PCIT v. Kanak Impex (India) Ltd.

Case snapshot

Sections / provisions: 69C; 133(6); 147

Questions before the Court / Tribunal

• See the source-driven case record below.

Material facts and background

business of trading in Iron and Steel. The respondent-assessee returned income of Rs.2,84,700/- while filing its returns of income under Section 139 of the Act. The original assessment was completed under Section 143(3) of the Act on 13 December 2011 determining total income at Rs.3,86,250/-. Reassessment Proceedings : 4.

of any of the notices either sent by email or by affixture, and hence an order under Section 144 read with Section 147 of the Act came to be passed. In the said order, Rs.20,06,80,150/- was added on account of bogus purchases since the genuineness of the purchases could not be verified. The Assessing Officer (AO) issued notices under Section 133(6) of the Act at the address of the persons from whom the respondent-assessee had purchased the goods but same were returned “unserved”. The details of these suppliers were made available by the Sales Tax Department. Since the respondentassessee did not appear before the AO during the course of the reassessment proceedings and the respondent-assessee failed to prove genuineness of the purchases, the AO made the additions of Rs.20,06,80,150/- on account of bogus purchases. Proceedings before CIT (A) : 5.

Appellant / assessee submissions

Mr. Suresh Kumar, learned counsel for the appellant-revenue

Mr. Suresh Kumar, learned counsel for the appellant-

Mr. Suresh Kumar learned counsel for the appellant-revenue

made any submissions on the provisions of Section 69C of the Act, although the same were explicitly framed in the admission order and relied upon by the counsel for the appellant-revenue in the course of the hearing. Therefore, the only conclusion that can be arrived at is that the respondent-assessee does not dispute the applicability of the provisions of Section 69C of the Act to its facts. 38.

Revenue / respondent submissions

Mr. Subramaniam, learned counsel for the respondent-

Commissioner of Income Tax vs. Odeon Builders Pvt Ltd. 6, Principal Commissioner of Income-tax vs. Shapoorji Pallonji & Co. Ltd.7 and Pr. Commissioner of Income Tax-21 vs. Pravin U. Parmar (Jain)8 of this very bench. Mr. Subramaniam, learned counsel for the respondent-assessee did not make any other submissions other than what is recorded hereinabove. Analysis & Conclusion:13.

The learned counsel for the respondent-assessee has not

Court / Tribunal analysis and reasoning

the concept of accommodation entry by an example. Mr. A has unaccounted cash, which he uses to buy goods for selling. However, the sales are made by cheque. Since the goods are purchased with unaccounted money, they cannot be recorded in the books of account. Therefore, the modus operandi to bring such purchases into the books of account is that Mr A will contact Mr B, an accommodation entry provider. Mr B would issue a paper invoice in the name of Mr A, and Mr A would issue a cheque to Mr B to show that the purchases have been made by cheque from Mr B. After deducting certain commission, Mr B would then withdraw the money from his bank account and return the cash so withdrawn to Mr A. By this process, the purchases made by Mr. A by unaccounted cash enter the books of account as if the purchases are made from Mr. B. However, what has actually happened is that the unaccounted money of Mr. A is shown to have entered the 6 7 8

Mr. A to buy goods originally, must be examined. Mr. B is only a paper entry provider. Therefore, the purchases are made from someone else, but through Mr. B they get formalised in the books of account so that sales can be made and recorded in the books of account. However, what needs to be examined is how he financed the original purchases. If such financing is out of unaccounted income, then the same has to be brought to tax, and if it is out of accounted income, it cannot be brought to tax. The onus is on Mr A to show the source of financing for the original purchase and to give the correct details from whom he has purchased the goods originally. This is the simplest model of accommodation entry. However, various complex models are adopted to avoid tracing the flow of money. This menace is harmful to the country's economy, and it amounts to routing unaccounted cash into the formal economy without the original unaccounted income being taxed. 16.

assessee did not appear before the AO during the reassessment proceedings to prove the deduction claimed for purchases amounting to Rs.20,06,80,150/-. There is no justification for nonappearance before the AO to establish the purchases. The plea of the respondent-assessee that they were not served with the notices has been negatived by the Appellate Authority and the same has not been challenged. Therefore, the respondent-assessee in the present case has failed to prove the purchases of which the claim for deduction was made before the AO. 18.

with the erroneous belief that it was estimating profit. In fact, the issue before the Tribunal was whether the CIT(A) was justified in not confirming entire purchase additions. Therefore, to that extent, the Tribunal too misdirected itself by approaching the issue solely based on estimating profit. 21.

revenue, is justified in relying upon the decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra). The Gujarat High Court observed that estimating a certain percentage of the bogus claim is against the principles of Sections 68 and 69C of the Act, and if the purchases are bogus, then it is not incumbent upon the Tribunal to restrict the disallowance only to confirm certain percentage of such purchases. In the instant case before us, the respondent-assessee has failed to prove the purchases including source of expenditure by not offering any explanation in the course of the re-assessment proceedings, thereby accepting the purchase have not been proved and in the absence of any explanation of the source of expenditure, provisions of Section 69C are clearly attracted and, therefore, the AO was justified in making the addition of Rs.20,06,80,150/-.

observed that once the assessee could not produce any material nor he could ensure the presence of the suppliers before the AO, citing difficulties and agreeing to the additions of gross profit of the purchases would mean that the AO was expected to complete the exercise in accordance with law and there was no reason for the AO to accommodate the assessee in the manner done. The Hon’ble High Court therefore approved the reasoning of the CIT(A) that in case where the purchases are not proved,

respondent-assessee as observed above has failed to prove the purchases and therefore there was no justification for CIT(A) and the Tribunal to confirm the additions only to the extent of 12.5%. In our view, both the Appellate Authorities ought to have confirmed the entire purchases in line with the decision of this 10 (2018) 98 taxmann.com 234

Operative decision and relief

offered no explanation of the source of the expenditure incurred on account of purchases of Rs.20,06,80,150/- and, therefore, the AO was justified in making an addition of the said amount and the Appellate Authorities were not justified in estimating the profit rate and thereby impliedly grant deduction of such unexplained expenditure which is contrary to the express provision of Section 69C of the Act. 39.

not appeared in the re-assessment proceedings to discharge its onus on proving purchase transactions under consideration. Before the CIT(A) for the first time, scanty details of sundry debtors, creditors and stocks were given. The CIT(A) gave a finding of the respondent-assessee’s involvement in bogus transaction. Therefore, the finding of the AO on the genuineness of the purchases was confirmed by the CIT(A). Before the Tribunal, the respondentassessee has not canvassed any submission on the genuineness of the purchases but only pleaded for an estimation of a certain percentage of such bogus purchases to be added. Therefore, before

all three authorities, the respondent-assessee has not proved the genuineness of the purchases, which inter alia include the source of making the payment for such purchases. In the light of these factual findings by three authorities, today before this Court, the respondent-assessee’s submissions that they have discharged the onus cast upon them to prove the genuineness of the purchases, including the source cannot be accepted. 40.

allowed by answering the question in favour of the appellantrevenue and against the respondent-assessee. Consequently, the order of the AO dated 19 March 2015 is restored, and the order passed by CIT(A) and the Tribunal is reversed. However, we make it clear that the aggregate addition after considering the CIT(A) and the Tribunal’s order should not exceed Rs.20,06,80,150/-. 41.

Authorities and precedents appearing in the judgment

• Income Tax vs. Mrs. Premlata Tekriwal 5 in support of his
• Commissioner of Income Tax vs. Odeon Builders Pvt Ltd. 6
• Principal Commissioner of Income-tax vs. Shapoorji Pallonji & Co
• Ltd.7 and Pr. Commissioner of Income Tax-21 vs. Pravin U. Parmar
• Assistant Commissioner of Income Tax vs. Shanti Jain 9 also

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on the statutory and factual issues recorded above. The operative result is classified as Remanded Or Restored. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Income Tax. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Reconstruct the reassessment timeline: original assessment, section 148A notice/reply, approval authority, notice date and the applicable section 149 limitation window.
• Preserve the complete response to section 148A(b), objections and proof of disposal; jurisdictional defects are often decided from the documentary chronology.
• Build a transaction-level evidence file: confirmations, bank trail, invoices, ledger, tax/GST records and counter-party material rather than relying on a generic explanation.
• Where the addition depends on a third-party statement or investigation report, record the request for the relied material and cross-examination at the earliest stage.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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