Anuj Sharma Vs ITO (ITAT Delhi)
Sales Accepted—Entire Purchases Cannot Be Treated As Bogus: Delhi ITAT Restricts ₹60.14-Lakh Addition To ₹6 Lakh
Facts
The assessee filed his return declaring income of ₹4,86,570. Based on information received through the INSIGHT portal from CRIU/VRU, the Assessing Officer alleged that the assessee had obtained accommodation entries in the guise of purchases from M/s Gauri Shankar Trading Co.
The purchases recorded in the profit and loss account from the said concern amounted to ₹50,96,555. The Assessing Officer, however, considered an amount of ₹60,13,941, apparently after including GST of ₹9,17,386, and treated the whole amount as unexplained expenditure under section 69C.
The Department relied heavily upon the statement of the alleged proprietor of the supplier concern. The person concerned reportedly denied having carried on the business and claimed that his identity documents had been misused. The Assessing Officer also noticed that the supplier had substantial transactions in its GST records, whereas no corresponding turnover was reflected in its income-tax return.
The assessee furnished purchase invoices, GST returns and stock records and submitted that the purchases were duly recorded in the regular books of account. It was further contended that the corresponding sales had been accepted and that it was commercially impossible to make the sales without making the underlying purchases.
Nevertheless, the Assessing Officer held that the assessee had failed to establish the actual delivery of goods through transportation documents, e-way bills, delivery challans, weighbridge slips and satisfactory payment evidence. He consequently made an addition of ₹60,13,941 under section 69C. A further addition of ₹16,146 was made on account of an alleged discrepancy in income from other sources.
The CIT(A)/NFAC confirmed the additions.
Tribunal’s decision
The Tribunal found that neither the assessee’s case nor the Revenue’s case could be accepted in its entirety.
The important finding recorded by the Tribunal was that the Revenue had accepted the assessee’s sales and the trading results. Once the sales were accepted, it could not logically be held that no purchases whatsoever had been made. Goods corresponding to the accepted sales must necessarily have been procured from some source.
Therefore, the entire amount of purchases could not be treated as unexplained expenditure merely because the named supplier was doubtful or could not be independently verified.
However, the Tribunal also noticed a material evidentiary deficiency in the assessee’s case. Although purchase bills, GST records and stock details were produced, the assessee could not furnish the critical documents relating to the actual movement and delivery of the goods, such as transport receipts, e-way bills, delivery challans and weighbridge slips.
Having regard to these deficiencies, the Tribunal considered it appropriate to sustain an estimated addition of ₹6 lakh, described by it as being 10% of the total purchases of ₹60,13,941. The balance addition was deleted.
The separate addition of ₹16,146 relating to income from other sources was also deleted.
The Tribunal specifically clarified that the estimated relief had been granted on the peculiar facts of the case and should not be treated as a precedent.
Author’s comments
The ruling reiterates an important principle in alleged bogus-purchase cases: once the sales are accepted, the entire purchases ordinarily cannot be disallowed. At the highest, the profit embedded in purchases from an unverifiable source, or the saving arising from procurement outside the recorded channel, may be brought to tax.
The order, however, contains a noticeable numerical and conceptual difficulty. The Tribunal sustained ₹6 lakh by describing it as “10%” of ₹60,13,941. The exact 10% works out to ₹6,01,394 and not ₹6 lakh. More importantly, the purchases debited to the profit and loss account were apparently only ₹50,96,555. The balance represented GST. If ₹6 lakh is compared with the purchases actually debited, the sustained addition is approximately 11.77% and not 10%.
The inclusion of the GST component in the base amount also required specific examination. Where input tax credit is separately accounted for and the GST component is not claimed as an expenditure in the profit and loss account, its inclusion in an estimated purchase disallowance may result in an excessive addition. The order does not appear to contain any detailed finding on this aspect.
There is also a larger issue regarding the application of section 69C. The section deals with expenditure for which the assessee offers no satisfactory explanation regarding its source. Here, the purchases were recorded in the books and formed part of the trading account. Therefore, the controversy was principally about the genuineness and source of procurement, rather than the discovery of wholly unrecorded expenditure. The Tribunal nevertheless resolved the matter through estimation without conclusively examining the precise statutory basis of the addition.
The assessee had also challenged the reopening, non-supply of complete material and approval under section 151, reliance on third-party material, denial of cross-examination and the alleged variation between the show-cause notice and the final addition. These legal grounds were apparently not separately adjudicated after relief was granted on merits. Consequently, the decision should not be cited as laying down any proposition on the validity of reopening or denial of cross-examination.
The decision is thus useful for the limited proposition that suspicion regarding the supplier cannot justify disallowance of the entire purchases where corresponding sales stand accepted. At the same time, taxpayers must preserve transport receipts, e-way bills, delivery records, stock movement details, banking evidence and supplier confirmations. Purchase invoices and GST returns alone may not be sufficient where the Department produces credible material questioning the actual movement of goods.
Cases Discussed
- CIT v. Odeon Builders (P.) Ltd.
- PCIT v. Rishabhdev Technocable Ltd.
- CIT v. Sunrise Tooling System (P.) Ltd.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, DELHI BENCH ‘A’
1. This appeal is filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 28.04.2026 for the Assessment Year 2020-21.
2. Brief facts of the case are, the assessee, is an individual who filed his return of income for AY 2020-21 on 22.12.2020 declaring total income of Rs.4,86,570/-. Subsequently, information was received through the INSIGHT portal based on CRIU/VRU data indicating that the assessee had allegedly entered into transactions of purchases amounting to Rs.50,96,555/- from M/s Gauri Shankar Trading Co., which was suspected to be a non-genuine entity involved in providing accommodation entries. Accordingly, proceedings u/s. 148A of the Income-tax Act, 1961 (for short ‘the Act’) were initiated. A show cause notice u/s. 148A(b) dated 15.02.2024 was issued to the assessee asking to explain as to why the said transactions should not be treated as income escaping assessment. The assessee furnished a reply on 07.03.2024, which was considered by the Assessing Officer but found to be not satisfactory. Consequently, an order u/s. 148A(d) was passed on 31.03.2024 holding that it was a fit case for issuance of notice u/s. 148 of the Act. Thereafter, notice u/s. 148 dated 31.03.2024 was issued and served upon the assessee. In response, assessee filed return of income on 05.05.2024 declaring total income of Rs.5,07,890/-.
3. During the course of assessment proceedings, notices u/s. 143(2) and 142(1) of the Act were issued seeking details and evidences in support of the purchases claimed by the assessee. The assessee furnished partial replies and sought adjournments on certain occasions. A show cause notice dated 19.02.2025 was also issued proposing disallowance of purchases on the ground that the same were not genuine.
4. The Assessing Officer, on the basis of information received from CBDT/CBIC regarding detection of Input Tax Credit (ITC) fraud, observed that M/s Gauri Shankar Trading Co., from whom purchases were claimed, was found to be a non-existent entity engaged in issuing bogus invoices without actual supply of goods. It was further noted that the alleged proprietor, Shri Rahul Pratap Singh, had denied any association with the said concern and had also stated that his identity had been misused for carrying out bogus transactions. The analysis of GST returns and income tax returns of the said entity revealed significant discrepancies, including absence of reported turnover in income tax returns despite substantial GST transactions.
5. The Assessing Officer further observed that the assessee failed to substantiate the genuineness of the purchases by furnishing supporting evidences, such as, purchase invoices, transportation details, e-way bills, delivery challans, stock registers and proof of payment. It was also noted that no payment was found to have been made to the said party and that the pattern of transactions appeared to be structured in a manner to avoid regulatory checks. In view of these facts, the Assessing Officer concluded that the assessee failed to establish the identity, creditworthiness and genuineness of the transactions. Accordingly, the Assessing Officer treated the purchases as non-genuine and made an addition of Rs.60,13,941/- by disallowing the same. The Assessing Officer also made a further addition of Rs.16,146/- on account of discrepancy in income from other sources as compared to the original return of income.
6. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A). Ld. CIT (A), after going through the detailed submissions of the assessee, upheld the order of the Assessing Officer.
7. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
“1. The Ld. CIT(A) erred in not quashing the assessment order despite the non supply of reasons recorded and the approval under section 151, which is a mandatory jurisdictional requirement.
2. The Ld. CIT(A) erred in confirming the addition of Rs.60,13,941 u/s 69C on account of alleged bogus purchases from M/s Gauri Shankar Trading Co, disregarding the audited books, purchase invoices, and bank statements.
3. The Ld. CIT(A) erred in confirming the disallowance of entire purchases while simultaneously accepting the corresponding sales declared by the Appellant, ignoring the settled law that there can be no sales without purchases.
4. The Ld. CIT(A) erred in confirming the inclusion of the GST component of 917386 within the disallowance of Rs.60,13,941, whereas the actual purchases debited to the P&L Account were on 5096555.
5. Without prejudice, the Ld. CIT(A) erred in sustaining a 100 percent disallowance of the purchases instead of restricting the addition to the gross profit element embedded therein.
6. The Ld. CIT(A) erred in confirming the addition of Rs.16,146 under Income from Other Sources, failing to appreciate that this was a bona fide correction made in the return filed u/s 148 and was never part of the reasons recorded for reopening.
7. The Appellant craves leave to add, alter, amend, substitute, OR withdraw any OR all Grounds of Appeal before OR at the time of hearing.
8. The Ld. CIT(A) erred in law and on facts in upholding the reassessment proceedings initiated and concluded by the jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO), rendering the order void ab initio.
9. The Ld. CIT(A) erred in confirming the reassessment based entirely on borrowed satisfaction and unverified information from the GST Department, without any independent application of mind by the Ld. A.O.
10. The Ld. CIT(A) erred in sustaining the addition of Rs.60,13,941/-, ignoring that the Show Cause Notice dated 19.02.2025 proposed an addition of only Rs.50,96,555/- thereby passing an order beyond the scope of SHOW-CAUSE NOTICE and violating principles of natural justice.
11. The Ld. CIT(A) erred in upholding the addition relying on third party statements without affording the appellant an opportunity of cross examination.”
8. At the time of hearing, ld. AR of the assessee reiterated the grounds of appeal on legal issues. He submitted that the reassessment proceedings and consequent addition have been initiated solely on the basis of information received from the GST Department alleging non-genuine purchases of Rs.50,96,555 from M/s Gauri Shankar Trading Co., which constitutes the sole foundation of the impugned addition. He submitted that it is an undisputed and admitted position that the GST Department, being the originating authority of such information, has itself not initiated any proceedings against the assessee in respect of the said transactions.
9. He further submitted that without prejudice to the above, the computation of the impugned addition itself is factually incorrect and legally unsustainable, inasmuch as the Assessing Officer has disallowed the entire amount of Rs.60,13,941, which includes GST component of Rs.9,17,386, whereas the actual purchases debited to the Profit & Loss Account amount to Rs.50,96,555 only. He submitted that the GST charged by the supplier is a statutory levy collected on behalf of the Government and does not constitute income or expenditure of the appellant, nor is it retained by the appellant, accordingly, inclusion of such GST component in the alleged non-genuine purchases is wholly impermissible in law, and the addition to the extent of GST is liable to be deleted on this ground alone. He submitted that the Assessing Officer has accepted the sales declared by the assessee and has not disturbed the trading results, and therefore it is not permissible in law to disallow the corresponding purchases, as there cannot be any sales without purchases. He submitted that this settled legal principle has been consistently upheld by the Hon’ble Supreme Court in CIT v. Odeon Builders (P.) Ltd., the Hon’ble Bombay High Court in PCIT v. Rishabhdev Technocable Ltd. and the Hon’ble Delhi High Court in CIT v. Sunrise Tooling System (P.) Ltd. He further submitted that the provisions of section 69C are not applicable in the present case as the purchases are duly recorded in the books of account, supported by documentary evidences such as purchase invoices, stock records and GST returns, and the source of such expenditure stands fully explained; further, the books of account have neither been rejected nor any defects pointed out therein.
10. He submitted that without prejudice, even in cases where purchases are alleged to be non-genuine or not fully verifiable, it is a well-settled principle that the entire purchases cannot be disallowed and only the profit element embedded in such purchases can be brought to tax.
11. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
12. Considered the rival submissions and material placed on record. We observed that the Assessing Officer treated the purchases as non-genuine and made an addition of Rs.60,13,941/- and also made further addition of Rs.16,146/- on account of discrepancy in income from other sources as compared to the original return of income. We observed that the Assessing Officer has accepted the sales declared by the assessee and has not disturbed the trading results. We further observed that there cannot be any sales without purchases. Further, we observed that Assessing Officer treated the whole purchases as non-genuine, invoking the provisions of section 69C of the Act, making 100% disallowance, including the GST component therein. We further observed that with regard to that the purchases are genuine, assessee filed documentary evidences, such as, invoices, GST returns, stock records, etc. However, Assessing Officer observed that the assessee failed to furnish critical supporting evidences such as transport documents, e-way bills, delivery challans, weighbridge slips and proof of actual movement of goods.
In this view, there is reason to not accept either parties stand in entirety. This is for the precise reason that neither the assessee has been able to properly explain the genuineness of the purchases nor the Department could simply brush aside all the relevant evidence at one go. Be that as it may, we are of the considered view that in these facts, it is deemed appropriate in the larger interest of justice to confirm the bogus purchases to the extent of Rs.6,00,000/- being 10% of the total purchase of Rs.60,13,941/-, only with a rider that the same shall not be taken as a precedent. Necessary computation shall follow as per law.
13. Further, with regard to addition of Rs.16,146/- on account of discrepancy in income from other sources as compared to the original return of income, after considering the rival submissions and material placed on record, we delete this addition.
14. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 14th day of September, 2026 after the conclusion of the hearing.
