Shankar Lal Vs ITO (ITAT Delhi)
Delhi ITAT: Entire Bogus Purchase/Sales Amount Cannot Be Taxed When Books & Sales Are Not Rejected; Only 0.5% Commission Income Taxable
The Delhi ITAT granted substantial relief to an assessee engaged as a kachha aadti/commission agent in food grains, holding that where the regular books, audited accounts, stock records and corresponding sales have not been rejected, the entire amount of allegedly bogus transactions cannot be treated as unexplained income.
For AY 2018-19, the AO had made an addition of ₹14,86,489, treating sales made to a particular party as bogus. The assessee contended that he earned only a small commission of about 0.5% on the turnover and, therefore, at the highest, only such commission/profit element could be brought to tax.
The Tribunal noted that the assessee had furnished the return, balance sheet, trading account, Form 3CB, stock registers, sales bills, ledger accounts and bank statements, and these records, including quantitative details and corresponding receipts, had not been doubted. The assessee had turnover exceeding ₹9 crore, of which only a small portion was questioned.
The ITAT also noticed that the AO had substantially relied upon the Investigation Wing findings and statements of third parties without giving the assessee an opportunity to cross-examine the vital witnesses. At the same time, the CIT(A) had not properly dealt with the evidence furnished by the assessee.
The Tribunal held that even if the transactions were regarded as bogus/unsubstantiated, only the profit embedded therein could be subjected to tax and not the entire transaction value. It relied upon the Bombay High Court decision in PCIT v. S.V. Jiwani and the recent Delhi High Court ruling in PCIT v. Jotinder Steels and Tubes Ltd., dated 23.07.2026.
Accordingly, the ITAT modified the additions for both assessment years and directed the AO to restrict the addition to commission income at 0.5% of the impugned purchases. The assessee’s appeals were allowed.
Cases Discussed
- PCIT Versus Jotinder Steels and Tubes Ltd. (Delhi High Court), ITA 504/2025, order dated 23/07/2026
- Pr. CIT v. S.V. Jiwani (Bombay High Court), [2022] 145 taxmann.com 230 / [2023] 290 Taxman 178
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals preferred by the Assessee against the order of the Ld. National Faceless Appeal Centre, (NFAC), Delhi (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in appeals filed before him against the orders of the ld. Assessing Officer (hereinafter referred to as the Ld. AO, for short) passed u/s 147 r.w.s 144 r.w.s 144B of the Income-tax Act, 1961 (hereafter referred to as ‘the Act’). Further details of the orders of the lower authorities are as under: –
| ITA No. & AY | Ld. FAA who passed the appellate order | Appeal No. & Date of order of the Ld. FAA | AO who passed the assessment order & Date of order |
| 1673/D/26 2016-17 | NFAC, Delhi | DIN & Order No : ITBA/NFAC/S/250/2025- 26/1083926142(1) Dated: 20.12.2025 | Assessment unit, Income Tax Department, Dated 23.03.2024 |
| 1674/D/26 2018-19 | NFAC, Delhi | DIN & Order No : ITBA/NFAC/S/250/2025- 26/1083928342(1) Dated 20.12.2025 | Assessment unit, Income Tax Department, Dated 23.03.2024 |
2. The appeals were heard together as they involved common question of law and facts and it was ground No. 8 which was primarily argued and contested before us and for convenience the ground No. 8 for AY: 2018-19 is reproduced below:
8. That the Ld. CIT(A) erred in ignoring the consistent stand of the Appellant that he is a kachhaaadti/commission agent in food-grains, maintaining regularbooks, stock records and audited accounts, and that only a small commission margin of about 0.5% was earned on the disputed turnover, at best warranting estimation of commission income and not addition of entire gross sales as unexplained income.”
3. On hearing both sides we find that assesse is admittedly a kachhaaadti/commission agent and the addition was made of Rs.14,86,489/- in AY 2018-19, on the basis that the sales made to M/s Mahavir Prasad Suresh Kumar were bogus. Ld. Counsel has relied the books of account of the assesse and submitted that the sales have been doubted merely on assumptions and assesse was maintaining all regular books of accounts and quantified stock records and audited accounts were never doubted. It was submitted that even otherwise when the corresponding sales have not been doubted or disallowed admitting the genuine nature of trading activity the entire sales amount cannot be treated as unexplained income. In this context, ld. DR has however, relied the impugned orders.
4. We have considered the rival contentions and perused the material on record. Now, with regard to the contention of ld. AR we find substance that the return of income, balance sheet, trading account and Form 3CB, stock registers, sales bills and ledger account reflecting all quantitative details were there with the AO and same have not been doubted. The bankstatement of the assesse was also there and the same reflected the corresponding receipts. It was pointed out that the assesse has a turnover of over 9 crores and very small part of it has been doubted. We also find substance in the contentions of ld. Counsel that the impugned order of ld. AO does not reflect that assesse was given any opportunity to cross examine the vital witnesses whose statements became subject of drawing conclusions. The assessment order reflects that merely the findings of investigation wing have been relied to concluded that M/s Mamta Trading Co. proprietorship concern of Smt. Sudha Jain was dummy concern. Ld. CIT(A) has sustained the order observing that assesse had failed to establish genuineness of transaction by providing third party evidences such as transportation document weighment slips or confirmation from the alleged suppliers. However, with regard to the evidences of assesse no conclusion were drawn to show that the evidences of assesse were not considerable.
5. In the aforesaid circumstance we are of the considered view that when assesse pleads thatif at all, its sales are to be considered to be bogus it is only the commission income which could have been added as otherwise the financials of the assesse with regard to sales etc. have not been doubted. Thus, it is only the profit embedded in unsubstantiated purchases, corresponding to such sales, which can be subject to taxation. Reliance is placed on decision of Hon’ble Bombay High Court in the case of Pr. CIT v. S.V. Jiwani[2022] 145 taxmann.com 230/[2023] 290 Taxman 178, Hon’ble Bombay High Court in the case of Pr. CIT v. S.V. Jiwani[2022] 145 taxmann.com 230/[2023] 290 Taxman 178 and decision of Hon’ble Delhi High Court in PCIT Versus Jotinder Steels and Tubes Ltd ITA 504/2-25 order dated 23/07/2026.
6. Accordingly we are inclined to sustain the ground No. 8. The appeal of the assesse for both the years is sustained. The impugned additions are modified with a direction to the ld.AO to add the additional income of commission @ of 0.5% on the impugned purchases. In the aforesaid terms the appeals are allowed.
Order pronounced in the open court on 07.08.2026
