ITR 446 (Bombay) relied by ld. CIT(A), it has been held as under:
“We ar e i n agree ment wit h the view express ed by t he CIT (Appeals) t hat, if the p urchases a re bogus, it woul d be imp ossible for the assessee t o co mpl ete t he busi ness transaction and that if the purc hase is bogus , the correspondi ng sale also must be bogus or els e t he tr ansaction woul d be impossi ble to c omplete and as a nec essary corollary, unl ess the corr espo ndi ng s ale is held to be bogus , the purchase also cannot be held to be bogus, rather it would be a case of pur chas e from bogus entities/parties .”
In the instant case, the disallowance is based solely on non– service / non response of notice under section 133(6), and on by drawing inference about all purchase as bogus. The assessee has replied to the show cause no tice issued by the AO on the findings made in the course of asse ssment. The AO in the assessment order has recorded the rebuttal of the assessee, and has not denied the claim made by the assessee that it has produced ledger copy of all the par ties from whom purchases were made, bank statement in support of proof of payment made to them, and sale register, stock register containing quantity wise details of inward and outward movement of goods as proof of the business activities. Further, the books of accounts are audited and the aud itor has not made any adverse comments regarding mismatch of quantity of stock movement and stocks be ing held by the appellant. T hus, in the abse nce of any specific defect or adverse find ing in respect of all purchases, a flat disallowance of 20% of the entire purchases, as rightly observed by ld. CIT(A) that the said disallowance is arbitrary , excessive and unsustainable in the eyes of law. Thus, taking a legally as well as technically justified view, in the interest of justice, Ld. CIT(A) has rightly restricted the disallow ance to the extent of 20% of purchase of Rs.1 ,17,30,000/- only, made from N.S. Trading as the proprietor Shri Nitin Srivastava has categorically denied of having any business transactio ns with the assessee in the year under consideration, which does not need any interference on our part, hence , we affir m the same and reject the ground raised by the Revenue on this issue.
As regards addition of Rs. 8,30,0 83/- u/s 69A on account of cash deposits is concer ned, we note that AO made the additio n of Rs.8,30,083/- only , on account of cash deposit u/s 69A of the I.T. Act. In response to the notice issued from this end the assessee submitted that cash deposited of Rs.9 ,50,000/-, during demonetization period is duly reflected in the cash book and corresponding entr ies regard ing the so urce of this cash is also accounted for in the books of acco unts maintained, as being out of available balance from sales and other receip ts. The resultant balance in the cash book was mainly due to cash sale proceeds and cash w ithdr awals. From the se balance, the cash deposits were made in the bank account and also entered into in the books maintained. The said books of accounts are duly audited by the auditor. In appeal, ld. CIT( A) observed that AO has not recorded anything contrary to the explanation provided by the assessee. We note that ld. CIT(A) has observed that as per the settled legal position the same amount of income canno t be taxed twice. If any sum has already been accounted for in determinatio n of total income and has been disclosed by the assessee in the return of income , then such income cannot be brought under taxation for the seco nd time, because this would result in double taxation of the same income. In this re gard, no thing contrary to the explanation offered by the assessee has been brought o n record by the AO during assessment. Thus, the additio n made u/s 69A of Rs. Rs.8 ,30,083/- on account of unexplained cash deposit w as rig htly deleted by the ld. CIT(A), which does not need any interfe rence on our part, hence, we upho ld the same and accord ing ly, reject the ground raised by the Revenue on this issue.
In the result, the Revenue’s appeal is dismissed.