Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(ITAT) 7857

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
SAKTIJIT DEY, Vice-President, MAKARAND VASANT MAHADEOKAR, Accountant Member
Dilshad Trading Co. Private Limited – Appellant
Versus
DCIT Central Circle-7(1) – Respondent
ITA No. 2803/Mum/2025|ITA No. 2802/Mum/2025|ITA No. 2804/Mum/2025|ITA No. 2799/Mum/2025|ITA No. 2800/Mum/2025|ITA No. 2801/Mum/2025|ITA No. 3050/Mum/2025|ITA No. 3093/Mum/2025|ITA No. 3052/Mum/2025|ITA No. 3053/Mum/2025|ITA No. 3054/Mum/2025

Advocates:
For the Appellants/Petitioners: Shri Siddharth Srivastava, Ld. AR
For the Respondents: Shri Umashankar Prasad, Ld. DR

Rejection of books upheld for lack of genuineness evidences, but no addition for estimated profits sustainable absent proof of unaccounted income beyond disclosed book profits in circular trading cases.

Headnote:(A) Income Tax Act, 1961 - Sections 132, 145(3), 153A, 68, 37(1) - Search and seizure - Rejection of books of account - Estimation of income - Circular trading through back-to-back purchases and sales without physical movement of goods - Books rejected under section 145(3) upheld due to lack of supporting evidences like transport documents, inventory records; however, no addition for suppressed profits sustainable as embedded profit already disclosed in books, absent evidence of extra cash receipts or unaccounted income despite search material, statements, and enquiries (Paras 85-98).

(B) Section 68 - Unsecured loans/credits - Assessee discharged onus by furnishing identity, confirmations, banking details; Revenue failed to rebut with specific evidence of accommodation entries or cash trail, mere allegations of circular trading network insufficient (Paras 111-118).

(C) Section 37(1) - Disallowance of indirect expenses - Consequential to deleted addition on estimated income; no independent basis for proportionate disallowance where business results accepted and expenses not shown bogus (Paras 100-107).

Facts of the case:
Search conducted revealing seized tally books showing huge turnover via back-to-back transactions lacking proof of goods movement; AO rejected books, estimated income at 7% on turnover treating as accommodation entries, disallowed indirect expenses proportionately, added unsecured loans u/s 68; CIT(A) reduced estimation to 0.5%, allowed expenses and deleted s.68 addition; cross-appeals to Tribunal.

Findings of Court:
Rejection of books upheld; additions on estimated income, s.68 loans, and disallowance of indirect expenses deleted; profit disclosed in books accepted as covering business results from transactions.

Issues: (i) Justifiability of addition by estimating profit post book rejection and rate; (ii) Sustainability of indirect expenses disallowance; (iii) Tenability of s.68 addition on unsecured loans (Para 13).

Ratio Decidendi: Even assuming circular/accommodation transactions via shell entities and L/C misuse, disclosed book profit includes embedded margins; no addition warranted without material proving extra unaccounted receipts; suspicion cannot substitute evidence; followed coordinate bench rulings on identical search facts emphasizing absence of cash trail, unidentified payers (Paras 89-97).

Result: Assessee's appeals allowed; Revenue's appeals dismissed.

Table of Content
1. search initiated; no genuine trading evidence found. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8)
2. cit(a) partially allows appeal; cross-appeals filed. (Para 9 , 10 , 11 , 12)
3. revenue argues bogus circular trading via shell entities. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40)
4. ao justified in rejecting books; 7% gp estimation. (Para 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59)
5. indirect expenses disallowance linked to bogus transactions. (Para 60 , 61 , 62 , 63 , 64 , 65)
6. section 68 addition for unsecured loans from paper companies. (Para 66 , 67 , 68 , 69 , 70 , 71)
7. assessee contests additions; relies on coordinate benches. (Para 72 , 73 , 74 , 75 , 76 , 77 , 78)
8. section 153a valid due to incriminating search material. (Para 79 , 80 , 81 , 82)
9. books rejected but no additional profit addition warranted. (Para 83 , 84 , 85 , 86 , 87 , 88 , 89 , 90 , 91 , 92 , 93 , 94 , 95 , 96 , 97 , 98)
10. indirect expenses allowable; disallowance deleted. (Para 99 , 100 , 101 , 102 , 103 , 104 , 105 , 106 , 107)
11. section 68 addition deleted; onus discharged. (Para 108 , 109 , 110 , 111 , 112 , 113 , 114 , 115 , 116 , 117)
12. assessee appeals allowed; revenue appeals dismissed. (Para 118 , 119)

ORDER

PER MAKARAND VASANT MAHADEOKAR, AM:

These appeals filed by the assessee as well as the Revenue arise out of the common order passed by the learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter referred to as "CIT(A)"]under section 250 of the Income Tax Act, 1961[hereinafter referred to as "the Act"], for Assessment Years 2013–14 to 2018–19.The assessments for all the years were framed by the ACIT, Central Circle-7(1), Mumbai [hereinafter referred to as "Assessing Officer”],under section 153A of the Act pursuant to search action under section 132. Since common facts and identical issues are involved, these appeals are heard together and disposed of by this consolidated order, taking A.Y. 2013–14 as the lead year. Accordingly, the findings and conclusions rendered hereinafter shall apply mutatis mutandis to all other assessment years under consideration.

Facts of the Case

2. A search and seizure action under section 132(1) of the Act was carried out on 17.04.2018 in the case of Jatia Group and other related entities, including the assessee company. The search concluded on 21.04.2018. The assessee was found to be part of a group engaged primarily in the business of steel trading and related activities. Consequent to the search, the case of the assessee was centralized with the DCIT, Central Circle-7(1), Mumbai for coordinated investigation. Thereafter, notice under section 153A dated 23.10.2019 was issued for all the years under consideration. In response, the assessee filed returns of income for respective years, generally reiterating the originally returned income. Notices under sections 143(2) and 142(1) were thereafter issued and complied with.

3. During the course of search and assessment proceedings, the Assessing Officer examined the seized material, including books of account maintained in tally software. The Assessing Officer recorded a categorical finding that the assessee was not engaged in any genuine trading activity. The key findings of the Assessing Officer, consistently recorded across all years, are as under:

i. There was no evidence of actual movement of goods, such as transport documents, lorry receipts, weighment slips or delivery challans;

ii. The assessee failed to produce purchase orders, sales orders or inventory records either during search or assessment proceedings;

iii. The transactions reflected in books were back-to-back purchases and sales without physical delivery;

iv. Statements recorded during search indicated that certain counterparties were dummy entities acting on instructions;

v. The seized material demonstrated that transactions were s

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