PCIT Vs Utkarsh Rai (Calcutta High Court)
Sales Accepted, Entire Purchases Cannot Be Bogus: Calcutta HC Upholds 0.15% Profit Addition in Bullion Trade
Revenue’s Appeal Against Relief Granted by ITAT
In Principal Commissioner of Income Tax v. Utkarsh Rai, ITAT No. 174 of 2026, judgment dated 22.09.2026, the Calcutta High Court dismissed the Revenue’s appeal against the order of the Kolkata Bench of the Income Tax Appellate Tribunal restricting the addition relating to disputed bullion purchases to a gross-profit rate of 0.15%. The High Court held that the findings recorded by the Tribunal were based upon appreciation of documentary evidence and the peculiar commercial features of the bullion trade. Since the Revenue could not establish perversity or disregard of any material evidence, no substantial question of law arose under section 260A.
The assessee was an individual carrying on the business of dealing in bullion through his proprietorship concern, M/s Shewpujan Rai Indrasen Rai and Grandsons. During the assessment proceedings for AY 2020-21, the Assessing Officer treated purchases aggregating to ₹85,13,92,096 as bogus and made an addition under section 69C of the Income-tax Act.
Non-Filing of Returns and GST Cancellation Relied Upon by AO
The Assessing Officer doubted the purchases on the grounds that the concerned vendors had not filed their income-tax returns, their stated business activities were allegedly unrelated to the business carried on by the assessee, notices issued under section 133(6) remained uncomplied with, and certain discrepancies were noticed in the documents and banking transactions. The Assessing Officer also alleged that some of the business particulars, GST records and delivery-related documents furnished in support of the purchases were unreliable or fabricated.
The assessee, however, submitted that the purchases were duly supported by purchase invoices, ledger accounts, vendor confirmations, bank transactions, GST records, stock registers and other contemporaneous documents. It was also emphasised that the goods purchased had been entered in the stock records and that the corresponding sales had not been rejected or disputed by the Department.
The CIT(A) confirmed the addition made by the Assessing Officer. On further appeal, the Tribunal examined the entire material and found that the addition of the whole purchase value could not be sustained.
Corresponding Sales and Stock Records Were Never Rejected
The Tribunal noticed that the assessee was engaged in bullion trading and that the corresponding sales as well as the closing stock had been accepted by the Revenue. Payments to the vendors had been made through normal banking channels, and the transactions were also reflected in the GST records during the relevant period. The assessee had maintained stock records demonstrating the movement of the goods purchased and subsequently sold.
The Tribunal held that the entire purchases could not be treated as bogus merely because the vendors subsequently failed to file income-tax returns, their GST registrations were cancelled or their declared business activities appeared different from the assessee’s line of business. These circumstances could create doubt and justify further enquiry, but could not, by themselves, erase the purchases from the accounts when the resulting sales and stock movement remained undisputed.
At the same time, the Tribunal did not completely disregard the discrepancies noticed by the Assessing Officer. Balancing the documentary evidence produced by the assessee with the deficiencies noticed in the vendors’ records, the Tribunal directed that the gross-profit rate attributable to the disputed purchases should be taken at 0.15%.
Entire Purchase Addition Would Produce an Unrealistic Profit
The Calcutta High Court endorsed the Tribunal’s approach. It observed that the nature of the assessee’s business was materially relevant. In the bullion trade, purchase and sale prices are largely governed by prevailing market rates and the profit margins are ordinarily narrow. Treating the complete purchase value of more than ₹85 crore as income would produce an unrealistic and commercially incongruous gross-profit rate.
Once the corresponding sales were accepted, it necessarily followed that goods had been available for effecting those sales. Even if the immediate vendors were found doubtful or the assessee could not conclusively establish the purchases from the identified parties, the entire purchase consideration could not ordinarily represent the assessee’s income. At the highest, the circumstances could indicate that the goods had been procured from some other source or that an additional profit element was embedded in the transactions.
The High Court found that the Tribunal had examined both sides of the controversy. It had taken note of the allegations raised by the Assessing Officer and had also considered the assessee’s invoices, confirmations, bank statements, GST records and stock register. Therefore, the Tribunal’s decision was neither based on conjecture nor rendered by ignoring the material relied upon by the Revenue.
Determination of Profit Rate Is Essentially a Question of Fact
The High Court further held that questions concerning the genuineness of vendors, sufficiency of documents supporting purchases and the reasonable gross-profit rate applicable to disputed transactions were, in the circumstances of the case, questions of fact. The determination of the rate at 0.15% had been made after considering the assessee’s disclosed margin, the nature of the bullion business and the evidence available on record.
A different view taken by the Assessing Officer or the CIT(A) would not, by itself, justify interference under section 260A. For the High Court to interfere, the Revenue was required to demonstrate that the Tribunal’s findings were perverse, unsupported by evidence or reached by ignoring a material piece of evidence. The Revenue failed to establish any such defect.
Accordingly, the High Court held that no question of law, much less a substantial question of law, arose from the Tribunal’s order and dismissed the Revenue’s appeal.
Author’s Comments
The decision reinforces the settled distinction between doubtful purchases and non-existent purchases. Where the Department accepts the sales, closing stock and movement of goods, it cannot ordinarily treat the entire corresponding purchases as unexplained expenditure merely because the vendors are subsequently found to be non-compliant or untraceable. Vendor defaults such as non-filing of returns, cancellation of GST registration or failure to respond to section 133(6) notices may justify closer scrutiny, but they do not automatically prove that the assessee never purchased the goods.
The appropriate approach in such cases is generally to identify the profit element or possible saving made through purchases from an alternative source, rather than add the entire purchase value. The rate, however, must reflect the commercial realities of the particular trade. Since bullion trading normally operates on extremely narrow margins, the Tribunal’s estimation at 0.15% was found reasonable and factual, leaving no scope for interference by the High Court under section 260A.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. This appeal under Section 260A of the Income-tax Act, 1961, is directed against the order dated 9 August 2024 passed by the Income Tax Appellate Tribunal, Kolkata Bench, in I.T.A. No. 1277/Kol/2023 relating to the assessment year 2020–21.
2. The appellant herein being the Principal Commissioner of Income Tax-13, Kolkata proposed three (03) substantial question of law which are as under:
a) Whether in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in quashing the order of CIT(A) without considering the circumstantial evidence brought on record by the Assessing Officer regarding the Vendors/Parties from whom the impugned Purchases were made whose business were not related to the business carrying out by the assessee?
b) Whether in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in quashing the order of CIT(A) without considering the circumstantial evidence brought on record by the Assesing Officer, regarding the Vendors/parties from whom the impugned Purchases were made whose various business details e.g. GST returns, delivery conformations with respect to the impugned purchases etc. were found fabricated by the Assessing Officer during the assessment proceedings ?
c) Whether in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was not justified in law in determining the Gross Profit rate @ 0.15% where the Assessing Officer has proved the corresponding purchases as bogus as held in the assessment order as well as the appellate order of CIT(A)?
3. The respondent-assessee is an individual carrying on the business of dealing in bullion through his proprietorship concern, namely, M/s. Shewpujan Rai Indrasen Rai and Grandsons.
4. During the assessment proceedings, the Assessing Officer treated purchases amounting to Rs.85,13,92,096/- as bogus and made an addition under Section 69C of the Act. The addition was principally founded on the grounds that the concerned vendors had not filed their income-tax returns, their business activities were allegedly unrelated to the assessee’s business, the notices issued under Section 133(6) of the Act were not complied with, and certain discrepancies were noticed in the documents and bank transactions though the assessee before the assessing officer submitted that the purchases were duly supported by purchase invoices, ledger accounts, confirmations, banking transactions, GST records, stock registers and other documents. It was further noticed that the corresponding sales had not been disputed and that, in the bullion trade, the profit margin was ordinarily very low.
5. The learned Commissioner of Income-tax (Appeals) confirmed the addition. On further appeal, however, the learned Tribunal examined the material on record and found, inter alia, that:
a) the assessee was engaged in the trading of bullion;
b) the corresponding sales and closing stock had not been rejected or disputed;
c) the payments to the vendors had been made through banking channels;
d) the transactions were reflected in the GST records during the relevant period;
e) the assessee had maintained stock records showing the movement of goods;
f) and the gross-profit rate disclosed by the assessee was consistent with the nature of the bullion business.
6. The learned Tribunal consequently held that the entire purchases could not be treated as bogus merely because the vendors subsequently failed to file income-tax returns, cancelled their GST registrations, or were allegedly engaged in a different line of business. At the same time, taking into consideration the discrepancies noticed by the Assessing Officer, the Tribunal directed that the gross-profit rate in respect of the disputed purchases be taken at 0.15%.
7. We have heard learned counsel for the appellant and considered the materials placed before us.
8. The findings recorded by the learned Tribunal are findings of fact based upon an appreciation of the evidence placed before the Assessing Officer and the appellate authorities. The Tribunal took note of the allegations made by the Assessing Officer and also considered the documents relied upon by the assessee, including the purchase invoices, confirmations, bank statements, GST records and stock register.
9. The Tribunal also considered the peculiar nature of the assessee’s business. The assessee was trading in bullion, where the purchase and sale prices are largely governed by prevailing market rates and the profit margin is ordinarily narrow. The Tribunal found that the corresponding sales had not been disputed and that treating the entire purchases as bogus would result in an unrealistic and commercially incongruous gross-profit rate.
10. The Revenue has not been able to demonstrate that the findings of the Tribunal are perverse, that they are based on no evidence, or that any material piece of evidence has been ignored in a manner giving rise to a substantial question of law. The mere fact that the Assessing Officer or the Commissioner of Income-tax (Appeals) had taken a different view of the evidence does not justify interference under Section 260A of the Act.
11. The question whether the vendors were genuine, whether the documents produced by the assessee were sufficient to establish the purchases, and what gross-profit rate should reasonably be applied are essentially questions of fact in the circumstances of the present case. The determination of the gross-profit rate at 0.15% was made by the Tribunal after considering the nature of the bullion trade, the assessee’s disclosed profit margins and the materials on record.
12. No question of law, much less a substantial question of law, arises for consideration in this appeal.
13. Accordingly, the appeal is dismissed.
14. The application being G.A. No. 2 of 2026 is also disposed of.
15. There shall be no order as to costs.
16. Urgent photostat certified copy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
