Neeraj Hosiery India Private Limited vs The Commissioner Of Income Tax (Appeal)

PER MANISH AGARWAL, A.M.:

The captioned both appeals are filed by assessee against the separate orders, both dated 20.09.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of different assessment orders dated 28.12.2018 & 25.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2016-17 & 2017-18 respectively.

Since both appeals are relate to one assessee, therefore, both are decided by a common order. First we take appeal of the assessee in ITA No. 7412/Del/2025 for AY 2016-17.

Brief facts of the case are that assessee is a Private Limited Company incorporated on 10.03.2015 and commenced its business of manufacturing and trading of hosiery items by acquiring the running business of M/s. Neeraj Hosiery, a proprietorship firm of Shri Dharam Pal w.e.f. 01.11.2015. The return of income was filed on 22.12.2016, declaring total income of INR 8,468/-. The case was selected for limited scrutiny to verify the source of cash deposited in bank account during the year. The AO observed that purchases were made by the assessee from various parties out of which notices u/s 133(6) of the Act were issued to Five parties which remained non-unanswered. Therefore, the AO doubted the purchases made by the assessee. The AO further observed that during the year under appeal, assessee has deposited cash in the bank accounts maintained with Kotak Mahindra Bank and South Indian Bank wherein regularly cash was deposited as well as withdrawals were made and therefore, the AO has made the addition of excess of cash deposited and withdrawals made at INR 73,91,638/- [deposits of INR 1,39,02,598/- (-) withdrawals of INR 65,10,960/-] and the total income of the assessee was computed at INR 74,00,110/- vide assessment order dated 28.12.2018 passed u/s 143(3) of the Act.

Aggrieved by the said order, the assessee filed appeal before ld. CIT(A). During the course of appellate proceedings, assessee has filed additional evidence in the shape of copy of VAT registration, copy of bank certificates, confirmations and ledger accounts of suppliers which are held as bogus. Ld. CIT(A) after obtaining the Remand Report from the AO has confirmed the additions made.

Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking following Grounds of appeal mentioned in the appeal memo:-

Since all the Grounds of appeal raised by the assessee are with respect to the confirmation of addition of INR 73,91,638/- therefore, all the Grounds of appeal are taken together for adjudication.

Before us, ld. AR for the assessee submits that assessee though was incorporated on 10.03.2015 however, has commenced its business w.e.f. 01.11.2015 by acquiring the running business of M/s. Neeraj Hosiery, a proprietorship firm of Shri Dharam Pal as a going concern and the assessee has taken over all the assets and liabilities including the stock and thereafter, the bank accounts running in the name of proprietorship firm were transferred to the bank account of the assessee. Ld. AR submits that Shri Dharam Pal has filed his return of income for the transactions carried out in M/s. Neeraj Hosiery upto 31.02.2015 wherein all the bank accounts were incorporated. Ld. AR further submits that assessment of Shri Dharam Pal was completed u/s 143(3) of the Act where returned income was accepted. Copy of the assessment order and financial statements of proprietorship firm are placed at pages 96 to 107 of the Paper Book. Ld.AR submits that w.e.f. 01.11.2015, the registration under VAT was transferred in the name of assessee company and copy of the registration certificate issued by the VAT authorities as filed before the AO is placed at pages 139 to 140 of PB. Ld. AR submits that after 01.11.2015, all the transactions were carried out were duly recorded in its books of accounts. He therefore, submits that when the bank accounts are being owned and operated by the assessee company from 01.11.2015, no addition could be made for the transactions carried out prior to 01.11.2015 in the hands of assessee company.

With respect to the entries related to the period from 01.11.2015 and onwards, ld. AR submits that they pertained to day-to-day sales collection and deposits which were duly recorded in the books of accounts maintained in regular course and therefore no addition should be made for the same in the hands of the assessee company. In the alternatively, ld. AR drew our attention to page 108 of the PB, containing details of cash deposits and withdrawals made from the bank account after 01.11.2015 according to which, total deposits were of INR 38,11,000/- and cash withdrawals were of INR 21,84,960/-. Ld. AR thus, a reasonable profit rate be applied on the purchases of INR 3,09,93,246/- alleged as bogus. He prayed accordingly.

On the other hand, ld. DR for the Revenue vehemently supported the orders of the lower authorities and submits that it could not be verifiable whether the bank accounts with South Indian Bank and Kotak Mahindra Bank were later operated by the assessee company or by the Shri Dharam Pal. Ld. Sr. DR submits that as per the certificate issued by South Indian Bank placed at page 143 of PB, it is certified by the bank that the bank accounts was linked to PAN No.AAVPP0400E which is PAN of Shri Dharam Pal and therefore, all the transactions carried out in the said bank account of cash withdrawal and deposits are rightly added in the hands of the assessee. Moreover, during the course of assessment proceedings, out of the total 21 parties, notices u/s 133(6) of the Act were issued to only Six parties and only one party responded to it. Further in the said reply different amount of transactions carried out with the assessee were reported. Therefore, purchases made from these parties remained unverifiable. This fact coupled with the fact that there were large amount of cash withdrawals and deposits in the bank accounts for which the assessee has failed to give any proper justification and therefore the additions have rightly been made requested for the confirmation of the same.

Heard the contentions of both the parties at length and perused the material available on record. The AO has made the addition of differential amount of cash deposited and withdrawal in the bank account for the entire year as against which the claim of the assessee was that the assessee company had taken over the running business of M/s. Neeraj Hosiery w.e.f. 01.11.2015 and therefore, is not liable to explain the transactions carried out prior to 01.11.2015. With respect to the purchases alleged as bogus of INR 3,09,93,246/-, the assessee has filed all the details of the said parties as additional evidence before ld. CIT(A).

On careful consideration of the entire facts, it is observed that the assessee has taken over the running business of M/s. Neeraj Hosiery w.e.f. 01.11.2015 for which necessary amendments have been made in the VAT registration certificate issued by the Delhi Government placed at pages 139 to 142 of the PB. It is further observed that the assessment in the case of Shri Dharampal, proprietor of erstwhile proprietorship firm M/s. Neeraj Hosiery was completed u/s 143(3) of the Act wherein no doubts were raised about the transaction reflected in the bank accounts owned by the firm therefore, transactions upto 31.10.2015 cannot be held as unexplained in the hands of the assessee company. With respect to the transactions carried out thereafter, in the bank account, it was the claim of the assessee that the same were duly recorded in the books of accounts of the assessee company however, failed to justify the same with documentary evidences. Further the assessee has failed to prove the purchases of INR 3,09,93,246/- as genuine purchases. Under these circumstances, in our considered opinion a reasonable profit rate would meet the end of justice to cover up the bank transactions and possible leakage of revenue by incorporating the purchases from the alleged bogus parties. The assessee has declared the GP of 6.84%. Considering the peculiar facts of the case as narrated above, we hereby applied the GP rate of 10% on alleged bogus purchases of INR 3,09,93,24/- as reduced by the declared GP of 6.84% and direct the AO to compute the amount of addition and balance addition is hereby deleted. Thus, all the Grounds of appeal raised by the assessee are partly allowed.

In the result, appeal of the assessee is partly allowed.

Now we take appeal of the assessee for AY 2017-18 in ITA No. 7413/Del/2025.

Brief facts of the case are that the return of income was filed on 31.10.2017, declaring total income of INR 5,27,300/-. The case was selected for complete scrutiny under CASS. During the year under appeal, the assessee has deposited cash of INR 1,34,40,000/- during the demonetization period in SBN in bank account. The immediate source of the same was claimed as out of cash sales. In order to verify the purchases made by the assessee, AO issued notices u/s 133(6) of the Act to Twelve parties on test check basis out of which Three parties did not replied to the notices from whom total purchases of INR 55,43,042/- were made. Accordingly, the AO held the said purchases as bogus and made the addition of the same u/s 68 of the Act and further invoked the provision of section 115BBE of the Act for charging higher rate of tax. Accordingly, total income of the assessee was assessed at INR 60,70,342/-.

Against the said order, assessee filed an appeal before ld. CIT(A) who vide order dated 20.09.2025, dismissed the appeal of the assessee and confirmed the additions made by the AO.

Aggrieved by the order of ld. CIT(A), assessee is in appeal before the Tribunal by taking various grounds of appeal mentioned in the appeal memo.

All the Grounds of appeal raised by the assessee are with respect to the confirmation of addition of INR 55,43,042/- made u/s 68 of the Act and invoking the provisions of section 115BBE of the Act therefore, they are taken together for consideration.

Before us, ld.AR for the assessee submits that during the course of hearing, notices u/s 133(6) were issued to Twelve parties and only three parties namely, M/s N.L. Industries (INR 17,60,403/-); M/s Pratyaksh Enterprises (INR 3,08,039/-); and M/s Unique Enterprises (INR 34,74,600/-) had not replied to the notices so issued. Ld.AR submits that time provided for response was very short and therefore, they could not file the replies. However, during the course of appellate proceedings, the assessee has filed their confirmations, copy of invoices, financial statements as additional evidence to establish that the purchases made from them were genuine. He further submits that all the details / evidence so filed were sent for the Remand Report by ld. CIT(A) however, in the remand proceedings, the notices were again issued by the AO on 15.09.2023 to the alleged three suppliers for furnishing replies on 18.09.2023 i.e. a very short period of 03 days. Ld.AR submits that due to short period, the replies could not be filed which were filed later for which the evidences were filed in the paper book. Ld. AR submits that though their financial statements etc. alongwith confirmed copy of the ledger accounts were already filed as additional evidences. Therefore, purchases made from these three parties were genuine purchases and therefore the addition made be deleted. He prayed accordingly.

On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to prove the genuineness of purchases made from the three supplier and even in the remand proceedings, they have not made compliance to the notice issued by the AO therefore the additions made deserves to be upheld.

Heard the contentions of both parties at length and perused the material available on record. At the outset, it is observed that the assessee has made cash deposits during demonetization period for which immediate source was explained as the cash sales made of the hosiery items. In order to examine the genuineness of the transactions, the AO has issued notices u/s 133(6) of the Act to Twelve parties from whom assessee has made purchases out of which Nine parties had filed their replies however, three parties have failed to make compliance to the notices issued. Therefore, the AO held that purchases made from three parties as in-genuine purchases and made the addition of the same u/s 68 of the Act. The assessee later in appellate proceedings had filed the confirmed copy ledger accounts, purchase invoices and financial statements of the three suppliers and further filed the copies of replies filed by them in remand proceedings. However, the ld. CIT(A) has confirmed the addition made as the AO in the remand report has stated that no compliance were made by the three suppliers alleged as bogus. It was the claimed of the assessee that notice issued during the remand proceedings to M/s Pratyaksh Enterprises was never served to it and in case of other two suppliers, they had made compliance though belatedly however, these details were not verified by the AO. It is observed that despite of providing ample opportunities, assessee has filed to prove the genuineness of the purchases made from three suppliers therefore, we find no error in the orders of the lower authorities in holding the purchases made from these three parties as bogus.

Now coming to the amount of addition, we are not in agreement with the lower authorities that the entire amounts of purchases alleged as bogus should be added us/ 68 of the Act since the corresponding sales have been accepted and all the transactions were recorded in the books of accounts. Thus the profit related to such purchases and sale could be considered as the additional income of the assessee which was suppressed by introducing bogus purchases. This view is supported by the recent judgement of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Jotindra Steel & Tubes Ltd. in ITA No. 504/2025 vide order dt. 23.07.2026. It is observed that the assessee has declared G. P. rate of 6.84% in immediately preceding years and as per the Tax Audit Report, no Gross Profit was worked out for the year under appeal. While deciding the appeal of the assessee for immediately preceding year in ITA No. 7412/Del/2025 herein above, we have uphold the GP rate of 10% on bogus purchases subject to declared GP. Since there is no change in the nature of business of the assessee, we direct the AO to apply the GP rate of 10% on the bogus purchases of INR 55,43,042/- as reduced by the Gross Profit declared and remaining addition is hereby deleted.

Regarding the invocation of provisions of section 115BBE of the Act, the Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. v. ACIT in WP(MD) No. 2078 of 2020 & 1742 of 2020 dated 19.11.2024 (Mad.) has already settled this issue and held that Section 115BBE applies from AY 2018-19 and onwards. The Hon’ble Rajasthan High Court in the case of Deepak Maratha Vs. Union of India in DB CWP No. 3625/2020 vide order dt. 27.05.2026 also expressed the similar view and held as under:

Thus, by following the aforesaid judgments of Hon’ble Madras And Rajasthan High Courts, and considering the fact that the year under appeal before us is AY 2017-18 thus, we are of the view that the provision of section 115BBE of the Act are not applicable in AY 2017-18 and are applicable from AY 2018-19 and onwards. Therefore, we direct the AO to charge the tax at normal rate of tax. Accordingly, all the grounds of appeal of the assessee are thus, partly allowed.

In the result, appeal of the assessee is partly allowed.

In the final result, both the captioned appeals of the assessee in ITA No. 7412 & 7413/Del/2026 for Assessment Years 2016-17 & 2017-18 respectively, are partly allowed.