Pr. Commissioner Of Income Tax(Central), Ludhiana v. Garg Acrylic Ltd

$~63 IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 07.05.2025 + ITA 134/2025 PR. COMMISSIONER OF INCOME TAX(CENTRAL), LUDHIANA .....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar and Mr Rishabh Nangia, SCsand Mr Nikhil Jain, Advocate. versus GARG ACRYLIC LTD......RespondentThrough:Mr. Rohit Jain and Mr SakshamSinghal, Advocates. CORAM: HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) CM APPL. 27605/2025(condonation of delay in refiling) 1.For the reason stated in the application, the delay of 35 days inrefiling the above captioned appeal stands condoned. 2.The application stands disposed of. ITA 134/2025 & CM APPL. 27604/2025(Exemption) 3.The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 [the Act], inter alia, impugning the order dated 30.09.2024 [impugned order] passed by the learned Income Tax AppellateTribunal in ITA No.2562/Del/2023 in respect of the AssessmentYear 2011-12 captioned Garg Acrylics Limited v. DCIT. 4.The Assessee had preferred the aforesaid appeal impugning the orderdated 04.01.2019 passed by the Commissioner of Income Tax (Appeals)-5,Ludhiana [CIT(A)] dismissing the assessee’s appeal against the assessmentorder dated 30.11.2018 passed under Section 147 read with Section 143(3)of the Act. 5.The present case indicates the travails of the Assessee being vexedwith multiple assessment proceedings. The Assessee had filed its return ofincome for the AY 2011-12 on 19.09.2011 declaring an income of₹31,41,11,875/-. The said return was picked up for scrutiny and the assessment proceedings culminated into the assessment order dated31.03.2014 whereby the Assessing Officer assessed the Assessee’stotal income for the relevant AY as ₹71,82,51,221/-. 6.The additions made by the AO were subject matter of the appealpreferred by the Assessee before the CIT(A), which was allowed and theadditions made were set aside by an order dated 30.09.2014. The Revenueappealed the decision of the CIT(A) in allowing the Assessee’s appealbefore the learned ITAT. However, the Revenue was unsuccessful and thesaid appeal was dismissed by an order dated 27.10.2020 passed by thelearned ITAT. 7.Since, the Assessee’s return had been duly scrutinized by the AO andthe additions made were not sustained, in normal course, the matter should have rested at that stage. However, the AO found information, whichprovided the reasons to believe that the income of the Assessee had escapedassessment on account of certain purchases which, according to the AO,were suspect. The AO found that certain persons from whom the Assesseehad purchased the goods were involved in certain bogus transactions.Accordingly, on 17.03.2017, the AO issued the notice under Section 148 ofthe Act and framed the assessment order assessing the Assessee’s incomefor the AY 2011-12 at ₹32,07,74,970/-. The AO made an addition at the rate of 20 percent of the amount of the purchases, which according to the AOwere made from the concerned vendors. 8.The Assessee appealed the said decision before the CIT(A) and theCIT(A) passed an order dated 24.07.2018 restricting the disallowance to16.26 percent of the purchases in question instead of 20 percent, as assessedby the AO. 9.The Assessee appealed the said CIT(A)’s order dated 24.07.2018before the learned ITAT. The Revenue also preferred a cross appeal againstthe said order to the extent that the CIT(A) had restricted the disallowance.The learned ITAT had allowed the Assessee’s appeal and dismissed theappeal filed by the Revenue. 10.One would expect, that once the Assessee’s return of income had beensubject matter of assessment twice and the Assessee had battled theadditions up to the learned ITAT, the matter of assessment of income wouldstand concluded. However, that was not to be. 11.Thereafter, began the third round of assessment. The AO received 9.The Assessee appealed the said CIT(A)’s order dated 24.07.2018before the learned ITAT. The Revenue also preferred a cross appeal againstthe said order to the extent that the CIT(A) had restricted the disallowance.The learned ITAT had allowed the Assessee’s appeal and dismissed theappeal filed by the Revenue. 10.One would expect, that once the Assessee’s return of income had beensubject matter of assessment twice and the Assessee had battled theadditions up to the learned ITAT, the matter of assessment of income wouldstand concluded. However, that was not to be. 11.Thereafter, began the third round of assessment. The AO received certain information from Gurgaon Investigation Wing of the Department tothe effect that the Assessee had paid a sum of ₹47,91,307/- and ₹1,14,22,326/- during the previous relevant AY 2011-12 to one M/s.Ramesh Kumar, Tarun Kumar and Sh.Kushal Kumar Jain [Proprietor of M/s. MittalTraders] allegedly on account of bogus purchases of cotton. This triggeredthe AO to issue yet another notice under Section 148 of the Act on28.03.2018. 12.Notwithstanding, that the purchases made by the Assessee had beensubject matter of the scrutiny in the original proceedings which hadculminated into the assessment order dated 31.03.2014 as well as thereassessment proceedings that had culminated into the order dated30.12.2017. The AO once again made an addition at the rate of 20 percent ofthe purchases made from the aforesaid two parties quantified at ₹32,42,726/- and passed the assessment order dated 30.11.2018 under Section 147 readwith Section 143(3) of the Act. 13.The Assessee filed an appeal against the said order, which wasdismissed by the CIT(A) by an order dated 31.05.2023. The CIT(A) notonly affirmed the findings that the purchases made by the Assessee werebogus, but also enhanced the disallowance from 20 percent to the entireamount of the purchases of ₹1,62,13,633/- under Section 69C of the Act. It is material to note that the CIT(A) held that the said suppliers were non-existent. 14.The Assessee appealed the said decision dated 31.05.2023 of theCIT(A) before the learned ITAT, which is allowed in terms of the impugned Signature Not Verified order. 15.A plain reading of the order dated 31.05.2023 passed by the CIT(A)indicates that the CIT(A) was moved by the assessment orders made in thecase of two persons from whom allegedly bogus purchases were made bythe Assessee. It was noted that the assessment orders framed in respect ofthe said two persons indicated that large amounts of cash had been depositedin their bank accounts and had been withdrawn. The AOs having jurisdictionover the said two persons had thus, made certain additions on the basis ofcertain transactions which they found were bogus. However, it is clear fromthe order passed by the CIT(A) that there was no specific reference made bythe AOs of the respective two persons to the purchases made by theAssessee. More importantly, the additions made in the case of the twospecified vendors were based on the finding that certain cash deposits andwithdrawals from their accounts related to bogus transactions. 16.In so far as the Assessee is concerned, there is no allegation that theAssessee had made any payment in cash in respect of the purchases inquestion. Thus, no connection is shown between the Assessee’s transactionof purchases and the transactions of deposits and withdrawls in cash fromthe bank accounts of the two individuals [M/s.Ramesh Kumar, Tarun Kumarand Sh.Kushal Kumar Jain [Proprietor of M/s. Mittal Traders] 17.In appeal, the learned ITAT perused the material on record and foundthat the Assessee had in fact established that its purchases were genuine. Therelevant extract of the decision of the learned ITAT is set out below:- “5. Another reopening notice u/s 148 of the Act 16.In so far as the Assessee is concerned, there is no allegation that theAssessee had made any payment in cash in respect of the purchases inquestion. Thus, no connection is shown between the Assessee’s transactionof purchases and the transactions of deposits and withdrawls in cash fromthe bank accounts of the two individuals [M/s.Ramesh Kumar, Tarun Kumarand Sh.Kushal Kumar Jain [Proprietor of M/s. Mittal Traders] 17.In appeal, the learned ITAT perused the material on record and foundthat the Assessee had in fact established that its purchases were genuine. Therelevant extract of the decision of the learned ITAT is set out below:- “5. Another reopening notice u/s 148 of the Act stood issued to the assessee on 28.3.2018 afterrecording of reasons based on the informationreceived from the office of ITO (Investigation)Gurgaon that the assessee has made payment of Rs47,91,307/- during the year to M/s Ramesh KumarTarun Kumar, Prop. Tarun Kumar on account ofpurchase of cotton. As per another informationreceivedfromthesaidofficeoftheITO(Investigation),Gurgaon,thatasumofRs1,14,22,326/- has also been received by ShriKaushal Kumar Jain, Prop. M/s Mittal Traders,Adampur, Hisar from the assessee company. It wasfurther informed that as per enquiries conductedand also through Inspector, Shri Kaushal KumarJain, Prop. Mittal Traders could not be found onthe given address. The Id. AO made disallowanceamounting to Rs 32,42,726/- being 20% of Rs1,62,13,633/-, purchases made by the assesseecompany from M/s Ramesh Kumar Tarun Kumarand M/s Mittal Traders, solely based on theinformation received from investigation and thesaidpartieshavenotrespondedtothesummons/notices issued to them and also theywere not found at the given addresses. The ld AOalso observed that in the case of M/s RameshKumar Tarun Kumar, there are cash deposits inbankaccountsandcashwasimmediatelywithdrawn from the bank accounts. As such, it wasconcluded by the investigation wing that credits intheir bank accounts remained unexplained. Theassessee from its side, in order to prove thegenuineness of purchases made from these twoconcerns, furnished copies of ledger accounts,purchaseinvoices,material,receiptnotes,-suppliers balewise weight note, copies of VAT D3, weight slip at factory premises, laboratory testreport in factory of the assessee of goodspurchased, details of excise register/ records maintained, bank statements showing paymentsmade through banking channels.All these detailswere summarily brushed aside by the ld. AO addedthe profit element embedded in the value ofpurchases from these two concerns by estimatingthe profit at 20% thereon and made an addition ofRs 32,42,726/-” [ emphasis added] 18.It is clear from the above that the learned ITAT had concluded thatthe Assessee had established the purchases made from the named twopersons and the same could not be considered as bogus. Thus, the findingsof fact, which are premised on a cogent material cannot by any stretch ofimagination be termed as perverse or unsustainable. 19.We also note that this appeal would not be maintainable on account oftax effect being lower than the threshold limit of ₹2.00 Crores, as stipulated in Central Board of Direct Taxes Circular dated 17.09.2024. However, theRevenue insists on presenting the present appeal on the ground that this casefalls within exception of cases relating to accommodation entries.Thiscontention of the Revenue is also insubstantial. Plain reading of theassessment order indicates that the AO had only enhanced 20 percent of thepurchases by accepting that the purchases were genuine, although not fromthe same parties. This is not a case of accommodation entry. However,CIT(A) proceeded further to hold that the purchases itself are bogus byalluring to the assessment orders passed in respect of the two persons fromwhom the purchases have been made. There is no material on record whichwould substantiate that the purchases reflected were accommodation entries.There is no allegation or finding that cash had been received back by the Signature Not Verified Signature Not Verified Assessee in respect of the purchases reflected in its books of account. Onthis ground alone the present appeal ought to have been dismissed. 20.In view of the above, we find that no question of law arises forconsideration of this Court. Accordingly, the appeal is dismissed. Thepending application is also disposed of. VIBHU BAKHRU, J TEJAS KARIA, J MAY 07, 2025M Click here to check corrigendum, if any ITA 134/2025