Indian Spinners vs Pr. CIT

PER S. RIFAUR RAHMAN, AM :

These appeals are filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)] and Pr.CIT, Rohtak dated 17.09.2025 and 18.03.2025 passed under section 250 and u/s 263 of the Income-tax Act, 1961 (for short ‘the Act’) for the Assessment Year 2018-19 respectively.

At the time of hearing of the appeals, it is brought to our notice there is a delay of 196 days and 13 days in filing the appeal in ITA No.8352/Del/2025 & ITA No.8352/Del/2025 respectively. In response thereof, the ld. counsel for the assessee submitted that there was a reasonable cause for the delay in filing the appeal. Accordingly, he prayed that the delay in filing the appeal be condoned. We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeals. Therefore, we condone the delay in filing the appeals before the Tribunal.

First we take up assessee’s appeal being ITA No.8353/Del/2025 filed against the order of ld. CIT (A) passed u/s 250 of the Act arising out of order passed u/s 143(3)/147 of the Act.

Brief facts of the case are, the assessee filed its original return of income for the AY 2018-19 declaring total income at Rs.2,83,320/- on 24.09.2018. Subsequently, it was found that the assessee company had carried out purchase transaction worth Rs.21,06,969/- with M/s Shree Balaji Wooltex during the AY 2018-19. It was also noted that M/s Shree Balaji Wooltex was a paper entity which was involved in providing bogus sales/purchase bills to various beneficiaries and this entity, M/s Shree Balaji Wooltex was part of larger group of entities being controlled and managed by Rajesh Mittal, an accommodation entry provider. Notice u/s 148 of the Act was issued and served on the assessee on 29.03.2022. In response to the notice u/s 148 of the Act, assessee had filed return of income on 12.04.2022 with the same data as mentioned in original ITR. Further during the assessment proceedings, the assessee was provided various opportunity, details of which are mentioned at para 2 of the assessment order. Thus, as mentioned above, the assessee has submitted part details only, and therefore, the major issues involved in the case have remained unexplained. In response to the show cause notice for variation proposed dated 13.02.2023, the assessee filed its reply on 20.02.2023. After that, several opportunities through Video Conference (VC) were given to the assessee but the assessee did not avail the same. Therefore, considering the time barring nature of the assessment proceedings in this case, no more opportunity through VC was granted and case was finalized as per the submission of the assessee available on system, information available on record and as per the order passed u/s 148A(d).

As mentioned above, the assessee was issued a show cause notice on 13.02.2023 mentioning the issues involved in the case. In response to the show cause notice, the assessee furnished one page reply on 20.02.2023. The reply is reproduced in para 4.2 of the assessment order. The reply dated 20.02.2023 was duly considered but was not found acceptable as the assessee has not furnished any supporting evidences to prove that the purchases shown from M/s Shri Balaji Wooltex (A concern being controlled by an entry provider Rajesh Mittal) are genuine.

Further AO observed that the assessee has tried to establish that its purchases are duly recorded with purchase bills, GST returns and it has paid due taxes on all purchases and sales transactions. Further, the assessee has tried to establish that purchases are duly supported by invoices mentioning relevant details like address, GST, PAN, rate, description of the goods etc and the payments of such invoices have been made by account payee cheque duly getting reflected in the bank account of the assessee. AO observed that mere payment through banking channel would not suffice to establish the transactions as genuine.

Further AO observed that the statement of Shri Rajesh Mittal was recorded by the GST Department on 04.06.2019 wherein he had admitted that he alongwith his associates was involved in providing bogus bills of sales and purchase to various parties and these bills were provided without any actual supply of goods and after charging a certain amount of commission. As per his statement, M/s Shri Balaji Wooltex was one of such concern through which he had provided such bogus bills to various beneficiaries. The relevant part of the related report/complaint filed by the GST Department and the relevant part of statement of Rajesh Mittal recorded on 04.06.2019 is reproduced at pages 13 to 18 of the assessment order.

From the above report and statement of Rajesh Mittal, AO observed that M/s. Shri Balaji Wooltex was a paper concern and it was engaged in providing bogus bill/invoices on commission basis without any actual supply of goods with the intention of tax evasion. AO observed that the amount of the transaction shown on the bills was accepted /paid through banking channel and subsequently the amount was received/paid in cash after charging the due commission.

AO observed that the assessee through submission filed part details and tried to establish that it has purchased goods from M/s Shree Balaji Wooltex and made the payments through banking channel mode, however, from the statement of Sh. Rajesh Mittal & his associates it was clear that they never gave delivery of goods. AO observed that the details submitted by the assessee are not suffice to prove the genuineness of the purchase transactions. AO further observed that on the issue of payments through banking channel, it is noted that the payments were received through banking channel only but returned in cash after deducting commission, thus, it is also clear that the assessee company suppressed the profit from equal amount of bill and received the fund in cash. Hence, he observed that the assessee has under-reported the income by taking accommodation entries amounting to Rs.21,06,969/- in the form of purchases shown from non-genuine entity and equal amount of income has been suppressed from taxation.

AO further observed that from the GST Department report and statement of Rajesh Mittal, it is clear that M/s. Shri Balaji Wooltex was a paper concern and it was engaged in providing bogus bill/invoices on commission basis without any actual supply of goods with the intention of tax evasion.

Accordingly, from the above observation, AO held that the assessee had suppressed its income to an equal amount of Rs.21,06,969/- which needs to be taxed and therefore, this amount of Rs.21,06,969/- is added to the total income of the assessee.

Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. Ld. CIT (A) after going through the detailed submissions confirmed the addition.

Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-

During the course of hearing, the legal grounds are not pressed by the ld. AR of the assessee.

At the time of hearing, ld. AR of the assessee submitted that the assessee submitted relevant documents before the AO i.e. copy of ITR, computation along with audit report, Balance Sheet with annexures, original ITR and ITR in response to notice u/s 148 are same; also submitted copies of partner’s capital account and their ITRs, copy of bank statements and copy of account of M/s. Shree Balaji Wooltex, its purchase bills, related bank statement. Further the AO has fully accepted the sales declared by the assessee and has not rejected the books of account. He submitted that AO erred in disallowing the purchases without appreciating the fact that assessee has filed all the GST returns, also purchases and sales duly tallied with the books of account of the assessee and if purchase are not genuine then it is not possible to take GST input however all the purchases are duly showing in GST portal. He further submitted that no cogent material or evidence was brought on record to demonstrate that the purchases recorded in the books are non-genuine or bogus and the gross profit declared by the assessee has not been found to be abnormal. He submitted that in absence of rejection of books of account, the trading results declared by the assessee deserve to be accepted and the Assessing Officer cannot make arbitrary additions merely on the basis of non-response of certain third parties. Further, he submitted that once the sales have been accepted by the Department, the purchases forming part of such sales cannot be disregarded or treated as bogus. He further submitted that the transactions are fully discharged through banking channels. He further reiterated that ld. CIT (A) confirmed the addition without appreciating that assessee had duly furnished books of accounts, invoices, confirmations, and ledger copies of the concerned creditors, purchases were fully recorded in the books and payments were made through verifiable banking channels and no discrepancy in stock was pointed out by the AO. He submitted that these documentary evidences clearly establish the genuineness of the transactions, and therefore the purchases cannot be treated as non-genuine merely on suspicion or conjecture. He further submitted that both the AO and the Ld. CIT(A) failed to establish that the purchases were bogus, non-genuine, or inflated, and no adverse material was brought on record to prove that the goods were not purchased or consumed.

Further he submitted that the assessee is engaged in a trading business where margins are generally low and in such circumstances, applying a 12% profit rate on purchases is commercially unrealistic and disproportionate to the nature of the business.

On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

Considered the rival submissions and material placed on record. We observed that the assessee company had carried out purchase transaction worth Rs.21,06,969/- with M/s Shree Balaji Wooltex during the year under consideration and we also noted that M/s Shree Balaji Wooltex was a paper entity which was involved in providing bogus sales/purchase bills to various beneficiaries. Further we observed that the assessee is engaged in trading business and sales were accepted against the purchases and in our view, without purchases, the assessee could not made sales. Further we observed that the AO has fully accepted the sales declared by the assessee and has not rejected the books of account. We observed that the Assessing Officer has not rejected the books of account, the trading results declared by the assessee deserve to be accepted. We further observed that all the transactions are fully discharged through banking channels.

We further observed that there is no dispute in principle that the assessee is engaged in the business that its corresponding sales have never been questioned by both the lower authorities Various recent judicial precedents i.e. (2025) 173 taxmann.com 592 (Guj.) Ravjibhai Becharbhai Dhamelia vs. ACIT; (2024) 160 taxmann.com 110 (Bom) PCIT Vs. Hitesh Mody (HUF), (2024) 160 taxmann.com 93 (Del) PCIT Vs. Forum Sales (P) Ltd.; (2025) 172 taxmann.com 283 (Bom) PCIT Vs. Kanak Impex (India) Ltd; (2025) 178 taxmann.com 424 (Del. – Trib.) DCIT Vs. Kohinoor Foods Ltd.; and (2025) 177 taxmann.com 836 (Delhi-trib.) DCIT Vs. Tirupati Matsup (P.) Ltd. have decided the instant issue of bogus purchases with divergent views as well. Faced with these peculiar facts, we deem it appropriate in the larger interest of justice that a lump-sum disallowance @ 8% of the assessee’s alleged bogus purchases amounting to Rs.21,06,969/- would be just and proper with a rider that the same shall not be treated as a precedent. Necessary computation shall follow as per law.

In the result, the appeal being ITA No.8353/Del/2025 filed by the assessee is partly allowed.

The appeal filed by the assessee being ITA No.8352/Del/2025 against the order passed by the ld. CIT (A) u/s 263 of the Act has now become infructuous and accordingly, the same is dismissed as infructuous.

In the result, appeal being ITA No.8353/Del/2025 filed by the assessee is partly allowed and appeal i.e. ITA No.8352/Del/2025 is dismissed.