Amit Jain Vs ITO (ITAT Delhi)
Sales Accepted, Entire Purchases Disallowed? Delhi ITAT Restricts Addition to 2%
Entire purchase value cannot automatically become taxable income
The Delhi Bench of the Income Tax Appellate Tribunal has restricted an addition relating to alleged bogus purchases of ₹1.72 crore to 2% of those purchases, considering that the Revenue had neither rejected the books of account nor disputed the corresponding sales. The Tribunal recognised the possibility of purchases having been made from the grey market and held that, in the circumstances, the addition should represent the profit evaded, rather than the entire purchase expenditure.
The decision draws an important distinction between doubts about the identity and genuineness of the supplier and the question whether the assessee incurred any expenditure to acquire goods subsequently sold.
Background of the dispute
The assessee, Amit Jain, was engaged in the business of PET-bottle scrap. For Assessment Year 2019–20, the Assessing Officer questioned purchases of ₹1,72,14,502 from M/s R. S. International, a proprietary concern of Rohan Sharma.
Investigation revealed substantial transactions in the supplier’s bank account. During the relevant year, the account reflected credits of approximately ₹25.44 crore and debits of ₹26.39 crore, although the proprietor had not filed an income-tax return.
Physical verification did not establish business activity at the stated premises. The supplier failed to respond to summons and subsequently to the notice issued under section 133(6). The address was found to be residential and no longer occupied by the concern.
The Assessing Officer also found that the assessee had not substantiated the actual procurement of material or furnished satisfactory evidence regarding its collection or transportation. Accordingly, the entire disputed purchase expenditure was disallowed under section 37(1).
Why the CIT(A) sustained the addition
The CIT(A) considered the supplier to be a paper concern providing accommodation entries. The appellate authority recorded that the two GST registrations associated with the supplier’s proprietor were invalid.
Another circumstance relied upon was the mismatch between the goods and services appearing against the supplier on the GST portal and the assessee’s business. The supplier’s listed activities included limestone flux, silk fabrics, crustaceans and certain travel-related services, whereas the assessee dealt in PET-bottle scrap.
Although the assessee produced documents supporting the purchases, the CIT(A) observed that accommodation transactions commonly involve banking channels and documentation intended to give an appearance of legitimacy. On that reasoning, the entire addition was confirmed.
Assessee’s defence before the Tribunal
The assessee contended that the purchases were supported by invoices, e-way bills, GST records, stock details and bank payments. It was also argued that the corresponding sales had been recorded and accepted by the Department.
A central submission was that the books of account had not been rejected, and the Revenue had accepted both the sales arising from the disputed purchases and the profit disclosed on those sales.
The assessee therefore challenged the treatment of the entire purchase amount as additional income when the trading results, particularly the corresponding sales, remained undisputed.
Jurisdictional objection did not succeed
The assessee also raised an additional ground questioning the approval obtained for reopening under section 151. The objection concerned whether approval from the Principal Commissioner was sufficient, having regard to the elapsed period and the applicable statutory provisions.
After considering the submissions and the Revenue’s date-wise chart, the Tribunal held that the approval and notice were within the applicable requirements, including the relevant amendments. It therefore dismissed the additional jurisdictional ground.
The relief ultimately granted arose from the Tribunal’s examination of the purchase addition on merits.
Tribunal restricts addition to the profit element
The Tribunal emphasised that the Revenue had not rejected the books or the corresponding sales. Further, the assessee had already offered the profit earned on those sales, and the Department had accepted tax on that profit.
Against this background, the Tribunal considered that denying the entire purchase expenditure would amount to double taxation in the circumstances described in its order.
It recognised the possibility that goods had been procured from the grey market, even if purchases from the named supplier were not satisfactorily established. Consequently, it held that only the profit evaded through the disputed arrangement should be brought to tax.
The Assessing Officer was directed to enhance the net profit by 2% of the alleged bogus purchases and recompute the income. On the disputed amount, this works out to approximately ₹3.44 lakh, against the original addition of ₹1.72 crore.
Author’s comments
The practical significance of this decision lies in the distinction between an unproved supplier and an unproved purchase of goods. Adverse findings against a supplier are relevant, but accepted sales and stock movement must also receive due consideration when determining the appropriate addition.
The broader approach is consistent with PCIT v. Mohommad Haji Adam & Co., ITA No. 1004 of 2016, decided on 11 February 2019, where the Bombay High Court examined profit-based estimation in the context of accepted sales.
However, 2% is a fact-specific estimate, not a universal rate. The present order also does not establish that banking transactions, invoices or accepted sales automatically prove purchases from the named party. Its value is in requiring the addition to reflect the income reasonably attributable to the disputed transactions, on the facts found.
Cases Discussed
- Core Logistic Co.Vs ACIT, (2025) TaxPub (DT) 3903 (Madras High Court), dated 5 June 2025 — Cited in the assessee’s written synopsis concerning the competent authority for approval under Section 151.
- Chandrakant Vithal Bhopi Vs ITO, (2025) TaxPub (DT) 3020 (ITAT Pune), dated 7 May 2025 — Relied upon in support of the jurisdictional objection relating to approval for reassessment.
- Genpact India Holdings Vs ACIT, ITA No. 1527/Del/2024 (ITAT Delhi), dated 19 March 2025 — Cited on the validity of reassessment proceedings and approval under Section 151.
- Arthbharti Nagari Sahakari Patsanstha Maryadit Vs ITO, ITA No. 1848/PUN/2024 (ITAT Pune), dated 10 February 2025; (2025) TaxPub (DT) 1013 — Cited in the assessee’s submissions concerning the authority competent to approve reassessment.
- Holiday Developers (P.) Ltd. Vs ITO, [2024] 159 taxmann.com 178 (Bombay High Court), dated 29 January 2024 — Referred to in support of the challenge to the reassessment approval.
- Agnello Oswin Dias Vs ACIT, W.P. No. 3249 of 2022 (Bombay High Court), dated 22 February 2024 — Cited in relation to the jurisdictional requirements governing reassessment.
- Siemens Financial Services (P.) Ltd.Vs DCIT, [2023] 154 taxmann.com 159; (2023) 457 ITR 647 (Bombay High Court) — Cited concerning the statutory requirements for obtaining approval before issuing a reassessment notice.
- ITO Vs Rinku R. Rai, [2023] 151 taxmann.com 479 (Supreme Court) — The assessee referred to the dismissal of the Revenue’s special leave petition arising from the Bombay High Court decision.
- Rinku R. Rai Vs ITO, (2023) 454 ITR 33 (Bombay High Court) — Relied upon for the proposition that approval from an authority not competent under Section 151 could invalidate reassessment proceedings.
- Harish Nagar Panipat Vs PCIT, ITA No. 3637/Del/2025 (ITAT Delhi) — Cited in the assessee’s synopsis concerning the distinction between disallowance under Section 37(1) and unexplained expenditure under Section 69C. The date appearing in the scanned source requires verification.
- Robust Resorts & Hospitality LLPVs DCIT, ITA No. 4312/Del/2024 (ITAT Delhi), dated 12 November 2025 — Cited on the distinction between the applicability of Section 37(1) and Section 69C where the genuineness of expenditure is disputed.
- National Thermal Power Co. Ltd. Vs CIT, (1998) 229 ITR 383 (Supreme Court) — Expressly referred to by the Tribunal while recording the assessee’s request for admission of an additional legal ground involving jurisdiction.
- CIT Vs Indian Molasses Co. (P.) Ltd., (1970) 78 ITR 474 (Supreme Court) — Cited in the assessee’s written synopsis concerning the meaning and requirements of deductible business expenditure.
- PCIT Vs Mohommad Haji Adam & Co., ITA No. 1004 of 2016 (Bombay High Court), dated 11 February 2019 — Referred to in the separately supplied editorial commentary as a related authority concerning estimation of the profit element in disputed purchases. This decision is not identified as an express citation in the Tribunal’s order.
