Case Law Details
Vineet Agarwal Vs ACIT (ITAT Delhi)
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeal filed by the assessee for Assessment Year 2017-18 against the order of the Commissioner of Income Tax (Appeals), Lucknow, which had sustained an addition of Rs.1,92,47,792 on account of alleged bogus purchases of jewellery.
The assessee, an individual engaged in the trading business of bullion and jewellery, earned business income along with income from house property and interest income. The accounts of the assessee were audited, and during the assessment proceedings, all books of account, including quantitative details, were produced before the Assessing Officer. The books of account and quantitative records submitted by the assessee were accepted by the Assessing Officer, and no rejection of books was made by invoking Section 145(3) of the Income Tax Act. The quantitative details relating to purchases were also accepted by the VAT authorities.
The assessee had filed the return of income declaring total income of Rs.16,88,080. However, the Assessing Officer completed the assessment under Section 143(3) by determining the total income at Rs.2,09,35,870 after making an addition of Rs.1,92,47,792 by treating the jewellery purchases as bogus. The Commissioner (Appeals) upheld the action of the Assessing Officer, leading to the present appeal before the Tribunal.
Before the Tribunal, the assessee contended that the alleged bogus purchases had either formed part of the sales or remained reflected in the closing stock. It was submitted that purchases amounting to Rs.1,92,47,792 had been incorporated into sales to the extent of Rs.53,88,946, inclusive of gross profit, while the remaining amount of Rs.1,48,74,451 was included in the closing stock. The assessee argued that the quantitative details corresponding to the purchases had been accepted by the VAT authorities and that the Assessing Officer had also accepted the books of account and quantitative records during assessment proceedings.
It was further contended that when the books of account had been accepted and the figures relating to sales and closing stock had not been disturbed, a complete disallowance of purchases on the allegation of bogus transactions was unsustainable. Alternatively, the assessee argued that even if the purchases were treated as non-genuine, the addition could at best be restricted to the gross profit element embedded in such purchases.
The Departmental Representative relied upon the orders passed by the lower authorities.
The Tribunal considered the submissions and examined the material available on record. It noted that it was an admitted fact that the disallowance of Rs.1,92,47,792 related to jewellery purchases which had either been incorporated into sales amounting to Rs.53,88,946 or formed part of the closing stock amounting to Rs.1,48,74,451. The Tribunal also observed that the quantitative details relating to such purchases had been accepted by the VAT authorities and that the Assessing Officer had accepted the books of account during the assessment proceedings without invoking Section 145(3).
Referring to the settled legal position, the Tribunal held that where the books of account have been accepted and the corresponding sales and closing stock have also been accepted, the entire amount of alleged bogus purchases cannot be disallowed. In such circumstances, the maximum addition that can be sustained is confined to the gross profit element attributable to those purchases.
Accordingly, in the interest of justice, the Tribunal directed the Assessing Officer to adopt the average gross profit ratio of the preceding five years and recompute the income of the assessee on that basis. With this direction, the appeal of the assessee was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Assessee against the order of Ld. CIT(A-3), Lucknow dated 28-10-2025 for the Assessment Year 2017-18 on the following grounds:-
1. That on the facts and circumstances of the case and in the law the CIT(A) has manifestly erred in sustaining disallowance of Rs. 1,92,47,792/- on account of purchases of jewellery as made by the AO by alleging the same to be in the nature of bogus purchases.
2. That on the facts and circumstances of the case and in the law the CIT(A) has manifestly erred in sustaining disallowance of Rs. 1,92,47,792/- on account of purchase of jewellery when as a matter of fact the said purchases have been incorporated in sales to the extent of Rs. 53,88,946/- inclusive of gross profit and in the closing stock to the extent of Rs. 1,48,74,451/- and that the quantitative details with respect to purchase of jewellery have also been accepted by the concerned VAT authorities and the books of accounts of assessee having also been accepted by the AO in the course of assessment proceedings.
3. That on the facts and circumstances of the case and in the law there can be no disallowance of Rs. 1,92,47,792/- on account of purchases of jewellery as made by alleging the same to be in the nature of bogus purchase when the sale and closing stock emanating from the same have been duly accepted by the AO alongwith the books of accounts as furnished by the assessee in the course of assessment proceedings.
4. That without prejudice in any manner to the foregoing grounds of appeal, it is claimed in the alternative that even in a situation of disallowance of purchases by alleging the same to be bogus purchases (though the same has been seriously disputed by the appellant / assessee in the facts of present case) the maximum disallowance which can be sustained in the hands of the appellant/ assessee would be confined to the gross profit ratio as held in several authoritative rulings on the subject.
2. Brief facts of the case are that the assessee is an individual carrying trading business of bullion and jewellery and enjoys the business income besides income from house property and interest income. The accounts of the assessee were audited u/s. 44B of the Income Tax Act, 1961. Assessee submitted during the assessment proceedings all the books of accounts alongwith quantitative details duly maintained by the assessee. The books of accounts including quantitative details as submitted before the AO from time to time have been accepted by the AO and not rejected by invoking the provision of section 145(3) of the Act. Further the quantitative details with respect to purchases etc. have also been accepted by the concerned VAT authorities. The return of income was e-filed on 19.9.2017 showing total income of Rs. 1688080/-. The AO completed the assessment u/s. 143(3) on income of Rs. 20935870/- after making addition of Rs. 19247792/- for bogus purchases against which the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the action of the AO by dismissing the appeal of the assessee. Aggrieved, assessee is in appeal before us.
3. Ld. AR submitted that Ld. CIT(A) has erred in sustaining disallowance of Rs. 1,92,47,792/- on account of purchase of jewellery when as a matter of fact the said purchases have been incorporated in sales to the extent of Rs. 53,88,946/- inclusive of gross profit and in the closing stock to the extent of Rs. 1,48,74,451/- and that the quantitative details with respect to purchase of jewellery have also been accepted by the concerned VAT authorities and the books of accounts of assessee having also been accepted by the AO in the course of assessment proceedings. It was the further submission that there can be no disallowance of Rs. 1,92,47,792/- on account of purchases of jewellery as made by alleging the same to be in the nature of bogus purchase when the sale and closing stock emanating from the same have been duly accepted by the AO alongwith the books of accounts as furnished by the assessee in the course of assessment proceedings. It was further submitted that once the books of accounts have been accepted and more particularly the figures of sales and closing stock have also been accepted then the maximum disallowance which can be made with respect to alleged bogus purchase would be confined to the gross profit ratio.
4. Ld. DR relied upon the orders of the authorities below.
5. We have heard both the parties and perused the records. Before us, during the hearing, Ld. AR to support his aforesaid contentions has filed a small paper book containing pages 1-70 of the compilation of following case laws:
– Decision of ITAT Raipur Bench in the case of Balaji Rice Industries vs. ITO (2025) 171 taxmann.com 612.
– Decision of Gujarat High Court in the case of PCIT vs. Rakesh Kailashchand Jain (2023) 156 taxmann.com 82 (Guj)
– Decision of Gujarat High Court in the case of PCIT vs. Mohit Pukhraj Kawdiya (2025) 181 taxmann.com 712 (Guj.)
– Decision of Gujarat High Court in the case of Vijay Trading Co. vs. ITO (2016) 76 taxmann.com 366 (Guj.)
– Decision of Delhi ITAT in the case of DCIT vs. Sharp Mint Ltd. (2024) 159 taxmann.com 1381
– Decision of Mumbai ITAT in the case of Indravadan Hanjarimal Jain vs. DCIT (2025) 180 taxmann.com 308.
– Decision of Surat ITAT in the case of DCIT vs. Center Point Gems (P) Ltd. (2024) 164 taxmann.com 662.
5.1 It is an admitted fact that disallowance of Rs. 1,92,47,792/- was made on account of purchase of jewellery, however, the said purchases have been incorporated in sales to the extent of Rs. 53,88,946/- inclusive of gross profit and in the closing stock to the extent of Rs. 1,48,74,451/- and that the quantitative details with respect to purchase of jewellery have also been accepted by the concerned VAT authorities and the books of accounts of assessee having also been accepted by the AO in the course of assessment proceedings. It is settled law that that once the books of accounts have been accepted and more particularly the figures of sales and closing stock have also been accepted then the maximum disallowance which can be made with respect to alleged bogus purchase would be confined to the gross profit ratio. Accordingly, in the interest of justice, we direct the AO to adopt the average of GP for the last five years and accordingly re-compute the income of the assessee.
6. In the result the appeal of the assessee is partly allowed.
Order pronounced in the open court on 05-06-2026.
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