TaxTMI 
TaxTMI 
2025 (12) TMI 1800
X X X X Extracts X X X X
X X X X Extracts X X X X
..... of the assessee are as under: "Revenue's Grounds 1. On facts and circumstances of the case and in law. The Ld. CIT(A)erred in allowing the depreciation claim without properly considering the fact that the assessee had not carried out any genuine business activity, and as per established legal principles, depreciation can only be allowed on assets used for business activities. 2. On facts and circumstances of the case and in law. The Ld. CIT(A) erred in failing to appreciate that the assessee had contravened provisions of the RBI Act, Money Lenders Act, and the Income Tax Act by engaging in illegal activities involving the diversion of LC funds through paper transactions, and as such, any expenses related to these activities should not be allowed as deductions. 11. On facts and circumstances of the case and in law. The Ld. CTT(A) erred in deleting the addition made under Section 68 of the Income Tax Act, 1961. The CIT(A) failed to consider that the assessee did not discharge its onus of proving the genuineness of the loan transactions and the creditworthiness of the lending entities. 3. On facts and circumstances of the case and in law. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts and the financial performance of similar entities involved in similar transactions. 9. On facts and circumstances of the case and in law. The Ld. CIT(A) failed to acknowledge the legal position that the Assessing Officer is the best judge to estimate the income when the books of accounts are rejected under Section 145(3), as per the judicial precedents in the case of CIT vs. State Trading Corporation of India Ltd. (2010) 328 ITR 257 (Delhi), WHARE it was held that the AO's estimation of income was valid in cases of rejection of books of accounts. 10. On facts and circumstances of the case and in law. The Ld. CIT(A) erred in holding that the expenses claimed by the assessee, including indirect expenses and depreciation, should be allowed as deductions, despite the clear evidence that the assessee was involved in bogus transactions and illegal activities. 11. On facts and circumstances of the case and in law. The Ld. CIT(A) failed to consider the fact that the assessee's business activities were based on false and fabricated transactions and therefore, any expenses claimed by the assessee in relation to these activities cannot be allowed as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctors of the search parties admitted to being dummy and acting on instructions. The AO also noticed from the documents retrieved and books of accounts seized during the course of search action it is found that bogus invoices are being booked in order to avail Letter of Credit (LC) from Banks and artificially inflate sales and purchase figures in the financials to satisfy the Bank requirements to continuous availing of LC facility. The AO recorded a finding the Searched entities are engaged in the practice of providing bogus Back-To-Back sales & purchases entries from the various paper companies. The AO further recorded that Mr. Vinod Jatia, Director of the searched entities has made arrangements with the directors and promoters of Top Worth Group of Companies as well as with Uttam Galva and Llyods Group of Companies in connection with availing Letter of Credit facilities from various banks. In this regard various sets of Companies were created and used as tabulated in the AO's order is extracted below- Sn Top Worth Group Companies Llyods Group of Companies Uttam Galva Group of Companies 1 Navmi Steel Traders Pvt Ltd. Insco Steels Pvt. Ltd. Blackstone Mul....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... It is further observed by the AO that, "the searched entities has done the purchase and sales transactions within the same group of companies. For example, once the searched entities incorporate bogus purchases from paper / shell companies of Topworth Group, immediately corresponding bogus sales were also booked to paper/shell companies of Topworth Group only. The Same trends have been followed for paper/shell companies of Uttam Galva and Lloyds group of companies. One thing is pertinent to note here that, the Searched entities has not performed any intergroup purchase and sale transactions"." 6. The CIT(A) further held that since, the fund used for circular trading has been received in the hands of appellant through inflated sales, the value of such inflated sales should be adopted for purpose of estimation of income earned on the funds so received. The CIT(A) also held that the percentage of estimated income is to be at 0.5% of bogus sales based on his own decision in the case of Lloyd group. The assessee did not have any bogus sales during the year under consideration and therefore the CIT(A) deleted the addition made by the AO. The CIT(A) while doing so al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransactions as held by the AO. As per Ld. AR the assessee is engaged in the business of wholesale trading of metals and metal ores having a turnover of more than Rs. 2,000 crores. Considering the nature of the goods traded, which are heavy and bulky in size, there is typically no physical movement of such goods at the time of sale. Instead, the goods are stored at designated warehouses, and symbolic delivery is effected by way of transfer of title documents or delivery orders, which is an accepted and recognized commercial practice in the line of business. Such operational model is standard across the industry and does not, in any manner, indicate the presence of sham transactions. Thus the transactions are genuine. 18. Alternatively, it was also submitted that even if it is to be assumed that the assessee has entered into circular transaction, there is no evidence nor any findings arising out from the search proceedings to suggest that the assessee has earned extra cash which is in excess of amounts/profits already reflected in the books of accounts. On the contrary, the statements recorded of various individuals at the time of search indicate that the assessee has earned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is no involvement of any cash transaction nor there is any cash trail found in the search proceedings. 21. Furthermore, neither the AO nor the Ld. CIT(A) has referred to or relied upon any specific finding or tangible evidence to demonstrate that the assessee had actually received any cash. In our view, at the time of making the addition, the AO has merely proceeded on a presumptive basis by stating that the assessee might have received cash, without bringing any concrete, corroborative or even circumstantial evidence on record to substantiate such an assumption. Such reasoning of the revenue authorities is based purely on conjectures was also accepted by the Ld. CIT(A). In our considered view, such conjectural reasoning cannot form the basis for a sustainable addition under the Act. On this proposition, reliance is being placed up on the decision of the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v. CIT (26 ITR 775) (PBP 144), wherein, it was held that although, the AO is not restricted by the strict and technical rules of the evidence and pleadings, he cannot proceed to make an addition purely on a guess work without any reference to material....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Kamlesh Deoraj Jain v. ITO (PBP 154), Chandigarh Bench of the Hon'ble Tribunal in the case of Seo Lehenga House v. DCIT (PBP 173) and Nagpur Bench of the Hon'ble Tribunal in the case of ACIT v. Solaries Holdings Pvt Ltd. (PBP 197), wherein it has been held that in case of a circular transaction, the profit declared in the books of accounts covers the commission portion and that no further addition is warranted especially in absence of any evidence of cash payments. 25. Therefore, considering the totality of the facts and circumstances of the present case and also considering the decisions of the Coordinate Benches of the Tribunal as discussed by us above, we allow the grounds of appeal raised by the assessee and direct the AO to delete the additions." 10. We further notice that a similar view has been held by the Co-ordinate Bench in the case of one another entity which is part of the same search ACIT vs. M/s Elecmec Engineering & Project Pvt. Ltd. (ITA Nos. 3055 to 3057/Mum/2025 dated 08.10.2025). Since the facts in assessee's case being identical, we see merit in the contentions of the assessee that the impugned addition is covered by the decision of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es in the same proportion of the bogus purchase/sales stating that the expenses to the extent of bogus purchase/sales would also be non-genuine. From the perusal of the above findings of the CIT(A) we notice that the CIT(A) has analysed the nature of expenses and held that the expenses are incurred in regular course of business to be allowed as deduction. The AO while making the disallowance has merely estimated the disallowance in the same proportion of bogus transaction, without examining the issue on merits. We further notice that the AO did not call for any details and did not examine any documentary evidences. Accordingly in our view, the AO is not correct in disallowing the expenses on proportionate basis without verifying the expenses based on documents. It is an admitted fact that the assessee is engaged in both genuine business as well as inflating the sales and purchases by accounting non-genuine entries. Therefore in our view it has to be factually examined whether the entire expenses booked by the assessee are genuine expenses incurred towards genuine business activity and do not include any inflated non-genuine expenses. Accordingly we are remitting the issue of expens....