Kuldeep Sharma vs ITO Ward 62(1), New Delhi

PER MADHUMITA ROY, JM:

The instant appeal filed by the assessee is directed against the order dated 19.12.2025 passed by the Ld. Commissioner of Income-tax (Appeals), NFAC, Delhi [hereinafter referred to as the Ld. CIT(A)] under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') arising out of the Assessment Order dated 05.02.2025 passed by the Assessing Officer, Assessment Unit, Income Tax Department (hereinafter referred to as ‘the ld. AO’) under Section 143(3) r.w.s. 147 r.w.s. 144B of the Act for Assessment Year 2019-20.

The assessee, an individual, filed his return of income on 30.10.2019 declaring the total income at Rs.6,26,700/-. Subsequently, a search under Section 132 of the Act on 26.10.2020 was conducted on 29 premises related to Shri Sanjay Jain, M/s Girdhari Lal Mehta Constructions Private Limited, M/s Inderjit Mehta Constructions Private Ltd., M/s BCC Cement Private Limited, M/s Girdhari Lal Constructions Private Ltd. wherein several documents, soft copies in laptop, mobile phone Whatsapp chats, cash jewellery and other information relating to bogus financial transactions undertaken by these entities either directly by Shri Sanjay Jain or through his associates and entities managed by him were found. They are providing accommodation entries in the form of bogus purchases and sales bills, including cement transactions wherein the appellant was identified as a beneficiary of such accommodation entries to the tune of Rs.50,01,680/- during the FY 2018-19. The assessment was, therefore, reopened upon taking necessary approval from the competent authority and notice under Section 148 of the Act dated 15.04.2023 was issued followed by notice under Section 148A(d) of the Act. In response, to the notice under Section 148 of the Act, the assessee filed return of income on 13.05.2023 for the AY 2019-20 declaring the total income at Rs.6,26,700/-.

It is the case of the Revenue that the assessee made purchases of Rs.50,01,680/- from the entity of Shri Sanjay Jain and the assessee accepted purchase of goods worth Rs.12,44,736/- from M/s Jain Cement Udyog. He has also entered into transactions of purchases from M/s Forever Exim India Pvt. Ltd., M/s Mahavir Associates and m/s RR Associates of Rs.12,77,296/-, 9,79,520/- and Rs.15,00,128/-, respectively. In the year under consideration, such transactions were controlled by Shri Sanjay Jain as was the opinion of the Ld. AO, though the appellant furnished the purchase bills, bank details, the corroborative evidence such as delivery challans, vehicle numbers, freight bills, stock register or quantitative reconciliation for establishing actual movement of goods were not furnished by the assessee as alleged. It is the case of the assessee that the assessee is a small government contractor engaged in civil construction work and all the contract receipts were received through RTGS/NEFT from government departments and purchases were made in normal course of business and the material was directly delivered at the site by the suppliers. In fact, the assessee got contract work from Executive Engineers, CCW AIR Division-3, New Delhi and the said contract work was executed by the assessee during the year under consideration and the materials purchased from the parties, namely, M/s Jain Cement Udyog, Mahaveer Associates, Forever Exim India (P) Ltd. and R.R. Associates were consumed by the assessee to complete the said civil work. The assessee has denied all allegations of bogus purchase made from these entities under reference in earlier years too. Neither the assessee is involved in any accommodation entries through bogus billing in the shape of bogus purchase nor the assessee ever conducted any business transactions with Shri Sanjay Jain in the year under consideration or in the past. In the absence of detailed documents as mentioned hereinabove or any other evidence so as to establish the transactions entered into with the above four entities of Shri Sanjay Jain group were made for actual delivery of goods, the genuineness of the transactions remained unexplained and, therefore, addition to the tune of Rs.50,01,680/- has been treated as bogus expenditure made by the assessee in order to reduce the profit and added the same in the hands of the assessee by the Ld. AO.

Before the First Appellate Authority, the details in regard to the transactions made by the above parties were duly furnished by the assessee. It was further argued before the First Appellate Authority that the assessee being a government contractor engaged in civil constructions work and all contract receipts were received through RTGS/NEFT from government departments and purchases were made in normal course of business and material was directly delivered at the site by the suppliers and, further, the assessee relied upon the provisions of Section 44AD contending that since his declared net profit exceeded 6% of the turnover, there was no statutory requirement to maintain the books of account. Further, that the addition made by the Ld. AO was solely on the basis of the statement of Shri Sanjay Jain wherein no cross-examination was given to the assesse violating the principle of natural justice and, therefore, the turnover of Rs.91,33,317/- does not justify the bogus purchase of Rs.50.01 lakhs and no commission was ever paid. However, the plea of the assessee was turned down and the order passed by the Ld. AO was confirmed, hence, the instant appeal before us.

The question remains to be answered is when the total turnover of the assessee is Rs.91,33,317/-, how could it be possible that the appellant has made bogus purchase of Rs.50,01,680/- against such turnover in the year under reference and how could he pay commission of 3% to Shri Sanjay Jain under these facts and circumstances of the matter.. The appellant never made contract with Shri Sanjay Jain directly or indirectly which has not been controverted by the Revenue on record except making allegation of bogus financial transactions without any cogent evidence. The assessee further asked for cross-examination with Shri Sanjay Jain in this matter which was never allowed and the addition of Rs.50,01,680/- under Section 69C of the Act is, therefore, not sustainable as the case of the assessee made before us. In support of this, it was further argued that the work contract was of Rs.91,33,317/- and the purchases made by the assessee was only for 86,59,502/- and the alleged bogus purchase was of Rs.50,01,680/-as per Revenue is to be considered. Then, the net profit instead of Rs.6,57,877/-i.e., 7.20% would be Rs.56,59,557/- i.e., 62%. The gross profit, therefore, of Rs.19,56,971/-, i.e., 21.42% would be Rs.69,58,651/-, i.e., 76% which is neither permissible nor the 62% of the net profit is permissible. Rather, the same is found to be tainted in the absence of any cogent evidence against the assessee for making transactions with Sanjay Kumar Jain, particularly, when the assessee was not given the opportunity to cross-examine Shri Sanjay Jain. Moreover, the argument advanced by the Ld. Counsel appearing for the assessee that when the declared net profit exceeded 6% of the turnover under Section 44AD of the Act, there was no statutory requirement to maintain books of account. In this regard, the Ld. AR relied upon the judgement passed by the Mumbai Bench of the Tribunal in the case M/s J.M. Mhatre Infra Pvt. Ltd. vs. ACIT in ITAs Nos.1663/Mum/2023 to 1670/Mum/2023, order dated 22.09.2023 wherein, while applying net profit rate of 9% of the direct contract receipt, observation was made as follows:-

When all the receipts were received through account payee cheques or RTGS and having regard to the relevant necessary documents submitted before the authorities below and before us too the rejection of claim of the appellant solely on the basis of the statement of Shri Sanjay Jain without conducting cross-examination of him and further on addition on surmises and conjecture as observed in the foregoing paragraphs is not found to be tenable and, therefore, quashed.

On the basis of the Investigation Report and confirmation of Shri Sanjay Jain during the course of investigation proceedings, the Revenue was informed that as a facilitator for both kinds of interested parties, Shri Sanjay Jain charges commission @ 3% of commission involving bogus selling and bogus purchase; selling commission is paid by the parties in cash only and also considering the claims that he got 4 paise to 1.00 paise for Rs.100/- for conversion of unaccounted cash of the client to bring back the said money into banking channel 3% commission total Rs.1,50,050/- was added in the hands of the assessee as payments from unaccounted money upon treating the same as unexplained expenditure under Section 69C of the Act in the hands of the assessee with the provision of Section 115BBE of the Act. In the absence of any evidence that the assessee paid commission expenses to Shri Sanjay Jain without making any independent inquiry, the order confirming the addition made by the Ld. AO of Rs.1,50,050/- to the total income of the appellant under Section 69C of the Act under the present facts and circumstances of the case is found to be arbitrary, unjust and, therefore, liable to be deleted.

With the aforesaid observations, we, thus, delete the additions made by the Ld. AO.

In the result, appeal filed by the Assessee is allowed.