ITAT Delhi Deletes Rs 10.13 Crore Bogus Purchase Disallowance Based on Mere Allegations

Jammu Pigments Limited Vs Assessment Unit (ITAT Delhi)

Summary: The appeal was filed by Jammu Pigments Limited against the order dated 12.09.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, arising from the assessment order dated 19.03.2025 passed under Sections 147 read with 144B of the Income Tax Act, 1961 for Assessment Year 2018-19.

The assessee was engaged in manufacturing and trading of Lead metal Ingots & Alloys, Zinc oxide, chemicals and transportation. It had filed its return on 28.10.2018 declaring total income of INR 8,48,94,303/-. The Assessing Officer initiated proceedings under Section 148A after receiving information concerning alleged diversion of 22 consignments of Lead dross amounting to INR 5,20,83,109/-. The AO alleged that the goods had not been used by the assessee in manufacturing, had instead been transferred to brokers and sold outside the books, with incorrect input tax credit claimed under the GST Act.

The AO also alleged that purchases of INR 27,83,45,325/- from Shri Ajit Singh were accommodation entries because Shri Ajit Singh had allegedly purchased goods from Shri Dinesh Chand, proprietor of Manvee Traders, who was stated to be involved in issuing fake invoices. The assessee furnished details concerning the disputed purchases and submitted that the Lead dross was of inferior quality and had therefore been sent for re-job work. It also maintained that no incorrect input tax credit had been claimed.

The AO nevertheless disallowed the entire purchases of INR 10,13,27,894/- made from M/s Mittal Pigment Pvt. Ltd., Kota and Jain Metal Rolling Mills, Tamil Nadu. A further disallowance of purchases held to be non-genuine amounting to INR 29,34,54,943/- was made. The AO also made a disallowance under Section 36(1)(va) of INR 3,16,728/- towards delayed payment of employees’ contribution to PF & ESI. The total income was accordingly assessed at INR 47,99,93,868/-.

The CIT(A) dismissed the assessee’s appeal. Before the Tribunal, the assessee did not press Grounds Nos. 1 and 2, which were consequently dismissed.

On Ground No. 3, concerning the disallowance of INR 10,13,27,894/-, the assessee submitted that the 22 consignments had been duly recorded in its books and stock register. It relied upon the mandatory e-way bill system, invoices, transportation details, toll receipts, GST returns, job-work documentation and Form ITC-04. The assessee stated that the inferior-quality Lead dross was sent to a job worker for conversion into Lead ingots and that the raw material, transfer for job work and subsequent receipt of the processed Lead ingots were all recorded in the stock register.

The assessee further submitted that the INR 75 Lakhs GST payment made during the survey had been deposited in the electronic cash ledger and had never been utilised against the alleged bogus ITC. It also pointed out that the alleged diverted purchase figure of INR 5,20,83,109/- included GST of INR 79,44,881/-, and that INR 52,76,115/- represented “Lead Secondary” purchases which were never alleged to have been diverted.

The Revenue, on the other hand, supported the lower authorities and contended that non-utilisation of the purchased material in manufacturing and the deposit of INR 75 Lakhs in the GST cash ledger supported the allegation of an incorrect ITC claim.

The Tribunal found that the AO had information concerning only the 22 consignments received between 01.07.2017 and 20.12.2017, yet the entire purchases made from the two suppliers during the previous year, amounting to INR 10,13,27,894/-, had been disallowed. The Tribunal observed that there was no information or material before the AO concerning purchases from those suppliers prior to 01.07.2017 or after 20.12.2017.

The Tribunal also noted that 14 consignments from M/s Mittal Pigments Pvt. Ltd., Kota, Rajasthan were covered by the e-way bill system. It held that the existence of the e-way bills meant that it could not be said that the goods were never transported. The AO had also failed to bring material on record supporting the allegation that the goods were diverted to brokers.

The Tribunal considered the assessee’s documentary evidence, including ledger accounts, invoices, transportation details, toll receipts, GST returns, electronic cash ledger and stock register. It found that the 22 consignments were recorded in the stock register and that their transfer for job work and subsequent receipt of Lead ingots were also recorded. It further observed that GST authorities had not doubted the transactions which were reported in the GST returns.

The Tribunal therefore held that the assessee had successfully demonstrated that the goods were received and used in production after re-job work. It also found that the INR 75 Lakhs deposited in the GST cash ledger had never been adjusted against the alleged incorrect ITC. In the absence of information concerning the other periods, the Tribunal held that purchases made prior to 01.07.2017 and after 20.12.2017 could not be disallowed. The disallowance/addition of INR 10,13,27,894/- was accordingly deleted and Ground No. 3 was allowed.

Ground No. 4 concerned purchases stated in the order to amount to INR 29,34,54,943/- from three parties: Shri Ajit Singh, proprietor of RR Enterprises, INR 27,83,45,325/-; Shri Anant Rastogi, proprietor of Reliable Trading, INR 88,63,965/-; and Shri Ramesh Bansal, proprietor of Agarwal Trading, INR 46,50,000/-.

The assessee submitted invoices, toll receipts, confirmations and other supporting evidence. It also contended that it had requested cross-examination of persons whose statements were relied upon by the Revenue, but neither the relied-upon material nor an opportunity for cross-examination had been provided.

In respect of Shri Ajit Singh, the assessee relied upon his confirmations, invoices, affidavit and financial statements, including his trading and profit and loss account showing total sales of INR 81.30 crores. It also referred to GST returns of R.R. Enterprises and the assessment order under Section 143(3) for AY 2018-19 in Shri Ajit Singh’s case. According to the assessee, that assessment had been selected for complete scrutiny for verification of business purchases and no adverse inference had been drawn regarding the purchases made by Shri Ajit Singh, including purchases from Shri Dinesh Chand of Manvee Traders.

The Revenue contended that information available on the Insight Portal indicated that the suppliers were engaged in providing accommodation entries and bogus bills for availing incorrect input credit.

The Tribunal, while considering the issue of cross-examination, relied upon the Supreme Court decision in Andaman Timber Industries vs. CCE, reported in (2015) 62 taxmann.com 3 (SC), as quoted in the order. The Tribunal stated that a witness’s statement could not be the sole basis of assessment without giving an opportunity of cross-examination and that such denial constituted a serious flaw.

The Tribunal also referred to the Special Bench decision in GTC Industries Ltd. vs. ACIT, reported in 80 taxmann.com 284 (Mumbai-Trib.) (SB), in considering the principle that suspicion, however strong, cannot constitute the basis of an addition without material evidence.

Applying these considerations, the Tribunal held that there was no reason to treat the purchases from Shri Ajit Singh as bogus. It noted that Shri Ajit Singh’s assessment had been selected for complete scrutiny concerning business purchases and no adverse inference had been drawn by the Revenue. The addition relating to purchases from Shri Ajit Singh amounting to INR 27,83,45,325/- was therefore deleted.

As regards Shri Anant Rastogi and Shri Ramesh Bansal, the Tribunal noted that the assessee had furnished supporting details, the goods had been brought to its factory in Jammu & Kashmir, inward movement was subjected to toll charges, the purchases were supported by transport documents and payments were made through banking channels. The AO had not pointed out defects in the documents or brought contrary material apart from the information available on the Insight Portal. The Tribunal accordingly held that the AO had failed to justify the allegation that the genuine purchases from those two parties were bogus. The addition stated in paragraph 26 as INR 1,35,12,965/- was deleted and Ground No. 4 was allowed.

Ground No. 5 concerned an addition of INR 3,16,728/- under Section 36(1)(v) of the Act towards employees’ contribution to PF. The assessee contended that the employees’ contribution towards PF & ESI had been paid on or before the due date for filing the return of income. The Tribunal, however, held that the issue stood settled in favour of the Revenue by the Supreme Court decision in Checkmate Services P. Ltd. vs. CIT, reported in [2022] 143 taxmann.com 178 (SC). It therefore found no error in the CIT(A)’s order upholding the addition and dismissed Ground No. 5.

The Tribunal consequently partly allowed the assessee’s appeal. The purchase disallowances were deleted, while the employees’ PF/ESI contribution disallowance was sustained.

Cases Discussed

• Andaman Timber Industries vs. CCE, (2015) 62 taxmann.com 3 (SC) — considered on the requirement of providing an opportunity of cross-examination where statements of witnesses are relied upon for making an assessment.
• GTC Industries Ltd. vs. ACIT, 80 taxmann.com 284 (Mumbai-Trib.) (SB) — referred to while considering additions based on suspicion, surmises and the theory of preponderance of probability.
• Checkmate Services P. Ltd. vs. CIT, [2022] 143 taxmann.com 178 (SC) — followed in holding that the issue concerning delayed employees’ PF/ESI contribution was settled in favour of the Revenue.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI

The present appeal is filed by assessee against the order dated 12.09.2025 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2017-18/10468374 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 19.03.2025 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2018-19.

2. Brief facts of the case are that the assessee company was engaged in the business of manufacturing and trading of Lead metal Ingots & Alloys and Zinc oxide, chemicals and transportation. The return of income for the year under appeal was filed on 28.10.2018, declaring total income of INR 8,48,94,303/-. Based on the information received, the AO initiated the proceedings u/s 148A of the Act and in terms of the order passed u/s 148A(d) dated 19.03.2024, the case of the assessee was re-opened for escapement of income on account of diversions of 22 consignments of Lead dross of INR 5,20,83,109/- instead of using them by itself and take incorrect ITC under GST Act. Further, the AO observed that the assessee has made purchases of INR 27,83,45,325/- from Shri Ajit Singh who happened to be a conduit and purchased the goods from layers of Shri Dinesh Chand [Prop. of Manvee Traders] who was involved in issuing fake invoices, therefore the purchases made by assessee from Ajit Singh is accommodation entries. Thereafter, various notices were issued to the assessee in reply, the assessee has filed all the relevant details with respect to the purchase of 22 consignments of Lead. It was stated that goods so purchased was of inferior quality therefore, the same was sent for re-job work and no incorrect input credit was claimed. Further with respect to the purchase made from Shri Ajit Singh and other -2 suppliers namely, from Shri Anant Rastogi of INR 1,04,59,479/- & from Shri Ramesh Bansal of INR 46,50,139/-, the assessee has filed all the relevant details and submits that purchases were made in regular course of business. However, the AO has not accepted the contention of the assessee and made the additions of the entire purchase made from M/s Mittal Pigment Pvt. Ltd., Kota & Jain Metal Roling Mills, Tamil Nadu of INR 10,13,27,894/-. Besides this, disallowance of the purchase held as non-genuine of INR 29,34,54,943/- and further disallowance u/s 36(1)(va) of the Act was made for delayed payment of employee’s contribution towards PF & ESI of INR 3,16,728/- accordingly, the total income of the assessee was assessed at INR 47,99,93,868/-.

3. Against the said order, an appeal was filed before Ld. CIT(A) wherein the assessee has filed detailed written submission however, Ld. CIT(A) in summary manner, has dismissed the appeal of the assessee.

4. Aggrieved by the said order, the assessee filed an appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.

5. During the course of hearing, Ld. AR for the assessee has not pressed Ground of appeal Nos. 1 & 2 therefore, the same are dismissed.

6. Ground of appeal No. 3 is with respect to the disallowance of purchase of INR 10,13,27,894/- by holding that the purchases to this extent was not consumed in the productions but was sold outside the books and bogus of incorrect ITC was claimed under GST Act.

7. Briefly stated the facts involved in this case are that the AO received information that the assessee has diverted 22 consignments of Lead dross amounting to INR 5,20,83,109/- purchased during the period between 01.07.2017 to 20.12.2017 from 02 parties namely, M/s. Mittal Pigments Pvt. Ltd. (14 consignments) and M/s. Jain Metal Roling Mills, Tamil Nadu (08 consignments). The AO alleged that the assessee has not used these goods in its manufacturing and has transferred the same to some brokers and thus, sold the same goods outside the books and claimed incorrect ITC. The AO further observed that the assessee has paid INR 75.00 Lakhs as GST during the course of survey carried out by DGCI Wing Ludhiana which further confirmed the allegation that the assessee has made bogus claim of ITC under GST Act.

8. Before us, Ld. AR submitted that with regard to the allegation of diversion of 22 consignments received during the period from 01.07.2017 to 20.12.2017 of INR 5,20,83,109/-, the AO has disallowed entire purchases made of INR 10,13,27,894/- from 02 suppliers namely Mittal Pigments Pvt. Ltd. and M/s. Jain Metal Rolling Mills. Ld.AR submits that goods were duly recorded in the books of accounts and were purchased after introduction of mandatory e-way bills system therefore, they cannot be diverted to any other party against the same e-way bill. Ld.AR further submits that during the course of assessment proceedings, it was stated before the AO that all the goods were duly recorded in the books of accounts of the assessee and necessary stock register as filed before the AO are placed in the Paper Book. Ld. AR submits that goods were of inferior quality and thus was sent for re-job work of converting led dross into lead ingots to M/s R. R. Pigments Pvt. Ltd. under legitimate challans issued and duly reported in the GST returns for job work filed in Form ITC-04. All these documents were filed before the AO and placed at pages 241 to 488 of the Paper Book. Ld. AR submits that once the goods purchased were duly recorded in the books of accounts and part of the total stock available where input of the raw material, transfer of job work and received back of lead ingots were duly accounted for therefore, merely on assumptions and presumptions without bringing on record any contrary material, it cannot be said that the goods so received were sold outside the books of accounts.

8.1. Regarding the payment of GST of INR 75 Lakhs during the course of survey, Ld. AR submits that the said amount was deposited in the cash ledger and never utilized against the alleged bogus ITC claim for which the necessary copy of the cash ledger was submitted before the lower authorities and placed in the Paper Book pages 422 to 429. Ld.AR further submits that even the DGGI has not doubted these purchase, nor any adverse inference was taken with respect to the purchases made post 20.12.2017 till 31.03.2018. Ld.AR submits that the gross value of purchases alleged as diverted of INR 5,20,83,109/- includes the GST of 79,44,881/- and thus the net value of purchase was of INR 4,41,38,228/-. Ld. AR further submits that out of such purchases of INR 4,41,38,228/-, a sum of INR 52,76,115/- relates to “Lead Secondary” which were never alleged as diverted and only led dross purchases by the assessee were alleged as diverted. He therefore, prayed that the entire addition made on mere presumption thus deserves to be deleted.

9. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that non-utilization of material so purchased in the manufacturing, has been admitted by the assessee itself and the assessee has deposited INR 75 Lakhs in the cash ledger which further proved that the assessee has accepted the incorrect claim of ITC on such purchase therefore, the AO has rightly made the disallowance which deserves to be uphold.

10. Heard the contentions of both the parties at length and perused the material available on record. It is observed that the AO has information that the assessee has diverted 22 consignments of Lead dross purchased from 02 parties namely Mittal Pigments Pvt. Ltd. (14 consignments) and Jain Metal Rolling Mills (08 consignments) to brokers, totaling to INR 5,20,83,109/- however, the AO has made the addition/disallowance of entire purchases made from these 02 parties during the previous year amounting to INR 10,13,27,894/-. These alleged 22 consignments were received during the period from 01.07.2017 to 20.12.2017. There was no information/material available with the AO to hold the purchases made from these 02 parties prior to 01.07.2017 or post to 20.12.2017 therefore, no disallowance could be made for the purchase made during these two periods.

11. Coming to the purchases made through 22 consignments during the period from 01.07.2017 to 20.12.2017, it is observed that 14 consignments were received from M/s. Mittal Pigments Pvt. Ltd of Kota, Rajasthan where the State of Rajasthan had introduced e-way bills system according to which every consignment should necessarily be transported carrying e-way bills generated through e-portal of GST Department and is verified by the authorities at any stage. Therefore, it cannot be said that the goods purchased were never transported. Regarding allegation of the diversion of goods to the brokers except making such bald allegation, the AO has failed to brought on record any material in support of the allegation so made. On the contrary, it was the claim of the assessee that due to inferior quality, the same could not be used directly in manufacturing process and, therefore, the same was sent for re-job work to the job worker M/s P.R. Pigment P. Ltd. through challan as prescribed under GST law and necessary information of job work was reported in the GST returns filed for the respective periods. Assessee has filed all the relevant documents with respect to the purchases which includes ledger accounts of both the parties, invoices alongwith transportation details and toll receipts, declaration in GST returns for sending the material for job work and copy of electronic cash ledger of GST substantiating the claim of non-adjustment of payment of INR 75 Lakhs against the alleged out of book sales of these 22 consignments/ allegation of bogus ITC. All these documents are placed in Paper Book page 241 to 429. Further, the assessee has filed the stocks statement of raw material wherein goods so purchased through these 22 consignments were duly recorded in the stock register and further their transfer for job work and subsequent receipt back of the lead ingots were also duly recorded. The copy of stock register so filed is placed at pages 430 to 488 of PB. The evidences filed of the purchases so made of INR 5,20,83,109/- including GST of INR 79,44,881/- is tabulated as under:-

12. The lower authorities had failed to appreciate these vital details and on mere assumptions and presumptions and solely based on the information received without verifying the same with the details filed by the assessee hold that the assessee has made sales of these 22 consignments out of books. It is further observed that the AO was silent about the purchases of Led Secondary of INR 52,76,115/- which were part of these 22 consignments, since the allegation of out of books sales out of 22 consignments was for led dross only. Once the assessee has been able to establish that the goods have been purchased and duly recorded in the books of accounts and necessary entries were available in the stock records. Further, GST authorities have never doubted these transactions which were duly reported in the GST returns where the goods sent for job work was informed indue course. All these facts lead to believe that the contention raised by the assessee is correct and AO on mere assumption has alleged the diversion of such goods purchased without having cogent material on record. Further the purchases made for the entire year was disallowed.

13. Under these circumstances, we are of the considered view that the assessee has successfully demonstrated that goods purchased through these 22 consignments were duly received and used in the production after getting re-job work of purified them from defective led dross to pure led ingots. Further, the assessee has also established that GST payment of INR 75 Lakhs deposited under cash ledger was never adjusted against the so-called incorrect claim of ITC on such purchases. Further in absence of any information, purchases for the period prior to 01.07.2017 and post 20.12.2017 cannot be disallowed. IN view the above discussions, disallowance/addition made of INR 10,13,27,894/- is hereby, deleted. The Ground of appeal No.3 raised by the assessee is thus allowed.

14. Ground of appeal No.4 is with respect to the disallowance of purchase of IRN 29,34,54,943/- made from 03 parties as under:-

(i) Shri Ajit Singh [Proprietor of RR Enterprises] INR 27,83,45,325/-

(ii) Shri Anant Rastogi [Proprietor of Reliable Trading] INR 88,63,965/-

(iii) Shri Ramesh Bansal [Proprietor of Agarwal Trading] INR 46,50,000/-

15. The AO by alleging that the information was received from Investigation Wing that these 03 parties were involved in providing accommodation entries of purchases had made the disallowances.

16. at this juncture, it is relevant to state that in the case of Shri Ajit Singh, the allegation was that Shri Ajit Singh has purchased the goods from one Shri Dinesh Chand, Proprietor of Manvee Traders who was engaged in issuing fake invoices for availing the bogus input tax credit of GST accordingly, the AO was of the view that the corresponding sales made by Shri Ajit Singh to the assessee was out of the purchases made from Shri Dinesh Chand and therefore, the said purchases were only on papers and no real goods were received and thus, are bogus purchases.

17. Before us, Ld.AR for the assessee submits that during the course of assessment proceedings, in response to the notice issued alongwith show cause, the assessee has filed all the relevant documents supported by the necessary evidences to establish that the purchases made from these 03 parties were genuine transactions. The evidences contained copies of the invoices, toll receipts, confirmations etc. All these documents are placed at pages 489 to 718 of PB.

18. Ld.AR further submits that the assessee requested for the cross-examination of the persons whose statements were relied upon the by the revenue however, neither any material was provided which was relied upon nor any opportunity for cross-examination was allowed. Ld.AR submits that during the course of search carried out by DGGI on 31.03.2018, no adverse inference was drawn with respect to the purchases made from these 03 parties and GST authorities have accepted the genuineness of the purchase from these parties and allowed input credit as claimed. Ld.AR further submits that material purchased were brought to the factory situated in the State of Jammu & Kashmir whereas per “The levy of Tolls Act, 1995” whatever goods entered into the State of Jammu & Kashmir is subject to levy of toll charges and thus, every single Kilo Grams of goods was verified by the State Government authorities who charged the toll taxes and the necessary copies of the every purchases, transport bilty and toll receipts were submitted before the lower authorities. Ld. AR submits that in respect of purchase made from Shri Ajit Singh, the assessee has filed the confirmations, copy of invoices and further filed the affidavit of Shri Ajit Singh & his financial statements. Ld.AR drew our attention to page 495 of the Paper Book which is trading in Profit & Loss Account for the year ended on 31.03.2018 of Shri Ajit Singh, Proprietor of R.R. Enterprises, wherein total sales of INR 81.30 crores were made by him. He further drew our attention to pages 496 to 511 of the Paper Book which are the copies of GST returns filed by M/s. R. R. Enterprises and finally at pages 706 to 707 of the Paper Book which is the copy of the assessment order passed u/s 143(3) for AY 2018-19 i.e. year under appeal before us in case of Shri Ajit Singh. Ld.AR submits that the case of Shri Ajit Singh was selected for complete scrutiny for the examination of business purchases and after considering the submissions made and the examination of the records, no adverse inference was drawn by the Department in the case of Shri Ajit Singh with respect to the purchases made by him which includes the purchases from Shri Dinesh Chand of M/s Manvee Traders who was alleged as entry provider. Ld. AR submits that once the purchases in the hands of Shri Ajit Singh have been held as genuine which inter-alia includes the purchases from Shri Dinesh Chand of M/s. Manavi Traders, the corresponding sales of the goods to the assessee cannot be held as bogus and mere accommodation entries. He, therefore, requested for the deletion of the addition so made on account of purchases made from Shri Ajit Singh. With respect to the purchases made from other 02 parties, Ld.AR submits that assessee has provided the confirmed copies of the accounts of the transactions with these 02 parties and entire payments were made through banking channel. The assessee further provides the copy of the invoices and transport receipts alongwith toll charges levied by the State of Jammu & Kashmir and copy of the stock register. Ld.AR submits that no defect whatsoever was pointed out in the details so filed and therefore, requested for the deletion of the additions made towards the purchases from these 02 parties also.

19. Per contra, Ld. CIT DR vehemently supported the orders of the lower authorities and submits that there was information available in Insight Portal of the assessee accordingly to which it was clearly stated that based on the inquiry conducted by the Investigation Wing that the suppliers were engaged in the business of providing accommodation entries of bogus bills for availing incorrect input credit. Ld. CIT DR thus, submits that AO in terms of the show cause notice issued, has clearly stated that all these purchases were not genuine purchases for which he placed reliance on the observations of Ld. CIT(A) made in para 7.2 of its order wherein Ld. CIT(A) has reproduced the information so available on the Insight portal. Ld. CIT DR submits that once the suppliers were found to be bogus therefore, the corresponding purchases made from them could not be held as genuine purchases and therefore, the AO has rightly treated the said purchases as non-genuine and made the addition which deserves to be uphold. He prayed accordingly.

20. Heard the contentions of both the parties and perused the material available on record. In this Ground of appeal, purchases of INR 29,34,54,943/- held as bogus is challenged. These purchases were made from Three (03) parties comprising of INR 27,83,45,325/- from M/s R. R. Enterprises (proprietor Shri Ajit Singh); of INR 88,63,965/- from Reliable Trading (Proprietor Shri Anant Rastogi); and of INR 46,50,000/- from Agarwal Trading (proprietor Shri Ramesh Bansal). It is observed that during the course of assessment proceedings to substantiate the claim of genuine purchases, following documents were filed by the assessee:-

21. The assessee also requested for the cross-examination of the persons whose statements were relied upon by the AO and further requested for supply of the material relied upon however, neither any such material was ever supplied nor any opportunity of cross-examination was allowed though in all the cases, it was the allegation of the Revenue that assessee has made non-genuine purchases therefore, it is the duty of the AO to provide all the material to the assessee and to allow the opportunity of cross-examination. As they are the witnesses of the Revenue whose statements were used against the assessee, therefore, the AO should have allowed the opportunity of cross-examination before placing reliance on the said statements. The Hon’ble Supreme Court in case of Andaman Timber Industries vs. CCE, Kolkata (2015) reported in 62 taxmann.com 3 (SC) while dealing with the issue has held in para 5 to 8 as under:

“5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue.

6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice.”

21.1. Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.

22. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT reported in (2017) 166 ITD158 (Mum.)(SB) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:-

46. “In situations like this case, one may fall into realm of ‘preponderance of probability’ where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of ‘twin branding’ and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.”

22.1. Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has made bogus purchases from these parties.

23. Now coming to the party-wise details filed as tabulated herein above, Firstly, we take purchases from M/s. R. R. Enterprises (Proprietor Shri Ajit Singh) of INR 27,83,45,325/-. As observed above, the assessee has filed all the necessary details to establish the genuineness of purchases made. Further, the assessee has filed an affidavit of Shri Ajit Singh stating that the goods supplied to the assessee was genuine supplies which remained uncontroverted. Besides this, most glaring fact which was ignored by the lower authorities is that in the case of Shri Ajit Singh, assessment was selected for complete scrutiny under CASS for the reason of verification of “business purchases” however, in the assessment order passed, no adverse inference was drawn by the Revenue with respect to the purchases declared by him after considering the submissions made and verifications of the evidences. It is relevant to state here that in the case of assessee, sole allegation of the AO is that Shri Ajit Singh had made purchases of INR 27,83,45,325/- from Manavee Traders of Dinesh Chand who was alleged as entry provider and providing bogus accommodation entries of sales for availing bogus input credit under GST Act. If the Revenue has information in its possession that Shri Ajit Singh has made purchases from Shri Dinesh Chand which were in the nature of accommodation entities, there must be some observations/additions in the hands of Shri Ajit Singh in the order passed u/s 143(3) of the Act dated 03.03.2021 for the assessment year before us. The said order is reproduced as under:

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24. As could be observed from the aforesaid assessment order passed in the case of Shri Ajit Singh that no allegation/observations whatsoever was made by the AO of Shri Ajit Singh suggesting that the purchases made by Shri Ajit Singh were not genuine purchases therefore, the corresponding sales of such goods to the assessee cannot be held as non-genuine/bogus and accordingly, we find no reason to hold the purchases made by assessee from Shri Ajit Singh as bogus purchases. In view of above discussion, the addition made towards purchases made from Shri Ajit Singh of INR 27,83,45,325/- is hereby deleted.

25. Secondly, purchase of INR 1,35,13,965/- (INR 88,63,965/- from Shri Anant Rastogi of Reliable Trading and of INR 46,50,000/- from Shri Ramesh Bansal of Agarwal Trading), it is observed that the assessee has filed all the necessary details, as per table reproduced herein above, to prove the purchases made from them. It is further observed that the AO has not carried out any independent inquiries or investigations and solely relied upon the information available in the Insight Portal. It is also a matter of fact that the goods were purchased and brought to factory premises situated in the State of Jammu & Kashmir where all the inward transfer of goods is subjected to levy of toll charges in terms of “The levy of Toll Act, 1995”, and accordingly, the said goods were duly verified by the Official of State of Jammu & Kashmir. Therefore, it cannot be said that there was no moment of goods. Further, the purchases have duly been backed by the necessary transport bilties and payments were made through banking channels. The AO has not pointed out any defect in the details so filed nor any contrary material except the so-called information available in Insight Portal has been brought on record to rebut the clinching evidences filed by the assessee to prove the genuineness of the purchases made.

26. Considering the entirety of the facts and circumstances of the case, we are of the considered view that the AO has failed to justify the allegation made for holding the genuine purchases made from these 02 parties as bogus. Accordingly, the addition made in respect to the purchases of Rs. 1,35,12,965/- made from the above stated two parties is hereby deleted. Ground of appeal No.4 raised by the assessee is accordingly, allowed.

27. Ground of appeal No.5 raised by the assessee is with respect to the addition of INR 3,16,728/- made u/s 36(1)(v) of the Act towards the employees contribution for PF.

28. Heard the contentions of both the parties at length and perused the material available on record. The claim of the assessee was that the amount of employee’s contribution towards PF& ESI was paid on or before the due date of filing of return of income. However, in terms of the order of Hon’ble Supreme Court in the case of Checkmate Services Pvt.Ltd. vs CIT reported in [2022] 143 taxmann.com 178 (SC), this issue is settled in favour of the Revenue and therefore, we find no error in the order of Ld. CIT(A) in upholding the addition so made. Accordingly, Ground of appeal No.5 raised by the assessee is dismissed.

29. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 08.07.2026.