AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1549
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....issued on 19.06.2024, followed by multiple notices under section 142(1), in the backdrop of a survey under section 133A conducted on 30.05.2023 in the case of M/s Saraswati Spinning and Weaving Mills (SSWM), one of the purchase parties of M/s Pilot Industries Pvt. Ltd., where it was found that SSWM was engaged in providing accommodation entries and showing substantial purchases from non-existent entities. On the basis that the assessee was identified as one of the party with whom SSWM had financial transaction and relying on investigation findings that a very high proportion of SSWM's purchases were suspicious, the Assessing Officer examined the assessee's transactions and stock position and, not being satisfied with the explanation, proceeded to make additions while completing the assessment u/s 143(3) for AY 2023-24. 2.1 On the basis of rate-difference analysis between alleged billed and off-book cash rates of lead observed in a comparable searched case, treated 3.27% of such non-genuine purchases as additional profit/commission income of the assessee, which was added to the returned income in the order passed u/s 143(3). 3. Aggrieved by the additions, the Appellant preferr....
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....use it had purchase invoices, e-way bills, transporter bills, toll and dharam-kanta receipts, bank payments, GPS photos of trucks and drivers, and that it could not be held responsible if suppliers were non-filers or their GST registrations had been cancelled. The assessee also argued that SSWM had actually returned the material and paid through bank for short material, and that some suppliers had responded to notices and filed their own documents. 6.1 As per the assessment order, it was found that there had been a search in the Pilot Industries group and a survey in the case of SSWM, where it emerged that SSWM had routed very large purchases through entities which were non-filers or stop-filers of income tax, had short-lived or cancelled GST registrations, and in many cases did not exist at the addresses given. The Assessing Officer had issued detailed notices and summons to a large number of such parties; most remained unserved or unanswered, and inspector reports confirmed that several concerns were not found at their stated addresses. The order further recorded that, despite very high turnover, such parties had not filed income-tax returns or claimed TDS, and that SSWM....
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.... their income-tax returns, nor did they explain why returns had not been filed earlier despite transactions running into crores. No audited financial statements or profit and loss accounts were produced, which was unusual for entities claiming such large turnover. The documents submitted were of the kind normally produced by accommodation-entry providers merely to give a colour of genuineness, without any real underlying business. 6.2.2 It was also noticed that, after issue of notices, two parties namely, Shri Gaurav Kumar (PAN HLYPK5759Q) and Shri Yogesh Kumar (PAN JOVPK9317G) filed their returns, which further showed that they were not in regular/ established business but filed their return only after issuance of notice and investigation in the cases of SSWM and Pilot Industries Ltd. Their written replies carried identical mistakes even in the name of the Assessing Officer, indicating that these responses were mechanically drafted and no independent explanations furnished. photographs of premises furnished were also evidently fabricated. All these facts stated by the AO could not dismantled by the appellant. The AO discussed the same in detailed manner in para 33-45 of h....
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....epartment found that the entity had been created only to issue fake bills and cancelled the GST number to prevent further misuse. Such short-lived or back-dated cancellations were typical of bogus-billing entities and confirmed that they were never meant to carry on genuine trade. 6.2.6 In law, there was a long line of decisions where purchases proved to be bogus or routed through accommodation entries had been held disallowable, while only the profit element embedded in such bogus purchases was brought to tax to avoid double counting. Courts and Tribunals had consistently held that where material was actually procured from undisclosed/grey-market vendors and only bills were obtained from bogus entities, the entire purchase shown in the books could not be allowed, and an estimated percentage representing the benefit or extra profit to the assessee (such as savings in tax, non-incurrence of genuine expenses and inflation of purchase cost) must be added back. 6.2.7 Applying these principles here, the facts clearly showed that the so-called suppliers were non-existent or non-compliant, their GST registrations were short-lived or cancelled from inception, they had no ....
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....us-billing and accommodation-entry network. The assessee had not produced any key supplier or transporter for examination and had relied only on routine documents like invoices, e-way bills, ledgers, bank statements and GPS photos, which could easily be manufactured in such rackets and did not, by themselves, prove actual supply of goods. At the same time, it was reasonably accepted that some raw material must have been used in business and sales had been recorded; therefore, instead of disallowing 100 per cent of the purchases, only the extra profit embedded in such grey-market purchases was estimated and added at Rs. 12,22,519, having regard to the following facts found in investigation: (i) Most of SSWM's own suppliers were found non-existent during field enquiry by the Inspector, as detailed in the show-cause notice. (ii) Summons issued to a large number of those vendors were returned unserved. (iii) Some vendors, such as Shri Amit Kumar Tyagi (Prop. M/s Bhumika Enterprises) and Shri AbhishekRana (Prop. M/s Nayak Enterprises), categorically denied having any transactions with SSWM in statements recorded under section 131(1A) (iv) The GST regi....
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....dings in the case of M/s Saraswati Spinning and Weaving Mills although those facts and figures have no direct bearing to the case of appellant. 5. Because ire order appealed against is contrary to the facts, law and principles of natural justice. The appellant craves leave to add, DLEETE, modify OR substitute any OR all the grounds of appeal at any appropriate time." 6. The contention of ld. Counsel of the assessee were the reassertion of the case of assessee as contested before ld. tax authorities below while ld. DR has opposed the same by submitting that the material on record sufficiently establishes the parties from which alleged purchases were made were non filers and non existing entities and therefore, the reason given by ld. CIT(A) are exhaustive and the same were relied. 7. After taking into consideration the facts and circumstances we find that assessee had filed all the basic document like copy of invoices e-way bills, bank statement KYC and other documents suppliers, transporters details, payment of toll tax, dharma kanta receipt loading and unloading pictures with CPS camera payment acknowledgment and GST return relating to all the purchases. Ld. tax aut....