Riya Exim Private Limited Vs ITO (ITAT Ahmedabad)
Ahmedabad ITAT: Entire Bogus Purchase Cannot Be Added When Corresponding Sales Are Accepted—Addition Restricted to 12.5% Profit Element
The assessee-company, engaged in trading raw materials used for manufacture of medicines, had made purchases of ₹76,62,500 from Cannonball Trading Pvt. Ltd. (CTPL). Based on information from the GST authorities alleging that CTPL was providing bogus purchase bills without actual supply of goods, the assessment was reopened.
During reassessment, the assessee produced purchase orders, invoices, delivery notes, Form 403, goods receipt notes, bank statements and GST records, and also demonstrated subsequent sales to Prachem Laboratories. The AO, however, relied upon the GST investigation, statements recorded in the Germanium Trading Group case, non-compliance with notices u/s 133(6) and deficiencies in transport documents and disallowed the entire purchase of ₹76.62 lakh u/s 37(1). The CIT(A) confirmed the addition.
The ITAT noticed an important fact: while the purchases were alleged to be bogus, the AO had neither rejected the books of account nor disturbed the corresponding sales/turnover. The purchases were recorded in the books, payments were through banking channels, transactions appeared in GST records and documents evidencing movement of goods had also been produced, though there were certain discrepancies in the transport documentation.
The Tribunal held that in these circumstances disallowance of the entire purchases was not justified. Where corresponding sales are accepted, only the profit element embedded in the alleged bogus purchases can appropriately be brought to tax.
Following the Gujarat High Court decision in CIT v. Simit P. Sheth [2013] 356 ITR 451, and considering the deficiencies in the transport documents, the ITAT estimated the profit element at 12.5% of the disputed purchases. Accordingly, against the original addition of ₹76,62,500, only ₹9,57,812 was sustained and the balance addition was deleted.
Cases Discussed
- Commissioner of Income-tax vs. Simit P. Sheth (Gujarat High Court), [2013] 356 ITR 451
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. The present appeal preferred by the Assessee is directed against the Order, dated 16/01/2026, passed by the National Faceless Appeal Centre (NFAC) [hereinafter referred to as ‘the CIT(A)’, whereby the Learned CIT(A) had upheld the assessment framed on the Assessee under Section 147 read with Sections 144 and 144B of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] for Assessment Year 2018-2019.
2. When the appeal was taken up for hearing the Learned Authorised Representative for the Assessee pressed into service Ground No.3 raised in the present appeal and advanced submissions challenging the merits of addition made by the Assessing Officer which were confirmed by the Learned CIT(A). We have heard both the sides on Ground No.3 raised in the present appeal which reads as under:
“3). That on the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in sustaining addition of Rs.76,62,500/- and upholding the observation regarding genuine purchases as accommodation entries without any corroborative materials or evidences”
3. We have given thoughtful consideration to rival submissions and have perused the material on record.
4. The relevant facts as emerging from record are that the Assessee is a private limited company engaged, inter alia, in the business of trading in raw materials required for manufacturing medicine. For the Assessment Year 2018-2019, the Assessee filed return of income for declaring ‘Nil’ income, which was processed under Section 143(1)(a) and income of the Assessee was determined at INR.2,99,577/-. Subsequently, on the basis of information flagged on Insight Portal and material received from Goods & Service Tax (GST) Authorities to the effect that that Cannonball Trading Pvt. Ltd (CTPL). was engaged in giving bogus purchase bills without actual supply of goods. Since the Assessee had also shown purchases of INR.76,62,500/- from CTPL, the Assessing Officer reopened the assessment under Section 147 of the Act by issuing notice under Section 148 on 29/03/2022. In the course of reassessment proceedings, the Assessee furnished copies of purchase orders, invoices, delivery notes, Form-403, goods receipt notes, bank statements and GST records to substantiate the purchases from CTPL and subsequent sales made to M/s Prachem Laboratories, Gandhinagar. However, the Assessing Officer was not convinced. Relying upon report received from GST Authorities and the statements recorded in the case of Germanium Trading Group, noting non-compliance of notices issued under Section 133(6) by CTPL and Prachem Laboratories, and highlighting the deficiencies in Form-403 filed by the Assessee to support movement of goods, the Assessing Officer treated the entire purchases of INR.76,62,500/- as bogus and disallowed the same under Section 37(1). The Assessing Officer completed the reassessment vide Assessment Order, dated at assessed income of INR.79,62,077/- [INR.76,62,500/- + INR.2,99,577/-]
5. Being aggrieved, the Assessee preferred appeal before the Learned CIT(A), and challenged the above addition made on account of alleged bogus purchases. In appeal, the Ld. CIT(A) affirmed the action of the Assessing Officer by holding that mere invoices, banking payments and GST entries were insufficient to prove genuineness when the surrounding circumstances created doubt about actual movement of goods, and accordingly upheld the full addition made on account of alleged bogus purchases.
6. Now the Assessee in appeal before this Tribunal the order passed by the Learned CIT(A) confirming the addition made by the Assessing Officer on account of alleged bogus purchases. While the Learned Authorised Representative for the Assessee reiterated the submission made before the Assessing Officer and the CIT(A) challenging the addition on merits. The thrust of the arguments was on the prayer to restrict the additions to the profit element embedded in alleged bogus purchases. On the other hand, while the Learned Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A), the Leaned Departmental Representative failed to controvert the submission of the Assessee that the sales corresponding to the alleged bogus purchases were not disturbed by the Assessing Officer.
7. On perusal of record it is evident that the purchases from CTPL were recorded in the books of account of the Assessee, payments had been made through banking channels, and the corresponding transactions were reflected in the GST records of the Assessee. In the present case the Assessee had also furnished documents/challans showing movement of goods, though discrepancies were highlighted by the Assessing Officer in some of the aforesaid documents. is also not in dispute that the Assessing Officer has neither rejected the books of account nor disturbed the corresponding sales/turnover disclosed by the Assessee.
At the same time, the Revenue had placed reliance on adverse material/report pertaining to CPTL received from GST Authorities indicating that CPTL was engaged in providing accommodation entries for bogus purchases.
On consideration of the overall facts, we are of the considered view that in the facts and circumstances of the present case, the disallowance of the entire alleged bogus purchase is not warranted. Given the fact that (a) the Assessee has furnished documentary evidence in the form of purchase invoices, delivery challans (with some discrepancies), stock register, purchase register, sale register, GST records, bank statements, and (b) the Assessing Officer has accepted the corresponding sales and has not rejected books of accounts, we are of the view that only the profit element embedded in the alleged bogus purchases can be brought to tax in the hands of the Assessee.
Having regard to the business of the Assessee and the deficiencies noticed in transport documentation, we consider it fair and reasonable to restrict the addition to 12.5% of the alleged bogus purchases keeping in view the judgment of the Hon’ble Gujarat High Court in the case of Commissioner of Income-tax vs. Simit P. Sheth [2013] 356 ITR 451. Accordingly, the addition is restricted to INR.9,57,812/- and the balance addition is deleted. Thus, Ground No. 3 raised by the Assessee is partly allowed.
Since the submissions made by both the sides were restricted to the merits of the additions, all the other grounds raised in the present appeal are dismissed as not pressed.
8. In the result, the appeal of the Assessee is partly allowed.
Order pronounced on 10.08.2026
