Case Law Details
ITO-Ward-1 Vs Shri Rohit (ITAT Chandigarh)
Bogus Purchase Addition of ₹15.09 Crore Rejected: ITAT Chandigarh Upholds Deletion Where Sales Accepted and Purchases Backed by Evidence
The Income Tax Appellate Tribunal dismissed the Revenue’s appeal for AY 2021-22 and upheld the order of the Commissioner of Income Tax (Appeals), which had deleted an addition of ₹15.09 crore made under section 69C on account of alleged bogus purchases.
The Assessing Officer had disallowed the entire purchases merely because certain suppliers had not filed income-tax returns, showed lower turnover, or had their GST registrations suspended, and treated the purchases as bogus after rejecting books under section 145(3). However, the assessee had produced extensive documentary evidence, including purchase invoices, GST returns, e-way bills, transport and toll receipts, bank statements showing payments through banking channels, and supplier details. Importantly, the corresponding sales were accepted as genuine.
The Tribunal observed that there cannot be sales without purchases, and once the assessee had discharged the primary onus by producing cogent evidence, the burden shifted to the Revenue. The AO failed to carry out transaction-level verification, relied on presumptions, did not confront the assessee with adverse material, and even withheld verification-unit reports—amounting to a breach of natural justice. The compliance failures of suppliers could not, by themselves, invalidate genuine business transactions of the buyer.
Relying on binding precedents, including Supreme Court of India in Odeon Builders Pvt. Ltd., and High Court rulings, the Tribunal held that full disallowance of purchases is unsustainable when purchases are supported by documentary evidence and sales are accepted.
Accordingly, the deletion of the entire addition was confirmed, and the Revenue’s appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by revenue for Assessment Year (AY) 2021-22 arises out of an order of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] dated 12-062025 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 144B of the Act on 24-12-2022. The sole grievance of the revenue is deletion of addition of Rs.1509.90 Lacs as made by Ld. AO on account of alleged bogus purchases while framing the assessment. The sole ground of appeal read as under: –
Whether on the facts and in the circumstances of the case, the CIT(A) / NFAC was right in law in deleting the addition of Rs.15,09,90,967/- as shown purchases expenses claimed by the assessee and NeFAC has added to the total income and taxed as income from other sources u/s 69C of the Act?
2. The Ld. CIT-DR advanced arguments supporting the assessment order whereas Ld. AR drew attention to various documentary evidences as filed by the assessee in support of impugned purchases. Having heard rival submissions and upon perusal of case records, our adjudication would be as under.
Assessment Proceedings
3.1 The assessee’s case was subjected to scrutiny on the ground that the assessee made substantial purchases from suppliers who did not file Income Tax Return or reflected substantially low turnover in their respective Income Tax Returns. The assessee carried out trading of iron and steel in its proprietorship concern namely M/s Neelkanth Steel Enterprises and reflected turnover of Rs.1544.79 Lacs. The purchases were for Rs.1509.90 Lacs. To substantiate its purchases, the assessee, inter-alia, furnished Tax Audit Report, Vouchers, Bank Statements evidencing payment through banking channels, ledger extracts of each of the supplier, copies of purchase invoices along with e-way bills, toll tax receipt and registration certificate of the vehicle etc. The assessee also furnished name and addresses of all the suppliers. The assessee had made purchases from 19 suppliers, the details whereof has been tabulated at Page No.3 of the assessment order.
3.2 To verify the purchases, notices u/s 133(6) were issued and physical verification was carried out by verification unit in few cases. However, the same did not elicit satisfactory response. It was also observed by Ld. AO that GST registration of many of the suppliers was suspended by GST department establishing that the sales made by them were not genuine. No credible supporting evidence was furnished by the assessee in support of purchases. Therefore, the books were rejected u/s 145(3) and the entire purchase of Rs.1509.90 Lacs was added u/s 69C and the assessment was framed.
Appellate Proceedings
4.1 During first appeal, the assessee assailed the verification as carried out by Ld. AO and again furnished various documents in support of the purchases. The assessee’s submissions were subjected to remand proceedings. After considering assessee’s reply and remand report, Ld. CIT(A) concurred that the assessee placed on record comprehensive documentary evidences to substantiate the purchases. The Ld. AO did not undertake any transactional level scrutiny of assessee’s accounts or documentation. Instead of confronting the assessee with specific cases of non-filing, mismatched turnover or other discrepancies, Ld. AO relied on broad assumption that if a supplier had not file its Income Tax Return or reflected lessor turnover in ITR than in GST returns, then the purchases must be bogus. However, the impugned purchases were duly recorded in regular books of accounts and supported by GST invoices and e-way bills. The purchases were linked to verifiable transport documents and the purchases were followed by recorded sales which have been accepted to be genuine by Ld. AO. At no stage of the proceedings, Ld. AO had undertaken a comparative analysis of the documentary evidences as filed by the assessee. The documents were not examined / verified and no evidence was brought on record to show that the assessee did not actually receive the goods. The verification by verification-unit was limited only to three suppliers and the report of the same was not shared with the assessee. There was no finding that the purchases were routed through accommodation entries or fictitious parties. The compliance history of the suppliers could not be used to invalidate the genuine business transactions of the buyer especially when the same was supported by documentary evidences.
4.2 It was finally held by Ld. CIT(A) that entire exercise of assessment was based on presumptions rather than a systematic transaction-based verification. The assessment order failed to demonstrate any cogent analysis or justification for such an extraordinary addition. It is settled principle of law that when an assessee had furnished primary evidences, the burden shifts to the revenue to dispute the claim with credible counter material. However, this burden was not discharged in the present case. Further, no adequate opportunity was granted to the assessee on the precise allegations. Therefore, such an assessment could not be upheld in law and was liable to be struck down in its entirety. The Ld. AO could have restricted the proposed addition only to the extent of specific transactions pertaining to those suppliers for whom enquiries had been conducted by verification unit. However, even in such a situation, any adverse inference could not be formed on the basis of such verification unless the same was duly confronted to the assessee in a clear, specific and unambiguous manner and a reasonable opportunity was afforded to rebut the same. The importance of such an opportunity is underscored by the possibility that the suppliers may have changed their address / ceased operations or continued business in other names. The failure to do so would make the additions unsustainable. Accordingly, the impugned additions were deleted against which the revenue is in further appeal before us.
Our findings and Adjudication
5. From the facts, it clearly emerges that the assessee is engaged in trading of iron and steel. The assessee has achieved turnover of Rs.1544.79 Lacs which has duly been accepted by Ld. AO and no discrepancy has been found in the same. To make these sales, the assessee has made purchases of Rs.1509.90 Lacs which has been disallowed in its entirety by Ld. AO on the allegation that such purchases were bogus. However, the books of the assessee were duly audited under law. There could be no sales without actual purchases. In support of purchase transactions, the assessee furnished plethora of documents which include name, addresses and GST registration details of all the 19 suppliers. The assessee also furnished bank statements evidencing payment through banking channels. The ledger extracts of each of the suppliers, copies of purchase invoices along with e-way bills, toll tax receipt and registration certificate of the vehicle etc. was duly furnished by the assessee. By furnishing these documents, the assessee, in our considered opinion, had duly discharged the onus of substantiating these purchases and it was the onus of Ld. AO to contradict the same and bring on record cogent material evidences to prove its allegations. However, no such exercise is shown to have been carried out by Ld. AO. The verification by verification unit has been conducted only in three cases and that too, remain inconclusive. Further, the report of verification unit has not been confronted to the assessee which is in gross violation of principle of natural justice.
6. As rightly observed by Ld. CIT(A), the assessee had placed on record comprehensive documentary evidences to substantiate the purchases. However, Ld. AO did not undertake any transactional level scrutiny of assessee’s accounts or documentation. Instead of confronting the assessee with specific cases of non-filing, mismatched turnover or other discrepancies, Ld. AO relied on broad assumption that if a supplier had not file its Income Tax Return or reflected lessor turnover in ITR than in GST returns, then the purchases must be bogus. The said conclusion is clearly fallacious one and unsustainable in law. The impugned purchases have duly been recorded in regular books of accounts and supported by GST invoices and e-way bills. The purchases were linked to verifiable transport documents and the purchases were followed by recorded sales which has been accepted to be genuine by Ld. AO. At no stage of the proceedings, Ld. AO had undertaken a comparative analysis of the documentary evidences as filed by the assessee. The documents have not been examined / verified and no evidence was brought on record to show that the assessee did not actually receive the goods. There is no finding that the purchases were routed through accommodation entries or fictitious parties. The compliance history of the supplier could not be used to invalidate the genuine business transactions of the buyer especially when the same was supported by documentary evidences. Thus, the entire exercise of assessment was based on presumptions rather than a systematic transaction-based verification. The Ld. AO failed to demonstrate any cogent analysis or justification for such an extraordinary addition. Therefore, the impugned additions could not be sustained in law.
7. Our aforesaid view is duly supported by the decision of Hon’ble Apex Court in the case of Odeon Builders Pvt. Ltd. (110 Taxmann.com 64) dismissing revenue’s SLP against the decision of lower appellate forums holding that where the assessee had submitted purchase bills, transportation bills, confirmed copy of accounts and VAT Registration of sellers as also their Income-tax Return and payment was made through cheques, purchases could not be disallowed. The lower courts deleted the similar disallowance of purchases by observing that disallowance merely on the basis of third-party information denying cross-examination to the assessee who had prima-facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques & VAT Registration of the sellers & their Income Tax Return, would not be sustainable. Similar is the decision of Hon’ble Bombay High Court in the case of Vaman International Pvt. Ltd. (422 ITR 520); the decision of Hon’ble Gujarat High Court in the case of Tejua Rohitkumar Kapadia (2018 ITL 4828); the decision of Hon’ble Delhi High Court in the case of Radhika Creation (47 DTR 60). The Chandigarh Tribunal in the case of Prime Steel Industries (P.) Ltd. vs. DCIT (174 taxmann.com 547), on similar facts, deleted the full disallowance as made by Ld. AO on account of alleged bogus purchases. The bench referred to various judicial decisions while arriving at its conclusion. This case law also supports the case of the assessee. The other decisions as placed on record are on similar lines and duly support the case of the assessee.
8. Considering the entirety of facts and circumstances of the case, we uphold the order of Ld. CIT(A) in deleting the impugned addition as made by Ld. AO invoking the provisions of Sec.69C. The impugned order would not require any interference on our part.
9. The appeal stands dismissed.
Order pronounced on 13th January, 2026.
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